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 July 31, 1999
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
September 7, 1999: 9,462,068 shares.
Exhibit Index on Page 24
Page 1 of 25 (Excluding Exhibits)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Bradlees, Inc.:
We have reviewed the accompanying condensed consolidated balance
sheets of Bradlees, Inc. and subsidiaries (the "Company") as of
July 31, 1999 and August 1, 1998, and the related condensed
consolidated statements of operations and cash flows, for the
thirteen and twenty-six week periods then ended. 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.
On February 2, 1999, the Company
emerged from bankruptcy. As discussed in Notes 1 and 2 to the
condensed consolidated financial statements, effective January
30, 1999, the Company accounted for the reorganization and
adopted "fresh-start reporting". As a result of the
reorganization and adoption of fresh-start reporting, the
condensed consolidated financial statements as of and for the
thirteen and twenty-six week periods ended July 31, 1999 are not
comparable to the condensed consolidated financial statements as
of and for the thirteen and twenty-six week periods ended August
1, 1998.
Based on our reviews, we are not aware
of any material modifications that should be made to the
condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting
principles.
/s/ARTHUR
ANDERSEN LLP
New York, New York
August 17, 1999
<TABLE>
BRADLEES, INC.
AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)(Amounts in thousands except per share amounts)
<CAPTION>
13 Weeks Ended
--------------
July 31, 1999 Aug. 1, 1998
------------ -----------
Registrant : Predecessor
------------ : -----------
<S> <C> : <C>
Total sales $381,932 : $322,791
Leased department sales 14,235 : 12,410
-------- : --------
Net sales 367,697 : 310,381
Cost of goods sold 249,185 : 213,788
-------- : --------
Gross margin 118,512 : 96,593
Leased department and other :
operating income 3,913 : 3,155
-------- : --------
122,425 : 99,748
Selling, store operating, administrative :
and distribution expenses 105,618 : 92,448
Depreciation and amortization expense 7,240 : 7,993
Interest and debt expense 7,121 : 3,964
Reorganization items (778) : (1,935)
-------- : --------
:
Net income (loss) $3,224 : ($2,722)
======== : ========
:
Comprehensive income (loss) $3,224 : ($2,722)
======== : ========
:
Basic net income (loss) per share $0.31 : ($0.24)
======== : ========
:
Weighted average shares 10,242 : 11,310
======== : ========
:
Diluted net income (loss) per share $0.29 : ($0.24)
======== : ========
Weighted average common :
and common equivalent shares 11,025 : 11,310
======== : ========
See accompanying notes to condensed consolidated financial
statements.
</TABLE>
<TABLE>
BRADLEES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands except per share amounts)
<CAPTION>
26 Weeks Ended
--------------
July 31, 1999 Aug. 1, 1998
------------- : ------------
Registrant : Predecessor <C>
------------- : ------------
<S> <C> : <C>
Total sales $706,774 : $616,097
Leased department sales 23,802 : 21,845 :
-------- : --------
Net sales 682,972 : 594,252
Cost of goods sold 476,298 : 417,989
-------- : --------
Gross margin 206,674 : 176,263
Leased department and other :
operating income 6,644 : 6,102
-------- : --------
213,318 : 182,365
:
Selling, store operating, :
administrative and distribution :
expenses 205,822 : 185,149
Depreciation and :
amortization expense 14,528 : 16,568
Loss on disposition of :
properties - : 241
Reorganization items (778) : 194
-------- : --------
:
Net loss $(20,257) : $(27,376)
======== : ========
:
Comprehensive loss $(20,257) : $(27,376) ======== :
======== : ========
:
Basic net loss per share $(1.98) : $(2.42) ======== :
======== : ========
:
Weighted average shares 10,242 : 11,310 ======== :
======== : ========
:
Diluted net loss per share $(1.98) : $(2.42) ======== :
======== : ========
:
Weighted average common :
and common equivalent shares 10,242 : 11,310
======== : ========
See accompanying notes to condensed consolidated
financial statements.
</TABLE>
<TABLE>
BRADLEES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<CAPTION>
July 31, 1999 Jan. 30, 1999 Aug. 1, 1998 ----------
------------- ------------- ------------
ASSETS Registrant Registrant : Predecessor <C>
------------- ------------- : ------------
<S> <C> <C> : <C>
:
Current assets: :
Unrestricted cash and :
cash equivalents $11,504 $9,485 : $8,148
Restricted cash and :
cash equivalent - - : 24,862
------- ------- : -------
Total cash and :
cash equivalents 11,504 9,485 : 33,010 ----------
------- ------- : -------
Accounts receivable 10,052 13,015 : 7,373
Inventories 244,270 232,343 : 239,478
Prepaid expenses 11,173 8,967 : 8,733 ----------
------- ------- : -------
Total current assets 276,999 263,810 : 288,594 ----------
------- ------- : -------
Property, plant and :
equipment, net: :
Property excluding :
capital leases, net 91,320 93,039 : 124,768
Property under capital :
leases, net 23,211 10,347 : 17,978 ----------
------- ------- : -------
Total property, plant :
and equipment, net 114,531 103,386 : 142,746 ----------
------- ------- : -------
Other assets: :
Lease interests, net 73,623 75,833 : 139,063
Assets held for sale - 14,000 : -
Other, net 7,254 6,722 : 4,850 ----------
------- ------- : -------
Total other assets 80,877 96,555 : 143,913 ----------
------- ------- : -------
Total assets $472,407 $463,751 : $575,253
======= ======= : =======
(Continued)
</TABLE>
<TABLE>
BRADLEES, INC.
AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<CAPTION>
July 31, 1999 Jan. 30, 1999 Aug. 1,1998
LIABILITIES AND ------------- ------------- -----------
STOCKHOLDERS'
EQUITY Registrant Registrant : Predecessor
(DEFICIENCY) ---------- ---------- : -----------
<S> <C> <C> : <C>
Current :
liabilities: :
Accounts payable $138,417 $119,302 : $121,153
Accrued expenses 20,056 29,326 : 24,324
Self-insurance reserves 6,039 6,462 : 6,474
Short-term debt 132,147 114,449 : 111,592
Current portion of capital :
lease obligations & notes 2,532 2,089 : 1,038
-------- -------- : --------
Total current liabilities 299,191 271,628 : 264,581
-------- -------- : --------
Long-term liabilities: :
Obligations under :
capital leases 27,398 25,284 : 26,499
Lease financing :
obligation 17,500 - : -
Convertible notes payable 11,976 28,995 : -
Deferred income taxes - - : 8,581
Self-insurance reserves 12,261 13,120 : 13,145
Unfavorable lease :
liability 44,903 44,581 : -
Other long-term :
liabilities 24,183 25,143 : 21,333
-------- -------- : --------
Total long-term :
liabilities 138,221 137,123 : 69,558
-------- -------- : --------
Liabilities subject to :
settlement under the :
reorganization case - - : 554,439
:
Stockholders' equity :
(deficiency): :
Common stock (new)-10,242,092 :
shares(10,225,711 at 1/30/99) :
Par value 102 102 : -
Common stock(old)-11,310,384 :
shares outstanding at 8/1/98 :
Par value - - : 115
Additional paid-in-capital 55,150 54,898 : 137,821
Accumulated deficit (20,257) - : (450,458)
Treasury stock, at cost - - : (803)
-------- ------- : --------
Total stockholders' :
equity (deficiency) 34,995 55,000 : (313,325)
-------- ------- : --------
Total liabilities and :
stockholders' :
equity (deficiency) $472,407 $463,751 : $575,253
======== ======== ========
See accompanying notes to condensed consolidated financial
statements.
