FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d) of
The Securities and Exchange Act of 1934
QUARTER ENDED APRIL 8, 1995 COMMISSION FILE NO. 0-6544
BRUNO'S, INC.
STATE OF INCORPORATION ALABAMA I.R.S. EMPLOYER I.D. NO. 63-0411801
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE (INCLUDING ZIP CODE)
800 LAKESHORE PARKWAY, BIRMINGHAM, ALABAMA 35211
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE
AREA CODE 205 -940-9400
OUTSTANDING COMMON STOCK AS OF April 8, 1995, IS 78,097,741
Indicate by check mark whether the registrant (1) has filed all
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 ( )
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Commission File No. 0-6544
BRUNO'S, INC.
Index
Page No.
Financial Statements:
Condensed Consolidated Balance Sheets
April 8, 1995, and July 2, 1994. 2
Condensed Consolidated Statements of Income
and Retained Earnings for the Forty (40)
and Fourteen (14) Week Periods Ended
April 8, 1995, and April 9, 1994. 3
Condensed Consolidated Statements of Cash
Flows for the Forty (40) Week Periods
Ended April 8, 1995, and April 9, 1994. 4
Notes to Condensed Consolidated Financial
Statements. 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Other Information 12
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Commission File No. 0-6544
BRUNO'S, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
APRIL 8, 1995 AND JULY 2, 1994
(In Thousands Except Share And Per Share Amounts)
(Unaudited)
<CAPTION>
4-8-95 7-2-94
_________ _________
<S> <C> <C>
ASSETS
- - ------
Current Assets -
Cash and Cash Equivalents $ 20,830 $ 30,259
Receivables 40,312 34,770
Inventories at LIFO 250,267 255,047
Prepaid Expenses and Other 15,940 10,665
_________ _________
Total Current Assets 327,349 330,741
Property, Equipment, Leasehold Improvements,
Leasehold Interests and Investment in
Property under Capital Leases, Net 515,461 540,139
Intangibles and Other Assets 55,670 56,328
_________ _________
Total Assets $ 898,480 $ 927,208
========= =========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- - ----------------------------------------
Current Liabilities -
Current Portion of Long-Term Debt and
Capitalized Lease Obligations and
Short-Term Borrowings $ 26,846 $ 4,092
Accounts Payable 107,030 108,712
Other Accrued Expenses 61,248 43,545
Accrued Income Taxes 945 --
_________ _________
Total Current Liabilities 196,069 156,349
_________ _________
Long-Term Debt and Capitalized
Lease Obligations 220,071 296,460
_________ _________
Deferred Income Taxes 47,146 51,136
_________ _________
Other Noncurrent Liabilities 12,716 1,909
_________ _________
Shareholders' Investment -
Common Stock ($.01 par value, 200,000,000
shares authorized, 78,097,741 and
78,090,441 shares issued respectively) 781 781
Paid-In Capital 42,004 41,999
Retained Earnings 384,372 378,574
_________ _________
427,157 421,354
Treasury Stock (595,000 shares) (4,679) --
_________ _________
Total Shareholders' Investment 422,478 421,354
_________ _________
Total Liabilities and Shareholders'
Investment $ 898,480 $ 927,208
========= =========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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Commission File No. 0-6544
BRUNO'S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE FORTY AND FOURTEEN WEEK PERIODS ENDED
APRIL 8, 1995 AND APRIL 9, 1994
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Forty Weeks Ended Fourteen Weeks Ended
_____________________________ ____________________________
<S> <C> <C> <C> <C>
4-8-95 4-9-94 4-8-95 4-9-94
_____________ _____________ ____________ ____________
Net Sales $ 2,201,015 $ 2,173,757 $ 763,274 $ 764,602
_____________ _____________ ____________ ____________
Cost and Expenses:
Cost of Products Sold $ 1,684,816 $ 1,679,689 $ 588,246 $ 591,243
Store Operating, Selling and
Administrative Expenses 424,789 391,436 162,717 138,891
Depreciation and Amortization 41,485 41,228 13,491 14,922
Interest Expense 20,732 15,930 8,006 5,753
Interest Income (4,721) (3,213) (1,807) (1,435)
_____________ _____________ ____________ ____________
$ 2,167,101 $ 2,125,070 $ 770,653 $ 749,374
_____________ _____________ ____________ ____________
Income (Loss) Before Provision For
Income Taxes and Extraordinary Item $ 33,914 $ 48,687 $ (7,379) $ 15,228
Provision (Credit) For Income Taxes 12,887 20,725 (2,804) 5,787
_____________ _____________ ____________ ____________
Income (Loss) Before Extraordinary Item $ 21,027 $ 27,962 $ (4,575) $ 9,441
Extraordinary Item, Net -- (3,288) -- --
_____________ _____________ ____________ ____________
Net Income (Loss) $ 21,027 $ 24,674 $ (4,575) $ 9,441
Cash Dividends (15,229) (14,055) (5,077) (4,685)
Retained Earnings, Beginning Of Period 378,574 360,022 394,024 365,885
_____________ _____________ ____________ ____________
Retained Earnings, End Of Period $ 384,372 $ 370,641 $ 384,372 $ 370,641
