-----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, AveGbbgBqChSJlMvBe/DQ1bDnUbPtyPqV9e4GgGTDkUMwuwhoq0EqSMrpJ+bChli OkvC2FuIEnvbEr1dJTcD2A== /in/edgar/work/0000835582-00-500004/0000835582-00-500004.txt : 20001025 0000835582-00-500004.hdr.sgml : 20001025 ACCESSION NUMBER: 0000835582-00-500004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000909 FILED AS OF DATE: 20001024 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: [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: 744547 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 mike1.txt CONFORMED COPY 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 Act of 1934 For the quarterly period ended September 9, 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 October 24, 2000: Homeland Holding Corporation Common Stock: 4,925,871 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE THIRTY-SIX WEEKS ENDED SEPTEMBER 9, 2000 INDEX Page PART I FINANCIAL INFORMATION ITEM 1. Financial Statements 1 Consolidated Balance Sheets September 9, 2000, and January 1, 2000 1 Consolidated Statements of Operations Twelve Weeks and Thirty-six Weeks ended September 9, 2000, and September 11, 1999 3 Consolidated Statements of Cash Flows Twelve Weeks and Thirty-six Weeks ended September 9, 2000, and September 11, 1999 4 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 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) Selected Financial Data
ASSETS (Unaudited) September 9, January 1, ___2000 2000 Current assets: Cash and cash equivalents $ 5,604 $ 6,136 Receivables, net of allowance for uncollectible accounts of $718 and $1,361 10,621 11,353 Inventories 55,132 52,663 Prepaid expenses and other current assets 2,317 2,176 Total current assets 73,674 72,328 Property, plant and equipment: Land and land improvements 8,820 9,046 Buildings 21,675 21,962 Fixtures and equipment 41,122 36,818 Leasehold improvements 21,647 20,446 Software 7,672 7,181 Leased assets under capital leases 8,737 8,737 Construction in progress 1,176 19 110,849 104,209 Less, accumulated depreciation and amortization 37,967 30,728 Net property, plant and equipment 72,882 73,481 Other assets and deferred charges 26,275 22,045 Total assets $ 172,831 $ 167,854
Continued Selected Financial Data
(Unaudited) September 9, January 1, ___2000 2000 Current liabilities: Accounts payable - trade $ 20,380 $ 22,968 Salaries and wages 2,127 3,168 Taxes 4,794 3,616 Accrued interest payable 886 2,671 Other current liabilities 7,338 6,992 Current portion of long-term debt 3,048 2,918 Current portion of obligations under capital leases 501 501 Total current liabilities 39,074 42,834 Long-term obligations: Long-term debt 103,608 94,668 Obligations under capital leases 838 1,197 Other noncurrent liabilities 3,034 1,501 Total long-term obligations 107,480 97,366 Stockholders' equity: Common stock $0.01 par value, authorized - 7,500,000 shares, issued 4,925,871 shares and 4,917,860 shares at September 9, 2000, and January 1, 2000, respectively 49 49 Additional paid-in capital 56,254 56,254 Accumulated deficit (30,026) (28,649) Total stockholders' equity 26,277 27,654 Total liabilities and stockholders' equity $ 172,831 $ 167,854
Selected Financial Data
12 weeks ended 36 weeks ended September 9, September 11, September 9, September 11, 2000 1999 2000 1999 Sales, net $ 136,501 $ 125,867 $ 415,728 $ 376,811 Cost of sales 104,141 94,953 318,412 286,745 Gross profit 32,360 30,914 97,316 90,066 Selling and administrative expenses 32,111 28,323 91,864 81,858 Amortization of excess reorgani- zation value - 1,712 - 6,890 Asset impairment - closed store - 925 - 925 Operating profit (loss) 249 (46) 5,452 393 Gain (loss) on disposal of assets - 203 (29) 217 Interest income 176 132 520 391 Interest expense (2,522) (2,073) (7,319) (6,086) Loss before income taxes (2,097) (1,784) (1,376) (5,085) Income tax provision (benefit) (274) (24) - 685 Net loss $ (1,823) $ (1,760) $ (1,376) $ (5,770) Net loss per share: Basic $ (0.37) $ (0.36) $ (0.28) $ (1.18) Diluted $ (0.37) $ (0.36) $ (0.28) $ (1.18) Weighted average shares outstanding: Basic 4,924,869 4,912,979 4,922,130 4,909,842 Diluted 4,924,869 4,912,979 4,922,130 4,909,842
Selected Financial Data
12 weeks ended 36 weeks ended September 9, September 11, September 9, September 11, 2000 1999 2000 1999 Cash flows from operating activities: Net loss $ (1,823) $ (1,760) $ (1,376) $ (5,770) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 2,568 2,439 7,636 7,104 Amortization of beneficial interest in operating leases 28 28 84 84 Amortization of excess reorganization value - 1,712 - 6,890 Amortization of goodwill 177 55 495 97 Amortization of financing costs 15 3 42 26 Loss (gain) on disposal of assets - (203) 29 (217) Asset impairment - closed store - 925 - 925 Deferred income taxes (214) 199 - 901 Change in assets and liabilities: (Increase) decrease in receivables (567) (1,269) 732 (193) Decrease (increase) in inventories 82 (44) 1,119 223 (Increase) decrease in prepaid expenses and other current assets (292) 551 (25) (256) (Increase) decrease in other assets