<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 OCTOBER 30, 1999
[ ] 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)
ALABAMA 63-0411801
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 LAKESHORE PARKWAY, BIRMINGHAM, ALABAMA 35211
(Address of principal executive office) (zip code)
205-940-9400
(Registrant's telephone number including area code)
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 [ ]
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
AS OF DECEMBER 10, 1999 WAS 25,507,982.
<PAGE> 2
Commission File No. 0-6544
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION)
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements: PAGE NO.
--------
Condensed Consolidated Balance Sheets at October 30, 1999 2
and January 30, 1999
Condensed Consolidated Statements of Operations for the 3
Thirty-nine (39) and Thirteen (13) Week Periods Ended
October 30, 1999 and October 31, 1998
Condensed Consolidated Statements of Cash Flows for the 4
Thirty-nine (39) Week Periods Ended October 30, 1999 and
October 31, 1998
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risks 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
</TABLE>
1
<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 OCTOBER 30, 1999 AND JANUARY 30, 1999
(In Thousands Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
OCTOBER 30, JANUARY 30,
1999 1999
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 96,028 $ 65,953
Receivables 13,499 25,463
Inventories, net of LIFO reserve of $3,989
at October 30, 1999, and January 30, 1999 171,831 178,140
Vendor deposits 11,252 15,168
Prepaid expenses and other 8,633 10,242
---------- ----------
Total current assets 301,243 294,966
---------- ----------
Property and equipment, net of accumulated
depreciation of $330,200 and $329,717,
respectively 254,008 270,186
---------- ----------
Intangibles and other assets, net 15,450 41,530
---------- ----------
Total $ 570,701 $ 606,682
========== ==========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY IN
NET ASSETS:
Liabilities not subject to compromise
Current liabilities:
Current maturities of capitalized lease obligations $ 3,545 $ 4,130
Accounts payable 72,347 65,472
Accrued payroll and related expenses 17,298 15,042
Other accrued expenses 39,338 31,247
---------- ----------
Total current liabilities 132,528 115,891
---------- ----------
Noncurrent liabilities:
Capitalized lease obligations 3,833 6,276
Other noncurrent liabilities 17,707 25,494
---------- ----------
Total noncurrent liabilities 21,540 31,770
---------- ----------
Liabilities subject to compromise 981,192 996,363
---------- ----------
Shareholders' deficiency in net assets:
Common Stock, $.01 par value, 60,000,000
shares authorized; 25,507,982 issued and
outstanding at October 30, 1999, and January 30, 1999 255 255
Paid-in capital (deficiency) (586,944) (586,944)
Retained earnings 23,569 50,972
Shareholders' notes receivable (1,439) (1,625)
---------- ----------
Total deficiency in net assets (564,559) (537,342)
---------- ----------
Total $ 570,701 $ 606,682
========== ==========
</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 THIRTY-NINE AND THIRTEEN WEEK PERIODS ENDED
OCTOBER 30, 1999 AND OCTOBER 31, 1998
(In Thousands Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
(39 WEEKS) (39 WEEKS)
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
NET SALES $ 1,213,520 $ 1,434,571
------------ ------------
COST AND EXPENSES:
Cost of products sold 932,978 1,122,750
Store operating, selling and administrative expenses 251,848 306,441
Depreciation and amortization 33,837 38,426
Interest expense, net (contractual interest for 1999 and 1998 esti-
mated at $62,944 and $63,573, respectively for the 39 week
period and $21,225 and $21,199, respectively for the 13 week period) 2,127 2,567
Gain on sale of Seessel's (1,959)
Reorganization items, net 30,201 5,558
------------ ------------
Total cost and expenses 1,250,991 1,473,783
------------ ------------
Income/loss before income taxes (37,471) (39,212)
INCOME TAX BENEFIT - REFUND 10,068 --
------------ ------------
Net Income/loss $ (27,403) $ (39,212)
============ ============
NET LOSS PER BASIC AND DILUTED
COMMON SHARE $ (1.07) $ (1.54)
============ ============
WEIGHTED AVERAGE BASIC AND DILUTED
COMMON SHARES OUTSTANDING 25,507,982 25,507,982
============ ============
See notes to condensed consolidated financial statements
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
(13 WEEKS) (13 WEEKS)
(unaudited) (unaudited)
------------ -----------
<S> <C> <C>
NET SALES $ 398,708 $ 440,549
------------ -----------
COST AND EXPENSES:
Cost of products sold 308,633 346,740
Store operating, selling and administrative expenses 85,534 92,238
Depreciation and amortization 11,010 11,583
Interest expense, net (contractual interest for 1999 and 1998
estimated at
$62,944 and $63,573, respectively for the 39 week
period and $21,225 and $21,199, respectively for the 13 week period) 643 1,023
Gain on sale of Seessel's (1,959)
Reorganization items, net 902 (15,993)
------------ ------------
Total cost and expenses 406,722 433,632
------------ ------------
Income/loss before income taxes (8,014) 6,917
INCOME TAX BENEFIT - REFUND -- --
------------ ------------
Net Income/loss $ (8,014) $ 6,917
============ ============
NET LOSS PER BASIC AND DILUTED
COMMON SHARE $ (0.31) $ 0.27
============ ============
WEIGHTED AVERAGE BASIC AND DILUTED
COMMON SHARES OUTSTANDING 25,507,982 25,507,982
============ ============
See notes to condensed consolidated financial statements
</TABLE>
3
<PAGE> 5
Commission File No. 0-6544
BRUNO'S, INC.
