-----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, TGOPpEYacFeltv1f9+z+Mfm9Td9Ia+kIxLZ24BIroijUVvpvIpj07S+IsVxHwMSh tR5wSGZhk9O6AtisyJF1zg== 0000835582-96-000032.txt : 19961029 0000835582-96-000032.hdr.sgml : 19961029 ACCESSION NUMBER: 0000835582-96-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960907 FILED AS OF DATE: 19961028 SROS: NONE 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: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11555 FILM NUMBER: 96648761 BUSINESS ADDRESS: STREET 1: 400 N E 36TH ST CITY: OKLAHOMA CITY STATE: OK ZIP: 73105 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 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: September 7, 1996 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 office) (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 of securities under a plan confirmed by a court. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 14, 1996. Common Stock: 4,758,025 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE TWELVE WEEKS AND THIRY SIX WEEKS ENDED SEPTEMBER 7, 1996 INDEX PAGE PART I FINANCIAL INFORMATION ITEM 1. Financial Statements................................... 1 Consolidated Balance Sheets September 7, 1996 (Successor Company) and December 30, 1995 (Predecessor Company)............... 1 Consolidated Statements of Operations 4 weeks ended September 7, 1996 (Successor Company), 8 weeks ended August 10, 1996 and 12 weeks ended September 9, 1995 (Predecessor Company................ 3 Consolidated Statements of Operations 4 weeks ended September 7, 1996 (Successor Company), 32 weeks ended August 10, 1996 and 36 weeks ended September 9, 1995 (Predecessor Company)............... 4 Consolidated Statements of Stockholders' Equity (Deficit) 4 weeks ended September 7, 1996 (Successor Company), 32 weeks ended August 10, 1996 and 36 weeks ended September 9, 1995 (Predecessor Company).............. 5 Consolidated Statements of Cash Flows 4 weeks ended September 7, 1996 (Successor Company), 32 weeks ended August 10, 1996 and 36 weeks ended September 9, 1995 (Predecessor Company)............... 6 Notes to Consolidated Financial Statements............. 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 12 PART II OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K....................... 17 i PART I - FINANCIAL INFORMATION Item 1. Financial Statements HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) Assets Successor Company Predecessor Company September 7, December 30, 1996 1995 Current assets: Cash and cash equivalents $ 3,062 $ 6,357 Receivables, net of allowance for uncollectible accounts of $2,661 at December 30, 1995 8,959 8,051 Inventories 39,450 42,830 Prepaid expenses and other current assets 3,250 2,052 Total current assets 54,721 59,290 Property, plant and equipment: Land 8,701 9,919 Buildings 17,294 22,101 Fixtures and equipment 14,281 44,616 Land and leasehold improvements 10,956 23,629 Software 1,782 1,991 Leased assets under capital leases 7,623 29,062 Construction in progress 1,961 4,201 62,598 135,519 Less accumulated depreciation and amortization 585 63,827 Net property, plant and equipment 62,013 71,692 Reorganization value in excess of amounts allocable to identifiable assets, less accumulated amortization of $1,154 at September 7, 1996 43,864 - Other assets and deferred charges 5,016 6,600 Total assets $165,614 $137,582 Continued The accompanying notes are an integral part of these consolidated financial statements 1 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) September 7, December 30, 1996 1995 Current liabilities: Accounts payable - trade $ 14,411 $ 17,732 Salaries and wages 2,486 1,609 Taxes 5,405 4,876 Accrued interest payable 599 2,891 Other current liabilities 10,546 14,321 Long-term obligations in default classified as current - 100,467 Current portion of obligations under capital leases 1,559 2,746 Current portion of restructuring reserve - 3,062 Total current liabilities 35,006 147,704 Long-term obligations: Long-term debt 70,000 - Obligations under capital leases 3,348 9,026 Other noncurrent liabilities 2,081 6,133 Noncurrent restructuring reserve - 2,808 Total long-term obligations 75,429 17,967 Commitments and contingencies - - Redeemable common stock, Class A, $.01 par value, 1,720,718 shares at December 30, 1995, at redemption value - 17 Stockholders' equity (deficit): Old common stock Class A, $.01 par value, authorized - 40,500,000 shares, issued - at December 30, 1995, 33,748,482 outstanding - 30,878,989 shares - 337 New common stock, $0.01 par value, authorized - 7,500,000 shares, issued 4,758,025 shares at September 7, 1996 48 - Additional paid-in capital 56,013 55,886 Accumulated deficit (882) (80,188) Minimum pension liability adjustment - (1,327) Treasury stock, 2,869,493 shares at December 30, 1995 at cost - (2,814) Total stockholders' equity (deficit) 55,179 (28,106) Total liabilities and stockholders' equity (deficit) $165,614 $137,582 The accompanying notes are an integral part of these consolidated financial statements. 