-----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, TnX3qo1QiOuwMP5xBwgCx8vPaKgIFrVARN5Ryqkol9u4w9rWdS+1wtHUKhK+4alD kb+j+BnYcL28dhloRzFpRw== 0000835582-00-000010.txt : 20000509 0000835582-00-000010.hdr.sgml : 20000509 ACCESSION NUMBER: 0000835582-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000325 FILED AS OF DATE: 20000508 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: 622008 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 Exchange X Act of 1934 For the quarterly period ended March 25, 2000 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 8, 2000: Homeland Holding Corporation Common Stock: 4,920,608 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE TWELVE WEEKS ENDED MARCH 25, 2000 INDEX Page PART I FINANCIAL INFORMATION ITEM 1. Financial Statements 1 Consolidated Balance Sheets March 25, 2000, and January 1, 2000 1 Consolidated Statements of Operations Twelve Weeks ended March 25, 2000, and March 27, 1999 3 Consolidated Statements of Cash Flows Twelve Weeks ended March 25, 2000, and March 27, 1999 4 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION ITEM 3. Exhibits and Reports on Form 8-K 16 i PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS (Unaudited) March 25, January 1, 2000 2000 Current assets: Cash and cash equivalents $ 4,529 $ 6,136 Receivables, net of allowance for uncollectible accounts of $1,338 and $1,361 7,486 11,353 Inventories 54,425 52,663 Prepaid expenses and other current assets 2,896 2,176 Total current assets 69,336 72,328 Property, plant and equipment: Land and land improvements 8,903 9,046 Buildings 21,654 21,962 Fixtures and equipment 38,877 36,818 Leasehold improvements 21,479 20,446 Software 7,321 7,181 Leased assets under capital leases 8,737 8,737 Construction in progress 162 19 107,133 104,209 Less, accumulated depreciation and amortization 33,059 30,728 Net property, plant and equipment 74,074 73,481 Other assets and deferred charges 24,753 22,045 Total assets $ 168,163 $ 167,854 Continued The accompanying notes are an integral part of these consolidated financial statements. 1 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts (Unaudited) March 25, January 1, 2000 2000 Current liabilities: Accounts payable - trade $ 21,355 $ 22,968 Salaries and wages 1,719 3,168 Taxes 3,804 3,616 Accrued interest payable 1,131 2,671 Other current liabilities 6,872 6,992 Current portion of long-term debt 3,048 2,918 Current portion of obligations under capital leases 501 501 Total current liabilities 38,430 42,834 Long-term obligations: Long-term debt 98,215 94,668 Obligations under capital leases 1,059 1,197 Other noncurrent liabilities 2,391 1,501 Total long-term obligations 101,665 97,366 Stockholders' equity: Common stock $0.01 par value, authorized - 7,500,000 shares, issued 4,920,608 shares and 4,917,860 shares at March 25, 2000, and January 1, 2000, respectively 49 49 Additional paid-in capital 56,254 56,254 Accumulated deficit (28,235) (28,649) Total stockholders' equity 28,068 27,654 Total liabilities and stockholders' equity $ 168,163 $ 167,854 The accompanying notes are an integral part of these consolidated financial statements. 2 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) 12 weeks 12 weeks ended ended March 25, March 27, 2000 1999 Sales, net $ 136,607 $ 123,668 Cost of sales 104,599 94,743 Gross profit 32,008 28,925 Selling and administrative expenses 29,197 26,067 Amortization of excess reorganization value - 2,639 Operating profit 2,811 219 Gain on disposal of assets 27 4 Interest income 172 129 Interest expense (2,342) (2,000) Income (loss) before income taxes 668 (1,648) Income tax provision (254) (375) Net income (loss) $ 414 $ (2,023) Net income (loss) per share: Basic $ 0.08 $ (0.41) Diluted $ 0.08 $ (0.41) Weighted average shares outstanding: Basic 4,919,357 4,906,504 Diluted 4,962,174 4,906,504 The accompanying notes are an integral part of these consolidated financial statements. 3 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands, except share and per share amounts) (Unaudited) 12 weeks 12 weeks ended ended March 25, March 27, 2000 1999 Cash flows from operating activities: Net income (loss) $ 414 $ (2,023) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 2,521 2,284 Amortization of beneficial interest in operating leases 28 28 Amortization of excess reorganization value - 2,639 Amortization of goodwill 126 - Amortization of financing costs 13 12 Gain on disposal of assets (27) (4) Deferred income taxes 224 369 Change in assets and liabilities: Decrease in receivables 3,867 2,933 (Increase) decrease in inventories 200 (63) Increase in prepaid expenses and other current assets (720) (906) (Increase) decrease in other