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS ENDED OCTOBER 30, 1999 AND
OCTOBER 31, 1998
(Amounts In Thousands)
<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
(39 WEEKS) (39 WEEKS)
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (27,403) $ (39,212)
--------- ---------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization (including amortization of debt issuance costs) 34,587 38,919
Change in assets and liabilities 485 (13,510)
Income tax refund 16,623 --
Write-off of debt issuance costs - reorganization 27,760 --
Noncash impairment and other special charges -- 5,903
--------- ---------
Total adjustments 79,455 31,312
--------- ---------
Payments for professional fees and other expenses related
to the Chapter 11 Cases, net of interest income (5,591) (7,508)
--------- ---------
Net cash provided by (used in) operating activities 46,461 (15,408)
--------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of property - reorganization 7,258 81,807
Capital expenditures (20,616) (15,679)
--------- ---------
Net cash provided by (used in) investing activities (13,358) 66,128
--------- ---------
FINANCING ACTIVITIES:
Net borrowings under debtor-in-possession financing -- --
Reduction of prepetition capitalized lease obligations, net (3,028) (3,490)
--------- ---------
Net cash used in financing activities (3,028) (3,490)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 30,075 47,230
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 65,953 2,888
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 96,028 $ 50,118
========= =========
</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 THIRTY-NINE AND THIRTEEN WEEK PERIODS ENDED
OCTOBER 30, 1999 AND OCTOBER 31, 1998
(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 intercompany balances and transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
to the current period presentation. Operating results for the thirty-nine weeks
ended October 30, 1999, are not necessarily indicative of the results that may
be expected for the entire fiscal year. The unaudited condensed consolidated
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 30, 1999. In the opinion
of management, the accompanying unaudited condensed 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.
On February 2, 1998, the Company and each of its 11 subsidiaries 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 will continue to manage their
affairs and operate their business as debtors-in-possession while the Chapter
11 Cases are pending. As debtors-in-possession, the Company may not engage in
transactions outside the ordinary course of business without approval, after
notice and hearing, of the Bankruptcy Court.
On June 23, 1999, the Bankruptcy Court granted a motion filed by the Trustee
for the holders of the Company's Senior Subordinated Notes seeking the
appointment of an independent examiner to investigate the 1995 leveraged
recapitalization under which affiliates of Kohlberg Kravis Roberts & Co.
acquired control of the Company. The independent examiner was appointed by
5
<PAGE> 7
the Bankruptcy Court to determine if there were any claims arising out of the
leveraged recapitalization that could be asserted on behalf of the Company for
the benefit of the Company's creditors. On October 5, 1999, the examiner filed
a report on his investigation with the Bankruptcy Court.
On October 15, 1999, the Company and its subsidiaries filed their Second
Amended Joint Plan of Reorganization (the "Proposed Plan of Reorganization")
with the Bankruptcy Court. Among other things, the Proposed Plan of
Reorganization provides that (i) all prepetition debt, other than capitalized
lease obligations, would be eliminated, (ii) general unsecured creditors would
receive cash payments in an amount equal to 30% of the agreed value of their
claims, (iii) holders of the Company's prepetition bank debt would receive
substantially all of the shares of common stock of the reorganized company, and
(iv) no payments would be made to holders of the Company's Senior Subordinated
Notes or to holders of shares of the Company's existing common stock.
On October 15, 1999, the Bankruptcy Court, after notice and a hearing,
authorized the Company to solicit acceptances of the Proposed Plan of
Reorganization from the Company's creditors. The Proposed Plan of
Reorganization has been approved by the requisite vote of the creditors of the
Company entitled to vote thereon. The Bankruptcy Court has scheduled a hearing
commencing on December 20, 1999 to consider confirmation of the Proposed Plan
of Reorganization.
The Proposed Plan of Reorganization, if ultimately approved by the Bankruptcy
Court, will materially change the amounts reported in the consolidated
financial statements, which currently do not give effect to any adjustments to
the carrying value of assets or the amounts of liabilities that might be
necessary as a result of confirmation of the plan. After the effective date of
the Proposed Plan of Reorganization, the Company's consolidated financial
statements will not be comparable with those prepared before the effective
date, including the historical financial statements included in this quarterly
report.
