-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QThRNQi9uk/A/esKzZnZLpEpjXlq+m4rQFdPfTawDOWmhXE4WCAhZkOKV8eBg/Y2 lBZeRhkByv2sUpU66zWdxw== 0000835582-98-000004.txt : 19980511 0000835582-98-000004.hdr.sgml : 19980511 ACCESSION NUMBER: 0000835582-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980508 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 731311075 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11555 FILM NUMBER: 98614517 BUSINESS ADDRESS: STREET 1: 2601 N W EXPRESSWAY STREET 2: SUITE 1100E CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 BUSINESS PHONE: 4058796600 MAIL ADDRESS: STREET 1: 2601 N W EXPRESSWAY STREET 2: SUITE 1100E CITY: OKLAHOMA CITY STATE: OK ZIP: 73112 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 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 28, 1998 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 1, 1998: Homeland Holding Corporation Common Stock: 4,976,172 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE TWELVE WEEKS ENDED MARCH 28, 1998 INDEX Page PART I FINANCIAL INFORMATION ITEM 1. Financial Statements.......................................... 1 Consolidated Balance Sheets March 28, 1998, and January 3, 1998......................... 1 Consolidated Statements of Operations Twelve Weeks ended March 28, 1998, and March 22, 1997.......................................... 3 Consolidated Statements of Stockholders' Equity (Deficit) Twelve Weeks ended March 28, 1998, and March 22, 1997.......................................... 4 Consolidated Statements of Cash Flows Twelve Weeks ended March 28, 1998, and March 22, 1997.......................................... 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............................................. 10 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 January 28, 3, 1998 1998 (unaudited) Current assets: Cash and cash equivalents $ 5,031 $ 4,778 Receivables, net of allowance for uncollectible 6,210 9,313 accounts of $1,193 and $1,198 Inventories 45,490 45,946 Prepaid expenses and other current assets 2,337 2,581 Total current assets 59,068 62,618 Property, plant and equipment: Land and land improvements 9,409 9,303 Buildings 20,010 19,995 Fixtures and equipment 23,387 22,267 Leasehold improvements 13,481 13,459 Software 4,993 4,991 Leased assets under capital leases 8,610 8,610 Construction in progress 3,060 2,769 82,950 81,394 Less, accumulated depreciation and amortization 13,473 11,299 Net property, plant and equipment 69,477 70,095 Reorganization value in excess of amounts allocable to identifiable assets, less accumulated amortization of $23,627 at March 28, 1998, and $20,346 at January 3, 1998 19,403 23,162 Other assets and deferred charges 10,096 10,166 Total assets $ 158,044 $ 166,041 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 January 28, 3, 1998 1998 (unaudited) Current liabilities: Accounts payable - trade $ 17,831 $ 18,941 Salaries and wages 1,706 2,508 Taxes 3,014 3,605 Accrued interest payable 1,345 2,619 Other current liabilities 8,475 10,042 Current portion of long-term 1,753 1,728 debt Current portion of obligations under capital leases 1,286 1,286 Total current liabilities 35,410 40,729 Long-term obligations: Long-term debt 78,332 78,353 Obligations under capital leases 2,304 2,608 Other noncurrent liabilities 2,057 2,027 Total long-term obligations 82,693 82,988 Stockholders' equity: Common Stock Class A, $0.01 par value, authorized - 7,500,000 shares, issued 4,822,857 shares at March 28, 1998, and 4,820,637 at January 3, 1998 48 48 Additional paid-in capital 56,067 56,040 Accumulated deficit (16,174) (13,764) Total stockholders' equity 39,941 42,324 Total liabilities and stockholders' equity 158,044 166,041 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) 12 12 weeks weeks ended ended March 28, March 22, 1998 1997 Sales, net $ 121,403 $ 120,050 Cost of sales 91,922 90,878 Gross profit 29,481 29,172 Selling and administrative expenses 26,180 25,187 Amortization of excess reorganization value 3,281 3,460 Operating profit 20 525 Interest expense 1,951 1,982 Loss before income taxes (1,931) (1,457) Income tax expense 479 801 Net loss $ (2,410) $ (2,258) Basic and diluted earnings per share: Net loss per common share $ (0.50) $ (0.47) Weighted average shares outstanding 4,822,112 4,758,025 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 Paid-In Accumulated Shares Amount Capital Deficit 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) Balance, January 3, 1998 4,820,637 $ 48 $56,040 $ (13,764) Net Loss - - - (2,410) Issuance of common stock 2,220 - 27 - Balance, March 28, 1998 4,822,857 $ 48 $56,067 $ (16,174)
part 2 of 2 Total Stockholders' Equity (Deficit) Balance, December 28, 1996 $ 52,941 Net Loss (2,258) Balance, March 22, 1997 $ 50,683 Balance, January 3, 1998 $ 42,324 Net Loss (2,410) Issuance of common stock 27 Balance, March 28, 1998 $ 39,941