</TABLE>
<TABLE>
BRADLEES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<CAPTION>
26 Weeks Ended
--------------
July 31, 1999 : Aug. 1, 1998
------------- : ------------
Registrant : Predecessor
------------- : ------------
<S> <C> : <C>
Cash flows from operating :
activities: :
Net loss ($20,257) : ($27,376)
Adjustments to reconcile net :
loss to cash provided (used) by :
operating activities: :
Depreciation & amortization exp. 14,528 : 16,568
Amortization of lease interests :
and unfavorable lease liability, net 2,532 : -
Amortization of deferred financing costs 731 : 763
Reorganization items (778) : 194
Changes in working capital & other,net 5,068 : (5,699)
-------- : --------
Net cash provided (used) by :
operating activities :
before reorganization items 1,824 : (15,550)
-------- : --------
Reorganization items: :
Interest income received - : 472
Chapter 11 professional fees paid (6,023) : (5,008)
Other reorganization expenses paid,net (1,343) : (2,688)
-------- : --------
Net cash used by reorganization :
items (7,366) : (7,224)
-------- : --------
Net cash used by operating activities (5,542) : (22,774)
Cash flows from investing activities: :
Capital expenditures, net (8,226) : (5,540)
Lease acquisition costs (1,250) : -
Increase in restricted cash :
and cash equivalents - : (8,102)
-------- : --------
Net cash used in :
investing activities (9,476) : (13,642)
-------- : --------
Cash flows from financing activities: :
Payment of convertible notes (17,019) : -
Payments of liabilities subject :
to settlement - : (5,231)
Net borrowings under the :
revolver/DIP facility 17,697 : 27,384
Proceeds from sales of properties - : 12,036
Proceeds from lease financing 17,500 : -
Proceeds received upon exercise :
of warrants 115 : -
Principal payments on notes and :
capital lease obligations (1,256) : (574)
-------- : --------
Net cash provided by :
financing activities 17,037 : 33,615
-------- : --------
Net increase (decrease) in :
unrestricted cash and cash :
equivalents 2,019 : (2,801)
Unrestricted cash & cash equivalents: :
Beginning of period 9,485 : 10,949
-------- : --------
End of period $11,504 : $8,148
======== : ========
Supplemental disclosure of cash :
flow information: :
Cash paid for interest :
and certain debt fees $7,861 : $6,501
Cash paid for income taxes - : $153
Supplemental schedule of noncash :
(investing and financing) activities: :
Capital lease obligations incurred $2,883 : -
Reduction of liabilities subject to :
settlement due to transfer of :
title to property $ - : $2,000
See accompanying notes to condensed consolidated financial
statements.
</TABLE>
BRADLEES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Bradlees, Inc. and subsidiaries (collectively "Bradlees" or the
"Company") operate in the discount department store retail
segment in the Northeast United States. The Company emerged
from Chapter 11 of the United States Bankruptcy Code ("Chapter
11") on February 2, 1999 (the "Effective Date"). The Company
had filed petitions for relief under Chapter 11 on June 23, 1995
(the "Filing"). While in Chapter 11, the Company (the
"Predecessor") operated 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"). The reorganized Company (the
"Registrant") adopted fresh-start reporting and gave
effect to its emergence as of its fiscal 1998 year-end (January
30, 1999).
Under fresh-start
reporting, the final consolidated balance sheet as of January
30, 1999 became the opening consolidated balance sheet of the
reorganized Company. Since fresh-start reporting has been
reflected in the accompanying condensed financial statements as
of July 31, 1999 and for the interim periods then ended, those
statements are not comparable in certain material respects to
the condensed consolidated financial statements as of August 1,
1998 and for the interim periods then ended. Accordingly, a
black line has been drawn between the Registrant's financial
statements and the Predecessor's financial statements.
With respect to the unaudited condensed consolidated financial
statements for the 13 weeks (second quarter) and 26 weeks
(year-to-date) ended July 31, 1999 and August 1, 1998, 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.
Diluted net income per share for the second quarter ended July
31, 1999 reflects the impact of common stock equivalents (which
included warrants and stock options but excluded the 9%
Convertible Notes since the assumed conversion and associated
interest savings would have been anti-dilutive). Basic and
diluted shares outstanding and loss per share were the same for
the 26 weeks ended July 31, 1999 because the inclusion of common
stock equivalents would have reduced the reported loss per
share. The Registrant's shares presented in its financial
statements presume full issuance of new Bradlees Common Stock
in accordance with the Company's plan of reorganization (the
"Plan") confirmed by the Bankruptcy Court on January 27, 1999
plus shares issued upon exercise of warrants through July 31, 1999.
These statements should be read in
conjunction with the Company's financial statements (Form 10-K)
for the fiscal year ended January 30, 1999 ("1998"). Due to the
seasonal nature of the Company's business, operating results for
this year's interim periods presented are not necessarily
indicative of results that may be expected for the fiscal year
ending January 29, 2000 ("1999"). 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").
2. REORGANIZATION CASE AND
FRESH-START REPORTING
The Plan contained
distributable value to creditors of approximately $162 million
(as of the Effective Date) which consisted of approximately $15
million of administrative claim payments (including $4.5 million
of professional fees paid subsequent to the Effective Date and
accrued at January 30, 1999); $14 million of cash distributions
to the pre-Chapter 11 bank group and the unsecured creditors; a
$40 million note primarily payable to the pre-Chapter 11 bank
group, which was paid down on the Effective Date by
approximately $11 million from the proceeds of the modification
of the lease terms of the Union Square, NY store; certain notes
totaling $6.2 million; other distributions totaling $1.4
million; 10.2 million shares of new Bradlees Common Stock with
an estimated value as of the Effective Date of $85 million; and
warrants allowing for the purchase of one million shares of
Common Stock, exercisable at $7.00 per share and expiring
February 2, 2004.
