-----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, RdQOCeAYUoTEMSoZSu8IsIB9pXifjCY9rIpGkjhAz7ja/9PXp2aXzYQGNViK8iM+ zCslrByD4mO4+Sk4FS/GLw== 0000835582-97-000012.txt : 19971022 0000835582-97-000012.hdr.sgml : 19971022 ACCESSION NUMBER: 0000835582-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970906 FILED AS OF DATE: 19971021 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOMELAND HOLDING CORP CENTRAL INDEX KEY: 0000835582 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 731311075 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11555 FILM NUMBER: 97698808 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Quarterly Report Under Section 13 or 15 (d) of the Securities X Exchange Act of 1934 For the quarterly period ended September 6, 1997 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 17, 1997: Homeland Holding Corporation Common Stock: 4,816,602 shares HOMELAND HOLDING CORPORATION FORM 10-Q FOR THE THIRTY-SIX WEEKS ENDED SEPTEMBER 6, 1997 INDEX Page PART 1 FINANCIAL INFORMATION ITEM 1. Financial Statements......................................... 1 Consolidated Balance Sheets as of September 6, 1997, and December 28, 1996.................. 1 Consolidated Statements of Operations 12 Weeks ended September 6, 1997, 4 Weeks ended September 7, 1996, (Successor Company), and 8 Weeks ended August 2, 1996, Predecessor Company)............................. 3 Consolidated Statements of Operations 36 Weeks ended September 6, 1997, 4 Weeks ended September 7, 1996 (Successor Company), and 32 Weeks ended August 2, 1996 (Predecessor Company)............................. 4 Consolidated Statements of Stockholders Equity (Deficit) 36 Weeks ended September 6, 1997, 4 Weeks ended September 7, 1996 (Successor Company), and 32 Weeks ended August 2, 1996 (Predecessor Company)............................. 5 Consolidated Statements of Cash Flows 36 Weeks ended September 6, 1997, 4 Weeks ended September 7, 1996 (Successor Company), and 32 Weeks ended August 2, 1996 (Predecessor Company)............................. 6 Notes to Consolidated Financial Statements................... 8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 9 PART II OTHER INFORMATION ITEM 4. Submission of Matters of a Vote of Security Holders.......... 14 ITEM 5. Other Information............................................ 15 ITEM 6. Exhibits and Reports on Form 8-K............................. 15 i PART I - FINANCIAL INFORMATION Item 1. Financial Statements HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ASSETS September 6, December 28, 1997 1996 (Unaudited) Current assets: Cash and cash equivalents $ 5,707 $ 1,492 Receivables, net of allowance for uncollectible accounts of $1,298 and $1,587 7,815 8,522 Inventories 44,197 45,009 Prepaid expenses and other current assets 2,602 2,760 Total current assets 60,321 57,783 Property, plant and equipment: Land and land improvements 8,745 8,731 Buildings 18,312 18,124 Fixtures and equipment 17,980 15,078 Leasehold improvements 12,025 11,374 Software 4,431 2,930 Leased assets under capital leases 7,447 7,569 Construction in progress 3,113 2,675 72,055 66,481 Less, accumulated depreciation and amortization 8,283 3,012 Net property, plant and equipment 63,772 63,469 Reorganization value in excess of amounts allocable to identifiable assets, less accumulated amortization of $15,369 at September 6, 1997, and $5,819 at December 28, 1996 28,007 39,570 Other assets and deferred charges 7,605 7,664 Total assets $ 159,705 $ 168,486 Continued The accompanying notes are an integral part of these consolidated financial statements. 1 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS, Continued (In thousands, except share and per share amounts) LIABILITIES AND STOCKHOLDERS' EQUITY September 6, December 28, 1997 1996 (unaudited) Current liabilities: Accounts payable - trade $ 17,858 $ 17,416 Salaries and wages 2,704 3,499 Taxes 4,465 2,903 Accrued interest payable 860 2,689 Other current liabilities 7,553 8,470 Current portion of long-term debt 1,727 894 Current portion of obligations under capital leases 1,343 1,343 Total current liabilities 36,510 37,214 Long-term obligations: Long-term debt 73,817 72,724 Obligations under capital leases 2,002 3,005 Other noncurrent liabilities 2,691 2,602 Total long-term obligations 78,510 78,331 Stockholders' equity: Common Stock, $0.01 par value, authorized - 7,500,000 shares, issued 4,816,602 shares at September 6, 1997, and, issued 4,758,025 shares at December 28, 1996 48 48 Additional paid-in capital 56,017 56,013 Accumulated deficit (11,380) (3,120) Total stockholders' equity 44,685 52,941 Total liabilities and stockholders' equity $ 159,705 $ 168,486 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)
