UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
Commission file Number 1-11134
BRADLEES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3156108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Bradlees Circle
Braintree, MA 02184
(Address of principal executive offices)
(Zip Code)
(617) 380-3000
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No
Number of shares of the issuer's common stock outstanding as of
June 1, 1996: 11,411,384 shares.
Exhibit Index on Page 17
Page 1 of 20 (Including Exhibits)
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Bradlees, Inc., Debtor-in-Possession:
We have reviewed the accompanying condensed consolidated balance
sheets of Bradlees, Inc. and subsidiaries, Debtor-in-Possession
(the "Company"), as of May 4, 1996 and April 29, 1995, and the
related condensed consolidated statements of operations, and
cash flows for the thirteen-week periods ended May 4, 1996 and
April 29, 1995. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 2, the Company has filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code.
The accompanying consolidated financial statements do not
purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated
financial statements do not purport to show (a) as to assets,
their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition
liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to
stockholder accounts, the effect of any changes that may be made
in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in its business.
<PAGE>
The accompanying condensed consolidated financial statements
have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the condensed
consolidated financial statements (and Note 1 to the annual
financial statements for the year ended February 3, 1996 (not
presented herein)), certain conditions raise substantial doubt
about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1 to
the respective financial statements.
As discussed in Note 1, effective October 28, 1995, the Company
changed its quarterly reporting period to a thirteen-week
format. The first quarter of fiscal 1995 results have been
restated to reflect this change in reporting period.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet of
the Company as of February 3, 1996, and the related consolidated
statements of operations, changes in stockholders' equity
(deficiency), and cash flows for the year then ended (not
presented herein); and, in our report dated March 25, 1996, we
expressed an unqualified opinion on those consolidated financial
statements and included explanatory paragraphs relating to (a)
the Company's filing for reorganization under Chapter 11 of the
Federal Bankruptcy Code, (b) the Company's 1995 loss from
operations and stockholders' deficiency which raise substantial
doubt about the Company's ability to continue as a going
concern, and (c) the adoption of Statements of Financial
Accounting Standards ("SFAS") No. 112, effective January 30,
1994; and effective January 31, 1993, the adoption of SFAS No.
106, and changes in the methods of discounting workers'
compensation and general liability claims and of calculating
retail price indices used in valuing LIFO inventories. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of February 3, 1996 is fairly
stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
By /s/ Deloitte & Touche LLP
-------------------------
Boston, Massachusetts
May 24, 1996
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
PART I-FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands except per share amounts)
13 Weeks Ended
---------------
May 4, 1996 April 29, 1995
------------ --------------
Total sales $ 349,891 $ 392,389
Leased department sales 12,188 12,783
---------- ----------
Net sales 337,703 379,606
Cost of goods sold 235,189 280,099
---------- ----------
Gross margin 102,514 99,507
Leased department and other
operating income 2,757 3,355
---------- ----------
105,271 102,862
Selling, store operating, administrative
and distribution expenses 137,947 134,689
Depreciation and amortization 11,017 13,296
Interest and debt expense 2,515 9,793
Reorganization items 7,538 -
---------- ----------
Loss before income taxes (53,746) (54,916)
Income tax benefit - 22,517
---------- ----------
Net loss $(53,746) $(32,399)
========== ==========
Net loss per share $ (4.71) $ (2.84)
========== ==========
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
May 4, 1996 Feb. 3, 1996 Apr.29, 1995
----------- ------------- ------------
ASSETS
Current assets:
Unrestricted cash and cash
equivalents $ 4,947 $ 63,012 $ 3,200
Restricted cash and cash
equivalents 7,194 1,194 -
