SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 26, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file No.: 33-48862
HOMELAND HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1311075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 N.E. 36th Street
Oklahoma City, Oklahoma 73l25
(Address of principal executive offices) (Zip Code)
(405) 557-5500
(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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 6, 1994.
Class A Common Stock, including redeemable common stock: 34,743,200 shares
Class B Common Stock: None
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
March 26, January 1,
1994 1994
--------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 266 $ 2,194
Receivables, net of allowance for uncollectible
accounts of $2,165 and $2,034 11,678 11,750
Inventories 92,280 93,145
Prepaid expenses and other current assets 3,772 3,697
Deferred tax assets 3,997 3,997
-------- --------
Total current assets 111,993 114,783
Property, plant and equipment:
Land 12,486 12,486
Buildings 30,343 30,335
Fixtures and equipment 59,966 59,950
Land and leasehold improvements 31,038 31,045
Transportation equipment 93 93
Software 17,410 17,410
Leased assets under capital leases 51,321 51,321
Construction in progress 3,442 2,564
-------- --------
206,099 205,204
Less accumulated depreciation
and amortization 71,111 67,509
-------- --------
Net property, plant and equipment 134,988 137,695
Excess of purchase price over fair
value of net assets acquired, net
of amortization of $743 and $717 3,789 3,815
Other assets and deferred charges 13,162 13,919
-------- --------
Total assets $263,932 $270,212
======== ========
Continued
The accompanying notes are an integral part
of these financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 26, January 1,
1994 1994
-------- ----------
(Unaudited)
Current liabilities:
Accounts payable - trade $ 32,891 $ 33,800
Salaries and wages 2,150 2,746
Taxes 5,728 4,724
Accrued interest payable 1,146 3,366
Other current liabilities 6,357 6,548
Current portion of long-term debt 1,500 6,000
Current portion of obligations under capital
leases 3,177 3,334
-------- --------
Total current liabilities 52,949 60,518
Long-term obligations:
Long-term debt 137,000 135,750
Obligations under capital leases 17,096 17,807
Other noncurrent liabilities 9,735 9,709
-------- --------
Total long-term obligations 163,831 163,266
Redeemable common stock, Class A, $.01 par value,
3,864,211 shares at March 26, 1994 and 3,970,211
shares at January 1, 1994, at redemption value
9,313 9,568
Stockholders' equity:
Common stock
Class A, $.01 par value, authorized - 40,500,000
shares, issued - 31,604,989 shares at March 26,
1994 and 31,498,989 shares at January 1, 1994
outstanding - 30,878,989 shares 316 315
Additional paid-in capital 46,612 46,358
Accumulated deficit (7,346) (7,753)
Minimum pension liability adjustment - (572)
Treasury stock, 726,000 shares at March 26, 1994
and 620,000 shares at January 1, 1994, at cost (1,743) (1,488)
-------- --------
Total stockholders' equity 37,839 36,860
-------- --------
Total liabilities and stockholders' equity $263,932 $270,212
======== ========
The accompanying notes are an integral part
of these financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
12 weeks 12 weeks
ended ended
March 26, March 27,
1994 1993
-------- --------
Sales, net $184,837 $190,857
Cost of sales 137,699 141,892
-------- --------
Gross profit 47,138 48,965
Selling and administrative 42,017 44,199
-------- --------
Operating profit 5,121 4,766
Interest expense 4,007 5,274
-------- --------
Income (loss) before income taxes and
extraordinary items 1,114 (508)
Income tax expense 707 1,016
-------- --------
Income (loss) before extraordinary items 407 (1,524)
Extraordinary items, net of applicable
income taxes of $785 - (3,139)
-------- --------
Net income (loss) $ 407 $ (4,663)
======== ========
Income (loss) before extraordinary
items per common share $ .01 $ (.04)
Extraordinary items per common share - (.09)
-------- --------
Net income (loss) per common share $ .01 $ (.13)
======== ========
Weighted average shares outstanding 34,783,617 34,982,843
========== ==========
The accompanying notes are an integral part
of these financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
(Unaudited)
Minimum
Class A Additional Pension Total
Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders'
Shares Amount Capital Deficit Adjustment Shares Amount Equity
------ ------ --------- --------- ---------- ------ ------- -------
Balance, January 2, 1993 31,364,989 $314 $46,036 $(8,035) $ - 486,000 $(1,165) $37,150
Purchase of treasury stock 4,500 - 11 - - 4,500 (11) -
Net loss - - - (4,663) - - - (4,663)
---------- ---- ------- -------- ----- ------- ------- -------
Balance, March 27, 1993 31,369,489 $314 $46,047 $(12,698) $ - 490,500 $(1,176) $32,487
========== ==== ======= ======== ===== ======= ======= =======
Balance, January 1, 1994 31,498,989 $315 $46,358 $(7,753) $(572) 620,000 $(1,488) $36,860
Purchase of treasury stock 106,000 1 254 - - 106,000 (255) -
Adjustment to reduce
minimum liability - - - - 572 - - 572