The Plan was consummated on February 2, 1999 and Bradlees emerged
from Chapter 11. Pursuant to the guidance provided by the American
Institute of Certified Public Accountants in Statement of
Position ("SOP") 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code", the Company adopted
fresh-start reporting and reflected the consummation
distributions in the consolidated balance sheet as of January
30, 1999 to give effect to the reorganization as of year-end.
Under fresh-start reporting, the reorganization value of the
Company was allocated to the emerging Company's net assets on
the basis of the purchase method of accounting.
Subsequent to the filing of the Company's Disclosure Statement
and occurrence of the Effective Date, a number of events
occurred which impacted the determination of equity value under
fresh-start reporting, including but not limited to, the initial
trading prices of the new stock, information regarding the
Company's fourth quarter performance and final 1999 financial
plan, a settlement with a landlord regarding the disposition of
the Union Square, NY leasehold interest and the liquidation of
Caldor Corp., a major competitor of the Company. The Company
employed a similar valuation method under fresh-start reporting
to determine its equity value to that utilized by its
independent financial advisor in the Disclosure Statement and
arrived at an estimated equity value of $55 million.
During the Chapter 11 case, the Company received
Bankruptcy Court approval to make certain adequate protection
payments to the pre-petition bank group. Contractual interest
expense not recorded on certain pre-petition debt totaled
approximately $7.7 and $15.4 million for the second quarter and
first half of 1998, respectively.
3. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents at August 1,
1998 represented certain funds received by the Company during
the Chapter 11 case that were required to be restricted. These
funds were utilized on the Effective Date for the consummation
payments.
4. DEBT
FINANCING FACILITY Prior to the Effective Date, the Company
had a $250 million financing facility (the "Financing Facility")
(of which $125 million was available for issuance of letters of
credit) with BankBoston Retail Finance, Inc. ("BBNA") as agent,
under which the Company was allowed to borrow for general
corporate purposes, working capital and inventory purchases.
The Financing Facility consisted of (a) an up to eighteen-month
debtor-in-possession revolving credit facility in the maximum
principal amount of $250 million (the "DIP Facility") and,
subject to meeting certain conditions, (b) an up to three-year
post-emergence credit facility in the maximum principal amount
of $250 million (as modified, the "Revolver" - see below). The
outstanding amount under the DIP Facility was repaid on the
Effective Date with proceeds from the Revolver. The Revolver
expires on December 23, 2001.
Trade and standby letters of credit outstanding under the
Revolver were $23.0 and $21.5 million, respectively, as of July
31, 1999. Trade and standby letters of credit outstanding under
the DIP Facility were $24.8 and $19.7 million, respectively, as
of August 1, 1998.
REVOLVER The Revolver consists of a $250 million senior secured
revolving line of credit (of which $125 million is available for
issuance of letters of credit) and a $20 million junior secured
"last in-last out" facility. The Company expects to use the
Revolver primarily for working capital and general business
needs.
The senior secured tranche has an advance rate equal to 80% of
the Loan Value of Eligible Receivables (as defined), plus
generally 72% of the Loan Value of Eligible Inventory (as
defined), subject to certain adjustments. Between March 1 and
December 15, the inventory advance rate will be increased to 77%
of the Loan Value of Eligible Inventory provided that the total
amount of all senior secured advances does not exceed 85% of the
Loan to Value Ratio (as defined). The Company may also borrow
up to an additional $20 million under the junior secured
facility provided that the total borrowings (senior secured and
junior secured) do not exceed 93% of the Loan to Value Ratio.
The Revolver permits the Company to borrow funds under the
senior secured tranche at an interest rate per annum equal to
(a) the higher of (i) the annual rate of interest as announced
by BankBoston as its "Base Rate" and (ii) the weighted average
of the rates on overnight federal funds plus 0.50% per annum; or
(b) 2.25% per annum plus the quotient of (i) the LIBOR Rate in
effect divided by (ii) a percentage equal to 100% minus the
percentage established by the Federal Reserve as the maximum
rate for all reserves applicable to any member bank of the
Federal Reserve system in respect of eurocurrency liabilities.
Each of these rates is subject to a 0.50% increase in the event
of overadvances. The junior secured facility permits the
Company to borrow funds at the "Base Rate" plus 7.00% per annum.
The Revolver is secured by substantially all of the
non-real estate assets of the Company. The Revolver contains
financial covenants including (i) minimum rolling twelve-month
EBITDA at the end of each quarter, (ii) minimum monthly accounts
payable to inventory ratios; (iii) maximum annual capital
expenditures; and (iv) minimum operating cash flow to interest
expense ratios (for the fiscal quarters ending on or about
January 31, 2001, and thereafter). The Company is in compliance
with the Revolver covenants.
LEASE FINANCING OBLIGATION In July, 1999, New
Horizons of Yonkers, Inc. ("New Horizons"), a subsidiary of
Bradlees Stores, Inc. (Note 9), and 2500 CPA Associates, LLC
("CPA") entered into an agreement for the financing of New
Horizon's leasehold interest in the Yonkers, NY store (the
"Lease Financing Obligation"). Under this agreement, New
Horizons received $17.5 million in exchange for the assignment
of its leasehold interest to CPA and annual incremental payments
of $2.6 million (including interest at an effective rate of
14.8%) under a sublease with CPA for a term of 35 years,
including option periods. The Yonkers store continues to
operate as a Bradlees store and the net proceeds of $17.2
million (after certain fees) were used to pay down $17.0 million
of the Notes (see below) and $0.2 million of associated accrued
interest.
The Lease Financing
Obligation is secured by (i) the leasehold interest in the
Yonkers store, (ii) first priority liens on leasehold interests
in three other named stores, as well as any net proceeds
received upon any disposition(s) of such interests, and (iii) a
standby letter of credit of $1.1 million.
In addition, as a result of the lease financing transaction, the
underlying Yonkers operating lease was converted to a capital
lease with a $2.9 million obligation and associated capital
lease asset. Also, the prior assets held for sale of $14
million for Yonkers (Note 7) was reclassified, with $3.4 million
(representing the net book value of the store equipment and
leasehold improvements) added to property excluding capital
leases, net and $10.6 million (representing the remaining
incremental lease value previously determined under fresh-start
reporting) added to property under capital leases, net.
9% CONVERTIBLE NOTES The 9% Convertible Notes (the "Notes")
were issued by Bradlees Stores, Inc. Each Note will mature on
February 3, 2004 and bears interest at the rate of 9% per annum
from the date of issuance, payable semi-annually in arrears on
January 1 and July 1 of each year, commencing July 1, 1999. The
aggregate principal amount of the Notes outstanding as of July
31, 1999 was $12 million (which reflects the $17 million
aggregate principal paydown in July discussed above and the $11
million aggregate principal amount that was pre-paid on the
Effective Date).
