UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 2, 1997
Commission file Number 1-11134
BRADLEES, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3156108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Bradlees Circle
Braintree, MA 02184
(Address of principal executive offices)
(Zip Code)
(781) 380-3000
(Registrant's telephone number, including area code)
None
----
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
------- -------
Number of shares of the issuer's common stock outstanding as of
September 2, 1997:
11,387,154 shares.
Exhibit Index on Page 23
Page 1 of 24 (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 August 2, 1997 and August 3, 1996, and
the related condensed consolidated statements of operations, and
cash flows for the twenty-six week periods ended August 2, 1997
and August 3, 1996, the condensed statements of operations for
the thirteen week periods ended August 2, 1997 and August 3,
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.
2
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.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 19, 1997
3
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands except per share amounts)
13 Weeks Ended
Aug. 2, 1997 Aug. 3, 1996
------------ -------------
Total sales $ 311,507 $ 386,195
Leased department sales 14,091 16,617
---------- -------------
Net sales 297,416 369,578
Cost of goods sold 204,480 268,182
---------- -------------
Gross margin 92,936 101,396
Leased department and other
operating income 3,145 3,931
---------- -------------
96,081 105,327
Selling, store operating, admin.
and distribution expenses 98,134 134,281
Depreciation and amortization
expense 9,038 10,459
Interest and debt expense 3,702 2,444
Reorganization items 2,071 40,928
---------- -------------
Net loss $ (16,864) $ (82,785)
========== =============
Net loss per share $ (1.48) $ (7.25)
========== =============
See accompanying notes to condensed consolidated financial
statements.
4
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands except per share amounts)
26 Weeks Ended
Aug. 2, 1997 Aug. 3, 1996
------------ ------------
Total sales $588,346 $ 736,086
Leased department sales 23,559 28,805
---------- -------------
Net sales 564,787 707,281
Cost of goods sold 392,192 503,371
---------- -------------
Gross margin 172,595 203,910
Leased department and other
operating income 5,440 6,957
---------- -------------
178,035 210,867
Selling, store operating,
admin. and dist. expenses 196,869 272,497
Depreciation and amortization 18,222 21,476
Interest and debt expense 6,983 4,959
Reorganization items 4,818 48,466
---------- -------------
Net loss $(48,857) $ (136,531)
========== =============
Net loss per share $ (4.29) $ (11.96)
========== =============
See accompanying notes to condensed consolidated
financial statements.
5
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
8/02/97 2/01/97 8/03/96
------- ------- -------
ASSETS
Current assets:
Unrest. cash and cash equiv. $10,858 $10,025 $17,318
Restricted cash
and cash equivalents 9,334 9,126 7,350
-------- -------- --------
Total cash and
cash equivalents 20,192 19,151 24,668
-------- -------- --------
Accounts receivable 10,453 8,240 13,737
Inventories 253,993 236,920 256,402
Prepaid expenses 8,887 8,466 9,709
Assets held for sale 7,754 8,419 8,954
-------- -------- --------
Total current assets 301,279 281,196 313,470
-------- -------- --------
Property, plant and equip.,net:
Property excluding
capital leases, net 136,975 139,246 145,567
Property under capital leases,
net 22,681 24,395 30,118
-------- -------- --------
Total property, plant
and equipment, net 159,656 163,641 175,685
-------- -------- --------
Other assets:
Lease interests at fair
value and lease acquisition
costs, net 146,570 150,229 182,042
Assets held for sale 5,250 5,250 10,153
Other, net 4,432 3,884 3,757
-------- -------- --------
Total other assets 156,252 159,363 195,952
-------- -------- --------
Total assets $617,187 $604,200 $685,107
======== ======== ========
(Continued)
6
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
8/02/97 2/01/97 8/03/96
------- ------- -------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $139,410 $115,315 $147,216
Accrued expenses 41,389 45,924 40,736
Self-insurance reserves 7,378 7,086 8,511
Short-term debt 89,000 42,500 -
Current portion of capital lease
obligations 1,966 1,722 2,226
-------- -------- --------
Total current liabilities 279,143 212,547 198,689
-------- -------- --------
Long-term liabilities:
Obligations under capital
leases 32,224 33,296 48,069
Deferred income taxes 8,581 8,581 8,581
Self-insurance reserves 14,979 14,386 17,024
Other long-term liabilities 26,976 27,642 24,095
-------- -------- --------
Total long-term liabilities 82,760 83,905 97,769
-------- -------- --------
Liabilities subject to settl.
under the reorg. case 567,365 571,041 569,955
Stockholders' equity (deficiency):
Common stock - 11,387,154
outstanding (11,394,433 at 2/1/97,
11,411,167 at 8/3/96)
Par value 115 115 115
Additional paid-in-capital 137,951 137,951 137,951
Unearned compensation - (167) (420)
Accumulated deficit (449,382) (400,525) (318,297)
Treasury stock, at cost (765) (667) (655)
-------- -------- --------
Total stockholders' equity
(deficiency) (312,081) (263,293) (181,306)
-------- -------- --------
Total liabilities & stock.
equity (deficiency) $617,187 $604,200 $685,107
======== ======== ========
See accompanying notes to condensed consolidated financial
statements.