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) 12 weeks 12 weeks ended ended March 28, March 22, 1998 1997 Cash flows from operating activities: Net loss $ (2,410) $ (2,258) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,192 1,717 Amortization of excess reorganization value 3,281 3,460 Amortization of financing costs 17 14 Loss on disposal of assets 32 7 Amortization of beneficial interest in operating leases 28 28 Adjustment to excess reorganization value - 292 Deferred income taxes 479 801 Change in assets and liabilities: Decrease in receivables 3,103 2,801 Decrease in inventories 456 477 Decrease in prepaid expenses and other current assets 244 210 Increase (decrease) in other assets and deferred charges 17 (101) Decrease in accounts payable - trade (1,110) (559) Decrease in salaries and wages (802) (832) Increase (decrease) in taxes (591) 148 Decrease in accrued interest payable (1,274) (1,513) Decrease in other current liabilities (1,567) (1,262) Increase in other noncurrent liabilities 37 108 Net cash provided by operating activities 2,132 3,538 Cash flow used in investing activities: Capital expenditures (1,605) (1,254) Cash received from sale of assets - 12 Net cash used in investing activities (1,605) (1,242) Cash flows used by financing activities: Borrowings under revolving credit loans 26,416 29,595 Payments under revolving credit loans (26,398) (27,640) Proceeds from issuance of common stock 27 - Principal payments under note payable (15) (15) Principal payments under capital lease obligations (304) (346) Net cash provided by (used in) financing activities (274) 1,594 Net increase (decrease) in cash and cash equivalents 253 3,890 Cash and cash equivalents at beginning of period 4,778 1,492 Cash and cash equivalents at end of period $ 5,031 $ 5,382 Supplemental information: Cash paid during the period for interest $ 3,312 $ 3,490 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. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the period ended January 3, 1998, 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 53 weeks ended January 3, 1998, and the notes thereto. 3. Earnings Per Share: Options to purchase 298,500 shares of common stock with a weighted average exercise price of $6.80 were outstanding at March 28, 1998 but were not included in the computation of diluted earnings per share because the effect would be antidilutive. 6 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations General 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 28, 22, 1998 1997 Net sales 100.0% 100.0% Cost of sales 75.7 75.7 Gross profit 24.3 24.3 Selling and administrative 21.6 21.0 Amortization of excess reorganization value 2.7 2.9 Operating profit - 0.4 Interest expense 1.6 1.6 Loss before income taxes (1.6) (1.2) Income tax provision 0.4 0.7 Net loss (2.0) (1.9) Results of Operations Net sales for the first quarter ended March 28, 1998, were $121.4 million, an increase of 1.1% over the corresponding period of 1997. The increase in net sales was due to an additional four stores in operation during the quarter versus the same quarter a year ago. The higher sales from the additional stores were partially offset by a decline in comparable store sales of 4.4%. The decrease in comparable store sales was due primarily to competitive store openings after the 1st quarter of 1997. In addition, to a lesser degree, comparable store sales were affected by a shift in the 1998 New Year's Day selling week. The 1997 New Year's Day selling week was included in the first quarter of 1997. This is traditionally a strong sales' week. Because the Company had a 53-week fiscal year in 1997, the 1998 New Year's Day sales week was included in fiscal 1997 instead of the first quarter of 1998. There were no new competitive store openings during the first quarter of 1998. Management believes that this, combined with improvement in stores that were affected by competitive openings in 1997, will result in improved comparable store sales in the second quarter. 7 Gross profit as a percentage of net sales remained stable and was 24.3% for both the first quarter of 1998 and the first quarter of 1997. Selling and administrative expenses increased by 0.6%, as a percentage of net sales, to 21.6% in the first quarter of 1998 from 21.0% in the first quarter of 1997. The primary causes of the increase are additional depreciation expense resulting from higher levels of capital expenditures and higher wages from the minimum wage increase. The last minimum wage increase took effect September 1, 1997. The Company recorded amortization of excess reorganization value of $3.3 million for the twelve weeks ended March 28, 1998. For the 12 weeks ended March 22, 1997, the Company recorded $3.5 million for amortization of excess reorganization value. The amortization of the excess reorganization value will negatively affect earnings for the next six fiscal quarters. Interest expense for the first quarter of 1998 was $2.0 million and did not change from the first quarter of 1997. Average borrowing increased but the additional interest expense from the higher borrowing was offset by higher interest income from the interest bearing certificate of Associated Wholesale Grocers, Inc. The Company recorded an income tax provision of $0.5 million for the first quarter of 1998. 