2. INCOME TAXES
In connection with the preparation of the Company's federal income tax return
in June 1999, an Application for Tentative Carryback Adjustment was filed with
the Internal Revenue Service (IRS) resulting in the Company's receipt of a tax
refund, of which $10.1 million was recognized in the quarter ended July 31,
1999. The net operating loss, on which the carryback is based, is subject to
certain limitations, and thus the refund is subject to adjustment by the IRS.
In assessing the realization of the Company's deferred income tax assets,
management considers the likelihood that the deferred income tax assets will be
realized through future taxable income. Based upon management's projections,
the Company has fully reserved its net deferred income tax assets.
3. CONTINGENCIES
On June 6, 1997, a lawsuit was filed against the Company in the Circuit Court
for Jefferson County, Alabama (the "Alabama State Court") by SNA, Inc. ("SNA")
and A.B. Real Estate, Inc. ("A.B. Real Estate"). The lawsuit was styled A.B
Real Estate, Inc. et. al. v. Bruno's, Inc., et al., Civil Action No.
CV-97-3538. The complaint alleges that SNA and A.B. Real Estate are engaged in
the business of developing and managing commercial real estate, that the
Company had a contractual obligation to offer for sale and to sell grocery
store sites to SNA and A.B. Real Estate and to lease such sites back from such
entities, and that the Company's failure to perform its obligations constitutes
a breach of contract and fraud within the meaning of Alabama law. The complaint
seeks to recover compensatory and punitive damages from the Company in an
unspecified amount. Following the commencement of the Chapter 11 Cases, the
Company
6
<PAGE> 8
removed the lawsuit to the United States District Court for the Northern
District of Alabama (the "Alabama District Court"). Pursuant to a standing
order of the Alabama District Court, the lawsuit was referred to the United
States Bankruptcy Court for the Northern District of Alabama (the "Alabama
Bankruptcy Court"). SNA and A.B. Real Estate filed a motion to remand the
lawsuit to the Alabama State Court. After extensive negotiations, the parties
to the lawsuit agreed that the lawsuit will be tried by a jury before the
Alabama Bankruptcy Court. Accordingly, the lawsuit is now pending in the
Alabama Bankruptcy Court under the style A.B. Real Estate, Inc. et. al. v.
Bruno's, Inc., et. al., Adversary Proceeding No. 98 - 00064. Pursuant to the
agreement among the parties, a stipulation and agreement was filed in the
Bankruptcy Court in which the Chapter 11 Cases are pending to modify the
automatic stay resulting from the commencement of the Chapter 11 Cases to the
extent necessary to allow the prosecution of the lawsuit by a jury trial before
the Alabama Bankruptcy Court. The parties to the lawsuit are currently involved
in discovery proceedings. The Company believes that it has meritorious defenses
to the allegations contained in the complaint and intends to defend this
lawsuit vigorously. If the plaintiffs in this lawsuit ultimately are successful
in obtaining a judgment against the Company, they will have a general unsecured
claim against the Company that will be paid in accordance with the terms of the
plan of reorganization ultimately confirmed by the Bankruptcy Court in which
the Chapter 11 Cases are pending.
In addition, 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 proceedings will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. The Company's liability, if any, with respect to proceedings
occurring prior to the commencement of the Chapter 11 Cases will be paid in
accordance with the terms of the plan of reorganization ultimately confirmed by
the Bankruptcy Court.
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 claims from certain vendors. The
Company has voluntarily reduced its maximum borrowings under the Loan Agreement
from $200 million to $50 million because the Company does not believe it will
need the additional borrowing capacity and because the reduction will result in
a decrease in the fees paid by the Company under the Loan Agreement. The
maximum borrowings under the Loan Agreement include 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, as amended, contains certain restrictive covenants which,
among other things, require the Company to maintain a minimum cumulative EBITDA
as measured at the end
7
<PAGE> 9
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. As of October 30, 1999, the
Company and the requisite lending institutions under the Loan Agreement entered
into a letter agreement under which the lending institutions waived the minimum
EBITDA requirement with respect to the fiscal month ended on October 30, 1999.
The Company requested this waiver as a result of the reduced sales and
increased costs incurred by the Company in the fiscal month ended October 30,
1999 due to a strike called by the United Food and Commercial Workers Union
against 104 of the Company's stores.
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.
As of October 30, 1999, the Company had no direct borrowings outstanding under
the Loan Agreement but had utilized $3.9 million of its availability under the
Loan Agreement to issue letters of credit. Trade payables owed to Participating
Vendors (as defined in the Loan Agreement) did not reduce the Company's
availability under the Loan Agreement because the Company's borrowing base, as
defined in the Loan Agreement, exceeded the $50 million limitation on
borrowings under the Loan Agreement.
5. LIABILITIES SUBJECT TO COMPROMISE
As described in Note 1, since February 2, 1998, the Company has been operating
as a debtor-in-possession under Chapter 11 of the Bankruptcy Code and has been
subject to the jurisdiction and supervision of the Bankruptcy Court.
