UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
Commission file Number 1-11134
BRADLEES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3156108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Bradlees Circle
Braintree, MA 02184
(Address of principal executive offices)
(Zip Code)
(617) 380-3000
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
------- --------
Number of shares of the issuer's common stock outstanding as of
May 27, 1997:
11,391,708 shares.
Exhibit Index on Page 18
Page 1 of 19 (Excluding Exhibits)
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Bradlees, Inc., Debtor-in-Possession:
We have reviewed the accompanying condensed consolidated balance
sheets of Bradlees, Inc. and subsidiaries, Debtor-in-Possession
(the "Company"), as of May 3, 1997 and May 4, 1996, and the
related condensed consolidated statements of operations, and
cash flows for the thirteen-week periods ended May 3, 1997 and
May 4, 1996. These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to such condensed consolidated
financial statements for them to be in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 2, the Company has filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code.
The accompanying consolidated financial statements do not
purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such consolidated
financial statements do not purport to show (a) as to assets,
their realizable value on a liquidation basis or their
availability to satisfy liabilities; (b) as to prepetition
liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to
stockholder accounts, the effect of any changes that may be made
in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in its business.
The accompanying condensed consolidated financial statements
have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 1 to the condensed
consolidated financial statements (and Note 1 to the annual
financial statements for the year ended February 1, 1997 (not
presented herein)), certain conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described
in Note 1 to the respective financial statements.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet of
the Company as of February 1, 1997, and the related
consolidated statements of operations, stockholders' deficiency,
and cash flows for the year then ended (not presented herein);
and, in our report dated March 20, 1997, we expressed an
unqualified opinion on those consolidated financial statements
and included explanatory paragraphs relating to (a) the
Company's filing for reorganization under Chapter 11 of the
Federal Bankruptcy Code, (b) the Company's 1996 and 1995 losses
from operations and stockholders' deficiency which raise
substantial doubt about the Company's ability to continue as a
going concern, and (c) the adoption of Statement of Financial
Accounting Standards ("SFAS") No. 112, effective January 30,
1994. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of February
1, 1997 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 21, 1997
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except per share amounts)
13 Weeks Ended
May 3, 1997 May 4, 1996
----------- ----------
Total sales $276,838 $349,891
Leased department sales 9,467 12,188
-------- --------
Net sales 267,371 337,703
Cost of goods sold 187,713 235,189
-------- --------
Gross margin 79,658 102,514
Leased department and other
operating income 2,099 2,757
-------- --------
81,757 105,271
Selling, store operating,
administrative and distribution
expenses 98,538 137,947
Depreciation and amortization
expense 9,184 11,017
Interest and debt expense 3,281 2,515
Reorganization items 2,747 7,538
-------- --------
Net loss $(31,993) $(53,746)
======== ========
Net loss per share $ (2.81) $ (4.71)
========= =========
See accompanying notes to condensed consolidated financial
statements.
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
May 3, Feb. 1, May 4,
1997 1997 1996
---------- ---------- ----------
ASSETS
Current assets:
Unrestricted cash and
cash equivalents $12,187 $10,025 $13,080
Restricted cash and
cash equivalents 9,224 9,126 7,194
--------- ---------- ----------
Total cash and cash equivalents 21,411 19,151 20,274
--------- ---------- ----------
Accounts receivable 11,604 8,240 10,055
Inventories 254,551 236,920 300,414
Prepaid expenses 8,790 8,466 9,992
Assets held for sale 7,754 8,419 8,954
--------- ---------- ----------
Total current assets 304,110 281,196 349,689
--------- ---------- ----------
Property, plant and equipment, net:
Property excluding capital leases,net 136,152 139,246 158,444
Property under capital leases, net 23,949 24,395 35,277
--------- ---------- ----------
Total property,plant and
equipment, net 160,101 163,641 193,721
--------- ---------- ----------
Other assets:
Lease interests at fair value and
lease acquisition costs, net 148,326 150,229 184,213
Assets held for sale 5,250 5,250 5,114
Other, net 4,986 3,884 4,009
--------- ---------- ----------
Total other assets 158,562 159,363 193,336
--------- ---------- ----------
Total assets $622,773 $604,200 $736,746
========= ========= =========
(Continued)
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
May 3, 1997 Feb. 1, 1997 May 4, 1996
----------- ------------ -----------
LIABILITIES AND
STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $133,203 $115,315 $145,401
Accrued expenses 42,626 45,924 36,380
Self-insurance reserves 7,328 7,086 8,172
Short-term debt 80,500 42,500 -
Current portion of capital
lease obligations 1,966 1,722 2,524
--------- ---------- ----------
Total current liabilities 265,623 212,547 192,477
Long-term liabilities:
Obligations under capital leases 32,638 33,296 52,816
Deferred income taxes 8,581 8,581 8,581
Self-insurance reserves 14,879 14,386 15,742
Other long-term liabilities 28,262 27,642 26,360
--------- ---------- ----------
Total long-term liabilities 84,360 83,905 103,499
--------- ---------- ----------
Liabilities subject to settlement
under the reorganization case 568,006 571,041 539,422
Stockholders' equity (deficiency):
Common stock - 11,391,708 shares
outstanding (11,394,433 at 2/1/97,
11,413,554 at 5/4/96)
Par value 115 115 115
Additional paid-in-capital 137,951 137,951 137,951
Unearned compensation - (167) (551)
Accumulated deficit (432,518) (400,525) (235,512)
Treasury stock, at cost (764) (667) (655)
---------- ---------- ----------
Total stockholders' deficiency (295,216) (263,293) (98,652)
---------- ---------- ----------
Total liabilities and
stockholders' deficiency $622,773 $604,200 $736,746
======== ======== =========
See accompanying notes to condensed consolidated financial
statements.
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
13 Weeks Ended
May 3, 1997 May 4, 1996
---------- -----------
Cash flows from operating activities:
Net loss $ (31,993) $ (53,746)
Adjustments to reconcile net loss
to cash used by operating
activities:
Depreciation and amortization expense 9,184 11,017
Amortization of deferred financing costs 750 484
Stock compensation, net - 104
Reorganization items 2,747 7,538
Changes in working capital and other,net (3,061) 1,431
-------- --------
Net cash used by operating activities
before reorganization items (22,373) (33,172)
-------- --------
Reorganization items:
Interest income received 118 531
Chapter 11 professional fees paid (3,329) (2,963)
Other reorganization expenses paid, net (1,553) (2,605)
-------- --------
Net cash used by reorganization items (4,764) (5,037)
-------- --------
Net cash used by operating activities (27,137) (38,209)
-------- --------
Cash flows from investing activities:
Capital expenditures, net (3,927) (3,853)
Increase in restricted cash and
cash equivalents (98) (6,000)
-------- --------
Net cash used in investing activities (4,025) (9,853)
-------- --------
Cash flows from financing activities:
Payments of liabilities subject to
settlement (2,486) (900)
Deferred financing costs (1,776) (312)
Net borrowings under the DIP facility 38,000 -
Principal payments on capital
lease obligations (414) (658)
------- --------
Net cash provided (used) by financing
activities 33,324 (1,870)
-------- --------
Net increase (decrease) in unrestricted
cash and cash equivalents 2,162 (49,932)
Unrestricted cash and cash equivalents:
Beginning of period 10,025 63,012
-------- --------
End of period $ 12,187 $ 13,080
======== ========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 2,347 1,962
Cash received for income taxes $ - 24,477
See accompanying notes to condensed consolidated financial
statements.
