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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
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 (I.R.S. Employer
incorporation or organization) Identification No.)
40 Walnut Street, Wellesley, MA 02481
(Address of principal executive offices)
(Zip Code)
(617) 348-7000
(Registrant's telephone number, including area code)
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_____
The number of shares of common stock outstanding as of November 30,
1998 was 20,936,834 shares.
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FILENE'S BASEMENT CORP.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
Item 1 - Financial Statements
Consolidated Balance Sheets as of 3
October 31, 1998, January 31, 1998
and November 1, 1997
Consolidated Statements of Operations 4
for the thirteen weeks ended
October 31, 1998 and November 1, 1997
Consolidated Statements of Operations 5
for the thirty-nine weeks ended
October 31, 1998 and November 1, 1997
Consolidated Statements of Cash Flows 6
for the thirty-nine weeks ended
October 31, 1998 and November 1, 1997
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
2
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FILENE'S BASEMENT CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
October 31, January 31, November 1,
1998 1998 1997
----------- ----------- ------------
ASSETS (unaudited) (unaudited)
Current assets:
Cash and cash equivalents $ 920 $ 475 $ 538
Inventories 128,281 93,021 118,100
Other current assets 14,461 11,162 13,998
--------- --------- ---------
Total current assets 143,662 104,658 132,636
Property, plant and equipment, net 54,804 48,341 55,134
Beneficial operating lease rights, net 12,512 13,497 13,826
Intangible assets, net and other 9,963 8,842 9,525
Assets held for sale - - 7,962
--------- --------- ---------
$ 220,941 $ 175,338 $ 219,083
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 48,718 $ 42,698 $ 46,000
Accrued expenses 27,278 26,455 31,133
Short-term debt 42,400 3,100 37,700
Current portion of long-term debt 2,000 1,000 2,000
Obligations under capital lease 445 414 400
--------- --------- ---------
120,841 73,667 117,233
Reserve for store closings 2,875 3,096 2,492
Deferred revenue 1,707 1,832 1,874
Long-term debt 10,500 11,500 1,500
Obligations under capital lease 2,439 2,777 2,884
Stockholders' equity:
Common stock, $.01 par value, 70,000
shares authorized, 21,012, 20,959
and 20,926 shares issued 210 210 209
Additional paid-in capital 87,063 86,933 86,830
Retained earnings (deficit) (4,678) (4,661) 6,077
Treasury stock, 75 shares (16) (16) (16)
--------- --------- ---------
Total stockholders' equity 82,579 82,466 93,100
--------- --------- ---------
$ 220,941 $ 175,338 $ 219,083
========= ========= =========
See Notes to Consolidated Financial Statements.
3
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FILENE'S BASEMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Weeks Ended
(Unaudited)
(in thousands, except per share amounts)
October 31, November 1,
1998 1997
---------- ----------
Net sales $154,772 $152,471
Cost of sales, including buying,
receiving and occupancy costs 116,905 114,342
-------- --------
Gross profit 37,867 38,129
Selling, general and administrative
expenses 36,620 32,684
Amortization of intangible assets and
beneficial operating lease rights 367 366
-------- --------
Operating income 880 5,079
Interest expense, net 1,226 832
-------- --------
Income (loss) before income taxes (346) 4,247
Income tax provision (benefit) (Note 3) (74) 1,019
-------- --------
Net income (loss) $ (272) $ 3,228
======== ========
Basic earnings (loss) per share (Note 4) $ (0.01) $ 0.16
======== ========
Diluted earnings (loss) per share (Note 4) $ (0.01) $ 0.15
======== ========
See Notes to Consolidated Financial Statements.
4
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FILENE'S BASEMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirty-nine Weeks Ended
(Unaudited)
(in thousands, except per share amounts)
October 31, November 1,
1998 1997
---------- ----------
Net sales $413,815 $399,251
Cost of sales, including buying,
receiving and occupancy costs 313,281 302,458
-------- --------
Gross profit 100,534 96,793
Selling, general and administrative
expenses 96,717 87,135
Amortization of intangible assets and
beneficial operating lease rights 1,100 1,100
-------- --------
Operating income 2,717 8,558
Interest expense, net 2,739 2,008
-------- --------
Income (loss) before income taxes (22) 6,550
Income tax provision (benefit) (Note 3) (5) 1,572
-------- --------
Net income (loss) $ (17) $ 4,978
======== ========
Basic earnings per share (Note 4) $ 0.00 $ 0.24
======== ========
Diluted earnings per share (Note 4) $ 0.00 $ 0.23
======== ========
See Notes to Consolidated Financial Statements.