and deferred charges (16) 22 (237) 9 Decrease in accounts payable - trade (412) (931) (2,588) (2,405) Increase (decrease) in salaries and wages 69 332 (1,041) (354) Increase in taxes 371 147 1,235 923 Decrease in accrued interest payable (1,614) (1,655) (1,785) (1,787) Increase (decrease) in other current liabilities (797) 187 (155) (1,267) Decrease in other noncurrent liabilities (144) (122) (892) (348) Total adjustments (746) 2,376 4,649 10,355 Net cash provided by (used in) operating activities (2,569) 616 3,273 4,585 Cash flows from investing activities: Capital expenditures (1,603) (1,389) (3,166) (4,484) Acquisition of stores - - (3,663) (1,315) Cash received from sale of assets 2 209 475 226 Net cash used in investing activities (1,601) (1,180) (6,354) (5,573) Cash flows from financing activities: Borrowings under term loan - - 5,000 - Payments under term loan (595) (417) (1,424) (834) Borrowings under revolving credit loans 33,063 31,061 110,979 94,174 Payments under revolving credit loans (29,847) (30,366) (107,728) (91,707) Payment on tax notes (13) - (37) (31) Proceeds from issuance of common stock - 21 - 52 Principal payments under notes payable (290) (115) (3,882) (2,304) Principal payments under capital lease obligations (112) (261) (359) (779) Net cash provided by (used in) financing activities 2,206 (77) 2,549 (1,429) Net decrease in cash and cash equivalents (1,964) (641) (532) (2,417) Cash and cash equivalents at beginning of period 7,568 6,080 6,136 7,856 Cash and cash equivalents at end of period $ 5,604 $ 5,439 $ 5,604 $ 5,439 Continued 12 weeks ended 36 weeks ended September 9, September 11, September 9, September 11, 2000 1999 2000 1999 Supplemental information: Cash paid during the period for interest $ 4,076 $ 3,760 $ 8,731 $ 7,884 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 $ 6,752
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 52 weeks 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. Reserves for Doubtful Accounts: In the fourth quarter of 1999, the Company increased its reserves for doubtful accounts by approximately $0.6 million related to the uncertainty of collection of a receivable from a vendor. This receivable was subsequently collected during the twelve weeks ended June 17, 2000, resulting in the reduction of the related reserves for doubtful accounts and a reduction in selling and administrative expenses during the second quarter. 4. 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 and $0.2 million for transaction costs, offset by $6.2 million of long-term debt, which relates to BFC's obligations to Associated Wholesale Grocers, Inc. ("AWG") assumed by the Company. The Company leases 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 subsequently closed one of the stores due to the proximity to other Company stores and established a reserve, which approximated $1.3 million for future rent payments and other holding costs. On April 25, 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 $1.7 million for fixtures and equipment, leasehold improvements, goodwill and a non-compete agreement, $1.6 million for inventory, and approximately $0.2 million in transaction costs. In conjunction with the transaction, the Company also recorded $1.6 million of identified intangibles and $1.6 million in liabilities related to an unfavorable contract. The Company subleases the three stores from Fleming. On September 15, 2000, the Company subsequently leased a fourth location from Fleming upon the completion of its construction. The Company financed this acquisition principally through increased borrowings under its working capital facility. 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: Selected Financial Data
12 weeks ended 36 weeks ended Sept. 9, Sept. 11, Sept. 9, Sept. 11, 2000 1999 2000 1999 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 76.3 75.4 76.6 76.1 Gross Profit 23.7 24.6 23.4 23.9 Selling and administrative expenses 23.5 22.5 22.1 21.7 Amortization of excess reorgani- zation value - 1.4 - 1.8 Asset impairment - 0.7 - 0.3 Operating profit 0.2 - 1.3 0.1 Gain (loss) on disposal of assets - 0.2 - - Interest income 0.1 0.1 0.2 0.1 Interest expense (1.8) (1.7) (1.8) (1.6) Loss before income taxes (1.5) (1.4) (0.3) (1.4) Income tax provision (benefit) (0.2) - - 0.1 Net loss (1.3) (1.4) (0.3) (1.5)
