-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PZnXY5iJYWcMFYAIqAe6+Vn7zLuEqLQIWfXI0GhIHx+JbDHJIkQw06QG2E2IFb3G 3sh4x7kCO2f+k8v2WVmb9Q== 0000835582-94-000007.txt : 19940808 0000835582-94-000007.hdr.sgml : 19940808 ACCESSION NUMBER: 0000835582-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940618 FILED AS OF DATE: 19940802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: 5400 IRS NUMBER: 731311075 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-22829 FILM NUMBER: 94541292 BUSINESS ADDRESS: STREET 1: 400 N E 36TH ST CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 BUSINESS PHONE: 4055575500 MAIL ADDRESS: STREET 1: 400 N E 36TH CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 FORMER COMPANY: FORMER CONFORMED NAME: SWO HOLDING CORP DATE OF NAME CHANGE: 19901017 FORMER COMPANY: FORMER CONFORMED NAME: SWO ACQUISTION CORP DATE OF NAME CHANGE: 19890716 10-Q 1 2ND QUARTER 10-Q FILING SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: June 18, 1994 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.) 400 N.E. 36th Street Oklahoma City, Oklahoma 73125 (Address of principal executive offices) (Zip Code) (405) 557-5500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of July 29, 1994. Class A Common Stock, including redeemable common stock: 34,743,200 shares Class B Common Stock: None PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS
June 18, January 1, 1994 1994 ---------- ---------- (Unaudited) Current assets: Cash and cash equivalents $ - $ 2,194 Receivables, net of allowance for uncollectible accounts of $1,842 and $2,034 10,373 11,750 Inventories 92,282 93,145 Prepaid expenses and other current assets 4,010 3,697 Deferred tax assets 3,997 3,997 -------- -------- Total current assets 110,662 114,783 Property, plant and equipment: Land 12,077 12,486 Buildings 30,343 30,335 Fixtures and equipment 59,982 59,950 Land and leasehold improvements 31,038 31,045 Transportation equipment 93 93 Software 17,410 17,410 Leased assets under capital leases 51,321 51,321 Construction in progress 5,856 2,564 -------- -------- 208,120 205,204 Less accumulated depreciation and amortization 74,729 67,509 -------- -------- Net property, plant and equipment 133,391 137,695 Excess of purchase price over fair value of net assets acquired, net of amortization of $769 and $717 3,763 3,815 Other assets and deferred charges 12,672 13,919 -------- -------- Total assets $260,488 $270,212 ======== ======== Continued
The accompanying notes are an integral part of these financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY
June 18, January 1, 1994 1994 ---------- ---------- (Unaudited) Current liabilities: Book overdraft $ 1,522 $ - Accounts payable - trade 31,643 33,800 Salaries and wages 2,080 2,746 Taxes 7,345 4,724 Accrued interest payable 3,094 3,366 Other current liabilities 6,046 6,548 Current portion of long-term debt 1,000 6,000 Current portion of obligations under capital leases 3,142 3,334 -------- -------- Total current liabilities 55,872 60,518 Long-term obligations: Long-term debt 130,000 135,750 Obligations under capital leases 16,389 17,807 Other noncurrent liabilities 9,270 9,709 -------- -------- Total long-term obligations 155,659 163,266 Commitments and contingencies - - Redeemable common stock, Class A, $.01 par value, 3,864,211 shares at June 18, 1994 and 3,970,211 shares at January 1, 1994, at redemption value 9,313 9,568 Stockholders' equity: Common stock Class A, $.01 par value, authorized - 40,500,000 shares, issued - 31,604,989 shares at June 18, 1994 and 31,498,989 shares at January 1, 1994 outstanding - 30,878,989 shares 316 315 Additional paid-in capital 46,612 46,358 Accumulated deficit (5,541) (7,753) Minimum pension liability adjustment - (572) Treasury stock, 726,000 shares at June 18, 1994 and 620,000 shares at January 1, 1994, at cost (1,743) (1,488) -------- -------- Total stockholders' equity 39,644 36,860 -------- -------- Total liabilities and stockholders' equity $260,488 $270,212 ======== ========
The accompanying notes are an integral part of these financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited)
