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 25, 1995
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) dentification 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 1, 1995.
Class A Common Stock, including redeemable common stock: 32,86
4,112 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 25, December 31,
1995 1994
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,644 $ 339
Receivables, net of allowance for uncollectible
accounts of $2,216 and $2,690 7,992 12,235
Receivables for taxes 1,551 2,270
Inventories 79,968 89,850
Prepaid expenses and other current assets 4,699 6,384
Total current assets 96,854 111,078
Property, plant and equipment:
Land 10,997 10,997
Buildings 29,276 29,276
Fixtures and equipment 61,373 61,360
Land and leasehold improvements 32,410 32,410
Software 17,876 17,876
Leased assets under capital leases 46,015 46,015
Construction in progress 2,133 2,048
200,080 199,982
Less accumulated depreciation
and amortization 85,927 82,603
Net property, plant and equipment 114,153 117,379
Excess of purchase price over fair
value of net assets acquired, net
of amortization of $856 and $830 2,449 2,475
Other assets and deferred charges 7,761 8,202
Total assets $221,217 $239,134
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 25, December 31,
1995 1994
(Unaudited)
Current liabilities:
Accounts payable - trade $ 25,694 $ 30,317
Salaries and wages 2,401 1,925
Taxes 6,992 6,492
Accrued interest payable 1,401 3,313
Other current liabilities 13,711 15,050
Current portion of long-term debt 1,525 2,250
Current portion of obligations under capital
leases 7,834 7,828
Total current liabilities 59,558 67,175
Long-term obligations:
Long-term debt 140,027 145,000
Obligations under capital leases 10,208 11,472
Other noncurrent liabilities 4,595 5,176
Noncurrent restructuring reserve 3,546 5,005
Total long-term obligations 158,376 166,653
Commitments and contingencies - -
Redeemable common stock, Class A, $.01 par value,
3,409,211 shares at March 25, 1995 and 3,864,211
shares at December 31, 1994, at redemption value
1,068 1,235
Stockholders' equity:
Common stock
Class A, $.01 par value, authorized - 40,500,000
shares, issued - 32,059,989 shares at March 25,
1995 and 31,604,989 shares at December 31, 1994
outstanding - 30,878,989 shares 321 316
Additional paid-in capital 54,120 53,896
Accumulated deficit (50,254) (48,398)
Treasury stock, 1,181,000 shares at March 25, 1995
and 726,000 shares at December 31, 1994, at cost (1,972) (1,743)
Total stockholders' equity 2,215 4,071
Total liabilities and stockholders' equity $221,217 $239,134
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 25, March 26,
1995 1994
Sales, net $178,009 $184,837
Cost of sales 135,485 137,699
Gross profit 42,524 47,138
Selling and administrative 39,969 42,017
Operating profit 2,555 5,121
Interest expense 4,411 4,007
Income (loss) before income taxes (1,856) 1,114
Income tax expense - 707
Net income (loss) $ (1,856) $ 407
Net income (loss) per common share $ (.05) $ .01
Weighted average shares outstanding 34,651,117 34,783,617
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 1, 199431,498,989 $315$46,358$(7,753)$(572) 620,000
$(1,488) $36,860
Purchase of treasury stock106,000 1 254 - - 106,000
(255) -
Adjustment to reduce
minimum liability - - - - 572 - - 572
Net income - - - 407 - - -
407
Balance, March 26, 199431,604,989 $316$46,612$(7,346)$ - 726,000
$(1,743) $37,839
Balance, December 31, 199431,604,989$316$53,896$(48,398)$ - 726,000
$(1,743) $ 4,071
Purchase of treasury stock455,000 5 224 - - 455,000
(229) -
Net loss - - - (1,856) - - -
(1,856)
Balance, March 25, 199532,059,989 $321$54,120$(50,254)$ - 1,181,000
$(1,972) $ 2,215
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 25, March 26,
1995 1994
Cash flows from operating activities:
Net income (loss) $(1,856) $ 407
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,681 3,791
Amortization of financing costs 334 331
(Gain) on disposal of assets (27) (27)
Amortization of beneficial interest in operating
leases 60 60
Change in assets and liabilities:
Decrease in receivables 4,305 72
Decrease in receivable for taxes 719 -
Decrease in inventories 9,649 865
(Increase) decrease in prepaid expenses and other current
assets 1,685 (75)
(Increase) decrease in other assets and deferred charges
(51) 203
Decrease in accounts payable - trade (4,623) (909)
Increase (decrease) in salaries and wages 476
(596)
Increase in taxes 500 1,004
Decrease in accrued interest payable (1,912) (2,220)
Increase (decrease) in other current liabilities (1,339)
381
Decrease in noncurrent restructuring reserve (1,459)
- -
Increase (decrease) in other noncurrent liabilities
(554) 53
Net cash provided by operating activities 9,588
3,340
Cash flows used in investing activities:
Capital expenditures (98) (895)
Net cash used in investing activities (98) (895)
Cash flows used by financing activities:
Borrowings under revolving credit loans 20,440 9,000
Payments under revolving credit loans (25,413) (7,000)
Net borrowings (payments) under swing loans 25 (4,250)
Principal payments under notes payable (750) (1,000)
Principal payments under capital lease obligations (1,258)
(868)
Payments to acquire treasury stock (229) (255)
Net cash used by financing activities (7,185) (4,373)
Net increase (decrease) in cash and cash equivalents 2,305
(1,928)
Cash and cash equivalents at beginning of period 339
2,194
Cash and cash equivalents at end of period $ 2,644 $ 266
Supplemental information:
Cash paid during the period for interest $ 5,990 $ 5,856
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 December 31, 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 December 31, 1994 and the notes
thereto.
