0000835582-95-000011.txt : 19950808 0000835582-95-000011.hdr.sgml : 19950808 ACCESSION NUMBER: 0000835582-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950617 FILED AS OF DATE: 19950807 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FOOD STORES [5400] IRS NUMBER: 731311075 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-22829 FILM NUMBER: 95559238 BUSINESS ADDRESS: STREET 1: 400 N E 36TH ST CITY: OKLAHOMA CITY STATE: OK ZIP: 73105 BUSINESS PHONE: 4055575500 MAIL ADDRESS: STREET 1: 400 N E 36TH CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 FORMER COMPANY: FORMER CONFORMED NAME: SWO HOLDING CORP DATE OF NAME CHANGE: 19901017 FORMER COMPANY: FORMER CONFORMED NAME: SWO ACQUISTION CORP DATE OF NAME CHANGE: 19890716 10-Q 1 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: June 17, 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) Identification No.) 2601 Northwest Expressway Oil Center-East 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 the number of shares outstanding of each of the issuer's classes of common stock as of July 31, 1995. Class A Common Stock, including redeemable common stock: 32,599,707 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) (Unaudited) ASSETS June 17, December 31, 1995 1994 Current assets: Cash and cash equivalents $ 10,526 $ 339 Receivables, net of allowance for uncollectible accounts of $2,374 and $2,690 9,967 12,235 Receivables for taxes 1,551 2,270 Inventories 44,600 89,850 Prepaid expenses and other current assets 2,661 6,384 Total current assets 69,305 111,078 Property, plant and equipment: Land 9,159 10,997 Buildings 22,274 29,276 Fixtures and equipment 43,465 61,360 Land and leasehold improvements 23,271 32,410 Software 16,620 17,876 Leased assets under capital leases 28,580 46,015 Construction in progress 1,965 2,048 145,334 199,982 Less accumulated depreciation and amortization 62,872 82,603 Net property, plant and equipment 82,462 117,379 Excess of purchase price over fair value of net assets acquired, net of amortization of $943 and $830 2,362 2,475 Other assets and deferred charges 5,913 8,202 Total assets $160,042 $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) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY June 17, December 31, 1995 1994 Current liabilities: Accounts payable - trade $ 16,172 $ 30,317 Salaries and wages 2,343 1,925 Taxes 6,020 6,492 Accrued interest payable 2,505 3,313 Other current liabilities 9,279 15,050 Current portion of long-term debt - 2,250 Current portion of obligations under capital leases 4,146 7,828 Current portion of restructuring reserve 1,113 - Total current liabilities 41,578 67,175 Long-term obligations: Long-term debt 97,938 145,000 Obligations under capital leases 9,540 11,472 Other noncurrent liabilities 4,193 5,176 Noncurrent restructuring reserve 9,489 5,005 Total long-term obligations 121,160 166,653 Redeemable common stock, Class A, $.01 par value, 1,748,028 shares at June 17, 1995 and 3,864,211 shares at December 31, 1994, at redemption value 828 1,235 Stockholders' equity: Common stock Class A, $.01 par value, authorized - 40,500,000 shares, issued - 33,721,172 shares at June 17, 1995 and 31,604,989 shares at December 31, 1994 outstanding - 30,878,989 shares 337 316 Additional paid-in capital 54,933 53,896 Accumulated deficit (55,993) (48,398) Treasury stock, 2,842,183 shares at June 17, 1995 and 726,000 shares at December 31, 1994, at cost (2,801) (1,743) Total stockholders' equity (3,524) 4,071 Total liabilities and stockholders' equity $160,042 $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 June 17, June 18, 1995 1994 Sales, net $147,059 $182,490 Cost of sales 110,530 133,973 Gross profit 36,529 48,517 Selling and administrative 36,039 42,330 Operating profit 490 6,187 Interest expense 3,899 4,043 Income (loss) before income taxes and extraordinary items (3,409) 2,144 Income tax expense - 339 Income (loss) before extraordinary items (3,409) 1,805 Extraordinary items (2,330) - Net income (loss) $ (5,739) $ 1,805 Income (loss) before extraordinary items per common share (.10) .05 Extraordinary items per common share (.07) - Net income (loss) per common share $ (.17) $.05 Weighted average shares outstanding 33,264,305 34,743,200 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) 24 weeks 24 weeks ended ended June 17, June 18, 1995 1994 Sales, net $325,068 $367,327 Cost of sales 246,015 271,672 Gross profit 79,053 95,655 Selling and administrative 76,008 84,347 Operating profit 3,045 11,308 Interest expense 8,310 8,050 Income (loss) before income taxes and extraordinary items (5,265) 3,258 Income tax expense - 1,046 Income (loss) before extraordinary items (5,265) 2,212 Extraordinary items (2,330) - Net income (loss) $ (7,595) $ 2,212 Income (loss) before extraordinary items per