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 August 3, 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
September 1, 1996: 11,411,167 shares.
Exhibit Index on Page 21
Page 1 of 34 (Including Exhibits)
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 August 3, 1996 and July 29, 1995, and the
related condensed consolidated statements of operations, and
cash flows for the twenty-six-week periods ended August 3, 1996
and July 29, 1995 and the condensed statements of operations for
the thirteen-week periods ended August 3, 1996 and July 29,
1996. 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.
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
plan concerning these matters are also described in Note 1 to
the respective financial statements.
2
As discussed in Note 1, effective October 28, 1995, the Company
changed its quarterly reporting period to a thirteen-week
format. The results of operations for the 13-week and 26-week
periods ended July 29, 1995
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.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 28, 1996
(September 13, 1996 with respect to
paragraphs 3 and 4 of Note 4)
3
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 13 Weeks Ended
August 3, 1996 July 29, 1995
-------------- --------------
Total sales $ 386,195 $437,488
Leased department sales 16,617 16,055
--------- ---------
Net sales 369,578 421,433
Cost of goods sold 268,182 296,973
--------- ---------
Gross margin 101,396 124,460
Leased department and other
operating income 3,677 3,715
--------- ---------
105,073 128,175
Selling, store operating, admin.
and distribution expenses 134,027 143,313
Depreciation and amortization 10,459 13,135
Interest and debt expense 2,444 7,121
Reorganization items 40,928 7,977
--------- --------
Loss before income taxes (82,785) (43,371)
Income tax benefit - 15,815
--------- ---------
Net loss $ (82,785) $(27,556)
========= =========
Net loss per share $ (7.25) $(2.41)
========= ========
See accompanying notes to condensed consolidated financial
statements.
4
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except per share amounts)
26 Weeks Ended 26 Weeks Ended
August 3, 1996 July 29, 1995
-------------- -------------
Total sales $ 736,086 $ 829,876
Leased department sales 28,805 28,838
--------- --------
Net sales 707,281 801,038
Cost of goods sold 503,371 577,071
--------- ---------
Gross margin 203,910 223,967
Leased department and other
operating income 6,434 7,070
--------- ---------
210,344 231,037
Selling, store operating,
administrative and distribution
expenses 271,974 278,002
Depreciation and amortization 21,476 26,431
Interest and debt expense 4,959 16,914
Reorganization items 48,466 7,977
--------- --------
Loss before income taxes (136,531) (98,287)
Income tax benefit - 38,332
--------- --------
Net loss $(136,531) $(59,955)
========= =========
Net loss per share $ (11.96) $ (5.25)
========= =========
See accompanying notes to condensed consolidated financial
statements.
5
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
Aug. 3, Feb. 3, July 29,
1996 1996 1995
-------- ------- --------
ASSETS
Current assets:
Unrestricted cash and cash
equivalents $ 17,318 $ 63,012 $100,052
Restricted cash and cash
equivalents 7,350 1,194 7,048
-------- -------- --------
Total cash and cash
equivalents 24,668 64,206 107,100
-------- -------- --------
Accounts receivable 13,737 10,536 13,347
Refundable income taxes - 24,576 -
Inventories 256,402 282,270 274,242
Prepaid expenses 9,709 10,008 6,850
Deferred income taxes - - 39,753
Assets held for sale 8,954 8,954 -
-------- -------- --------
Total current assets 313,470 400,550 441,292
-------- -------- --------
Property, plant and equipment,net
Property excluding capital
leases, net 145,567 170,247 218,697
Property under capital leases,
net 30,118 37,249 59,352
-------- -------- --------
Total property, plant and
equipment, net 175,685 207,496 278,049
-------- -------- --------
Other assets:
Lease interests at fair value
and lease acquisition costs,
net 182,042 186,626 237,797
Assets held for sale 10,153 - -
Other, net 3,757 3,990 1,811
-------- -------- --------
Total other assets 195,952 190,616 239,608
-------- -------- -------
Total assets $685,107 $798,662 $958,949
======== ======== ========
(Continued)
6
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
Aug. 3, Feb. 3, July 29,
1996 1996 1995
-------- ------- --------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $147,216 $148,870 $102,260
Accrued expenses 66,271 63,735 42,336
Current portion of capital
lease obligations 2,226 2,602 5,748
-------- -------- --------
Total current liabilities 215,713 215,207 150,344
-------- -------- --------
Long-term liabilities:
Obligations under capital
leases 48,069 53,396 43,225
Deferred income taxes 8,581 8,581 117,108
Other long-term liabilities 24,095 26,723 29,859
-------- -------- --------
Total long-term liabilities 80,745 88,700 190,192
-------- -------- --------
Liabilities subject to settlement
under the reorganization case 569,955 539,765 516,117
Stockholders' equity (deficiency):
Common stock - 11,411,167 shares
outstanding (11,416,656 at
2/3/96, 11,417,958 at 7/29/95)
Par value 115 115 115
Additional paid-in-capital 137,951 137,951 137,950
Unearned compensation (420) (793) (983)
Accumulated deficit (318,297) (181,766) (34,308)
Treasury stock, at cost (655) (517) (478)
-------- -------- --------
Total stockholders' equity
(deficiency) (181,306) (45,010) 102,296
-------- -------- --------
Total liabilities and
stockholders' equity $685,107 $798,662 $958,949
======== ======== ========
See accompanying notes to condensed consolidated financial
statements.