--------- --------- ---------
Total cash and cash equivalents 12,141 64,206 3,200
--------- --------- ---------
Accounts receivable 10,055 10,536 22,595
Refundable income taxes 214 24,576 -
Inventories 300,414 282,270 357,266
Prepaid expenses 9,778 10,008 4,571
Deferred income taxes - - 15,736
Assets held for sale 8,954 8,954 -
--------- --------- ---------
Total current assets 341,556 400,550 403,368
--------- --------- ---------
Property, plant and equipment, net:
Property excluding capital
leases, net 158,444 170,247 217,670
Property under capital leases, net 35,277 37,249 63,541
--------- --------- ---------
Total property, plant and 193,721 207,496 281,211
equipment, net --------- --------- ---------
Other assets:
Lease interests at fair value and
lease acquisition costs, net 184,213 186,626 246,340
Asset held for sale 5,114 - -
Other, net 4,009 3,990 7,907
--------- --------- ---------
Total other assets 193,336 190,616 254,247
--------- --------- ---------
Total assets $ 728,613 $ 798,662 $938,826
========= ========= =========
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
May 4, 1996 Feb. 3, 1996 Apr. 29, 1995
------------ ------------ -------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 137,268 $ 148,870 $ 240,633
Accrued expenses 60,294 63,735 56,536
Short-term debt - - 93,000
Current portion of capital lease
obligations 2,524 2,602 6,096
--------- --------- ---------
Total current liabilities 200,086 215,207 396,265
--------- --------- ---------
Long-term liabilities:
Other notes - - 5,150
Subordinated debt - - 225,000
Obligations under capital leases 52,816 53,396 67,952
Deferred income taxes 8,581 8,581 85,552
Other long-term liabilities 26,360 26,723 29,191
--------- --------- ---------
Total long-term liabilities 87,757 88,700 412,845
--------- --------- ---------
Liabilities subject to settlement
under the reorganization case 539,422 539,765 -
Stockholders' equity (deficiency):
Common stock-11,413,554 shares
outstanding (11,416,656 at 2/3/96,
11,410,048 at 4/29/95)
Par value 115 115 115
Additional paid-in-capital 137,951 137,951 138,346
Unearned compensation (551) (793) (1,547)
Accumulated deficit (235,512) (181,766) (6,751)
Treasury stock, at cost (655) (517) (447)
--------- ---------- ----------
Total stockholders'equity (deficiency) (98,652) (45,010) 129,716
--------- ---------- ----------
Total liabilities and
stockholders' equity $ 728,613 $ 798,662 $ 938,826
========= ========= =========
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
13 Weeks Ended
May 4, 1996 April 29, 1995
----------- -------------
Cash flows from operating activities:
Net loss $ (53,746) $ (32,399)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation and amortization 11,017 13,296
Amortization of deferred financing costs 484 382
Stock compensation, net 104 249
Deferred income taxes - (14,853)
Reorganization items 7,538 -
Changes in working capital, net (6,702) (39,106)
----------- -----------
Net cash used by operating activities
before reorganization items (41,305) (72,431)
----------- -----------
Reorganization items:
Interest income received 531 -
Chapter 11 professional fee paid (2,963) -
Other reorganization expenses paid (2,605) -
----------- -----------
Net cash used by reorganization items (5,037) -
----------- -----------
Net cash used by operating activities (46,342) (72,431)
Cash flows from investing activities:
Capital expenditures, net (3,853) (3,066)
Lease acquisition costs - (65)
Increase in restricted cash and cash
equivalents (6,000) -
----------- -----------
Net cash used in investing activities (9,853) (3,131)
----------- -----------
Cash flows from financing activities:
Payments of liabilities subject to settlement (900) -
Deferred financing costs (312) -
Net borrowings under pre-petition revolver - 72,000
Principal payments on capital lease obligations (658) (1,820)
Other common stock activity, net - 145
Dividends paid - (1,711)
----------- -----------
Net cash provided (used) by financing
activities (1,870) 68,614
----------- -----------
Net decrease in unrestricted cash and
cash equivalents (58,065) (6,948)
Unrestricted cash and cash equivalents:
Beginning of period 63,012 10,148
----------- -----------
End of period $ 4,947 $ 3,200
=========== ===========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 429 $ 12,889
Cash paid (received) for income taxes (24,477) 72
Supplemental schedule for noncash investing
and financial activities:
Capital lease obligations incurred $ - $ 8,056
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of Bradlees,
Inc. and subsidiaries, including Bradlees Stores, Inc.
