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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-02788
THE ELDER-BEERMAN STORES CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-0271980
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3155 EL-BEE ROAD, DAYTON, OHIO 45439
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 296-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS)
SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of April 14, 2000, the aggregate market value of the voting stock held
by non-affiliates of the registrant (based on the closing sale price of such
stock on such date) was approximately $77,273,128.*
The number of shares of Common Stock outstanding on April 14, 2000, was
14,959,739.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [X] NO [ ]
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* Calculated by excluding all shares that may be deemed to be beneficially owned
by executive officers and directors of the registrant, without conceding that
all such persons are "affiliates" of the registrant for purposes of the
federal securities laws.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business.................................................... 1
Merchandising............................................... 2
Pricing..................................................... 2
Purchasing and Distribution................................. 3
Information Systems......................................... 3
Marketing................................................... 3
Credit Card Program......................................... 3
Customer Service............................................ 4
Expansion................................................... 4
New Concept Stores.......................................... 4
Bee-Gee Shoe Corp........................................... 4
Seasonality................................................. 4
Competition................................................. 5
Associates.................................................. 5
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 7
Item 4. Submission of Matters to a Vote of Security Holders......... 7
PART II
Item 5. Market for Common Equity and Related Shareholder Matters.... 7
Item 6. Selected Historical Financial Data.......................... 8
Item 7. Management's Discussions and Analysis of Financial Condition 9
and Results of Operations.................................
Item 7a. Quantitative and Qualitative Disclosures About Market 13
Risk......................................................
Item 8. Financial Statements and Supplementary Data................. 13
Table of Contents........................................... 13
Independent Auditors' Report................................ 14
Consolidated Statement of Operations........................ 15
Consolidated Balance Sheets................................. 16
Consolidated Statements of Shareholders' Equity............. 17
Consolidated Statements of Cash Flows....................... 18
Notes to Consolidated Financial Statements.................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting 35
and Financial Disclosure..................................
PART III
Item 10. Directors and Executive Officers
Directors and Executive Officers............................ 35
Item 11. Executive Compensation...................................... 38
Summary Compensation Table.................................. 38
Stock Option/SAR Grants..................................... 39
Stock Option Exercises and Fiscal Year-End Values........... 39
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PAGE
Employment and Severance Agreements With Certain Officers... 40
Compensation Committee Report on Executive Compensation..... 41
Overview and Philosophy..................................... 41
Components of Compensation.................................. 41
Base Salary................................................. 41
Annual Bonus................................................ 42
Long-Term Incentive Awards.................................. 42
Executive Plan.............................................. 42
Compensation of Chief Executive Officer..................... 43
1999 Base Salary and Annual Bonus........................... 43
Executive Plan.............................................. 43
Tax Deductibility of Executive Compensation................. 43
Compensation of Elder-Beerman's Directors................... 44
Compensation Committee Interlocks and Insider 44
Participation.............................................
Stock Price Performance..................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and 45
Management................................................
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 46
8-K.......................................................
SIGNATURES............................................................ 52
EXHIBIT INDEX......................................................... 54
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PART I
This Annual Report on Form 10-K contains certain forward-looking statements
that are based on management's current beliefs, estimates and assumptions
concerning the operations, future results and prospects of Elder-Beerman and the
retail industry in general. All statements that address operating performance,
events or developments that management anticipates will occur in the future,
including statements related to future sales, profits, expenses, income and
earnings per share, future finance and capital market activity, or statements
expressing general views about future results, are forward-looking statements.
In addition, words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates," variations of such words and similar expressions are
intended to identify forward-looking statements.
Actual results may differ materially from those in the forward- looking
statements. Accordingly, there is no assurance that forward-looking statements
will prove to be accurate.
Many factors could affect Elder-Beerman's future operations and results,
such as the following: increasing price and product competition; fluctuations in
consumer demand and confidence; the availability and mix of inventory;
fluctuations in costs and expenses; the effectiveness of advertising, marketing
and promotional programs and other initiatives designed to increase revenue,
such as the Company's new "point of service" system; the timing and
effectiveness of new store openings; the growing impact of electronic commerce;
weather conditions that affect consumer traffic in stores; the continued
availability and terms of financing; the outcome of pending and future
litigation; the ability of third parties to meet their liabilities and
obligations; and general economic conditions, such as the rate of employment,
inflation and interest rates and the condition of the capital markets.
Forward-looking statements are subject to the safe harbors created under
the federal securities laws. Elder-Beerman undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
ITEM 1. BUSINESS
The Elder-Beerman Stores Corp. ("Elder-Beerman" or the "Company"; except
where the context otherwise requires, references to the "Company" refer to
Elder-Beerman and its subsidiaries, as described below) has been operating
department stores since 1847. Elder-Beerman operates department stores that sell
a wide range of moderate to better branded merchandise, including women's, men's
and children's apparel and accessories, cosmetics, home furnishings, and other
consumer goods. In addition, the Company operates its private label credit card
program through its wholly-owned subsidiary, The El-Bee Chargit Corp.
("Chargit"). As of fiscal year end 1999, Elder-Beerman operated 62 department
stores and two furniture stores, principally in smaller Midwestern markets in
Ohio, West Virginia, Indiana, Illinois, Michigan, Wisconsin, Kentucky and
Pennsylvania. See "Properties." The Company's operations are diversified by size
of store, merchandising character, and character of the community served. The
Company seeks to satisfy the merchandising needs of its geographic markets,
serving customers of all ages with varied tastes and incomes.
The Company's historical competitive advantage is its niche in medium and
small size cities, and in many cases, Elder-Beerman is the dominant supplier of
moderate to better brands of soft goods (e.g., Liz Claiborne, Estee Lauder,
Tommy Hilfiger, Polo, Guess) in such markets. In many of these cities, there is
only one shopping mall or major shopping center, and the Company is a main
department store anchor along with J.C. Penney, Sears, or a discount retailer
such as Target or Kohl's. These other anchors generally supply moderate private
label goods, which typically complement the Company's more upscale and largely
branded merchandise. The Company's strong metropolitan department store rivals
have tended to bypass smaller midwestern cities, leaving Elder-Beerman as the
dominant department store in these smaller markets.
The Company's business strategy is to improve profitability by focusing on
a more productive core department store business, primarily in Dayton, Ohio and
smaller communities in the Midwest. The Company seeks to be the dominant
destination retailer in its markets for fashion apparel, accessories, cosmetics,
shoes, and home accessories for the entire family, while continuing its
tradition of providing strong customer service. In
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addition, the Company aggressively uses technology and business process changes
to reduce operating costs and improve operating performance through productivity
gains.
The Company's long-term business plan is designed to accomplish its
strategy by (a) focusing on its traditional strengths as the major retailer in
its markets; (b) emphasizing major vendor partnerships to improve sales and
margins while improving supply chain integration and efficiencies; (c) competing
with traditional department store competitors through emphasis on customer
service, timely and broad product assortments, and competitive pricing and
promotions in appropriate markets and product areas; (d) competing with moderate
department stores and discounters through merchandise breadth and advantages in
branded and gift areas; (e) focusing price/product competition in key basic
merchandising areas; and (f) leveraging technology to create a selling culture
with "customer-focused" stores, to develop and execute customer and market
specific marketing programs, and to distribute, price, and promote goods by
market.
Merchandising
The Company carries a broad assortment of goods to provide fashion,
selection and variety found in leading department stores that feature better
merchandise brands. Although all stores stock identical core assortments,
specific types of goods are distributed to stores based on the particular
characteristic of the local market. The Company emphasizes "signature" areas
critical to its image in its niche market, as a primary destination for fashion
apparel, cosmetics and gifts. In addition, through continued efforts to develop
a partnership with its most significant vendors, the Company is using technology
and focused merchandising and distribution to reduce material handling costs and
increase speed in moving stock from the vendor to the selling floor.
Certain departments in Elder-Beerman's department stores are leased to
independent third parties. These leased departments, which include the fine
jewelry, beauty salon, millinery and maternity departments, provide high quality
service and merchandise where specialization and expertise are critical and the
Company's direct participation in the business is not economically justifiable.
Management regularly evaluates the performance of the leased departments and
requires compliance with established customer service guidelines.
For the 52 weeks ending January 29, 2000 ("Fiscal 1999"), the 52 weeks
ending January 30, 1999 ("Fiscal 1998") and the 52 weeks ending January 31, 1998
("Fiscal 1997"), the Company's percentages of net sales by major merchandise
category were as follows:
THE ELDER-BEERMAN STORES CORP.
