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 June 14, 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 July 18, 1997:
Homeland Holding Corporation Common Stock: 4,758,025 shares
HOMELAND HOLDING CORPORATION
FORM 10-Q
FOR THE TWENTY-FOUR WEEKS ENDED JUNE 14, 1997
INDEX
Page
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements..................................... 1
Consolidated Balance Sheets as of
June 14, 1997, and December 28, 1996.................. 1
Consolidated Statements of Operations
Twelve Weeks ended June 14, 1997 (Successor
Company), and June 15, 1996 (Predecessor
Company).............................................. 3
Consolidated Statements of Operations
Twenty-four Weeks ended June 14, 1997 (Successor
Company), and June 15, 1996 (Predecessor
Company).............................................. 4
Consolidated Statements of Stockholders Equity (Deficit)
Twenty-four Weeks ended June 14, 1997 (Successor
Company), and June 15, 1996 (Predecessor
Company).............................................. 5
Consolidated Statements of Cash Flows
Twenty-four Weeks ended June 14, 1997 (Successor
Company), and June 15, 1996 (Predecessor
Company).............................................. 6
Notes to Consolidated Financial Statements............... 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 8
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K......................... 13
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
June 14, December 28,
1997 1996
(Unaudited)
Current assets:
Cash and cash equivalents $ 6,134 $ 1,492
Receivables, net of allowance for
uncollectible accounts of $1,480
and $1,587 6,630 8,522
Inventories 43,160 45,009
Prepaid expenses and other current assets 2,226 2,760
Total current assets 58,150 57,783
Property, plant and equipment:
Land and land improvements 8,731 8,731
Buildings 18,183 18,124
Fixtures and equipment 18,257 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
69,966 66,481
Less, accumulated depreciation
and amortization 6,480 3,012
Net property, plant and equipment 63,486 63,469
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $12,643 at
June 14, 1997, and $5,819 at
December 28, 1996 30,733 39,570
Other assets and deferred charges 7,665 7,664
Total assets $ 160,034 $ 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
June 14, December 28,
1997 1996
(unaudited)
Current liabilities:
Accounts payable - trade $ 15,745 $ 17,416
Salaries and wages 2,747 3,499
Taxes 3,707 2,903
Accrued interest payable 2,478 2,689
Other current liabilities 7,118 8,470
Current portion of long-term debt 1,310 894
Current portion of obligations under
capital leases 1,343 1,343
Total current liabilities 34,448 37,214
Long-term obligations:
Long-term debt 72,445 72,724
Obligations under capital leases 2,322 3,005
Other noncurrent liabilities 2,671 2,602
Total long-term obligations 77,438 78,331
Stockholders' equity:
Common Stock,
$0.01 par value, authorized - 7,500,000
shares, issued 4,758,025 shares at June
14, 1997, and December 28, 1996 48 48
Additional paid-in capital 56,013 56,013
Accumulated deficit (7,913) (3,120)
Total stockholders' equity 48,148 52,941
Total liabilities and stockholders'
equity $ 160,034 $ 168,486
The accompanying notes are an integral part
of these consolidated financial statements.
2
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Successor Predecessor
Company Company
12 weeks 12 weeks
ended ended
June 15, June 14,
1997 1996
Sales, net $ 116,264 $ 121,981
Cost of sales 87,603 91,703
Gross profit 28,661 30,278
Selling and administrative expenses 25,079 27,442
Financial restructuring costs - 1,800
Amortization of excess reorganization value 3,364 -
Operating profit 218 1,036
Interest expense 1,833 2,051
Loss before income taxes (1,615) (1,015)
Income tax expense 920 -
Net loss $ (2,535) $ (1,015)
Net loss per common share $ (0.53) $ (0.03)
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 OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Successor Predecessor
Company Company
24 weeks 24 weeks
ended ended
June 15, June 14,
1997 1996
Sales, net $ 236,314 $ 246,331
Cost of sales 178,481 185,910
Gross profit 57,833 60,421
Selling and administrative expenses 50,266 55,422
Financial restructuring costs - 3,150
Amortization of excess reorganization value 6,824 -
Operating profit 743 1,849
Interest expense 3,815 5,207
Loss before income taxes (3,072) (3,358)
Income tax expense 1,721 -
Net loss $ (4,793) $ (3,358)
Net loss per common share $ (1.01) $ (0.10)
Weighted average shares outstanding 4,758,025 32,599,707
The accompanying notes are an integral part
of these consolidated financial statements.
