ELDER BEERMAN STORES CORP - 10-K Annual Report

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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 FEBRUARY 02, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 0-02788

THE ELDER-BEERMAN STORES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

OHIO 31-0271980
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

3155 EL-BEE ROAD, DAYTON, OHIO 45439
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 296-2700

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)

SHARE PURCHASE RIGHTS
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of April 15, 2002, the aggregate market value of the voting stock held
by non-affiliates of the registrant (based on the closing sale price of such
stock on such date) was approximately $33,545,123.*

The number of shares of Common Stock outstanding on April 15, 2002, was
11,528,232.

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [X] NO [ ]
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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

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PART I

This Annual Report on Form 10-K contains "forward-looking statements,"
including predictions of future operating performance, events or developments
such as our future sales, gross margins, profits, expenses, income and earnings
per share. In addition, words such as "expects," "anticipates," "intends,"
"plans," "believes," "hopes," and "estimates," and variations of such words and
similar expressions, are intended to identify forward-looking statements.
Because forward-looking statements are based on a number of beliefs, estimates
and assumptions by management that could ultimately prove inaccurate, there is
no assurance that forward-looking statements will prove to be accurate. Many
factors could materially affect our actual future operations and results. The
national tragedy of September 11, 2001 and subsequent national security threats
and warnings could magnify some of those factors. Factors that could materially
affect performance include the following: increasing price and product
competition; fluctuations in consumer demand and confidence, especially in light
of current uncertain general economic conditions; the availability and mix of
inventory; fluctuations in costs and expenses; consumer response to the
Company's merchandising strategies, advertising, marketing and promotional
programs; the effectiveness of management; the timing and effectiveness of new
store openings, particularly its new concept stores opened in Fall Season of
2001 (DuBois, PA, Alliance, OH and Kohler, WI) and in Spring Season 2002
(Coldwater, MI); weather conditions that affect consumer traffic in stores; the
continued availability and terms of bank and lease financing and trade credit;
the outcome of pending and future litigation; consumer debt levels; the impact
of any new consumer bankruptcy laws; inflation and interest rates and the
condition of the capital markets.

Elder-Beerman undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

ITEM 1. BUSINESS

The Elder-Beerman Stores Corp. ("Elder-Beerman" or the "Company;" except
where the context otherwise requires, references to the "Company" refer to
Elder-Beerman and its subsidiaries, as described below) has been operating
department stores since 1847. Elder-Beerman operates department stores that sell
a wide range of moderate to better branded merchandise, including women's, men's
and children's apparel and accessories, cosmetics, home furnishings, and other
consumer goods. In addition, the Company operates its private label credit card
program through its wholly-owned subsidiary, The El-Bee Chargit Corp.
("Chargit"). See Note N to the Consolidated Financial Statements for financial
information about the business segments. As of fiscal year end 2002,
Elder-Beerman operated 66 department stores and two furniture stores,
principally in smaller Midwestern markets in Ohio, West Virginia, Indiana,
Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania. See "Properties."

The Company's historical competitive advantage is its niche in smaller
cities. In many of these cities, there is only one shopping mall or major
shopping center, and the Company is a main department store anchor along with
J.C. Penney, Sears, or a discount retailer such as Kohl's, Target or Wal-Mart.
The Company seeks to differentiate itself from its competitors through superior
service and a fashion-oriented merchandise offering with name brand vendors
unavailable to the competition (e.g., cosmetics lines such as Estee Lauder,
Clinique, Lancome and Elizabeth Arden; and clothing lines such as Liz Claiborne,
Tommy Hilfiger, Sag Harbor, Alfred Dunner, Leslie Fay, Chaps by Ralph Lauren and
Izod; and home store lines such as T-Fal, Wamsutta, Pfaltzgraf and Atlantic.)
The larger metropolitan department stores have tended to bypass smaller
midwestern cities, leaving Elder-Beerman as the dominant department store in
many of its smaller markets.

The Company's long-term business plan is designed to accomplish its
strategy by (a) focusing on its strengths as the major retailer in its smaller
markets; (b) competing with traditional department store competitors through
emphasis on timely product assortments offering fashion and value, competitive
pricing and promotions, and customer service; (c) competing with moderate priced
department stores and discounters through merchandise advantages in branded
areas and competitive pricing and promotions in appropriate markets and product
areas; (d) focusing price/product competition in key

basic merchandising areas; (e) emphasizing major vendor partnerships to improve
sales and margins; and (f) leveraging technology to enhance customer service and
to develop and execute customer marketing programs.

Merchandising

The Company carries a broad assortment of goods to provide fashion,
selection and value found in leading department stores that feature branded
merchandise. Although all stores stock similar core assortments, specific types
of better goods are distributed to stores based on the particular
characteristics of the local market. In addition, through continued efforts to
develop better processes and stronger partnerships with its most significant
vendors, the Company is using technology and focused merchandising and
distribution processes to reduce logistics costs and increase the speed in
moving merchandise from the vendor to the selling floor.

During the past Fiscal year, the top 25 vendors by dollar volume accounted
for approximately 31% of net purchases. Management believes it has good
relationships with its suppliers. No vendor accounted for more than 5% of the
Company's purchases. The Company believes that alternative sources of supply are
available for each category of merchandise it purchases, including private label
products.

Certain departments in Elder-Beerman's department stores are leased to
independent third parties. These leased departments, which include the fine
jewelry, beauty salon, and maternity departments, provide high quality service
and merchandise where specialization and expertise are critical and the
Company's direct participation in the business is not economically justifiable.
Management regularly evaluates the performance of the leased departments and
requires compliance with established customer service guidelines.

For the 52 weeks ending February 2, 2002 ("Fiscal 2001"), the 53 weeks
ending February 3, 2001 ("Fiscal 2000"), and the 52 weeks ending January 29,
2000 ("Fiscal 1999"), the Company's percentages of net sales by major
merchandise category were as follows:

THE ELDER-BEERMAN STORES CORP.
RETAIL SALES BY DEPARTMENT

Pricing

All pricing decisions are made at the Company's corporate headquarters. The
Company's pricing strategy is designed to provide superior quality and value
appeal by offering competitive prices in all of its businesses. The Company's
management information systems provide timely sales and gross margin reports
that identify sales and gross margins by item and by store and provide
management with the information and flexibility to adjust prices and inventory
levels as necessary.

Purchasing and Distribution

Merchandise is generally shipped from vendors, through three consolidation
points, to the Company's 300,000 square foot distribution center in Dayton,
Ohio. Nearly 90% of all receipts that flow through the Distribution Center are
loaded into trailers for store distribution without need for handling by
Distribution Center staff. In addition, nearly 90% of the merchandise is shipped
prepackaged and

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ticketed for immediate placement on the selling floor. Merchandise for
individual stores is typically processed through the Distribution Center within
48 hours of its receipt at the Distribution Center. Deliveries are made from the
distribution center to each store one to seven times per week depending on the
store size and the time of year.

Incoming merchandise received at the Distribution Center is inspected for
quality control. The Company has formal guidelines for vendors with respect to
shipping, receiving and invoicing for merchandise. Vendors that do not comply
with the guidelines are charged specified fees depending upon the degree of
non-compliance. These fees are intended to be a deterrent to non-compliance as
well as to offset higher costs associated with the processing of, and payment
for, such merchandise.

The Company continues to improve its logistical systems, focusing on the
adoption of new technology and operational best practices, with the goals of
receiving, processing and distributing merchandise to stores at a faster rate
and at a lower cost per unit. For example, the Company recently completed
enhancements to its sortation and shipping processes, which have not only
improved inventory control and unit tracking, but have increased productivity
and reduced time for the supply chain. The Company also put in place in Fiscal
2001 a fully automated, state-of-the-art vendor compliance system to track
vendor compliance with the Company's logistics guidelines.

Information Systems

The Company's merchandising activities are controlled by a series of
on-line systems, including a point-of-sale and sales reporting system, a
purchase order management system, a receiving system and a merchandise planning
system. These integrated systems track merchandise from the order stage through
the selling stage and provide valuable supply chain, inventory and sales
performance information for management. The Company's core merchandising systems
assist in ordering, allocating and replenishing merchandise assortments for each
store based on specific characteristics and recent sales trends. The Company's
point of sale systems include bar code scanning and electronic credit and check
authorization, all of which allow the Company to capture customer specific sales
data for use in its merchandising system. Other systems allow the Company to
identify and mark down slow moving merchandise and to maintain planned levels of
in-stock positions in basic items, such as jeans and underwear. These systems
have enabled the Company to more efficiently manage its inventory and reduce
costs. The Company has also developed and is currently implementing an automated
store personnel scheduling system that analyzes historical hourly and projected
sales trends to efficiently schedule sales staff. This system is designed to
minimize labor costs while producing a higher level of customer service.

The Company has deployed a point of sale system ("POS System") to enhance
its customer service by speeding up the transaction at point of service and by
taking advantage of technology to support functions at point of service.

Marketing

The Company's primary target customers are women between the ages of 35 and
55 with annual household incomes of more than $50,000. Advertising messages are
focused on communicating the Company's merchandise offering and the strong
quality/value relationship in that offering. The Company employs advertising
programs that include print and broadcast as well as creative in-store displays,
signage and special promotions. The Company uses a database targeting system
that allows focused direct mail to our preferred charge customers, those most
likely to respond to a merchandise offering. Sunday and weekday newspaper
inserts are used each week to reach customers on a repetitive basis that has
become a customer expectation. This is an economical method of advertising that
has reduced advertising expense. The company also uses television and radio in
markets where it is productive and cost efficient.

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Credit Card Program

The Company operates a private label credit card program through its
wholly-owned subsidiary, Chargit. The Company promotes its private label credit
card, and as a result, approximately 43% of net sales in Fiscal 2001 were
attributable to customers using their Company credit card. This is up from
approximately 42% for Fiscal 2000. With approximately 900,000 active accounts,
the Company considers its private label credit card program to be a critical
component of its retailing concept because it (i) enhances customer loyalty,
(ii) allows the Company to identify and regularly contact its best customers and
(iii) creates a comprehensive database that enables the Company to implement
detailed, segmented marketing and merchandising strategies. Frequent credit card
users, through the Company's credit card program enjoy an increasing array of
benefits. The Company's most active charge customers are awarded a Preferred,
Chairman's Preferred or Chairman's Select card based on their level of annual
purchases. Depending on their level, holders of these cards receive such
benefits as discounted or free gift-wrapping, special promotional discounts, and
invitations to private, "Preferred Only" sales. In addition, new holders of the
company's credit card receive a 10% discount the first time they use their new
card. The Company believes that holders of the Company's credit card tend to buy
more merchandise from the Company than those customers who do not have a Company
credit card. In Fiscal 2001 the Company issued 300,000 Elder-Beerman credit
cards for newly opened accounts.

The Company administers its private label credit card program through a
dedicated in-house facility and staff located in the Company's corporate office.
The Company's fully computerized and highly automated credit systems analyze
customer payment histories, automatically approve or reject new sales at point
of sale and enable account representatives to efficiently manage delinquent
account collections.

All phases of the credit card operation are handled by Chargit except the
processing of customer mail payments, which is performed pursuant to a retail
lockbox agreement with a bank. Decisions whether to issue a credit card to an
applicant are made on the basis of a credit scoring system.

Customer Service

Elder-Beerman has a strong tradition of providing friendly customer
service. The Company has enhanced its customer service image and is creating a
customer-oriented store environment by (a) centralizing customer service
register stations at highly visible points in the store and assuring that they
are always staffed; (b) reducing nonselling activities in the stores; (c) using
training and recruiting practices to instill a culture of customer helpfulness,
friendliness and responsiveness; and (d) deploying a new POS System to expedite
the sales completion process and provide additional marketing and sales support
functions at point of service, such as a stock locator system that identifies
those stores that have a particular item in stock when it is not available in
the store in which a customer is shopping.

Seasonality

The department store business is seasonal, with a high proportion of sales
and operating income generated in November and December. Working capital
requirements fluctuate during the year, increasing somewhat in mid-summer in
anticipation of the fall merchandising season and increasing substantially prior
to the Christmas holiday season when the Company must carry significantly higher
inventory levels. Consumer spending in the peak retail season may be affected by
many factors outside the Company's control, including competition, consumer
demand and confidence, weather that affects consumer traffic and general
economic conditions. A failure to generate substantial holiday season sales
could have a material adverse effect on the Company.

Competition

The retail industry in general and the department store business in
particular is intensely competitive. Generally, the Elder-Beerman department
stores compete not only with other department stores in the same geographic
markets, but also with numerous other types of retail outlets, including
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specialty stores; general merchandise stores; off-price and discount stores;
manufacturer outlets; and direct to consumer retailers such as catalog and
internet retailers. Some of the retailers with which the Company competes have
substantially greater financial resources than the Company and may have other
competitive advantages over the Company. The Elder-Beerman department stores
compete on the basis of quality, value, depth and breadth of merchandise, prices
for comparable quality merchandise, customer service and store environment.

Associates

On February 2, 2002, the Company had approximately 6,990 regular and
part-time associates. Because of the seasonal nature of the retail business, the
number of associates rises to a peak in the holiday season. None of the
Company's associates are represented by a labor union. The Company's management
considers its relationships with its associates to be satisfactory.

ITEM 2. PROPERTIES

As of February 2, 2002, Elder-Beerman operated 66 department stores and two
furniture stores, principally in smaller midwestern markets in Ohio, West
Virginia, Indiana, Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania.
Substantially all of the Company's stores are leased properties. The Company
owns, subject to a mortgage, a 302,570 square foot office/warehouse facility
located in Dayton, Ohio, which serves as its principal executive offices. The
Company also leases an approximately 300,000 square foot distribution center in
Fairborn, Ohio.

