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 April 29, 2000
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 May 31, 2000:
9,829,214 shares.
Exhibit Index on Page 16
Page 1 of 18 (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 April 29, 2000 and May 1,
1999, and the related condensed consolidated statements of operations and cash
flows, for the thirteen 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.
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 accounting principles generally
accepted in the United States.
/s/ARTHUR ANDERSEN LLP
New York, New York
May 17, 2000
BRADLEES, INC.
AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands except per share amounts)
13 Weeks Ended
April 29, 2000 May 1, 1999
-------------- -----------
Net sales $314,925 $312,336
Leased dept. and other
operating income 2,971 2,731
------- -------
Total revenue 317,896 315,067
Cost of goods sold 227,556 224,556
Selling, store operating,
admin. and distrib. exps. 103,033 100,204
Depr. and amortization exp. 6,136 7,288
------- -------
Loss from operations (18,829) (16,981)
Gain on dispos. of property 2,733 -
Interest and debt expense (7,384) (6,882)
------- -------
Loss before cumulative
effect of acct. change (23,480) (23,863)
Cumulative effect of
accounting change - (558)
------- -------
Net loss $(23,480) $(24,421)
======= =======
Comprehensive loss $(23,480) $(24,421)
======= =======
Net loss per share - basic and diluted:
Loss before cumulative effect
of accounting change $ (2.36) $ (2.34)
Cum. effect of acct. change - (0.05)
------- -------
Net loss per share -
basic and diluted $ (2.36) $ (2.39)
======= =======
Weighted average shares outstanding -
basic and diluted 9,955 10,226
======= =======
See accompanying notes to condensed consolidated financial statements.
BRADLEES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
April 29, 2000 Jan. 29, 2000 May 1, 1999
-------------- ------------- -----------
ASSETS
Current assets:
Cash $ 9,107 $ 9,786 $ 10,315
Accounts rec. 12,354 11,524 8,470
Inventories 296,827 248,151 263,527
Prepaid exps. 11,274 9,843 10,435
------- ------- -------
Total current assets 329,562 279,304 292,747
------- ------- -------
Prop.,plant and eq. net:
Property excluding
capital leases, net 92,550 92,541 89,053
Prop. under capital
leases, net 21,942 22,358 10,037
------- ------- -------
Total property, plant
and Equip., net 114,492 114,899 99,090
------- ------- -------
Other assets:
Lease interests, net 70,390 71,478 74,728
Assets held for sale - - 14,000
Other, net 8,101 7,606 6,354
------- ------- -------
Total other assets 78,491 79,084 95,082
------- ------- -------
Total assets $522,545 $473,287 $486,919
======= ======= =======
(Continued)
BRADLEES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
April 29, 2000 Jan. 29, 2000 May 1, 1999
-------------- ------------- -----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $174,138 $143,111 $156,680
Accrued expenses 14,705 24,841 21,711
Self-insur. reserves 6,430 6,553 6,358
Revolver borrowings 187,359 129,857 132,427
Current portion of
capital lease
oblig. and notes 2,963 2,959 2,532
------- ------- -------
Total current liabs. 385,595 307,321 319,708
------- ------- -------
Long-term liabilities:
Obligations under
capital Leases 22,323 26,096 24,824
Lease fin. oblig. 17,487 17,492 -
Convert. notes pay. - - 28,995
Self-insur. reserves 12,758 13,304 12,908
Unfavor. lease liab. 45,299 45,226 44,742
Other long-term liabs. 16,046 17,361 25,045
------- ------- -------
Total long-term liabs. 113,913 119,479 136,514
------- ------- -------
Stockholders' equity:
Common stock: 9,954,599 shares
outstanding (10,225,711 shares
at 5/01/99)
Par value 100 100 102
Add'l paid-in-cap. 55,785 55,755 55,016
Accumulated deficit (32,848) (9,368) (24,421)
------- ------- -------
Total stockholders'
equity 23,037 46,487 30,697
------- ------- -------
Total liabilities and
stockholders' equity $522,545 $473,287 $486,919
======= ======= =======
See accompanying notes to condensed consolidated financial statements.
