-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OCYf4tiT8FFpm1HL8hu8l9eeYpYXBj1OFyektWXkQJH+fPmw0w3TdpBKmsRNdihm GMTjyxoiq/OL13UC91Qn4w== 0000887356-96-000024.txt : 19960918 0000887356-96-000024.hdr.sgml : 19960918 ACCESSION NUMBER: 0000887356-96-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960917 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRADLEES INC CENTRAL INDEX KEY: 0000887356 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 043156108 STATE OF INCORPORATION: MA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11134 FILM NUMBER: 96631447 BUSINESS ADDRESS: STREET 1: 1 BRADLESS CIRCLE STREET 2: P O BOX 9051 CITY: BRAINTREE STATE: MA ZIP: 02184 BUSINESS PHONE: 617-380-3000 MAIL ADDRESS: STREET 1: ONE BRADLEES CIRCLE STREET 2: P O BOX 9051 CITY: BRAINTREE STATE: MA ZIP: 02184 10-Q 1 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 3, 1996 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 September 1, 1996: 11,411,167 shares. Exhibit Index on Page 21 Page 1 of 34 (Including 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 3, 1996 and July 29, 1995, and the related condensed consolidated statements of operations, and cash flows for the twenty-six-week periods ended August 3, 1996 and July 29, 1995 and the condensed statements of operations for the thirteen-week periods ended August 3, 1996 and July 29, 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 3, 1996 (not presented herein)), certain conditions raise substantial doubt about its ability to continue as a going concern. Management's plan concerning these matters are also described in Note 1 to the respective financial statements. 2 As discussed in Note 1, effective October 28, 1995, the Company changed its quarterly reporting period to a thirteen-week format. The results of operations for the 13-week and 26-week periods ended July 29, 1995 have been restated to reflect this change in reporting period. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of February 3, 1996, and the related consolidated statements of operations, changes in stockholders' equity (deficiency), and cash flows for the year then ended (not presented herein); and, in our report dated March 25, 1996, 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 1995 loss 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 Statements of Financial Accounting Standards ("SFAS") No. 112, effective January 30, 1994; and effective January 31, 1993, the adoption of SFAS No. 106, and changes in the methods of discounting workers' compensation and general liability claims and of calculating retail price indices used in valuing LIFO inventories. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of February 3, 1996 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 August 28, 1996 (September 13, 1996 with respect to paragraphs 3 and 4 of Note 4) 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 13 Weeks Ended August 3, 1996 July 29, 1995 -------------- -------------- Total sales $ 386,195 $437,488 Leased department sales 16,617 16,055 --------- --------- Net sales 369,578 421,433 Cost of goods sold 268,182 296,973 --------- --------- Gross margin 101,396 124,460 Leased department and other operating income 3,677 3,715 --------- --------- 105,073 128,175 Selling, store operating, admin. and distribution expenses 134,027 143,313 Depreciation and amortization 10,459 13,135 Interest and debt expense 2,444 7,121 Reorganization items 40,928 7,977 --------- -------- Loss before income taxes (82,785) (43,371) Income tax benefit - 15,815 --------- --------- Net loss $ (82,785) $(27,556) ========= ========= Net loss per share $ (7.25) $(2.41) ========= ======== 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 26 Weeks Ended August 3, 1996 July 29, 1995 -------------- ------------- Total sales $ 736,086 $ 829,876 Leased department sales 28,805 28,838 --------- -------- Net sales 707,281 801,038 Cost of goods sold 503,371 577,071 --------- --------- Gross margin 203,910 223,967 Leased department and other operating income 6,434 7,070 --------- --------- 210,344 231,037 Selling, store operating, administrative and distribution expenses 271,974 278,002 Depreciation and amortization 21,476 26,431 Interest and debt expense 4,959 16,914 Reorganization items 48,466 7,977 --------- -------- Loss before income taxes (136,531) (98,287) Income tax benefit - 38,332 --------- -------- Net loss $(136,531) $(59,955) ========= ========= Net loss per share $ (11.96) $ (5.25) ========= ========= See accompanying notes to condensed consolidated financial statements. 5 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (Dollars in thousands) Aug. 3, Feb. 3, July 29, 1996 1996 1995 -------- ------- -------- ASSETS Current assets: Unrestricted cash and cash equivalents $ 17,318 $ 63,012 $100,052 Restricted cash and cash equivalents 7,350 1,194 7,048 -------- -------- -------- Total cash and cash equivalents 24,668 64,206 107,100 -------- -------- -------- Accounts receivable 13,737 10,536 13,347 Refundable income taxes - 24,576 - Inventories 256,402 282,270 274,242 Prepaid expenses 9,709 10,008 6,850 Deferred income taxes - - 39,753 Assets held for sale 8,954 8,954 - -------- -------- -------- Total current assets 313,470 400,550 441,292 -------- -------- -------- Property, plant and equipment,net Property excluding capital leases, net 145,567 170,247 218,697 Property under capital leases, net 30,118 37,249 59,352 -------- -------- -------- Total property, plant and equipment, net 175,685 207,496 278,049 -------- -------- -------- Other assets: Lease interests at fair value and lease acquisition costs, net 182,042 186,626 237,797 Assets held for sale 10,153 - - Other, net 3,757 3,990 1,811 -------- -------- -------- Total other assets 195,952 190,616 239,608 -------- -------- ------- Total assets $685,107 $798,662 $958,949 ======== ======== ======== (Continued) 6 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (Dollars in thousands) Aug. 3, Feb. 3, July 29, 1996 1996 1995 -------- ------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $147,216 $148,870 $102,260 Accrued expenses 66,271 63,735 42,336 Current portion of capital lease obligations 2,226 2,602 5,748 -------- -------- -------- Total current liabilities 215,713 215,207 150,344 -------- -------- -------- Long-term liabilities: Obligations under capital leases 48,069 53,396 43,225 Deferred income taxes 8,581 8,581 117,108 Other long-term liabilities 24,095 26,723 29,859 -------- -------- -------- Total long-term liabilities 80,745 88,700 190,192 -------- -------- -------- Liabilities