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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For quarterly period ended July 31, 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 executive offices) (Zip Code)
(937) 296-2700
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
As of September 9, 1999, 15,550,993 shares of the issuer's common
stock, without par value, were outstanding.
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THE ELDER-BEERMAN STORES CORP.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of July 31, 1999 and as of
January 30, 1999 (Unaudited)......................................................................1
Condensed Consolidated Statements of Operations for the 13 weeks ended July 31, 1999 and
August 1, 1998 (Unaudited)........................................................................2
Condensed Consolidated Statements of Operations for the 26 weeks ended July 31, 1999
and August 1, 1998................................................................................3
Condensed Consolidated Statements of Cash Flows for the 26 weeks ended July 31, 1999
and August 1, 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 ........................................................................7
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk ......................................10
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings ...............................................................................10
ITEM 2 Changes in Securities and Use of Proceeds .......................................................10
ITEM 3 Defaults Upon Senior Securities .................................................................10
ITEM 4 Submission of Matters to a Vote of Security Holders .............................................11
ITEM 5 Other Information ...............................................................................11
ITEM 6 Exhibits and Reports on Form 8-K ................................................................11
SIGNATURES....................................................................................................12
EXHIBIT INDEX.................................................................................................13
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
July 31, 1999 January 30, 1999
------------- ----------------
ASSETS
- ------
Current assets:
Cash and equivalents $ 8,538 $ 8,146
Customer accounts receivable (less allowance for doubtful
accounts: July 31, 1999 - $3,009;
January 30, 1999 - $4,377) 126,094 141,205
Merchandise inventories 189,981 171,764
Other current assets 18,780 17,294
--------- ---------
Total current assets 343,393 338,409
Property, fixtures and equipment, less accumulated depreciation
and amortization 72,046 73,910
Other assets:
Goodwill, net of accumulated amortization (July 31, 1999 -
$525; January 30, 1999 - $283) 14,798 15,040
Other 26,094 26,600
--------- ---------
Total assets $ 456,331 $ 453,959
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term obligations $ 951 $ 951
Accounts payable 39,787 53,959
Other accrued liabilities 23,178 32,022
--------- ---------
Total current liabilities 63,916 86,932
Long-term obligations, less current portion 147,537 121,507
Deferred items 8,271 8,019
--------- ---------
Total liabilities 219,724 216,458
Shareholders' equity:
Common stock, no par, 16,040,468 shares on July 31, 1999 and
15,898,864 on January 30, 1999 issued and outstanding 266,931 266,683
Unearned compensation - restricted stock, net (1,716) (2,028)
Deficit (28,608) (27,154)
--------- ---------
Total shareholders' equity 236,607 237,501
--------- ---------
Total liabilities and shareholders' equity $ 456,331 $ 453,959
========= =========
See notes to condensed consolidated financial statements.
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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
July 31, 1999 August 1, 1998
------------- --------------
Revenues:
Net sales $ 141,112 $ 125,464
Financing 6,221 6,177
------------ ------------
Total revenues 147,333 131,641
Costs & expenses:
Cost of goods sold, occupancy, and buying expenses 101,768 91,002
Selling, general, administrative, and other expenses 43,781 35,585
Provision for doubtful accounts 927 1,112
Interest expense 2,899 2,980
Acquisition & integration expense -- 570
------------ ------------
Total costs & expenses 149,375 131,249
Income (loss) before income tax expense (benefit) (2,042) 392
Income tax expense (benefit) (776) 153
------------ ------------
Net income (loss) $ (1,266) $ 239
============ ============
Basic net income (loss) per common share $ (0.08) $ 0.02
Basic weighted average number of shares outstanding 15,756,496 12,504,857
Diluted net income (loss) per common share $ (0.08) $ 0.02
Diluted weighted average number of shares outstanding 15,756,496 13,451,388
See notes to condensed consolidated financial statements.