BRADLEES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
April 29, 2000 May 1, 1999
-------------- -----------
Cash flows from operating activities:
Net loss ($23,480) ($24,421)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization exp. 6,136 7,288
Amortization of lease interests
and unfavorable lease liability,
net 1,161 1,266
Amortization of deferred financing
costs 338 377
Gain on disposition of property (2,733) -
Cumulative effect of accounting
change - 558
Changes in working capital and
other, net (30,037) 5,016
------- -------
Net cash used by oper. activities
before reorg. items (48,615) (9,916)
Reorganization items:
Chap. 11 prof. fees paid (260) (2,858)
Other reorganization expenses
paid, net (1,541) (830)
------- -------
Net cash used by reorg. items (1,801) (3,688)
------- -------
Net cash used by oper. activities (50,416) (13,604)
Cash flows from investing activities:
Capital expenditures, net (5,729) (2,920)
------- -------
Net cash used in investing
activities (5,729) (2,920)
Cash flows from financing activities:
Deferred financing costs (670) -
Net borrowings under revolver 57,502 17,977
Principal payments on notes and
capital lease obligations (1,366) (623)
------- -------
Net cash provided by
financing activities 55,466 17,354
Net increase (decrease) in cash (679) 830
Cash - Beginning of year 9,786 9,485
------- -------
Cash - End of period $9,107 $10,315
======= =======
Supplemental disclosure of cash flow
information:
Cash paid for interest
and certain debt fees $4,398 $2,618
Cash paid for income taxes - -
See accompanying notes to condensed consolidated financial statements.
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
reorganized Company 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.
With respect to the unaudited condensed consolidated financial
statements for the 13 weeks (first quarter) ended April 29, 2000 and May 1,
1999, 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. Shares outstanding and loss per
share were the same for both the basic and diluted calculations for these
quarters because the inclusion of common stock equivalents would have
reduced the reported loss per share. The presented shares outstanding include
shares of Bradlees Common Stock issued or presumed issued in accordance
with the Company's plan of reorganization. This includes certain shares
expected to be issued as final unresolved pre-petition claims are settled.
These statements should be read in conjunction with the Company's
financial statements (Form 10-K) for the fiscal year (52 weeks) ended January
29, 2000 ("1999"). Due to the seasonal nature of the Company's business,
operating results for the first quarter are not necessarily indicative of
results that may be expected for the fiscal year (53 weeks) ending February 3,
2001 ("2000"). 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. Cumulative Effect of Accounting Change
In December, 1999, the SEC issued Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements", which provides
guidance on, among other things, recognition of layaway sales and reporting
of leased department sales. SAB No. 101 requires that layaway sales and the
associated gross margin not be recognized until the customers pick up the
merchandise and that the fee income rather than the sales from leased
departments be included in the presentation of total revenue in SEC filings.
The Company elected the early adoption of the provisions of SAB No. 101 in
the fourth quarter of 1999 effective as of the beginning of 1999 and,
accordingly, recorded a charge of $0.6 million for the cumulative effect of a
change in accounting method for layaway sales and excluded leased
department sales from the presentation of total revenue in the accompanying
consolidated statements of operations.
3. Debt
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 continue to use the Revolver primarily for
working capital and general business needs. The Revolver is scheduled to
expire on December 23, 2001. Trade and standby letters of credit outstanding
under the Revolver were $5.2 and $21.8 million, respectively, at April 29,
2000 and $9.5 and $20.0 million, respectively, at May 1, 1999.
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 Fleet National Bank 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 weighted average interest rate
under the Revolver in the first quarter of 2000 was 8.41% compared to 7.31%
in the first quarter of 1999. 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; (iii) maximum annual
capital expenditures; and (iv) minimum operating cash flow to interest expense
(for the fiscal quarters ending on or about February 3, 2001, and thereafter).