RETAIL SALES BY DEPARTMENT
1999 1998 1997
MERCHANDISE CATEGORY % % %
- -------------------- ----- ----- -----
Women's Ready to Wear....................................... 33.0% 33.1% 34.0%
Accessories, Shoes & Cosmetics.............................. 23.2% 22.6% 21.7%
Men's & Children's.......................................... 23.3% 24.0% 24.3%
Home Store.................................................. 20.5% 20.3% 20.0%
----- ----- -----
TOTAL RETAIL................................................ 100.0% 100.0% 100.0%
===== ===== =====
Pricing
All pricing decisions are made at the Company's corporate headquarters. The
Company's pricing strategy is designed to provide superior quality and value
appeal by offering competitive prices on fashion from better national brands.
The Company has effectively been able to generate sales from promotions with
special pricing of limited duration. The Company's management information
systems provide timely sales and gross margin reports that identify sales and
gross margins by item and by store and provide management with the information
and flexibility to adjust prices and inventory levels as necessary.
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Purchasing and Distribution
During Fiscal 1999, the Company purchased merchandise from over 1,000
domestic and foreign manufacturers and suppliers. During that period, the top 25
vendors by dollar volume accounted for approximately 38% of net purchases. In
Fiscal 1999, the Company also purchased approximately 6% of its merchandise,
primarily private label merchandise, through Frederick Atkins, Inc. ("Atkins"),
a national association of major retailers that provided its members with group
purchase opportunities. Management believes it has good relationships with its
suppliers. No other vendor accounted for more than 5% of the Company's
purchases. The Company believes that alternative sources of supply are available
for each category of merchandise it purchases, including private label products
which have been historically purchased through Atkins.
Merchandise is generally shipped from vendors, through three consolidation
points, to the Company's distribution center in Dayton, Ohio. Deliveries are
made from the distribution center to each store two to seven times per week
depending on the store size and the time of year. A majority of the merchandise
is shipped ready for immediate placement on the selling floor.
Information Systems
The Company places great emphasis on its management information systems.
Currently, the Company's merchandising activities are controlled by a series of
on-line systems, including a point-of-sale and sales reporting system, a
purchase order management system, a receiving system and a merchandise planning
system. These integrated systems track merchandise from the order stage through
the selling stage and provide valuable sales performance information for
management.
The Company is currently developing a new point of sale system ("POS
System") to enhance its customer service by speeding up the transaction at point
of service and by taking advantage of technology to add more functions at point
of service.
Marketing
The Company's marketing and advertising functions are centralized at its
corporate headquarters, and are focused on communicating a timely and broad
offering of moderate to better branded merchandise, a strong quality/value
relationship and outstanding customer service. The Company employs
comprehensive, multimedia advertising programs including print and broadcast as
well as creative in-store displays, signage and special promotions. The Company
distributes sale catalogs utilizing insertion in Sunday and weekday newspapers
as well as direct mail to preferred charge customers. Catalogs are supplemented
by additional newspaper advertising to support sale events as scheduled. The
Company also uses television and radio in markets where it is productive and
cost efficient.
Credit Card Program
The Company operates a private label credit card program through its
wholly-owned subsidiary, Chargit. During Fiscal 1999, the Company issued 254,000
Elder-Beerman credit cards for newly opened accounts which included 26,000
accounts from its two new stores opened in the fall of 1999 and had
approximately 862,000 Elder-Beerman active credit card accounts during Fiscal
1999. During 1999 Chargit introduced the Preferred Program to the top 10% of
Elder-Beerman charge customers. This program rewards the most loyal Elder-
Beerman customers with special shopping events and various soft benefits
throughout the year. During Fiscal 1999, approximately 42% of Elder-Beerman's
total sales were private label credit card sales. Cash sales and third party
credit cards accounted for 33% and 25% of sales, respectively. Frequent use of
the Elder-Beerman credit card by customers is an important element in the
Company's marketing and growth strategies. The Company also seeks to increase
the use of its private label credit card through incremental sales or shifting
sales from other credit cards and other retailers, and by attracting new
cardholders.
All phases of the credit card operation are handled by Chargit except the
processing of customer mail payments, which is performed pursuant to a retail
lockbox agreement with a bank. Decisions whether to issue a credit card to an
applicant are made on the basis of a credit scoring system.
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Customer Service
Elder-Beerman has a strong tradition of providing quality customer service.
The Company is presently enhancing its customer service image and creating a
customer-oriented store environment by (a) centralizing customer service
register stations; (b) eliminating nonselling activities from stores; (c) using
training and recruiting practices to instill a culture of customer helpfulness,
friendliness and responsiveness; and (d) developing a new POS System to expedite
the sales completion process and provide additional functions at point of
service.
Expansion
The Company is currently implementing a controlled expansion of new concept
stores in markets having characteristics consistent with the Company's current
markets. The Company believes that sufficient new locations are available in
markets within or contiguous to the Company's current area of operations to
support such an expansion. In addition, the Company believes that opportunities
exist to expand existing stores where current space constraints prevent adequate
presentation of certain core merchandise departments.
During Fiscal 1999, the Company expanded its Winfield and Sandusky stores
by increasing the size of the selling area in Winfield, West Virginia by 27,000
square feet and in Sandusky, Ohio by 41,000 square feet.
New Concept Stores
Elder-Beerman redesigned its core store format in late 1998 and early 1999
and opened two of these new concept stores in the fall of 1999. Because
Elder-Beerman's top nine stores in sales productivity are stores between 48,000
to 58,000 square feet, the new stores are both approximately 55,000 square feet.
These stores will serve as the prototype for future new stores. The Company has
announced the opening of two concept stores for Fall 2000 in Howell, Michigan
and West Bend, Wisconsin. Important features of the new stores include:
- Customer Service Centers located in main aisles to eliminate the
traditional, multiple single-terminal wrap stands in each selling area,
thereby increasing selling floor space. These Customer Service Centers
are always staffed and are highly visible to the customer. The goal of
these service centers is to speed the ringing of sales and improve
customer service.
- An open sell/self select format for cosmetics, fashion jewelry and shoes,
which is designed for customer convenience and to increase the efficiency
of the selling staff.
- The "Zone," a combined juniors' and young men's store within a store,
which is designed to provide a more appealing shopping experience for the
13-25 year old "Generation Y" shopper.
- Attractive, high capacity fixturing and wallscaping to increase the
inventory density by 10% to 20%, which helps drive sales productivity.
- Flexible utilization of space using a neutral color palette and
nonpermanent walls to eliminate barriers between families of business and
permit reconfiguration of the store without disruption of business.
Bee-Gee Shoe Corp.
On January 25, 2000, the Company completed the sale of its 50-unit Bee-Gee
Shoe Corp. ("Bee-Gee") speciality shoe store chain, to a business group formed
by Albertine Industries, Ark Capital and Bee-Gee management.
Seasonality
The department store business is seasonal, with a high proportion of sales
and operating income generated in November and December. Working capital
requirements fluctuate during the year, increasing somewhat in mid-summer in
anticipation of the fall merchandising season and increasing substantially prior
to the Christmas holiday season when the Company must carry significantly higher
inventory levels. Consumer spending in the peak retail season may be affected by
many factors outside the Company's control, including competition,
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consumer demand and confidence, weather that affects consumer traffic and
general economic conditions. A failure to generate substantial holiday season
sales could have a material adverse effect on the Company.
Competition
The retail industry in general and the department store business in
particular is intensely competitive. Generally, the Elder-Beerman department
stores compete not only with other department stores in the same geographic
markets, but also with numerous other types of retail outlets, including
specialty stores, general merchandise stores, off-price and discount stores and
manufacturer outlets. Some of the retailers with which the Company competes have
substantially greater financial resources than the Company and may have other
competitive advantages over the Company. The Elder-Beerman department stores
compete on the basis of quality, depth and breadth of merchandise, prices for
comparable quality merchandise, customer service and store environment.
Associates
On January 29, 2000, the Company had approximately 8,290 regular and
part-time associates. Because of the seasonal nature of the retail business, the
number of associates rises to a peak in the holiday season. None of the
Company's associates are represented by a labor union. The Company's management
considers its relationships with its associates to be satisfactory.
ITEM 2. PROPERTIES
Elder-Beerman currently operates 62 department stores and two furniture
stores, principally in smaller midwestern markets in Ohio, West Virginia,
Indiana, Illinois, Michigan, Wisconsin, Kentucky and Pennsylvania. Substantially
all of the Company's stores are leased properties. The Company owns, subject to
a mortgage, a 302,570 square foot office/warehouse facility located in Dayton,
Ohio, which serves as its principal executive offices. The Company also leases
an approximately 300,000 square foot distribution center in Fairborn, Ohio.
On March 2, 2000 the Company announced the closing of its downtown Wheeling
and Charleston stores in West Virginia.
The following table sets forth certain information with respect to
Elder-Beerman's department store locations operating as of January 29, 2000, the
end of Elder-Beerman's most recently completed fiscal year:
THE ELDER-BEERMAN STORES CORP.