7
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
26 Weeks Ended
Aug. 2, 1997 Aug. 3, 1996
------------ ------------
Cash flows from operating activities:
Net loss $ (48,857) $ (136,531)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation and amortization expense 18,222 21,476
Amortization of deferred financing costs 1,577 1,033
Reorganization items 4,818 48,466
Changes in working capital and other,
net 3,915 48,533
-------- --------
Net cash used by operating activities
before reorganization items (20,325) (17,023)
-------- --------
Reorganization items:
Interest income received 229 991
Chapter 11 professional fees paid (5,068) (5,701)
Other reorganization expenses paid, net (3,295) (4,624)
-------- --------
Net cash used by reorganization items (8,134) (9,334)
-------- --------
Net cash used by operating activities (28,459) (26,357)
Cash flows from investing activities:
Capital expenditures, net (10,890) (9,440)
Increase in restricted cash
and cash equivalents (208) (6,156)
-------- --------
Net cash used in investing activities (11,098) (15,596)
-------- --------
Cash flows from financing activities:
Payments of liabilities subject
to settlement (3,506) (2,120)
Deferred financing costs (1,776) (313)
Net borrowings under the DIP
facility 46,500 -
Principal payments on capital
lease obligations (828) (1,308)
-------- --------
Net cash provided by
financing activities 40,390 (3,741)
-------- --------
Net increase (decr.) in unrestricted cash
and cash equivalents 833 (45,694)
Unrestricted cash and cash equivalents:
Beginning of period 10,025 63,012
-------- --------
End of period $10,858 $17,318
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest and
certain debt fees $ 5,221 $ 4,005
Cash received for income taxes $ 109 $ 25,012
See accompanying notes to condensed consolidated financial
statements.
8
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 (second quarter) and 26
weeks (year-to-date) ended August 2, 1997 and August 3, 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 second quarter
and year-to-date period are not necessarily indicative of
results that may be expected for the fiscal year ending January
31, 1998 ("1997"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted, pursuant to the general rules and
regulations promulgated by the Securities and Exchange
Commission (the "SEC").
The Company experienced significant operating losses in 1996
and 1995 and continued to post an operating loss in the
year-to-date period of 1997. The Company's ability to continue
as a going concern is dependent upon the confirmation of a plan
of reorganization by the Bankruptcy Court, the ability to
maintain compliance with debt covenants under the DIP Facility
(Note 4), achievement of profitable operations, and the
resolution of the uncertainties of the reorganization case
discussed in Note 2.
In an effort to return the Company to profitability and
accomplish its long-term goals, the Company will continue to
focus on merchandise quality and fashion as a way to
differentiate itself from its closest competition, but has made
or is in the process of making the following modifications to
its business strategy: (a) reintroducing lower opening price
points in selective
9
merchandise categories to enhance value, increase customer
traffic and avoid costly promotions; (b) reintroducing certain
basic convenience and commodity products that are typical of
assortments carried by discount stores; (c) reinstituting a
layaway program and in-store directional and departmental
signage for the second half of 1997; (d) revising the Company's
markdown policy based on product rate of sale; (e) making the
weekly circulars more item-intensive and price-point oriented
with clear presentation while reducing less productive and more
costly advertising media; (f) introducing both a "Certified
Value" program that highlights certain key items at highly
competitive everyday prices and a "Wow!" program which
integrates targeted and unadvertised opportunistic purchases;
and (g) improving operating efficiencies to achieve further cost
reductions. The Company is making changes in its merchandise
assortment and presentation in connection with these steps. In
addition, the Company has 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 year-to-date payments of approximately $1.4 million made in
1997 to settle certain reclamation claims, the ultimate amount
and settlement terms for pre-petition liabilities are subject to
a plan of reorganization, and accordingly, are not presently
determinable. The Company currently retains the exclusive right
to file a plan of reorganization until February 2, 1998 and to
solicit acceptance of a plan of reorganization until April 3,
1998, each subject to possible extension as approved by the
Bankruptcy Court.
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 August 2, 1997, for rejected leases and an
anticipated claim for a closed store lease that may 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
10
related outstanding debt amounts. In addition, a $9.0 million
cash settlement and approximately $7.9 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 Aug. 2, Feb. 1, Aug. 3,
Under the Reorganization Case 1997 1997 1996
-------- -------- --------
Accounts payable $165,762 $167,098 $167,123
Accrued expenses 27,932 27,932 25,499
Revolver 72,905 75,005 76,505
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 11,647 11,887 13,675
Provision for rejected leases 50,937 50,937 48,971
------- ------- -------
$567,365 $571,041 $569,955
======= ======= =======
3. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents at August 2, 1997 were
comprised of the following, along with earned interest of $.4
million: (a) $6.0 million of the $24.5 million federal income
tax refund received in April 1996, held in escrow pending
further order of the Bankruptcy Court; (b) $1.7 million of
forfeited deposits, also held in escrow pending further order of
the Bankruptcy Court, received in 1996 on a planned sale of an
owned undeveloped property that was not consummated and (c)
other funds ($1.2 million) restricted as security deposits for
utility expenses incurred after the Filing. As of August 3,
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, along with earned interest
of $.2 million.
4. DEBT
As a result of the Filing, substantially all debt (exclusive
of the DIP Facility) outstanding at August 2, 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,
11
a cash settlement, and deferred financing costs have been netted
against the related outstanding debt amounts (Note 2).
Generally, interest on pre-petition debt ceases accruing
upon the filing of a petition under the Bankruptcy Code; if,
however, the debt is collateralized by an interest in property
whose value (minus the cost of preserving such property) exceeds
the amount of the debt, post-petition interest may be payable.