Prececessor Successor Company Company 12 weeks 4 weeks 8 weeks ended ended ended September 6, September 7, August 10, 1997 1996 Sales, net $ 114,935 $ 39,536 $ 77,416 Cost of sales 87,690 29,684 58,513 Gross profit 27,245 9,852 18,903 Selling and administrative expenses 25,801 8,953 17,578 Amortization of excess reorganization value 3,271 1,154 - Operating profit (loss) (1,827) (255) 1,325 Interest expense 1,890 627 432 Income (loss) before reorganization items, income taxes and extraordinary items (3,717) (882) 893 Reorganization items: Allowed claims in excess of liabilities - - 7,200 Professional fees - - 1,100 Employee buyout expense - - 6,386 Adjustment of accounts to estimated fair value - - 8,160 Loss before income taxes and extraordinary items (3,717) (882) (21,953) Income tax benefit (250) - - - Loss before extraordinary items (3,467) (882) (21,953) Extraordinary items-debt discharged - - 63,118 Net income (loss) $ (3,467) $ (882) $ 41,165 Loss before extraordinary items per common share $ (.73) $ (.19) $ (.68) Extraordinary items per common share - - 1.94 Net income (loss) per common share $ (.73) $ (.19) $ 1.26 Weighted average shares outstanding 4,782,294 4,758,025 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)
Predecessor Successor Company Company 36 weeks 36 weeks 32 weeks ended ended ended September 6, September 7, August 10, 1997 1996 Sales, net $ 351,249 $ 39,536 $ 323,747 Cost of sales 266,171 29,684 244,423 Gross profit 85,078 9,852 79,324 Selling and administrative expenses 76,067 8,953 73,000 Amortization of excess reorganization value 10,095 1,154 Operating profit (loss) (1,084) (255) 6,324 Interest expense 5,705 627 5,639 Income (loss) before reorganization items, income taxes and extraordinary items (6,789) (882) 685 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 (6,789) (882) (25,311) Income tax expense 1,471 - - Loss before extraordinary items (8,260) (882) (25,311) Extraordinary items-debt discharged - - 63,118 Net income (loss) (8,260) (882) 37,807 Loss before extraordinary items per common share $ (1.73) $ (.19) $ (.78) Extraordinary items per common share - - 1.94 Net income (loss) per common share $ (1.73) $ (.19) $ 1.16 Weighted average shares outstanding 4,766,115 4,758,025 32,599,707
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 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) $ - Balance, December 28, 1996 4,758,025 - $ 48 $ 56,013 $ (3,120) - Net loss - - - - (8,260) - Issuance of successor's common stock 58,577 - - 4 - - Balance, September 6, 1997 4,816,602 - $ 48 $ 56,017 $ (11,380) - Continued
Total Treasury Stock Stockholders' Shares Amount Equity/Deficit 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 Balance, December 28, 1996 - - $ 52,941 Net loss - - (8,260) Issuance of successor's common stock - - 4 Balance, September 6, 1997 - $ - $ 44,685 The accompanying notes are an integral part of these consolidated financial statements. 5 HOMELAND HOLDING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, except share and per share amounts) (Unaudited)
Predecessor Successor Company Company 36 weeks 4 weeks 32 weeks ended ended ended September 6, September 7, August 10, 1997 1996 1996 Cash flows from operating activities: Net loss $ (8,260) $ (882) $ 37,807 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 5,355 588 4,163 Amortization of excess reorganization value 10,095 1,154 - Amortization of financing costs 43 5 359 Reorganization items - - 15,360 Extraordinary gain on debt discharged - - (63,118) Gain on disposal of assets 59 85 - Amortization of beneficial interest in operating leases 84 10 75 Impairment of assets - - - Adjustment to excess reorganization value 292 - - Deferred income taxes 1,176 - - Change in assets and liabilities: (Increase) decrease in receivables 707 (876) (32) Decrease (increase) in