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of Bradlees,
Inc. and subsidiaries, including Bradlees Stores, Inc.
(collectively "Bradlees" or the "Company"), have been prepared
in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7: "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP
90-7") and generally accepted accounting principles applicable
to a going concern, which principles, except as otherwise
disclosed, assume that assets will be realized and liabilities
will be discharged in the normal course of business. The
Company filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") on June 23, 1995
(the "Filing"). The Company is presently operating its business
as a debtor-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the Southern District of New
York (the "Bankruptcy Court").
With respect to the unaudited condensed consolidated
financial statements for the 13 weeks (first quarter) ended May
3, 1997 and May 4, 1996, it is the Company's opinion that all
necessary adjustments (consisting of normal and recurring
adjustments) have been included to present a fair statement of
results for the interim periods. Certain prior-year amounts
have been reclassified to conform to this year's presentation.
These statements should be read in conjunction with the
Company's financial statements (Form 10-K) for the fiscal year
ended February 1, 1997 ("1996"). Due to the seasonal nature of
the Company's business, operating results for the first quarter
are not necessarily indicative of results that may be expected
for the fiscal year ending January 31, 1998 ("1997"). Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted,
pursuant to the general rules and regulations promulgated by the
Securities and Exchange Commission (the "SEC").
The Company experienced significant operating losses in 1996
and 1995 and continued to post an operating loss in the first
quarter of 1997. The Company's ability to continue as a going
concern is dependent upon the confirmation of a plan of
reorganization by the Bankruptcy Court, the ability to maintain
compliance with debt covenants under the DIP Facility (Note 4),
achievement of profitable operations, and the resolution of the
uncertainties of the reorganization case discussed in Note 2.
In an effort to return the Company to profitability and
accomplish its long-term goals, the Company will continue to
focus on merchandise quality and fashion as a way to
differentiate itself from its closest competition, but is making
the following modifications to its business strategy: (a)
reintroducing lower opening price points in selective
merchandise categories to enhance value, increase customer
traffic and avoid costly promotions; (b) reintroducing certain
basic convenience and commodity products that are typical of
assortments carried by discount stores; (c) reinstituting a
layaway program in the second half of 1997; (d) revising the
Company's markdown policy based on product rate of sale; (e)
making the weekly circulars more item-intensive and price-point
oriented with clear presentation while reducing less productive
and more costly advertising media; and (f) improving operating
efficiencies to achieve further cost reductions. The Company is
making evolutionary changes in its merchandise assortment and
presentation in connection with these steps. In addition, the
Company reduced and reorganized its home office, store, field
and regional management structures and closed 27 stores in 1996.
The Company closed one additional unprofitable store in April,
1997.
2. Reorganization Case
In the Chapter 11 case, substantially all liabilities as of
the date of the Filing are subject to settlement under a plan of
reorganization to be voted upon by the Company's creditors and
stockholders and confirmed by the Bankruptcy Court. Schedules
have been filed by the Company with the Bankruptcy Court setting
forth the assets and liabilities of the Company as of the date
of the Filing as shown by the Company's accounting records.
Differences between amounts shown by the Company and claims
filed by creditors are being investigated and resolved. Except
for payments of approximately $1.4 million made in the first
quarter of 1997 to settle certain reclamation claims, the
ultimate amount and settlement terms for pre-petition
liabilities are subject to a plan of reorganization, and
accordingly, are not presently determinable. The Company
currently retains the exclusive right to file a plan of
reorganization until August 4, 1997 and to solicit acceptance of
a plan of reorganization until October 3, 1997, each subject to
possible extension as approved by the Bankruptcy Court.
Under the Bankruptcy Code, the Company may elect to assume
or reject real estate leases, employment contracts, personal
property leases, service contracts and other executory
pre-petition leases and contracts, subject to Bankruptcy Court
approval. A liability of approximately $50.9 million was
recorded through May 3, 1997, for rejected leases and
anticipated claims for certain closed store leases that were
expected to be rejected. This liability may be subject to
future adjustments based on claims filed by the lessors and
Bankruptcy Court actions. The Company cannot presently
determine or reasonably estimate the ultimate liability which
may result from the filing of claims for any rejected contracts
or from additional leases which may be rejected at a future
date. The Company believes that it has recorded its best
estimate of the liability for rejected leases based on
information available.
The principal categories of claims classified as
"Liabilities subject to settlement under the reorganization
case" are identified below. Deferred financing costs as of the
Filing of $3.4 million, $2.0 million and $2.7 million,
respectively, for the pre-petition revolving loan facility (the
"Revolver") and subordinated debt (the "2002 and 2003 Notes")
have been netted against the related outstanding debt amounts.
In addition, a $9.0 million cash settlement and approximately
$7.3 million of adequate protection payments have been applied
to reduce the Revolver debt amount. The cash settlement relates
to a portion of the Company's cash balance as of the date of the
Filing ($9.3 million) which was claimed as collateral by the
pre-petition bank group. The claim was settled in full for $9.0
million and approved by the Bankruptcy Court in 1995. All
amounts presented below may be subject to future adjustments
depending on Bankruptcy Court actions, further developments with
respect to disputed claims, determination as to the security of
certain claims, the value of any collateral securing such
claims, or other events.
(000's)
Liabilities Subject to Settlement
- --------------------------------- ---------------------------------------
Under the Reorganization Case May 3, 1997 Feb. 1, 1997 May 4, 1996
- ----------------------------- ----------- ------------ -----------
Accounts payable $165,383 $167,098 $167,757
Accrued expenses 27,932 27,932 23,112
Revolver 73,805 75,005 77,405
2002 Notes 122,274 122,274 122,274
2003 Notes 97,957 97,957 97,957
Financing obligation 17,951 17,951 17,951
Obligations under capital leases 11,767 11,887 13,995
Provision for rejected leases 50,937 50,937 18,971
-------- -------- ---------
$568,006 $571,041 $539,422
========= ========= ========
3. Restricted Cash and Cash Equivalents
Restricted cash and cash equivalents at May 3, 1997 were
comprised of the following, along with earned interest of $.3
million: (a) $6.0 million of the $24.5 million federal income
tax refund received in April 1996, held in escrow pending
further order of the Bankruptcy Court; (b) $1.7 million of
forfeited deposits, also held in escrow pending further order of
the Bankruptcy Court, received in 1996 on a planned sale of an
owned undeveloped property that was not consummated and (c)
other funds ($1.2 million) restricted for security deposits for
utility expenses incurred after the Filing. As of May 4, 1996,
restricted cash and cash equivalents were comprised of the $6.0
million portion of the tax refund and the $1.2 million
restricted for the security deposits.