Liabilities subject to compromise refer to liabilities outstanding prior to the
commencement of the Chapter 11 Cases. In the Chapter 11 Cases, substantially
all liabilities of the Company as of the date of the filing of the petitions
for reorganization will be subject to settlement under a plan of
reorganization. Certain creditors have filed claims substantially in excess of
the amounts reflected in the Company's records. Differences between amounts
shown by the Company and claims filed by the creditors are currently being
investigated and reconciled. After completion of these reconciliations, any
remaining differences may be resolved by negotiated agreement between the
Company and the claimant or by the Bankruptcy Court as part of the Chapter 11
Cases. Consequently, the amount of liabilities subject to compromise as shown
in the Company's Consolidated Balance Sheet at October 30, 1999, will likely be
subject to adjustment.
In the consolidated balance sheet of the Company, liabilities subject to
compromise consist of:
<TABLE>
<CAPTION>
October 30, 1999 January 30, 1999
---------------- ----------------
<S> <C> <C>
Long-term debt $ 858,626 $ 858,722
Trade accounts 70,567 87,081
Prepetition accrued interest 24,727 24,727
Allowed claims for lease rejection 12,731 11,548
Other prepetition items 14,541 14,285
--------- ---------
$ 981,192 $ 996,363
========= =========
</TABLE>
8
<PAGE> 10
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 will be established as the Chapter 11 Cases
proceed.
The Company 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. As of October 30,
1999, the Company had made $22.8 million of such critical vendor payments.
6. REORGANIZATION ITEMS
Expenses and income directly incurred or realized as a result of the Chapter 11
Cases have been segregated from the normal operations and are disclosed
separately. The major components are as follows:
<TABLE>
<CAPTION>
39 Weeks 39 Weeks 13 Weeks 13 Weeks
Ended Ended Ended Ended
October 30, October 31, October 30, October 31,
----------- ----------- ----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Restructuring income, net $ -- $ (704) $ -- $ (18,322)
Prepetition debt issuance costs 27,760 -- --
Professional fees and
administrative items 9,000 9,000 3,000 3,000
Sale of excess properties (3,006) (1,952) (673) (238)
Interest income (3,553) (786) (1,425) (433)
---------- ---------- ---------- ----------
$ 30,201 $ 5,558 $ 902 $ (15,993)
========== ========== ========== ==========
</TABLE>
RESTRUCTURING INCOME, NET:
In the quarter ended October 31, 1998, the Company sold 15 stores and the real
estate on which three of the stores were located to Albertson's, Inc. The sale
of the stores and real property resulted in restructuring income of $18.3
million.
In the quarter ended August 1, 1998, the Company recorded restructuring charges
of $17.6 million associated with the scheduled sale or closure of 20 stores.
These charges primarily related to reserves recorded to cover the reduction of
fixed assets to net realizable value in the
9
<PAGE> 11
closed stores and the anticipated liability for ongoing store operations such
as rent and employee costs, among other things.
PREPETITION DEBT ISSUANCE COSTS:
In accordance with the guidance provided by Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,"
the Company during the quarter ended July 31, 1999 wrote off its unamortized
debt issuance costs relating to the Company's prepetition debt in order to
adjust the recorded balance of such prepetition debt to the amount of the
claims proposed to be allowed by the Company pursuant to the Proposed Plan of
Reorganization.
PROFESSIONAL FEES AND ADMINISTRATIVE ITEMS:
Professional fees and administrative items relate to legal, accounting, other
professional and employee costs directly attributable to the Chapter 11 Cases.
SALE OF EXCESS PROPERTIES:
This amount represents the Company's net gain on the sale of excess real estate
during each of the periods shown above.
INTEREST INCOME:
This amount represents interest income associated with the accumulation of cash
and short-term investments subsequent to filing the Chapter 11 Cases.
7. ACCOUNTING STANDARD NOT YET ADOPTED
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued. This Statement requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities and be measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS No. 133. This Statement, as amended, will be effective for
the Company in its fiscal year ending February 3, 2002. The Company had an
interest rate collar arrangement on $150 million in outstanding debt which
expired on May 18, 1999. The Company's management has not yet determined the
effect, if any, of SFAS No. 133 on its financial statements.