Effective May 19, 2000, the Company's capital expenditure covenant was
amended to increase the annual limit to $30 million from $25 million. The
Company is in compliance with the Revolver covenants.
9% CONVERTIBLE NOTES: The 9% Convertible Notes (the "Notes")
previously outstanding were scheduled to mature on February 3, 2004, bore
interest at 9% per annum and were convertible any time after February 2, 2000
into shares of the Company's Common Stock. The Company had 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 redeemed $17.0
million of the Notes with the proceeds from its Lease Financing Obligation
(see below) in July, 1999 and exercised an option to repurchase
$9 million of the Notes at a discount in December, 1999. The remaining $3
million of outstanding Notes were redeemed along with associated accrued and
unpaid interest in January, 2000.
LEASE FINANCING OBLIGATION: In July, 1999, the Company and 2500
CPA Associates, LLC ("CPA") entered into an agreement for the financing of
the Company's leasehold interest in the Yonkers, NY store (the "Lease
Financing Obligation"). Under this agreement, the Company 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 (after certain fees) of $17.2 million were
used to pay down $17.0 million of the Notes (see above) 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 in July, 1999 with a
$2.9 million obligation and associated capital lease asset. Also, the prior
assets held for sale of $14 million for Yonkers were 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.
4. 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 1999 and did
not recognize a quarterly income tax benefit in the first quarter of 2000 due
to the uncertainty of any net annual income tax expense for financial reporting
for 2000.
5. Reorganization Items
There were no reorganization items recorded in the first quarters of
2000 and 1999. Approximately $1.5 million of restructuring costs previously
provided for were paid in the first quarter of 2000, which included $1.4
million of the $2.0 million payment associated with the termination of the
lease for the Company's previously closed Peabody, MA store (see Note 8).
There are no material remaining restructuring costs expected to be paid.
6. Assets Held for Sale
Assets held for sale at May 1, 1999 represented the estimated net
realizable value (assigned under fresh-start reporting) of the Company's
Yonkers, NY store lease. As discussed in Note 3, the Company entered into a
lease-financing obligation for the Yonkers store lease subsequent to the end
of the first quarter of 1999 and reclassified the assets held for sale at that
time.
7. Stock Options
A total of 1,000,000 shares of Common Stock were reserved for
issuance under the Bradlees Inc. 1999 Stock Option Plan (the "1999 Option
Plan"). Through the first quarter of 2000, the Company has authorized grants
of options to purchase 887,050 shares of Common Stock to senior management
and other members of management, of which options to purchase 835,712
shares were outstanding at April 29, 2000. These options vest in annual one-
third increments. All vested options shall be exercisable for a period of 5
years from the date of the grant.
In March, 2000, the Company's Board of Directors voted to adopt the
2000 Stock Option and Incentive Plan (the "2000 Stock Plan") which
authorizes the Company to issue up to 1,250,000 shares of Common Stock
pursuant to various stock incentive awards. The 2000 Stock Plan was
approved by the Company's shareholders in May, 2000.
8. Gain on Disposition of Property and Change in Accounting Estimate
In February, 2000, the Company terminated its lease commitment for
its closed store in Peabody, MA with a lump-sum payment of $2.0 million.
The Company recorded a gain of $2.7 million in the first quarter of 2000
associated with the early termination of the related capital lease obligation.
Minimum payments due under the Peabody store lease would have totaled
$23.8 million over the remaining lease term of 16 years.
The Company also recorded a $1.9 million credit (included in selling,
store operating, administrative and distribution expenses) in the first quarter
of 2000 resulting from a change in accounting estimate associated with the
reduction in a severance-related liability for which the previous associated
charge was not classified as a reorganization item.
