<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
----------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 2, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________TO __________
COMMISSION FILE NUMBER 0-6544
------------------------------
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION AS OF FEBRUARY 2, 1998)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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
(205) 940-9400
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 ( )
NUMBER OF OUTSTANDING SHARES OF COMMON STOCK
AS OF JUNE 10, 1998 IS 25,507,982
<PAGE> 2
Commission File No. 0-6544
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION)
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements: PAGE NO.
--------
<S> <C>
Condensed Consolidated Balance Sheets at
May 2, 1998 and January 31, 1998 2
Condensed Consolidated Statements of Operations for the
Thirteen (13) Week Periods Ended May 2, 1998 and May 3, 1997 3
Condensed Consolidated Statements of Cash Flows for the
Thirteen (13) Week Periods Ended May 2, 1998 and May 3, 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Change in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 17
Index of Exhibits 18
</TABLE>
<PAGE> 3
Commission File No. 0-6544
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MAY 2, 1998 AND JANUARY 31,1998
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 2, JANUARY 31,
1998 1998
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 22,772 $ 2,888
Receivables 24,427 13,418
Inventories, net of LIFO reserve of $8,922
at May 2, 1998, and January 31, 1998 175,696 180,274
Vendor deposits 40,169 --
Prepaid expenses and other 11,030 7,341
--------- ---------
Total current assets 274,094 203,921
--------- ---------
Property and equipment, net of accumulated
depreciation of $323,922 and $332,369,
respectively 350,927 377,670
--------- ---------
Intangibles and other assets, net 42,978 41,374
--------- ---------
Total noncurrent assets 42,978 41,374
--------- ---------
Total $ 667,999 $ 622,965
========= =========
LIABILITIES AND DEFICIENCY IN NET ASSETS:
Liabilities not subject to compromise
Current liabilities:
Current maturities of capitalized lease obligations $ 3,924 $ 4,028
Accounts payable 73,499 105,011
Accrued payroll and related expenses 8,321 12,294
Accrued interest -- 24,727
Other accrued expenses 40,776 49,470
--------- ---------
Total current liabilities 126,520 195,530
--------- ---------
Noncurrent liabilities:
Long-term debt -- 858,630
Capitalized lease obligations 10,957 11,906
Other noncurrent liabilities 33,816 41,948
--------- ---------
Total noncurrent liabilities 44,773 912,484
--------- ---------
Liabilities subject to compromise 993,046 --
--------- ---------
Deficiency in net assets:
Common Stock, $.01 par value, 60,000,000
shares authorized; 25,507,982 issued and
outstanding at May 2, 1998, and January 31, 1998 255 255
Paid-in capital (586,944) (586,944)
Retained earnings 92,058 103,411
Shareholders' notes receivable (1,709) (1,771)
--------- ---------
Total deficiency in net assets (496,340) (485,049)
--------- ---------
Total $ 667,999 $ 622,965
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
Commission File No. 0-6544
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS ENDED MAY 2, 1998 AND
MAY 3, 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 2, MAY 3,
1998 1997
(13 WEEKS) (13 WEEKS)
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
NET SALES $ 501,729 $ 685,260
----------- -----------
COST AND EXPENSES:
Cost of products sold 389,239 529,362
Store operating, selling and administrative expenses 106,985 128,771
Depreciation and amortization 13,480 14,257
Interest expense, net (contractual interest for 1998 estimated at $ 21,042) 598 21,120
----------- -----------
Total cost and expenses 510,302 693,510
----------- -----------
Loss before provision for reorganization
and income taxes (8,573) (8,250)
Reorganization items 2,780 --
----------- -----------
Loss before income taxes (11,353) (8,250)
INCOME TAX BENEFIT -- (3,135)
----------- -----------
Net loss $ (11,353) $ (5,115)
=========== ===========
NET LOSS PER BASIC AND DILUTED COMMON SHARE $ (0.45) $ (0.20)
=========== ===========
CASH DIVIDENDS PER COMMON SHARE $ -- $ --
=========== ===========
WEIGHTED AVERAGE BASIC AND DILUTED
COMMON SHARES OUTSTANDING 25,507,982 25,321,219
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS ENDED MAY 2, 1998 AND
MAY 3, 1997
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 2, MAY 3,
1998 1997
(13 WEEKS) (13 WEEKS)
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(11,353) $ (5,115)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 13,480 14,257
Change in assets and liabilities 6,946 (4,889)
-------- --------
Total adjustments 20,426 9,368
-------- --------
Net cash provided by operating activities 9,073 4,253
-------- --------
INVESTING ACTIVITIES:
Proceeds from sale of property 17,086 8,259
Capital expenditures (5,314) (17,239)
-------- --------
Net cash provided by/(used in) investing activities 11,772 (8,980)
-------- --------
FINANCING ACTIVITIES:
Reductions of long-term debt -- (269)
Net borrowings under revolving credit facilities -- 3,500
Reductions of prepetition capitalized lease obligations (961) --
Sale of common stock, net -- 44
-------- --------
Net cash provided by/(used in) financing activities (961) 3,275
-------- --------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 19,884 (1,452)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,888 4,908
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,772 $ 3,456
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
Commission File No. 0-6544
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEK PERIODS ENDED MAY 2, 1998, AND MAY 3, 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Bruno's, Inc. (the "Company") and its wholly owned subsidiaries.