2 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) Successor Company Predecessor Company 4 weeks 8 weeks 12 weeks ended ended ended September 7, August 10, September 9, 1996 1996 1995 Sales, net $ 39,536 $ 77,416 $133,020 Cost of sales 29,684 58,513 101,491 Gross profit 9,852 18,903 31,529 Selling and administrative 8,953 17,578 32,465 Amortization of excess reorganization value 1,154 - - Operating profit (loss) (255) 1,325 (936) Interest expense 627 432 3,367 Income (loss) before reorganization items, income taxes and extraordinary items (882) 893 (4,303) Reorganization items: Allowed claims in excess of liabilities - 7,200 - Professional fees - 1,100 - Employee buyout expense - 6,386 - Adjustments of accounts to estimated fair value - 8,160 - - 22,846 - Loss before income taxes and extraordinary items (882) (21,953) (4,303) Income tax expense - - - Loss before extraordinary items (882) (21,953) (4,303) Extraordinary items-debt discharged - 63,118 - Net income (loss) $ (882) $ 41,165 $ (4,303) Loss before extraordinary items per common share $ (.19) $ (.68) $ (.13) Extraordinary items per common share - 1.94 - Net income (loss) per common share $ (.19) $ 1.26 $ (.13) Weighted average shares outstanding 4,758,025 32,599,707 32,599,707 The accompanying notes are an integral part of these consolidated financial statements. 3 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited) Successor Company Predecessor Company 4 weeks 32 weeks 36 weeks ended ended ended September 7, August 10, September 9, 1996 1996 1995 Sales, net $ 39,536 $323,747 $458,088 Cost of sales 29,684 244,423 347,506 Gross Profit 9,852 79,324 110,582 Selling and administrative 8,953 73,000 108,473 Amortization of excess reorganization value 1,154 - - Operating profit (loss) (255) 6,324 2,109 Interest expense 627 5,639 11,677 Income (loss) before reorganization items, income taxes and extraordinary items (882) 685 (9,568) Reorganization items: Allowed claims in excess of liabilities - 7,200 - Professional fees - 4,250 - Employee buyout expense - 6,386 - Adjustments of accounts to estimated fair value - 8,160 - - 25,996 - Loss before income taxes and extraordinary items (882) (25,311) (9,568) Income tax expense - - - Loss before extraordinary items (882) (25,311) (9,568) Extraordinary items-debt discharged - 63,118 - Extraordinary items-other - - (2,330) Net income (loss) $ (882) $ 37,807 $(11,898) Loss before extraordinary items per common share $ (.19) $ (.78) $ (.29) Extraordinary items per common share - 1.94 (.07) Net income (loss) per common share $ (.19) $ 1.16 $ (.36) Weighted average shares outstanding 4,758,025 32,599,707 33,500,994 The accompanying notes are an integral part of these consolidated financial statements 4 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (In thousands, except share and per share amounts) (Unaudited)
Minimum Common Stock Additional Pension Successor Predecessor Paid-in Accumulated Liability Shares Shares Amount Capital Deficit Adjustment Balance, December 31, 1994 - 31,604,989 $ 316 $ 53,896 $(48,398) $ - Purchase of treasury stock - 2,143,493 21 1,050 - - Net loss - - - - (11,898) - Balance, September 9, 1995 - 33,748,482 $ 337 $ 54,946 $(60,296) $ - Balance, December 30, 1995 - 33,748,482 $ 337 $ 55,886 $(80,188) $(1,327) Net income - - - - 37,807 - Eliminate predecessor equity - (33,748,482) (337) (55,886) (2,637) - Issuance of successor's common stock 4,758,025 - 48 56,013 - - Eliminate adjustment of minimum pension liability - - - - - 1,327 Record excess of reorganization value - - - - 45,018 - Balance, August 10, 1996 4,758,025 - $ 48 $ 56,013 $ - $ - Net loss - - - - (882) - Balance, September 7, 1996 4,758,025 - $ 48 $56,013 $ (882) $ -
HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICTI) (in thousands, except share and per share amounts) (Unaudited)