12 weeks 12 weeks ended ended June 18, June 19, 1994 1993 ----------- ----------- Sales, net $ 182,490 $ 189,606 Cost of sales 133,973 139,733 ---------- ---------- Gross profit 48,517 49,873 Selling and administrative 42,330 43,673 ---------- ---------- Operating profit 6,187 6,200 Interest expense 4,043 4,154 ---------- ---------- Income before income taxes 2,144 2,046 Income tax expense 339 464 ---------- ---------- Net income $ 1,805 $ 1,582 ========== ========== Net income per common share $ .05 $ .05 ========== ========== Weighted average shares outstanding 34,743,200 34,978,700 ========== ==========
The accompanying notes are an integral part of these financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited)
24 weeks 24 weeks ended ended June 18, June 19, 1994 1993 ----------- ----------- Sales, net $ 367,327 $ 380,463 Cost of sales 271,672 281,625 ---------- ---------- Gross profit 95,655 98,838 Selling and administrative 84,347 87,872 ---------- ---------- Operating profit 11,308 10,966 Interest expense 8,050 9,428 ---------- ---------- Income before income taxes and extraordinary items 3,258 1,538 Income tax expense 1,046 1,480 ---------- ---------- Income before extraordinary items 2,212 58 Extraordinary items net of applicable income taxes of $785 - (3,139) ---------- ---------- Net income (loss) $ 2,212 $ (3,081) ========== ========== Income before extraordinary items per common share $ .06 $ 0.00 Extraordinary items per common share - (0.09) ---------- ---------- Net income (loss) per common share $ .06 $ (0.09) ========== ========== Weighted average shares outstanding 34,763,408 34,980,771 ========== ==========
The accompanying notes are an integral part of these financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share and per share amounts) (Unaudited)
Minimum Class A Additional Pension Total Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders' Shares Amount Capital Deficit Adjustment Shares Amount Equity Balance, January 2, 1993 31,364,989 $314 $46,036 $(8,035) $ - 486,000 $(1,165) $37,150 Purchase of treasury stock 4,500 - 11 - - 4,500 (11) - Net loss - - - (3,081) - - - (3,081) ---------- ---- ------- ------- ----- ------- ------- ------- Balance, June 19, 1993 31,369,489 $314 $46,047 $(11,116) $ - 490,500 $(1,176) $34,069 ========== ==== ======= ======== ===== ======= ======= ======= Balance, January 1, 1994 31,498,989 $315 $46,358 $(7,753) $(572) 620,000 $(1,488) $36,860 Purchase of treasury stock 106,000 1 254 - - 106,000 (255) - Adjustment to reduce minimum liability - - - - 572 - - 572 Net income - - - 2,212 - - - 2,212 ---------- ---- ------- ------- ----- ------- ------- ------- Balance, June 18, 1994 31,604,989 $316 $46,612 $(5,541) $ - 726,000 $(1,743) $39,644 ========== ==== ======= ======= ===== ======= ======= =======
The accompanying notes are an integral part of these financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) (Unaudited)
24 weeks 24 weeks ended ended June 18, June 19, 1994 1993 ---------- --------- Cash flows from operating activities: Net income (loss) $ 2,212 $(3,081) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 7,594 7,417 Amortization of financing costs 664 706 (Gain)loss on disposal of assets (31) (39) Amortization of beneficial interest in operating leases 119 121 Write-off of financing costs on long-term debt retired - 1,148 Provision for losses on accounts receivable - 50 Change in assets and liabilities: Decrease in receivables 1,377 4,679 Decrease in inventories 863 9,212 Increase in prepaid expenses and other current assets (313) (1,197) (Increase) decrease in other assets and deferred charges 142 (62) Increase (decrease) in accounts payable - trade (2,157) 2,751 Decrease in salaries and wages (666) (242) Increase (decrease) in taxes 2,621 (1,430) Decrease in accrued interest payable (272) (1,499) Increase (decrease) in other current liabilities 70 (1,844) Decrease in other noncurrent liabilities (385) (621) ------- ------- Net cash provided by operating activities 11,838 16,069 ------- ------- Cash flows used in investing activities: Capital expenditures (3,333) (2,076) Cash received from sale of assets 394 290 ------- ------- Net cash used in investing activities (2,939) (1,786) ------- ------- Cash flows used by financing activities: Payments on subordinated debt - (47,750) Net borrowings (payments) under revolving credit loans (9,750) 15,000 Principal payments under notes payable (1,000) (1,250) Principal payments under capital lease obligations (1,610) (1,557) Payments to acquire treasury stock (255) (11) Increase in book overdraft 1,522 - ------- ------- Net cash used by financing activities (11,093) (35,568) ------- ------- Net decrease in cash and cash equivalents (2,194) (21,285) Cash and cash equivalents at beginning of period 2,194 25,855 ------- ------- Cash and cash equivalents at end of period $ - $ 4,570 ======= ======= Supplemental information: Cash paid during the period for interest $ 7,629 $10,225 ======= ======= Cash paid during the period for income taxes $ 236 $ 135 ======= =======