The Company has the right to redeem the Notes at any time, in
whole or in part, subject to certain availability levels under
the Revolver, by paying the holder the unpaid principal plus
accrued and unpaid interest. The Company obtained an option to
repurchase $9 million of the Notes at a discount (see Note 10).
The remaining outstanding Notes are secured by first priority
liens on leasehold interests in three named stores (the
"Collateral"), as well as any net proceeds received upon any
disposition(s) of such interests.
The lien on the Collateral secures indebtedness under the Notes
equal to the sum of $6.5 million plus an amount from time to
time equal to the amount of interest that would accrue on $6.5
million of principal amount of outstanding Notes from February
2, 1999 to the date of calculation of the extent of such lien
(see also Note 10).
The Notes are convertible any time after the first
anniversary of the Effective Date into shares of the Company's
Common Stock. The conversion price will initially be the
unweighted average closing price of the Common Stock during the
twenty business days preceding the first anniversary of the
Effective Date.
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
1998 and also does not expect to recognize a quarterly or annual
income tax expense or benefit in 1999.
6. REORGANIZATION ITEMS
The Company provided for or
incurred the following expense and income items during the
second quarter and year-to-date periods of 1999 and 1998,
directly associated with the Chapter 11 reorganization
proceedings and the resulting restructuring of its operations:
<TABLE>
(000's)
------------------------------------------
13 Weeks Ended 26 Weeks Ended
7/31/99 8/1/98 7/31/99 8/1/98
------- ------ ------- --------
<S> <C> <C> <C> <C>
Professional fees $ - $2,250 $ - $4,500
Interest income - (351) - (472)
Provision for occupancy
and other store
closing costs (778) - (778) -
Net asset write-of - 470 - 470
Gain on disposition of
properties - (1,873) - (1,873)
Provision for rejected
leases - (2,431) - (2,431)
------ ------- ----- ------
$ (778) $(1,935) $ (778) $ 194
======== ======== ======== =======
</TABLE>
PROFESSIONAL FEES AND INTEREST: Professional fees represented
estimates of expenses incurred, primarily for legal, consulting
and accounting services provided to the Company and the
creditors committee (which were required to be paid by the
Company while in Chapter 11). Interest income represented
interest earned on cash invested during the Chapter 11
proceeding.
PROVISION FOR OCCUPANCY AND OTHER
STORE CLOSING COSTS AND NET ASSET WRITE-OFF: The Company
entered into a lease financing transaction (Note 4) which
allowed its Yonkers, NY store to continue in operation,
resulting in the reversal of reserves totaling $0.8 million in
July, 1999 that had been established for the expected store
closing costs. The Company incurred a $0.5 million net asset
write-off in the second quarter of 1998 relating to the disposal
of greeting card fixtures that were replaced as a consequence of
the Company's rejection of its greeting card supply contract.
GAIN ON DISPOSITION OF PROPERTIES
AND PROVISION FOR REJECTED LEASES: The Company sold a
previously closed store in the second quarter of 1998 and
recognized a gain of $1.9 million. In addition, the Company was
notified by two of its former landlords at closed locations that
the properties had been re-let and therefore their claims for
rejected lease damages were reduced by $2.4 million in the
second quarter of 1998.
RESTRUCTURING
RESERVES: As of July 31, 1999, the Company had remaining
reserves totaling approximately $3.7 million for costs
associated with the prior closing and planned closing of stores
and other restructuring activities. Approximately $1.3 million
of restructuring costs were paid in the first half of 1999. The
majority of the remaining reserved costs are expected to be paid
within a year.
7. ASSETS HELD FOR SALE
Assets held for sale at January 30, 1999 represented the
estimated net realizable value (assigned under fresh-start
reporting) of the Company's Yonkers, NY store lease. As
described in Note 4 under "Lease Financing Obligation" and in
Note 6, the Company entered into a lease financing agreement
which allowed its Yonkers store to continue in operation and
recorded certain reclassifications of the $14 million previously
in assets held for sale.
8. POST-RETIREMENT AND STOCK OPTION PLANS
The Company provides certain health care and life insurance
benefits for certain retired non-union employees meeting age and
service requirements. The Company accounts for the
post-retirement plan in accordance with SFAS No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than
Pensions," which requires the Company to accrue the estimated
cost of retiree benefit payments during the years the employee
provides services. The Company's post-retirement benefits are
funded on a current basis.
Effective January 1, 1998, changes were made to the
post-retirement plan that included the elimination of future
benefits for active employees who do not become eligible by
January 1, 2000, and a phase-out of the Company contributions
over two years (at 50% per year beginning January 1, 1999)
towards the cost of providing medical benefits to eligible
retirees. Under SFAS No. 106, amortization credits of $1.4 and
$2.8 million were recorded in the second quarter and first half
of 1998, respectively, to reflect these changes to the
post-retirement plan. As a consequence of the adoption of
fresh-start reporting at January 30, 1999 (Note 2), no
amortization credit was recorded in the first half of 1999.
Pursuant to the Plan, the Company agreed to grant options to
purchase 750,000 shares of new Bradlees Common Stock to the
Company's senior management. Those options were granted under
the Bradlees, Inc. 1999 Stock Option Plan (the "Stock Plan")
which allows for the granting of one million options, when their
exercise price was determined in April, 1999 and will vest in
one-third increments beginning on the date of grant and each of
the two anniversaries following the date of grant. These
options are exercisable for a period of five years from the date
of grant. Compensation expense related to these options began
to be recorded over the vesting period in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock issued to Employees" (intrinsic value method).
Through July, 1999, additional options were granted to other
members of management to purchase 137,050 shares, of which 2,100
shares were forfeited, of new Bradlees Common Stock at prices
equal to the market prices of the Common Stock on the dates of
the grants.
9. SUMMARIZED FINANCIAL INFORMATION FOR BRADLEES
STORES, INC. AND NEW HORIZONS OF YONKERS, INC.
Under the Plan, Bradlees, Inc. issued the
securities and Bradlees Stores, Inc. issued the Notes (Note 4).
Bradlees, Inc. operates its stores through Bradlees Stores,
Inc., a direct wholly-owned subsidiary. Bradlees, Inc. is
guaranteeing the Notes issued by Bradlees Stores, Inc.
