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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 JANUARY 29, 2000
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 14, 2000, 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 $77,273,128.*
The number of shares of Common Stock outstanding on April 14, 2000, was
14,959,739.
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 [ ]
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* 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.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business.................................................... 1
Merchandising............................................... 2
Pricing..................................................... 2
Purchasing and Distribution................................. 3
Information Systems......................................... 3
Marketing................................................... 3
Credit Card Program......................................... 3
Customer Service............................................ 4
Expansion................................................... 4
New Concept Stores.......................................... 4
Bee-Gee Shoe Corp........................................... 4
Seasonality................................................. 4
Competition................................................. 5
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 9
and Results of Operations.................................
Item 7a. Quantitative and Qualitative Disclosures About Market 13
Risk......................................................
Item 8. Financial Statements and Supplementary Data................. 13
Table of Contents........................................... 13
Independent Auditors' Report................................ 14
Consolidated Statement of Operations........................ 15
Consolidated Balance Sheets................................. 16
Consolidated Statements of Shareholders' Equity............. 17
Consolidated Statements of Cash Flows....................... 18
Notes to Consolidated Financial Statements.................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting 35
and Financial Disclosure..................................
PART III
Item 10. Directors and Executive Officers
Directors and Executive Officers............................ 35
Item 11. Executive Compensation...................................... 38
Summary Compensation Table.................................. 38
Stock Option/SAR Grants..................................... 39
Stock Option Exercises and Fiscal Year-End Values........... 39
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PAGE
Employment and Severance Agreements With Certain Officers... 40
Compensation Committee Report on Executive Compensation..... 41
Overview and Philosophy..................................... 41
Components of Compensation.................................. 41
Base Salary................................................. 41
Annual Bonus................................................ 42
Long-Term Incentive Awards.................................. 42
Executive Plan.............................................. 42
Compensation of Chief Executive Officer..................... 43
1999 Base Salary and Annual Bonus........................... 43
Executive Plan.............................................. 43
Tax Deductibility of Executive Compensation................. 43
Compensation of Elder-Beerman's Directors................... 44
Compensation Committee Interlocks and Insider 44
Participation.............................................
Stock Price Performance..................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and 45
Management................................................
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 46
8-K.......................................................
SIGNATURES............................................................ 52
EXHIBIT INDEX......................................................... 54
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PART I
This Annual Report on Form 10-K 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 views 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 and other initiatives designed to increase revenue,
such as the Company's new "point of service" system; the timing and
effectiveness of new store openings; the growing impact of electronic commerce;
weather conditions that affect consumer traffic in stores; the continued
availability and terms of financing; the outcome of pending and future
litigation; the ability of third parties to meet their liabilities and
obligations; 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.
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"). As of fiscal year end 1999, Elder-Beerman operated 62 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 operations are diversified by size
of store, merchandising character, and character of the community served. The
Company seeks to satisfy the merchandising needs of its geographic markets,
serving customers of all ages with varied tastes and incomes.
The Company's historical competitive advantage is its niche in medium and
small size cities, and in many cases, Elder-Beerman is the dominant supplier of
moderate to better brands of soft goods (e.g., Liz Claiborne, Estee Lauder,
Tommy Hilfiger, Polo, Guess) in such markets. 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 Target or Kohl's. These other anchors generally supply moderate private
label goods, which typically complement the Company's more upscale and largely
branded merchandise. The Company's strong metropolitan department store rivals
have tended to bypass smaller midwestern cities, leaving Elder-Beerman as the
dominant department store in these smaller markets.
The Company's business strategy is to improve profitability by focusing on
a more productive core department store business, primarily in Dayton, Ohio and
smaller communities in the Midwest. The Company seeks to be the dominant
destination retailer in its markets for fashion apparel, accessories, cosmetics,
shoes, and home accessories for the entire family, while continuing its
tradition of providing strong customer service. In
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addition, the Company aggressively uses technology and business process changes
to reduce operating costs and improve operating performance through productivity
gains.
The Company's long-term business plan is designed to accomplish its
strategy by (a) focusing on its traditional strengths as the major retailer in
its markets; (b) emphasizing major vendor partnerships to improve sales and
margins while improving supply chain integration and efficiencies; (c) competing
with traditional department store competitors through emphasis on customer
service, timely and broad product assortments, and competitive pricing and
promotions in appropriate markets and product areas; (d) competing with moderate
department stores and discounters through merchandise breadth and advantages in
branded and gift areas; (e) focusing price/product competition in key basic
merchandising areas; and (f) leveraging technology to create a selling culture
with "customer-focused" stores, to develop and execute customer and market
specific marketing programs, and to distribute, price, and promote goods by
market.
Merchandising
The Company carries a broad assortment of goods to provide fashion,
selection and variety found in leading department stores that feature better
merchandise brands. Although all stores stock identical core assortments,
specific types of goods are distributed to stores based on the particular
characteristic of the local market. The Company emphasizes "signature" areas
critical to its image in its niche market, as a primary destination for fashion
apparel, cosmetics and gifts. In addition, through continued efforts to develop
a partnership with its most significant vendors, the Company is using technology
and focused merchandising and distribution to reduce material handling costs and
increase speed in moving stock from the vendor to the selling floor.
Certain departments in Elder-Beerman's department stores are leased to
independent third parties. These leased departments, which include the fine
jewelry, beauty salon, millinery 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 January 29, 2000 ("Fiscal 1999"), the 52 weeks
ending January 30, 1999 ("Fiscal 1998") and the 52 weeks ending January 31, 1998
("Fiscal 1997"), the Company's percentages of net sales by major merchandise
category were as follows:
THE ELDER-BEERMAN STORES CORP.
RETAIL SALES BY DEPARTMENT
1999 1998 1997
MERCHANDISE CATEGORY % % %
- -------------------- ----- ----- -----
Women's Ready to Wear....................................... 33.0% 33.1% 34.0%
Accessories, Shoes & Cosmetics.............................. 23.2% 22.6% 21.7%
Men's & Children's.......................................... 23.3% 24.0% 24.3%
Home Store.................................................. 20.5% 20.3% 20.0%
----- ----- -----
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 on fashion from better national brands.
The Company has effectively been able to generate sales from promotions with
special pricing of limited duration. 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.
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Purchasing and Distribution
During Fiscal 1999, the Company purchased merchandise from over 1,000
domestic and foreign manufacturers and suppliers. During that period, the top 25
vendors by dollar volume accounted for approximately 38% of net purchases. In
Fiscal 1999, the Company also purchased approximately 6% of its merchandise,
primarily private label merchandise, through Frederick Atkins, Inc. ("Atkins"),
a national association of major retailers that provided its members with group
purchase opportunities. Management believes it has good relationships with its
suppliers. No other 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
which have been historically purchased through Atkins.
Merchandise is generally shipped from vendors, through three consolidation
points, to the Company's distribution center in Dayton, Ohio. Deliveries are
made from the distribution center to each store two to seven times per week
depending on the store size and the time of year. A majority of the merchandise
is shipped ready for immediate placement on the selling floor.
Information Systems
The Company places great emphasis on its management information systems.
Currently, 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 sales performance information for
management.
The Company is currently developing a new 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 add more functions at point
of service.
Marketing
The Company's marketing and advertising functions are centralized at its
corporate headquarters, and are focused on communicating a timely and broad
offering of moderate to better branded merchandise, a strong quality/value
relationship and outstanding customer service. The Company employs
comprehensive, multimedia advertising programs including print and broadcast as
well as creative in-store displays, signage and special promotions. The Company
distributes sale catalogs utilizing insertion in Sunday and weekday newspapers
as well as direct mail to preferred charge customers. Catalogs are supplemented
by additional newspaper advertising to support sale events as scheduled. The
Company also uses television and radio in markets where it is productive and
cost efficient.
Credit Card Program
The Company operates a private label credit card program through its
wholly-owned subsidiary, Chargit. During Fiscal 1999, the Company issued 254,000
Elder-Beerman credit cards for newly opened accounts which included 26,000
accounts from its two new stores opened in the fall of 1999 and had
approximately 862,000 Elder-Beerman active credit card accounts during Fiscal
1999. During 1999 Chargit introduced the Preferred Program to the top 10% of
Elder-Beerman charge customers. This program rewards the most loyal Elder-
Beerman customers with special shopping events and various soft benefits
throughout the year. During Fiscal 1999, approximately 42% of Elder-Beerman's
total sales were private label credit card sales. Cash sales and third party
credit cards accounted for 33% and 25% of sales, respectively. Frequent use of
the Elder-Beerman credit card by customers is an important element in the
Company's marketing and growth strategies. The Company also seeks to increase
the use of its private label credit card through incremental sales or shifting
sales from other credit cards and other retailers, and by attracting new
cardholders.
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.
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Customer Service
Elder-Beerman has a strong tradition of providing quality customer service.
The Company is presently enhancing its customer service image and creating a
customer-oriented store environment by (a) centralizing customer service
register stations; (b) eliminating nonselling activities from stores; (c) using
training and recruiting practices to instill a culture of customer helpfulness,
friendliness and responsiveness; and (d) developing a new POS System to expedite
the sales completion process and provide additional functions at point of
service.
Expansion
The Company is currently implementing a controlled expansion of new concept
stores in markets having characteristics consistent with the Company's current
markets. The Company believes that sufficient new locations are available in
markets within or contiguous to the Company's current area of operations to
support such an expansion. In addition, the Company believes that opportunities
exist to expand existing stores where current space constraints prevent adequate
presentation of certain core merchandise departments.
During Fiscal 1999, the Company expanded its Winfield and Sandusky stores
by increasing the size of the selling area in Winfield, West Virginia by 27,000
square feet and in Sandusky, Ohio by 41,000 square feet.
New Concept Stores
Elder-Beerman redesigned its core store format in late 1998 and early 1999
and opened two of these new concept stores in the fall of 1999. Because
Elder-Beerman's top nine stores in sales productivity are stores between 48,000
to 58,000 square feet, the new stores are both approximately 55,000 square feet.
These stores will serve as the prototype for future new stores. The Company has
announced the opening of two concept stores for Fall 2000 in Howell, Michigan
and West Bend, Wisconsin. Important features of the new stores include:
- Customer Service Centers located in main aisles to eliminate the
traditional, multiple single-terminal wrap stands in each selling area,
thereby increasing selling floor space. These Customer Service Centers
are always staffed and are highly visible to the customer. The goal of
these service centers is to speed the ringing of sales and improve
customer service.
- An open sell/self select format for cosmetics, fashion jewelry and shoes,
which is designed for customer convenience and to increase the efficiency
of the selling staff.
- The "Zone," a combined juniors' and young men's store within a store,
which is designed to provide a more appealing shopping experience for the
13-25 year old "Generation Y" shopper.
- Attractive, high capacity fixturing and wallscaping to increase the
inventory density by 10% to 20%, which helps drive sales productivity.
- Flexible utilization of space using a neutral color palette and
nonpermanent walls to eliminate barriers between families of business and
permit reconfiguration of the store without disruption of business.
Bee-Gee Shoe Corp.
On January 25, 2000, the Company completed the sale of its 50-unit Bee-Gee
Shoe Corp. ("Bee-Gee") speciality shoe store chain, to a business group formed
by Albertine Industries, Ark Capital and Bee-Gee management.
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,
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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
specialty stores, general merchandise stores, off-price and discount stores and
manufacturer outlets. 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, depth and breadth of merchandise, prices for
comparable quality merchandise, customer service and store environment.
Associates
On January 29, 2000, the Company had approximately 8,290 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
Elder-Beerman currently operates 62 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.
On March 2, 2000 the Company announced the closing of its downtown Wheeling
and Charleston stores in West Virginia.
The following table sets forth certain information with respect to
Elder-Beerman's department store locations operating as of January 29, 2000, 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
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
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TOTAL
SQUARE DATE
STATE/CITY LOCATION FEET OPENED OWN/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
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 6/94 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
Charleston Charleston Town Center 31,687 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
Wheeling Wheeling 183,000 07/98 Own
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
Evansville Washington Square Mall 134,536 10/93 Lease
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TOTAL
SQUARE DATE
STATE/CITY LOCATION FEET OPENED OWN/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
Jackson Westwood Mall 70,425 09/93 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
KENTUCKY
Ashland Cedar Knolls Galleria 70,000 07/98 Lease
Paducah Kentucky Oaks Mall 60,092 08/82 Lease
Frankfort Frankfort 53,954 11/99 Lease
PENNSYLVANIA
Erie Millcreek Mall 119,800 9/98 Lease
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in several legal proceedings arising from its
normal business activities and reserves have been established 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.
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The number of shareholders of record as of April 14, 2000 was 2,400.
