-----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, H5rICYxvdBzdgWCwkWXp2K/i9J/mdDMgtVXgvSN44vPZqXHIPmv1zayC3iqss5Rf UnTdhW7TwfVU5n/Qf953dQ== 0000835582-98-000010.txt : 19980805 0000835582-98-000010.hdr.sgml : 19980805 ACCESSION NUMBER: 0000835582-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980620 FILED AS OF DATE: 19980804 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: 98676872 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 June 20, 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 July 28, 1998: Homeland Holding Corporation Common Stock: 4,835,901 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE TWENTY-FOUR WEEKS ENDED JUNE 20, 1998 INDEX Page PART 1 FINANCIAL INFORMATION ITEM 1. Financial Statements......................................... 1 Consolidated Balance Sheets as of June 20, 1998, and January 3, 1998........................ 1 Consolidated Statements of Operations Twelve Weeks ended June 20, 1998, and June 14, 1997.................................................. 3 Consolidated Statements of Operations Twenty-four Weeks ended June 20, 1998, and June 14, 1997.................................................. 4 Consolidated Statements of Stockholders Equity (Deficit) Twenty-four Weeks ended June 20, 1998 and June 14, 1997.................................................. 5 Consolidated Statements of Cash Flows Twenty-four Weeks ended June 20, 1998 and June 14, 1997.................................................. 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 5. Other Information............................................ 12 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 20, January 3, 1998 1998 (Unaudited) Current assets: Cash and cash equivalents $ 5,813 $ 4,778 Receivables, net of allowance for uncollectible accounts of $1,108 and $1,198 7,557 9,313 Inventories 45,371 45,946 Prepaid expenses and other current assets 3,222 2,581 Total current assets 61,963 62,618 Property, plant and equipment: Land and land improvements 9,417 9,303 Buildings 20,029 19,995 Fixtures and equipment 25,372 22,267 Leasehold improvements 16,676 13,459 Software 5,115 4,991 Leased assets under capital leases 8,610 8,610 Construction in progress 30 2,769 85,249 81,394 Less, accumulated depreciation and amortization 15,702 11,299 Net property, plant and equipment 69,547 70,095 Reorganization value in excess of amounts allocable to identifiable assets, less accumulated amortization of $26,832 at June 20, 1998, and $20,346 at January 3, 1998 15,772 23,162 Other assets and deferred charges 10,011 10,166 Total assets $ 157,293 $ 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 June 20, January 3, 1998 1998 (unaudited) Current liabilities: Accounts payable - trade $ 18,105 $ 18,941 Salaries and wages 2,230 2,508 Taxes 3,632 3,605 Accrued interest payable 2,671 2,619 Other current liabilities 7,554 10,042 Current portion of long-term debt 1,753 1,728 Current portion of obligations under capital leases 1,286 1,286 Total current liabilities 37,231 40,729 Long-term obligations: Long-term debt 78,836 78,353 Obligations under capital leases 2,001 2,608 Other noncurrent liabilities 1,951 2,027 Total long-term obligations 82,788 82,988 Stockholders' equity: Common Stock, $0.01 par value, authorized - 7,500,000 shares, issued 4,825,899 shares at June 20, 1998, and issued 4,820,637 shares at January 3, 1998 48 48 Additional paid-in capital 56,159 56,040 Accumulated deficit (18,933) (13,764) Total stockholders' equity 37,274 42,324 Total liabilities and stockholders' equity $ 157,293 $ 166,041 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) 12 weeks 12 weeks ended ended June 20, June 14, 1998 1997 Sales, net $ 123,509 $ 116,264 Cost of sales 94,146 87,603 Gross profit 29,363 28,661 Selling and administrative expenses 26,598 25,079 Amortization of excess reorganization value 3,205 3,364 Operating profit (loss) (440) 218 Interest expense 1,848 1,833 Loss before income taxes (2,288) (1,615) Income tax expense 471 920 Net loss (2,759) (2,535) Basic and diluted earnings per share: Net loss per share $ (0.57) $ (0.53) Weighted average shares outstanding 4,824,781 4,758,025 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) 24 weeks 24 weeks ended ended June 20, June 14, 1998 1997 Sales, net $ 244,912 $ 236,314 Cost of sales 186,068 178,481 Gross profit 58,844 57,833 Selling and administrative expenses 52,778 50,266 Amortization of excess reorganization value 6,486 6,824 Operating profit (loss) (420) 743 Interest expense 3,799 3,815 Loss before income taxes (4,219) (3,072) Income tax expense 950 1,721 Net loss (5,169) (4,793) Basic and diluted earnings per share: Net loss per share $ (1.07) $ (1.01) Weighted average shares outstanding 4,823,482 4,758,025 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)
Common Stock Additional Paid-In Accumulated Stockholder's Shares Amount Capital Deficit Equity (Deficit) Balance, December 28, 1996 4,758,025 $ 48 $ 56,013 $ (3,120) $ 52,941 Net loss - - - (4,793) (4,793) Balance, June 14, 1997 4,758,025 48 $ 56,013 $ (7,913) $ 48,148 Balance, January 3, 1998 4,820,637 $ 48 $ 56,040 $ (13,764) $ 42,324 Net loss - - - (5,169) (5,169) Issuance of common stock 15,262 - $ 119 - $ 119 Balance, June 20, 1998 4,835,899 $ 48 $ 56,159 $ (18,933) $ 37,274 -
