-----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, K5GvxbdCEQ/x6PRIyuXSrTupL0fa+ln/qy/OU/viF6DhuqOtODnq1vXBrmUjPi8m GGTw0RbM8i8TkkBnCVUruw== 0000887356-96-000027.txt : 19961218 0000887356-96-000027.hdr.sgml : 19961218 ACCESSION NUMBER: 0000887356-96-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961102 FILED AS OF DATE: 19961217 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: 96682227 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 November 2, 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 December 1, 1996: 11,404,620 shares. Exhibit Index on Page 22 Page 1 of 26 (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 November 2, 1996 and October 28, 1995, and the related condensed consolidated statements of operations, and cash flows for the thirty-nine week periods ended November 2, 1996 and October 28, 1995 and the condensed statements of operations for the thirteen-week periods ended November 2, 1996 and October 28, 1995. 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 the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1 to the respective financial statements. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of February 3, 1996, and the related consolidated statements of operations, 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 2 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 November 19, 1996 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 -------------- Nov. 2, 1996 Oct. 28, 1995 ------------- ------------- Total sales $420,319 $418,656 Leased department sales 15,863 14,529 --------- -------- Net sales 404,456 404,127 Cost of goods sold 291,396 288,417 --------- -------- Gross margin 113,060 115,710 Leased department and other operating income 3,475 3,459 --------- -------- 116,535 119,169 Selling, store operating, administrative and distribution expenses 120,741 141,694 Depreciation and amortization expense 10,595 12,781 Gain on disposition of property (1,689) - Interest and debt expense 1,878 2,655 Reorganization items 8,083 13,066 --------- -------- Loss before income taxes (23,073) (51,027) Income tax benefit - 12,435 Net loss $ (23,073) $ (38,592) ======== ======== Net loss per share $ (2.02) $ (3.38) ======== ======== 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) 39 Weeks Ended --------------- Nov. 2, 1996 Oct. 28, 1995 ------------ ------------- Total sales $1,156,405 $1,248,532 Leased department sales 44,668 43,367 ------------ ------------- Net sales 1,111,737 1,205,165 Cost of goods sold 794,767 865,488 Gross margin 316,970 339,677 Leased department and other operating income 9,908 10,529 ------------ ------------- 326,878 350,206 Selling, store operating, administrative and distribution expenses 392,715 419,696 Depreciation and amortization expense 32,071 39,212 Gain on disposition of property (1,689) - Interest and debt expense 6,837 19,577 Reorganization items 56,549 21,035 ------------ ------------- Loss before income taxes (159,605) (149,314) Income tax benefit - 50,767 ------------ ------------- Net loss $(159,605) $(98,547) ========== ========= Net loss per share $ (13.99) $ ( 8.63) ========== ========= 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) Nov. 2, Feb. 3, Oct. 28, 1996 1996 1995 -------- -------- --------- ASSETS Current assets: Unrestricted cash and cash equivalents $ - $ 63,012 $ 65,947 Restricted cash and cash equivalents 9,030 1,194 1,083 -------- --------- -------- Total cash and cash equivalents 9,030 64,206 67,030 Accounts receivable 17,562 10,536 16,296 Refundable income taxes - 24,576 - Inventories 339,178 282,270 413,236 Prepaid expenses 10,458 10,008 10,915 Deferred income taxes - - 27,733 Assets held for sale 8,954 8,954 - -------- --------- -------- Total current assets 385,182 400,550 535,210 -------- --------- -------- Property, plant and equipment, net: Property excluding capital leases, net 147,987 170,247 210,859 Property under capital leases, net 28,232 37,249 58,946 -------- --------- -------- Total property, plant and equipment, net 176,219 207,496 269,805 -------- --------- -------- Other assets: Lease interests at fair value and lease acquisition costs, net 180,161 186,626 240,187 Assets held for sale 10,153 - - Other, net 3,714 3,990 1,556 -------- --------- -------- Total other asset 194,028 190,616 241,743 -------- --------- ---------- Total assets $755,429 $798,662 $1,046,758 ========= ========= ========== (Continued) 6 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands) Nov. 2, Feb. 3, Oct. 28, 1996 1996 1995 -------- -------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $218,565 $148,870 $266,094 Accrued expenses 64,661 63,735 55,303 Short-term debt 24,000 - - Current portion of capital lease obligations 2,110 2,602 5,019 -------- --------- -------- Total current liabilities 