Other than those noted above, no other determinations have yet
been made regarding the value of the property interests which
collateralize various debts. Although interest may be paid
pursuant to an order of the Bankruptcy Court, it is uncertain
whether any post-petition interest will be payable or paid. The
Company believes at this time that it is unlikely that such
interest will be paid. Contractual interest expense not
recorded on certain pre-petition debt (the Revolver, 2002 Notes
and 2003 Notes) totaled approximately $7.8 and $15.6 million for
the second quarter and year-to-date periods of 1997,
respectively, and $7.8 and $15.7 million for the second quarter
and year-to-date periods of 1996, respectively.
DIP FACILITY The Company has a Debtor-in-Possession
Revolving Credit and Guaranty Agreement (the "DIP Facility") in
the aggregate amount of $200 million (of which $125 million is
available for issuance of letters of credit) with Chase
Manhattan Bank, as Agent, under which the Company is allowed to
borrow for general corporate purposes, working capital and
inventory purchases. There were outstanding direct borrowings
of $89.0 million under the DIP Facility as of August 2, 1997.
Trade and standby letters of credit outstanding under the DIP
Facility were $29.9 and $19.7 million, respectively, at August
2, 1997 and $21.4 and $45.2 million, respectively, at August 3,
1996.
At the Company's option, the Company may borrow under the
DIP Facility at the Alternate Base Rate (as defined) plus .50%
or at the Adjusted LIBO Rate (as defined) plus 1.75%. The
weighted average interest rate under the DIP Facility was 7.63%
in the second quarter and 7.45% in the year-to-date period of
1997. The maximum borrowing, up to $200 million, is limited to
60% of the Eligible Book Value of Inventory (as defined). The
Company paid a financing fee of approximately $1.8 million
during the first quarter of 1997 for an amendment to the DIP
Facility in March 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 August 2, 1997, the Company is in compliance with
the DIP Facility covenants. The lender under the DIP Facility
has a "super-priority" claim against the estate of the Company.
The DIP Facility is scheduled to expire on the earlier of June
23, 1998 or the substantial consummation of a reorganization
plan that is confirmed by the Bankruptcy Court.
12
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 second quarter and year-to-date
periods of 1997 and 1996, directly associated with the Chapter
11 reorganization proceedings and the resulting restructuring of
its operations:
(000's)
-----------------------------------
13 Weeks Ended 26 Weeks Ended
8/2/97 8/3/96 8/2/97 8/3/96
------ ------ ------- ------
Professional fees $2,250 $1,500 $5,250 $2,500
Interest income (111) (460) (229) (991)
Gain on disposition of
properties (68) - (203) -
Provision for rejected leases - 30,000 - 30,000
Net asset write-offs - 6,328 - 10,232
Change in estimate of
inventory impairment reserve - - - (1,000)
Provision for occupancy and
other store closing costs - 3,560 - 3,560
Employee severance and
termination benefits - - - 4,165
------- ------- ------- -------
$2,071 $40,928 $4,818 $48,466
======= ======= ======= =======
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 and certain equipment in 1997 for $0.9
million and the related gains were classified as reorganization
items since the associated net asset write-offs were previously
included in reorganization items.
PROVISION FOR REJECTED LEASES AND NET ASSET WRITE-OFFS: In
July, 1996, the Company approved a restructuring plan to close
14 additional stores in the third quarter of 1996 (the "Fall
1996 Closed Stores"). In connection with this plan, the Company
recorded a provision of $30 million of claim estimates for the
expected rejection of certain closing store leases. In
connection with the store closings and lease rejections, the
Company wrote off certain net assets of $6.3 million, including
net capital lease assets and a write-down of the land and
building at the Company's
13
Providence, RI store to the estimated net realizable value. The
net realizable value of this property is classified as a
long-term asset held for sale. In April, 1996, the Company
decided not to open a previously planned new store in
Philadelphia, PA. As a result of this decision, the carrying
value of the associated property exceeded the estimated net
realizable value and a charge of $3.9 million was recorded in
the first quarter of 1996. The net realizable value of this
property is also classified as a long-term asset held for sale.
RESERVE FOR INVENTORY IMPAIRMENT: The change in the reserve
for inventory impairment (established at February 3, 1996) was
recorded in the first quarter of 1996 due to a revised (lower)
estimate of the incremental markdowns required to liquidate the
inventories at 13 stores closed in June, 1996 (the "Spring 1996
Closed Stores"). An additional reserve for inventory impairment
of $5.9 million was recorded and charged to cost of goods sold
at August 3, 1996, for the Company's best estimate of the
incremental markdowns required to liquidate the inventories at
the Fall 1996 Closed Stores. Such costs were recorded at August
3, 1996, in accordance with the retail inventory method. In
January, 1996, the provision for inventory impairment was
classified as a restructuring charge, however the reserve
established for the Fall 1996 Closed Stores was charged to cost
of sales as a result of an SEC staff announcement at the July
18, 1996 meeting of the Emerging Issues Task Force in which they
stated that they believe inventory markdowns attributable to a
restructuring or exit plan should be classified in the income
statement as a component of cost of sales.
STORE CLOSING COSTS: The Company established reserves
totaling $3.6 million at August 3, 1996 for occupancy and other
store closing costs. Other store closing costs represent
incremental asset protection, occupancy and various closing
costs associated with the decision to close the stores. Other
store closing costs paid year-to-date in 1997 totaled $1.4
million.
EMPLOYEE SEVERANCE AND TERMINATION BENEFITS: Employee
severance and termination benefits recognized in the
year-to-date period 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 has 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 August
2, 1997, the Company had reserves totaling approximately $8
million (exclusive of provisions for rejected leases discussed
in Note 2) associated with those actions, including $6 million
for employee severance and termination benefits (primarily for
the December 1996 and January 1997 home office restructuring).