inventories 812 (666) 4,175 Decrease (increase) in prepaid expenses and other current assets 158 41 (83) Increase in other assets and deferred charges (92) (21) (649) Increase (decrease) in accounts payable-trade 442 (545) 298 Increase (decrease) in salaries and wages (791) (167) 105 Increase in taxes 1,562 304 226 Increase (decrease) in accrued interest payable (1,829) 582 3,823 Decrease in other current liabilities (917) (791) (2,656) Decrease in noncurrent restructuring reserve - - (1,396) Increase (decrease) in other noncurrent liabilities 133 (146) (886) Total adjustment 17,289 (443) (40,236) Net cash provided by operating activities 9,029 (1,325) (2,429) Cash flow used in investing activities: Capital expenditures (5,762) (180) (2,395) Cash received from sale of assets 25 1 1,738 Net cash (used in) provided by investing activities (5,737) (179) (657) Cash flows used by financing activities: Borrowings under term loan - - 10,000 Borrowings under revolving credit loans 94,476 6,273 74,250 Payments under revolving credit loans (92,504) (6,273) (79,718) Principal payments under note payable (46) - - Principal payments under capital lease obligations (1,003) (141) (1,596) Payments of secured debt obligations - - (1,500) Net cash used in financing activities 923 (141) 1,436 Net increase (decrease) in cash and cash equivalents 4,215 (1,645) (1,650) Cash and cash equivalents at beginning of period 1,492 4,707 6,357 Cash and cash equivalents at end of period $ 5,707 $ 3,062 $ 4,707 Supplemental information: Cash paid during the period for interest $ 7,378 $ 48 $ 1,566 Cash paid during the period for income taxes $ - $ - $ -
The accompanying notes are an integral part of these consolidated financial statements. 6 HOMELAND HOLDING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Preparation of Consolidated Financial Statements: The accompanying unaudited interim consolidated financial statements of Homeland Holding Corporation ("Holding") and its Subsidiary, Homeland Stores, Inc. ("Stores" and together with Holding, the "Company"), reflect all adjustments, which consist only of normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and the consolidated results of operations and cash flows for the periods presented. The consolidated financial statements as of and for the periods subsequent to August 10, 1996, were prepared in accordance with the American Institute of Certified Public Accountants Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP No. 90-7"). The accounting under SOP No. 90-7 resulted in "fresh-start" reporting for the Company in which a new entity was created for financial reporting purposes. The periods prior to August 10, 1996, have been designated "Predecessor Company" and the periods subsequent to August 10, 1996, have been designated "Successor Company." These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the period ended December 28, 1996, 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 December 28, 1996, and the notes thereto. 3. Net Loss Per Share: Net loss per share of common stock is based on the weighted average outstanding shares during the period. Net loss per share of common stock for periods prior to the reorganization, which was consummated in August 1996, is not meaningful due to the significant change in capital structure. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company's plan of reorganization became effective on August 2, 1996. For financial reporting purposes, the Company accounted for the consummation of the reorganization effective as of August 10, 1996. As a result of the adoption of "fresh-start" reporting and the consummation of the reorganization, the periods prior to and subsequent to August 10, 1996, for financial reporting purposes are not necessarily comparable. For purposes of the discussion of Results of Operations and Liquidity and Capital Resources for the results of the twelve- and thirty-six weeks ended September 7, 1996, the results of the Predecessor Company and Successor Company have been combined. The table below sets forth selected items from the Company's consolidated income statement as a percentage of net sales of the periods indicated: 12 weeks ended 36 weeks ended September 6, September 7, September 6, September 7, 1997 1996 1997 1996 Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 76.3 75.4 75.8 75.5 Gross Profit 23.7 24.6 24.2 24.5 Selling and administrative 22.4 22.7 21.7 22.6 Amortization of excess reorganization value 2.8 1.0 2.9 0.3 Operating profit (loss) (1.6) 0.9 (0.3) 1.7 Interest expense 1.6 0.9 1.6 1.7 Loss before reorganization items, income taxes and extraordinary items (3.2) 0.0 (1.9) (0.1) Reorganization items - 19.5 - 7.2 Loss before income tax and extraordinary items (3.2) (19.5) (1.9) (7.2) Income tax provision (0.2) - 0.4 - (benefit) Loss before extraordinary items (3.0) (19.5) (2.4) (7.2) Extraordinary items - (54.0) - (17.4) Net loss (3.0) 34.4 (2.4) 10.2 Results of Operations. Comparison of Twelve Weeks and Thirty-Six Weeks ended September 6, 1997, with Twelve Weeks and Thirty-Six Weeks ended September 7, 1996. Net sales for the 12 weeks and 36 weeks ended September 6, 1997, decreased 1.7% and 3.3%, respectively, from the net sales of the corresponding periods of 1996. The reduction in net sales was primarily due to lower comparable store sales. Comparable store sales for the 12 weeks and 36 weeks ended September 6, 1997, decreased by 3.2% and 2.5%, respectively, as compared to the corresponding periods of 1996. The decrease in comparable store sales was attributed to the opening of five new competing stores in the Company's trade areas during the third quarter, plus lower food price inflation and lower sales to food stamps recipients as a result of more stringent eligibility requirements. These factors were offset somewhat by grand openings at six of the Company's remodeled stores. The Company's anticipated acquisition of three Food Lion stores in the fourth quarter of 1997, and the announced closing of five other Food Lion stores in the Company's trade area are expected to have a positive effect on the Company's net sales (see Liquidity and Capital Resources). Gross profit as a percentage of sales for the 12 weeks ended September 6, 1997, was 23.7%, a decrease from the corresponding period of 1996 of 24.6%. The decrease in gross profit margin was primarily a result of increased promotional activities relating to new competitors and grand opening sales of the six remodeled stores. Gross profit as a percentage of sales for the 36 weeks ended September 6, 1997, was 24.2% as compared to 24.5% of the corresponding period in 1996. Selling and administrative expenses for the 12 weeks ended September 6, 1997, decreased to 22.4%, as a percentage of net sales, compared to 22.7% for the corresponding period of 1996. For the 36 weeks ended September 6, 1997, selling and administrative expenses as a percentage of sales decreased by 0.9% to 21.7% from 22.6% in the corresponding period of 1996. The reduction in selling and administrative expenses resulted primarily from lower labor costs associated with the modified union agreements and lower occupancy cost that resulted from renegotiated leases, all commencing in August 1996. For the 12 weeks and 36 weeks ended September 7, 1996, the Company incurred $22.8 million and $26.0 million of reorganization items. These items were related to the reorganization consummated in August 1996 and are not recurring. The Company recorded amortization of excess reorganization value of $3.3 million and $10.1 million for the 12 weeks and 36 weeks ended September 6, 1997, respectively. For the 12 weeks and 36 weeks ended September 7, 1996, the Company recorded $1.2 million for amortization of excess reorganization value. The amortization of the excess reorganization value will negatively affect earnings for the next eight fiscal quarters. Interest expense for the 12 weeks ended September 6, 1997, was $1.9 million, as compared to $1.1 million in the corresponding period of 1996. Interest expense for the 36 weeks ended September 6, 1997, was $5.7 million, a reduction of $0.6 million from the corresponding period of $6.3 million in 1996. The higher interest expense for the 12 weeks ended September 6, 1997, as compared to the comparable period for the prior year was due to lower interest expense during the 1996 period as a result of the non-accrual of interest from May 13 through August 2, 1996 on the Company's outstanding senior secured notes that were stayed during the Company's bankruptcy proceeding. The reduction in