5
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FILENE'S BASEMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-nine Weeks Ended
(Unaudited)
(in thousands)
October 31, November 1,
1998 1997
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (17) $ 4,978
Adjustments to reconcile net income
(loss) to net cash used in operations:
Depreciation and amortization 10,308 8,893
Deferred income taxes - (1,094)
Increase in inventories (35,260) (29,337)
Increase in other current assets (3,299) (6,741)
Increase in accounts payable 6,020 1,111
Increase (decrease) in accrued
expenses and other liabilities 602 (287)
Other (125) (125)
-------- --------
Net cash used in operating activities (21,771) (22,602)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (15,671) (9,622)
Sale of leasehold interests - 2,106
Other (1,236) (299)
-------- --------
Net cash used in investing activities (16,907) (7,815)
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net 39,300 36,700
Payments of capital lease obligation (307) (344)
Net payments of long-term debt - (6,500)
Proceeds from common stock issuance 130 637
-------- --------
Net cash provided by financing
activities 39,123 30,493
-------- --------
Net increase in cash and cash equivalents 445 76
Cash and cash equivalents:
Beginning of period 475 462
-------- --------
End of period $ 920 $ 538
======== ========
See Notes to Consolidated Financial Statements.
6
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FILENE'S BASEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and
consequently do not include all the disclosures normally required by
generally accepted accounting principles or those normally made in the
Company's Form 10-K filing. Reference should be made to the Company's
Annual Report on Form 10-K for additional disclosures, including a
summary of the Company's accounting policies. Certain prior year
amounts have been reclassified to conform to the current year
presentation. The results of the periods ended October 31, 1998 and
November 1, 1997 are not necessarily indicative of the results for a
full fiscal year because the Company's business, in common with the
businesses of retailers generally, is subject to seasonal influences,
with higher levels of sales and income generally realized in the fall
season. The information furnished, in the opinion of management,
includes all normal recurring adjustments necessary for a fair
presentation of the results of operations for the periods reported.
2. DISTRIBUTION CENTER FIRE
During February 1998, the Company had a fire in its Auburn Distribution
Center. The Company expects that its property and business
interruption insurance will fully cover all losses incurred by the
Company in connection with the fire. The results for the nine months
ended October 31, 1998 include an inventory loss for the cost of
merchandise destroyed and an offsetting gain from the Company's partial
settlement of the property portion of its claim with the insurance
carrier. Gains from the settlement of any business interruption claim
will be recorded by the Company when finalized with its insurance
carrier.
3. INCOME TAXES
The Company is using an effective tax rate of approximately 22% to
compute taxes for the current fiscal year, reflecting the realization
of certain deferred tax assets, which were not previously expected to
be realized in prior years.
4. EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share", basic earnings per share is computed
using the weighted average number of shares outstanding during each
period.
7
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FILENE'S BASEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS PER SHARE (CONTINUED)
Diluted earnings per share is computed using the weighted number of
outstanding shares plus the weighted average number of dilutive common
equivalent shares outstanding during each period.
The following is a reconciliation of the outstanding shares used in
calculating earnings per share for the thirteen week and thirty-nine
week periods ended October 31, 1998 and November 1, 1997 (in
thousands):
Thirteen Weeks Ended
October 31, November 1,
1998 1997
--------- ---------
Basic shares outstanding 20,937 20,818
Options - 1,358
------- -------
Dilutive shares outstanding 20,937 22,176
======= =======
Thirty-nine Weeks Ended
October 31, November 1,
1998 1997
--------- ---------
Basic shares outstanding 20,916 20,723
Options - 1,244
------- -------
Dilutive shares outstanding 20,916 21,967
======= =======
5. NEW ACCOUNTING PRONOUNCMENTS
The Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
in June 1997. The statement establishes standards for the way public
business enterprises report information and operating segments in
annual financial statements and requires reporting of selected
information in interim financial reports. The required disclosures for
SFAS No. 131, which is effective for fiscal years beginning after
December 15, 1997, will be included in the Company's annual report on
Form 10-K for the fiscal year ending January 30, 1999.
The Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants issued Statement of Position 98-5,
8
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FILENE'S BASEMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NEW ACCOUNTING PRONOUNCMENTS (Continued)
"Reporting on the Costs of Start-Up Activities", in April 1998. This
statement establishes the accounting for costs of start-up activities
and requires that all costs of start-up activities be expensed as
incurred. The statement is effective for fiscal years beginning after
December 15, 1998. The Company is presently evaluating the impact of
this statement in light of the start-up costs capitalized in 1998
relating to the new retail format being tested in 1999. (See Outlook
section of accompanying Management's Discussion and Analysis.) This
statement will be adopted in the fourth quarter of 1998.