common share (.15) .06 Extraordinary items per common share (.07) - Net income (loss) per common share $ (.22) $.06 Weighted average shares outstanding 33,957,711 34,763,408 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, 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 - - - 2,212 - - - 2,212 Balance, June 18, 1994 31,604,989 $316 $46,612 $(5,541) $ - 726,000 $(1,743) $39,644 Balance, Dec. 31,1994 31,604,989 $316 $53,896 $(48,398) $ - 726,000 $(1,743) $ 4,071 Purchase treasury stock 2,116,183 21 1,037 - - 2,116,183 (1,058) - Net loss - - - (7,595) - - - (7,595) Balance, June 17, 1995 33,721,172 $337 $54,933 $(55,993) $ - 2,842,183 $(2,801) $(3,524) 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) 24 weeks 24 weeks ended ended June 17, June 18, 1995 1994 Cash flows from operating activities: Net income (loss) $(7,595) $ 2,212 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 6,460 7,594 Amortization of financing costs 585 664 Write-off of financing cost on long term debt retired 1,424 - Gain on disposal of assets (146) (31) Amortization of beneficial interest in operating leases 105 119 Change in assets and liabilities: Decrease in receivables 2,920 1,377 Decrease in receivables for taxes 719 - Decrease in inventories 17,374 863 (Increase) decrease in prepaid expenses and other current assets 3,723 (313) Decrease in other assets and deferred charges 26 142 Decrease in accounts payable - trade (14,146) (2,157) Increase (decrease) in salaries and wages 418 (666) Increase (decrease) in taxes (472) 2,621 Decrease in accrued interest payable (808) (272) Increase (decrease) in other current liabilities (5,771) 70 Decrease in noncurrent restructuring reserve(10,338) - Decrease in other noncurrent liabilities (938) (385) Total adjustments 1,135 9,626 Net cash provided by (used in) operating activities (6,460) 11,838 Cash flows from investing activities: Capital expenditures (409) (3,333) Cash received from sale of assets 73,038 394 Net cash provided by (used in) investing activities 72,629 (2,939) Cash flows from financing activities: Payments under senior secured floating rate notes (9,375) - Payments under senior secured fixed rate notes (15,625) - Borrowings under revolving credit loans 34,582 15,000 Payments under revolving credit loans (56,644) (20,000) Net payments under swing loans (1,500) (3,228) Principal payments under notes payable (750) (1,000) Principal payments under capital lease obligations (5,611) (1,610) Payments to acquire treasury stock (1,059) (255) Net cash used in financing activities (55,982) (11,093) Net increase (decrease) in cash and cash equivalents 10,187 (2,194) Cash and cash equivalents at beginning of period 339 2,194 Cash and cash equivalents at end of period $10,526 $ - continued 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) 24 weeks 24 weeks ended ended June 17, June 18, 1995 1994 Supplemental information: Cash paid during the period for interest $8,533 $7,629 Cash paid during the period for income taxes $ - $ 236 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. As a result of the amendments to the Senior Note Indenture, discussed in Part II-Item 2 "Changes in Securities", as well as the redemption of a portion of the Senior Notes and the replacement of the Revolving Credit Agreement, discussed in Item 2 MDA "Liquidity and Capital Resources", the Company incurred the following extraordinary loss in the 12 weeks ended June 17, 1995: Consent fees equal to $5.00 for each $1,000 principal amount of the $120.0 million Senior Notes $600,000 Premiums on redemption of $15.6 million of the Senior Secured Fixed Rate Notes, due March 1999 306,000 Unamortized financing costs related to the redemption of $25.0 million of Senior Notes, due March 1997 and March 1999, and the replacement of the Revolving Credit Agreement 1,424,000 Extraordinary loss $2,330,000 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 on April 21, 1995. The net proceeds from such sale were applied in the manner provided below in Part II-Item 5 "Other Information". 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 24 weeks ended June 17, 1995. During the 24 weeks ended June 17, 1995, the Company incurred expenses associated with the operational restructuring as follows: Operational Operational restructuring Operational restructuring exp. incurred in restructuring reserve at the 24 weeks ended reserve at Dec. 31, 1994 June 17, 1995 June 17, 1995 Expenses associated with the planned store closings, primarily occupancy costs from closing date to lease termination or sublease date $8,319 $(634) $7,685 Expenses associated with the AWG Transaction, primarily service and equipment contract cancellation fees 5,649 (6,262) (613) Estimated severance costs associated with the AWG Transaction 5,624 (3,889) 1,735 