The following table sets forth certain information with respect to
Elder-Beerman's department store locations operating as of February 2, 2002, the
end of Elder-Beerman's most recently completed fiscal year:

THE ELDER-BEERMAN STORES CORP.
STORE SUMMARY BY REGION

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in several legal proceedings arising from its
normal business activities and has established reserves where appropriate.
Management believes that none of these legal proceedings will have a material
adverse effect on the financial condition, results of operations or cash flows
of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's common stock, without par value, (the "Common Stock") is
listed on the Nasdaq Stock Market ("NASDAQ") and is designated a NASDAQ/National
Market System Security trading under the symbol EBSC.

The number of shareholders of record as of April 15, 2002 was 1,911.

No dividends have been paid on the Common Stock. The Company intends to
reinvest earnings in the Company's business to support its operations and
expansion. The Company has no present intention to pay cash dividends in the
foreseeable future, and will determine whether to declare dividends in the
future in light of the Company's earnings, financial condition and capital
requirements. In addition, the Company has certain credit agreements that limit
the payment of dividends.

Pursuant to the Third Amended Joint Plan of Reorganization, as amended (the
"Plan of Reorganization") of the Company, confirmed by an order entered by the
United States Bankruptcy

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Court for the Southern District of Ohio, Western Division (the "Bankruptcy
Court") on December 16, 1997, the Company issued Common Stock and a Series A
Warrant and a Series B Warrant, each convertible into Common Stock, in
satisfaction of certain allowed claims against, or interests in, the Company or
its subsidiaries. Based upon the exemptions provided by section 1145 under
chapter 11 of the United States Bankruptcy Code, as amended, the Company
believes that none of these securities are required to be registered under the
Securities Act of 1933 (the "Securities Act") in connection with their issuance
and distribution pursuant to the Plan of Reorganization. The Company has no
recent sales of unregistered securities other than such issuances pursuant to
the Plan of Reorganization.

The Company's high and low stock prices by quarter for Fiscal 2001 and
Fiscal 2000 are set forth below:

ITEM 6. SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth various selected financial information for
the Company as of and for the fiscal years ended February 2, 2002, February 3,
2001, January 29, 2000, January 30, 1999, and January 31, 1998. Such selected
consolidated financial information should be read in conjunction with the
consolidated financial statements of the Company, including the notes thereto,
set forth in Item 8 of

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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.

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Notes to Selected Historical Financial Data:

(a) Fiscal Year ended February 3, 2001 includes 53 weeks as compared to 52 weeks
for each of the other fiscal years shown.

(b) The financial information for The Bee-Gee Shoe Corp. ("Bee-Gee") and Margo's
LaMode, Inc. ("Margo's") is included as discontinued operations for all
periods.

SELECTED QUARTERLY FINANCIAL DATA

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(a) The financial information for Bee-Gee is included in discontinued operations
for all periods.

ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following is a discussion of the financial condition and results of
operations of the Company for Fiscal 2001, Fiscal 2000 and Fiscal 1999. The
Company's fiscal year ends on the Saturday closest to January 31. The discussion
and analysis that follows is based upon and should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto included
in Item 8.

RESULTS OF OPERATIONS

Fiscal 2001 Compared to Fiscal 2000

Net sales for Fiscal 2001 decreased by 2.0% to $643.1 million from $656.2
million for Fiscal 2000. Comparable store sales, sales for stores opened for 13
months and excluding the 53rd week of sales in Fiscal 2000, decreased 3.6%.
Women's special size sportswear, junior sportswear, and furniture had the
strongest sales increases.

Financing revenue from the Company's private label credit card for Fiscal
2001 decreased by 3.2% to $27.3 million from $28.2 million for Fiscal 2000,
primarily due to a decrease in the average outstanding accounts receivable
during the year.

Other revenue, which is primarily from leased departments, for Fiscal 2001
decreased by $0.1 million to $3.2 million from $3.3 million for Fiscal 2000.

Cost of merchandise sold, occupancy, and buying expenses decreased to 71.5%
of net sales for Fiscal 2001 from 72.6% of net sales for Fiscal 2000. During
Fiscal 2001 merchandise gross margins were reduced 1.0% versus Fiscal 2000 due
to additional markdowns to clear excess inventory as a result of the comparable
sales decrease. During Fiscal 2000 the Company incurred a charge of $12.1
million related to inventory costs to implement the Company's strategic plan and
$2.8 million in charges to record excess markdowns related to the closing of
three stores.

Selling, general, administrative, and other expenses decreased to 28.2% of
net sales for Fiscal 2001 from 29.3% for Fiscal 2000. Fiscal 2001 costs include
charges of $3.3 million related to the retirement of the Company's chairman,
president, and chief executive officer, and expenses recorded for the search of
a new chief executive, and $4.3 million in charges to write down the accounts
receivable from Shoebilee (See Note L to the Consolidated Financial Statements),
which was offset by expense initiatives that have been implemented as part of
the Company's strategic plan, and $0.6 million in income related to recovery of
an investment in a cooperative buying group. Fiscal 2000 costs include charges
of $3.8 million, primarily severance, to implement the Company's strategic plan,
$3.3 million related to the closing of three stores, and income of $0.7 million
related to a recovery of an investment in a cooperative buying group.

Depreciation and amortization expense for Fiscal 2001 increased $3.4
million to $19.6 million from $16.2 million for Fiscal 2000. The increase is
primarily due to increased capital expenditures related to the opening of four
new concept stores, and capitalized leases relating to our new point-of-sale
cash registers.

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Interest expense increased to $13.6 million for Fiscal 2001 from $13.0
million for Fiscal 2000. The increase is due to interest recorded from capital
leases primarily related to our new point-of-sale cash registers.

The Company's effective income tax benefit rate is 8.2% in Fiscal 2001
compared to an effective income tax benefit rate of 31.6% in Fiscal 2000. The
effective income tax benefit rate for both years was affected by state tax
expense based on gross receipts versus net income and non-deductible goodwill.
See Note F to the Consolidated Financial Statements.

Fiscal 2000 Compared to Fiscal 1999

Net sales for Fiscal 2000, which includes 53 weeks, increased by 2.9% to
$656.2 million from $637.8 million for Fiscal 1999. Comparable store sales,
sales for stores opened for 13 months and excluding the 53rd week of sales,
decreased 0.8%. Women's moderate sportswear, intimate apparel, cosmetics, and
furniture had the strongest sales increases.

Financing revenue from the Company's private label credit card for Fiscal
2000 increased by 7.8% to $28.2 million from $26.1 million for Fiscal 1999,
primarily due to an increase in late fees charged.

Other revenue, which is primarily from leased departments, for Fiscal 2000
decreased by $0.2 million to $3.3 million from $3.5 million for Fiscal 1999.

Cost of merchandise sold, occupancy, and buying expenses increased to 72.6%
of net sales for Fiscal 2000 from 69.8% of net sales for Fiscal 1999. This
increase is primarily due to a charge of $12.1 million related to inventory
costs to implement the Company's strategic plan in Fiscal 2000 and $2.8 million
in charges to record excess markdowns related to the closing of three stores.
Additionally, merchandise gross margins were reduced 0.3% due to additional
markdowns to clear excess inventory as a result of the comparable sales
decrease.

Selling, general, administrative, and other expenses increased to 29.3% of
net sales for Fiscal 2000 from 28.7% for Fiscal 1999. Fiscal 2000 costs include
charges of $3.8 million, primarily severance, to implement the Company's new
strategic plan, $3.3 million related to the closing of three stores, and income
of $0.7 million related to a recovery of an investment in a cooperative buying
group. Fiscal 1999 costs include a charge of $4.6 million to reflect a write
down of amounts related to an investment made several years ago in a cooperative
buying group.

Depreciation and amortization expense for Fiscal 2000 increased $1.0
million to $16.2 million from $15.2 million for Fiscal 1999 due to increased
capital expenditures related to the opening of three concept stores.

Interest expense increased to $13.0 million for Fiscal 2000 from $10.9
million for Fiscal 1999. The increase is primarily due to higher average
borrowing because of the Company's stock repurchase program, which was completed
in October 2000, and higher average interest rates in Fiscal 2000 versus Fiscal
1999.

The Company's effective income tax benefit rate is 31.6% in Fiscal 2000
compared to an income tax rate of 41.5% in Fiscal 1999 before adjustments to the
Company's deferred tax asset valuation allowance. In Fiscal 1999 the Company
reviewed the status of its deferred tax asset valuation allowance at the end of
the fiscal year and determined that the valuation allowance should be reduced to
reflect the likely utilization of net operating loss carryforwards to offset
taxable income generated in future years. This resulted in a net income tax
benefit being recorded in Fiscal 1999. See Note F to the Consolidated Financial
Statements.

During the third quarter of 1999 the Company adopted a plan to dispose of
Bee-Gee and consummated the sale in the fourth quarter. During the fourth
quarter of 2000 the Company recorded a gain of $0.1 million, net of tax,
resulting from the final settlement of the sale. In Fiscal 1999 the Company
recorded a loss on disposal of $2.3 million, net of tax. The Company also
recorded a loss from

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operations in Fiscal 1999 of $0.4 million, net of tax. See Note K to the
Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are cash flow from operations and
borrowings under its $150 million Revolving Credit Facility and $150 million
Receivable Securitization Facility (collectively, the "Credit Facilities"). The
Company's primary ongoing cash requirements are to fund debt service, make
capital expenditures, and finance working capital.

Factors that could affect operating cash flows include, but are not limited
to, increasing price and product competition, fluctuations in consumer demand
and confidence, the availability and quality of inventory, the availability and
terms of bank financing and trade credit, consumer debt levels, a reduction in
the finance charges imposed by the Company on its charge card holders.

The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under the Credit
Facilities, to meet anticipated working capital and capital expenditure
requirements, as well as debt service requirements under the Credit Facilities.

Net cash provided by operating activities was $41.5 million for Fiscal
2001, compared to $17.0 million in Fiscal 2000. A net loss was recorded in
Fiscal 2001 of $0.9 million, including pre-tax charges of $3.3 million related
to the retirement of the Company's chairman, president, and chief executive
officer, and expenses recorded for the search for a new chief executive, and
$4.3 million to write down the accounts receivable from Shoebilee, refer to Note
L to the Consolidated Financial Statements, compared to a net loss of $6.7
million in Fiscal 2000. Trade payables increased $6.2 million in Fiscal 2001,
caused by an increase in inventory in transit of $10.2 million, compared to a
decrease of $2.7 million in Fiscal 2000. Even though inventory in transit
increased $10.2 million, total inventory decreased in Fiscal 2001 by $2.4
million compared to a decrease of $11.3 million in Fiscal 2000.

Net cash used in investing activities was $18.9 million for Fiscal 2001,
compared to $23.5 million for Fiscal 2000. Capital expenditures for new stores,
store maintenance, remodeling, and data processing totaled $19.1 million for
Fiscal 2001 compared to $23.5 million for Fiscal 2000.

For Fiscal 2001, net cash used in financing activities was $23.4 million
compared to $6.1 million provided by financing activities for Fiscal 2000. In
Fiscal 2001 the Company utilized cash provided by operating activities to reduce
borrowings made in Fiscal 2000 to purchase shares of the Company's common stock.

The Company's current Credit Facilities expire in May 2003. The Company is
currently negotiating to replace the current Credit Facilities with new
agreements similar in scope. The new Credit Facilities are expected to be
effective during the third quarter of Fiscal 2002.

The Company may from time to time consider acquisitions of department store
assets and companies. Acquisition transactions, if any, are expected to be
financed through a combination of cash on hand from operations, available
borrowings under the Credit Facilities, and the possible issuance from time to
time of long-term debt or other securities. Depending upon the conditions in the
capital markets and other factors, the Company will from time to time consider
the issuance of debt or other securities, or other possible capital market
transactions, the proceeds of which could be used to refinance current
indebtedness or for other corporate purposes.

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CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following data is provided to facilitate an understanding of the
Company's contractual obligations and commercial commitments, (000's):

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of financial condition and results of
operations are based upon the Company's consolidated financial statements, which
are prepared in conformity with accounting principles generally accepted in the
United States of America. The preparation of the consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Management bases its estimates and judgements on
historical experience and other various assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

The Company's accounting policies are more fully described in Note A to the
Consolidated Financial Statements. Management believes the following critical
accounting policies affect its more significant judgements and estimates used in
the preparation of the consolidated financial statements.

Inventory Valuation. Merchandise inventories are valued by the retail
inventory method ("RIM") applied on a last-in, first-out ("LIFO") basis and are
stated at the lower of cost or market. Under the RIM, the valuation of
inventories at cost and the resulting gross margins are calculated by applying a
calculated cost-to retail ratio to the retail value of inventories. RIM is an
averaging method that has been widely used in the retail industry due to its
practicality. Inherent in the RIM calculation are certain management judgements
and estimates including, but not limited to, merchandise markon, markups,
markdowns and shrinkage, which significantly impact the ending inventory
valuation and resulting gross margins. These estimates, coupled with the fact
that the RIM is an averaging process, can produce distorted cost figures under
certain circumstances. Distortions could occur primarily by applying the RIM to
a group of products that is not fairly uniform in terms of its cost and selling
price relationship and turnover, and applying RIM to transactions over a period
of time that include different rates of gross profit, such as seasonal
merchandise. To reduce the potential for such distortion in the inventory
valuation, the Company's RIM utilizes over 250 departments within 18 LIFO
inventory pools in which fairly homogenous classes of merchandise are grouped.
Management believes that the Company's RIM provides an inventory valuation which
reasonably approximates cost and results in carrying inventory at the lower of
cost or market.
13

Long-lived Assets. In evaluating the carrying value and future benefits of
long-lived assets, including goodwill, management performs a comparison of the
anticipated undiscounted future net cash flows of the related long-lived asset,
including goodwill, to their carrying amount in accordance with Statement of
Financial Accounting Standard ("SFAS") 121. Management believes at this time
that the long-lived assets, including goodwill, carrying values and useful lives
to be appropriate.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS No.
144 supersedes FASB No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental
provisions of that statement. SFAS No. 144 becomes effective for fiscal years
beginning after December 15, 2001, with early application encouraged. Management
does not believe the adoption of this pronouncement will have a material impact
on the financial statements.