Significant inter-company balances and transactions have been eliminated in
consolidation. Operating results for the thirteen weeks ended May 2, 1998, are
not necessarily indicative of the results that may be expected for the entire
fiscal year. The unaudited condensed financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998.
On February 2, 1998, the Company and its 11 subsidiaries each filed a petition
for reorganization under chapter 11 of title 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"). The petitions were filed in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") under
case numbers 98-212(SLR) through 98-223(SLR) (the "Chapter 11 Cases"). The
Chapter 11 Cases have been procedurally consolidated for administrative
purposes. The Company and its subsidiaries are currently operating their
businesses and managing their properties as debtors-in-possession pursuant to
the Bankruptcy Code. The accompanying condensed consolidated financial
statements have been prepared on a going concern basis of accounting and in
accordance with AICPA Statement of Position 90-7. The Company's recent losses
from operations, significant shareholder deficiency and the related Chapter 11
Cases raise substantial doubt about the Company's ability to continue as a going
concern.
Under the provisions of the Bankruptcy Code, the Company has an
exclusive period during which only it may propose and file and solicit
acceptances of a plan of reorganization. The original exclusive period for the
Company to propose a plan of reorganization expired on June 3, 1998, but the
Bankruptcy Court, at the request of the Company, has extended the exclusive
period until January 15, 1999. After the Company files its plan of
reorganization, the Company will have an additional 60 days to solicit the
necessary acceptances of the plan of reorganization. If the Company fails to
file a plan of reorganization during the exclusive period or, after such plan
has been filed, if the Company fails to obtain acceptance of such plan from the
requisite impaired classes of creditors and equity security holders during the
exclusive solicitation period, any party in interest, including a creditor, an
equity security holder, a committee of creditors or equity security holders, or
an indenture trustee, may file their own plan of reorganization for the Company.
5
<PAGE> 7
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary for a fair statement of the
consolidated financial position and results of operations of the Company for the
interim periods.
2. DEFERRED TAX ASSET AND VALUATION RESERVE
In assessing the realization of deferred tax assets, management considers the
likelihood that deferred tax assets will be realized through future taxable
income. Based upon projections over the periods in which deferred tax assets are
deductible, at May 2, 1998, management believes it is more likely than not that
the net deferred tax asset will not be realized. Accordingly, the Company has
fully reserved its net deferred tax assets.
3. 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.
4. DEBTOR-IN -POSSESSION FINANCING
Subsequent to the filing of the Chapter 11 Cases, the Company entered into a
Revolving Credit and Guaranty Agreement (the "Loan Agreement") with The Chase
Manhattan Bank ("Chase") to provide secured debtor-in-possession financing. The
Loan Agreement, as amended, provides for borrowings dependent upon the Company's
level of inventory, real estate and the amount of claims from certain vendors
with maximum borrowings of $200 million, including a subfacility of $32 million
for the issuance of letters of credit. The Loan Agreement grants a security
interest in substantially all of the Company's assets. Under the Loan Agreement,
certain vendors who have agreed to provide the Company, among other things, with
a line of credit and acceptable credit terms (the "Participating Vendors") are
secured on a pari passu basis with the security interest granted to Chase and
the other lenders. All obligations under the Loan Agreement will be afforded
"super-priority" administrative expense status in the Chapter 11 Cases. Advances
under the Loan Agreement bear interest at Chase's Alternative Base Rate (as
defined in the Loan Agreement) plus 3/4 of 1%. The Loan Agreement contains
certain restrictive covenants which, among other things, require the Company to
maintain a minimum cumulative EBITDA as measured at the end of each of the
Company's fiscal periods. The restrictive covenants also limit the Company's
capital expenditures and dividends and the ability of the Company to grant liens
and incur additional indebtedness. The Loan Agreement will terminate upon the
earlier of consummation of a plan of reorganization in the Chapter 11 Cases,
February 1, 2000 or a Prepayment Date (as such term is defined in the Loan
Agreement). All borrowings under the Loan Agreement will become due 30 days
after termination.
At May 2, 1998, the Company had no borrowings under the Loan Agreement but had
utilized $1.2 million of the Loan Agreement to issue letters of credit.
Availability under the Loan Agreement was also reduced by $1.3 million in trade
payables to Participating Vendors.
6
<PAGE> 8
5. DISTRIBUTION CENTER ACCIDENT
On April 21, 1998, the refrigeration equipment in the Company's distribution
facility was damaged as the result of an accident that caused a leak of
refrigeration gas and a fire in the distribution facility's compressor room. The
refrigeration equipment was repaired and became operational on May 24, 1998.
