<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 0-19149
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Filene's Basement Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3016733
------------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
40 Walnut Street, Wellesley, MA 02181
-------------------------------------
(Address of principal executive offices)
(Zip Code)
(617) 348-7000
--------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicated by check mark whether the registrant has filed all documents and
reports required to be filed by Section 2, 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 No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date: 20,722,089 shares of Common
Stock as of June 11, 1997.
<PAGE> 2
FILENE'S BASEMENT CORP.
INDEX
PART I. FINANCIAL INFORMATION Page No.
-------
Item 1 - Financial Statements
Consolidated Balance Sheets 3
May 3, 1997, February 1, 1997
and May 4, 1996
Consolidated Statements of Operations 4
Thirteen weeks ended
May 3, 1997 and May 4, 1996
Consolidated Statements of Cash Flows 5
Thirteen weeks ended
May 3, 1997 and May 4, 1996
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of 7 - 10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
Page 2
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FILENE'S BASEMENT CORP.
(and its Wholly-Owned Subsidiaries)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
May 3, February 1, May 4,
1997 1997 1996
-------- -------- --------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $528 $462 $365
Inventories 99,657 88,763 91,109
Other current assets 12,395 9,363 19,323
-------- -------- --------
Total current assets 112,580 98,588 110,797
Property, plant and equipment, net 53,742 53,305 62,535
Beneficial operating lease rights, net 14,483 14,811 15,796
Assets held for sale 7,962 7,962 -
Intangible assets, net & other 8,079 8,247 13,721
-------- -------- --------
Total assets $196,846 $182,913 $202,849
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current liabilities:
Accounts payable 45,948 46,934 39,156
Accrued expenses 27,328 29,375 29,178
Short-term debt 17,400 1,000 7,300
Current portion of long-term debt 5,313 2,500 -
Obligations under capital leases, due
within one year 407 437 501
-------- -------- --------
Total current liabilities 96,396 80,246 76,135
Reserve for store closings 2,492 2,492 4,663
Deferred revenue 1,957 1,999 2,124
Long-term debt 4,688 7,500 35,000
Obligations under capital leases, less
portion due within one year 3,091 3,191 3,498
-------- -------- --------
Total liabilities 108,624 95,428 121,420
Stockholders' equity
Common stock, $.01 par value; authorized
70,000,000 shares; 20,762,834, 20,658,533
and 20,577,715 shares issued 208 207 206
Cost of 75,000 common shares in treasury (16) (16) (16)
Additional paid-in capital 86,373 86,195 86,043
Retained earnings 1,657 1,099 (4,804)
-------- -------- --------
Total stockholders' equity 88,222 87,485 81,429
-------- -------- --------
Total liabilities and stockholders' equity $196,846 $182,913 $202,849
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
PAGE 3
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FILENE'S BASEMENT CORP.
(and its Wholly-Owned Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
13 Weeks Ended - 13 Weeks Ended -
May 3, 1997 May 4, 1996
------------------ ----------------
$ % $ %
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Net Sales $120,451 100.0% $124,032 100.0%
-------- ------ -------- ------
Cost of Sales, including buying, receiving and
occupancy costs: 91,209 75.7% 93,210 75.1%
-------- ------ ------- ------
Gross profit 29,242 24.3% 30,822 24.9%
Selling, general and administrative expenses 27,598 22.9% 28,248 22.8%
Amortization of intangible assets and
beneficial operating lease rights 367 0.3% 367 0.3%
-------- ------ ------- ------
Operating income 1,277 1.1% 2,207 1.8%
Interest expense, net 544 0.5% 1,267 1.0%
-------- ------ ------- ------
Income before income taxes 733 0.6% 940 0.8%
Income tax provision 176 0.1% 376 0.3%
-------- ------ ------- ------
Net income 557 0.5% 564 0.5%
======== ====== ======= ======
Primary and fully diluted earnings per share
Net income $ 0.03 $ 0.03
======== ========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
PAGE 4
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FILENE'S BASEMENT CORP.