interest expenses for the 36 week period versus the prior year was due primarily to the reduction of debt level resulting from the consummation of the reorganization in August 1996. The Company recorded an income tax credit of $0.3 million and an income tax provision of $1.5 million for the 12 weeks and 36 weeks ended September 6, 1997, respectively. The benefit recorded for the 12 weeks ended September 6, 1997, resulted from the reversal of previously-recorded expenses, as the Company adjusted its expected taxable income for fiscal 1997. The effective tax rate differs from the statutory rate due to amortization of excess reorganization value, which is not deductible for income tax purposes. The net operating loss carryforwards available for utilization in 1997 ("NOL Carryforward") are limited to approximately $4.5 million, the benefit of which is being recorded as a reduction of excess reorganization value rather than a reduction of income tax expense. As a result of the reorganization that was consummated in August 1996, certain debt of the Company was discharged. The debt discharged resulted in the Company recognizing an extraordinary gain of $63.1 million for the 12 weeks and 36 weeks ended September 7, 1996. The Company's EBITDA (as defined hereinafter) for the 12 weeks ended September 6, 1997, decreased to $3.3 million or 2.9% of net sales, from the EBITDA of $3.7 million, before reorganization items, or 3.2 % of net sales for the corresponding period of 1996. For the 36 weeks ended September 6, 1997, EBITDA was $ 14.5 million or 4.1% of net sales as compared to $12.1 million, before reorganization items, or 3.3% of net sales for the corresponding period of 1996. The improvement in EBITDA for the 36 week period, is attributable to the cost savings realized as a result of the reorganization that was consummated in August 1996. The savings from the reorganization efforts were somewhat offset by reduced net sales and a lower gross profit margin. Net loss for the 12 weeks ended September 6, 1997, was $3.5 million or $0.73 per share compared to a net income of $40.3 million or $1.07 per share for the corresponding period in 1996. Net loss for the 36 weeks ended September 6, 1997, was $8.3 million or $1.73 per share compared to a net income of $36.9 million or $0.97 per share for the corresponding period in 1996. The net income for the 12 weeks and 36 weeks ended September 7, 1996 included an extraordinary gain of $63.1 million or $1.94 per share. As a result of the reorganization that was consummated in August 1996, the Company's financial structure has changed significantly such that results of earnings per share are not comparable to prior years. The Company is amortizing its excess reorganization value of $45 million over a three-year period, and such amortization has affected earnings significantly. If the Company excluded such amortization of excess reorganization value for the 12 weeks and 36 weeks ended September 6, 1997, the Company would record a loss of $0.2 million or $0.04 per share and an income of $1.8 million or $0.39 per share, respectively. Liquidity and Capital Resources The primary sources of liquidity and capital for the Company's operations have been borrowing under the revolving credit facility and internally-generated funds. The Company's EBITDA (earnings before interest, taxes, depreciation and amortization) before reorganization items, as presented below, is the Company's measurement of internally-generated cash for working capital needs, capital expenditures and payment of debt obligations: 12 weeks ended 36 weeks ended Sept.6, Sept.7, Sept. 6, Sept.7, 1997 1996 1997 1996 Loss before income taxes and extraordinary items (3,717) (22,835) (6,789) (26,193) Interest expense 1,890 1,059 5,705 6,266 Amortization of reorganization value 3,271 1,154 10,095 1,154 Reorganization items - 22,846 - 25,996 Depreciation and amortization 1,889 1,495 5,439 4,836 EBITDA 3,333 3,719 14,450 12,059 As a percentage of sales 2.9% 3.2% 4.1% 3.3% As a multiple of interest expense 1.8x 3.5x 2.5x 1.9x Cash flow from operations provided $9.0 million for the 36 weeks ended September 6, 1997, as compared to net cash used in operations of $3.8 million for the 36 weeks ended September 7, 1996. The improvement in cash flow from operations