309,336 215,207 326,416 -------- --------- -------- Long-term liabilities: Obligations under capital leases 47,534 53,396 40,695 Deferred income taxes 8,581 8,581 65,504 Other long-term liabilities 24,673 26,723 28,573 -------- --------- -------- Total long-term liabilities 80,788 88,700 134,772 -------- --------- -------- Liabilities subject to settlement under the reorganization case 569,581 539,765 521,845 Stockholders' equity (deficiency): Common stock-11,404,620 shares outstanding (11,416,656 at 2/3/96, 11,417,524 at 10/28/95) Par value 115 115 115 Additional paid-in capital 137,951 137,951 137,954 Unearned compensation (316) (793) (945) Accumulated deficit (341,371) (181,766) (72,899) Treasury stock, at cost (655) (517) (500) -------- --------- -------- Total stockholders' equity (deficiency) (204,276) (45,010) 63,725 --------- --------- ---------- Total liabilities and stockholders' equity (deficiency) $755,429 $798,662 $1,046,758 =========== ========= ========== 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) 39 Weeks Ended Nov. 2, 1996 Oct. 28, 1995 ------------- -------------- Cash flows from operating activities: Net loss $ (159,605) $ (98,547) Adjustments to reconcile net loss to cash provided (used) by operating activities: Depreciation and amortization expense 32,071 39,212 Amortization of deferred financing costs 1,574 867 Deferred income taxes - (50,767) Reorganization items 56,549 21,035 Changes in working capital, net 30,875 109,648 ---------- ---------- Net cash provided (used) by operating activities before reorganization items (38,536) 21,448 ---------- ---------- Reorganization items: Interest income received 1,260 1,578 Chapter 11 professional fees paid (8,535) (309) Other reorganization expenses paid (9,030) (2,960) ---------- ---------- Net cash used by reorganization items (16,305) (1,691) ---------- ---------- Net cash provided (used) by operating activities (54,841) 19,757 Cash flows from investing activities: Capital expenditures, net (18,625) (15,023) Lease acquisition costs - (64) Increase in restricted cash and cash equivalents (7,836) (1,083) ---------- ---------- Net cash used in investing activities (26,461) (16,170) ---------- ---------- Cash flows from financing activities: Payments of liabilities subject to settlement (3,180) (10,564) Deferred financing costs (571) (2,364) Net borrowings under pre-petition revolver - 72,500 Net borrowings under the DIP facility 24,000 - Principal payments on capital lease obligations (1,959) (5,794) Other common stock activity, net - 145 Dividends paid - (1,711) ---------- ---------- Net cash provided by financing activities 18,290 52,212 ---------- ---------- Net increase (decrease) in unrestricted cash and cash equivalents (63,012) 55,799 Unrestricted cash and cash equivalents: Beginning of period 63,012 10,148 ---------- ---------- End of period $ - $ 65,947 =========== ========== Supplemental disclosure of cash flow information: Cash paid for interest and certain debt fees $ 1,511 $ 14,012 Cash paid (received) for income taxes $ (24,998) $ 98 Supplemental schedule of noncash investing and financial activities: Capital lease obligations incurred $ - $ 5,669 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 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 (third quarter) and 39 weeks (year-to-date) ended November 2, 1996 and October 28, 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. 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 third 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 $159.6 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. 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 27 unprofitable stores, and implemented an expense reduction program in the third quarter. 9 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 November 2, 1996 for rejected leases and anticipated claims for certain closed store leases that were 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 closed store leases, which are currently being marketed for sale or assignment, are rejected, an additional provision of up to approximately $8 million would be necessary. 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 $5.5 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. Liabilities Subject to Settlement Under (000's) the Reorganization Case November 2, 1996 - ------------------------------------------- ---------------- Accounts payable $167,809 Accrued expenses 25,499 Revolver 75,605 2002 Notes 122,274 2003 Notes 97,957 Financing obligation 17,951 Obligations under capital leases 13,515 Provision for rejected leases 48,971 -------- $569,581 ======== 10 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 have been restricted for security deposits for utility expenses ($1.2 million) incurred after the Filing and for forfeited deposits ($1.7 million) received in the third quarter on a planned sale of an owned undeveloped property that was not consummated. 