============= ============= ============ ============
Earnings (Loss) Per Common Share:
Income (Loss) Before Extraordinary Item $ 0.27 $ 0.36 $ (0.06) $ 0.12
Extraordinary Item, Net -- (0.04) -- --
_____________ _____________ ____________ ____________
Net Income (Loss) $ 0.27 $ 0.32 $ (0.06) $ 0.12
============= ============= ============ ============
Cash Dividends Per Common Share $ 0.195 $ 0.18 $ 0.065 $ 0.06
============= ============= ============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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Commission File No. 0-6544
BRUNO'S, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FORTY WEEK PERIODS ENDED
APRIL 8, 1995 AND APRIL 9, 1994
(In Thousands)
(Unaudited)
<CAPTION>
4-8-95 4-9-94
____________ ____________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 21,027 $ 24,674
____________ ____________
Adjustments to reconcile net income
to net cash provided by operating activities-
Depreciation & amortization $ 41,485 $ 41,228
LIFO provision (credit) 1,169 (590)
Change in operating assets and liabilities 16,577 (14,616)
____________ ____________
Total adjustments $ 59,231 $ 26,022
Net cash provided by operating
activities $ 80,258 $ 50,696
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property $ 23,420 $ 8,899
Capital expenditures (39,569) (52,653)
____________ ____________
Net cash used in investing activities $ (16,149) $ (43,754)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) line of credit, net $ -- $ (35,000)
Purchase of treasury stock (4,679) --
Proceeds from issuance of stock 5 255
Dividends paid (15,229) (14,056)
Reduction of long-term debt (53,635) (145,073)
Proceeds form issuance of long-term debt -- 200,000
____________ ____________
Net cash provided by (used in)
financing activities $ (73,538) $ 6,126
____________ ____________
Net decrease in cash $ (9,429) $ 13,068
Cash beginning of period 30,259 20,093
____________ ____________
Cash end of period $ 20,830 $ 33,161
============ ============
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
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Commission File No. 0-6544
BRUNO'S, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 8, 1995 AND APRIL 9, 1994
(Dollar Amounts in Thousands)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
include the accounts of Bruno's, Inc. and its wholly owned sub-
sidiaries. Significant intercompany balances and transactions
have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary for
a fair presentation of the consolidated financial position and
results of operations of the Company for the interim periods.
The results of operations for the forty weeks ended April 8,
1995, are not necessarily indicative of the results which may
be expected for the entire year.
2. EARNINGS PER SHARE
Earnings per share was computed on the weighted average number
of common shares outstanding during the respective periods
ended April 8, 1995 and April 9, 1994 (77,591,000 and
78,087,000 for the forty week periods, respectively, and
77,503,000 and 78,092,000 for the fourteen week periods,
respectively). Outstanding stock options are common stock
equivalents but were excluded from earnings per common share
computations as their effect was either not material or
antidilutive.
3. INCOME TAXES
On August 10, 1993, the Omnibus Budget Reconciliation Act of
1993, was signed into law which increased Federal income tax
rates from 34% to 35% for the Company retroactively effective
to January 1, 1993. The new law changed the Company's
effective income tax rate to approximately 38% and required a
charge to income in the first quarter of fiscal 1994 of
approximately $2,200 to retroactively restate the current and
deferred income tax liabilities. This adjustment combined with
the increased effective tax rate, resulted in an effective
income tax rate for the forty weeks ended April 9, 1994 of
42.6%.
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Commission File No. 06544
4. CONTINGENCIES
The Company is a party to various legal and taxing authority
proceedings incidental to its business. In the opinion of
management, the ultimate liability with respect to these actions
will not materially affect the financial position or results of
operations of the Company.
The U.S. District Court recently upheld the Pension Benefit
Guaranty Corporation's finding that the Company's employees'
pension benefits had been undervalued due to use of inappropriate
actuarial assumptions in connection with final distributions of
a previously terminated plan. The court has ordered the Company
to repay certain pension benefits, which allegedly had been
improperly withheld from 2,500 current and former employees. The
Company intends to appeal the decision of the U.S. District Court.