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) 24 weeks 24 weeks ended ended June 20, June 14, 1998 1997 Cash flows from operating activities: Net loss $ (5,169) $ (4,793) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,434 3,510 Amortization of excess reorganization value 6,486 6,824 Amortization of financing costs 35 29 (Gain) loss on disposal of assets 36 (1) Amortization of beneficial interest in operating leases 56 56 Adjustment to excess reorganization value - 292 Deferred income taxes 905 1,721 Change in assets and liabilities: Decrease in receivables 1,756 1,892 Decrease in inventories 575 1,849 Decrease (increase) in prepaid expenses and other current assets (641) 534 Decrease (increase) in other assets and deferred charges 48 (118) Decrease in accounts payable-trade (836) (1,670) Decrease in salaries and wages (278) (752) Increase in taxes 27 804 Increase (decrease) in accrued interest payable 52 (211) Decrease in other current liabilities (2,488) (1,352) Increase (decrease) in other noncurrent liabilities (61) 113 Net cash provided by operating activities 4,937 8,727 Cash flow used in investing activities: Capital expenditures (3,926) (3,559) Cash received from sale of assets 4 20 Net cash used in investing activities (3,922) (3,539) Cash flows used by financing activities: Borrowings under term loan - - Borrowings under revolving credit loans 60,810 63,409 Payments under revolving credit loans (59,855) (63,241) Proceeds from issuance of common stock 119 - Principal payments under note payable (447) (31) Principal payments under capital lease obligations (607) (683) Payments of secured debt obligations - - Net cash provided (used) in financing activities 20 (546) Net increase in cash and cash equivalents 1,035 4,642 Cash and cash equivalents at beginning of period 4,778 1,492 Cash and cash equivalents at end of period $ 5,813 $ 6,134 Supplemental information: Cash paid during the period for interest $ 3,909 $ 4,005 Cash paid during the period for income taxes $ - $ - 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. 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. Net Loss Per Share: Options to purchase 256,000 shares of common stock with a weighted average exercise price of $6.68 were outstanding at June 20, 1998, but were not included in the computation of diluted earnings per share because the effect would be antidilutive. 7 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 of the periods indicated: 12 weeks ended 24 weeks ended June 20, June 14, June 20, June 14, 1998 1997 1998 1997 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 76.2 75.3 76.0 75.5 Gross Profit 23.8 24.7 24.0 24.5 Selling and administrative 21.5 21.6 21.5 21.3 Amortization of excess reorganization value 2.6 2.9 2.6 2.9 Operating profit (loss) (0.3) 0.2 (0.1) 0.3 Interest expense 1.5 1.6 1.6 1.6 Loss before income taxes (1.8) (1.4) (1.7) (1.3) Income tax provision 0.4 0.8 0.4 0.7 Net loss (2.2) (2.2) (2.1) (2.0) Results of Operations. Comparison of Twelve Weeks and Twenty-Four Weeks ended June 20, 1998, with Twelve Weeks and Twenty-Four Weeks ended June 14, 1997. Net sales for the 12 weeks and 24 weeks ended June 20, 1998, increased 6.2 % and 3.6%, respectively, from the net sales of the corresponding period of 1997. Comparable store sales for the 12 weeks and 24 weeks ended June 20, 1998, increased by 0.4% and decreased by 2.1%, respectively, as compared to the corresponding periods of 1997. The improvement in total sales in the quarter is partially due to an additional four stores in operation versus the same quarter last year. The sales improvement in the quarter is also due to a change in like-store sales trends from a decline of 4.4% in the first quarter to an increase of 0.4% in the second quarter. This turnaround in trend is primarily due to increasing customer acceptance of card-based promotions, re-grand openings of five remodeled stores, greater usage of targeted localized promotions, and better store level execution. 8 There were 4 competitive grand openings during the second quarter of 1998, two of which were Wal-Mart Supercenters. The Company also closed a small store less than 2 miles away from a larger, remodeled store during the second quarter. Gross profit as a percentage of sales for the 12 weeks ended June 20, 1998, was 23.8%, a decrease from the corresponding period in 1997 of 24.7%. The decrease in gross profit margin was primarily a result of increased promotional activities relating to new competitors and re- grand opening sales of the five remodeled stores. Management anticipates that future improvements in cost of goods will help offset increases in promotional costs. Gross profit as a percentage of sales for the 24 weeks ended June 20, 1998, was 24.0%, a decrease from the corresponding period in 1997 of 24.5%. Selling and administrative expenses for the 12 weeks ended June 20, 1998, decreased to 21.5%, as a percentage of net sales, compared to 21.6% for the corresponding period of 1997. The reduction during the second quarter reflects improvements in store level