9
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FILENE'S BASEMENT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the quarter ended October 31, 1998 net sales were $154.8
million, up 1.5% from last year's third quarter sales of $152.5
million. Comparable store sales for the third quarter were down
5.0% versus last year. Net sales for the thirty-nine week period
ended October 31, 1998 were up 3.6% versus last year, while
comparable sales for the same period remained flat. The
comparable store decrease in the third quarter was primarily due
to declining sales of women's sportswear, offset in part by
increased sales in the home goods category. Overall, sales in
the third quarter were weak due to unseasonably warm weather.
The increase in net sales for the thirteen and thirty-nine week
periods ended October 31, 1998 was due to the opening of two new
stores in the first quarter of 1998 and four additional stores in
the third quarter of 1998. The total number of stores in
operation on October 31, 1998 and November 1, 1997 were 51 and
45, respectively.
Cost of sales as a percentage of sales was 75.5% and 75.7% for
the thirteen and thirty-nine week periods ended October 31, 1998
compared to 75.0% and 75.8% for the corresponding periods in the
prior year. The increase in cost of sales in the third quarter
of 1998 was primarily attributable to an increase in occupancy
costs, as a percentage of sales, for the Company's new stores.
In general, the Company has improved its purchase markup over the
prior year, which has helped offset the increasing occupancy
costs.
Selling, general and administrative expenses for the third
quarter of 1998 were $36.6 million, or 23.7% of sales, compared
to $32.7 million, or 21.4% of sales, for the same period last
year. The increase in selling, general and administrative
expenses, in absolute dollars, was primarily the result of
opening new stores in the first and third quarters of 1998. The
increase as a percentage of sales was primarily due to the
decrease in comparable store sales. In addition, depreciation,
equipment leasing, and system development costs increased as a
percentage of sales primarily due to the Company's ongoing
efforts to replace or repair systems affected by the Year 2000
problem. (See Financial Condition, Liquidity and Capital
Resources.) Selling, general and administrative expenses for the
thirty-nine weeks ended October 31, 1998 were $96.7 million, or
23.4% of sales, compared to $87.1 million, or 21.8% of sales, in
the prior year period. In addition to the reasons stated above,
the Company incurred approximately $0.8 million of expenses in
the first quarter of 1998 in connection with a fire that took
place at its Auburn Distribution Center. The Company also
received approximately $0.6 million of proceeds on notes
receivable in excess of their book value during the first quarter
of 1997, which was recorded as income.
10
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FILENE'S BASEMENT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
The Company expects that its property and business interruption
insurance will fully cover all losses incurred by the Company in
connection with the fire mentioned above. The results for the nine
months ended October 31, 1998 include an inventory loss for the
cost of merchandise destroyed and an equal and offsetting gain
from the Company's partial settlement of the property portion of
its claim with the insurance carrier. Gains from any settlement
of the business interruption claim will be recorded by the
Company when finalized with the insurance carrier.
Net interest expense for the quarter ended October 31, 1998 was
$1.2 million compared to $0.8 million last year. Net interest
expense for the thirty-nine weeks ended October 31, 1998 was $2.7
million compared to $2.0 million last year. The increase in net
interest expense was due in part to higher average outstanding
borrowings under the Company's Amended and Restated Revolving
Credit and Term Loan Agreement. (See Financial Condition,
Liquidity and Capital Resources.)
Net loss for the quarter ended October 31, 1998 was $0.3 million,
or $0.01 per diluted share, on 20.9 million weighted average
shares outstanding, compared to net income of $3.2 million, or
$0.15 per diluted share, on 22.2 million weighted average shares
outstanding for the quarter ended November 1, 1997. Net loss for
the thirty-nine weeks ended October 31, 1998 was $17,000 compared
to net income of $5.0 million, or $0.23 per diluted share, on
22.0 million weighted average shares outstanding for the thirty-
nine weeks ended November 1, 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
On January 30, 1998, the Company entered into an Amended and
Restated Revolving Credit and Term Loan Agreement (the
"Agreement"), as amended on September 14, 1998 and October 31,
1998, which replaced the Revolving Credit and Term Loan Agreement
dated May 23, 1996, as amended June 28, 1996. The new facility
expires on February 3, 2001 and includes a $65.0 million
revolving credit facility and a $12.5 million term loan.
Principal payments of the term loan are due in nine quarterly
installments of $500,000, which commenced on November 2, 1998,
with a final payment due at maturity.
11
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FILENE'S BASEMENT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES(CONTINUED)
During the nine months ended October 31, 1998, average borrowings
under the Agreement were approximately $35.7 million at an
average interest rate of 7.88%. During the same period last
year, average borrowings were $27.1 million at an average
interest rate of 7.97%. Excess credit availability at October 31,
1998 was approximately $14.7 million compared to approximately
$17.1 million at November 1, 1997.