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). 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 for adequate protection payments also approved by the Bankruptcy Court. 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 $24.3 million for the fiscal 1996 third quarter and year-to-date, respectively, and approximately $5.7 and $11.3 million, respectively, for the fiscal 1995 third quarter and year-to-date subsequent to the Filing. The Company has a Debtor-in-Possession Revolving Credit and Guaranty Agreement (the "DIP Facility") in the aggregate amount of $200 million 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. Short-term borrowings under the DIP Facility were $24.0 million on November 2, 1996. The average effective interest rate for this year's third quarter under the DIP Facility was 7.5%. Trade and standby letters of credit outstanding under the DIP Facility at November 2, 1996 were $7.3 and $32.9 million, respectively, and $20.3 and $16.0 million, respectively, at October 28, 1995. In addition, as of October 28, 1995, trade and standby letters of credit under the Revolver were $1.0 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 $200 million, is limited to 60% of the Eligible Book Value of Inventory (as defined). Although there is no compensating balance, the Company is required to pay a commitment fee of .5% per annum of the unused portion of the DIP Facility. 11 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 November 2, 1996, 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 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 thirty-nine weeks ended November 2, 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 Weeks 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Ended 11/2/96 10/28/95 11/2/96 10/28/95 -------- --------- -------- -------- Professional fees $3,000 $2,950 $5,500 $8,200 Interest income (269) (1,337) (1,260) (1,578) Provision for rejected leases - 6,579 30,000 6,579 Asset write-downs - 2,178 10,232 2,178 Change in estimate for inventory impairment - - (1,000) - Reserve for occupancy and other store closing costs - - 3,560 - Termination benefits 5,352 - 9,517 - Chapter 11 customer discounts - - - 2,960 Provision for retention bonuses - 2,696 - 2,696 ------ -------- ------- -------- $8,083 $13,066 $56,549 $21,035 ======= ======== ======== ====== 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. 12 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 Closed Stores") in the third quarter of fiscal 1996. In connection with this plan, the Company recorded a provision of $30 million of claim estimates in the second quarter for the expected rejection of 10 of the closed store leases, 6 of which have now been rejected. If all of the 13 closed store leases (one of the Fall 1996 Closed Stores is owned) are rejected, the provision would increase by approximately $8 million. All closed store leases not yet rejected are being marketed for sale or assignment. In addition, the Company wrote down closing store net assets of $6.3 million in July, 1996, 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. During the quarter ended October 28, 1995, the Company rejected certain leases, including the leases for two stores that had been planned to open in fiscal 1995. In connection with the lease rejections, the Company recorded an estimated liability of $6.6 million and related asset writeoffs of $2.2 million, primarily for leasehold improvements. Reserve for inventory impairment: The change in the reserve for inventory impairment (originally accrued in fiscal 1995) 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 Closed Stores, 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 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. At that 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 cost of sales. The "going out of business" (GOB) sales at the Fall 1996 Closed Stores commenced in August, 1996 and were completed in October, 1996. The Company realized approximately $30 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, $.6 million of which were paid in the third quarter. Termination benefits: Termination benefits of $5.4 million for the third quarter included $1.2 million of estimated severance (the majority of which was paid in the third quarter) for approximately 738 store positions eliminated as a result of the Fall 1996 Closed Stores and $4.2 million of estimated severance and benefits, including $1.7 million paid year-to-date, respectively, for 63 corporate office positions eliminated. 