subject to settlement under the reorganization case 569,955 539,765 516,117 Stockholders' equity (deficiency): Common stock - 11,411,167 shares outstanding (11,416,656 at 2/3/96, 11,417,958 at 7/29/95) Par value 115 115 115 Additional paid-in-capital 137,951 137,951 137,950 Unearned compensation (420) (793) (983) Accumulated deficit (318,297) (181,766) (34,308) Treasury stock, at cost (655) (517) (478) -------- -------- -------- Total stockholders' equity (deficiency) (181,306) (45,010) 102,296 -------- -------- -------- Total liabilities and stockholders' equity $685,107 $798,662 $958,949 ======== ======== ======== 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 26 Weeks Ended August 3, 1996 July 29, 1995 -------------- ------------- Cash flows from operating activities: Net loss $(136,531) $(59,955) Adjustments to reconcile net loss to cash used by operating activities: Depreciation and amortization 21,476 26,431 Amortization of deferred financing costs 1,033 612 Deferred income taxes - (7,314) Reorganization items 48,466 7,977 Changes in working capital, net 48,533 77,862 --------- --------- Net cash provided (used) by operating activities before reorganization items (17,023) 45,613 --------- --------- Reorganization items: Interest income received 991 212 Chapter 11 professional fees paid (5,701) - Other reorganization expenses paid (4,624) (2,960) --------- --------- Net cash used by reorganization items (9,334) (2,748) --------- --------- Net cash provided (used) by operating activities (26,357) 42,865 Cash flows from investing activities: Capital expenditures, net (9,440) (10,230) Lease acquisition costs - (65) Increase in restricted cash and cash equivalents (6,156) (7,048) --------- --------- Net cash used in investing activities (15,596) (17,343) --------- --------- (Continued) 8 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) 26 Weeks Ended 26 Weeks Ended August 3, 1996 July 29, 1995 -------------- ------------- Cash flows from financing activities: Payments of liabilities subject to settlement $ (2,120) $ - Deferred financing costs (313) (2,364) Net borrowings under pre-petition revolver - 72,500 Principal payments on capital lease obligations (1,308) (4,187) Other common stock activity, net - 145 Dividends paid - (1,712) --------- --------- Net cash provided (used) by financing activities (3,741) 64,382 --------- --------- Net increase (decrease) in unrestricted cash and cash equivalents (45,694) 89,904 Unrestricted cash and cash equivalents: Beginning of period 63,012 10,148 --------- --------- End of period $ 17,318 $100,052 ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest and certain debt fees $ 914 $ 13,532 Cash paid (received) for income taxes $ (25,012) $ 98 Supplemental schedule of noncash investing and financial activities: Capital Lease obligations incurred $ - $ 6,606 See accompanying notes to condensed consolidated financial statements. 9 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 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 3, 1996 and July 29, 1995, 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 reclassifications have been made to the prior year's results to conform to the current presentation. Effective October 28, 1995, the Company completed the conversion of its financial systems and changed its quarterly financial reporting calendar to conform to the common retail presentation of 13 week ("4-5-4") quarters. Results for the prior year's quarters were restated in accordance with the new reporting calendar. These statements should be read in conjunction with the Company's financial statements (Form 10-K) for the fiscal year ended February 3, 1996 ("fiscal 1995"). Due to the seasonal nature of the Company's business, operating results for the second quarter and year-to-date are not necessarily indicative of results that may be expected for the fiscal year ending February 1, 1997 ("fiscal 1996"). 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"). As reflected in the condensed consolidated financial statements, the Company incurred a year-to-date net loss of $136.5 million in fiscal 1996 and, as reflected in its Form 10-K, a significant net loss in fiscal 1995. 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. 10 The Company is taking the following steps in an effort to accomplish its goals: (a) focusing on providing value to its customers as a function of fashion, quality and price rather than price alone; (b) emphasizing quality and fashion as a means of differentiating itself from its closest competition; (c) rebuilding its reputation for fashion leadership in apparel; (d) expanding private label programs; (e) reducing operating expenses by evaluating all aspects of the Company's current expense structure; (f) implementing new promotional programs; and (g) evaluating each store's profitability and relocating or closing stores whose performance is inadequate. In fiscal 1996 and 1995, the Company made changes in its merchandise assortment and presentation in connection with these steps and performed certain department resets in its stores. In addition, during fiscal 1996, the Company has reorganized its store management structure, closed 13 unprofitable stores, implemented an expense reduction program in the third quarter, and is in the process of closing 14 additional unprofitable stores. 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 will be investigated and resolved. The ultimate amount and settlement terms for such 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 1, 1997 and to solicit acceptance of a plan of reorganization until April 2, 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 $49.0 million was recorded through August 3, 1996 for certain rejected leases and anticipated claims for 10 of the closing store leases currently expected to be rejected. This provision 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. The Company believes that it has recorded its best estimate of the provision for rejected leases based on information currently available. If the other closing store leases are rejected, an additional provision of up to approximately $8 million would be necessary. All of the closing store leases are currently being marketed. 11 The principal categories of claims classified as "Liabilities subject to settlement under the reorganization case" are identified below. Deferred financing costs 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 $4.6 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 Revolver bank group. The claim was settled in full for $9.0 million and approved by the Bankruptcy Court. 