7
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
26 Weeks Ended 26 Weeks Ended
August 3, 1996 July 29, 1995
-------------- -------------
Cash flows from operating activities:
Net loss $(136,531) $(59,955)
Adjustments to reconcile net loss to
cash used by operating activities:
Depreciation and amortization 21,476 26,431
Amortization of deferred financing
costs 1,033 612
Deferred income taxes - (7,314)
Reorganization items 48,466 7,977
Changes in working capital, net 48,533 77,862
--------- ---------
Net cash provided (used) by
operating activities before
reorganization items (17,023) 45,613
--------- ---------
Reorganization items:
Interest income received 991 212
Chapter 11 professional fees paid (5,701) -
Other reorganization expenses paid (4,624) (2,960)
--------- ---------
Net cash used by reorganization items (9,334) (2,748)
--------- ---------
Net cash provided (used) by operating
activities (26,357) 42,865
Cash flows from investing activities:
Capital expenditures, net (9,440) (10,230)
Lease acquisition costs - (65)
Increase in restricted cash and
cash equivalents (6,156) (7,048)
--------- ---------
Net cash used in investing
activities (15,596) (17,343)
--------- ---------
(Continued)
8
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
26 Weeks Ended 26 Weeks Ended
August 3, 1996 July 29, 1995
-------------- -------------
Cash flows from financing activities:
Payments of liabilities subject
to settlement $ (2,120) $ -
Deferred financing costs (313) (2,364)
Net borrowings under pre-petition
revolver - 72,500
Principal payments on capital lease
obligations (1,308) (4,187)
Other common stock activity, net - 145
Dividends paid - (1,712)
--------- ---------
Net cash provided (used) by
financing activities (3,741) 64,382
--------- ---------
Net increase (decrease) in unrestricted
cash and cash equivalents (45,694) 89,904
Unrestricted cash and cash equivalents:
Beginning of period 63,012 10,148
--------- ---------
End of period $ 17,318 $100,052
========= =========
Supplemental disclosure of cash flow
information:
Cash paid for interest and certain
debt fees $ 914 $ 13,532
Cash paid (received) for income taxes $ (25,012) $ 98
Supplemental schedule of noncash
investing and financial activities:
Capital Lease obligations incurred $ - $ 6,606
See accompanying notes to condensed consolidated financial
statements.
9
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 13 weeks (second quarter) and 26
weeks (year-to-date) ended August 3, 1996 and July 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 quarters 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
second quarter and year-to-date 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 (the "SEC").
As reflected in the condensed consolidated financial
statements, the Company incurred a year-to-date net loss of
$136.5 million in 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.
10
The Company is taking the following steps in an effort to
accomplish its goals: (a) focusing on providing value to its
customers as a function of fashion, quality and price rather
than price alone; (b) emphasizing quality and fashion as a
means of differentiating itself from its closest competition;
(c) rebuilding its reputation for fashion leadership in apparel;
(d) expanding private label programs; (e) reducing operating
expenses by evaluating all aspects of the Company's current
expense structure; (f) implementing new promotional programs;
and (g) evaluating each store's profitability and relocating or
closing stores whose performance is inadequate. In fiscal
1996 and 1995, the Company made changes in its merchandise
assortment and presentation in connection with these steps and
performed certain department resets in its stores. In addition,
during fiscal 1996, the Company has reorganized its store
management structure, closed 13 unprofitable stores, implemented
an expense reduction program in the third quarter, and is in the
process of closing 14 additional unprofitable 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 February
1, 1997 and to solicit acceptance of a plan of reorganization
until April 2, 1997, each subject to possible extension as
approved by the Bankruptcy Court.
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 $49.0 million was
recorded through August 3, 1996 for certain rejected leases and
anticipated claims for 10 of the closing store leases currently
expected to be rejected. 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 Company
believes that it has recorded its best estimate of the provision
for rejected leases based on information currently available.
If the other closing store leases are rejected, an additional
provision of up to approximately $8 million would be necessary.
All of the closing store leases are currently being marketed.
11
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 $4.6 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, the value of any collateral securing such claims, or
other events.
(000's)
Liabilities Subject to Settlement Under
the Reorganization Case August 3, 1996
- ----------------------------------------- ---------------
Accounts payable $167,123
Accrued expenses 25,499
Revolver 76,505
2002 Notes 122,274
2003 Notes 97,957
Financing obligation 17,951
Obligations under capital leases 13,675
Provision for rejected leases 48,971
-------
$569,955
=======
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, along with earned
interest, is being held in escrow pending further order of the
Bankruptcy Court. 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).
12
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.
On June 25, 1996, the Bankruptcy Court approved an agreement
between the Company and BTM Capital Corporation ("BTM") that
fixed the secured claim of BTM in the initial amount of $2.25
million, subject to reduction to reflect, inter alia, adequate
protection payments, and provided, among other things, for
- ----- ----
the Company to make monthly adequate protection payments of
$40,000 to BTM, retroactive to November 13, 1995. The
retroactive adequate protection payments to BTM were made in
July, 1996. No other 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 and $16.2 million for the fiscal 1996
second quarter and year-to-date, respectively, and approximately
$3.1 million for the fiscal 1995 second quarter and year-to-date
subsequent to the Filing.
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 (amended to
$200 million on September 13, 1996, subject to Bankruptcy Court
approval), with Chase Manhattan 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 Filing, exclusive of letters of credit, under the DIP
Facility. Trade and standby letters of credit outstanding under
the DIP Facility at August 3, 1996 were $21.4 and $45.2 million,
respectively, and $27.3 and $10.0 million, respectively, at July
29, 1995. In addition, as of July 29, 1995, trade and standby
letters of credit under the Revolver were $12.6 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 ($200 million beginning
September 13, 1996, subject to Bankruptcy Court approval), 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 and
September, 1996. As of August 3, 1996, the Company is in
compliance with the DIP Facility covenants.