4
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
(Unaudited)
Minimum
Common Stock Additional Pension
Successor Predecessor Paid-In Accumulated Liability
Shares Shares Amount Capital Deficit Adjustment
Balance, December 30, 1995 - 33,748,482 $ 337 $ 55,886 $ (80,188) $ (1,327)
Net Loss - - - - (3,358) -
Balance, June 15, 1996 - 33,748,482 $ 337 $ 55,886 $ (83,546) $ (1,327)
Balance, December 28, 1996 4,758,025 - $ 48 $ 56,013 $ (3,120) -
Net Loss - - - - (4,793) -
Balance, June 14, 1997 4,758,025 - $ 48 $ 56,013 $ (7,913) -
Continued
Total
Treasury Stock Stockholders'
Shares Amount Equity/Deficit
Balance, December 30, 1995 2,869,493 $ (2,814) $ (28,106)
Net Loss - - (3,358)
Balance, June 15, 1996 2,869,493 $ (2,814) $ (31,464)
Balance, December 28, 1996 - - $ 52,941
Net Loss - - (4,793)
Balance, June 14, 1997 - - $ 48,148
The accompanying notes are an integral part
of these consolidated financial statements.
5
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
Successor Predecessor
Company Company
24 weeks 24 weeks
ended ended
June 14, June 15,
1997 1996
Cash flows from operating activities:
Net loss $ (4,793 $ (3,358)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,510 3,282
Amortization of excess reorganization value 6,824 -
Amortization of financing costs 29 315
Gain on disposal of assets (1) (41)
Amortization of beneficial interest in
operating leases 56 59
Adjustment to excess reorganization value 292 -
Deferred income taxes 1,721 -
Change in assets and liabilities:
Decrease in receivables 1,892 549
Decrease in inventories 1,849 3,354
Decrease (increase) in prepaid expenses
and other current assets 534 (3)
Increase in other assets and deferred charges (118) (540)
Decrease in accounts payable - trade (1,670) (231)
Decrease in salaries and wages (752) (53)
Increase in taxes 804 270
Increase (decrease) in accrued interest payable (211) 3,649
Decrease in other current liabilities (1,352) (1,201)
Decrease in noncurrent restructuring reserve - (353)
Increase (decrease) in other noncurrent
liabilities 113 (872)
Net cash provided by operating activities 8,727 4,826
Cash flow used in investing activities:
Capital expenditures (3,559) (1,404)
Cash received from sale of assets 20 1,729
Net cash (used in) provided by investing
activities (3,539) 325
Cash flows used by financing activities:
Borrowings under revolving credit loans 63,409 60,423
Payments under revolving credit loans (63,241) (63,838)
Principal payments under note payable (31) -
Principal payments under capital lease obligations (683) (1,239)
Net cash used in financing activities (546) (4,654)
Net increase in cash and cash equivalents 4,642 497
Cash and cash equivalents at beginning of period 1,492 6,357
Cash and cash equivalents at end of period $ 6,134 $ 6,854
Supplemental information:
Cash paid during the period for interest $ 4,005 $ 1,287
The accompanying notes are an integral part
of these consolidated financial statements.
6
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.
3. Net Loss Per Share:
Net loss per share of common stock for the 12 weeks and 24 weeks
ended June 14, 1997, and June 15, 1996, is based on the weighted average
outstanding shares during the period. Net loss per share of common stock
for periods prior to the reorganization, which was consummated in August
1996, is not meaningful due to the significant change in capital
structure.