assets and deferred charges (42) 5 Decrease in accounts payable - trade (1,613) (2,771) Decrease in salaries and wages (1,449) (866) Increase (decrease) in taxes 188 (15) Decrease in accrued interest payable (1,540) (1,499) Increase (decrease) in other current liabilities 25 (1,994) Decrease in other noncurrent liabilities (470) (84) Total adjustments 1,331 68 Net cash provided by (used in) operating activities 1,745 (1,955) Cash flows from investing activities: Capital expenditures (999) (862) Acquisition of stores (145) - Cash received from sale of assets 426 10 Net cash used in investing activities (718) (852) Cash flows from financing activities: Payments under term loan (412) - Borrowings under revolving credit loans 45,080 29,155 Payments under revolving credit loans (44,094) (29,903) Payment on tax notes (12) (16) Proceeds from issuance of common stock - 10 Principal payments under notes payable (3,058) - Principal payments under capital lease obligations (138) (262) Net cash used in financing activities (2,634) (1,016) Net increase in cash and cash equivalents (1,607) (3,823) Cash and cash equivalents at beginning of period 6,136 7,856 Cash and cash equivalents at end of period $ 4,529 $ 4,033 Continued The accompanying notes are an integral part of these consolidated financial statements. 4 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS, continued (In thousands, except share and per share amounts) (Unaudited) 12 weeks 12 weeks ended ended March 25, March 27, 2000 1999 Supplemental information: Cash paid during the period for interest $ 3,676 $ 3,473 Cash paid during the period for income taxes $ 30 $ - Supplemental schedule of noncash investing and financing activities: Debt assumed in acquisition of stores $ 6,162 $ - The accompanying notes are an integral part of these consoldiated financial statements. 5 HOMELAND HOLDING CORPORATION AND SUBSIDIARIES 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"), through its wholly-owned subsidiary, Homeland Stores, Inc. ("Homeland") and Homeland's wholly-owned subsidiary, JCH Beverage, Inc. ("JCH") and JCH's wholly-owned subsidiary, SLB Marketing, Inc., (collectively referred to herein as 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 1, 2000, 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 January 1, 2000, and the notes thereto. 3. Store Acquisitions: In February 2000, the Company completed its acquisition of three stores from Belton Food Center Inc. ("BFC"), in Oklahoma City. The net purchase price was $0.2 million which represents $4.2 million for fixtures and equipment, leasehold improvements and goodwill, plus $2.0 million for inventory, $0.2 million for transaction costs, offset by $6.2 million of long-term debt (BFC's obligation to AWG) assumed by the Company. The Company will lease all three of the stores from AWG. The Company financed this acquisition principally through the assumption of $6.2 million in long-term debt, together with increased borrowings under its Revolving Facility. The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the three stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG, which related to inventory and therefore, AWG released its security interest in the inventory. The Company has subsequently closed one of the stores due to the proximity to other Company stores and has established a reserve, which approximates $1.3 million for future rent payments and other holding costs. 6 4. Subsequent Event: On April 25, 2000, subsequent to the close of the first quarter of 2000, the Company completed its acquisition of three Baker's Supermarkets from Fleming Companies Inc. ("Fleming"). The purchase price was approximately $3.5 million which represents $1.6 million for fixtures and equipment, leasehold improvements, goodwill and a non-compete agreement, $1.6 million for inventory, and approximately $0.3 million in transaction costs. The Company will sublease the three stores from Fleming. A fourth location will be leased upon the completion of its construction, which is anticipated during fiscal year 2000. The Company financed this acquisition principally through increased borrowings under its working capital facility. 