The accompanying notes are an integral part of these financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS. The accompanying unaudited consolidated financial statements of Homeland Holding Corporation and Subsidiary (the "Company") reflect all adjustments consisting only of normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the consolidated financial position and the consolidated results of operations and cash flows for the periods presented. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the period ended January 1, 1994 and the notes thereto. 2. ACCOUNTING POLICIES. The policies of the Company are summarized in the consolidated financial statements of the Company for the 52 weeks ended January 1, 1994 and the notes thereto. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS COMPARISON OF TWELVE AND TWENTY-FOUR WEEKS ENDED JUNE 18, 1994 WITH TWELVE AND TWENTY-FOUR WEEKS ENDED JUNE 19, 1993. SALES. Net sales for the 12 weeks and 24 weeks ended June 18, 1994 decreased 3.8% and 3.5%, respectively, over the net sales of the corresponding periods of 1993. The decreases in net sales were primarily attributable to increased competition in the Company's market area resulting primarily from additional store openings of Wal-Mart Stores, Inc. ("Wal-Mart") supercenter stores and Albertson's Inc. stores during late 1993 and early 1994. (Three Wal-Mart supercenter stores and one Albertson's store opened in the Company's market area during the first two quarters of 1994). Although the Company does not know how many stores Wal-Mart ultimately will open in the Company's market area and the Company is taking steps to respond competitively, including increased promotions (see Cost and Expenses below), Wal-Mart's entry into the Company's market area may continue to have an adverse effect on the Company's operations in the future. Net sales for the 12 weeks and 24 weeks ended June 18, 1994 for the Company's continuing stores decreased 3.2% over the comparable prior periods due primarily to competitors' store openings in the Company's market area. COST AND EXPENSES. Gross profit as a percentage of sales for the 12 weeks ended June 18, 1994 increased to 26.6% compared to 26.3% for the corresponding period of 1993. Gross profit as a percentage of sales for the 24 weeks ended June 18, 1994 remained constant at 26.0% compared to the corresponding period of 1993. The increase in the gross profit margin for the 12 weeks ended June 18, 1994 and the maintenance of the margin during the 24 weeks ended June 18, 1994 was due to higher vendor retail allowances than in the corresponding periods of 1993. During the first half of 1994, additional emphasis was placed on obtaining vendor retail allowances, which resulted in the Company's receiving more such allowances during this period than in the first half of 1993. The increase in vendor retail allowances was offset by increased markdowns which were taken in response to the increased competition in the Company's market area in an effort to remain price competitive and retain market share. The increased markdowns occurred primarily in the first quarter of 1994. Gross profit without regard to warehouse and transportation costs as a percentage of sales increased to 28.9% for the 12 weeks ended June 18, 1994 compared to 28.4% for the comparable prior period, and increased slightly to 28.3% for the 24 weeks ended June 18, 1994 compared to 28.2% for the same period last year. This increase is due to the higher vendor retail allowances during the first half of 1994 compared to the corresponding period of 1993 offset in part by increased markdowns (which occurred primarily in the first quarter of 1994) in