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 November 1, 1997
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)
(781) 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
December 2, 1997: 11,387,154 shares.
Exhibit Index on Page 25
Page 1 of 26 (Excluding Exhibits)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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 November 1, 1997, and the related
condensed consolidated statement of operations and cash flows
(not presented herein), for the thirteen week period ended
November 1, 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review 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 review, 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.
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 2 to the annual
financial statements for the year ended February 1, 1997 (not
presented herein), on June 23, 1995, the Company filed a
petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Furthermore as indicated in Note 4 to the
condensed consolidated financial statements, the Company has
obtained a commitment for new debtor-in-possession financing.
The Company's current debtor in possession financing expires the
earlier of June 23, 1998 or the substantial consummation of a
plan of reorganization. The Company's ability to continue as a
going concern is dependent upon, among other things, (i) the
approval of its new debtor-in-possession financing by the
Bankruptcy Court (or an extension of its current
debtor-in-possession financing) and an acceptance of a plan of
reorganization by the Company's creditors with confirmation by
the Bankruptcy Court, (ii) compliance with all debt covenants
under its debtor-in-possession financing, (iii) the success of
future operations and (iv) the resolution of the uncertainties
of the reorganization case discussed in Note 2. Management's
plans in regard to these matters are discussed in Notes 1 and 4
to the condensed consolidated financial statements.
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<PAGE>
The eventual outcome of these matters discussed in the previous
paragraph is not presently determinable. The condensed
consolidated financial statements do not include any adjustments
relating to the resolution of these uncertainties or the
recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities and changes in
stockholders' equity that might be necessary should the Company
be unable to continue as a going concern.
The accompanying condensed consolidated statements of operations
and cash flows for the thirty-nine week period ended November 1,
1997 which include the thirteen week periods ended May 3, 1997
and August 2, 1997 were reviewed by other accountants. Their
reports were dated May 21, 1997 and August 19, 1997,
respectively. The accompanying condensed consolidated balance
sheet of the Company as of November 2, 1996 and the related
condensed consolidated statements of operations, and cash flows
for the thirty-nine week period ended November 2, 1996 and the
condensed statements of operations for the thirteen week period
ended November 2, 1996 were reviewed by other accountants whose
report was dated November 19, 1996. All of these reports stated
that the other accountants were not aware of any material
modifications that should be made to those statements in order
for them to be in conformity with generally accepted accounting
principles and included explanatory paragraphs relating to (i)
the Company's filing for reorganization under Chapter 11 of the
Federal Bankruptcy Code and (ii) substantial doubt about the
Company's ability to continue as a going concern.
The condensed consolidated balance sheet of the Company as of
February 1, 1997 (presented herein), and the related
consolidated statements of operations, stockholders' deficiency,
and cash flows for the year then ended (not presented herein),
were audited by other accountants whose report, dated March 20,
1997, expressed an unqualified opinion on those consolidated
financial statements and included explanatory paragraphs
relating to (i) the Company's filing for reorganization under
Chapter 11 of the Federal Bankruptcy Code, (ii) the Company's
1996 and 1995 losses from operations and stockholders'
deficiency which raise substantial doubt about the Company's
ability to continue as a going concern, and (iii) the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 112,
effective January 30, 1994.
/s/ Arthur Andersen LLP
- -----------------------
New York, New York
November 19, 1997
3
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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
----------------
Nov. 1, 1997 Nov. 2, 1996
------------ ------------
Total sales $ 342,337 $ 420,317
Leased department sales 11,904 15,862
---------- ----------
Net sales 330,433 404,455
Cost of goods sold 233,329 291,395
---------- ----------
Gross margin 97,104 113,060
Leased department and other
operating income 3,282 3,691
---------- ----------
100,386 116,751
Selling, store operating, administrative
and distribution expenses 92,976 119,955
Depreciation and amortization
expense 9,322 10,595
Gain on disposition
of property - (1,689)
Interest and debt expense 4,690 2,880
Reorganization items (6,978) 8,083
---------- ----------
Net income (loss) $ 376 $ (23,073)
========== ==========
Net income (loss) per share $0.03 $ (2.02)
========== ==========
See accompanying notes to condensed consolidated financial
statements.
4
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands except per share amounts)
39 Weeks Ended
--------------
Nov. 1, 1997 Nov. 2, 1996
------------ ------------
Total sales $ 930,683 $ 1,156,403
Leased department sales 35,463 44,667
---------- ----------
Net sales 895,220 1,111,736
Cost of goods sold 625,521 794,766
---------- ----------
Gross margin 269,699 316,970
Leased department and other
operating income 8,722 10,649
---------- ----------
278,421 327,619
Selling, store operating, admin.
and distribution expenses 289,844 392,454
Depreciation and amortization
expense 27,544 32,072
Gain on disposition of property - (1,689)
Interest and debt expense 11,673 7,838
Reorganization items (2,160) 56,549
---------- ----------
Net loss $(48,480) $ (159,605)
========== ==========
Net loss per share $ (4.26) $ (13.99)
========== ==========
See accompanying notes to condensed consolidated financial
statements.
5
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
Nov. 1, Feb. 1, Nov. 2,
1997 1997 1997
-------- -------- --------
ASSETS
Current assets:
Unrestricted cash &
cash equivalents $ 11,291 $ 10,025 $ 20,157
Restricted cash & cash equivalents 9,436 9,126 9,030
-------- -------- --------
Total cash & cash equivalents 20,727 19,151 29,187
-------- -------- --------
Accounts receivable 14,183 8,240 17,562
Inventories 335,359 236,920 339,178
Prepaid expenses 11,087 8,466 10,458
Assets held for sale 7,754 8,419 8,954
-------- -------- --------
Total current assets 389,110 281,196 405,339
-------- -------- --------
Property, plant and equipment,
net:
Property excluding capital
leases, net 135,430 139,246 147,987
Property under capital
leases, net 21,126 24,395 28,232
-------- -------- --------
Total property, plant & equip., net 156,556 163,641 176,219
-------- -------- --------
Other assets:
Lease interests at fair value &
lease acquisition costs, net 144,705 150,229 180,161
Assets held for sale 5,250 5,250 10,153
Other, net 4,386 3,884 3,714
-------- -------- --------
Total other assets 154,341 159,363 194,028
-------- -------- --------
Total assets $ 700,007 $ 604,200 $ 775,586
======== ======== ========
(Continued)
6
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
Nov. 1, Feb. 1, Nov. 2,
1997 1997 1996
--------- --------- ---------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 196,279 $ 115,315 $ 238,722
Accrued expenses 34,619 45,924 43,707
Self-insurance reserves 6,144 7,086 6,985
Short-term debt 131,500 42,500 24,000
Current portion of capital
lease obligations 1,038 1,722 2,110
--------- --------- ---------
Total current liabilities 369,580 212,547 315,524
--------- --------- ---------
Long-term liabilities:
Obligations under capital leases 32,738 33,296 47,534
Deferred income taxes 8,581 8,581 8,581
Self-insurance reserves 12,473 14,386 13,969
Other long-term liabilities 28,186 27,642 24,673
--------- --------- ---------
Total long-term liabilities 81,978 83,905 94,757
--------- --------- ---------
Liabilities subject to settlement
under the reorganization case 560,154 571,041 569,581
Stockholders' equity (deficiency):
Common stock - 11,387,154
outstanding (11,394,433 at
2/1/97,11,404,620 at
11/2/96)
Par value 115 115 115
Additional paid-in-capital 137,951 137,951 137,951
Unearned compensation - (167) (316)
Accumulated deficit (449,007) (400,525) (341,371)
Treasury stock, at cost (764) (667) (655)
--------- --------- ---------
Total stockholders'
equity (deficiency) (311,705) (263,293) (204,276)
--------- --------- ---------
Total liabilities & stockholders
equity (deficiency) $ 700,007 $ 604,200 $ 775,586
========= ========= =========
See accompanying notes to condensed consolidated financial
statements.
