<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
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
FILENE'S BASEMENT CORP.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3016733
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
40 WALNUT ST, WELLESLEY, MA 02181
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 617-348-7000
Section registered pursuant to Section 12(b) of the Act:
Title of each class
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
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. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 15, 1997 was $154,222,109.
The number of shares outstanding of the registrant's Common Stock, $.01 par
value as of March 15, 1997 was 20,583,809 shares.
Documents Incorporated By Reference
Portions of the Annual Report to Stockholders for the year ended February
1, 1997, to be furnished to the Securities and Exchange Commission are
incorporated by reference in Part II hereof. Portions of the registrant's Proxy
Statement to be filed with the Securities and Exchange Commission relating to
the Company's 1997 Annual Meeting of Stockholders are incorporated by reference
in Part III hereof.
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FILENE'S BASEMENT CORP.
1996 FORM 10-K ANNUAL REPORT
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1...................Business 3
Item 2...................Properties 6
Item 3...................Legal Proceedings 7
Item 4...................Submission of Matters to a Vote of Security Holders 8
Item 5...................Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6...................Selected Financial Data 9
Item 7...................Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 8...................Financial Statements and Supplementary Data 9
Item 9...................Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 9
Item 10..................Directors and Executive Officers of the Registrant 9
Item 11..................Executive Compensation 9
Item 12..................Security Ownership of Certain Beneficial Owners and Management 9
Item 13..................Certain Relationships and Related Transactions 9
Item 14..................Exhibits, Financial Statement Schedules, and Reports on Form 8-K 10
</TABLE>
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PART I
ITEM 1. BUSINESS
Filene's Basement Corp. ("Filene's Basement" or the "Company") is a
leading off-price specialty store chain offering focused assortments of timely,
fashionable, branded and private label merchandise at prices typically 20% to
60% below traditional department store prices. Today, the Company operates 45
stores, primarily in the Northeast. Established in 1908 as part of Filene's
Department Store in downtown Boston, the original "Basement" generated over
$1,482 in sales per square foot of selling space in Fiscal 1996. The Company's
branch stores open the full year of Fiscal 1996 generated $462 in sales per
square foot of selling space, a figure which management believes is
significantly higher than the average of the off-price industry. The Company's
branch stores accounted for approximately 82% of net sales in Fiscal 1996.
The Company's business is seasonal, reflecting increased consumer buying
in the fall season. The second half of each Fiscal year provides a greater
portion of the Company's annual sales and operating profit.
The Filene's Basement store chain, which had since 1984 operated as a
division of Federated Department Stores, Inc. ("Federated"), was acquired by the
Company (the "Acquisition") in July 1988. The Company, a Massachusetts
corporation, was organized by the management of the Filene's Basement division
of Federated. The Company is a holding company, the sole asset of which is the
capital stock of Filene's Basement, Inc., a Massachusetts corporation that
operates the Filene's Basement chain of stores. In April, 1991, the Company
changed its name from FBA Corp.
FILENE'S BASEMENT STORES
The Boston store is a landmark institution recognized by generations of
New England families and visitors as a source of quality off-price family
apparel. The downtown location is famous for a unique marketing concept, the
Automatic Markdown Plan. The Company believes that the Automatic Markdown Plan
generates a sense of shopping urgency and creates customer excitement and
loyalty.
In addition to its downtown Boston store, Filene's Basement operates 44
branch stores with an average of approximately 22,800 square feet of selling
space. Generally, the branch store's selling space is on a single level and uses
a prototypical "racetrack" aisle layout for merchandise. The branch stores are
designed to be convenient and attractive in their merchandise presentation,
dressing rooms, checkouts and customer service areas.
The branch stores averaged $10.6 million in sales volume in Fiscal 1996.
Their merchandise mix is similar to the Boston flagship store. Because of the
operational complexities associated with transferring the Automatic Markdown
Plan to the branch stores, the branch stores do not operate under the Automatic
Markdown Plan, although markdowns are taken as required.
EXPANSION STRATEGY
A significant portion of the Company's growth since the Acquisition and
the major component of the Company's future growth is expected to result from
the addition of new stores. The Company's expansion strategy has historically
targeted three demographic areas: existing markets, where it can leverage
advertising, purchasing, transportation, and other regional expenses; new
multi-store metropolitan markets, where Filene's Basement believes it can
successfully transport its unique positioning and strategy; and contiguous
markets, to take advantage of regional management and real estate
opportunities.
The Company opened no new stores in Fiscal 1996. In the current fiscal
year ("Fiscal 1997") two new stores were opened in the suburban Chicago area.
The Company currently is in the process of developing an expansion strategy for
the three year period Fiscal 1998 through Fiscal 2000. Historically, the
expansion program has ranged from 0-13 stores per year. Since January 1994, the
Company has opened 7 stores while closing 16 stores. In summary by year: Fiscal
1994: opened 3 and closed 2; Fiscal 1995: opened 2 and closed 10; Fiscal 1996:
closed 4; and so far in Fiscal 1997, 2 stores have been opened. During Fiscal
1996, after an assessment of its current needs, the Company announced the
closing
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of its Somerville, Massachusetts distribution center.
The Company has entered two major metropolitan markets outside of the
Northeast, Chicago in Fiscal 1991 and Minneapolis/St. Paul in Fiscal 1992. The
Company originally opened seven stores in the Chicago area, five of which have
since been closed, two in Fiscal 1994 and three in Fiscal 1995. In the first
quarter of Fiscal 1997, the Company opened two new stores in the suburban
Chicago area. The Company believes that the two new suburban stores and the
remaining two stores in the downtown area will continue to meet profitability
objectives. In Minneapolis, the Company originally opened 5 locations, four of
which were closed in February of 1995. Except for the one remaining profitable
store located in the Mall of America, these Minnesota store closures represent a
retrenchment from this market. The action to close the locations previously
mentioned along with other recently closed locations was a result of
management's assessments of the potential for these locations to meet the
Company's long term operating objectives. Thus, closing these stores was
determined to be in the best strategic interest of the Company.
MERCHANDISING
Filene's Basement offers branded apparel and accessories, retail stocks
purchased directly from major upscale retailers and high quality private label
merchandise. The branded merchandise represents a focused assortment of
fashionable, nationally recognized family apparel and accessories bearing
prominent designers' and manufacturers' names. Branded merchandise constitutes
a majority of the product line and is obtained through opportunistic purchases
from a diverse group of quality manufacturers as well as through traditional
up- front buying programs like those employed by department stores and
specialty store chains.
The branded offerings are complemented by "retail stocks" - family apparel
and accessories purchased directly from major upscale retailers such as
Bloomingdale's, Bendel's, and Neiman Marcus. Retail stocks are priced at
significant discounts to the original prices and allow Filene's Basement to
share in the reputation and image of these upscale department and specialty
stores. The Company has, for the past several years, reduced the percentage of
its sales represented by retail stocks, primarily because retail stocks are
unpredictable in supply and the least profitable category of merchandise sold
in Filene's Basement stores.
The total merchandise assortment is typically priced at levels 20% to 60%
below regular prices at traditional department and specialty stores. These
discounts are achieved by buying pre-season programmed merchandise, in-season
overruns and end-of-season surpluses at advantageous prices and offering them
for sale at lower markups than those at traditional department stores. The
Company also keeps its cost of merchandise low because it does not require
markdown or advertising allowances, nor anticipation of returns from its
vendors, all of which are typical in the department store industry.
BUYING
Because of the longstanding relationships it enjoys with its vendors, the
Company receives quality buying opportunities at competitive prices. These
longstanding relationships make Filene's Basement a prime choice for vendors
with overruns, department store cancellations and unmet volume objectives. From
time to time, the Company commits to the future purchase of branded merchandise
from vendors at advantageous prices. These forward purchases allow for timely,
fashionable assortments. Based on its past experience, the Company believes that
the supply of branded merchandise is adequate for the Company's needs. Although
certain vendors are highly significant to the Company's business because of the
prestige of their names, the portfolio of vendors is broad, and new vendors
continue to be added. No branded merchandise vendor accounts for more than 3.0%
of the Company's total net sales, and the Company believes that its
relationships with its vendors are satisfactory.
ADVERTISING
The Company's primary advertising strategy stresses the offering of
nationally recognized branded merchandise at significant savings. The Company
employs a multi-media approach (print, broadcast and direct mail) in all
markets, but, unlike most of its off-price competitors, relies primarily on
newspaper advertising. The Company promotes a series of special events
throughout the year to generate traffic and to maintain a sense of shopping
excitement. The Company substantially reduced the number of promotional
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events in Fiscal 1996 versus Fiscal 1995.
COMPETITION
Management believes that the Company occupies a market segment between
traditional department stores and typical off-price apparel chains. In this
segment, the merchandise mix consists of quality products typical of those found
in department stores and manufacturer-owned outlet stores, but at prices
competitive with those of other off-price chains.
The Company faces intense competition for customers and for access to
quality merchandise from other off-price apparel chains, manufacturer-owned
outlet stores and from traditional department stores. Many of these competitors
are units of large national or regional chains that have substantially greater
resources than the Company. The national apparel market is highly fragmented
and competitive and the off-price business may become even more competitive in
the future. The Company also faces intense competition from major retailers
for employees and for suitable store locations.
The Company believes that the principal competitive factors in the retail
apparel industry are merchandise assortment, effective merchandise presentation,
quality of merchandise, store location, relationships with vendors, price, costs
of operations and customer service. Management believes that Filene's Basement
is well-positioned to compete on the basis of each of these factors.
EMPLOYEES
During Fiscal 1996, an average of approximately 2,700 40-hour-equivalent
employees were part of Filene's Basement's work force including approximately
1,700 full-time employees and an additional 1,400 part-time employees.
Considerable seasonality is associated with employment levels.
A collective bargaining agreement between the Company and the United Food
and Commercial Workers Union (Local 1445) covers employees at the downtown
Boston Filene's Basement store and covered, until its closing, employees at the
Company's Somerville, Massachusetts distribution center. The agreement, which
was ratified in February, 1995, extends through February 1, 1998. Employees at
the Company's Auburn, Massachusetts distribution center and the branch stores
are not represented by a union or other collective bargaining agent.
TRADEMARKS
As a result of its acquisition of the Filene's department store chain from
Federated in April 1988, May Department Stores Company ("May") became the owner
of certain Filene's Basement(TM) and Filene's Basement of Boston(R) trademark
and service mark registrations and certain trade names previously owned by
Federated and used by its Filene's Basement division. May granted Federated an
exclusive, perpetual, world-wide, royalty-free license to use the trade names
and registered marks, including the right to file registrations in additional
jurisdictions in May's name. In connection with the Acquisition, Federated
assigned the rights under this license to the Company. The Company's exclusive
licensee status with respect to these registered marks has been recorded with
the United States Patent and Trademark Office and relevant state officials. In
addition, the Company owns certain other federally registered trademarks that
the Company believes are not a critical element of its merchandising strategy.
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ITEM 2. PROPERTIES
DOWNTOWN BOSTON STORE
The downtown Boston Filene's Basement store is located in the basement of
the flagship store of the Filene's department store chain on Washington Street
in the "Downtown Crossing" shopping district. The building is occupied by
Filene's pursuant to a lease (the "Lease") which has been extended through 2009
(with extension rights until 2024). As of April 1988, when Filene's was sold by
Federated to May, the Lease was assigned by Federated to May and the space
occupied by the Company's downtown Boston store was subleased (the "Sublease")
from May. The Company subleases 178,000 square feet (approximately 68,000 square
feet of selling space) on four floors from May, the owner of Filene's. The
Sublease terminates in 2009 with rights on behalf of the Company to extend until
2024. Extension of the Sublease in 2009 was subject to the extension of the
Lease in 1994 and is subject to the extension of the Lease in 2009. Pursuant to
the Sublease, the Company has been delegated authority by May to extend the
Lease on May's behalf without further action by May. Any development with
respect to the Company's downtown Boston store that had the effect of
interfering with the Company's right to occupy those premises would have a
material adverse effect on the Company's business. In Fiscal 1996, the downtown
Boston store represented approximately 18% of the Company's net sales.
BRANCH STORES
The table below shows the location and opening dates of each of the
Company's 44 branch stores existing as of April 19, 1997.