(collectively "Bradlees" or the "Company"), have been prepared
in accordance with generally accepted accounting principles
applicable to a going concern, which principles, except as
otherwise disclosed, assume that assets will be realized and
liabilities will be discharged in the normal course of business.
The Company filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") on June 23, 1995
(the "Filing"). The Company is presently operating its business
as a debtor-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court").
With respect to the unaudited condensed consolidated
financial statements for the thirteen weeks (first quarter)
ended May 4, 1996 and April 29, 1995, it is the Company's
opinion that all necessary adjustments (consisting of normal and
recurring adjustments) have been included to present a fair
statement of results for the interim periods. Certain
reclassifications have been made to the prior year's results to
conform to the current presentation.
Effective October 28, 1995, the Company completed the
conversion of its financial systems and changed its quarterly
financial reporting calendar to conform to the common retail
presentation of 13 week ("4-5-4") quarters. Results for the
prior year's first quarter were restated in accordance with the
new reporting calendar.
These statements should be read in conjunction with the
Company's financial statements (Form 10-K) for the fiscal year
ended February 3, 1996 ("fiscal 1995"). Due to the seasonal
nature of the Company's business, operating results for the
first quarter are not necessarily indicative of results that may
be expected for the fiscal year ending February 1, 1997 ("fiscal
1996"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted, pursuant to the general rules and regulations
promulgated by the Securities and Exchange Commission.
As reflected in the condensed consolidated financial
statements, the Company incurred a net loss of $53.7 million in
the first quarter of fiscal 1996 and, as reflected in its Form
10-K, a significant net loss in fiscal 1995. The Company's
ability to continue as a going concern is dependent upon the
confirmation of a plan of reorganization by the Bankruptcy
Court, the ability to maintain compliance with debt covenants
under the DIP Facility (Note 4), achievement of profitable
operations, and the resolution of the uncertainties of the
reorganization case discussed in Note 2.
The Company is taking the following steps in an effort to
accomplish its goals: (a) focus on providing value to its
customers as a function of fashion, quality and price rather
than price alone;
<PAGE>
(b) emphasize quality and fashion as a means of differentiating
itself from its closest competition; (c) rebuild its reputation
for fashion leadership in apparel; (d) expand private label
programs; (e) reduce operating expenses by evaluating all
aspects of the Company's current expense structure; and (f)
evaluate each store's profitability and relocate or close stores
whose performance is inadequate. The Company made changes in
its merchandise assortment and presentation in connection with
these steps and performed certain department resets in its
stores in fiscal 1995. The Company is performing additional
store resets for other departments during fiscal 1996. In
addition, the Company has reorganized its store management
structure and is in the process of closing twelve stores.
2. Reorganization Case
In the Chapter 11 case, substantially all liabilities as of
the date of the Filing are subject to settlement under a plan of
reorganization to be voted upon by the Company's creditors and
stockholders and confirmed by the Bankruptcy Court. Schedules
have been filed by the Company with the Bankruptcy Court setting
forth the assets and liabilities of the Company as of the date
of the Filing as shown by the Company's accounting records.
Differences between amounts shown by the Company and claims
filed by creditors will be investigated and resolved. The
ultimate amount and settlement terms for such liabilities are
subject to a plan of reorganization, and accordingly, are not
presently determinable. The Company currently retains the
exclusive right to file a plan of reorganization until June 30,
1996 and to solicit acceptance of a plan of reorganization until
August 29, 1996, each subject to extension as approved by the
Bankruptcy Court. The Company plans to request an extension to
February 1, 1997 with respect to
the period in which it has the exclusive right to file a plan of
reorganization and to April 2, 1997 with
respect to the period in which it has the exclusive right to
solicit acceptance of a plan of reorganization.