STORE SUMMARY BY REGION
TOTAL
SQUARE DATE
STATE/CITY LOCATION FEET OPENED OWN/LEASE
---------- --------------------------------- ------- ------ ---------
OHIO
Athens University Mall 42,829 09/88 Lease
Bowling Green Woodland Mall 40,700 04/87 Lease
Chillicothe Chillicothe Mall 55,940 05/81 Lease
Home Store 17,609 11/90 Lease
Cincinnati Forest Fair Mall 149,462 04/89 Lease
Dayton Centerville Place 191,400 08/66 Lease
Dayton Fairfield Commons 151,740 10/93 Lease
Dayton Southtowne Furniture 121,000 01/76 Lease
Dayton Northwest Plaza 217,060 02/66 Lease
Dayton Courthouse Plaza 125,390 11/75 Lease
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TOTAL
SQUARE DATE
STATE/CITY LOCATION FEET OPENED OWN/LEASE
---------- --------------------------------- ------- ------ ---------
Dayton Dayton Mall 212,000 07/98 Lease
Dayton Salem Furniture 124,987 11/72 Own
Dayton Kettering Town Center 82,078 10/98 Lease
Dayton Northpark Center 101,840 10/94 Lease
Defiance Northtowne Mall 51,333 04/86 Lease
Fairborn Distribution Center 300,000 12/90 Lease
Findlay Findlay Village Mall 74,825 07/90 Lease
Franklin Middletown (Towne Mall) 118,000 1977 Own
Hamilton Hamilton 167,925 04/74 Lease
Heath Indian Mound Mall 73,695 09/86 Lease
Lancaster River Valley Mall 52,725 09/87 Lease
Lima Lima Mall 103,350 11/65 Lease
Marion Southland Mall 74,621 11/84 Lease
Moraine Corporate Offices 302,570 06/70 Own
New Philadelphia New Towne Mall 52,648 10/88 Lease
Piqua Miami Valley Center 59,092 09/88 Lease
Sandusky Sandusky Mall 80,398 03/83 Lease
Springfield Upper Valley Mall 71,868 10/92 Lease
St. Clairsville Ohio Valley Mall 66,545 07/98 Lease
Toledo Woodville 100,000 08/85 Lease
Toledo Westgate 154,000 08/85 Lease
Wooster Wayne Towne Plaza 53,689 6/94 Lease
Zanesville Colony Square 70,346 09/85 Own
WEST VIRGINIA
Beckley Raleigh Mall 50,210 07/98 Lease
Bridgeport Meadowbrook Mall 70,789 07/98 Lease
Home Store 74,723 07/98 Lease
Charleston Charleston Town Center 31,687 07/98 Lease
Huntington Huntington Mall 75,640 07/98 Lease
Kanawha City Kanawha Mall 41,270 07/98 Lease
Morgantown Morgantown Mall 70,790 09/90 Lease
Morgantown Mountaineer Mall 70,470 07/98 Lease
Vienna Grand Central Mall 106,000 07/98 Lease
Wheeling Wheeling 183,000 07/98 Own
Winfield Liberty Square Center 67,728 07/98 Lease
INDIANA
Anderson Mounds Mall 66,703 07/81 Lease
Columbus Columbus Mall 73,446 02/90 Lease
Elkhart Concord Mall 104,000 11/85 Lease
Evansville Washington Square Mall 134,536 10/93 Lease
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TOTAL
SQUARE DATE
STATE/CITY LOCATION FEET OPENED OWN/LEASE
---------- --------------------------------- ------- ------ ---------
Kokomo Kokomo Mall 75,704 10/87 Lease
Marion North Park Mall 55,526 11/78 Lease
Muncie Muncie Mall 80,000 10/97 Lease
Richmond Downtown 100,000 08/74 Lease
Terre Haute Honey Creek Mall 70,380 08/73 Lease
Warsaw Market Place Center 56,120 10/99 Lease
MICHIGAN
Adrian Adrian Mall 54,197 08/87 Lease
Benton Harbor The Orchards Mall 70,428 10/92 Lease
Jackson Westwood Mall 70,425 09/93 Lease
Midland Midland Mall 64,141 10/91 Lease
Monroe Frenchtown Square 98,887 04/88 Lease
Muskegon Lakeshore Marketplace 87,185 10/95 Lease
ILLINOIS
Danville Village Mall 77,300 07/86 Lease
Mattoon Cross Country Mall 54,375 03/78 Lease
WISCONSIN
Beloit Beloit Mall 62,732 10/93 Lease
Green Bay Bay Park Square Mall 75,000 09/95 Lease
KENTUCKY
Ashland Cedar Knolls Galleria 70,000 07/98 Lease
Paducah Kentucky Oaks Mall 60,092 08/82 Lease
Frankfort Frankfort 53,954 11/99 Lease
PENNSYLVANIA
Erie Millcreek Mall 119,800 9/98 Lease
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in several legal proceedings arising from its
normal business activities and reserves have been established where appropriate.
Management believes that none of these legal proceedings will have a material
adverse effect on the financial condition, results of operations or cash flows
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock, without par value, (the "Common Stock") is
listed on the Nasdaq Stock Market ("NASDAQ") and is designated a NASDAQ/National
Market System Security trading under the symbol EBSC.
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The number of shareholders of record as of April 14, 2000 was 2,400.
No dividends have been paid on the Common Stock. The Company intends to
reinvest earnings in the Company's business to support its operations and
expansion. The Company has no present intention to pay cash dividends in the
foreseeable future, and will determine whether to declare dividends in the
future in light of the Company's earnings, financial condition and capital
requirements. In addition, the Company has certain credit agreements that limit
the payment of dividends.
Pursuant to the Third Amended Joint Plan of Reorganization, as amended (the
"Plan of Reorganization") of the Company, confirmed by an order entered by the
United States Bankruptcy Court for the Southern District of Ohio, Western
Division (the "Bankruptcy Court") on December 16, 1997, the Company issued
Common Stock and a Series A Warrant and a Series B Warrant, each convertible
into Common Stock, in satisfaction of certain allowed claims against, or
interests in, the Company in the voluntary petitions for relief filed by the
Company and its subsidiaries with the Bankruptcy Court. Based upon the
exemptions provided by section 1145 under chapter 11 of the United States
Bankruptcy Code, as amended, the Company believes that none of these securities
are required to be registered under the Securities Act of 1933 (the "Securities
Act") in connection with their issuance and distribution pursuant to the Plan of
Reorganization. The Company has no recent sales of unregistered securities other
than such issuances pursuant to the Plan of Reorganization.
The Company's high and low stock prices by quarter for Fiscal 1999 are set
forth below:
HIGH LOW
------- ------
First Quarter
1/31/99 to 5/1/99......................................... $10.125 $7.000
Second Quarter
5/2/99 to 7/31/99......................................... $ 9.000 $6.000
Third Quarter
8/1/99 to 10/30/99........................................ $ 8.500 $4.125
Fourth Quarter
10/31/99 to 1/29/00....................................... $ 7.125 $4.875
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth various selected financial information for
the Company as of and for the fiscal years ended January 29, 2000, January 30,
1999, January 31, 1998, February 1, 1997 and February 3, 1996. Such selected
consolidated financial information should be read in conjunction with the
consolidated financial statements of the Company, including the notes thereto,
set forth in Item 8 of this Form 10-K and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" set forth in Item 7 of this
Form 10-K.
FISCAL YEAR ENDED
-----------------------------------------------------------------------------
JAN 29, 2000 JAN 30, 1999 JAN 31, 1998 FEB 1, 1997 FEB 3, 1996(A)
------------ ------------ ------------ ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Total Revenues.................. $666,782 $610,371 $559,979 $546,431 $542,151
Earnings (Loss) Before
Discontinued Operations and
Extraordinary Items(b)........ 18,015 25,864 (7,530) (12,818) (40,252)
Net Earnings (Loss)............. $ 15,228 $ 25,461 $(28,952) $(12,429) $(63,286)
Diluted Earnings (Loss) Per
Common Share:
Continuing Operations......... $ 1.17 $ 1.79 $ (6.04) $(103.34) $(324.52)
Discontinued Operations....... (0.18) (0.03) 5.38 3.14 (185.70)
Extraordinary Items........... (22.58)
-------- -------- -------- -------- --------
Net Earnings (Loss).... $ 0.99 $ 1.76 $ (23.24) $(100.20) $(510.22)
======== ======== ======== ======== ========
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FISCAL YEAR ENDED
-----------------------------------------------------------------------------
JAN 29, 2000 JAN 30, 1999 JAN 31, 1998 FEB 1, 1997 FEB 3, 1996(A)
------------ ------------ ------------ ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash Dividends Paid:
Common........................ $ -- $ -- $ -- $ -- $ --
Preferred..................... $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA
Total Assets.................... $454,895 $452,360 $369,068 $367,501 $367,069
Short-Term Debt................. 131,086 951 1,105 57,931 50,100
Liabilities Subject to
Compromise.................... -- -- -- 223,641 222,253
Long-Term Obligations........... 6,130 121,507 142,024 5,669 3,100
OTHER DATA
Sales Increase (Decrease) From
Prior Period.................. 9.6% 9.7% 2.8% (0.8%) (6.9%)
Comparative Sales Increase
(Decrease) From Prior
Period........................ 2.0% 4.1% 3.7% (1.2%) (8.4%)
- ---------------
Notes to Selected Historical Financial Data:
(a) Fiscal Year ended February 3, 1996 included 53 weeks as compared to 52 weeks
for each of the other fiscal years shown.