response to the increased competition. Selling and administrative expenses decreased $1.3 million for the 12 weeks ended June 18, 1994 compared to the prior period, although as a percentage of sales they increased to 23.2% from 23.0%. The increase as a percentage of sales is due to the decline in sales during the 12 weeks ended June 18, 1994. Selling and administrative expenses as a percentage of sales decreased slightly to 23.0% for the 24 weeks ended June 18, 1994 from 23.1% for the comparable prior period on a total sales decline of $13.1 million. The decreases in expenses for the 12 weeks and 24 weeks ended June 18, 1994 were primarily due to a reduction in retail wages and benefits resulting from the modified collective bargaining agreement entered into with the United Food and Commercial Workers of North America in December 1993. In addition, during the 12 weeks and 24 weeks ended June 18, 1994 there was a decrease in consulting expenses compared to the corresponding periods of 1993 and a decrease in non-recurring expenses which had been incurred during the 24 weeks ended June 19, 1993 in connection with the closing of two stores. These decreases were offset in part by a contractual increase in the monthly fees in connection with the Company's computer services agreement and the one-time change in the administration of the vacation policy which occurred during the 24 weeks ended June 19, 1993 which did not recur in 1994. OPERATING INCOME. Operating income for the 12 weeks ended June 18, 1994 remained constant at $6.2 million compared to the corresponding period of 1993, due to the decrease in sales which was offset by a decrease in selling and administrative expenses. Operating income for the 24 weeks ended June 18, 1994 increased slightly to $11.3 million compared to $11.0 million in the corresponding period of 1993. The increase for the 24 weeks ended June 18, 1994 was the result of the decrease in selling and administrative expenses offset in part by the decrease in sales. INTEREST EXPENSE. Interest expense for the 12 weeks and 24 weeks ended June 18, 1994 decreased to $4.0 million and $8.0 million, respectively, from $4.2 million and $9.4 million, respectively, in the corresponding periods of 1993. The decreases were due to the redemption of the Company's 15-1/2% Subordinated Notes due November 1, 1997 (the "Subordinated Notes") on March 1, 1993, and the ability of the Company to reduce its outstanding debt during 1994. INCOME TAX EXPENSE. The income tax expense for the 12 weeks and 24 weeks ended June 18, 1994 was $339,000 and $1.0 million, respectively, compared to $464,000 and $695,000, respectively (including the net effects of the extraordinary items discussed below) for the corresponding periods of the prior year. The income tax expense is principally comprised of alternative minimum tax expense. Reference is made to the Internal Revenue Service ("IRS") Revenue Agent's Report and protest referenced in the Company's Form 10-Q for the quarter which ended March 26, 1994. The Company filed its protest to the IRS Appeals Office on June 14, 1994. EXTRAORDINARY ITEMS. There were no extraordinary items incurred during the 12 weeks or 24 weeks ended June 18, 1994. Extraordinary items for the 12 weeks ended March 27, 1993 consisted of the payment of $2.776 million in premiums on the redemption of $47.750 million in aggregate principal amount of the Subordinated Notes at a purchase price of 105.8% of the outstanding principal amount and $1.148 million in unamortized financing costs related to the redemption of the Subordinated Notes. The extraordinary items for such 1993 period have been shown in the financial statements net of income taxes of $785,000. INCOME OR LOSS. The Company recorded net income of $1.8 million and $2.2 million, respectively, during the 12 weeks and 24 weeks ended June 18, 1994, compared to net income of $1.6 million and net loss of $3.1 million, respectively, for the comparable prior periods. The increases in the net income were due to the decreases in selling and administrative expenses, interest expense and the extraordinary items recognized in the 12 weeks ended March 27, 1993, offset in part by the decreases in sales. LIQUIDITY AND CAPITAL RESOURCES The major sources of liquidity for the Company's