7
<PAGE>
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
39 Weeks Ended
Nov. 1, 1997 Nov. 2, 1996
------------ -----------
Cash flows from operating activities:
Net loss $(48,480) $(159,605)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation and amortization expense 27,544 32,072
Amortization of deferred financing costs 2,098 1,574
Reorganization items (2,160) 56,549
Changes in working capital and
other, net (29,832) 51,030
---------- ----------
Net cash used by operating activities
before reorganization items (50,830) (18,380)
---------- ----------
Reorganization items:
Interest income received 330 1,261
Chapter 11 professional fees paid (7,877) (8,535)
Other reorg. expenses paid, net (5,611) (9,030)
---------- ----------
Net cash used by reorganization items (13,158) (16,304)
---------- ----------
Net cash used by operating activities (63,988) (34,684)
Cash flows from investing activities:
Capital expenditures, net (14,721) (18,625)
Increase in restricted cash
and cash equivalents (310) (7,836)
---------- ----------
Net cash used in investing activities (15,031) (26,461)
---------- ----------
Cash flows from financing activities:
Payments of liabilities
subject to settlement (5,447) (3,180)
Deferred financing costs (2,026) (571)
Borrowings under the DIP facility 101,500 34,000
Principal payments under the
DIP facility (12,500) (10,000)
Principal payments on capital
lease obligations (1,242) (1,959)
---------- ----------
Net cash provided by financing activities 80,285 18,290
---------- ----------
Net increase (decrease) in unrestricted
cash and cash equivalents 1,266 (42,855)
Unrestricted cash and cash equivalents:
Beginning of period 10,025 63,012
---------- ----------
End of period $ 11,291 $ 20,157
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid for interest and
certain debt fees $ 9,264 $ 6,923
Cash received for income taxes $ 109 $ 24,998
See accompanying notes to condensed consolidated financial
statements.
8
<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 the American Institute of Certified Public
Accountants Statement of Position 90-7: "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP
90-7") and 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 (third quarter) and 39
weeks (year-to-date) ended November 1, 1997 and November 2,
1996, 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 prior-year amounts have been reclassified to
conform to this year's presentation.
These statements should be read in conjunction with the
Company's financial statements (Form 10-K) for the fiscal year
ended February 1, 1997 ("1996"). Due to the seasonal nature of
the Company's business, operating results for the third quarter
and year-to-date period are not necessarily indicative of
results that may be expected for the fiscal year ending January
31, 1998 ("1997"). 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").
The Company experienced significant operating losses in
1996 and 1995 and continued to post an operating loss in the
year-to-date period of 1997. 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.
In an effort to return the Company to profitability and
accomplish its long-term goals, the Company will focus on three
key merchandise categores - moderately priced apparel for the
family, home goods and certain hardlines goods - and on quality
and fashion, especially in apparel and home goods, as a way to
differentiate itself from its closest competition. The Company
9
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believes that it can leverage its strength in apparel and home
goods while driving traffic with certain hardlines merchandise.
The Company has made or is in the process of making the
following key modifications to its business strategy in 1997:
(a) reintroducing lower opening price points in selective
merchandise categories to enhance value, increase customer
traffic and avoid costly promotions; (b) reintroducing certain
basic convenience and commodity products that are typical of
assortments carried by discount stores; (c) reinstituting a
layaway program and installing new in-store directional and
departmental signage in the second half of 1997; (d) revising
the Company's markdown policy based on product rate of sale; (e)
making the weekly circulars more item-intensive and price-point
oriented with clear presentation while reducing less productive
and more costly advertising media; (f) introducing both a
"Certified Value" program that highlights certain key
recognizable items at competitive everyday prices and a "Wow!"
program which integrates targeted and unadvertised opportunistic
purchases; and (g) improving operating efficiencies to achieve
further cost reductions.
The Company is making changes in its merchandise assortment
and presentation in connection with the above steps. In
addition, the Company closed 27 stores in 1996 and has reduced
and reorganized its home office, store, field and regional
management structures. The Company also closed one unprofitable
store in April, 1997 and, in December, 1997, announced the
planned closing of six additional underperforming stores by late
February, 1998, including one owned store that is being closed
as a result of the planned sale of the property in January,
1998.
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 are being investigated and resolved. Except
for year-to-date payments of approximately $2.1 million made in
1997 to settle certain reclamation claims, the ultimate amount
and settlement terms for pre-petition 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 2, 1998 and to
solicit acceptance of a plan of reorganization until April 3,
1998, each subject to possible extension as approved by the
Bankruptcy Court. The Company has filed a motion with the
Bankruptcy Court seeking a six-month extension of its
exclusivity period to August 3, 1998 and of its exclusive period
to solicit acceptance of a plan of reorganization until October
5, 1998.
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 $45.7 million was
recorded through November 1, 1997, for rejected leases. This
liability may be subject to future adjustments based on claims
filed by the lessors and Bankruptcy Court actions. The Company
10
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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 at a future date. The Company believes that it has
recorded its best estimate of the liability for rejected leases
based on information available.
The principal categories of claims classified as
"Liabilities subject to settlement under the reorganization
case" are identified below. Deferred financing costs as of the
Filing 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
$9.1 million of adequate protection payments since the Filing
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 bank group. The claim was
settled in full for $9.0 million and approved by the Bankruptcy
Court in 1995. 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.
Liabilities Subject to Settlement (000's)
Under the Reorg. Case ---------------------------------
Nov. 1, Feb. 1, Nov. 2,
1997 1997 1996
---------- ---------- ---------
Accounts payable $165,016 $167,098 $167,809
Accrued expenses 27,694 27,932 25,499
Revolver 72,005 75,005 75,605
2002 Notes 122,274 122,274 122,274
2003 Notes 97,957 97,957 97,957
Financing obligation 17,951 17,951 17,951
Obligations under cap. leases 11,527 11,887 13,515
Provision for rejected leases 45,730 50,937 48,971
---------- ---------- ---------
$560,154 $571,041 $569,581
========== ========== =========
3. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents at November 1, 1997
were comprised of the following, along with earned interest of
$.4 million: (a) $6.0 million of the $24.5 million federal
income tax refund received in April 1996, held in escrow pending
further order of the Bankruptcy Court; (b) $1.7 million of
forfeited deposits, also held in escrow pending further order of
the Bankruptcy Court, received in 1996 on a planned sale of an
owned undeveloped property that was not consummated and (c)
other funds ($1.2 million) restricted as security deposits for
utility expenses incurred after the Filing. As of November 2,
1996, restricted cash and cash equivalents were comprised of the
same components but with earned interest of $.1 million.
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4. DEBT
As a result of the Filing, substantially all debt (exclusive
of the DIP Facility) outstanding at November 1, 1997 was
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 1995, the Company received
Bankruptcy Court approval to make certain adequate protection
payments to the pre-petition bank group. 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 amount of $2.25 million, subject to reduction for
adequate protection payments also approved by the Bankruptcy
Court. 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.
Other than those noted above, no other determinations have 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 $7.8 and $23.3 million for
the third quarter and year-to-date periods of 1997,
respectively, and $7.8 and $23.5 million for the third quarter
and year-to-date periods of 1996, respectively.
DIP Facility
------------
The Company has a Debtor-in-Possession Revolving Credit and
Guaranty Agreement (the "DIP Facility") in the aggregate amount
of $200 million (of which $125 million is available for issuance
of letters of credit) with Chase Manhattan Bank, as Agent, under
which the Company is allowed to borrow for general corporate
purposes, working capital and inventory purchases. There were
outstanding direct borrowings of $131.5 million under the DIP
Facility as of November 1, 1997. Trade and standby letters of
credit outstanding under the DIP Facility were $16.1 and $19.7
million, respectively, at November 1, 1997 and $7.3 and $32.9
million, respectively, at November 2, 1996.
At the Company's option, the Company may borrow under the
DIP Facility at the Alternate Base Rate (as defined) plus .50%
or at the Adjusted LIBO Rate (as defined) plus 1.75%. The
weighted average interest rate under the DIP Facility was 7.59%
in the third quarter and 7.51% in the year-to-date period of
1997. The maximum borrowing, up to $200 million, is limited to
60% of the Eligible Book Value of Inventory (as defined) except
for the period effective October 29, 1997 through January 31,
1998, when the limit is 65%, as amended on October 16, 1997 and
made effective on the date of Bankruptcy Court approval. The
Company paid financing fees of approximately $2.0 million during
1997 for an extension of and amendments to the DIP Facility.