(b) The financial information for Bee-Gee and Margo's LaMode, Inc. ("Margo's")
is included as discontinued operations for all periods.
SELECTED QUARTERLY FINANCIAL DATA
FISCAL 1999
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA
Total Revenues(a)................... $146,952 $136,013 $155,914 $227,903
Net Earnings (Loss)................. $ (188) $ (1,266) $ (738) $ 17,420
Diluted Earnings (Loss) Per Common
Share:............................ $ (0.01) $ (0.08) $ (0.05) $ 1.18
FISCAL 1998
------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA
Total Revenues(a)................... $122,879 $119,895 $151,184 $216,413
Net Earnings (Loss)................. $ (436) $ 239 $ 1,825 $ 23,833
Diluted Earnings (Loss) Per Common
Share:............................ $ (0.03) $ 0.02 $ 0.11 $ 1.51
- ---------------
(a) The financial information for Bee-Gee is included in discontinued operations
for all periods.
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for Fiscal 1999, Fiscal 1998 and Fiscal 1997. The
Company's fiscal year ends on the Saturday closest to January 31. The discussion
and analysis that follows is based upon and should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto included
in Item 8.
9
13
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998
Net sales for Fiscal 1999 increased by 9.6% to $637.8 million from $582.1
million for Fiscal 1998. The increase includes a 2.0% comparable store sales
increase. Fiscal 1999 includes $31.8 million in sales during the first 26 weeks
of 1999 from the stores acquired from Stone & Thomas that were not owned during
the first 26 weeks of 1998. Women's better sportswear, intimate apparel,
cosmetics, and domestics led the sales increase.
Financing revenue from the Company's private label credit card for Fiscal
1999 increased by 2.2% to $26.1 million from $25.6 million for Fiscal 1998. The
increase in finance charges is due to an increase in late fees charged of $0.5
million.
Cost of merchandise sold, occupancy, and buying expenses increased to 72.1%
of net sales for Fiscal 1999 from 70.5% of net sales for Fiscal 1998. This
increase is primarily due to real estate expenses related to the new Dayton
Mall, Erie, and West Virginia stores, for which sales have not yet matured to
Company average productivity levels. In Fiscal 1998, the LIFO inventory
valuation adjustment reduced cost of goods sold by $5.8 million (1% of net
sales) compared to no adjustment in Fiscal 1999.
Selling, general, and administrative expenses decreased to 27.4% of net
sales for Fiscal 1999 from 28.4% for Fiscal 1998. This was due to the leveraging
of corporate expenses with increased sales, partially offset by increased store
payrolls as a percentage of sales. In addition, the Company implemented tracking
systems and undertook studies of merchandise credits and gift certificates in
Fiscal 1999, which resulted in a reduction of the liability for future
redemptions. The Company also incurred nonrecurring acquisition and integration
expenses in Fiscal 1998 related to interim financing for the acquisition of
Stone & Thomas as well as other integration expenses.
Provision for doubtful accounts decreased to 0.6% of net sales for Fiscal
1999 from 0.9% for Fiscal 1998. This improvement is due to fewer delinquent
customer accounts and a reduction in personal bankruptcies, which resulted in
fewer bad debt write-offs affecting the Company.
Interest expense increased to $11.8 million for Fiscal 1999 from $11.5
million for Fiscal 1998. The increase is primarily due to higher average
borrowing because of the Company's commencement of a stock repurchase program.
Reorganization and other expense of $3.8 million was recorded in Fiscal
1999 compared to income of $4.7 million for Fiscal 1998. The other expense in
1999 was due to a charge of $4.6 million to reflect a write down of amounts
related to an investment made several years ago in a cooperative buying group,
partially offset by interest income. The income in 1998 was gains realized from
the sale of the Company's 20% limited partnership interest in a partnership,
which owned the Company's 300,000 square foot distribution center, and the sale
of the Southtown department store building and a favorable settlement of
bankruptcy related claims that were accrued at the end of 1997.
The Company's effective income tax rate was 41.5% in Fiscal 1999 and 40.5%
in Fiscal 1998 before adjustments to the Company's deferred tax asset valuation
allowance. The Company reviewed the status of its deferred tax asset valuation
allowance at the end of the fiscal year and determined that the valuation
allowance should be reduced to reflect the likely utilization of net operating
loss carryforwards to offset taxable income generated in future years. This
resulted in a net income tax benefit being recorded in Fiscal 1999 and Fiscal
1998. See Note G to the Consolidated Financial Statements set forth in Item 8.
During the third quarter of 1999 the Company adopted a plan to dispose of
Bee-Gee and consummated the sale in the fourth quarter. In Fiscal 1999 the
Company recorded a loss on disposal of $2.3 million, net of tax. The Company
also recorded a loss from operations in Fiscal 1999 of $0.4 million, net of tax.
In Fiscal 1998 a loss from operations was recorded of $0.4 million, net of tax.
See Note L to the Consolidated Financial Statements set forth in Item 8.
10
14
Fiscal 1998 Compared to Fiscal 1997
Net sales for Fiscal 1998 increased by 9.7% to $582.1 million from $530.7
million for Fiscal 1997. The increase was due to a 4.1% comparative sales
increase. The comparable sales results included the relocated Dayton Mall
flagship store. In addition, the department stores acquired from Stone & Thomas
generated $44.3 million in sales during the second half of 1998. Women's and
men's better sportswear, furniture, intimate apparel, cosmetics, and shoes led
the sales increase for the department stores.
Financing revenue from the Company's private label credit card for Fiscal
1998 decreased by 3.8% to $25.6 million from $26.6 million for Fiscal 1997. The
decline in finance charges was due to a reduction in outstanding customer
accounts receivable, not including the Stone & Thomas customer accounts
receivable portfolio purchased November 23, 1998, and had been partially offset
by an increase in late fees charged.
Cost of merchandise sold, occupancy, and buying expenses decreased to 70.5%
of net sales for Fiscal 1998 from 72.3% of net sales for Fiscal 1997. This
decrease was primarily due to a charge in 1997 of $5.6 million to record excess
markdowns related to two department store closings versus $0.7 million in 1998
related to moving two department stores. In Fiscal 1998, the LIFO inventory
valuation adjustment reduced cost of goods sold by $5.8 million compared to a
decrease of $1.6 million in Fiscal 1997. In addition there was improved gross
margin performance, which was partially offset by an increase in the buying
staff as a result of being more fully staffed, and an increase in depreciation
due to capital expenditures in 1998.
Selling, general, and administrative expenses increased to 28.4% of net
sales for Fiscal 1998 from 28.1% for Fiscal 1997. This was due to incurring $4.2
million in integration expenses as a result of the Stone and Thomas acquisition,
partially offset by a reduction in the Company's store selling and customer
service expenditures and modification to the Company's fringe benefit plans.
Provision for doubtful accounts decreased to 0.9% of net sales for Fiscal
1998 from 1.6% for Fiscal 1997. This improvement was due to fewer write-offs of
delinquent customer accounts and fewer personal bankruptcies affecting the
Company.
Interest expense increased to $11.5 million for Fiscal 1998 from $7.1
million for Fiscal 1997. The increase was due to the additional financing
required to support the payment of bankruptcy obligations in connection with the
consummation of the Company's chapter 11 Plan of Reorganization and the
acquisition of Stone & Thomas, offset by a reduction resulting from the
Company's issuance of 3,220,000 shares of additional common stock.
Other income was $4.7 million for Fiscal 1998 compared to reorganization
and other expense of $26.2 million for Fiscal 1997. The income in 1998 was
primarily related to gains realized from the sale of the company's 20% limited
partnership interest in a partnership that owned the Company's 300,000 square
foot distribution center, and the sale of the Southtown department store
building. The expense in Fiscal 1997 was due to $27.5 million of reorganization
expenses that were incurred in the last year of the Company's bankruptcy,
partially offset by interest income recorded due to a federal income tax refund.
In Fiscal 1998 a federal, state, and city income tax expense was based on
the Company's taxable income reduced by the applicable net operating loss
carryforward generated in previous years. The Company also reviewed the status
of its deferred tax asset valuation allowance at the end of the fiscal year and
determined that the valuation allowance should be reduced to reflect the likely
utilization of net operating loss carryforwards to offset taxable income
generated in future years. This resulted in a net income tax benefit being
recorded in Fiscal 1998. In Fiscal 1997, the Company recorded an income tax
benefit based on a taxable loss and an adjustment to the deferred tax asset
valuation allowance. See Note G to the Consolidated Financial Statements set
forth in Item 8.