The Agreement contains financial covenants, which require
cumulative minimum earnings before interest, taxes, depreciation
and amortization (EBITDA) and a minimum cash flow to fixed
obligations ratio for specified periods during the term of the
Agreement. As of October 31, 1998, the Company was in compliance
with all covenants of the Agreement.
Net cash used in operating activities was $21.8 million for the
thirty-nine weeks ended October 31, 1998 versus cash used of
$22.6 million during the same period last year. The $0.8 million
decrease in cash used by operations was primarily due a decrease
in EDITDA from $17.5 million in 1997 to $13.0 million in 1998.
This decrease was offset by decreases in the Company's accounts
receivable in 1998.
Net cash used in investing activities during 1998 increased $9.1
million over the comparable period in 1997 primarily as a result
of increased capital expenditures of $6.0 million for the new
stores. In addition, in 1997, the Company received proceeds from
the sale of leasehold interests totaling $2.1 million.
Net cash provided by financing activities during the nine months
ended October 31, 1998 was $39.1 million as compared to $30.5
million in the same period of the prior year. The $8.6 million
increase was due to long-term debt repayments of $6.5 million
made in the prior year and increased short-term borrowings during
1998.
During the third quarter of 1998, the Company, as well as other
regional, predominantly apparel, retailers, experienced a sharp
decline in sales, due to, in large part, unseasonably warm
weather. As a result, the Company's Amended and Restated
Revolving Credit and Term Loan Agreement was amended to reduce
its third quarter EBITDA covenant in order for the Company to
remain in compliance with its covenants. Amendment or waiver of
the covenants for the fourth quarter will also be required, which
amendment or waiver the Company expects it will be able to
obtain.
12
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FILENE'S BASEMENT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In addition, the warm weather has continued into the fourth
quarter and has created a highly competitive retail environment.
These factors could cause sales to continue at unseasonably low
levels, a higher than expected level of markdowns to clear
inventory and could materially adversely affect fourth quarter
net income.
The Company is also negotiating with its lenders to increase the
revolving credit facility to accommodate the opening of
approximately ten new stores in 1999, nine of which are expected
to be the new retail format discussed in the Outlook section. It
is expected that the new facility will be in place by year-end
with an increased borrowing base capacity and less restrictive
covenants.
The Company believes that internally generated working capital,
existing vendor and third party factor arrangements, and funds
available from its lenders will be adequate to meet its
merchandise inventory and normal operating expense needs, as well
as presently anticipated capital expenditure requirements for
fiscal 1999. However, the Company's operating results and the
adequacy of its working capital could be adversely affected if,
for any reason, the Company's borrowing base was to become
impaired, or otherwise be deemed ineligible, thereby diminishing
the level of available funds. During 1998, capital expenditures
are expected to approximate $27 million.
The Company's business is seasonal, reflecting increased consumer
demand in the fall season. The second half of each fiscal year
provides a greater portion of the Company's annual sales and
operating profit.
YEAR 2000
The Company utilizes software and related technologies throughout
its business that will be affected by the Year 2000 problem,
which is common to most corporations, and concerns the inability
of information systems, primarily computer software programs, to
properly recognize and process date sensitive information as the
year 2000 approaches.
The Company's State of Readiness
The Company has completed a review of its computer systems to
identify the systems that could be affected by the Year 2000
problem and has developed an implementation plan to resolve the
13
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FILENE'S BASEMENT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
issue. As part of this plan, most non-compliant systems will be
replaced with new systems that will provide certain competitive
benefits as well as ensure Year 2000 compliance in time to
minimize any disruptive effects on operations. The Company is
currently in the process of modifying and testing these new
systems. The Company is also in the process of inventorying and
assessing potential problem areas in its non-information
technology systems that use embedded technology, such as
microprocessors. This evaluation is expected to be completed in
the fourth quarter of 1998.
The replaced systems generally fall into three major categories:
merchandise management systems, store operating systems and
supporting network and sub-systems. The installation phase of the
merchandise management systems has begun, with final testing and
implementation expected to take place in the spring of 1999. The
store operating systems, which primarily consist of point of
sales systems, are in the initial assessment phase with a planned
rollout of the new systems in the third quarter of 1999.
Supporting network and other sub-systems implementation is
scheduled over 1998 and 1999.
The Company will communicate with most of its key vendors and
other business partners seeking their assurances they will be
Year 2000 compliant. Based on responses, the Company will develop
contingency plans for those areas which pose significant risk
from the Year 2000 problem, however the Company could potentially
experience disruptions to some aspects of its operation from non-
compliant systems utilized by unrelated third party, governmental
and business entities.