Store Location Opening Date
Saugus, MA May 1978
Framingham, MA October 1978
Burlington, MA October 1981
Manchester, NH October 1981
Manhasset, NY August 1982
Huntington, NY August 1982
Fresh Meadows, NY May 1983
Corbin's Corner, CT October 1983
Dedham, MA October 1983
Braintree, MA November 1984
Warwick, RI November 1985
Scarsdale, NY November 1985
Willow Grove, PA August 1986
Holyoke, MA November 1986
Paramus, NJ (RT. 17) November 1986
Franklin Mills, PA August 1989
Portland, ME August 1989
Plymouth, MA November 1989
Carle Place, NY April 1990
Orange, CT April 1990
Attleboro, MA October 1990
Hyannis, MA October 1990
Newton, MA October 1990
Nashua NH March 1991
Salem, NH August 1991
Chicago, IL October 1991
Taunton, MA March 1992
Mall of America, MN August 1992
St. Davids, PA September 1992
North Shore, MA November 1992
Watertown, MA March 1993
Jersey City, NJ April 1993
Washington, DC October 1993
Washington, DC October 1993
Philadelphia, PA November 1993
New York, NY November 1993
Manchester, CT March 1994
Moorestown, NJ September 1994
Falls Church, VA October 1994
Worcester, MA October 1994
Chicago, IL March 1995
New York, NY April 1995
Oak Brook, IL March 1997
Skokie, IL April 1997
All of the branch stores have remaining lease terms ranging from two to
twenty-five years with renewal options at higher fixed rates in most cases. Most
of the leases provide for percentage rent over certain sales levels.
DISTRIBUTION FACILITIES
During Fiscal 1996, after an assessment of its current needs, the Company
announced the closing of its
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Company-owned Somerville, Massachusetts distribution center. This facility is
located in a two-story building on a 6.2-acre lot. The building is approximately
320,000 square feet, comprised of two floors of approximately 135,000 square
feet each and a mezzanine of approximately 50,000 square feet. The building is
designed to permit the addition of another floor (135,000 square feet).
The Company also leases a 457,000-square-foot distribution center facility
situated on 32.8 acres with adjacent rail service in Auburn, Massachusetts. The
two-story building also contains the Company's data center and sales audit
functions. The lease term runs until 2002, with three five-year options to
renew.
HEADQUARTERS BUILDING
Filene's Basement leases its corporate offices in Wellesley, Massachusetts,
where it occupies space in two office buildings (approximately 32,000 square
feet). Management has extended the lease through 2001.
CAPITAL EXPENDITURES
The following table summarizes the Company's capital expenditures for the
last five fiscal years:
<TABLE>
<CAPTION>
The Company
--------------------------------------------------------------
Fiscal Year Ended
(in thousands)
--------------------------------------------------------------
Feb 1, Feb 3, Jan 28, Jan 29, Jan 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
New Stores ........................... $ 0 $ 2,426 $ 4,204 $14,107 $11,314
Existing Stores ...................... 2,416 2,230 2,259 1,243 1,989
Distribution, data processing, central
office and other ................... 5,825 9,779 9,664 8,946 12,614
------ ------- ------- ------- -------
Total ................................ $8,241 $14,435 $16,127 $24,296 $25,917
====== ======= ======= ======= =======
</TABLE>
Filene's Basement has consistently committed capital to maintain its
facilities and equipment. During Fiscal 1996 the Company continued to upgrade
its merchandising and allocation operating systems. Additionally, several stores
were remodeled or expanded. Management believes that existing capital sources
are adequate to meet the existing needs for store expansion, distribution
center, store maintenance and our continued development of operating systems.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings incidental to
the conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of Fiscal 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Present Position
- --------------------------------------------------------------------------------
<S> <C> <C>
Samuel J. Gerson......... 55 Chairman, Chief Executive Officer and
Director
Mone Anathan, III........ 58 President, Chief Operating Officer and
Director
Steven Siegel............ 52 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
</TABLE>
Samuel J. Gerson became Chairman, Chief Executive Officer and a director
in 1988, having served as Chairman and Chief Executive Officer of the Filene's
Basement division of Federated Stores, Inc., from January 1984 until the
acquisition of that division by the Company in 1988. Mr. Gerson is a director of
Bon Ton Stores, Inc., and ASAHI America, Inc., as well as a trustee associate of
Boston College.
Mone Anathan, III became President, Treasurer and a director in 1988, and
Chief Operating Officer in 1992, having served as President of the Filene's
Basement division of Federated Department Stores, Inc. from February 1984 until
the acquisition of that division by the Company in 1988. Mr. Anathan is a
director of Crane Company, Medusa Corp., Brookstone Company, Inc., and Harvard
Pilgrim Health Care.
Steven Siegel became Executive Vice President, Chief Financial Officer in
December 1994, Secretary in July 1994 and Treasurer in 1995. He joined the
Company in July 1994 as Executive Vice President Administration and General
Counsel. From 1989 to 1994, he was a partner with the law firm of Wayne, Lazares
& Chappell and from 1990 to 1994, president of Watermark Donut Company.
Officers serve until their successors are chosen and qualified.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the
Company's 1996 Annual Report to Stockholders. See the section entitled "Price
Range of Common Stock."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
Company's 1996 Annual Report to Stockholders. See the section entitled
"Financial Highlights."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
Company's 1996 Annual Report to Stockholders. See the section of the same name.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements filed as a part of this Annual
Report on Form 10-K are indexed herein under Item 14 (a) (1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 6, 1996, the Company engaged the services of Arthur Andersen LLP to
serve as the Company's independent auditor. In connection with the dismissal of
Coopers & Lybrand L.L.P. and the retention of Arthur Andersen LLP the Company
filed a Current Report on Form 8-K relating thereto. See Part IV - Item 14
"Exhibits, Financial Statement Schedules and Reports on Form 8-K."
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in Part I of this Form
10-K. The information relating to the Directors of the Company and Section
16(a) reporting is incorporated by reference to the Company's Proxy Statement
for its 1997 Annual Meeting of Stockholders. See the section entitled "ELECTION
OF DIRECTORS" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1997 Annual Meeting of Stockholders. See the
section entitled "EXECUTIVE COMPENSATION." The Compensation Committee Report and
the Performance Graph included in the Proxy Statement are not incorporated
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement for its 1997 Annual Meeting of Stockholders. See the
section entitled "BENEFICIAL OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, EXECUTIVE
OFFICERS AND DIRECTORS".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements are incorporated herein by reference
from the Company's 1996 Annual Report to Stockholders.
<TABLE>
<CAPTION>
Page in 1996
Annual Report to
Shareholders
------------
<S> <C>
Reports of Independent Accountants....................................... 18
Consolidated Statements of Operations for the fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995................. 6
Consolidated Balance Sheets as of February 1, 1997
and February 3, 1996.................................................... 7
Consolidated Statements of Changes in Stockholder's Equity
for the fiscal years ended February 1, 1997,
February 3, 1996 and January 28, 1995................................... 8
Consolidated Statements of Cash Flows for the fiscal years ended
February 1, 1997, February 3, 1996 and January 28, 1995................. 9
Notes to Consolidated Financial Statements............................... 10
</TABLE>
2. Financial Statement Schedules
All schedules have been omitted since they are not required, not applicable
or the information has been included in the financial statements or the notes
thereto.
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3. Exhibits
Unless otherwise indicated, each of the Exhibits is incorporated herein by
reference to Filene's Basement, Inc. Registration Statement on Form S-1 No.
33-29010 filed with the Securities and Exchange Commission under the Securities
Act of 1933.
Exhibit No. Description
- --------------------------------------------------------------------------------
3.1............... Restated Articles of Organization (incorporated herein by
reference to the Company's ("FBC's")Registration Statement
on Form S-1 (No. 33-39901))
3.2............... Amended and restated by-laws (incorporated herein by
reference to FBC's Registration Statement on Form S-1 (No.
33-39901))
4.3............... Founders' Stock Agreement among the Registrant and certain
founding shareholders
4.3.1............. Founders' Stock Assumption and Assignment Agreement among
FBA-Delaware, FBA and the founding shareholders
4.4............... Performance-Related Stock Agreement among the Registrant,
Samuel J. Gerson and Mone Anathan, III
4.4.1............. Performance Stock Assumption and Assignment Agreement among
the Registrant, Samuel J. Gerson and Mone Anathan, III
4.5............... Common Stock and Preferred Stock Subscription Agreement
among the Registrant and certain stock purchasers
4.6............... Stockholders' Agreement among the Registrant and certain
stock purchasers
4.8............... Specimen Common Stock Certificate (incorporated herein by
reference to FBC's Registration Statement on Form S-1 (No.
33-39901))
10.2.............. Sublease dated April 30, 1988 relating to downtown Boston
Filene's Basement location
10.3.............. Lease dated April 13, 1987 relating to the Auburn
distribution center
10.4 ............. Lease dated December 21, 1983 relating to the Wellesley
central offices
10.5.............. Filene's Basement License Agreement between Federated and
May
10.6.............. Assignment of Trademarks and Service Marks from Federated
to May
10.7.............. 1988 Stock Option Plan, as amended (incorporated herein by
reference to FBC's quarterly report on Form 10-Q for the
period ended November 2, 1996)
10.8.............. Filene's Basement, Inc. Pension Plan
10.8.1............ Filene's Basement, Inc. Supplementary Executive Retirement
Plan
10.8.2............ Form of Amendment to Filene's Basement, Inc. Supplementary
Executive Retirement Plan (incorporated herein by reference
to FBC's Registration Statement on Form S-1 (No. 33-39901))
10.8.3............ Filene's Basement, Inc Supplemental Executive Retirement
Plan, Amendment No. 3 (filed herewith)
10.9.............. Filene's Basement, Inc. Thrift Incentive Plan
10.9.1............ Form of Amendment to Filene's Basement, Inc. Thrift
Incentive Plan (incorporated herein by reference to the
Registrant's Registration Statement on Form S-1 (No.
33-39901))
10.10............. Agreement between United Food and Commercial Workers' Union
Local No. 1445 and William Filene Sons Company
10.12............. License Agreement with Jewelry Promotions, Inc.
10.13............. Employment Agreement among the Registrant, Filene's
Basement, Inc. and Samuel J. Gerson*
10.14............. Employment Agreement among the Registrant, Filene's
Basement, Inc. and Mone Anathan, III*
10.15............. Account Purchase Agreement between Filene's Basement, Inc.