Results of Operations. Comparison of the Twelve Weeks Ended September 9, 2000 with the Twelve Weeks Ended September 11, 1999 Net sales increased $10.6 million, or 8.5%, from $125.9 million for the twelve weeks ended September 11, 1999, to $136.5 million for the twelve weeks ended September 9, 2000. The increase in sales is attributable to the acquisition of four stores in November 1999, the acquisition of three stores in February 2000, and the acquisition of three stores in April 2000, partially offset by a 4.2% decline in comparable store sales and the closing of one store in 1999. The decrease in comparable store sales is primarily attributable to competitive openings during fiscal year 2000, and a labor dispute at AWG, the Company's primary supplier of merchandise. Since the beginning of Fiscal 2000, there have been nine new competitive openings within the Company's markets including: five Wal- Mart Neighborhood Markets in Oklahoma City, three Wal-Mart Supercenters in Oklahoma City and one United Supermarket in Amarillo, Texas. Based on information publicly available, the Company expects that, during the remainder of 2000, Wal-Mart will open a total of two Supercenters and three Neighborhood Markets; and regional chains and independents will open one additional store. AWG's labor dispute involved warehousing and transportation employees and impacted the Company's sales through informational leaflets dissuading customers from patronizing Company stores, through inaccurate store order fulfillment, and through late deliveries. The labor dispute, which began April 1, 2000 was resolved in mid-June. 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 4.0% to 5.0% during the fourth 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 decreased 0.9% from 24.6% for the twelve weeks ended September 11, 1999, to 23.7% for the twelve weeks ended September 9, 2000. The decrease in gross profit margin reflects a reduction in the anticipated AWG annual patronage rebate due to the labor dispute; the impact of specific promotional activities as the Company responded to certain new competitive store openings and special advertisements for the Company's acquired stores. The need to respond to competitive new store openings and the additional investment in the acquired stores may put continued pressure on gross profit for the foreseeable future. Selling and administrative expenses as a percentage of sales increased 1.0% from 22.5% for the twelve weeks ended September 11, 1999, to 23.5% for the twelve weeks ended September 9, 2000. The increase in operating expenses as a percentage of sales is primarily attributable to increased occupancy costs associated with the acquired stores, to an increase in labor costs, to the increased cost of store supplies, to increased utility costs due to the extreme summer heat, and to the start-up expenses related to the Company's new store, which opened on September 15, 2000. The Company continues to review the alternatives to reduce selling and administrative expenses and cost of sales, though there is no assurance that any such reduction will be realized. The amortization of the excess reorganization value amounted to $1.7 million for the twelve weeks ended September 11, 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. The Company recorded an asset impairment provision, during the twelve weeks ended September 11, 1999, in the amount of $0.9 million related to a previously closed store. The provision reduced the carrying value of the real property to a current estimate of fair value. Operating results increased $0.3 million from an operating loss of $46,000 for the twelve weeks ended September 11, 1999, to an operating profit of $0.2 million for the twelve weeks ended September 9, 2000. Excluding the amortization of the excess reorganization value and the asset impairment provision from the 1999 results, operating profit decreased $2.4 million from $2.6 million for the twelve weeks ended September 11, 1999, to $0.2 million for the twelve weeks ended September 9, 2000. The decrease in operating profit reflects the decline in gross profit as a percentage of sales combined with the increase in selling and administrative expenses. Interest expense, net of interest income, increased $0.4 million from $1.9 million for the twelve weeks ended September 11, 1999, to $2.3 million for the twelve weeks ended September 9, 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 held by the Company. 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 benefit for the twelve weeks ended September 9, 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. Net loss of $1.8 million, or a net loss per diluted share of $0.36, for the twelve weeks ended September 11, 1999 was equal to a net loss of $1.8 million, or a net loss per diluted share of $0.37, for the twelve weeks ended September 9, 2000. Excluding the amortization of reorganization value and the asset impairment provision during the twelve weeks ended September 11, 1999, net income decreased $2.4 million from net income of $0.6 million, or net income per diluted share of $0.12, for the twelve weeks ended September 11, 1999 to a net loss of $1.8 million, or a net loss per diluted share of $0.37, for the twelve weeks ended September 9, 2000. EBITDA (as defined below) decreased $2.1 million from $5.1 million, or 4.1% of sales, for the twelve weeks ended September 11, 1999 to $3.0 million, or 2.2% of sales for the twelve weeks ended September 9, 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. Comparison of the 36 Weeks Ended September 9, 2000 with the 36 Weeks Ended September 11, 1999 Net sales increased $38.9 million, or 10.3%, from $376.8 million for the 36 weeks ended September 11, 1999, to $415.7 million for the 36 weeks ended September 9, 2000. The increase in sales is attributable to the acquisition of nine stores in April 1999, the acquisition of four stores in November 1999, the acquisition of three stores in February 2000, and the acquisition of three stores in April 2000, partially offset by a 3.2% 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 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 labor dispute at AWG, the cycling of strong promotions in the first quarter of 1999, and the mild winter weather in the Company's trade areas. Gross profit as a percentage of sales decreased 0.5% from 23.9% for the 36 weeks ended September 11, 1999, to 23.4% for the 36 weeks ended September 9, 2000. 