operations and expansion have been internally generated funds and borrowings under revolving credit facilities. The Company's Revolving Credit Agreement, dated as of March 4, 1992, as amended (the "Revolving Credit Agreement"), among the Company, Union Bank of Switzerland, New York Branch ("UBS"), as agent and as lender, and other lenders and other financial institutions, provides for a commitment of up to $50 million in secured revolving credit loans, including a swing loan and certain letters of credit (the "Revolving Credit Facility"). Borrowings under the Revolving Credit Agreement bear interest at the UBS Base Rate plus 1.5% or at an adjusted Eurodollar Rate plus 2.5%, which rates are subject to increase upon certain conditions. At July 29, 1994, $20.25 million was outstanding under the Revolving Credit Facility. At July 29, 1994, the Company had outstanding indebtedness of $12 million of Series A Senior Secured Floating Rate Notes due 1997, bearing interest at a floating rate of 3% over LIBOR, $75 million of Series B Senior Secured Fixed Rate Notes due 1999, bearing interest at 11-3/4% per annum which are not redeemable by the Company until on or after March 1, 1997, and $33 million of Series D Senior Secured Floating Rate Notes due 1997. These notes were issued under an Indenture with United States Trust Company of New York, as trustee (the "Senior Note Indenture"). Based on the Company's recent operating performance, management believes that it is probable that the Company will not be able to comply with certain financial covenants under the Revolving Credit Agreement at the end of the third quarter of 1994 and at the end of fiscal year 1994. In addition, the Company may not be in compliance with one of its financial covenants contained in the Senior Note Indenture at the end of fiscal year 1994. Although the Company is taking steps to improve its overall business, no assurance can be given that such efforts will succeed. If the Company is not in compliance with its financial covenants, it will seek to obtain amendments from its lenders. Although the Company has been successful in obtaining amendments to its Revolving Credit Agreement in the past, there is no assurance that it will be able to do so in the future. There is also no assurance that it will be able to obtain an amendment under the Senior Note Indenture if one is required. The Company has engaged outside advisors to assist with the sale of all or a substantial portion of the operations of the Company. Such a transaction would involve the assumption by the other party of certain liabilities of the Company, including long-term contractual liabilities relating to the affected operations, for liabilities under contracts for the purchase of product, computer services, transportation services and lease obligations. It is management's intention to negotiate and consummate a transaction during 1994. Based on the information currently available to management, it is management's judgment that it is more likely than not that the sale of a substantial portion of the operations of the Company will be agreed upon and consummated. If such a sale is not completed, management would pursue other strategic alternatives, including but not limited to mergers, joint ventures or further outsourcing. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION SUBSEQUENT EVENTS On June 30, 1994, the Company closed one store after completing a major remodel and expansion on a nearby store. The closing of this store is not expected to have a material adverse effect on the Company's on-going operations and profitability. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: No exhibits are filed as part of this Report. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 18, 1994. 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 2, 1994 By: Max E. Raydon Max E. Raydon, President, Chief Executive Officer and Director (Principal Executive Officer) Date: August 2, 1994 By: Mark S. Sellers Mark S. Sellers, Executive Vice President/Finance, Treasurer, Chief Financial Officer and Secretary (Principal Financial Officer) Date: August 2, 1994 By: Mary Mikkelson Mary Mikkelson, Chief Accounting Officer, Assistant Treasurer and Assistant Secretary (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----