and General Electric Capital Corporation (incorporated
herein by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended February 3, 1990)
10.16............. American Express Card Service Agreement (incorporated
herein by reference to Filene's Basement, Inc.'s Annual
Report on Form 10-K for the fiscal year ended February 3,
1990)
10.17............. 1990 Equity Incentive Plan, as amended (incorporated herein
by reference to FBC's quarterly report on Form 10-Q for the
period ended November 2, 1996)
10.18............. 1990 Employee Stock Purchase Plan, as amended (incorporated
herein by reference to FBC's quarterly report on Form 10-Q
for the period ended November 2, 1996)
10.19............. Tax Sharing Agreement (incorporated herein by reference to
FBC's Registration Statement on Form
11
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Exhibit No. Description
- --------------------------------------------------------------------------------
S-1 (No. 33-39901)
10.20............. Form of Change-In-Control Agreement between Registrant and
Samuel J. Gerson (incorporated herein by reference to the
FBC's Registration Statement on Form S-1 (No. 33-39901))*
10.20.1........... Amendment to Change-in-Control Agreement between Registrant
and Samuel J. Gerson (incorporated herein by reference to
Filene's Basement Corp's Annual Report on Form 10-K for the
fiscal year ended January 29, 1994)*
10.21............. Form of Change-In-Control Agreement between Registrant and
Mone Anathan, III (incorporated herein by reference to
FBC's Registration Statement on Form S-1 (No. 33-39901))*
10.21.1........... Amendment to Change-in-Control Agreement between Registrant
and Mone Anathan, III (incorporated herein by reference to
Filene's Basement Corp's Annual Report on Form 10-K for the
fiscal year ended January 29, 1994)*
10.23............. 1993 Stock Option Plan for Non-Employee Directors, as
amended (incorporated herein by reference to FBC's
quarterly report on Form 10-Q for the period ended November
2, 1996)
10.24............. Employment Agreement among the Registrant, Filene's
Basement, Inc. and Samuel J. Gerson (incorporated herein by
reference to Filene's Basement Corp.'s Annual Report on
Form 10-K for the fiscal year ended January 30, 1993)*
10.25............. Employment Agreement among the Registrant, Filene's
Basement, Inc. and Mone Anathan, III (incorporated herein
by reference to Filene's Basement Corp.'s Annual Report on
Form 10-K for the fiscal year ended January 30, 1993)*
10.31............. GECC Service Agreement Amendment dated February 28, 1994
(incorporated herein by reference to Filene's Basement
Corp's Annual Report on Form 10-K for the fiscal year ended
January 29, 1994)
10.37............. Employment Agreement dated July 11, 1994 between Filene's
Basement, Inc and Steven Siegel (incorporated herein by
reference to Filene's Basement Corp's Annual Report on Form
10-K for the fiscal year ended January 28, 1995)*
10.37.1........... First Amendment to Employment Agreement dated January 15,
1996 between Filene's Basement, Inc. and Steven R. Siegel
(incorporated herein by reference to Filene's Basement
Corp. report on Form 10-K for the period ended February 3,
1996)*
10.38............. Amended and Restated Credit and Override Agreement among
the Company, Filene's Basement, Inc. and Filene's Basement,
Corp. and The First National Bank of Boston, The First
National Bank of Chicago, Shawmut Bank, N.A. and Baybank,
and The Travelers Insurance Company, Connecticut General
Life Insurance Company, Life Insurance Company of North
America, Mony Life Insurance Company of America, The Mutual
Life Insurance Company of New York and Woodmen Accident and
Life Company. Dated as of October 13, 1995 (incorporated by
herein by reference to Filene's Basement Corp. report on
Form 10-Q for the period ended October 28, 1995)
10.38.1........... Form of First Amendment Agreement amending the Restated
Credit and Override Agreement. Dated as of October 31, 1995
(incorporated herein by reference to Filene's Basement
Corp. report on Form 10-Q for the period ended October 28,
1995)
10.38.2........... Form of Second Amendment Agreement amending the Restated
Credit and Override Agreement. Dated as of December 8, 1995
(incorporated by herein by reference to Filene's Basement
Corp. report on Form 10-Q for the period ended October 28,
1995)
10.38.3........... Form of Third Amendment Agreement amending the Restated
Credit and Override Agreement. Dated as of February 3, 1996
(incorporated herein by reference to Filene's Basement
Corp. report on Form 10-K for the period ended February 3,
1996)
10.39............. Revolving Credit and Term Loan Agreement among the Company,
Filene's Basement, Inc and Filene's Basement Corp and the
First National Bank of Boston. Dated as of May 23, 1996
(incorporated herein by reference to FBC's quarterly report
on Form 10-Q for the period ended May 4, 1996)
10.39.1........... First Amendment Agreement amending the Revolving Credit and
Term Loan Agreement among the Company, Filene's Basement,
Inc and Filene's Basement Corp and the First National Bank
of Boston. Dated as of June 28, 1996 (incorporated herein
by reference to FBC's quarterly report on Form 10-Q for the
period ended August 3, 1996)
12
<PAGE> 13
Exhibit No. Description
- --------------------------------------------------------------------------------
11................ Computation of Net Income per Common Share (filed herewith)
13................ The Company's 1996 Annual Report to Stockholders (not
deemed to be filed as part of this report except as to
those parts thereof specifically incorporated herein by
reference) (filed herewith)
21................ Subsidiaries of the Company (filed herewith)
23................ Consent of Arthur Andersen LLP (filed herewith)
23.1.............. Consent of Coopers & Lybrand L.L.P. (filed herewith)
27................ Financial Data Schedule (filed herewith)
(b) The Company filed a report on Form 8-K on December 13, 1996, for Changes in
Registrants Certifying Accountant.
* Management contract or compensatory plan or arrangement filed pursuant to
Item 14(c) of this Report.
13
<PAGE> 14
FILENE'S BASEMENT CORP.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Samuel J. Gerson
----------------------------
Samuel J. Gerson
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
and Director
Date: April 28, 1997
----------------------------
<PAGE> 15
FILENE'S BASEMENT CORP.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on April 28, 1997 by the following persons in
the capacities indicated.
/s/ Samuel J. Gerson /s/ Mone Anathan, III
- ------------------------------------ ---------------------------------
Samuel J. Gerson Mone Anathan, III
Chairman of the Board President, Chief Operating Officer
Chief Executive Officer and Director
(Principal Executive Officer)
and Director
/s/ Steven Siegel
- ------------------------------------
Steven Siegel
Executive Vice President,
Chief Financial Officer, Treasurer
and Secretary (Principal Financial
and Accounting Officer)
/s/ Robert P. Henderson /s/ John Eyler
- ------------------------------------ ---------------------------------
Robert P. Henderson John Eyler
Director Director
/s/ Paul D. Paganucci /s/ Harold Leppo
- ------------------------------------ ---------------------------------
Paul D. Paganucci Harold Leppo
Director Director
/s/ Dorsey R. Gardner
- ------------------------------------
Dorsey R. Gardner
Director
<PAGE> 1
Exhibit 10.8.3
FILENE'S BASEMENT, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AMENDMENT NO. 3
WHEREAS, Filene's Basement, Inc. (the "Company") established the
above-titled Plan by an instrument in writing effective August (the "Plan"); and
WHEREAS, the parties wish to amend the Plan in the manner set forth
below;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section 3.1 is amended to read in its entirety as follows:
3.1 Benefit Calculation In the case of any Participant, the
benefit payable under this Plan shall equal the excess, if any,
of (a) over (b), where:
(a) equals the benefit that would be payable pursuant to
the terms of the Basic Plan, if determined without
regard to the limits of Section 401(a)(4) of Section 415
or Section 417 of the Code, and with the following
further modifications:
(1) for the purposes of calculating benefits under
this Plan, the definition of Final Average
Compensation under Section 1.26 of the Basic
Plan, now in effect, which is used in calculating
any benefit payable under this Plan, shall also
include:
(A) Compensation (as defined in the Basic Plan
and modified in this Plan ("Modified
Compensation") for those five (5) calendar
years, out of the ten (10) calendar years
used in calculating Final Average Compensation
under the Basic Plan, during which the
Participant had the highest total Modified
Compensation, even if such five (5) years are
not consecutive calendar years, and including
all calendar years which are taken into
account under paragraph (2) and treating all
payments made to the participant by the
<PAGE> 2
Company as Modified Compensation to the
extent they meet or would meet such
definition if paid for services rendered for
such calendar years) other than years during
which the Participant was not employed or was
not covered by an employment agreement
effective on the first and last day of the
calendar year; and
(B) Compensation for all full calendar years
ending prior to Severance from Service Date
even if that includes fewer than 5 calendar
years; and
(2) for purposes of calculating Participants' benefits
under this Plan, Years of Credited Service and
years of Vesting Service as defined in the Basic
Plan, shall also include;
(A) each Plan Year (as defined in the Basic Plan)
during which the Participant completed one
(1) Hour of Service (as defined in the Basic
Plan), regardless of whether such Plan Year
is taken into account under the Basic Plan;
and
(B) for purposes of calculating the benefit
payable to Steven R. Siegel, each Plan Year
which begins prior to the Expiration Date of
his employment agreement dated as of July 11,
1994, including any extensions thereof, and
as further defined therein and as it may be
amended from time to time.
(b) equals the sum of:
(1) the benefit actually payable under the Basic Plan, plus
(2) the Actuarial Equivalent, (as defined in Section 1.2 of
the Basic Plan) payable in the form of an annuity which
commences on a Participant's Normal Retirement Date (as
defined in Section 1.35 of the Basic Plan) and which
continues each month thereafter only during his
lifetime, of the sum of
2
<PAGE> 3
(A) the amount of Benefits (as defined therein)
actually paid to the Participant under Section
2.1 of the Filene's Basement Corp. Executive
Severance Plan, if any, plus
(B) the excess as of the date of the Participant's
termination of employment of the cash surrender
value of any life insurance policy subject to an
Executive Split Dollar Life Insurance Agreement
between the Participant and Filene's Basement
Corp. over the premium on such policy paid by
Filene's Basement Corp.
Executed this 7th day of January, 1997.
Filene's Basement, Inc.
/s/ Samuel J. Gerson
-----------------------
By:
/s/ Samuel J. Gerson
- -------------------------
Samuel J. Gerson
/s/ Mone Anathan III
- -------------------------
Mone Anathan III
/s/ Steven R. Siegel
- -------------------------
Steven R. Siegel
3
<PAGE> 1
EXHIBIT 11
FILENE'S BASEMENT CORP.
Computation of Net Income (Loss) per Common Share
(dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
February 1, 1997 February 3, 1996 January 28, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
The computation of net income (loss)
available and adjusted shares
outstanding follows:
Net income (loss) as
reported ................... $ 6,466,000 $(31,791,000) $(1,241,000)
=========== ============ ===========
Net income (loss) used for
primary and fully diluted
computations .................... $ 6,466,000 $(31,791,000) $(1,241,000)
=========== ============ ===========
Weighted average number
of common shares
outstanding ..................... 20,534,129 20,402,543 20,343,717
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 ................. 316,980 -- 732,987
----------- ------------ -----------
Weighted average number of
common and common equivalent
shares outstanding used for
primary computations ............ 20,851,109 20,402,543 21,076,704
=========== ============ ===========
Add: Additional dilution assuming
exercise of options net of
treasury shares deemed to have
been repurchased at the end of
the period market price ......... 212,981 -- --
Weighted average number of
common and common equivalent
shares outstanding used for fully
diluted computations ............ 21,064,090 20,402,543 21,076,704
=========== ============ ===========
</TABLE>
<PAGE> 1
[COVER PAGE]
LOGO
[FILENE'S BASEMENT]
LOGO
[ANNUAL REPORT 1996]
<PAGE> 2
- --------------------------------------------------------------------------------
FILENE'S BASEMENT FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR Fiscal Year Fiscal Year Fiscal Year Fiscal Year
ENDED Ended Ended Ended Ended
Dollars in millions, except per share FEBRUARY 1, February 3, January 28, January 29, January 30,
amounts 1997 1996(1) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $545.0 $582.5 $608.3 $578.8 $529.5
Operating income (loss) (2)........... 14.2 (27.3) 5.8 (1.7) 33.9
Income (loss) before extraordinary
item and cumulative effect of a
change in accounting principle
(2)................................. 6.5 (31.8) 1.1 (4.2) 18.7
Net income (loss) (2)................. 6.5 (31.8) (1.2) (3.2) 18.1
Primary and fully diluted income
(loss) per common share:
Income (loss) before
extraordinary item and
cumulative effect of a change
in accounting principle (2).... $ 0.31 $(1.56) $ 0.05 $(0.20) $ 0.87
Extraordinary item.................... -- -- (0.11) -- (0.03)
Cumulative effect of a change in
accounting principle................ -- -- -- 0.05 --
Net income (loss) (2)................. $ 0.31 $(1.56) $(0.06) $(0.15) $ 0.84
====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Number of stores in operation at end
of period........................... 43 47 55 54 49
Comparable store net sales increase
(decrease).......................... 0.7% (5.7%) (0.5%) (2.3%) 0.0%
====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets.......................... $182.9 $210.1 $238.9 $237.0 $215.7
Long term debt (including capital
lease obligations).................. 10.7 38.6 39.1 25.7 25.9
Total stockholders' equity............ 87.5 80.9 112.2 112.5 114.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fiscal year ended February 3, 1996 included 53 weeks.
(2) The fiscal year ended February 3, 1996 included a $30.1 million charge for
store closures and other charges (Note M). The fiscal year ended January 28,
1995 included a $4.9 million ($3.2 million after tax) charge for store
closures. The fiscal year ended January 29, 1994 included a $14.0 million
($9.4 million after tax) charge for store closures.
<PAGE> 3
- --------------------------------------------------------------------------------
THE 1997 YEAR WILL BE A YEAR OF MEASURED GROWTH FOR THE COMPANY
- --------------------------------------------------------------------------------
We reported last year that Fiscal 1996 would be a year of repositioning for
the Company. At that time, we rolled out a strategy for the Company's return to
profitability. As you know, our management team took swift, aggressive action at
the end of Fiscal 1995 to stabilize the business and ensure our long term
viability. Such actions were not without substantial cost, resulting in a
one-time Fiscal 1995 year end charge of $30.1 million. Postured to move forward,
the challenge then facing our management team was to execute a fundamental
profit driven strategy that, while impacting same store sales, would drive
higher margin sales to the bottom line.
We are pleased to report the success of this strategy. Our restructuring of
store operations, reduction in promotional sales events, improvement in same
store sales and reduced penetration of low margin retail stocks, all contributed
to a greater than 400 basis point increase in gross margin percent and, in
combination with cost cutting and containment measures, resulted in the
Company's return to profitability. In stark contrast to the adverse media
coverage that marred Fiscal 1995, one analyst recently published that the
Company was, "orchestrating a classic retail turnaround, still in the early
innings."