During the third quarter of Fiscal 1999 the Company adopted a plan to
dispose of Bee-Gee. The discontinued operations loss, net of tax, recorded in
Fiscal 1998 is Bee-Gee's loss from operations. In Fiscal 1997 a discontinued
operations gain, net of tax, of $7.4 million was recorded for the extinguishment
of debt for Margo's. In December 1995, the Bankruptcy Court approved the
disposal of Margo's. The gain recorded represents the difference between the
amount of cash Margo's creditors received as part of the Plan of Reorganization
and the liabilities subject to settlement recorded by Margo's. This gain was
partially offset by
11
15
Bee-Gee's loss from operations in Fiscal 1997 of $0.7 million, net of tax. See
Note L to the Consolidated Financial Statements set forth in Item 8.
In Fiscal 1997 an extraordinary loss of $28.1 million was recorded in
connection with the extinguishment of the Company's prepetition liabilities. The
loss was based on the excess of the fair value of the stock and cash distributed
to the general unsecured creditors over the carrying amount of the liabilities
extinguished.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash flow from operations and
borrowings under the Revolving Credit Facility and Receivable Securitization
Facility (collectively, the "Credit Facilities"). The Company's primary ongoing
cash requirements are to fund debt service, make capital expenditures, and
finance working capital.
Net cash provided by operating activities was $6.6 million for Fiscal 1999,
compared to $14.8 million in Fiscal 1998. Net income for Fiscal 1999 was $15.2
million, including a one time noncash charge of $4.6 million in Fiscal 1999 to
reflect a write down of amounts invested several years ago in a cooperative
buying group, compared to $25.5 million for Fiscal 1998. Trade payables
decreased $18.5 million in Fiscal 1999 compared to a decrease of $4.6 million in
Fiscal 1998, due to reduced receipts in January, as well as automating invoice
payment processing. Inventory increased slightly in Fiscal 1999 ($1.6 million)
compared to an increase of $12.7 million in Fiscal 1998 due to the addition of
the Stone & Thomas stores.
Net cash used in investing activities was $13.5 million for Fiscal 1999,
compared to $39.7 million for Fiscal 1998. Capital expenditures for store
maintenance, remodeling, and data processing totaled $17.0 million for Fiscal
1999 compared to $16.2 million for Fiscal 1998. The cash proceeds from the sale
of Bee-Gee in Fiscal 1999 were $3.0 million. The Stone & Thomas acquisition on
July 27, 1998 required an investment of $19.4 million, net of cash acquired. On
November 23, 1998 the Company acquired the Stone & Thomas customer accounts
receivable portfolio from Alliance Data Systems for $13.0 million. During Fiscal
1998 the Company sold seven of the stores acquired from Stone & Thomas for $5.8
million. The Company also purchased for $2.8 million the department store
building that housed the Southtown shopping center store. This department store
was relocated to the Dayton Mall, and the Southtown location was sold for $6.0
million.
For Fiscal 1999, net cash provided by financing activities was $7.0 million
compared to $26.5 million for Fiscal 1998. The decrease is due to the
elimination of funding required in Fiscal 1998 for the Stone & Thomas purchase,
partially offset by additional borrowing of $7.4 million to fund the purchase by
the Company of 1,133,200 shares of outstanding common stock, under its stock
repurchase program. In August 1999, the Company announced a stock repurchase
program to acquire up to $24 million in common shares over a two-year period.
On April 20, 2000, the Company entered into financing commitments to
replace its existing Revolving Credit Facilities, which are set to expire in
December 2000 with agreements similar in scope and with a 36 month term. The
intent of the early refinancing is to provide the Company with greater operating
flexibility with respect to working capital management and capital expenditures.
The new Credit Facilities will be effective during the Company's second quarter
of Fiscal 2000.
The new Revolving Credit Facility provides for borrowings and letters of
credit in an aggregate amount up to $150,000,000, subject to a borrowing base
formula based on seasonal merchandise inventories. There is a $40,000,000
sublimit for letters of credit.
The Company's replacement Receivable Securitization Facility provides for
borrowings up to $150,000,000 based on qualified, pledged accounts receivable
balances. The terms and borrowing rates are substantially similar to the
predecessor Receivable Securitization Facility with the exception of maximum
borrowings, which have been reduced to $150,000,000 from $175,000,000, to reduce
fees the Company historically has paid for unused borrowing capacity.
The Company believes that it will generate sufficient cash flow from
operations, as supplemented by its available borrowings under the existing
Credit Facilities and new Credit Facilities, to meet anticipated working
12
16
capital and capital expenditure requirements, as well as debt service
requirements under the existing Credit Facilities and new Credit Facilities.
The Company may from time to time consider acquisitions of department store
assets and companies. Acquisition transactions, if any, are expected to be
financed through a combination of cash on hand from operations, available
borrowings under the Credit Facilities, and the possible issuance from time to
time of long-term debt or other securities. Depending upon the conditions in the
capital markets and other factors, the Company will from time to time consider
the issuance of debt or other securities, or other possible capital market
transactions, the proceeds of which could be used to refinance current
indebtedness or for other corporate purposes.
The Company retained the investment banking firm of Wasserstein, Perella &
Co. to advise the Company on strategic alternatives available to maximize
shareholder value. The alternatives could include sale of the Company,
recapitalization or merger.
YEAR 2000 DISCLOSURE
The Company did not experience any malfunctions or errors in its operating
or business systems when the date changed from 1999 to 2000. Based on operations
since January 1, 2000, the Company does not expect any significant impact to its
ongoing business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 problems may
occur with billing, payroll, or financial closings at month, quarter or
year-end. The Company believes that any such problems are likely to be minor and
correctable. In addition, the Company could still be negatively affected if its
customers or suppliers are adversely affected by the Year 2000 or similar
issues. The Company currently is not aware of any Year 2000 or similar problems
that have arisen for its customers and suppliers.
The Company expended $525,000 on Year 2000 readiness efforts from 1997
through 1999. These efforts included replacing some outdated, noncompliant
hardware and noncompliant software as well as identifying and remediating Year
2000 problems.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its variable rate borrowing.
The Company has entered into a variable to fixed rate interest-rate swap
agreement to effectively reduce its exposure to interest rate fluctuations. A
hypothetical 100 basis point change in interest rates would not materially
affect the Company's financial position, liquidity or results of operations.
The Company does not maintain a trading account for any class of financial
instrument and is not directly subject to any foreign currency exchange or
commodity price risk. As a result, the Company believes that its market risk
exposure is not material to the Company's financial position, liquidity or
results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Independent Auditors' Report................................ 14
Consolidated Financial Statements as of January 29, 2000 and
January 30, 1999 and for each of the three fiscal years in
the period ended January 29, 2000:
Statements of Operations.................................. 15
Balance Sheets............................................ 16
Statements of Shareholders' Equity........................ 17
Statements of Cash Flows.................................. 18
Notes to Consolidated Financial Statements................ 19-34
13
17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
The Elder-Beerman Stores Corp.:
We have audited the accompanying consolidated balance sheets of The
Elder-Beerman Stores Corp. and subsidiaries (the "Company") as of January 29,
2000 and January 30, 1999 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended January 29, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 29,
2000 and January 30, 1999 and the results of its operations and its cash flows
for each of the three fiscal years in the period ended January 29, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note A to the financial statements, the accompanying fiscal
year 1998 and 1997 financial statements have been restated to reflect an accrual
for sales returns.
DELOITTE & TOUCHE LLP
April 20, 2000
Dayton, Ohio
14
18
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED
-----------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Net sales.............................................. $637,797 $582,091 $530,687
Financing.............................................. 26,124 25,573 26,574
Leased departments..................................... 2,861 2,707 2,718
-------- -------- --------
Total revenues................................. 666,782 610,371 559,979
-------- -------- --------
Costs and expenses:
Cost of merchandise sold, occupancy and buying
expenses............................................ 459,728 410,631 383,571
Selling, general and administrative expenses........... 174,977 165,125 149,037
Provision for doubtful accounts........................ 3,906 5,046 8,636
Interest expense....................................... 11,771 11,536 7,084
Reorganization and other expense (income).............. 3,784 (4,707) 26,208
-------- -------- --------
Total costs and expenses....................... 654,166 587,631 574,536
-------- -------- --------
Earnings (loss) before income tax benefit,
discontinued operations and extraordinary
item......................................... 12,616 22,740 (14,557)
Income tax benefit....................................... (5,399) (3,124) (7,027)
-------- -------- --------
Earnings (loss) from continuing operations............. 18,015 25,864 (7,530)
Discontinued operations.................................. (2,787) (403) 6,709
-------- -------- --------
Earnings (loss) before extraordinary item.............. 15,228 25,461 (821)
Extraordinary item....................................... (28,131)
-------- -------- --------
Net earnings (loss).................................... $ 15,228 $ 25,461 $(28,952)
======== ======== ========
Earnings (loss) per common share -- basic:
Continuing operations.................................. $ 1.17 $ 1.84 $ (6.04)
Discontinued operations................................ (0.18) (0.03) 5.38
Extraordinary item..................................... (22.58)
-------- -------- --------
Net earnings (loss)............................ $ 0.99 $ 1.81 $ (23.24)
======== ======== ========
Earnings (loss) per common share -- diluted:
Continuing operations.................................. $ 1.17 $ 1.79 $ (6.04)
Discontinued operations................................ (0.18) (0.03) 5.38
Extraordinary item..................................... (22.58)
-------- -------- --------
Net earnings (loss)............................ $ 0.99 $ 1.76 $ (23.24)
======== ======== ========
See notes to the consolidated financial statements.