13
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 and twenty-six weeks ended
August 3, 1996 and for the corresponding periods of the prior
year, directly associated with the Chapter 11 reorganization
proceedings and the resulting restructuring of its operations:
(000's)
13 Wks 13 Wks 26 Wks 26 Wks
Ended Ended Ended Ended
8/3/96 7/29/95 8/3/96 7/29/95
------- ------- ------ -------
Professional fees $1,500 $5,250 $2,500 $5,250
Interest income (460) (233) (991) (233)
Provision for rejected leases 30,000 - 30,000 -
Asset write-downs 6,328 - 10,232 -
Change in estimate for inventory
impairment - - (1,000) -
Reserve for occupancy and other
store closing costs 3,560 - 3,560 -
Termination benefits - - 4,165 -
Chapter 11 customer discounts - 2,960 - 2,960
------ ------ ------ ------
$40,928 $7,977 $48,466 $7,977
Professional fees and Interest income: Professional fees
represent
estimates of expenses incurred in the periods, primarily for
legal, consulting and accounting services provided to the
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.
14
Provision for rejected leases and asset write-downs: In
July, 1996,
the Company approved a restructuring plan to close 14 additional
stores (the "Fall 1996 Closing Stores") in the third quarter of
fiscal 1996. In connection with this plan, the Company recorded
a provision of $30 million of claim estimates for the expected
rejection of 10 of the closing store leases, all of which are
currently being marketed. Under the Bankruptcy Code, the
Company may elect to reject real estate leases, subject to
Bankruptcy Court approval. If all of the 13 closing store
leases (one of the 14 closing stores is owned) were rejected,
the provision would increase by approximately $8 million. In
addition, the Company wrote down closing store net assets of
$6.3 million, including capital lease assets and the associated
obligations and a write-down of the land and building at the
Company's Providence, RI store to the estimated net realizable
value. The net realizable value of this property has been
classified as a long-term asset held for sale. 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 in the first quarter
of fiscal 1996. The net realizable value of this property was
also classified as a long-term asset held for sale.
Reserve for inventory impairment: The change in the reserve
for
inventory impairment was recorded in the first quarter of fiscal
1996 due to a revised (lower) estimate of the incremental
markdowns required to liquidate the inventory at 13 closed
stores (the "Spring 1996 Closed Stores"). An additional reserve
for inventory impairment of $5.9 million was recorded and
charged to cost of goods sold at August 3, 1996, for the
Company's best estimate of the incremental markdowns required to
liquidate the inventory at the Fall 1996 Closing Stores. Such
costs were recorded at August 3, 1996, in accordance with the
retail inventory method. The fiscal 1995 reserve for inventory
impairment was classified as a restructuring charge, however the
reserve established for the Fall 1996 Closing Stores was charged
to cost of sales as a result of a recent SEC staff announcement
at the July 18, 1996 meeting of the Emerging Issues Task Force.
At the meeting ,the staff announced that they believe inventory
markdowns attributable to a restructuring or exit plan should be
classified in the income statement as a component of sales. The
"going out of business" (GOB) sales at the Fall 1996 Closing
Stores commenced in August, 1996 and are expected to be
completed in October, 1996. The Company currently expects to
realize approximately $28 million in cash for the inventory
after payment of direct GOB expenses (excluding occupancy,
severance pay and certain other indirect costs), as compared to
approximately $21 million realized from the
Spring 1996 Closed Stores' GOB sales.
Store closing costs: The Company established reserves
totaling $3.6
million at August 3, 1996 for occupancy and other closing costs.
15
Termination benefits: Termination benefits represent $3.1
million
of estimated severance pay, including $.3 and $2.5 million paid
in the fiscal 1996 second quarter and year-to-date,
respectively, 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,
including $1.0 million paid in the second quarter, for
approximately 660 store positions eliminated as a result of the
Spring 1996 closed stores. Employees affected by the Fall 1996
Closing Stores will be notified of their termination benefits
during the third quarter of fiscal 1996 and an associated
estimated charge of approximately $1.6 million is expected to be
recorded at that time.
Chapter 11 customer discounts: The "Chapter 11 customer
discounts"
recorded in fiscal 1995 represented a special 5% discount that
was provided to customers during a two-week period following the
Filing to retain customer loyalty and to compensate customers
for the inconvenience of unavailable merchandise.
Net sales and operating losses (losses exclusive of any home
office expense allocation and prior to interest expense, income
taxes and reorganization items) from the Fall 1996 Closing
Stores were (in 000's):
13 Wks Ended 26 Wks Ended Fiscal Fiscal
Aug. 3, 1996 Aug. 3, 1996 1995 1994
------------- ------------ ------ ------
Net sales $33,524 $63,336 $156,266 $132,699
Operating loss (5,733) (11,849) (21,771) (499)
Net sales for the Spring 1996 Closed Stores for the twenty-six weeks
ended August 3, 1996 were approximately $32.8 million. Historical net sales
and operating results for these 13 stores were reported in the Company's
Form 10-K for fiscal 1995.
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.