Effective February 3, 2002, the beginning of the new fiscal year, SFAS 142
will be adopted. SFAS 142 requires that goodwill will no longer be amortized,
but will be subject to annual fair value based impairment tests. In addition, a
transitional impairment test is required upon the adoption date. These
impairment tests are conducted on each business of the Company where goodwill is
recorded, and may require two steps. The initial step is designed to identify
potential goodwill impairment by comparing an estimate of the fair value for
each applicable business to its respective carrying value. For those businesses
where the carrying amount exceeds its estimated fair value, a second step is
performed to measure the amount of goodwill impairment, if any. The Company is
in the process of determining if its existing goodwill is impaired. Goodwill
impairment, if any, will be recognized in the first quarter of 2002 and will be
classified as a cumulative effect of a change in accounting principle.

Customer Accounts Receivable. Customer accounts receivable is shown net of
an allowance for uncollectible accounts. The Company calculates the allowance
for uncollectible accounts using a model that analyzes factors such as
bankruptcy filings, delinquency rates, historical charge-off patterns, recovery
rates, and other portfolio data. The Company's calculation is reviewed by
management to assess whether, based on recent economic events, the allowance for
uncollectible accounts is appropriate to estimate losses inherent in the
portfolio.

Income Taxes. The Company has generated net operating loss carryforwards
("NOL's") from previous years. Generally accepted accounting principles require
that we record a valuation allowance against the deferred tax asset associated
with the NOL's if it is more likely than not that the Company will not be able
to fully utilize it to offset future taxes. It is possible that we could be
profitable in the future at levels which cause management to conclude that it is
more likely than not that the Company will be able to fully realize the deferred
tax assets associated with the NOL's. Subsequent revisions to the estimated net
realizable value of the deferred tax asset could cause our provision for income
taxes to vary significantly from period to period, although our cash tax
payments would remain unaffected until the benefit of the NOL's are realized.

RECENT ACCOUNTING PRONOUNCEMENTS

In addition to SFAS 142 and SFAS 144 discussed above, in June 2001, SFAS
141 was issued. SFAS 141 primarily requires that all business combinations
completed after June 30, 2001 be accounted for using the purchase method and
establishes criteria for recognizing acquired intangible assets separately from
goodwill. The Company will account for future business combinations under SFAS
141.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its variable rate borrowing.
The Company has entered into variable to fixed rate interest-rate swap
agreements to effectively reduce its exposure to interest rate fluctuations. A
hypothetical 100 basis point change in interest rates would not materially
affect the Company's financial position, liquidity or results of operations.
14

The Company does not maintain a trading account for any class of financial
instrument and is not directly subject to any foreign currency exchange or
commodity price risk. As a result, the Company believes that its market risk
exposure is not material to the Company's financial position, liquidity or
results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

15

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
The Elder-Beerman Stores Corp.:

We have audited the accompanying consolidated balance sheets of The
Elder-Beerman Stores Corp. and subsidiaries (the "Company") as of February 2,
2002 and February 3, 2001, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three fiscal
years in the period ended February 2, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of the Company and its
subsidiaries as of February 2, 2002 and February 3, 2001 and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended February 2, 2002, in conformity with accounting
principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

March 27, 2002
Dayton, Ohio

16

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to the consolidated financial statements.
17

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to the consolidated financial statements.
18

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

See notes to the consolidated financial statements.
19

THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.
20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of The Elder-Beerman Stores Corp. and subsidiaries,
including The El-Bee Chargit Corp., a finance subsidiary (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.

FISCAL YEAR -- The Company's fiscal year ends on the Saturday nearest
January 31. Fiscal year 2001 consists of 52 weeks, fiscal year 2000 consists of
53 weeks, and fiscal year 1999 consists of 52 weeks ended February 2, 2002,
February 3, 2001 and January 29, 2000, respectively.

ESTIMATES -- The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

CASH AND EQUIVALENTS -- The Company considers all highly liquid investments
with original maturities of three months or less at the date of purchase to be
cash equivalents.

CUSTOMER ACCOUNTS RECEIVABLE are classified as current assets because the
average collection period is generally less than one year.

MERCHANDISE INVENTORIES are valued by the retail method applied on a
last-in, first-out (LIFO) basis and are stated at the lower of cost or market.
Current cost, which approximates replacement cost under the first-in, first-out
(FIFO) method, is equal to the LIFO value of inventories at February 2, 2002 and
February 3, 2001.

PROPERTY is stated at cost less accumulated depreciation determined by the
straight-line method over the expected useful lives of the assets. Assets held
under capital leases and related obligations are recorded initially at the lower
of fair market value or the present value of the minimum lease payments. The
straight-line method is used to amortize such capitalized costs over the lesser
of the expected useful life of the asset or the life of the lease. The estimated
useful lives by class of asset are:

OTHER ASSETS -- Included in other assets is goodwill, which is amortized
using the straight-line method over estimated useful lives of 10 to 25 years.
The Company periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identified and
is less than its carrying value.

REVENUE RECOGNITION -- Sales revenues are recognized on merchandise
inventory sold upon receipt by the customer. Finance revenue is generated by
outstanding customer accounts receivable and recognized as interest is accrued
on these outstanding balances. Other revenue consists primarily of leased
department revenue. Leased department revenue is recognized as the Company earns
commission from the sale of merchandise within leased departments.

PRE-OPENING COSTS associated with opening new stores are expensed as
incurred.

ADVERTISING EXPENSE -- The cost of advertising is expensed the first time
the advertising takes place. Advertising costs were $23.3 million, $26.8 million
and $27.5 million in Fiscal 2001, 2000 and 1999,

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respectively. The amounts of prepaid advertising at the end of Fiscal 2001, 2000
and 1999 were $0.7 million, $0.6 million and $0.6 million, respectively.

STOCK OPTIONS -- The Company measures compensation cost for stock options
issued to employees using the intrinsic value based method of accounting in
accordance with Accounting Principles Board Opinion No. 25.

FINANCIAL INSTRUMENTS -- The Company utilizes interest rate swap agreements
to manage its interest rate risks when receivables are sold under asset
securitization programs or other borrowings. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company does not have
derivative financial instruments that are held or issued and accounted for as
hedges of anticipated transactions. Amounts currently due to or from interest
swap counter parties are recorded in interest expense in the period in which
they accrue. Gains or losses on terminated interest rate swap agreements are
included in long-term liabilities or assets and amortized to interest expense
over the shorter of the original term of the agreements or the life of the
financial instruments to which they are matched. Gains or losses on the
mark-to-market for interest rate swap agreements that do not qualify for hedge
accounting are recorded as income or expense each period.

COMPREHENSIVE INCOME is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. The
difference between net earnings (loss) and comprehensive earnings (loss) for
fiscal year 2001 related to the change in minimum pension liability and the net
unrealized loss on derivative financial instruments associated with the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 133. The difference
between net earnings (loss) and comprehensive earnings (loss) for fiscal year
2000 relates to the change in minimum pension liability for fiscal year 2000.
Comprehensive income equals net income for fiscal 1999.

ACCOUNTING PRONOUNCEMENTS -- In June 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 applies to all
business combinations completed after June 30, 2001, and requires the use of
purchase accounting. SFAS No. 141 also establishes new criteria for determining
whether intangible assets should be recognized separately from goodwill. SFAS
No. 142 is effective for fiscal years beginning after December 15, 2001;
however, companies with fiscal years beginning after March 15, 2001 may elect to
adopt the statement early. SFAS No. 142 provides that goodwill and intangible
assets with indefinite lives will not be amortized, but rather will be tested
for impairment at least on an annual basis. The Company will adopt SFAS No. 142
effective February 3, 2002, which will require the Company to cease amortization
of its remaining net goodwill balance and to perform an impairment test of its
existing goodwill based on a fair value concept. The Company is in the process
of determining if its existing goodwill is impaired. Goodwill impairment, if
any, will be recognized in the first quarter of 2002 and will be classified as a
cumulative effect of a change in accounting principle. As of February 2, 2002,
the Company has net unamortized goodwill of $16 million and amortization expense
of $0.9 million, $0.9 million and $0.8 million for the years ended February 2,
2002, February 3, 2001 and January 29, 2000, respectively.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. While SFAS No.
144 supersedes FASB No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, it retains many of the fundamental
provisions of that statement. SFAS No. 144 becomes effective for fiscal years
beginning after December 15, 2001, with early application encouraged. Management
does not believe the adoption of this pronouncement will have a material impact
on the financial statements.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

B. CUSTOMER ACCOUNTS RECEIVABLE

Customer accounts receivable represent finance subsidiary receivables.
Interest is charged at an annual rate of 21% to 22%, depending on state law. A
rollforward of the Company's allowance for doubtful accounts is as follows:

Customer accounts receivable result from the Company's proprietary credit
card sales to customers residing principally in the midwestern states. As such,
the Company believes it is not dependent on a given industry or business for its
customer base and therefore has no significant concentration of credit risk.

The El-Bee Chargit Corp. ("Chargit" or financing subsidiary) purchases
substantially all Elder-Beerman and subsidiaries' proprietary credit card
receivables; such receivables are purchased at a 3% discount. Purchase discounts
are eliminated in consolidation.

C. DEBT

Through a commercial bank lending group, the Company has a three-year
Revolving Credit Facility ("Credit Facility"), and through its financing
subsidiary, a three-year variable rate securitization loan agreement
("Securitization Facility"), both of which expire May 18, 2003. Outstanding
borrowings of $138.3 million on the Credit and Securitization Facilities due May
2003 are classified as long-term liabilities.

The Credit Facility provides for borrowing and letters of credit in an
aggregate amount up to $150 million subject to a borrowing base formula based
primarily on merchandise inventories. There is a $40 million sublimit for
letters of credit. The Company has the option to finance borrowings at either
prime, plus 25 basis points or LIBOR, plus 175 basis points.

The Securitization Facility is a revolving agreement whereby the Company
can borrow up to $150 million. The Company's customer accounts receivables are
pledged as collateral under the Securitization Facility. The borrowings under
this facility are subject to a borrowing-based formula based primarily on
outstanding customer accounts receivable. Borrowings bear interest at commercial
paper rates, plus 5 basis points.

Certain financial covenants related to debt are included in the Credit and
Securitization Facility agreements. Additionally, there are certain other
restrictive covenants, including limitations on the incurrence of additional
liens, indebtedness, payment of dividends, distributions or other payments on
and repurchase of outstanding capital stock, investments, mergers, stock
transfer and sale of assets. Certain ratios related to the performance of the
accounts receivable portfolio are also included.

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-term obligations consists of the following:

Maturities of borrowings are $5,531,000 in 2002, $141,931,000 in 2003,
$1,515,000 in 2004, $2,938,000 in 2005, $205,000 in 2006 and $1,900,000
thereafter.

Collateral for the industrial development revenue bond, which matures March
2015, and the mortgage note payable, which matures April 2005, is land,
buildings, furniture, fixtures and equipment with a net book value of $2.2
million at February 2, 2002.

D. FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

CASH AND EQUIVALENTS -- The carrying amount approximates fair value because
of the short maturity of those instruments.

CUSTOMER ACCOUNTS RECEIVABLE -- The net carrying amount approximates fair
value because of the relatively short average maturity of the instruments and no
significant change in interest rates.

LONG-TERM DEBT -- The carrying amount approximates fair value as a result
of the variable-rate-based borrowings.

INTEREST RATE SWAP AGREEMENTS -- The fair value of interest rate swaps is
based on the quoted market prices that the Company would pay to terminate the
swap agreements at the reporting date.

The Company uses derivative financial instruments as part of an overall
strategy to manage exposure to market risks associated with interest rate
fluctuations. The Company does not hold or issue derivative financial
instruments for trading purposes. The risk of loss to the Company in the event
of nonperformance by any counterparty under derivative financial instrument
agreements is not considered significant by management. All counterparties are
rated A or higher by Moody's and Standard and Poor's, and the Company does not
anticipate nonperformance by any of its counterparties.

Effective February 4, 2001, the Company adopted SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended. Under SFAS No.
133, all derivative instruments are required to be recorded on the balance sheet
as assets or liabilities, measured at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are recognized
in earnings. If the derivative is designated as a cash flow hedge, the effective
portion of the change in the fair value of the derivative is recorded in other
comprehensive income (loss) and is recognized in the income statement when the
hedge item

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

affects earnings. Ineffective portions of changes in the fair value of cash flow
hedges and financial instruments not designated as hedges are recognized in
earnings.

The Company utilizes interest rate swap agreements to effectively establish
long-term fixed rates on borrowings under the Securitization Facility, thus
reducing the impact of interest rate changes on future income. These swap
agreements, which are designated as cash flow hedges, involve the receipt of
variable rate amounts in exchange for fixed rate interest payments over the life
of the agreements. The fair value of the Company's interest rate swap agreements
in the Company's consolidated balance sheet is a $6.0 million liability at
February 2, 2002. The estimated fair value of the interest rate swap agreements
is a $2.8 million liability and a $1.1 million asset at February 3, 2001 and
January 29, 2000, respectively. The Company had outstanding swap agreements with
notional amounts totaling $92 million, $100 million and $115 million for the
fiscal years ended 2001, 2000 and 1999, respectively. The Company's current swap
agreements expire April 2004. These agreements have been matched to the
Securitization Facility to reduce the impact of interest rate changes on cash
flows.