Substantially all of the assets of the Company, on a
consolidated basis, are held by Bradlees Stores, Inc. The
following summarized financial information of Bradlees Stores,
Inc. is presented in accordance with SEC Staff Accounting
Bulletin 53 and Regulation S-X Rule 1-02 (bb):
(000's)
--------------------------------------
July 31, 1999 Aug. 1, 1998
------------- ------------
Current Assets $276,999 | $281,942
Due from New Horizons of |
Yonkers, Inc. - | 1
Noncurrent Assets 181,925 | 286,617
Current Liabilities 299,191 | 264,581
Payable to Bradlees, Inc. 54,984 | 189,140
Due to New Horizons of |
Yonkers, Inc. 6,822 | -
Noncurrent Liabilities 117,838 | 69,558
Liabilities Subject to |
Settlement Under the |
Reorganization Case - | 334,203
Stockholders' Deficit $(19,911) | $(288,922)
<TABLE>
<CAPTION>
(000's)
-------------------------------------------------------
13 Wks ended 13 Wks ended 26 Wks ended 26 Wks ended
July 31, 1999 Aug. 1, 1998 July 31, 1999 Aug. 1, 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $367,697 | $310,381 $682,972 | $594,251
Gross Margin 118,512 | 96,593 206,674 | 176,262
Income (Loss) | |
from Continuing | |
Operations 3,402 | (2,668) (19,911)| (27,272)
Net Income | |
(Loss) $ 3,402 | $ (2,668) $(19,911)| $(27,272)
</TABLE>
New Horizons (Note 4) is the lessee of Bradlees' Yonkers, New
York store lease, which it subleases to Bradlees Stores, Inc.
New Horizons, which remained in Chapter 11 to facilitate the
planned disposition of its leasehold interest, is also fully and
unconditionally guaranteeing the Notes issued by Bradlees
Stores, Inc. and its plan of reorganization became effective at
the time of the disposition. The following summarized financial
information of New Horizons is presented in accordance with SEC
Staff Accounting Bulletin 53 and Regulation S-X Rule 1-02 (bb):
<TABLE>
(000's)
----------------------------------
July 31, 1999 Aug. 1, 1998
------------- ------------
<S> <C> <C>
Property Under Capital Lease,net $13,483 | $ -
Due from Bradlees Stores, Inc. 6,822 | 1
Obligation Under Capital Lease 2,883 | -
Lease Financing Obligation 17,500 | -
Stockholders' Equity (Deficit) $ (78) | $ 1
</TABLE>
<TABLE>
(000's)
-------------------------------------------------------
13 Wks ended 13 Wks ended 26 Wks ended 26 Wks ended
July 31, 1999 Aug. 1, 1998 July 31, 1999 Aug. 1, 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Rental Income $147 | $147 $294 | $294
Rent Expense 147 | 147 294 | 294
Interest Expense 79 | - 79 | -
Loss from Cont. | |
Operations (79) | - (79) | -
Net Loss $ (79) | $ - $(79) | $ -
Amortization of the New Horizons' property under capital lease
began in August, 1999.
</TABLE>
10. SUBSEQUENT EVENTS
On August 12, 1999, the Company entered into a supplemental
agreement with the holders of $9.0 million, or approximately
75%, of the $12.0 million of the outstanding Notes (Note 4) (the
"Discount Option Noteholders"). Under the agreement, the
Company can repurchase the outstanding Notes held by the
Discount Option Noteholders (the "Discount Option Notes") at a
purchase price equal to 86% of the outstanding principal amount
(i.e. a 14% discount), plus accrued interest, exercisable for a
one-month time period from December 1, 1999 through December 31,
1999 (the "Discount Option"). Each month thereafter the
discount will decrease by 1% such that the discount will be
fully eliminated by January 31, 2001. In consideration of the
Discount Option, the Company agreed to pay the Discount Option
Noteholders a premium on the closing date of the grant of the
option equal to 0.5% of the outstanding principal amount of the
Discount Option Notes, grant the Discount Option Noteholders
second priority leasehold mortgages on the Collateral (Note 4)
subject to substitution in certain circumstances, and provide a
put option exercisable on or after February 3, 2003 to sell the
Discount Option Notes to the Company at a price equal to the
then outstanding principal amount of the Discount Option Notes,
plus accrued interest. In accordance with applicable SEC rules,
the Company had offered to enter into the supplemental agreement
with all Noteholders and closed the offer on August 5, 1999.
BRADLEES,INC. AND
SUBSIDIARIES MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Results of operations,
summarized in millions of dollars (except per share amounts) and
expressed as a percentage of net sales (on next page), were as
follows for the 13 weeks and 26 weeks ended July 31, 1999
("Second Quarter 1999" and "Year-to-Date 1999", respectively)
and for the 13 weeks and 26 weeks ended August 1, 1998 ("Second
Quarter 1998" and "Year-to-Date 1998", respectively) :
<TABLE>
13 Weeks Ended 26 Weeks Ended
07/31/99 08/01/98 07/31/99 08/01/98
-------- -------- -------- --------
(Dollars in millions except per share amounts)
Registrant Predecessor Registrant Predecessor
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Total sales $381.9 : $322.8 $706.8 : $616.1
Leased dept. sales 14.2 : 12.4 23.8 : 21.8
------: -------- ------: ------
Net sales 367.7 : 310.4 683.0 : 594.3
Cost of goods sold 249.2 : 213.8 476.3 : 418.0
----- : -------- ------: ------
Gross margin 118.5 : 96.6 206.7 : 176.3
Leased dept. & other : :
operating income 3.9 : 3.1 6.6 : 6.1
---- : -------- ------: ------
122.4 : 99.7 213.3: 182.4
Selling, store oper., : :
administrative and : :
distribution exp. 105.6 : 92.4 205.8 : 185.1
Depreciation and : :
amortization expense 7.3 : 8.0 14.5 : 16.6
Loss on disposition : :
of properties - : - - : 0.2
Interest & debt expense 7.1 : 3.9 14.0 : 7.6
Reorganization items (0.8): (1.9) (0.8): 0.2
------: ------ ------: -----
Net income (loss) $ 3.2 : ($2.7) ($20.2): ($27.4)
======: ====== ======: =====
Basic net income : :
(loss) per share $0.31 : ($0.24) ($1.98): ($2.42)
======: ======== ======: ======
Diluted net income : :
(loss) per share $0.29 : ($0.24) ($1.98): ($2.42)
======: ======== ======: ======
: :
Total sales incr.(decr.): : :
All stores 18.3%: 3.6% 14.7%: 4.7%
Comparable stores 19.2%: 7.4% 16.1%: 8.6%
Number of stores in
operation at end
of period 102 103 102 103
</TABLE>
<TABLE>
BRADLEES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF PERATIONS (Continued)
13 Weeks Ended 26 Weeks Ended
7/31/99 08/01/98 7/31/99 08/01/98
As a percentage of ---------- ----------- ---------- -----------
net sales, Registrant Predecessor Registrant Predecessor
results were as ---------- ----------- ---------- -----------
follows:
<S> <C> <C> <C> <C>
Net sales 100.0 % : 100.0 % 100.0 %: 100.0 %
Cost of goods sold 67.8 : 68.9 69.7 : 70.3
------ : ------ ------ : ------
Gross margin 32.2 : 31.1 30.3 : 29.7
Leased department & other : :
operating income 1.1 : 1.0 0.9 : 1.0
------ : ------ ------ : ------
33.3 : 32.1 31.2 : 30.7
Selling, store operating, : :
administrative and : :
distribution expenses 28.7 : 29.8 30.1 : 31.2
Depreciation and : :
amortization expense 2.0 : 2.6 2.1 : 2.8
Loss on disposition : :
of properties - : - - : -
Interest and debt exp. 1.9 : 1.2 2.1 : 1.3
Reorganization items (0.2) : (0.6) (0.1) : -
------ : ------ ----- : ------
Net income (loss) 0.9 % : (0.9)% (3.0)%: (4.6)%
======= : ======= =======: =======
</TABLE>
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. For example, our
statements regarding expected 1999 levels of borrowings, amounts
available to borrow and capital expenditures are dependent on
our future operating performance and ability to meet our
financial obligations, which are further dependent upon, among
other things, continued acceptance of our merchandising and
marketing initiatives, competitive conditions, changes in
consumer spending and consumer spending habits, continued vendor
support, weather and economic conditions, availability and cost
of sufficient labor, and changes in import duties, tariffs and
quotas.