(and its Wholly-Owned Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
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<TABLE>
<CAPTION>
13 Weeks Ended - 13 Weeks Ended -
May 3, 1997 May 4, 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 557 $ 564
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization 2,888 3,057
Amortization related to restricted stock compensation - 6
Deferred income taxes (123) 0
Changes in operating assets and liabilities:
Inventory (10,894) (5,332)
Other current assets (5,138) 7,211
Accounts payable (986) 2,511
Accrued expenses (2,047) (1,460)
-------- --------
(16,300) 5,993
Net cash provided by (used in) operating activities (15,743) 6,557
Cash flows from investing activities:
Purchase of property, plant and equipment & other (2,746) (639)
Proceeds from sale of leasehold interest 2,106 0
-------- --------
Net cash used in investing activities (640) (639)
Cash flows from financing activities:
Proceeds from short-term borrowings 32,300 26,585
Payments on short term borrowings (15,900) (32,485)
Principal payments of capital lease obligations (130) (118)
Proceeds from sale of common stock to employees 179 1
-------- --------
Net cash provided by (used in) financing activities 16,449 (6,017)
Net increase (decrease) in cash and cash equivalents 66 (99)
Cash and cash equivalents at beginning of period 462 464
-------- --------
Cash and cash equivalents at end of period $ 528 $ 365
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 306 $ 1,215
Income taxes paid 400 199
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
PAGE 5
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FILENE'S BASEMENT CORP.
(and its Wholly-Owned Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The results of the periods ended May 3, 1997 and May 4, 1996 are not
necessarily indicative of the results for a full fiscal year because the
Company's business, in common with the businesses of retailers generally,
is subject to seasonal influences, with higher levels of sales and income
generally realized in the fall season.
2. The preceding data is unaudited but, in the opinion of management, includes
all adjustments (consisting of normally occurring accruals and deferrals)
necessary for a fair presentation of the results of operations for the
periods reported, in accordance with generally accepted accounting
principles and practices consistently applied.
3. In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share" and SFAS No. 129, "Disclosure Information about Capital Structure"
effective for fiscal years ending after December 15, 1997. Earlier adoption
was not permitted. The Company's adoption of SFAS No. 128 for fiscal 1997
will not materially impact its earnings per share calculation and the
adoption of SFAS No. 129 will have no impact on the Company's current
disclosures.
4. The Company is using an effective tax rate of 24% to compute taxes for the
current fiscal year, reflecting the realization of certain deferred tax
assets which were not realized in prior years.
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MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997
RESULTS OF OPERATIONS
- ---------------------
For the quarter ended May 3, 1997, net sales were $120.5 million, down 3% from
last year's first quarter sales of $124.0 million. Comparable store sales for
the thirteen week first quarter were down 4% versus the comparable thirteen week
period last year. During the first quarter, two new stores were opened and no
stores were closed. The total number of stores in operation on May 3, 1997 and
May 4, 1996 were 45 and 43, respectively.
Cost of goods sold as a percentage of sales was 75.7% for the thirteen week
period ended May 3, 1997 compared to 75.1% for the same period in the prior
year. The increase in cost of goods sold as a percentage of sales was
attributable to an increase in the markdown rate as a result of the decline in
sales and other retail reductions, partially offset by an increase in markup on
cost of sales.
Selling, general and administrative expenses for the first quarter of Fiscal
1997 were $27.6 million, or 22.9% of sales, compared to $28.2 million, or 22.8%
of sales, for the same period last year. The decrease in selling, general and
administrative expenses for the thirteen week period was primarily related to
reductions in payroll and payroll related expenses and the receipt during the
thirteen week period ended May 3, 1997 of proceeds from the Company's note
receivable in excess of its estimated fair value.
Interest expense for the thirteen week period ended May 3, 1997 was $0.5
million, or 0.5% of sales, compared to $1.3 million, or 1.0% of sales last year.