10
<PAGE> 12
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>
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1999 1998 1999 1998
(39 WEEKS) (39 WEEKS) (13 WEEKS) (13 WEEKS)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of products sold 76.88% 78.26% 77.41% 78.71%
Store operating, selling, and administrative expenses 20.75% 21.36% 21.45% 20.94%
-------- -------- -------- --------
EBITDA(1) 2.36% 0.38% 1.14% 0.36%
Depreciation and amortization 2.79% 2.68% 2.76% 2.63%
Interest expense, net 0.18% 0.18% 0.16% 0.23%
Gain on sale of Seessel's N/A -0.14% N/A -0.44%
Reorganization items, net 2.49% 0.39% 0.23% -3.63%
-------- -------- -------- --------
Income / Loss before income taxes -3.09% -2.73% -2.01% 1.57%
Income tax benefit - refund 0.83% 0.00% 0.00% 0.00%
-------- -------- -------- --------
Net income / loss -2.26% -2.73% -2.01% 1.57%
======== ======== ======== ========
</TABLE>
A summary of the changes in certain items included in the condensed statements
of operations for the thirty-nine and thirteen week periods ended October 30,
1999 as compared to the thirty-nine and thirteen week periods ended October
31, 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Thirty-nine Weeks Thirteen Weeks
Ended October 30, 1999 Ended October 30, 1999
Amounts % Change Amounts % Change
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ (221,051) -15.41% $ (41,841) -9.50%
Cost of products sold (189,772) -16.90% (38,107) -10.99%
Store operating, selling, and administrative expenses (54,593) -17.82% (6,704) -7.27%
---------- --------- ---------- ---------
EBITDA(1) 23,314 433.35% 2,970 -189.05%
Depreciation and amortization (4,589) -11.94% (573) -4.95%
Interest expense, net (440) -17.14% (380) -37.15%
Gain on sale of Seessel's 1,959 -100.00% 1,959 -100.00%
Reorganization items, net 24,643 443.38% 16,895 -105.64%
---------- --------- ---------- ---------
Income / Loss before income taxes 1,741 4.44% (14,931) 215.86%
Income tax benefit - refund 10,068 N/A -- N/A
---------- --------- ---------- ---------
Net income / loss $ 11,809 30.12% $ (14,931) 215.86%
========== ========= ========== =========
</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. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and/or
incur indebtedness. EBITDA, however, should not be construed as an
alternative to net income as a measure of a company's operating
results or to cash flow as a measure of liquidity. This methodology
may not be consistent with a similarly captioned item presented by
other companies.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
GENERAL
As of October 30, 1999, the Company operated a chain of 152 supermarkets and
combination food and drug stores. The Company also operated eight retail liquor
stores located in the Florida panhandle. As of October 31, 1998, the Company
operated 164 supermarkets and combination food and drug stores as well as eight
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. Since 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 and review the Company's
market strategy, geographic positioning, and store level return on assets.
The Company is party to a number of collective bargaining agreements with
affiliates of the United Food and Commercial Workers Union (the "UFCW"). Two of
these agreements expired on February 28, 1998 but were extended by a letter
agreement between the Company and the UFCW under which either party could
terminate the extension by giving the other party at least 48 hours' written
notice. On August 25, 1999, the Company provided written notice to the UFCW
that it was terminating the extension to these two agreements effective as of
5:00 P.M. on August 27, 1999. The Company made this decision because of the
lack of progress in the Company's efforts to negotiate new agreements with the
UFCW. A third collective bargaining agreement between the Company and the UFCW
expired on September 25, 1999. On September 26, 1999, the UFCW called a strike
against 104 of the Company's stores. The strike lasted until October 3, 1999.
The UFCW ended the strike after the Company and the UFCW reached an agreement
on three separate new union contracts to replace the three agreements that had
expired. The new contracts were subsequently ratified by the members of the
UFCW entitled to vote thereon.
As of October 30, 1999, the Company employed approximately 12,700 persons, of
whom approximately 51% were full-time employees and approximately 49% were
part-time employees.
ACQUISITIONS AND DIVESTITURES
On September 10, 1999, the Company entered into an agreement with Gregerson's
Foods, Inc. ("Gregerson's") under which the Company acquired from Gregerson's
(i) substantially all of the assets relating to three stores owned and operated
by Gregerson's in Alabama and (ii) the inventory in a fourth store that was
closed by Gregerson's in conjunction with its sale of the other three stores to
the Company. The Company commenced operations in the stores acquired from
Gregerson's on October 10, 1999.
12
<PAGE> 14
During the first three quarters of the current fiscal year, the Company sold
one store that had been closed during the previous fiscal year as well as
miscellaneous excess real estate resulting in proceeds of $7.3 million.
On July 30, 1998, the Company entered into an agreement to sell 15 stores,
including one new store that had not commenced business, to Albertson's, Inc.
Eleven of the stores were located in the Nashville, Tennessee market area, and
four were located in the Chattanooga, Tennessee market. The sale of the 15
stores to Albertson's was consummated on August 24, 1998, and resulted in a net
gain of $16.2 million during the 39 week period ended October 31, 1998. This
gain includes restructuring income of $18.3 million, offset by $2.1 million of
inventory markdowns included as a special charge in cost of products sold.
Between August and December of 1998, the Company closed 20 stores consisting of
10 stores in Alabama, five in Florida, three in Mississippi and two in Georgia.
During the 39 week period ended October 31, 1998, the Company incurred a net
loss of $21.4 million in connection with these store closings. The loss
consisted primarily of $17.6 million in restructuring charges and $3.8 million
of inventory markdowns reflected as a special charge in cost of products sold.
In January 1999, the Company closed an additional 14 stores consisting of six
stores in Alabama, five in Georgia and three in Florida.