Although there are no compensating balance requirements, the
Company is required to pay an annual commitment fee of .5% of
the unused portion of the DIP Facility. The DIP Facility
contains
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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. At
November 1, 1997, 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 is scheduled to expire on the earlier of June 23,
1998 or the substantial consummation of a reorganization plan
that is confirmed by the Bankruptcy Court.
New Financing Facility
----------------------
The Company has obtained a commitment for a new $250 million
financing facility, with a sublimit of $125 million for letters
of credit, with BankBoston Retail Finance, Inc. ("BBNA") as
agent (the "New Facility"), that is subject to Bankruptcy Court
approval. The discussion that follows is only a summary of the
New Facility. Further details and a copy of the New Facility
will be reported on Form 8-K after Bankruptcy Court approval.
The New Facility consists of (a) an up to eighteen month
debtor-in-possession revolving credit facility in the maximum
principal amount of $250 million (the "New DIP") with a $20
million sublimit for Overadvance Borrowings (see below) and,
subject to meeting certain conditions, (b) an up to three year
post-confirmation revolving credit facility in the maximum
principal amount of $250 million (the "Exit Facility") with a
$20 million sublimit for Overadvance Borrowings. The commitment
period for the combined facilities cannot exceed four years.
The New DIP has an advance rate equal to 60% of the Loan Value
of Eligible Receivables (as defined) plus 72% of the Loan Value
of Eligible Inventory (as defined). Between March 1 and
December 15, the Company can borrow an overadvance amount on the
Loan Value of Eligible Inventory of 5%, subject to a $20 million
limitation. The Exit Facility has an advance rate equal to 60%
of the Loan Value of Eligible Receivables, plus the lower of (i)
72% of the Loan Value of Eligible Inventory or (ii) 80% of the
ratio of the annual appraised liquidation value to the Loan
Value (as defined) of the inventory (the "Loan to Value Ratio").
Between March 1 and December 15, the Company can borrow an
overadvance amount on the Loan Value of Eligible Inventory of
5%, provided the Loan to Value Ratio does not exceed 85%.
All loans outstanding under the New DIP and Exit Facility
will bear interest at BBNA's Alternate Base Rate in effect from
time to time (the "Base Rate Applicable Margin") per annum or,
at the Company's option, so long as no default or event of
default has occurred and is then continuing, at the fully
reserve adjusted Eurodollar rate plus 2.25% (the "Eurodollar
Applicable Margin") for interest periods of one, two and three
months. The Base Rate Applicable Margin and Eurodollar
Applicable Margin will be subject to an additional 0.50% during
any fiscal month that the Company utilizes the Overadvance
Borrowing Base (as defined).
One year from the Exit Facility Closing Date (as defined),
the Exit Facility's Base Rate Applicable Margin and the Exit
Facility's Eurodollar Applicable Margin will be subject to a
.25% reduction upon the Company achieving a twelve month rolling
Interest Coverage Ratio (EBITDA less CAPEX to Interest) of 2.5:1
or greater.
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The Exit Facility is subject to certain conditions being
satisfied, including (i) an all-equity plan of reorganization;
(ii) minimum EBITDA performance; and (iii) minimum borrowing
availability on the effective date of the plan of
reorganization. The Exit Facility is secured by all assets of
the Company, except interest in real property.
The New Facility contains financial covenants including: (i)
minimum EBITDA; (ii) minimum accounts payable to inventory;
(iii) maximum capital expenditures; and, (iv) minimum operating
cash flow to interest expense (during Exit Facility only for the
fiscal quarter ending on or about January 31, 2000) .
In the fourth quarter of 1997, the Company expects to incur
a charge of approximately $1 million for the write-off of the
DIP Facility's unamortized deferred financing costs and to pay
approximately $1.9 million for financing fees associated with
the New Facility.
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 did not recognize a
quarterly or annual income tax expense or benefit in 1996 and
also does not expect to recognize a quarterly or annual income
tax expense or benefit in 1997.
6. REORGANIZATION ITEMS
The Company provided for or incurred the following expense
and income items during the third quarter and year-to-date
periods of 1997 and 1996, directly associated with the Chapter
11 reorganization proceedings and the resulting restructuring of
its operations:
(000's)
----------------------------------
13 Weeks Ended 39 Weeks Ended
11/1/97 11/2/96 11/1/97 11/2/96
------- ------- ------- -------
Professional fees $2,250 $3,000 $7,500 $5,500
Interest income (101) (269) (330) (1,260)
Gain on disposition of properties (800) - (1,003) -
Provision for rejected leases (5,207) - (5,207) 30,000
Net asset write-offs - - - 10,232
Change in estimate of inventory
impairment reserve - - - (1,000)
Provision for occupancy and other
store closing costs - - - 3,560
Employee severance and
termination benefits (3,400) 5,352 (3,400) 9,517
Provision for MIS retention
bonuses 280 - 280 -
-------- ------- ------- -------
$(6,978) $8,083 $(2,160) $56,549
======== ====== ======== =======
14
<PAGE>
Professional fees and interest income:
--------------------------------------
Professional fees represent estimates of expenses incurred,
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 cash invested during the Chapter
11 proceeding.
Gain on disposition of properties:
---------------------------------
The Company sold three closed store leases and certain
equipment in 1997 for $1.7 million and the related gains of $1.0
million were classified as reorganization items since the
associated net asset write-offs were previously included in
reorganization items.
Provision for rejected leases and net asset write-offs:
------------------------------------------------------
The Company sold a closed store lease in the third quarter
of 1997 and reversed the associated $5.2 million rejected lease
liability that had been previously recorded at the time of the
store-closing announcement when it was expected that the lease
would be rejected. In July, 1996, the Company approved a
restructuring plan to close 14 additional stores in the third
quarter of 1996 (the "Fall 1996 Closed Stores"). In connection
with this plan, the Company recorded a provision of $30 million
of claim estimates in the second quarter of 1996 for the
expected rejection of certain closing store leases. In
connection with the store closings and lease rejections, the
Company wrote off certain net assets of $6.3 million, including
net capital lease assets 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
is classified as a long-term asset held for sale. In April,
1996, the Company decided not to open a previously planned new
store in Philadelphia, PA. 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 1996. The net realizable value of this
property is also classified as a long-term asset held for sale.
Reserve for inventory impairment:
---------------------------------
The change in the reserve for inventory impairment
(established as a restructuring charge at February 3, 1996) was
recorded in the first quarter of 1996 due to a revised (lower)
estimate of the incremental markdowns required to liquidate the
inventories at 13 stores closed in June, 1996 (the "Spring 1996
Closed Stores").
Store closing costs:
--------------------
The Company established reserves totaling $3.6 million at
August 3, 1996 for occupancy and other store closing costs.
Other store closing costs represent incremental asset
protection, occupancy and various closing costs associated with
the decision to close the stores.
Employee severance and termination benefits:
--------------------------------------------
The credit of $3.4 million in the third quarter and
year-to-date period of 1997 resulted from the reversal of
certain executive severance reserves, including a significant
portion of the severance reserve that had been established for
the Company's former CEO, Mark Cohen, whose employment
terminated in December, 1996, and remaining reserves for certain
former executives who found employment. During the third
quarter of 1997, a mediated settlement was reached with Mr.
Cohen that was subsequently approved by the Bankruptcy Court.
Termination benefits of $5.4 million for the third quarter of
1996 included $1.2 million of estimated severance for
approximately 738 store positions eliminated as a result of the
Fall 1996 Closed Stores and $4.2 million of estimated severance
and benefits for 63 corporate office positions eliminated.
Employee severance and termination
15
<PAGE>
benefits recognized in the year-to-date period of 1996 also
included $3.1 million of severance pay 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 eliminated as a
result of the Spring 1996 Closed Stores.
Provision for MIS retention bonuses:
------------------------------------
The Company has established a provision for retention
bonuses expected to be paid to certain MIS (Management
Information Systems) employees during the pendency of the
Chapter 11 proceeding.