4. Debt
As a result of the Filing, substantially all debt (exclusive
of the DIP Facility) outstanding at May 3, 1997 was classified
as liabilities subject to settlement (Note 2). No principal or
interest payments are made on any pre-petition debt (excluding
certain capital leases) without Bankruptcy Court approval or
until a reorganization plan defining the repayment terms has
been approved. During 1995, the Company received Bankruptcy
Court approval to make certain adequate protection payments to
the pre-petition bank group. On June 25, 1996, the Bankruptcy
Court approved an agreement between the Company and BTM Capital
Corporation ("BTM") that fixed the secured claim of BTM in the
amount of $2.25 million, subject to reduction for adequate
protection payments also approved by the Bankruptcy Court. The
adequate protection payments, a cash settlement, and deferred
financing costs have been netted against the related outstanding
debt amounts (Note 2).
Generally, interest on pre-petition debt ceases accruing
upon the filing of a petition under the Bankruptcy Code; if,
however, the debt is collateralized by an interest in property
whose value (minus the cost of preserving such property) exceeds
the amount of the debt, post-petition interest may be payable.
Other than those noted above, no other determinations have yet
been made regarding the value of the property interests which
collateralize various debts. Although interest may be paid
pursuant to an order of the Bankruptcy Court, it is uncertain
whether any post-petition interest will be payable or paid. The
Company believes at this time that it is unlikely that such
interest will be paid. Contractual interest expense not
recorded on certain pre-petition debt (the Revolver, 2002 Notes
and 2003 Notes) totaled approximately $8.0 million for both the
first quarter of 1997 and 1996.
DIP Facility The Company has a Debtor-in-Possession
Revolving Credit and Guaranty Agreement (the "DIP Facility") in
the aggregate amount of $200 million (of which $125 million is
available for issuance of letters of credit) with Chase
Manhattan Bank, as Agent, under which the Company is allowed to
borrow for general corporate purposes, working capital and
inventory purchases. There were outstanding direct borrowings
of $80.5 million under the DIP Facility as of May 3, 1997.
Trade and standby letters of credit outstanding under the DIP
Facility were $17.2 and $20.7 million, respectively, at May 3,
1997 and $9.2 and $40.2 million, respectively, at May 4, 1996.
At the Company's option, the Company may borrow under the
DIP Facility, as amended on March 20, 1997, at the Alternate
Base Rate (as defined) plus .50% or at the Adjusted LIBO Rate
(as defined) plus 1.75%. The weighted average interest rate
under the DIP Facility was 7.34% in the first quarter of 1997.
The maximum borrowing, up to $200 million, is limited to 60% of
the Eligible Book Value of Inventory (as amended on March 20,
1997 to include goods on order for which trade letters of credit
have been issued). The Company paid a financing fee of
approximately $1.8 million during the first quarter of 1997 for
the March 1997 amendment to the DIP Facility. The Bankruptcy
Court approved the amendment on April 8, 1997.
Although there are no compensating balance requirements, the
Company is required to pay an annual commitment fee of .5% of
the unused portion of the DIP Facility. The DIP Facility
contains restrictive covenants including, among other things,
limitations on the incurrence of additional liens and
indebtedness, limitations on capital expenditures and the sale
of assets, the maintenance of minimum operating earnings
("EBITDA") and inventory levels, and a prohibition on paying
dividends. At May 3, 1997, the Company is in compliance with
the DIP Facility covenants. The lender under the DIP Facility
has a "super-priority" claim against the estate of the Company.
The March 1997 amendment also extended the expiration date to
the earlier of June 23, 1998 or the substantial consummation of
a reorganization plan that is confirmed by the Bankruptcy Court.
5. Income Taxes
The Company provides for income taxes under the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". On an interim basis, the
Company provides for income taxes using the estimated annual
effective rate method. The Company did not recognize a
quarterly or annual income tax expense or benefit in 1996 and
also does not expect to recognize a quarterly or annual income
tax expense or benefit in 1997.
6. Reorganization Items
The Company provided for or incurred the following expense
and income items during the first quarters of 1997 and 1996,
directly associated with the Chapter 11 reorganization
proceedings and the resulting restructuring of its operations:
(000's)
------------------------------
13 Weeks Ended 13 Weeks Ended
May 3, 1997 May 4, 1996
-------------- --------------
Professional fees $3,000 $1,000
Interest income (118) (531)
Gain on disposition of properties (135) -
Asset write-down - 3,904
Change in estimate of inventory impairment reserve - (1,000)
Employee severance and termination benefits - 4,165
------- -------
$2,747 $7,538
======= =======
Professional fees and interest income: Professional fees
represent estimates of expenses incurred, primarily for legal,
consulting and accounting services provided to the Company and
the creditors committee (which are required to be paid by the
Company while in Chapter 11). Interest income represents
interest earned on cash invested during the Chapter 11
proceeding.
Gain on disposition of properties: The Company sold two
closed store leases in the first quarter of 1997 for $0.8
million and the related gains were classified as reorganization
items since the associated net asset write-downs were previously
included in reorganization items.
Asset write-down: During the first quarter of 1996, the
Company decided not to open a previously planned new store. As
a result of this decision, the carrying value of the associated
property exceeded the estimated net realizable value and a
charge of $3.9 million was recorded. The estimated net
realizable value of this property is included in long-term
assets held for sale.
Reserve for inventory impairment: The change in the reserve
for inventory impairment established at February 3, 1996, was
due to a revised (lower) estimate of the incremental markdowns
required to liquidate the inventory at stores closed in June,
1996.
Employee severance and termination benefits: Employee
severance and termination benefits recognized in the first
quarter of 1996 represented $3.1 million of severance pay for
287 store, district and regional positions eliminated as a
result of the February, 1996 store management reorganization,
and $1.1 million of estimated severance pay for 660 store
positions eliminated as a result of the June 1996 store closings.
As discussed in Note 1, the Company reduced and reorganized
its home office, store, field and regional management structures
and closed 27 stores in 1996, and closed one additional
unprofitable store in April, 1997. As of May 3, 1997, the
Company had reserves totaling approximately $10 million
(exclusive of provisions for rejected leases discussed in Note
2) associated with those actions, including $7 million for
employee severance and termination benefits (primarily for the
December 1996 and January 1997 home office restructuring). The
majority of these costs are currently expected to be paid during
1997. Approximately $2.2 million of these costs were paid in
the first quarter of 1997, primarily for employee severance and
termination benefits related to the home office restructuring.
7. Statement of Financial Accounting Standards No. 128
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share". SFAS No. 128 is
effective for financial statements for both interim and annual
periods, ending after December 15, 1997. SFAS No. 128 would
have no impact on the Company's loss per share calculations for
the quarters ended May 3, 1997 and May 4, 1996.