During the period when the refrigeration equipment was out-of-service, the
Company was not able to supply its stores with perishable merchandise from the
Company's distribution facility. The Company made temporary arrangements with
third party suppliers and distributors to supply the Company's stores with
perishable merchandise. The Company, however, was not able to maintain adequate
levels of perishable inventories at all times in its stores while the
refrigeration equipment was out-of-service. The reduction in store-level
perishable inventories resulted in a loss of customers and sales. Subject to a
deductible of $100,000, the Company believes that it has insurance to cover (i)
the cost of repairing or replacing the damaged equipment, (ii) business
interruption losses resulting from the Company's inability to receive or ship
perishable merchandise from the Company's distribution facility, and (iii) the
additional expenses incurred by the Company to supply the Company's stores with
perishable merchandise. As of May 2, 1998, the Company had recorded $1.7 million
of costs and losses relating to the accident as a receivable recoverable from
insurance. This amount does not include business interruption losses because the
Company cannot currently estimate the amount of these losses. The Company cannot
currently estimate the full amount of its losses attributable to the accident,
and there can be no assurance that the Company will ultimately recover all of
these losses.
6. LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS
Liabilities subject to compromise refer to liabilities incurred prior to the
commencement of the Chapter 11 Cases. These liabilities consist primarily of
amounts outstanding under the Company's prior short-term borrowings and
long-term debt and also include accounts payable, accrued interest, amounts
accrued for rejected leases, and other accrued expenses. These amounts represent
management's best estimate of known or potential claims to be resolved in
connection with the Chapter 11 Cases. Such claims remain subject to future
adjustments based on negotiations, actions of the Bankruptcy Court, further
developments with respect to disputed claims, or other events. Payment terms for
these amounts, which are considered long-term liabilities at this time, will be
established in connection with the Chapter 11 Cases.
The Company has received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including prepetition wages,
vacation pay, employee benefits and reimbursement of employee business expenses.
The Bankruptcy Court also has authorized the Company to pay up to $23.0 million
of prepetition obligations to critical vendors to aid the Company in maintaining
the normal flow of merchandise to its stores.
Reorganization items recorded in the accompanying Condensed Consolidated
Statements of Operations reflect primarily professional fees associated with the
Chapter 11 Cases.
7
<PAGE> 9
Commission File No. 0-6544
ITEM 2. 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 operating results during the periods included in the
accompanying condensed consolidated statements of operations.
A table showing the percentage of net sales represented by certain items in the
Company's condensed consolidated statements of operations is as follows:
<TABLE>
<CAPTION>
MAY 2, MAY 3,
1998 1997
(13 WEEKS) (13 WEEKS)
---------- ----------
<S> <C> <C>
Net sales 100.00% 100.00%
Cost of products sold 77.58% 77.25%
Store operating, selling, and administrative expenses 21.32% 18.79%
------ ------
EBITDA(1) 1.10% 3.96%
Depreciation and amortization 2.69% 2.08%
Interest expense, net 0.12% 3.08%
Reorganization expenses 0.55% 0.00%
------ ------
Loss before income taxes -2.26% -1.20%
Income taxes (benefit) 0.00% -0.46%
------ ------
Net loss -2.26% -0.75%
====== ======
</TABLE>
A summary of the changes in certain items included in the condensed statements
of operations for the thirteen week period ended May 2, 1998 as compared to the
thirteen week period ended May 3,1997 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks
Ended May 2, 1998
Amounts % Change
--------- --------
<S> <C> <C>
Net sales $(183,531) -26.78%
Cost of products sold (140,123) -26.47%
Store operating, selling, and administrative expenses (21,786) -16.92%
--------- ------
EBITDA(1) (21,622) -79.71%
Depreciation and amortization (777) -5.45%
Interest expense, net (20,522) -97.17%
Reorganization expenses 2,780 N/A
--------- ------
Loss before income taxes (3,103) N/A
Income taxes (benefit) 3,135 N/A
--------- ------
Net loss $ (6,238) N/A
========= ======
</TABLE>
(1) EBITDA -- For purposes of this document, EBITDA is defined as net sales
reduced by cost of products sold and store operating, selling and
administrative expenses.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
GENERAL
As of May 2, 1998, the Company operated a chain of 197 supermarkets and
combination food and drug stores. The Company also operated nine retail liquor
stores. As of May 3, 1997, the Company operated 219 supermarkets and combination
food and drug stores as well as nine retail liquor stores.
On February 2, 1998, the Company and its 11 subsidiaries each filed a petition
for reorganization under chapter 11 of title 11 of the Bankruptcy Code. The
Chapter 11 Cases have been procedurally consolidated for administrative
purposes. The Company and its subsidiaries are currently operating their
businesses and managing their properties as debtors-in-possession pursuant to
the Bankruptcy Code. Both before and after the commencement of the Chapter 11
Cases, the Company has taken steps to restructure its operations and to improve
profitability. These steps include but are not limited to implementing price
reduction strategies, improving inventory levels in the Company's stores,
selling excess properties, and continuing to analyze the Company's market
strategy, geographic positioning, and store level return on assets. As a result
of this continuing review, the Company may consider closing or selling stores
that do not fall within the Company's market strategy or geographic positioning
or that do not perform at or above the Company's expected store level return on
assets.