Since fresh-start reporting (Note 2) has been
reflected in the accompanying condensed financial statements as
of July 31, 1999 and for Second Quarter and Year-to-Date 1999,
those statements are not comparable in certain material respects
to the condensed consolidated financial statements as of August
1, 1998 and for Second Quarter and Year-to-Date 1998.
Accordingly, a black line has been drawn between the
Registrant's financial statements and the Predecessor's
financial statements. We have attempted to indicate, where
feasible, the major effects on comparability from fresh-start
reporting in the following discussion and analysis of financial
condition and results of operations for Second Quarter and
Year-to-Date 1999.
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998
Total sales for Second Quarter 1999 increased $59.1 million or 18.3%
from Second Quarter 1998 due primarily to an increase of 19.2%
in comparable store sales (including leased shoe department
sales). We believe that the increase in comparable store sales
was due mostly to continued favorable customer response to our
merchandising and marketing initiatives, favorable summer
weather conditions, and the first-quarter liquidation of one of
our major competitors (Caldor Corp.). Over the last two years,
we have lowered opening price points, developed more
item-intensive and price-point oriented circular ad offerings,
introduced certain convenience and commodity products, and
implemented and expanded two successful programs: "Certified
Value" (highlights highly recognizable items at competitive
everyday prices) and "WOW" (integrates targeted and mostly
unadvertised opportunistic purchases). We had strong sales of
both hardlines and softlines merchandise in Second Quarter 1999,
with hardlines merchandise experiencing the larger increase.
Comparable store sales also increased 13.0% during the fiscal
month of August, 1999.
Gross margin increased $21.9
million in Second Quarter 1999 compared to Second Quarter 1998
due primarily to the higher comparable store sales and a higher
gross margin rate (32.2% vs. 31.1%). The improved gross margin
rate was principally a result of lower markdowns and higher
vendor allowances, both of which related to the strong sales
performance. Leased department and other operating income
increased $0.8 million or 0.1% as a percentage of net sales in
Second Quarter 1999 compared to Second Quarter 1998 due
primarily to improved leased shoe department sales.
Selling, store operating,
administrative and distribution ("SG&A") expenses increased
$13.2 million but dropped 1.1% as a percentage of net sales (due
to the improved sales performance) in Second Quarter 1999 from
Second Quarter 1998. The higher SG&A expenses were primarily
due to certain incremental expenses, such as store payroll and
other store expenses and logistics expenses, incurred to handle
the higher sales volume, along with an increased provision for
estimated 1999 performance incentives that would be mostly
payable next year and a $1.4 million credit in the Second
Quarter 1998 benefits expense that resulted from a reduction in
retiree medical benefits (Note 8).
Depreciation
and amortization expense declined $0.7 million or 0.6% as a
percentage of net sales in Second Quarter 1999 from Second
Quarter 1998 due primarily to the impact of fresh-start
reporting.
Interest and debt expense increased $3.2 million or 0.7% as a
percentage of net sales in Second Quarter 1999 from Second
Quarter 1998. This increase was due primarily to $2.3 million
of noncash interest expense resulting from the amortization of
the discount associated with the unfavorable lease liability
recorded under fresh-start reporting and interest of $0.7
million on the new notes issued under the plan of
reorganization.
Reorganization credits of $0.8 and
$1.9 million in Second Quarter 1999 and 1998, respectively, were
directly associated with the Chapter 11 proceedings and are
discussed in Note 6.
We did not record an income
tax provision in Second Quarter 1999 due to the current
expectation of no income tax expense or benefit in 1999. There
was also no income tax expense or benefit recorded in Second
Quarter 1998.
YEAR-TO-DATE 1999
COMPARED TO YEAR-TO-DATE 1998
Year-to-Date 1999
total sales increased $90.7 million or 14.7% from Year-to-Date
1998 due to this year's 16.1% increase in comparable store
sales, partially offset by the impact from the closing of five
stores in the first quarter of 1998 and one store in the first
quarter of 1999. We believe that the Year-to-Date 1999 increase
in comparable store sales was due primarily to the same factors
discussed above for Second Quarter 1999. We had strong
double-digit increases in Year-to-Date 1999 sales of both
hardlines and softlines merchandise, with hardlines merchandise
experiencing the larger increase.
Gross margin increased $30.4 million in Year-to-Date 1999
compared to Year-to-Date 1998 due primarily to the higher
comparable store sales and a higher gross margin rate (30.3% vs.
29.7%). The improved year-to-date gross margin rate was
principally the result of lower clearance markdowns and higher
vendor allowances, both of which related to the strong sales
performance. Leased department and other operating income
increased $0.5 million due mostly to improved leased shoe
department sales but dropped 0.1% as a percentage of net sales
due to the strong overall sales growth (which exceeded the
leased department sales growth).
Year-to-Date 1999 SG&A expenses increased $20.7 million but
dropped 1.1% as a percentage of net sales (due to the improved
sales performance) from Year-to-Date 1998. The higher SG&A
expenses were primarily due to the incremental expenses incurred
to handle the higher sales volume as discussed above for Second
Quarter 1999, as well as an increased Year-to-Date provision for
estimated 1999 incentives that would be mostly payable next year
and a $2.8 million credit in the Year-to-Date 1998 benefits
expense that resulted from a reduction in retiree medical
benefits (Note 8).
Depreciation and amortization expense declined $2.1 million or
0.7% as a percentage of net sales in Year-to-Date 1999 from
Year-to-Date 1998 due primarily to the impact of fresh-start
reporting.
