Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(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 26, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from_____________ to ___________________
______________Commission File Number 33-13622_____________________
BRENDLE'S INCORPORATED
Elkin, North Carolina 56-0497852
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 North Bridge Street, Elkin, North Carolina 28621
(910) 526-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant 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 (or for such shorter period that registrant was required
to file such reports and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No________
Page 1 of 17
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No Not Applicable
--------- -------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of December 10, 1996, there were 12,758,717 shares of the issuer's
Common Stock outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BRENDLE'S INCORPORATED
Consolidated Statement of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended
Oct. 26, Oct. 28,
1996 1995
Net sales $ 9,996 $ 29,505
Other income 41 36
Total revenue 10,037 29,541
Cost and expenses:
Cost of merchandise sold 7,046 22,510
Selling, operating and
administrative expenses 4,937 10,772
Depreciation and amortization 357 784
Interest expense:
Capitalized leases (28) 42
Other 195 855
Gain on sale of facilities --- (8)
Gain on life insurance proceeds (Note 2) --- (2,555)
Reorganization costs 1,953 ---
14,460 32,400
Loss before provision for income taxes (4,423) (2,859)
Provision for income taxes (Note 3) --- ---
Net loss $ (4,423) $ (2,859)
Weighted average shares outstanding 12,757 12,757
Net loss per share $ (0.35) $ (0.22)
Page 3 of 17
BRENDLE'S INCORPORATED
Consolidated Statement of Income
(Unaudited)
(In thousands except per share data)
Nine Months Ended
Oct. 26, Oct. 28,
1996 1995
Net sales $ 46,007 $ 83,534
Other income 59 269
Total revenue 46,066 83,803
Cost and expenses:
Cost of merchandise sold 33,968 61,440
Selling, operating and
administrative expenses 20,578 30,349
Depreciation and amortization 1,470 2,507
Interest expense:
Capitalized leases (5) 143
Other 1,424 2,278
Gain on sale of facilities --- (963)
Gain on life insurance proceeds (Note 2) --- (2,555)
Reorganization costs 11,575 (1)
69,010 93,198
Loss before provision for income taxes (22,944) (9,395)
Provision for income taxes (Note 3) --- ---
Net loss $ (22,944) $ (9,395)
Weighted average shares outstanding 12,758 12,758
Net loss per share $ (1.80) $ (0.74)
Page 4 of 17
BRENDLE'S INCORPORATED
Consolidated Balance Sheet
(Unaudited)
(In thousands except per share data)
Oct. 26, January 28, Oct. 28,
1996 1996 1995
Assets
Current Assets:
Cash and temporary cash investments $ 1,198 $ 1,380 $ 2,903
Accounts receivable 921 1,295 2,260
Merchandise inventories 24,498 50,147 72,159
Other current assets 2,216 1,211 4,067
Total current assets 28,833 54,033 81,389
Property and equipment, less accumulated
depreciation and amortization 4,923 7,387 7,544
Other assets 830 568 152
$ 34,586 $ 61,988 $ 89,085
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility $ 7,932 $ 22,275 $ 31,716
Accounts payable
Trade 2,963 4,709 20,444
Outstanding checks (Note #4) 970 3,432 4,372
Current portion of capitalized lease obligations 168 183
Current portion of restructuring reserve 206 426
Other accrued liabilities (Note #5) 6,048 4,150 5,744
Total current liabilities 17,913 34,940 62,885
Reorganization notes 177 207 350
Capitalized lease obligations, less current portion 282 323
Other liabilities 292 1,328 1,025
Other deferred credit 425 425 472
Total long-term liabilities 894 2,242 2,170
Liabilities subject to compromise 13,915 0 ---
Total Liabilities 32,722 37,182 65,055
Shareholders' equity:
Common stock, $1 par value, 20,000,000
shares authorized, 12,756,284, 12,756,284
and 12,756,623 shares issued and outstanding 12,756 12,756 12,757
Capital in excess of par value 20,895 20,895 20,896
Retained earnings (deficit) (31,787) (8,845) (9,623)
Total shareholders' equity 1,864 24,806 24,030
$ 34,586 $ 61,988 $ 89,085
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BRENDLE'S INCORPORATED
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended
Oct. 26, Oct. 28,
1996 1995
Operating activities:
Net loss $ (22,944) $ (9,395)
Items not requiring (providing) cash:
Depreciation and amortization 1,470 2,507
Changes in assets and liabilities:
Accounts receivable 374 (1,289)
Merchandise inventories 25,649 (23,708)
Other current assets (1,005) (2,706)
Accounts payable and accrued liabilities 152 19,237
Cash provided (used) by operating activities 3,696 (15,354)
Investing Activities:
Net (additions) retirements to property and equip. 994 (1,275)
(Addition) reduction in other assets (262) 636
Cash provided (used) by investing activities 732 (639)
Financing Activities:
Increase in liabilities subject to compromise 13,915 ---
Increase (decrease) in outstanding checks (2,462) 3,319
Decrease in long-term liabilities (1,066) (417)
Decrease in capitalized lease obligations (450) (1,184)
Net borrowings on revolving credit facility (14,343) 16,348
Decrease in reorganization reserve (206) (19)
Redemption of common stock --- (2)
Increase (decrease) in retained earnings (Note 2) 2 (930)
Cash provided (used) by financing activities (4,610) 17,115
Net increase (decrease) in cash and
temporary cash investments (182) 1,122
Cash and temporary cash investments
- beginning of period 1,380 1,781
Cash and temporary cash investments
- end of period $ 1,198 $ 2,903
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BRENDLE'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the results of the interim period.