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 for the periods indicated: March 25, March 27, 2000 1999 Net Sales 100.0% 100.0% Cost of sales 76.6 76.6 Gross Profit 23.4 23.4 Selling and administrative expenses 21.4 21.1 Amortization of excess reorganization value - 2.1 Operating profit (loss) 2.0 0.2 Gain (loss) on disposal of assets - - Interest income 0.2 0.1 Interest expense (1.7) (1.6) Income (loss) before income taxes 0.5 (1.3) Income tax provision (0.2) (0.3) Net income (loss) 0.3 (1.6) Results of Operations. Comparison of the Twelve Weeks Ended March 25, 2000 with the Twelve Weeks Ended March 27, 1999 Net sales increased $12.9 million, or 10.4%, from $123.7 million for the twelve weeks ended March 27, 1999, to $136.6 million for the twelve weeks ended March 25, 2000. The increase in sales is attributable to the acquisition of nine stores in April 1999, the acquisition of four stores in November 1999, and the acquisition of three stores in February 2000, partially offset by a 2.7% decline in comparable store sales and the closing of one store in 1999. The decrease in comparable store sales is the result of competitive openings during the first quarter of fiscal year 2000, the advancement of purchases by customers into the final week of 1999 due to uncertainty with the year 2000 year-end transition, the cycling of strong promotions in the first quarter of 1999, and the mild winter weather in the Company's trade areas. During the twelve weeks ended March 25, 2000, there were three new competitive openings within the Company's markets including: two Wal-Mart Neighborhood Market's in Oklahoma City and one United Supermarket in Amarillo, Texas. Based on information publicly available, the Company expects that, 8 during the remainder of 2000, Wal-Mart will open 5 Supercenters and four Neighborhood Markets; and regional chains and independents will open three additional stores. Based in part on the anticipated impact of proposed and recent new store openings and remodelings by competitors, management believes that market conditions will remain highly competitive, placing continued pressure on comparable store sales and net sales. As a result of these highly competitive conditions, management believes that comparable store sales will decline approximately 1.0% during the second quarter of 2000. In response to this highly competitive environment, the Company intends to build on its strengths which consist of: (a) high quality perishable departments; (b) market position and competitive pricing; (c) customer service; (d) excellent locations; and (e) the "Homeland Savings Card," a customer loyalty card program. The Company is upgrading its stores by focusing its capital expenditures on projects that will improve the overall appeal of its stores to targeted customers and is using its merchandising strategy to emphasize a competitive pricing structure, as well as leadership in quality products and services, selection and convenient store locations. Additionally, the in-store merchandising strategy combines a strong presentation of fresh products along with meaningful values throughout the store on a wide variety of fresh and shelf stable products each week. The Company's main vehicle of value delivery is its Homeland Savings Card, which allows customers with the card the opportunity to purchase over 2,000 items at a reduced cost each week. Finally, the Company continues the use of market research in order to maintain a better understanding of customer behavior and trends in certain markets. Gross profit as a percentage of sales of 23.4% was the same as in the comparable period of 1998. Gross profit margin reflects the impact of specific promotional activities as the Company responded to certain new competitive store openings and special advertisements for the grand openings of the Company's acquired stores; and the impact of increased cost of goods for pharmaceutical products. The pressure on gross profit margin described above was offset by a general improvement in the management of promotional spending and the implementation of initiatives to lower cost of goods. Selling and administrative expenses as a percentage of sales increased 0.3% from 21.1% for the twelve weeks ended March 27, 1999, to 21.4% for the twelve weeks ended March 25, 2000. The increase in operating expenses is attributable to increased occupancy costs associated with the acquired stores, increased depreciation costs attributable to the Company's capital expenditure program for store remodels and maintenance and modernization, and start-up expenses related to the Company's February, 2000, acquisition. The Company continues to review the alternatives to reduce selling and administrative expenses and cost of sales. The amortization of the excess reorganization value amounted to $2.6 million for the twelve weeks ended March 27, 1999. The excess reorganization value was amortized over three years, on a straight-line basis, and became fully amortized in the third quarter of 1999. 