The Costs to Address the Year 2000 Issue
While it is not possible at this time to predict the total cost
of this effort, the investment, whether leased, purchased or
expensed, in new software and equipment needed to achieve Year
2000 compliance and enhance existing systems, is currently
estimated at approximately $31.0 million, of which $7.9 million
had been incurred through October 31, 1998. The expense portion
of the total project is estimated at $11.9 million of which $2.3
million and $3.2 million is expected to be incurred in 1998 and
1999, respectively. Through October 31, 1998, $1.5 million has
been expensed. Funding requirements have been incorporated into
the Company's capital and operating plans and are not expected to
have a material adverse impact on the Company's financial
condition or liquidity.
14
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FILENE'S BASEMENT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Risk Analysis
Like most large business enterprises, the Company is dependent
upon its own internal computer technology and relies upon timely
performance by its business partners. As noted above, a large-
scale Year 2000 failure could impair the Company's ability to
timely deliver product to stores, resulting in potential lost
sales opportunities and additional expenses. The Company's Year
2000 program seeks to identify and minimize this risk and
includes testing of its systems and purchased hardware and
software, to ensure, to the extent feasible, all such systems
will function before and after the Year 2000. The Company is
continually refining its understanding of the risk the Year 2000
poses to its significant business partners based upon information
obtained through its surveys and interviews. That refinement
will continue throughout 1998 and 1999.
Contingency Plans
Following its risk analysis, the Company's plans to design a
contingency plan in which appropriate backup plans will be made
to attempt to minimize disruption to the Company's operations in
the event of a Year 2000 failure. The level of planning required
is a function of the risks ascertained through the Company's
investigative efforts. The Company anticipates contingency
planning across the enterprise will be completed by the summer of
1999.
Because of the Company's extensive efforts to formulate and carry-
out an effective Year 2000 program, the Company believes its
program will be completed on a timely basis and should
effectively minimize disruption to the Company's operations,
however, there can be no assurance that the Company will be
successful in this respect.
OUTLOOK
The Company plans to open nine stores during 1999 to test the
feasibility of a new retail format to supplement the traditional
Filene's Basement specialty stores. Principal elements will
include larger stores operating during weekends only. Merchandise
will be warehoused at these units, reducing the current lead time
between vendor and point of sale, and providing greater volume of
merchandise at the store. The new format will leverage the
current Filene's Basement infrastructure, vendor relations and
15
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FILENE'S BASEMENT CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
OUTLOOK (Continued)
name recognition. The capital required to open stores of this
kind will be significantly less than required for a traditional
Filene's Basement specialty store.
The objective of the program is to test the concept of increasing
sales through such new stores, with a goal of reducing costs and
improving operating margins. The Company intends to open
additional specialty stores of the traditional format as well.
Due to the factors discussed below, there is no guarantee that
the Company will achieve these expectations.
The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5 in April 1998. This statement establishes
the accounting for costs of start-up activities and requires that
all costs of start-up activities be expensed as incurred. The
statement is effective for fiscal years beginning after December
15, 1998. The Company is presently evaluating the impact of this
statement in light of the start-up costs capitalized in 1998
relating to the new retail format discussed above. This
statement will be adopted in the fourth quarter of 1998.
This Quarterly Report on Form 10-Q contains forward-looking
statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements.
Factors which may cause actual results to differ materially from
those indicated by such forward-looking statements include, among
others: (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 providers of goods and services, (iv) the continued
success of the Company's efforts to implement planned strategic
initiatives, (v) unexpected store closings and the related higher
markdowns associated with inventory liquidations and (vi) the
unanticipated impact of the Year 2000 problem.
16
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PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.40.1 First Amendment Agreement amending the Revolving Credit
and Term Loan Agreement among the Company, Filene's
Basement, Inc. and Filene's Basement Corp. (FBC) and
BankBoston, N.A. Dated as of September 14, 1998. (filed
herewith)
10.40.2 Second Amendment Agreement amending the Revolving Credit
and Term Loan Agreement among the Company, Filene's
Basement, Inc. and Filene's Basement Corp. and
BankBoston, N.A. Dated as of October 31, 1998. (filed
herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K
None
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, being also its
principal financial officer.
FILENE'S BASEMENT CORP.
