UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Under Section 13 or 15 (d) of the Securities
X Exchange Act of 1934
For the quarterly period ended: March 22, 1997
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.)
2601 Northwest Expressway
Oil Center-East, Suite 1100
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
(405) 879-6600
(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 by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed by
a court. Yes X No ___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of May 2, 1997:
Homeland Holding Corporation
Common Stock: 4,758,025 shares
HOMELAND HOLDING CORPORATION
FORM 10-Q
FOR THE TWELVE WEEKS ENDED MARCH 22, 1997
INDEX
Page
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements.......................................... 1
Consolidated Balance Sheets
March 22, 1997, and December 28, 1996....................... 1
Consolidated Statements of Operations
Twelve Weeks ended March 22, 1997 (Successor
Company), and March 23, 1996 (Predecessor
Company).................................................... 3
Consolidated Statements of Stockholders' Equity (Deficit)
Twelve Weeks ended March 22, 1997 (Successor
Company), and March 23, 1996 (Predecessor
Company).................................................... 4
Consolidated Statements of Cash Flows
Twelve Weeks ended March 22, 1997 (Successor
Company), and March 23, 1996 (Predecessor
Company).................................................... 5
Notes to Consolidated Financial Statements................... 6
ITEM 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations.................................... 7
PART II OTHER INFORMATION
ITEM 5. Other Information............................................. 11
ITEM 6. Exhibits and Reports on Form 8-K.............................. 11
i
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 December
22, 28,
1997 1996
(unaudited)
Current assets:
Cash and cash equivalents $ 5,382 $ 1,492
Receivables, net of allowance
for uncollectible 5,721 8,522
accounts of $1,471 and $1,587
Inventories 44,532 45,009
Prepaid expenses and other
current assets 2,550 2,760
Total current assets 58,185 57,783
Property, plant and equipment:
Land and land improvements 8,731 8,731
Buildings 18,183 18,124
Fixtures and equipment 15,980 15,078
Leasehold improvements 11,456 11,374
Software 2,931 2,930
Leased assets under capital leases 7,485 7,569
Construction in progress 2,923 2,675
67,689 66,481
Less, accumulated depreciation
and amortization 4,716 3,012
Net property, plant and equipment 62,973 63,469
Reorganization value in excess
of amounts allocable to identifiable
assets, less accumulated amortization
of $9,279 at March 22, 1997, and $5,819
at December 28, 1996 35,017 39,570
Other assets and deferred charges 7,715 7,664
Total assets $ 163,890 $ 168,486
Continued
The accompanying notes are an integral part
of these consolidated financial statements.
1
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
March December
22, 28,
1997 1996
(unaudited)
Current liabilities:
Accounts payable - trade $ 16,857 $ 17,416
Salaries and wages 2,667 3,499
Taxes 3,051 2,903
Accrued interest payable 1,176 2,689
Other current liabilities 7,208 8,470
Current portion of long-term 894 894
debt
Current portion of obligations under
capital leases 1,343 1,343
Total current liabilities 33,196 37,214
Long-term obligations:
Long-term debt 74,664 72,724
Obligations under capital leases 2,659 3,005
Other noncurrent liabilities 2,688 2,602
Total long-term obligations 80,011 78,331
Stockholders' equity:
Common Stock
Class A, $0.01 par value, authorized
- 7,500,000 shares, issued 4,758,025
shares at March 22, 1997, and December
28, 1996 48 48
Additional paid-in capital 56,013 56,013
Accumulated deficit (5,378) (3,120)
Total stockholders' equity 50,683 52,941
Total liabilities and stockholders'
equity 163,890 168,486
The accompanying notes are an integral part
of these consolidated financial statements.