Note 2. In April 1986, four shareholders of the Company agreed not to
transfer or sell their Common Stock to any unrelated party (as
defined) without the written consent of the other parties to
the agreement. In addition, in the event of the death of one
of the four shareholders, the Company can be required to
purchase their Common Stock at fair value up to the life
insurance proceeds, consisting of policies with a face value of
$5,250,000, $5,000,000, $3,070,000 and $3,000,000,
respectively.
On September 29, 1995, Patty Brendle Redway, one of the four
shareholders, died. The Company subsequently recognized a gain
of approximately $2,555,000 from life insurance proceeds,
which represents the face value of the policy ($3,000,000),
less cash surrender value previously recorded. Pursuant to the
shareholders' agreement, the estate of the shareholder can
require the Company to purchase the shareholder's Common
Stock at fair value up to the life insurance proceeds. At
October 28, 1995, the Company recorded a liability of
$988,000 for the potential purchase of up to 1,812,667 shares
of stock with a corresponding cumulative reduction in retained
earnings. At October 26, 1996, a liability of $632,000 is
included in liabilities subject to compromise to reflect the
amount of the rights exercised by the Estate of Mrs. Redway and
one of the heirs. The Company will not be able to comply with
the terms of this Agreement without the approval of the
Bankruptcy Court.
An amount equal to the cash surrender value of these
remaining policies at October 26, 1996 and October 28, 1995 of
$425,000 and $472,000, respectively, has been shown as an other
deferred credit on the balance sheet with a
corresponding reduction in retained earnings. As of October
26, 1996, the Company has taken out loans against the cash
surrender value of these policies in the sum of $1,852,000 to
finance current capital requirements.
Note 3. Tax refunds resulting from losses incurred are calculated using
tax payments of three prior years. Any losses in excess of
those allowed for carry-back are carried forward
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for use as future earnings allow. Tax loss carry-backs were
exhausted during the second quarter of Fiscal 1992.
Note 4. Outstanding checks totaling $970,000 on October 26, 1996 were
classified under current liabilities (as outstanding checks)
and included in cash at October 26, 1996.
Note 5. The Company received a tax refund of $3,385,000 related to net
operating loss carrybacks of previous years. This refund is
currently under review by the Internal Revenue Service (IRS).
The Company did not record a benefit for the item, but recorded
it in accrued liabilities until clearance is received from the
IRS.
Page 8 of 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information set forth below reports results of the Company for the
third quarter of its fiscal year ended October 26, 1996. However, on December
6, 1996, the Bankruptcy Court confirmed the Company's Plan of Reorganization as
a plan of liquidation for the Company. See "Liquidity & Capital Resources" for
discussion of the planned liquidation of the Company.
Overview
On April 16, 1996 the Company filed for protection under Chapter 11 of the
Bankruptcy Code in order to implement a new strategic business plan premised
upon a significantly revised merchandise strategy which eliminated certain
departments of merchandise, presented new product lines in the "Party Universe"
and crafts departments and expanded offerings in "for the home" merchandise.