Total Treasury Stock Stockholders' Shares Amount Equity (Deficit) Balance, December 31, 1994 726,000 $(1,743) $ 4,071 Purchase of treasury stock 2,143,493 (1,071) - Net loss - - (11,898) Balance, September 9, 1995 2,869,493 $(2,814) $ (7,827) Balance, December 30, 1995 2,869,493 $(2,814) $(28,106) Net income - - 37,807 Eliminate predecessor equity (2,869,493) 2,814 (56,046) Issuance of successor's common stock - - 56,061 Eliminate adjustment of minimum pension liability - - 1,327 Record excess of reorganization value - - 45,018 Balance, August 10, 1996 - $ - $ 56,061 Net loss - - (882) Balance, September 7, 1996 - $ - $ 55,179
The accompanying notes are an integral part of these consolidated financial statements. HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) (Unaudited)
Successor Company Predecessor Company 4 weeks 32 weeks 36 weeks ended ended ended September 7, August 10, September 9, 1996 1996 1995 Cash flows from operating activities: Net income (loss) $ (882) $37,807 $(11,898) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 588 4,163 8,908 Amortization of excess reorganization value 1,154 - - Amortization of financing costs 5 359 771 Write-off of financing costs on long term debt retired - - 1,424 Reorganization items - 15,360 - Extraordinary gain on debt discharge - (63,118) - (Gain) loss on disposal of assets 85 - (275) Amortization of beneficial interest in operating leases 10 75 143 Change in assets and liabilities: Increase in receivables (876) (32) (426) Decrease in receivable for taxes - - 2,270 (Increase) decrease in inventories (666) 4,175 14,904 (Increase) decrease in prepaid expenses and other current assets 41 (83) 3,097 (Increase) decrease in other assets and deferred charges (21) (649) 228 (Increase) decrease in accounts payable - trade (545) 298 (8,989) Increase (decrease) in salaries and wages (167) 105 131 Increase (decrease) in taxes 304 226 (317) Increase (decrease) in accrued interest payable 582 3,823 (2,810) Increase in other current liabilities (791) (2,656) (1,625) Increase in noncurrent restructuring reserve - (1,396) (12,196) Increase in other noncurrent liabilities (146) (886) (1,105) Total adjustments (443) (41,716) 4,133 Net cash used in operating activities (1,325) (2,429) (7,765) Cash flows from investing activities: Capital expenditures (180) (2,395) (1,008) Cash received from sale of assets 1 1,738 73,038 Net cash (used in) provided by investing activities (179) (657) 72,030 Cash flows from financing activities: Borrowings under term loan - 10,000 - Payments under senior secured floating rate notes - - (9,375) Payments under senior secured fixed rate notes - - (15,625) Borrowings under revolving credit loans 6,273 74,250 62,811 Payments under revolving credit loans (6,273) (79,718) (85,095) Payments under swing loans - - (1,500) Principal payments under notes payable - - (750) Principal payments under capital lease obligations (141) (1,596) (6,127) Payments of secured debt obligations - (1,500) - Payments to acquire treasury stock - - (1,072) Net cash (used in) provided by financing activities (141) 1,436 (56,733) Net increase (decrease) in cash and cash equivalents (1,645) (1,650) 7,532 Cash and cash equivalents at beginning of period 4,707 6,357 339 Cash and cash equivalents at end of period $ 3,062 $ 4,707 $ 7,871 Supplemental information: Cash paid during the period for interest $ 48 $ 1,566 $13,636 Cash paid during the period for income taxes $ - $ - $ -
The accompanying notes are an integral part of these financial statements. 6 HOMELAND HOLDING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Preparation of Consolidated Financial Statements: The accompanying unaudited consolidated financial statements of Homeland Holding Corporation ("Holding") and its Subsidiary, Homeland Stores, Inc ("Stores" and together with Holding, the "Company"), reflect all adjustments, consisting only of normal and recurring adjustments, except for the fresh-start 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 52 weeks ended December 30, 1995 and the notes thereto. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The consolidated financial statements also reflect certain fresh- start adjustments (see Note 4) that resulted from the bankruptcy proceedings (see Note 3). 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 December 30, 1995 and the notes thereto. 