2
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Successor Predecessor
Company Company
12 12
weeks weeks
ended ended
March 22, March 23,
1997 1996
Sales, net $ 120,050 $ 124,350
Cost of sales 90,878 94,207
Gross profit 29,172 30,143
Selling and administrative expenses 25,187 27,980
Financial restructuring costs - 1,350
Amortization of excess reorganization value 3,460 -
Operating profit 525 813
Interest expense 1,982 3,156
Loss before income taxes (1,457) (2,343)
Income tax expense 801 -
Net loss $ (2,258) $ (2,343)
Net loss per common share $ (0.47) $ (0.07)
Weighted average shares outstanding 4,758,025 32,599,707
The accompanying notes are an integral part
of these consolidated financial statements.
3
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
(Unaudited)
part 1 of 2
Common Stock Additional
Successor Predecessor Paid-In Accumulated
Shares Shares Amount Capital Deficit
Balance, December 30, 1995 - 33,748,482 $337 $55,886 $ (80,188)
Net Loss - - - - (2,343)
Balance, March 23, 1996 - 33,748,482 $337 $55,886 $ (82,531)
Balance, December 28, 1996 4,758,025 - $ 48 $56,013 $ (3,120)
Net Loss - - - - (2,258)
Balance, March 22, 1997 4,758,025 - $ 48 $56,013 $ (5,378)
part 2 of 2
Minimum
Pension Total
Liability Treasury Stock Stockholders'
Adjustment Shares Amount Equity (Deficit)
Balance, December 30, 1995 $ (1,327) 2,869,493 $ (2,814) $ (28,106)
Net Loss - - - (2,343)
Balance, March 23, 1996 $ (1,327) 2,869,493 $ (2,814) $ (30,449)
Balance, December 28, 1996 - - - $ 52,941
Net Loss - - - (2,258)
Balance, March 22, 4997 - - - $ 50,683
The accompanying notes are an integral part
of these consolidated financial statements.
4
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
Successor Predecessor
Company Company
12 weeks 12 weeks
ended ended
March 22, March 23,
1997 1996
Cash flows from operating activities:
Net loss $ (2,258) $ (2,343)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,717 1,658
Amortization of excess reorganization value 3,460 -
Amortization of financing costs 14 186
Loss (gain) on disposal of assets 7 (78)
Amortization of beneficial interest in
operating leases 28 30
Adjustment to excess reorganization value 292 -
Deferred income taxes 801 -
Change in assets and liabilities:
Decrease in receivables 2,801 1,422
Decrease in inventories 477 2,353
Decrease in prepaid expenses and
other current assets 210 287
Increase in other assets and deferred charges (101) (117)
Decrease in accounts payable - trade (559) (213)
Decrease in salaries and wages (832) (362)
Increase (decrease) in taxes 148 (1,318)
Increase (decrease) in accrued interest payable (1,513) 2,307
Decrease in other current liabilities (1,262) (1,875)
Decrease in noncurrent restructuring reserve - (12)
Increase (decrease) in other noncurrent
liabilities 108 (825)
Net cash provided by operating activities 3,538 1,100
Cash flow used in investing activities:
Capital expenditures (1,254) (307)
Cash received from sale of assets 12 60
Net cash used in investing activities (1,242) (247)
Cash flows used by financing activities:
Borrowings under revolving credit loans 29,595 25,067
Payments under revolving credit loans (27,640) (27,373)
Principal payments under note payable (15) -
Principal payments under capital lease obligations (346) (621)
Net cash provided by (used in) financing
activities 1,594 (2,927)
Net increase (decrease) in cash and cash
equivalents 3,890 (2,074)
Cash and cash equivalents at beginning of period 1,492 (6,357)
Cash and cash equivalents at end of period $ 5,382 $ 4,283
Supplemental information:
Cash paid during the period for interest $ 3,490 $ 604
The accompanying notes are an integral part
of these consolidated financial statements.
5
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Preparation of Consolidated Financial Statements:
The accompanying unaudited interim consolidated financial
statements of Homeland Holding Corporation ("Holding") and its Subsidiary,
Homeland Stores, Inc. ("Stores" and, together with Holding, the "Company"),
reflect all adjustments, which consist only of normal and recurring
adjustments, which are, in the opinion of management, necessary for a
fair presentation of the consolidated financial position and the
consolidated results of operations and cash flows for the periods
presented. The consolidated financial statements as of and for the
periods subsequent to August 10, 1996, were prepared in accordance with
the American Institute of Certified Public Accountants Statement of
Position No. 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP No. 90-7"). The accounting under SOP
No. 90-7 resulted in "fresh-start" reporting for the Company in which a
new entity was created for financial reporting purposes. The periods
prior to August 10, 1996, have been designated "Predecessor Company"
and the periods subsequent to August 10, 1996, have been designated
"Successor Company."
These unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements of the
Company for the period ended December 28, 1996, and the notes thereto.
2. Accounting Policies:
The significant accounting policies of the Company are
summarized in the consolidated financial statements of the Company for
the 52 weeks ended December 28, 1996, and the notes thereto.
6
Item 2. Management"s Discussion and Analysis of Financial Conditions and
Results of Operations
General
The Company's plan of reorganization became effective
on August 2, 1996. For financial reporting purposes, the Company
accounted for the consummation of the reorganization effective as
of August 10, 1996.
As a result of the adoption of "fresh-start" reporting
and the consummation of the reorganization, the periods prior to
and subsequent to August 10, 1996, for financial reporting purposes
are not necessarily comparable.
The table below sets forth selected items from the
Company's consolidated income statement as a percentage of net
sales for the periods indicated:
12 weeks ended
March March
22, 23,
1997 1996
Net sales 100.0% 100.0%
Cost of sales 75.7 75.8
Gross profit 24.3 24.2
Selling and administrative 21.0 22.5
Financial restructuring cost - 1.1
Amortization of excess
reorganization value 2.9 -
Operating profit 0.4 0.6
Interest expense 1.6 2.5
Loss before income taxes (1.2) (1.9)
Income tax provision 0.7 -
Net loss (1.9) (1.9)
Results of Operations
Net sales for the first quarter ended March 22, 1997,
were $120.1 million, a 3.5% decline over the corresponding period
of 1996. The decrease in net sales was due primarily to the sale
of the Ponca City, Oklahoma store in April 1996, and the closing
of two stores during the reorganization which was partly offset by
a new store that was opened in December 1996. Comparable store
sales decreased by 1.1% versus the corresponding period of 1996.
The decrease in comparable store sales was primarily due to
increased competitive promotional activities. In addition, more
stringent eligibility requirements for food stamps have had a
negative impact on the Company's sales to food stamp recipients.
7
Gross profit as a percentage of net sales increased to
24.3% in the first quarter of 1997 compared with 24.2% in the first
quarter of 1996. The slight improvement was primarily due to
reduced redemption of manufacturer coupons which the Company
doubles as part of its marketing activities.
Selling and administrative expenses decreased by 1.5%,
as a percentage of net sales, to 21.0% in the first quarter of 1997
from 22.5% in the first quarter of 1996. The decline is due to
lower labor costs associated with the new union agreements and lower
occupancy costs resulting from renegotiated leases, all commencing
as of August 1996. The Company's continued focus on cost controls
and reduction of certain corporate support functions primarily in
its computer operations also contributed to overall reduction in
selling and administrative expenses.
In the first quarter of 1996, the Company incurred $1.4
million of financial restructuring expenses, primarily professional
fees. These costs were related to the reorganization consummated
in August 1996, and are not recurring.
The Company amortized $3.5 million of excess reorganization
value, which was recorded as part of "fresh-start" accounting, in the
first quarter of 1997. The amortization of the excess reorganization
value will have the effect of increasing the Company's expenses and
reducing its net income for the next ten quarters.
Interest expense for the first quarter of 1997 decreased to
$2.0 million from $3.2 million in the first quarter of 1996, due
primarily to the reduction in debt levels upon consummation of the
reorganization in August 1996.
The Company recorded an income tax provision of $0.8 million
for the first quarter of 1997. The effective tax rate differs from the
statutory rate due to amortization of excess reorganization value,
which is not deductible for income tax purposes. The effective tax
rate was calculated on the projected taxable income for the full fiscal
year and the anticipated changes in the deferred tax assets and deferred
tax liabilities. The net operating loss carryforwards available for
utilization in 1997 are limited to approximately $4.5 million, the
benefit of which is being recorded as a reduction of excess
reorganization value rather than a reduction of income tax expense.