ACQUISITONS AND DIVESTITURES
On January 13, 1998, the Company entered into an agreement to sell Seessel
Holding's, Inc., a wholly owned subsidiary of the Company ("Seessel's"), to
Albertson's, Inc. for $88.0 million subject to a purchase price adjustment based
on changes in Seessel's working capital from a predetermined date. The
transaction was consummated on January 30, 1998 and a gain of $16.6 million was
recorded during the fiscal year ended January 31, 1998. No change to the
estimated purchase price adjustment, which was established at January 31, 1998,
was recorded during the thirteen weeks ended May 2, 1998.
On January 6, 1998, the Company entered into an agreement to sell 13 stores in
Georgia to Ingles Markets, Incorporated ("Ingles"). The Company was required by
the agreement to close the 13 stores prior to the sale of the stores to Ingles.
All of the stores were closed on or before January 27, 1998, and the stores were
sold to Ingles on March 12, 1998. A loss of $26.6 million was recorded during
the fiscal year ended January 31, 1998 as a result of this transaction.
On January 26, 1998, the Company entered into an agreement to purchase four
stores in Alabama from Delchamps, Inc. ("Delchamps"). This transaction was
consummated on February 17, 1998. Subsequently, the Company closed three of its
stores and relocated those stores into three of the stores purchased from
Delchamps. The Company increased the closed store accrual by $5.2
9
<PAGE> 11
million during the fiscal year ended January 31, 1998 to reflect the estimated
loss on closing the three stores.
RESULTS OF OPERATIONS
NET SALES
Net sales decreased $183.5 million in the quarter ended May 2, 1998 as compared
to the quarter ended May 3, 1997. Approximately $85.0 million of the decrease
was due to the reduction in the number of stores operated by the Company as a
result of the closure in January 1998 of the 13 stores in Georgia sold to Ingles
in March 1998, the closure of two additional stores in Georgia in January 1998,
and the sale of Seessel's, which operated 10 stores, to Albertson's, Inc. in
January 1998. Comparable store sales decreased 17.6% from the prior year due in
part to increased competitive activity in the Company's trade areas. Other
factors that may have contributed to the decrease in comparable store sales
include the disruption caused by the commencement of the Chapter 11 Cases and
the accident which occurred in the Company's distribution center on April 21,
1998. SEE NOTES 1 AND 5 OF THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. As a
result of the warehouse accident, the Company was not able to supply its stores
with perishable merchandise from the Company's distribution center during the
last several days of the quarter ended May 2, 1998. Although the Company made
temporary arrangements for perishable merchandise with third party suppliers and
distributors, the Company was not able to maintain adequate levels of perishable
inventories at all times in its stores. The reduction in store-level perishable
inventories resulted in a loss of customers and sales. In addition, the
Company's sales continue to be affected by the loss of customers in 1997 due to
increases in the Company's prices to levels that were not competitive, a reduced
level of promotional activity, product shortages in the Company's stores
resulting from distribution problems and efforts to control inventory, and
reduced levels of customer service due to the Company's efforts to control
payroll costs. The Company has adopted and implemented strategies to address the
factors within the Company's control that have contributed to the decline in
sales. There can be no assurance that these strategies will increase sales or
will not otherwise have an adverse effect on the Company's business.
GROSS PROFIT
Gross profit (net sales less cost of products sold) as a percentage of net sales
for the first quarter was 22.4% compared to 22.8% in the prior year. The
decrease in gross profit was primarily related to the impact of fixed
distribution expenses on lower total net sales.
STORE OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Store operating, selling, and administrative expenses as a percent of net sales
was 21.3% for the period ended May 2, 1998 compared to 18.8% for the comparable
period of the prior year due largely to the impact of fixed costs on lower net
sales.
10
<PAGE> 12
EBITDA (AS DEFINED ON PAGE 8)
EBITDA (as defined on page 8) decreased by $21.6 million in the quarter ended
May 2, 1998 compared to the quarter ended May 3, 1997. The decrease resulted
from the reduction in comparable store sales and gross profit as discussed
above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the quarter ended May 2, 1998 was $13.5
million compared to $14.2 million in the prior year. The decrease in
depreciation and amortization resulted from the sale of 13 stores in Georgia to
Ingles and the sale of Seessel's.
INTEREST EXPENSE
As a result of the commencement of the Chapter 11 Cases, the Company ceased
accruing interest on its short-term borrowings and long-term debt outstanding at
January 31, 1998. Interest expense in the current year relates primarily to
equipment owned under capital leases.
REORGANIZATION ITEMS
The Company has incurred $2.8 million in reorganization items consisting
primarily of professional fees associated with the Chapter 11 Cases offset by
interest income attributable to the accumulation of cash subsequent to the
commencement of the Chapter 11 Cases.
INCOME TAXES
The Company's effective income tax rate was 38% during the quarter ended May 3,
1997. Management believes that it is more likely than not that deferred tax
assets created by losses during the quarter ended May 2, 1998 will not be
realized through future taxable income. Therefore, the Company has increased its
valuation allowance, which was established during the fiscal year ended January
31, 1998, to fully reserve the potential tax benefits resulting from these
losses. As a result, the effective tax rate for the quarter ended May 2, 1998
was zero.