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 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 in the voluntary petitions for relief filed by the
Company and its subsidiaries with the Bankruptcy Court. 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 1999 are set
forth below:
HIGH LOW
------- ------
First Quarter
1/31/99 to 5/1/99......................................... $10.125 $7.000
Second Quarter
5/2/99 to 7/31/99......................................... $ 9.000 $6.000
Third Quarter
8/1/99 to 10/30/99........................................ $ 8.500 $4.125
Fourth Quarter
10/31/99 to 1/29/00....................................... $ 7.125 $4.875
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 January 29, 2000, January 30,
1999, January 31, 1998, February 1, 1997 and February 3, 1996. 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 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
-----------------------------------------------------------------------------
JAN 29, 2000 JAN 30, 1999 JAN 31, 1998 FEB 1, 1997 FEB 3, 1996(A)
------------ ------------ ------------ ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Total Revenues.................. $666,782 $610,371 $559,979 $546,431 $542,151
Earnings (Loss) Before
Discontinued Operations and
Extraordinary Items(b)........ 18,015 25,864 (7,530) (12,818) (40,252)
Net Earnings (Loss)............. $ 15,228 $ 25,461 $(28,952) $(12,429) $(63,286)
Diluted Earnings (Loss) Per
Common Share:
Continuing Operations......... $ 1.17 $ 1.79 $ (6.04) $(103.34) $(324.52)
Discontinued Operations....... (0.18) (0.03) 5.38 3.14 (185.70)
Extraordinary Items........... (22.58)
-------- -------- -------- -------- --------
Net Earnings (Loss).... $ 0.99 $ 1.76 $ (23.24) $(100.20) $(510.22)
======== ======== ======== ======== ========
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FISCAL YEAR ENDED
-----------------------------------------------------------------------------
JAN 29, 2000 JAN 30, 1999 JAN 31, 1998 FEB 1, 1997 FEB 3, 1996(A)
------------ ------------ ------------ ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash Dividends Paid:
Common........................ $ -- $ -- $ -- $ -- $ --
Preferred..................... $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA
Total Assets.................... $454,895 $452,360 $369,068 $367,501 $367,069
Short-Term Debt................. 131,086 951 1,105 57,931 50,100
Liabilities Subject to
Compromise.................... -- -- -- 223,641 222,253
Long-Term Obligations........... 6,130 121,507 142,024 5,669 3,100
OTHER DATA
Sales Increase (Decrease) From
Prior Period.................. 9.6% 9.7% 2.8% (0.8%) (6.9%)
Comparative Sales Increase
(Decrease) From Prior
Period........................ 2.0% 4.1% 3.7% (1.2%) (8.4%)
- ---------------
Notes to Selected Historical Financial Data:
(a) Fiscal Year ended February 3, 1996 included 53 weeks as compared to 52 weeks
for each of the other fiscal years shown.
(b) The financial information for Bee-Gee and Margo's LaMode, Inc. ("Margo's")
is included as discontinued operations for all periods.
SELECTED QUARTERLY FINANCIAL DATA
FISCAL 1999
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA
Total Revenues(a)................... $146,952 $136,013 $155,914 $227,903
Net Earnings (Loss)................. $ (188) $ (1,266) $ (738) $ 17,420
Diluted Earnings (Loss) Per Common
Share:............................ $ (0.01) $ (0.08) $ (0.05) $ 1.18
FISCAL 1998
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA
Total Revenues(a)................... $122,879 $119,895 $151,184 $216,413
Net Earnings (Loss)................. $ (436) $ 239 $ 1,825 $ 23,833
Diluted Earnings (Loss) Per Common
Share:............................ $ (0.03) $ 0.02 $ 0.11 $ 1.51
- ---------------
(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 1999, Fiscal 1998 and Fiscal 1997. 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.
9
13
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
Net sales for Fiscal 1999 increased by 9.6% to $637.8 million from $582.1
million for Fiscal 1998. The increase includes a 2.0% comparable store sales
increase. Fiscal 1999 includes $31.8 million in sales during the first 26 weeks
of 1999 from the stores acquired from Stone & Thomas that were not owned during
the first 26 weeks of 1998. Women's better sportswear, intimate apparel,
cosmetics, and domestics led the sales increase.
Financing revenue from the Company's private label credit card for Fiscal
1999 increased by 2.2% to $26.1 million from $25.6 million for Fiscal 1998. The
increase in finance charges is due to an increase in late fees charged of $0.5
million.
Cost of merchandise sold, occupancy, and buying expenses increased to 72.1%
of net sales for Fiscal 1999 from 70.5% of net sales for Fiscal 1998. This
increase is primarily due to real estate expenses related to the new Dayton
Mall, Erie, and West Virginia stores, for which sales have not yet matured to
Company average productivity levels. In Fiscal 1998, the LIFO inventory
valuation adjustment reduced cost of goods sold by $5.8 million (1% of net
sales) compared to no adjustment in Fiscal 1999.
Selling, general, and administrative expenses decreased to 27.4% of net
sales for Fiscal 1999 from 28.4% for Fiscal 1998. This was due to the leveraging
of corporate expenses with increased sales, partially offset by increased store
payrolls as a percentage of sales. In addition, the Company implemented tracking
systems and undertook studies of merchandise credits and gift certificates in
Fiscal 1999, which resulted in a reduction of the liability for future
redemptions. The Company also incurred nonrecurring acquisition and integration
expenses in Fiscal 1998 related to interim financing for the acquisition of
Stone & Thomas as well as other integration expenses.
Provision for doubtful accounts decreased to 0.6% of net sales for Fiscal
1999 from 0.9% for Fiscal 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 $11.8 million for Fiscal 1999 from $11.5
million for Fiscal 1998. The increase is primarily due to higher average
borrowing because of the Company's commencement of a stock repurchase program.
Reorganization and other expense of $3.8 million was recorded in Fiscal
1999 compared to income of $4.7 million for Fiscal 1998. The other expense in
1999 was due to 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,
partially offset by interest income. The income in 1998 was gains realized from
the sale of the Company's 20% limited partnership interest in a partnership,
which owned the Company's 300,000 square foot distribution center, and the sale
of the Southtown department store building and a favorable settlement of
bankruptcy related claims that were accrued at the end of 1997.
The Company's effective income tax rate was 41.5% in Fiscal 1999 and 40.5%
in Fiscal 1998 before adjustments to the Company's deferred tax asset valuation
allowance. 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 and Fiscal
1998. See Note G to the Consolidated Financial Statements set forth in Item 8.
During the third quarter of 1999 the Company adopted a plan to dispose of
Bee-Gee and consummated the sale in the fourth quarter. In Fiscal 1999 the
Company recorded a loss on disposal of $2.3 million, net of tax. The Company
also recorded a loss from operations in Fiscal 1999 of $0.4 million, net of tax.
In Fiscal 1998 a loss from operations was recorded of $0.4 million, net of tax.
See Note L to the Consolidated Financial Statements set forth in Item 8.
10
14
Fiscal 1998 Compared to Fiscal 1997
Net sales for Fiscal 1998 increased by 9.7% to $582.1 million from $530.7
million for Fiscal 1997. The increase was due to a 4.1% comparative sales
increase. The comparable sales results included the relocated Dayton Mall
flagship store. In addition, the department stores acquired from Stone & Thomas
generated $44.3 million in sales during the second half of 1998. Women's and
men's better sportswear, furniture, intimate apparel, cosmetics, and shoes led
the sales increase for the department stores.
Financing revenue from the Company's private label credit card for Fiscal
1998 decreased by 3.8% to $25.6 million from $26.6 million for Fiscal 1997. The
decline in finance charges was due to a reduction in outstanding customer
accounts receivable, not including the Stone & Thomas customer accounts
receivable portfolio purchased November 23, 1998, and had been partially offset
by an increase in late fees charged.
Cost of merchandise sold, occupancy, and buying expenses decreased to 70.5%
of net sales for Fiscal 1998 from 72.3% of net sales for Fiscal 1997. This
decrease was primarily due to a charge in 1997 of $5.6 million to record excess
markdowns related to two department store closings versus $0.7 million in 1998
related to moving two department stores. In Fiscal 1998, the LIFO inventory
valuation adjustment reduced cost of goods sold by $5.8 million compared to a
decrease of $1.6 million in Fiscal 1997. In addition there was improved gross
margin performance, which was partially offset by an increase in the buying
staff as a result of being more fully staffed, and an increase in depreciation
due to capital expenditures in 1998.
Selling, general, and administrative expenses increased to 28.4% of net
sales for Fiscal 1998 from 28.1% for Fiscal 1997. This was due to incurring $4.2
million in integration expenses as a result of the Stone and Thomas acquisition,
partially offset by a reduction in the Company's store selling and customer
service expenditures and modification to the Company's fringe benefit plans.
Provision for doubtful accounts decreased to 0.9% of net sales for Fiscal
1998 from 1.6% for Fiscal 1997. This improvement was due to fewer write-offs of
delinquent customer accounts and fewer personal bankruptcies affecting the
Company.
Interest expense increased to $11.5 million for Fiscal 1998 from $7.1
million for Fiscal 1997. The increase was due to the additional financing
required to support the payment of bankruptcy obligations in connection with the
consummation of the Company's chapter 11 Plan of Reorganization and the
acquisition of Stone & Thomas, offset by a reduction resulting from the
Company's issuance of 3,220,000 shares of additional common stock.
Other income was $4.7 million for Fiscal 1998 compared to reorganization
and other expense of $26.2 million for Fiscal 1997. The income in 1998 was
primarily related to gains realized from the sale of the company's 20% limited
partnership interest in a partnership that owned the Company's 300,000 square
foot distribution center, and the sale of the Southtown department store
building. The expense in Fiscal 1997 was due to $27.5 million of reorganization
expenses that were incurred in the last year of the Company's bankruptcy,
partially offset by interest income recorded due to a federal income tax refund.
In Fiscal 1998 a federal, state, and city income tax expense was based on
the Company's taxable income reduced by the applicable net operating loss
carryforward generated in previous years. The Company also 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 1998. In Fiscal 1997, the Company recorded an income tax
benefit based on a taxable loss and an adjustment to the deferred tax asset
valuation allowance. See Note G to the Consolidated Financial Statements set
forth in Item 8.
During the third quarter of Fiscal 1999 the Company adopted a plan to
dispose of Bee-Gee. The discontinued operations loss, net of tax, recorded in
Fiscal 1998 is Bee-Gee's loss from operations. In Fiscal 1997 a discontinued
operations gain, net of tax, of $7.4 million was recorded for the extinguishment
of debt for Margo's. In December 1995, the Bankruptcy Court approved the
disposal of Margo's. The gain recorded represents the difference between the
amount of cash Margo's creditors received as part of the Plan of Reorganization
and the liabilities subject to settlement recorded by Margo's. This gain was
partially offset by
11
15
Bee-Gee's loss from operations in Fiscal 1997 of $0.7 million, net of tax. See
Note L to the Consolidated Financial Statements set forth in Item 8.
In Fiscal 1997 an extraordinary loss of $28.1 million was recorded in
connection with the extinguishment of the Company's prepetition liabilities. The
loss was based on the excess of the fair value of the stock and cash distributed
to the general unsecured creditors over the carrying amount of the liabilities
extinguished.
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 provided by operating activities was $6.6 million for Fiscal 1999,
compared to $14.8 million in Fiscal 1998. Net income for Fiscal 1999 was $15.2
million, including a one time noncash charge of $4.6 million in Fiscal 1999 to
reflect a write down of amounts invested several years ago in a cooperative
buying group, compared to $25.5 million for Fiscal 1998. Trade payables
decreased $18.5 million in Fiscal 1999 compared to a decrease of $4.6 million in
Fiscal 1998, due to reduced receipts in January, as well as automating invoice
payment processing. Inventory increased slightly in Fiscal 1999 ($1.6 million)
compared to an increase of $12.7 million in Fiscal 1998 due to the addition of
the Stone & Thomas stores.
Net cash used in investing activities was $13.5 million for Fiscal 1999,
compared to $39.7 million for Fiscal 1998. Capital expenditures for store
maintenance, remodeling, and data processing totaled $17.0 million for Fiscal
1999 compared to $16.2 million for Fiscal 1998. The cash proceeds from the sale
of Bee-Gee in Fiscal 1999 were $3.0 million. The Stone & Thomas acquisition on
July 27, 1998 required an investment of $19.4 million, net of cash acquired. On
November 23, 1998 the Company acquired the Stone & Thomas customer accounts
receivable portfolio from Alliance Data Systems for $13.0 million. During Fiscal
1998 the Company sold seven of the stores acquired from Stone & Thomas for $5.8
million. The Company also purchased for $2.8 million the department store
building that housed the Southtown shopping center store. This department store
was relocated to the Dayton Mall, and the Southtown location was sold for $6.0
million.
For Fiscal 1999, net cash provided by financing activities was $7.0 million
compared to $26.5 million for Fiscal 1998. The decrease is due to the
elimination of funding required in Fiscal 1998 for the Stone & Thomas purchase,
partially offset by additional borrowing of $7.4 million to fund the purchase by
the Company of 1,133,200 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.
On April 20, 2000, the Company entered into financing commitments to
replace its existing Revolving Credit Facilities, which are set to expire in
December 2000 with agreements similar in scope and with a 36 month term. The
intent of the early refinancing is to provide the Company with greater operating
flexibility with respect to working capital management and capital expenditures.
The new Credit Facilities will be effective during the Company's second quarter
of Fiscal 2000.
The new Revolving Credit Facility provides for borrowings and letters of
credit in an aggregate amount up to $150,000,000, subject to a borrowing base
formula based on seasonal merchandise inventories. There is a $40,000,000
sublimit for letters of credit.
The Company's replacement Receivable Securitization Facility provides for
borrowings up to $150,000,000 based on qualified, pledged accounts receivable
balances. The terms and borrowing rates are substantially similar to the
predecessor Receivable Securitization Facility with the exception of maximum
borrowings, which have been reduced to $150,000,000 from $175,000,000, to reduce
fees the Company historically has paid for unused borrowing capacity.
The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under the existing
Credit Facilities and new Credit Facilities, to meet anticipated working
12
16
capital and capital expenditure requirements, as well as debt service
requirements under the existing Credit Facilities and new Credit Facilities.
The Company may from time to time consider acquisitions of department store
assets and companies. Acquisition transactions, if any, are expected to be
financed through a combination of cash on hand from operations, available
borrowings under the Credit Facilities, and the possible issuance from time to
time of long-term debt or other securities. Depending upon the conditions in the
capital markets and other factors, the Company will from time to time consider
the issuance of debt or other securities, or other possible capital market
transactions, the proceeds of which could be used to refinance current
indebtedness or for other corporate purposes.
The Company retained the investment banking firm of Wasserstein, Perella &
Co. to advise the Company on strategic alternatives available to maximize
shareholder value. The alternatives could include sale of the Company,
recapitalization or merger.