With the solid foundation built in Fiscal 1996, the focus of our management
team has shifted to growing same store sales, coupled with moderate expansion
within existing markets. In March, 1997 we opened a new 39,000 square foot store
in Oak Brook, Illinois and in April we opened a 30,000 square foot store in
Skokie, Illinois.
Our financial position was steadily fortified during Fiscal 1996 and we
re-established our financial credibility with the business and financial
communities. In May, 1996, we were successful in negotiating a refinancing of
our revolving credit and term loan facility on significantly more favorable
terms than the previous arrangement, thereby affording us greater operating
flexibility and the financial resources to execute our strategies. We reduced
our average interest rate for the year on revolving loans to 8.5% from 9.2% the
prior year. In addition, effective in February, 1997, interest rates on both the
revolving credit facility and term loan were further reduced by one-half of one
per cent as a result of our achieving a predetermined financial target for
Fiscal 1996. We ended the year with available borrowing capacity under the new
agreement in excess of $40 million versus $29 million at the end of Fiscal 1995.
Fiscal 1996 operations provided over $45 million of cash, which included
$9.6 million of federal income tax refunds. In contrast, Fiscal 1995 operations
used approximately $4 million of cash. In addition, demonstrative of a distinct
favorable change in the perception of our financial condition by our trade
creditors, we currently enjoy substantially increased lines of credit with third
party factors. Further exemplary of this positive change in the trades' view of
our financial stability is the fact that over $10 million of net positive cash
flow from operating net assets was related to an increase in trade payables as a
result of extended payment terms.
We are extremely gratified by the Fiscal 1996 results and, while much has
been achieved, we must now move to the next level. Our mission is to sustain and
enhance profitability through both our existing core stores and future growth.
We continue to be driven by the support and encouragement of our employees,
customers and shareholders and we are committed to the enhancement of
shareholder value.
Sincerely,
/s/ Samuel J. Gerson /s/ Mone Anathan, III
Samuel J. Gerson Mone Anathan, III
1
<PAGE> 4
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company's fiscal year ends on the Saturday closest to January 31 in
each year. The fiscal years ended February 1, 1997 and January 28, 1995 included
52 weeks versus Fiscal 1995, which ended on February 3, 1996 and included 53
weeks.
<TABLE>
<CAPTION>
52 53 52
WEEKS weeks weeks
ENDED ended ended
FEB 1, Feb 3, Jan 28,
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0%
------ ------ ------
Cost of sales, including buying,
receiving and occupancy
costs......................... 75.6% 79.7% 76.7%
------ ------ ------
Gross profit................ 24.4% 20.3% 23.3%
Selling, general and
administrative expenses......... 21.5% 22.8% 21.3%
Amortization of intangible
assets and beneficial
operating lease rights........ 0.3% 0.2% 0.2%
Charge for store closings....... -- 2.0% 0.8%
------ ------ ------
Operating income (loss)..... 2.6% (4.7%) 1.0%
Interest expense, net........... 0.7% 0.8% 0.6%
Income (loss) before income
taxes and extraordinary item.. 1.9% (5.5%) 0.4%
Income tax provision (benefit).. 0.7% (0.1%) 0.2%
------ ------ ------
Income (loss) before
extraordinary item............ 1.2% (5.4%) 0.2%
Extraordinary item:
Loss on debt repurchase, net
of tax benefit................ -- -- (0.4%)
------ ------ ------
Net income (loss)............... 1.2% (5.4%) (0.2%)
====== ====== ======
</TABLE>
Fiscal 1995 saw unit retail prices decline to their lowest levels in almost
two decades as a result of industry wide store closings, consolidations and
bankruptcies. The highly promotional competitive marketplace created by the
attendant liquidation of surplus inventories took a severe toll on margins and
operating results.
At the end of Fiscal 1995, management put into motion a plan that would
posture the Company for a return to profitability in Fiscal 1996. The Fiscal
1995 cost of this plan was a one-time $30.1 million charge to cover the costs
associated with remaining lease obligations on closed stores, the write-off of
leasehold improvements, severance payments, inventory cost markdowns related to
the exiting of certain lines of apparel and the write-off of unproductive
assets.
As a result, the Company entered Fiscal 1996 with a core of historically
profitable stores, significantly reduced inventory levels, the foundation for a
commitment to an expanded assortment of better and designer names, a profit
driven strategy that included a reduction in the mix of lower margin retail
stocks and a move away from a number of low or no margin promotional events.
FISCAL 1996 VERSUS FISCAL 1995
Net sales for Fiscal 1996 decreased $37.5 million, or 6%, from Fiscal 1995
to $545.0 million. Comparable store sales for Fiscal 1996 were up 1% versus the
comparable 52 week period last year. During the first quarter of Fiscal 1996,
four of the stores included in the Fiscal 1995 charge for store closings were
closed. The four closed stores accounted for net sales of $1.4 million and $20.6
million in Fiscal 1996 and Fiscal 1995, respectively, and direct store
contribution losses of $0.2 million and $0.5 million, respectively. In addition,
the Braintree, MA store was closed from May, 1996 through mid-August, 1996 for a
major remodeling in connection with a reconstruction of the shopping mall by its
owners. No new stores were opened during Fiscal 1996. The total number of stores
in operation at the end of the year was 43 versus 47 for Fiscal 1995.
Gross profit increased by $14.8 million to $132.9 million, or 12.5%. As a
percentage of sales, gross profit increased 4.1% from last year. This
improvement in profitability was primarily the result of a significant reduction
in the number of promotional sales events in combination with improved comp
sales performance and a lower mix of low margin retail stocks. In addition,
Fiscal 1995 gross profit was impacted by cost markdowns in the fourth quarter
related to the exiting of certain lines of apparel and the Fiscal 1995 store
closing plan.
Selling, general and administrative expenses decreased 11.6% over Fiscal
1995, primarily due to the elimination of operating expenses directly related to
closed stores as well as the favorable effects of the Company's continuing
overall expense control initiatives.
During the fourth quarter of Fiscal 1995, the Company recorded an $11.4
million charge in connection with planned store closures, including $0.8 million
related to Fiscal 1994 planned closures not covered by the original reserve. The
$11.4 million charge included reserves for estimated costs associated with
remaining lease obligations, write-offs and losses related to leasehold
improvements and severance costs. As of February 1, 1997, approximately $3.1
million of these reserves remain,
2
<PAGE> 5
which the Company believes is adequate to cover future costs.
Net interest expense decreased 24.2% to $3.7 million from $4.9 million in
Fiscal 1995. This decrease was the result of the Company's refinancing in May,
1996 of its previously existing $50.0 million revolving credit facility and
$35.0 million of fixed rate debt. The new revolving credit and term loan
agreement includes a $65.0 million revolving credit facility and a $10.0 million
term loan at substantially more favorable interest rates than the previous
arrangement. (See Liquidity and Capital Resources)
For Fiscal 1996, income before income taxes was $10.4 million, or $0.50 per
share, compared to a loss of $32.2 million, or $1.58 per share in Fiscal 1995.
The income tax provision for the year was $4.0 million versus a benefit last
year of $0.4 million. The Fiscal 1995 benefit was net of a write off of $6.3
million of deferred tax assets in order to reduce such assets to a level which,
based on information available at the time, would more likely than not be
realized.
Net income for Fiscal 1996 was $6.5 million, or $0.31 per share, compared
to a net loss last year of $31.8 million, or $1.56 per share.
FISCAL 1995 VERSUS FISCAL 1994
Net sales for the 53 week 1995 fiscal year decreased $25.8 million, or 4%,
from the 52 week 1994 fiscal year to $582.5 million. Comparable store sales for
the 53 week Fiscal 1995 were down 6% versus the comparable 53 week period in
Fiscal 1994. This sales decline was attributable to several factors, which were
primarily driven by the continuation in Fiscal 1995 of the general softness in
the apparel industry. Sales were further affected by abnormally harsh weather
conditions in December, 1995 and January, 1996 and a major mall reconstruction
undertaken by the owners of the South Shore Plaza in Braintree, MA. During
Fiscal 1995, ten stores were closed based on their inability to achieve and
maintain profitability objectives and an assessment of their future prospects
for positive contribution. Two stores were opened during Fiscal 1995. The total
number of stores in operation at the end of the Fiscal 1995 was 47. The ten
closed stores accounted for net sales of $14.0 million and $53.5 million in
Fiscal 1995 and 1994, respectively, and direct store contribution losses of $2.1
million and $0.0 million, respectively.
Gross profit decreased by $23.7 million, or 16.7%, to $118.1 million. As a
percentage of sales, gross profit declined 3.0% from Fiscal 1994. This decline
in profitability resulted primarily from higher markdowns associated with
inventory liquidations related to the store closings discussed below and
markdowns associated with the exit from certain lines of business and a higher
mix of lower margin retail stocks.
Selling, general and administrative expenses increased 2.2% over Fiscal
1994, primarily due to the write-off of certain impaired assets, including
computer hardware that previously supported systems that have been displaced in
connection with the ongoing information systems development program.
During the fourth quarter of Fiscal 1995, the Company recorded a $10.6
million charge in connection with the planned closure of eight stores; one store
was closed in Fiscal 1995. At February 3, 1996, a reserve of $9.7 million
remained to cover the costs associated with the remaining locations.
In January, 1995, the Company recorded a charge of $4.9 million ($3.2
million after-tax) reflecting the expenses primarily associated with the closure
of nine stores. Five stores were closed by the end of February, 1995. The cost
to close the nine locations totaled $5.7 million. In the fourth quarter of
Fiscal 1995, the Company recorded an additional $0.8 million charge related to
lease obligations associated with these store closures which were not covered by
the original reserve.
All charges in connection with the closure of stores include estimated
costs in association with remaining lease obligations, write-offs and losses
related to leasehold improvements, severance payments and related exit costs.
The eight stores included in the Fiscal 1995 closing reserve recorded sales
in Fiscal 1995 and 1994 of $46.3 million and $54.6 million, respectively, and
direct store contribution of $0.0 million and $2.7 million, respectively.
The nine stores included in the Fiscal 1994 closing reserve recorded sales
in Fiscal 1995 and 1994 of $10.0 million and $47.5 million, respectively, and
direct store contribution (loss) of $(1.8) million and $(0.1) million,
respectively.
Net interest expense in Fiscal 1995 increased 33.9% to $4.9 million from
$3.7 million in Fiscal 1994. This increase was the result of greater usage of
the revolving credit facility in Fiscal 1995 at higher average interest rates.
Average balances under the line were $16.5 million and $5.5 million in Fiscal
1995 and 1994, respectively, at average interest rates of 9.19% and 7.05%,
respectively.
For Fiscal 1995, loss before income taxes and extraordinary item was $32.2
million, or $1.58 per share, compared to income of $2.1 million, or $0.10 per
share in Fiscal 1994. Income tax provision (benefit) was a benefit of $(0.4)
million versus a provision in Fiscal 1994 of $1.0 million. The Fiscal 1995
benefit is net of a write-off of $6.3 million of deferred tax assets which,
based on information available at the time, reduced the deferred tax assets to a
level which, more likely than not, would be realized.
Net loss for Fiscal 1995 was $31.8 million, or $1.56 per share, compared to
a net loss in Fiscal 1994 of $1.2 million, or $0.06 per share. Fiscal 1994
included an
3
<PAGE> 6
extraordinary loss of $2.3 million (net of a $1.2 million tax benefit), or $0.11
per share, related to the write-off of deferred debt financing costs, deferred
debt discount, bond premium and closing costs in conjunction with the repurchase
of the Company's 12.75% subordinated debentures.
During the fourth quarter of Fiscal 1995, the Company recorded aggregate
charges of $30.1 million, including the aforementioned store closing charge of
$11.4 million, in connection with a strategic repositioning of the Company. The
charges included $15.9 million of inventory cost markdowns related to the
exiting of certain lines of apparel and the Fiscal 1995 store closing plan and
certain other one-time SG&A charges previously mentioned. Excluding the effects
of the fourth quarter charge of $30.1 million, loss before income taxes and
extraordinary items was $2.1 million, or $0.10 per share in Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
During Fiscal 1996, cash provided by operations was $45.1 million, compared
to cash used by operations of $3.5 million in the prior year. Operating cash
included net positive cash flow from operating assets and liabilities of $22.9
million, comprised primarily of the receipt in May, 1996 of $9.6 million of
federal income tax refunds resulting from the carryback of net operating losses,
the replacement of approximately $10.5 million of cash on deposit with factors
with standby letters of credit and an increase in merchandise payables of
approximately $10.3 million.