3. Reorganization: On May 13, 1996, the Comapny filed chapter 11 petitions with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Simultaneous with the filing of such petitions, the Company filed a plan of reorganization and disclosure statement, which set forth the terms of the Company's restructuring (the "Restructuring"). On June 13, 1996, the Company filed a first amended plan of reorganization and disclosure statement. The Company's first amended plan of reorganization, as modified (the "Plan") was confirmed by the Bankruptcy Court on July 19, 1996 and became effective on August 2, 1996 (the "Effective Date"). 7 On the effective Date, each of Holding and Homeland adopted amended and restated certificates of incorporation, the principal effects of which are: (a) eliminate the old common stock and old class B common stock of Holding, (b) authorized 7,500,000 shares of new common stock of Holding (the "New Common Stock") and (c) include a provision to prohibit the issuance of non-voting securities as and to the extent required by Section 1123 (a) (6) of the Bankruptcy Code for both Homeland and Holding. As of the Effective Date, the outstanding $59.4 million of Series C Senior Secured Fixed Rate Notes due 1999, $26.1 million of Series D Senior Secured Floating Rate Notes due 1997 and $9.5 million of Series A Senior Secured Floating Rate Notes due 1997, (collectively, the "Old Notes"), ($95 million in aggregate face amount plus accrued interest), were canceled and such holders received (in the aggregate) $60 million face amount of newly issued 10% Senior Subordinated Notes due 2003 (the "New Notes"), $1.5 million in cash and approximately 60% of the New Common Stock. The New Notes are unsecured and bear interest at 10% per annum and mature in 2003. As of the effective Date, all of the outstanding old common stock of Holding was canceled and the holders received their ratable share of (a) 250,000 shares of New Common Stock and (b) warrants to purchase up to 263,158 shares of New Common stock at an exercise price of $11.85. Holders of general unsecured claims (including certain trade creditors for unpaid prepetition trade claims and the allowed unsecured noteholders' claims) are entitled to receive their ratable share of 4,450,000 shares of New Common Stock. As of the Effective Date, the Company entered into the New Credit Agreement (as defined hereinafter) consisting of a revolving credit facility of up to $27.5 million (subject to a borrowing base requirements) and a term loan facility of $10.0 million The New Credit Agreement is collaterized by a security interest in, and liens on, substantially all of the Company's assets and is guaranteed by Holding. On the Effective Date, the modified union agreements negotiated with the Company's labor unions (the "Modified Union Agreements") became effective. The Modified Union Agreements, which are effective for a term of five years, consist of five basic elements: (a) wage rate and benefit contribution reductions and work rule changes, (b) an employee buyout offer, (c) the establishment of an employee stock bonus plan which will receive, or be entitled to receive up to 522,222 shares of New Common Stock, (d) the 8 right to designate one member of the Board of Directors and (e) the elimination of certain wage reinstatement provisions, incentive plans and "maintenance of benefits." 4. Fresh-Start Reporting The Company's Restructuring was accounted for in accordance with the American Institute of Certified Public Accountants Statement of Position No. 90-7, entitled "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP No. 90-7"). The accounting of SOP No. 90-7 resulted in "fresh-start" reporting for the Company in which a new entity was created for financial reporting purposes. The Company was able to adopt SOP No. 90-7 as the holders of the old common stock received less than 50% of the New Common Stock and the reorganized value of the assets of the reorganized Company is less than the total of all post- petition liabilities and allowed claims. For financial reporting purposes, the Comapny accounted for the consummation of the Restructuring effective August 10, 1996, which is the Company's normal four week period ending date. The periods prior to the Effective Date have been designated "Predecessor Company" and the period subsequent to the Effective Date has been designated "Successor Company". As a result of the adoption of the "fresh-start reporting, the Company's financial statements are not comparable