Approximately $3.3 million of these costs were paid in the
year-to-date period of 1997, primarily for employee severance
and termination benefits related to the home office
restructuring. The majority of the
remaining reserved costs are currently expected to be paid
within a year. The Company has reached a tentative settlement
agreement with Mark Cohen, the Company's former CEO whose
employment terminated in December, 1996, that is subject to
Bankruptcy Court approval.
14
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 quarter and year-to-date periods ended August 2, 1997 and
August 3, 1996.
15
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Results of operations, summarized in millions of dollars and
expressed as a percentage of net sales (on the next page), were
as follows for the 13 weeks and 26 weeks ended August 2, 1997
("Second Quarter 1997" and "Year-to-Date 1997", respectively)
and for the 13 weeks and 26 weeks ended August 3, 1996 ("Second
Quarter 1996" and "Year-to-Date 1996", respectively) :
13 Weeks Ended 26 Weeks Ended
8/2/97 8/3/96 8/2/97 8/3/96
------ ------ ------ ------
(Dollars in millions
except per share amounts)
Total sales $311.5 $386.2 $588.3 $736.1
Leased dept sales 14.1 16.6 23.5 28.8
----- ----- ----- -----
Net sales 297.4 369.6 564.8 707.3
Cost of goods sold 204.5 268.2 392.2 503.4
----- ----- ----- -----
Gross margin 92.9 101.4 172.6 203.9
Leased dept and other
operating income 3.1 3.9 5.4 7.0
----- ----- ----- -----
96.0 105.3 178.0 210.9
Selling, store oper.,
admin. and dist. exp. 98.1 134.3 196.9 272.5
Depreciation and
amortization expense 9.0 10.5 18.2 21.5
Interest and debt exp. 3.7 2.4 7.0 4.9
Reorganization items 2.1 40.9 4.8 48.5
----- ----- ----- -----
Net loss $(16.9) $(82.8) $(48.9) $(136.5)
====== ====== ====== =======
Net loss per share $(1.48) $(7.25) $(4.29) $(11.96)
====== ====== ====== ======
Total sales decrease
All stores (19.3)% (11.7)% (20.1)% (11.3)%
Comparable stores (7.3)% (10.0)% (6.9)% (11.2)%
Number of stores in
oper. at end of period 109 124 109 124
16
BRADLEES, INC.
AND SUBSIDIARIES
(Operating as Debtor-in-Possession)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (Con't)
13 Weeks Ended 26 Weeks Ended
8/2/97 8/3/96 8/2/97 8/3/96
------ ------ ------ ------
As a % of net sales,
results were as follows:
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 68.8 72.6 69.4 71.2
----- ----- ----- -----
Gross margin 31.2 27.4 30.6 28.8
Leased dept. & other
operating income 1.1 1.1 0.9 1.0
----- ----- ----- -----
32.3 28.5 31.5 29.8
Selling, store oper.,
admin. and dist. exp. 33.0 36.3 34.9 38.5
Depreciation and
amortization 3.0 2.8 3.2 3.0
Interest and debt exp. 1.3 0.7 1.2 0.7
Reorganization items 0.7 11.1 0.9 6.9
----- ----- ----- -----
Net loss (5.7)% (22.4)% (8.7)% (19.3)%
===== ===== ===== =====
17
The following discussions, as well as other portions of this
document, include certain statements which are or may be
construed as forward looking about the Company's business, sales
and expenses, and operating and capital requirements. Any such
statements are subject to risks that could cause the actual
results or requirements to vary materially.
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
Total sales for Second Quarter 1997 declined $74.7 million
or 19.3% from Second Quarter 1996 due primarily to the closing
of 15 stores since the end of Second Quarter 1996 (12 other
stores closed during Second Quarter 1996) and a decrease of 7.3%
in comparable store sales (including leased shoe department
sales). In addition to a negative sales impact from
unseasonably cool weather through the first week of June and
less promotional and clearance activity, the decline in
comparable store sales was due, in part, to the Company's belief
that the modifications to its marketing strategy and merchandise
mix and presentation (summarized in Note 1 to the Condensed
Consolidated Financial Statements) were not fully in place in
time to have a significant impact on Second Quarter 1997 sales.
Gross margin declined $8.5 million (primarily as a result of
the store closings) but increased 3.8% as a percentage of net
sales in Second Quarter 1997 from Second Quarter 1996 due
primarily to lower markdowns, lower inventory shrink and a $5.9
million markdown provision recorded in Second Quarter 1996 for
the Fall 1996 Closed Stores (Note 6). The lower markdowns in
Second Quarter 1997 were the result of less promotional and
clearance activity in Second Quarter 1997 as part of the
Company's plan to increase advertising productivity and improve
margins.
Leased department and other operating income declined $.8
million, primarily as a result of the store closings, but
remained the same as a percentage of net sales in Second Quarter
1997 compared to Second Quarter 1996.
Selling, store operating, administrative and distribution
("SG&A") expenses declined $36.1 million and 3.3% as a
percentage of net sales in Second Quarter 1997 from Second
Quarter 1996. The improved SG&A expense performance was due
primarily to the store closings and expense reduction programs,
including significant reductions in home office and advertising
expenses. The Company is implementing further SG&A expense
reductions in the second half of 1997.
Depreciation and amortization expense declined $1.4 million
but increased 0.2% as a percentage of net sales (due to the
decline in sales) in Second Quarter 1997 from Second 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 $1.3 million and 0.6% as
a percentage of net sales in Second Quarter 1997 from Second
Quarter 1996 due primarily to the interest costs associated
18
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 7.63% in Second Quarter
1997.
