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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
<TABLE>
<CAPTION>
June 18, January 1,
1994 1994
---------- ----------
(Unaudited)
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 18, January 1,
1994 1994
---------- ----------
(Unaudited)
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
12 weeks 12 weeks
ended ended
June 18, June 19,
1994 1993
----------- -----------
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
24 weeks 24 weeks
ended ended
June 18, June 19,
1994 1993
----------- -----------
<S> <C> <C>
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
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Minimum
Class A Additional Pension Total
Common Stock Paid-in Accumulated Liability Treasury Stock Stockholders'
Shares Amount Capital Deficit Adjustment Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
========== ==== ======= ======= ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
24 weeks 24 weeks
ended ended
June 18, June 19,
1994 1993
---------- ---------
<S> <C> <C>
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
======= =======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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)