YEAR 2000 DISCLOSURE
The Company did not experience any malfunctions or errors in its operating
or business systems when the date changed from 1999 to 2000. Based on operations
since January 1, 2000, the Company does not expect any significant impact to its
ongoing business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 problems may
occur with billing, payroll, or financial closings at month, quarter or
year-end. The Company believes that any such problems are likely to be minor and
correctable. In addition, the Company could still be negatively affected if its
customers or suppliers are adversely affected by the Year 2000 or similar
issues. The Company currently is not aware of any Year 2000 or similar problems
that have arisen for its customers and suppliers.
The Company expended $525,000 on Year 2000 readiness efforts from 1997
through 1999. These efforts included replacing some outdated, noncompliant
hardware and noncompliant software as well as identifying and remediating Year
2000 problems.
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 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Independent Auditors' Report................................ 14
Consolidated Financial Statements as of January 29, 2000 and
January 30, 1999 and for each of the three fiscal years in
the period ended January 29, 2000:
Statements of Operations.................................. 15
Balance Sheets............................................ 16
Statements of Shareholders' Equity........................ 17
Statements of Cash Flows.................................. 18
Notes to Consolidated Financial Statements................ 19-34
13
17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders 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 January 29,
2000 and January 30, 1999 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended January 29, 2000. 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 consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 29,
2000 and January 30, 1999 and the results of its operations and its cash flows
for each of the three fiscal years in the period ended January 29, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note A to the financial statements, the accompanying fiscal
year 1998 and 1997 financial statements have been restated to reflect an accrual
for sales returns.
DELOITTE & TOUCHE LLP
April 20, 2000
Dayton, Ohio
14
18
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED
-----------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Net sales.............................................. $637,797 $582,091 $530,687
Financing.............................................. 26,124 25,573 26,574
Leased departments..................................... 2,861 2,707 2,718
-------- -------- --------
Total revenues................................. 666,782 610,371 559,979
-------- -------- --------
Costs and expenses:
Cost of merchandise sold, occupancy and buying
expenses............................................ 459,728 410,631 383,571
Selling, general and administrative expenses........... 174,977 165,125 149,037
Provision for doubtful accounts........................ 3,906 5,046 8,636
Interest expense....................................... 11,771 11,536 7,084
Reorganization and other expense (income).............. 3,784 (4,707) 26,208
-------- -------- --------
Total costs and expenses....................... 654,166 587,631 574,536
-------- -------- --------
Earnings (loss) before income tax benefit,
discontinued operations and extraordinary
item......................................... 12,616 22,740 (14,557)
Income tax benefit....................................... (5,399) (3,124) (7,027)
-------- -------- --------
Earnings (loss) from continuing operations............. 18,015 25,864 (7,530)
Discontinued operations.................................. (2,787) (403) 6,709
-------- -------- --------
Earnings (loss) before extraordinary item.............. 15,228 25,461 (821)
Extraordinary item....................................... (28,131)
-------- -------- --------
Net earnings (loss).................................... $ 15,228 $ 25,461 $(28,952)
======== ======== ========
Earnings (loss) per common share -- basic:
Continuing operations.................................. $ 1.17 $ 1.84 $ (6.04)
Discontinued operations................................ (0.18) (0.03) 5.38
Extraordinary item..................................... (22.58)
-------- -------- --------
Net earnings (loss)............................ $ 0.99 $ 1.81 $ (23.24)
======== ======== ========
Earnings (loss) per common share -- diluted:
Continuing operations.................................. $ 1.17 $ 1.79 $ (6.04)
Discontinued operations................................ (0.18) (0.03) 5.38
Extraordinary item..................................... (22.58)
-------- -------- --------
Net earnings (loss)............................ $ 0.99 $ 1.76 $ (23.24)
======== ======== ========
See notes to the consolidated financial statements.
15
19
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED
------------------------------------
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets
Cash and equivalents...................................... $ 8,276 $ 8,146
Customer accounts receivable (less allowance for doubtful
accounts: fiscal 1999 -- $2,048, fiscal
1998 -- $4,377)........................................ 140,356 141,205
Merchandise inventories................................... 165,451 163,879
Other current assets...................................... 20,250 16,696
Discontinued operations, net current assets............... 7,106
-------- --------
Total current assets........................................ 334,333 337,032
-------- --------
Property:
Land and improvements..................................... 1,278 1,300
Buildings and leasehold improvements...................... 63,538 59,192
Furniture, fixtures, and equipment........................ 105,022 96,736
Construction in progress.................................. 2,069 1,554
-------- --------
Total cost.................................................. 171,907 158,782
Less accumulated depreciation and amortization.............. (96,975) (87,290)
-------- --------
Property, net............................................... 74,932 71,492
-------- --------
Discontinued operations, net non-current assets............. 2,196
Other assets................................................ 45,630 41,640
-------- --------
$454,895 $452,360
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt......................... $131,086 $ 951
Accounts payable.......................................... 36,556 53,798
Accrued liabilities:
Compensation and related items......................... 3,822 4,314
Income and other taxes................................. 9,546 9,079
Rent................................................... 3,176 2,602
Other.................................................. 9,348 15,100
-------- --------
Total current liabilities......................... 193,534 85,844
-------- --------
Long-term obligations -- less current portion............... 6,130 121,507
Deferred items.............................................. 9,054 7,797
Commitments and contingencies (Note O)
Shareholders' equity:
Common stock, no par, 14,923,846 shares at January 29, 2000
and 15,898,864 shares at January 30, 1999 issued and
outstanding............................................... 260,171 266,683
Unearned compensation -- restricted stock, net.............. (1,779) (2,028)
Deficit..................................................... (12,215) (27,443)
-------- --------
Total shareholders' equity........................ 246,177 237,212
-------- --------
$454,895 $452,360
======== ========
See notes to the consolidated financial statements.
16
20
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNEARNED
PREFERRED ADDITIONAL COMPENSATION- TOTAL
STOCK COMMON PAID-IN RESTRICTED SHAREHOLDERS'
SERIES B STOCK CAPITAL STOCK DEFICIT EQUITY
--------- -------- ---------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
Shareholders' equity at February 1, 1997,
as previously reported (124,036 common
shares outstanding)...................... $ 7 $ 6,511 $ 23,283 $ $(23,663) $ 6,138
Adjustment for sales return reserve........ (289) (289)
--- -------- -------- ------- -------- --------
Shareholders' equity at February 1, 1997,
as adjusted.............................. 7 6,511 23,283 (23,952) 5,849
Net Loss................................... (28,952) (28,952)
Common stock issuance at bankruptcy
emergence (12,372,960 common shares)..... (7) 191,580 (23,283) 168,290
Restricted shares issued (86,793 common
shares).................................. 1,260 (1,260)
Amortization of unearned compensation...... 35 35
--- -------- -------- ------- -------- --------
Shareholders' equity at January 31, 1998
(12,583,789 common shares outstanding)... 199,351 (1,225) (52,904) 145,222
Net earnings............................... 25,461 25,461
Common stock issued (3,228,943 shares)..... 65,563 65,563
Restricted shares issued, net of
forfeitures (86,132 common shares)....... 1,769 (1,769)
Amortization of unearned compensation...... 966 966
--- -------- -------- ------- -------- --------
Shareholders' equity at January 30, 1999
(15,898,864 common shares outstanding)... 266,683 (2,028) (27,443) 237,212
Net earnings............................... 15,228 15,228
Common stock issued (8,309 shares)......... 107 107
Restricted shares issued, net of
forfeitures (149,873 common shares)...... 831 (831)
Shares purchased (1,133,200 shares)........ (7,450) (7,450)
Amortization of unearned compensation...... 1,080 1,080
--- -------- -------- ------- -------- --------
Shareholders' equity at January 29, 2000
(14,923,846 common shares outstanding)... $ $260,171 $ $(1,779) $(12,215) $246,177
=== ======== ======== ======= ======== ========
See notes to the consolidated financial statements.
17
21
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net earnings (loss)....................................... $ 15,228 $ 25,461 $(28,952)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for doubtful accounts........................ 3,906 5,046 8,636
Deferred income taxes.................................. (7,748) (4,672) (7,877)
Provision for depreciation and amortization............ 15,229 13,418 11,443
Loss (gain) on disposal of assets...................... 28 (2,521) 636
Loss on equipment settlements.......................... 74
Stock-based compensation expense....................... 1,640 1,564 85
Payment to general unsecured creditors................. (82,215)
Loss (gain) on discontinued operations................. 2,787 403 (6,709)
Impairment of investment............................... 4,639
Extraordinary item..................................... 28,131
Changes in noncash assets and liabilities (net of
amounts acquired)
Customer accounts receivable......................... (3,057) 1,742 2,473
Merchandise inventories.............................. (1,572) (12,658) (10,195)
Other current assets................................. (837) 1,995 12,682
Other long-term assets............................... (164) (1,229) 1,549
Net assets of discontinued operations................ 1,740 (1,255) 450
Accounts payable..................................... (18,549) (4,620) 15,461
Accrued liabilities.................................. (6,685) (7,842) 561
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 6,585 14,832 (53,767)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (17,041) (16,215) (20,647)
Proceeds from sale of property............................ 587 11,782
Proceeds from sale of discontinued operations............. 3,000
Acquisition of customer accounts receivable............... (13,046)
Real estate acquired...................................... (2,814)
Payment for acquired business, net of cash purchased...... (19,405)
-------- -------- --------
Net cash used in investing activities............. (13,454) (39,698) (20,647)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under asset securitization
agreement.............................................. 12,430 (8,606) 123,015
Net borrowings (payments) on bankers' acceptance and
revolving lines of credit.............................. 3,279 (10,960) 10,960
Payments on long-term obligations......................... (951) (1,105) (748)
Debt acquisition payments................................. (309) (613) (1,634)
Common shares purchased................................... (7,450)
Proceeds from common stock issuance, net of expense....... 65,381
Payments on debt assumed at acquisition................... (17,582)
Net payments under DIP Facility........................... (57,773)
-------- -------- --------
Net cash provided by financing activities......... 6,999 26,515 73,820
-------- -------- --------
Increase (decrease) in cash and equivalents................. 130 1,649 (594)
Cash and equivalents -- beginning of year................... 8,146 6,497 7,091
-------- -------- --------
Cash and equivalents -- end of year......................... $ 8,276 $ 8,146 $ 6,497
======== ======== ========
Supplemental cash flow information:
Interest paid............................................. $ 11,189 $ 11,299 $ 6,945
Income taxes paid......................................... 778 569 497
Supplemental non-cash investing and financing activities:
Capital leases............................................ 235
Issuance of common shares to satisfy deferred
compensation........................................... 25
Receivables acquired in the sale of The Bee-Gee Shoe
Corp. ................................................. 3,600
See notes to the consolidated financial statements.
18
22
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 years 1999, 1998 and 1997 consist of 52 weeks ended January
29, 2000, January 30, 1999 and January 31, 1998, 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.
RELATED PARTIES -- The Company leased real estate under operating leases
from certain affiliated entities, which were owned by certain directors and
officers, and made payments to these related parties totaling $3.2 million in
fiscal 1997. As a result of the issuance of new common shares of the Company as
of December 30, 1997 (the "Effective Date"), these entities' are no longer
affiliates and their directors and officers are no longer related parties.
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 -- 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 is 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 January 29, 2000 and
January 30, 1999.
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 10-25 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 -- 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. Leased departments revenue is recognized as the Company
earns commission from the sale of merchandise within licensed departments.
Historically, the Company has not recorded sales returns on the accrual
basis of accounting because the difference between the cash and accrual basis of
accounting was not material. In fiscal 1999, the Company is accruing sales
returns in accordance with generally accepted accounting principles.
Accordingly, the Company has recorded the cumulative effect of this adjustment
on prior periods as an increase in current liabilities and a
19
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corresponding decrease in retained earnings of $289,000 as of February 1, 1997.
Because the effects of this change were insignificant to the 1997 and 1998
fiscal years, the Company has recorded such amounts in the current year. The
impact of recording this change in fiscal 1999 is not significant.
PRE-OPENING COSTS associated with opening new stores are expensed as
incurred.
ADVERTISING EXPENSE -- The cost of advertising is expensed as incurred.
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 counterparties 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.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires an entity to recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Gains or losses resulting from changes in fair
value of the derivatives are recorded depending upon whether the instruments
meet the criteria for hedge accounting. The impact of adopting this standard is
not anticipated to be material to the consolidated financial statements. This
statement is effective for fiscal years beginning after June 15, 2000.
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.
Comprehensive income equals net income for each of the years reported.
RECLASSIFICATIONS -- Certain amounts in the fiscal 1998 and 1997 financial
statements have been reclassed to conform with the fiscal 1999 presentation.
B. CHAPTER 11 CASE
On the Effective Date, the Company substantially consummated its Third
Amended Joint Plan of Reorganization dated November 17, 1997, as amended, (the
"Joint Plan"), which was confirmed by an order of the Bankruptcy Court entered
on December 16, 1997.
The Joint Plan established a reorganized Company, including a new Board of
Directors, new benefit and compensation programs and agreements, a
reorganization bonus paid to certain executives, authorization and issuance of
shares of new common stock and the issuance of warrants. In addition, the Joint
Plan provided for the settlement of prepetition liabilities subject to
compromise, in the Company's Chapter 11 case in exchange for cash, shares of new
common stock or reinstatement as liabilities of the reorganized Company.