BRADLEES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information discussed herein should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes included elsewhere
in this Form 10-Q. Also, the following discussions include certain statements
which are or may be construed as "forward-looking statements" (see definition
on page 2 of our Form 10-K for the fiscal year ended January 29, 2000) about
our business, sales and expenses, and operating and capital requirements.
Any such statements are subject to the risk factors disclosed in our Form 10-K
that could cause the actual results or requirements to vary materially. For
example, our statements regarding expected fiscal year 2000 levels of
borrowings, letters of credit, 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, the risk factors disclosed in our Form 10-K.
Results of Operations
Results of operations expressed in millions and as a percentage of net sales
were as follows for the 13 weeks ended April 29, 2000 ("First Quarter 2000")
and May 1, 1999 ("First Quarter 1999") :
13 Weeks ended
April 29, 2000 May 1, 1999
-------------- -----------
(Dollars in millions except per share
amounts)
Net sales $314.9 100.0% $312.3 100.0%
Cost of goods sold 227.5 72.2% 224.5 71.9%
------ ----- ------ -----
Gross margin 87.4 27.8% 87.8 28.1%
Leased department and other
operating income 2.9 0.9% 2.7 0.9%
------ ----- ------ -----
90.3 28.7% 90.5 29.0%
Selling, store operating, admin.
and distribution expenses 103.0 32.7% 100.2 32.1%
Depreciation and amortization
expense 6.1 2.0% 7.3 2.3%
------ ----- ------ -----
Loss from operations (18.8) (6.0%) (17.0) (5.4%)
Gain on dispos. of property 2.7 0.8% - -
Interest and debt expense (7.4) (2.3%) (6.8) (2.2%)
------ ----- ------ -----
Loss before cumulative effect
of accounting change (23.5) (7.5%) (23.8) (7.6%)
Cumulative effect of
accounting change - - (0.6) (0.2%)
------ ----- ------ -----
Net loss $(23.5) (7.5%) $(24.4) (7.8%)
====== ===== ====== =====
Net loss per share $(2.36) $(2.39)
====== ======
Total revenue increase 1.0% 9.8%
Comparable store sales
increase (decrease) (1.4%) 12.5%
Number of stores in operation
at end of Period 104(a) 102
(a) Excludes our new Staten Island, NY store which had its grand opening in
early May, 2000.
First Quarter 2000 Compared to First Quarter 1999
Net sales for First Quarter 2000 increased $2.6 million or 0.8% from
First Quarter 1999 due to the beneficial impact from the opening of two new
stores since First Quarter 1999, partially offset by a decrease of 1.4% in
comparable store sales (which include leased shoe department sales). An
additional new store on Staten Island, NY held its grand opening ceremonies in
early May, 2000. We believe that the decrease in comparable store sales was
due primarily to an unseasonably cold and rainy Spring that adversely
impacted apparel sales, and to a lesser extent, competitive store openings in
the vicinity of a significant number of our stores during First Quarter 2000.
Because we are more softlines-oriented than other discount department store
chains, our business was particularly affected by the poor weather conditions.
Comparable store sales for the fiscal month of May 2000 declined 4.0%.
Gross margin decreased $0.4 million in First Quarter 2000 compared to
First Quarter 1999 due to a lower gross margin rate (27.8% vs. 28.1%),
partially offset by the positive impact of the higher net sales. The lower
gross margin rate was primarily attributable to a lower mix of softlines sales
due to the reasons discussed above. Leased department and other operating
income had a slight increase of $0.2 million in First Quarter 2000 compared to
First Quarter 1999. Leased department sales were $10.4 million in the First
Quarter of 2000 compared to $9.6 million in the First Quarter of 1999.