The strategy also included corporate down-sizing, closing 18 of the Company's 30
stores and renovation of the twelve "go-forward" stores.
The Company discontinued normal operations in the eighteen stores during
the first week of May and over the next 10 weeks conducted inventory liquidation
sales of merchandise from those 18 stores and the inventory from the exited
departments using the services of Schottenstein Bernstein Capital Group. The
inventory liquidation sales were not reflected in sales and gross margin
results, but the estimated loss on inventory was included in the restructuring
expense in the first quarter of Fiscal 1997.
Comparison of Operations
Third Quarter Fiscal 1997 Compared to Third Quarter Fiscal 1996
Net sales for the third quarter of FYE January 1997, ("Fiscal 1997") were
$9,996,000 versus $29,505,000 for the same period last year which is a decrease
of $19,509,000, or 66.1%. This decrease in sales is attributed to the Company
operating 18 fewer stores during the third quarter of Fiscal 1997 compared to
the third quarter of Fiscal 1996. Comparable store sales decreased 24.9% from
the third quarter of last year due primarily to the elimination of certain
merchandise offerings in accordance with the new merchandise strategy as
discussed above and the general disruption in sales during the change-over of
the existing stores to "the New Brendle's" format and lower than anticipated
sales in the party universe and craft departments.
Other income, which consists of miscellaneous non-recurring items was
$41,000 for the third quarter of Fiscal 1997 compared to $36,000 for the same
period last year.
The cost of merchandise sold in the third quarter of Fiscal 1997 was
$7,046,000 compared to $22,510,000 for the same period last year. The decrease
in cost of goods sold was primarily the result of the decrease in sales because
of store closings.
Page 9 of 17
Gross margin as a percentage of revenues was 29.80% for the third quarter of
Fiscal 1997 compared to 23.80% for the same period last year. This increase in
the gross margin percentage is primarily the result of the elimination of
certain lower margin departments of merchandise and the addition of the higher
margin party and craft departments.
Selling, operating, and administrative expenses ("SO & A") for the third
quarter of Fiscal 1997 and 1996 were $4,937,000 and $10,772,000, respectively.
This decrease is primarily the result of operating 18 fewer stores than last
year. SO & A expenses, as a percentage of revenues, increased to 49.2%, compared
to 36.5% for the same period last year. The increase in SO & A expense, as a
percentage of revenues, is attributed to the decrease in total sales dollars.
Depreciation and amortization expense for the third quarter of Fiscal 1997
and Fiscal 1996 was $357,000 and $784,000, respectively. Expense for fixed asset
depreciation and amortization is less because certain assets have become fully
depreciated and certain leases which were previously accounted for as capital
leases were renewed in the third quarter of last year and have been included as
operating leases in SO & A expense.
Interest expense on capital leases for Fiscal 1997 and Fiscal 1996 was
($28,000) and $42,000, respectively. This interest expense is less due to the
renewal of nine leases in the third quarter of last year, which are being
accounted for as operating leases and the cost is reflected in the SO & A
expense. Interest expense on other debt and bank fees was $195,000 compared to
$855,000 for the same quarter last year. This decrease in interest expense is
due to decreased borrowings under the Company's $25 million Debtor-in-Possession
Revolving Credit Facility ("DIP Facility"). Borrowings were less than last year
resulting from liabilities deferred by Chapter 11 and because of inventory
liquidation in the eighteen closed stores and the resulting paydown on the DIP
Facility.
Reorganization costs of $1,953,000 for the third quarter of Fiscal 1997
reflect the costs associated with the closing of the 18 stores, corporate down-
sizing, and other costs of the Chapter 11 Proceeding. There were no
reorganization costs for the third quarter of Fiscal 1996.
Net loss for the third quarter of Fiscal 1997 was $4,423,000 compared to
$2,859,000 for the third quarter of Fiscal 1996. Fiscal 1997 net loss includes
$1,953,000 of reorganization costs as discussed above. Management believes
earnings (loss) before interest, taxes, depreciation, amortization, other gains
and reorganization items ("EBITDA") is a useful tool for measuring performance
because net income (loss) is not comparable with the previous period due to the
Chapter 11 Proceeding.
EBITDA(loss) for the third quarter of Fiscal 1997 was ($1,946,000) compared
with ($3,741,000) for the same period last year.