16
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, summarized in million of dollars and
expressed as a percentage of net sales, were as follows for the
13 weeks and 26 weeks ended August 3, 1996 ("Second Quarter
1996" and "Year-to-Date 1996", respectively) and for the 13
weeks and 26 weeks ended July 29, 1995 ("Second Quarter 1995"
and "Year-to-Date 1995", respectively):
13 Wks Ended 26 Wks Ended
-------------- ------------
Aug. 3, July 29, Aug. 3, July 29,
1996 1995 1996 1995
------ ------- ------ -------
(Dollars in millions except
per share amounts)
Total sales $386.2 $437.5 $ 736.1 $829.9
Leased department sales 16.6 16.1 28.8 28.8
------ ------ ------- ------
Net sales 369.6 421.4 707.3 801.1
Cost of goods sold 268.2 296.9 503.4 577.1
------ ------ ------- ------
Gross margin 101.4 124.5 203.9 224.0
Leased department and
other operating income 3.7 3.7 6.4 7.0
------ ------ ------- ------
105.1 128.2 210.3 231.0
Selling, store operating,
administrative and
distribution expenses 134.0 143.3 272.0 278.0
Depreciation and
amortization 10.5 13.2 21.5 26.4
Interest and debt expense 2.5 7.1 4.9 16.9
Reorganization items 40.9 8.0 48.4 8.0
------ ------ ------- ------
Loss before income taxes (82.8) (43.4) (136.5) (98.3)
Income tax benefit - 15.8 - 38.3
------ ------ ------- ------
Net loss $(82.8) $(27.6) $(136.5) $(60.0)
====== ====== ======= ======
Net loss per share $(7.25) $(2.41) $(11.96) $(5.25)
====== ====== ======= ======
Total sales increase
(decrease):
All stores (11.7)% (1.3)% (11.3)% 1.2%
Comparable stores (10.0)% (11.1)% (11.2)% (9.0)%
Number of stores in
operation at end of period 124 136 124 136
17
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Con't)
- ----------------------------
13 Wks Ended 26 Wks Ended
Aug. 3, July 29, Aug. 3, July 29,
1996 1995 1996 1995
------ ------- ------ -------
As a percentage of net
sales, results were
as follows:
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 72.6 70.5 71.2 72.0
------ ------ ------ -----
Gross margin 27.4 29.5 28.8 28.0
Leased department and other
operating income 1.0 0.9 0.9 0.8
------ ------ ------ ------
28.4 30.4 29.7 28.8
Selling, store operating,
administrative and
distribution expenses 36.3 34.0 38.5 34.7
Depreciation and amortization 2.8 3.1 3.0 3.3
Interest and debt expense 0.6 1.7 0.7 2.1
Reorganization items 11.0 1.9 6.8 1.0
------ ------ ------ ------
Loss before income taxes (22.4) (10.3) (19.3) (12.3)
Income tax benefit - 3.8 - 4.8
------ ------ ------ ------
Net loss (22.4)% (6.5)% (19.3)% (7.5)%
====== ====== ====== ======
18
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 Second Quarter 1996 declined $51.3 million
or 11.7% from Second Quarter 1995 due to a 10.0% decrease in
comparable store sales (including leased department sales) and
15 stores closed since last year's second quarter (including the
Spring 1996 Closed Stores - see Note 6), partially offset by the
sales from three new stores opened in early March, 1996. The
Fall 1996 Closing Stores are scheduled to be closed in October,
1996. The major causes for the decline in comparable store
sales were the difficulties in promptly offsetting the sales
loss from discontinued merchandise categories and the weak
retail market, particularly in apparel. 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 (excluding the Fall 1996 Closing Stores)
for the fiscal month of August, 1996 (the four weeks ended
August 31, 1996) increased 12.2%.
Total sales for Year-to-Date 1996 declined $93.8 million or
11.3% from Year-to-Date 1995 due primarily to a 11.2% decrease
in comparable store sales. The major causes for the
year-to-date decline in comparable store sales were the same as
discussed above for the second quarter decline.
Gross margin declined $23.1 million or 2.1% as a percentage
of net sales in Second Quarter 1996 from Second Quarter 1995,
due primarily to higher markdowns, a $5.9 million markdown
provision for the Fall 1996 Closing Stores (Note 6) and a $2.2
million inventory shrink charge associated with June, 1996
chain-wide physical inventories, partially offset by an increase
in the overall initial markup. The increase in markup is a
function of the move toward higher-quality, higher-margin
apparel and decorative home products. 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).
Gross margin for Year-to-Date 1996 declined $20.1 million
but increased .8% as a percentage of net sales from Year-to-Date
1995. The gross margin dollar decline was due to the impact of
lower year-to-date sales, the $5.9 million Fall 1996 Closing
Stores' markdown provision and the $2.2 million shrink charge,
partially offset by the favorable impact from the higher
year-to-date gross margin rate. The year-to-date gross margin
rate increase was primarily due to a higher overall initial
markup, partially offset by a higher markdown rate.
19
Leased department and other operating income remained the
same in amount but increased .1% as a percentage of net sales in
Second Quarter 1996 from Second Quarter 1995 due to the impact
from higher shoe sales, offset by the absence of layaway income
(included in other operating income) resulting from the August
1995 discontinuance of the layaway program. Year-to-Date 1996
leased department and other operating income declined $.6
million but increased .1% as a percentage of net sales compared
to Year-to-Date 1995. The year-to-date dollar decline was due
to the discontinuance of the layaway program and the percentage
increase was due to the lower net sales base over which the
percentage was calculated.