20
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cash disbursements upon the effectiveness of the Joint Plan were as
follows:
Holders of general unsecured claims......................... $ 79,698
Holders of unsecured claims against the Company's
discontinued Margo's operations........................... 2,517
-----------
Total payments made to general unsecured creditors.......... $ 82,215
===========
The new common shares issued upon the effectiveness of the Joint Plan were as
follows:
Holders of general unsecured claims......................... 12,279,611
Holders of old common stock interests....................... 124,036
Reorganization bonus to certain executives.................. 93,349
-----------
12,496,996
===========
In addition to receiving new common shares, the holders of common stock
prior to the Company's emergence from bankruptcy received 249,809 Series A Stock
Warrants and 374,713 Series B Stock Warrants at the Effective Date. The holders
of preferred stock prior to the Company's emergence from bankruptcy were awarded
allowed claims as general unsecured claimants and, accordingly, are included in
the general unsecured distributions described above.
The value of cash and common stock required to be distributed under the
Joint Plan to the Company's general unsecured creditors exceeded the value of
the liabilities settled. Therefore, the Company recorded an extraordinary loss
related to the discharge of these prepetition liabilities. The extraordinary
loss recorded by the Company was determined as follows:
Cash distribution to general unsecured creditors pursuant to
the Joint Plan............................................ $ 79,698
Fair value of new common stock issued to general unsecured
creditors................................................. 178,300
---------
257,998
Less general unsecured claims............................... (229,867)
---------
Extraordinary loss.......................................... $ 28,131
=========
C. ACQUISITION
In 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. This transaction
has been accounted for as a purchase. The excess of acquisition costs over fair
value of the net assets acquired of $16.8 million is recorded as goodwill. As
part of the Company's acquisition of Stone & Thomas, a plan to exit certain
activities resulted in the sale of seven of the store locations, the closing of
two and the recording of related liabilities for store closings, employee
severance, lease buyouts and other expenses. The Company recorded an accrual to
exit certain activities of Stone & Thomas in accordance with this plan in the
amount of $6.8 million, which was paid in fiscal 1999 and 1998.
PRO FORMA SUMMARY OF OPERATIONS DATA (UNAUDITED) - The unaudited pro forma
summary of operation data for each of the 52 week periods ended January 30, 1999
and January 31, 1998 have been prepared by combining the consolidated statement
of operations of The Elder-Beerman Stores Corp. with the consolidated statement
of operations of Stone & Thomas for the same periods. To comply with the
disclosures required by accounting principles generally accepted in the United
States of America related to acquisitions, the following unaudited pro forma
financial information is presented as though the acquisition occurred at the
beginning of fiscal 1997. The expected synergy of this acquisition after
integration with the existing business, including the disposition of stores, is
not permitted to be reflected in the pro forma results. Therefore, the pro forma
results are not indicative of results of operations in the future or in the
periods presented below. Included in the pro forma
21
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results are adjustments to depreciation and amortization based on the purchase
price allocation and the effect of the issuance of additional common shares. The
net proceeds of the additional common shares were used, in part, to purchase
Stone & Thomas. The following pro forma results reflect the operations of all 20
Stone & Thomas stores up to the date of acquisition.
PRO FORMA RESULTS OF OPERATIONS
YEAR ENDED
-----------------------------------
JANUARY 30, 1999 JANUARY 31, 1998
---------------- ----------------
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Net sales................................................... $625,163 $651,170
Earnings (loss) before extraordinary item................... 17,402 (10,224)
Net earnings (loss)......................................... 17,402 (38,355)
Net earnings (loss) per common share -- basic............... 1.11 (8.59)
Net earnings (loss) per common share -- diluted............. 1.08 (8.59)
Subsequent to the acquisition, the Company closed two stores and sold seven
store locations. Pro forma net sales for the Company, including only the eleven
continuing Stone & Thomas stores are $614.5 million and $623.6 million for the
years ended January 30, 1999 and January 31, 1998, respectively.
D. CUSTOMER ACCOUNTS RECEIVABLE
Customer accounts receivable, which represent finance subsidiary
receivables, are classified as shown in the following table. Interest is charged
at an annual rate of 18% to 21%, depending on state law.
YEAR ENDED
-----------------------------------
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
TYPE OF ACCOUNT
Optional and other.......................................... $134,727 $137,592
Deferred payment............................................ 8,114 8,463
-------- --------
Total............................................. 142,841 146,055
Less:
Allowance for doubtful accounts........................... (2,048) (4,377)
Unearned interest on deferred contracts................... (437) (473)
-------- --------
Customer accounts receivable, net........................... $140,356 $141,205
======== ========
Deferred payment accounts include the remaining unearned interest charge to
be received. Unearned interest is amortized to finance income using the
effective interest method.
YEAR ENDED
--------------------------------------------------------
JANUARY 29, 2000 JANUARY 30, 1999 JANUARY 31, 1998
---------------- ---------------- ----------------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Allowance for doubtful accounts:
Balance, beginning of year.................. $ 4,377 $ 4,177 $ 3,800
Provision................................... 3,906 5,046 8,636
Other....................................... 1,463
Charge offs, net of recoveries.............. (6,235) (6,309) (8,259)
------- ------- -------
Balance, end of year.......................... $ 2,048 $ 4,377 $ 4,177
======= ======= =======
22
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the fourth quarter of fiscal 1998, the Company acquired Stone & Thomas'
customer accounts receivable portfolio, which was previously owned and serviced
by a third-party servicer. The portfolio totaled approximately $11.3 million,
net of an initial allowance for doubtful accounts of approximately $1.5 million
and expenses of approximately $300,000 included in the purchase price
allocation.
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 (prior to January
1998, 2% discount). Customer accounts receivable held by the finance subsidiary
are included above; purchase discounts are eliminated in consolidation.
E. DEBT
The Company, through its financing subsidiary, has a three-year Revolving
Credit Facility ("Credit Facility") and a three-year variable rate
securitization loan agreement ("Securitization Facility") with a commercial bank
that expires December 30, 2000. The Credit Facility provides for borrowings and
letters of credit in an aggregate amount up to $150 million subject to a
borrowing base formula based primarily on merchandise inventories and certain
lower limitations for a defined period of the year. There is a $40 million
sublimit for letters of credit. The Company has the option to finance borrowings
at either Prime, plus 75 basis points or LIBOR, plus 175 basis points. As of
January 29, 2000, the Company has $12.5 million in outstanding letters of credit
and approximately $70 million available for additional borrowings under the
Credit Facility.
As of January 29, 2000, the Securitization Facility is a revolving
arrangement whereby the Company can borrow up to $175 million. The Company's
customer accounts receivable are pledged as collateral under the Securitization
Facility. The borrowings under this facility are subject to a borrowing-based
formula based primarily on outstanding customer accounts receivable. Borrowings
bear interest at approximately one month LIBOR, plus 5 basis points.
Certain financial covenants related to debt, capital expenditures, interest
and fixed charge expenditures 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 repurchases of
outstanding capital stock, investments, mergers, stock transfers and sales of
assets. Certain ratios related to the performance of the accounts receivable
portfolio are also included.
Outstanding borrowings of $130.1 million on the Credit and Securitization
Facilities due December 2000 are classified as current liabilities. Management
signed commitment letters with Citibank, N.A. to refinance the borrowings on a
long-term basis with agreements similar in scope to the existing Credit and
Securitization Facilities, except for the maximum borrowings under the new
securitization facility, which will be reduced to $150 million. The closing on
the new securitization and credit agreements is scheduled for May 2000.
23
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt consists of the following:
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Mortgage note payable (9.75%)............................... $ 2,536 $ 2,606
Industrial development revenue bonds, variable rates based
on published index of tax-exempt bonds (4.81%)............ 3,480 3,880
Capital lease obligations................................... 1,081 1,562
Credit facility (9.25%)..................................... 3,279
Securitization facility (5.98%)............................. 126,840 114,410
--------- --------
Total............................................. 137,216 122,458
Current portion of long-term obligations.................... (131,086) (951)
--------- --------
Long-term obligations....................................... $ 6,130 $121,507
========= ========
Maturities of borrowings are $131,086,000 in 2000, $870,000 in 2001,
$362,000 in 2002, $281,000 in 2003, $253,000 in 2004, and $4,364,000 thereafter.
Collateral for the industrial development revenue bonds and the mortgage
note payable is land, buildings, furniture, fixtures and equipment with a net
book value of $4.1 million at January 29, 2000.
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 involve the receipt of variable rate amounts in exchange for fixed
rate interest payments over the life of the agreement. The differential between
the fixed and variable rates to be paid or received is accrued as interest rates
change and is recognized as an adjustment to interest expense. The Company had
outstanding swap agreements with notional amounts totaling $115 million for the
fiscal years ended 1999 and 1998, expiring September 28, 2001. This agreement
has been matched to the Securitization Facility to reduce the impact of interest
rate changes on cash flows.
The Company is exposed to credit related losses in the event of
non-performance by the counterparties to the swap agreements. All counterparties
are rated A or higher by Moody's and Standard and Poor's and the Company does
not anticipate non-performance by any of its counterparties.
F. 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.
24
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum annual rentals, for leases having initial or remaining
noncancellable lease terms in excess of one year at January 29, 2000, are as
follows:
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
- ----------- --------- --------------
(ALL DOLLAR AMOUNTS IN
THOUSANDS)
2000...................................................... $ 24,778 $ 525
2001...................................................... 22,915 347
2002...................................................... 20,871 174
2003...................................................... 20,051 81
2004...................................................... 19,605 40
Thereafter................................................ 169,837
-------- ------
Minimum lease payments...................................... $278,057 1,167
========
Less imputed interest....................................... (86)
------
Present value of net minimum lease payments................. $1,081
======
YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
RENT EXPENSE
Operating Leases:
Minimum................................................ $24,895 $19,848 $15,152
Contingent............................................. 1,907 1,818 1,943
------- ------- -------
Total rent expense....................................... $26,802 $21,666 $17,095
======= ======= =======
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
ASSETS HELD UNDER CAPITAL LEASES
Buildings................................................. $ 5,538 $ 7,338
Equipment................................................. 235 235
Accumulated depreciation and amortization................. (5,130) (6,646)
------- -------
$ 643 $ 927
======= =======
Assets acquired under capital leases are included in the consolidated
balance sheets as property, while the related obligations are included in
long-term obligations.
25
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. INCOME TAXES
Income tax expense (benefit) consists of the following:
YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Current:
Federal.............................................. $ 272 $ 813 $
State and local...................................... 471 503 465
-------- -------- -------
743 1,316 465
-------- -------- -------
Deferred:
Net operating losses and tax credit carryforwards.... (1,178) 8,955 (5,529)
Interest............................................. (266) (6,119)
Deferred income...................................... (268) 1,804
Discontinued operations.............................. 2,362
Valuation allowance.................................. (10,635) (12,337) (3,759)
Other................................................ 4,333 (1,024) 3,364
-------- -------- -------
(7,748) (4,672) (7,877)
-------- -------- -------
Income tax expense (benefit)......................... $ (7,005) $ (3,356) $(7.412)
======== ======== =======
Income statement classification:
Continuing operations................................ $ (5,399) $ (3,124) $(7,027)
Discontinued operations.............................. (1,606) (232) (385)
-------- -------- -------
Total........................................ $ (7,005) $ (3,356) $(7,412)
======== ======== =======
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:
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
Federal taxes computed at the statutory rate............. $ 4,416 $ 7,959 $(5,095)
State and local taxes.................................... 539 523 495
Valuation allowance...................................... (10,635) (12,337) (7,579)
Permanent items.......................................... 281 731 5,152
-------- -------- -------
Income tax benefit from continuing operations............ $ (5,399) $ (3,124) $(7,027)
======== ======== =======
26
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes consist of the following:
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
(ALL DOLLAR AMOUNTS
IN THOUSANDS)
Deferred tax assets:
Net operating losses and tax credit carryforwards......... $22,850 $ 21,672
Deferred income........................................... 1,136 868
Deferred compensation..................................... 1,666
Bad debts................................................. 758 1,546
Other..................................................... 7,258 6,132
------- --------
33,668 30,218
Valuation allowance......................................... (3,829) (14,464)
------- --------
Total deferred tax assets......................... 29,839 15,754
------- --------
Deferred tax liabilities.................................... (7,768) (1,431)
------- --------
Net deferred tax asset............................ $22,071 $ 14,323
======= ========
Included in the balance sheets:
Other current assets...................................... $ 8,090 $ 5,151
Other assets.............................................. 13,981 9,172
------- --------
Net deferred tax assets........................... $22,071 $ 14,323
======= ========
Permanent items consist primarily of non-deductible goodwill and bankruptcy
related expenses that are not deductible for tax purposes. 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, 1998 and 1997, 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 $57.5 million
and is available to reduce federal taxable income through 2012. The tax credit
carryforward is approximately $3.0 million, of which $632,000 will expire in
2009 and 2010, and the balance is an indefinite carryforward.
H. 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. Expense of $1.9 million and $1.3 million was recorded in fiscal
1999 and 1998, respectively, for the Company's matching contribution to the
Benefit Plan. No contribution expense was recorded in fiscal year 1997. 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.
The Company has a Stock Purchase Plan, which provides for its employees to
purchase Elder-Beerman common stock at a 15% discount. Employees can 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
27
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Summary information for the Company's defined-benefit plan is as follows:
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
(ALL DOLLAR AMOUNTS IN
THOUSANDS)
Change in the projected benefit obligation:
Projected benefit obligation at beginning of year/date of
acquisition............................................ $(6,092) $(5,772)
Service cost.............................................. (12)
Interest cost............................................. (385) (199)
Actuarial gain (loss)..................................... 608 (614)
Benefits paid............................................. 750 505
------- -------
Projected benefit obligation at end of year................. (5,119) (6,092)
------- -------
Change in the plan assets:
Fair value of plan assets at beginning of year/date of
acquisition............................................ 6,123 5,934
Actual return (loss) on plan assets....................... (247) 341
Employer contributions.................................... 353
Benefits paid............................................. (750) (505)
------- -------
Fair value of plan assets at end of year.................... 5,126 6,123
------- -------
Plan assets in excess of projected benefit obligation....... 7 31
Reconciliation of financial status of plan to amounts
recorded in balance sheet -- unrecorded effect of net loss
arising from differences between actuarial assumptions
used to determine periodic pension expense and actual
expense................................................... 666 521
------- -------
Net pension asset included in other assets in the Company's
balance sheet............................................. $ 673 $ 552
======= =======
Benefit obligation discount rate............................ 7.5% 6.5%
======= =======
1999 1998
The components of net pension income are as follows ----- -----
Service cost................................................ $ 12
Interest cost on projected benefit obligation............... $ 385 199
Expected return on plan assets.............................. (507) (249)
----- -----
Net pension income.......................................... $(122) $ (38)
===== =====
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 income was 8.5%.