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The Company's tax loss carry-backs were exhausted in Fiscal 1992 resulting
in the loss of any tax benefit for the first quarter of Fiscal 1996. The loss
carry-forwards will be used as future earnings allow.
First Nine Months Fiscal 1997 Compared to First Nine Months Fiscal 1996
Net sales of $46,007,000 for the first nine months of FYE January 1997,
("Fiscal 1997") decreased $37,527,000, or 44.9% from $83,534,000 for the same
period last year. The Company operated 30 stores during a substantial portion of
the first quarter of both years. However, following store closings in the first
week of May, 1996, second and third quarter results for Fiscal 1997 included
sales for only 12 stores compared to thirty stores for the second and third
quarters of last year. Comparable store sales for the first nine months of
Fiscal 1997 decreased 16.06% because of the elimination of certain merchandise
departments the Company offered during the prior year and the disruption in
sales due to remodeling stores during the change-over to the new Brendle's
format.
Other income, which consists of miscellaneous non-recurring items was
$59,000 for the first nine months of Fiscal 1997 compared to $269,000 for the
same period last year.
The cost of merchandise sold in the first nine months of Fiscal 1997 was
$33,968,000 compared to $61,440,000 for the same period last year. The decrease
in cost of goods sold was primarily the result of the decrease in sales during
the second and third quarters of Fiscal 1997, as discussed above, offset by a
store closing sale in Greensboro, North Carolina during the first quarter of the
year.
Gross margin as a percentage of revenues was 26.3% for the first nine
months of Fiscal 1997 compared to 26.7% for the same period last year. This
decrease in the gross margin percentage is primarily the result of a store
closing sale during the first quarter of this year offset by the elimination of
certain gross profit margin product lines exited during the second quarter of
Fiscal 1997.
Selling, operating, and administrative expenses ("SO & A") for the first
nine months of Fiscal 1997 and 1996 were $20,578,000 and $30,349,000,
respectively. This decrease is primarily the result of operating 18 fewer
stores during the second and third quarters of the year. SO & A expenses, as a
percentage of revenues, increased to 44.7%, compared to 36.2% for the same
period last year. The increase in SO & A expense, as a percentage of revenues,
is attributed to the decrease in total sales dollars.
Depreciation and amortization expense for the first nine months of Fiscal
1997 and Fiscal 1996 was $1,470,000 and $2,507,000, respectively. Expense for
fixed asset depreciation and amortization is less because certain assets have
become fully depreciated and certain leases which
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were previously accounted for as capital leases were renewed during the third
quarter of last year and have been included as operating leases in SO & A
expense.
Interest expense on capital leases for Fiscal 1997 and Fiscal 1996 was
($5,000) and $143,000, respectively. This interest expense is less due to the
renewal of nine leases during the third quarter of last year, which are being
accounted for as operating leases and the cost is reflected in the SO & A
expense. Interest expense on other debt and bank fees was $1,424,000 compared
to $2,278,000 for the same period last year. This decrease in interest expense
is due to a decrease in borrowings under the Company's DIP Facility in the
second and third quarters of Fiscal 1997.
Reorganization costs of $11,575,000 for the first nine months of Fiscal
1997 reflect the reserve for the liquidation of inventory and other costs
associated with the closing of the 18 stores, corporate down-sizing, and other
costs of the Chapter 11 Proceeding. Reorganization costs were ($1,000) for the
first nine months of Fiscal 1996.
Net loss for the first nine months of Fiscal 1997 was $22,944,000 compared
to $9,395,000 for the first nine months of Fiscal 1996. Fiscal 1997 net loss
includes $11,575,000 of reorganization costs as discussed above. Management
believes earnings (loss) before interest, taxes, depreciation, amortization,
other gains and reorganization items ("EBITDA") is a useful tool for measuring
performance because net income (loss) is not comparable with the previous period
due to the Chapter 11 Proceeding.
EBITDA(loss) for the first nine months of Fiscal 1997 was ($8,480,000)
compared with ($7,986,000) for the same period last year.
The Company's tax loss carry-backs were exhausted in Fiscal 1992 resulting
in the loss of any tax benefit for the first quarter of Fiscal 1996. The loss
carry-forwards will be used as future earnings allow.