During the fourth quarter of Fiscal 1995, the Company recorded aggregate
charges of $30.1 million, including the aforementioned store closing charge of
$11.4 million in connection with a strategic repositioning of the Company. Of
the aggregate charges, $20.7 million were noncash related and, of the cash
portion, which is primarily comprised of ongoing lease obligations, $4.2 million
was paid out in Fiscal 1996.
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, as amended
October 31, 1995, December 8, 1995 and February 3, 1996. The Agreement includes
a $65.0 million revolving credit facility and a $10.0 million term loan,
replacing a $50.0 million revolving credit facility and $35.0 million of fixed
rate debt. The new facility, which granted to the lenders a security interest in
all of the Company's assets, expires on June 30, 1999 when all outstanding loans
thereunder mature.
Although the aggregate facility under the Agreement is $10.0 million less
than the previous arrangement, the Company's borrowing capacity has actually
been enhanced as a result of a broader borrowing base formula and lower overall
debt levels. The aforementioned federal tax refunds were 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.
During Fiscal 1996, under the Agreement, advances against eligible
inventory and receivables were at interest rates of either prime plus 0.50% or
LIBOR plus 2.50% versus prime plus 1.00%, with increases of 50 basis points in
the first and second quarters of Fiscal 1996, under the previous arrangement.
The term loan bears interest at either prime plus 0.75% or LIBOR plus 2.75%
versus the previously outstanding fixed rate debt, which had an effective
interest rate of 10.32% over the life of the arrangement. Effective February 4,
1997, interest rates on the revolver and term loans were reduced one-half of one
percent due to the Company's achievement of a predetermined financial target for
Fiscal 1996.
Mandatory payments of the term loan principal are required upon the
occurrence of certain events. Based on the outstanding principal balance on the
first anniversary date of the loan, principal payments are due in eight equal
quarterly installments commencing September 30, 1997. During Fiscal 1996, after
an assessment of its current needs, the Company announced the closing of its
Somerville Distribution Center. Any net proceeds from the sale of the Somerville
facility are required to be applied to the outstanding principal of the term
loan. In the event the outstanding principal balance of the term loan on the
first anniversary is greater than $4.0 million, the interest rate on the term
loan only, will be permanently increased by 1.0%.
The Agreement contains new financial covenants which are less restrictive
than the previous requirements, thereby providing the Company with greater
operating flexibility. For Fiscal 1996, the most restrictive covenant of the
Agreement mandated cumulative minimum earnings before interest, taxes,
depreciation and amortization. During Fiscal 1996 and as of February 1, 1997,
the Company was in compliance with all covenants of the previous and current
arrangements.
As of February 1, 1997, the Company had $18.3 million of working capital
and $40.7 million of remaining credit availability versus $29.0 million and $7.0
million, respectively, as of February 3, 1996. As of February 1, 1997,
outstanding obligations under the Agreement were $11.0 million, including the
$10.0 million term loan, and
4
<PAGE> 7
the Company had $16.0 million in letter of credit commitments. As of February 3,
1996, the Company had outstanding loans and letter of credit commitments of
$23.1 million, in addition to the $35.0 million in fixed rate debt. During
Fiscal 1996, average revolver borrowings outstanding were $17.0 million at an
average interest rate of 8.5% versus $16.5 million and 9.19%, respectively,
during Fiscal 1995. Maximum loan usage under revolving loan facilities during
Fiscal 1996 and Fiscal 1995 was $32.8 million and $32.0 million, respectively.
Short term trade credit represents a significant source of financing for
merchandise inventories. Trade credit arises from the willingness of the
Company's vendors to grant certain payment terms for inventory purchases.
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. Accordingly, the second half of each fiscal year provides a
greater portion of the Company's annual sales and operating profit than does the
first half. The Company increases its inventory levels throughout the spring and
early fall, peaking for the Christmas season.
The Company believes it has in place arrangements involving short term
lines and letter of credit commitments with vendors and third party factors,
which, in addition to the aforementioned Agreement and internally generated
working capital, are adequate for it to meet its seasonal inventory needs,
operating expenses and anticipated capital expenditure requirements for Fiscal
1997.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report 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, including references to future
growth and improved margins. 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.
5
<PAGE> 8
- --------------------------------------------------------------------------------
FILENE'S BASEMENT CORP. CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the fiscal years ended FEBRUARY 1, February 3, January 28,
Dollars in thousands, except share and per share amounts 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales (Note B)............................................. $545,025 $582,509 $608,303
Cost of sales, including buying, receiving and occupancy
costs........................................................ 412,155 464,411 466,444
-------- -------- --------
Gross profit.............................................. 132,870 118,098 141,859
Selling, general and administrative expenses................... 117,238 132,666 129,859
Amortization of intangible assets and beneficial operating
lease rights (Note B)........................................ 1,467 1,352 1,352
Charge for store closings (Note M)............................. -- 11,377 4,892
-------- -------- --------
Operating income (loss)................................... 14,165 (27,297) 5,756
Interest expense, net of $213, $227 and $421 of interest income
(Note F)..................................................... 3,735 4,927 3,679
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary item....... 10,430 (32,224) 2,077
Income tax provision (benefit) (Note H)........................ 3,964 (433) 983
-------- -------- --------
Income (loss) before extraordinary item........................ 6,466 (31,791) 1,094
Extraordinary item: loss on debt repurchase, net of tax benefit
(Note F)..................................................... -- -- (2,335)
-------- -------- --------
- -----------------------------------------------------------------------------------------------------------
Net income (loss).............................................. $ 6,466 $(31,791) $ (1,241)
======== ======== ========
- -----------------------------------------------------------------------------------------------------------
Primary and fully diluted earnings per share (Note B):
Income (loss) before extraordinary item...................... $ 0.31 $ (1.56) $ 0.05
Extraordinary item (Note F).................................. -- -- (0.11)
- -----------------------------------------------------------------------------------------------------------
Net income (loss).............................................. $ 0.31 $ (1.56) $ (0.06)
======== ======== ========
- -----------------------------------------------------------------------------------------------------------
Weighted average number of common and common equivalent shares
outstanding:
Primary and fully diluted................................. 21,064,090 20,402,543 21,076,704
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 9
- --------------------------------------------------------------------------------
FILENE'S BASEMENT CORP. CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3,
Dollars in thousands (except share amounts) 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note B).................................... $ 462 $ 464
Inventories (Note B).................................................. 88,763 85,777
Other current assets (Note C)......................................... 9,363 26,534
-------- --------
Total current assets............................................... 98,588 112,775
Property, plant and equipment, net (Notes B and D)...................... 53,305 67,278
Beneficial operating lease rights, net of $11,167 and $9,853 of
accumulated amortization (Notes B and G).............................. 14,811 16,125
Assets held for sale (Note D)........................................... 7,962 --
Intangible assets, goodwill and other, net of $14,900 and $14,747 of
accumulated amortization (Note B)..................................... 8,247 13,874
-------- --------
- --------------------------------------------------------------------------------------------------------
Total assets............................................................ $182,913 $210,052
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... 46,934 36,645
Accrued expenses (Note E)............................................. 29,375 33,402
Short-term debt (Note F).............................................. 1,000 13,200
Current portion of long term debt (Note F)............................ 2,500 --
Obligations under capital leases, due within one year (Note G)........ 437 490
-------- --------
Total current liabilities.......................................... 80,246 83,737
Reserve for store closings and other liabilities (Note M)............... 2,492 4,663
Deferred revenue (Note N)............................................... 1,999 2,166
Long-term debt (Note F)................................................. 7,500 35,000
Obligations under capital leases, less portion due within one year (Note
G).................................................................... 3,191 3,627
-------- --------
Total liabilities.................................................. 95,428 129,193
Commitments and contingencies (Note G)
Stockholders' equity (Note J):
Common stock, $.01 par value; authorized 70,000,000 shares; 20,658,533
and 20,575,464 shares issued....................................... 207 206
Additional paid-in capital............................................ 86,195 86,048
Retained earnings (accumulated deficit)............................... 1,099 (5,367)
Unamortized restricted stock compensation............................. -- (12)
Cost of 75,000 common shares in treasury.............................. (16) (16)
-------- --------
Total stockholders' equity.............................................. 87,485 80,859
-------- --------
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity.............................. $182,913 $210,052
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE> 10
- --------------------------------------------------------------------------------
FILENE'S BASEMENT CORP. CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the fiscal years ended February 1, 1997, February 3, 1996 and January 28,
1995
Dollars in thousands, except share amounts
<TABLE>
<CAPTION>
Common Unamortized
Stock Additional Restricted Total
Par value Paid-in Retained Stock Treasury Stockholders'
$0.01 Capital Earnings Compensation Stock Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 29, 1994...................... $204 $85,559 $27,665 $(889) $(16) $112,523
Issuance of 83,986 and 49,907 shares through
exercise of stock options and employee stock
purchase plan, respectively.................... 1 321 322
Issuance of 5,480 shares of restricted stock,
less amortization of $13....................... 0 50 (37) 13
Cancellation of 105,000 shares of restricted
stock, less amortization of $210............... (1) (678) 889 210
Tax benefit from exercise of stock options....... 226 226
Minimum pension liability adjustment............. 118 118
Net loss......................................... (1,241) (1,241)
---- ------- ------- ----- ---- --------
- -----------------------------------------------------------------------------------------------------------------------------
Balance at January 28, 1995...................... $204 $85,596 $26,424 $ (37) $(16) $112,171
---- ------- ------- ----- ---- --------
Issuance of 122,546 and 53,144 shares through
exercise of stock options and employee stock
purchase plan, respectively.................... 2 316 318
Amortization related to 5,480 shares of
restricted stock............................... 25 25
Tax benefit from exercise of stock options....... 136 136
Net loss......................................... (31,791) (31,791)
---- ------- ------- ----- ---- --------
- -----------------------------------------------------------------------------------------------------------------------------
Balance at February 3, 1996...................... $206 $86,048 $(5,367) $ (12) $(16) $ 80,859
---- ------- ------- ----- ---- --------
Issuance of 42,659 and 40,731 shares through
exercise of stock options and employee stock
purchase plan, respectively.................... 1 147 148
Amortization related to 5,480 shares of
restricted stock............................... 12 12
Net income....................................... 6,466 6,466
---- ------- ------- ----- ---- --------
- -----------------------------------------------------------------------------------------------------------------------------
Balance at February 1, 1997...................... $207 $86,195 $1,099 $ 0 $ (16) $ 87,485
==== ======= ====== ===== ===== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 11
- --------------------------------------------------------------------------------
FILENE'S B ASEMENT C ORP. C ONSOLIDATED S TATEMENTS OF C ASH F LOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the fiscal years ended FEBRUARY 1, February 3, January 28,
Dollars in thousands 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ 6,466 $ (31,791) $ (1,241)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Charge for store closings.................................. -- 11,377 4,892
Depreciation and amortization.............................. 12,271 13,255 13,381
Amortization related to restricted stock compensation...... 12 25 223
Loss on repurchase of subordinated debentures, net of tax
benefit.................................................. -- -- 2,335
Deferred income taxes...................................... 3,436 8,633 739
Changes in operating assets and liabilities:
Inventory................................................ (2,986) 31,727 4,117
Other current assets..................................... 18,943 (15,932) (282)
Accounts payable......................................... 10,289 (15,315) (9,570)
Accrued expenses and other liabilities................... (3,379) (5,498) (4,648)
--------- ---------- ----------
Net cash provided by (used in) operating activities... 45,052 (3,519) 9,946
Cash flows from investing activities:
Purchase of property, plant and equipment and other........ (8,241) (14,435) (16,127)
Proceeds from sale of leasehold interest................... 728 572 424
--------- ---------- ----------
Net cash used in investing activities................. (7,513) (13,863) (15,703)
Cash flows from financing activities:
Proceeds from short term borrowings........................ 105,474 120,500 111,000
Payments on short term borrowings.......................... (117,674) (107,300) (111,000)
Principal payments on capital lease obligations............ (489) (450) (383)
Proceeds from long term debt............................... (25,000) -- 35,000
Repurchase of subordinated debentures...................... -- -- (25,057)
Proceeds from sale of common stock to employees............ 148 318 322
Tax benefit resulting from exercise of stock options....... -- 136 226
--------- ---------- ----------
Net cash provided by (used in) financing activities... (37,541) 13,204 10,108
Net increase (decrease) in cash and cash
equivalents......................................... (2) (4,178) 4,351
Cash and cash equivalents at beginning of period................ 464 4,642 291
--------- ---------- ----------
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period...................... $ 462 $ 464 $ 4,642
========= ========== ==========
- ------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid.............................................. $3,398 $5,528 $3,684
Income taxes paid.......................................... 257 164 378
</TABLE>
Capital lease obligations of $422 were incurred when the Company entered into
capital leases during the year ended January 28, 1995. No capital lease
obligations were incurred during the years ended February 1, 1997 and February
3, 1996.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
9
<PAGE> 12
- --------------------------------------------------------------------------------
FILENE'S BASEMENT CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. ORGANIZATION AND BASIS OF
PRESENTATION
- --------------------------------------------------------------------------------
In June 1988, Filene's Basement Corp. (the "Company"), which was organized
by the management of the Filene's Basement division of Federated Department
Stores, Inc. ("Federated"), entered into a stock purchase agreement with
Federated whereby, on July 29, 1988, the Company purchased all of the
outstanding capital stock of Filene's Basement, Inc. The transaction was treated
as a purchase and the excess of the purchase price over the book value of the
net assets acquired was allocated to the acquired assets based on their relative
fair values. Filene's Basement, Inc. operates a chain of off-price specialty
apparel stores located in the New England states, New York, New Jersey,
Pennsylvania, Illinois, Minnesota, Virginia and Washington, D.C.