was due primarily to cost savings realized from the reorganization that was consummated in August 1996. The Company's investing activities used net cash of $5.7 million in the 36 weeks ended September 6, 1997, while the corresponding period of 1996 investing activities used $0.8 million. Cash used in investing activities was primarily for the 1997 remodeling program. The Company has completed 18 of its remodeling projects as of October 17, 1997. In August 1997, the Company acquired a Pratt Discount Foods store in Oklahoma City (the "Pratt Acquisition"). In October 1997, the Company entered into an agreement with Food Lion, Inc. to acquire three of its stores located at Yukon, Shawnee and Lawton, Oklahoma (the "Food Lion Acquisition"). The Food Lion Acquisition is expected to use approximately $4.4 million. Although the Food Lion Acquisition is expected to close in December 1997, the Company has commenced operations in the three stores as of October 15, 1997. With the Pratt Acquisition and the Food Lion Acquisition, the Company will operate a total of 70 stores. The revolving credit facility currently limits the Company's cash capital expenditures for fiscal 1997 to $12.0 million. As a result of the Food Lion Acquisition, the Company expects to expend approximately $16.0 million in cash capital expenditures, and accordingly has obtained a waiver, effective through December 15, 1997, from its lenders. The Company has also received approval from its lenders with respect to amending its revolving credit facility to increase the revolving credit facility from $27.5 million to $32.0 million, adding vendor receivables to the borrowing base and to otherwise address the Food Lion Acquisition. The Company expects completion of the definitive documentation with respect to such amendment to its revolving credit facility prior to December 15, 1997. Financing activities of the Company provided net cash of $0.9 million and $1.3 million for the 36 weeks ended September 6, 1997, and September 7, 1996, respectively. Management believes that the revolving credit facility, with the amendments discussed above, and cash flows from operations will be adequate for the Company's short-term requirements including its 1997 capital expenditure program, the Food Lion Acquisition and the scheduled quarterly payments required under the term loan. As of October 17, 1997, the Company had $9.4 million of borrowings and $5.7 million of letters of credit outstanding under its revolving credit facility. The revolving credit facility, before the amendments discussed above, provides for borrowings of up to the lesser of (a) $27.5 million or (b) the applicable borrowing base. The applicable borrowing base on October 17, 1997, was approximately $27.1 million. Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995 The statements made under Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations and other statements in this Form 10-Q which are not historical facts, particularly with respect to future net sales, are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could render them materially inaccurate or different. The risks and uncertainties include, but are not limited to, the effect of economic conditions, the impact of competitive promotional and new store activities, labor cost, capital constraints, availability and costs of inventory, changes in technology and the effect of regulatory and legal developments. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its 1997 Annual Meeting of Stockholders on July 9, 1997. At such meeting, Robert E. (Gene) Burris, James A. Demme, Edward B. Krekeler, Jr., Laurie M. Shahon, John A. Shields, William B. Snow and David N. Weinstein were elected to serve on the Board of Directors for a one year term, ending at the next annual meeting. In the matter of the election of directors, the votes cast were as follows (there were no brokers no-votes): For Withheld/Abstained Robert E. Burris 3,876,572 40/752 James A. Demme 3,876,572 40/752 Edward B. Krekeler, Jr. 3,876,572 40/752 Laurie M. Shahon 3,876,572 40/752 John A. Shields 3,876,572 40/752 William B. Snow 3,876,572 40/752 David N. Weinstein 3,876,572 40/752 In the matter of amending the bylaws for the purpose of staggering the Board of Directors, the filing of vacant directorships