Restructuring reserves:
-----------------------
As discussed in Note 1, the Company closed a total of 27
stores in 1996, has reduced and reorganized its home office,
store, field and regional management structures and closed one
additional unprofitable store in April, 1997. As of November 1,
1997, the Company had reserves (included in accrued expenses)
totaling approximately $2.4 million (exclusive of provisions for
rejected leases discussed in Note 2) associated with those
actions. Approximately $5.6 million of these costs were paid in
the year-to-date period of 1997. The majority of the remaining
reserved costs are currently expected to be paid within a year.
7. CHANGES IN ACCOUNTING ESTIMATES
The Company is primarily self-insured for workers'
compensation and general liability costs. Actuarial studies of
the self-insurance reserves were completed in the third quarter
of 1997, using a discount rate of 6.0% (the same rate used at
February 1, 1997), and in the third quarter of 1996, using a
discount rate of 6.0% (compared to 5.3% at February 3, 1996).
As a result of the studies, the self-insurance reserves were
reduced by $3.6 million in the third quarter of 1997 with a
corresponding reduction in SG&A expenses (selling, store
operating, administrative and distribution expenses) and by $5.0
million in the third quarter of 1996 with corresponding
reductions of $4.3 and $.7 million in SG&A expenses and interest
expense, respectively. The reductions in the self-insurance
reserves were primarily the result of aggressive claims
management and safety initiatives.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
(the "FASB") issued SFAS No. 128, "Earnings per Share". SFAS
No. 128 establishes standards for computing and presenting
earnings per share and is effective for financial statements for
both interim and annual periods, ending after December 15, 1997.
SFAS No. 128 would have no impact on the Company's income and
loss per share calculations for the quarter and year-to-date
periods ended November 1, 1997 and November 2, 1996.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which is effective for the Company
beginning with the fiscal year ending January 30, 1999 ("1998").
SFAS No. 130 will require that total comprehensive income (the
change in equity from transactions and other events except those
resulting from investment by owners) be reported in the
financial statements. The Company does not expect SFAS No. 130
to have any impact on the Company's financial statements.
16
<PAGE>
In June 1997, the FASB also issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information," which
is effective beginning with 1998. SFAS No. 131 will require
that segment financial information be publicly reported on the
basis that is used internally for evaluating segment
performance. The Company does not currently anticipate SFAS No.
131 to have any impact on its financial statement disclosures
but is continuing an evaluation of the pronouncement.
17
<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, summarized in millions of dollars and
expressed as a percentage of net sales (on next page) were as follows
for the 13 weeks and 39 weeks ended November 1, 1997 ("Third Quarter 1997"
and "Year-to-Date 1997", respectively) and for the 13 weeks and 39
weeks ended November 2, 1996 ("Third Quarter 1996" and "Year-to-Date
1996", respectively):
13 Weeks Ended 39 Weeks Ended
--------------- -----------------
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
------ ------ ------ ------
(Dollars in millions except
per share amounts)
Total sales $342.3 $420.3 $930.7 $1,156.4
Leased dept sales 11.9 15.8 35.5 44.7
------ ------ ------ ------
Net sales 330.4 404.5 895.2 1,111.7
Cost of goods sold 233.3 291.4 625.5 794.7
------ ------ ------ ------
Gross margin 97.1 113.1 269.7 317.0
Leased department and other
operating income 3.3 3.7 8.7 10.6
------ ------ ------ ------
100.4 116.8 278.4 327.6
Selling, store operating,
admin. & distrib. expenses 93.0 120.0 289.8 392.5
Depreciation and
amortization expenses 9.3 10.6 27.5 32.1
Gain on disposition
of property - (1.7) - (1.7)
Interest and debt expense 4.7 2.9 11.7 7.8
Reorganization items (7.0) 8.1 (2.1) 56.5
------ ------ ------ ------
Net income (loss) $ 0.4 $(23.1) $(48.5) $(159.6)
======== ======== ======== ========
Net income (loss) per share $0.03 $(2.02) $(4.26) $(13.99)
======== ======== ======== ========
Total sales increase
(decrease)
All stores (18.6)% 0.4 % (19.5)% (7.4)%
Comp. stores (8.7)% 5.0 % (7.6)% (5.5)%
Number of stores in
operation at end of period 109 110 109 110
18
<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 (Con't)
- -----------------------------
13 Weeks Ended 39 Weeks Ended
Nov. 1, Nov. 2, Nov. 1, Nov. 2,
1997 1996 1997 1996
------ ------- ------- -------
As a % of net sales,
results were as follows:
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 70.6 72.0 69.9 71.5
------ ------- ------- -------
Gross margin 29.4 28.0 30.1 28.5
Leased department &
other operating income 1.0 0.9 1.0 1.0
------ ------- ------- -------
30.4 28.9 31.1 29.5
Selling, store operating,
admin. & distrib. exp. 28.2 29.7 32.3 35.3
Deprec.& amort. expense 2.8 2.6 3.1 2.9
Gain on disposition
of property - (0.4) - (0.2)
Interest & debt expense 1.4 0.7 1.3 0.7
Reorganization items (2.1) 2.0 (0.2) 5.2
------ ------- ------- -------
Net income (loss) 0.1 % (5.7)% (5.4)% (14.4)%
======= ======= ======= =======
19
<PAGE>
The following discussions, as well as other portions of this
document, include 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.
THIRD QUARTER 1997 COMPARED TO THIRD QUARTER 1996
Total sales for Third Quarter 1997 declined $78.0 million or
18.6% from Third Quarter 1996 due primarily to the closing of 15
stores since the beginning of Third Quarter 1996 (14 of the 15
closed stores were closed during October 1996) and a decrease of
8.7% in comparable store sales (including leased shoe department
sales). The decline in comparable store sales was due primarily
to significantly less promotional activity, and weak outerwear,
denim and toy sales, partially offset by the sales associated
with the reimplementation of a layaway program. The Company has
made or is in the process of making certain modifications to its
marketing strategy and merchandise mix and presentation
(summarized in Note 1 to the Condensed Consolidated Financial
Statements) that management believes will improve the Company's
future sales and profitability. Comparable store sales for the
fiscal month of November 1997 (the four weeks ended November 29,
1997) were down 1.5% compared to the fiscal month of November
1996 (the four weeks ended November 30, 1996).
Gross margin declined $16.0 million (primarily as a result
of the store closings) but increased 1.4% as a percentage of net
sales in Third Quarter 1997 from Third Quarter 1996 due
primarily to lower markdowns resulting from the decreased
promotional activity and improved vendor allowances. The
significant reduction in promotional activity in Third Quarter
1997 compared to the prior year was part of the Company's plan
to increase advertising productivity and improve margins.
Leased department and other operating income declined $.4
million, primarily as a result of the store closings, but
increased 0.1% as a percentage of net sales in Third Quarter
1997 compared to Third Quarter 1996. Layaway fee income helped
to offset the negative impact of lower comparable leased shoe
department sales.
Selling, store operating, administrative and distribution
("SG&A") expenses declined $27.0 million and 1.5% as a
percentage of net sales in Third Quarter 1997 from Third Quarter
1996. The improved SG&A expense performance was due primarily
to the store closings and expense reduction programs, including
significant reductions in home office, advertising, logistics
and benefits expenses.
Depreciation and amortization expense declined $1.3 million
but increased 0.2% as a percentage of net sales (due to the
decline in sales) in Third Quarter 1997 from Third Quarter 1996.
The dollar decline was due to the closed stores and the 1996
year-end write-down of long-lived assets ($40.8 million) under
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of".
The Company recognized a $1.7 million gain in Third Quarter
1996 relating to forfeited deposits received on a planned sale
of undeveloped property in Westbury, NY, that was not
consummated
20
<PAGE>
because the prospective buyer could not obtain the necessary
financing. This property continues to be classified as an asset
held for sale (current portion) and the funds received are
included in restricted cash and cash equivalents.
Interest and debt expense increased $1.8 million and 0.7% as
a percentage of net sales in Third Quarter 1997 from Third
Quarter 1996 due primarily to the interest costs associated with
higher seasonal borrowings under the DIP Facility (Note 4)
compared to the prior-year period. Peak borrowings were $144.0
million in Third Quarter 1997 compared to $34.0 million in Third
Quarter 1996. The weighted average interest rate under the DIP
Facility in Third Quarter 1997 (7.59%) was up only slightly from
the prior-year period (7.50%).
