-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IZxIYOLdM1ZGEpprJs0GmepGhYZtgweqA1dz8hLIdLW0af9LVxMiZTenqfMml9zk Y4wIDo0kPtkJy8ZCz0nkfw== 0000950152-99-009603.txt : 19991213 0000950152-99-009603.hdr.sgml : 19991213 ACCESSION NUMBER: 0000950152-99-009603 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991030 FILED AS OF DATE: 19991210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELDER BEERMAN STORES CORP CENTRAL INDEX KEY: 0000032020 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 310271980 STATE OF INCORPORATION: OH FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-02788 FILM NUMBER: 99772864 BUSINESS ADDRESS: STREET 1: 3155 ELBEE RD CITY: DAYTON STATE: OH ZIP: 45439 BUSINESS PHONE: 9372962700 MAIL ADDRESS: STREET 1: 3155 EL BEE ROAD CITY: DAYTON STATE: OH ZIP: 45439 10-Q 1 THE ELDER-BEERMAN STORES CORP. 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For quarterly period ended October 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-02788 THE ELDER-BEERMAN STORES CORP. (Exact name of registrant as specified in its charter) OHIO 31-0271980 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 3155 EL-BEE ROAD, DAYTON, OHIO 45439 (Address of principal (Zip Code) executive offices)
(937) 296-2700 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) --------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the issuer's classes of common stock, as of the latest practicable date. As of December 8, 1999, 14,922,221 shares of the issuer's common stock, without par value, were outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE ELDER-BEERMAN STORES CORP. INDEX PART I. FINANCIAL INFORMATION PAGE ITEM 1. Financial Statements Condensed Consolidated Balance Sheets as of October 30, 1999 and as of January 30, 1999 (Unaudited)...................... 1 Condensed Consolidated Statements of Operations for the 13-weeks ended October 30, 1999 and October 31, 1998 (Unaudited)................................................. 2 Condensed Consolidated Statements of Operations for the 39-weeks ended October 30, 1999 and October 31, 1998 (Unaudited)................................................. 3 Condensed Consolidated Statements of Cash Flows for the 39-weeks ended October 30, 1999 and October 31, 1998 (Unaudited)................................................. 4 Notes to Condensed Consolidated Financial Statements (Unaudited)................................................. 5 ITEM 2. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations............... 8 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk........................................................ 11 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings........................................... 11 ITEM 2. Changes in Securities and Use of Proceeds................... 12 ITEM 3. Defaults Upon Senior Securities............................. 12 ITEM 4. Submission of Matters to a Vote of Security Holders......... 12 ITEM 5. Other Information........................................... 12 ITEM 6. Exhibits and Reports on Form 8-K............................ 12 SIGNATURES............................................................ 13 EXHIBIT INDEX......................................................... 14
3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
OCTOBER 30, 1999 JANUARY 30, 1999 ---------------- ---------------- ASSETS Current assets: Cash and equivalents...................................... $ 9,880 $ 8,146 Customer accounts receivable (less allowance for doubtful accounts: October 30, 1999 -- $2,452; January 30, 1999 -- $4,377)........................................ 130,156 141,205 Merchandise inventories................................... 226,983 163,879 Discontinued operations, net current assets............... 6,304 7,106 Other current assets...................................... 20,320 16,696 -------- -------- Total current assets.............................. 393,643 337,032 Property, fixtures and equipment, less accumulated depreciation and amortization............................. 72,751 71,492 Other assets: Discontinued operations, net other assets................. 1,868 2,196 Other..................................................... 40,657 41,640 -------- -------- Total other assets................................ 42,525 43,836 Total assets...................................... $508,919 $452,360 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations.................. $ 951 $ 951 Accounts payable.......................................... 69,521 53,798 Other accrued liabilities................................. 22,589 30,806 -------- -------- Total current liabilities......................... 93,061 85,555 Long-term obligations, less current portion................. 178,994 121,507 Deferred items.............................................. 8,077 7,797 -------- -------- Total liabilities................................. 280,132 214,859 Shareholders' equity: Common stock, no par, 14,934,067 shares on October 30, 1999 and 15,898,864 on January 30, 1999 issued and outstanding............................................... 259,641 266,683 Unearned compensation - restricted stock, net............. (1,508) (2,028) Deficit................................................... (29,346) (27,154) -------- -------- Total shareholders' equity........................ 228,787 237,501 -------- -------- Total liabilities and shareholders' equity........ $508,919 $452,360 ======== ========