3. Restructuring:
In accordance with a strategic plan approved by the
Board of Directors in December 1994, the Company
entered into an agreement with Associated Wholesale
Grocers, Inc. ("AWG") on February 6, 1995, pursuant to
which the Company sold 29 of its stores and its
warehouse and distribution center to AWG. In
connection with this strategic plan, the Company also
plans to close fifteen under-performing stores during
1995, seven of which were closed during the first
quarter of 1995. During the first quarter of 1995, the
Company paid $1,459 of costs associated with the
operational restructuring as follows:
Operational
Operational restructuring Operational
restructuring costs paid in restructuring
reserve at the 12 weeks endedreserve
at
December 31, 1994 March 25, 1995 March 25,
1995
Expenses associated with the
planned store closings,
primarily occupancy costs
from closing date to lease
termination or sublease date $8,319 $(393) $
7,926
Expenses associated with the AWG
Transaction, primarily service
and equipment contract
cancellation fees 5,649 - 5
,649
Estimated severance costs
associated with the AWG
Transaction 5,624 (678) 4
,946
Legal and consulting fees
associated with the
AWG Transaction 4,905 (388) 4
,517
Net gain on sale of property,
plant and equipment to AWG (19,492) - (
19,492)
Operational restructuring
reserve $ 5,005 $(1,459) $
3,546
The separately identifiable revenue and store contribution
to operating profit related to the stores being sold to
AWG or closed and expenses related to the warehouse
facility are as follows:
12 weeks 12 weeks
ended ended
March 25, March 26,
1995 1994
Sales, net $54,722 $60,029
Store contribution to
operating profit before
allocation of administrative
and advertising expenses 2,002 2,574
Warehouse expenses 2,945 2,767
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison of Twelve Weeks Ended March 25, 1995 with
Twelve Weeks Ended March 26, 1994.
Sales. Net sales for the 12 weeks ended March 25,
1995 decreased 3.7% over the net sales of the corresponding
period of 1994. The decrease in net sales was due in part to
the closing of five stores which occurred in the first week of
February 1995. These stores were closed pursuant to the
Company's plan to close certain underperforming stores. The
decrease in net sales was also due 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 1994. There were 11
new Wal-Mart supercenter stores opened in the Company's market
area during 1994.
Net sales for the 12 weeks ended March 25, 1995 for
the Company's comparable stores decreased 1.8% over the
corresponding 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 25, 1995 decreased to 23.9%
compared to 25.5% for the corresponding period of 1994. The
decrease in gross profit margin is due to increased
promotional pricing in response to the increased competition
in the Company's market area in an effort to remain price
competitive and retain market share. The decrease was also
due to lower vendor retail allowances than in the
corresponding period of 1994. 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 1995. In addition, the availability of vendor
allowances in the first quarter of 1995 was adversely affected
by the pending sale of the Company's warehouse and certain
stores (see Part II-Item 5 "Other Information").
Selling and administrative expenses as a percentage of
sales decreased to 22.5% for the 12 weeks ended March 25, 1995
from 22.7% for the comparable prior period. This decrease was
due in part to a decrease in advertising expenses during the
first quarter of 1995 as compared to the prior year. In the
first quarter of 1994 a special game promotion was run which
resulted in additional advertising cost which did not recur in
1995. The decrease is also due to a reduction in consulting
fees during the first quarter of 1995 compared to the prior
year. Consulting fees were higher during 1994 due to the work
being performed to pursue the Company's strategic plan to sell
certain of its assets (see Part II-Item 5 "Other
Information").