15
19
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
YEARS ENDED
------------------------------------
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets
Cash and equivalents...................................... $ 8,276 $ 8,146
Customer accounts receivable (less allowance for doubtful
accounts: fiscal 1999 -- $2,048, fiscal
1998 -- $4,377)........................................ 140,356 141,205
Merchandise inventories................................... 165,451 163,879
Other current assets...................................... 20,250 16,696
Discontinued operations, net current assets............... 7,106
-------- --------
Total current assets........................................ 334,333 337,032
-------- --------
Property:
Land and improvements..................................... 1,278 1,300
Buildings and leasehold improvements...................... 63,538 59,192
Furniture, fixtures, and equipment........................ 105,022 96,736
Construction in progress.................................. 2,069 1,554
-------- --------
Total cost.................................................. 171,907 158,782
Less accumulated depreciation and amortization.............. (96,975) (87,290)
-------- --------
Property, net............................................... 74,932 71,492
-------- --------
Discontinued operations, net non-current assets............. 2,196
Other assets................................................ 45,630 41,640
-------- --------
$454,895 $452,360
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt......................... $131,086 $ 951
Accounts payable.......................................... 36,556 53,798
Accrued liabilities:
Compensation and related items......................... 3,822 4,314
Income and other taxes................................. 9,546 9,079
Rent................................................... 3,176 2,602
Other.................................................. 9,348 15,100
-------- --------
Total current liabilities......................... 193,534 85,844
-------- --------
Long-term obligations -- less current portion............... 6,130 121,507
Deferred items.............................................. 9,054 7,797
Commitments and contingencies (Note O)
Shareholders' equity:
Common stock, no par, 14,923,846 shares at January 29, 2000
and 15,898,864 shares at January 30, 1999 issued and
outstanding............................................... 260,171 266,683
Unearned compensation -- restricted stock, net.............. (1,779) (2,028)
Deficit..................................................... (12,215) (27,443)
-------- --------
Total shareholders' equity........................ 246,177 237,212
-------- --------
$454,895 $452,360
======== ========
See notes to the consolidated financial statements.
16
20
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
UNEARNED
PREFERRED ADDITIONAL COMPENSATION- TOTAL
STOCK COMMON PAID-IN RESTRICTED SHAREHOLDERS'
SERIES B STOCK CAPITAL STOCK DEFICIT EQUITY
--------- -------- ---------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
Shareholders' equity at February 1, 1997,
as previously reported (124,036 common
shares outstanding)...................... $ 7 $ 6,511 $ 23,283 $ $(23,663) $ 6,138
Adjustment for sales return reserve........ (289) (289)
--- -------- -------- ------- -------- --------
Shareholders' equity at February 1, 1997,
as adjusted.............................. 7 6,511 23,283 (23,952) 5,849
Net Loss................................... (28,952) (28,952)
Common stock issuance at bankruptcy
emergence (12,372,960 common shares)..... (7) 191,580 (23,283) 168,290
Restricted shares issued (86,793 common
shares).................................. 1,260 (1,260)
Amortization of unearned compensation...... 35 35
--- -------- -------- ------- -------- --------
Shareholders' equity at January 31, 1998
(12,583,789 common shares outstanding)... 199,351 (1,225) (52,904) 145,222
Net earnings............................... 25,461 25,461
Common stock issued (3,228,943 shares)..... 65,563 65,563
Restricted shares issued, net of
forfeitures (86,132 common shares)....... 1,769 (1,769)
Amortization of unearned compensation...... 966 966
--- -------- -------- ------- -------- --------
Shareholders' equity at January 30, 1999
(15,898,864 common shares outstanding)... 266,683 (2,028) (27,443) 237,212
Net earnings............................... 15,228 15,228
Common stock issued (8,309 shares)......... 107 107
Restricted shares issued, net of
forfeitures (149,873 common shares)...... 831 (831)
Shares purchased (1,133,200 shares)........ (7,450) (7,450)
Amortization of unearned compensation...... 1,080 1,080
--- -------- -------- ------- -------- --------
Shareholders' equity at January 29, 2000
(14,923,846 common shares outstanding)... $ $260,171 $ $(1,779) $(12,215) $246,177
=== ======== ======== ======= ======== ========
See notes to the consolidated financial statements.
17
21
THE ELDER-BEERMAN STORES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
---------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net earnings (loss)....................................... $ 15,228 $ 25,461 $(28,952)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for doubtful accounts........................ 3,906 5,046 8,636
Deferred income taxes.................................. (7,748) (4,672) (7,877)
Provision for depreciation and amortization............ 15,229 13,418 11,443
Loss (gain) on disposal of assets...................... 28 (2,521) 636
Loss on equipment settlements.......................... 74
Stock-based compensation expense....................... 1,640 1,564 85
Payment to general unsecured creditors................. (82,215)
Loss (gain) on discontinued operations................. 2,787 403 (6,709)
Impairment of investment............................... 4,639
Extraordinary item..................................... 28,131
Changes in noncash assets and liabilities (net of
amounts acquired)
Customer accounts receivable......................... (3,057) 1,742 2,473
Merchandise inventories.............................. (1,572) (12,658) (10,195)
Other current assets................................. (837) 1,995 12,682
Other long-term assets............................... (164) (1,229) 1,549
Net assets of discontinued operations................ 1,740 (1,255) 450
Accounts payable..................................... (18,549) (4,620) 15,461
Accrued liabilities.................................. (6,685) (7,842) 561
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 6,585 14,832 (53,767)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (17,041) (16,215) (20,647)
Proceeds from sale of property............................ 587 11,782
Proceeds from sale of discontinued operations............. 3,000
Acquisition of customer accounts receivable............... (13,046)
Real estate acquired...................................... (2,814)
Payment for acquired business, net of cash purchased...... (19,405)
-------- -------- --------
Net cash used in investing activities............. (13,454) (39,698) (20,647)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) under asset securitization
agreement.............................................. 12,430 (8,606) 123,015
Net borrowings (payments) on bankers' acceptance and
revolving lines of credit.............................. 3,279 (10,960) 10,960
Payments on long-term obligations......................... (951) (1,105) (748)
Debt acquisition payments................................. (309) (613) (1,634)
Common shares purchased................................... (7,450)
Proceeds from common stock issuance, net of expense....... 65,381
Payments on debt assumed at acquisition................... (17,582)
Net payments under DIP Facility........................... (57,773)
-------- -------- --------
Net cash provided by financing activities......... 6,999 26,515 73,820
-------- -------- --------
Increase (decrease) in cash and equivalents................. 130 1,649 (594)
Cash and equivalents -- beginning of year................... 8,146 6,497 7,091
-------- -------- --------
Cash and equivalents -- end of year......................... $ 8,276 $ 8,146 $ 6,497
======== ======== ========
Supplemental cash flow information:
Interest paid............................................. $ 11,189 $ 11,299 $ 6,945
Income taxes paid......................................... 778 569 497
Supplemental non-cash investing and financing activities:
Capital leases............................................ 235
Issuance of common shares to satisfy deferred
compensation........................................... 25
Receivables acquired in the sale of The Bee-Gee Shoe
Corp. ................................................. 3,600
See notes to the consolidated financial statements.
18
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of The Elder-Beerman Stores Corp. and subsidiaries,
including The El-Bee Chargit Corp., a finance subsidiary (collectively the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.
FISCAL YEAR -- The Company's fiscal year ends on the Saturday nearest
January 31. Fiscal years 1999, 1998 and 1997 consist of 52 weeks ended January
29, 2000, January 30, 1999 and January 31, 1998, respectively.
ESTIMATES -- The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RELATED PARTIES -- The Company leased real estate under operating leases
from certain affiliated entities, which were owned by certain directors and
officers, and made payments to these related parties totaling $3.2 million in
fiscal 1997. As a result of the issuance of new common shares of the Company as
of December 30, 1997 (the "Effective Date"), these entities' are no longer
affiliates and their directors and officers are no longer related parties.