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 August 3, 1996 - ----------------------------------------- --------------- Accounts payable $167,123 Accrued expenses 25,499 Revolver 76,505 2002 Notes 122,274 2003 Notes 97,957 Financing obligation 17,951 Obligations under capital leases 13,675 Provision for rejected leases 48,971 ------- $569,955 ======= 3. Restricted Cash and Cash Equivalents The Company received a federal income tax refund of $24.5 million in April, 1996, $6.0 million of which, along with earned interest, is being held in escrow pending further order of the Bankruptcy Court. In addition, other funds totaling $1.2 million have been segregated as security deposits for utility expenses incurred after the Filing. 4. Debt As a result of the Filing, most long-term debt obligations were 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 fiscal 1995, the Company received Bankruptcy Court approval to make certain adequate protection payments to the pre-petition bank group. The adequate protection payments, a cash settlement, and deferred financing costs have been netted against the related outstanding debt amounts (Note 2). 12 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. 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 initial amount of $2.25 million, subject to reduction to reflect, inter alia, adequate protection payments, and provided, among other things, for - ----- ---- the Company to make monthly adequate protection payments of $40,000 to BTM, retroactive to November 13, 1995. The retroactive adequate protection payments to BTM were made in July, 1996. No other determination has 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 $8.1 and $16.2 million for the fiscal 1996 second quarter and year-to-date, respectively, and approximately $3.1 million for the fiscal 1995 second quarter and year-to-date subsequent to the Filing. The Company has a Debtor-in-Possession Revolving Credit and Guaranty Agreement dated as of June 23, 1995 (the "DIP Facility"), in the aggregate amount of $250 million (amended to $200 million on September 13, 1996, subject to Bankruptcy Court approval), with Chase Manhattan Bank, as Agent, and Societe Generale, as co-Agent, under which the Company is allowed to borrow or obtain letters of credit (in an aggregate amount of $125 million) for general corporate purposes, working capital and inventory purchases. There have been no borrowings since the Filing, exclusive of letters of credit, under the DIP Facility. Trade and standby letters of credit outstanding under the DIP Facility at August 3, 1996 were $21.4 and $45.2 million, respectively, and $27.3 and $10.0 million, respectively, at July 29, 1995. In addition, as of July 29, 1995, trade and standby letters of credit under the Revolver were $12.6 and $20.6 million, respectively. At the Company's option, the Company may borrow under the DIP Facility at the Alternate Base Rate (as defined) plus .25% or at the Adjusted LIBO Rate (as defined) plus 1.5%. The maximum borrowing, up to $250 million ($200 million beginning September 13, 1996, subject to Bankruptcy Court approval), is limited to 60% of the Eligible Book Value of Inventory (as defined). Although there are no compensating balance requirements, the Company is required to pay a commitment fee of .5% per annum 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. Certain of the covenants were amended in March and September, 1996. As of August 3, 1996, the Company is in compliance with the DIP Facility covenants. 13 The lender under the DIP Facility has a "super-priority" claim against the estate of the Company. The DIP Facility expires on the earlier of June 23, 1997 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 currently does not expect to recognize an annual income tax expense or benefit in fiscal 1996. The Company received a federal income tax refund of $24.5 million in April, 1996 for income taxes previously paid. 6. Reorganization Items The Company provided for or incurred the following expense and income items during the thirteen and twenty-six weeks ended August 3, 1996 and for the corresponding periods of the prior year, directly associated with the Chapter 11 reorganization proceedings and the resulting restructuring of its operations: (000's) 13 Wks 13 Wks 26 Wks 26 Wks Ended Ended Ended Ended 8/3/96 7/29/95 8/3/96 7/29/95 ------- ------- ------ ------- Professional fees $1,500 $5,250 $2,500 $5,250 Interest income (460) (233) (991) (233) Provision for rejected leases 30,000 - 30,000 - Asset write-downs 6,328 - 10,232 - Change in estimate for inventory impairment - - (1,000) - Reserve for occupancy and other store closing costs 3,560 - 3,560 - Termination benefits - - 4,165 - Chapter 11 customer discounts - 2,960 - 2,960 ------ ------ ------ ------ $40,928 $7,977 $48,466 $7,977 Professional fees and Interest income: Professional fees represent estimates of expenses incurred in the periods, 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 the cash accumulated and invested during the Chapter 11 proceeding. 14 Provision for rejected leases and asset write-downs: In July, 1996, the Company approved a restructuring plan to close 14 additional stores (the "Fall 1996 Closing Stores") in the third quarter of fiscal 1996. In connection with this plan, the Company recorded a provision of $30 million of claim estimates for the expected rejection of 10 of the closing store leases, all of which are currently being marketed. Under the Bankruptcy Code, the Company may elect to reject real estate leases, subject to Bankruptcy Court approval. If all of the 13 closing store leases (one of the 14 closing stores is owned) were rejected, the provision would increase by approximately $8 million. In addition, the Company wrote down closing store net assets of $6.3 million, including capital lease assets and the associated obligations and a write-down of the land and building at the Company's Providence, RI store to the estimated net realizable value. The net realizable value of this property has been classified as a long-term asset held for sale. In April, 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 in the first quarter of fiscal 1996. The net realizable value of this property was also classified as a long-term asset held for sale. Reserve for inventory impairment: The change in the reserve for inventory impairment was recorded in the first quarter of fiscal 1996 due to a revised (lower) estimate of the incremental markdowns required to liquidate the inventory at 13 