- --------------------------------------------------------------------------------
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31. The
fiscal years ended on February 1, 1997 (Fiscal 1996) and January 28, 1995
(Fiscal 1994) included 52 weeks versus Fiscal 1995, which ended on February 3,
1996 and included 53 weeks.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Filene's
Basement Corp. and its wholly-owned subsidiaries. All intercompany transactions
have been eliminated.
BASIS OF PRESENTATION
The financial statements of the Company have been prepared in accordance
with generally accepted accounting principles. The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits and
short-term investments with maturities less than three months at the time of the
initial investment.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (determined by the
retail method on a first-in, first-out basis) or market.
SALES
The net sales amounts include approximately $30,349,000, $32,263,000 and
$31,436,000 of leased departments sales for the fiscal years ended February 1,
1997, February 3, 1996 and January 28, 1995, respectively.
DEPRECIATION AND AMORTIZATION
For financial reporting purposes, the Company provides for depreciation by
use of the straight-line method over the estimated useful lives of the assets.
Any gain or loss from the disposal of assets is included in income when
realized. Leasehold improvements are being amortized over the shorter of their
useful lives or the lease period.
BENEFICIAL OPERATING LEASE RIGHTS
Beneficial operating lease rights represent the benefit assigned to
favorable lease terms on existing operating leases at the date of acquisition.
Beneficial operating lease rights are being amortized over the remaining terms
of the leases (from 5 to 16 years) by use of the straight-line method.
INTANGIBLE ASSETS AND GOODWILL
The Company has recorded goodwill and certain intangible assets at their
fair value when acquired. The intangible assets are being amortized on a
straight line basis over their estimated lives ranging from 6 months to 5 years
while goodwill is being amortized over 40 years. The Company accounts for
long-lived and intangible assets in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." The Company
continually reviews its intangible assets for events or changes in circumstances
which might indicate the carrying amount of the assets may not be recoverable.
The Company assesses the recoverability of the assets by determining whether the
amortization of such long-lived and intangi-
10
<PAGE> 13
ble assets can be recovered over their remaining lives through projected
undiscounted future cash flows. The amount of impairment, if any, is measured
based on projected discounted future cash flows using a discount rate reflecting
the Company's average cost of funds. At February 1, 1997, no such impairment of
assets was indicated.
STOCK-BASED COMPENSATION
Effective February 4, 1996, the Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to account for stock options at the intrinsic value with disclosure of
the effects of the fair value accounting on net income and earnings per share on
a pro-forma basis.
OTHER
Preopening costs are charged to expense within the fiscal year that a new
store opens.
Advertising costs are charged to expense as incurred.
COMPUTATION OF INCOME PER COMMON SHARE
Income per common share is computed using the weighted average number of
common and dilutive common equivalent shares (stock options) outstanding during
each period. In February, 1997, the Financial Accounting Standards Board issued
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 is 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.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the
current year presentation.
- --------------------------------------------------------------------------------
C. OTHER CURRENT ASSETS
- --------------------------------------------------------------------------------
The major components of other current assets are as follows (in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable......... $1,940 $ 1,677
Notes receivable............ 2,106 334
Prepaid taxes............... 234 8,990
Other prepaids.............. 5,083 15,533
------ -------
- ------------------------------------------------------
Total other current
assets.................... $9,363 $26,534
====== =======
</TABLE>
- --------------------------------------------------------------------------------
D. PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------------------------------------------------
Property, plant and equipment is recorded at cost less accumulated
depreciation and amortization. Major additions and improvements are capitalized,
while repairs and maintenance are expensed as incurred. Property, plant and
equipment at February 1, 1997 and February 3, 1996 consisted of the following
(in thousands):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Estimated
Remaining
Useful Life FEBRUARY 1, February 3,
(Years) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Land.............. -- $ -- $ 2,160
Leasehold costs
and
improvements.... 1 to 15 39,739 40,832
Furniture,
fixtures and
equipment....... 3 to 7 62,430 65,690
Building.......... -- -- 8,798
Capital leases.... 1 to 7 6,347 6,347
Construction in
progress........ -- 6,720 3,844
-------- --------
115,236 127,671
Less accumulated
depreciation and
amortization.... (61,931) (60,393)
-------- --------
- --------------------------------------------------------------------------------
Net property plant
and equipment... $ 53,305 $ 67,278
======== ========
</TABLE>
Assets held for sale, with a lower of cost or market value of approximately
$7,962,000, represents land, building and fixtures related to the Somerville
Distribution Center.
Depreciation expense for the fiscal years ended February 1, 1997, February
3, 1996 and January 28, 1995
11
<PAGE> 14
aggregated approximately $10,327,000, $11,426,000 and $11,577,000, respectively.
Accumulated depreciation and amortization includes accumulated amortization
of capital leases of approximately $3,911,000 and $3,433,000, at February 1,
1997 and February 3, 1996, respectively.
- -------------------------------------------------------------------------------
E. ACCRUED EXPENSES
- -------------------------------------------------------------------------------
The major components of accrued expenses are as follows (in thousands):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3,
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Taxes other than income taxes.. $1,221 $1,584
Employee compensation and
benefits.................. 9,563 8,588
Accrued insurance........... 1,843 1,672
Accrued rent................ 7,362 7,228
Liability for merchandise
credits and gift
certificates.............. 2,761 2,370
Accrued income taxes........ 1,698 1,840
Reserve for store
closings.................. 2,777 6,841
Other....................... 2,150 3,279
------- -------
- -------------------------------------------------------------------------------
Total accrued expenses...... $29,375 $33,402
======= =======
</TABLE>
- -------------------------------------------------------------------------------
F. SHORT-TERM BORROWINGS AND
LONG-TERM DEBT
- -------------------------------------------------------------------------------
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, 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.
During Fiscal 1996, under the Agreement, advances against eligible
inventory and receivables were at interest rates of either prime plus 0.50% or
LIBOR plus 2.50% versus prime plus 1.00%, with increases of 50 basis points in
the first and second quarters of Fiscal 1996, under the previous arrangement.
The term loan bears interest at either prime plus 0.75% or LIBOR plus 2.75%
versus the previously outstanding fixed rate debt, which had an effective
interest rate of 10.32% over the life of the arrangement. Effective February 4,
1997, interest rates on the revolver and term loans were reduced one-half of one
per cent due to the Company's achievement of a predetermined financial target
for Fiscal 1996.
Mandatory payments of the term loan principal are required upon the
occurrence of certain events. Based on the outstanding principal balance on the
first anniversary date of the loan, principal payments are due in eight equal
quarterly installments commencing September 30, 1997. During Fiscal 1996, after
an assessment of its current needs, the Company announced the closing of its
Somerville Distribution Center. Any net proceeds from the sale of the Somerville
facility are required to be applied to the outstanding principal of the term
loan. In the event the outstanding principal balance of the term loan on the
first anniversary is greater than $4.0 million, the interest rate on the term
loan only, will be permanently increased by 1.0%.
The Agreement contains new financial covenants which are less restrictive
than the previous covenants, thereby providing the Company with greater
operating flexibility. For Fiscal 1996, the most restrictive covenant of the
Agreement mandates cumulative minimum earnings before interest, taxes,
depreciation and amortization for specified periods during the term of the
Agreement. During Fiscal 1996 and as of February 1, 1997, the Company was in
compliance with all covenants of the previous and current arrangements.
As of February 1, 1997, the Company had $40.7 million of remaining credit
availability. As of that date, outstanding obligations under the Agreement were
$11.0 million, including the $10.0 million term loan, and the Company had $16.0
million in letter of credit commitments. As of February 3, 1996, the Company had
outstanding loans and letter of credit commitments under the Agreement of $13.2
million and $9.9 million, respectively, in addition to the $35.0 million in
fixed rate debt. During Fiscal 1996, average revolver borrowings outstanding
were
12
<PAGE> 15
$17.0 million at an average interest rate of 8.5% versus $16.5 million and
9.19%, respectively, during Fiscal 1995. Maximum loan usage under the revolving
credit facilities during Fiscal 1996 and Fiscal 1995 was $32.8 million and $32.0
million, respectively.
During the year ended January 28, 1995, the Company purchased its then
outstanding 12.75% debentures, due July 15, 2000, having a face value of
$22,230,000 for $24,591,938 or 110.625%. The extraordinary loss of $2,335,000
(net of $1,245,000 of tax benefit) reflects the write-off of deferred debt
financing costs, deferred debt discount, bond premium and closing costs in
conjunction with the repurchase of the subordinated debentures.
- -------------------------------------------------------------------------------
G. COMMITMENTS
- -------------------------------------------------------------------------------
The Company is committed under long-term operating leases for the rental of
certain real estate, fixtures and equipment. The leases range from 2 to 25 years
and have varying renewal options.
The Company is generally required to pay insurance, real estate taxes and
other operating expenses and in some cases rentals based on a percentage of
sales. Future minimum lease payments as of February 1, 1997 are as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal years ended (in thousands)
- -------------------------------------------------------------------------------
<S> <C>
1998............................. $ 23,459
1999............................. 24,193
2000............................. 24,117
2001............................. 22,957
2002............................. 20,261
Later years...................... 99,409
--------
- -------------------------------------------------------------------------------
Total............................ $214,396
========
</TABLE>
In accordance with purchase accounting requirements, the Company recorded
an asset of $26,128,000 at the acquisition date, which represents the benefit
related to favorable lease terms on existing operating leases. Rent expense for
the years ended February 1, 1997, February 3, 1996 and January 28, 1995,
excluding amortization of these beneficial lease rights, was approximately
$30,364,000, $33,051,000 and $32,870,000, respectively. Rent expense for these
periods include $2,220,622, $2,598,000 and $2,805,000, respectively, for
contingent rent based on sales.
The Company also leases real estate and various computer equipment under
capital leases with remaining terms ranging from 1 to 7 years. The total future
minimum lease payments, as of February 1, 1997, for all capital leases are as
follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal years ended (in thousands)
- -------------------------------------------------------------------------------
<S> <C>
1998............................. $ 760
1999............................. 700
2000............................. 700
2001............................. 700
2002............................. 700
Later years...................... 1,400
-------
Total minimum lease payments..... 4,960
Less: amount representing
interest....................... (1,332)
-------
- -------------------------------------------------------------------------------
Net total........................ $ 3,628
=======
</TABLE>
- -------------------------------------------------------------------------------
H. INCOME TAXES
- -------------------------------------------------------------------------------
The provision (benefit) for income taxes on income (loss) for the years
ended February 1, 1997, February 3, 1996 and January 28, 1995 include the
following (in thousands):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3, January 28,
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current..... $ 436 $(9,331) $ (626)
Deferred.... 2,514 8,719 1,140
State
Current..... 91 265 570
Deferred.... 923 (86) (101)
------- ------- ------
- -------------------------------------------------------------------------------
Total provision
(benefit) for
income taxes... $3,964 $ (433) $ 983
====== ======= ======
</TABLE>
In May, 1996 the Company received federal tax refunds totaling $9.6 million
related to net operating losses carried back to prior years' taxable income.