Selling, store operating, administrative and distribution
("S,G&A") expenses declined $9.3 million but increased 2.3% as a
percentage of net sales in Second Quarter 1996 compared to
Second Quarter 1995. The S,G&A dollar decrease was due
primarily to the stores closed in June, 1996, 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, partially offset by higher advertising expenses
and expenses associated with additions and expansion of certain
home office functions (e.g. planning and allocation and store
design and visual presentation). The S,G&A increase as a
percentage of net sales in Second Quarter 1996 was due to the
lower sales base.
Year-to-Date 1996 S,G&A expenses declined $6.0 million but
increased 3.8% as a percentage of net sales from Year-to-Date
1995. These changes were due to the same factors as discussed
above for Second Quarter 1996. The Company has implemented an
expense reduction program for the second half of fiscal 1996
that includes expected reductions in store, asset protection,
logistics and home office expenses.
Depreciation and amortization expense decreased $2.7 and
$4.9 million or .2% and .3% as a percentage of net sales in
Second Quarter and Year-to-Date 1996, respectively, compared to
Second Quarter and Year-to-Date 1995, due primarily to the
fiscal 1995 adoption of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for 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 as of February 3, 1996.
Interest and debt expense declined $4.6 and $12.0 million or
1.1% and 1.4% as a percentage of net sales in Second Quarter and
Year-to-Date 1996, respectively, compared to Second Quarter and
Year-to-Date 1995, due to the discontinuance of accruing
interest on substantially all pre-petition debt. Interest and
debt expense in Year-to-Date 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.
20
Reorganization items of $40.9 and $48.4 million incurred for
Second Quarter and Year-to-Date 1996, respectively, and $8.0
million for Second Quarter and Year-to-Date 1995 relate to the
Chapter 11 proceedings and related restructuring and are
discussed in Note 6. Termination benefits relating to employees
at the Fall 1996 Closing Stores will be recorded in the third
quarter of fiscal 1996, since the affected employees were not
notified of their termination benefits until after August 3,
1996. The Company currently estimates that these benefits will
total approximately $1.6 million. In addition, the Company
currently anticipates a third quarter charge of approximately
$3.5 million for termination benefits associated with the
expense reduction program discussed above.
The Company did not record an income tax provision in Second
Quarter and Year-to-Date 1996 due to the current expectation of
no income tax expense or benefit for fiscal 1996. The Company
recorded income tax benefits of $15.8 and $38.3 million in
Second Quarter and Year-to-Date 1995, respectively.
Liquidity and Capital Resources
There were no borrowings during Year-to-Date 1996, exclusive
of the issuance of letters of credit, under the Company's DIP
Facility (Note 4). The Company currently expects direct
borrowings under its DIP Facility to peak at approximately $55
million during October and November, 1996. The Company amended
the DIP Facility in September, 1996 to, among other things, (i)
lower the aggregate amount to $200 million from $250 million
because of the reduced amount of inventory that the Company has
available to borrow against due to the Spring 1996 Closed Stores and
the Fall 1996 Closing Stores, (ii) reduce the minimum inventory
covenants for the same reason and (iii) adjust the minimum
EBITDA covenants in light of the fiscal 1996 first half results
and revised second half plan (the "Revised Plan" as filed on
Form 8-K dated September 17, 1996) to allow for the same
"cushion" against the Revised Plan that the prior EBITDA
covenants had against the original plan.
The DIP Facility amendments are subject to Bankrupcty Court
approval. 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 $93.5 million,
exclusive of outstanding letters of credit, at the time of the
filing.
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.
21
In Year-to-Date 1996, cash flows used by operations before
reorganization items was $17.0 million, compared to $45.6
million of cash provided by operations before reorganization
items in Year-to-Date 1995. Net cash used by reorganization
items (Note 6) in Year-to-Date 1996 was primarily the result of
professional fees and termination benefits. The net cash used
of $17.0 million prior to reorganization items in Year-to-Date
1996 was primarily the result of the operating loss incurred,
partially offset by a federal income tax refund of $24.5 million
received in April, 1996 and the proceeds from going-out-of
business sales at the 13 closed stores. The income tax refund
is included in "changes in working capital, net" in the
consolidated statement of cash flows. The Year-to-Date 1995 net
cash provided of $45.6 million prior to reorganization items
was due to the non-payment of virtually all pre-petition
liabilities, partially offset by the operating loss incurred.
Inventories at August 3, 1996, declined $17.8 and $25.9
million from July 29, 1995 and February 3, 1996, respectively,
due primarily to the Spring 1996 Closed Stores. Accounts
payable, exclusive of amounts subject to settlement, at August
3, 1996 increased $45.0 million from July 29, 1995, primarily
because accounts payable as of July 29, 1995 reflected only
inventory receipts subsequent to the filing date. Accounts
payable, exclusive of amounts subject to settlement, at August
3, 1996 declined $1.7 million from February 3, 1996 due to the
Spring 1996 Closed Stores, partially offset by the inventory
build-up for the Company's two-week home furnishings sale in
August.
Accounts receivable at August 3, 1996, increased $3.2 and
$.4 million from February 3, 1996 and July 29, 1995,
respectively, due to higher credit card receivables resulting
from an August 1, 1996 one-day sale, partially offset by lower
layaway receivables (the Company's layaway option for customers
was discontinued as of August 1, 1995). Accrued expenses at
August 3, 1996 were $2.5 and $23.9 million higher than at
February 3, 1996 and July 29, 1995, respectively, due primarily
to certain reserves established for this year's store closings
(Note 6) and accrued expenses in the prior year that were
reclassified as subject to settlement after the filing date.