Reorganization items of $2.1 and $40.9 million for Second
Quarter 1997 and Second Quarter 1996, respectively, related to
the Chapter 11 proceedings and related restructuring and are
discussed in Note 6.
The Company did not record an income tax provision in Second
Quarter 1997 due to the current expectation of no income tax
expense or benefit in 1997. There was also no income tax
expense or benefit recorded in Second Quarter 1996.
YEAR-TO-DATE 1997 COMPARED TO YEAR-TO-DATE 1996
Year-to-Date 1997 total sales declined $147.7 million or
20.1% from Year-to-Date 1996 due primarily to the closing of 27
stores since the beginning of June 1996 and a decrease of 6.9%
in comparable store sales. The decline in year-to-date
comparable store sales was due primarily to the factors
discussed above for Second Quarter 1997.
Gross margin for Year-to-Date 1997 declined $31.3 million
(primarily as a result of the store closings) but increased 1.8%
as a percentage of net sales due primarily to the Second Quarter
1997 3.8% increase discussed above, partially offset by a 0.6%
decline as a percentage of net sales in the First Quarter of
1997. The first quarter decline was a result of an increase in
advertised markdowns, partially offset by a higher overall
initial markup, both of which were due, in part, to
merchandising decisions made in 1996 that have been or are in
the process of being modified.
Leased department and other operating income declined $1.5
million (primarily as a result of the store closings) or 0.1% as
a percentage of net sales in Year-to-Date 1997 compared to
Year-to-Date 1996.
Year-to-Date 1997 SG&A expenses declined $75.6 million or
3.6% as a percentage of net sales compared to Year-to-Date 1996.
The improved year-to-date SG&A expense performance was due
primarily to the factors discussed above for Second Quarter 1997.
Depreciation and amortization expense declined $3.3 million
but increased 0.2% as a percentage of net sales (due to the
decline in sales) in Year-to-Date 1997 compared to Year-to-Date
1996. The dollar decline was due to the factors discussed above
for Second Quarter 1997.
Interest and debt expense increased $2.0 million or 0.5% as
a percentage of net sales due primarily to the same factors
discussed above for Second Quarter 1997. The weighted average
interest rate under the DIP Facility was 7.45% during
Year-to-Date 1997.
19
Reorganization items of $4.8 and $48.5 million for
Year-to-Date 1997 and Year-to-Date 1996, respectively, related
to the Chapter 11 proceedings and related restructuring and are
discussed in Note 6.
The Company did not record an income tax provision in
Year-to-Date 1997 due to the current expectation of no income
tax expense or benefit in 1997. There was also no income tax
expense or benefit recorded in Year-to-Date 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had outstanding borrowings of $89.0 million at
August 2, 1997, exclusive of the issuance of letters of credit,
under the Company's $200 million DIP Facility (Note 4). Such
borrowings peaked at $89 million and averaged $79 million during
Second Quarter 1997 and peaked at $94 million and averaged $73
million during Year-to-Date 1997. The Company's borrowings are
dependent upon availability under the DIP Facility (which is
primarily based on inventory levels) and achievement of cash
flows from operations that are reasonably consistent with the
Company's revised 1997 financial plan filed on Form 8-K dated
August 13, 1997. 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 Year-to-Date 1997, cash used by operations before
reorganization items was $20.3 million, compared to $17.0
million of cash used by operations before reorganization items
in Year-to-Date 1996. This increase in cash usage was primarily
due to last year's $24.5 million federal income tax refund (Note
3) included in "Changes in working capital and other, net" in
the statement of cash flows and the inventory decrease
associated with the Spring 1996 Closed Stores and this year's
comparable store inventory increase (see below). These factors
were partially offset by the significantly lower operating loss
in Year-to-Date 1997 and this year's increase in accounts
payable of $24.1 million (see below) compared to a decrease in
accounts payable of $1.7 million in Year-to-Date 1996.
Net cash used by reorganization items in Year-to-Date 1997
of $8.1 million was primarily the result of professional fee
payments of $5.1 million, including fees paid related to the
fourth quarter of 1996, and employee severance and termination
benefits of $2.3 million. Year-to-Date 1996 reorganization
expenses paid of $9.3 million included costs related to the
Spring 1996 Closed Stores. Components of restricted cash are
discussed in Note 3.
Inventories at August 2, 1997, declined $2.4 million from
August 3, 1996, due to the closed stores (inventories increased
approximately $25.7 million, excluding the impact of the closed
stores), and increased $17.1 million from February 1, 1997, due
primarily to a normal seasonal build-up. The increase in
inventories (excluding the closed stores) from August 3, 1996,
was due primarily to this year's advanced toy purchase programs
and efforts to manage merchandise receipt flow more evenly by
month in order to support a better in-stock position.
Inventories at August 2, 1997, were $4.7 million over the
Company's original 1997 financial plan. Accounts payable,
exclusive of amounts subject to settlement, at August 2, 1997,
declined $7.8 million from August 3, 1996, due primarily to the
closed stores, and increased $24.1 million from February 1,
1997, due to the associated normal seasonal build-up of
inventories.
Accounts receivable at August 2, 1997, increased $2.2
million from February 1, 1997, due primarily to higher credit
card and tenant receivables as well as the new receivables from
the layaway program that was reinstituted in late July, 1997.
Accounts receivable declined $3.3 million from August 3,1996,
due primarily to lower credit card receivables (there was a
significant one-day sale on August 2, 1996), partially offset by
higher tenant receivables and the layaway receivable discussed
above.