13
<PAGE> 16
The following is a reconciliation between the statutory federal income tax
rate and the effective income tax rate for the years ended February 1, 1997,
February 3, 1996 and January 28, 1995:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3, January 28,
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal
income tax
(benefit) rate.... 35% (35)% 35%
State income taxes,
net of federal
benefit........... 6 2 4
Other permanent
differences....... 1 4 3
Change in valuation
allowance......... (4) 28 5
-- --- --
- -------------------------------------------------------------------------------
Effective rate...... 38% (1)% 47%
-- --- --
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of February 1, 1997,
February 3, 1996 and January 28, 1995 are as follows (in thousands):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3, January 28,
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Rent................ $ 1,051 $ 2,112 $ 2,091
Insurance........... 801 950 922
Inventory........... 3,177 4,928 3,256
Compensation........ 3,302 3,093 2,650
Contributions
carryforward...... 1,361 -- 1,501
Reserves for store
closings.......... 2,407 5,028 4,039
Other............... 711 805 818
-------- -------- --------
12,810 16,916 15,277
Valuation
allowance......... $(11,644) (12,065) (3,148)
-------- -------- --------
Net deferred
assets............ 1,166 4,851 12,129
Deferred tax
liabilities:
Fixed assets........ (1,474) (1,723) (368)
-------- -------- --------
- -------------------------------------------------------------------------------
Net deferred
taxes............. $ (308) $ 3,128 $ 11,761
======== ======== ========
</TABLE>
A valuation allowance was established in Fiscal 1993, to provide for
certain net operating loss carryforwards and other temporary differences
generated for state income tax purposes, which the Company did not expect to
realize. During the years ended January 28, 1995, February 3, 1996 and February
1, 1997, this valuation allowance was increased (decreased) by $1.7 million,
$8.9 million and $(0.4) million, respectively, to adjust the deferred tax assets
to a level which, based on information available at the time, the Company, more
likely than not, expected to realize.
During the year ended February 3, 1996 the Company settled an audit
examination with the Internal Revenue Service. The total tax and interest paid
as a result of this examination was $5.0 million. The adjustments related to the
purchase price allocations established in 1989 when the Company was acquired. To
the extent the assessment resulted in adjustments to the original purchase price
allocation, goodwill was adjusted in accordance with SFAS No. 109.
- -------------------------------------------------------------------------------
I. PENSION AND THRIFT INCENTIVE PLANS
- -------------------------------------------------------------------------------
The Company has a non-contributory defined benefit pension plan covering
all of its employees who have completed 1,000 hours of credited service in a
given year. Benefits are based on final average compensation and years of
service. The Company's funding policy is to contribute annually an amount at
least necessary to satisfy the ERISA funding requirements. The plan's assets
consist of investments in collective trust funds.
In addition to the plan described above, certain key employees of the
Company participate in a supplementary executive retirement plan.
Net pension cost for the Company's plans included the following components
(in thousands) for the years ended:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3, January 28,
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost --
benefits earned
during the
period............ $ 624 $ 577 $ 639
Interest cost on
projected benefit
obligation........ 632 598 532
Actual return on
plan assets....... (941) (839) (123)
Net amortization and
deferral.......... 603 626 83
----- ----- ------
- -------------------------------------------------------------------------------
Net periodic pension
cost.............. $ 918 $ 962 $1,131
===== ===== ======
</TABLE>
14
<PAGE> 17
The following table sets forth the plans' status (in thousands) as of:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3,
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation..... $(6,804) $(6,254)
======= =======
Accumulated benefit obligation.. (6,902) (6,446)
======= =======
Projected benefit obligation
for service rendered to
date........................ (8,603) (8,072)
Plan assets at fair value..... 6,421 5,054
------- -------
Projected benefit obligation
in excess of plan assets.... (2,182) (3,018)
Unrecognized net gain
(loss)...................... (65) 944
Unrecognized net obligation... 223 247
Prior service cost not yet
recognized in net periodic
pension cost................ 292 324
------- -------
- -------------------------------------------------------------------------------
Accrued pension cost.......... $(1,732) $(1,503)
======= =======
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 4.0%, respectively for Fiscal 1996
and 7.25% and 4.0%, respectively for Fiscal 1995. The expected long-term rate of
return on plan assets is 9.0%.
The Company has a thrift incentive plan to which eligible employees may
make pre-tax contributions of up to 10% of their salary, as allowed under
Section 401(k) of the Internal Revenue Code. The Company contributed
approximately $250,000, $167,000 and $173,000 in matching contributions to this
plan for the years ended February 1, 1997, February 3, 1996 and January 28,
1995, respectively.
- -------------------------------------------------------------------------------
J. CAPITAL STOCK AND STOCK OPTION
AND STOCK PURCHASE PLANS
- -------------------------------------------------------------------------------
The Company's Restated Articles of Organization (the "Restated Articles")
increased the Company's authorized capital stock to 70,000,000 shares of common
stock and 2,500,000 shares of preferred stock. Under the Restated Articles, the
Board of Directors is authorized, subject to any limitations prescribed by law,
from time to time to issue up to 2,000,000 shares of preferred stock, issuable
in one or more classes or series, each of such class or series to have such
preferences, voting powers, qualifications and special or relative rights or
privileges as shall be determined by the Board of Directors. Any class or series
may have full voting rights with the common stock or superior or limited voting
rights, be convertible into common stock or another security of the Company, and
have such other preferences, relative rights and limitations as the Company's
Board of Directors shall determine. As a result, any class or series of
preferred stock could have rights which would adversely affect the voting power
of the common stock. The shares of any class or series of preferred stock need
not be identical.
The Company has three stock option plans: the 1988 Stock Option Plan, the
1990 Equity Incentive Plan and the 1993 Stock Option Plan for Non-Employee
Directors. Under such plans, the Company initially reserved for issuance
2,106,786, 1,100,000 and 250,000 shares of Common Stock. The 1988 Stock Option
Plan provides for the grant of both incentive stock options and nonstatutory
options. The term of options may not exceed 10 years and, unless otherwise
specified by the Board of Directors each option will become exercisable in
cumulative annual installments of 25% beginning on the second anniversary of the
grant date.
The 1990 Equity Incentive Plan provides for the grant of incentive stock
options, nonstatutory options, stock appreciation rights, restricted stock,
unrestricted stock, deferred stock grants and performance awards. Option terms
may not exceed 10 years and options will become exercisable as determined by the
Board. In 1994, the stockholders approved an amendment to the 1990 Equity
Incentive Plan authorizing the issuance under the Plan of an additional
1,000,000 shares of Common Stock.
The 1993 Stock Option Plan for Non-Employee Directors provides for the
grant of stock options to Directors who are not employees of the Company or of
any subsidiary of the Company. The terms of the Option Plan may not exceed 10
years and unless otherwise specified the option will become exercisable in
cumulative installments of 20% beginning on the first anniversary of the grant
date.
In addition to grants from the 1993 Stock Option Plan for Non-Employee
Directors, each non-employee director serving on the Board on December 6, 1996
was granted an option to purchase 5,000 shares of common stock with an exercise
price equal to the market price on the date of the grant, which was $4.81 per
share.
Incentive stock options under all of these plans may not be issued at less
than 100% (110% in the case of owners of more than 10% of all classes of stock)
of the fair market value of the common stock at time of issuance and
nonstatutory options may not be issued at less than 50% of fair market value.
On February 7, 1995, a total of 1,235,750 non-vested stock options, granted
under the Company's 1988 Stock Option Plan and 1990 Equity Incentive Plan, were
repriced at an exercise price equal to the fair market value of the Company's
Common Stock on that day, which was $3.69.
15
<PAGE> 18
The following table summarizes stock option transactions. The prior years'
option prices, previously expressed in ranges, have been expressed in terms of
the weighted average due to the adoption of SFAS No. 123:
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Weighted
Options Average
Granted Price
- ----------------------------------------------------
<S> <C> <C>
Balance at January 29,
1994....................... 3,027,230 $6.90
Options granted.............. 96,500 9.18
Options exercised............ (83,986) 0.53
Options canceled............. (619,914) 9.04
--------- -----
Balance as of January 28,
1995....................... 2,419,830 6.66
Options granted.............. 38,000 3.27
Options exercised............ (122,546) 1.54
Options canceled............. (342,790) 6.78
--------- -----
Balance as of February 3,
1996....................... 1,992,494 3.74
Options granted.............. 927,800 4.21
Options exercised............ (42,659) 0.75
Options canceled............. (115,426) 5.55
--------- -----
Balance as of February 1,
1997....................... 2,762,209 $3.87
========= =====
</TABLE>
As of February 1, 1997 and February 3, 1996 the number of shares of common
stock reserved for granting future stock options was 1,083,959 and 1,877,656,
respectively. As of February 1, 1997 and February 3, 1996, options for 1,138,428
and 973,727 shares, respectively were exercisable under option plans at a
weighted average exercise price of $3.61.
The exercise of non-statutory stock options results in state and federal
income tax benefits to the Company arising from the difference between the
market price at the date of exercise and the option price. During the year ended
February 3, 1996 $136,000 was credited to additional paid-in-capital due to such
exercises.
In 1994, the Company issued, at no cost, restricted stock to a key employee
under the 1990 Equity Incentive Plan. The restrictions on the transferability of
these shares lapsed ratably over two years, and the market price of this
restricted stock was charged to income ratably over the period during which the
restrictions lapsed. The Company also canceled 105,000 shares of restricted
stock as a result of the resignation of a key employee. These shares are
included in the number of shares of common stock reserved for granting future
stock options.
The Company offers an employee stock purchase plan (the "purchase plan")
through which all regular employees with more than six months of continuous
service (excluding those owning 5% or more of the Company's stock) are eligible
to participate. Purchases of common stock occur twice at the end of six-month
periods at 85% of the lesser of the value of the common stock at the beginning
or the end of the period. A total of 450,000 shares of stock were reserved under
the purchase plan. As of February 1, 1997 and February 3, 1996, the number of
shares reserved under this plan for future issuance was 119,943 and 160,674,
respectively.
Effective February 4, 1996, the Company adopted the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company has elected to
continue to account for stock options at the intrinsic value with disclosure of
the effects of the fair value accounting on net income and earnings per share on
a pro-forma basis. Had compensation cost for the stock option plans been
determined using the fair value method, the Company's Fiscal 1996 and Fiscal
1995 pro-forma net income (loss) and earnings (loss) per share would have been
as follows (in thousands):
- ------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 1, February 3,
Fiscal year ended 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
As reported..... $6,466 $(31,791)
Pro-forma...... $6,264 $(31,797)
Primary and fully
diluted earnings
(loss) per share
As reported..... $0.31 $(1.56)
Pro-forma...... $0.30 $(1.56)
</TABLE>
Consistent with SFAS No. 123, pro-forma net income (loss) and earnings
(loss) per share have not been calculated for options granted prior to January
29, 1995. Pro-forma compensation cost may not be representative of that to be
expected in future years.
The weighted average fair value of each option for Fiscal 1996 and Fiscal
1995 was $3.50 and $2.81, respectively. The values were estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in Fiscal 1996 and Fiscal 1995,
respectively; risk-free interest rate of 7.0% and 6.1%, expected lives of ten
years for both periods and expected volatility of 73.2% and 81.7%.
- -------------------------------------------------------------------------------
K. DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity
of these investments.
NOTE RECEIVABLE
The note had a current maturity date and was paid subsequent to year end.
16
<PAGE> 19
LONG-TERM DEBT
The carrying amount of the Company's long term debt approximates the fair
value. The term loan was refinanced in May, 1996 and carries interest costs of
either prime plus 0.75% or LIBOR plus 2.75% (Note F).
The estimated fair value of the Company's financial instruments are as
follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CARRYING
FEBRUARY 1, 1997 AMOUNT FAIR VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents.... $ 462 $ 462
Notes receivable............. $ 2,106 $ 2,106
Long term debt............... $10,000 $10,000
</TABLE>
- -------------------------------------------------------------------------------
L. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal year ending February 1, 1997
Net sales........... $124,032 $120,101 $147,203 $153,689
Gross profit(a)..... 30,822 29,017 38,152 34,879
Net income.......... $ 564 $ 1,215 $ 3,513 $ 1,174
Per common share,
fully
diluted(b)........ $ 0.03 $ 0.06 $ 0.17 $ 0.06
Fiscal year ending February 3, 1996
Net sales........... $127,694 $130,249 $154,244 $170,322
Gross profit(a)..... 29,882 29,582 37,320 21,314
Net income (loss)... $ (1,913) $ (365) $ 1,605 $(31,118)
Per common share,
fully
diluted(b)........ $ (0.09) $ (0.02) $ 0.08 $ (1.52)
</TABLE>
- -------------------------------------------------------------------------------
(a) Gross profit equals net sales less cost of sales, including buying and
occupancy costs.