to the Company's financial statements of prior periods. In accordance with the SOP No. 90-7, the Company valued its assets and liabilities at their estimated fair value and eliminated its accumulated deficits on the Effective Date. The total reorganization value of the reorganized Company was determined by analyzing market cash flow multiples as applied to the Company's projected annual cash flows as well as comparing the reorganization vaule to a discounted projected cash flow calculation. Based on analysis prepared by the Company's financial advisor and the financial advisor to the ad hoc committee of noteholders, the total reorganization value was agreed to by the parties and confirmed by the Bankruptcy Court. The total reorganization value as of the Effective Date was estimated to be $167.4 million, which was $45.0 million in excess of the Company's tangible and identifiable assets. The excess of the reorganization value over the value of the identifiable assets is reported as "Reorganization value in excess of amounts allocable to identifiable assets" and is being amortized on a straight-line basis over a three year period. 9 The components of reorganization items and gain recognized on debt discharged resulting from the Restructuring are as follows (in thousands): (i) Reorganization items: Fresh-Start reporting Allowed claims in excess of recorded liabilities 7,200 Revalue of property, plant and equipment, net 4,004 Other adjustments to estimated fair value 4,156 Total fresh-start 15,360 Professional fees incurred with the Restruturing 4,250 Total reorganization items 19,610 (ii) Gain on debt discharged: Elimination of Old Notes and accrued interest 101,697 Elimination of other liabilities 21,421 Issuance of New Notes (60,000) Gain on debt discharged 63,118 10 The effects of the Restructuring and the implementation of "fresh- start" reporting on the Company's balance sheet as of August 10, 1996 are as follows:
Pre "Fresh-Start" "Fresh-Start" Balance Sheet Debt Discharge "Fresh-Start" Balance Sheet August 10, 1996 Adjustments Adjustments August 10, 1996 Current assets: Cash $ 6,207 $ (1,500) $ - $ 4,707 Receivables 8,083 - - 8,083 Inventories 38,655 129 - 38,784 Prepaid expenses and other current assets 3,428 - (137) 3,291 Total current assets 56,373 (1,371) (137) 54,865 Property, plant and equipment, net 66,513 - (4,004) 62,509 Other assets and deferred charges 6,793 - (1,780) 5,013 Reorganization value in excess of amounts allocable to identifiable assets - - 45,018 45,018 Total assets $129,679 $ (1,371) $ 39,097 $167,405 Current liabilities: Accounts payable-trade 18,030 (10,274) 7,200 14,956 Salaries and wages 1,703 - 950 2,653 Taxes 5,101 - - 5,101 Accrued interest payable 6,714 (6,697) - 17 Other current liabilities 11,760 (3,290) 2,866 11,336 Long-term obligations in default classified as current 105,000 (105,000) - - Current portion of obligations under capital leases 2,746 (1,187) - 1,559 Current portion of restructuring reserves 3,062 (1,796) (1,266) - Total current liabilities $154,116 $(128,244) $ 9,750 $ 35,622 Long-term obligations: Long-term debt - 70,000 - 70,000 Obligations under capital leases 5,784 (1,870) (425) 3,489 Other noncurrent liabilities 6,407 (3,944) (230) 2,233 Noncurrent restructuring reserve 1,412 (431) (981) - Total long-term obligations 118,603 63,755 (1,636) 75,722 Redeemable common stock 17 - (17) - Stockholder's equity (deficit): Common Stock 337 - (289) 48 Additional paid-in capital 55,886 - 127 56,013 Accumulated (deficit) equity (90,139) 63,118 27,021 - Minimum pension liability adjustment (1,327) - 1,327 - Treasury stock (2,814) - 2,814 - Total stockholder's equity (deficit) (38,057) 63,118 31,000 56,061 Total liabilities and stockholder's equities (deficit) $129,679 $(1,371) $39,097 $167,405