closed stores (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 inventory at the Fall 1996 Closing Stores. Such costs were recorded at August 3, 1996, in accordance with the retail inventory method. The fiscal 1995 reserve for inventory impairment was classified as a restructuring charge, however the reserve established for the Fall 1996 Closing Stores was charged to cost of sales as a result of a recent SEC staff announcement at the July 18, 1996 meeting of the Emerging Issues Task Force. At the meeting ,the staff announced that they believe inventory markdowns attributable to a restructuring or exit plan should be classified in the income statement as a component of sales. The "going out of business" (GOB) sales at the Fall 1996 Closing Stores commenced in August, 1996 and are expected to be completed in October, 1996. The Company currently expects to realize approximately $28 million in cash for the inventory after payment of direct GOB expenses (excluding occupancy, severance pay and certain other indirect costs), as compared to approximately $21 million realized from the Spring 1996 Closed Stores' GOB sales. Store closing costs: The Company established reserves totaling $3.6 million at August 3, 1996 for occupancy and other closing costs. 15 Termination benefits: Termination benefits represent $3.1 million of estimated severance pay, including $.3 and $2.5 million paid in the fiscal 1996 second quarter and year-to-date, respectively, 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, including $1.0 million paid in the second quarter, for approximately 660 store positions eliminated as a result of the Spring 1996 closed stores. Employees affected by the Fall 1996 Closing Stores will be notified of their termination benefits during the third quarter of fiscal 1996 and an associated estimated charge of approximately $1.6 million is expected to be recorded at that time. Chapter 11 customer discounts: The "Chapter 11 customer discounts" recorded in fiscal 1995 represented a special 5% discount that was provided to customers during a two-week period following the Filing to retain customer loyalty and to compensate customers for the inconvenience of unavailable merchandise. Net sales and operating losses (losses exclusive of any home office expense allocation and prior to interest expense, income taxes and reorganization items) from the Fall 1996 Closing Stores were (in 000's): 13 Wks Ended 26 Wks Ended Fiscal Fiscal Aug. 3, 1996 Aug. 3, 1996 1995 1994 ------------- ------------ ------ ------ Net sales $33,524 $63,336 $156,266 $132,699 Operating loss (5,733) (11,849) (21,771) (499) Net sales for the Spring 1996 Closed Stores for the twenty-six weeks ended August 3, 1996 were approximately $32.8 million. Historical net sales and operating results for these 13 stores were reported in the Company's Form 10-K for fiscal 1995. 7. Statement of Financial Accounting Standards No. 123 In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", effective for fiscal 1996. SFAS No. 123 encourages, but does not require, the recognition of compensation expense for the fair value of stock option and other equity instruments issued to employees. The Company did not adopt the fair-value provisions of SFAS 123 and will continue accounting for its stock-based transactions in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". The pro forma disclosures required by SFAS No. 123 will be presented, if material, in the notes to the Company's fiscal 1996 annual financial statements. 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 - -------------------- Results of operations, summarized in million of dollars and expressed as a percentage of net sales, were as follows for the 13 weeks and 26 weeks ended August 3, 1996 ("Second Quarter 1996" and "Year-to-Date 1996", respectively) and for the 13 weeks and 26 weeks ended July 29, 1995 ("Second Quarter 1995" and "Year-to-Date 1995", respectively): 13 Wks Ended 26 Wks Ended -------------- ------------ Aug. 3, July 29, Aug. 3, July 29, 1996 1995 1996 1995 ------ ------- ------ ------- (Dollars in millions except per share amounts) Total sales $386.2 $437.5 $ 736.1 $829.9 Leased department sales 16.6 16.1 28.8 28.8 ------ ------ ------- ------ Net sales 369.6 421.4 707.3 801.1 Cost of goods sold 268.2 296.9 503.4 577.1 ------ ------ ------- ------ Gross margin 101.4 124.5 203.9 224.0 Leased department and other operating income 3.7 3.7 6.4 7.0 ------ ------ ------- ------ 105.1 128.2 210.3 231.0 Selling, store operating, administrative and distribution expenses 134.0 143.3 272.0 278.0 Depreciation and amortization 10.5 13.2 21.5 26.4 Interest and debt expense 2.5 7.1 4.9 16.9 Reorganization items 40.9 8.0 48.4 8.0 ------ ------ ------- ------ Loss before income taxes (82.8) (43.4) (136.5) (98.3) Income tax benefit - 15.8 - 38.3 ------ ------ ------- ------ Net loss $(82.8) $(27.6) $(136.5) $(60.0) ====== ====== ======= ====== Net loss per share $(7.25) $(2.41) $(11.96) $(5.25) ====== ====== ======= ====== Total sales increase (decrease): All stores (11.7)% (1.3)% (11.3)% 1.2% Comparable stores (10.0)% (11.1)% (11.2)% (9.0)% Number of stores in operation at end of period 124 136 124 136 17 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 Wks Ended 26 Wks Ended Aug. 3, July 29, Aug. 3, July 29, 1996 1995 1996 1995 ------ ------- ------ ------- As a percentage of net sales, results were as follows: Net Sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 72.6 70.5 71.2 72.0 ------ ------ ------ ----- Gross margin 27.4 29.5 28.8 28.0 Leased department and other operating income 1.0 0.9 0.9 0.8 ------ ------ ------ ------ 28.4 30.4 29.7 28.8 Selling, store operating, administrative and distribution expenses 36.3 34.0 38.5 34.7 Depreciation and amortization 2.8 3.1 3.0 3.3 Interest and debt expense 0.6 1.7 0.7 2.1 Reorganization items 11.0 1.9 6.8 1.0 ------ ------ ------ ------ Loss before income taxes (22.4) (10.3) (19.3) (12.3) Income tax benefit - 3.8 - 4.8 ------ ------ ------ ------ Net loss (22.4)% (6.5)% (19.3)% (7.5)% ====== ====== ====== ====== 18 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 Second Quarter 1996 declined $51.3 million or 11.7% from Second Quarter 1995 due to a 10.0% decrease in comparable store sales (including leased department sales) and 15 stores closed since last year's second quarter (including the Spring 1996 Closed Stores - see Note 6), partially offset by the sales from three new stores opened in early March, 1996. The Fall 1996 Closing Stores are scheduled to be closed in October, 1996. The major causes for the