/s/ Steven Siegel
---------------------
Steven Siegel
Executive Vice President
& Chief Financial Officer
DATE: December 15, 1998
18
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EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit Title
10.40.1 First Amendment Agreement amending the Revolving Credit
and Term Loan Agreement among the Company, Filene's
Basement, Inc. and Filene's Basement Corp. (FBC) and
BankBoston, N.A. Dated as of September 14, 1998. (filed
herewith)
10.40.2 Second Amendment Agreement amending the Revolving Credit
and Term Loan Agreement among the Company, Filene's
Basement, Inc. and Filene's Basement Corp. and
BankBoston, N.A. Dated as of October 31, 1998. (filed
herewith)
27 Financial Data Schedule
EXHIBIT 10.40.1
AMENDMENT AGREEMENT NO. 1
AMENDMENT AGREEMENT NO. 1 dated as of September 14, 1998
(this "Amendment") by and among (a) Filene's Basement, Inc., a
Massachusetts corporation (the "Borrower"), (b) Filene's Basement
Corp., a Massachusetts corporation (the "Guarantor"), (c)
BankBoston, N.A. (f/k/a The First National Bank of Boston) and
the other lending institutions listed on Schedule 1 to the Credit
Agreement (as hereinafter defined) (collectively, the "Banks"),
(d) BankBoston, N.A. (f/k/a The First National Bank of Boston),
as agent for itself and the Banks (the "Agent"), amending the
Amended and Restated Revolving Credit and Term Loan Agreement
dated as of January 30, 1998 (as amended and in effect from time
to time, the "Credit Agreement") among the Borrower, the
Guarantor, the Banks and the Agent. Capitalized terms used
herein without other definition shall have the meanings assigned
to them in the Credit Agreement.
WHEREAS, upon the terms and subject to the conditions
contained herein, the Borrower, the Guarantor, the Agent and the
Majority Banks wish to amend certain provisions of the Credit
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements
contained in the Credit Agreement and herein and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged the parties hereto hereby agree as
follows:
1. Amendment of Section 1.1 of the Credit Agreement.
Section 1.1 of the Credit Agreement is hereby amended as follows:
(a) The definition of "Consolidated Operating Cash
Flow" set forth in such section is amended and restated in
its entirety to read as follows:
Consolidated Operating Cash Flow. For any period
an amount equal to EBITDA for such period, less,
Capital Expenditures made during such period, excluding
Capital Expenditures made during the fiscal year ending
January 30, 1999 up to an aggregate amount not to
exceed $12,500,000, less, cash payments for all current
income taxes made by the Guarantor, the Borrower and
their Subsidiaries during such period. Notwithstanding
the foregoing and subject to the other requirements of
the Credit Agreement, Capital Expenditures are not
limited to $12,500,000 in any fiscal year.
(b) The definition of "Permitted Inventory Locations"
set forth in such section is amended by deleting the words
"Schedule 2" and substituting in place thereof the words
"Schedule 8.22".
2. Amendment of Section 9.4(j) of the Credit Agreement.
Section 9.4(j) of the Credit Agreement is hereby amended by
deleting the words "Schedule 2" and substituting in place thereof
the words "Schedule 8.22".
3. Amendment of Section 11.2 of the Credit Agreement.
Section 11.2 of the Credit Agreement is hereby amended by
amending and restating in its entirety the table set forth at the
end of such section to read as follows:
Period Ending Ratio
January 31, 1998 1.40:1.00
May 2, 1998 1.00:1.00
August 1, 1998 0.90:1.00
October 31, 1998 1.00:1.00
January 30, 1999 and 1.50:1.00
thereafter
4. Amendment Fee. The Borrower shall pay to the Agent,
for the account of those Banks which have delivered to the Agent
on or prior to the Effective Date facsimile copies of such Bank's
executed signature page to this Amendment, on the Effective Date
an amendment fee in the amount of $30,000 (the "Amendment Fee")
5. Conditions To Effectiveness. This Amendment shall
become effective as of the date hereof (the "Effective Date")
upon satisfaction of the following conditions: (a) the Agent
receives facsimile copies of original counterparts (to be
followed promptly by original counterparts) or original
counterparts of this Amendment, duly executed by each of the
Borrower, the Guarantor, the Agent, and the Majority Banks and
(b) the Borrower shall have paid to the Agent the Amendment Fee.
6. Representation and Warranties; No Default;
Authorization. Each of the Borrower and the Guarantor hereby
represents and warrants to each of the Agent and the Banks as
follows:
(a) Each of the representations and warranties of each of
the Borrower and the Guarantor contained in the Credit Agreement,
the other Loan Documents or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement,
the other Loan Documents or this Amendment was true as of the
date as of which it was made and is true as and at the date of
this Amendment, and no Default or Event of Default has occurred
and is continuing as of the date of this Amendment; and
(b) This Amendment has been duly authorized, executed and
delivered by each of the Borrower and the Guarantor and shall be
in full force and effect upon the satisfaction of the conditions
set forth in 5 hereof, and the agreements of each of the
Borrower and the Guarantor party hereto contained herein, in the
Credit Agreement, as amended, and the other Loan Documents
respectively constitute the legal, valid and binding obligations
of each of the Borrower and the Guarantor, enforceable against
such Borrower or Guarantor in accordance with their respective
terms, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to
or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of
the court before which any proceeding therefor may be brought.