The assets held for sale (current portion) are comprised of
three properties, including one owned undeveloped property and
two of the Spring 1996 Closed Store leases currently expected to
be sold within a year. The long-term assets held for sale are
comprised of one closing store site and one previously planned
new store site that were financed and currently expected to take
longer than a year to sell. The current estimated net
realizable value for the two financed properties are less than
the associated financing obligations included in liabilities
subject to settlement. Any sales proceeds from those properties
are expected to be utilized to reduce the obligations.
The Company incurred capital expenditures of $9.4 million in
Year-to-Date 1996, primarily for systems improvements and
merchandise fixtures, compared to $10.2 million in Year-to-Date
1995. For all of fiscal 1996, the Company expects total capital
expenditures to be approximately $30 million based upon its
Revised Plan, primarily for management information systems, and
merchandise fixtures and store repair and maintenance
improvements. The Company currently expects to
22
finance these expenditures through internally-generated funds.
As part of its strategy to position Bradlees between discount
and department stores, the Company has been revising its
merchandise presentation. This new strategy has and is expected
to influence the nature of capital expenditures (some of which
may be subject to Bankruptcy Court approval) in the near future.
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
Revised Plan.
23
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.
- ---------- ------- --------
10.1* Debtor-in-Possession Revolving Credit
and Guaranty Agreement, dated as of
June 23, 1995, between Chemical Bank,
as Agent, and Bradlees Stores, Inc., a
Debtor-in-Possession, with Bradlees
Administrative Co., Inc. and the
Subsidiaries of the Borrower as Guarantors,
is incorporated by reference from the
Company's Form 8-K dated July 26, 1995,
Item 7, Exhibit 10.1, as filed with the
Securities and Exchange Commission on
July 27, 1995.
10.2* First Amendment, dated as of June 30, 1995,
to Debtor-in-Possession Revolving Credit
and Guaranty Agreement, is incorporated by
reference from the Company's Form 8-K dated
July 26, 1995, Item 7, Exhibit 10.2, as filed
with the Securities and Exchange Commission
on July 27, 1995.
10.3* Second Amendment, dated as of August 9, 1995,
to Debtor-in-Possession Revolving Credit
and Guaranty Agreement, is incorporated by
reference from the Company's Form 10-Q for
the quarterly period ended August 12, 1995,
Part II, Item 6, Exhibit 10.3, as filed with
the Securities and Exchange Commission on
September 26, 1995.
10.4* Third Amendment, dated as of March 15, 1996,
to Debtor-in-Possession Revolving Credit and
Guaranty Agreement, dated as of June 23, 1995,
between Chemical Bank, as Agent and Societe
Generale, as Co-Agent, and Bradlees Stores,
Inc., a Debtor-in-Possession, with Bradlees
Administrative Co., Inc. and the Subsidiaries
of the Borrower as Guarantors, is incorporated
by reference from the Company's Form 8-K
dated March 29, 1996, Item 7, Exhibit 10.4,
as filed with the Securities and Exchange
Commission on April 1, 1996.
- ---------------------------
*Previously filed
23
Exhibit No. Exhibit Page No.
- ---------- ------- --------
10.5 Fourth Amendment, dated as of September
13,1996, to Debtor-in-Possession Revolving
Credit and Guaranty Agreement, dated as of
June 23, 1995, between Chase Manhattan Bank,
as Agent and Societe Generale, as Co-Agent,
and Bradlees Stores, Inc., a
Debtor-in-Possession, with Bradlees
Administrative Co., Inc. and the Subsidiaries
of the Borrower as Guarantors.
11 Computation of earnings per share.
15 Letter re: unaudited interim financial
information.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the
quarterly period ended August 3, 1996:
Date of Report Date of Filing Item Number Description
-------------- -------------- ----------- --------------
June 7, 1996 June 7, 1996 5 Disclosure of
first quarter
fiscal 1996
results compared
to plan.
24
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: September 16, 1996 By /s/ MARK A. COHEN
-----------------
Mark A. Cohen
Chairman and
Chief Executive Officer
Date: September 16, 1996 By /s/ PETER THORNER
-----------------
Peter Thorner
President,Director and
Chief Operating Officer
Date: September 16, 1996 By /s/ CORNELIUS F.MOSES III
-------------------------
Cornelius F. Moses III
Senior Vice President,
Chief Financial Officer
25
Exhibit 10.5
FOURTH AMENDMENT TO REVOLVING CREDIT AND GUARANTY
AGREEMENT
FOURTH AMENDMENT, dated as of September 13, 1996 (the
"Amendment"),
- ---------
to the REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of June
23, 1995, among BRADLEES STORES, INC., a Massachusetts
corporation (the "Borrower"), as a debtor and
debtor-in-possession under Chapter 11 of
--------
the Bankruptcy Code, the Guarantors named therein (the
"Guarantors"), as
- ----------
debtors and debtors-in possession under Chapter 11 of the
Bankruptcy Code, THE CHASE MANHATTAN BANK (formerly known as
Chemical Bank), a New York banking corporation ("Chase"), each
of the other financial
-----
institutions party thereto (together with Chase, the "Banks")
and THE
-----
CHASE MANHATTAN BANK, as Agent for the Banks (in such capacity,
the "Agent") and SOCIETE GENERALE, as Co-Agent for the Banks;
-----
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Banks, the Agent
and the Co-Agent are parties to that certain Revolving Credit
and Guaranty Agreement, dated as of June 23, 1995 (as heretofore
amended by that certain First Amendment to Revolving Credit and
Guaranty Agreement dated as of June 30, 1995, that certain
Second Amendment to Revolving Credit and Guaranty Agreement
dated as of August 10, 1995, that certain Third Amendment to
Revolving Credit and Guaranty Agreement dated as of March 15,
1996 and that certain Amendment Letter Agreement dated August
15, 1996, as the same may be amended, modified or supplemented
from time to time, the "Credit Agreement"); and
----------------
WHEREAS, the Borrower and the Guarantors have requested that
from and after the Effective Date (as hereinafter defined) of
this Amendment, the Credit Agreement be amended subject to and
upon the terms and conditions set forth herein.