7
Item 2. Management's Discussion and Analysis of Financial Condition 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 of
the periods indicated:
12 weeks ended 24 weeks ended
June 14, June 15, June 14, June15,
1997 1996 1997 1996
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 75.3 75.2 75.5 75.5
Gross Profit 24.7 24.8 24.5 24.5
Selling and administrative 21.6 22.5 21.3 22.5
Financial restructuring cost - 1.5 - 1.3
Amortization of excess
reorganization value 2.9 - 2.9 -
Operating profit 0.2 0.8 0.3 0.8
Interest expense 1.6 1.7 1.6 2.1
Loss before income taxes (1.4) (0.8) (1.3) (1.4)
Income tax provision 0.8 - 0.7 -
Net loss (2.2) (0.8) (2.0) (1.4)
Results of Operations.
Comparison of Twelve Weeks and Twenty-Four Weeks ended June 14,
1997, with Twelve Weeks and Twenty-Four Weeks ended June 15, 1996.
Net sales for the 12 weeks and 24 weeks ended June 14, 1997,
decreased 4.7% and 4.1%, respectively, from the net sales of the
corresponding period of 1996. The reduction in net sales was primarily
due to fewer operating stores in 1997 plus the effect of negative
comparable store sales. Comparable store sales for the 12 weeks and 24
weeks ended June 14,
8
1997, decreased by 3.4% and 2.2%, respectively, as compared to the
corresponding periods of 1996. The decrease in comparable store sales was
attributed to increased competitive activities, lower food price inflation
and lower sales to food stamp recipients as a result of more stringent
eligibility requirements.
Gross profit as a percentage of sales for the 12 weeks ended June
14, 1997, was 24.7%, a slight decrease from the corresponding period in 1996
of 24.8%. Gross profit as a percentage of sales for the 24 weeks ended
June 14, 1997, and the corresponding period in 1996, amounted to 24.5%.
Selling and administrative expenses for the 12 weeks ended June
14, 1997, decreased to 21.6%, as a percentage of net sales, compared to
22.5% for the corresponding period of 1996. For the 24 weeks ended June
14, 1997, selling and administrative expenses decreased by 1.2%, as a
percentage of net sales, to 21.3% from 22.5% in the corresponding period of
1996. The reduction in selling and administrative expenses resulted
primarily from lower labor costs associated with the modified union
agreements and lower occupancy cost that resulted from renegotiated leases,
all commencing in August 1996. The Company also benefited in cost savings
from termination of its information outsourcing contract in March 1996.
For the 12 weeks and 24 weeks ended June 15, 1996, the Company
incurred $1.8 million and $3.2 million of financial restructuring costs.
These costs were related to the reorganization consummated in August 1996,
and are not recurring.
The Company recorded amortization of excess reorganization value
of $3.4 million and $6.8 million for the 12 weeks and 24 weeks ended
June 14, 1997, respectively. The amortization of the excess reorganization
value is expected to negatively affect earnings for the next nine fiscal
quarters.
Interest expense for the 12 weeks ended June 14, 1997, was $1.8
million, a reduction of $0.2 million from the $2.0 million in the
corresponding period of 1996. Interest expense for the 24 weeks ended June
14, 1997, was $3.8 million, a reduction of $1.4 million from the
corresponding period of $5.2 million in 1996. The reduction in interest
expenses was due primarily to the reduction of debt level resulting from
the consummation of the reorganization in August 1996. In the second
quarter of 1996, the Company's interest obligation on its outstanding
senior secured notes was stayed as a result of filing Chapter 11 petition
on May 13, 1996.
The Company recorded income tax provisions of $0.9 million and
$1.7 million for the 12 weeks and 24 weeks ended June 14, 1997,
respectively. 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 net operating loss carryforwards available for
utilization in 1997 ("NOL Carryforward") are limited to approximately $4.5
million, the benefit
9
of which is being recorded as a reduction of excess reorganization value
rather than a reduction of income tax expense. The NOL Carryforward is
expected to be utilized in the third quarter of 1997 and, accordingly, the
Company will commence to incur tax liabilities.