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Results of operations expressed as a percentage of net sales
were as follows for the 13 weeks ended May 3, 1997 ("First
Quarter 1997") and May 3, 1996 ("First Quarter 1996") :
13 Weeks Ended
May 3, 1997 May 4, 1996
-------------------- -----------------
(Dollars in millions except
per share amounts)
Total sales $276.8 $349.9
Leased department sales 9.5 12.2
Net sales 267.3 100.0% 337.7 100.0%
Cost of goods sold 187.7 70.2 235.2 69.6
------ ----- ----- -----
Gross margin 79.6 29.8 102.5 30.4
Leased department and other
operating income 2.1 0.8 2.7 0.8
------ ----- ----- -----
81.7 30.6 105.2 31.2
Selling, store operating,
administrative and distribution
expenses 98.5 36.9 137.9 40.8
Depreciation and amortization expense 9.2 3.5 11.0 3.3
Interest and debt expense 3.3 1.2 2.5 0.8
Reorganization items 2.7 1.0 7.5 2.2
------ ------ ------ -----
Net loss ($32.0) (12.0)% ($53.7) (15.9)%
====== ====== ====== =====
Net loss per share $(2.81) $(4.71)
====== ======
Total sales increase (decrease):
All stores (20.9)% (10.8)%
Comparable stores (6.4)% (12.6)%
Number of stores in operation at
end of period 109 136
The following discussion, as well as other portions of this
document, includes certain statements which are or may be
construed as forward looking about the Company's business, sales
and expenses, and operating and capital requirements. Any such
statements are subject to risks that could cause the actual
results or requirements to vary materially.
Total sales for First Quarter 1997 declined $73.1 million or
20.9% from First Quarter 1996 due primarily to the closing of 27
stores since First Quarter 1996 and a decrease of 6.4% in
comparable store sales (including leased shoe department sales).
In addition to a negative impact from unseasonably cool weather
in First Quarter 1997, the decline in comparable store sales was
due, in part, to the fact that the Company has not yet benefited
from modifications to its marketing strategy and merchandise mix
and presentation (summarized in Note 1 to the Condensed
Consolidated Financial Statements), which are in varying stages
of implementation. These same factors also contributed to a decline
in comparable store sales in May, 1997.
Gross margin declined $22.9 million (primarily as a result
of the store closings) and 0.6% as a percentage of net sales in
First Quarter 1997 from First Quarter 1996 due primarily to an
increase in advertised markdowns, partially offset by a higher
overall initial markup. Those two factors influencing the
change in the gross margin rate were, in part, a result of
advertising and merchandising decisions made in 1996 that are in
the process of being modified (Note 1).
Leased department and other operating income declined $.6
million primarily as a result of the store closings but remained
the same as a percentage of net sales in First Quarter 1997
compared to First Quarter 1996.
Selling, store operating, administrative and distribution
("SG&A") expenses declined $39.4 million and 3.9% as a
percentage of net sales in First Quarter 1997 from First Quarter
1996. The improved SG&A expense performance was due primarily
to the store closings and expense reduction programs recently
implemented, including significant reductions in home office and
advertising expenses. The Company is continuing to look for
improvements in operating efficiencies to achieve further cost
reductions.
Depreciation and amortization expense declined $1.8 million
but increased 0.2% as a percentage of net sales (due to the
decline in sales) in First Quarter 1997 from First Quarter 1996.
The dollar decline was due to the closed stores and the 1996
year-end write-down of long-lived assets ($40.8 million) under
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of".
Interest and debt expense increased $.8 million and 0.4% as
a percentage of net sales in First Quarter 1997 from First
Quarter 1996 due primarily to the interest costs associated with
borrowings under the DIP Facility (Note 4) that were not
necessary in the prior-year period. The weighted average
interest rate under the DIP Facility was 7.34% in First Quarter
1997.
Reorganization items of $2.7 and $7.5 million for First
Quarter 1997 and First Quarter 1996, respectively, relate to the
Chapter 11 proceedings and related restructuring and are
discussed in Note 6.
The Company did not record an income tax provision in First
Quarter 1997 due to the current expectation of no income tax
expense or benefit in 1997. There was also no quarterly or
annual income tax expense or benefit recorded in 1996.
Liquidity and Capital Resources
The Company had outstanding borrowings of $80.5 million at
May 3, 1997, exclusive of the issuance of letters of credit,
under the Company's $200 million DIP Facility (Note 4). Such
borrowings peaked at $94 million and averaged $67 million during
First Quarter 1997. The Company currently expects its
borrowings, exclusive of the issuance of letters of credit,
under the DIP Facility in 1997 to peak at approximately $100
million in October or November, 1997 and average approximately
$75 million for 1997. The projected borrowings are dependent
upon achievement of cash flows from operations that are
reasonably consistent with the Company's financial plan. There
were no direct borrowings under the DIP Facility prior to the
third quarter of 1996.
Other than payments made to certain pre-petition creditors
approved by the Bankruptcy Court (Notes 2 and 4), principal and
interest payments on indebtedness, exclusive of certain capital
lease obligations, incurred prior to the Filing have not been
made and will not be made without Bankruptcy Court approval or
until a reorganization plan defining the repayment terms has
been confirmed by the Bankruptcy Court. Virtually all
pre-petition indebtedness of Bradlees is subject to settlement
under the reorganization case.
In First Quarter 1997, cash used by operations before
reorganization items was $22.4 million, compared to $33.2
million of cash used by operations before reorganization items
in First Quarter 1996. This improvement was primarily due to
the significantly lower operating loss in First Quarter 1997 and
this year's increase in accounts payable of $17.9 million (see
below) compared to a decrease in accounts payable of $11.6
million in First Quarter 1996, partially offset by the impact in
First Quarter 1996 of the $24.5 million federal income tax
refund (Note 3) included in "Changes in working capital and
other, net" in last year's statement of cash flows. Net cash
used by reorganization items in First Quarter 1997 was primarily
the result of professional fee payments of $3.3 million,
including fees paid related to the fourth quarter of 1996, and
employee severance and termination benefits of $1.4 million.
Components of restricted cash are discussed in Note 3.
Inventories at May 3, 1997, declined $45.9 million from May
4, 1996, due primarily to the closed stores (inventories
declined $4.0 million, excluding the impact of the closed
stores), and increased $17.6 million from February 1, 1997, due
primarily to a normal seasonal build-up. Accounts payable,
exclusive of amounts subject to settlement, at May 3, 1997,
declined $12.2 million from May 4, 1996, due primarily to the
closed stores, and increased $17.9 million from February 1, 1997
due to the associated normal seasonal build-up of inventories.
Accounts receivable at May 3, 1997, increased $3.4 and $1.5
million from February 1, 1997 and May 4, 1996, respectively, due
primarily to higher credit card receivables resulting from a May
2, 1997 one-day sale. Accrued expenses at May 3, 1997, were
$3.3 million lower than at February 1, 1997, due primarily to
payments made against certain reserves established in 1996 for
employee severance and termination benefits and store closing
costs, and $6.2 million higher than May 4, 1996 due primarily to
the reserve established in late 1996 for employee severance and
termination benefits associated with the home office
restructuring.
The assets held for sale (current portion) is comprised of
one owned undeveloped property currently expected to be sold in
1997. The long-term assets held for sale are comprised of one
closed store site and one previously planned new store site that
were both financed. The current estimated net realizable values
for the two financed properties are less than the associated
financing obligations included in liabilities subject to
settlement. Any proceeds from the sale of the two financed
properties are expected to be utilized to reduce the obligations.
The Company incurred capital expenditures of $3.9 million in
First Quarter 1997, primarily for management information
systems, the same amount as in First Quarter 1996. For all of
1997, the Company expects total capital expenditures to be
approximately $20 million, primarily for management information
systems and various store improvements and maintenance projects.
The Company currently expects to finance these expenditures
through internally-generated funds.