and the removal of directors only for cause, 2,253,072 votes were cast against, 1,371,073 votes cast in favor, and holders of 466 shares abstained or did not vote. In the matter of ratification of the appointment of Coopers and Lybrand, LLP as independent certified public accountants, 3,877,213 votes were cast in favor of approval, 102 votes were cast against, and holders of 96 shares abstained or did not vote. In the matter of approving Homeland Holding Corporation 1997 Non-Employee Directors Stock Option Plan, 2,988,124 votes were cast in favor of approval, 636,378 votes were cast against, and holders of 109 shares abstained or did not vote. In the matter of approving the increase in the number of shares available for options to be granted under the Homeland Holding Corporation 1996 Stock Option Plan, 2,991,340 votes were cast in favor of approval, 633,162 votes were cast against, and holders of 109 shares abstained or did not vote. All of such matters (other than the staggering of the Board of Directors and the related bylaw amendments) were approved. Item 5. Other Information On September 19,1997, Mr. James A. Demme resigned his position as Chairman of the Board of Directors, Chief Executive Officer, President and as a member of the Board of Directors of the Company. On the same day, the Board of Directors appointed Mr. John A. Shields to the position of Acting Chairman of the Board of Directors and Mr. Larry W. Kordisch to the position of Acting Chief Executive Officer of the Company. The Board of Directors has retained a search firm to conduct a nationwide search for a replacement for Mr. Demme. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: The following exhibits are filed as part of this report: Exhibit No. Description 27 Financial Data Schedule. 99 Press release of September 19, 1997, announcing the acquisition of three Food Lion stores and the resignation of Mr. James A. Demme. (b) Report on Form 8-K: The Company did not file any Form 8-K during the quarter ended September 6, 1997. 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 21, 1997 By: /s/ Larry W. Kordisch Larry W. Kordisch, Acting Chief Executive Officer and Secretary (Principal Executive Officer) Date: October 21, 1997 By: /s/ Francis T. Wong Francis T. Wong, Vice President/Finance, Treasurer and Asst. Secretary (Principal Financial Officer) EX-99 2 HMLD Reports Management Changes and Letter of Intent Page 3 September 19, 1997 -MORE- FOR IMMEDIATE RELEASE Contact: Larry W. Kordisch Chief Executive Officer (405) 879-6600 HOMELAND STORES REPORTS RESIGNATION OF JAMES A. DEMME AS CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER APPOINTS JOHN A. SHIELDS ACTING CHAIRMAN AND LARRY W. KORDISCH ACTING CHIEF EXECUTIVE OFFICER ALSO ANNOUNCES LETTER OF INTENT TO PURCHASE THREE SUPERMARKETS IN OKLAHOMA FROM FOOD LION Oklahoma City, Oklahoma (September 19, 1997) Homeland Stores, Inc. (Nasdaq/NM: HMLD) today announced the resignation of James A. Demme as Chairman, President and Chief Executive Officer of the Company. Mr. Demme, who will become Chairman and Chief Executive Officer of Bruno's, Inc., a southeastern chain of 220 supermarkets, will be replaced by a current Director of the Company, John A. Shields, as the acting Chairman of the Board, and by the current Executive Vice President - Finance and Chief Financial Officer, Larry W. Kordisch, as acting Chief Executive Officer of the Company. Commenting on the announcement, Mr. Shields said, "Speaking for Homeland's Board of Directors, we regret Jim's decision to leave Homeland, but we wish him well in his new position. Jim came to Homeland during a very difficult period for the Company. Through his determination and expertise, Homeland successfully completed a total restructuring during the past three years, which has greatly strengthened the Company's competitive position within its markets and its growth prospects. "Because of the strong foundation developed under Jim's leadership, we believe that his departure will not significantly affect the ongoing implementation of the Company's growth strategy or diminish its ability to pursue profitable growth. We have every confidence in Larry Kordisch's ability to run the Company as acting CEO. Prior to joining Homeland in May 1995, Larry was Executive