RESULTS OF OPERATIONS
NET SALES
Net sales decreased $41.8 and $221.1 million in the quarter and year-to-date
periods ended October 30, 1999, as compared to the comparable periods of the
prior year. The decrease in net sales for both periods was primarily
attributable to the reduction in the number of stores operated by the Company
as a result of the divestitures that occurred during the fiscal year ended
January 30, 1999 as described above under the heading "ACQUISITIONS AND
DIVESTITURES". Comparable store sales decreased 1.5% and 0.5% in the quarter
and year-to-date periods ended October 30, 1999 from the prior year due
primarily to the impact of the seven - day strike called by the UFCW against
104 of the Company's stores offset by increased sales resulting from special
promotional activity following the end of the strike.
The Company has and will continue to review its strategies to improve sales
performance and maintain its customer base. There can be no assurances,
however, that these strategies will increase sales or will not otherwise have
an adverse effect on the Company's business in the future.
GROSS PROFIT
Gross profit (net sales less cost of products sold) as a percentage of net
sales for the third quarter was 22.6% compared to 21.3% in the third quarter of
the prior year. Gross profit for the year-to-date period was 23.1% compared to
21.7% in the prior year. This improvement in both periods can be largely
attributed to better inventory control and improved purchasing practices, the
benefits of which were partially offset by more competitive pricing by the
Company. In addition, gross profit for the third quarter and year-to-date
periods of the prior fiscal year were adversely affected by a $2.1 million and
$5.9 million, respectively, charge to cost of products
13
<PAGE> 15
sold related to inventory markdowns described above under the heading
"ACQUISITION AND DIVESTITURES".
STORE OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Store operating, selling, and administrative expenses as a percent of net sales
were 21.4% for the quarter and 20.8% for the year-to-date period ended October
30, 1999 compared to 20.9% and 21.4% for the comparable periods of the prior
year. The increased rate as a percent of net sales during the quarter ended
October 30, 1999 was the result of the decrease in comparable stores sales as a
result of the seven - day strike called by the UFCW against 104 of the Company's
stores and an increase in expenses related to the strike, including increased
expenses resulting from special promotional activity following the end of the
strike. The percentage decrease for the year-to-date period was primarily due
to reductions in labor and associated costs and less advertising expense prior
to the strike.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)
EBITDA (as defined on page 11) increased by $2.9 million to $4.5 million in the
quarter ended October 30, 1999 from $1.6 million in the comparable quarter of
the prior year. For the year-to-date period, EBITDA increased by $23.3 million
to $28.1 million from $5.4 million in the comparable period of the prior year
due to improved gross profit margins, reductions in labor and associated costs
and less advertising expense prior to the strike as discussed above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the quarter and year-to-date periods ended
October 30, 1999 was $11.0 and $33.8 million, respectively, compared to $11.6
and $38.4 million in the comparable periods of the prior year. This decrease in
depreciation and amortization is almost entirely the result of the sale or
closure of 48 stores during the last two quarters of the prior fiscal year.
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 first two quarters of the current
and prior fiscal years relates primarily to equipment owned under capital
leases.
REORGANIZATION ITEMS, NET
Reorganization expenses incurred during the third quarter and year-to-date
periods of the current fiscal year increased by $16.9 and $24.6 million,
respectively, from the prior fiscal year. The primary reason for the third
quarter increase was the inclusion in the prior year of a gain on the sale of
15 stores to Albertson's, Inc. The primary reason for the year-to-date increase
was the write-off of deferred debt issuance costs associated with the Company's
prepetition debt as provided in Statement of Position 90-7. For an analysis of
the components and balances
14
<PAGE> 16
included in this item, see NOTE 6 OF THE NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
INCOME TAXES
In connection with the preparation of the Company's federal income tax return
in June 1999, an Application for Tentative Carryback Adjustment was filed with
the Internal Revenue Service (IRS) resulting in the Company's receipt of a tax
refund, of which $10.1 million was recognized in the quarter ended July 31,
1999. The net operating loss, on which the carryback is based, is subject to
certain limitations, and thus the refund is subject to adjustment by the IRS.
In assessing the realization of the Company's deferred income tax assets,
management considers the likelihood that the deferred income tax assets will be
realized through future taxable income. Based upon management's projections,
the Company has fully reserved its net deferred income tax assets.