See notes to condensed consolidated financial statements. 1 4 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
13-WEEKS ENDED 13-WEEKS ENDED OCT. 30, 1999 OCT. 31, 1998 -------------- -------------- Revenues: Net sales................................................. $ 153,226 $ 148,514 Financing................................................. 6,178 6,059 ----------- ----------- Total revenues.................................... 159,404 154,573 Costs & expenses: Cost of goods sold, occupancy, and buying expenses........ 109,440 104,385 Selling, general, administrative, and other expenses...... 44,873 41,179 Provision for doubtful accounts........................... 828 1,000 Interest expense.......................................... 3,127 2,821 Acquisition & integration expense......................... -- 2,275 ----------- ----------- Total costs & expenses............................ 158,268 151,660 Income from continuing operations before income tax expense................................................... 1,136 2,913 Income tax expense.......................................... 432 1,107 ----------- ----------- Income from continuing operations........................... 704 1,806 Discounted operations....................................... (1,442) 19 ----------- ----------- Net income (loss)........................................... $ (738) $ 1,825 =========== =========== Basic net income (loss) per common share Continuing operations..................................... $ 0.05 $ 0.12 Discontinued operations................................... $ (0.10) $ -- ----------- ----------- Net income (loss)........................................... $ (0.05) $ 0.12 Weighted average number of shares outstanding............... 15,345,183 15,586,535 Diluted net income (loss) per common share Continuing operations..................................... $ 0.05 $ 0.11 Discontinued operations................................... $ (0.10) $ -- ----------- ----------- Net income (loss)........................................... $ (0.05) $ 0.11 Diluted weighted average number of shares outstanding....... 15,415,147 16,095,837
See notes to condensed consolidated financial statements 2 5 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
39-WEEKS ENDED 39-WEEKS ENDED OCT. 30, 1999 OCT. 31 , 1998 -------------- -------------- Revenues: Net sales................................................. $ 430,410 $ 385,137 Financing................................................. 19,099 18,734 ----------- ----------- Total revenues.................................... 449,509 403,871 Costs & expenses: Cost of goods sold, occupancy, and buying expenses........ 310,919 275,794 Selling, general, administrative, and other expenses...... 128,084 110,467 Provision for doubtful accounts........................... 2,687 3,689 Interest expense.......................................... 8,440 8,468 Acquisition & integration expense......................... -- 2,845 ----------- ----------- Total costs & expenses............................ 450,130 401,263 Income (loss) from continuing operations before income...... (621) 2,608 tax expense (benefit) Income tax expense (benefit)................................ (236) 991 ----------- ----------- Income (loss) from continuing operations.................... (385) 1,617 Discontinued operations..................................... (1,807) 11 ----------- ----------- Net income (loss)........................................... $ (2,192) $ 1,628 =========== =========== Basic net income (loss) per common share Continuing operations..................................... $ (0.02) $ 0.12 Discontinued operations................................... (0.12) -- ----------- ----------- Net income (loss)........................................... $ (0.14) $ 0.12 Weighted average number of shares outstanding............... 15,618,170 13,529,463 Diluted net income (loss) per common share Continuing operations..................................... $ (0.02) $ 0.11 Discontinued operations................................... (0.12) $ -- ----------- ----------- Net income (loss)........................................... $ (0.14) $ 0.11 Diluted weighted average number of shares outstanding....... 15,618,170 14,287,496
See notes to consolidated financial statements. 3 6 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