Accrued expenses at August 2, 1997, were $4.5 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 $0.7 million
higher than at August 3, 1996.
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 $10.9 million
in Year-to-Date 1997 (compared to $9.4 million in Year-to-Date
1996), primarily for management information systems and store
improvements. 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 or from funds available under its DIP
Facility.
The Company believes its business strategies 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
will be dependent upon the Company's attainment of sales, gross
profit, expense and trade support levels that are reasonably
consistent with its financial plans. Such operating performance
will be
21
subject to financial, economic and other factors affecting the
industry and operations of the Company, including factors beyond
its control.
22
BRADLEES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No. Exhibit
10 Corporate Bonus Plan.
11 Computations of earnings per share.
15 Letter re: unaudited interim financial
information.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the
quarterly period ended August 2, 1997.
Date of Report Date of Filing Item No. Description
------------- -------------- -------- --------------------
May 28, 1997 May 29, 1997 5 Disclosure of first
quarter 1997 results
compared to plan.
23
BRADLEES, INC.
AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
BRADLEES, INC.
Date: September 12, 1997 By /s/ PETER THORNER
-----------------------------
Peter Thorner
Chairman and
Chief Executive Officer
Date: September 12, 1997 By /s/ CORNELIUS F. MOSES III
-----------------------------
Cornelius F. Moses III
Senior Vice President,
Chief Financial Officer
24
EXHIBIT 10
BRADLEES, INC.
BRADLEES STORES, INC.
CORPORATE BONUS PLAN
Administrative Guidelines for (1) Fiscal Year Ending
January 31, 1998 and (2) Subsequent Fiscal Years
BRADLEES, INC.
BRADLEES STORES, INC.
Corporate Bonus Plan
Administrative Guidelines for (1) Fiscal Year Ending
January 31, 1998
and (2) Subsequent Fiscal Years
1. PURPOSE:The purpose of the Bradlees Corporate Bonus Plan
(the "Plan") is to promote the interests of Bradlees, Inc. and
Bradlees Stores, Inc. (collectively, the "Company"), its
stockholders and creditors by providing the Plan participants
(the "Participants") with incentives and rewards based upon the
Company's operating and financial performance. The Plan is also
designed to:
A. Replace the current Retention Bonus Plan.
B. Attract, retain and motivate executives while the
Company is in Chapter 11.
C. Provide the opportunity for Participants to achieve
competitive total cash compensation.
2. ADMINISTRATION:The Plan shall be administered by the
Company, through its Board of Directors or such entity or person
designated thereby. Subject to paragraph 21, the Board of
Directors of the Company may interpret the Plan, prescribe,
amend and rescind any rules and regulations necessary or
appropriate for the administration of the Plan. Any
interpretation, determination, or other action made or taken by
the Company shall be final, binding, and conclusive as between
the Company and any Participant in the Plan.
3. ELIGIBILITY:Eligibility to participate in the Plan shall be
limited to active employees (Participants) in roles in which
their decisions, actions and counsel impact the Company's
performance under its business plan and successful emergence
from Chapter 11, as determined in the sole discretion of the
Company. Terminated employees are excluded from participation
and ineligible for the Plan regardless of such employee's
eligibility while employed by the Company. Appendix A lists
positions currently eligible to participate in the Plan for the
current year, which list may be modified from time to time by
the Company to add or delete eligible positions. Designation as
a Participant for any particular Plan Period shall not entitle
an individual to participate, or entitle the individual to share
in awards, with respect to any other Plan Period. Participants
shall be notified of their selection as Participants, their
Target Incentive Award and the specific Performance Measures
upon which their incentive payment shall be based.
Notwithstanding the foregoing, the Plan shall include as
Participants at least the following categories as described in
Appendix A: Managers Group, Buyers, Planners and Store Managers.
4. PLAN PERIOD:The "Plan Period" will run concurrently with the
fiscal year of the Company.
5. TARGET INCENTIVE AWARD:For each eligible position a "Target
Incentive Award" expressed as a percentage of the base salary of
Participants in such eligible position earned during the Plan
Period shall be as set forth in Appendix A. The Target
Incentive Award will be increased an additional 25% for each $5
million incremental increase in the EBITDA level set forth in
the Company's 1997 Business Plan up to a maximum increase of
100%.
6. PERFORMANCE MEASURES:Prior to the beginning of the Plan
Period, or as soon thereafter as practical, "Performance
Measures" shall be determined and established by the Board of
Directors for Plan Participants. For the Fiscal Year ending
January 31, 1998, Performance Measures will include (i) the
Company's achievement of the EBITDA level set forth in the
Company's 1997 Business Plan for eligibility of a Target
Incentive Award, (ii) at minimum a "meets standards" performance
by the Company's management and (iii) continued employment with
the Company through the date of payment of the Incentive Award.
For the Plan Periods after January 31, 1998, Performance
Measures will continue to include attainment of threshold
performance criteria established by the Board of Directors and
while the Company remains in Chapter 11, after obtaining input
from the Company's Official Committee of Unsecured Creditors
(the "Committee") and the Company's Senior Revolver Bank Group
(the "Bank Group") and considering the interests of creditors of
the Company in establishing the criteria; provided, however,
that neither the Committee nor the Bank Group shall have veto or
approval rights of any performance criteria established by the
Board of Directors.