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, the Third Amendment thereto dated as of April 17, 1998, the
Fourth Amendment thereto dated as of July 31, 1998, and the Fifth Amendment
thereto dated as of October 31, 1998 (as so amended, the "Loan Agreement"). The
lenders who are parties to the Loan Agreement include 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 with letters
of credit. The amount the Company is permitted to borrow under the Loan
Agreement is dependent upon the level of the Company's inventory, real estate
and claims from certain vendors. The Company has voluntarily reduced its
maximum allowable borrowings under the Loan Agreement from $200 million to $50
million because the Company does not anticipate that it will need the
additional borrowing capacity and because the reduction will decrease the fees
paid by the Company under the Loan Agreement. The maximum permitted borrowings
under the Loan Agreement include 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 Company's subsidiaries are
also 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 Fifth
Amendment to the Loan Agreement, among other things, amended the
15
<PAGE> 17
minimum cumulative EBITDA and capital expenditure covenants contained in the
Loan Agreement and established minimum cumulative EBITDA and capital
expenditure covenants for the fiscal year ended January 29, 2000. As of October
30, 1999, the Company and the requisite lending institutions under the Loan
Agreement entered into a letter agreement under which the lending institutions
waived the minimum EBITDA requirement with respect to the fiscal month ended on
October 30, 1999. The Company requested this waiver as a result of the reduced
sales and increased costs incurred by the Company in the fiscal month ended
October 30, 1999 due to the strike called by the UFCW against 104 of the
Company's stores.
As of October 30, 1999, the Company had no direct borrowings outstanding under
the Loan Agreement but had utilized $3.9 million of its availability under the
Loan Agreement to issue letters of credit. Total availability under the Loan
Agreement at October 30, 1999 was $46.1 million. Trade payables owed to
Participating Vendors (as defined in the Loan Agreement) did not reduce the
Company's availability under the Loan Agreement because the Company's borrowing
base, as defined in the Loan Agreement, exceeded the $50 million limitation on
borrowings under the Loan Agreement. 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
confirmed in connection with the Chapter 11 Cases.
Operating activities provided $46.5 million of cash for the thirty-nine week
period ended October 30, 1999, and used cash of $15.4 million for the
comparable period of the prior year. The source of cash in the current fiscal
year is primarily attributable to the increase in EBITDA discussed above and to
a decrease in the Company's inventory levels, receivables and vendor deposits
and an increase in accounts payable. The use of cash in the prior fiscal year
is attributable to a decrease in EBITDA as well as to advances paid to vendors
in order to expedite the delivery of inventory to the Company.
Cash flows used in investing activities totaled $13.4 million in the
thirty-nine week period ended October 30, 1999. Capital expenditures of $20.6
million were only partially offset by proceeds from the sale of real estate of
$7.3 million. Proceeds from the sale of real estate of $81.8 million offset by
capital expenditures of $15.7 million provided $66.1 million of cash flow
during the comparable period of the prior fiscal year. The Company's capital
expenditures are primarily related to the remodeling of existing stores,
investments in systems technology and the acquisition of stores from
Gregerson's during the third quarter of 1999 as described above under the
heading "ACQUISITION AND DIVESTITURES".
Financing activities used cash of $3.0 million in the thirty-nine week period
ended October 30, 1999 and $3.5 million in the comparable period of the prior
fiscal year. Current and prior year financing activities reflect payments on
capitalized lease obligations of $3.0 million and $3.5 million, respectively.
The Company's present plans call for additional capital expenditures of $14
million for the remainder of the current fiscal year ending January 29, 2000.
The Company's capital expenditure plans are subject to change from time to time
and the actual amounts spent may vary materially from the estimates set forth
above. The Company expects that its capital expenditures
16
<PAGE> 18
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.
As noted above, on February 2, 1998, the Company filed the Chapter 11 Cases.
The Company and its subsidiaries are currently operating their business and
managing their properties as debtors-in-possession pursuant to the Bankruptcy
Code. The Company's Proposed Plan of Reorganization has been approved by the
requisite vote of the creditors of the Company entitled to vote thereon. The
Bankruptcy Court has scheduled a hearing commencing on December 20, 1999 to
consider confirmation of the Proposed Plan of Reorganization. The Company's
long-term liquidity and the adequacy of the Company's capital resources cannot
be determined until the Company's Proposed Plan of Reorganization, or an
alternative plan of reorganization, has been accepted and confirmed by the
Bankruptcy Court.
YEAR 2000
The Year 2000 issue refers to computer programs and microcontrollers which
could fail to execute properly at the turn of the century due to flaws in
design. Computer programs written using two digits (rather than four) to define
the applicable year are typical examples of such design flaws. Any programs
written in this manner recognize a date using "00" as the year 1900 rather than
the year 2000. Such design flaws could cause the computer systems and equipment
used by the Company to malfunction with the result that the Company could not
conduct its operations in a normal manner. Some of the computer programs and
microcontrollers owned or leased by the Company will need to be modified or
replaced in order to address the Year 2000 issue.
The Company retained a third party contractor to identify and correct Year 2000
problems involving the Company's internal computer systems. Systems which
required modification or replacement were identified and a plan for addressing
issues was established. Following identification and planning, the major
project phases were correction, testing and implementation. Four general
categories of internal computer systems were addressed: Store Systems, Networks
and Servers, Mainframe Applications, and Mainframe Systems and Hardware.
Generally, all corporate and store systems had been modified or replaced as of
October 30, 1999.