39-WEEKS ENDED 39-WEEKS ENDED OCT. 30, 1999 OCT. 31, 1998 -------------- -------------- Cash flows from operating activities: Net loss.................................................. $(2,192) $ 1,628 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.......................... 10,966 9,371 Loss (gain) on discontinued operations................. 1,807 (11) Changes in assets and liabilities, excluding discontinued operations.............................. (45,944) (46,649) Cash used in discontinued operations...................... (1,518) (3,508) ------- -------- Net cash used in operating activities.................. (36,881) (39,169) Cash flows from investing activities: Capital expenditures, net................................. (11,707) (8,648) Business acquisition, net of cash purchased............... -- (19,405) Real estate acquired...................................... -- (2,814) Proceeds from the sale of fixed assets.................... 403 5,782 ------- -------- Net cash used in investing activities.................. (11,304) (25,085) Cash flows from financing activities: Net payments under asset securitization agreement......... 29 (15,845) Net borrowings under revolving lines of credit............ 58,270 29,980 Payments on long-term obligations......................... (812) (923) Retirement of assumed debt................................ -- (17,582) Issuance of common stock, net of costs.................... -- 65,468 Payments to acquire treasury stock........................ (7,345) -- Other..................................................... (223) (543) ------- -------- Net cash provided by financing activities.............. 49,919 60,555 ------- -------- Increase (decrease) in cash and equivalents................. 1,734 (3,699) Cash and equivalents -- beginning of period................. 8,146 6,497 ------- -------- Cash and equivalents -- end of period....................... $ 9,880 $ 2,798 ======= ======== Supplemental cash flow information: Interest paid............................................. 7,881 8,221
See notes to condensed consolidated financial statements. 4 7 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include accounts of The Elder-Beerman Stores Corp. and its wholly-owned subsidiaries (the "Company"). All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, the Company has made all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair presentation for all periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company's business is seasonal in nature and the results of operations for the interim periods are not necessarily indicative of the results for the full fiscal year. It is suggested these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 30, 1999. 2. PER SHARE AMOUNTS Basic income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Stock options, restricted shares, deferred shares, and warrants outstanding represent potential common shares and are included in computing diluted income per share when the effect would be dilutive. A reconciliation of the weighted average shares used in the basic and diluted earnings per share calculation is as follows:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ------------------------------------ ----------------------------------- OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998 ----------------- ---------------- ---------------- ---------------- Weighted average common shares outstanding..................... 15,345,183 15,586,535 15,618,170 13,529,463 Dilutive potential common shares Warrants........................ -- 69,627 200,517 Stock Options................... 944 241,040 370,005 Restricted Stock................ 6,537 173,160 162,027 Deferred Stock.................. 62,483 25,475 25,484 ---------- ---------- ---------- Adjusted weighted average shares.......................... 15,415,147 16,095,837 15,618,170 14,287,496
3. STOCK-BASED COMPENSATION During the third quarter of 1999, a total of 115,000 stock options were granted at fair market value to designated employees under the Company's Equity and Performance Incentive Plan (the "Plan"). These options granted have a maximum term of ten years and vest over periods of three to five years. In addition, a total of 10,000 shares of restricted stock were awarded. These shares have a vesting period of three years, and the fair value of shares awarded is being expensed over the three year vesting period. Nonemployee directors may take all or a portion of their annual base retainer fee in the form of a discounted stock option. During the third quarter of 1999 a total of 8,437 stock options, with an exercise price of $4.594, were granted under the Plan. These options vest on January 30, 2000. 4. DISCONTINUED OPERATIONS On September 28, 1999 the Company approved a plan to discontinue The Bee-Gee Shoe Corp. ("Bee-Gee"), the specialty shoe store operation. The Company will receive primarily cash and a note receivable 5 8 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (UNAUDITED) for the sale of Bee-Gee's net assets. The sale is expected to be complete by the end of the fourth quarter of fiscal 1999. Loss from operations prior to September 28, 1999 for the 13-week period ending October 30, 1999 were nominal and for the 39-week period ending October 30, 1999 were approximately $0.4 million, net of income tax benefits of approximately $0.3 million. Estimated losses related to the sale of Bee-Gee's net assets of $1.4 million, net of income tax benefits of approximately $0.8 million, have been recorded. Included in the loss on sale are estimated operating losses from September 29, 1999 until the estimated closing date of approximately $0.7 million, net of taxes. The financial statements and notes have been reclassified for all periods presented to reflect Bee-Gee as a discontinued operation. 