8
EBITDA (as defined hereinafter) before financial
restructuring expense amounted to $5.7 million or 4.8% of net sales in
the first quarter of 1997 as compared to $3.9 million or 3.1% of net
sales for the first quarter of 1996. The improvement in EBITDA is due
primarily to the reduced selling and administrative expenses and was
somewhat offset by the reduced gross margin contribution that was a
result of reduced sales.
Liquidity and Capital Resources
The primary sources of liquidity and capital for the
Company's operations have been borrowings under the revolving credit
facility and internally-generated funds.
The Company's EBITDA (earnings before interest, taxes,
depreciation and amortization) before financial restructuring costs,
as presented below, is the Company's measurement of internally-
generated cash for working capital needs, capital expenditures and
payment of debt obligations:
12 weeks ended
March March
22, 23,
1997 1996
Loss before income taxes (1,457) (2,343)
Interest expense 1,982 3,156
Amortization of reorganization value 3,460 -
Financial restructuring costs - 1,350
Depreciation and amortization 1,745 1,688
EBITDA 5,730 3,851
As a percentage of sales 4.77% 3.10%
As a multiple of interest expense 2.89x 1.22x
The cash flow from operations provided $3.5 million for the
12 weeks ended March 22, 1997, and $1.1 million for the 12 weeks ended
March 23, 1996. The improvement in cash flow from operations for the
12 weeks ended March 22, 1997, was primarily due to a decrease in the
selling and administrative expense and the decrease in receivables
resulting from the annual rebate payments received from Associated
Wholesale Grocers, Inc., the primary supplier to the Company. These
items were partially offset by the semi-annual interest payment on the
$60.0 million unsecured notes issued in the reorganization.
9
The investing activities of the Company used net cash of
$1.2 million and $0.2 million for the 12 weeks ended March 22, 1997,
and March 23, 1996, respectively. The funds for the first quarter
1997 investing activities were provided by the revolving credit
facility and internally-generated cash.
Financing activities of the Company provided net cash of
$1.6 million for the 12 weeks ended March 22, 1997, and used net cash
of $2.9 million for the 12 weeks ended March 23, 1996.
As of April 21, 1997, the Company had $1.4 million of
borrowings and $5.7 million of letters of credit outstanding under
its $27.5 million revolving credit facility. Management believes that
the revolving credit facility and cash flow from operations will be
adequate for the Company's short-term requirements.
As of March 22, 1997, the Company has 23 ongoing major and
minor remodeling projects on its stores. The Company intends to
improve certain store facilities through its capital expenditure
program to maintain its market competitiveness. Cash capital
expenditures for 1997 are expected to be at $11.6 million.
The credit agreement limits the Company to $12.0 million and $13.0
million of cash capital expenditures for 1997 and 1998, respectively.
The Company is also limited to $7.0 million of new capital leases each
year. The Company currently projects that it will have two new stores
by the end of 1998.
10
PART II - OTHER INFORMATION
Item 5. Other Information
On March 31, 1997, Holding's common stock ("Common Stock")
was approved by NASDAQ National Market System for listing. Accordingly,
the Common Stock was listed in NASDAQ National Market System effective
as of April 14, 1997, under the symbol "HMLD."
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit: The following exhibit is filed as part of this
report:
Exhibit No. Description
27 Financial Data Schedule.
99 Press release of April 8, 1997, issued by
the Company announcing its NASDAQ
National Market System listing.
(b) Report on Form 8-K: The Company did not file
any Form 8-K during the quarter ended March 22, 1997.
11
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 6, 1997 By: /s/ James A. Demme_____________________
James A. Demme, Chairman,
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: May 6, 1997 By: /s/ Larry W. Kordisch__________________
Larry W. Kordisch, Executive
Vice President/
Finance, Chief Financial
Officer and Secretary
(Principal Financial Officer)