Under the Bankruptcy Code, the Company may elect to assume
or reject real estate leases, employment contracts, personal
property leases, service contracts and other executory
pre-petition leases and contracts, subject to Bankruptcy Court
approval. A liability of approximately $19.0 million was
recorded through May 4, 1996 for certain rejected leases. This
provision may be subject to future adjustments based on claims
filed by the lessors and Bankruptcy Court actions. The Company
cannot presently determine or reasonably estimate the ultimate
liability which may result from the filing of claims for any
rejected contracts or from additional leases which may be
rejected.
The principal categories of claims classified as "Liabilities
subject to settlement under the reorganization case" are
identified below. Deferred financing costs of $3.4 million,
$2.0 million and $2.7 million, respectively, for the
pre-petition revolving loan facility (the "Revolver") and
subordinated debt (the "2002 and 2003 Notes") have been netted
against the related outstanding debt amounts. In addition, a
$9.0 million cash settlement and approximately $3.7 million of
adequate protection payments have been applied to reduce the
Revolver debt amount. The cash settlement relates to a portion
of the Company's cash balance as of the date of the Filing ($9.3
million) which was claimed as collateral by the pre-petition
Revolver bank group. The claim was settled in full for $9.0
million and approved by the Bankruptcy Court. All amounts
presented below may be subject to future adjustments depending
on Bankruptcy Court actions, further developments with respect
to disputed claims, determination as to the security of certain
claims,
<PAGE>
the value of any collateral securing such claims, or other
events.
(000's)
Liabilities Subject to Settlement May 4, 1996
Under the Reorganization Case -------------
Accounts payable $167,757
Accrued expenses 23,112
Revolver 77,405
2002 Notes 122,274
2003 Notes 97,957
Financing obligation 17,951
Obligations under capital leases 13,995
Provision for rejected leases 18,971
----------
$539,422
==========
3. Restricted Cash and Cash Equivalents
The Company received a federal income tax refund of $24.5
million in April,
1996, $6.0 million of which is being held in escrow pending
further negotiations with creditors and Bankruptcy Court
actions. In addition, other funds totaling $1.2 million have
been segregated as security deposits for utility expenses
incurred after the Filing.
4. Debt
As a result of the Filing, most long-term debt obligations
were classified as liabilities subject to settlement (Note 2).
No principal or interest payments are made on any pre-petition
debt (excluding certain capital leases) without Bankruptcy Court
approval or until a reorganization plan defining the repayment
terms has been approved. During fiscal 1995, the Company
received Bankruptcy Court approval to make certain adequate
protection payments to the pre-petition bank group. The
adequate protection payments, a cash settlement, and deferred
financing costs have been netted against the related outstanding
debt amounts (Note 2). Generally, interest on pre-petition debt
ceases accruing upon the filing of a petition under the
Bankruptcy Code; if, however, the debt is collateralized by an
interest in property whose value (minus the cost of preserving
such property) exceeds the amount of the debt, post-petition
interest may be payable. No determination has yet been made
regarding the value of the property interests which
collateralize various debts. Although interest may be paid
pursuant to an order of the Bankruptcy Court, it is uncertain
whether any post-petition interest will be payable or paid. The
Company believes at this time that it is unlikely that such
interest will be paid. Contractual interest expense not
recorded on certain pre-petition debt (the Revolver, 2002 Notes
and 2003 Notes) totaled approximately $8.1 million for the
thirteen weeks ended May 4, 1996.
The Company has a Debtor-in-Possession Revolving Credit and
Guaranty Agreement dated as of June 23, 1995 (the "DIP
Facility"), in the aggregate amount of $250 million, with
Chemical Bank, as Agent, and Societe Generale, as co-Agent,
under which the Company is allowed to borrow or obtain letters
of credit (in an aggregate amount of $125 million) for general
corporate purposes, working capital and inventory purchases.
There have been no borrowings since the
<PAGE>
Filing, exclusive of letters of credit, under the DIP Facility.
Trade and standby letters of credit outstanding under the DIP
Facility at May 4, 1996 were $9.2 and $40.2 million,
respectively. As of April 29, 1995, trade and standby letters
of credit outstanding under the Revolver were $16.7 and $20.6
million, respectively.