decline in comparable store sales were the difficulties in promptly offsetting the sales loss from discontinued merchandise categories and the weak retail market, particularly in apparel. As part of new merchandising and marketing strategies, the Company has emphasized lower-volume, higher-margin products in its merchandise mix and in its advertising, with less emphasis on higher-volume, lower-margin commodity products. The Company is taking these steps as part of its plan (summarized in Note 1 to the financial statements) to improve the Company's performance. Comparable store sales (excluding the Fall 1996 Closing Stores) for the fiscal month of August, 1996 (the four weeks ended August 31, 1996) increased 12.2%. Total sales for Year-to-Date 1996 declined $93.8 million or 11.3% from Year-to-Date 1995 due primarily to a 11.2% decrease in comparable store sales. The major causes for the year-to-date decline in comparable store sales were the same as discussed above for the second quarter decline. Gross margin declined $23.1 million or 2.1% as a percentage of net sales in Second Quarter 1996 from Second Quarter 1995, due primarily to higher markdowns, a $5.9 million markdown provision for the Fall 1996 Closing Stores (Note 6) and a $2.2 million inventory shrink charge associated with June, 1996 chain-wide physical inventories, partially offset by an increase in the overall initial markup. The increase in markup is a function of the move toward higher-quality, higher-margin apparel and decorative home products. The higher markdowns were associated with the continued changes in the Company's merchandise assortment and the Company's aggressive posture with respect to markdowns (to maintain appropriate inventory levels relative to the lower sales performance). Gross margin for Year-to-Date 1996 declined $20.1 million but increased .8% as a percentage of net sales from Year-to-Date 1995. The gross margin dollar decline was due to the impact of lower year-to-date sales, the $5.9 million Fall 1996 Closing Stores' markdown provision and the $2.2 million shrink charge, partially offset by the favorable impact from the higher year-to-date gross margin rate. The year-to-date gross margin rate increase was primarily due to a higher overall initial markup, partially offset by a higher markdown rate. 19 Leased department and other operating income remained the same in amount but increased .1% as a percentage of net sales in Second Quarter 1996 from Second Quarter 1995 due to the impact from higher shoe sales, offset by the absence of layaway income (included in other operating income) resulting from the August 1995 discontinuance of the layaway program. Year-to-Date 1996 leased department and other operating income declined $.6 million but increased .1% as a percentage of net sales compared to Year-to-Date 1995. The year-to-date dollar decline was due to the discontinuance of the layaway program and the percentage increase was due to the lower net sales base over which the percentage was calculated. Selling, store operating, administrative and distribution ("S,G&A") expenses declined $9.3 million but increased 2.3% as a percentage of net sales in Second Quarter 1996 compared to Second Quarter 1995. The S,G&A dollar decrease was due primarily to the stores closed in June, 1996, store labor expense reductions resulting from the store management reorganization initiated in February, 1996 and staffing adjustments due to the lower sales results, and certain other cost reductions, partially offset by higher advertising expenses and expenses associated with additions and expansion of certain home office functions (e.g. planning and allocation and store design and visual presentation). The S,G&A increase as a percentage of net sales in Second Quarter 1996 was due to the lower sales base. Year-to-Date 1996 S,G&A expenses declined $6.0 million but increased 3.8% as a percentage of net sales from Year-to-Date 1995. These changes were due to the same factors as discussed above for Second Quarter 1996. The Company has implemented an expense reduction program for the second half of fiscal 1996 that includes expected reductions in store, asset protection, logistics and home office expenses. Depreciation and amortization expense decreased $2.7 and $4.9 million or .2% and .3% as a percentage of net sales in Second Quarter and Year-to-Date 1996, respectively, compared to Second Quarter and Year-to-Date 1995, due primarily to the fiscal 1995 adoption of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the associated reduction of $99.4 million in the depreciable and amortizable bases of certain long-lived assets as of February 3, 1996. Interest and debt expense declined $4.6 and $12.0 million or 1.1% and 1.4% as a percentage of net sales in Second Quarter and Year-to-Date 1996, respectively, compared to Second Quarter and Year-to-Date 1995, due to the discontinuance of accruing interest on substantially all pre-petition debt. Interest and debt expense in Year-to-Date 1995 included interest costs on the borrowings under the Company's pre-petition revolver and certain other debt now classified as liabilities subject to settlement. 20 Reorganization items of $40.9 and $48.4 million incurred for Second Quarter and Year-to-Date 1996, respectively, and $8.0 million for Second Quarter and Year-to-Date 1995 relate to the Chapter 11 proceedings and related restructuring and are discussed in Note 6. Termination benefits relating to employees at the Fall 1996 Closing Stores will be recorded in the third quarter of fiscal 1996, since the affected employees were not notified of their termination benefits until after August 3, 1996. The Company currently estimates that these benefits will total approximately $1.6 million. In addition, the Company currently anticipates a third quarter charge of approximately $3.5 million for termination benefits associated with the expense reduction program discussed above. The Company did not record an income tax provision in Second Quarter and Year-to-Date 1996 due to the current expectation of no income tax expense or benefit for fiscal 1996. The Company recorded income tax benefits of $15.8 and $38.3 million in Second Quarter and Year-to-Date 1995, respectively. Liquidity and Capital Resources There were no borrowings during Year-to-Date 1996, exclusive of the issuance of letters of credit, under the Company's DIP Facility (Note 4). The Company currently expects direct borrowings under its DIP Facility to peak at approximately $55 million during October and November, 1996. The Company amended the