13 The year-to-date provision for termination benefits of $9.5 million also includes $3.0 million for 287 store, district and regional positions eliminated as a result of the February, 1996 store management reorganization and $1.1 million for approximately 660 store positions eliminated as a result of the Spring 1996 Closed Stores. A significant portion of these amounts were paid in the first half of fiscal 1996. 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. Provision for retention bonuses: During October, 1995, the Bankruptcy Court approved the Company's Retention Bonus Plan (the "Plan") that provided for, among other things, management bonuses for continued employment during the first fiscal year of Chapter 11 reorganization. Thereafter, the Plan provides incentives and rewards for performance that meets or exceeds established levels, as well as for continued employment. The fiscal 1995 year-to-date provision of $2.7 million represented the Chapter 11-related portion of the bonuses earned under the Plan following the Filing and earned under assumed and amended executive contracts also approved by the Bankruptcy Court. In fiscal 1996, earned bonuses under the Plan are being charged to selling, store operating, administrative and distribution expenses. Closed store results: 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 closed stores for this year's interim periods presented were (in 000's): Fall 1996 Spring 1996 Closed Stores Closed Stores ------------------------- -------------- 13 Weeks 39 Weeks 39 Weeks Ended Ended Ended Nov. 2, 1996 Nov. 2, 1996 Nov. 2, 1996 ------------ ------------ ------------- Net sales $39,759 $103,095 $32,821 Operating income (loss) 410(a) (18,548) (5,778) (a) Includes a positive adjustment of $7.1 million associated with utilization of markdown reserves established in prior periods for the GOB sales. Historical net sales and operating results for fiscal 1995 and 1994 for the Fall 1996 Closed Stores and the Spring 1996 Closed Stores were reported in the Company's Form 10-Q for the quarter ended August 3, 1996 and Form 10-K for fiscal 1995, respectively. 7. Change in Accounting Estimate The Company is primarily self-insured for workers' compensation and general liability costs. An actuarial study of the self-insurance reserves was completed in October, 1996, using a discount rate of 6.0% compared to 5.3% at February 3, 1996. As a result of the study, the reserves were reduced by $5.0 million with corresponding reductions of $4.3 and $.7 million in SG&A expenses (selling, store operating, administrative and distribution expenses) and interest expense, respectively, in the third quarter. 8. 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 14 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. 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, were as follows for the 13 weeks and 39 weeks ended November 2, 1996 ("Third Quarter 1996" and "Year to Date 1996", respectively) and for the 13 weeks and 39 weeks ended October 28, 1995 ("Third Quarter 1995" and "Year-to-Date 1995", respectively): 13 Weeks Ended 39 Weeks Ended ----------------- ------------------ 11/2/96 10/28/95 11/02/96 10/28/95 -------- -------- -------- -------- Dollars in millions except per share amounts) Total sales $ 420.3 418.6 $1,156.4 $1,248.5 Leased department sales 15.8 14.5 44.7 43.3 -------- -------- -------- -------- Net sales 404.5 404.1 1,111.7 1,205.2 Cost of goods sold 291.4 288.4 794.7 865.5 -------- -------- -------- -------- Gross margin 113.1 115.7 317.0 339.7 Leased department and other operating income 3.4 3.5 9.9 10.5 -------- -------- -------- -------- 116.5 119.2 326.9 350.2 Selling, store operating, administrative and distribution expenses 120.7 141.7 392.7 419.7 Depreciation and amortization expense 10.6 12.8 32.1 39.2 Gain on disposition of property (1.7) - (1.7) - Interest and debt expense 1.9 2.7 6.8 19.6 Reorganization items 8.1 13.0 56.6 21.0 -------- -------- -------- -------- Loss before income taxes (23.1) (51.0) (159.6) (149.3) Income tax benefit - 12.4 - 50.8 -------- -------- -------- -------- Net loss $(23.1) $(38.6) $(159.6) $(98.5) ======== ========= ======== ======== Net loss per share $(2.02) $ (3.38) $(13.99) $(8.63) ======== ========= ======== ======== Total sales increase (decrease): All stores 0.4% (10.1)% (7.4)% (2.9)% Comparable stores 5.0% (17.2)% (5.5)% (11.8)% Number of stores in operation at end of period 110 136 110 136 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 (Cont.) 13 Weeks Ended 39 Weeks Ended ------------------- ------------------- 11/2/96 10/28/95 11/02/96 10/28/95 -------- -------- -------- -------- As a percentage of net sales, results were as follows: Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 72.0 71.4 71.5 71.8 -------- -------- -------- -------- Gross margin 28.0 28.6 28.5 28.2 Leased department and other operating income 0.8 0.9 0.9 0.9 -------- -------- -------- -------- 28.8 29.5 29.4 29.1 Selling, store operating, administrative and distribution expenses 29.8 35.1 35.3 34.8 Depreciation and amortization 2.6 3.1 2.9 3.3 Gain on disposition of property (0.4) - (0.2) - Interest and debt expense 0.5 0.7 0.6 1.6 Reorganization items 2.0 3.2 5.2 1.8 -------- -------- -------- ------ Loss before income taxes (5.7) (12.6) (14.4) (12.4) Income tax benefit - 3.1 - 4.2 -------- -------- -------- -------- Net loss (5.7)% (9.5)% (14.4)% (8.2)% ======== ======== ======== ======= 17 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 Third Quarter 1996 increased $1.7 million or .4% from Third Quarter 1995 due primarily to a 5.0% increase in comparable store sales (including leased department sales) offset by the sales loss from 13 stores closed during this year prior to the third quarter (1 store closed in February and 12 stores closed in June). Fourteen additional stores closed in October, 1996, with no significant impact on Third Quarter 1996 sales compared to Third Quarter 1995. The increase in comparable store sales was due primarily to an increase in promotional activity and last year's merchandise disruptions that followed the Chapter 11 filing. Comparable store sales for the fiscal month of November, 1996 (the four weeks ended November 30, 1996) were flat compared to November, 1995 and below planned levels. Total sales for Year-to-Date 1996 declined $92.1 million or 7.4% from Year-to-Date 1995 due primarily to a 5.5% decrease in comparable store sales and the 13 closed stores. The major causes for the year-to-date decline in comparable store sales were the difficulties in promptly offsetting the sales loss from discontinued merchandise categories and the weak retail market during the first half of this year, 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. Gross margin declined $2.6 million or .6% as a percentage of net sales in Third Quarter 1996 from Third Quarter 1995, due primarily to higher markdowns associated with increased promotional activity, 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 merchandise. Gross margin for Year-to-Date 1996 declined $22.7 million but increased .3% 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 and a $5.9 million markdown provision recorded in the second quarter for the 14 stores closed in October, partially offset by the favorable impact from the higher year-to-date gross margin rate. The year-to-date gross margin rate increase was due primarily to a higher overall initial markup, partially offset by a higher markdown rate and the $5.9 million markdown provision. Leased department and other operating income remained approximately the same in Third Quarter 1996 compared to Third Quarter 1995 due to a 14.3% increase in comparable store shoe sales offset by the impact from the closed stores and the absence of layaway income (included in other operating income) resulting from the Third Quarter 1995 discontinuance of the layaway program. Year-to-Date 1996 leased department and other operating income declined $.6 million but remained the same as a percentage of net sales compared to Year-to-Date 1995. The year-to-date dollar decline was due primarily to the closed stores and discontinuance of the layaway program, while the percentage of net sales remained the same due primarily to a 6.4% increase in Year-to-Date 1996 comparable store shoe sales. 18 Selling, store operating, administrative and distribution ("SG&A") expenses declined $21.0 million and 5.3% as a percentage of net sales in Third Quarter 1996 compared to Third Quarter 1995. The decline in SG&A expenses was due primarily to: (a) the closed stores, (b) store labor expense reductions resulting from the store management reorganization initiated in February, 1996, (c) expense reductions begun last year in store operations, logistics, asset protection, and certain home office functions, (d) a $4.3 million credit in October, 1996 for a reduction in the Company's workers' compensation and general liability reserves, and (e) various other decreases in SG&A expenses associated with an expense reduction program implemented in Third Quarter 1996. These SG&A reductions were 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 reduction in the self-insurance reserves for workers' compensation and general liability claims was recorded as a result of the findings of an actuarial analysis completed in October, 1996 (Note 7). Year-to-Date 1996 SG&A expenses declined $27.0 million but increased .5% as a percentage of net sales from Year-to-Date 1995. The year-to-date SG&A dollar decline was due primarily to the Third Quarter 1996 SG&A decline discussed above, as well as the expense reduction initiatives in effect for the first half of this year. The year-to-date SG&A increase as a