The Company's EBITDA (as defined hereinafter) for the 12 weeks
ended June 14, 1997, improved to $5.4 million or 4.7% of net sales, from
the EBITDA of $4.5 million, before financial restructuring costs, or 3.7%
of net sales for the corresponding period of 1996. For the 24 weeks ended
June 14, 1997, EBITDA was $11.1 million or 4.7% of net sales. This is a
33.5% improvement over the 1996 corresponding period EBITDA of $8.3
million, before financial restructuring costs, or 3.4% of net sales. The
improvement in EBITDA is attributable to the cost savings efforts realized
as a result of the reorganization that was consummated in August 1996.
Net loss for the 12 weeks ended June 14, 1997, was $2.5 million
or $0.53 per share compared to $1.0 million or $0.03 per share for the
corresponding period in 1996. Net loss for the 24 weeks ended June 14,
1997, was $4.8 million or $1.01 per share compared to $3.4 million or
$0.10 per share for the corresponding period in 1996. As a result of the
reorganization that was consummated in August 1996, the Company's financial
structure has changed significantly so that results of earnings per share
are not comparable to prior years. The Company is amortizing the
reorganization value over a three-year period and it has affected earnings
negatively. If the Company excluded such amortization of reorganization
value for the 12 weeks and 24 weeks ended June 14, 1997, the Company would
record income of $0.8 million or $0.18 per share and $2.0 million or $0.42
per share, respectively.
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.
10
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 24 weeks ended
June 14, June 15, June 14, June 15,
1997 1996 1997 1996
Loss before income taxes (1,615) (1,015) (3,072) (3,358)
Interest expense 1,833 2,051 3,815 5,207
Amortization of reorganization
value 3,364 - 6,824 -
Financial restructuring costs - 1,800 - 3,150
Depreciation and amortization 1,821 1,653 3,566 3,341
EBITDA 5,403 4,489 11,133 8,340
As a percentage of sales 4.7% 3.7% 4.7% 3.4%
As a multiple of interest
expense 3.0x 2.2x 2.9x 1.6x
Cash flow from operations provided $8.7 million for the 24 weeks
ended June 14, 1997, and $4.8 million for the 24 weeks ended June 15, 1996.
The improvement in cash flow from operations was due primarily to better
operating results.
The Company's investing activities used net cash of $3.5 million
in the 24 weeks ended June 14, 1997, as compared to net cash provided by
investing activities of $0.3 million in the 24 weeks ended June 15, 1996.
The cash used in investing activities for 1997 is for the 1997 remodeling
program implemented by the Company. As of June 14, 1997, 7 of the 23
remodeling projects have been completed. The Company expects to expend
approximately $11.6 million in cash capital expenditures for fiscal 1997,
which includes acquiring a Pratt Discount Foods' store in Oklahoma City,
Oklahoma. The acquisition is expected to be completed in August 1997. The
Company currently plans to construct two new stores by the end of 1998: one
in Oklahoma City, Oklahoma and the other in Tulsa, Oklahoma.
Financing activities of the Company used net cash of $0.5 million
and $4.7 million for the 24 weeks ended June 14, 1997, and June 15, 1996,
respectively.
11
Management believes that the revolving credit facility and cash
flows from operations will be adequate for the Company's short-term
requirements including its 1997 capital expenditure program and the
scheduled quarterly payments required under the term loan commencing on
September 30, 1997. As of July 18, 1997, the Company had $0.9 million of
borrowings and $5.7 million of letters of credit outstanding under its
revolving credit facility. The revolving credit facility provides for
borrowings of up to the lesser of (a) $27.5 million or (b) the applicable
borrowing base. The applicable borrowing base on July 18, 1997, was
approximately $26.3 million.
12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are filed as part of
this report:
Exhibit No. Description
27 Financial Data Schedule.
99 Press release of July 10, 1997, issued
by the Company announcing its 1997
second quarter results.
(b) Report on Form 8-K: The Company did not file any
Form 8-K during the quarter ended June 14, 1997.
13
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: ___________ By:
_____________________________________
James A. Demme, Chairman, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: ___________ By:
_____________________________________
Larry W. Kordisch, Executive Vice
President/Finance, Chief Financial
Officer and Secretary (Principal
Financial Officer)