The Company believes its ability to meet its financial
obligations and make planned capital expenditures will depend on
the Company's future operating performance, which will be
subject to financial, economic and other factors affecting the
industry and operations of the Company, including factors beyond
its control.
The Company believes the actions set forth above and the
availability of its DIP Facility (which is scheduled to expire
on the earlier of June 23, 1998 or emergence from bankruptcy),
together with the Company's available cash and expected cash
flows from 1997 operations and beyond, will enable Bradlees to
fund its expected needs for working capital, capital
expenditures and debt service requirements during the Chapter 11
proceedings. Achievement of expected cash flows from operations
is dependent upon the Company's attainment of sales, gross
profit, and expense levels that are reasonably consistent with
its financial plan.
BRADLEES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Index to Exhibits
Exhibit No. Exhibit Page No.
- ---------- ------- --------
10 Form of Revised Senior Vice President 20
Severance Agreement
11 Computation of earnings per share. 32
15 Letter re: unaudited interim financial 33
information.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarterly
period ended May 3, 1997.
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 4, 1997 By /s/ PETER THORNER
---------------------------
Peter Thorner
Chairman and Chief
Executive Officer
Date: June 4, 1997 By /s/ CORNELIUS F. MOSES III
---------------------------
Cornelius F. Moses III
Senior Vice President,
Chief Financial Officer
EXHIBIT 10
SEVERANCE AGREEMENT
-------------------
AGREEMENT made as of the day of , 199 ,
by and between Bradlees Stores, Inc., a Massachusetts
corporation ("Bradlees Stores"), Bradlees, Inc., a Massachusetts
corporation ("Bradlees" and collectively with Bradlees Stores,
the "Employer"), and [Name of Employee] (the "Employee").
WITNESSETH
WHEREAS, the Employee is a valued employee of the Employer,
and is presently [Title of Employee] of Bradlees, Inc.; and
WHEREAS, it is the desire of the parties hereto to enter
into an agreement to provide for a severance benefit for the
Employee in the event of termination of the Employee's
employment by the Employer in accordance with the terms and
conditions set forth in Section 4 of this Agreement; and
WHEREAS, it is the desire of the parties hereto to enter
into an agreement to provide for a change of control benefit for
the Employee in the event of the termination of the Employee's
employment in accordance with the terms and conditions set forth
in Section 5 of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants
contained herein, the Employer and the Employee agree as follows:
1. Effective Date and Term. The effective date (the
"Effective Date") of this Agreement shall be .
Subject to the provisions of Section 5, the term of this
Agreement shall be one (1) year from the Effective Date. This
Agreement shall be renewed automatically for periods of one (1)
year commencing at the first anniversary of the Effective Date
and on each subsequent anniversary thereafter, unless either the
Employee or the Employer gives written notice to the other not
less than one (l) year prior to the date of any such
anniversary, of such party's election not to extend the term of
this Agreement. Notwithstanding the termination of this
Agreement, certain provisions of this Agreement shall remain
enforceable if so specified in this Agreement or if the context
so requires. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Employer to
terminate the employment of the Employee.
2. Compensation and Benefits.
(a) Salary. The Employer agrees to and does hereby
employ the Employee in an executive capacity for the Employee's
period of employment with the Employer at a salary (the
"Salary") at an annual rate as may be determined from time to
time by the Chief Executive Officer of the Employer for a term
which may be terminated at will by the Employer. Any salary as
so determined and then in effect shall be the Salary for all
purposes hereunder. The Salary shall be payable on a periodic
basis, as the Employer shall determine which is the same basis
upon which the Employer pays its actively employed employees in
the same job classification or pay rate as the Employee from
time to time, and at the same rate for any fraction of such a
pay period unexpired at the termination of the Employee's period
of employment with the Employer.
(b) Taxation of Payments and Benefits. The Employer
shall undertake to make deductions, withholdings and tax reports
with respect to payments and benefits under this Agreement to
the extent that it reasonably and in good faith believes that it
is required to make such deductions, withholdings and tax
reports. Payments under this Agreement shall be in amounts net
of any such deductions or withholdings and nothing in this
Agreement shall be construed to require the Employer to make any
payments to compensate the Employee for any adverse tax effect
associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.
3. Duties of Employee. The Employee agrees that during
the Employee's period of employment with the Employer:
(a) the Employee will faithfully perform the duties of
the Employee's employment hereunder, which duties (as the
Employer agrees) will be commensurate with the Employee's
position, and the Employee will devote to the performance of
such duties such time and attention as such duties shall
reasonably require;
(b) the Employee will not, without the express written
consent of the Chief Executive Officer, become actively engaged,
either as an employee or as a principal in any business other
than that of the Employer or of a division or subsidiary of the
Employer; and
(c) the Employee will do nothing inconsistent with the
Employee's duties to the Employer.
Notwithstanding the foregoing, the Employee shall be entitled to
vacations that are in keeping with the status of the position
for which the Employee is employed and in accordance with the
vacation policy of the Employer.
4. Severance Benefit.
(a) In the event that the Employee's employment
relationship with the Employer is terminated by the Employer for
any reason other than for Cause (as hereinafter defined in
Section 4(c) below), the Employer shall provide to the Employee
the following severance benefits ("Severance Benefits"):
(i) continuation of the Employee's Salary at the rate
then in effect;
(ii) continuation of group health plan benefits to
the extent authorized by and consistent with 29 U.S.C. - 1161 et
seq. (commonly known as "COBRA"), with the cost of such benefits
shared in the same relative proportion by the Employer and the
Employee as in effect on the date of termination; and
(iii) a lump sum payment equal to thirty-three percent
(33%) of Employee's annual rate of Salary at the time of such
termination (the "Severance Lump Sum"); provided, however, that
the Employer shall have no obligation to make such lump sum
payment under this Section 4(a) if the termination of the
Employee is for Cause.
The Severance Benefits set forth in Sections 4(a)(i) and (ii)
above shall continue until eighteen (18) months (or until such
time as periodic payments equal to one and one half times the
Employee's annual rate of Salary immediately prior to the
termination have been paid) after the date of termination;
provided, however, that in the event that the Employee commences
any employment or self-employment during the period he is
entitled to receive Severance Benefits, the remaining amount of
Salary due pursuant to Section 4(a)(i) for the period from the
commencement of such employment or self-employment to the end of
the period the Employee is entitled to receive Severance
Benefits shall be reduced by the amount of any compensation
earned by the Employee with respect to such employment or
self-employment and the payments and benefits provided under
Section 4(a)(ii) shall cease effective as of the date of
commencement of such employment or self-employment if such
benefits are available to the Employee through such employment
or self-employment. Notwithstanding the foregoing, nothing in
this Section 4(a) shall be construed to affect the Employee's
right to receive COBRA continuation entirely at the Employee's
own cost to the extent that the Employee may continue to be
entitled to COBRA continuation after the Employee's right to
cost sharing under Section 4(a)(ii) ceases, and for the purposes
of this sentence only, the termination date of the Employee
shall be deemed to be the last day the Employee is entitled to
benefits pursuant to Section 4(a)(ii) of this Agreement. The
Employee shall be obligated to give prompt notice of the date of
commencement of any employment or self-employment during the
period the Employee is entitled to receive Severance Benefits
and shall respond promptly to any reasonable inquiries
concerning any employment or self-employment in which the
Employee engages during such period.