1. As used herein all terms which are defined in the Credit
Agreement shall have the same meanings herein.
2. Section 2.01(a) of the Credit Agreement is hereby
amended by deleting the amount "$250,000,000" set forth in
clause (i) in the second sentence thereof and inserting in lieu
thereof the amount "$200,000,000".
3. Section 6.05 of the Credit Agreement is hereby amended
by deleting the table set forth therein in its entirety and
inserting in lieu thereof the following table:
26
Date EBITDA
---- ------
November 2, 1996 ($97,000,000)
February 1, 1997 ($49,000,000)
May 3, 1997 ($62,000,000)
4. Section 6.05 of the Credit Agreement is hereby further
amended by inserting the following new sentence at the end
thereof:
"In calculating EBITDA for each period beginning on November
5, 1995
and ending on the date listed above, there shall be
excluded from
the determination in accordance with GAAP of the net income
(or net
loss) of the Borrower for such period an inventory markdown
reserve
recognized by the Borrower in connection with the closing of
fourteen stores operated by the Borrower and announced by
the
Parent on August 9, 1996 in an amount not in excess of
$7,500,000."
5. Section 6.06 of the Credit Agreement is hereby amended
by deleting the table set forth therein in its entirety and
inserting in lieu thereof the following table:
Inventory
---------
Period Ending Amount
------------- ---------
October 5, 1996 $227,000,000
November 2, 1996 $261,000,000
November 30,1996 $274,000,000
January 4, 1997 $161,000,000
February 1, 1997 $173,000,000
March 1, 1997 $210,000,000
April 5, 1997 $216,000,000
May 3, 1997 $210,000,000
May 31, 1997 $196,000,000
6. Annex A to the Credit Agreement is hereby amended and
replaced in its entirety by a new Annex A thereto in the form of
Exhibit A hereto.
7. This amendment shall not become effective until the date
(the "Effective Date") on which (i) this Amendment shall have
been executed
--------------
by the Borrower, the Guarantors, Banks constituting the Required
Banks and the Agent, and the Agent shall have received evidence
satisfactory to it of such execution and (ii) the Borrower (with
the approval of the Bankruptcy Court, such approval to be
evidenced by the entry of an order satisfactory in form and
substance to the Agent) shall have paid to the Agent on behalf
of the Banks an amendment fee equal to $250,000.
8. The Borrower agrees that its obligations set forth in
Section 10.05 of the Credit Agreement shall extend to the
preparation, execution and delivery of this Amendment.
27
9. This Amendment shall be limited precisely as written and
shall not be deemed (a) to be a consent granted pursuant to, or
a waiver or modification of, any other term or condition of the
Credit Agreement or any of the instruments or agreements
referred to therein or (b) to prejudice any right or rights
which the Agent or the Banks may now have or have in the future
under or in connection with the Credit Agreement or any of the
instruments or agreements referred to herein. Whenever the
Credit Agreement is referred to in the Credit Agreement or any
of the instruments, agreements or other documents or papers
executed or delivered in connection therewith, such reference
shall be deemed to mean the Credit Agreement as modified by this
Amendment.
10. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall
be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
11. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and the year first
above written.
BRADLEES STORES, INC.
By:
Cornelius F. Moses, III
------------------------------
Title: SVP-CFO
28
GUARANTORS:
BRADLEES, INC.
BRADLEES ADMINISTRATIVE CO., INC.
DOSTRA REALTY CO., INC.
MAXIMEDIA SERVICES, INC.
NEW HORIZONS OF BRUCKNER,INC.
NEW HORIZONS OF WESTBURY,INC.
NEW HORIZONS OF YONKERS,INC.
By:
Gary F. Jones
------------------------------
Title: VP and Treasurer
THE CHASE MANHATTAN BANK,
Individually and as Agent
By:
Neil R. Boylan
------------------------------
Title: VP
270 Park Avenue
New York, New York 10017
SOCIETE GENERALE, Individually
and as Co-Agent
John J. Wagner
By:------------------------------
Title: VP
1211 Avenue of the Americas
New York, New York 10020
FLEET NATIONAL BANK
By: John C. McDonough
------------------------------
Title: Vice President
75 State Street, 4th Floor
Boston, Massachusetts 02109
29
HELLER FINANCIAL, INC.
By:
Salvatore Salzillo
------------------------------
Title: Asst. VP
101 Park Avenue
New York, New York 10178
FLEET BANK, N.A., formerly
NATWEST BANK N.A.
By: Thomas Maiale
------------------------------
Title: Vice President
175 Water Street
New York, New York 10038
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM AMERICA, INC., as
Attorney-in-Fact for
Jackson National Life
Insurance Company
By:
------------------------------
Title:
225 West Wacker, Suite 1200
Chicago, Illinois 60606
ABN AMRO BANK N.V.