The amount of the Company's liability, if any, and the ultimate
outcome is unknown at the present time, but is not expected to
exceed $2,700; accordingly, no provision for any liability that
may result has been made in the accompanying Condensed Consolidated
Financial Statements.
5. DEBT RESTRUCTURE
On September 1, 1993, the Company redeemed $142,750 of 6.5%
Convertible Subordinated Debentures at 103.9% of face value in
accordance with the terms of the related indenture. The redemption
was financed with the proceeds of a $200,000 term loan which will
amortize over 10 to 15 years at rates ranging from 6.6% to 7.1%.
This redemption resulted in a loss of $3,288 (net of the applicable
income tax benefit of $2,015) which is classified as an
extraordinary item in the accompanying Condensed Consolidated
Statements of Income for the forty week period ended April 9, 1994.
6. SUBSEQUENT EVENT
On April 20, 1995, the Company entered into an agreement and plan of
merger ("Merger Agreement") with Crimson Acquisition Corp.
("Crimson") a company formed by Kohlberg Kravis Roberts & Co.
("KKR"), a New York investment firm, which will result in KKR
affiliated entities obtaining control of, and making a significant
investment in, the Company. On May 18, 1995, the Company and
Crimson amended the terms of the Merger Agreement. The terms of
the Merger Agreement were amended to take into account KKR's
assessments of the levels of future cash flows of the Company,
including the possible non-recurring nature of certain income items
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Commission File No. 0-6544
and the level of projected expenses necessary to provide adequate
balance sheet reserves for self insurance claims. See Note 7. The
Company will be the surviving corporation in the merger. The
merger requires the approval of at least 66 2/3 percent of the
Company's shares outstanding and will not be effective until, among
other things, such approval is obtained.
The terms of the merger provide that the owner of each outstanding
share of common stock of the Company can elect either to receive
$12.00 in cash for that share or to retain that share. However, in
no event can more than 4,166,667 shares of common stock
(approximately 5.3% of the outstanding shares) be retained by
present shareholders. If more than 4,166,667 of the outstanding
shares elect to be retained, then the 4,166,667 shares available
will be prorated among those electing to retain and $12.00 in cash
will be paid for all other shares. If fewer than 4,166,667 of the
shares elect to be retained, the remaining available shares will be
prorated among those shares electing cash. The result of the
proration procedures will be that, after the merger, approximately
94.7% of the outstanding shares of the Company will be exchanged for
cash and approximately 5.3% will be retained by existing
shareholders. Following the merger, Crimson will own approximately
20,833,333 shares, or 83.33%, of the outstanding shares of the
Company and the 4,166,667 shares retained by the Company's pre-
merger shareholders will represent approximately 16.7% of the shares
outstanding. After the completion of the transaction, Crimson will
also be granted warrants to purchase from the Company during a ten
year period an additional 10,000,000 shares of common stock at
$12.00 per share. Simultaneously with the merger, the Company will
obtain significant borrowings to facilitate the exchange for cash.
KKR, through Crimson, will also invest $250,000 of equity in the
transaction.
7. CHANGE IN ACCOUNTING ESTIMATE
Subsequent to the completion of the Company's third fiscal quarter
and in connection with the proposed merger discussed in Note 6, the
Company completed an actuarially based evaluation of self insurance
reserves for worker's compensation and general liability claims.
Based on this evaluation, an adjustment to increase recorded
reserves by $22,178 ($13,750 net of income taxes) was recorded as a
change in accounting estimate in the third fiscal quarter ending
April 8, 1995.
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Commission File No. 0-6544
BRUNO'S, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of
significant factors affecting the Company's earnings during
the periods included in the accompanying condensed consolidated
statements of income.