The credit in reorganization items of $7.0 million in Third
Quarter 1997 and the charge of $8.1 million in Third Quarter
1996 were directly associated with the Chapter 11 proceedings
and related restructuring and are discussed in Note 6.
The Company did not record an income tax provision in Third
Quarter 1997 due to the current expectation of no income tax
expense or benefit in 1997. There was also no income tax
expense or benefit recorded in Third Quarter 1996 because of the
same expectation in 1996.
YEAR-TO-DATE 1997 COMPARED TO YEAR-TO-DATE 1996
Year-to-Date 1997 total sales declined $225.7 million or
19.5% from Year-to-Date 1996 due primarily to the closing of 27
stores since the beginning of June 1996 and a decrease of 7.6%
in comparable store sales. The decline in year-to-date
comparable store sales was due primarily to a significant
reduction in promotional activities and because the
modifications to the Company's marketing strategy and
merchandise mix and presentation (Note 1) were not fully in
place in time to have a significant impact on Year-to-Date 1997
sales.
Gross margin for Year-to-Date 1997 declined $47.3 million
(primarily as a result of the store closings) but increased 1.6%
as a percentage of net sales due primarily to lower markdowns
resulting from the decreased promotional activities, tighter
inventory control, and a $5.9 million charge in Year-to-Date
1996 for the Fall 1996 Closed Stores' going-out-of-business
incremental markdowns, partially offset by a slightly lower
overall initial markup. The effort to better control inventory
levels is expected to reduce future clearance markdowns while
the reintroduction of certain traffic-driving commodity and
convenience merchandise is expected to reduce the overall
initial markup.
Leased department and other operating income declined $1.9
million (primarily as a result of the store closings) but
remained the same as a percentage of net sales in Year-to-Date
1997 compared to Year-to-Date 1996.
Year-to-Date 1997 SG&A expenses declined $102.7 million or
3.0% as a percentage of net sales compared to Year-to-Date 1996.
The improved year-to-date SG&A expense performance was due
primarily to the factors discussed above for Third Quarter 1997.
21
<PAGE>
Depreciation and amortization expense declined $4.6 million
but increased 0.2% as a percentage of net sales (due to the
decline in sales) in Year-to-Date 1997 compared to Year-to-Date
1996. The dollar decline was due to the same factors discussed
above for Third Quarter 1997.
Interest and debt expense increased $3.9 million or 0.6% as
a percentage of net sales due to a higher level of borrowings
under the DIP Facility in Year-to-Date 1997 (average of $85
million) compared to Year-to-Date 1996 when the Company did not
have to borrow until the third quarter.
The credit in reorganization items of $2.1 million for
Year-to-Date 1997 and the charge of $56.5 million for
Year-to-Date 1996 were directly associated with the Chapter 11
proceedings and are discussed in Note 6.
The Company did not record an income tax provision in
Year-to-Date 1997 due to the current expectation of no income
tax expense or benefit in 1997. There was also no income tax
expense or benefit recorded in Year-to-Date 1996 for the same
reason.
LIQUIDITY AND CAPITAL RESOURCES
The Company had outstanding borrowings of $131.5 million at
November 1, 1997, exclusive of the issuance of letters of
credit, under the Company's $200 million DIP Facility (Note 4).
Such borrowings peaked at $144 million and averaged $110 million
during Third Quarter 1997 and reached the same peak and averaged
$85 million during Year-to-Date 1997. There were no direct
borrowings under the DIP Facility prior to the third quarter of
1996 when they peaked at $34 million. As discussed in Note 4,
the Company has obtained a commitment for a new $250 million
financing facility (the "New Facility"), subject to Bankruptcy
Court approval, that will provide the Company with greater
availability and liquidity for lesser fees, and for a longer
term, than is currently provided under the DIP Facility. In
addition, the New Facility has the added benefit of being
accompanied by a commitment for exit financing provided that
certain conditions are met. The funds provided under the New
Facility are to be used to replace the DIP Facility and to fund
working capital and general corporate needs both during and
after emergence from Chapter 11.
Other than payments made to certain pre-petition creditors
approved by the Bankruptcy Court (Notes 2 and 4), principal and
interest payments on indebtedness, exclusive of certain capital
lease obligations, incurred prior to the Filing 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.
In Year-to-Date 1997, cash used by operations before
reorganization items was $64.0 million, compared to $34.7
million of cash used by operations before reorganization items
in Year-to-Date 1996. This increase in cash usage was primarily
due to last year's $24.5 million federal income tax refund (Note
3) included in "Changes in working capital and other, net" in
the statement of cash flows and the inventory decreases
associated with the Spring and Fall 1996 Closed Stores. These
factors were
22
<PAGE>
partially offset by the significantly lower operating loss in
Year-to-Date 1997.
Net cash used by reorganization items in Year-to-Date 1997
of $13.2 million was primarily the result of professional fee
payments of $7.9 million and employee severance and termination
benefits of $3.2 million primarily associated with downsizing of
the home office work force. Year-to-Date 1996 reorganization
expenses paid of $16.3 million included higher levels of closing
costs related to the Spring and Fall 1996 Closed Stores.
Inventories at November 1, 1997, declined $3.8 million from
November 2, 1996, due primarily to one less store in operation
at the end of the current year period, and increased $98.4
million from February 1, 1997, due primarily to a normal
seasonal build-up.
Accounts payable at November 1, 1997, declined $42.4 million
from November 2, 1996, primarily as a result of the reduction in
seasonal and extended vendor dating (for suppliers whose payment
terms generally exceeded thirty days) that followed the
Montgomery Ward bankruptcy filing and the Company's own
tightened liquidity position in July and August. In addition,
this contraction in terms resulted from higher-than-anticipated
commodity sales (commodity vendors generally have shorter terms)
and a change in the vendor mix as a consequence of the
reintroduction of certain other merchandise categories generally
sold by discount stores. Accounts payable increased $81.0
million from February 1, 1997, due to the associated normal
seasonal build-up of inventories.
Accounts receivable at November 1, 1997, increased $5.9
million from February 1, 1997, due primarily to the new
receivables from the layaway program that was reinstituted in
late July, 1997. Accounts receivable declined $3.4 million from
November 2, 1996, due primarily to lower credit card receivables
(there was a significant one-day sale with sales of $20.2
million on November 1, 1996), partially offset by the layaway
receivables discussed above.
Accrued expenses at November 1, 1997, were $11.3 million
lower than at February 1, 1997, due primarily to payments made
against certain reserves established in 1996 for employee
severance and termination benefits and store closing costs and
the $3.4 million reversal of certain executive severance
reserves (Note 6). Accrued expenses were $9.1 million lower
than November 2, 1996, due primarily to certain payments of
severance and store closing costs that had been reserved for
prior to November 2, 1996.
The assets held for sale (current portion) is comprised of
one owned undeveloped property currently expected to be sold
within a year. The long-term assets held for sale are comprised
of one closed store site and one previously planned new store
site that were both financed. The current estimated net
realizable values for the two financed properties are less than
the associated financing obligations included in liabilities
subject to settlement. Any proceeds from the sale of the two
financed properties are expected to be utilized to reduce the
obligations.
The Company incurred capital expenditures of $14.7 million
in Year-to-Date 1997 (compared to $18.6 million in Year-to-Date
1996), primarily for management information systems and various
store improvements and maintenance projects. For all of 1997,
23
<PAGE>
the Company expects total capital expenditures to be
approximately $20 million, including additional projects of a
similar nature. The Company currently expects to finance these
expenditures through internally-generated funds or from funds
available under its DIP Facility and New Facility.
The Company believes its business strategies and the
availability of its DIP Facility and New Facility, together with
the Company's available cash and expected cash flows from 1997
operations and beyond, will enable Bradlees to fund its expected
needs for working capital, capital expenditures and debt service
requirements during and after the Chapter 11 proceedings.
Achievement of expected cash flows from operations will be
dependent upon the Company's attainment of sales, gross profit,
expense and trade support levels that are reasonably consistent
with its financial plans. Such operating performance will be
subject to financial, economic and other factors affecting the
industry and operations of the Company, including factors beyond
its control.