Liquidity and Capital Resources
Liquidation of the Company: On April 16, 1996, Brendle's, Inc. (the
"Company") filed for protection under Chapter 11 of the United States Bankruptcy
Code by filing a petition with the United States Bankruptcy Court for the Middle
District of North Carolina (the "Court"). Since the date the petition was
filed, the Company has worked to develop a Plan of Reorganization. The original
Plan of Reorganization was filed with the Court on August 14, 1996. After
considerable negotiations with the Unsecured Creditors Committee, the Company
developed its First Amended Plan of Reorganization (the "Amended Plan") which
was filed with the Court on October 16, 1996 and which set forth payment terms
to creditors and provided for other organizational and operational changes for
the
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reorganized Company. In addition, the Company's Amended Plan alternately
provided for the liquidation of the Company in the event the Company was
unable to meet its initial funding obligations to certain creditors and further
provided for the liquidation of the Company in the event that the Company was
unable to meet certain minimum performance criteria for the months of October
and November, 1996 or if exit financing for the purpose of funding the Amended
Plan requirements was not available. A hearing on the Amended Plan was held
on December 5, 1996 and the Amended Plan was confirmed by the Court as a plan
of liquidation. An Order approving the Amended Plan as a plan of liquidation
was entered on December 5, 1996. Even though an order has been entered
confirming the Amended Plan as a plan of liquidation, it remains possible for
interested parties to file an appeal of such order.
The Amended Plan that has been developed by the Company and that has been
confirmed by the court is included to this Report as an Exhibit. Summarily, the
Amended Plan provides for reorganization of the Company under the terms set
forth in the Amended Plan and also includes certain default provisions. The
Amended Plan provides that the occurrence of any of the following shall
constitute a default under the Amended Plan:
1. A default occurs under the Foothill post-petition loan which is not
cured or waived and which results in Foothill's termination of the facility
unless an alternative facility is established and funding thereunder becomes
available within forty-five (45) days following the termination of the existing
facility by Foothill.
2. The Company fails to achieve earnings before interest, taxes,
depreciation and amortization for the respective months of October and November,
1996 in at least the following amounts:
October: ($650,000)
November: $0
3. The Company's minimum and maximum inventory levels for
October, November, and December, 1996 are as follows:
OCTOBER NOVEMBER DECEMBER
Minimum Inventory 20,892,000 21,319,000 15,498,000
Maximum Inventory 25,534,000 26,057,000 19,498,000
4. The failure of the Company to make initial distributions to unsecured
creditors as required by the Amended Plan before January 15, 1997.
5. The Company's filing of an Amended Plan modification which adversely
affects the rights of general unsecured creditors unless the Unsecured Creditors
Committee consents to such modification.
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The Amended Plan provides that upon the occurrence of any event of default,
the Court will enter a liquidation order. Upon the entry of the liquidation
order, the Company and a representative of the Creditors Committee will
immediately begin the process of selecting an inventory liquidation specialist
and negotiating the terms of a liquidation contract. The Company is further
required to prepare and submit to the Court and to the Creditors Committee a
proposed twelve (12) month liquidation budget. The proceeds from asset sales
are to be deposited into a Liquidation Fund (as defined in the Amended Plan) and
are to be paid to creditors generally in accordance with the priority of
distribution scheme set forth in the Bankruptcy Code.
On December 2, 1996, the Board of Directors of the Company met and reviewed
the performance of the Company since the implementation of its revised
merchandising strategy and projections relating to the Company's likely future
performance. The Board of Directors also reviewed the performance of the
Company during the respective months of October and November, 1996. The Board
of Directors determined that for the month of November, 1996, it had not met its
performance obligation under the Amended Plan and that, in fact, an event of
default had occurred. Under the Amended Plan, the Company had the right to cure
the default by securing exit financing and proceeding with an early consummation
of the Amended Plan. After carefully considering the Company's recent
performance, forecasts of its future performance, and other options for
continuing the Company's business, the Board of Directors determined that there
were no reasonable alternatives remaining for the Company except to discontinue
its operations.
On December 5, 1996, the Bankruptcy Court approved the Company's Plan of
Reorganization as a plan of liquidation. On December 6, 1996, the Court entered
an Order authorizing Gordon Brothers Partners to act as agent for the Company to
liquidate the inventory in the twelve stores. In addition, the Company is
downsizing corporate headquarters and the distribution center to the minimum
personnel required to complete the liquidation of the Company's assets.