percentage of net sales was due to the lower sales base. The Company is planning further SG&A expense reductions for next year in an attempt to lower the SG&A rate to a more effective and competitive level. Depreciation and amortization expense decreased $2.2 and $7.1 million or .5% and .4% as a percentage of net sales in Third Quarter and Year-to-Date 1996, respectively, compared to Third 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. The Company recognized a $1.7 million gain in Third Quarter 1996 relating to forfeited deposits received on a planned sale of undeveloped property in Westbury, NY, that was not consummated because the prospective buyer could not obtain the necessary financing. This property continues to be included in assets held for sale (current portion) and the funds received are included in restricted cash. Interest and debt expense declined $.8 and $12.8 million or .2% and 1.0% as a percentage of net sales in Third Quarter and Year-to-Date 1996, respectively, compared to Third Quarter and Year-to-Date 1995. The Third Quarter 1996 decline in interest and debt expense was due primarily to a $.7 million credit resulting from a change in the rate to 6.0%, from 5.3%, used to discount the self-insurance reserves (Note 7) in October, 1996. The year-to-date decline was due to the discontinuance of accruing interest on substantially all pre-petition debt after the Chapter 11 filing. Interest and debt expense in Year-to-Date 1995 included interest costs prior to the filing on the borrowings under the Company's pre-petition revolver and certain other debt now classified as liabilities subject to settlement. Reorganization items of $8.1 and $56.6 million incurred for Third Quarter and Year-to-Date 1996, respectively, and $13.0 and $21.0 million for Third Quarter and Year-to-Date 1995, respectively, relate to the Chapter 11 proceedings and related restructuring and are discussed in Note 6. The Company did not record an income tax provision in Third 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 $12.4 and $50.8 million in Third Quarter and Year-to-Date 1995, respectively. 19 Liquidity and Capital Resources The Company had outstanding borrowings of $24 million at November 2, 1996, exclusive of the issuance of letters of credit, under the Company's DIP Facility (Note 4). Such borrowings peaked at $34 million and averaged $6.5 million during Third Quarter 1996. The Company currently expects direct borrowings under its DIP Facility to peak at approximately $33 million during the fourth quarter and be paid off by Christmas. There were no direct borrowings under the DIP Facility prior to Third Quarter 1996. 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. In Year-to-Date 1996, cash flows used by operations before reorganization items was $38.5 million, compared to $21.4 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. Components of restricted cash are discussed in Note 3. The net cash used of $38.5 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 27 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 $21.4 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 November 2, 1996, declined $74.1 million from October 28, 1995, due primarily to the closed stores, but increased $56.9 million from February 3, 1996, due to a normal seasonal build-up, partially offset by the impact of the closed stores. Accounts payable, exclusive of amounts subject to settlement, at November 2, 1996, declined $47.5 million from October 28, 1995, due primarily to the closed stores, but increased $69.7 million from February 3, 1996 due to the associated normal seasonal build-up of inventories, partially offset by the impact of the closed stores. Accounts receivable at November 2, 1996, increased $7.0 and $1.3 million from February 3, 1996 and October 28, 1995, respectively, due primarily to higher credit card receivables resulting from a November 1, 1996 one-day sale, partially offset by the impact of the closed stores. Accrued expenses at November 2, 1996, were $.9 and $9.4 million higher than at February 3, 1996 and October 28, 1995, respectively, due primarily to certain reserves established for the store closings and termination benefits (Note 6), partially offset since February 3, 1996 by lower self-insurance reserves. 