Interest and debt expense increased $6.4 million or 0.8% as a
percentage of net sales in Year-to-Date 1999 from Year-to-Date
1998. This increase was due primarily to $4.7 million of
noncash interest expense resulting from the amortization of the
discount associated with the unfavorable lease liability
recorded under fresh-start reporting and interest of $1.5
million on the new notes issued under the plan of
reorganization.
Reorganization items of $0.8
million credit and $0.2 million charge in Year-to-Date 1999 and
1998, respectively, were directly associated with the Chapter 11
proceedings and are discussed in Note 6.
We did not record an income tax
provision in Year-to-Date 1999 due to the current expectation of
no income tax expense or benefit in 1999. There was also no
income tax expense or benefit recorded in Year-to-Date 1998.
LIQUIDITY AND CAPITAL RESOURCES
We had outstanding borrowings of $132.1
million at July 31, 1999, exclusive of the issuance of letters
of credit, under our $270 million Revolver (Note 4) compared to
outstanding borrowings of $111.6 million at August 1, 1998,
exclusive of the issuance of letters of credit, under the DIP
Facility (Note 4). Peak and average revolver borrowings were
$142 and $125 million, respectively, in Year-to-Date 1999
compared to $127 and $108 million, respectively, in the
Year-to-Date 1998, however the associated weighted average
interest rate in Year-to-Date 1999 (7.33%) was down from the
same prior-year period (7.97%). The increase in average
borrowings since the end of Second Quarter 1998 related
primarily to reorganization expenses paid since that period.
The amount
available to borrow in 1999 is currently expected to peak at
approximately $270 million in October and/or November, 1999 and
average approximately $230 million. We currently expect
borrowings under the Revolver to peak at approximately $180
million in October and/or November, 1999 and average
approximately $135 million, while total outstanding letters of
credit under the Revolver are expected to peak at approximately
$46 million in August, 1999 and average approximately $35
million.
Other than payments made to certain pre-petition creditors
approved by the Bankruptcy Court (Note 2), payments on
indebtedness, exclusive of certain capital lease obligations,
incurred prior to the Filing were not made until after
consummation of our plan of reorganization. Virtually all of
our pre-petition indebtedness was subject to settlement under
the reorganization case.
In Year-to-Date 1999, cash provided by operations before
reorganization items was $1.8 million, compared to $15.6 million
of cash used by operations before reorganization items in
Year-to-Date 1998. This improvement in Year-to-Date cash from
operating activities was due primarily to the improvement in
operating results and improved vendor payment terms. Net cash
used by reorganization items in Year-to-Date 1999 of $7.4
million was comprised of professional fee payments of $6.0
million and store closing and severance costs of $1.4 million.
Inventories at July 31, 1999 increased $4.8 million from
August 1, 1998, due primarily to certain back-to-school
purchases made in advance of the August 1999 implementation of
the new warehouse management system in our Edison, NJ
distribution center, and increased $11.9 million from January
30, 1999 due primarily to a normal seasonal build-up.
Accounts payable at July 31, 1999,
increased $17.3 million from August 1, 1998 due to improved
vendor payment terms and a higher level of merchandise purchases
and increased $19.1 million from January 30, 1999 due to the
associated normal seasonal build-up of inventories, a higher
level of merchandise purchases and improved vendor payment
terms.
Accrued expenses were $4.3
million lower than at August 1, 1998 due primarily to this
year's discontinuance of accruals for Chapter 11 professional
fees. Accrued expenses at July 31, 1999 were $9.3 million lower
than at January 30, 1999 due to payments made against reserves
established prior to 1999 for Chapter 11 professional fees, the
1998 performance bonuses, and employee severance and
termination benefits and store closing costs.
We incurred
capital expenditures, excluding lease acquisition costs of $1.3
million for two former Caldor stores to be opened in October,
1999, of $8.2 million in Year-to-Date 1999 (compared to $5.5
million in Year-to-Date 1998), primarily for a warehouse
management system (which was implemented in August, 1999 in our
Edison, NJ distribution center) and various store improvements.
For all of 1999, we expect total capital expenditures to be
approximately $25 million (including the lease acquisition
costs), subject to our bank group's formal approval (which we
expect to obtain in September), primarily for the warehouse
management system (which is also to be implemented in our
Braintree, MA distribution center by early next year) and other
management information systems, remodeling of the two new stores
and various store improvements. We currently expect to finance
these expenditures through internally-generated funds.
We believe that the availability under our Revolver, together
with our available cash and expected cash flows from 1999
operations and beyond, will enable us to fund our expected needs
for working capital, capital expenditures and debt service
requirements. We expect to utilize internally generated funds
or funds available under the Revolver, subject to minimum
availability requirements, if we decide to exercise the option
(Note 10) to prepay certain of the Notes currently remaining
outstanding after the July 1999 paydown from the proceeds of the
Yonkers' lease financing obligation (Note 4). Our ability to
meet our financial obligations, make planned capital
expenditures and implement our strategic initiatives will depend
on our future operating performance, which will be subject to
financial, competitive, economic and other factors affecting the
industry and our operations, including factors beyond our
control. Further improvements in operating profitability and
achievement of expected cash flows from operations are necessary
to provide adequate liquidity and is dependent upon our
attainment of comparable store sales increases, along with gross
margin and expense levels that are reasonably consistent with
our financial plans.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 project is proceeding as planned and the
cost of remediation is currently estimated to total
approximately $4.1 million, $3.9 million of which has been
incurred to-date including $1.5 million in Year-to-Date 1999
that was included in SG&A expenses. All software replacement or
remediation was substantially completed as of the end of Second
Quarter 1999. A successful store test was performed at that
time and additional field tests will be performed at the end of
the third quarter.
In 1998, to address compliance of our
information technology systems, we contracted with a major
outside consulting firm to provide the resources required to
identify Year 2000 issues and remediate our systems as
necessary. In some cases, non-compliant software has been
replaced through upgrades provided by manufacturers of the
respective software or by installation of compliant replacement
systems. We also addressed embedded systems and
computer-controlled devices in our stores, distribution centers
and central office and we are taking the necessary steps to
ensure Year 2000 compliance. As of July, 1999, the Year 2000
project was approximately 95% complete, excluding the
third-party compliance evaluation and contingency plans
discussed below.
We believe the critical systems we operate are now substantially
Year 2000 compliant and that we are not likely to encounter
significant internal operational problems. However, there is no
guarantee that a Year 2000 related failure will not arise. This
is due to the uncertainty surrounding potential third-party
related Year 2000 problems, as well as our potential failure to
discover all of our own susceptible internal systems. The risk
to us resulting from the failure of third-party or internal
systems is similar to other retailers and, for the most part, to
other businesses. We took steps to minimize this risk by
surveying our suppliers and business partners to assess their
Year 2000 readiness, and their responses are being analyzed for
any necessary action.