LIQUIDITY AND CAPITAL RESOURCES
The Company and its subsidiaries are parties to a Revolving Credit and Guaranty
Agreement dated as of February 2, 1998, as amended by the First Amendment
thereto dated as of March 5, 1998, the Second Amendment thereto dated as of
March 25, 1998, and the Third Amendment thereto dated as of April 17, 1998 and
as may be amended hereafter (the "Loan Agreement"), with The Chase Manhattan
Bank ("Chase"), as agent for itself and any other lenders party thereto. The
Loan Agreement was entered into subsequent to the commencement of the Chapter 11
Cases and will terminate upon the earlier of consummation of a plan of
reorganization in the Chapter 11 Cases, February 1, 2000, or the Prepayment Date
(as such term is defined in the Loan Agreement). The Loan Agreement provides the
Company with a revolving line of credit for loans and letters of credit in an
aggregate amount not to exceed $200 million outstanding at any one
11
<PAGE> 13
time, including a subfacility of $32 million for the issuance of letters of
credit. The Company will use all amounts borrowed under the Loan Agreement for
its ongoing working capital needs and for other general corporate purposes of
the Company and its subsidiaries. The subsidiaries of the Company are guarantors
of the Company's obligations under the Loan Agreement.
The Loan Agreement contains certain restrictive covenants which, among other
things, require the Company to maintain a minimum cumulative EBITDA as measured
at the end of each of the Company's fiscal periods. The restrictive covenants
also limit the Company's capital expenditures and dividends and the ability of
the Company to grant liens and incur additional indebtedness. The Company was in
compliance with the covenants contained in the Loan Agreement as of May 2, 1998.
As of May 2, 1998, the Company had no borrowings outstanding under the Loan
Agreement but had utilized $1.2 million of the Loan Agreement to issue letters
of credit. The Company expects that its cash flow from operations and borrowings
under the Loan Agreement will provide it with sufficient liquidity to conduct
its operations while the Chapter 11 Cases are pending. The Company's long-term
liquidity and the adequacy of the Company's capital resources cannot be
determined until a plan of reorganization has been developed and confirmed in
connection with the Chapter 11 Cases.
Operating activities generated $9.1 million and $4.3 million, respectively, in
the periods ended May 2, 1998, and May 3, 1997. The items most significantly
influencing this change were the timing of receivables and payables and a
reduction in the Company's inventory levels offset partially by amounts paid in
advance to vendors in order to expedite the delivery of inventory to the Company
and by the reduction in EBITDA discussed above.
Cash flows provided by investing activities were $11.8 million in the period
ended May 2, 1998 compared to a use of $9.0 million in the comparable period of
the prior year. Capital expenditures were $5.3 million for the current year's
quarter compared to $17.2 million in the prior year's quarter. The Company's
capital expenditures are primarily related to the opening of new stores and
investments in systems technology. The Company believes that capital
expenditures for the remainder of the current fiscal year will be financed
through cash flows from operations, existing cash balances and, if necessary,
borrowings under the Loan Agreement. Cash flows from investing activities for
the period ended May 2, 1998 include $17.1 million in proceeds related to the
sale of 13 stores in Georgia. See "ACQUISITIONS AND DIVESTITURES" above. Cash
flows from investing activities for the period ended May 3, 1997 included $8.3
million in proceeds from the sale of property.
Cash flows used in financing activities were $1.0 million for the period ended
May 2, 1998 compared to cash flows provided by financing activities of $3.3
million for the comparable period of the prior year. Current year financing
activities reflect repayments of the Company's capitalized lease obligations.
Prior year financing activities primarily consisted of $3.5 million in
borrowings under the credit facility available to the Company prior to the
commencement of the Chapter 11 Cases.
12
<PAGE> 14
YEAR 2000
The Company has appointed a project team to review its purchased and developed
software for Year 2000 compliance. Systems which require modification or
replacement have been identified and a plan for addressing issues has been
established. Purchased hardware and software will be capitalized in accordance
with normal policy. Personnel and all other costs related to the project are
being expensed as incurred. Based on current estimates, the Company anticipates
that it will incur costs of approximately $15 million during the current fiscal
year and the next fiscal year for Year 2000 compliance. Management expects to
have substantially all of the system and application changes completed during
the first half of calendar year 1999 and believes that its level of preparedness
is appropriate. If such changes are not made, or are not timely, the Year 2000
issue could have a material impact on the operations of the Company.
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement. The
Company desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 in connection with the forward-looking
statements contained in this Form 10-Q Report. Accordingly, the Company hereby
identifies the following important factors which could cause the Company's
financial results to differ materially from any such results which might be
projected, forecast, estimated or budgeted by the Company in forward-looking
statements:
(a) Heightened competition, including specifically the
intensification of price competition; the entry of new competitors; and
the expansion, renovation and opening of new stores by new and existing
competitors.
(b) Failure to obtain new customers or retain existing
customers.
(c) Inability to carry out marketing, sales and capital plans.
(d) Insufficiency of financial resources to renovate and
expand the Company's store base.
(e) Prolonged dispute with labor.
(f) Economic downturn in the Southeast region.
(g) Loss or retirement of key executives.
13
<PAGE> 15
(h) Higher selling, general and administrative expenses
occasioned by the need for additional advertising, marketing,
administrative, or management information systems expenditures.