E. LEASES

The Company leases retail store properties and certain equipment.
Generally, leases are net leases that require the payment of executory expenses
such as real estate taxes, insurance, maintenance and other operating costs, in
addition to minimum rentals. Leases for retail stores generally contain renewal
or purchase options, or both, and generally provide for contingent rentals based
on a percentage of sales.

Minimum annual rentals, for leases having initial or remaining
noncancellable lease terms in excess of one year at February 2, 2002, are as
follows:

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Assets acquired under capital leases are included in the consolidated
balance sheets as property, while the related obligations are included in
long-term obligations.

F. INCOME TAXES

Income tax benefit consists of the following:

Income statement classifications:

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the major differences between the actual
income tax provision attributable to continuing operations and taxes computed at
the federal statutory rates:

Deferred income taxes consist of the following:

Permanent items consist primarily of nondeductible goodwill. The net
operating loss carryforwards, tax credit carryforwards, and other deferred tax
assets will result in future benefits only if the Company has taxable income in
future periods. In accordance with SFAS No. 109, Accounting for Income Taxes, a
valuation allowance has been recorded for the tax effect of a portion of the
future tax deductions and tax credit carryforwards. In the fourth quarter of
fiscal 1999, the Company reduced the valuation allowance to reflect the likely
future utilization of its deferred tax assets.

The federal net operating loss carryforward is approximately $63.0 million
and is available to reduce federal taxable income through 2020. The tax credit
carryforward is approximately $2.9 million, of which $632,000 will expire in
2009 and 2010, and the balance of which is an indefinite carryforward.

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

G. EMPLOYEE BENEFIT PLANS

A defined-contribution employee benefit plan (the "Benefit Plan") covers
substantially all employees. The Company may contribute to the Benefit Plan
based on a percentage of compensation and on a percentage of earnings before
income taxes. Contributions of $1.4 million, $1.1 million, and $1.9 million were
recorded in fiscal 2001, 2000 and 1999, respectively, for the Company's match to
the Benefit Plan. Eligible employees can make contributions to the Benefit Plan
through payroll withholdings of one to fifteen percent of their annual
compensation. The Benefit Plan includes an employee stock ownership component.

Effective February 2, 2002, the Company terminated its Stock Purchase Plan,
which provided for its employees to purchase Elder-Beerman common stock at a 15%
discount. Employees could make contributions to the Stock Purchase Plan through
payroll withholdings of one percent to ten percent of their annual compensation,
up to a maximum of $25,000 per year. A total of 625,000 shares of common stock
are registered and unissued under the Stock Purchase Plan.

With the acquisition of Stone & Thomas, the Company assumed a
defined-benefit pension plan, which covered all full-time employees of Stone &
Thomas upon completion of one year of service and the attainment of age 21. The
benefits were based upon years of service and the earnings. Accrued benefits
were frozen as of September 30, 1998, as part of the Company's plan of
acquisition. The Company's funding policy is to contribute an amount annually
that satisfies the minimum funding requirements of ERISA and that is tax
deductible under the Internal Revenue Code.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summary information for the Company's defined-benefit plan is as follows:

The components of net pension loss (income) are as follows:

Plan assets are held in a trust and are invested primarily in equities and
fixed income obligations. The expected long-term rate of return on plan assets
used in determining net pension loss (income) was 8.0% in 2001 and 2000 and 8.5%
in 1999.

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

H. EARNINGS PER SHARE

Net earnings (loss) per common share is computed by dividing net earnings
(loss) by the weighted-average number of common shares outstanding during the
year. Stock options, restricted shares, deferred shares and warrants outstanding
represent potential common shares and are included in computing diluted earnings
per share when the effect is dilutive. Dilutive potential common shares for
Fiscal 2001 and 2000 were 133,457 and 120,790, respectively. There was no
dilutive effect of potential common shares in fiscal 2001 and 2000. A
reconciliation of the weighted average shares used in the basic and diluted
earnings per share calculation is as follows:

I. SHAREHOLDERS' EQUITY

The Company has authorized 25 million no par common shares. In August 2000,
the Company's Board of Directors authorized the repurchase of a targeted 3.3
million common shares at an aggregate repurchase price of $20 million through a
self-tender. During fiscal 2000, a total of 3.5 million common shares were
repurchased for $17.7 million. In August 1999, the Company's Board of Directors
authorized a share repurchase program to repurchase up to $24 million in common
shares over a two-year period. During fiscal 1999 pursuant to the share
repurchase program, a total of 1.1 million common shares were repurchased for
$7.4 million. There were 0.9 million shares held in treasury at February 2,
2002.

The Board of Directors has the authority to issue five million shares of
preferred stock. At February 2, 2002, these shares are unissued.

Warrants of 624,522 are attached to shares outstanding of 624,522.

Under a Rights Agreement, each outstanding common share presently has one
right attached that trades with the common share. Generally, the rights become
exercisable and trade separately after a third party acquires 20% or more of the
common shares or commences a tender offer for a specified percentage of the
common shares. Upon the occurrence of certain additional triggering events
specified in the Rights Agreement, each right would entitle its holder (other
than, in certain instances, the holder of 20% or more of the common shares) to
purchase common shares of the Company at an exercise price of 50% of the
then-current common share market value. The rights expire on December 30, 2007,
unless the Board of Directors takes action prior to that date to extend the
rights, and are presently redeemable at $.01 per right.

J. STOCK-BASED COMPENSATION

The Equity and Performance Incentive Plan (the "Incentive Plan") authorizes
the Company's Board of Directors to grant restricted shares, stock options,
appreciation rights, deferred shares, performance shares and performance units.
Awards relating to 2,750,000 shares are authorized for issuance under this plan
and awards related to 2,261,275 have been issued as of February 2, 2002.

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Officers and key employees have been granted stock options under the
Incentive Plan. The options granted have a maximum term of ten years and vest
over a period ranging from three to five years. In fiscal 2001, 2000 and 1999,
the Company has granted certain discounted stock options, in lieu of directors
fees, to outside directors with an exercise price less than the market price of
the stock on the grant date.

The following table summarizes the Company's stock option activity:

Total compensation costs charged to earnings from continuing operations
before income taxes for all stock-based compensation awards was approximately
$0.4 million, $ 0.7 million, and $1.6 million in fiscal 2001, 2000, and 1999,
respectively. Had compensation costs been determined based on the fair value
method of SFAS No. 123 for all plans, the Company's net earnings (loss) and
diluted earnings (loss) per common share would have been the following pro forma
amounts:

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table shows various information about stock options
outstanding at February 2, 2002:

The Incentive Plan provides for the issuance of restricted common shares to
certain employees and nonemployee directors of the Company. These shares have a
vesting period of three years. As of February 2, 2002, 131,212 restricted common
shares are issued and outstanding under the plan. There were 88,538 and 42,625
shares awarded under this plan in fiscal 2001 and 2000, respectively. The fair
value of the restricted shares awarded was $0.3 million and $0.2 million in
fiscal 2001 and 2000, respectively, which is recorded as compensation expense
over the three-year vesting period.

The Incentive Plan also provides for certain employees to elect to defer a
portion of their compensation through the purchase of deferred shares. Each
deferred share represents an employee's right to a share of the Company's common
stock. As of February 2, 2002, 26,192 deferred shares are outstanding.

K. DISCONTINUED OPERATIONS

During fiscal 1999, the Company sold its wholly-owned subsidiary, The
Bee-Gee Shoe Corp. ("Bee-Gee") to B-G Shoe Acquisition Corp., a predecessor of
Shoebilee, Inc. ("Shoebilee").

The following are the components of discontinued operations:

L. ASSET IMPAIRMENT AND OTHER EXPENSES

During fiscal 1999, the Company sold substantially all of the assets of
Bee-Gee to Shoebilee. On October 29, 2001, the Company was informed that
Shoebilee was in default under its lending agreement with its working capital
lender. Shoebilee is also in default under the loan documents governing the
amount Shoebilee owes the Company for the purchase of the Bee-Gee assets, as
well as under an agreement pursuant to which the Company provides back office
support services to Shoebilee (collectively, the "Company Agreements"). On
December 21, 2001, Shoebilee filed for Chapter 11 bankruptcy protection. As a
result of Shoebilee's default on the Company's agreements and bankruptcy filing,
the Company recorded a pre-tax charge of $4.3 million in selling, general,
administrative and

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other expenses. In addition, the Company has recorded a liability of $0.1
million at February 2, 2002, for guaranteed lease obligations of two Shoebilee,
Inc. stores.

Effective December 31, 2001 (the "Retirement Date"), Frederick J. Mershad
retired as Chairman, President, and Chief Executive Officer of the Company and
resigned from the Board of Directors. The Company entered into a Separation and
Retirement Agreement (the "Separation Agreement") with Mr. Mershad. The
Separation Agreement superceded Mr. Mershad's employment agreement. Pursuant to
the terms of the Separation Agreement, until the Retirement Date, Mr. Mershad
was entitled to his current base salary and benefits that would have been
payable pursuant to the terms of his Employment Agreement. After the Retirement
Date, the Company will pay Mr. Mershad (i) his current base salary of $660,000
per year for the period beginning with the Retirement Date and ending on
December 31, 2004 (the "Retirement Period") and (ii) his bonus (if any) earned
in 2001. During the Retirement Period, Mr. Mershad is also entitled to medical
benefits equivalent to those provided to him prior to the Retirement Date and
the automobile benefit that he received prior to the Retirement Date. Mr.
Mershad's options to purchase shares of common stock and restricted shares that
are unvested as of the Retirement Date were forfeited. During fiscal 2001, the
Company recorded pre-tax expense of $3.3 million for severance costs and
expenses recorded for the search of a new chief executive in selling, general,
administrative and other expenses. The liability of $2.2 million remaining at
February 2, 2002 for severance and benefits is payable in 2002, 2003 and 2004.

During fiscal 2000, the Company recorded a pretax charge of $15.9 million
associated with the Company's new strategic plan announced in August 2000. The
charges included $12.1 million for inventory costs included in cost of goods
sold, occupancy and buying expenses and $3.8 million for severance costs and
outside professional fees and expenses included in selling, general,
administrative and other expenses. The severance costs related to the
termination of 137 salaried and hourly employees, all of who left the Company
before February 3, 2001. The liability of $0.5 million remaining at February 2,
2002 is expected to be paid during fiscal 2002. Also in fiscal 2000, the Company
recorded an asset impairment of $0.3 million in selling, general, administrative
and other expenses for the value of the closed Wheeling store building. The
Company determined the fair value of the building based on a real estate
assessment.

In fiscal 1999, the Company recorded an asset impairment of $4.6 million in
selling, general, administrative and other expenses as the result of adverse
changes in the operations of a cooperative buying group in which the Company
held an investment. The Company determined the fair value of its investment
based on an analysis of the expected future cash flows. The asset impairment
recorded reflects the write-down of the carrying amount of the investment in the
cooperative buying group to its estimated fair value. During 2001 and 2000,
income of $0.6 million and $0.7 million, respectively, was recorded in selling,
general, administrative and other expenses related to proceeds received upon the
disbanding of the cooperative buying group in which the Company held an
investment.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary related to the asset impairment and other
expenses:

M. COMMITMENTS AND CONTINGENCIES

LITIGATION -- The Company is a party to various legal actions and
administrative proceedings and subject to various claims arising in the ordinary
course of business. Management believes the outcome of any of the litigation
matters will not have a material effect on the Company's results of operations,
cash flows or financial position.

INSURANCE -- The Company is self-insured for employee medical and workers'
compensation, subject to limitations for which insurance has been purchased.
Management believes that those claims reported and not paid and claims incurred,
but not yet reported, are appropriately accrued.

LETTERS OF CREDIT -- The Company is required to maintain certain standby
letters of credit. These letters of credit will only be drawn on if the Company
is unable to make certain payments. The Company also utilizes import letters of
credit for the payment of imported merchandise.

N. SEGMENT REPORTING

Management assesses performance and makes operating decisions based on two
reportable segments, Department Store and Finance Operations.

The Department Store segment is identified by the merchandise sold and
customer base served. The Department Store segment sells a wide range of
moderate to better brand merchandise, including women's ready to wear,
accessories, cosmetics, men's, children's and home. The Company's retail stores
are principally engaged in smaller Midwestern markets in Ohio, Indiana,
Illinois, Michigan,

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pennsylvania, Wisconsin, Kentucky, and West Virginia. Net sales by major
merchandising category in the Department Store segment are as follows:

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:

- ---------------

(1) Total segment operating profit is reconciled to earnings (loss) before
income tax benefit and discontinued operations as follows:

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

(2) Finance Operations segment revenues is reconciled to reported financing
revenues as follows:

* * * * * *

36

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Directors and Executive Officers

The following table sets forth information regarding those persons
currently serving as the executive officers and directors of the Company.
Certain biographical information regarding each of the Company's current
directors and executive officers is described below the table.

Byron L. Bergren has served as President, Chief Executive Officer and as a
Director since February 2002. Prior to this time, Mr. Bergren served as Chairman
of the Southern Division of Belk Stores, Inc. ("Belk") from 1999 to 2002. Prior
to that he served as Managing Partner of the Belk Lindsey division of Belk from
1992 to 1999; Senior Vice President Corporate Sales Promotion and Marketing of
Belk from 1991 to 1992; and Senior Vice President, Merchandising and Marketing
of the Belk Charlotte division from 1988 to 1991.