Selling, store operating, administrative and distribution ("SG&A")
expenses increased $2.8 million (due, in part, to the new stores) or 0.6% as a
percentage of net sales in First Quarter 2000 from First Quarter 1999. The
higher SG&A expenses were primarily due to certain increases in occupancy,
logistics and advertising expenses, partially offset by a $1.9 million credit
to SG&A expenses for a change in an accounting estimate associated with a
reduction of a severance-related liability (Note 8 to the Condensed
Consolidated Financial Statements). In addition, we incurred an additional
$0.6 million of preopening expenses in First Quarter 2000 compared to First
Quarter 1999. We are implementing several improvements in 2000 to our
logistics network to reduce expenses and enhance our distribution efficiency
(see "Liquidity and Capital Resources").
Depreciation and amortization expense declined $1.2 million or 0.3%
as a percentage of net sales in First Quarter 2000 from First Quarter 1999 due
primarily to certain fixed assets becoming fully-depreciated since First
Quarter 1999.
We recorded a gain of $2.7 million in First Quarter 2000 associated
with the early termination of a capital lease obligation (Note 8).
Interest and debt expense increased $0.6 million or 0.1% as a
percentage of net sales in First Quarter 2000 from First Quarter 1999. This
increase was due primarily to higher seasonal borrowings (see "Liquidity and
Capital Resources") at a higher average interest rate (8.4% vs. 7.3%).
We did not record an income tax benefit or expense in First Quarter
2000 or First Quarter 1999 (Note 4).
Liquidity and Capital Resources
We had outstanding borrowings of $187.4 million at April 29, 2000,
exclusive of the issuance of letters of credit, under our $270 million
Revolver (Note 3) compared to $132.4 million at May 1, 1999. Peak and
average revolver borrowings were approximately $187 and $156 million,
respectively, in First Quarter 2000 compared to $136 and $122 million,
respectively, in First Quarter 1999. The increase in borrowings from First
Quarter 1999 was primarily due to the First Quarter 2000 loss from operations,
an increase in inventories (discussed below), cash used by reorganization items
since First Quarter 1999, and the early redemption of the 9% Convertible
Notes (Note 3).
We currently expect our borrowings, exclusive of the issuance of letters
of credit, for the full year of 2000 to peak at approximately $210 million in
October, 2000 and average approximately $180 million. The amount available
to borrow in 2000 is currently expected to peak at approximately $270 million
in October and/or November, 2000 and average approximately $240 million,
while total outstanding letters of credit under the Revolver are expected to
peak at approximately $50 million in August, 2000 and average approximately
$35 million.
In First Quarter 2000, cash used by operations before reorganization
items was $48.6 million compared to $9.9 million of cash used by operations
before reorganization items in First Quarter 1999. This increase in first-
quarter cash usage was primarily due to an increase in inventories and
reductions in accrued expenses and certain long-term liabilities.
Net cash used by reorganization items of $1.8 million in First Quarter
2000 included $1.4 million of the $2.0 million payment associated with the
early termination of a closed store lease (Notes 5 and 8).
Accounts receivable at April 29, 2000 increased $3.9 million from May
1, 1999 due primarily to a receivable of approximately $3 million recorded as
of April 29, 2000 for expected insurance proceeds associated with costs
resulting from a water main break near our Union Square, NY store. This
incident caused a temporary closing of the store during March, 2000 due to
water damage.
Inventories at April 29, 2000 increased $33.3 million from May 1, 1999
due to the First Quarter 2000 sales shortfall (see "Results of Operations")
and three new stores (including the Staten Island store) opened since First
Quarter 1999. Inventories increased $48.7 million from January 29, 2000 due
primarily to a normal seasonal build-up. We began curtailing our merchandise
purchases during April, 2000 in response to the lower sales volume.
Accounts payable at April 29, 2000 increased $17.5 million from May
1, 1999 due to the increase in inventories and increased $31.0 million from
January 29, 2000 due primarily to the associated normal seasonal build-up of
inventories.
Accrued expenses at April 29, 2000 were $7.0 million lower than at
May 1, 1999 due primarily to continued payments made against reserves
established at the end of 1998 for reorganization items. Accrued expenses at
April 29, 2000 were $10.1 million lower than at January 29, 2000 due
primarily to payments made against reserves established prior to 2000 for
emergence bonuses and the 1999 performance bonuses, along with payments
made against reserves for reorganization items, accrued payroll and accrued
real estate taxes.