11 5. Employee Buyout Offer Charges As of August 3, 1996, the consummation date of the Modified Union Agreements, 833 of the Company's unionized employees had accepted the employee buyout offer. The employee buyout offer, depending on the employee's job classification, date of hire and full- or part-time status, ranges from $4,500 to $11,000 per employee. The Company incurred approximately $6.6 million of expense for the employee buyout offer. 6. Income Taxes The Company did not record any provision of taxes for the 12 weeks and 36 weeks ended September 7, 1996. As of December 30, 1995, the Company has operating loss carry forward of approximately $48.6 million. In connection with the Plan, the Company recorded gains relating to the discharge of certain indebtedness, which is expected to reduce the Company's operating loss carry forward. As a result of the discharge of such indebtedness, management estimates that the operating loss carryforward as of September 7, 1996, is approximately $30.0 million, subject to the projected values of the new securities issued by Holding pursuant to the Plan. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General As discussed in Note 3 and 4 to the accompanying Consolidated Financial Statements of Homeland Holding Corporation, the Company Plan of Reorganization became effective on August 2, 1996. For financial reporting purposes the Company accounted for the consummation of the Restructuring effective as of August 11, 1996. The Company has adopted "fresh-start" reporting pursuant to SOP No. 90-7. The periods prior to the Restructuring have been designated "Predecessor Company" and the period subsequent to the Restructuring has been designated "Successor Company". For purposes of the discussion of Results of Operations and Liquidity and Capital Resources for the twelve and thirty-six weeks ended September 7, 1996, the results of the Predecessor Company and Successor Company have been combined. The following discussion includes statements that are forward-looking in nature. As with any forward-looking statements, these statements are subject to a number of factors, including competitive activities in the market area, general economic conditions and the consummation of the Restructuring that tend to influence the accuracy of the statements. Results of Operations Comparison of Twelve and Thirty-Six Weeks Ended September 7, 1996 with Twelve and Thirty-Six Weeks Ended September 9, 1995. 12 Net sales for the 12 weeks and 36 weeks ended September 7, 1996 decreased 12.08% and 20.7% respectively, over the net sales of the corresponding periods of 1995. The decrease in net sales was due primarily to the sale of 29 stores to AWG on April 21, 1995 and the closing of 14 stores in 1995, and 2 stores in the second quarter of 1996 and the sale of the Ponca City store in April 1996. In addition, while the Company believes it maintained well stocked stores and good store conditions during the bankruptcy proceedings, significant management time and effort was expended to accomplish the demands necessary for a timely, orderly reorganization which may have affected sales negatively. Comparable store sales for the 12 weeks ended September 7, 1996 decreased by 1.4% over the same period of 1995. Gross profit was 24.6% and 24.5% of sales for the 12 weeks and 36 weeks ended September 7, 1996 as compared to 23.7% and 24.1% of sales for the corresponding periods of 1995. Gross profit for the 12 weeks ended September 7, 1996, was higher primarily due to improved buying skills and store conditions versus the same period of 1995 when the Company was adapting and adjusting to the change from being self-supplied to purchasing from AWG. Gross profit for the 36 weeks ended September 7, 1996, benefitted from higher vendor allowance and improved purchasing skills. The improvement was offset somewhat by higher cost of goods from being supplied by AWG versus self-supplied. Selling and administrative expenses for the 12 weeks ended September 7, 1996 decreased to 22.7% of sales compared to 24.4% for the corresponding period of 1995. For the 36 weeks ended September 7, 1996, selling and administrative expenses decreased to 22.6% of sales from 23.7%. The Company's selling and administrative expense as a percentage of sales has declined due to cost controls, including reductions in corporate support functions, the newly negotiated Modified Union Agreements, certain lease and secured financing concessions and the rejection of certain burdensome executory contracts. Cost savings from the Modified Union Agreements were somewhat offset by increased costs associated with training new employees that were hired to replace employees that accepted the employee buyout offer. Interest expense decreased to $1.1 million for the 12 weeks ended September 7, 1996, from $3.4 million in the same period of 1995. As for the 36 weeks ended September 7, 1996, interest expense amounted to $6.3 million as compared to $11.7 million of the corresponding period of 1995. The decrease in interest expense was primarily due to the non-accrual of