9 Operating profit increased $2.6 million from $0.2 million for the twelve weeks ended March 27, 1999, to $2.8 million for the twelve weeks ended March 25, 2000. The increase primarily reflects the elimination of the amortization of the excess reorganization value. Interest expense, net of interest income, increased $0.3 million from $1.9 million for the twelve weeks ended March 27, 1999, to $2.2 million for the twelve weeks ended March 25, 2000. The increase reflects additional interest expense attributable to the acquired stores and increases in variable interest rates, partially offset by additional interest income from the interest bearing certificates of AWG. During 2000, the Company anticipates that interest expense will increase due to increased debt and additional increases in variable interest rates. See "Liquidity and Capital Resources." The Company recorded $0.3 million of income tax expense for the twelve weeks ended March 25, 2000, substantially all of which is deferred income tax. In accordance with SOP 90-7, the tax benefit realized from utilizing the pre- reorganization net operating loss carryforwards is recorded as a reduction of the reorganization value in excess of amounts allocable to identifiable assets rather than realized as a benefit on the statement of operations. Additionally, upon the completion of the amortization of reorganization value in excess of amounts allocable to identifiable assets, the tax benefit realized from utilizing the pre-reorganization net operating loss carryforwards is recorded as a reduction of other intangibles existing at the reorganization date until reduced to zero and then as an increase to stockholder's equity. Due to the uncertainty of realizing future tax benefits, a full valuation allowance has been deemed necessary to entirely offset the net deferred tax assets. At January 1, 2000, the Company had a tax net operating loss carryforward of approximately $29.5 million, which may be utilized to offset future taxable income to the limited amount of $5.7 million for 2000 and $3.3 million each year thereafter. If the Company's current trend toward profitability continues, then net deferred tax assets of approximately $16.0 million could be recognized. Net income increased $2.4 million from a net loss of $2.0 million, or net loss per diluted share of $0.41, for the twelve weeks ended March 27, 1999 to net income of $0.4 million, or net income per diluted share of $0.08, for the twelve weeks ended March 25, 2000. Excluding the amortization of reorganization value during the twelve weeks ended March 27, 1999, net income decreased $0.2 million from a net income of $0.6 million, or net income per diluted share of $0.13, for the twelve weeks ended March 27, 1999 to net income of $0.4 million, or net income per diluted share of $0.08, for the twelve weeks ended March 25, 2000. EBITDA (as defined hereinafter) increased $0.3 million from $5.2 million, or 4.2% of sales, for the twelve weeks ended March 27, 1999 to $5.5 million, or 4.0% of sales for the twelve weeks ended March 25, 2000. The Company believes that EBITDA is a useful supplemental disclosure for the investment community. EBITDA, however, should not be construed as a substitute for earnings or cash flow information required under generally accepted accounting principles. 10 Liquidity and Capital Resources Debt. The primary sources of liquidity for the Company's operations have been borrowings under credit facilities and internally generated funds. On December 17, 1998, the Company entered into a Loan Agreement with NBC, as agent and lender, and two other lenders, Heller Financial, Inc. and IBJ Whitehall Business Credit, Inc., under which these lenders provide a working capital and letter of credit facility ("Revolving Facility"), a term loan ("Term Loan") and, prior to its termination in April, 2000, an acquisition term loan ("Acquisition Term Loan") through August 2, 2002. The Loan Agreement, as amended, permits the Company to borrow under the Revolving Facility up to the lesser of (a) $37.0 million or (b) the applicable borrowing base. Funds borrowed under the Revolving Facility are available for general corporate purposes of the Company. The Term Loan, which had an outstanding balance as of March 25, 2000, of $5.4 million, represents the balance of $10.0 million borrowed under the prior loan agreement to finance costs and expenses associated with the consummation of the Restructuring; in April 2000, the principal balance of the Term Loan was increased by $5.0 million in connection with the termination of the Acquisition Term Loan, permitting a corresponding reduction in the Revolving Facility. The Company is required to make quarterly principal paydowns of approximately $0.6 million. The interest rate payable quarterly under the Loan Agreement is based on the prime rate publicly announced by National Bank of Canada from time to time