Net income - - - 407 - - - 407
--------- ---- ------- ------- ----- ------- ------- -------
Balance, March 26, 1994 31,604,989 $316 $46,612 $(7,346) $ - 726,000 $(1,743) $37,839
========== ==== ======= ======= ===== ======= ======= =======
The accompanying notes are an integral part
of these financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
12 weeks 12 weeks
ended ended
March 26, March 27,
1994 1993
-------- --------
Cash flows from operating activities:
Net income (loss) $ 407 $(4,663)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,791 3,663
Amortization of financing costs 331 372
(Gain)loss on disposal of assets (27) (20)
Amortization of beneficial interest in
operating leases 60 60
Write-off of financing costs on long-term
debt retired - 1,148
Change in assets and liabilities:
Decrease in receivables 72 3,080
Decrease in inventories 865 5,299
Increase in prepaid expenses and other
current assets (75) (172)
(Increase) decrease in other assets and
deferred charges 203 (56)
Decrease in accounts payable - trade (909) (1,077)
Decrease in salaries and wages (596) (680)
Increase (decrease) in taxes 1,004 (2,481)
Decrease in accrued interest payable (2,220) (3,429)
Increase (decrease) in other current
liabilities 381 (2,032)
Increase (decrease) in other noncurrent
liabilities 53 (520)
------- -------
Net cash provided (used) by operating
activities 3,340 (1,508)
------- -------
Cash flows used in investing activities:
Capital expenditures (895) (596)
------- -------
Net cash used in investing activities (895) (596)
------- -------
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
12 weeks 12 weeks
ended ended
March 26, March 27,
1994 1993
-------- --------
Cash flows used by financing activities:
Payments on subordinated debt $ - $(47,750)
Net borrowings (payments) under revolving credit
loans (2,250) 29,000
Principal payments under notes payable (1,000) (1,250)
Principal payments under capital lease obligations (868) (924)
Payments to acquire treasury stock (255) (11)
-------- --------
Net cash used by financing activities (4,373) (20,935)
-------- --------
Net decrease in cash and cash equivalents (1,928) (23,039)
Cash and cash equivalents at beginning of period 2,194 25,855
-------- --------
Cash and cash equivalents at end of period $ 266 $ 2,816
======== ========
Supplemental information:
Cash paid during the period for interest $ 5,856 $ 8,438
======== ========
The accompanying notes are an integral part
of these financial statements.
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS.
The accompanying unaudited consolidated financial statements
of Homeland Holding Corporation and Subsidiary (the
"Company") reflect all adjustments consisting only of normal
and recurring adjustments which are, in the opinion of
management, necessary to present fairly the consolidated
financial position and the consolidated results of
operations and cash flows for the periods presented. These
unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements of
the Company for the period ended January 1, 1994 and the
notes thereto.
2. ACCOUNTING POLICIES.
The policies of the Company are summarized in the
consolidated financial statements of the Company for the 52
weeks ended January 1, 1994 and the notes thereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF TWELVE WEEKS ENDED MARCH 26, 1994 WITH
TWELVE WEEKS ENDED MARCH 27, 1993.
SALES. Net sales for the 12 weeks ended March 26, 1994
decreased 3.2% over the net sales of the corresponding period of
1993. The decrease in net sales was primarily attributable to
increased competition in the Company's market area resulting from
additional store openings of Wal-Mart Stores, Inc. ("Wal-Mart")
supercenter stores and Albertson's Inc. stores during late 1993
and early 1994. (One Wal-Mart supercenter store and one
Albertson's store opened in the Company's market area during the
first quarter of 1994). Although the Company does not know how
many stores Wal-Mart ultimately will open in the Company's market
area and the Company is taking steps to respond competitively,
including increased promotions (see Cost and Expenses below),
Wal-Mart's entry into the Company's market area may continue to
have an adverse effect on the Company's operations in the future.
Net sales for the 12 weeks ended March 26, 1994 for the
Company's continuing stores decreased 3.1% over the comparable
prior period due primarily to competitors' store openings in the
Company's market area.
COST AND EXPENSES. Gross profit as a percentage of
sales for the 12 weeks ended March 26, 1994 decreased to 25.5%
compared to 25.7% for the corresponding period of 1993. The
decrease in gross profit margin is due to increased markdowns in
response to the increased competition in the Company's market
area in an effort to remain price competitive and retain market
share. This decrease was offset in part by higher vendor retail
allowances than in the corresponding period of 1993. During the
first quarter of 1994, additional emphasis was placed on
obtaining vendor retail allowances, which resulted in the
Company's receiving more such allowances during such period than
in the first quarter of 1993.