(i) Adverse publicity and news coverage.
(j) Adverse effects resulting from the commencement and
prosecution of the Chapter 11 Cases.
(k) Adverse effects resulting from Year 2000 compliance
problems experienced by the Company or its significant vendors.
(l) Adverse effects resulting from the recent accident at the
Company's distribution facility.
The foregoing review of factors pursuant to the Private Litigation
Securities Reform Act of 1995 should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the Company prior to
this filing.
14
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company commenced the Chapter 11 Cases on February 2, 1998. As a result of
filing the Chapter 11 Cases, no principal or interest payments will be made on
indebtedness incurred by the Company prior to February 2, 1998 until a plan of
reorganization defining the repayment terms has been approved by the Bankruptcy
Court. Accordingly, the Company did not make a $21.0 million interest payment
due on February 2, 1998 under the Company's 10 1/2% Senior Subordinated Notes.
In addition, the Company has not paid $3.7 million in accrued interest on the
Company's other debt outstanding at January 31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.35 Bruno's, Inc. Severance Plan
27 Financial Data Schedule
</TABLE>
15
<PAGE> 17
(B) REPORTS ON FORM 8-K
The Company filed the following Current Reports on Form 8-K during the quarter
ended May 3, 1998:
(1) On February 6, 1998, the Company filed a Current Report on Form 8-K
dated February 2, 1998, under Item 3 "Bankruptcy or Receivership" and
Item 5 "Other Events". In Item 3, the Company disclosed that its
subsidiaries and affiliates each filed in the United States
Bankruptcy Court for the District of Delaware a voluntary petition
for reorganization under chapter 11 of title 11 of the United States
Bankruptcy Code, case numbers 98-213(SLR) through 98-223(SLR). In
Item 5, the Company disclosed the sale of the stock of Seessel
Holdings, Inc. on January 30, 1998.
(2) On February 17, 1998, the Company filed a Current Report on Form 8-K
dated January 30, 1998 under Item 2 "Acquisition or Disposition of
Assets" and Item 7 "Financial Statements and Exhibits" to disclose
the terms of the sale of Seessel Holdings, Inc. and to submit the
required financial information.
(3) On March 26, 1998, the Company filed a Current Report on Form 8-K
under Item 5 "Other Events" to disclose the terms of the First
Amendment dated as of March 5, 1998, to the Revolving Credit and
Guaranty Agreement between the Company and The Chase Manhattan Bank.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRUNO'S, INC.
/s/ James J. Hagan
----------------------------
James J. Hagan,
Executive Vice President and
Chief Financial Officer
Dated: June 15, 1998
17
<PAGE> 19
BRUNO'S, INC.
FORM 10-Q REPORT
(FOR QUARTER ENDED MAY 2, 1998)
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10.35 Bruno's, Inc. Severance Plan
27 Financial Data Schedule
</TABLE>
18
<PAGE> 1
EXHIBIT 10.35
BRUNO'S, INC.
SEVERANCE PLAN
1. Eligibility. Employees of Bruno's, Inc. ("Company") shall be eligible
to participate in the Bruno's, Inc. Severance Plan ("Plan"). The
Company currently anticipates that coverage under the Plan will extend
to 16 senior vice presidents and vice presidents, 17 directors and 77
salaried, non-contract employees, as more specifically designated in
writing from time to time by the Chief Executive Officer of the
Company. Any increase in the aggregate number of employees
participating in the Plan shall be approved by the statutory committee
of unsecured creditors (the "Creditors' Committee") appointed in
chapter 11 cases of the Company and its affiliates. If the Company and
the Creditors' Committee fail to agree upon an increase in the number
of participants, such dispute shall be submitted to the United States
Bankruptcy Court for the District of Delaware ("Bankruptcy Court") for
determination.
2. Termination of Participation. Participation in the Plan automatically
terminates, without notice to or consent of any participant, upon such
participant's death, disability, resignation without Good Reason (as
defined below) or termination for Cause (as defined below).
"Good Reason" means any of the following events with respect to a
participant:
- any reduction in his or her base salary, target bonus
opportunity or, except for changes applicable to all similarly
situated employees, employee benefits; provided, however, that
the expiration of the Bruno's, Inc. Retention Plan in
accordance with its terms shall not constitute Good Reason;
- any material change in duties, the result of which is that a
substantial portion of such changed duties is inconsistent
with such participant's education, experience or training
(except in connection with a termination for Cause,
resignation for Good Reason or disability); or
- any change in his or her principal work location of more than
the greater of fifty (50) miles and the covered employee's
current distance traveled
<PAGE> 2
to his or her principal work location as of the date upon
which the Bankruptcy Court enters an order approving the Plan
("Effective Date");
"Cause" means any act or any failure to act on the part of a
participant which constitutes:
- willful malfeasance or willful misconduct in connection with
his or her employment which is injurious to the Company or any
of its affiliates or the Board of Directors of the Company or
any of its affiliates, including fraud, embezzlement, theft,
dishonesty and property damage;
- willful or grossly negligent material violation of law in
connection with or in the course of his or her duties or
employment with the Company or any of its affiliates;
- misdemeanor involving moral turpitude or felony for which the
participant is convicted or pleads nolo contendere;
- willful or grossly negligent engagement in any activity
competitive with the business of the Company as to which the
Company has notified the participant in writing and the
participant has not ceased within three (3) business days
following such notice;
- failure to follow reasonable directions or instructions of a
more senior officer or the Board of Directors of the Company
as to which the Company has notified the participant in
writing and such failure shall have continued for a period of
three (3) business days after receipt of such notice;
- willful or grossly negligent breach of any stated material
employment policy of the Company; or
- willful and wrongful disclosure of confidential information of
the Company or any of its affiliates.