A table showing the percentage of net sales represented by
certain items in the Company's condensed consolidated state-
ments of income is as follows:
<CAPTION>
FORTY WEEKS ENDED FOURTEEN WEEKS ENDED
_______________________ __________________________
4-8-95 4-9-94 4-8-95 4-9-94
________ ________ _________ ________
<S> <C> <C> <C> <C>
Net Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost Of Products Sold 76.5 % 77.3 % 77.1 % 77.3 %
________ ________ _________ ________
Gross Profit 23.5 % 22.7 % 22.9 % 22.7 %
Store Operating, Selling, and
Administrative Expenses 19.3 % 18.0 % 21.3 % 18.2 %
Depreciation and Amortization 1.9 % 1.9 % 1.8 % 1.9 %
Net Interest Expense 0.7 % 0.6 % 0.8 % 0.6 %
________ ________ _________ ________
Income (Loss) Before Provision For
Income Taxes and Extraordinary Item 1.6 % 2.2 % (1.0)% 2.0 %
Provision (Credit) for Income Taxes 0.6 % 0.9 % (0.4)% 0.8 %
________ ________ _________ ________
Income (Loss) Before
Extraordinary Item 1.0 % 1.3 % (0.6)% 1.2 %
Extraordinary Item, Net 0.0 % (0.2)% 0.0 % 0.0 %
________ ________ _________ ________
Net Income (Loss) 1.0 % 1.1 % (0.6)% 1.2 %
======== ======== ========= ========
</TABLE>
<TABLE>
A summary of the period to period changes in certain items
included in the condensed statements of income is as follows:
<CAPTION>
COMPARISON OF
___________________________ _____________________________
FORTY WEEKS ENDED FOURTEEN WEEKS ENDED
4-8-95 and 4-9-94 4-8-95 and 4-9-94
___________________________ _____________________________
Increase (Decrease)
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net Sales $27,258 1.3 % ($1,328) (0.2)%
Cost Of Products Sold 5,127 0.3 % (2,997) (0.5)%
Store Operating, Selling, and
Administrative Expenses 33,353 8.5 % 23,826 17.2 %
Depreciation and Amortization 257 0.6 % (1,431) (9.6)%
Net Interest Expense 3,294 25.9 % 1,881 43.6 %
Income (Loss) Before
Extraordinary Item (6,935) (24.8)% (14,016) N/A
Extraordinary Item, Net 3,288 100.0 % 0 0.0 %
Net Income (Loss) ($3,647) (14.8)% ($14,016) N/A
Income (Loss) Per Common Share Before
Extraordinary Item ($0.09) (25.0)% ($0.18) N/A
Net Income (Loss) Per Common Share ($0.05) (15.6)% ($0.18) N/A
</TABLE>
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Commission File No. 0-6544
BRUNO'S, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar Amounts In Thousands)
RESULTS OF OPERATIONS
NET SALES
Net sales increased 1.3% ($27,258) in the forty week period ended
April 8, 1995 but decreased 0.2% ($1,328) in the fourteen week period
ended April 8, 1995, as compared to the applicable periods in the prior
year. The forty week period sales increase was primarily attributed to
the Company's recent focus on remodeling its existing stores and
increasing its emphasis on customer service. The fourteen week period
sales decrease was primarily attributable to the Easter holiday falling
in the third quarter of the prior year and falling in the fourth quarter
of the current year. During the forty week period ended April 8, 1995,
the Company opened five new stores and remodeled over 15 stores. The
Company's recent focus on remodeling stores has resulted in positive
same store sales growth despite competitive pressures. Same store sales
increased .06% for the fourteen weeks ended April 8, 1995.
GROSS PROFIT
Gross profit as a percentage of net sales was 23.5% and 22.9% in the
forty and fourteen week periods ended April 8, 1995, as compared to a
gross profit percentage of 22.7% for the applicable periods in prior
fiscal year. The increase in gross profit is due to an increased sales
mix of higher margin perishable and general merchandise products. This
improvement is a direct result of the Company's continued development
and emphasis of its larger format stores which carry a greater
percentage of these products.
STORE OPERATING, SELLING, AND ADMINISTRATIVE EXPENSES
As discussed in Note 7 to Condensed Consolidated Financial Statements,
the Company completed an actuarially based evaluation of self insurance
reserves. Based on this evaluation, an adjustment to increase recorded
reserves by $22,178 was recorded in the third fiscal quarter ended April
8, 1995. Excluding this nonrecurring adjustment, store operating,
selling and administrative expenses as a percentage of net sales
increased from 18.0% for the forty weeks ended April 9, 1994, to 18.3%
for the forty weeks ended April 8, 1995. This increase as a percentage
of net sales is primarily due to the higher operating costs associated
with the increasing number of larger format stores. These larger stores
employ additional personnel and have higher operating costs,
particularly in their expanded service oriented departments.
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Commission File No. 0-6544
DEPRECIATION AND AMORTIZATION
The $1,431 decrease in depreciation and amortization expense for the
fourteen week period ended April 8, 1995, compared to the applicable
period in the prior year is primarily due to lower capital expenditures.