Gross profit without regard to warehouse and
transportation costs as a percentage of sales decreased slightly
to 27.8% for the 12 weeks ended March 26, 1994 compared to 27.9%
for the comparable prior period. This decrease is due to the
increased markdowns as a result of the Company's response to
increased competition, offset in part by higher vendor retail
allowances during the first quarter of 1994 compared to the
corresponding period of 1993.
Selling and administrative expenses as a percentage of
sales decreased to 22.7% for the 12 weeks ended March 26, 1994
from 23.2% for the comparable prior period. This decrease was
primarily due to a reduction in retail wages and benefits
resulting from the modified collective bargaining agreement
entered into with the United Food and Commercial Workers of North
America in December 1993. There was also a decrease in net
advertising costs during the 12 weeks ended March 26, 1994
compared to the prior period. This reduction in net advertising
costs was a result of the Company's on-going cost containment
program in an effort to reduce less effective forms of
advertising.
OPERATING INCOME. Operating income for the 12 weeks
ended March 26, 1994 increased to $5.1 million compared to $4.8
million in the corresponding period of 1993. This increase was
the result of the decrease in selling and administrative expenses
offset by a decrease in sales and gross profit margin.
INTEREST EXPENSE. Interest expense for the 12 weeks
ended March 26, 1994 decreased to $4.0 million from $5.3 million
in the corresponding period of 1993, due to the redemption of the
Company's 15-1/2% Subordinated Notes due November 1, 1997 (the
"Subordinated Notes"). All outstanding Subordinated Notes were
redeemed by the Company on March 1, 1993. See "Liquidity and
Capital Resources."
INCOME TAX PROVISION. The income tax provision for the
12 weeks ended March 26, 1994 was $707,000, compared to $231,000
(including the net effects of the extraordinary items discussed
below) for the corresponding period of the prior year. The
income tax provision is principally comprised of alternative
minimum tax expense.
The Company received an additional 30-day extension to
June 1, 1994 to file its protest to the Internal Revenue Service
("IRS") Appeals Office in response to the IRS Revenue Agent's
Report issued on January 31, 1994.
EXTRAORDINARY ITEMS. There were no extraordinary items
incurred during the 12 weeks ended March 26, 1994. Extraordinary
items for the 12 weeks ended March 27, 1993 consisted of the
payment of $2.776 million in premiums on the redemption of
$47.750 million in aggregate principal amount of the Subordinated
Notes at a purchase price of 105.8% of the outstanding principal
amount and $1.148 million in unamortized financing costs related
to the redemption of the Subordinated Notes. The extraordinary
items for such 1993 period have been shown in the financial
statements net of income taxes of $785,000.
INCOME OR LOSS. The Company recorded net income of
$407,000 during the 12 weeks ended March 26, 1994, compared to a
net loss of $4.7 million for the comparable prior period, due to
the decrease in selling and administrative expenses, interest
expense and the extraordinary items recognized in the 12 weeks
ended March 27, 1993, offset in part by a decrease in sales and
gross profit margin.
LIQUIDITY AND CAPITAL RESOURCES
The major sources of liquidity for the Company's
operations and expansion have been internally generated funds and
borrowings under revolving credit facilities. In March 1992, the
Company refinanced its indebtedness through the issuance of $45
million in aggregate principal amount of Series A Senior Secured
Floating Rate Notes due 1997, bearing interest at a floating rate
of 3% over LIBOR (the "Old Floating Rate Notes"), and $75 million
in aggregate principal amount of Series B Senior Secured Fixed
Rate Notes due 1999, bearing interest at 11-3/4% per annum (the
"Old Fixed Rate Notes," and together with the Old Floating Rate
Notes, the "Old Notes"). The Old Fixed Rate Notes are not
redeemable by the Company until on or after March 1, 1997.
In October and November 1992, the Company conducted an
offer to exchange its Series D Senior Secured Floating Rate Notes
Due 1997 (the "New Floating Rate Notes") for an equal principal
amount of its outstanding Old Floating Rate Notes, and Series C
Senior Secured Fixed Rate Notes Due 1999 (the "New Fixed Rate
Notes," and together with the New Floating Rate Notes, the "New
Notes") for an equal principal amount of its Old Fixed Rate
Notes. The New Notes are substantially identical to the Old
Notes, except that the offering of the New Notes was registered
with the Securities and Exchange Commission. Holders of the New
Notes are not entitled to certain rights of holders of the Old
Notes, as described in the prospectus relating to the exchange
offer. At May 6, 1994, $75 million of New Fixed Rate Notes, $33
million of New Floating Rate Notes and $12 million of Old
Floating Rate Notes are outstanding.