20 The assets held for sale (current portion) are comprised of three properties, including one owned undeveloped property and two closed store leases currently expected to be sold within a year. The long-term assets held for sale are comprised of one closed 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 values 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 $18.6 million in Year-to-Date 1996, primarily for systems improvements and merchandise fixtures, compared to $15.0 million in Year-to-Date 1995. For all of fiscal 1996, the Company expects total capital expenditures to be approximately $30 million, primarily for management information systems, merchandise fixtures, and various store improvements. The Company currently expects to finance these expenditures through internally-generated funds. The Company believes that the availability of its DIP Facility, together with the Company's available cash and expected cash flows from fourth quarter 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 financial plans. As previously mentioned , November's sales were below planned levels. The Company's year-to-date operating results were also below plan. The Company is in the process of making adjustments to its business plans, including further reductions in SG&A expenses discussed above under "Results of Operations", to generate the necessary cash flows to fund its expected future needs. 21 BRADLEES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 6. - Exhibits and Reports on Form 8-K (a) Index to Exhibits Exhibit No. Exhibit Page No. 11 Computation of earnings per share. 24, 25 15 Letter re: unaudited interim financial information. 26 7(b) Reports on Form 8-K The following reports on Form 8-K were filed during the quarterly period ended November 2, 1996: Item Date of Report Date of Filing Number Description -------------- --------------- ------ ------------------- August 9, 1996 August 9, 1996 5 Disclosure of planned closing of 14 stores. Sept. 17, 1996 Sept. 19, 1996 5 Disclosure of second quarter fiscal 1996 results compared to plan and revised financial plan for the second half of fiscal 1996. 22 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: December 13, 1996 By /s/ MARK A. COHEN -------------------------------- Mark A. Cohen Chairman and Chief Executive Officer Date: December 13, 1996 By /s/ PETER THORNER ------------------------------- Peter Thorner President, Director and Chief Operating Officer Date: December 13, 1996 By /s/ CORNELIUS F. MOSES III -------------------------------- Cornelius F. Moses III Senior Vice President, Chief Financial Officer 24 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 11/2/96 10/28/95 -------------- -------------- Primary Loss Per Share - ---------------------- Net loss ($23,073) ($38,592) ========= ========== Weighted average number of shares outstanding 11,406 11,418 Incremental shares for assumed exercise of stock options - - ---------- --------- Total common shares and commmon share equivalents 11,406 11,418 ========= ========== Net earnings (loss) per share ($2.02) ($3.38) ========= ========== Fully Diluted Loss Per Share (1) Net loss ($23,073) ($38,592) ========= ========== Weighted average number of shares outstanding 11 ,406 11,418 Incremental shares for assumed exercise of stock options - - ---------- --------- Total common shares and common share equivalents 11,406 11,418 ========= ========== Fully diluted net loss per share $(2.02) $(3.38) (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. 25 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) 39 Weeks Ended 39 Weeks Ended 11/2/96 10/28/95 -------------- -------------- Primary Loss Per Share - ---------------------- Net Loss ($159,605) ($98,547) ========== ========== Weighted average number of shares outstanding 11,411 11,418 Incremental shares for assumed exercise of stock options - - ---------- --------- Total common shares and common share equivalents 11,411 11,418 ========== ========== Net earnings (loss) per share ($13.99) ($8.63) ========== ========== Fully Diluted Loss Per Share (1) - --------------------------------- Net Loss ($159,605) ($98,547) ========== ======== Weighted average number of shares outstanding 11,411 11,418 Incremental shares for assumed exercise of stock options - - ---------- --------- Total common shares and common share equivalents 11,411 11,418 ========== ========== Fully diluted Net earnings (loss) per share ($13.99) ($8.63) ========== ========== (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. 26 Exhibit 15 Deloitte & Touche LLP - ----------------- --------------------------- 125 Summer Street Telephone: (617)261-8000 Boston, Massachusetts 02110-1617 Facsimile: (617)261-8111 November 19, 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 39-week and 13-week periods ended November 2, 1996 and October 28, 1995 as indicated in our report dated November 19, 1996 (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 November 2, 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 EX-27 2
5 1000 9-MOS FEB-01-1997 FEB-04-1996 NOV-02-1996 9030 0 17562 0 339178 385182 176219 0 755429 309336 0 0 0 115 (204391) 755429 1111737 1121645 794767 794767 479646 0 6837 (159605) 0 (159605) 0 0 0 (159605) (13.99) (13.99)
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