Vice President - Finance and Administration, Chief Financial Officer and Director of Scrivner, Inc., which, until its acquisition by the Fleming Companies, Inc., was the nation's third largest grocery wholesaler. Larry was also integrally involved in every aspect of Homeland's restructuring and has continued to play an instrumental role in the formation and implementation of Homeland's growth strategies." Mr. Shields has been a member of the Company's Board of Directors since May 1993. His career spans more than 30 years in the retail grocery industry, including 10 years at First National Supermarkets where he was President, Chief Executive Officer and a Director, a position from which he retired in 1993. Mr. Shields is an active investor and serves on the Board of Directors of a number of retail and food related businesses. Mr. Shields added, "The Board of Directors has engaged a national executive search firm to conduct a formal search for Jim's permanent replacement. The search is being conducted throughout the country and includes candidates from both inside and outside the Company. Although we expect the search to be thorough, we will make a final decision as expeditiously as possible." Mr. Demme remarked, "Homeland has undergone tremendous change since I joined the Company nearly three years ago and is now positioned competitively, managerially and financially to pursue profitable growth. The Company's resurgence made it much easier for me to decide to act on an exceptional opportunity as Chairman and CEO of Bruno's. While it is difficult to leave Homeland, I have great confidence in the high caliber individuals who succeed me." Homeland also announced the signing of a letter of intent to purchase three supermarkets from Food Lion, Inc. (Nasdaq/NM: FDLNA FDLNB) in Lawton, Shawnee and Yukon, Oklahoma. Consummation of the transaction, which is subject to customary closing conditions, including the execution of a definitive purchase agreement, is expected in the fourth quarter of 1997. Mr. Kordisch remarked, "Although the timing of the Company's management changes and this purchase is coincidental, this transaction provides tangible evidence of the great improvement in Homeland's prospects. The purchase of these three supermarkets in our core Oklahoma market will strengthen our existing presence in Yukon and provide us an entry into Lawton and Shawnee. All three of these supermarkets are well located and well run. We anticipate that they will be accretive to Homeland's financial results in their first full year of operation and expect minimal disruption as we integrate their operations and personnel into Homeland. The purchase will improve Homeland's leadership position in the Oklahoma market and is reflective of the opportunities we believe continue to exist for further consolidation in the Company's markets." This press release contains forward-looking statements which are based upon current expectations and involve a number of risks and uncertainties. In order for the Company to utilize the "safe harbor" provisions of the Private Litigation Reform Act of 1995, you are hereby cautioned that these statements may be affected by the important factors, among others, set forth below, or in the Company's periodic filings with the S.E.C., and, consequently, actual operations and results may differ materially from those expressed in these forward-looking statements. As to the performance of the supermarkets to be purchased, these important factors include: the ability of the stores to generate projected volumes and the ability of Homeland to staff and operate the stores as expected. Homeland Stores, Inc. is the leading supermarket chain in Oklahoma, southern Kansas, and the Texas panhandle region and, upon the consummation of the purchase transaction, will operate a total of 70 stores. The Company operates in four distinct marketplaces: Oklahoma City, Oklahoma; Tulsa, Oklahoma; Amarillo, Texas; and certain rural areas of Oklahoma, Kansas and Texas. -END- EX-27 3
5 9-MOS JAN-03-1998 SEP-06-1997 5,707 0 9,113 1,298 44,197 60,321 72,055 8,283 159,705 36,510 60,000 0 0 48 44,637 159,705 359,249 359,249 266,171 266,171 86,162 0 5,705 (6,789) 1,471 (8,260) 0 0 0 (8,260) (1.73) (1.73)
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