interest on the Old Notes during the bankruptcy proceedings and was offset in part by the interest on the New Notes and the $10.0 million term loan under the New Credit Agreement, commencing on the Effective Date. 13 The Company recorded reorganization expenses amounting to $22.8 million and $26.0 million for the 12 weeks and 36 weeks ended September 7, 1996. The reorganization expenses consist primarily of professional fees and result from "fresh start" reporting adjustments. The excess reorganization value is being amortized over a three year period and the amortization for the 12 week period ended September 7, 1996, amounted to $1.2 million, reflecting amortization commencing after the Effective Date. As of the Effective Date, pursuant to the terms of the Plan of Reorganization, certain debt of the Company was discharged. This resulted in a recognition of extraordinary gain amounting to $63.1 million. Liquidity and Capital Resources The primary sources of liquidity for the Company's operations have been borrowings under credit facilities and internally generated funds. On the Effective Date, the Company entered into a new credit agreement (the "New Credit Agreement") with National Bank of Canada, ("NBC"), as agent and lender, Heller Financial, Inc. and IBJ Shroder Bank and Trust Company. The New Credit Agreement provides the Company a working capital and letter of credit facility (the "Credit Facility") of up to the lessor of (a) $27.5 million or (b) the applicable borrowing base and a $10.0 million term loan. (the "Term Loan") The Credit Facility provides availability of funds for general corporate purposes of the Company. The Term Loan was used to fund certain obligations of the Company under the Restructuring including the employee buyout offer cost of approximately $6.6 million, the new health and welfare plan under the Modified Union Agreements, professional fees and "cure payments" in connection with certain executory contracts, secured financing and unexpired leases. The interest rate under the New Credit Agreement is based on the prime rate publicly announced by NBC from time to time in New York, New York plus a percentage which varies based on an number of factors, including (a) the amounts relating to the Credit Facility and the Term Loan, (b) the time period, (c) whether the Company elects to use the London Interbank Offered Rate and (d) the annual earnings of the Company before interest, taxes, depreciation and amortization expenses. The obligations under the New Credit Agreement are collaterized by liens on, and security interest in, substantially all of the assets of Homeland, and are guaranteed by Holding, with a pledge of its Homeland stock to secure its obligation. 14 The New Credit Agreement includes customary restrictions on acquisitions, assets dispositions, capital expenditures, consolidations and mergers, distribution, in debtedness, diversities, liens and security interests and transactions with affiliates. The New Credit Agreement also requires the Company to comply with certain financial requirements including minimum operating income before interest, taxes, depreciation, amortization and reorganization items (the "EBITDAR"), Minimum Fixed Charge Coverage Ratio, Funded Debt- to-EBITDAR Ratio and Minimum Current Ratio, each as defined in the New Credit Agreement, and other covenants and prohibitions. The New Credit Agreement matures three years from the Effective Date or August 2, 1999. In August 1996, Associated Wholesale Grocers, Inc. ("AWG"), the Company's wholesale supplier, filed a registration statement with the Securites and Exchange Commission with respect to a proposed conversion from a cooperative to a public general business corporation and a related public offering (the "AWG Conversion"). The AWG members are expected to vote on the AWG Conversion on November 3, 1996. If the AWG Conversion is approved by its members, it is expected that the public offering will commence shortly thereafter. If the AWG conversion is consummated, AWG will cease paying annual patronage rebates and Homeland is expected to receive a one- time distribution of approximately $1.1 million shares of restricted common stock of Associated Wholesale Grocers Group, Inc., new public company, ("AWG Group"). The common stock to be issued in the AWG Conversion is currently valued at $20.00 per share by AWG and its advisors and will be listed on the New York Stock Exchange. AWG