7. Entire Agreement. This Amendment, together with the
Credit Agreement as amended hereby, and the other Loan Documents,
express the entire understanding of the parties with respect to
the transactions contemplated hereby. Neither this Amendment nor
any term hereof may be changed, waived, discharged or terminated
except as provided in 27 of the Credit Agreement.
8. Ratification, etc. Except as expressly amended hereby,
the Credit Agreement, the other Loan Documents and all documents,
instruments and agreements related thereto are hereby ratified
and confirmed in all respects and shall continue in full force
and effect. All references in the Credit Agreement or the other
Loan Documents or in any related agreement or instrument to the
Credit Agreement or the other Loan Documents shall hereafter
refer to the Credit Agreement as amended hereby, pursuant to the
provisions of the Credit Agreement.
9. Implied Waiver. Except as expressly provided herein,
nothing contained herein shall constitute a waiver of, impair or
otherwise affect any Obligations, any other obligations of the
Borrower or the Guarantor or any right of the Agent or the Banks
consequent thereon.
10. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but
which together shall constitute one and the same instrument.
11. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF
LAW).
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as a document under seal as of the date first above
written.
FILENE'S BASEMENT, INC.
By: /s/ STEVEN SIEGEL
Title: Exec. Vice-President & Chief
Financial Officer
FILENE'S BASEMENT CORP.
By: /s/ STEVEN SIEGEL
Title: Exec. Vice-President & Chief
Financial Officer
BANKBOSTON, N.A. (f/k/a The First
National Bank of Boston),
Individually and as Agent
By: /s/ PAUL G. FELONEY
_________________________________
Paul G. Feloney, Director
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ IRA A. MERMELSTEIN
_________________________________
Name: Ira A. Mermelstein
Title: Vice-President
HELLER FINANCIAL, INC.
By: /s/ THOMAS BUKOWSKI
_________________________________
Name: Thomas Bukowski
Title: Senior Vice-President
RATIFICATION OF GUARANTY
The undersigned guarantor hereby acknowledges and consents
to the foregoing Amendment as of September __, 1998 and agrees
that the Guaranty dated as of May 23, 1996 and amended and
ratified as of January 30, 1998, in favor of the Agent for the
benefit of the Agent and the Banks, and all other Loan Documents
to which the Guarantor is a party remain in full force and
effect, and the Guarantor confirms and ratifies all of its
obligations thereunder.
FILENE'S BASEMENT CORP.
By:_/s/ STEVEN SIEGEL_
Title: Exec. Vice-President & Chief
Financial Officer
EXHIBIT 10.40.2
AMENDMENT AGREEMENT NO. 2
AMENDMENT AGREEMENT NO. 2 dated as of October 31, 1998 (this
"Amendment") by and among (a) Filene's Basement, Inc., a
Massachusetts corporation (the "Borrower"), (b) Filene's Basement
Corp., a Massachusetts corporation (the "Guarantor"), (c)
BankBoston, N.A. (f/k/a The First National Bank of Boston) and
the other lending institutions listed on Schedule 1 to the Credit
Agreement (as hereinafter defined) (collectively, the "Banks"),
(d) BankBoston, N.A. (f/k/a The First National Bank of Boston),
as agent for itself and the Banks (the "Agent"), amending the
Amended and Restated Revolving Credit and Term Loan Agreement
dated as of January 30, 1998 (as amended and in effect from time
to time, the "Credit Agreement") among the Borrower, the
Guarantor, the Banks and the Agent. Capitalized terms used
herein without other definition shall have the meanings assigned
to them in the Credit Agreement.
WHEREAS, upon the terms and subject to the conditions
contained herein, the Borrower, the Guarantor, the Agent and the
Majority Banks wish to amend certain provisions of the Credit
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements
contained in the Credit Agreement and herein and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged the parties hereto hereby agree as
follows:
1. Amendment of Section 11.1 of the Credit Agreement.
Section 11.1 of the Credit Agreement is hereby amended by
amending and restating in its entirety the table set forth at the
end of such section to read as follows:
Period Amount
Four consecutive $14,500,000
fiscal quarters
ending on January 31,
1998
Four consecutive $15,000,000
fiscal quarters
ending on each of May
2, 1998 and August 1,
1998
Four consecutive $14,500,000
fiscal quarters
ending on October 31,
1998
Four consecutive $20,000,000
fiscal quarters
ending on January 30,
1999 and thereafter
2. Amendment Fee. The Borrower shall pay to the Agent,
for the account of the Banks due and payable on the Effective
Date, an amendment fee (the "Amendment Fee") as agreed to and set
forth in a separate fee letter between the Borrower and the
Agent.