DIP Facility in September, 1996 to, among other things, (i) lower the aggregate amount to $200 million from $250 million because of the reduced amount of inventory that the Company has available to borrow against due to the Spring 1996 Closed Stores and the Fall 1996 Closing Stores, (ii) reduce the minimum inventory covenants for the same reason and (iii) adjust the minimum EBITDA covenants in light of the fiscal 1996 first half results and revised second half plan (the "Revised Plan" as filed on Form 8-K dated September 17, 1996) to allow for the same "cushion" against the Revised Plan that the prior EBITDA covenants had against the original plan. The DIP Facility amendments are subject to Bankrupcty Court approval. The Company's liquidity, which was limited in the weeks prior to the Chapter 11 filing in June, 1995, improved dramatically after the filing due to the nonpayment of virtually all pre-petition liabilities. In fiscal 1995, prior to the filing, borrowings under the pre-petition revolver peaked at $99.5 million and averaged $84.3 million. Borrowings outstanding under the pre-petition revolver were $93.5 million, exclusive of outstanding letters of credit, at the time of the filing. Other than payments made to certain creditors approved by the Bankruptcy Court as adequate protection payments, principal and interest payments on indebtedness incurred prior to the filing, exclusive of certain capital lease obligations, 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 as a result of the filing. 21 In Year-to-Date 1996, cash flows used by operations before reorganization items was $17.0 million, compared to $45.6 million of cash provided by operations before reorganization items in Year-to-Date 1995. Net cash used by reorganization items (Note 6) in Year-to-Date 1996 was primarily the result of professional fees and termination benefits. The net cash used of $17.0 million prior to reorganization items in Year-to-Date 1996 was primarily the result of the operating loss incurred, partially offset by a federal income tax refund of $24.5 million received in April, 1996 and the proceeds from going-out-of business sales at the 13 closed stores. The income tax refund is included in "changes in working capital, net" in the consolidated statement of cash flows. The Year-to-Date 1995 net cash provided of $45.6 million prior to reorganization items was due to the non-payment of virtually all pre-petition liabilities, partially offset by the operating loss incurred. Inventories at August 3, 1996, declined $17.8 and $25.9 million from July 29, 1995 and February 3, 1996, respectively, due primarily to the Spring 1996 Closed Stores. Accounts payable, exclusive of amounts subject to settlement, at August 3, 1996 increased $45.0 million from July 29, 1995, primarily because accounts payable as of July 29, 1995 reflected only inventory receipts subsequent to the filing date. Accounts payable, exclusive of amounts subject to settlement, at August 3, 1996 declined $1.7 million from February 3, 1996 due to the Spring 1996 Closed Stores, partially offset by the inventory build-up for the Company's two-week home furnishings sale in August. Accounts receivable at August 3, 1996, increased $3.2 and $.4 million from February 3, 1996 and July 29, 1995, respectively, due to higher credit card receivables resulting from an August 1, 1996 one-day sale, partially offset by lower layaway receivables (the Company's layaway option for customers was discontinued as of August 1, 1995). Accrued expenses at August 3, 1996 were $2.5 and $23.9 million higher than at February 3, 1996 and July 29, 1995, respectively, due primarily to certain reserves established for this year's store closings (Note 6) and accrued expenses in the prior year that were reclassified as subject to settlement after the filing date. The assets held for sale (current portion) are comprised of three properties, including one owned undeveloped property and two of the Spring 1996 Closed Store leases currently expected to be sold within a year. The long-term assets held for sale are comprised of one closing store site and one previously planned new store site that were financed and currently expected to take longer than a year to sell. The current estimated net realizable value for the two financed properties are less than the associated financing obligations included in liabilities subject to settlement. Any sales proceeds from those properties are expected to be utilized to reduce the obligations. The Company incurred capital expenditures of $9.4 million in Year-to-Date 1996, primarily for systems improvements and merchandise fixtures, compared to $10.2 million in Year-to-Date 1995. For all of fiscal 1996, the Company expects total capital expenditures to be approximately $30 million based upon its Revised Plan, primarily for management information systems, and merchandise fixtures and store repair and maintenance improvements. The Company currently expects to 22 finance these expenditures through internally-generated funds. As part of its strategy to position Bradlees between discount and department stores, the Company has been revising its merchandise presentation. This new strategy has and is expected to influence the nature of capital expenditures (some of which may be subject to Bankruptcy Court approval) in the near future. The Company believes that the availability of its DIP Facility, together with the Company's available cash and expected cash flows from fiscal 1996 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 operating results that are reasonably consistent with its Revised Plan. 23 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. - ---------- ------- -------- 10.1* Debtor-in-Possession Revolving Credit and Guaranty Agreement, dated as of June 23, 1995, between Chemical Bank, as Agent, and Bradlees Stores, Inc., a Debtor-in-Possession, with Bradlees Administrative Co., Inc. and the Subsidiaries of the Borrower as Guarantors, is incorporated by reference from the Company's Form 8-K dated July 26, 1995, Item 7, Exhibit 10.1, as filed with the Securities and Exchange Commission on July 27, 1995. 10.2* First Amendment, dated as of June 30, 1995, to Debtor-in-Possession Revolving Credit and Guaranty Agreement, is incorporated by reference from the Company's Form 8-K dated July 26, 1995, Item 7, Exhibit 10.2, as filed with the Securities and Exchange Commission on July 27, 1995. 