CASH AND EQUIVALENTS -- The Company considers all highly liquid investments
with original maturities of three months or less at the date of purchase to be
cash equivalents.
CUSTOMER ACCOUNTS RECEIVABLE -- Customer accounts receivable are classified
as current assets because the average collection period is generally less than
one year.
MERCHANDISE INVENTORIES are valued by the retail method applied on a
last-in, first-out (LIFO) basis and is stated at the lower of cost or market.
Current cost, which approximates replacement cost under the first-in, first-out
(FIFO) method, is equal to the LIFO value of inventories at January 29, 2000 and
January 30, 1999.
PROPERTY is stated at cost less accumulated depreciation determined by the
straight-line method over the expected useful lives of the assets. Assets held
under capital leases and related obligations are recorded initially at the lower
of fair market value or the present value of the minimum lease payments. The
straight-line method is used to amortize such capitalized costs over the lesser
of the expected useful life of the asset or the life of the lease. The estimated
useful lives by class of asset are:
Buildings................................................... 25 to 50 years
Leasehold improvements...................................... 10 to 20 years
Furniture, fixtures and equipment........................... 3 to 10 years
OTHER ASSETS -- Included in other assets is goodwill, which is amortized
using the straight-line method over estimated useful lives of 10-25 years. The
Company periodically evaluates the carrying value of long-lived assets to be
held and used, including goodwill, when events and circumstances warrant such a
review. The carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identified and
is less than its carrying value.
REVENUE RECOGNITION -- Revenues are recognized on merchandise inventory
sold upon receipt by the customer. Finance revenue is generated by outstanding
customer accounts receivable and recognized as interest is accrued on these
outstanding balances. Leased departments revenue is recognized as the Company
earns commission from the sale of merchandise within licensed departments.
Historically, the Company has not recorded sales returns on the accrual
basis of accounting because the difference between the cash and accrual basis of
accounting was not material. In fiscal 1999, the Company is accruing sales
returns in accordance with generally accepted accounting principles.
Accordingly, the Company has recorded the cumulative effect of this adjustment
on prior periods as an increase in current liabilities and a
19
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corresponding decrease in retained earnings of $289,000 as of February 1, 1997.
Because the effects of this change were insignificant to the 1997 and 1998
fiscal years, the Company has recorded such amounts in the current year. The
impact of recording this change in fiscal 1999 is not significant.
PRE-OPENING COSTS associated with opening new stores are expensed as
incurred.
ADVERTISING EXPENSE -- The cost of advertising is expensed as incurred.
STOCK OPTIONS -- The Company measures compensation cost for stock options
issued to employees using the intrinsic value based method of accounting in
accordance with Accounting Principles Board Opinion No. 25.
FINANCIAL INSTRUMENTS -- The Company utilizes interest rate swap agreements
to manage its interest rate risks when receivables are sold under asset
securitization programs or other borrowings. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company does not have
derivative financial instruments that are held or issued and accounted for as
hedges of anticipated transactions. Amounts currently due to or from interest
swap counterparties are recorded in interest expense in the period in which they
accrue. Gains or losses on terminated interest rate swap agreements are included
in long-term liabilities or assets and amortized to interest expense over the
shorter of the original term of the agreements or the life of the financial
instruments to which they are matched. Gains or losses on the mark-to-market for
interest rate swap agreements that do not qualify for hedge accounting are
recorded as income or expense each period.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires an entity to recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Gains or losses resulting from changes in fair
value of the derivatives are recorded depending upon whether the instruments
meet the criteria for hedge accounting. The impact of adopting this standard is
not anticipated to be material to the consolidated financial statements. This
statement is effective for fiscal years beginning after June 15, 2000.
COMPREHENSIVE INCOME is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners.
Comprehensive income equals net income for each of the years reported.
RECLASSIFICATIONS -- Certain amounts in the fiscal 1998 and 1997 financial
statements have been reclassed to conform with the fiscal 1999 presentation.
B. CHAPTER 11 CASE
On the Effective Date, the Company substantially consummated its Third
Amended Joint Plan of Reorganization dated November 17, 1997, as amended, (the
"Joint Plan"), which was confirmed by an order of the Bankruptcy Court entered
on December 16, 1997.
The Joint Plan established a reorganized Company, including a new Board of
Directors, new benefit and compensation programs and agreements, a
reorganization bonus paid to certain executives, authorization and issuance of
shares of new common stock and the issuance of warrants. In addition, the Joint
Plan provided for the settlement of prepetition liabilities subject to
compromise, in the Company's Chapter 11 case in exchange for cash, shares of new
common stock or reinstatement as liabilities of the reorganized Company.
20
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cash disbursements upon the effectiveness of the Joint Plan were as
follows:
Holders of general unsecured claims......................... $ 79,698
Holders of unsecured claims against the Company's
discontinued Margo's operations........................... 2,517
-----------
Total payments made to general unsecured creditors.......... $ 82,215
===========
The new common shares issued upon the effectiveness of the Joint Plan were as
follows:
Holders of general unsecured claims......................... 12,279,611
Holders of old common stock interests....................... 124,036
Reorganization bonus to certain executives.................. 93,349
-----------
12,496,996
===========
In addition to receiving new common shares, the holders of common stock
prior to the Company's emergence from bankruptcy received 249,809 Series A Stock
Warrants and 374,713 Series B Stock Warrants at the Effective Date. The holders
of preferred stock prior to the Company's emergence from bankruptcy were awarded
allowed claims as general unsecured claimants and, accordingly, are included in
the general unsecured distributions described above.
The value of cash and common stock required to be distributed under the
Joint Plan to the Company's general unsecured creditors exceeded the value of
the liabilities settled. Therefore, the Company recorded an extraordinary loss
related to the discharge of these prepetition liabilities. The extraordinary
loss recorded by the Company was determined as follows:
Cash distribution to general unsecured creditors pursuant to
the Joint Plan............................................ $ 79,698
Fair value of new common stock issued to general unsecured
creditors................................................. 178,300
---------
257,998
Less general unsecured claims............................... (229,867)
---------
Extraordinary loss.......................................... $ 28,131
=========
C. ACQUISITION
In 1998, the Company acquired Stone & Thomas for a purchase price of
approximately $20.2 million in cash. Stone & Thomas operated 20 department
stores located in West Virginia, Ohio, Kentucky, and Virginia. This transaction
has been accounted for as a purchase. The excess of acquisition costs over fair
value of the net assets acquired of $16.8 million is recorded as goodwill. As
part of the Company's acquisition of Stone & Thomas, a plan to exit certain
activities resulted in the sale of seven of the store locations, the closing of
two and the recording of related liabilities for store closings, employee
severance, lease buyouts and other expenses. The Company recorded an accrual to
exit certain activities of Stone & Thomas in accordance with this plan in the
amount of $6.8 million, which was paid in fiscal 1999 and 1998.
PRO FORMA SUMMARY OF OPERATIONS DATA (UNAUDITED) - The unaudited pro forma
summary of operation data for each of the 52 week periods ended January 30, 1999
and January 31, 1998 have been prepared by combining the consolidated statement
of operations of The Elder-Beerman Stores Corp. with the consolidated statement
of operations of Stone & Thomas for the same periods. To comply with the
disclosures required by accounting principles generally accepted in the United
States of America related to acquisitions, the following unaudited pro forma
financial information is presented as though the acquisition occurred at the
beginning of fiscal 1997. The expected synergy of this acquisition after
integration with the existing business, including the disposition of stores, is
not permitted to be reflected in the pro forma results. Therefore, the pro forma
results are not indicative of results of operations in the future or in the
periods presented below. Included in the pro forma
21
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results are adjustments to depreciation and amortization based on the purchase
price allocation and the effect of the issuance of additional common shares. The
net proceeds of the additional common shares were used, in part, to purchase
Stone & Thomas. The following pro forma results reflect the operations of all 20
Stone & Thomas stores up to the date of acquisition.
PRO FORMA RESULTS OF OPERATIONS
YEAR ENDED
-----------------------------------
JANUARY 30, 1999 JANUARY 31, 1998
---------------- ----------------
(UNAUDITED)
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Net sales................................................... $625,163 $651,170
Earnings (loss) before extraordinary item................... 17,402 (10,224)
Net earnings (loss)......................................... 17,402 (38,355)
Net earnings (loss) per common share -- basic............... 1.11 (8.59)
Net earnings (loss) per common share -- diluted............. 1.08 (8.59)
Subsequent to the acquisition, the Company closed two stores and sold seven
store locations. Pro forma net sales for the Company, including only the eleven
continuing Stone & Thomas stores are $614.5 million and $623.6 million for the
years ended January 30, 1999 and January 31, 1998, respectively.
D. CUSTOMER ACCOUNTS RECEIVABLE
Customer accounts receivable, which represent finance subsidiary
receivables, are classified as shown in the following table. Interest is charged
at an annual rate of 18% to 21%, depending on state law.