Steven C. Mason has served as a Director of Elder-Beerman since 1997. He
was appointed interim President effective January 1, 2002, and served in this
role until Mr. Bergren's appointment as President. Mr. Mason was also appointed
as non-executive Chairman of the Board in January 2002. Mr. Mason retired from
The Mead Corp., a forest products company, in November 1997. Prior to
retirement, Mr. Mason served as Chairman of the Board and Chief Executive
Officer of The Mead Corp. from April 1992 to November 1997. Mr. Mason also
currently serves as a Director of PPG Industries, Inc. and Convergys.

Scott J. Davido has served as Executive Vice President, Chief Financial
Officer, Treasurer and Secretary since March 1999 and served as Senior Vice
President, General Counsel and Secretary of Elder-Beerman from January 1998
through March 1999. Prior to this time, Mr. Davido was a partner with Jones,
Day, Reavis & Pogue, a law firm, since December 1996, and was employed as an
associate with the firm since September 1987. Mr. Davido also currently serves
as a Director of Stage Stores, Inc. and Granite National Bank.

John S. Lupo has served as Executive Vice President, Merchandising and
Marketing since August 2001. Prior to this time Mr. Lupo served as a principal
of Renaissance Partners, LC, a

37

management consulting firm, from January 2000 to July 2001. Mr. Lupo served as
an Executive Vice President at Bassett Furniture Industries from December 1998
to December 1999. Mr. Lupo also served as Chief Operating Officer of the
Wal-Mart International division of Wal-Mart Stores, Inc. ("Wal-Mart") from 1996
to 1998, and as Senior Vice President and General Merchandise Manager of Wal-
Mart from 1990-1996. Mr. Lupo currently serves as a Director of Rayovac
Corporation.

James M. Zamberlan has served as Executive Vice President, Stores of
Elder-Beerman since July 1997. Prior to this time, Mr. Zamberlan served as
Executive Vice President of Stores for Bradlee's, Inc. from September 1995 to
January 1997 and also served as Senior Vice President of Stores for the Lazarus
Division of Federated from November 1989 to August 1995.

Steven D. Lipton has served as Senior Vice President, Controller of
Elder-Beerman since March 1996. Prior to this time, Mr. Lipton served as
Operating Vice President of Payroll for Federated Financial & Credit Services
from September 1994 to January 1996 and served as Vice President and Controller
of the Lazarus Division of Federated from February 1990 to August 1994.

Mark F.C. Berner has served as a Director of Elder-Beerman since September
2000. Mr. Berner is Managing Partner of SDG Resources, L.P., an oil and gas
investment fund. From 1996 to 1999, he was a private investment consultant in
New York. In 1995, Mr. Berner served as Senior Vice President and Counsel for
Turnberry Capital Management, L.P., a private equity fund. His prior position
was as a Director of the First Boston Special Situations Fund, a private
investment partnership. Mr. Berner also currently serves as a Director of
ThinkSheet, Inc., and served as a Director of Renaissance Technologies from 1997
through March 2000.

Dennis Bookshester has served as a Director of Elder-Beerman since December
1999. Mr. Bookshester serves as the President and Chief Executive Officer of
Fruit of the Loom, a garment manufacturer that filed for protection under
chapter 11 of the United States Bankruptcy Code in December 1999. He also
currently serves as a Director of Fruit of the Loom and Playboy Enterprises.

Eugene I. Davis has served as a Director of Elder-Beerman since September
2000. Mr. Davis is Chairman and Chief Executive Officer of Pirinate Consulting
Group, L.L.C., a corporate strategy consulting firm, and of Murdock
Communications Corp., a telecommunications enterprise. He also serves as Chief
Executive Officer of SmarTalk Teleservices Corp., an independent provider of
prepaid calling cards, that filed for protection under chapter 11 of the United
States Bankruptcy Code in January 1999, and is currently being liquidated.
During 1998 and 1999, Mr. Davis was Chief Operating Officer of Total-Tel
Communications, Inc., a long distance telecommunications provider. From 1996 to
1997, Mr. Davis was the Chief Executive Officer of Sport Supply Group, Inc., a
sporting goods and athletic equipment distributor. From 1992 to 1997, he served
as President of Emerson Radio Corp., a consumer electronics distributor. Mr.
Davis also currently serves as a Director of Coho Energy, Inc., Murdock
Communications Corp., Tipperary Corporation and Eagle Geophysical Corp.

Charles Macaluso has served as a Director of Elder-Beerman since December
1999. Mr. Macaluso is a Principal in East Ridge Consulting, Inc., a management
advisory and investment firm he founded in 1999. Prior to this, Mr. Macaluso
served as a Principal from 1996 through 1999 in Miller Associates, Inc., a
management consulting firm. Prior to this, Mr. Macaluso was a partner with the
Airlie Group, L.P. and an analyst for Investment Limited Partners, L.P., both
private investment partnerships, from 1986 through 1996.

Thomas J. Noonan, Jr. has served as a Director of Elder-Beerman since 1997.
Mr. Noonan is the Chief Executive Officer of The Coppergate Group
("Coppergate"), a financial investment and management company, and has served in
this capacity since May 1996. Prior to that, he served as a Managing Director of
Coppergate from April 1993 through May 1996. He also serves as the Chairman,
President and Chief Executive Officer of Intrenet, Inc. ("Intrenet"), a
truckload carrier service provider that filed for protection under chapter 11 of
the United States Bankruptcy Code in January 2001, and is currently being
liquidated. Mr. Noonan has served in his current position at Intrenet since
January 2001. He has been a Director of Intrenet since 1991 and was named
Chairman in December 2000.

38

Mr. Noonan also serves as the Chief Executive of R&S Liquidating Company, Inc.,
which was formerly known as WSR, Inc. ("WSR") an automotive aftermarket
retailer, and has served in this capacity since April 2000. Prior to that Mr.
Noonan was WSR's Chief Restructuring Officer from August 1998 through December
1999. Mr. Noonan served as Executive Vice President and Chief Financial Officer
of Herman's Sporting Goods, Inc. from August 1994 through 1999, a sporting goods
retailer that filed for protection under chapter 11 of the United States
Bankruptcy Code and is currently being liquidated.

Laura H. Pomerantz has served as a Director of Elder-Beerman since 1998.
Mrs. Pomerantz currently serves as President of LHP Consulting & Management, a
real estate consulting firm, and has served in this capacity since 1995. Mrs.
Pomerantz is also currently associated with PBS Realty Advisors, LLC as a
Principal. Mrs. Pomerantz was also associated with Newmark Real Estate Co.,
Inc., a commercial real estate company, as Senior Managing Director from August
1996 to September 2001. Prior thereto, Mrs. Pomerantz served as Senior Managing
Director of S.L. Green Real Estate Company, a commercial real estate company,
from August 1995 to July 1996, and was affiliated with Koeppel Tenor Real Estate
Services, Inc., a commercial real estate company, from March 1995 through July
1995. Prior to this time, Mrs. Pomerantz served as Executive Vice President and
a Director of the Leslie Fay Companies, Inc. ("Leslie Fay"), from January 1993
to November 1994, and as Senior Vice President and Vice President of Leslie Fay
from 1986 through 1992.

Jack A. Staph has served as a Director of Elder-Beerman since 1997. Mr.
Staph is currently a consultant, lawyer and private investor. He also serves as
President of Cleveland Marathon, Inc., and Vice President and Treasurer of
Bernadette's Travel, Inc. Mr. Staph has also served in an unrestricted advisory
capacity to CVS Corp. since June 1997. Prior to this time, Mr. Staph served as
Senior Vice President, Secretary, and General Counsel of Revco D.S., Inc., a
retail pharmacy company, from October 1972 to August 1997.

Charles H. Turner has served as a Director of Elder-Beerman since September
2000. Mr. Turner is Senior Vice President of Finance and Chief Financial Officer
and Treasurer of Pier 1 Imports, Inc., ("Pier 1"), and has served in this
capacity since August 1999. Mr. Turner served as Pier 1's Senior Vice President
of Stores from July 1994 through August 1999 and served as Controller and
Principal Accounting Officer of Pier 1 from January 1992 through August 1994.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10 percent of a
registered class of our equity securities to file reports of ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission. The Securities and
Exchange Commission requires this group to furnish us with copies of all such
filings. The Company periodically reminds this group of its reporting obligation
and assists in making the required disclosure once the Company is notified that
a reportable event has occurred. The Company is required to disclose any failure
by any of the above mentioned persons to make timely Section 16 reports.

Except as disclosed in the following sentences, based upon its review of
such forms received by Elder-Beerman and written representations from the
directors and executive officers that no other reports were required,
Elder-Beerman is unaware of any instances of noncompliance, or late compliance,
with such filings by its directors, executive officers or 10 percent
shareholders. Annual Statements of Changes in Beneficial Ownership on Form 5 for
the following individuals were filed on March 27, 2002, nine days after the
March 18, 2002 deadline: Mark F.C. Berner, Dennis S. Bookshester, Scott J.
Davido, Eugene I. Davis, Steven D. Lipton, Charles Macaluso, Steven C. Mason,
Thomas J. Noonan, Jr., Laura H. Pomerantz, Jack A. Staph, Charles H. Turner and
James M. Zamberlan. In addition, Annual Statements of Changes in Beneficial
Ownership on Form 5 were not filed for the fiscal year ended February 3, 2001
for Thomas J. Noonan, Jr. and Laura H. Pomerantz. Changes for that year are
reflected in the most recent filing. No open market purchases or sales were
reflected in those filings.

39

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The table below shows the before-tax compensation for the years shown for
Elder-Beerman's Chief Executive Officer and the four next highest paid executive
officers (the "Named Executive Officers") at the end of fiscal year 2001.

SUMMARY COMPENSATION TABLE

- ---------------

(1) Mr. Bergren was elected as President and Chief Executive Officer of the
Company, effective February 11, 2002. As part of his employment contract,
Mr. Bergren was issued options and shares of restricted stock upon the
execution of his employment agreement, which occurred during the Company's
2001 fiscal year.

(2) Mr. Mershad retired from the Company on December 31, 2001.

(3) Mr. Lupo joined the Company in August 2001.

(4) Moving expense reimbursement.

(5) This restricted share grant was cancelled on December 31, 2001 pursuant to
the terms of the restricted share agreement.

(6) Mr. Mershad's unvested option grants were cancelled on December 31, 2001,
pursuant to the terms of the option agreements. He has a total of 420,201
options at prices ranging from $3.125 to $21.00 that will cancel if
unexercised by December 31, 2002.

(7) Includes life insurance premium payments paid by the Company in 2001 in the
following amounts: Mr. Mershad $2,640, Mr. Zamberlan $3,558, Mr. Davido
$3,276, and Mr. Lipton $2,430.

(8) Includes matching contributions paid by the Company in 2001 under the
Company's Retirement Savings Plan in the following amounts: Mr. Mershad
$2,430, Mr. Davido $540 and Mr. Lipton $4,050.

(9) Includes severance payments of $60,923 pursuant to the separation agreement
entered into by the Company and Mr. Mershad.

40

STOCK OPTION/SAR GRANTS

The following table sets forth information concerning stock option grants
made to the Named Executive Officers during fiscal year 2001 pursuant to the
Company's Equity and Performance Incentive Plan (the "Plan").

OPTION/SAR GRANTS IN LAST FISCAL YEAR

- ---------------
(1) Options vest annually in one-third increments beginning one year from date
of grant.

STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table sets forth information about stock options exercised
during fiscal year 2001 by the Named Executive Officers and the fiscal year-end
value of unexercised options held by the Named Executive Officers. All of such
options were granted under the Plan.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

- ---------------
(1) Based on the closing price on NASDAQ of the Company's Common Stock on
February 2, 2002 (the last trading day in fiscal year 2001) of $2.70.

(2) Mr. Mershad's options will expire on December 31, 2002 if he does not
exercise them before that date pursuant to the terms of the option
agreements.

EMPLOYMENT AND SEVERANCE AGREEMENTS WITH CERTAIN OFFICERS

The Company has entered into employment agreements with Byron L. Bergren,
President and Chief Executive Officer, Frederick J. Mershad, who retired as
Chairman, President and Chief Executive Officer, John A. Muskovich, who departed
as President and Chief Operating Officer and the other executive officers as
described below (the "Employment Agreements").

Mr. Bergren's Employment Agreement sets forth (a) Mr. Bergren's
compensation and benefits, subject to increases at the discretion of the Board
of Directors; (b) the Company's right to terminate Mr. Bergren for "cause" (as
defined in the Employment Agreement) or otherwise; (c) the amounts to be paid by
the Company in the event of Mr. Bergren's termination, death or disability while
rendering services; (d) Mr. Bergren's duty of strict confidence and to refrain
from conflicts of interest; (e) Mr. Bergren's obligations not to compete for the
term of the agreement plus one year unless the Company terminates Mr. Bergren
other than for cause or Mr. Bergren terminates his employment at any time
following a "change in control" (as defined in the Employment Agreement); and
(f) Mr. Bergren's right to receive severance payments. In general, the
Employment Agreement provides

41

that if Mr. Bergren is terminated for any reason, other than for cause, by
reason of death or disability or following a change in control, he will receive
payments equal to the remaining base salary that would have been paid to him by
the Company for the longer of one year or the remaining term of his Employment
Agreement, provided that he signs a release of any claims he may have against
the Company arising from his employment. If Mr. Bergren is terminated within two
years of a change in control without cause or for "good reason" (as defined in
the Employment Agreement), he will receive a severance payment equal to 2.99
times the Internal Revenue Code "base amount" as described in Section 280G of
the Internal Revenue Code (provided that he signs a release of any claims he may
have against the Company arising from his employment) and his options to
purchase shares of Common Stock and restricted shares that are unvested as of
the date of the change in control will automatically vest. A tax gross-up on
excise taxes also will be paid if the severance pay exceeds the limits imposed
by the Internal Revenue Code.