In the Company's Amended Disclosure Statement filed with the Court on
October 16, 1996 the liquidation analysis indicated that unsecured claims would
be paid a dividend ranging between 55.47 Cents and 63.75 Cents for each Dollar
of allowed claim. This analysis, however, assumed that the Company would
continue normal operations through the end of January, 1997. The timing and
amount of liquidation proceeds is inherently subject to great uncertainty, and
is subject to significant variance from the analysis included in the Company's
Amended Disclosure Statement. In addition, the Company has two (2) assets of
uncertain value which, to the extent possible, the Company is obligated to
protect and preserve during the liquidation process. The first of these assets
is certain life insurance policies which the Company owns and maintains on a
current basis on former officers and major shareholders. Under the Amended
Plan, the Company will not take any action with respect to these policies
(except for the payment of premiums thereon) without an order of the Court
affirming such action entered after notice of an opportunity to be heard has
been given to the creditors committees. In
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addition, the Company has received a tax refund in excess of $4.7 Million and
has asserted a right to receive additional tax refunds of over $13 Million.
These income tax refunds are based in part on Section 172 of the Internal
Revenue Code. The basis for the income tax refund claims, which were
prosecuted principally through the efforts of one of the Company's independent
accounting firm advisers, is untested and uncertain. Although the Company
believes its claims to be meritorious and supportable, the Internal Revenue
Service has asserted a claim in the bankruptcy proceeding for a return of the
refund previously received by the Company and has contested the Company's right
to receive further refunds. Since the issue of whether the income tax refunds
are an asset or a liability will not be resolved for a substantial period of
time, the tax refunds have not been included in any liquidation analysis either
as an asset to be liquidated or as a claim to be paid. Accordingly, the Company
cannot, at this time, determine with any degree of certainty the amount of
liquidation proceeds, if any, that will be available to pay unsecured
creditors or the amount of liquidation proceeds, if any, that will be available
for distribution to shareholders after payments to creditors.
The Company currently has 12,758,717 shares issued and outstanding.
Information relating to the Company's assets and liabilities are included in the
Amended Plan and the Amended Disclosure Statement filed herewith.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On April 16, 1996, the Company filed a Voluntary Petition with the United
States Bankruptcy Court for the Middle District of North Carolina instituting a
Chapter 11 reorganization proceeding. The case has been assigned number B-96-
50495C-11W. Subsequent to the filing of the voluntary Petition, the Company
sought and obtained numerous orders from the Bankruptcy Court which were
intended to stabilize and enhance its business operations. These include, among
others, orders (i) authorizing the employment of various professionals to assist
the Debtor and Committees; (ii) authorizing payment of employee wages and
benefits in the ordinary course of its business; (iii) authorizing the Company
to maintain its existing bank accounts; (iv) authorizing the Company to honor
all layaway agreements, gift certificates and merchandise credits; (v)
authorizing the Company to continue in effect all employee benefit plans; (vi)
authorizing the Company to make payment to utility companies in the ordinary
course of business and determining that such payments constituted adequate
assurance of future performance; (vii) establishing an expedited claims bar date
of July 15, 1996; (viii)authorizing store closings and approving the sale of
inventory located therein; (ix) authorizing and approving a revolving post
petition credit line with
Page 15 of 17
Foothill Capital Corporation; (x) authorizing the retention of professionals
to market closed store leases; (xi) authorizing the auction sale of equipment at
closed store locations; (xii) establishing fee guideline procedures; (xiii)
approving a stock balancing program which allows the Debtor to return
merchandise to creditors for credits against pre-petition claims; and (xiv)
approving various lease termination agreements and settlements reached with
landlords.
On December 5, 1996, the Bankruptcy Court approved the Company's Plan of
Reorganization as a liquidation. On December 6, 1996, the Court entered an
Order that Gordon Brother Partners would act as agent for the Company to
liquidate the inventory in the twelve stores. See "Management's Discussion and
Analysis" for additional information. In addition, the Company is downsizing
corporate headquarters and the distribution center to the minimum personnel
required to complete the liquidation of the Company's assets.
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULT UPON SENIOR SECURITIES None
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
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
A: Financial Statements: None required
B: Pro forma Financial Information: None required
C: Exhibits
Exhibit 1. First Amended Plan of Reorganization, Dated October 16, 1996
Page 16 of 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRENDLE'S INCORPORATED
(Registrant)
David R. Renegar
Vice President and
Chief Financial Officer
Date: December 16, 1996
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