24
<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 #
- ----------- ------- ------
10 Stipulation and Order, dated October 6, 1997, 27
Among Bradlees Stores, Inc., Bradlees, Inc.
and Their Affiliates and Mark A. Cohen
Settling Claims Arising Under Employment
Contract with Mark A. Cohen and Bar Order.
11 Computations of earnings per share. 40
15 Letter re: unaudited interim financial 42
information.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the
quarterly period ended November 1, 1997.
Date of Report Date of Filing Item Number Description
- -------------- -------------- ----------- --------------------
August 13, 1997 August 15, 1997 5 Disclosure of
fiscal 1997 revised
plan.
August 22, 1997 August 28, 1997 5 Disclosure of second
quarter 1997 results
compared to plan.
Sept. 24, 1997 October 1, 1997 4 Reporting of change
in registrant's
certifying
accountant.
25
<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: December 12, 1997 By /s/ PETER THORNER
-----------------------------
Peter Thorner
Chairman and
Chief Executive Officer
Date: December 12, 1997 By /s/ CORNELIUS F. MOSES III
-----------------------------
Cornelius F. Moses III
Senior Vice President,
Chief Financial Officer
26
<PAGE:
EXHIBIT 10
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
..................................X Chapter 11
Case Nos. 95 B 42777
: through 95 B 42784 (BRL)
In re
(Jointly Administered)
BRADLEES STORES, INC., et al., :
------
Debtors. :
..................................X
STIPULATION AND ORDER AMONG BRADLEES STORES, INC.,
BRADLEES, INC. AND THEIR AFFILIATES AND MARK A. COHEN SETTLING
CLAIMS ARISING UNDER EMPLOYMENT CONTRACT WITH
MARK A . COHEN AND BAR ORDER
----------------------------
WHEREAS, on June 23, 1995, Bradlees, Inc., Bradlees
Stores, Inc. and their affiliates debtors and
debtors-in-possession herein (the "Debtors" or "Bradlees"), each
filed a petition for relief under Chapter 11 of the Bankruptcy
Code; and
WHEREAS, the Debtors continue to operate their businesses
and manage their properties as debtors-in-possession pursuant to
Bankruptcy Code sec. 1107(a) and 1108; and
WHEREAS, on July 6, 1995, an official committee of
unsecured creditors (the "Committee") was appointed pursuant to
Bankruptcy Code sec. 1102; and
WHEREAS, Mark A. Cohen ("Cohen") was hired as Chairman
and Chief Executive Officer ("CEO") of Bradlees under the terms
of a contract dated December 3, 1994 (the "Employment
Agreement"); and
WHEREAS, by an Amended and Restated Employment Agreement,
dated as of October 26, 1995 (the "Amended and Restated
Employment Agreement"), Bradlees and Cohen modified the terms of
the Employment Agreement; and
27
<PAGE>
WHEREAS, the Amended and Restated Employment Agreement
contained provisions relating to, among others, salary, bonuses,
severance, termination, equity appreciation rights, moving and
living expenses; and
WHEREAS, on December 24, 1996, Bradlees' Board of
Directors voted to relieve Cohen of his duties as Chairman and
CEO; and
WHEREAS, shortly after Cohen's termination of employment
with Bradlees, Bradlees issued an irrevocable standby letter of
credit (the "Letter of Credit") in the amount of $5,000,000 (the
"Letter of Credit Amount") to Cohen; and
WHEREAS, Cohen has drawn upon the Letter of Credit and
has received the Letter of Credit Amount; and
WHEREAS, Cohen also has received two gross salary
payments from Bradlees in the total amount of $139,461.52, or
$73,442.59 net, for the months of January and February 1997 (the
"Salary Payments", and together with the Letter of Credit
Amount, the "Prior Payments"); and
WHEREAS, pursuant to a Motion dated May 19, 1997 (the
"Motion"), the Debtors sought approval for a Stipulation dated
May 13, 1997 (the "Stipulation") between and among the Debtors
and Cohen; and
WHEREAS, the Committee, State Street Bank and Trust
Company, as Trustee and Bankers Trust Company, as Agent (the
"Agent") for the two prepetition Bank Groups (collectively, the
"Creditors") each filed objections to the Motion (the
"Objections"); and
WHEREAS, at the adjourned hearing on the Motion on June
12, 1997 (the "Hearing"), attorneys representing the Debtors,
each of the Creditors and Cohen appeared; and
28
<PAGE>
WHEREAS, at the Hearing, the Debtors, each of the
Creditors and Cohen consented to the appointment of a Mediator
with expanded powers to conduct an investigation (the
"Investigation") into any and all matters which in any way
relate to or have a bearing on the advisability or
reasonableness of approval of the relief requested in the Motion
(the "Investigatory Matters"); and
WHEREAS, this Court by Order dated July 2, 1997 (the
"Order") appointed Thomas J. Moloney, Esq. as Mediator in the
above-captioned cases and authorized him to conduct the
Investigation into the Investigatory Matters; and
WHEREAS, the Order further authorized the Mediator to
employ such procedures as are reasonable and appropriate,
including without limitation, meeting with any of the parties
ex parte and requesting disclosure from the parties; and
- --------
WHEREAS, the Order further authorized the Mediator to
mediate the dispute among the parties concerning the Motion (the
"Mediation") in accordance with the Amended General Order
Adopting Procedures Governing Mediation of Matters in Bankruptcy
Cases and Adversary Proceedings, dated January 17, 1995 (the
"General Order") including, without limitation, regarding the
terms of any settlement relating to the Amended and Restated
Employment Agreement, the Stipulation, the Objections and any
potential claims, causes of action, defenses, offsets or claims
of subordination that the estates may possess against Cohen; and
WHEREAS, pursuant to the Order, the Mediator met
representatives of each of the Debtors, the Committee, the Bank
Group and Cohen on July 14, 1997, and the Mediator and all
parties agreed on the conduct of the Investigation and the
Mediation, which agreement was memorialized by a letter dated
July 29, 1997, a copy of which is attached hereto as Exhibit A;
and
29
<PAGE>
WHEREAS, on July 18, 1997, the Mediator mailed letter
requests for disclosure and to schedule ex parte interviews to
--------
each of the Debtors, the Committee, the Bank Group and Cohen,
copies of which are attached hereto as Exhibit B; and
WHEREAS, the Debtors, the Committee, the Bank Group and
Cohen complied with the Mediator's requests for disclosure and
cooperated with the Mediator in the conduct of the
Investigation; and
WHEREAS, the Mediator conducted ex parte interviews of
--------
John Friedman, Cohen, Cornelius Moses, Peter Thorner, John
Curry, Sheldon Rutstein, Stephen Cooper, Phillip Gund and James
Zamberlan, and also met with representatives of the Debtors, the
Committee and the Bank Group; and
WHEREAS, based on his Investigation, the interviews,
review of the documents disclosed by the parties and discussions
with their representatives, the Mediator made his recommendation
to the parties with respect to the dispute, which was considered
by the parties in reaching the settlement herein; and
WHEREAS, Bradlees, Cohen, the Committee and the Bank
Group desire to settle and resolve all issues and claims arising
from or relating to Cohen's dismissal and his Amended and
Restated Employment Agreement without the need for any further
litigation;
30
<PAGE>
NOW, THEREFORE, IT IS HEREBY stipulated and agreed as
follows:
1. Except as otherwise set forth herein, Cohen agrees
to accept the Prior Payments in full satisfaction of all
obligations owing to him by Bradlees under the Amended and
Restated Employment Agreement or otherwise. Bradlees'
withholding tax payment obligations on the Prior Payments are in
the aggregate amount of $1,770,000 calculated as follows (the
"Withholding Tax Obligation Amounts")
F.I.T. Withholding @ 28% $1,400,000
MA Withholding @ 5.95% 297,500
MEDI Withholding @ 1.45% 72,500
To ensure that taxes representing the amount of the Withholding
Tax Obligation Amounts are in fact paid, within five (5)
business days from the date of an Order of the Bankruptcy Court
approving the Stipulation and Order Cohen shall pay
$1,750,000(1.) into escrow to be held by Dewey Ballantine LLP
(the "Escrow Agent"), pursuant to an Escrow Agreement to be
entered into among Cohen, Bradlees and the Escrow Agent, which
is reasonably satisfactory to the Creditors. Upon Bradlees'
providing to Dewey Ballantine satisfactory evidence of its
payment of the Withholding Tax Obligation Amounts (with a copy
to Mark Cohen's counsel), the Escrow Agent shall forthwith pay
to Bradlees the amount on deposit in the escrow account.