Mr. Mershad, the Company's former Chairman, President and Chief Executive
Officer, retired from the Company effective December 31, 2001. Prior to his
retirement, the Company entered into a Separation and Retirement Agreement (the
"Separation Agreement") with Mr. Mershad. The Separation Agreement superceded
Mr. Mershad's Employment Agreement and sets forth the payments and benefits Mr.
Mershad is entitled to (i) from the date of the Separation Agreement until his
retirement as Chairman, President and Chief Executive Officer and resignation as
a Director on December 31, 2001 (the "Retirement Date") and (ii) following the
Retirement Date. Pursuant to the terms of the Separation Agreement, until the
Retirement Date, Mr. Mershad was entitled to his current base salary and
benefits that would have been payable pursuant to the terms of his Employment
Agreement. After the Retirement Date, the Company will pay to Mr. Mershad (i)
his current base salary for the period beginning with the Retirement Date and
ending on December 31, 2004 (the "Retirement Period") and (ii) his bonus (if
any) earned in 2001. During the Retirement Period, Mr. Mershad is also entitled
to medical benefits equivalent to those provided to him prior to the Retirement
Date and the automobile benefit that he received prior to the Retirement Date.
After the Retirement Period, Mr. Mershad shall be entitled to purchase medical
and dental coverage until March 1, 2008 at the rate provided for in the
Consolidated Omnibus Budget Reconciliation Act of 1986, as amended. After the
Retirement Date, Mr. Mershad will be entitled to the employee discount made
available to other retired employees and any post-retirement eligibility for
benefits provided for under the Company's 401(k) Plan. Mr. Mershad's options to
purchase shares of Common Stock and restricted shares that were unvested as of
the Retirement Date were forfeited. The options and restricted shares that were
vested as of the Retirement Date are subject to the stock option agreements and
restricted share agreements entered into by the Company and Mr. Mershad in
connection with the grant of such options and restricted shares. The option
agreements provide that Mr. Mershad has one year from the Retirement Date to
exercise the options that were vested on the Retirement Date. The Company will
pay all of the legal fees and costs incurred by Mr. Mershad in connection with
any enforcement or defense of his rights under the Separation Agreement.

Mr. Muskovich, the former President and Chief Operating Officer of the
Company, was terminated by the Company on June 30, 2000. Pursuant to the terms
of Mr. Muskovich's Employment Agreement, the Company was required to give Mr.
Muskovich notice six months prior to December 30, 2000 if the Company elected
not to renew his Employment Agreement. The Company gave Mr. Muskovich notice on
June 29, 2000 that the Company would terminate his Employment Agreement and his
employment. Pursuant to the terms of his Employment Agreement, Mr. Muskovich
will receive payments equal to the remaining base salary that would have been
paid to him by the Company under the remaining term of his Employment Agreement,
which expires on December 30, 2002. In 2001, the Company paid $467,500 to Mr.
Muskovich under the terms of his Employment Agreement.

The Company has also entered into Employment Agreements that include
severance pay provisions with each of Messrs. Zamberlan, Davido and Charles P.
Shaffer, Senior Vice President and General Merchandise Manager. These Employment
Agreements set forth (a) the executive's compensation and benefits, subject to
review at the discretion of the Board of Directors, (b) the Company's right to
terminate the executive for cause or otherwise; (c) the amounts to be paid by
the Company in the event
42

of the executive's termination, death or disability while rendering services;
(d) the executive's duty of strict confidence and to refrain from conflicts of
interest; (e) the executive's obligations not to compete for the term of the
agreement plus one year unless the executive terminated his employment for good
reason or the employer terminates the executive other than for cause; and (f)
the executive's right to receive severance payments if he (i) is terminated
within two years of a change in control without cause, (ii) voluntarily
terminates for defined good reasons within two years of a change of control,
(iii) terminates his employment for any reason, or without reason, during the
thirty-day period immediately following the first anniversary of a change in
control, or (iv) is terminated in connection with but prior to a change in
control and termination occurs following the commencement of any discussions
with any third party that ultimately results in a change in control.
Specifically, under the Employment Agreements, the amount of any severance
payment by the Company in the circumstances outlined in clause (e) in the
preceding sentence will be the greater of 2.99 times the Internal Revenue Code
"base amount" as described in Section 280G of the Internal Revenue Code or two
times his most recent base salary and bonus. Severance payments made under the
Employment Agreements will reduce any amounts that would be payable under any
other severance plan or program, including the Company's severance pay plan. A
tax gross-up on excise taxes also will be paid if the severance pay exceeds the
limit imposed by the Internal Revenue Code. In addition, the executive will
continue to be eligible for health benefits, perquisites, and fringe benefits
generally made available to senior executives for two years following his
termination, unless the executive waives such coverage, fails to pay any amount
required to maintain such coverage, or obtains new employment providing
substantially similar benefits. Mr. Shaffer's Employment Agreement expired on
August 22, 2001 and the Company did not elect to renew it.

Messrs. Zamberlan's and Davido's Employment Agreements also provide for the
executive's (or his estate's) right to receive severance payments (i) if he is
terminated by the Company at any time without cause and (ii) upon his death. The
amount of such severance will be equal to (i) the executive's base salary in
effect at the time of termination, payable (i) for the longer of one year or
(ii) through the remaining term of the Employment Agreement, (ii) any bonus paid
on or prior to the termination date and (iii) payment for any of the executive's
accrued, unused vacation days on or prior to the termination date.

The Company has also entered into an Employment Agreement that includes
severance pay provisions with Mr. Lipton. Mr. Lipton's Employment Agreement sets
forth (a) his compensation and benefits, subject to review at the discretion of
the Board of Directors, (b) the Company's right to terminate him for cause or
otherwise; (c) the amounts to be paid by the Company in the event of his
termination, death or disability while rendering services; (d) his duty of
strict confidence and to refrain from conflicts of interest; (e) his obligations
not to compete for the term of the agreement plus one year unless he terminated
his employment for good reason or the employer terminates him other than for
cause; and (f) his right to receive severance payments if he (i) is terminated
within two years of a change in control without cause, (ii) voluntarily
terminates for defined good reasons within two years of a change of control,
(iii) terminates his employment for any reason, or without reason, during the
thirty-day period immediately following the first anniversary of a change in
control, or (iv) is terminated in connection with but prior to a change in
control and termination occurs following the commencement of any discussions
with any third party that ultimately results in a change in control.
Specifically, under the Mr. Lipton's Employment Agreement, the amount of any
severance payment by the Company will be 1.5 times his most recent base salary
and bonus. Severance payments made under Mr. Lipton's Employment Agreement will
reduce any amounts that would be payable under any other severance plan or
program, including the Company's severance pay plan. A tax gross-up on excise
taxes also will be paid if the severance pay exceeds the limit imposed by the
Internal Revenue Code. In addition, Mr. Lipton will continue to be eligible for
health benefits, perquisites, and fringe benefits generally made available to
executives for eighteen months following his termination, unless Mr. Lipton
waives such coverage, fails to pay any amount required to maintain such
coverage, or obtains new employment providing substantially similar benefits.
Mr. Lipton's Employment Agreement also provides for him (or his estate's) right
to receive severance payments (i) if he is terminated by the Company at any time
without

43

cause and (ii) upon his death. The amount of such severance will be equal to (i)
Mr. Lipton's base salary in effect at the time of termination, payable (i) for
the longer of one year or (ii) through the remaining term of the Employment
Agreement, (ii) any bonus paid on or prior to the termination date and (iii)
payment for any of Mr. Lipton's accrued, unused vacation days on or prior to the
termination date.

The Company has also entered into an agreement with Renaissance Partners,
LLP regarding John Lupo's service as Executive Vice President, Merchandising and
Marketing. Mr. Lupo's agreement provides for his compensation, termination of
the agreement by the parties thereto and Mr. Lupo's right to receive success
fees upon any termination of the agreement.

The Company has also entered into Indemnification Agreements with each
current member of the Board of Directors as well as each of the Company's
executive officers, except for Mr. Bergren and Mr. Lupo. These agreements
provide that, to the extent permitted by Ohio law, the Company will indemnify
the director or officer against all expenses, costs, liabilities and losses
(including attorneys' fees, judgments, fines or settlements) incurred or
suffered by the director or officer in connection with any suit in which the
director or officer is a party or is otherwise involved as a result of the
individual's service as a member of the Board of Directors or as an officer so
long as the individual's conduct that gave rise to such liability meets certain
prescribed standards.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

OVERVIEW AND PHILOSOPHY

The Compensation Committee of the Board of Directors (the "Committee") has
responsibility for setting and administering the policies that govern executive
compensation. The Committee has authority, among other things, to review,
analyze and recommend compensation programs to the Board and to administer and
grant awards under the Plan. The Committee is composed entirely of outside
directors. Reports of the Committee's actions and decisions are recommended to
the full Board. The purpose of this report is to summarize the philosophical
principles, specific program objectives and other factors considered by the
Committee in reaching its determination regarding the executive compensation of
the Chief Executive Officer and the Company's executive officers.

The Committee's goal is to ensure the establishment and administration of
executive compensation policies and practices that will enable Elder-Beerman to
attract, retain and motivate the management talent necessary to achieve the
Company's goals and objectives. The Committee's philosophy is that executive
compensation should include the following:

- A competitive mix of short-term (base salary and annual incentive bonus)
and long-term (stock options and restricted and deferred shares)
compensation that helps the Company attract and retain executive talent.

- Cash compensation that generally reflects competitive industry levels,
with annual incentive bonus opportunities that may produce total
compensation at or above competitive levels if performance against
predetermined objectives exceeds expectations.

- Opportunities for ownership of Elder-Beerman's Common Stock that align
the interests of Company executives with the long-term interests of
shareholders.

The Company's executive compensation is comprised primarily of (i)
salaries, (ii) annual cash incentive bonuses and (iii) long-term incentive
compensation in the form of stock options, deferred shares and restricted shares
granted under the Plan. The Committee reviews market data and assesses the
Company's competitive position for each of these three components. To assist in
benchmarking the competitiveness of its compensation programs, the Committee
periodically retains a third-party consultant to compile an executive
compensation survey for comparably sized retail companies. Because the Committee
believes that compensation in the retail industry is more directly tied to the
size of enterprise than the type of retail business, these surveys also include
comparably sized retailers outside of the department store business. Each of the
components of executive compensation is discussed below.

44

COMPONENTS OF COMPENSATION

Base Salary

Base salaries for Company executives were initially established in each of
the executive's employment agreements. The Committee reviews base salaries
annually and makes adjustments on the basis of the performance of both the
individual executive and the Company, the executive's level of responsibility in
the Company, the executive's importance to the Company and the general level of
executive compensation in the retail industry. The base salaries and increases
in the base salaries of the Company's executive officers (other than the Chief
Executive Officer) are reviewed and approved by the Committee after considering
recommendations made by the Chief Executive Officer in light of the criteria
discussed above.

Annual Bonus

- General Parameters

Annual bonus awards are designed to promote the achievement of the
Company's business objectives. In setting the bonus award targets each year that
the Company must meet before it can make any bonus payments, the Committee
considers the Company's prior year's performance and objectives, as well as its
expectations for the upcoming year. Bonus program participants receive no
payments unless minimum thresholds of Company financial performance or
individual performance are achieved.

Bonus targets are fixed as a percentage of annual base salary based on
comparable incentives paid by other retail companies. Target bonus percentages
for the executive officers ranged from 35% to 50%. The target percentage
increases with the level of responsibility of the executive. Bonus payments may
range from 0% to 150% of the target annual bonus, with payments increasing as
performance improves.

- Deferred Shares and Restricted Shares

An executive may elect to defer up to 50% of his annual bonus in the form
of deferred shares. Deferred shares are subject to a deferral period of at least
three years, which is accelerated in the event of death, permanent disability,
termination of employment or change in control of Elder-Beerman. Holders of
deferred shares do not have voting rights for their deferred shares, but the
terms of the deferred shares may provide for dividend equivalents. The Company
matches 25% of the deferred shares in restricted shares.

Restricted shares vest in three years from the date of grant, which is
accelerated in the event of death, permanent disability or a change in control
of Elder-Beerman. Prior to vesting, restricted shares are forfeitable upon
termination of employment. The restricted shares provide for dividend
equivalents and voting rights.

The deferred shares and restricted shares are granted to executives in
accordance with the Company's Equity and Performance Incentive Plan (the
"Plan").

- 2001 Bonus Objectives

For bonus eligible executives below the level of Senior Vice President,
annual bonuses for 2001 were based on meeting weighted objectives for corporate
operating profit and financial goals in the applicable executive's area of
responsibility. For Senior Vice Presidents, Executive Vice Presidents and the
Chief Executive Officer (the "Senior Bonus Level Executives"), annual bonuses
for Fiscal 2001 were based solely on meeting a corporate operating profit goal.

For 2001, the Company did not achieve the target award level established
for operating profit and therefore, the Company did not pay any amounts for this
component of bonuses. As a result, the Senior Bonus Level Executives did not
earn any bonus for Fiscal 2001. Many executives also failed to achieve any of
their respective area of responsibility or individual performance goals, which
resulted in these executives earning no bonus. Thirty-seven lower level
executives were able to achieve some or all of their respective area of
responsibility and individual performance goals, which resulted in these
executives earning in total between approximately 8% and 72% of each executive's
respective target bonus amounts.