At the Company's option, the Company may borrow under the
DIP Facility at the Alternate Base Rate (as defined) plus .25%
or at the Adjusted LIBO Rate (as defined) plus 1.5%. The
maximum borrowing, up to $250 million, is limited to 60% of the
Eligible Book Value of Inventory (as defined). Although there
are no compensating balance requirements, the Company is
required to pay a commitment fee of .5% per annum of the unused
portion of the DIP Facility. The DIP Facility contains
restrictive covenants including, among other things, limitations
on the incurrence of additional liens and indebtedness,
limitations on capital expenditures and the sale of assets, the
maintenance of minimum operating earnings ("EBITDA") and
inventory levels, and a prohibition on paying dividends.
Certain of the covenants were amended in March, 1996. As of May
4, 1996, the Company is in compliance with the DIP Facility
covenants.
The lender under the DIP Facility has a "super-priority"
claim against the estate of the Company. The DIP Facility
expires on the earlier of June 23, 1997 or the substantial
consummation of a reorganization plan that is confirmed by the
Bankruptcy Court.
5. Income Taxes
The Company provides for income taxes under the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". On an interim basis, the
Company provides for income taxes using the estimated annual
effective rate method. The Company currently does not expect to
recognize an annual income tax expense or benefit in fiscal
1996. The Company received a federal income tax refund of
$24.5 million in April, 1996 for income taxes previously paid.
6. Reorganization Items
The Company provided for or incurred the following expense
and income items during the thirteen weeks ended May 4, 1996,
directly associated with the Chapter 11 reorganization
proceedings and the resulting restructuring of its operations
(in 000's):
Professional fees $1,000
Interest income (531)
Asset write-down 3,904
Change in estimate for inventory impairment reserve (1,000)
Termination benefits 4,165
-------
$7,538
=======
Professional fees and Interest income: Professional fees
represent estimates of expenses incurred in the period,
primarily for legal, consulting and accounting services provided
to the
<PAGE>
Company and the creditors committee (which are required to be
paid by the Company while in Chapter 11). Interest income
represents interest earned on the cash accumulated and invested
during the Chapter 11 proceeding.
Asset write-down: In April, 1996, the Company decided not
to open a previously planned new store. As a result of this
decision, the carrying value of the associated property exceeded
the estimated net realizable value and a charge of $3.9 million
was recorded. The net realizable value of this property has
been classified as a long-term asset held for sale.
Reserve for inventory impairment: The change in the reserve
for inventory impairment was due to a revised (lower) estimate
of the incremental markdowns required to liquidate the inventory
at the closing stores.
Termination benefits: Termination benefits represent $3.1
million of severance pay, including $2.2 million paid in the
first quarter, for 287 store, district and regional positions
eliminated as a result of the February, 1996 store management
reorganization, and $1.1 million of estimated severance pay for
660 store positions to be eliminated as a result of the store
closings. Affected employees were notified of their termination
benefits during the first quarter of fiscal 1996 and most of the
total estimated remaining severance is expected to be paid
during the second quarter of fiscal 1996.
7. Statement of Financial Accounting Standards No. 123
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation", effective for
fiscal 1996. SFAS No. 123 encourages, but does not require, the
recognition of compensation expense for the fair value of stock
option and other equity instruments issued to employees. The
Company did not adopt the fair-value provisions of SFAS 123 and
will continue accounting for its stock-based transactions in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". The pro forma
disclosures required by SFAS No. 123 will be presented, if
material, in the notes to the Company's fiscal 1996 annual
financial statements.