- ----------------------------------------------------------------
1. Bradlees has agreed to provide Cohen with a $20,000
discount in return for paying the amount in advance in order to
allow Bradlees greater flexibility with respect to the timing of
the estimated tax payment and to avoid the expense of a
complicated escrow arrangement that would allow Cohen to earn
interest on the money in escrow.
- ----------------------------------------------------------------
31
<PAGE>
2. The fees and expenses of the Sonnenschein, Nath &
Rosenthal firm in the amount of $264,592.53, plus such
additional reasonable fees and expenses that may be posted or
incurred in connection with the final negotiation, entry and
closing of this Stipulation and Order (including any proceedings
in connection therewith and the final resolution of any appeal
thereof) and which are supported by adequate documentation,
shall be paid in full by Bradlees within five (5) business days
from the date of an Order of the Bankruptcy Court approving the
Stipulation and Order.
3. Cohen hereby reaffirms his obligations under
Article 12.1 of the Amended and Restated Employment Agreement
that he shall not at any time communicate, furnish, divulge or
disclose in any manner to any person or entity confidential
business information or trade secrets of Bradlees, without the
express written consent of Bradlees. Cohen further reaffirms
Article 12.2 of the Amended and Restated Employment Agreement
that, in addition to any other remedies at law or equity,
Bradlees shall be entitled to injunctive relief for any breach
of the foregoing obligation.
4. Cohen agrees that he will cooperate with Bradlees
and respond to any reasonable requests (given with reasonable
advance notice and not inconsistent with his job and
professional responsibilities) for information or assistance in
any defense or prosecution of any claims or litigation,
mediation or arbitration, including any discovery to be taken in
connection therewith. Bradlees shall reimburse Cohen for his
reasonable out-of-pocket costs and expenses incurred in
connection with any assistance requested by Bradlees. Cohen
shall render such assistance, if requested, for three days in
the aggregate at no charge to Bradlees, and, thereafter, at such
amount per diem as
--------
Bradlees and Cohen agree.
32
<PAGE>
5. Bradlees hereby reaffirms its obligations under
Article 6.10 of the Amended and Restated Employment Agreement to
indemnify Cohen as provided in Article 6.10; provided, however,
-------- -------
that such indemnification shall only be effective for claims
against Cohen arising out of or relating to acts, events, or
omissions by Cohen during the periods of Cohen's employment with
Bradlees (i) as an officer and director (i.e., from and
including December 3, 1994 through December 24, 1996) and (ii) as
a director (i.e., from and including December 3, 1994 through
June 16, 1997). It is the parties' intention that the release
provided in paragraph6 hereof shall not affect any rights to
indemnification that Cohen may have under any Articles, By-laws
or any law or other agreement or any rights to coverage under
any applicable insurance maintained by Bradlees with respect to
claims against its officers and/or directors ("D&O Insurance")
6. Cohen and any successors and assigns hereby forever
release, discharge, and remise (i) Bradlees and its affiliated
entities, and all of their past, present, and future officers,
directors, employees, agents, affiliates, representatives,
successors and assigns, and any other person, firm, or
corporation claiming by, through or under any of them (the
"Bradlees Releasees"), (ii) any statutory fiduciaries of
Bradlees' bankruptcy estate, the Committee (and its past,
current and future members and the counsel of each), the Agent,
the Bank Groups (and their past, current and future members and
the counsel of each) and the respective professionals of each of
the foregoing (collectively, the "Creditor Releasees" and,
together with the Bradlees Releasees, the "Estate Releasees"),
from (a)
with respect to the Bradlees Releasees any and all manner of
action and actions, cause or causes of action, or Claims (as
defined in paragraph 8 below) of every nature and kind
whatsoever, at law and in equity, either now accrued or
hereafter
33
<PAGE>
maturing, which Cohen may now have or hereafter can, shall or
may have against the Estate Releasees or any of them, and (b)
with respect to the Creditor Releasees any manner of action and
actions, cause and causes of action, or Claims in any way
arising from or relating to the Employment Agreement, the
Amended and Restated Employment Agreement, Cohen's employment
with Bradlees and service as a director with respect thereto,
Cohen's discharge from employment with Bradlees, the Motion, the
Stipulation, the Objections or the Investigation, and the Estate
Releasees' actions or non-actions related to the foregoing or
otherwise related to the Chapter 11 cases (the "Employment
Claims")
7. The Bradlees Releasees hereby forever release,
discharge, and remise Cohen and his counsel, heirs,
representatives, successors and assigns, from any and all manner
of action and actions, cause and causes of action, or Claims of
every nature and kind whatsoever, at law and in equity, either
now accrued or hereafter maturing, which any of them may now
have or hereafter can, shall or may have against Cohen for,
upon, or by reason, directly or indirectly, of any matter, cause
or thing whatsoever, occurring or existing at any time prior to
the date of the execution of this Stipulation and Order,
including, without limitation, any manner of action and actions,
cause and causes of action, or Claims arising from or relating
to the Employment Agreement, the Amended and Restated Employment
Agreement, Cohen's employment with Bradlees and service as a
director with respect thereto and Cohen's discharge from
employment with Bradlees (except that notwithstanding anything
to the contrary in the foregoing, no claim against Cohen is
hereby released that arises from or is related to any criminal
act). Nothwithstanding the foregoing, no provision hereof shall
relieve or otherwise release Cohen from any liability on a claim
for which (and to the extent that) there is D&O Insurance
coverage
34
<PAGE>
(the "Insurance Claims") or in any way limit and/or waive any of
the rights of the Estate Releasees to seek a determination of
liability on a claim against Cohen and/or to pursue in any way a
claim against any person or entity other than Cohen. Cohen
shall use reasonable best efforts to comply with all relevant
provisions of any applicable D&O Insurance policy including, but
not limited to, provisions governing notice of claims and
related matters. Nothing herein shall require the Estate
Releasees to first obtain a determination that any claim against
Cohen is covered by D&O Insurance, but nothing herein shall
relieve the Estate Releasees of the obligation to act in
compliance with the requirements of Fed. R. Civ. P. 11 (or its
equivalent) in connection with the initiation of any action.
In any proceeding brought by the Estate Releasees, or any of
them, on any Insurance Claim against Cohen, the Estate Releasees
(i) will obtain recovery solely from D&O Insurance; (ii) will
not under any circumstances obtain any recovery from Cohen's
personal assets, even if no D&O Insurance coverage is determined
to exist, the D&O Insurance carrier declines coverage, or the
D&O Insurance coverage is insufficient to satisfy in full any
claim of the Estate Releasees. The foregoing shall not preclude,
restrict or limit Cohen from defending against or opposing any
claim by any of the Estate Releasees or any other person or
entity, provided, however, that Cohen shall be barred from
asserting any cross-claims, counterclaims or third-party claims
against any of the Estate Releasees to the full extent of the
releases granted herein, but notwithstanding the foregoing Cohen
shall not be barred from bringing a cross-claim, counterclaim or
third-party claim to enforce the indemnity provision of
paragraph 5 hereof.
8. For purposes of the foregoing paragraphs 6 and 7,
the term "Claim" shall include all past and present and future
claims, demands, obligations, losses, actions, causes of action,
35
<PAGE>
suits, cross-actions, counterclaims, rights, damages, and
expenses, and requests for compensation or payment of any nature
whatsoever, at law and in equity, whether based on tort,
contract, or any other theory of recovery, and whether for
compensatory or punitive damages or any other relief or remedy,
whether known or unknown, whether suspected or unsuspected,
whether liquidated or unliquidated, whether mature or unmatured,
whether direct or indirect or derivative, whether fixed or
contingent, and whether secured or unsecured, occurring or
existing at any time prior to the date of the execution of this
Stipulation and Order, provided, however, that nothing in
-------- -------
paragraphs 6 and 7 shall be construed to impair or release any
of the rights or obligations of the parties contained in this
agreement.