45

Long-Term Incentive Awards

- Stock Options, Deferred Shares and Restricted Shares

The Committee administers the Plan, which provides for long-term incentives
to executive officers in the form of stock options, deferred shares and
restricted shares. The awards of stock options, deferred shares and restricted
shares provide compensation to executives only if shareholder value increases.
To determine the number of stock options, deferred shares and restricted shares
awarded, the Committee periodically reviews a survey prepared by a third-party
consultant of awards made to individuals in comparable positions at other retail
companies and the executive's past performance, as well as the number of
long-term incentive awards previously granted to the executive. The deferred
shares and restricted shares are subject to the terms and conditions described
above.

COMPENSATION OF CHIEF EXECUTIVE OFFICER DURING 2001

The base salary and increases in the base salary of the Chief Executive
Officer are reviewed annually and approved by the Committee and the nonemployee
members of the Board of Directors after review of the Chief Executive Officer's
performance against predetermined performance criteria set by the nonemployee
Directors. Mr. Mershad's base salary was not adjusted in Fiscal 2001.

2001 Base Salary and Annual Bonus

Mr. Mershad's annual base salary was $660,000. Mr. Mershad was also
eligible in Fiscal 2001 for an annual bonus of up to 50% of his base salary. Mr.
Mershad's bonus is determined in the same manner described above for the
executive officers. For fiscal year 2001, Mr. Mershad received no bonus because
the Company failed to meet its bonus threshold corporate operating profit.

On December 5, 2000, pursuant to the Plan, the Committee granted Mr.
Mershad options to purchase 100,000 shares of Common Stock. The exercise price
of the options is equal to the closing price of the Common Stock on the date of
grant. The options will vest in 20,000 share increments on each of the first
through fifth anniversaries of the date of grant. On Mr. Mershad's retirement
date, 20,000 of the options were vested and the remaining 80,000 were unvested
and forfeited. Mr. Mershad has until December 31, 2002 to exercise the 20,000
vested options, as well as 400,201 options granted in prior years.

TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION

Under Section 162(m) of the Internal Revenue Code, the Company is precluded
from deducting compensation in excess of $1 million per year paid to each of the
Named Executive Officers. Qualified performance-based compensation is excluded
from this deduction limitation if certain requirements are met. The Plan is
designed to permit (but not require) the Committee to grant awards that will
qualify as performance-based compensation that is excluded from the limitation
in Section 162(m). The Committee believes that Section 162(m) should not cause
the Company to be denied a deduction for Fiscal 2001 compensation paid to the
Named Executive Officers. The Committee will work to structure components of its
executive compensation package to achieve maximum deductibility under Section
162(m) while at the same time considering the goals of its executive
compensation policies.

The foregoing is the report of the Compensation Committee of the Board of
Directors.

Mark F.C. Berner
Steven C. Mason
Jack A. Staph

46

COMPENSATION OF ELDER-BEERMAN'S DIRECTORS

Directors who are employees of Elder-Beerman do not receive any separate
fees or other remuneration for serving as a director or a member of any
Committee of the Board. For fiscal year 2001, nonemployee directors were paid an
annual retainer of $20,000 for their service on the Board of Directors.
Nonemployee directors may elect to take their annual retainer as cash or in the
form of discounted stock options. At the beginning of each fiscal year,
nonemployee directors also receive an annual grant of restricted shares with a
market value of $10,000 on the date of grant. When first joining the board, a
nonemployee director also receives an initial grant of 1,300 restricted shares
and options to purchase 7,000 shares of Common Stock. Nonemployee committee
chairpersons are paid an additional $5,000 fee for their services on their
respective committees. Nonemployee directors are also each paid a meeting fee of
$1,500 for each board meeting attended, plus $500 for each committee meeting
attended, other than members of the Executive Committee, which has the fee
structure described in the next paragraph.

During Fiscal 2001, after the announcement of Mr. Mershad's retirement, the
Board of Directors charged the Executive Committee with additional duties
regarding the search for a new Chief Executive Officer and President and general
oversight of the Company's business and financial position pending the naming of
a new Chief Executive Officer and President. As a result of these increased
responsibilities, compensation for members of the Executive Committee, all of
whom are nonemployee directors, was changed in September 2001 to the following
schedule: in person meetings, $2,500; telephonic meetings, $1,000; and
independent work conducted at the request of the Executive Committee, $300 per
hour.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Except as noted in the following sentence, none of the members of the
Compensation Committee was or ever has been an officer or employee of
Elder-Beerman or engaged in transactions with Elder-Beerman (other than in his
capacity as a director). During Mr. Mason's tenure as interim President from
January 1, 2002 until Mr. Bergren's appointment as President on February 11,
2002, Mr. Mason remained on the Compensation Committee. During this time, the
Compensation Committee neither met nor acted on any matters. None of
Elder-Beerman's executive officers serves as a director or member of the
compensation committee of another entity, one of whose executive officers serves
as a member of the Compensation Committee or a director of Elder-Beerman.

STOCK PRICE PERFORMANCE

The following graph depicts the value of $100 invested in Elder-Beerman
stock beginning February 17, 1998, through February 2, 2002, fiscal year end.
Comparisons are made to:

1. The Standard & Poor's SmallCap 600 Index, a market-value weighted index
of 600 domestic companies with an average equity market value of
approximately $400 million.

2. A Regional Department Store Peer Group, consisting of The Bon-Ton
Stores, Inc., Goody's Family Clothing, Inc., Gottschalks Inc., and
Jacobson Stores Inc. The return for this group was

47

calculated assuming an equal dollar amount was invested in each
retailer's stock based on closing prices as of February 17, 1998.

[ELDER-BEERMAN LINE GRAPH]

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company's Common Stock is the only outstanding class of voting
securities. The following table sets forth information regarding ownership of
the Company's Common Stock as of April 19, 2002 (except as otherwise noted) by:
(a) each person who owns beneficially more than 5% of Common Stock of the
Company to the extent known to management, (b) each executive officer and
director of the Company, and (c) all directors and executive officers as a
group. Except as noted, all information with

48

respect to beneficial ownership has been furnished by each director or officer
or is based on filings with the Securities and Exchange Commission.

- ---------------
* less than 1%

(1) Information with respect to beneficial ownership is based on information
furnished to the Company by each shareholder included in this table.
"Beneficial ownership" is a technical term broadly defined by the Securities
and Exchange Commission to mean more than ownership in the usual sense. So,
for example, you not only "beneficially" own the Elder-Beerman Common Stock
that you hold directly, but also the Elder-Beerman Common Stock that you
indirectly (through a relationship, a position as a director or trustee, or
a contract or understanding), have (or share) the power to vote or sell or
that you have the right to acquire within 60 days.

(2) Snyder Capital Management, Inc. ("SCMI") is the general partner of Snyder
Capital Management, L.P. ("SCMLP"), a registered investment advisor. SCMI
and SCMLP reported the beneficial ownership (as of April 11, 2002) of such
shares in a Form 13G dated April 12, 2002.

(3) PPM America, Inc. ("PPM"), a registered investment advisor, reported the
beneficial ownership (as of December 31, 2001) of such shares in a Form 13f
dated February 14, 2001. All such shares are held in portfolios of PPM
America Special Investments Fund, L.P. ("SIF I") and PPM America Special
Investments CBO II, L.P. ("CBO II"). PPM serves as investment advisor to
both SIF I and CBO II. PPM, PPM America CBO II Management Company (general
partner of CBO II) and PPM American Fund Management GP, Inc. (general
partner of SIF I) disclaim beneficial ownership of all such shares.

(4) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, reported the beneficial ownership of such shares in a Schedule 13G
filed on February 12, 2002. All such shares are owned by investment
companies, trusts or separate accounts (the "Funds"). Dimensional is an
investment advisor or manager to all of the Funds and possesses voting
and/or investment power over the shares. Dimensional disclaims beneficial
ownership of all shares.

(5) These amounts include shares of Common Stock that the following persons had
a right to acquire within 60 days after April 19, 2002.

49

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following documents are filed as part of this Annual Report on
Form 10-K:

Consolidated Financial Statements as of February 2, 2002 and
February 3, 2001 and for each of the three fiscal years in
the period ended February 2, 2002:
Statements of Operations
Balance Sheets
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements

(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are included in
the consolidated financial statements, are not required under the related
instructions, or are inapplicable, and therefore have been omitted.

(a)(3) The following Exhibits are included in this Annual Report on Form
10-K:

2(a) Third Amended Joint Plan of Reorganization of The
Elder-Beerman Stores Corp. and its Subsidiaries dated
November 17, 1997 (previously filed as Exhibit 2 to the
Company's Form 10 filed on November 26, 1997 (the "Form
10"), and incorporated herein by reference)
2(b) Agreement and Plan of Merger by and Among The Elder-Beerman
Stores Corp., The Elder-Beerman Acquisition Corp., Stone &
Thomas and G. Ogden Nutting and Wilbur S. Jones, Jr., as
Representatives dated June 18, 1998 (previously filed as
Exhibit 2(b) to the Company's Registration Statement on Form
S-1 (File No. 333-57447) (the "Form S-1") and incorporated
herein by reference)
2(c) First Amendment to Agreement and Plan of Merger, dated as of
July 27, 1998, By and Among Stone & Thomas, The
Elder-Beerman Stores Corp., The Elder-Beerman Acquisition
Corp. and G. Ogden Nutting and Wilbur S. Jones, Jr., as
Representatives dated as of July 27, 1998 (previously filed
as Exhibit 2(c) to the Form S-1 and incorporated herein by
reference)
3(a) Amended Articles of Incorporation of The Elder-Beerman
Stores Corp. (previously filed as Exhibit 3(a) to the Form
10-K filed on April 30, 1998 (the "1997 Form 10-K"), and
incorporated herein by reference)

50

3(b) Certificate of Amendment By Shareholders to the Articles of
Incorporation of The Elder-Beerman Stores Corp. (previously
filed as Exhibit 3(b) to the Company's Form 10-Q for the
quarterly period ended October 28, 2000 ("2000 3rd Quarter
10-Q") and incorporated herein by reference)
3(c) Amended Code of Regulations (previously filed as Exhibit
3(c) to the 2000 3rd Quarter 10-Q and incorporated herein by
reference)
4(a) Stock Certificate for Common Stock (previously filed as
Exhibit 4(a) to the Company's Form 10/A-1 filed on January
23, 1998 (the "Form 10/A-1") and incorporated herein by
reference)
4(b) Form of Registration Rights Agreement (previously filed as
Exhibit 4(b) to the Form 10 and incorporated herein by
reference)
4(c) Rights Agreement, By and Between The Elder-Beerman Stores
Corp. and Norwest Bank Minnesota, N.A., as Rights Agent
dated as of December 30, 1997 (the "Rights Agreement")
(previously filed as Exhibit 4.1 to the Company's
Registration Statement on Form 8-A filed on November 17,
1998 (the "Form 8-A") and incorporated herein by reference)
4(d) Warrant Agreement by and Between Beerman-Peal Holdings, Inc.
and The Elder-Beerman Stores Corp. for 249,809 of the
outstanding shares of common stock at an exercise price of
$12.80 per share dated December 30, 1997 (previously filed
as Exhibit 4(d) to the 1997 Form 10-K and incorporated
herein by reference)
4(e) Warrant Agreement by and Between Beerman-Peal Holdings, Inc.
and The Elder-Beerman Stores Corp. for 374,713 of the
outstanding shares of common stock at an exercise price of
$14.80 per share dated December 30, 1997 (previously filed
as Exhibit 4(e) to the 1997 Form 10-K and incorporated
herein by reference)
4(f) Amendment No. 1 to the Rights Agreement, dated as of
November 11, 1998 (previously filed as Exhibit 4.2 to the
Form 8-A and incorporated herein by reference)
10(a)(i) Elder-Beerman Master Trust Pooling and Servicing Agreement,
dated December 30, 1997, Among The El-Bee Receivables
Corporation, The El-Bee Chargit Corp. and Bankers Trust
Company (previously filed as Exhibit 10(a)(i) to the Form
10/A-1 and incorporated herein by reference)
10(a)(ii) Elder-Beerman Master Trust Series 1997-1 Supplement, dated
December 30, 1997, Among The El-Bee Receivables Corporation,
The El-Bee Chargit Corp. and Bankers Trust Company
(previously filed as Exhibit 10(a)(ii) to the Form 10/A-1
and incorporated herein by reference)
10(a)(iii) Series 1997-1 Certificate Purchase Agreement, dated December
30, 1997, Among The El-Bee Receivables Corporation,
Corporate Receivables Corporation, The Liquidity Providers
Named Herein, CitiCorp North American, Inc. and Bankers
Trust Company, as Trustee, (previously filed as Exhibit
10(a)(iii) to the Form 10/A-1 and incorporated herein by
reference)
10(a)(iv) Elder-Beerman Master Trust Series 1997-1 Loan Agreement,
dated as of December 30, 1997, Among The El-Bee Receivables
Corporation, The El-Bee Chargit Corp., Bankers Trust
Company, The Collateral Investors Parties Hereto and
CitiCorp North America, Inc. (previously filed as Exhibit
10(a)(iv) to the Form 10/A-1 and incorporated herein by
reference)
10(a)(v) Intercreditor Agreement dated as of December 30, 1997, By
and Among Citicorp North America, Inc., The El-Bee
Receivables Corporation, The El-Bee Chargit Corporation, The
Elder-Beerman Stores Corp., Bankers Trust Company and
Citicorp USA, Inc. (previously filed as Exhibit 10(a)(v) to
the Form 10/A-1 and incorporated herein by reference)