I. EARNINGS (LOSS) PER COMMON 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. There was no dilutive effect of potential
common shares in fiscal 1997. A
28
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reconciliation of the weighted average shares used in the basic and diluted
earnings per share calculation is as follows:
1999 1998 1997
---------- ---------- ---------
Weighted average common shares
outstanding -- basic.......................... 15,371,183 14,078,441 1,245,760
Dilutive potential common shares:
Warrants...................................... 150,049
Stock options................................. 2,953 185,161
Restricted shares............................. 4,552 33,917
Deferred shares............................... 63,970 25,388
---------- ---------- ---------
Adjusted weighted average shares -- diluted..... 15,442,658 14,472,956 1,245,760
========== ========== =========
J. SHAREHOLDERS' EQUITY
The Company has authorized 25 million no par common shares. In August 1999,
the Company's Board of Directors authorized the repurchase of up to $24 million
in common shares over a two-year period. During fiscal 1999, a total of 1.1
million common shares were repurchased for $7.4 million. Also during fiscal
1999, a total of 8,309 common shares and 149,873 restricted shares were issued.
There were 1,117,963 shares held in treasury at January 29, 2000.
The Board of Directors has the authority to issue five million shares of
preferred stock. At January 29, 2000, these shares are unissued.
Warrants of 624,522 are attached to shares 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.
K. 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 2,250,000 shares are authorized for issuance under this plan
and awards related to 2,058,164 shares have been issued as of January 29, 2000.
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 1999 and 1998, the
Company has granted certain discounted stock options to outside directors with
an exercise price less than the market price of the stock on the grant date.
On February 25, 1999, the Company granted 460,000 premium based options and
115,000 performance based restricted shares to certain executives. These premium
based options have a vesting period of three years. The performance based
restricted shares will vest three years from the date of grant only if the
Company meets specified cumulative performance targets. The Company has not
recorded any expense for these because of the uncertainty of attaining
performance targets.
29
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Company's stock option activity:
1999 1998 1997
--------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- ------- --------- ------- ---------
Outstanding at beginning of year... 938,096 $12.53 773,000 $10.89
Granted:
Discounted....................... 30,554 5.39 29,096 12.07 773,000 $10.89
Undiscounted..................... 343,000 8.18 165,000 20.51
Premium.......................... 460,000 9.71
Canceled........................... (105,500) 11.10 (29,000) 13.86
--------- ------- -------
Outstanding at end of year......... 1,666,150 $10.81 938,096 $12.53 773,000 $10.89
--------- ------- -------
Exercisable at year end............ 346,965 $11.84 161,133 $10.89
--------- ------- -------
Weighted-average fair value of
stock options granted during the
year using the Black-Scholes
options -- pricing model:
Discounted....................... $ 5.24 $10.47 $ 8.63
Undiscounted..................... $ 5.55 $11.96
Premium.......................... $ 4.94
1999 1998 1997
------- ------- -------
Weighted-average assumptions used for grants:
Expected dividend yield................................... 0% 0% 0%
Expected volatility....................................... 63% 50% 35%
Risk-free interest rate................................... 6.3% 5.3% 6.5%
Expected life............................................. 7 years 7 years 7 years
The following table shows various information about stock options
outstanding at January 29, 2000:
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ----------------------------
AVERAGE WEIGHTED- NUMBER WEIGHTED -
REMAINING AVERAGE EXERCISABLE AVERAGE
CONTRACTUAL EXERCISE AT JANUARY 29, EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE (IN YEARS) PRICE 2000 PRICE
- ------------------------ --------- --------------- --------- --------------- ----------
4.313 - 8.750 313,554 8.0 $ 7.24
9.094 - 12.375 1,200,965 7.6 10.51 311,334 $10.87
14.125 - 18.000 16,076 8.6 15.39 6,076 16.19
21.000 - 24.375 135,555 8.1 21.19 29,555 21.17
--------- -------
1,666,150 7.7 $10.81 346,965 $11.84
========= =======
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 January 29, 2000, 322,798 restricted common
shares are issued and outstanding under the Incentive Plan. There were 149,873
and 86,132 shares awarded under the Incentive Plan in fiscal 1999 and 1998,
respectively. The fair value of the restricted shares awarded was $1.2 million
and $1.8 million in fiscal 1999 and 1998, respectively, which is recorded as
compensation expense over the three-year vesting period.
30
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 January 29, 2000, 59,952 deferred shares are outstanding.
Total compensation costs charged to earnings from continuing operations
before income taxes for all stock-based compensation awards was approximately
$1.6 million both in fiscal 1999 and 1998. 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 reduced to the following pro forma amounts:
1999 1998 1997
-------- -------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Net earnings (loss):
As reported............................................... $15,228 $25,461 $(28,952)
Pro forma................................................. 13,103 24,211 (29,018)
Net earnings (loss) per common share -- diluted:
As reported............................................... 0.99 1.76 (23.24)
Pro forma................................................. 0.85 1.67 (23.29)
L. DISCONTINUED OPERATIONS
During fiscal 1999, the Company sold its wholly-owned subsidiary, The Bee
Gee Shoe Corp. for $3 million cash, $1.5 million cash payable from subsequent
earnings of the purchaser (the "Earnout"), and a $4.8 million note receivable.
The Company obtained an independent appraisal of the fair value of the Earnout
and note receivable in order to determine the amount received from sale.
Payments on the note will commence March 31, 2002. In the interim, interest
accrues at a rate of 8.5% per annum. Payments from subsequent earnings of the
purchaser will commence no later than March 31, 2003. The sale was completed
January 25, 2000. Revenues of the shoe division were $26.7 million, $31.2
million and $31.4 million in 1999, 1998 and 1997, respectively.
The settlement of liabilities subject to compromise and other liabilities
upon the Company's emergence from bankruptcy during fiscal 1997 resulted in a
net gain of $7.4 million from its previously discontinued Margo's La Mode, Inc.
("Margo's") operations. The Company was able to utilize operating loss
carryforwards that were fully reserved in prior years to offset the income tax
expense related to this gain on discontinued operations. Therefore, there is no
income tax expense recorded in connection with this gain. Margo's did not have
any sales subsequent to fiscal 1995.
The following are the components of discontinued operations:
1999 1998 1997
---------- -------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Loss from operations of shoe division (net of income tax
benefit of $257, $232, and $385 in fiscal years 1999, 1998
and 1997, respectively)................................... $ (447) $(403) $ (669)
Loss on sale of shoe division, including loss on operations
during phase-out period of $564 (net of income tax benefit
of $1,349)................................................ (2,340)
Gain on settlement of Margo's liabilities................... 7,378
------- ----- ------
$(2,787) $(403) $6,709
======= ===== ======
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35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
M. REORGANIZATION ITEMS
Reorganization and other expense (income) is comprised of the following:
1999 1998 1997
-------- --------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Asset Impairment........................................ $4,639 $ $
Gain on the sale of assets.............................. (3,285)
Reorganization expense.................................. 27,542
Other................................................... (855) (1,422) (1,334)
------ ------- -------
$3,784 $(4,707) $26,208
====== ======= =======
In the fourth quarter of 1999, adverse changes occurred 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 fair value. Gains from the sale of assets are from the Company's
sale of a 20% interest in a distribution center and the sale of the Southtown
department store building during fiscal 1998. Reorganization expenses are
associated with the settlement of bankruptcy related items. Amounts recorded as
reorganization expense for fiscal 1997 are as follows:
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Professional fees........................................... $15,505
Restructuring............................................... 6,852
Adjustment to liabilities subject to compromise............. 2,326
Reorganization bonus........................................ 2,100
Financing costs............................................. 685
Equipment lease settlements................................. 74
-------
Total............................................. $27,542
=======
Restructuring costs included in reorganization are a result of the
Company's decision to close two department stores and discontinue certain
departments. Property impairment, severance and certain store closing costs are
included in restructuring costs. Restructuring expenses of $3,363,000 and
$3,489,000 were charged to the restructuring reserve in fiscal 1998 and 1997,
respectively.
N. DISCLOSURES ABOUT FAIR VALUE OF 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 estimated fair
value of the $115 million notional amount interest rate swap agreement is
$1.1 million gain and $2.6 million loss at January 29, 2000 and January 30,
1999, respectively. There is no carrying amount in the consolidated balance
sheets.
32
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
O. 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. In addition, as a result of the bankruptcy case, the Company
remains subject to the jurisdiction of the Bankruptcy Court for matters relating
to the consummation of the Joint Plan. Management believes the outcome of any of
the litigation matters that will not have a material effect on the Company's
results of operations, cash flows or financial position have been appropriately
accrued.
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.
LEASE GUARANTEES -- The Company has a guarantee lease obligation of thirty
stores of Shoebilee, Inc. The leases have remaining noncancellable terms
expiring no later than 2008. The minimum annual rentals related to these leases
are $1,089,438 in 2000; $841,119 in 2001; $547,883 in 2002; $371,775 in 2003;
$358,933 in 2004; and $1,028,090 thereafter.
P. SEGMENT REPORTING
Management assesses performance and makes operating decisions based on two
reportable segments, Department Store and Finance Operations.
The retail segment (Department Store) 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 stores. The Company's retail
stores are principally engaged in smaller Midwestern markets in Ohio, Indiana,
Illinois, Michigan, Pennsylvania, Wisconsin, Kentucky, and West Virginia. Net
sales by major merchandising category in the Department Store segment are as
follows:
MERCHANDISE CATEGORY
1999 1998 1997
--------- --------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Women's Ready to Wear.............................. $209,821 $191,953 $179,990
Accessories, Shoes and Cosmetics................... 149,337 133,551 116,395
Men's and Childrens................................ 148,175 138,478 128,712
Home Store......................................... 130,464 118,109 105,590
-------- -------- --------
Total Department Store............................. $637,797 $582,091 $530,687
======== ======== ========
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:
1999 1998 1997
--------- --------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
DEPARTMENT STORE
Revenues........................................... $640,658 $584,798 $533,405
Depreciation and amortization...................... 14,724 13,045 11,127
Operating profit(1)................................ 2,557 15,826 12,883
Capital expenditures............................... 16,615 15,933 20,343
Total assets....................................... 319,879 327,252 235,934
33
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 1997
--------- --------- ---------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
FINANCE OPERATIONS
Revenues(2)........................................ $ 34,802 $ 32,783 $ 32,081
Depreciation and amortization...................... 505 373 316
Operating profit(1)................................ 24,064 21,461 16,292
Capital expenditures............................... 426 282 304
Total assets....................................... 135,016 125,108 133,133
- ---------------
(1) Total segment operating profit is reconciled to earnings (loss) before
income tax benefit, discontinued operations and extraordinary item as
follows:
1999 1998 1997
-------- -------- --------
Segment operating profit............................ $ 26,621 $ 37,287 $ 29,175
Store closing costs................................. (1,302) (7,759)
Acquisition and integration......................... (4,154)
Interest expense.................................... (11,771) (11,536) (7,084)
Reorganization and other............................ (2,234) 2,445 (28,889)
-------- -------- --------
$ 12,616 $ 22,740 $(14,557)
======== ======== ========
(2) Finance Operations segment revenues is reconciled to reported financing
revenues as follows:
1999 1998 1997
------- ------- -------
Segment revenues...................................... $34,802 $32,783 $32,081
Intersegment operating charge eliminated.............. (8,678) (7,210) (5,507)
------- ------- -------
$26,124 $25,573 $26,574
======= ======= =======
Q. SUBSEQUENT EVENTS
On March 2, 2000, the Company announced its plan to close its downtown
Wheeling and downtown Charleston stores in West Virginia. The Company will incur
a pre-tax charge in the first quarter of 2000 of approximately $4 million for
store closing costs.
* * * * * *
34
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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
---- --- --------
Frederick J. Mershad........ 57 Chairman of the Board and Chief Executive Officer
John A. Muskovich........... 53 President, Chief Operating Officer and Director
Scott J. Davido............. 38 Executive Vice President, Chief Financial Officer, Treasurer
and Secretary
Charles P. Shaffer.......... 53 Executive Vice President, Merchandising and Marketing
James M. Zamberlan.......... 53 Executive Vice President, Stores
Steven D. Lipton............ 48 Senior Vice President, Controller
Dennis Bookshester.......... 61 Director
Stewart M. Kasen............ 60 Director
Charles Macaluso............ 56 Director
Steven C. Mason............. 64 Director
Thomas J. Noonan, Jr........ 60 Director
Bernard Olsoff.............. 71 Director
Laura H. Pomerantz.......... 52 Director
Jack A. Staph............... 54 Director
John J. Wiesner............. 61 Director
Frederick J. Mershad has served as Chairman of the Board of Elder-Beerman
since December 1997, as Chief Executive Officer and a Director of Elder-Beerman
since January 1997 and as President and a Director of Elder-Beerman from January
1997 to December 1997. Prior to this time, Mr. Mershad served as President and
Chief Executive Officer of the Proffitt's division of Saks, Inc. ("Proffitt's")
from February 1995 to December 1996; Executive Vice President, Merchandising
Stores for Proffitt's from May 1994 to January 1995; Senior Vice President,
General Merchandise Manager, Home Store for the Rich's Department Stores
division of Federated Department Stores, Inc. ("Federated") from August 1993 to
May 1994; and Executive Vice President, Merchandising and Marketing of the
McRae's Department Stores division of Proffitt's from June 1990 to August 1993.