Operating Income. Operating income for the 12 weeks
ended March 25, 1995 decreased to $2.6 million compared to
$5.1 million in the corresponding period of 1994. This
decrease was the result of the decrease in sales and gross
profit margin offset in part by the decrease in selling and
administrative expenses.
Interest Expense. Interest expense for the 12 weeks
ended March 25, 1995 increased to $4.4 million from $4.0
million in the corresponding period of 1994, due to higher
interest rates in the first quarter of 1995 compared to the
first quarter of 1994.
Income Tax Provision. No income tax provision was
recorded for the 12 weeks ended March 25, 1995 as the Company
is projecting a taxable loss for fiscal 1995. The income tax
provision for the 12 weeks ended March 26, 1994 was $707,000.
Income or Loss. The Company recorded a net loss of
$1.9 million for the 12 weeks ended March 25, 1995, compared
to net income of $407,000 for the comparable prior period, due
to the decrease in sales and gross profit margin and the
increase in interest expense, offset in part by the decrease
in selling and administrative expenses.
Liquidity and Capital Resources
The major sources of liquidity for the Company's
operations and expansion have been internally generated funds
and borrowings under credit facilities. In March 1992, the
Company refinanced its indebtedness by entering into an
Indenture with United States Trust Company of New York, as
trustee (the "Senior Note Indenture"), pursuant to which the
Company issued $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 were 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 Old Notes and the New Notes are
collectively referred to herein as the "Senior 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 1, 1995, $75 million of New Fixed Rate Notes,
$33 million of New Floating Rate Notes and $12 million of Old
Floating Rate Notes are outstanding.
For information regarding recent amendments to the
Senior Note Indenture, see Part II-Item 2 "Changes in
Securities."
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. The Revolving Credit Agreement
provided 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 bore interest
at the UBS Base Rate plus 1.5% or at an adjusted Eurodollar
Rate plus 2.5%, which rates were subject to increase upon
certain conditions. All borrowings under the Revolving Credit
Agreement were subject to a borrowing base and matured no
later than February 25, 1997.
On April 21, 1995, the Company replaced its Revolving
Credit Agreement with a revised revolving facility (the
"Amended and Restated Revolving Credit Agreement"). The
Amended and Restated Revolving Credit Agreement is with
National Bank of Canada ("NBC"), as agent and as lender,
Heller Financial, Inc. and any other lenders thereafter
parties thereto. The Amended and Restated Revolving Credit
Agreement provides a commitment of up to $25 million in
secured revolving credit loans and letters of credit. The
Amended and Restated Revolving Credit Agreement permits (a)
borrowings to refinance the existing Revolving Credit
Agreement and for working capital needs and (b) the issuance
of standby letters of credit and documentary letters of
credit. Borrowings under the Amended and Restated Revolving
Credit Agreement bear interest at the NBC Base Rate plus 1.5%
for the first year. Subsequent year's interest rates will be
dependent upon the Company's earnings but will not exceed the
NBC Base Rate plus 2.0%. All borrowings under the Amended and
Restated Revolving Credit Agreement are subject to certain
borrowing base requirements and mature no later than February
27, 1997, with the possibility of extending the maturity date
to March 31, 1998 at the lenders' sole discretion.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On April 13, 1995, the Company received consents for
certain amendments to the Senior Note Indenture and certain
related agreements from holders of Senior Notes. The
amendments (a) increased the interest rate on each series of
Notes by one-half of one percent (0.5%) per annum; (b)
amended, added and deleted certain financial covenants and
related definitions under the Senior Note Indenture (including
modifying the Consolidated Fixed Charge Coverage Ratio
covenant, adding a new Debt-to-EBITDA ratio and a new Capital
Expenditures covenant, deleting the Adjusted Consolidated Net
Worth covenant) to reflect the Company's size, operations and
financial position following the AWG Transaction (as hereafter
defined under "Other Information"); (c) amended certain
provisions of the Senior Note Indenture to permit the Company
to incur certain liens and indebtedness and to make an
investment in certain membership stock and receive or earn
patronage certificates or other equity in connection with the
supply agreement to be entered into with Associated Wholesale
Grocers, Inc. ("AWG"); (d) amended certain provisions of a
security agreement securing the Senior Note to provide that
AWG will have a first lien on certain collateral to be
acquired by the Company in connection with the AWG supply
agreement; (e) amended certain other provisions of the Senior
Note Indenture to, among other things, limit the Company's
ability to incur certain future indebtedness and guarantees,
and to provide that a certain amount of net proceeds from
future asset sales must be applied to an offer to redeem the
Senior Notes; and (f) amended a mortgage securing the Senior
Notes to provide that defaults under, or modifications or
terminations of, a certain lease related to a store to be
closed, will not constitute a default or event of default
under the mortgage. On April 21, 1995, the Company and United
States Trust Company of New York, as trustee for the holders
of the Senior Notes, entered into a supplemental indenture
effecting these amendments.