Also in March 1992, the Company entered into a
Revolving Credit Agreement (the "Revolving Credit Agreement")
with Union Bank of Switzerland, New York Branch ("UBS"), as agent
and as lender, and any other lenders and other financial
institutions thereafter parties thereto. As a result of the
Company's redemption of the remaining outstanding Subordinated
Notes on March 1, 1993, and satisfying certain other conditions,
the Revolving Credit Agreement provides a commitment of up to $50
million in secured revolving credit loans, including a swing loan
and certain letters of credit (the "Revolving Credit Facility").
Borrowings under the Revolving Credit Agreement bear interest at
the UBS Base Rate plus 1.5% or at an adjusted Eurodollar Rate
plus 2.5%, which rates are subject to increase upon certain
conditions. All borrowings under the Revolving Credit Agreement
are subject to a borrowing base and mature no later than February
25, 1997. At May 4, 1994, $15 million was outstanding under the
Revolving Credit Facility which represents a $5 million reduction
compared to the balance outstanding at January 1, 1994.
On March 1, 1993, the Company redeemed all remaining
outstanding Subordinated Notes ($47.75 million principal amount),
at the optional redemption price (including a premium of $2.8
million or 5.8% of the outstanding principal amount) specified in
the Subordinated Notes, together with accrued interest of $2.5
million. The Company borrowed $32 million under its Revolving
Credit Facility and used $21 million of the remaining net
proceeds from the issuance of the Old Notes to redeem the
Subordinated Notes.
In April 1994, the Revolving Credit Agreement was
amended by the Company and its lenders to reduce the required
amounts of the Interest Coverage Ratio calculation (as defined)
in 1993, to reduce the required amounts of the EBITDA calculation
(as defined) and the Net Worth calculation (as defined) in 1993
and 1994, and to increase the permitted Leverage Ratio (as
defined) in 1994. Permitted Net Capital Expenditures (as
defined) were increased to $7,750,000 in 1993, and to $7,000,000
for 1994, with the amount of capital leases permitted in 1994
reduced to $4,000,000. The asset sale limitations were amended
to permit additional sales and other dispositions of certain land
and stores, and Homeland was permitted to prepay at a discount a
note payable to Furr's, Inc. The amendment also included certain
technical corrections, such as moving the maturity date of the
Revolving Credit Facility to February 25, 1997. During the
period in which such amendment was pending, the Company's lenders
waived compliance with certain financial covenant requirements in
effect as of fiscal year end 1993. If the Company fulfills
management's strategic plan for 1994, management believes that
the Company will be in compliance with its amended financial
covenants under its financing agreements at fiscal year end 1994.
Nonetheless, the Company has failed to meet its strategic plan in
prior periods, and there is no assurance that it will meet its
plan in 1994.
The Company has engaged outside advisors to assist with
the sale of all or a substantial portion of the operations of the
Company. Such a transaction would involve the assumption by the
other party of certain liabilities of the Company, including
long-term contractual liabilities relating to the affected
operations, for liabilities under contracts for the purchase of
product, computer services, transportation services and lease
obligations. It is management's intention to negotiate and
consummate a transaction during 1994. Based on the information
currently available to management, it is management's judgment
that it is more likely than not that the sale of a substantial
portion of the operations of the Company will be agreed upon and
consummated. If such a sale is not completed, management would
pursue other strategic alternatives, including but not limited to
mergers, joint ventures or further outsourcing.
Further, the Company may have to amend certain
financial covenants under its Revolving Credit Agreement in 1995
unless it exceeds management's strategic plan for 1994 or it is
able to pursue successfully one of its alternative strategic
options as described in the preceding paragraph. Although the
Company has been successful in obtaining amendments to its
Revolving Credit Agreement in the past, there is no assurance
that it will be able to do so in the future.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: No exhibits are filed as part of this
Report.
(b) Reports on Form 8-K: No reports on Form 8-K were
filed during the quarter ended March 26, 1994.
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.
HOMELAND HOLDING CORPORATION
Date: May 10, 1994 By: Max E. Raydon
Max E. Raydon, President,
Chief Executive Officer and
Director (Principal Executive
Officer)
Date: May 10, 1994 By: Mark S. Sellers
Mark S. Sellers, Executive
Vice President/Finance,
Treasurer, Chief Financial
Officer and Secretary
(Principal Financial Officer)
Date: May 10, 1994 By: Mary Mikkelson
Mary Mikkelson, Chief
Accounting Officer, Assistant
Treasurer and Assistant
Secretary (Principal
Accounting Officer)