John A. Muskovich has served as President, Chief Operating Officer, and a
Director of Elder-Beerman since December 1997 and served as Executive Vice
President of Administration of Elder-Beerman from February 1996 to December
1997. In addition, Mr. Muskovich served as Chief Financial Officer from December
1997 through March 1999. Prior to this time, Mr. Muskovich served as Director of
Business Process for Kmart Corp. from September 1995 to February 1996; President
of the Federated Claims Services Group with Federated from February 1992 to
August 1995; Vice President of Benefits of Federated from 1994 to 1995; and Vice
President, Corporate Controller of Federated from 1988 to 1992.
Scott J. Davido was appointed to the position of Executive Vice President,
Chief Financial Officer, Treasurer and Secretary in 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.
35
39
Charles P. Shaffer was appointed Executive Vice President, Merchandising
and Marketing in August 1999 and served as a Senior Vice President-General
Merchandise Manager of the Company from January 1985 through July 1999. Prior to
this time, from 1981 through January 1985 Mr. Shaffer was a Divisional Vice
President at Sibleys, a division of Associated Dry Goods, Inc.
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.
Dennis Bookshester has served as a Director of Elder-Beerman since December
1999. Mr. Bookshester serves as the acting 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. Mr. Bookshester also
currently serves as a Director of Fruit of the Loom and Playboy Enterprises and
as Chairman of Cutanix Corp.
Stewart M. Kasen has served as a Director of Elder-Beerman since 1997. Mr.
Kasen is currently a private investor. Mr. Kasen previously served as the
President and Chief Executive Officer of Factory Card Outlet Corp. ("Factory
Cards") from May 1998 through October 1999 and as Chairman from April 1997
through 1999. Factory Cards filed for protection under chapter 11 of the United
States Bankruptcy Code in March 1999 and is developing a reorganization plan.
Mr. Kasen served as Chairman of the Board, President, and Chief Executive
Officer of Best Products Co., Inc. ("Best Products"), a Richmond, Virginia,
retail catalogue showroom company, from June 1994 through April 1996, President
and Chief Executive Officer from June 1991 to June 1994, and President and Chief
Operating Officer from 1989 to June 1991. Best Products filed for protection
under chapter 11 of the United States Bankruptcy Code in January 1991. Best
Products' plan of reorganization was confirmed in June 1994, and it filed a
petition for bankruptcy under chapter 11 again on September 24, 1996. Mr. Kasen
also currently serves as a Director of Markel 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.
Steven C. Mason has served as a Director of Elder-Beerman since 1997. Mr.
Mason retired from 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 Mead Corp. from April 1992 to November 1997. Mr. Mason also
currently serves as a Director of PPG Industries, Inc. and Convergys.
Thomas J. Noonan has served as a Director of Elder-Beerman since 1997. Mr.
Noonan serves as Executive Vice President of WSR, Inc. ("WSR"), an automotive
aftermarket retailer, and has served in this capacity since January 2000. Mr.
Noonan served as WSR's Chief Restructuring Officer from August 1998 through
December 1999. He also serves as 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. Mr. Noonan served as
Executive Vice President and Chief Financial Officer of Herman's Sporting Goods,
Inc., a sporting goods retailer that filed for protection under chapter 11 of
the United States Bankruptcy Code and is currently being liquidated from August
1994 through 1999. Mr. Noonan also currently serves as a Director of Intrenet
Inc.
Bernard J. Olsoff has served as a Director of Elder-Beerman since 1997. Mr.
Olsoff retired from Frederick Atkins, a retail marketing and consulting company,
in 1997. Prior to this time, Mr. Olsoff served as President, Chief Executive
Officer and Chief Operating Officer of Frederick Atkins, from 1994 to April
1997, and President
36
40
and Chief Operating Officer from 1983 to 1994. Mr. Olsoff also currently serves
as a Director of The Leslie Fay Companies, Inc., an apparel design and
manufacturing company ("Leslie Fay").
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. Through
LHP Consulting & Management, Mrs. Pomerantz is also associated with Newmark Real
Estate Co., Inc., a commercial real estate company, as Senior Managing Director
and has served in this capacity since August 1996. 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 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. 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.
John J. Wiesner has served as a Director of Elder-Beerman since 1997. Mr.
Wiesner has served as interim Chief Executive Officer of Stage Stores, Inc., a
regional apparel retailer, since February 2000. Mr. Wiesner retired from C.R.
Anthony, a regional apparel retailer, in June 1997. Prior to retirement, Mr.
Wiesner served as Chairman of the Board of Directors, President and Chief
Executive Officer of C.R. Anthony, from April 1987 to June 1997. Mr. Wiesner
also currently serves as a Director of Stage Stores, Inc., Lamonts Apparel, Inc.
and The Loewen Group, Inc. and as a member of the Advisory Committee of the
Board of Directors of Fiesta Stores, Inc.
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.
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 during fiscal year 1999 by its directors,
executive officers or 10 percent shareholders.
37
41
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 1999.
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 ($) ($) SATION($)(2) ($) (#) ($) ($)(4)(5)
- --------------------------- ---- ------- ------ ------------ ---------- ---------- -------- ---------
Frederick J. Mershad --
Chairman and Chief 1999 600,000 581,250 300,000 7,665
Executive Officer 1998 559,263 120,000 29,403 1,050,000 75,000 9,970
1997 503,344 500,000 51,251 683,703 194,000
John A. Muskovich --
President, Chief 1999 425,000 310,000 160,000 6,000
Operating Officer 1998 412,207 85,000 473,127 30,000 9,950
1997 267,335 598,750 505,325 126,000
Scott J. Davido --
Executive Vice President -- 1999 217,596 36,000 60,550 45,625 25,000 382
Chief Financial Officer, 1998 174,076 21,280 26,626 26,599 4,585
Treasurer and Secretary 1997 15,935 27,500(1) 3,124 21,000
Charles P. Shaffer
Executive Vice President -- 1999 243,654 44,303(3) 95,190 40,000 7,159
Merchandising and Marketing 1998 220,769 60,000 37,495 5,483
1997 190,385 60,000 37,505 25,000 1,349
James M. Zamberlan --
Executive Vice President -- 1999 309,808 53,156 20,000 2,712
Stores 1998 278,803 79,650 234,892 15,000 8,050
1997 139,944 41,313 20,386 61,000
- ---------------
(1) Includes a $25,000 signing bonus paid in fiscal year 1997.
(2) Moving expense reimbursement.
(3) Includes 4,430 deferred shares and 1,108 restricted shares awarded to Mr.
Shaffer as the deferred portion of his 1999 bonus pursuant to the Equity and
Performance Incentive Plan.
(4) Includes life insurance premium payments paid by the Company in 1999 in the
following amounts: Mr. Mershad $4,425, Mr. Muskovich $2,760, Mr. Zamberlan
$2,712, Mr. Davido $382 and Mr. Shaffer $2,299.
(5) Includes matching contributions paid by the Company in 1999 under the
Company's Retirement Savings Plan in the following amounts: Mr. Mershad
$3,240, Mr. Muskovich $3,240 and Mr. Shaffer $4,860.
38
42
STOCK OPTION/SAR GRANTS
The following table sets forth information concerning stock option grants
made to the Named Executive Officers during fiscal year 1999 pursuant to The
Elder-Beerman Stores Corp. Equity and Performance Incentive Plan (the "Plan").
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------------- AT ASSUMED ANNUAL
PERCENT OF RATE
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS/SARS EMPLOYEES IN OF BASE EXPIRATION ---------------------
NAME GRANTED(#)(1)(2) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
- ---- ---------------- ------------ ----------- ---------- --------- ---------
Frederick J. Mershad.......... 90,000(1) 11.41 8.00 2/25/06 261,453 639,230
100,000(1) 12.67 9.60 2/25/06 130,503 550,256
110,000(1) 13.94 11.20 2/25/06 (32,447) 429,281
John A. Muskovich............. 48,000(1) 6.08 8.00 2/25/06 139,441 340,923
53,500(1) 6.78 9.60 2/25/06 69,819 294,387
58,500(1) 7.41 11.20 2/25/06 (17,256) 228,300
Scott J. Davido............... 15,000(2) 1.90 9.125 3/15/09 86,080 218,143
10,000(2) 1.27 9.125 4/22/09 57,387 145,429
Charles P. Shaffer............ 15,000(2) 1.90 9.125 4/22/09 86,080 218,143
25,000(2) 3.17 6.750 8/19/09 106,126 268,944
James M. Zamberlan............ 20,000(1) 2.53 9.125 4/22/09 114,773 290,858
- ---------------
(1) Options vest three years from date of grant.
(2) Options vest one-fifth annually, 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 1999 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
SHARES OPTIONS/SARS HELD AT OPTIONS/SARS HELD AT
ACQUIRED VALUE JANUARY 29, 2000 (#) JANUARY 29, 2000($)(1)
ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------- ----------- ------------- ----------- -------------
Frederick J.
Mershad............ 0 $0.00 92,600 476,400 $0.00 $0.00
John A. Muskovich.... 0 $0.00 56,400 259,600 $0.00 $0.00
Scott J. Davido...... 0 $0.00 8,400 37,600 $0.00 $0.00
Charles P. Shaffer... 0 $0.00 10,000 55,000 $0.00 $0.00
James M. Zamberlan... 0 $0.00 27,400 68,600 $0.00 $0.00
- ---------------
(1) Based on the closing price on NASDAQ of the Company's Common Stock on
January 28, 2000 (the last trading day in fiscal year 1999) of $5.00.
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EMPLOYMENT AND SEVERANCE AGREEMENTS WITH CERTAIN OFFICERS
The Company has entered into employment agreements with Frederick J.
Mershad, Chairman and Chief Executive Officer and John A. Muskovich, President
and Chief Operating Officer, and several of its other executive officers as
described below (the "Employment Agreements"). These Employment Agreements set
forth (a) the executive's compensation and benefits, subject to increases 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 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. In
general, these Employment Agreements provide that if Mr. Mershad or Mr.
Muskovich is terminated for any reason, other than for cause or following a
"change in control," (as defined in the Employment Agreements), he will receive
payments equal to the remaining base salary that would have been distributed to
him by the Company under the remaining term of his Employment Agreement and the
incentive compensation earned by the executive for the most recent fiscal year.
If such executive (a) is terminated within two years of a change in control
without cause, (b) voluntarily terminates within two years of a change in
control, or (c) 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, he will
receive a severance payment equal to 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 and the executive will
continue to be eligible for health benefits, perquisites and fringe benefits
generally made available to senior executives following his termination, unless
the executive obtains new employment providing substantially similar benefits. A
tax gross-up on excise taxes also will be paid if the severance pay exceeds the
limits imposed by the Internal Revenue Code.
The Company has also entered into Employment Agreements that include
severance pay provisions with each of Messrs. Zamberlan, Davido and Shaffer.
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 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 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.
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. 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
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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 Company's Equity and Performance Incentive Plan (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. Each year 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
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.
COMPONENTS OF COMPENSATION
Base Salary
Base salaries for Company executives were initially established in each of
the executive's employment agreements, which were approved pursuant to the Plan
of Reorganization. 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.
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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. Additionally, individual performance goals
are established for each participant. Bonus program participants receive no
payments unless minimum thresholds 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 Plan.
- 1999 Bonus Objectives
Annual bonuses for 1999 were based on meeting weighted objectives for the
following measurements:
- Corporate operating profit;
- Financial goals in the applicable executive's area of responsibility; and
- Individual performance goals for the applicable executive
For 1999, 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. Many executives were able to achieve some or all of their
respective area of responsibility and individual performance goals, which
resulted in each executive earning in total between 30% and 55% of the
executive's respective target bonus amounts.
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 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.
Executive Plan
At the beginning of Fiscal 1999, the Committee adopted a long-term
incentive award plan (the "Executive Plan") for Mr. Mershad, its Chief Executive
Officer, and Mr. Muskovich, its President and Chief Operating
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Officer. This Executive Plan consists of performance-based restricted shares and
premium priced stock options. This Executive Plan was developed to achieve two
key objectives:
- Create strong incentives that will drive shareholder value; and
- Create a retention mechanism for the top two officers of the Company.
To establish benchmarks for a competitive long-term incentive plan for
Messrs. Mershad and Muskovich, the Committee engaged a third party consultant to
conduct an analysis of executive compensation at 12 peer retail companies. The
Committee reviewed the current compensation packages of Messrs. Mershad and
Muskovich and evaluated the Company's performance and future performance
objectives. Bearing in mind these factors and the two key objectives for the
Executive Plan, the Committee formulated the amounts of restricted shares and
stock options to be granted under the Executive Plan to Messrs. Mershad and
Muskovich and the earnings per share and stock price targets that must be met
for Messrs. Mershad and Muskovich to earn their respective awards. Pursuant to
the terms of the Executive Plan, any restricted shares granted to Messrs.
Mershad and Muskovich will vest at the end of three years only if the Company
meets target earnings per share levels. The premium price stock options will
vest over a period of three years and the vesting is not contingent on
performance goals.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
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.
1999 Base Salary and Annual Bonus
Mr. Mershad's annual base salary was $600,000, the same level as for 1998.
Mr. Mershad is also eligible 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 1999, Mr. Mershad received no bonus.