5. ACQUISITION On July 27, 1998, the Company acquired Stone & Thomas for a purchase price of approximately $20.2 million in cash, subject to the resolution of certain liabilities prior to the Company's fiscal 1999 year end. Stone & Thomas operated 20 department stores located in West Virginia, Ohio, Kentucky, and Virginia under the name Stone & Thomas. This transaction was accounted for as a purchase. As part of the Company's acquisition of Stone & Thomas, a plan to exit certain activities resulted in the recording of liabilities for store closings, employee severance, lease buyouts, and other expenses. The Company recorded an accrual of $6.8 million at the date of acquisition. The Company has paid the accrued amount subsequent to the date of acquisition for these costs. PRO FORMA SUMMARY OF OPERATIONS DATA $(000'S) The unaudited pro forma summary of operations data for the 39-week period ending October 31, 1998, have been prepared by combining the condensed consolidated statement of operations of the Company with the consolidated statement of operations of Stone & Thomas for the same period. To comply with disclosures required by generally accepted accounting principles related to acquisitions, the following unaudited pro forma financial information is presented as though the acquisition occurred at the beginning of 1998. The expected synergy of this acquisition after integration with existing businesses, including the disposition of stores, is not permitted to be reflected in the pro forma results. Therefore, pro forma results are not indicative of results of operations in the future or in the period presented below.
THIRTY-NINE WEEKS ENDED OCTOBER 31, 1998 ----------------------- Net sales................................................ $428,571 Net loss................................................. $ (6,431) Basic and diluted net loss per common share.............. $ (0.41)
6 9 THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (UNAUDITED) 6. SEGMENT REPORTING The following table sets forth financial information by segment, $(000's):
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ----------------------------------- ----------------------------------- OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998 ---------------- ---------------- ---------------- ---------------- Department Store Revenues................ $153,226 $148,514 $430,410 $385,137 Operating profit (loss)............... 90 3,512 (7,929) 84 Finance Operations Revenues................ $ 8,373 $ 8,111 $ 25,238 $ 24,234 Operating Profit........ 5,737 5,431 17,161 15,162 Segment Subtotal Revenues (1)............ $161,599 $156,625 $455,648 $409,371 Operating Profit (2).... 5,827 8,943 9,232 15,246
(1) Segment revenues is reconciled to reported revenues as follows:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ------------------------------------ ----------------------------------- OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998 ---------------- ---------------- ---------------- ---------------- Segment revenues........... $161,599 $156,625 $455,648 $409,371 Intersegment operating charge eliminated........ (2,195) (2,052) (6,139) (5,500) -------- -------- -------- -------- $159,404 $154,573 $449,509 $403,871 ======== ======== ======== ========
(2) Total segment operating profit is reconciled to income (loss) from continuing operations before income tax expense (benefit) as follows:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ----------------------------------- ----------------------------------- OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 30, 1999 OCTOBER 31, 1998 ---------------- ---------------- ---------------- ---------------- Segment operating profit.................. $ 5,827 $ 8,943 $ 9,232 $15,246 Store closing costs....... -- -- -- (728) Acquisition and integration............. -- (2,275) -- (2,845) Interest expense.......... (3,127) (2,821) (8,440) (8,468) Other..................... (1,564) (934) (1,413) (597) -------- ------- -------- ------- $ 1,136 $ 2,913 $ (621) $ 2,608 ======== ======= ======== =======