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Results of operations expressed as a percentage of net sales
were as follows for the 13 weeks ended May 4, 1996 ("First
Quarter 1996") and April 29, 1995 ("First Quarter 1995")"
13 Weeks Ended
May 4, 1996 April 29, 1995
-------------------- --------------------
(Dollars in millions except
per share amounts)
Total sales $349.9 $392.4
Leased department sales 12.2 12.8
------ ------
Net sales 337.7 100.0% 379.6 100.0%
Cost of goods sold 235.2 69.6 280.1 73.8
------ ------ ------ ------
Gross Margin 102.5 30.4 99.5 26.2
Leased department and other
operating income 2.7 0.8 3.4 0.9
------- ------ ------ ------
105.2 31.2 102.9 27.1
Selling, store operating,
administrative and
distribution expenses 137.9 40.8 134.7 35.5
Depreciation and amortization 11.0 3.3 13.3 3.5
Interest and debt expense 2.5 0.8 9.8 2.6
Reorganization items 7.5 2.2 - -
------- ------ ------ ------
Loss before income taxes (53.7) (15.9) (54.9) (14.5)
Income tax benefit - - 22.5 6.0
------- ------ ------ ------
Net loss $ (53.7) (15.9)% $(32.4) (8.5)%
======= ====== ====== ======
Net loss per share $ (4.71) $(2.84)
======= ======
Total sales increase
(decrease):
All stores (10.8)% 4.1%
Comparable stores (12.6)% (6.5)%
Number of stores in operation
at end of period 136 136
<PAGE>
The following discussion, as well as other portions of this
document, includes certain statements which are or may be
construed as forward looking about the Company's business, sales
and expenses, and operating and capital requirements. Any such
statements are subject to risks that could cause the actual
results or requirements to vary materially.
Total sales for First Quarter 1996 declined $42.5 million or
10.8% from First Quarter 1995 due to a 12.6% decrease in
comparable store sales (including leased department sales and
excluding closing stores) and three stores closed since last
year's first quarter, partially offset by the sales from three
new stores opened in early March, 1996. The Company is in the
process of closing twelve stores with final closing dates
scheduled in June, 1996. The major cause for the decline in
comparable store sales were the difficulties in promptly
offsetting the sales loss from discontinued merchandise
categories. As part of new merchandising and marketing
strategies, the Company has emphasized lower-volume,
higher-margin products in its merchandise mix and in its
advertising, with less emphasis on higher-volume, lower-margin
commodity products. The Company is taking these steps as part of
its plan (summarized in Note 1 to the financial statements) to
improve the Company's performance. Comparable store sales for
the fiscal month of May, 1996 (the four weeks ended June 1,
1996) declined similarly to the First Quarter's decline.
Gross margin increased $3.0 million or 4.2% as a percentage
of sales in First Quarter 1996 from First Quarter 1995, due
primarily to an increase in the overall initial markup and
merchandise allowances, partially offset by higher markdowns.
The increase in markup is a function of the move toward
higher-quality, higher-margin apparel and home decor. The
higher markdowns were associated with the continued changes in
the Company's merchandise assortment and the Company's
aggressive posture with respect to markdowns (to maintain
appropriate inventory levels relative to the lower sales
performance). Some markdowns from the changes in the
merchandise assortment will continue during the rest of fiscal
1996.
Leased department and other operating income declined $.7
million or .1% as a percentage of sales in First Quarter 1996
compared to First Quarter 1995, due primarily to the absence of
layaway income (included in other operating income) resulting
from the August 1995 discontinuance of the layaway program.
Selling, store operating, administrative and distribution
("S,G&A") expenses increased $3.2 million or 5.3% as a
percentage of sales in First Quarter 1996 compared to First
Quarter 1995. The dollar increase was primarily a result of
higher advertising expenses (including the start of a new
television advertising campaign) and expenses associated with
additions and expansions of certain home office functions (e.g.
planning and allocation). These S,G&A expense increases were
partially offset by store labor expense reductions resulting
from the store management reorganization initiated in February,
1996 and staffing adjustments due to the lower sales results,
and certain other cost reductions. The decline in sales was the
primary reason that S,G&A expenses were higher as a percentage
of sales.
Depreciation and amortization expense decreased $2.3 million
or .2% as a percentage of sales in First Quarter 1996 compared
to First Quarter 1995, due primarily to the fiscal 1995 adoption
of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for
<PAGE>
Long-Lived Assets to be Disposed Of" and the associated
reduction of $99.4 million in the depreciable and amortizable
bases of certain long-lived assets.