in New York, New York plus a percentage which varies based on a number of factors, including: (a) whether it is the Revolving Facility or the Term Loan; (b) the time period; and (c) whether the Company elects to use a London Interbank Offered Rate. The obligations of the Company under the Loan Agreement are secured by liens on, and security interests in, substantially all of the assets of Homeland and are guaranteed by Holding, with a pledge of its Homeland stock to secure its obligation. The Loan Agreement includes certain customary restrictions on acquisitions, asset dispositions, capital expenditures, consolidations and mergers, distributions, divestitures, indebtedness, liens and security interests and transactions with affiliates and payment of dividends. The Loan Agreement also requires the Company to comply with certain financial and other covenants. 11 As of August 2, 1996, the Company entered into an Indenture with Fleet National Bank (predecessor to State Bank and Trust Company), as trustee, under which the Company issued $60.0 million of 10% Senior Subordinated Notes due 2003 ("New Notes"). The New Notes, which are unsecured, will mature on August 2, 2003. Interest on the New Notes accrues at the rate of 10% per annum and is payable on February 2 and August 2 of each year. The Indenture contains certain customary restrictions on acquisitions, asset sales, consolidations and mergers, distributions, indebtedness, transactions with affiliates and payment of dividends. Working Capital and Capital Expenditures. The Company's primary sources of capital have been borrowing availability under the Revolving Facility and cash flow from operations, to the extent available. The Company uses the available capital resources for working capital needs, capital expenditures and repayment of debt obligations. The Company's EBITDA (earnings before net interest expense, taxes, depreciation and amortization, asset impairment, and gain/loss on disposal of assets), as presented below, is the Company's measurement of internally- generated operating cash for working capital needs, capital expenditures and payment of debt obligations: 12 weeks 12 weeks ended ended March 25, March 27, 2000 1999 Income (loss) before income taxes $ 668 $ (1,648) Interest income (172) (129) Interest expense 2,342 2,000 Gain on disposal of assets (27) (4) Amortization of excess reorganization value - 2,639 Depreciation and amortization 2,675 2,312 EBITDA $ 5,486 $ 5,170 As a percentage of sales 4.02% 4.18% As a multiple of interest expense, net of interest income 2.53x 2.76x 12 Net cash provided by operating activities increased $3.7 million, from net cash used of $1.9 million in 1999 to net cash provided of $1.7 million in 2000. The increase principally reflects a smaller reduction in trade payables and other current liabilities, a reduction in accounts receivable and an increase in EBITDA. Net cash used in investing activities decreased $0.2 million, from $0.8 million in 1999 to $0.6 million in 2000. The Company invested $9.0 million, $12.4 million, and $14.0 million in capital expenditures for 1999, 1998, and 1997, respectively. In April 1999, the Company completed its acquisition of nine stores from AWG, in eastern Oklahoma. The net purchase price was $1.3 million which represents $5.6 million for real property, fixtures and equipment and goodwill plus $2.3 million for inventory, $0.2 million for transaction costs, offset by $6.8 million in long-term debt assumed by the Company. The Company acquired title to one store and leases the remaining eight from AWG. The one store to which Homeland acquired title in Pryor, Oklahoma, was closed (and subsequently sold to a non-grocery user) as a result of the proximity to an existing Company store. The Company financed this acquisition principally through the assumption of $6.8 million in long-term debt, together with increased borrowings under its Revolving Facility. The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the nine stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG which related to inventory and the Pryor store which was sold. Therefore, AWG released its security interest in the assets relating to the Pryor store and the inventory. In November 1999, the Company completed its acquisition of four stores from Brattain Foods, Inc. ("BFI"), in Muskogee, Oklahoma. The net purchase price was $1.1 million which represents $6.0 million for fixtures and equipment and goodwill plus $1.9 million for inventory, $0.2 million for transaction costs, offset by $7.0 million of long-term debt (BFI's obligation to AWG) assumed by the Company. The Company leases three of the stores from AWG and leases the fourth from a third