(b) No Severance Benefit shall be payable if the
employment relationship is terminated by the Employee or due to
the Employee's death or due to the Employee's Disability. For
purposes of this Agreement, the term "Disability" shall mean
incapacity due to the physical or mental illness which has
caused the Employee to be eligible to receive benefits under the
Long Term Disability Plan maintained by the Employer or which
would have caused the Employee to be eligible for such benefits
had the Employee elected coverage under such plan.
(c) For purposes of this Agreement, the term "Cause"
shall mean:
(i) dishonest statements or acts of the Employee with
respect to the Employer or any subsidiary or
affiliate thereof;
(ii) the Employee's commission of (A) a felony or (B)
a misdemeanor involving moral turpitude, deceit,
dishonesty or fraud;
(iii) material failure to perform to the
reasonable
satisfaction of the Chief Executive Officer a
substantial portion of the Employee's duties and
responsibilities hereunder, which failure
continues after written notice given to the
Employee by the Chief Executive Officer;
(iv) gross negligence or willful misconduct of the
Employee with respect to the Employer or any
subsidiary or affiliate thereof; or
(v) material breach by the Employee of any of the
Employee's obligations hereunder.
(d) It is specifically agreed by the Employee that the
Employer shall have the right to offset from any amounts due to
the Employee hereunder, any amounts due and owing by the
Employee to the Employer (including, but not limited to, unpaid
loans, advances and the like).
5. Termination Pursuant to a Change of Control.
(a) If there is a Change of Control (as defined in
Section 5(b) below) during the term of this Agreement, the
provisions of this Section 5 shall apply and shall continue to
apply until the later of (i) the end of the term of this
Agreement or (ii) one year from the date of the Change of
Control. If, within one (1) year following a Change of Control,
the Employee's employment is terminated by the Employer
following the occurrence of any of the events listed in Section
5(c) below or if the Employee's employment is terminated without
Cause, in lieu of any payments under Section 4 above, the
Employer shall provide to the Employee the following benefits
("Change of Control Benefits"):
(i) within thirty (30) days after such termination,
a lump sum payment in an amount equal to the sum
of (A) one and one-half (1.5) times the Employee's
annual rate of Salary as in effect immediately
prior to the Change of Control; and (B) the
Severance Lump Sum; and
(ii) continuation of group health plan benefits to the
extent authorized by and consistent with COBRA,
for a period of eighteen (18) months after such
termination, with the cost of such benefits shared
in the same relative proportion by the Employee
and the Employer as in effect immediately prior to
the Change of Control.
(b) For purposes of this Agreement, the term "Change
of Control" shall mean the occurrence of one or more of the
following events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) becomes
a "beneficial owner" (as such term is defined in
Rule 13d-3 promulgated under the Exchange Act)
(other than Bradlees, any trustee or other
fiduciary holding securities under an employee
benefit plan of Bradlees, or any corporation
owned, directly or indirectly, by the stockholders
of Bradlees in substantially the same proportions
as their ownership of stock of Bradlees), directly
or indirectly, of securities of Bradlees
representing 50% or more of the combined voting
power of Bradlees' then outstanding securities; or
(ii) persons who, as of the Effective Date, constituted
Bradlees' Board of Directors (the "Incumbent
Board") cease for any reason, including without
limitation as a result of a tender offer, proxy
contest, merger or similar transaction, to
constitute at least a majority of the Board of
Directors, provided that any person becoming a
director of Bradlees subsequent to the Effective
Date whose election was approved by at least a
majority of the directors then comprising the
Incumbent Board shall, for purposes of this
Section 5(b), be considered a member of the
Incumbent Board; or
(iii) the stockholders of Bradlees approve a merger or
consolidation of Bradlees with any other
corporation or other entity, other than (A) a
merger or consolidation which would result in the
voting securities of Bradlees outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity) more than 50% of the combined voting power
of the voting securities of Bradlees or such
surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or
consolidation effected to implement a
recapitalization of Bradlees (or similar
transaction) in which no "person" (as hereinabove
defined) acquires more than 50% of the combined
voting power of Bradlees' then outstanding
securities; or
(iv) the stockholders of Bradlees approve a plan of
complete liquidation of Bradlees or an agreement
for the sale or disposition by Bradlees of all or
substantially all of Bradlees' assets.
(c) The events referred to in Section 5(a) above shall
be as follows:
(i) a reduction of the Employee's Salary; or
(ii) an elimination of the Employee's participation
in any senior management incentive plan
maintained by the Employer in which the Employee
participated immediately prior to the Change of
Control; or
(iii) the relocation of the offices at which the
Employee is principally employed immediately prior
to the Change of Control to a location more than
fifty (50) miles from such offices, which
relocation is not approved by the Employee.
(d) No Change of Control Benefits shall be payable if
the employment relationship is terminated by the Employee other
than for the reasons set forth in Section 5(c) above or due to
the Employee's death, Disability or retirement after attaining
age 65.
6. Litigation and Regulatory Cooperation. During and after
the Employee's employment, the Employee shall cooperate fully
with the Employer in the defense or prosecution of any claims or
actions now in existence or which may be brought in the future
against or on behalf of the Employer which relate to events or
occurrences that transpired while the Employee was employed by
the Employer. The Employee's full cooperation in connection
with such claims or actions shall include, but not be limited
to, being available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the
Employer at mutually convenient times. During and after the
Employee's employment, the Employee also shall cooperate fully
with the Employer in connection with any examination or review
of any federal, state or local regulatory authority as any such
examination or review relates to events or occurrences that
transpired while the Employee was employed by the Employer. The
Employer shall reimburse the Employee for any reasonable
out-of-pocket expenses incurred in connection with the
Employee's performance of obligations pursuant to this Section 6.
7. Confidential Information and Noncompetition.
(a) Confidential Information. As used in this
Agreement, "Confidential Information" means information
belonging to the Employer which is of value to the Employer in
the course of conducting its business and competing with other
retailers and the disclosure of which could result in a
competitive disadvantage to the Employer. Confidential
Information includes, by way of example and without limitation,
financial information, reports, and forecasts; customers lists;
and business plans, prospects and opportunities (such as
possible acquisitions or dispositions of businesses or
facilities) which have been discussed or considered by the
management of the
Employer. Confidential Information includes information
developed by the Employee in the course of the Employee's
employment by the Employer, as well as other information to
which the Employee may have access in connection with the
Employee's employment. Confidential Information also includes
the confidential information of others with which the Employer
has a business relationship.
(b) Confidentiality. The Employee understands and
agrees that the Employee's employment creates a relationship of
confidence and trust between the Employee and the Employer with
respect to all Confidential Information. At all times, both
during the Employee's employment with the Employer and after its
termination, the Employee will keep in confidence and trust all
such Confidential Information, and will not use or disclose any
such Confidential Information without the written consent of the
Employer, except as may be necessary in the ordinary course of
performing the Employee's duties to the Employer. The
restrictions set forth in this Section 7(b) will not apply to
information which is generally known to the public or in the
business, unless such knowledge results from an unauthorized
disclosure by the Employee, but this exception will not affect
the application of any other provision of this Agreement to such
information in accordance with the terms of such provision.