(b) In accordance with Accounting Principles Board Opinion No. 15, the quarterly
per share earnings do not necessarily aggregate to the annual per share
earnings.
- -------------------------------------------------------------------------------
M. CHARGE FOR STORE CLOSINGS
- --------------------------------------------------------------------------------
During the fourth quarter of Fiscal 1995, the Company recorded an $11.4
million charge in connection with planned store closures, including $0.8 million
related to Fiscal 1994 planned closures not covered by the original reserve. The
$11.4 million charge included reserves for estimated costs associated with
remaining lease obligations, write-offs and losses related to leasehold
improvements and severance costs. As of February 1, 1997, approximately $3.1
million of these reserves remain, which the Company believes is adequate to
cover future costs.
In January 1995, the Company recorded a charge of $4.9 ($3.2 million
after-tax) reflecting the expenses primarily associated with the closure of nine
stores. Five stores were closed by the end of February 1995. The remaining four
stores were closed in the latter half of 1995. The cost to close the nine
locations totaled $5.7 million.
The charges for store closings in Fiscal 1995 and Fiscal 1994 consist of
the following components (in thousands):
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 3, January 28,
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Write-off of leasehold
improvements and fixtures....... $ 3,868 $1,253
Estimated costs associated with
obligations for leased
properties after closing date
offset by expected sublease
income.......................... 6,637 1,458
Additional markdowns associated
with store closings and
relocations..................... -- 1,690
Costs of severance arrangements
and related expenses............ 872 491
------- ------
Total......................... $11,377 $4,892
======= ======
</TABLE>
The eight stores included in the Fiscal 1995 closing reserve recorded sales
in Fiscal 1995 and 1994 of $46.3 million and $54.6 million, respectively, and
direct store contribution of $0.0 million and $2.7 million, respectively.
The nine stores included in the Fiscal 1994 closing reserve recorded sales
in Fiscal 1995 and 1994 of $10.0 million and $47.5 million, respectively, and
direct store contribution (loss) of $(1.8) million and $(0.1) million,
respectively.
- -------------------------------------------------------------------------------
N. DEFERRED REVENUE
- -------------------------------------------------------------------------------
On November 24, 1993 the Company sold its leasehold interest in a retail
property located on North Michigan Avenue in Chicago, Illinois in exchange for a
combination of cash and notes receivable. Simultaneously, the Company entered
into a fifteen year lease of this property with the new owner. Deferred revenue
represents the excess of the Company's proceeds from the sale over the cost of
its investment in the related property and will be amortized over the life of
the lease. The Company amortized $167,000 during each of Fiscal 1996, Fiscal
1995 and Fiscal 1994. Under the terms of the sale agreement, the Company is
entitled to a percentage of the net cash flow which may be generated by the new
owner's development of this property. To date, the Company has not recognized
any revenues related to this project.
17
<PAGE> 20
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of Filene's Basement Corp.:
We have audited the accompanying consolidated balance sheet of Filene's
Basement Corp. and subsidiary (a Massachusetts corporation) as of February 1,
1997 and the related consolidated statement of operations, changes in
stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Filene's Basement Corp. and
subsidiary as of February 1, 1997 and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen L.L.P.
Boston, Massachusetts
March 12, 1997
To the Board of Directors and Stockholders of Filene's Basement Corp.:
We have audited the accompanying consolidated balance sheets of Filene's
Basement Corp. and its wholly-owned subsidiaries as of February 3, 1996 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the fiscal years ended February 3, 1996 and January 28, 1995.
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 generally accepted auditing
standards. 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Filene's
Basement Corp. and its wholly-owned subsidiaries as of February 3, 1996 and the
consolidated results of their operations and their cash flows for the fiscal
years ended February 3, 1996 and January 28, 1995 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 20, 1996
18
<PAGE> 21
- -------------------------------------------------------------------------------
PRICE RANGE OF COMMON STOCK
(UNAUDITED)
- -------------------------------------------------------------------------------
Since April 30, 1991, the Company's common stock has been available for
quotation on the Nasdaq National Market under the Symbol "BSMT". The following
table sets forth, for the periods indicated the high and low sale prices per
share of the Company's common stock as quoted through the Nasdaq National
Market:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal year end Fiscal year end
February 1, 1997 February 3, 1996
High Low High Low
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter.... $4 3/16 $2 1/8 $4 3/8 $3 1/4
Second Quarter... 5 3/4 3 15/16 5 3/4 3 1/8
Third Quarter.... 5 3/4 4 6 3/8 3 1/2
Fourth Quarter... 5 3/4 3 7/8 4 1/8 2 5/16
</TABLE>
The last reported sale price per share of the Company's common stock as
quoted on the Nasdaq National Market on April 7, 1997 was $7 5/16. As of March
15, 1997 the Company had 1,597 shareholders of record.
The Company has never paid dividends on its Common Stock. The Company
currently intends to retain earnings, if any, and does not anticipate paying
cash dividends in the foreseeable future. Payments of future dividends, if any,
will be at the discretion of the Board of Directors after taking into account
various factors, including the Company's financial condition, operating results,
and current anticipated cash needs.
19
<PAGE> 22
- --------------------------------------------------------------------------------
FILENE'S BASEMENT INVESTOR INFORMATION
- --------------------------------------------------------------------------------
INVESTOR RELATIONS
Investor inquiries are most welcome, and individuals are invited to contact us
by letter to request Company information. A copy of the Company's Annual Report
on Form 10-K for the fiscal year ending February 1, 1997 may also be obtained
without charge.
Filene's Basement
40 Walnut Street
Wellesley, Massachusetts 02181
(617) 348-7000
STOCK TRANSFER AGENT AND REGISTRAR
Stockholders with inquiries about stock ownership or changes of address, may
contact:
Boston EquiServe
Shareholder Services
PO Box 8200
Boston, Massachusetts 02266-8200
1-800-426-5523
Please mention Filene's Basement, your name as printed on your stock
certificate, your social security number and include your address and telephone
number in all correspondence.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held Thursday, June 26, 1997 at 2:00
p.m. at BankBoston, N.A., 100 Federal Street, Boston, Massachusetts. All
stockholders are invited to attend.
STOCK LISTING
Filene's Basement Corp. common stock is listed on the Nasdaq National Market,
under the symbol BSMT.
CORPORATE OFFICERS
<TABLE>
<S> <C>
Samuel J. Gerson........... Chairman, Chief Executive Officer and Director
Mone Anathan, III.......... President, Chief Operating Officer and Director
Steven Siegel.............. Executive Vice President, Chief Financial Officer, Treasurer and Secretary
</TABLE>
OUTSIDE DIRECTORS
<TABLE>
<S> <C>
John Eyler................. President and Chief Executive Officer, FAO Schwartz, New York, New York
Robert P. Henderson........ General Partner, Greylock Management Corporation, Boston, Massachusetts
Harold Leppo............... Chief Executive Officer, Harold Leppo and Co., Retail Consultants,
Stamford, Connecticut
Paul D. Paganucci.......... Chairman of the Board, Ledyard National Bank, Hanover, New Hampshire
Dorsey R. Gardner.......... President, Kelso Management Company, Inc., Boston, Massachusetts
</TABLE>
GENERAL COUNSEL
<TABLE>
<S> <C>
Hale and Dorr LLP.......... Boston, Massachusetts
</TABLE>
INDEPENDENT AUDITORS
<TABLE>
<S> <C>
Arthur Andersen LLP........ Boston, Massachusetts
</TABLE>
20
<PAGE> 23
- --------------------------------------------------------------------------------
FILENE'S BASEMENT CORP. STORE LOCATIONS
- --------------------------------------------------------------------------------
CONNECTICUT
Corbin's Corner, CT 06110
Corbin's Corner Shopping Center
Orange, CT 06477
550-560 Boston Post Road
Manchester, CT
1510 Pleasant Valley Road
ILLINOIS
Chicago, IL 60602
1 North State Street
Chicago, IL 60611
830 North Michigan Ave
Oak Brook, IL 60521
Shops at Oak Brook Place
2155 West 22nd Street
Skokie, IL 60077
Orchard Place
4831 Golf Road
MAINE
Portland, ME 04106
The Maine Mall
MASSACHUSETTS
Boston, MA 02101
426 Washington Street
North Attleboro, MA 02762
Fashion Crossing
1250 S. Washington St.
Braintree, MA 02184
South Shore Plaza
250 Granite St.
Burlington, MA 01803
Route 3A & Winn St.
Dedham, MA 02026
688 Providence Highway
Framingham, MA 01701
Rte 30, Cochituate Rd.
Holyoke, MA 01040
Holyoke Mall at Ingelside
Whiting Farms Road
Hyannis, MA 02601
Cape Town Plaza
768 Ivanough Road
Newton, MA 02164
215-227 Needham St.
Peabody, MA 01960
Northshore Mall
Route 114 and Route 128
Plymouth, MA 02364
Independence Mall
Smith Lane
Saugus, MA 01906
Square One Mall
Route 1
Taunton, MA 02718
2 West Stevens St.
Watertown, MA 02172
485 Arsenal St.
Worcester, MA 01608
200 Front St.
MINNESOTA
Bloomington, MN 55425
124 West Market Street
NEW HAMPSHIRE
Manchester, NH 03103
South Willow St.
Nashua, NH 03060
262 Daniel Webster Highway
Salem, NH 03079
99 Rockingham Park Blvd.
NEW JERSEY
Jersey City, NJ 07310-1603
Newport Center
30 Mall Drive West
Moorestown, NJ 08057
Moorestown Mall
Rte 38 - Lenola Road
Paramus, NJ 07652
651 Route 17
NEW YORK
Carle Place, NY 11514
99 Old Country Road
Flushing, NY 11365
187-04 Horace Harding Expressway
Huntington, NY 11745
350 Route 110
Manhasset, NY 11030
1400 Northern Blvd.
New York, NY 10011
620 Avenue of Americas
New York, NY 10024
2222-2226 Broadway
Scarsdale, NY 10583
Midway Shopping Center
935 Central Park Ave.
PENNSYLVANIA
Philadelphia, PA 19154
1477 Franklin Mills Circle
Philadelphia, PA 19103
1608-1610 Chestnut St.
St. Davids, PA 19087
550 Lancaster Avenue
Willow Grove, PA 19090
Moreland Road
RHODE ISLAND
Warwick, RI 02886
399 Bald Hill Road
VIRGINIA
Fairfax, VA 22041
Bailey's Crossroads Center
5850 Crossroads Center
WASHINGTON, DC
Washington, DC 20036
1133 Connecticut Avenue
Washington, DC 20015
5300 Wisconsin Avenue
<PAGE> 1
Exhibit 21
Subsidiaries of Registrant
Name Jurisdiction of Incorporation
Filene's Basement, Inc. Massachusetts
<PAGE> 1
Exhibit No. 23
ARTHUR
ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated March 12, 1997, incorporated by reference in
Filene's Basement Corp.'s Annual Report on Form 10-K for the year ended
February 1, 1997 into the Company's previously filed Registration Statements on
Form S-8 (File No. 33-40667), Form S-8 (File No. 33-40668), and Form S-8 (File
No. 33-40669).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 30, 1997
<PAGE> 1
[COOPERS
& LYBRAND]
EXHIBIT NO. 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the incorporation by reference in this Annual Report on Form
10-K of our report dated March 20, 1996 on our audits of the Consolidated
Financial Statements of Filene's Basement Corp. as of February 3, 1996 and for
the two years ended February 3, 1996 and January 28, 1995, which report is
included in the 1996 Annual Report to Stockholders.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 30, 1997
Coopers & Lybrand is a member of Coopers & Lybrand International, a limited
liability association incorporated in Switzerland.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 462
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 88,763
<CURRENT-ASSETS> 98,588
<PP&E> 129,147
<DEPRECIATION> 67,880
<TOTAL-ASSETS> 182,913
<CURRENT-LIABILITIES> 80,246
<BONDS> 10,000
0
0
<COMMON> 207
<OTHER-SE> 87,485
<TOTAL-LIABILITY-AND-EQUITY> 182,913
<SALES> 545,025
<TOTAL-REVENUES> 545,025
<CGS> 412,155
<TOTAL-COSTS> 412,155
<OTHER-EXPENSES> 118,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,735
<INCOME-PRETAX> 10,430
<INCOME-TAX> 3,964
<INCOME-CONTINUING> 6,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,466
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