INTEREST EXPENSE AND INTEREST INCOME
The $3,294 increase in net interest expense for the forty week period
ended April 8, 1995, compared to the applicable period in the prior year
is due to an increase in interest rates which affected the Company's
borrowings and net interest position on its $80,000 notional interest
rate swap.
INCOME TAXES
The Company's effective income tax rate decreased from 42.6% for the
forty week period ended April 9, 1994 to 38% for the forty week period
ended April 8, 1995. See Note 3 of Notes to Condensed Consolidated
Financial Statements for a complete discussion of income taxes.
EXTRAORDINARY ITEM
As discussed in Note 5 of Notes to Condensed Consolidated Financial
Statements, the Company redeemed its 6.5% Convertible Debentures at
103.9% of face value during the first quarter of the prior fiscal year.
This redemption resulted in an extraordinary loss of $3,288 (net
of the applicable income tax benefit of $2,015) as reflected in the
accompanying Condensed Consolidated Statement of Income for the forty
week period ended April 9, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded working capital requirements,
capital expenditures and other cash requirements primarily through cash
flow from operations. Operating activities have generated cash of
$80,258 and $50,696, respectively, in each of the forty week periods
ended April 8, 1995, and April 9, 1994. In addition, the Company has at
its disposal a $125,000 unsecured line of credit (no amounts outstanding
at April 8, 1995) to meet any short-term cash requirements.
Cash flows used in investing activities were $16,149 and $43,754 for the
forty week periods ended April 8, 1995, and April 9, 1994, respectively.
Proceeds from the sale of certain property totaled $23,420 during the
forty week period ended April 8, 1995 compared to $8,899 during the
applicable period in the prior year. There were no material gains or
losses generated from these sales. The Company has continued its
program of remodeling stores during fiscal 1995.
Capital expenditures were $39,569 for the forty week period ended April
8, 1995, compared to $52,653 for the applicable period in the prior
year. Capital expenditures were primarily financed with internally
generated funds and the proceeds from the sale of other property.
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Commission File No. 0-6544
The Company may expand through the opening of new stores or through the
acquisition of existing stores or one or more supermarket chains, if
attractive acquisition opportunities become available. The Company
anticipates that funds necessary for the expansion of its business
during the foreseeable future will be financed through available cash
reserves, internally generated funds, and short-terms borrowings.
However, the Company may use for such purposes additional sources of
financing, which may include long-term borrowings and the issuance of
additional debt or equity securities.
The Company estimates capital expenditures for the remainder of fiscal
1995 to be approximately $8,000 and plans to finance these expenditures
through internally generated funds or other available resources. These
estimated capital expenditures are primarily related to new stores and
the continued remodeling of existing stores. Management continuously
evaluates all stores based upon volume, profitability, location, age,
demographics, etc. and makes closure decisions based upon these
evaluations.
The primary uses of cash in financing activities during the forty week
period ended April 8, 1995, were $53,635 in long-term debt principal
payments, $15,229 in cash dividends paid, and a $4,679 purchase of
595,000 share of treasury stock. As fully discussed in Note 5 of Notes
to Condensed Consolidated Financial Statements, during the first quarter
of fiscal 1994, the Company redeemed its 6.5% Convertible Subordinated
Debentures with the proceeds of a $200,000 term loan. In addition,
during the forty week period ended April 9, 1994, the Company paid off
its line of credit borrowings of $35,000 and paid cash dividends of
$14,056.
Simultaneous with the proposed merger discussed in Note 6 to the
Condensed Consolidated Financial Statements, the Company will obtain
significant borrowings to facilitate the exchange of shares into cash.
The Company has not yet determined how such borrowings may in the future
affect its means of financing working capital, capital expenditures and
other cash expenditures. The Company does not expect any significant
impact on its cash flow as a result of the change in accounting estimate
discussed in Note 7 to the Condensed Consolidated Financial Statements.
OTHER
On July 22, 1994, the Company's Board of Directors approved the
repurchase on the open market of up to $25,000 of the Company's common
stock. As noted above, during the forty weeks ended April 8, 1995, the
Company purchased 595,000 shares at a total cost of $4,679.
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Commission File No. 0-6544
BRUNO'S, INC.
OTHER INFORMATION
The Company was not required to report material unusual
charges or credits to income pursuant to Item 10 (a) or a change
in independent accountants pursuant to Item 12 of Form 8-K for
any of the forty (40) weeks ended April 8, 1995.
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.
BRUNO'S, INC.
REGISTRANT
May 23, 1995 Glenn J. Griffin
Glenn J. Griffin
Executive Vice President, and
Chief Financial Officer *
*Both duly authorized officer and principal financial officer.
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