Legal and consulting fees associated with the AWG Transaction 4,905 (3,301) 1,604 Net gain on sale of property, plant and equipment to AWG (19,492) 19,683 191 Operational restructuring reserve $ 5,005 $ 5,597 $10,602 The separately identifiable revenue and store contribution to operating profit related to the stores sold to AWG or closed and expenses related to the warehouse facility are as follows: 24 weeks 24 weeks ended ended June 17, June 18, 1995 1994 Sales, net $66,437 $105,347 Store contribution to operating profit before allocation of administrative and advertising expenses 2,682 4,641 Warehouse expenses 3,853 5,459 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MDA") Results of Operations Comparison of Twelve and Twenty-Four Weeks Ended June 17, 1995 with Twelve and Twenty-Four Weeks Ended June 18, 1994. Sales. Net sales for the 12 weeks and 24 weeks ended June 17, 1995 decreased 19.4% and 11.5% respectively, over the net sales of the corresponding periods of 1994. The decrease in net sales was due primarily to the sale of 29 stores to AWG on April 21, 1995 (see Part II-Item 5 "Other Information") and the closing of seven stores, five in the first week of February 1995 and two in the fourth week of March 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 June 17, 1995 for the Company's comparable stores decreased 1.9% 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 June 17, 1995 decreased to 24.8% compared to 26.6% for the corresponding period of 1994. Gross profit as a percentage of sales for the 24 weeks ended June 17, 1995 decreased to 24.3% compared to 26.0% for the corresponding period of 1994. The decrease in gross margins was the result of increased promotional pricing in an effort to grow market share and in response to increased competition. In addition, the reduction can be attributed in part to the sale of the Company's distribution center to AWG, at which time the Company converted from self- supply of product to procuring product from AWG (see Part II- Item 5 "Other Information"). Further, pending the April 21, 1995 sale of the Company's warehouse and certain stores to AWG and the transition to being supplied by AWG, the Company experienced a reduction of vendor allowances which adversely affected gross profit. Selling and administrative expenses decreased $6.3 million for the 12 weeks ended June 17, 1995 compared to the prior period, although as a percentage of sales they increased to 24.5% from 23.2%. For the 24 weeks ended June 17, 1995, selling and administrative expenses declined $8.3 million compared to the prior period while as a percentage of sales, they increased to 23.4% from 23.0%. The decreases in expenses for the 12 weeks and 24 weeks ended June 17, 1995 were due to the sale of the Company's 29 stores to AWG, the closing of seven stores, as well as personnel and other cost reductions at the corporate office. Operating Income. Operating income for the 12 weeks ended June 17, 1995 decreased to $490,000 compared to $6.2 million for the corresponding period of 1994. Operating income for the 24 weeks ended June 17, 1995 decreased to $3.0 million compared to $11.3 million in the corresponding period of 1994. The decrease for the 12 weeks and 24 weeks ended June 17, 1995 was the result of the decrease in sales and gross profit margins offset in part by the decrease in selling and administrative expenses. Interest Expense. Interest expense for the 12 weeks ended June 17, 1995 decreased slightly to $3.9 million from $4.0 million in the corresponding period of 1994, due to a decrease in the usage of the revolving credit loan, the redemption of $25.0 million of Senior Notes on June 1, 1995, offset in part by an increase in interest rates. Interest expense for the 24 weeks ended June 17, 1995 increased to $8.3 million from $8.1 million in the corresponding period of 1994. The increase is a result of higher interest rates in 1995 compared to 1994, offset in part by a decrease in revolving credit loan usage during the second quarter and the redemption of $25.0 million of Senior Notes on June 1, 1995. Income Tax Expense. No income tax expense was recorded for the 12 weeks and 24 weeks ended June 17, 1995 as the Company is projecting a taxable loss for fiscal 1995. The income tax expense for the 12 weeks and 24 weeks ended June 18, 1994 was $339,000 and $1.0 million respectively. Extraordinary Items. Extraordinary items for the 12 weeks ended June 17, 1995 consist of the payment of $600,000 in consent fees to the holders of the Senior Notes (as defined below), $306,000 in premiums on the redemption of $15.6 million of New Fixed Rate Notes (as defined below) and $1.4 million in unamortized financing costs related to the redemption of $25.0 million of Senior Notes and the replacement of the Revolving