Interest and debt expense declined $7.3 million or 1.8% as a
percentage of sales in First Quarter 1996 compared to First
Quarter 1995, due to the discontinuance of accruing interest on
substantially all pre-petition debt. Interest and debt expense
in First Quarter 1995 included interest costs on the borrowings
under the Company's pre-petition revolver and certain other debt
now classified as liabilities subject to settlement.
Reorganization items of $7.5 million incurred for First
Quarter 1996 relate to the Chapter 11 proceedings and related
restructuring and are discussed in Note 6.
The Company did not record an income tax provision in First
Quarter 1996, due to the current expectation of no income tax
expense or benefit for fiscal 1996.
Liquidity and Capital Resources
There were no borrowings during First Quarter 1996,
exclusive of the issuance of letters of credit, under the
Company's $250 million DIP Facility (Note 4). The Company's
liquidity, which was limited in the weeks prior to the Chapter
11 filing in June, 1995, improved dramatically after the filing
due to the nonpayment of virtually all pre-petition liabilities.
In fiscal 1995, prior to the filing, borrowings under the
pre-petition revolver peaked at $99.5 million and averaged $84.3
million. Borrowings outstanding under the pre-petition revolver
were $93.0 and $93.5 million, exclusive of outstanding letters
of credit, at April 29, 1995 and at the time of the filing,
respectively.
Other than payments made to certain creditors approved by
the Bankruptcy Court as adequate protection payments, principal
and interest payments on indebtedness incurred prior to the
filing, exclusive of certain capital lease obligations, have not
been made and will not be made without Bankruptcy Court approval
or until a reorganization plan defining the repayment terms has
been confirmed by the Bankruptcy Court. Virtually all
pre-petition indebtedness of Bradlees is subject to settlement
under the reorganization case as a result of the filing.
In First Quarter 1996, cash flows used by operations before
reorganization items was $41.3 million, as compared to $72.4
million in First Quarter 1995. A federal income tax refund of
$24.5 million received in April, 1996 and tighter inventory
controls, partially offset by the impact from a lower accounts
payable balance (discussed below), were the primary reasons for
the reduction in net cash used by operating activities. The
income tax refund is included in "changes in working capital,
net" in the consolidated statement of cash flows.
Inventories at May 4, 1996, declined $56.9 million from
April 29, 1995 due primarily to tighter inventory controls.
Inventories increased $18.1 million during First Quarter 1996,
due to seasonal factors and the lower sales results. Accounts
payable, exclusive of amounts subject to settlement, at May 4,
1996, declined $103.4 million from April 29, 1995, primarily as
a result of
<PAGE>
improved liquidity and more timely payments in First Quarter
1996 compared to First Quarter 1995 and curtailment of purchases
in First Quarter 1996 in response to the lower sales. Accounts
payable, exclusive of amounts subject to settlement, declined
$11.6 million during First Quarter 1996 due to the curtailment
of purchases.
Accounts receivable at May 4, 1996, decreased $12.5 million
from April 29, 1995 due to lower vendor allowance and layaway
receivables (the Company's layaway option for customers was
discontinued as of August 1, 1995).
The Company incurred capital expenditures of $3.9 million in
First Quarter 1996 compared to $3.1 million in First Quarter
1995. For all of fiscal 1996, the Company expects total capital
expenditures to be approximately $40 million based upon its
plan, primarily for management information systems, merchandise
fixtures and store maintenance improvements. The Company
currently expects to finance these expenditures through
internally-generated funds. As part of its strategy to
differentiate Bradlees from other discount and department
stores, the Company is repositioning its merchandise and the
manner in which it is presented. This new strategy is expected
to influence the nature of capital expenditures (some of which
may be subject to Bankruptcy Court approval) over the next few
years.
The Company believes that the availability of its DIP
Facility, together with the Company's available cash and
expected cash flows from fiscal 1996 operations and beyond, will
enable Bradlees to fund its expected needs for working capital,
capital expenditures and debt service requirements during the
Chapter 11 proceedings. Achievement of expected cash flows from
operations is dependent upon the Company's attainment of
operating results that are reasonably consistent with its plan.
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit No. Exhibit Page No.