expects to pay an initial annualized dividend of $0.20 on each share of common stock of AWG Group. Homeland has conducted a financial analysis of the effects on Homeland of the AWG Conversion. Based on such internal analysis, Homeland does not believe the AWG Group common stock to be issued to Homeland in the AWG Conversion will fairly compensate Homeland for the loss of annual patronage rebates. Homeland has notified AWG that Homeland does not support the proposed AWG Conversion and believes that the AWG Conversion and public offering may costitute a default by AWG under the Company's supply agreement with AWG. AWG has advised Homeland that it does not believe that such default has or will occur as a result of the AWG Conversion. Homeland is considering its alternatives including initiation of litigation to preserve its rights and enforce AWG's obligations. Homeland received $4.9 million, of which $1.6 million was in the form of 7-year interest bearing certificates, for the 1995 annual patronage rebates on purchases made from April 21, 1995 to the end of the 1995 year. Homeland expects to receive approximately $6.2 million for the 1996 annual patronage rebates, of which $2.5 million may be in the form of 7-year interest bearing certificates, assuming that the AWG Conversion is not consummated and that AWG's board of directors declare a percentage payment of not less than 2.35% on purchases. The 7-year interest bearing certificates are being used to reduce Homeland's outstanding letter of credit to AWG. AWG's bylaws provide that annual patronage rebates be declared by the board of directors following the end of each fiscal year based on the operating income of the cooperative. Although, there is no guarantee that any annual patronage rebate will be declared by AWG for future years, AWG has been providing its members with an average 2.2% of annual patronage rebates on purchases for the past 15 years. The loss of the annual patronage rebate could materially adversely affect Homeland's liquidity and its business plan. Homeland is currently evaluating options that may be available to the Company to maximize the benefits of the receipt of approximately $22.0 million of the AWG Group restricted common stock to offset the negative long term impact of not receiving the annual patronage rebates if the AWG Conversion is consummated. The Company's Modified Union Agreements which mature in the year 2001, are expected to result in savings of approximately $10.0 million during the first full contract year. There can be no assurance, however, that such savings will actually be realized. In addition, cost savings are being affected by the recent federally mandated minimum wage adjustments and contract 15 savings in future years will be offset in part by contract wage and benefit adjustments. For the 36 weeks ended September 7, 1996, the Company's net cash used in operations was $1.3 million compared to $2.4 million for the corresponding period in 1995. The Company expects to use $5.7 million of capital expenditures in the fourth quarter, or an aggregate of $8.3 million capital expenditures for fiscal 1996. The Company anticipates that the funds for the capital expenditures would be obtained from the New Credit Agreement and cash flows from operations. As of October 18, 1996 the Company had $12.4 million of availability under the Credit Facility. 16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit: The following exhibit is filed as part of this report: Exhibit No. Description 27 Financial Data Schedule (b) Report on Form 8-K: No report on Form 8-K was filed during the quarter ended September 7, 1996. 17 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 28, 1996 By: /s/ James A. Demme James A. Demme, President Chief Executive Officer and Director (Principal Executive Officer) Date: October 28, 1996 By: /s/ Larry W. Kordisch Larry W. Kordisch, Executive Vice President/Finance, Treasurer, Chief Financial Officer and Secretary (Principal Financial Officer) Date: October 28, 1996 By: /s/ Terry M. Marczewski Terry M. Marczewski, Chief Accounting Officer, Assistant Treasurer and Assistant Secretary (Principal Accounting Officer 18 EX-27 2
5 9-MOS DEC-28-1996 SEP-7-1996 3,062 0 8,959 0 39,450 54,721 62,598 585 165,614 35,006 0 0 0 48 55,131 165,614 116,952 116,952 88,197 88,197 50,531 0 1,059 (22,835) 0 (22,835) 0 63,118 0 40,283 1.07 1.07
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