The decrease in interest expense is related to the Revolving Credit and Term
Loan Agreement entered into in May, 1996, which replaced the Amended and
Restated Credit and Override Agreement in existence during the first quarter of
Fiscal 1996. Lower effective interest rates under the new agreement, combined
with lower average outstanding borrowings, resulted in the decline in interest
expense (see Liquidity and Capital Resources).
The provision for income taxes for the first quarter ended May 3, 1997 was $0.2
million, or 0.1% of sales, as compared to $0.4 million, or 0.3% of sales, for
the same period last year. The Company's effective tax rate for the first
quarter was 24%, as compared to 40% for the same period last year. The decline
in the effective tax rate reflects the realization of certain tax assets which
were not previously expected to be realized.
Net income for the thirteen week period ended May 3, 1997 was $0.6 million, or
$.03 per share on 21.4 million shares outstanding, compared to net income of
$0.6 million, or $.03 per share on 20.9
Page 7
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MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997
million shares outstanding for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On May 23, 1996, the Company entered into a Revolving Credit and Term Loan
Agreement (the "Agreement") as amended June 28, 1996, which replaced the Amended
and Restated Credit and Override Agreement dated October 13, 1995 and as amended
on October 31, 1995, December 8, 1995 and February 3, 1996. The Agreement
expires, and all loans outstanding thereunder mature, on June 30, 1999 and
includes a $65.0 million revolving credit facility and a $10.0 million term
loan, which replaced a $50.0 million revolving credit facility and $35.0 million
of fixed rate debt.
Although the aggregate facility under the Agreement is $10.0 million less than
the previous arrangement, the Company's borrowing capacity under the Agreement
has actually been enhanced as a result of a broader borrowing base formula and
lower overall debt levels. In May, 1996, the Company received federal tax
refunds totalling $9.6 million related to net operating losses carried back to
offset prior years' taxable income, which was applied to reduce outstanding
debt. Availability under the Agreement is determined based on a higher advance
rate against eligible inventory than under the previous arrangement and also
provides for advances against eligible receivables and domestic letters of
credit, which previously were not included in the borrowing base. Further, under
the previous arrangement, the $35.0 million of fixed rate debt was a standing
use of availability, while under the Agreement, the $10.0 million term loan is
not considered in the determination of availability.
The terms of the Agreement provided that initially advances against eligible
inventory and receivables were to bear interest at either prime plus 0.50% or
LIBOR plus 2.50% and the term loan was to bear interest at either prime plus
0.75% or LIBOR plus 2.75%. The Agreement also provided, however, that in the
event the Company achieved pre-determined financial targets for Fiscal 1996, the
interest rate on all loans would be decreased by 0.50%. Since the Company
achieved the targets, effective February 4, 1997, interest rates on the revolver
and term loans were reduced one-half of one percent to prime or LIBOR plus 2.0%
and prime plus 0.50% or LIBOR plus 2.25%, respectively.
Mandatory payments of the term loan principal are required upon the occurrence
of certain events preceding the first anniversary of the loan and, thereafter,
based on the outstanding principal balance at that date, in eight equal
quarterly installments commencing
Page 8
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MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997
September 30, 1997. In the event the outstanding principal of the term loan on
the first anniversary is greater than $4.0 million, the interest rate, on the
term loan only, would be permanently increased by 1.0%. On May 23, 1997, the
Company made a $6.0 million voluntary principal payment on the term loan,
partially from the receipt of $2.5 million in proceeds from the Company's note
receivable, which reduced the balance of the Term loan to $4.0 million.
The Agreement contains new financial covenants which are less restrictive than
the previous requirements, thereby providing the Company with greater operating
flexibility. During the thirteen week period ended May 3, 1997, and as of May 3,
1997, the Company was in compliance with all covenants of the Agreement.
As of May 3, 1997, the Company had $16.2 million of working capital and $32.3
million of remaining credit availability. As of that date, outstanding
obligations under the Agreement were $27.4 million, including the $10.0 million
term loan, and the Company had $15.3 million in letter of credit commitments.