BOSTON BRANCH
By:
------------------------------
Title:
By:
------------------------------
Title:
One Post Office Square,
39th Floor
Boston, Massachusetts 02109
30
BHF-BANK AG
By: John Sykes
------------------------------
Title: A.V.P.
By: Maria Busby
------------------------------
Title: A.V.P.
590 Madison Avenue
New York, New York
10022-2540
MANUFACTURERS & TRADERS TRUST
COMPANY
By:
Gino Martocci
------------------------------
Title: Asst. VP
350 Park Avenue, 6th Floor
New York, New York 10022
SIGNET BANK
By:
John D. Scott
------------------------------
Title: VP
7 North Eighth Street
P.O. Box 25641
Richmond, Virginia 23260
CREDIT AGRICOLE
By: Dean Balice
------------------------------
Title: Senior Vice
President
55 East Monroe, Suite 4700
Chicago, Illinois 60603
31
EXHIBIT A
ANNEX
A TO
REVOLVING
CREDIT AND
GUARANTY
AGREEMENT
ANNEX A
to
REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of June 23, 1995, as amended
-------------------------------------
Commitment
Commitment
Bank Amount
Percentage
- ---- ----------
- ----------
The Chase Manhattan Bank $24,000,000
12.00%
Societe Generale 20,000,000
10.00%
Fleet National Bank 20,000,000
10.00%
Heller Financial, Inc. 20,000,000
10.00%
NatWest Bank N.A. 20,000,000
10.00%
Jackson National Life
Insurance Company 28,000,000
14.00%
ABN AMRO Bank N.V.,
Boston Branch 16,000,000
8.00%
BHF-Bank AG 16,000,000
8.00%
Manufacturers & Traders
Trust Company 16,000,000
8.00%
Signet Bank/Virginia 8,000,000
4.00%
Credit Agricole 12,000,000
6.00%
----------
- -------
Total $200,000,000
100.00%
============
=======
32
BRADLEES, INC.
EXHIBIT 11
AND SUBSIDIARIES
Page 1 of 2
(Operating as Debtor-in-Possession)
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Amounts in thousands except per share amounts)
26 Weeks Ended 26 Weeks Ended
August 3, 1996 July 29, 1995
-------------- --------------
Primary Loss Per Share
- ----------------------
Net loss $(82,785) $(27,556)
========= ========
Weighted average number of
shares outstanding 11,411 11,422
Incremental shares for assumed
exercise of stock options - -
--------- --------
Total common shares and common
share equivalent 11,411 11,422
========= =======
Net earnings (loss) per share $ (7.25) $(2.41)
========= =======
Fully Diluted Loss Per Share (1)
Net loss $(82,785) $(27,556)
========= ========
Weighted average number of
shares outstanding 11,411 11,422
Incremental shares for assumed
exercise of stock options - -
--------- --------
Total common shares and common
share equivalents 11,411 11,422
========= ========
Fully diluted net loss per share $ (7.25) $(2.41)
========= ========
(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.
33
BRADLEES, INC.
EXHIBIT 11
AND SUBSIDIARIES
Page 2 of 2
(Operating as Debtor-in-Possession)
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Amounts in thousands except per share amounts)
26 Weeks Ended 26 Weeks Ended
August 3, 1996 July 29, 1995
-------------- --------------
Primary Loss Per Share
- ----------------------
Net loss $(136,531) $(59,955)
========= ========
Weighted average number of
shares outstanding 11,413 11,414
Incremental shares for assumed
exercise of stock options - -
--------- --------
Total common shares and common
share equivalent 11,413 11,414
========= ========
Net earnings (loss) per share $(11.96) $(5.25)
========= =======
Fully Diluted Loss Per Share (1)
Net loss $(136,531) $(59,955)
========= ========
Weighted average number of
shares outstanding 11,413 11,414
Incremental shares for assumed
exercise of stock options - -
--------- --------
Total common shares and common
share equivalents 11,413 11,414
========= ========
Fully diluted net loss per share $(11.96) $(5.25)
========= ========
(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.
34
EXHIBIT 15
Deloitte &
Touche LLP
- ------------
- -------------------------------------------------
125 Summer Street Telephone:
(617)261-8000
Boston, MA 02110-1617
Facsimile:(617)261-8111
September 13, 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 26-week and
13-week periods ended August 3, 1996 and July 29, 1995 as
indicated in our report dated August 28, 1996 (September 13, 1996
with respect to paragraphs 3 and 4 of Note 4)(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 August 3, 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.
/s/ Deloitte & Touche LLP
- -------------------------
- ------------------
Deloitte Touche
Tohmatsu
International
- ------------------
35
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 24668
<SECURITIES> 0
<RECEIVABLES> 13737
<ALLOWANCES> 0
<INVENTORY> 256402
<CURRENT-ASSETS> 313470
<PP&E> 175685
<DEPRECIATION> 0
<TOTAL-ASSETS> 685107
<CURRENT-LIABILITIES> 215713
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> (181421)
<TOTAL-LIABILITY-AND-EQUITY> 685107
<SALES> 707281
<TOTAL-REVENUES> 713715
<CGS> 503371
<TOTAL-COSTS> 503371
<OTHER-EXPENSES> 341916
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4959
<INCOME-PRETAX> (136531)
<INCOME-TAX> 0
<INCOME-CONTINUING> (136531)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136531)
<EPS-PRIMARY> (11.96)
<EPS-DILUTED> (11.96)
</TABLE>