A reasonable worst case scenario could involve the failure
of our systems or our supplier and business partner systems
which would cause a material disruption to our operations. For
example, this could result in an interruption of certain normal
business activities and operations such as a temporary inability
to process sales transactions or transmit data either internally
or to suppliers and business partners. If the worst case
scenario should occur for any significant duration, it could
have a material adverse impact on our business, results of
operations, liquidity and financial position. However, at this
time, we are unable to determine completely the financial
consequences of such potential Year 2000 failures.
While we expect our efforts will provide
reasonable assurance that material disruptions will not occur,
the potential for disruptions cannot be fully identified. We
are therefore developing contingency plans that will provide for
alternative courses of action to mitigate material individual
system or process failures due to Year 2000 issues. These
contingency plans are expected to be in place by the end of the
third quarter. At this time, we cannot estimate the additional
cost, if any, that might be incurred from the implementation of
such contingency plans.
The costs of the Year 2000 project and the dates on which
we plan to complete Year 2000 modifications are based on our
best estimates, which were derived utilizing numerous
assumptions of future events including the continued
availability of certain resources, third-party modification
plans and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could
differ materially from those plans.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
There have been no material
changes in our market risk. We are exposed to market risk from
changes in interest rates which may adversely affect our
financial position, results of operations and cash flows. In
seeking to minimize the risks from interest rate fluctuations,
we manage exposures through our regular operating and financing
activities. We do not use financial instruments for trading or
other speculative purposes and are not party to any leveraged
financial instruments.
We are exposed to
interest rate risk primarily through our borrowings under our
$270 million post-emergence financing facility (Note 4). Under
the facility, we may borrow funds under the $250 million senior
secured tranche at variable interest rates based on (a) the
higher of (i) the annual rate of interest as announced by
BankBoston as its "Base Rate" and (ii) the weighted average of
the rates on overnight federal funds plus 0.50% per annum; or
(b) 2.25% per annum plus the quotient of (i) the LIBOR Rate in
effect divided by (ii) a percentage equal to 100% minus the
percentage established by the Federal Reserve as the maximum
rate for all reserves applicable to any member bank of the
Federal Reserve system in respect of eurocurrency liabilities.
Each of these rates is subject to a 0.50% increase in the event
of overadvances. The $20 million junior secured facility
permits us to borrow funds at the "Base Rate" plus 7.00% per
annum.
BRADLEES, INC.
AND SUBSIDIARIES
PART II- OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No. Exhibit Page No.
- ----------- ------- --------
11 Computation of earnings per share 26
15 Letter re: unaudited interim
financial information. 28
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarterly
period ended July 31, 1999:
Date of Report Date of Filing Item Number Description
- -------------- -------------- ----------- -----------
May 26, 1999 May 26, 1999 5 Disclosure of first
quarter 1999 results
compared to plan.
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 14, 1999 By /s/ PETER THORNER
Peter Thorner
Chairman and Chief Executive
Officer
Date: September 14, 1999 By /s/ CORNELIUS F. MOSES III
Cornelius F. Moses III
SVP & CFO
<TABLE>
BRADLEES, INC.
EXHIBIT 11 AND SUBSIDIARIES
Page 1 of 2 COMPUTATION OF EARNINGS PER
SHARE (UNAUDITED) (Amounts in thousands except
per share amounts)
13 Weeks Ended 13 Weeks Ended
July 31, 1999 Aug. 1, 1998
------------ ------------
Registrant Predecessor
------------ ------------
Basic Income (Loss) Per Share
<S> <C> <C>
Net income (loss) $3,224 | ($2,722)
====== | =======
Weighted average number |
of shares outstanding 10,242 | 11,310
====== | =======
|
Basic net income (loss) |
per share |
$0.31 | ($0.24)
======= | =========
|
|
|
Diluted Income (Loss) Per Share |
|
Net income (loss) $3,224 | ($2,722)
===== | =====
|
Weighted average number of |
shares outstanding 10,242 | 11,310
|
Incremental shares for assumed |
exercise of stock options 334 | -
|
Incremental shares for assumed |
exercise of warrants 449 | -
|
Incremental shares for assumed |
exer. of convert. notes (1) - | -
------- | -------
|
Weighted average common |
and com. equivalent shares 11,025 | 11,310
======= | =======
Diluted net income (loss) |
per share $0.29 | ($0.24)
======= | =========
(1) No incremental shares are considered since the impact would
be anti-dilutive.
</TABLE>
BRADLEES, INC. EXHIBIT 11
AND SUBSIDIARIES Page 2 of 2
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Amounts in thousands except per share amounts)
26 Weeks Ended 26 Weeks Ended
July 31, 1999 Aug. 1, 1998
Registrant Predecessor
Basic Loss Per Share :
Net loss ($20,257) : ($27,376)
========== : =========
Weighted average number of :
shares outstanding 10,242 : 11,310
========== : =========
:
Basic net loss per share ($1.98) : ($2.42)
========== : =========
:
:
:
:
:
Diluted Loss Per Share :
Net loss ($20,257) : ($27,376)
========== : =========
Weighted average number of :
shares outstanding 10,242 : 11,310
:
Incremental shares for assumed :
exercise of stock options (1) - : -
Incremental shares for assumed :
exercise of warrants (1) - : -
Incremental shares for assumed :
exercise of convertible notes (1) - : -
--------- : ---------
Weighted average common and common :
equivalent shares 10,242 : 11,310
========== : =========
Diluted net loss per share ($1.98) : ($2.42)
========== : =========
(1) No incremental shares are considered since the impact would
be anti-dilutive.
Exhibit 15
September 13, 1999
Bradlees, Inc.
One Bradlees Circle
Braintree, Massachusetts 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 for the 13-week and 26-week periods ended July
31, 1999 and August 1, 1998 as indicated in our report dated
August 17, 1999, which included an explanatory paragraph
relating to the Company's emergence from bankruptcy on February
2, 1999, and adoption of "fresh-start reporting." 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 July 31, 1999, is incorporated by
reference in Registration Statement No. 333-77555.
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/ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JUL-31-1999
<CASH> 11504
<SECURITIES> 0
<RECEIVABLES> 10052
<ALLOWANCES> 0
<INVENTORY> 244270
<CURRENT-ASSETS> 276999
<PP&E> 114531
<DEPRECIATION> 0
<TOTAL-ASSETS> 472407
<CURRENT-LIABILITIES> 299191
<BONDS> 0
0
0
<COMMON> 102
<OTHER-SE> 34995
<TOTAL-LIABILITY-AND-EQUITY> 472407
<SALES> 682972
<TOTAL-REVENUES> 689616
<CGS> 476298
<TOTAL-COSTS> 476298
<OTHER-EXPENSES> 219572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14003
<INCOME-PRETAX> (20257)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20257)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20257)
<EPS-BASIC> (1.98)
<EPS-DILUTED> (1.98)
</TABLE>