7. DISCRETIONARY BONUS PAYMENTS: The Company may make
discretionary bonus payments ("Discretionary Bonus Payments") to
employees to reward superior performance regardless of whether
(i) the employee is a Participant (but not a member of the
Senior Management Group referred to below) or (ii) the Company
achieves the Performance Measures. In order to be eligible to
receive a Discretionary Bonus Payment, an employee (a) must have
upon review and approval of the Board of Directors achieved
superior performance or performed acts of special note and (b)
must be employed with the Company through the date of payment of
any Discretionary Bonus Payment. All Discretionary Bonus
Payments shall be paid at such time as all other payments are or
would be paid under the Plan. The total amount of all
Discretionary Bonus Payments shall not exceed $500,000 for any
Plan Period.
8. DETERMINATION AND PAYMENT OF INCENTIVE AWARD EARNED:As soon
as practicable after the end of the Plan Period and preparation
of the necessary information, the Company shall determine
whether and to what extent the Performance Measures have been
achieved by the Company and each Participant and shall
thereafter as soon as practicable pay each eligible
Participant's Incentive Award (except as set forth in paragraph
9 below) in cash, less any amounts required for Federal, state
and local withholding and employment taxes.
9. PAYMENT HOLDBACK: With respect to the Chief Executive
Officer, the Chief Operating Officer and the members of the
Senior Management Group, as such group is designated on Appendix
A, there shall be withheld from payment 25% of any Incentive
Award payable to such employees under this program (the "Payment
Holdback"). All amounts withheld from payment shall be accrued
at the non-default interest rate charged on Bradlees, Inc.'s
Senior Revolver Bank Facility debt. The accrued portion of the
bonus shall be payable upon the earlier of: (a) the substantial
consummation of a chapter 11 plan or plans of reorganization for
the Company or (b) a termination event occurs for other than
Cause (as defined in Appendix B attached hereto and made a part
hereof), or in the event of Good Reason (as defined in Appendix
B attached hereto and made a part hereof), death or permanent
disability. The reclassification by the Company of an employee
from the Senior Management Group at any time after the
commencement of this Plan shall have no effect on the required
Payment Holdback as to such employee under the terms of this
Plan. If such employee shall have a termination of employment
for Cause or for reasons other than Good Reason, death or
disability prior to the date payment becomes due on the deferred
portion of the Incentive Award, all such deferred Incentive
Award amounts (and any accrued interest thereon) shall be
forfeited by such employee and not payable hereunder.
10. TERMINATION OF EMPLOYMENT: If a Participant ceases to be
employed by the Company at any time
2
prior to the end of the Plan Period by reason of death,
permanent disability or retirement, the Participant's award
shall be calculated using base salary earned prior to the
Participant's termination of employment and paid to the
Participant or his designated Beneficiary as soon as practicable
after the determination of Performance Measures set forth in
paragraph 6 above; earned, unpaid awards from prior Plan Periods
also will be paid as soon as practicable after such termination.
11. BENEFICIARY:The Beneficiary of any Participant shall be the
same Beneficiary as designated by the Participant under the
Company's Group Life Insurance Plan, unless a Participant
specifically designates in writing a different Beneficiary for
his/her allocation.
12. FUNDING:No funds need to be set aside or reserved for
payment to any Participant under the Plan, and any obligation by
the Company to a Participant under the Plan shall be unfunded
and shall be paid from the general assets of the Company.
13. NOT EXCLUSIVE METHOD OF INCENTIVE:Except with regard to the
Company's Chief Executive Officer, Chief Operating Officer and
the Senior Management Group whose participation is limited by
the terms and duration of the Enterprise Appreciation Incentive
Plan, this Plan shall neither be deemed an exclusive method of
providing incentive compensation for employees of the Company
nor shall it preclude the Company from authorizing or approving
other forms of incentive compensation.
14. NO RIGHT TO CONTINUED PARTICIPATION:Participation in the
Plan by an employee in any Plan Period shall not be held or
construed to confer upon the employee the right to participate
in the Plan in any subsequent Plan Period.
15. NO RIGHT TO CONTINUED EMPLOYMENT:Neither the establishment
of the Plan, the participation by an employee in the Plan nor
the payment of any Incentive Award hereunder or any other action
pursuant to the Plan shall be held or construed to confer upon
any Participant the right to continue in the employ of the
Company or affect any right the Company may have to terminate at
will the employment of any such Participant.
16. RELATIONSHIPS TO OTHER PLANS:Participation and payments
under the Plan shall not affect or be affected by participation
or payments under any other plan of the Company except as
otherwise specifically provided by the Company.
17. NONTRANSFERABILITY OF AWARDS:No amount payable at any time
under the Plan shall be subject to alienation by anticipation,
sale, transfer, assignment, bankruptcy, pledge, attachment,
charge or encumbrance of any kind or in any manner be subject to
the debts or liabilities of any person, and any attempt to so
alienate or subject any such amount shall be void.
18. RIGHT TO PAYMENT:Notwithstanding anything in the Plan to
the contrary, payment of awards under the Plan shall be solely
at the discretion of the Company, and no Participant shall be
entitled to any payment pursuant to the Plan unless and until
the Company has made payment of the award to the Participant as
provided in this document.
19. AMENDMENT OF THE PLAN:Except with respect to the provisions
contained in sections 6, 11, 14, and 21 of this Plan, the
Company may amend or terminate this Plan at any time. No
amendment,
3
modification or act of administration by the Company shall cause
the aggregate Incentive Awards earned pursuant to this Plan in
any fiscal year to exceed $6 million. No amendment or
termination shall affect the right of a Participant to payment
of any amounts which have been determined to be due and payable
after the end of a Plan Period prior to such amendment or
termination of the Plan, but the Company may amend or finally
terminate the rights of any Participant under the Plan at any
time prior to determination of the award to be paid for the Plan
Period.