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 1998 are limited to approximately $3.3 million, the benefit of which is being recorded as a reduction of excess reorganization value rather than a reduction of income tax expense. EBITDA (as defined hereinafter) amounted to $5.5 million or 4.6% of net sales in the first quarter of 1998 as compared to $5.7 million or 4.8% of net sales for the first quarter of 1997. The decrease in EBITDA is due primarily to the increased selling and administrative expenses and was somewhat offset by the increased gross margin contribution that was a result of increased sales. Net loss for the 12 weeks ended March 28, 1998, was $2.4 million or $0.50 per share compared to a net loss of $2.3 million or $0.47 per share for the corresponding period of 1997. The Company is amortizing its excess reorganization value of $45 million over a three-year period, and such amortization has affected earnings significantly. Income before amortization of excess reorganization value for the 12 weeks ended March 28, 1998, was $0.9 million or $0.18 per share. 8 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 28, 22, 1998 1997 Loss before income taxes (1,931) (1,457) Interest expense 1,951 1,982 Amortization of reorganization value 3,281 3,460 Depreciation and amortization 2,220 1,745 EBITDA 5,521 5,730 As a percentage of sales 4.55% 4.77% As a multiple of interest expense 2.83x 2.89x Cash flow from operations provided $2.1 million for the 12 weeks ended March 28, 1998, and $3.5 million for the 12 weeks ended March 22, 1997. The decrease in cash flow from operations for the 12 weeks ended March 28, 1998, was primarily due to an increase in the selling and administrative expense and decreases in trade accounts payable and taxes. The investing activities of the Company used net cash of $1.6 million and $1.2 million for the 12 weeks ended March 28, 1998, and March 22, 1997, respectively. The funds for the first quarter 1998 investing activities were provided primarily by internally- generated cash. 9 Financing activities of the Company used net cash of $0.3 million for the 12 weeks ended March 28, 1998, and provided net cash of $1.6 million for the 12 weeks ended March 22, 1997. As of March 28, 1998, the Company had $10.8 million of borrowings and $3.3 million of letters of credit outstanding under its $32.0 million revolving credit facility. The revolving credit facility provides for borrowings to the lesser of (a) $32.0 million or (b) the applicable borrowing base. The applicable borrowing base on March 28, 1998, was $29.7 million. Management believes that the revolving credit facility and cash flow from operations will be adequate for the Company's short-term requirements. The Company is continuing to improve its store facilities through its capital expenditure program to maintain and enhance its market competitiveness. Cash capital expenditures for 1998 are expected to be $12.9 million. The credit agreement limits the Company to $13.0 million cash capital expenditures for 1998. The Company is also allowed $7.0 million of new capital leases each year. Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995 The statements made under Item: Management's Discussion and Analysis of Financial Condition and Results of Operations and other statements in this Form 10-Q which are not historical facts, particularly with respect to future net sales, are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could render them materially inaccurate or different. The risks and uncertainties include, but are not limited to, the effect of economic conditions, the impact of competitive promotional and new store activities, labor cost, capital constraints, availability and costs of inventory, changes in technology and the effect of regulatory and legal developments. PART II - OTHER INFORMATION Item 5. Other Information Mr. Larry W. Kordisch resigned his position as Executive Vice President/Finance, C.F.O. and Secretary effective May 15, 1998. The Company is currently recruiting a replacement for Mr. Kordisch. 10 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. (b) Report on Form 8-K: The Company did not file any Form 8-K during the quarter ended March 28, 1998. 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 8, 1998 By: /s/ David B. Clark_____________________ David B. Clark, President, Chief Executive Officer and Director (Principal Executive Officer) Date: May 8, 1998 By: /s/ Larry W. Kordisch__________________ Larry W. Kordisch, Executive Vice President/ Finance, Chief Financial Officer and Secretary (Principal Financial Officer) EX-27 2
5 3-MOS JAN-02-1999 MAR-28-1998 5,031 0 7,403 1,193 45,490 59,068 82,950 13,473 158,044 35,410 60,000 0 0 48 39,893 158,044 121,403 121,403 91,922 91,922 29,461 0 1,951 (1,931) 479 (2,410) 0 0 0 (2,410) (.50) (.50)
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