51

10(a)(vi) Parent Undertaking Agreement dated as of December 30, 1997,
Among The Elder-Beerman Stores Corp. and Bankers Trust
Company (previously filed as Exhibit 10(a)(vi) to the Form
10/A-1 and incorporated herein by reference)
10(a)(vii) Purchase Agreement, dated as of December 30, 1997, Among The
El-Bee Chargit Corp., and The El-Bee Receivables
Corporation, (previously filed as Exhibit 10(a)(vii) to the
Form 10/A-1 and incorporated herein by reference)
10(a)(viii) Purchase Agreement, dated as of December 30, 1997, Among The
Elder-Beerman Stores Corp., as Seller, and The El-Bee
Chargit Corp., (previously filed as Exhibit 10(a)(viii) to
the Form 10/A-1 and incorporated herein by reference)
10(a)(ix) The El-Bee Receivables Corporation Subordinated Note Between
The El-Bee Receivables Corporation and The El-Bee Chargit
Corp., dated December 30, 1997 (previously filed as Exhibit
10(a)(ix) to the Form 10/A-1 and incorporated herein by
reference)
10(b)(i) Borrower Pledge Agreement, dated December 30, 1997, Made by
The Elder-Beerman Stores Corp. to Citibank, N.A.,
(previously filed as Exhibit 10(b)(ii) to the Form 10/A-1
and incorporated herein by reference)
10(b)(ii) Chargit Pledge Agreement, dated December 30, 1997, Made By
The El-Bee Chargit Corp. to Citibank, N.A., (previously
filed as Exhibit 10(b)(iii) to the Form 10/A-1 and
incorporated herein by reference)
10(b)(iii) Subsidiary Guaranty, dated December 30, 1997, Made by The
El-Bee Chargit Corp., (previously filed as Exhibit 10(b)(v)
to the Form 10/A-1 and incorporated herein by reference)
10(b)(iv) Subsidiary Guaranty, dated December 30, 1997, Made by The
Bee-Gee Shoe Corp., (previously filed as Exhibit 10(b)(vi)
to the Form 10/A-1 and incorporated herein by reference)
10(b)(v) Letter Agreement, dated December 30, 1997, Re: Assignment of
Account By and Among The Elder-Beerman Stores Corp.,
CitiCorp USA, Inc., and Bankers Trust Company, (previously
filed as Exhibit 10(b)(viii) to the Form 10/A-1 and
incorporated herein by reference)
10(c) Form of Employment Agreement for Senior Vice Presidents
between The Elder-Beerman Stores Corp. and the Executive
Named therein (previously filed as Exhibit 10(c) to the Form
10 and incorporated herein by reference)*
10(d) Form of Employment Agreement for Executive Vice Presidents
between The Elder-Beerman Stores Corp. and the Executive
Named therein (previously filed as Exhibit 10(d) to the Form
10 and incorporated herein by reference)*
10(f) Form of Director Indemnification Agreement made by and
between The Elder Beerman Stores Corp. and a director of the
Company (previously filed as Exhibit 10(f) to the Form 10
and incorporated herein by reference)*
10(g) Form of Officer Indemnification Agreement (previously filed
as Exhibit 10(g) to the Form 10 and incorporated herein by
reference)*
10(h) Form of Director and Officer Indemnification Agreement made
by and between The Elder-Beerman Stores Corp. and a director
and an officer of the Company (previously filed as Exhibit
10(h) to the Form 10 and incorporated herein by reference)*
10(i) The Elder-Beerman Stores Corp. Equity and Performance
Incentive Plan, as amended and restated as of September 21,
2000 (previously filed as Annex A to the Company's Proxy
Statement dated August 21, 2000 and incorporated herein by
reference)*
10(j) Form of Restricted Stock Agreement for Non-Employee Director
(previously filed as Exhibit 10(j) to the Form 10 and
incorporated herein by reference)*

52

10(k) Form of Restricted Stock Agreement (previously filed as
Exhibit 10(k) to the Form 10 and incorporated herein by
reference)*
10(l) Form of Deferred Shares Agreement (previously filed as
Exhibit 10(l) to the Form 10 and incorporated herein by
reference)*
10(m) Form of Nonqualified Stock Option Agreement for Non-Employee
Director (previously filed as Exhibit 10(m) to the Form 10
and incorporated herein by reference)*
10(n) Form of Nonqualified Stock Option Agreement (previously
filed as Exhibit 10(n) to the Form 10 and incorporated
herein by reference)*
10(o) Comprehensive Settlement Agreement, dated as of December 30,
1997, By and Among The Debtors, The ESOP and the ESOP
Committee and the Shareholders of The Elder-Beerman Stores
Corp., (previously filed as Exhibit 10(p) to the 1997 Form
10-K and incorporated herein by reference)
10(p) Tax Indemnification Agreement Made and Entered into By and
Among The Elder-Beerman Stores Corp., the Direct and
Indirect Subsidiaries of Elder-Beerman, Beerman-Peal
Holdings, Inc., The Beerman-Peal Corporation, Beerman
Investments, Inc., The Beerman Corporation and The
Individuals, Partnerships and Trusts named Therein dated as
of December 15, 1997 (previously filed as Exhibit 10(q) to
the Form 10 and incorporated herein by reference)
10(q) Tax Sharing Agreement Made and Entered into By and Among The
Elder-Beerman Stores Corp., The Bee-Gee Shoe Corp. and The
El-Bee Chargit Corp. dated as of December 30, 1997
(previously filed as Exhibit 10(r) to the Form 10 and
incorporated herein by reference)
10(r) Employment Agreement, dated December 30, 1997, Between The
Elder-Beerman Stores Corp. and John A. Muskovich,
(previously filed as Exhibit 10(s) to the 1997 Form 10-K and
incorporated herein by reference)*
10(s) Amended and Restated Employment Agreement, dated as of
December 30, 1997, Between The Elder-Beerman Stores Corp.
and James M. Zamberlan, (previously filed as Exhibit 10(u)
to the Company's Form 10-K for the year ended January 30,
1999 (the "1998 Form 10-K") and incorporated herein by
reference)*
10(t) Employment Agreement, dated as of December 30, 1997, Between
The Elder-Beerman Stores Corp. and Scott J. Davido,
(previously filed as Exhibit 10(v) to the 1998 Form 10-K and
incorporated herein by reference)*
10(u) Amended and Restated Employment Agreement, dated March 15,
1999, Between The Elder-Beerman Stores Corp. and Scott J.
Davido, (previously filed as Exhibit 10(w) to the 1998 Form
10-K and incorporated herein by reference)*
10(v) Employment Agreement Between The Elder-Beerman Stores Corp.
and Steven D. Lipton, dated December 30, 1997 (previously
filed as Exhibit 10(x) to the 1998 Form 10-K and
incorporated herein by reference)*
10(w) Amended and Restated Security Agreement, dated July 27,
1998, Made By The Elder-Beerman Stores Corp., Elder-Beerman
West Virginia, Inc., The El-Bee Chargit Corp., and The
Bee-Gee Shoe Corp. in favor of CitiCorp USA, Inc.,
(previously filed as Exhibit 10(b)(iv) to the Form S-1 and
incorporated herein by reference)
10(x) Elder-Beerman West Virginia, Inc. Guaranty, dated July 27,
1998, Made by Elder-Beerman West Virginia, Inc. in favor of
the Guaranteed Parties (previously filed as Exhibit
10(b)(vii) to the Form S-1 and incorporated herein by
reference)

53

10(y) Amendment No. 1 to The Elder-Beerman Master Trust Series
1997-1 Supplement, dated as of November 25, 1998, Among The
El-Bee Receivables Corporation, The El-Bee Chargit Corp. and
Bankers Trust Company (previously filed as Exhibit 10(ee) to
the Company's Form 10-K for the year ended January 29, 2000
(the "1999 Form 10-K") and incorporated herein by reference)
10(z) Amendment No. 2 to The Elder-Beerman Master Trust Series
1997-1 Supplement, dated as of November 24, 1999, Among The
El-Bee Receivables Corporation, The El-Bee Chargit Corp. and
Bankers Trust Company (previously filed as Exhibit 10(ff) to
the 1999 Form 10-K and incorporated herein by reference)
10(aa) Amendment No. 1 to The Series 1997-1 Certificate Purchase
Agreement, dated as of November 25, 1998, Among The El-Bee
Receivables Corporation, Corporate Receivables Corporation,
The Liquidity Providers Named Therein, Citicorp North
America Inc. and Bankers Trust Company (previously filed as
Exhibit 10(ii) to the 1999 Form 10-K and incorporated herein
by reference)
10(bb) Guaranty, dated December 30, 1999, Made by Elder-Beerman
Holdings, Inc., Elder-Beerman Operations, LLC and
Elder-Beerman Indiana, L.P., (previously filed as Exhibit
10(jj) to the 1999 Form 10-K and incorporated herein by
reference)
10(cc) Amendment No. 1 to The Elder-Beerman Master Trust Pooling
and Servicing Agreement, dated as of May 19, 2000, among The
El-Bee Receivables Corporation, The El-Bee Chargit Corp. and
Bankers Trust Company (previously filed as Exhibit 10(a) to
the Company's Form 10-Q for the quarterly period ended April
29, 2000 (the "2000 1st Quarter 10-Q" and incorporated
hereby by reference)
10(dd) Elder-Beerman Master Trust Series 2000-1 Supplement, dated
as of May 19, 2000, among the El-Bee Receivables
Corporation, as Transferor, The El-Bee Chargit Corp., as
Servicer, and Bankers Trust Company, as Trustee (previously
filed as Exhibit 10(b) to the 2000 1st Quarter 10-Q and
incorporated herein by reference)
10(ee) Series 2000-1 Certificate Purchase Agreement, dated May 19,
2000, among the El-Bee Receivables Corporation, as Seller,
the Conduit Purchasers Named Therein, the Committed
Purchasers Named Therein, the Managing Agents Named Therein,
Citicorp North America, Inc., as Program Agent for the
Purchasers and Bankers Trust Company, as Trustee (previously
filed as Exhibit 10(c) to the 2000 1st Quarter 10-Q and
incorporated herein by reference)
10(ff) Intercreditor Agreement, dated May 19, 2000, among Citicorp
North America, Inc., as Program Agent, The El-Bee
Receivables Corporation, as Transferor, The El-Bee Chargit
Corp., as Originator and Servicer, The Elder-Beerman Stores
Corp., as Borrower and Originator, Bankers Trust Company, as
Trustee and Citicorp USA, Inc., as Bank Agent (previously
filed as Exhibit 10(d) to the 2000 1st Quarter 10-Q and
incorporated herein by reference)
10(gg) Amended and Restated Credit Agreement, dated as of May 19,
2000, among The Elder-Beerman Stores Corp., as Borrower and
the Lenders Party Thereto, Citibank, N.A., as Issuer and
Citicorp USA, Inc., as Agent and Swing Loan Bank (previously
filed as Exhibit 10(e) to the 2000 1st Quarter 10-Q and
incorporated herein by reference)
10(hh) Form of Amended and Restated Revolving Credit Note
(previously filed as Exhibit 10(f) to the 2000 1st Quarter
10-Q and incorporated herein by reference)
10(ii) Separation and Retirement Agreement, dated as of September
4, 2001, by and between The Elder-Beerman Stores Corp. and
Frederick J. Mershad (previously filed as Exhibit 10(a) to
the Company's Form 10-Q for the quarterly period ended
August 4, 2001 and incorporated herein by reference)*

54

10(jj) Modification Agreement, dated June 15, 2001, between The
Elder-Beerman Stores Corp. and Scott J. Davido (previously
filed as Exhibit 10(a) to the Company's Form 10-Q for the
quarterly period ended November 3, 2001 ("2001 3rd Quarter
10-Q") and incorporated herein by reference)*
10(kk) Modification Agreement, dated June 15, 2001, between The
Elder-Beerman Stores Corp. and Steven D. Lipton (previously
filed as Exhibit 10(b) to the 2001 3rd Quarter 10-Q and
incorporated herein by reference)*
10(ll) Modification Agreement, dated June 15, 2001, between The
Elder-Beerman Stores Corp. and James M. Zamberlan
(previously filed as Exhibit 10(c) to the 2001 3rd Quarter
10-Q and incorporated herein by reference)*
10(mm) Employment Agreement, dated January 23, 2002, by and between
the Company and Byron Bergren*
10(nn) Consulting Agreement, dated August 1, 2001 between the
Company and Renaissance Partners, L.C.*
21 Subsidiaries of the Company
23 Independent Auditors' Consent
24 Powers of Attorney

(b) Reports on Form 8-K

There were no reports on Form 8-K filed for the three-months ended February
2, 2002.

(c) The response to this portion of Item 14 is included in Section 14(a)(3) of
this Annual Report on Form 10-K.

* Indicates a management contract or compensatory plan or arrangement
required to be filed pursuant to Item 14 of Form 10-K.

(d) Financial Statement Schedules

All financial statement schedules are included in the consolidated financial
statements herein.

55

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 19th day of
April, 2002.

THE ELDER-BEERMAN STORES CORP.

By: /s/ SCOTT J. DAVIDO
--------------------------------------
Scott J. Davido
Executive Vice President, Chief
Financial Officer,
Treasurer and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Company and in the capacities indicated and on April 12, 2002.

* The undersigned, pursuant to certain Powers of Attorney executed by each of
the directors and officers noted above and previously filed or filed herewith
contemporaneously with the Securities and Exchange Commission, by signing his
name hereto, does hereby sign and execute this report on behalf of each of the
persons noted above, in the capacities indicated.

Dated: April 19, 2002 By: /s/ SCOTT J. DAVIDO
--------------------------------------
Scott J. Davido
Attorney-in-Fact

57