No act or failure to act on the part of a participant shall be deemed
to be "willful" if it was due primarily to an error in judgment or
negligence.
3. Severance Benefits. Subject to Section 4, if any participant is
terminated by the Company without Cause or resigns for Good Reason
during a period commencing three (3) months before a Change in Control
(as defined below) and ending twelve (12) months following a Change in
Control (as defined below), such participant (provided that such
participant shall execute a release
2
<PAGE> 3
with respect to the Company substantially in the form annexed hereto)
will be entitled to (i) severance pay equal to his or her monthly pay
rate in effect on the termination date multiplied by the applicable
period set forth on Schedule 1, and (ii) continuation of group medical
and life insurance benefits as in effect from time to time for such
period. The Company shall make severance payments in satisfaction of a
participant's severance pay in accordance with the Company's normal
payroll practices in existence as of the date the participant is
severed, rather than in a lump sum.
Severance pay shall not be reduced by any remuneration received by a
severed employee from another employer within the four and one-half (4
1/2) month period subsequent to termination. Severance benefits earned
or payable to a severed employee after such four and one-half (4 1/2)
month period, shall be reduced by any remuneration received or earned
by the employee from another employer during the balance of the period
during which severance benefits are payable. Group medical and life
insurance coverage shall be limited to the extent that a participant
becomes covered by the group medical and life insurance plans of a
successor employer. Any period of group medical coverage pursuant to
the Plan shall not reduce any required period of coverage for purposes
of Part 6, Subtitle B, Title I of the Employment Retirement Income
Security Act of 1974, as amended ("ERISA").
"Change in Control" means any of the following events:
- the approval by the Board of Directors of the Company of a
plan of liquidation with respect to the Company, including the
approval of a sale of a significant number of the Company's
stores in contemplation of additional sales of stores
constituting substantially all of the Company's stores in the
aggregate;
- the sale or other divestiture of all or substantially all of
the assets (excluding the sale of inventory or other assets in
the ordinary course of business) of the Company or of the
Company and its direct or indirect majority-owned
subsidiaries; or
- the acquisition by any person or affiliated group of persons
of the common stock of the Company pursuant to a plan of
reorganization or otherwise such that said person or
affiliated group shall own directly or indirectly,
beneficially or of record, a majority of the outstanding
voting stock of the Company; provided, however, that the
acquisition of a majority of the outstanding voting stock of
the Company in accordance with a plan of reorganization of the
Company by an entity that is a creditor of the Company (other
than a creditor engaged in the wholesale
3
<PAGE> 4
or retail sale or distribution of groceries or other food
products) shall not be deemed a Change in Control;
- the appointment of a trustee for the Company or the conversion
of the Company's case under chapter 11 of title 11 of the
United States Code ("Bankruptcy Code") to a liquidation case
under chapter 7 of the Bankruptcy Code.
4. Sale of Company Assets. A participant whose employment is terminated by
the Company as a result of a sale or other divestiture of any assets of
the Company shall not be eligible for severance benefits under the Plan
if (i) such participant is offered employment at the same position and
with the same base salary, same target bonus opportunity, and same
employee benefits (as are made available to similarly situated
employees) at a work location within the greater of fifty (50) miles
and the distance traveled to his or her principal work location with
respect to the Company, and (ii) such participant will be eligible for
coverage under a severance plan providing severance benefits identical
to those provided under the Plan if he or she is terminated without
Cause or resigns for Good Reason within the first twelve (12) months of
such employment.
5. Plan Administration. The Company (EIN 63-0411801) is the plan sponsor
and plan administrator. Service of legal process upon the Plan shall be
made upon the Company as follows:
Bruno's, Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
Attn: General Counsel
The Company has full power and authority to do all things necessary or
convenient to administer and effect the purposes of the Plan, whether
or not such powers are set forth herein, including but not limited to
the power to:
(a) provide rules for the management, operation and administration
of the Plan;
(b) reasonably construe and make all determinations under the Plan
in good faith to the fullest extent permitted by law;
(c) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan in such manner and to such extent as
it shall deem appropriate in its sole discretion to carry the
same into effect; and
4
<PAGE> 5
(d) make reasonable determinations as to a participant's
eligibility for benefits under the Plan, including
determinations as to Cause and Good Reason.
The decisions of the Company or its delegate shall be final and
conclusive for all purposes of the Plan and shall not be subject to any
appeal or review other than pursuant to Sections 6 and 7.