3
20. EFFECTIVE DATE:The Plan shall be deemed effective as of
February 3, 1997 and shall continue in effect until termination
of the Plan by the Company.
21. SENIOR EXECUTIVE CONTRACTS: The employment contract of the
Chief Executive Officer, as approved by the Bankruptcy Court,
shall govern any conflict between this Plan and such agreement.
This Plan shall not be administered by the Company to provide
any additional benefits to such senior management officers
beyond those expressly provided for in such contracts.
4
Appendix A
TARGET INCENTIVE TARGET INCENTIVE
AWARD AS A % OF AWARD AS A % OF
BASE SALARY FOR BASE SALARY FOR
POSITION EACH PLAN PERIOD POSITION EACH PLAN PERIOD
- -------- ---------------- -------- ----------------
Chairman & CEO 55% Buyer (44) 12.5%
Pres. & COO 50% Planner (40) 12.5%
Exec. Vps(3) 40% Store Mgr. (109) 12.5%
- -SVP, CFO
- -SVP, Admin. &
Gen'l. Counsel
- -SVP, Stores &
Logisitics
Mgr., Public Affairs 12.5%
Senior Mgmt. Grp. (6)
SVP, CIO 33%
SVP, Mktg. 33%
SVP, Asset
Protection 33%
SVP, GMM-Softlines 33%
SVP, GMM-Hardlines 33%
SVP, Planning &
Allocation 33%
Key Mgmt. Grp. (14) 28%
Middle Mgmt. Grp.(50)20%
Mgrs. Grp. (25) 15%
APPENDIX B
Definitions
As used in the Corporate Bonus Plan, the following terms shall
have the following meanings:
A. "CAUSE" shall mean (a) the commission of any felony or other
crime involving dishonesty; (b) any serious willful misconduct
in the course of a Participant's employment; or (c) the habitual
neglect of duties by a Participant (other than on account of
disability), except that (d) cause as defined in Clauses (b) and
(c) shall not mean:
(i) bad judgment;
(ii) negligence other than habitual neglect of
duty;
(iii) any act or omission believed by the
Participant in good faith to have been in
or not opposed to the interest of the
Companies (without intent of the
Participant to gain therefrom, directly
or indirectly, a profit to which the
Participant was not legally entitled);
(iv) any act or omission which can be the subject
of indemnification of the Participant under the
Bylaws or Articles of Incorporation of either of
the Companies or applicable law; or
(v) any act or omission with respect to which notice
of Termination of Employment of the Participant
is given more than twelve (12) months after the
earliest date on which any member of the Boards
who is not a party to the act or omission, knew
or should have known of such act or omission.
B. "GOOD REASON" shall mean, for these purposes, (i)substantial
adverse change in the employee's responsibilities and duties,
(ii)a reduction in salary, (iii)elimination of participation in
the Corporate Bonus Plan or (iv)the relocation of the offices at
which such employee is principally employed to a location more
than fifty miles from the Company's offices in Braintree,
Massachusetts.
BRADLEES, INC. EXHIBIT 11
AND SUBSIDIARIES Page 1 of 2
(Operating as Debtor-in-Possession)
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Amounts in thousands except per share amounts)
13 Weeks Ended 13 Weeks Ended
August 2, 1997 August 3, 1996
Primary Loss Per Share
Net loss ($16,864) ($82,785)
Weighted avg. number of shares
outstanding 11,388 11,411
Incremental shares for assumed
exercise of stock options - -
Total common shares & common share
equivalents 11,388 11,411
Net earnings (loss) per share ($1.48) ($7.25)
Fully Diluted Loss Per Share (1)
Net loss ($16,864) ($82,785)
Weighted avg. number of shares
outstanding 11,388 11,411
Incremental shares for assumed
exercise of stock options - -
Total common shares & common share
equivalents 11,388 11,411
Fully diluted net loss per share ($1.48) ($7.25)
(1) The information in this exhibit is provided in accordance
with Item 601 of Regulation S-K, although such information is
not required by Paragraph 14 of Accounting Principles Board
Opinion No. 15.
BRADLEES, INC. EXHIBIT 11
AND SUBSIDIARIES Page 2 of 2
(Operating as Debtor-in-Possession)
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
(Amounts in thousands except per share amounts)
26 Weeks Ended 26 Weeks Ended
August 2, 1997 August 3, 1996
Primary Loss Per Share
Net loss ($48,857) ($136,531)
Weighted average number
of shares outstanding 11,391 11,413
Incremental shares for assumed
exercise of stock options - -
Total common shares and
common share equivalents 11,391 11,413
Net earnings (loss) per share ($4.29) ($11.96)
Fully Diluted Loss Per Share (1)
Net loss ($48,857) ($136,531)
Weighted average number
of shares outstanding 11,391 11,413
Incremental shares for assumed
exercise of stock options - -
Total common shares and
common share equivalents 11,391 11,413
Fully diluted net loss per share ($4.29) ($11.96)
(1) The information in this exhibit is provided in accordance
with Item 601 of Regulation S-K, although such information
is not required by Paragraph 14 of Accounting Principles Board
Opinion No. 15.
EXHIBIT 15
Deloitte &
Touche LLP
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125 Summer Street Telephone:(617)261-8000
Boston, MA 02110-1617 Facsimile:(617)261-8111
August 19, 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 26 and 13-week
periods ended August 2, 1997 and August 3, 1996 as indicated in
our report dated August 19, 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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