11 Computation of earnings per share. 19
15 Letter re: unaudited interim financial information. 20
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the
quarterly period ended May 4, 1996:
Date of Report Date of Filing Item Number Description
- - ----------------- ----------------- -------------- ----------------
February 12, 1996 February 13, 1996 5 Disclosure of the
Intercompany Debt
Report.
February 21, 1996 February 21, 1996 5 Disclosure of
intention to close
12 stores.
March 29, 1996 April 1, 1996 5 Disclosure of DIP
amendment, fourth
quarter and fiscal
1995 results compared
to plan, and fiscal
1996 summary financial
plan.
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
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.
BRADLEES, INC.
Date: June 6, 1996 By /s/ MARK A. COHEN
--------------------------------
Mark A. Cohen
Chairman and
Chief Executive Officer
Date: June 6, 1996 By /s/ PETER THORNER
--------------------------------
Peter Thorner
President, Director,
Chief Operating Officer and
Acting Chief Financial
Officer
Date: June 6, 1996 By /s/ CORNELIUS F. MOSES III
--------------------------------
Cornelius F. Moses III
Senior Vice President, Finance
<PAGE>
EXHIBIT 11
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Amounts in thousands except per share amounts)
13 Weeks Ended 13 Weeks Ended
May 4, 1996 April 29, 1995
-------------- --------------
Primary Loss Per Share
- - ----------------------
Net loss $(53,746) $(32,399)
========== ==========
Weighted average number of shares outstanding 11,415 11,407
Incremental shares for assumed exercise of
stock options - -
---------- ----------
Total common shares and common share
equivalents 11,415 11,407
=========== ==========
Net earnings (loss) per share $(4.71) $(2.84)
=========== ==========
Fully Diluted Loss Per Share (1)
- - --------------------------------
Net loss $(53,746) $(32,399)
=========== ==========
Weighted average number of shares outstanding 11,415 11,407
Incremental shares for assumed exercise of
stock options - -
----------- ----------
Total common shares and common share
equivalents 11,415 11,407
=========== ==========
Fully diluted net loss per share $(4.71) $(2.84)
=========== ==========
(1) The information in this exhibit is provided in accordance
with Item 601 of Regulation S-K, although such information is
not required by Paragraph 14 of Accounting Principles Board
Opinion No. 15.
<PAGE>
EXHIBIT 15
May 24, 1996
Bradlees, Inc.
One Bradlees Circle
Braintree, MA 02184
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of
the unaudited interim financial information of Bradlees, Inc.
and subsidiaries, Debtor-in-Possession, for the 13-week periods
ended May 4, 1996 and April 29, 1995 as indicated in our report
dated May 24, 1996 (which included explanatory paragraphs
relating to (a) the Company's filing for reorganization under
Chapter 11 of the Federal Bankruptcy Code, (b) certain
conditions which raise substantial doubt about the Company's
ability to continue as a going concern, and (c) the change in
the Company's quarterly reporting period to a thirteen-week
format); because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the quarter
ended May 4, 1996, is incorporated by reference in Registration
Statement Nos. 33-64850, 33-64858, 33-80896, 33-86954, 33-86956
and 33-92178.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, is not considered
a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
By /s/ Deloitte & Touche LLP
-------------------------
Boston, Massachusetts
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 12141
<SECURITIES> 0
<RECEIVABLES> 10055
<ALLOWANCES> 0
<INVENTORY> 300414
<CURRENT-ASSETS> 341556
<PP&E> 193721
<DEPRECIATION> 0
<TOTAL-ASSETS> 728613
<CURRENT-LIABILITIES> 200086
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> (98767)
<TOTAL-LIABILITY-AND-EQUITY> 728613
<SALES> 337703
<TOTAL-REVENUES> 340460
<CGS> 235189
<TOTAL-COSTS> 235189
<OTHER-EXPENSES> 156502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2515
<INCOME-PRETAX> (53746)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53746)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53746)
<EPS-PRIMARY> (4.71)
<EPS-DILUTED> (4.71)
</TABLE>