10.3* Second Amendment, dated as of August 9, 1995, to Debtor-in-Possession Revolving Credit and Guaranty Agreement, is incorporated by reference from the Company's Form 10-Q for the quarterly period ended August 12, 1995, Part II, Item 6, Exhibit 10.3, as filed with the Securities and Exchange Commission on September 26, 1995. 10.4* Third Amendment, dated as of March 15, 1996, to Debtor-in-Possession Revolving Credit and Guaranty Agreement, dated as of June 23, 1995, between Chemical Bank, as Agent and Societe Generale, as Co-Agent, and Bradlees Stores, Inc., a Debtor-in-Possession, with Bradlees Administrative Co., Inc. and the Subsidiaries of the Borrower as Guarantors, is incorporated by reference from the Company's Form 8-K dated March 29, 1996, Item 7, Exhibit 10.4, as filed with the Securities and Exchange Commission on April 1, 1996. - --------------------------- *Previously filed 23 Exhibit No. Exhibit Page No. - ---------- ------- -------- 10.5 Fourth Amendment, dated as of September 13,1996, to Debtor-in-Possession Revolving Credit and Guaranty Agreement, dated as of June 23, 1995, between Chase Manhattan Bank, as Agent and Societe Generale, as Co-Agent, and Bradlees Stores, Inc., a Debtor-in-Possession, with Bradlees Administrative Co., Inc. and the Subsidiaries of the Borrower as Guarantors. 11 Computation 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 3, 1996: Date of Report Date of Filing Item Number Description -------------- -------------- ----------- -------------- June 7, 1996 June 7, 1996 5 Disclosure of first quarter fiscal 1996 results compared to plan. 24 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 16, 1996 By /s/ MARK A. COHEN ----------------- Mark A. Cohen Chairman and Chief Executive Officer Date: September 16, 1996 By /s/ PETER THORNER ----------------- Peter Thorner President,Director and Chief Operating Officer Date: September 16, 1996 By /s/ CORNELIUS F.MOSES III ------------------------- Cornelius F. Moses III Senior Vice President, Chief Financial Officer 25 Exhibit 10.5 FOURTH AMENDMENT TO REVOLVING CREDIT AND GUARANTY AGREEMENT FOURTH AMENDMENT, dated as of September 13, 1996 (the "Amendment"), - --------- to the REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of June 23, 1995, among BRADLEES STORES, INC., a Massachusetts corporation (the "Borrower"), as a debtor and debtor-in-possession under Chapter 11 of -------- the Bankruptcy Code, the Guarantors named therein (the "Guarantors"), as - ---------- debtors and debtors-in possession under Chapter 11 of the Bankruptcy Code, THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York banking corporation ("Chase"), each of the other financial ----- institutions party thereto (together with Chase, the "Banks") and THE ----- CHASE MANHATTAN BANK, as Agent for the Banks (in such capacity, the "Agent") and SOCIETE GENERALE, as Co-Agent for the Banks; ----- W I T N E S S E T H: WHEREAS, the Borrower, the Guarantors, the Banks, the Agent and the Co-Agent are parties to that certain Revolving Credit and Guaranty Agreement, dated as of June 23, 1995 (as heretofore amended by that certain First Amendment to Revolving Credit and Guaranty Agreement dated as of June 30, 1995, that certain Second Amendment to Revolving Credit and Guaranty Agreement dated as of August 10, 1995, that certain Third Amendment to Revolving Credit and Guaranty Agreement dated as of March 15, 1996 and that certain Amendment Letter Agreement dated August 15, 1996, as the same may be amended, modified or supplemented from time to time, the "Credit Agreement"); and ---------------- WHEREAS, the Borrower and the Guarantors have requested that from and after the Effective Date (as hereinafter defined) of this Amendment, the Credit Agreement be amended subject to and upon the terms and conditions set forth herein. 1. As used herein all terms which are defined in the Credit Agreement shall have the same meanings herein. 2. Section 2.01(a) of the Credit Agreement is hereby amended by deleting the amount "$250,000,000" set forth in clause (i) in the second sentence thereof and inserting in lieu thereof the amount "$200,000,000". 3. Section 6.05 of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and inserting in lieu thereof the following table: 26 Date EBITDA ---- ------ November 2, 1996 ($97,000,000) February 1, 1997 ($49,000,000) May 3, 1997 ($62,000,000) 4. Section 6.05 of the Credit Agreement is hereby further amended by inserting the following new sentence at the end thereof: "In calculating EBITDA for each period beginning on November 5, 1995 and ending on the date listed above, there shall be excluded from the determination in accordance with GAAP of the net income (or net loss) of the Borrower for such period an inventory markdown reserve recognized by the Borrower in connection with the closing of fourteen stores operated by the Borrower and announced by the Parent on August 9, 1996 in an amount not in excess of $7,500,000." 5. Section 6.06 of the Credit Agreement is hereby amended by deleting the table set forth therein in its entirety and inserting in lieu thereof the following table: Inventory --------- Period Ending Amount ------------- --------- October 5, 1996 $227,000,000 November 2, 1996 $261,000,000 November 30,1996 $274,000,000 January 4, 1997 $161,000,000 February 1, 1997 $173,000,000 March 1, 1997 $210,000,000 April 5, 1997 $216,000,000 May 3, 1997 $210,000,000 May 31, 1997 $196,000,000 6. Annex A to the Credit Agreement is hereby amended and replaced in its entirety by a new Annex A thereto in the form of Exhibit A hereto. 7. This amendment shall not become effective until the date (the "Effective Date") on which (i) this Amendment shall have been executed -------------- by the Borrower, the Guarantors, Banks constituting the Required Banks and the Agent, and the Agent shall have received evidence satisfactory to it of such execution and (ii) the Borrower (with the approval of the Bankruptcy Court, such approval to be evidenced by the entry of an order satisfactory in form and substance to the Agent) shall have paid to the Agent on behalf of the Banks an amendment fee equal to $250,000. 8. The Borrower agrees that its obligations set forth in Section 10.05 of the Credit Agreement shall extend to the preparation, execution and delivery of this Amendment. 27 9. This Amendment shall be limited precisely as written and shall not be deemed (a) to be a consent granted pursuant to, or a waiver or modification of, any other term or condition of the Credit Agreement or any of the instruments or agreements referred to therein or (b) to prejudice any right or rights which the Agent or the Banks may now have or have in the future under or in connection with the Credit Agreement or any of the instruments or agreements referred to herein. Whenever the Credit Agreement is referred to in the Credit Agreement or any of the instruments, agreements or other documents or papers executed or delivered in connection therewith, such reference shall be deemed to mean the Credit Agreement as modified by this Amendment. 10. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. 11. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and the year first above written. BRADLEES STORES, INC. By: Cornelius F. Moses, III ------------------------------ Title: SVP-CFO 28 GUARANTORS: BRADLEES, INC. BRADLEES ADMINISTRATIVE CO., INC. DOSTRA REALTY CO., INC. MAXIMEDIA SERVICES, INC. NEW HORIZONS OF BRUCKNER,INC. NEW HORIZONS OF WESTBURY,INC. NEW HORIZONS OF YONKERS,INC. By: Gary F. Jones ------------------------------ Title: VP and Treasurer THE CHASE MANHATTAN BANK, Individually and as Agent By: Neil R. Boylan ------------------------------ Title: VP 270 Park Avenue New York, New York 10017 SOCIETE GENERALE, Individually and as Co-Agent John J. Wagner By:------------------------------ Title: VP 1211 Avenue of the Americas New York, New York 10020 FLEET NATIONAL BANK By: John C. McDonough ------------------------------ Title: Vice President 75 State Street, 4th Floor Boston, Massachusetts 02109 29 HELLER FINANCIAL, INC. By: Salvatore Salzillo ------------------------------ Title: Asst. VP 101 Park Avenue New York, New York 10178 FLEET BANK, N.A., formerly NATWEST BANK N.A. By: Thomas Maiale ------------------------------ Title: Vice President 175 Water Street New York, New York 10038 JACKSON NATIONAL LIFE INSURANCE COMPANY By: PPM AMERICA, INC., as Attorney-in-Fact for Jackson National Life Insurance Company By: ------------------------------ Title: 225 West Wacker, Suite 1200 Chicago, Illinois 60606 ABN AMRO BANK N.V. BOSTON BRANCH By: ------------------------------ Title: By: ------------------------------ Title: One Post Office Square, 39th Floor Boston, Massachusetts 02109 30 BHF-BANK AG By: John Sykes ------------------------------ Title: A.V.P. By: Maria Busby ------------------------------ Title: A.V.P. 590 Madison Avenue New York, New York 10022-2540 MANUFACTURERS & TRADERS TRUST COMPANY By: Gino Martocci ------------------------------ Title: Asst. VP 350 Park Avenue, 6th Floor New York, New York 10022 SIGNET BANK By: John D. Scott ------------------------------ Title: VP 7 North Eighth Street P.O. Box 25641 Richmond, Virginia 23260 CREDIT AGRICOLE By: Dean Balice ------------------------------ Title: Senior Vice President 55 East Monroe, Suite 4700 Chicago, Illinois 60603 31 EXHIBIT A ANNEX A TO REVOLVING CREDIT AND GUARANTY AGREEMENT ANNEX A to REVOLVING CREDIT AND GUARANTY AGREEMENT Dated as of June 23, 1995, as amended ------------------------------------- Commitment Commitment Bank Amount Percentage - ---- ---------- - ---------- The Chase Manhattan Bank $24,000,000 12.00% Societe Generale 20,000,000 10.00% Fleet National Bank 20,000,000 10.00% Heller Financial, Inc. 20,000,000 10.00% NatWest Bank N.A. 20,000,000 10.00% Jackson National Life Insurance Company 28,000,000 14.00% ABN AMRO Bank N.V., Boston Branch 16,000,000 8.00% BHF-Bank AG 16,000,000 8.00% Manufacturers & Traders Trust Company 16,000,000 8.00% Signet Bank/Virginia 8,000,000 4.00% Credit Agricole 12,000,000 6.00% ---------- - ------- Total $200,000,000 100.00% ============ ======= 32 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) 26 Weeks Ended 26 Weeks Ended August 3, 1996 July 29, 1995 -------------- -------------- Primary Loss Per Share - ---------------------- Net loss $(82,785) $(27,556) ========= ======== Weighted average number of shares outstanding 11,411 11,422 Incremental shares for assumed exercise of stock options - - --------- -------- Total common shares and common share equivalent 11,411 11,422 ========= ======= Net earnings (loss) per share $ (7.25) $(2.41) ========= ======= Fully Diluted Loss Per Share (1) Net loss $(82,785) $(27,556) ========= ======== Weighted average number of shares outstanding 11,411 11,422 Incremental shares for assumed exercise of stock options - - --------- -------- Total common shares and common share equivalents 11,411 11,422 ========= ======== Fully diluted net loss per share $ (7.25) $(2.41) ========= ======== (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. 33 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 3, 1996 July 29, 1995 -------------- -------------- Primary Loss Per Share - ---------------------- Net loss $(136,531) $(59,955) ========= ======== Weighted average number of shares outstanding 11,413 11,414 Incremental shares for assumed exercise of stock options - - --------- -------- Total common shares and common share equivalent 11,413 11,414 ========= ======== Net earnings (loss) per share $(11.96) $(5.25) ========= ======= Fully Diluted Loss Per Share (1) Net loss $(136,531) $(59,955) ========= ======== Weighted average number of shares outstanding 11,413 11,414 Incremental shares for assumed exercise of stock options - - --------- -------- Total common shares and common share equivalents 11,413 11,414 ========= ======== Fully diluted net loss per share $(11.96) $(5.25) ========= ======== (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. 34 EXHIBIT 15 Deloitte & Touche LLP - ------------ - ------------------------------------------------- 125 Summer Street Telephone: (617)261-8000 Boston, MA 02110-1617 Facsimile:(617)261-8111 September 13, 1996 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-week and 13-week periods ended August 3, 1996 and July 29, 1995 as indicated in our report dated August 28, 1996 (September 13, 1996 with respect to paragraphs 3 and 4 of Note 4)(which included explanatory paragraphs relating to (a) the Company's filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, (b) certain conditions which raise substantial doubt about the Company's ability to continue as a going concern, and (c) the change in the Company's quarterly reporting period to a thirteen-week format); 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 August 3, 1996, 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 - ------------------------- - ------------------ Deloitte Touche Tohmatsu International - ------------------ 35 EX-27 2
5 1000 6-MOS FEB-01-1997 FEB-04-1996 AUG-03-1996 24668 0 13737 0 256402 313470 175685 0 685107 215713 0 0 0 115 (181421) 685107 707281 713715 503371 503371 341916 0 4959 (136531) 0 (136531) 0 0 0 (136531) (11.96) (11.96)
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