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THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
26-weeks ended 26-weeks ended
July 31, 1999 August 1, 1998
------------- --------------
Revenues:
Net sales $ 291,640 $ 252,188
Financing 12,921 12,675
------------ ------------
Total revenues 304,561 264,863
Costs & expenses:
Cost of goods sold, occupancy, and buying expenses 212,462 182,829
Selling, general, administrative, and other expenses 87,127 73,309
Provision for doubtful accounts 1,859 2,689
Interest expense 5,458 5,784
Acquisition & integration expense -- 570
------------ ------------
Total costs & expenses 306,906 265,181
Loss before income tax benefit (2,345) (318)
Income tax benefit (891) (121)
------------ ------------
Net loss $ (1,454) $ (197)
============ ============
Basic and diluted net loss per common share $ (0.09) $ (0.02)
Weighted average number of shares outstanding 15,754,663 12,500,927
See notes to consolidated financial statements.
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THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(Dollars in thousands)
(Unaudited)
26-weeks ended 26-weeks ended
July 31, 1999 August 1, 1998
------------- --------------
Cash flows from operating activities:
Net loss $ (1,454) $ (197)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,471 6,426
Changes in operating assets and liabilities, net (26,552) (10,420)
-------- --------
Net cash used in operating activities (20,535) (4,191)
Cash flows from investing activities:
Capital expenditures, net (5,102) (3,885)
Business acquisition, net of cash purchased -- (20,179)
Real estate acquired -- (2,814)
Proceeds from the sale of fixed assets -- 114
-------- --------
Net cash used in investing activities (5,102) (26,764)
Cash flows from financing activities:
Net payments under asset securitization agreement (5,019) (15,977)
Net borrowings under revolving lines of credit 31,722 66,420
Payments on long-term obligations (674) (741)
Retirement of assumed debt -- (17,582)
Other -- (539)
-------- --------
Net cash provided by financing activities 26,029 31,581
-------- --------
Increase in cash and equivalents 392 626
Cash and equivalents - beginning of period 8,146 6,497
-------- --------
Cash and equivalents - end of period $ 8,538 $ 7,123
======== ========
Supplemental cash flow information:
Interest paid 4,991 5,527
See notes to condensed consolidated financial statements.
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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.
3. Stock-Based Compensation
During the second quarter of 1999, a total of 15,000 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.
Nonemployee directors may take all or a portion of their annual base
retainer fee in the form of a discounted stock option. During the second
quarter of 1999 a total of 6,171 stock options, with an exercise price of
$6.282, were granted under the Plan. These options vest on January 30, 2000.
4. Acquisition
On July 27, 1998, the Company acquired Stone & Thomas for a purchase price
of approximately $20.2 million in cash. 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. During the
second quarter of 1999, the Company paid the remaining amount of $2.9
million related to these exit activities. There are no remaining amounts
accrued at July 31, 1999.
Pro forma summary of operations data $(000's)
The unaudited pro forma summary of operations data for the 13-week period
and 26-week period ending August 1, 1998, have been prepared by combining
the condensed consolidated statement of operations of The Elder-Beerman
Stores Corp. 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.