productivity and lower fixed expense ratios due to increased sales. For the 24 weeks ended June 20, 1998, selling and administrative expenses as a percentage of sales increased by 0.2% to 21.5% from 21.3% in the corresponding period of 1997. The Company recorded amortization of excess reorganization value of $3.2 million and $6.5 million for the 12 weeks and 24 weeks ended June 20, 1998, respectively. The amortization of the excess reorganization value will negatively affect earnings for the next five fiscal quarters. Interest expense for the 12 weeks ended June 20, 1998, and June 14, 1997, was $1.8 million. Interest expense for the 24 weeks ended June 20, 1998, and June 14, 1997, was $3.8 million. The Company recorded an income tax provision of $0.5 million and $0.9 million for the 12 weeks and 24 weeks ended June 20, 1998, 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 ("NOL") 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. The NOL carryforward available in 1998 is expected to be fully utilized in the third quarter of 1998, and accordingly, the Company will commence to incur income tax liabilities. 9 The Company's EBITDA (as defined hereinafter) for the 12 weeks ended June 20, 1998, declined to $5.0 million or 4.1% of net sales, from the EBITDA of $5.4 million or 4.7% of net sales for the corresponding period in 1997. For the 24 weeks ended June 20, 1998, EBITDA was $ 10.6 million or 4.3% of net sales compared to $11.1 million or 4.7% for the corresponding period of 1997. Net loss for the 12 weeks ended June 20, 1998, was $2.8 million or $0.57 per share compared to a net loss of $2.5 million or $0.53 per share for the corresponding period in 1997. Net loss for the 24 weeks ended June 20, 1998, was $5.2 million or $1.07 per share compared to a net loss of $4.8 million or $1.01 per share for the corresponding period in 1997. The Company is amortizing its excess reorganization value of $45 million over a three-year period, and such amortization has affected earnings significantly. If the Company excluded such amortization of excess reorganization value for the 12 weeks and 24 weeks ended June 20, 1998, the Company would record income of $0.4 million or $0.9 per share and income of $1.3 million or $0.27 per share, respectively. Liquidity and Capital Resources The primary sources of liquidity and capital for the Company's operations have been borrowing under the revolving credit facility and internally-generated funds. The Company's EBITDA (earnings before interest, taxes, depreciation and amortization), 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 20, June 14, June 20, June 14, 1998 1997 1998 1997 Loss before income taxes (2,288) (1,615) (4,219) (3,072) Interest expense 1,848 1,833 3,799 3,815 Amortization of reorganization value 3,205 3,364 6,486 6,824 Depreciation and amortization 2,272 1,821 4,492 3,566 EBITDA 5,037 5,403 10,558 11,133 As a percentage of sales 4.10% 4.70% 4.30% 4.70% As a multiple of interest expense 2.7x 3.0x 2.8x 2.9x 10 Cash flow from operations provided $4.9 million for the 24 weeks ended June 20, 1998, and $8.7 million for the 24 weeks ended June 14, 1997. The decrease in cash flow from operations in comparison between the two periods was due primarily to higher purchases of inventory and decreases in other current liabilites. The Company's investing activities used net cash of $3.9 million in the 24 weeks ended June 20, 1998, as compared to net cash used by investing activities of $3.5 million in the 24 weeks ended June 14, 1997. Financing activities of the Company provided net cash of $0.1 million and used net cash of $0.5 million for the 24 weeks ended June 20, 1998, and June 14, 1997, respectively. As of June 20, 1998, the Company had $11.6 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 June 20, 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 at $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 2: 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. 11 PART II - OTHER INFORMATION Item 5. Other Information Ms. Deborah A. Brown was elected Vice President - Accounting, Corporate Controller, Treasurer and Assistant Secretary on July 9, 1998. Mr. Wayne S. Peterson has accepted the position of Senior Vice President, Chief Financial Officer, and Secretary pending the completion of the merger of his current employer, Buttrey Food & Drug with Albertson's Inc. 12 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. (b) Report on Form 8-K: The Company did not file any Form 8-K during the quarter ended June 20, 1998. 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: August 4, 1998 By: /s/ David B. Clark David B. Clark, President, Chief Executive Officer and Director (Principal Executive Officer) Date: August 4, 1998 By: /s/ Deborah A. Brown Deborah A. Brown, Vice President - Accounting Corporate Controller, Treasurer and Assistant Secretary (Principal Financial Officer) EX-27 2
5 6-MOS JAN-02-1999 JUN-20-1998 5,813 0 8,665 1,108 45,371 61,963 85,249 15,702 157,293 37,231 60,000 0 0 48 37,226 157,293 244,912 244,912 186,068 186,068 59,264 0 3,799 (4,219) 950 (5,169) 0 0 0 (5,169) (1.07) (1.07)
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