3. Conditions To Effectiveness. This Amendment shall
become effective as of the date hereof (the "Effective Date")
upon satisfaction of the following conditions: (a) the Agent
receives facsimile copies of original counterparts (to be
followed promptly by original counterparts) or original
counterparts of this Amendment, duly executed by each of the
Borrower, the Guarantor, the Agent, and the Majority Banks and
(b) the Borrower shall have paid to the Agent the Amendment Fee.
4. Representation and Warranties; No Default;
Authorization. Each of the Borrower and the Guarantor hereby
represents and warrants to each of the Agent and the Banks as
follows:
(a) Each of the representations and warranties of each of
the Borrower and the Guarantor contained in the Credit Agreement,
the other Loan Documents or in any document or instrument
delivered pursuant to or in connection with the Credit Agreement,
the other Loan Documents or this Amendment was true as of the
date as of which it was made and is true as and at the date of
this Amendment, and no Default or Event of Default has occurred
and is continuing as of the date of this Amendment; and
(b) This Amendment has been duly authorized, executed and
delivered by each of the Borrower and the Guarantor and shall be
in full force and effect upon the satisfaction of the conditions
set forth in 3 hereof, and the agreements of each of the
Borrower and the Guarantor party hereto contained herein, in the
Credit Agreement, as amended, and the other Loan Documents
respectively constitute the legal, valid and binding obligations
of each of the Borrower and the Guarantor, enforceable against
such Borrower or Guarantor in accordance with their respective
terms, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to
or affecting generally the enforcement of creditors' rights and
except to the extent that availability of the remedy of specific
performance or injunctive relief is subject to the discretion of
the court before which any proceeding therefor may be brought.
4. Entire Agreement. This Amendment, together with the
Credit Agreement as amended hereby, and the other Loan Documents,
express the entire understanding of the parties with respect to
the transactions contemplated hereby. Neither this Amendment nor
any term hereof may be changed, waived, discharged or terminated
except as provided in 27 of the Credit Agreement.
5. Ratification, etc. Except as expressly amended hereby,
the Credit Agreement, the other Loan Documents and all documents,
instruments and agreements related thereto are hereby ratified
and confirmed in all respects and shall continue in full force
and effect. All references in the Credit Agreement or the other
Loan Documents or in any related agreement or instrument to the
Credit Agreement or the other Loan Documents shall hereafter
refer to the Credit Agreement as amended hereby, pursuant to the
provisions of the Credit Agreement.
6. Implied Waiver. Except as expressly provided herein,
nothing contained herein shall constitute a waiver of, impair or
otherwise affect any Obligations, any other obligations of the
Borrower or the Guarantor or any right of the Agent or the Banks
consequent thereon.
7. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but
which together shall constitute one and the same instrument.
8. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICTS OF
LAW).
IN WITNESS WHEREOF, the parties hereto have executed this Am
endment as a document under seal as of the date first above
written.
FILENE'S BASEMENT, INC.
By: /s/ STEVEN SIEGEL
Name: Steven Siegel
Title: Exec. Vice-President & Chief
Financial Officer
FILENE'S BASEMENT CORP.
By: /s/ STEVEN SIEGEL
Name: Steven Siegel
Title: Exec. Vice-President & Chief
Financial Officer
BANKBOSTON, N.A. (f/k/a The First
National Bank of Boston),
Individually and as Agent
By: /s/ PAUL G. FELONEY
_________________________________
Paul G. Feloney, Director
BANKAMERICA BUSINESS CREDIT, INC.
By:
_________________________________
Name:
Title:
HELLER FINANCIAL, INC.
By: /s/ THOMAS BUKOWSKI
_________________________________
Name: Thomas Bukowski
Title: Senior Vice-President
RATIFICATION OF GUARANTY
The undersigned guarantor hereby acknowledges and consents to the
foregoing Amendment as of October 31, 1998 and agrees that the
Guaranty dated as of May 23, 1996 and amended and ratified as of
January 30, 1998, in favor of the Agent for the benefit of the
Agent and the Banks, and all other Loan Documents to which the
Guarantor is a party remain in full force and effect, and the
Guarantor confirms and ratifies all of its obligations
thereunder.
FILENE'S BASEMENT CORP.
By:____________________________________
Name:
Title:
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