7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Quarterly Report on Form 10-Q contains certain forward-looking statements that are based on management's current beliefs, estimates and assumptions concerning the operations, future results and prospects of Elder-Beerman and the retail industry in general. All statements that address operating performance, events or developments that management anticipates will occur in the future, including statements related to future sales, profits, expenses, income and earnings per share, future finance and capital market activity, or statements expressing general optimism about future results, are forward-looking statements. In addition, words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify forward-looking statements. Actual results may differ materially from those in the forward- looking statements. Accordingly, there is no assurance that forward-looking statements will prove to be accurate. Many factors could affect Elder-Beerman's future operations and results, such as the following: increasing price and product competition; fluctuations in consumer demand and confidence; the availability and mix of inventory; fluctuations in costs and expenses; the effectiveness of advertising, marketing and promotional programs; weather conditions that affect consumer traffic in stores; the continued availability and terms of financing; the ability to complete any pending asset disposition transactions; the outcome of pending and future litigation; and general economic conditions, such as the rate of employment, inflation and interest rates and the condition of the capital markets. Forward-looking statements are subject to the safe harbors created under the federal securities laws. Elder-Beerman undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Company for the 13-week periods ended October 30, 1999 ("Third Quarter 1999") and October 31, 1998 ("Third Quarter 1998") and the 39-week periods ended October 30, 1999 ("Nine Months of 1999") and October 31, 1998 ("Nine Months of 1998"). The Company's fiscal year ends on the Saturday closest to January 31. The discussion and analysis which follows are based upon and should be read in conjunction with the Condensed Consolidated Financial Statements and the Notes thereto included in Part I, Item I. RESULTS OF OPERATIONS Third Quarter 1999 Compared To Third Quarter 1998 Net sales for the Third Quarter 1999 increased by 3.2% to $153.2 million from $148.5 million for the Third Quarter 1998. The increase includes a 1.5% comparable sales increase. Women's better sportswear, men's sportswear, special sizes, cosmetics, children's, and furniture had the most significant sales increases. Financing revenue from the Company's private label credit card for the Third Quarter 1999 increased by 2.0%. The increase in finance charges is due to an increase in outstanding customer accounts receivable as compared to Third Quarter 1998, primarily due to the acquisition of the Stone & Thomas accounts receivable portfolio in November 1998. Cost of goods sold, occupancy, and buying expenses increased to 71.4% of net sales for the Third Quarter 1999 from 70.3% of net sales for the Third Quarter 1998. This increase is primarily due to reduced gross margin performance primarily in the women's ready-to-wear classifications and increased real estate expenses. Selling, general, and administrative expenses increased to 29.3% of net sales for the Third Quarter 1999 from 27.7% for the Third Quarter 1998. This increase is primarily because of benefits realized in the Third Quarter 1998 due to certain modifications to the Company's fringe benefit plans. 8 11 Provision for doubtful accounts was 0.5% of net sales for the Third Quarter 1999 compared to 0.7% of net sales for the Third Quarter 1998. This improvement is due to fewer delinquent customer accounts and a reduction in personal bankruptcies, which resulted in fewer bad debt write-offs affecting the Company. Interest expense increased to $3.1 million for the Third Quarter 1999 from $2.8 million for the Third Quarter 1998. The increase is due to higher average borrowing for the Third Quarter 1999 compared to the Third Quarter 1998 primarily because of the Company's commencement of a stock repurchase program. The Third Quarter 1998 acquisition and integration expense of $2.3 million related to the acquisition of Stone & Thomas, which occurred July 27, 1998. Income tax expense was recorded in the Third Quarter 1999 and the Third Quarter 1998 at a rate of 38.0%. During the Third Quarter 1999 the Company adopted a plan to dispose of Bee-Gee. For the Third Quarter 1999 the Company recorded a loss of $1.4 million as compared to a nominal gain from operations during the Third Quarter 1998. The loss for the Third Quarter 1999 is composed almost entirely of an estimated loss on disposal. Refer to the Notes to Condensed Consolidated Financial Statements note number four. Nine Months Of 1999 Compared To Nine Months Of 1998 Net sales for the Nine Months of 1999 increased by 11.8% to $430.4 million from $385.1 million for the Nine Months of 1998. The increase includes a 1.6% comparable sales increase. Comparable sales results include the Dayton Mall flagship store relocated from the Southtown shopping center to the adjacent Dayton Mall in July 1998. Women's better sportswear, juniors, cosmetics, decorative home, and intimate apparel had the most significant sales increase for the department stores. The department stores acquired from Stone & Thomas in July 1998 generated $32.2 million in sales during the first 26 weeks