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13-weeks ended 26-weeks ended
August 1, 1998 August 1, 1998
-------------- --------------
Net sales $147,475 $295,622
Net loss (4,598) (8,256)
Basic and diluted net loss per common share (0.29) (0.53)
5. Segment Reporting
The following table sets forth financial information by segment:
13-weeks ended 26-weeks ended
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
------------- -------------- ------------- --------------
Department Store
Revenues $133,365 $117,081 $277,184 $236,624
Operating loss (4,446) (720) (8,019) (3,427)
Shoe Store
Revenues $ 7,747 $ 8,383 $ 14,456 $ 15,564
Operating profit (loss) (10) 202 (268) 193
Finance Operations
Revenues $ 8,187 $ 7,907 $ 16,865 $ 16,123
Operating Profit 5,401 4,846 11,424 9,732
Segment Subtotal
Revenues (1) $149,299 $133,371 $308,505 $268,311
Operating Profit (2) 945 4,328 3,137 6,498
(1) Segment revenues is reconciled to reported revenues as follows:
13-weeks ended 26-weeks ended
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
------------- -------------- ------------- --------------
Segment revenues $149,299 $133,371 $308,505 $268,311
Intersegment operating
charge eliminated (1,966) (1,730) (3,944) (3,448)
-------- -------- -------- --------
$147,333 $131,641 $304,561 $264,863
======== ======== ======== ========
(2) Total segment operating profit is reconciled to loss before income tax
benefit as follows:
13-weeks ended 26-weeks ended
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
------------- -------------- ------------- --------------
Segment operating profit $ 945 $ 4,328 $ 3,137 $ 6,498
Store closing costs (126) (728) (126) (728)
Acquisition and integration- -- (570) -- (570)
Interest expense (2,900) (2,980) (5,459) (5,784)
Other 39 342 103 266
------- ------- ------- -------
$(2,042) $ 392 $(2,345) $ (318)
======= ======= ======= =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains certain forward-looking
statements that are based on management's current beliefs, estimates and
assumptions concerning the operations, future results and prospects of
Elder-Beerman and the retail industry in general. All statements that address
operating performance, events or developments that management anticipates will
occur in the future, including statements related to future sales, profits,
expenses, income and earnings per share, future finance and capital market
activity, or statements expressing general optimism about future results, are
forward-looking statements. In addition, words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates," variations of such words and
similar expressions are intended to identify forward-looking statements.
Actual results may differ materially from those in the forward- looking
statements. Accordingly, there is no assurance that forward-looking statements
will prove to be accurate.
Many factors could affect Elder-Beerman's future operations and results,
such as the following: increasing price and product competition; fluctuations in
consumer demand and confidence; the availability and mix of inventory;
fluctuations in costs and expenses; the effectiveness of advertising, marketing
and promotional programs; weather conditions that affect consumer traffic in
stores; the continued availability and terms of financing; the 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 July 31, 1999 ("Second
Quarter 1999") and August 1, 1998 ("Second Quarter 1998") and the 26-week
periods ended July 31, 1999 ("First Half 1999") and August 1, 1998 ("First Half
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
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998
Net sales for the Second Quarter 1999 increased by 12.5% to $141.1 million
from $125.5 million for the Second Quarter 1998. The increase includes a 1.1%
comparative sales decrease for the department store division, and a 2.5%
comparative sales decrease for the Bee-Gee Shoe division. The department store
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, cosmetics, decorative home, intimate apparel, and juniors had
the most significant sales increases for the department stores. The department
stores acquired from Stone & Thomas in July 1998 generated $15.5 million in
sales during the Second Quarter 1999.
Financing revenue from the Company's private label credit card for the
Second Quarter 1999 increased by 0.7%. The increase in finance charges is due to
an increase in outstanding customer accounts receivable as compared to Second
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 decreased to 72.1% of net
sales for the Second Quarter 1999 from 72.5% of net sales for the Second Quarter
1998. This decrease is primarily due to improved gross margin performance, which
was partially offset by 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.
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Selling, general, and administrative expenses increased to 31.0% of net
sales for the Second Quarter 1999 from 28.4% for the Second Quarter 1998. This
was due to increased sales promotion, store payrolls and fringe benefit expenses
as a percentage of sales.
Provision for doubtful accounts was 0.7% of net sales for the Second Quarter
1999 compared to 0.9% of net sales for the Second Quarter 1998. This improvement
is due to fewer delinquent customer accounts and a reduction in personal
bankruptcies affecting the Company.
Interest expense decreased to $2.9 million for the Second Quarter 1999 from
$3.0 million for the Second Quarter 1998. The decrease is due to lower average
borrowing for the Second Quarter 1999 compared to the Second Quarter 1998. The
additional average financing required in the Second Quarter 1998 was to support
the payment of bankruptcy obligations in connection with 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 "Plan"), 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.
There was no acquisition and integration in the Second Quarter 1999 compared
to $0.6 million in the Second Quarter 1998. The Second Quarter 1998 expense
related to the acquisition of Stone & Thomas, which occurred July 27, 1998.