Other long-term liabilities decreased $9.0 million from May 1, 1999
due primarily to decreases in certain employee benefit liabilities since First
Quarter 1999, adjustments to restructuring reserves in 1999, paydowns of
long-term notes, the change in accounting estimate described in Note 8, and a
reclassification of a reserve for emergence bonuses to short-term liabilities
at the end of 1999.
We incurred capital expenditures of $5.7 million in First Quarter 2000
(compared to $2.9 million in First Quarter 1999), primarily for certain
management information systems and the new Staten Island store. For all of
2000, we currently expect total capital expenditures to be approximately $28
million, primarily for new conveying and sortation equipment in our Edison
distribution center, two new stores (Staten Island and a new store in
Philadelphia that is expected to open early next year), management information
systems (including expenditures for new distribution yard management and
transportation systems and a new merchandise replenishment system) and
various store and other distribution center improvements. We currently expect
to finance these expenditures through internally-generated funds. Effective
May 19, 2000, the capital expenditure covenant under the Revolver was
amended to increase the annual limit to $30 million from $25 million. In
addition, we entered into a multi-year lease in May, 2000 for additional
warehousing and distribution space in Westfield, MA, primarily for basic
merchandise, effective June 1, 2000.
We believe that the availability under our Revolver, together with our
available cash and expected cash flows from 2000 operations and beyond, will
enable us to fund our expected needs for working capital, capital expenditures
and debt service requirements. The Revolver expires in December, 2001 and
will need to be repaid or extended at that time. 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.
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our market risk associated with
our financial instruments. 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 Revolver (see Note 3 to our Condensed Consolidated
Financial Statements). Under the Revolver, 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 Fleet National Bank
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 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon and approved at the Company's
Annual Meeting of Stockholders held on May 31, 2000. On the record date of
April 19, 2000, there were 9,820,785 shares issued, outstanding and eligible
to vote, of which 7,454,665 shares or 76% were represented at the meeting
either in person or by proxy. The votes regarding the proposal to elect the
following three Class I directors to serve until a successor is duly elected
and qualified were as follows:
Votes For Votes Withheld
John A. Curry 7,169,002 285,663
Willis G. Ryckman 7,169,933 284,732
Laurie M. Shahon 7,170,099 284,566
The votes regarding the proposal to approve the Company's 2000 Stock Option
and Incentive Plan were as follows:
Votes For Votes Against Broker Non-Votes and
Abstentions
1,621,206 1,004,681 4,828,778
The votes regarding the proposal to appoint Arthur Andersen LLP as the
Company's auditors for the fiscal year ending February 3, 2001 were as
follows:
Votes For Votes Against Broker Non-Votes and
Abstentions
7,432,333 17,072 5,260
Item 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit No. Exhibit Page No.
10 Third Amendment to Credit Agreement dated as of May 19, 2000,
among reorganized Bradlees Stores, Inc., reorganized Bradlees,
Inc. and Fleet National Bank, as Agent. 19
15 Letter re: unaudited interim financial information 25
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarterly period ended
April 29, 2000:
Date of Report Date of Filing Item Number Description
March 15, 2000 March 16, 2000 5 Disclosure of fourth quarter and
annual 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: June 6, 2000 By /s/ PETER THORNER
Peter Thorner
Chairman and Chief Executive Officer
Date: June 6, 2000 By /s/ CORNELIUS F. MOSES III
Cornelius F. Moses III
Senior Vice President, Chief
Financial Officer
Exhibit 10
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT (this "Amendment"), dated as of May
19, 2000, among BRADLEES STORES, INC., a Massachusetts corporation
(the "Borrower"), BRADLEES, INC., a Massachusetts corporation ("BI"), and
each of the other guarantors listed in Schedule 3.04 to the Credit Agreement
(as defined below) (together with BI, each a "Guarantor" and collectively, the
"Guarantors"), and the Lenders party to the Credit Agreement referred to
below. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Credit Agreement.