YEAR ENDED
-----------------------------------
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
TYPE OF ACCOUNT
Optional and other.......................................... $134,727 $137,592
Deferred payment............................................ 8,114 8,463
-------- --------
Total............................................. 142,841 146,055
Less:
Allowance for doubtful accounts........................... (2,048) (4,377)
Unearned interest on deferred contracts................... (437) (473)
-------- --------
Customer accounts receivable, net........................... $140,356 $141,205
======== ========
Deferred payment accounts include the remaining unearned interest charge to
be received. Unearned interest is amortized to finance income using the
effective interest method.
YEAR ENDED
--------------------------------------------------------
JANUARY 29, 2000 JANUARY 30, 1999 JANUARY 31, 1998
---------------- ---------------- ----------------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Allowance for doubtful accounts:
Balance, beginning of year.................. $ 4,377 $ 4,177 $ 3,800
Provision................................... 3,906 5,046 8,636
Other....................................... 1,463
Charge offs, net of recoveries.............. (6,235) (6,309) (8,259)
------- ------- -------
Balance, end of year.......................... $ 2,048 $ 4,377 $ 4,177
======= ======= =======
22
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the fourth quarter of fiscal 1998, the Company acquired Stone & Thomas'
customer accounts receivable portfolio, which was previously owned and serviced
by a third-party servicer. The portfolio totaled approximately $11.3 million,
net of an initial allowance for doubtful accounts of approximately $1.5 million
and expenses of approximately $300,000 included in the purchase price
allocation.
Customer accounts receivable result from the Company's proprietary credit
card sales to customers residing principally in the midwestern states. As such,
the Company believes it is not dependent on a given industry or business for its
customer base and therefore has no significant concentration of credit risk.
The El-Bee Chargit Corp. ("Chargit" or financing subsidiary) purchases
substantially all Elder-Beerman and subsidiaries' proprietary credit card
receivables; such receivables are purchased at a 3% discount (prior to January
1998, 2% discount). Customer accounts receivable held by the finance subsidiary
are included above; purchase discounts are eliminated in consolidation.
E. DEBT
The Company, through its financing subsidiary, has a three-year Revolving
Credit Facility ("Credit Facility") and a three-year variable rate
securitization loan agreement ("Securitization Facility") with a commercial bank
that expires December 30, 2000. The Credit Facility provides for borrowings and
letters of credit in an aggregate amount up to $150 million subject to a
borrowing base formula based primarily on merchandise inventories and certain
lower limitations for a defined period of the year. There is a $40 million
sublimit for letters of credit. The Company has the option to finance borrowings
at either Prime, plus 75 basis points or LIBOR, plus 175 basis points. As of
January 29, 2000, the Company has $12.5 million in outstanding letters of credit
and approximately $70 million available for additional borrowings under the
Credit Facility.
As of January 29, 2000, the Securitization Facility is a revolving
arrangement whereby the Company can borrow up to $175 million. The Company's
customer accounts receivable are pledged as collateral under the Securitization
Facility. The borrowings under this facility are subject to a borrowing-based
formula based primarily on outstanding customer accounts receivable. Borrowings
bear interest at approximately one month LIBOR, plus 5 basis points.
Certain financial covenants related to debt, capital expenditures, interest
and fixed charge expenditures are included in the Credit and Securitization
facility agreements. Additionally, there are certain other restrictive covenants
including limitations on the incurrence of additional liens, indebtedness,
payment of dividends, distributions or other payments on and repurchases of
outstanding capital stock, investments, mergers, stock transfers and sales of
assets. Certain ratios related to the performance of the accounts receivable
portfolio are also included.
Outstanding borrowings of $130.1 million on the Credit and Securitization
Facilities due December 2000 are classified as current liabilities. Management
signed commitment letters with Citibank, N.A. to refinance the borrowings on a
long-term basis with agreements similar in scope to the existing Credit and
Securitization Facilities, except for the maximum borrowings under the new
securitization facility, which will be reduced to $150 million. The closing on
the new securitization and credit agreements is scheduled for May 2000.
23
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt consists of the following:
JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Mortgage note payable (9.75%)............................... $ 2,536 $ 2,606
Industrial development revenue bonds, variable rates based
on published index of tax-exempt bonds (4.81%)............ 3,480 3,880
Capital lease obligations................................... 1,081 1,562
Credit facility (9.25%)..................................... 3,279
Securitization facility (5.98%)............................. 126,840 114,410
--------- --------
Total............................................. 137,216 122,458
Current portion of long-term obligations.................... (131,086) (951)
--------- --------
Long-term obligations....................................... $ 6,130 $121,507
========= ========
Maturities of borrowings are $131,086,000 in 2000, $870,000 in 2001,
$362,000 in 2002, $281,000 in 2003, $253,000 in 2004, and $4,364,000 thereafter.
Collateral for the industrial development revenue bonds and the mortgage
note payable is land, buildings, furniture, fixtures and equipment with a net
book value of $4.1 million at January 29, 2000.
The Company utilizes interest rate swap agreements to effectively establish
long-term fixed rates on borrowings under the Securitization Facility, thus
reducing the impact of interest rate changes on future income. These swap
agreements involve the receipt of variable rate amounts in exchange for fixed
rate interest payments over the life of the agreement. The differential between
the fixed and variable rates to be paid or received is accrued as interest rates
change and is recognized as an adjustment to interest expense. The Company had
outstanding swap agreements with notional amounts totaling $115 million for the
fiscal years ended 1999 and 1998, expiring September 28, 2001. This agreement
has been matched to the Securitization Facility to reduce the impact of interest
rate changes on cash flows.
The Company is exposed to credit related losses in the event of
non-performance by the counterparties to the swap agreements. All counterparties
are rated A or higher by Moody's and Standard and Poor's and the Company does
not anticipate non-performance by any of its counterparties.
F. LEASES
The Company leases retail store properties and certain equipment.
Generally, leases are net leases that require the payment of executory expenses
such as real estate taxes, insurance, maintenance and other operating costs, in
addition to minimum rentals. Leases for retail stores generally contain renewal
or purchase options, or both, and generally provide for contingent rentals based
on a percentage of sales.
24
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum annual rentals, for leases having initial or remaining
noncancellable lease terms in excess of one year at January 29, 2000, are as
follows:
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
- ----------- --------- --------------
(ALL DOLLAR AMOUNTS IN
THOUSANDS)
2000...................................................... $ 24,778 $ 525
2001...................................................... 22,915 347
2002...................................................... 20,871 174
2003...................................................... 20,051 81
2004...................................................... 19,605 40
Thereafter................................................ 169,837
-------- ------
Minimum lease payments...................................... $278,057 1,167
========
Less imputed interest....................................... (86)
------
Present value of net minimum lease payments................. $1,081
======
YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
RENT EXPENSE
Operating Leases:
Minimum................................................ $24,895 $19,848 $15,152
Contingent............................................. 1,907 1,818 1,943
------- ------- -------
Total rent expense....................................... $26,802 $21,666 $17,095
======= ======= =======
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
ASSETS HELD UNDER CAPITAL LEASES
Buildings................................................. $ 5,538 $ 7,338
Equipment................................................. 235 235
Accumulated depreciation and amortization................. (5,130) (6,646)
------- -------
$ 643 $ 927
======= =======
Assets acquired under capital leases are included in the consolidated
balance sheets as property, while the related obligations are included in
long-term obligations.
25
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. INCOME TAXES
Income tax expense (benefit) consists of the following:
YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
(ALL DOLLAR AMOUNTS IN THOUSANDS)
Current:
Federal.............................................. $ 272 $ 813 $
State and local...................................... 471 503 465
-------- -------- -------
743 1,316 465
-------- -------- -------
Deferred:
Net operating losses and tax credit carryforwards.... (1,178) 8,955 (5,529)
Interest............................................. (266) (6,119)
Deferred income...................................... (268) 1,804
Discontinued operations.............................. 2,362
Valuation allowance.................................. (10,635) (12,337) (3,759)
Other................................................ 4,333 (1,024) 3,364
-------- -------- -------
(7,748) (4,672) (7,877)
-------- -------- -------
Income tax expense (benefit)......................... $ (7,005) $ (3,356) $(7.412)
======== ======== =======
Income statement classification:
Continuing operations................................ $ (5,399) $ (3,124) $(7,027)
Discontinued operations.............................. (1,606) (232) (385)
-------- -------- -------
Total........................................ $ (7,005) $ (3,356) $(7,412)
======== ======== =======
The following table summarizes the major differences between the actual
income tax provision attributable to continuing operations and taxes computed at
the federal statutory rates:
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
Federal taxes computed at the statutory rate............. $ 4,416 $ 7,959 $(5,095)
State and local taxes.................................... 539 523 495
Valuation allowance...................................... (10,635) (12,337)