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; the impact of a reduction in the anticipated AWG annual patronage rebate due to the labor dispute; and the impact of increased cost of goods for pharmaceutical products. Selling and administrative expenses as a percentage of sales increased 0.4% from 21.7% for the 36 weeks ended September 11, 1999, to 22.1% for the 36 weeks ended September 9, 2000. The increase in operating expenses as a percentage of sales is attributable to increased occupancy costs associated with the acquired stores, to increased depreciation costs attributable to the Company's capital expenditure program for store remodels and maintenance and modernization, to increased labor costs, to increases in the cost of store supplies, to increases in utility costs due to the extreme summer heat and to start- up expenses related to the Company's February and April 2000 acquisitions, partially offset by a reduction in the reserves for doubtful accounts and a reduction in general liability reserves due to improved claims experience. The amortization of the excess reorganization value amounted to $6.9 million for the 36 weeks ended September 11, 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. The Company recorded an asset impairment provision, during the 36 weeks ended September 11, 1999, in the amount of $0.9 million related to a previously closed store. The provision reduced the carrying value of the real property to a current estimate of fair value. Operating profit increased $5.1 million from $0.4 million for the 36 weeks ended September 11, 1999, to $5.5 million for the 36 weeks ended September 9, 2000. Excluding the amortization of the excess reorganization value and the asset impairment provision from the 1999 results, operating profit decreased $2.7 million from $8.2 million for the 36 weeks ended September 11, 1999, to $5.5 million for the 36 weeks ended September 9, 2000. The decrease in operating profit reflects the decline in gross profit as a percentage of sales combined with the increase in selling and administrative expenses. Interest expense, net of interest income, increased $1.1 million from $5.7 million for the 36 weeks ended September 11, 1999, to $6.8 million for the 36 weeks ended September 9, 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. See "Liquidity and Capital Resources." Net loss decreased $4.4 million from a net loss of $5.8 million, or a net loss per diluted share of $1.18, for the 36 weeks ended September 11, 1999 to a net loss of $1.4 million, or a net loss per diluted share of $0.28, for the 36 weeks ended September 9, 2000. Excluding the amortization of reorganization value and the asset impairment provision during the 36 weeks ended September 11, 1999, net income decreased $3.1 million from net income of $1.7 million, or net income per diluted share of $0.34, for the 36 weeks ended September 11, 1999 to net loss of $1.4 million, or net loss per diluted share of $0.28, for the 36 weeks ended September 9, 2000. EBITDA (as defined below) decreased $1.8 million from $15.5 million, or 4.1% of sales, for the 36 weeks ended September 11, 1999 to $13.7 million, or 3.3% of sales for the 36 weeks ended September 9, 2000. 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 September 9, 2000, of $9.4 million, represents the remaining balance of $5.0 million borrowed under the prior loan agreement to finance costs and expenses associated with the consummation of the restructuring of the Company under its bankruptcy reorganization proceedings in August, 1996, plus $5.0 million borrowed in connection with the termination of the Acquisition Term Loan, permitting a corresponding reduction in the Revolving Facility, in April 2000. 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. 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: Selected Financial Data
12 weeks ended 36 weeks ended Sept. 9, Sept. 11, Sept. 9, Sept. 11, 2000 1999 2000 1999 Income before income taxes $ (2,097) $ (1,784) $ (1,376) $ (5,085) Interest income (176) (132) (520) (391) Interest expense 2,522 2,073 7,319 6,086 (Gain) loss on disposal of assets - (203) 29 (217) Amortization of excess reorgani- zation value - 1,712 - 6,890 Asset impairment - 925 - 925 Depreciation and amortization 2,773 2,522 8,215 7,285 EBITDA $ 3,022 $ 5,113 $13,667 $15,493 As a percentage of sales 2.21% 4.06% 3.29% 4.11% As a multiple of interest expense, net of interest income 1.29x 2.63x 2.01x 2.72x