Executive Plan
On February 25, 1999 pursuant to the Executive Plan, the Committee granted
Mr. Mershad 75,000 restricted shares and options to purchase 300,000 shares of
Elder-Beerman stock. The restricted shares granted to Mr. Mershad will vest at
the end of three years only if the Company meets target earnings per share
levels. The premium price stock options will vest at the end of three years and
the vesting is not contingent on performance goals. At the date of the grant
approximately one-third of the options had an exercise price equal to the then-
current stock price. The remaining two-thirds of the options were set with
exercise prices of 20% to 40% above current market price.
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 1999 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.
Bernard Olsoff
Jack A. Staph
John J. Wiesner
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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 1999, nonemployee directors were paid a
retainer of $20,000 for their service on the Board of Directors. Nonemployee
committee chairpersons were paid an additional $5,000 fee for their services on
their respective committees. Nonemployee directors were also each paid a meeting
fee of $1,500 for each board meeting attended, plus $500 for each committee
meeting attended. Nonemployee directors may elect to take their annual retainer
as cash or in the form of discounted stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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). 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
Common Stock (trading symbol "EBSC") beginning February 17, 1998 (the first
trading day of the Common Stock) through January 29, 2000 (the last day of the
Company's fiscal year). 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 $500 million.
2. A Regional Department Store Peer Group, consisting of The Bon-Ton
Stores, Inc., Stage Stores, Inc., Gottschalks Inc., and Jacobson Stores
Inc. The return for this group was 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 DEPT STORE PEER
S&P SMALLCAP 600 INDEX GROUP INDEX EBSC
---------------------- ------------------------ ----
Feb 98 100.00 100.00 100.00
May 98 107.00 116.00 165.00
Aug 98 93.00 91.00 140.00
Oct 98 84.00 57.00 71.00
Jan 99 93.00 59.00 54.00
May 99 91.00 53.00 51.00
Jul 99 97.00 58.00 37.00
Oct 99 93.00 53.00 41.00
Jan 00 103.00 40.00 30.00
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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 14, 2000 (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 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.............................. 3,083,650(2) 20.61
350 California Street, Suite 1460
San Francisco, CA 94104
PPM America, Inc............................................ 1,966,868(3) 13.15
225 West Wacker Drive, Suite 1200
Chicago, IL 60606
James D. Bennett............................................ 1,011,200(4) 6.76
Bennett Management Corporation
2 Stamford Plaza, Suite 1501
281 Tressler Boulevard
Stamford, CT 06901
The D3 Family Fund.......................................... 900,000(5) 6.02
19605 N.E. Eighth Street
Camas, WA 98607
Dennis S. Bookshester....................................... 3,577 *
Stewart M. Kasen............................................ 12,070(6) *
Charles Macaluso............................................ 5,794(6) *
Steven C. Mason............................................. 23,717(6) *
Frederick J. Mershad........................................ 300,928(6) 2.01
John A. Muskovich........................................... 184,028(6) 1.23
Thomas J. Noonan, Jr........................................ 10,909(6) *
Bernard Olsoff.............................................. 16,393(6) *
Laura H. Pomerantz.......................................... 21,489(6)(7) *
Jack A. Staph............................................... 16,793(6) *
John J. Wiesner............................................. 13,952(6) *
Scott J. Davido............................................. 22,613(6) *
Charles P. Shaffer.......................................... 29,100(6) *
James M. Zamberlan.......................................... 48,238(6) *
- -------------------------------------------------------------------------------------------
All directors and executive officers as a group (15
persons):................................................. 721,728 4.82%
- ---------------
* 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 December 31, 1999) of
such shares in a Form 13f dated February 14, 2000.
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49
(3) PPM America, Inc. ("PPM"), a registered investment advisor, reported the
beneficial ownership (as of March 21, 2000) of such shares in a Schedule 13D
dated March 21, 2000. 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) Mr. Bennett reported the beneficial ownership (as of February 25, 2000) of
such shares in a Schedule 13D filed on February 25, 2000. Mr. Bennett shares
beneficial ownership of as well as voting and dispositive power with respect
to such shares with Bennett Restructuring Fund, L.P. and Bennett Offshore
Restructuring Fund, Inc.
(5) The D3 Family Fund ("D3") reported the beneficial ownership (as of February
24, 2000) of such shares in a Schedule 13D filed February 25, 2000. D3 has
sole voting and dispositive power over such shares. Such shares include
shares held by Haredale Ltd. (20,000), James Henry Hildebrandt (6,500),
Toxford Corporation (3,000) and The Nierenberg Family Trust (50,000).
(6) These amounts include shares of Common Stock that the following persons had
a right to acquire within 60 days after January 29, 2000.
STOCK OPTIONS EXERCISABLE
NAME BY MARCH 29, 2000
- ---- -------------------------
Mr. Mershad............................................ 107,600
Mr. Muskovich.......................................... 62,400
Mr. Davido............................................. 11,400
Mr. Shaffer............................................ 10,000
Mr. Zamberlan.......................................... 30,400
Mr. Kasen.............................................. 4,667
Mr. Macaluso........................................... 2,217
Mr. Mason.............................................. 19,314
Mr. Noonan............................................. 6,506
Mr. Olsoff............................................. 11,990
Ms. Pomerantz.......................................... 11,086
Mr. Staph.............................................. 11,990
Mr. Wiesner............................................ 9,549
(7) Includes 1,000 shares of Common Stock with shared voting or investment
power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 8, 2000, the Compensation Committee of the Board of Directors
of the Company recommended that the Board approve a loan to John A. Muskovich
for the purpose of financing the purchase of his new home in Dayton, Ohio.
Following approval by the Board of this recommendation, on February 8, 2000, the
Company made an unsecured loan to Mr. Muskovich in the amount of $230,000. The
Company's loan to Mr. Muskovich bears interest at the same rate charged to the
Company under the Company's Credit Facilities. The principal and interest are
due on the earlier of (i) three days after the closing of the purchase of Mr.
Muskovich's old residence or (ii) August 8, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Company and
its subsidiaries are included in Item 8:
- Consolidated Balance Sheets -- As of January 29, 2000 and January 30,
1999
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50
- Consolidated Statements of Operations -- For the Years Ended January 29,
2000, January 30, 1999, and January 31, 1998
- Consolidated Statements of Changes in Shareholders' Equity -- For the
Years Ended January 29, 2000, January 30, 1999, and January 31, 1998
- Consolidated Statements of Cash Flows -- For the Years Ended January 29,
2000, January 30, 1999, and January 31, 1998
- Notes to Consolidated Financial Statements
- Independent Auditors' Report
(a)(2) The following consolidated financial statement schedule of the
Company and its subsidiaries is submitted herewith:
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) Exhibits
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. and Stone
& Thomas 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 By and Among
The Elder-Beerman Stores Corp., The Elder-Beerman
Acquisition Corp. and Stone & Thomas dated July 27, 1998
(previously filed as Exhibit 2(c) to the Company's Form S-1
and incorporated herein by reference)
3(a) Amended Articles of Incorporation (previously filed as
Exhibit 3(a) to the Company's Form 10-K filed on April 30,
1998 (the "1997 Form 10-K"), and incorporated herein by
reference)
3(b) Amended Code of Regulations (previously filed as Exhibit
3(b) to the Form 10 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., 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 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
1997 Form 10-K and incorporated herein by reference)
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4(e) 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
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) Pooling and Servicing Agreement Among The El-Bee Receivables
Corporation, The El-Bee Chargit Corp. and Bankers Trust
Company, dated December 30, 1997 (previously filed as
Exhibit 10(a)(i) to the Form 10/A-1 and incorporated herein
by reference)
10(a)(ii) Series 1997-1 Supplement Among The El-Bee Receivables
Corporation, The El-Bee Chargit Corp. and Bankers Trust
Company, dated December 30, 1997 (previously filed as
Exhibit 10(a)(ii) to the Form 10/A-1 and incorporated herein
by reference)
10(a)(iii) Certificate Purchase Agreement Among The El-Bee Receivables
Corporation, Corporate Receivables Corporation, The
Liquidity Providers Named Herein, CitiCorp North America,
Inc. and Bankers Trust Company, dated December 30, 1997
(previously filed as Exhibit 10(a)(iii) to the Form 10/A-1
and incorporated herein by reference)
10(a)(iv) Loan Agreement Among The El-Bee Receivables Corporation, The
El-Bee Chargit Corp., Bankers Trust Company, The Collateral
Investors Parties Hereto and CitiCorp North America, Inc.,
dated as of December 30, 1997 (previously filed as Exhibit
10(a)(iv) to the Form 10/A-1 and incorporated herein by
reference)
10(a)(v) Intercreditor Agreement By and Among The El-Bee Chargit
Corp., The Elder-Beerman Stores Corp., Bankers Trust
Company, CitiCorp USA, Inc., CitiCorp North America, Inc.,
Corporate Receivables Corporation and the Liquidity
Providers Named Herein, dated as of December 30, 1997
(previously filed as Exhibit 10(a)(v) to the Form 10/A-1 and
incorporated herein by reference)
10(a)(vi) Parent Undertaking Agreement Among The Elder-Beerman Stores
Corp. and Bankers Trust Company, dated as of December 30,
1997 (previously filed as Exhibit 10(a)(vi) to the Form
10/A-1 and incorporated herein by reference)
10(a)(vii) Purchase Agreement (Chargit) Among The El-Bee Chargit Corp.
and The El-Bee Receivables Corporation, dated as of December
30, 1997 (previously filed as Exhibit 10(a)(vii) to the Form
10/A-1 and incorporated herein by reference)
10(a)(viii) Purchase Agreement (Elder-Beerman) Among The Elder-Beerman
Stores Corp. and The El-Bee Chargit Corp., dated as of
December 30, 1997 (previously filed as Exhibit 10(a)(viii)
to the Form 10/A-1 and incorporated herein by reference)
10(a)(ix) 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) Credit Agreement Among The Elder-Beerman Stores Corp., The
Lenders Party Hereto, Citibank, N.A. and CitiCorp USA, Inc.,
dated as of December 30, 1997 (previously filed as Exhibit
10(b)(i) to the Form 10/A-1 and incorporated herein by
reference)
10(b)(ii) Borrower Pledge Agreement Made by The Elder-Beerman Stores
Corp. to Citibank, N.A., dated December 30, 1997 (previously
filed as Exhibit 10(b)(ii) to the Form 10/A-1 and
incorporated herein by reference)
10(b)(iii) Chargit Pledge Agreement Made By The El-Bee Chargit Corp. to
Citibank, N.A., dated December 30, 1997 (previously filed as
Exhibit 10(b)(iii) to the Form 10/A-1 and incorporated
herein by reference)
10(b)(iv) Security Agreement Made By The Elder-Beerman stores Corp.,
The El-Bee Chargit Corp., The Bee-Gee Shoe Corp. in Favor of
CitiCorp USA, Inc., dated December 30, 1997 (previously
filed as Exhibit 10(b)(iv) to the Form 10/A-1 and
incorporated herein by reference)
48
52
10(b)(v) Subsidiary Guaranty Made by The El-Bee Chargit Corp., dated
December 30, 1997 (previously filed as Exhibit 10(b)(v) to
the Form 10/A-1 and incorporated herein by reference)
10(b)(vi) Subsidiary Guaranty Made by The Bee-Gee Shoe Corp., dated
December 30, 1997 (previously filed as Exhibit 10(b)(vi) to
the Form 10/A-1 and incorporated herein by reference)
10(b)(vii) Form of Revolving Note (previously filed as Exhibit
10(b)(vii) to the Form 10/A-1 and incorporated herein by
reference)
10(b)(viii) Letter Agreement Re: Assignment of Account By and Between
The Elder-Beerman Stores Corp., CitiCorp USA, Inc., and
Bankers Trust Company, dated December 30, 1997 (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
(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
(previously filed as Exhibit 10(d) to the Form 10 and
incorporated herein by reference)*
10(f) Form of Director Indemnification Agreement (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
(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, Effective December 30, 1997 (previously
filed as Exhibit 10(i) to the 1997 Form 10-K 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)*
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) Employee Stock Purchase Plan (previously filed as Exhibit
10(o) to the Form 10 and incorporated herein by reference)*
10(p) Comprehensive Settlement Agreement By and Among The Debtors,
The ESOP and the ESOP Committee and the Shareholders of The
Elder-Beerman Stores Corp., dated as of December 30, 1997
(previously filed as Exhibit 10(p) to the 1997 Form 10-K and
incorporated herein by reference)
10(q) Tax Indemnification Agreement 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 Herein dated as of December 15, 1997 (previously filed
as Exhibit 10(q) to the Form 10 and incorporated herein by
reference)
10(r) Tax Sharing Agreement 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)
49
53
10(s) Employment Agreement Between The Elder-Beerman Stores Corp. and John A. Muskovich, dated December
30, 1997 (previously filed as Exhibit 10(s) to the 1997 Form 10--K and incorporated herein by
reference)*
10(t) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Frederick J.
Mershad, dated December 30, 1997 (previously filed as Exhibit 10(t) to the 1997 Form 10-K and
incorporated herein by reference)*
10(u) Employment Agreement Between The Elder-Beerman Stores Corp. and James M. Zamberlan, dated
December 30, 1997 (previously filed as Exhibit 10(u) to the Company's Form 10-K filed on April
22, 1999 (the "1998 Form 10-K"), and incorporated herein by reference)*
10(v) Employment Agreement Between The Elder-Beerman Stores Corp. and Scott J. Davido, dated December
30, 1997 (previously filed as Exhibit 10(v) to the 1998 Form 10-K and incorporated herein by
reference)*
10(w) Amended and Restated Employment Agreement Between The Elder-Beerman Stores Corp. and Scott J.