of 1999 (the non-comparable period) as compared to no sales during the first 26 weeks of 1998. Financing revenue from the Company's private label credit card for the Nine Months of 1999 increased by 1.9%. The increase in finance charges is due to an increase in outstanding customer accounts receivable as compared to Nine Months of 1998, primarily due to the acquisition of the Stone & Thomas accounts receivable portfolio in November 1998. Cost of goods sold, occupancy, and buying expenses increased to 72.2% of net sales for the Nine Months of 1999 from 71.6% of net sales for the Nine Months of 1998. This increase is primarily due to real estate expenses related to the new Dayton Mall, Erie, and West Virginia stores (former Stone & Thomas stores), for which sales have not yet matured to Company average productivity levels. Selling, general, and administrative expenses increased to 29.8% of net sales for the Nine Months of 1999 from 28.7% for the Nine Months of 1998. This was due to increased store payrolls as a percentage of sales, coupled with benefits realized in the Nine Months of 1998 due to certain modifications to the Company's fringe benefit plans. Provision for doubtful accounts was 0.6% of net sales for the Nine Months of 1999 compared to 1.0% of net sales for the Nine Months of 1998. This improvement is due to fewer delinquent customer accounts and a reduction in personal bankruptcies, which resulted in fewer bad debt write-offs affecting the Company. Interest expense decreased to $8.4 million for the Nine Months of 1999 from $8.5 million for the Nine Months of 1998. The Nine Months of 1998 acquisition and integration expense of $2.8 million related to the acquisition of Stone & Thomas, which occurred July 27, 1998. Income tax expense (benefit) was recorded in the Nine Months of 1999 and the Nine Months of 1998 at the rate of 38.0%. During the Third Quarter 1999 the Company adopted a plan to dispose of its Bee-Gee subsidiary. For the Nine Months of 1999 the Company recorded a loss of $1.8 million compared to a nominal gain from 9 12 operations during the Nine Months of 1998. The loss for the Nine Months of 1999 includes an estimated loss on disposal. Refer to the Notes to Condensed Consolidated Financial Statements note number four. Liquidity And Capital Resources The Company's principal sources of funds are cash flow from operations and borrowings under the Revolving Credit Facility and Receivable Securitization Facility (collectively, the "Credit Facilities"). The Company's primary ongoing cash requirements are to fund debt service, make capital expenditures, and finance working capital. Net cash used in operating activities was $36.9 million for the Nine Months of 1999, compared to $39.2 million used in the Nine Months of 1998. As of the Nine Months of 1999 the Company has increased trade account payable due to higher October net merchandise receipts. Net cash used in investing activities was $11.3 million for the Nine Months of 1999, compared to $25.1 million for the Nine Months of 1998. The Company has spent $3.1 million more than last year in capital expenditures for new stores, store maintenance, remodeling, and data processing. In the Nine Months of 1998 the Stone & Thomas acquisition required an investment of $19.4 million, net of cash purchased. The Company sold seven of those stores for $5.8 million. Also, the Company purchased for $2.8 million the department store building that housed the Southtown shopping center store. This location was relocated to the Dayton Mall, and the Southtown location was sold in Fiscal 1998. For the Nine Months of 1999, net cash provided by financing activities was $49.9 million compared to $60.6 million for the Nine Months of 1998. The decrease is due to the elimination of funding required in the Nine Months of 1998 for the Stone & Thomas purchase, partially offset by additional borrowing of $7.3 million to fund the purchase by the Company of 1,118,200 shares of outstanding common stock, under its stock repurchase program. In August 1999, the Company announced a stock repurchase program to acquire up to $24 million in common shares over a two year period. The Company believes that it will generate sufficient cash flow from operations, as supplemented by its available borrowings under the Credit Facilities, to meet anticipated working capital and capital expenditure requirements, as well as debt service requirements under the Credit Facilities. The Company may from time to time consider acquisitions of department store assets and companies. Acquisition transactions, if any, are expected to be financed through a combination of cash on hand from operations, available borrowings under the Credit Facilities and the possible issuance from time to time of long-term debt or other securities. Depending upon the conditions in the capital markets and other factors, the Company will from time to time consider the issuance of debt or other securities, or other possible capital market transactions, the proceeds of which could be used to refinance current indebtedness or for other corporate purposes. YEAR 2000 DISCLOSURE The term "Year 2000 Issue" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000s" from the dates in the "1900s". These problems may also arise from other sources as well, such as the use of special codes and conventions in software that make use of the date values. The Company expects to be Year 2000 ready. "Year 2000 ready" means that critical systems, devices, applications or business relationships have been evaluated and are expected to be suitable for continued use into and beyond the Year 2000, and that contingency plans are in place to mitigate risks stemming from the failure of other parties to be Year 2000 ready. 