Net cash provided by operating activities for the 36 weeks ended September 9, 2000 decreased $1.3 million from $4.6 million in 1999 to $3.3 million in 2000. The decrease principally reflects decreased EBITDA partially offset by reductions in inventories and receivables. Net cash used in investing activities for the 36 weeks ended September 9, 2000 increased $0.8 million, from $5.6 million in 1999 to $6.4 million in 2000. The Company invested $9.0 million and $12.4 million in capital expenditures for 1999 and 1998, 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 and $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 interests 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 and $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 interests 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 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 and $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 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 interests 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. In April 2000, the Company completed its acquisition of three Baker's Supermarkets from Fleming. The purchase price was approximately $3.5 million, which represents $1.7 million for fixtures and equipment, leasehold improvements, goodwill and a non-compete agreement, $1.6 million for inventory, and approximately $0.2 million in transaction costs. In conjunction with the transaction, the Company also recorded $1.6 million of identified intangibles and $1.6 million in liabilities related to an unfavorable contract. The Company subleases the three stores from Fleming. On September 15, 2000, the Company subsequently leased a fourth location from Fleming upon the completion of its construction. The Company financed this acquisition principally through increased borrowings under its Revolving Facility. As of September 9, 2000, the Company had an outstanding balance on the assumed obligations to AWG of $10.7 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 with respect to 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. Net cash provided by financing activities increased $3.9 million, from net cash used by financing activities of $1.4 million in 1999, to net cash provided by financing activities of $2.5 million in 2000. The increase primarily reflects the borrowings under the Term Loan in connection with the termination of the Acquisition Term Loans, partially offset by principal payments made to AWG under the various obligations assumed by the Company. 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 approximately $8.0 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. The estimated 2000 capital expenditures of $8.0 million is expected to be invested primarily in the equipment and leasehold improvements of the one store recently 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 September 9, 2000, the Company had $26.4 million of borrowings, $30,000 of letters of credit outstanding and $7.9 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. This report contains certain "forward-looking statements" within the protection of the statutory safe-harbors of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as expansion and growth of the Company's business, future capital expenditures and the Company's business strategy, are forward-looking statements. 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. This forward-looking information is based on various factors and was derived utilizing numerous assumptions. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking statements include: changes in the general economy or in the Company's primary markets, changes in consumer spending, competitive factors, the nature and extent of continued consolidation in the industry, changes in the rate of inflation and interest costs on borrowed funds, changes in state or federal legislation or regulation, changes in the availability and cost of labor, inability to develop new stores or complete remodels as rapidly as planned, and stability of product costs and supply or quality control problems with the Company's vendors. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. 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 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 September 9, 2000. 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: October 24, 2000 By: /s/ David B. Clark __ David B. Clark, President, Chief Executive Officer, and Director (Principal Executive Officer) Date: October 24, 2000 By: /s/ Wayne S. Peterson Wayne S. Peterson, Senior Vice President/Finance, Chief Financial Officer and Secretary (Principal Financial Officer) 5 6 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) LIABILITIES AND STOCKHOLDERS' EQUITY 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) 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) 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) The accompanying notes are an integral part of these consolidated financial statements. 5 6 13 -----END PRIVACY-ENHANCED MESSAGE-----