party. The Company financed this acquisition principally through the assumption of $7.0 million in long-term debt, together with increased borrowings under its Revolving Facility. The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the four stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG, which related to inventory and therefore, AWG released its security interest in the inventory. In February 2000, the Company completed its acquisition of three stores from Belton Food Center Inc. ("BFC"), in Oklahoma City. The net purchase price was $0.2 million which represents $4.2 million for fixtures and equipment, leasehold improvements and goodwill, plus $2.0 million for inventory, $0.2 million for transaction costs, offset by $6.2 million of long-term debt (BFC's obligation to AWG) assumed by the Company. The Company leases all three of the stores from AWG. The Company financed this acquisition principally through 13 the assumption of $6.2 million in long-term debt, together with increased borrowings under its Revolving Facility. The debt incurred by the Company to AWG is secured by liens on, and security interest in, the assets associated with the three stores. Subsequent to the closing of the acquisition, the Company repaid a portion of its indebtedness to AWG, which related to inventory and therefore, AWG released its security interest in the inventory. As of March 25, 2000, the Company had an outstanding balance on these assumed obligations to AWG of $11.5 million. The loans have a seven year term with principal and interest payments scheduled each week, and have a variable interest rate equal to the prime rate plus 100 basis points. Under the various agreements of the acquisitions, the individual markets where the stores are located are subject to non-compete, supply and right-of-first-refusal agreements with AWG. In addition to the other customary terms associated with a right-of- first refusal agreement, the right-of-first refusal agreement provides for the repurchase by AWG of the stores based upon the occurrence of certain exercise events. The exercise events include, among other events, a change in control of Homeland and a transfer of more than 20% of the ownership interest of Holding or Homeland. On April 25, 2000, subsequent to the close of the first quarter of 2000, the Company completed its acquisition of three Baker's Supermarkets from Fleming Companies Inc. ("Fleming"). The purchase price was approximately $3.5 million which represents $1.6 million for fixtures and equipment, leasehold improvements, goodwill and a non-compete agreement, $1.6 million for inventory, and approximately $0.3 million in transaction costs. The Company will sublease the three stores from Fleming. A fourth location will be leased upon the completion of its construction, which is anticipated during fiscal year 2000. The Company financed this acquisition principally through increased borrowings under its working capital facility. Net cash used in financing activities increased $1.6 million, from $1.0 million used by financing activities in the 12 weeks ended March 27, 1999, to $2.6 million used in financing activities in the 12 weeks ended March 25, 2000. The increase primarily reflects the principal payments made to AWG under the terms of the obligations assumed by the Company in conjunction with the February 2000 acquisition. The Company considers its capital expenditure program a critical and strategic part of the overall plan to support its market competitiveness. Cash capital expenditures for 2000 are expected to be at approximately $10.0 million. The Loan Agreement limits the Company's capital expenditures for 2000 to $13.0 million plus $2.6 million in carryover from the previous year, and $2.6 million for capital expenditures which are financed through capital leases or equipment loans. The estimated 2000 capital expenditures of $10.0 is expected to be invested primarily in the leasehold improvements and fixturing of the one store yet to be acquired from Fleming, and the remodeling and maintenance of selected stores. The funds for the capital expenditures are expected to be provided by internally-generated cash flows from operations and borrowings under the Loan Agreement. As of March 25, 2000, the Company had $24.2 million of borrowings, 14 $0.9 million of letters of credit outstanding and $10.1 million of availability under its Revolving Facility. The Company's ability to meet its working capital needs, meet its debt and interest obligations and meet its capital expenditure requirements is dependent on its future operating performance. There can be no assurance that future operating performance will provide positive net cash and, if the Company is not able to generate positive cash flow from its operations, management believes that this could have a material adverse effect on the Company's business. Information discussed herein includes statements that are forward-looking in nature, as defined in the Private Securities Litigation Reform Act. As with any forward-looking statements, these statements are subject to a number of factors and assumptions, including competitive activities, economic conditions in the market area and results of its future capital expenditures. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking statements. Year 2000 The Year 2000 issue results from computer programs being written using two digits rather than four to define the applicable year. As the Year 2000 approached, systems using such programs were projected to be unable to accurately process certain date-based information. Commencing in October 1996, the Company implemented a program of evaluating its computer systems to identify areas of potential concern, both with respect to information technology and non- information technology systems (e.g., microcontrollers), remediating / replacing systems to address those potential areas of concern, and ultimately testing those changes for compliance. This assessment was implemented on a system-by- system basis and included the readiness of external entities, such as vendors, which interface with the Company. The Company assessed its vendors' Year 2000 readiness through the review of questionnaires circulated to its vendors, consultation by the Company with the vendors who provided its computer systems and internal testing by the Company of those computer systems. During 1999, the Company completed the evaluation of systems, the remediation / replacement efforts and the testing procedures. Through testing procedures, a significant portion of the Company's systems were found to be Year 2000 compliant without any remediation or replacement efforts. The area of most concern for management had been the point of sale ("POS") systems and power management systems which operate various systems in the stores. These systems were upgraded or replaced prior to January 1, 2000. The total cost of the program was approximately $2.0 million, the majority of which was for upgrades to POS software and replacement of power management systems described above. The Company has funded these costs under its Revolving Facility. 15 The Company has not experienced any material disruptions to its business as a result of Year 2000 issues relating to Company systems or its primary vendors' Year 2000 readiness. Management will continue to monitor the extent of such compliance and the effects associated with any non-compliance. Inflation/Deflation Although the Company does not expect inflation or deflation to have a material impact in the future, there can be no assurance that the Company's business will not be affected by inflation or deflation in future periods. PART II - OTHER INFORMATION Item 3. Exhibits and Reports on Form 8-K (a) Exhibits: The following exhibits are filed as part of this report: Exhibit No. Description 11e Computation of Diluted Earnings Per Share. 27 Financial Data Schedule. (b) Report on Form 8-K: The Company did not file any Form 8-K during the quarter ended March 25, 2000. 16 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, 2000 By: /s/ David B. Clark David B. Clark, President, Chief Executive Officer, and Director (Principal Executive Officer) Date: May 8, 2000 By: /s/ Wayne S. Peterson Wayne S. Peterson, Senior Vice President/ Finance, Chief Financial Officer and Secretary (Principal Financial Officer) EX-1 2 EXHIBIT 11e HOMELAND HOLDING CORPORATION AND SUBSIDIARIES Computation of Diluted Earnings Per Share (In thousands, except per share amounts) Income Shares Per-Share (Numerator) (Denominator) Amount For the 12 weeks ended March 25, 2000: Basic earnings per share Income available to common stockholders $ 414 4,919.4 $ 0.08 Effect of dilutive securities: Stock options - 42.8 Diluted earnings per share Income available to common stockholders and assumed conversions $ 414 4,962.2 $ 0.08 For the 12 weeks ended March 27, 1999: Basic earnings per share Income available to common stockholders $ (2,023) 4906.5 $(0.41) Effect of dilutive securities: Stock options - - Diluted earnings per share Income available to common stockholders and assumed conversions $ (2,023) 4,906.5 $(0.41) EX-27 3
5 3-MOS DEC-03-2000 MAR-01-2000 4,529 0 8,824 1,338 54,425 69,336 107,133 33,059 168,163 38,430 60,000 0 0 49 28,019 168,163 136,607 136,607 104,599 104,599 29,170 0 2,170 668 254 414 0 0 0 414 0.08 0.08
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