10 13 The Company began addressing the Year 2000 issue in the early 1990s by changing its computer systems development standards for new systems to utilize Year 2000 compliant date storage techniques. The Company is using a multistep approach in conducting its Year 2000 Readiness Project. These steps are inventory, assessment, remediation and verification, and contingency planning. The first step, an inventory of critical systems and devices with potential Year 2000 problems was completed in July 1998. The next step, completed in October 1998, was an assessment to determine any necessary changes to ensure Year 2000 readiness. The assessment confirmed estimates of $300,000 to make central computer systems Year 2000 ready, and revealed other noninformation systems and equipment requiring additional remediation costs of $275,000. The Company has completed evaluation, remediation, verification, and implementation of its internally developed systems. The Company utilized internal and external resources in its effort to be Year 2000 ready. The Company has completed formal communication with third party information systems suppliers to solicit Year 2000 readiness statements. Third party information systems suppliers have certified their Year 2000 compliance. Noninformation systems areas requiring remediation have been completed. The Company remains alert to external Year 2000 developments and will respond promptly to any issues that may arise. The Company has issued formal communication to critical noninformation systems service providers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 Issues. The Company can not predict the outcome of other companies' remediation efforts, however it has no knowledge that any of these companies will not be Year 2000 ready. The Company began systems testing in February 1999. Test results indicate no Year 2000 Issues. The Company will continue general systems testing to verify that its systems are Year 2000 ready. The Company will promptly respond to issues discovered by general systems testing. The Company does not expect to find material noncompliance. Contingency plans will be prepared so that the Company's critical business processes can be expected to continue to function on January 1, 2000 and beyond. The Company's contingency plans will be structured to address both remediation efforts of systems and their components and overall business operating risk. These plans are intended to mitigate both internal risks as well as potential risks in the Company's supply chain and in maintaining the confidence of its customers. The Company believes that its most reasonably likely worst case scenario is that key suppliers or service providers fail to meet their commitments to the Company due to failure on their part or on the part of other underlying business entities to be Year 2000 ready. The Company has assessed the risks associated with such failures and believes that its contingency plans would mitigate the long-term effect of such a scenario. If a temporary disruption does occur, the Company does not expect that it would have a material adverse affect on its financial position and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is subject to the risk of fluctuating interest rates in the normal course of business, primarily as a result of its variable rate borrowing. The Company has entered into a variable to fixed rate interest-rate swap agreement to effectively reduce its exposure to interest rate fluctuations. A hypothetical 100 basis point change in interest rates would not materially affect the Company's financial position, liquidity or results of operations. The Company does not maintain a trading account for any class of financial instrument and is not directly subject to any foreign currency exchange or commodity price risk. As a result, the Company believes that its market risk exposure is not material to the Company's financial position, liquidity or results of operations. PART II. -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is currently involved in several legal proceedings arising from its normal business activities and reserves have been established where appropriate. However, no legal proceedings have arisen or become reportable events during this quarter, and management believes that none of the remaining legal proceedings 11 14 will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. In addition, as a result of the consummation of the Company's chapter 11 plan of reorganization pursuant to the Third Amended Joint Plan of Reorganization, dated November 17, 1997, as amended (the "Joint Plan of Reorganization"), which was confirmed by an order of the United States Bankruptcy Court for the Southern District of Ohio, Western Division (the "Bankruptcy Court") entered on December 16, 1997, the Company remains subject to the jurisdiction of the Bankruptcy Court for matters relating to the consummation of the Joint Plan of Reorganization. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. (a) Not Applicable. (b) Not Applicable. (c) Not Applicable. (d) Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following Exhibits are included in this Quarterly Report on Form 10-Q: 12 15 2(a) Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and its Subsidiaries dated November 17, 1997 (previously filed as Exhibit 2 to the Company's Form 10 filed on November 26, 1997, and incorporated herein by reference) 3(a) Amended Articles of Incorporation (previously filed as Exhibit 3(a) to the Form 10-K filed on April 30, 1998 (the "Form 10-K") and incorporated herein by reference) 3(b) Amended Code of Regulations (previously filed as Exhibit 3(b) to the Form 10-Q filed on June 14, 1999 and incorporated herein by reference) 4(a) Stock Certificate for Common Stock (previously filed as Exhibit 4(a) to the Company's Form 10/A-1 filed on January 23, 1998 and incorporated herein by reference) 4(b) Rights Agreement By and Between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., dated as of December 30, 1997 (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A filed on November 17, 1998 (the "Form 8-A") and incorporated herein by reference) 4(c) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 249,809 shares of Common Stock at a strike price of $12.80 per share dated December 30, 1997 (previously filed as Exhibit 4(d) to the Form 10-K and incorporated herein by reference) 4(d) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 374,713 shares of Common Stock at a strike price of $14.80 per share dated December 30, 1997 (previously filed as Exhibit 4(e) to the Form 10-K and incorporated herein by reference) 4(e) Amendment No. 1 to the Rights Agreement, dated as of November 11, 1998 (previously filed as Exhibit 4.2 to the Form 8-A and incorporated herein by reference) 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the period. 13 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ELDER-BEERMAN STORES CORP., an Ohio corporation By: /s/ Scott J. Davido ------------------------------------- By: Scott J. Davido Executive Vice President, Chief Financial Officer and Treasurer (on behalf of the Registrant and as Principal Financial Officer) Dated: December 10, 1999 14 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2(a) Third Amended Joint Plan of Reorganization of The Elder-Beerman Stores Corp. and its Subsidiaries dated November 17, 1997 (previously filed as Exhibit 2 to the Company's Form 10 filed on November 26, 1997, and incorporated herein by reference) 3(a) Amended Articles of Incorporation (previously filed as Exhibit 3(a) to the Form 10-K filed on April 30, 1998 (the "Form 10-K"), and incorporated herein by reference) 3(b) Amended Code of Regulations (previously filed as Exhibit 3(b) to the Form 10-Q filed on June 14, 1999 and incorporated herein by reference) 4(a) Stock Certificate for Common Stock (previously filed as Exhibit 4(a) to the Company's Form 10/A-1 filed on January 23, 1998 and incorporated herein by reference) 4(b) Rights Agreement By and Between The Elder-Beerman Stores Corp. and Norwest Bank Minnesota, N.A., dated as of December 30, 1997 (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A filed on November 17, 1998 (the "Form 8-A") and incorporated herein by reference) 4(c) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 249,809 shares of Common Stock at a strike price of $12.80 per share dated December 30, 1997 (previously filed as Exhibit 4(e) to the Form 10-K and incorporated herein by reference) 4(d) Warrant Agreement by and Between Beerman-Peal Holdings, Inc. and the Elder-Beerman Stores Corp. for 374,713 shares of Common Stock at a strike price of $14.80 per share dated December 30, 1997 (previously filed as Exhibit 4(e) to the Form 10-K and incorporated herein by reference) 4(e) Amendment No. 1 to the Rights Agreement, dated as of November 11, 1998 (previously filed as Exhibit 4.2 to the Form 8-A and incorporated herein by reference) 27 Financial Data Schedule
15 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORTS ON FORM 10-Q OF THE ELDER-BEERMAN STORES CORP. FOR THE PERIOD ENDED OCTOBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JAN-29-2000 JAN-31-1999 OCT-30-1999 9,880 0 130,156 2,452 226,983 393,643 72,751 0 508,919 93,061 178,994 0 0 259,641 (30,854) 508,919 430,410 449,509 310,919 310,919 0 2,687 8,440 (621) (236) (385) (1,807) 0 0 (2,192) (0.14) (0.14)
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