An income tax benefit was recorded in the Second Quarter 1999 at the rate of
38.0% compared to an expense recorded in the Second Quarter 1998 at the rate of
39.0%.
FIRST HALF 1999 COMPARED TO FIRST HALF 1998
Net sales for the First Half 1999 increased by 15.6% to $291.6 million from
$252.2 million for the First Half 1998. The increase includes a 1.6% comparative
sales increase for the department store division, and a 4.3% comparative sales
decrease for the Bee-Gee Shoe division. The department store 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 led the
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
Half 1999.
Financing revenue from the Company's private label credit card for the First
Half 1999 increased by 1.9%. The increase in finance charges is due to an
increase in outstanding customer accounts receivable as compared to First Half
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 72.9% of net
sales for the First Half 1999 from 72.5% of net sales for the First Half 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, partially
offset by improved gross margin performance in the Second Quarter 1999.
Selling, general, and administrative expenses increased to 29.9% of net
sales for the First Half 1999 from 29.1% for the First Half 1998. This was due
to increased sales promotion, store payrolls and fringe benefit expenses as a
percentage of sales.
Provision for doubtful accounts was 0.6% of net sales for the First Half
1999 compared to 1.1% of net sales for the First Half 1998. This improvement is
due to fewer delinquent customer accounts and a reduction in personal
bankruptcies affecting the Company.
Interest expense decreased to $5.5 million for the First Half 1999 from $5.8
million for the First Half 1998. The decrease is due to lower average borrowing
for the First Half 1999 compared to the First Half 1998. The additional average
financing required in the Second Quarter 1998 was to support the payment of
bankruptcy obligations in connection with the consummation of the Company's
chapter 11 Plan, which was confirmed by an order of the Bankruptcy Court entered
on December 16, 1997.
There was no acquisition and integration expense in the First Half 1999
compared to $0.6 million in the First Half 1998. The First Half 1998 expense
related to the acquisition of Stone & Thomas, which occurred July 27, 1998.
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An income tax benefit was recorded in the First Half 1999 and the First Half
1998 at the rate of 38.0%.
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 $20.5 million for the First Half
1999, compared to $4.2 million used in the First Half 1998. As of the First Half
1999 the Company has reduced trade accounts payable due to lower net
merchandise receipts, partially offset by less bankruptcy related payments in
First Half 1999 as compared to First Half 1998.
Net cash used in investing activities was $5.1 million for the First Half
1999, compared to $26.8 million for the First Half 1998. The Company has spent
$1.2 million more than last year in capital expenditures for store maintenance,
remodeling, and data processing. In the First Half 1998 the Stone & Thomas
acquisition required an investment of $20.2 million, net of cash purchased, and
the Company purchased for $2.8 million the department store building that housed
the Southtown shopping center store. This location was relocated to Dayton Mall,
and the Southtown location was sold in Fiscal 1998.
For the First Half 1999, net cash provided by financing activities was $26.0
million compared to $31.6 for the First Half 1998. The decrease is due to the
elimination of funding required in the First Half 1998 for the Stone & Thomas
purchase, partially offset by additional borrowing to fund the increase in cash
used in operating activities.
In August 1999, the Company announced a stock repurchase program to acquire
up to $24 million in common shares over a two year period. Through September 7,
1999, the Company has repurchased approximately 501,000 shares for $3.6 million.
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.
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 of 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,
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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.
Forty-seven third party information systems suppliers have certified their Year
2000 compliance. Forty-six of the updated versions have been implemented. The
one remaining non-compliant supplier's product has been received and is being
tested. Implementation will occur in the third quarter of 1999. Noninformation
systems areas have been completed. 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 non-compliance.
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 will have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
In addition, as a result of the bankruptcy, the Company remains subject to
the jurisdiction of the Bankruptcy Court for matters relating to the
consummation of the Plan.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) Not Applicable.
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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:
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.
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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
Dated: September 13, 1999 _____________________________
------------------ Scott J. Davido
Executive Vice President, Chief Financial
Officer and Treasurer
(on behalf of the Registrant and as
Principal Financial Officer)
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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
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