Credit Agreement (as defined below). Income or Loss. The Company recorded a net loss of $5.7 million and $7.6 million, respectively, during the 12 weeks and 24 weeks ended June 17, 1995, compared to net income of $1.8 million and $2.2 million, respectively, for the comparable prior periods. The decreases in the net income were due to the decreases in sales and gross profit margins and the extraordinary items recognized in the 12 weeks ended June 17, 1995, offset in part by the decreases 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. For information regarding recent amendments to the Senior Note Indenture, see Part II-Item 2 "Changes in Securities." On June 1, 1995, the Company redeemed $15.6 million of its New Fixed Rate Notes, $6.9 million of New Floating Rate Notes and $2.5 million of Old Floating Rate Notes (collectively the "Redeemed Notes"). The redemption price for the Redeemed Notes was equal to 100% of the principal amount and accrued interest of $695,000 plus in the case of the New Fixed Rate Notes, a premium of $306,000 (see Part II-Item 5 "Other Information"). At July 31, 1995, $59.4 million of New Fixed Rate Notes, $26.1 million of New Floating Rate Notes and $9.5 million of Old Floating Rate Notes were outstanding. On April 21, 1995, the Company replaced its Revolving Credit Agreement with Union Bank of Switzerland, New York Branch, as agent and as lender, any other lenders and financial institutions parties thereto (the "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. At July 31, 1995, $420,000 of revolving credit loans were outstanding under the Amended and Restated Credit Agreement. 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; (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 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 $27.7 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. 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 realized net proceeds from the AWG transaction of approximately $37.2 million, $25.0 million of which was allocated to the Senior Notes and $12.2 million was allocated to indebtedness under the Revolving Credit Agreement. The remaining proceeds from the AWG transaction were (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. The purposes of the AWG transaction were: (i) to reduce the Company's borrowed money indebtedness in respect of the Senior Notes and under the Revolving Credit Agreement by $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 eliminated 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 has closed nine stores as of July 31, 1995 and expects to close an additional six stores by the end of 1995. The Company received a notice and demand for payment, dated June 22, 1995, from Central States, Southeast and Southwest Areas Pension Fund (the "Fund") in the amount of approximately $4.4 million. The Fund has asserted that the Company has incurred a withdrawal liability as a result of the sale of the distribution center to AWG. The Company's sale of the distribution center to AWG was in compliance with ERISA Section 4204 and, accordingly, no withdrawal from the Fund has occurred. Pursuant to the AWG transaction, AWG has agreed to indemnify the Company for withdrawal liability up to approximately $3.5 million. The Company believes that the Fund has no basis for the assertion of withdrawal liability and does not believe the disposition of the liability would have a material adverse effect on the Company's financial position, results of operations or cash flows. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: The following exhibit is filed as part of this report: Exhibit No. Description 27 Financial Data Schedule. (b) Reports on Form 8-K: The following reports on Form 8-K were filed during the quarter ended June 17, 1995. Date Filed Description April 10, 1995 Solicitation Statement, dated April 4, 1995 May 9, 1995 Acquisition and Disposition of Assets with Pro forma and forecasted financial information, dated April 21, 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: August 4, 1995 By: /s/ James A. Demme James A. Demme, President, Chief Executive Officer and Director (Principal Executive Officer) Date: August 4, 1995 By: /s/ Larry W. Kordisch Larry W. Kordisch, Executive Vice President/Finance, Treasurer, Chief Financial Officer and Secretary (Principal Financial Officer) Date: August 4, 1995 By: /s/ Terry M. Marczewski Terry M. Marczewski, Chief Accounting Officer, Assistant Treasurer and Assistant Secretary (Principal Accounting Officer) EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 QTR-2 DEC-30-1995 MAR-26-1995 JUN-17-1995 10,526 0 13,892 2,374 44,600 69,305 145,334 62,872 160,042 41,578 121,160 337 0 0 828 160,042 147,059 147,059 110,530 110,530 36,039 0 3,899 (3,409) 0 (3,409) 0 (2,330) 0 (5,739) (.17) (.17)