In addition to addressing the Year 2000 problem with respect to the Company's
internal computer systems, the Company has identified other non-information
technology systems which could be affected by the Year 2000 issue. Examples of
such other systems are time clocks, refrigeration systems, and heating and air
conditioning systems. The Company is currently modifying or replacing the
software or microcontrollers containing the Year 2000 design flaws. The Company
has substantially completed all necessary modifications or replacements of its
critical non-information technology systems.
The Company also could be adversely affected if Year 2000 design flaws are
contained in the computer systems or microcontrollers used by the Company's
vendors and suppliers, including merchandise vendors, utilities, and service
providers. The Company has developed a list of critical vendors and suppliers
who might be unable to continue to supply necessary goods and services to the
Company if such vendors and suppliers do not take appropriate action to address
17
<PAGE> 19
the Year 2000 issue. The Company has sought assurance from each such critical
vendor and supplier that all necessary steps are being taken by them to address
the Year 2000 issue.
Based on current estimates, the Company anticipates that it will incur costs of
approximately $12 million relating to Year 2000 issues for its internal
computer systems. Substantially all of these costs had been incurred as of
October 30, 1999. The Company has deferred several systems development projects
to minimize the impact of Year 2000 compliance costs, but the Company does not
expect that such deferral will have a significant effect on the Company's
financial condition and results of operations. Management estimates that the
cost of correcting the Year 2000 problem in other non-information technology
systems, such as time clocks, refrigeration systems and heating and air
conditioning systems, will not be material. The Company anticipates that any
remaining costs of addressing the Year 2000 issue will be financed through cash
flows from operations and existing cash balances.
If the Company fails adequately to address the Year 2000 issue, the Company,
under the most reasonably likely worst case scenario, would be unable to
process transactions such as sales, purchasing, transfers and payments in an
efficient, automated manner. In addition, other systems such as refrigeration
systems and heating and air conditioning systems could fail. The failure of
these systems could seriously disrupt the Company's business. Finally, the
Company could experience product shortages and an interruption of necessary
services if certain outside providers of goods and services fail to address the
Year 2000 issue.
The Company has developed a contingency plan dealing with the most reasonably
likely worst case scenario involving the Year 2000 issue. The contingency plan
provides for alternate sourcing, systems and procedures.
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. When used
in this Form 10-Q Report, the words "believe", "expect", "anticipate",
"estimate" and similar expressions are intended to identify forward-looking
statements. 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.
18
<PAGE> 20
(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.
(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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's primary "market risk" relates to changing interest rates. The
Company has a combination of fixed and variable rate debt. As a result of the
filing of the Chapter 11 Cases, interest is no longer accruing on the debt
incurred by the Company prior to the commencement of the Chapter 11 Cases. In
addition, the Company does not currently have any direct borrowings outstanding
under its debtor-in-possession financing facility. Accordingly, the Company
will have little, if any, interest rate risk while the Chapter 11 Cases are
pending. As a result, quantification of the Company's interest rate risk as of
October 30, 1999 is not presented because it would not be meaningful to do so.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to the Chapter 11 Cases, which commenced on February 2,
1998. In addition, the Company is a party to a lawsuit filed against the
Company by SNA and A.B. Real Estate as described in NOTE 3 OF THE NOTES TO THE
CONDENSED CONSOLIDATED FINANCIAL
19
<PAGE> 21
STATEMENTS. The Company also is a party to various other legal and taxing
authority proceedings incidental to its business. In the opinion of management,
the ultimate liability with respect to these proceedings will not have a
material adverse effect on the financial position or results of operations of
the Company.
ITEM 2. CHANGES 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 the semi-annual $21.0 million
interest payments due on February 2, 1998, August 3, 1998, February 1, 1999
and August 2, 1999 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>
27 Financial Data Schedule (for SEC use only)
</TABLE>
(B) REPORTS ON FORM 8-K
None
20
<PAGE> 22
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 A. Demme
---------------------------------
James A. Demme
Chairman of the Board and
Chief Executive Officer
Dated: December 13, 1999
21
<PAGE> 23
BRUNO'S, INC.
FORM 10-Q REPORT
(FOR QUARTER ENDED OCTOBER 30, 1999)
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF BRUNO'S, INC. FOR THE NINE MONTHS ENDED OCTOBER 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 96,028
<SECURITIES> 0
<RECEIVABLES> 14,016
<ALLOWANCES> 517
<INVENTORY> 171,831
<CURRENT-ASSETS> 301,243
<PP&E> 584,208
<DEPRECIATION> 330,200
<TOTAL-ASSETS> 570,701
<CURRENT-LIABILITIES> 132,528
<BONDS> 400,000
0
0
<COMMON> 255
<OTHER-SE> (564,814)
<TOTAL-LIABILITY-AND-EQUITY> 570,701
<SALES> 1,213,520
<TOTAL-REVENUES> 1,213,520
<CGS> 932,978
<TOTAL-COSTS> 932,978
<OTHER-EXPENSES> 315,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,127
<INCOME-PRETAX> (37,471)
<INCOME-TAX> (10,068)
<INCOME-CONTINUING> (27,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,403)
<EPS-BASIC> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