Davido, dated March 15, 1999 (previously filed as Exhibit 10(w) to the 1998 Form 10- K and
incorporated herein by reference)*
10(x) 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(y) Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The Lenders Party
Thereto, Citibank, N.A. and CitiCorp USA, Inc., dated as of July 27, 1998 (previously filed as
Exhibit 10(b)(i) to the Company's Form S-1 and incorporated herein by reference)
10(z) Amended and Restated Security Agreement Made By The Elder-Beerman Stores Corp., The El-Bee
Chargit Corp., The Bee-Gee Shoe Corp. in Favor of CitiCorp USA, Inc., dated July 27, 1998
(previously filed as Exhibit 10(b)(iv) to the Company's Form S-1 and incorporated herein by
reference)
10(aa) Subsidiary Guaranty Made by Elder-Beerman West Virginia, Inc., dated July 27, 1998 (previously
filed as Exhibit 10(b)(vii) to the Company's Form S-1 and incorporated herein by reference)
10(bb) Employment Agreement Between The Elder-Beerman Stores Corp. and Charles P. Shaffer, dated August
22, 1999*
10(cc) Amendment No. 1 to Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp.,
The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated August 18, 1999
10(dd) Amendment No. 2 and Consent to Amended and Restated Credit Agreement Among The Elder-Beerman
Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated November
23, 1999
10(ee) Amendment No. 1 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee
Chargit Corp. and Bankers Trust Company, dated November 25, 1998
10(ff) Amendment No. 2 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee
Chargit Corp. and Bankers Trust Company, dated November 24, 1999
10(gg) Amendment No. 3 and Consent to Amended and Restated Credit Agreement Among The Elder Beerman
Stores Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated December
29, 1999
10(hh) Amendment No. 1 to Amended and Restated Security Agreement Among The Elder-Beerman Stores Corp.,
The Grantors Party Thereto and Citicorp USA, Inc., dated December 30, 1999
10(ii) Amendment No. 1 to Certificate Purchase Agreement Among The El-Bee Receivables Corporation,
Corporate Receivables Corporation, The Liquidity Providers Named Therein, Citicorp North America
Inc. and Bankers Trust Company, dated November 25, 1998
50
54
10(jj) Subsidiary Guaranty Made by Elder-Beerman Holdings, Inc.,
Elder-Beerman Operations, LLC and Elder-Beerman Indiana,
L.P., dated December 30, 1999
21 Subsidiaries of the Company
23 Independent Auditors' Consent
24 Powers of Attorney
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three-months ended January
29, 2000.
(c) The response to this portion of Item 14 is included as Exhibits to this
report.
* 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.
51
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 27th day of
April, 2000.
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 13, 2000.
SIGNATURE TITLE
--------- -----
* Chairman of the Board of Directors and Chief
- -------------------------------------------------------- Executive Officer (Principal Executive
Frederick J. Mershad Officer)
* President, Chief Operating Officer, Director
- --------------------------------------------------------
John A. Muskovich
* Executive Vice President, Chief Financial
- -------------------------------------------------------- Officer, Treasurer and Secretary
Scott J. Davido (Principal Financial Officer)
* Senior Vice President, Controller (Principal
- -------------------------------------------------------- Accounting Officer)
Steven D. Lipton
* Director
- --------------------------------------------------------
Dennis S. Bookshester
* Director
- --------------------------------------------------------
Stewart M. Kasen
* Director
- --------------------------------------------------------
Charles Macaluso
* Director
- --------------------------------------------------------
Steven C. Mason
52
56
SIGNATURE TITLE
--------- -----
* Director
- --------------------------------------------------------
Thomas J. Noonan, Jr.
* Director
- --------------------------------------------------------
Bernard Olsoff
* Director
- --------------------------------------------------------
Laura H. Pomerantz
* Director
- --------------------------------------------------------
Jack A. Staph
* Director
- --------------------------------------------------------
John J. Wiesner
- - 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 27, 2000 By: /s/ SCOTT J. DAVIDO
------------------------------------
Scott J. Davido
Attorney-in-Fact
53
57
EXHIBIT INDEX
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. and Stone
& Thomas 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 By and Among
The Elder-Beerman Stores Corp., The Elder-Beerman
Acquisition Corp. and Stone & Thomas dated July 27, 1998
(previously filed as Exhibit 2(c) to the Company's Form S-1
and incorporated herein by reference)
3(a) Amended Articles of Incorporation (previously filed as
Exhibit 3(a) to the Company's Form 10-K filed on April 30,
1998 (the "1997 Form 10-K"), and incorporated herein by
reference)
3(b) Amended Code of Regulations (previously filed as Exhibit
3(b) to the Form 10 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., 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 "Rights Agreement") 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 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
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 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
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) Pooling and Servicing Agreement Among The El-Bee Receivables
Corporation, The El-Bee Chargit Corp. and Bankers Trust
Company, dated December 30, 1997 (previously filed as
Exhibit 10(a)(i) to the Form 10/A-1 and incorporated herein
by reference)
10(a)(ii) Series 1997-1 Supplement Among The El-Bee Receivables
Corporation, The El-Bee Chargit Corp. and Bankers Trust
Company, dated December 30, 1997 (previously filed as
Exhibit 10(a)(ii) to the Form 10/A-1 and incorporated herein
by reference)
10(a)(iii) Certificate Purchase Agreement Among The El-Bee Receivables
Corporation, Corporate Receivables Corporation, The
Liquidity Providers Named Herein, CitiCorp North America,
Inc. and Bankers Trust Company, dated December 30, 1997
(previously filed as Exhibit 10(a)(iii) to the Form 10/A-1
and incorporated herein by reference)
10(a)(iv) Loan Agreement Among The El-Bee Receivables Corporation, The
El-Bee Chargit Corp., Bankers Trust Company, The Collateral
Investors Parties Hereto and CitiCorp North America, Inc.,
dated as of December 30, 1997 (previously filed as Exhibit
10(a)(iv) to the Form 10/A-1 and incorporated herein by
reference)
54
58
10(a)(v) Intercreditor Agreement By and Among The El-Bee Chargit
Corp., The Elder-Beerman Stores Corp., Bankers Trust
Company, CitiCorp USA, Inc., CitiCorp North America, Inc.,
Corporate Receivables Corporation and the Liquidity
Providers Named Herein, dated as of December 30, 1997
(previously filed as Exhibit 10(a)(v) to the Form 10/A-1 and
incorporated herein by reference)
10(a)(vi) Parent Undertaking Agreement Among The Elder-Beerman Stores
Corp. and Bankers Trust Company, dated as of December 30,
1997 (previously filed as Exhibit 10(a)(vi) to the Form
10/A-1 and incorporated herein by reference)
10(a)(vii) Purchase Agreement (Chargit) Among The El-Bee Chargit Corp.
and The El-Bee Receivables Corporation, dated as of December
30, 1997 (previously filed as Exhibit 10(a)(vii) to the Form
10/A-1 and incorporated herein by reference)
10(a)(viii) Purchase Agreement (Elder-Beerman) Among The Elder-Beerman
Stores Corp. and The El-Bee Chargit Corp., dated as of
December 30, 1997 (previously filed as Exhibit 10(a)(viii)
to the Form 10/A-1 and incorporated herein by reference)
10(a)(ix) 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) Credit Agreement Among The Elder-Beerman Stores Corp., The
Lenders Party Hereto, Citibank, N.A. and CitiCorp USA, Inc.,
dated as of December 30, 1997 (previously filed as Exhibit
10(b)(i) to the Form 10/A-1 and incorporated herein by
reference)
10(b)(ii) Borrower Pledge Agreement Made by The Elder-Beerman Stores
Corp. to Citibank, N.A., dated December 30, 1997 (previously
filed as Exhibit 10(b)(ii) to the Form 10/A-1 and
incorporated herein by reference)
10(b)(iii) Chargit Pledge Agreement Made By The El-Bee Chargit Corp. to
Citibank, N.A., dated December 30, 1997 (previously filed as
Exhibit 10(b)(iii) to the Form 10/A-1 and incorporated
herein by reference)
10(b)(iv) Security Agreement Made By The Elder-Beerman stores Corp.,
The El-Bee Chargit Corp., The Bee-Gee Shoe Corp. in Favor of
CitiCorp USA, Inc., dated December 30, 1997 (previously
filed as Exhibit 10(b)(iv) to the Form 10/A-1 and
incorporated herein by reference)
10(b)(v) Subsidiary Guaranty Made by The El-Bee Chargit Corp., dated
December 30, 1997 (previously filed as Exhibit 10(b)(v) to
the Form 10/A-1 and incorporated herein by reference)
10(b)(vi) Subsidiary Guaranty Made by The Bee-Gee Shoe Corp., dated
December 30, 1997 (previously filed as Exhibit 10(b)(vi) to
the Form 10/A-1 and incorporated herein by reference)
10(b)(vii) Form of Revolving Note (previously filed as Exhibit
10(b)(vii) to the Form 10/A-1 and incorporated herein by
reference)
10(b)(viii) Letter Agreement Re: Assignment of Account By and Between
The Elder-Beerman Stores Corp., CitiCorp USA, Inc., and
Bankers Trust Company, dated December 30, 1997 (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
(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
(previously filed as Exhibit 10(d) to the Form 10 and
incorporated herein by reference)*
10(f) Form of Director Indemnification Agreement (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
(previously filed as Exhibit 10(h) to the Form 10 and
incorporated herein by reference)*
55
59
10(i) The Elder-Beerman Stores Corp. Equity and Performance
Incentive Plan, Effective December 30, 1997 (previously
filed as Exhibit 10(i) to the 1997 Form 10-K 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)*
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) Employee Stock Purchase Plan (previously filed as Exhibit
10(o) to the Form 10 and incorporated herein by reference)*
10(p) Comprehensive Settlement Agreement By and Among The Debtors,
The ESOP and the ESOP Committee and the Shareholders of The
Elder-Beerman Stores Corp., dated as of December 30, 1997
(previously filed as Exhibit 10(p) to the 1997 Form 10-K and
incorporated herein by reference)
10(q) Tax Indemnification Agreement 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 Herein dated as of December 15, 1997 (previously filed
as Exhibit 10(q) to the Form 10 and incorporated herein by
reference)
10(r) Tax Sharing Agreement 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(s) Employment Agreement Between The Elder-Beerman Stores Corp.
and John A. Muskovich, dated December 30, 1997 (previously
filed as Exhibit 10(s) to the 1997 Form 10-K and
incorporated herein by reference)*
10(t) Amended and Restated Employment Agreement Between The
Elder-Beerman Stores Corp. and Frederick J. Mershad, dated
December 30, 1997 (previously filed as Exhibit 10(t) to the
1997 Form 10-K and incorporated herein by reference)*
10(u) Employment Agreement Between The Elder-Beerman Stores Corp.
and James M. Zamberlan, dated December 30, 1997 (previously
filed as Exhibit 10(u) to the Company's Form 10-K filed on
April 22, 1999 (the "1998 Form 10-K"), and incorporated
herein by reference)*
10(v) Employment Agreement Between The Elder-Beerman Stores Corp.
and Scott J. Davido, dated December 30, 1997 (previously
filed as Exhibit 10(v) to the 1998 Form 10-K and
incorporated herein by reference)*
10(w) Amended and Restated Employment Agreement Between The
Elder-Beerman Stores Corp. and Scott J. Davido, dated March
15, 1999 (previously filed as Exhibit 10(w) to the 1998 Form
10-K and incorporated herein by reference)*
10(x) 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(y) Amended and Restated Credit Agreement Among The
Elder-Beerman Stores Corp., The Lenders Party Thereto,
Citibank, N.A. and CitiCorp USA, Inc., dated as of July 27,
1998 (previously filed as exhibit 10(b)(i) to the Company's
Form S-1 and incorporated herein by reference)
56
60
10(z) Amended and Restated Security Agreement Made By The Elder-Beerman Stores Corp., The El-Bee Chargit
Corp., The Bee-Gee Shoe Corp. in Favor of CitiCorp USA, Inc., dated July 27, 1998 (previously filed as
exhibit 10(b)(iv) to the Company's Form S-1 and incorporated herein by reference)
10(aa) Subsidiary Guaranty Made by Elder-Beerman West Virginia, Inc., dated July 27, 1998 (previously filed
as exhibit 10(b)(vii) to the Company's Form S-1 and incorporated herein by reference)
10(bb) Employment Agreement Between The Elder-Beerman Stores Corp. and Charles P. Shaffer, dated August 22,
1999*
10(cc) Amendment No. 1 to Amended and Restated Credit Agreement Among The Elder-Beerman Stores Corp., The
Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated August 18, 1999
10(dd) Amendment No. 2 and Consent to Amended and Restated Credit Agreement Among The Elder-Beerman Stores
Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated November 23, 1999
10(ee) Amendment No. 1 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee
Chargit Corp. and Bankers Trust Company, dated November 25, 1998
10(ff) Amendment No. 2 to Series 1997-1 Supplement Among The El-Bee Receivables Corporation, The El-Bee
Chargit Corp. and Bankers Trust Company, dated November 24, 1999
10(gg) Amendment No. 3 and Consent to Amended and Restated Credit Agreement Among The Elder Beerman Stores
Corp., The Lenders Party thereto, Citibank, N.A. and Citicorp USA, Inc., dated December 29, 1999
10(hh) Amendment No. 1 to Amended and Restated Security Agreement Among The Elder-Beerman Stores Corp., The
Grantors Party Thereto and Citicorp USA, Inc., dated December 30, 1999
10(ii) Amendment No. 1 to Certificate Purchase Agreement Among The El-Bee Receivables Corporation, Corporate
Receivables Corporation, The Liquidity Providers Named Therein, Citicorp North America Inc. and
Bankers Trust Company, dated November 25, 1998
10(jj) Subsidiary Guaranty Made by Elder-Beerman Holdings, Inc., Elder-Beerman Operations, LLC and
Elder-Beerman Indiana, L.P., dated December 30, 1999
21 Subsidiaries of the Company
23 Independent Auditors' Consent
24 Powers of Attorney
27 Financial Data Schedule
57