9. The foregoing releases shall not affect any rights
that Cohen may have to obtain health insurance coverage under
the Consolidated Omnibus Budget Reconciliation Act, as codified
at 26 U.S.C. sec. 4980B.
10. The foregoing releases shall operate to release only
those parties specifically released herein and shall not affect
any claims that Cohen or the Estate Releases may have against
any and all other persons or entities or constitute a waiver of
the rights of the Creditor Releasees (if any) to object to any
indemnification claims. Nothing herein shall be deemed an
admission by either Cohen, the Debtors or the Creditors as to
any disputed matter settled pursuant to this Stipulation and
Order. This Stipulation and Order is entered into for purposes
of settlement and may not be offered as evidence or used by any
party for any purpose other than the approval or enforcement of
the agreements set forth herein.
11. The parties undertake to make reasonable efforts to
preserve the confidentiality of this settlement from the general
public, however, nothing herein shall limit Court filings or
36
<PAGE>
communications with a Court or shall prevent the parties from
making any disclosure that is legally required or necessary for
them to consult with or to inform the persons they are
representing. Any breach of this undertaking shall not give
rise to a claim for monetary damages for breach of this
agreement, however, a Court may enforce this agreement through
equitable means, including an injunction.
12. This Stipulation is subject to the approval of the
United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court") and the entry by the Bankruptcy
Court of an order approving this Stipulation and Order and
implementing the releases referred to in paragraphs 6 and 7 and
barring any claims by or against Cohen to the extent set forth
therein (the "Bar Order"). It is recognized and acknowledged
that entry of the Bar Order is a material part of the
consideration that is being received by Cohen in return for the
concessions made by him herein. A proposed Bar Order is
incorporated herein.
13. The provisions of this Stipulation shall be
interpreted and construed in accordance with the laws of the
Commonwealth of Massachusetts, without regard to its choice of
law principles.
14. Until the conclusion of this Chapter 11 proceeding,
the Bankruptcy Court shall retain continuing jurisdiction over
this Stipulation and Order and the Bar Order and all disputes,
controversies or issues arising hereunder.
15. This Stipulation and Order may be executed in
counterparts.
Dated: New York, New York
1997
- ----------------------------
BRADLEES STORES, INC. AND AFFILIATES
By: /s/ David Schmitt
----------------
/s/ Mark A. Cohen
-----------------
37
<PAGE>
IT IS HEREBY ORDERED, that the foregoing Stipulation and Order
and Settlement is approved and the parties are directed to take
all actions necessary to carry out the terms thereof; and it is
FURTHER ORDERED, that (i) all parties in interest in these
cases, including but not limited to the Debtors, the Creditor
Releasees and all creditors of the Debtors' estate and their
successors and assigns, are hereby enjoined and barred from
bringing any action against Mark A. Cohen with respect to the
Employment Claims or any action or omission taken by him as a
Director or Chief Executive Officer of the Debtors, except that
nothing herein shall prohibit them from pursuing Insurance
Claims as defined in paragraph 7 of the Stipulation and Order,
subject to the same limitations and qualifications on the
prosecution of such claims and the enforcement and recovery of
any judgment thereon imposed in paragraph 7 of the Stipulation
and Order on the Estate Releasees, and (ii) Mark A. Cohen is
hereby enjoined and barred from bringing any action against the
Estate Releasees for any claims released under paragraph 6 of
this Stipulation and Order.
NO OBJECTION TO ENTRY OF THE FOREGOING:
DEWEY BALLANTINE
By: /s/ Stuart Hirshfield (SH-0099)
-------------------------------
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
Attorneys for Bradlees Stores, Inc.,
et al., Debtors and Debtors-in-Possession
-----
OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
38
<PAGE>
By: /s/ Glenn B. Rice (GR-7605)
---------------------------
230 Park Avenue
New York, New York 10169
(212) 661-9100
Attorneys for the Official Committee of
Unsecured Creditors
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
(ILLINOIS)
By: /s/ John Wm. Butler, Jr. (JB-4711)
----------------------------------
333 West Wacker Drive
Chicago, Illinois 60606
(312) 407-0700
Attorneys for Bankers Trust Company, as
Senior Bank Agent for the Senior Bank Groups
SONNENSCHEIN, NATH & ROSENTHAL
By: /s/Richard Fenton
-----------------
8000 Sears Tower
Chicago, Illinois 60606-6404
(312) 876-8000
Attorneys for Mark A. Cohen
SO ORDERED THIS 6th DAY OF
October , 1997.
/s/Burton R. Lifland
- ------------------------------------------------------
UNITED STATES BANKRUPTCY JUDGE
39
<PAGE>
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)
13 Weeks Ended 13 Weeks Ended
November 1, 1997 November 2, 1996
---------------- ----------------
Primary Income (Loss) Per Share
Net income (loss) $376 ($23,073)
=== ========
Weighted avg. # of shares
outstanding 11,387 11,406
Incremental shares for assumed
exercise of stock options - -
------- -------
Total common shares
and common share equivalents 11,387 11,406
======= ======
Net Income (loss) per share $0.03 ($2.02)
==== =======
Fully Diluted Inc. (Loss)
Per Share (1)
Net income (loss) $376 ($23,073)
==== =========
Weighted avg. # of shares
outstanding 11,387 11,406
Incremental shares for assumed
exercise of stock options - -
------ ------
Total common shares and
common share equivalents 11,387 11,406
======= =======
Fully diluted net inc.
(loss) per share $0.03 ($2.02)
==== =======
(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
Opion No. 15.
40
<PAGE>
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)
39 Weeks Ended 39 Weeks Ended
November 1, 1997 November 2, 1996
---------------- ----------------
Primary Loss Per Share
Net loss ($48,480) ($159,605)
======== =========
Weighted avg # of shares
outstanding 11,390 11,411
Incremental shares for
assumed exercise of
stock options - -
------ -------
Total common shares
and common share equivalents 11,390 11,411
======= =======
Net loss per share ($4.26) ($13.99)
======= ========
Fully Diluted Loss Per Share (1)
- ---------------------------------
Net loss ($48,480) ($159,605)
======== =========
Weighted avg. # of
shares outstanding 11,390 11,411
Incremental shares
for assumed exercise of
stock options - -
======= ========
Total common shares
and common share equivalents 11,390 11,411
====== =======
Fully diluted net loss per share ($4.26) ($13.99)
====== =======
(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.
41
<PAGE>
EXHIBIT 15
November 19, 1997
Bradlees, Inc.
One Bradlees Circle
Braintree, MA 02184
We have made a review, in accordance with standards established
by the Amercian Institute of Certified Public Accountants, of
the unaduited interim financial information of Bradlees, Inc.
and subsidiaries, Debtor-in-Possession, for the 13-week period
ended November 1, 1997 as indicated in our report dated November
19, 1997 which included a going concern paragraph relating to
(i) the Company's filing for reorganization under Chapter 11 of
the U.S. Bankruptcy Code (ii) certain matters which raise
substantial doubt about the Company's ability to continue as a
going concern. 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 November 1, 1997, is incorporated by reference in
Registration Statement Nos. 33-64850, 33-64858, 33-80896,
33-86954, 33-86956 and 33-92178.
We are also 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/ Arthur Andersen LLP
- -----------------------
42
<PAGE>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 20727
<SECURITIES> 0
<RECEIVABLES> 14183
<ALLOWANCES> 0
<INVENTORY> 335359
<CURRENT-ASSETS> 389110
<PP&E> 156556
<DEPRECIATION> 0
<TOTAL-ASSETS> 700007
<CURRENT-LIABILITIES> 369580
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> (311820)
<TOTAL-LIABILITY-AND-EQUITY> 700007
<SALES> 895220
<TOTAL-REVENUES> 903942
<CGS> 625521
<TOTAL-COSTS> 625521
<OTHER-EXPENSES> 315228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11673
<INCOME-PRETAX> (48480)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48480)
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<NET-INCOME> (48480)
<EPS-PRIMARY> (4.26)
<EPS-DILUTED> (4.26)
</TABLE>