6. Claims Procedure; Claims Review Procedure. If any participant has a
claim for benefits which are not being paid, such claimant may file
with the Company a written claim setting forth the amount and nature of
the claim, supporting facts, and the claimant's address. The Company
shall notify each claimant of its decision in writing by registered or
certified mail within thirty (30) days after its receipt of a claim,
unless otherwise agreed by the claimant. If a claim is denied, the
written notice of denial shall set forth the reasons for such denial,
refer to pertinent Plan provisions on which the denial is based,
describe any additional material or information necessary for the
claimant to realize the claim, and explain the claim review procedure
under the Plan.
A claimant whose claim has been denied or such claimant's duly
authorized representative may file, within sixty (60) days after notice
of such denial is received by the claimant, a written request for
review of such claim by the Company. If a request is so filed, the
Company shall review the claim and notify the claimant in writing of
its decision within thirty (30) days after receipt of such request,
which may be extended for up to thirty (30) additional days in special
circumstances as determined by the Company in its sole discretion. The
notice of the final decision of the Company shall include the reasons
for its decision and specific references to the Plan provisions on
which the decision is based. The decision of the Company shall be final
and binding on all parties.
7. Disputes. Any dispute by a participant concerning his or her benefits
under the Plan following a final decision by the Company pursuant to
Section 6 arising during the pendency of the Company's case under
chapter 11 of the Bankruptcy Code shall be resolved by the Bankruptcy
Court, and any such dispute arising thereafter shall be settled in
accordance with the Rules of the American Arbitration Association,
which determination shall be binding upon the parties conclusively.
8. ERISA Rights. A participant may obtain copies of all Plan information
upon written request to the plan administrator. The plan administrator
and others who operate the Plan must do so prudently and in the
interest of the participants. No employer or other person may terminate
or otherwise discriminate against a participant in any way intended to
prevent him or her
5
<PAGE> 6
from obtaining a severance benefit or exercising his or her rights
under ERISA. If such discrimination occurs, the participant may seek
assistance from the United States Department of Labor or may file suit
in a federal court.
A participant is entitled to receive a written explanation of the
reasons for the denial of his or her claim, and to have the Company
review and reconsider such claim. The participant may file suit in a
state or federal court to challenge any such denial.
Under ERISA, there are steps a participant can take to enforce the
above rights. For instance, if materials are requested from the Plan
and are not received within thirty (30) days, the participant may file
suit in a federal court. If a participant has any questions about the
Plan, the participant may contact the plan administrator. If a
participant has any questions about this statement or about his or her
rights under ERISA, the participant may contact the nearest Area Office
of the United States Labor-Management Services Administration,
Department of Labor.
9. Amendment or Termination. The Plan is subject to approval by the
Bankruptcy Court. The Plan may be amended or terminated by the Company
in its sole discretion; provided, however, that the Plan cannot be
amended or terminated (i) within three (3) months preceding a Change in
Control or within twelve (12) months following a Change in Control in
any manner which adversely affects the rights of any participant at
that time or (ii) during the pendency of the Company's case under
chapter 11 of the Bankruptcy Code, without the approval of the
Bankruptcy Court.
10. No Employment Rights. No participant has any right to be employed by
the Company by reason of the establishment or any provisions of the
Plan, and the Company reserves the right to dismiss or otherwise deal
with any employee to the same extent as though the Plan had not been
adopted.
11. Non-Property Interest. The Plan is unfunded and all benefits under the
Plan are unsecured claims against the Company. The Plan shall not
affect or impair the rights or obligations of the Company or a
participant under any other written plan, contract or arrangement.
12. Transferability of Rights. No participant may assign, transfer or
otherwise alienate his or her rights under the Plan.
6
<PAGE> 7
13. Governing Law. The Plan shall be construed, administered, and enforced
according to the laws of the State of Alabama, except to the extent
that such laws are preempted by the federal laws of the United States
of America.
EXECUTED, at Birmingham, Alabama, this 3rd day of June, 1998.
BRUNO'S, INC.
By: /s/ James A. Demme
-----------------------
James A. Demme
Chief Executive Officer
7
<PAGE> 8
SCHEDULE 1 TO
BRUNO'S, INC. SEVERANCE PLAN
<TABLE>
<CAPTION>
Position Severance Period
- -------- ----------------
<S> <C>
Senior VP 12 months
VP 12 months
Director 6 months
Other salaried employee 3 months
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF BRUNO'S, INC. FOR THE QUARTER ENDED MAY 2, 1998, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 22,772
<SECURITIES> 0
<RECEIVABLES> 24,944
<ALLOWANCES> 517
<INVENTORY> 175,696
<CURRENT-ASSETS> 274,094
<PP&E> 350,927
<DEPRECIATION> 323,922
<TOTAL-ASSETS> 667,999
<CURRENT-LIABILITIES> 126,520
<BONDS> 400,000
0
0
<COMMON> 255
<OTHER-SE> (496,595)
<TOTAL-LIABILITY-AND-EQUITY> 667,999
<SALES> 501,729
<TOTAL-REVENUES> 501,729
<CGS> 389,239
<TOTAL-COSTS> 389,239
<OTHER-EXPENSES> 123,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 598
<INCOME-PRETAX> (11,353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,353)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