(c) Documents, Records, etc. All documents, records,
apparatus, equipment and other physical property, whether or not
pertaining to Confidential Information, which are furnished to
the Employee by the Employer or are produced by the Employee in
connection with the Employee's employment will be and remain the
sole property of the Employer. The Employee will return to the
Employer all such materials and property as and when requested
by the Employer. In any event, the Employee will return all
such materials and property immediately upon termination of the
Employee's employment for any reason. The Employee will not
retain with the Employee any such material or property or any
copies thereof after such termination.
(d) Noncompetition and Nonsolicitation. During the
term of the Employee's employment with the Employer and for
eighteen (18) months thereafter, the Employee (i) will not,
directly or indirectly, whether as owner, partner, shareholder,
consultant, agent, employee, co-venturer or otherwise, engage,
participate or invest in any Competing Business (as hereinafter
defined); and (ii) will refrain from directly or indirectly
employing, attempting to employ, recruiting
or otherwise soliciting, inducing or influencing any person to
leave employment with the Employer (other than involuntary
terminations undertaken in the course of the Employee's
employment with the Employer). The Employee understands that
the restrictions set forth in this Section 7(d) are intended to
protect the Employer's interest in its Confidential Information
and established employee and customer relationships and
goodwill, and agrees that such restrictions are reasonable and
appropriate for this purpose. For purposes of this Agreement,
the term "Competing Business" shall mean a business conducted by
Wal-Mart Stores, Inc., K Mart Corporation, The Caldor
Corporation, Ames Department Stores, Inc., or Hills Department
Stores, Inc., or any of their respective successors or assigns;
provided, however, that a business conducted by Target Stores
shall be considered a Competing Business only if a significant
portion of such business is conducted in states in which the
Employer now or at the time of the Executive's termination of
employment is conducting or is planning to conduct business.
(e) Third-Party Agreements and Rights. The Employee
hereby confirms that the Employee is not bound by the terms of
any agreement with any previous employer or other party which
restricts in any way the Employee's use or disclosure of
information or the Employee's engagement in any business. The
Employee represents to the Employer that the Employee's
execution of this Agreement, the Employee's employment with the
Employer and the performance of the Employee's proposed duties
for the Employer will not violate any obligations the Employee
may have to any such previous employer or other party. In the
Employee's work for the Employer, the Employee will not disclose
or make use of any information in violation of any agreements
with or rights of any such previous employer or other party, and
the Employee will not bring to the premises of the Employer any
copies or other tangible embodiments of non-public information
belonging to or obtained from any such previous employment or
other party.
(f) Injunction. The Employee agrees that it would be
difficult to measure any damages caused to the Employer which
might result from any breach by the Employee of the promises set
forth in Sections 6 or 7 of this Agreement, and that in any
event money damages would be an inadequate remedy for any such
breach. Accordingly, the Employee agrees that if the Employee
breaches, or proposes to breach, any portion of this Agreement,
the Employer shall be entitled, in addition to all other
remedies that it may have, to an injunction or other appropriate
equitable relief to restrain any such breach without showing or
proving any actual damage to the Employer.
8. Limitation of Benefits.
(a) It is the intention of the Employee and of the
Employer that no payments by the Employer to or for the benefit
of the Employee under this Agreement or any other agreement or
plan, if any, pursuant to which he is entitled to receive
payments or benefits shall be nondeductible to the Employer by
reason of the operation of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to parachute
payments. Accordingly, and notwithstanding any other provision
of this Agreement or any such agreement or plan, if by reason of
the operation of said Section 280G, any such payments exceed the
amount which can be deducted by the Employer, such payments
shall be reduced to the maximum amount which can be deducted by
the Employer. To the extent that payments exceeding such
maximum deductible amount have been made to or for the benefit
of the Employee, such excess payments shall be refunded to the
Employer with interest thereon at the applicable Federal Rate
determined under Section 1274(d) of the Code, compounded
annually, or at such other rate as may be required in order that
no such payments shall be non-deductible to the Employer by
reason of the operation of said Section 280G. To the extent
that there is more than one method of reducing the payments to
bring them within the limitations of said Section 280G, the
Employee shall determine which method shall be followed,
provided that if the Employee fails to make such determination
within forty-five (45) days after the Employer has sent the
Employee written notice of the need for such reduction, the
Employer may determine the method of such reduction in its sole
discretion.
(b) If any dispute between the Employer and the
Employee as to any of the amounts to be determined under this
Section 8 or the method of calculating such amounts, cannot be
resolved by the Employer and the Employee, either the Employer
or the Employee, after giving three (3) days written notice to
the other, may refer the dispute to a partner in the Boston,
Massachusetts office of a firm of independent certified public
accountants selected jointly by the Employer and the Employee.
The determination of such partner as to the amount to be
determined under Section 8(a) and the method of calculating such
amounts shall be final and binding on both the Employer and the
Employee. The Employer shall bear the costs of any such
determination.
9. Arbitration of Disputes. Any controversy or claim
arising out of or relating to this Agreement or the breach
thereof or otherwise arising out of the Employee's employment or
the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination
whether based on age or otherwise) shall in the first instance,
to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or,
in the absence of such an agreement, under the auspices of the
American Arbitration Association ("AAA") in Boston,
Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the
rules and procedures applicable to the selection of arbitrators.
Notwithstanding the foregoing, if a controversy or claim
subject to this Section 9 is not resolved to the satisfaction of
either the Employer or the Employee, either party may further
pursue the claim in a court of competent jurisdiction.
Notwithstanding the foregoing, this provision shall not preclude
either party from pursuing a court action for the sole purpose
of obtaining a temporary restraining order or a preliminary
injunction in circumstances in which such relief is appropriate;
provided, however, that any other relief shall be pursued
through an arbitration proceeding pursuant to this Section 9.
10. Integration. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter
hereof and supersedes all prior agreements between the parties
with respect to any related subject matter.
11. Assignment; Successors and Assigns, etc. Neither the
Employer nor the Employee may make any assignment of this
Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other party;
provided, however, that the Employer may assign its rights under
this Agreement without the consent of the Employee in the event
that the Employer shall hereafter effect a reorganization,
consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or
substantially all of its properties or assets to any other
corporation, partnership, organization or other entity. This
Agreement shall inure to the benefit of and be binding upon the
Employer and the Employee, their respective successors,
executors, administrators, heirs and permitted assigns.
12. Enforceability. If any portion or provision of this
Agreement shall to any extent be declared illegal or
unenforceable by a court of competent jurisdiction, then the
remainder of this Agreement, or the application of such portion
or provision in circumstances other than those as to which it is
so declared illegal or unenforceable, shall not be affected
thereby, and each portion and provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be
effective unless made in writing and signed by the waiving
party. The failure of any party to require the performance of
any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.
14. Notices. Any notices, requests, demands and other
communications provided for by this Agreement shall be
sufficient if in writing and delivered in person or sent by
registered or certified mail, postage prepaid, return receipt
requested, to the Employee at the last address the Employee has
filed in writing with the Employer or, in the case of the
Employer, at its main offices, attention of the President.