W I T N E S S E T H
WHEREAS, the Borrower, BI, the Guarantors, the financial
institutions party to the Credit Agreement as lenders (the "Lenders"),
BankBoston, N.A. (now known as Fleet National Bank), as issuer of Letters of
Credit, as administrative agent (the "Administrative Agent"), and as agent for
the Tranche B Lenders, BankBoston Retail Finance, Inc. (now known as Fleet
Retail Finance, Inc.), as collateral agent (the "Collateral Agent"), and the
CIT Group/Business Credit, Inc. and Congress Financial Corporation (New
England), each as co-agents, are parties to that certain Revolving Credit and
Guaranty Agreement, dated as of February 2, 1999, as amended by that certain
First Amendment to Credit Agreement, dated as of March 24, 1999, and by
that certain Second Amendment to Credit Agreement, dated as of September
22, 1999 (as amended, restated, supplemented or otherwise modified from time
to time, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Lenders agree
to a certain amendment to the Credit Agreement as more fully set forth below;
and
WHEREAS, subject to the terms and conditions set forth below,
the Lenders are willing to agree to such amendment;
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Amendments.
Section 6.04 of the Credit Agreement is amended by deleting
"$25,000,000" wherever it appears therein and replacing it with
"$30,000,000".
2. Conditions Precedent. The amendments contained in Sections 1 and 2 above
are subject to, and contingent upon, the prior satisfaction of each
of the following conditions:
(a) the Administrative Agent shall have received
duly executed counterparts hereof signed by the Credit Parties and the
Required Lenders; and
(b) all representations and warranties of the Credit
Parties contained herein shall be true and correct in all material respects
as of the date of this Amendment.
3. Representations and Warranties. The Credit Parties
hereby represent and warrant to the Lenders as follows:
(a) As of the date hereof, the representations and
warranties contained in the Credit Agreement and the other Loan
Documents are true and correct in all material respects after giving
effect to this Amendment as though made on and as of such date,
except to the extent that such representations and warranties expressly
relate solely to an earlier date (in which case such representations and
warranties shall have been true and correct on and as of such earlier
date);
(b) after giving effect to this Amendment, no event
has occurred and is continuing which constitutes an Event of Default or
an Event of Super-Default;
(c) each of the Credit Parties has the corporate
power and authority to execute, deliver and perform the terms and
provisions of this Amendment and the transactions contemplated
hereby, and has taken or caused to be taken all necessary actions to
authorize the execution, delivery and performance of this Amendment
and the performance of the transactions contemplated hereby;
(d) except for those that have been obtained, no
consent of any other Person and no action of or filing with any
Governmental Authority is required to authorize, or is otherwise
required in connection with, the execution, delivery and performance of
this Amendment and the performance of the transactions contemplated
hereby;
(e) this Amendment has been duly executed and
delivered on behalf of each of the Credit Parties and constitutes the
legal, valid and binding obligation of each Credit Party, enforceable in
accordance with its terms; and
(f) the execution, delivery and performance of this
Amendment will not violate any law, statute or regulation, or any order
or decree of any Governmental Authority, or conflict with, or result in
the breach of, or constitute a default under, any material contract by
which any Credit Party is bound or the articles of incorporation or
bylaws of any Credit Party.
4. Effect of Amendment. Except as specifically provided
herein, this Amendment does not in any way affect or impair the terms,
conditions and other provisions of the Credit Agreement or the other Loan
Documents, and all such terms, conditions and other provisions of such
documents shall remain in full force and effect. The amendments contained
herein are limited to the specific provisions and circumstances described and
shall not be deemed to (i) be a waiver or amendment of any other term or
condition of the Credit Agreement or any other Loan Document or (ii)
prejudice any rights not specifically addressed herein which the Administrative
Agent, the Collateral Agent or any Lender may now have or may have in the
future under the Credit Agreement or any other Loan Document.
5. Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Amendment by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
6. Severability. Any provision of this Amendment that is
prohibited or unenforceable in any jurisdiction for any reason shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or unen-
forceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. If this
Amendment is deemed invalid or unenforceable with respect to any Credit Party
which is a party hereto, this Amendment shall remain valid and enforceable
with respect to all other Credit Parties party hereto.
7. Governing Law. THIS AMENDMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
THE CHOICE OF LAW PRINCIPLES THEREOF.
8. Headings. Section headings are included herein for
convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and the year first above written.
BRADLEES STORES, INC.,
as Borrower
By: /s/Paul R. McKelvey
Name: Paul R. McKelvey
Title: Vice President-Treasurer
BRADLEES STORES, INC.,
as Borrower
By: /s/Paul R. McKelvey
Name: Paul R. McKelvey
Title: Vice President - Treasurer
GUARANTORS:
BRADLEES, INC.,
as a Guarantor
By: /s/Paul R. McKelvey
Name: Paul R. McKelvey
Title: Vice President - Treasurer
NEW HORIZONS OF YONKERS, INC.,
as a Guarantor
By: /s/Paul R. McKelvey
Name: Paul R. McKelvey
Title: Vice President - Treasurer
LENDERS:
FLEET NATIONAL BANK
as a Lender
By: /s/James J. Ward
Name: James J. Ward
Title: Director
Address: 100 Federal Street, 9th Floor
Boston, MA 02110
CONGRESS FINANCIAL CORPORATION
(NEW ENGLAND)
AS Co-Agent and as a Lender
By: /s/Paul R. Crimlisk
Name: Paul R. Crimlisk
Title: Vice President
FINOVA CAPITAL CORPORATION
as a Lender
By: /s/Jason S. Ito
Name: Jason S. Ito
Title: Authorized Signer
FIRSTRUST BANK
as a Lender
By: /s/Bryan T. Denney
Name: Bryan T. Denney
Title: Vice President
FOOTHILL CAPITAL CORPORATION
as a Lender
By: /s/Todd R. Nakamoto
Name: Todd R. Nakamoto
Title: Vice President
HELLER FINANCIAL, INC.
as a Lender
By: /s/T. Bukowski
Name: T. Bukowski
Title: Authorized Signer
GENERAL ELECTRIC CAPITAL
CORPORATION
as a Lender
By: /s/______________
Name:
Title:
LASALLE BUSINESS CREDIT, INC.,
as a Lender
By: /s/Catherine D. Saccany
Name: Catherine D. Saccany
Title: Vice President
NATIONAL CITY COMMERCIAL
FINANCE, INC.,
as a Lender
By: /s/Paul H. Weybrecht
Name: Paul H. Weybrecht
Title: Vice President
PPM COMMERCIAL FINANCE,
As a Lender
By : /s/Keith Contole
Name: Keith Contole
Title: AVP, Underwriting
THE CIT GROUP/BUSINESS CREDIT, INC.,
as a Lender
By: /s/Mark J. Long
Name: Mark J. Long
Title: Vice President
PNC BANK,
As a Lender
By: /s/_____________
Name:
Title:
RECEIPT ACKNOWLEDGED:
FLEET NATIONAL BANK,
as Administrative Agent, as Tranche B. Agent,
as Issuing Bank and as a Lender
By: /s/James J. Ward
Name: James J. Ward
Title: Director
FLEET RETAIL FINANCE, INC.,
By: /s/James J. Ward
Name: James J. Ward
Title: Director
Exhibit 15
May 17, 2000
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
periods ended April 29, 2000 and May 1, 1999 as indicated in our report dated
May 17, 2000. 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 April 29, 2000, is
incorporated by reference in Registration Statement No. 33-77555.
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