Short term trade credit represents a significant source of financing for
inventory purchases and arises from the willingness of vendors to grant extended
payment terms. Merchandise inventories are financed either by the vendors or
third party factors.
The Company believes that internally generated working capital, existing vendor
and third party factor arrangements and funds available under the Agreement will
be adequate to meet its merchandise inventory and normal operating expense
needs, as well as presently anticipated capital expenditure requirements for the
remainder of the fiscal year. However, the Company's operating results and the
adequacy of its working capital could be adversely affected if, for any reason,
the Company's borrowing base was to become impaired, or otherwise be deemed
ineligible, thereby diminishing the level of available funds.
The Company has never paid a cash dividend and has no plans to pay dividends on
its common stock.
The Company's business is seasonal, reflecting increased consumer demand in the
fall season. The second half of each fiscal year provides a greater portion of
the Company's annual sales and operating profit.
Page 9
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MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
- ----------------------------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward- looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements. Factors which
may cause actual results to differ materially from those indicated by such
forward-looking statements include: (i) economic and weather conditions which
affect the buying patterns of the Company's customers, (ii) actions of the
Company's competitors and the Company's ability to respond to such actions (iii)
the continued support of the Company's numerous vendors and third party factors
in the form of short-term trade credit through extended payment terms and
letters of credit (iv) a decrease in the Company's available funds under its
existing credit facility due to the impairment or ineligibility of a significant
portion of its borrowing base (v) the continued success of the Company's efforts
to implement planned strategic initiatives and (vi) unexpected store closings
and the related higher markdowns associated with inventory liquidations.
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.............. Computation of Net Income per Common Share.
27.............. Financial Data Schedule
- --------------------------------------------------------------------------------
(b) No reports on Form 8-K were filed during the quarter ended May 3, 1997 for
which this report is filed.
Page 11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FILENE'S BASEMENT CORP.
/s/ Steven Siegel
--------------------------------
Steven Siegel
Executive Vice President
and Chief Financial Officer
DATE: June 16, 1997
Page 12
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FILENE'S BASEMENT CORP. EXHIBIT 11
Computation of Net Income per Common Share
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
May 3, 1997 May 4, 1996
-------------- --------------
<S> <C> <C>
The computation of net in-
come available and adjusted
shares outstanding follows:
Net income as
reported ........................... $ 557 $ 564
========== ==========
Net income used for
primary and fully diluted
computations ............................ $ 557 $ 564
========== ==========
Weighted average number
of common shares
outstanding ............................. 20,622,580 20,500,589
Add (where dilutive):
Assumed exercise of those
options that are common
stock equivalents net of
treasury shares deemed to
have been repurchased at
average market price for
the period ......................... 773,476 412,742
---------- ----------
Weighted average number of
common and common equivalent
shares outstanding used for
primary computations .................... 21,396,056 20,913,331
========== ==========
Add: Additional dilution assuming
exercise of options net of
treasury shares deemed to have
been repurchased at the end of
the period market price ................ - -
Weighted average number of
common and common equivalent
shares outstanding used for fully
diluted computations .................... 21,396,056 20,913,331
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> MAY-03-1997
<EXCHANGE-RATE> 1
<CASH> 528
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 99,657
<CURRENT-ASSETS> 112,580
<PP&E> 132,106
<DEPRECIATION> 70,402
<TOTAL-ASSETS> 196,846
<CURRENT-LIABILITIES> 96,396
<BONDS> 4,688
0
0
<COMMON> 208
<OTHER-SE> 88,014
<TOTAL-LIABILITY-AND-EQUITY> 196,846
<SALES> 120,451
<TOTAL-REVENUES> 120,451
<CGS> 91,209
<TOTAL-COSTS> 91,209
<OTHER-EXPENSES> 27,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 544
<INCOME-PRETAX> 733
<INCOME-TAX> 176
<INCOME-CONTINUING> 557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 557
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