15. Amendment. This Agreement may be amended or modified
only by a written instrument signed by the Employee and by a
duly authorized representative of the Employer.
16. Governing Law. This is a Massachusetts contract and
shall be construed under and be governed in all respects by the
internal laws of the Commonwealth of Massachusetts.
17. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and
delivered shall be taken to be an original; but such
counterparts shall together constitute one and the same document.
18. Release. In consideration of the undertakings,
transactions and consideration recited in this Agreement, the
Employee, on behalf of the Employee and the Employee's, his
agents, representatives, attorneys, assigns, heirs, executors,
and administrators, hereby:
(a) Unconditionally and irrevocably remises, releases
and forever discharges the Employer and its subsidiaries and
affiliates and its past, present and future officers,
stockholders, directors, employees, representatives, attorneys,
agents, successors, divisions, companies, subsidiaries and
affiliates (and past, present and future agents, directors,
officers, stockholders, employees, representatives and attorneys
of such divisions, companies, subsidiaries and affiliates), or
any of them, of and from any and all suits, claims, demands,
interest, costs (including attorneys' fees and costs actually
incurred), expenses, actions and causes of action, rights,
liabilities, obligations, promises, agreements, controversies,
losses and debits, of any nature whatsoever, which the Employee
or his heirs, successors, legal representatives or assigns now
has, owns or holds, or at any time heretofore ever had, owned or
held, or could have owned or held, whether known or unknown,
suspected or unsuspected, from the beginning of the world to
this date, including without limiting the generality of the
foregoing, any rights or claims arising under Title VII of the
Civil Rights Act of 1964, as amended; the Age Discrimination in
Employment Act of 1967, as amended; the Equal Pay Act, as
amended; the Fair Labor Standards Act, as amended; the
Employment Retirement Income Security Act, as amended; the
Americans with Disabilities Act, as amended; Massachusetts
General Laws c. 151B, and any other statutory, common law or
other claims of any nature whatsoever against the Employer or
its subsidiaries or affiliates. The Employee further agrees
never to institute against the Employer or its subsidiaries or
affiliates any action or other
proceeding in any court, administrative agency, or other
tribunal of the United States or any State thereof, or before
any arbitration agency, with respect to any claim or cause of
action of any type arising or which may have existed at any time.
THIS MEANS THAT, BY SIGNING THIS AGREEMENT, THE EMPLOYEE WILL
HAVE WAIVED ANY RIGHT THE EMPLOYEE HAD TO BRING A LAWSUIT OR
MAKE ANY LEGAL CLAIM AGAINST THE EMPLOYER OR ITS SUBSIDIARIES OR
AFFILIATES OR ANY OF THE PERSONS OR OTHER ENTITIES LISTED IN
THIS AGREEMENT AND AGREES TO EXECUTE A GENERAL RELEASE OF CLAIMS
IN A FORM PROVIDED BY THE EMPLOYER AS A CONDITION OF RECEIVING
ANY BENEFITS PURSUANT TO THIS SEVERANCE AGREEMENT, AND THAT THE
EMPLOYEE WILL HAVE RELEASED THE EMPLOYER AND ITS SUBSIDIARIES
AND AFFILIATES OF ANY AND ALL CLAIMS OF ANY NATURE.
(b) The Employee agrees to keep confidential and not
to reveal the terms of this Agreement to anyone, except the
Employee's spouse and legal counsel or advisor. The Employee
further agrees that the Company shall have the uncontested right
under this Agreement to secure injunctive relief from a court of
competent jurisdiction to prevent the release or use of said
confidential information.
(c) Other than as stated herein, the undersigned
parties warrant that no representation, promise, or inducement
has been offered or made to induce any party to enter into this
Agreement and that they are competent to execute this Agreement
and accept full responsibility therefor. The Employee
acknowledges that the Employee has had the opportunity to be
advised and/or has been advised by the Employee's own legal
counsel or advisor in executing this Agreement and that the
Employee has been informed of the Employee's right to consider
this Agreement for twenty-one (21) days, and of his right to
revoke the Agreement within seven (7) days of the date the
Employee signs it. This Agreement is intended as final
expression of the parties' Agreement and as a complete and
exclusive statement of the terms thereof.
19. Bonus Plan. Employee hereby acknowledges that
participation in the annual Corporate Bonus Plan (hereinafter
"the Plan") is limited to active employees of the Employer and
any terminated employee (terminated prior to payment of the Plan
award in any Plan year), whether receiving severance or not,
shall be ineligible to participate in the Plan.
IN WITNESS WHEREOF, this Agreement has been executed as a
sealed instrument by the Employer, by its duly authorized
officer, and by the Employee, as of the date first above written.
BRADLEES, INC.
By:
---------------------------
David L. Schmitt
Senior Vice President and
General Counsel
BRADLEES STORES, INC.
By:
--------------------------
David L. Schmitt
Senior Vice President and
General Counsel
--------------------------
Employee
Commonwealth of Massachusetts
Norfolk, ss
Then personally appeared before
-------------------------
me on this day of and acknowledged the
-------- --------------
foregoing Amendment to the Severance Agreement to be (his/her)
own free act and deed.
---------------------------
Notary Public
My commission expires:
EXHIBIT 11
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Amounts in thousands except per share amounts)
13 Weeks Ended 13 Weeks Ended
May 3,1997 May 4,1996
-------------- --------------
Primary Loss Per Share Net loss ($31,993) ($53,746)
========= =========
Weighted average number of shares outstanding 11,393 11,415
Incremental shares for assumed exercise of - -
stock options
--------- --------
Total common shares and common share equivalents 11,393 11,415
========= ========
Net earnings (loss) per share ($2.81) ($4.71)
========= ========
Fully Diluted Loss Per Share (1)
Net loss ($31,993) ($53,746)
========= =========
Weighted average number of shares outstanding 11,393 11,415
Incremental shares for assumed exercise of - -
stock options
--------- --------
Total common shares and common share equivalents 11,393 11,415
========= ========
Fully diluted net loss per share ($2.81) ($4.71)
========= ========
(1) The information in this exhibit is provided in accordance
with Item 601 of Regulation S-k, although such information is
not required by Paragragh 14 of Accounting Principles Board
Opinion No. 15.
EXHIBIT 15
Deloitte &
Touche LLP
------------
125 Summer Street Telephone: (617)261-8000
Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111
May 21, 1997
Bradlees, Inc.
One Bradlees Circle
Braintree, MA 02184
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of
the unaudited interim financial information of Bradlees, Inc.
and subsidiaries, Debtor-in-Possession, for the 13-week periods
ended May 3, 1997 and May 4, 1996 as indicated in our report
dated May 21, 1997 (which included explanatory paragraphs
relating to (a) the Company's filing for reorganization under
Chapter 11 of the Federal Bankruptcy Code and (b) certain
conditions which raise substantial doubt about the Company's
ability to continue as a going concern); because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the quarter
ended May 3, 1997, is incorporated by reference in Registration
Statement Nos. 33-64850, 33-64858, 33-80896, 33-86954, 33-86956
and 33-92178.
We also are aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, is not considered
a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
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Deloitte Touche
Tohmatsu
International
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