Item 5. Other Information
On April 21, 1995, the Company sold 29 of its stores
and its warehouse and distribution center to AWG pursuant to
an Asset Purchase Agreement dated as of February 6, 1995 (the
"Purchase Agreement") for a cash purchase price of $45 million
plus $27.6 million for the value of inventory in the stores
and the warehouse. The Purchase Agreement required AWG to
assume, or provide certain undertakings with respect to,
certain contracts and lease obligations and pension
liabilities of the Company. At the closing, the Company and
AWG also entered into a seven-year supply agreement, whereby
the Company became a retail member of the AWG cooperative and
AWG became the Company's primary supplier. The transactions
between the Company and AWG are referred to herein as the "AWG
Transaction."
AWG is a buying cooperative which sells groceries on a
wholesale basis to its retail member stores. AWG has 716
member stores located in a nine-state region and is the
nation's fifth largest wholesale distributor, with
approximately $2.6 billion in revenues in 1994.
The Company estimates that net proceeds from the AWG
Transaction will be approximately $37.2 million, approximately
$25.0 million of which will be allocated to the Senior Notes
and approximately $12.2 million of which will be allocated to
indebtedness under the Amended and Restated Revolving Credit
Agreement. The remaining proceeds from the AWG Transaction
will be (i) used to pay certain costs, expenses and
liabilities required to be paid in connection with the AWG
Transaction or (ii) deposited into escrow pending reinvestment
by the Company or application against a subsequent offer to
redeem additional Senior Notes in either case within 180 days
of the closing of the AWG Transaction. Under the Senior Note
Indenture, the Company is required to apply the net proceeds
allocable to the Senior Notes to an offer to redeem the Senior
Notes on a pro rata basis.
The purposes of the AWG Transaction are: (i) to reduce
the Company's borrowed money indebtedness in respect of the
Senior Notes and under the Amended and Restated Revolving
Credit Agreement by approximately $37.2 million in the
aggregate; (ii) to have AWG assume, or provide certain
undertakings with respect to, certain contracts and leases and
certain pension liabilities of the Company; (iii) to sell the
Company's warehouse and distribution center, which will
eliminate the high fixed overhead costs associated with the
operation of the warehouse and distribution center and thereby
permit the Company to close marginal and unprofitable stores;
and (iv) to obtain the benefits of becoming a member of the
AWG cooperative, including increased purchases of private
label products, special product purchases, dedicated support
programs and access to AWG's store systems.
The Company plans to close certain marginal and
unprofitable stores. Such a plan is now financially feasible
because of the sale of the warehouse and the elimination of
the high fixed costs associated with the warehouse operation.
The Company closed seven stores during the first quarter of
1995 and expects to close an additional eight stores by the
end of 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are
filed as part of this report:
Exhibit No. Description
10y.2
Second Supplement to Indenture,
dated as of April 21, 1995,
among Homeland, Holding and
United States Trust Company of
New York, as Trustee.
10y.3
Amendment No. 2 to the Company
Security Agreement, dated as of
April 21, 1995, between Homeland
and United States Trust Company
of New York as Collateral
Trustee.
10y.4
Amendment No. 1 to the
Intercreditor Agreement, dated
as of April 21, 1995, among
National Bank of Canada, United
States Trust Company of New York
and such other persons as may
become parties to the
Intercreditor Agreement as
provided therein.
10y.5
Amendment No. 1 to the Mortgage
Security Agreement and Financing
Statement, dated as of April 21,
1995, from Homeland to United
States Trust Company of New York
as Collateral Trustee.
10uu
Amended and Restated Revolving
Credit Agreement, dated as of
April 21, 1995, among Homeland,
Holding, National Bank of
Canada, as Agent and lender,
Heller Financial, Inc. and any
other lenders thereafter parties
thereto.
27
Financial Data Schedule.
(b) Reports on Form 8-K: No reports on Form 8-
K were filed during the quarter ended March 25,
1995.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
HOMELAND HOLDING CORPORATION
Date: May 9, 1995 By: /s/ James
A. Demme James A.
Demme, President, Chief
Executive Officer and
Director (Principal
Executive Officer)
Date: May 9, 1995 By: /s/ Larry
W. Kordisch Larry W.
Kordisch, Executive Vice
President/Finance,
Treasurer, Chief Financial
Officer and Secretary
(Principal Financial
Officer)
Date: May 9, 1995 By: /s/ Terry
M. Marczewski Terry M.
Marczewski, Chief
Accounting Officer,
Assistant Treasurer and
Assistant Secretary
(Principal Accounting
Officer)