UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 28, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 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 N. W. Expressway
Oil Center - East, Suite 1100
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 879-6600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .01 per share.
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: There is no established public trading market
for the common stock of Homeland Holding Corporation.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 18, 1997:
Homeland Holding Corporation
Common Stock: 4,758,025 shares
Documents incorporated by reference: None.
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS............................................ 1
General............................................. 1
Background.......................................... 1
AWG Transaction..................................... 1
Restructuring....................................... 2
Business Strategy................................... 3
Homeland Supermarkets............................... 4
Merchandising Strategy and Pricing.................. 6
Customer Service.................................... 6
Advertising and Promotion........................... 6
Products............................................ 7
Supply Arrangements................................. 7
Employees and Labor Relations....................... 8
Computer and Management Information
Systems............................................. 9
Competition......................................... 10
Trademarks and Service Marks........................ 10
Regulatory Matters.................................. 11
ITEM 2. PROPERTIES.......................................... 11
ITEM 3. LEGAL PROCEEDINGS................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS................................. 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS..................... 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA................ 13
i
Page
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................................... 16
Results of Operations............................... 16
Liquidity and Capital Resources..................... 20
Recently-Issued Accounting Standards................ 24
Inflation/Deflation................................. 24
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.................................. 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................ 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT................................... 25
Compliance with Section 16(a) of the Securities
Exchange Act of 1934 (the "1934 Act")............... 28
ITEM 11. EXECUTIVE COMPENSATION.............................. 28
Summary of Cash and Certain Other
Compensation....................................... 28
Compensation of Directors........................... 30
Employment Agreements............................... 30
Management Incentive Plan........................... 32
Retirement Plan..................................... 32
Management Stock Option Plan........................ 33
Compensation Committee Report....................... 33
Compensation Committee Interlocks and
Insider Participation.............................. 33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.................... 33
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS............................... 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K................... 38
ii
Page
SIGNATURES....................................................... II-1
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS....................... F-1
EXHIBIT INDEX.................................................... E-1
iii
HOMELAND HOLDING CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
ITEM 1. BUSINESS
General
Homeland Holding Corporation ("Holding"), through its wholly-owned
subsidiary, Homeland Stores, Inc. ("Homeland," and, together with Holding,
the "Company"), is a leading supermarket chain in the Oklahoma, southern
Kansas and Texas Panhandle region. The Company operates in four distinct
market places: Oklahoma City, Oklahoma; Tulsa, Oklahoma; Amarillo, Texas;
and certain rural areas of Oklahoma, Kansas and Texas. As of March 18, 1997,
the Company operates 66 stores throughout these markets.
The Company's executive offices are located at 2601 N.W.
Expressway, Oklahoma City, Oklahoma 73112, and its telephone number is (405)
879-6600.
Background
Holding and Homeland were organized as Delaware corporations in
1987 by a group of investors led by Clayton, Dubilier & Rice, Inc. ("CD&R"),
a private investment firm specializing in leveraged acquisitions with the
participation of management, for the purpose of acquiring substantially all
of the assets and assuming specified liabilities of the Oklahoma division of
Safeway Inc. ("Safeway"). The stores changed their name to "Homeland" in
order to highlight the Company's regional identity.
AWG Transaction
On April 21, 1995, the Company sold 29 of its stores and its
warehouse and distribution center to Associated Wholesale Grocers, Inc.
("AWG") pursuant to an Asset Purchase Agreement dated as of February 6, 1995
(the "AWG Purchase Agreement"), for a cash purchase price of approximately
$72.9 million, including inventory, and the assumption of certain liabilities
by AWG. At the closing, the Company and AWG also entered into a seven-year
supply agreement, whereby the Company became a retail member of the AWG
cooperative and AWG became the Company's primary supplier. The Company has
purchased 15 shares of AWG Class A Common Stock, representing an equity
position of 0.3%, in order to be a member of AWG. The transactions between
the Company and AWG are referred to herein as the "AWG Transaction."
1
AWG is a buying cooperative which sells groceries on a wholesale
basis to its retail member stores. AWG has more than 800 member stores
located in a ten-state region and is the nation's sixth largest grocery
wholesaler, with approximately $3.1 billion in revenues in 1996.
The AWG Transaction enabled the Company: (a) to reduce the
Company's borrowed money indebtedness by approximately $37.2 million in the
aggregate; (b) to have AWG assume, or provide certain undertakings with
respect to, certain contracts and leases and certain pension liabilities of
the Company; (c) to sell the Company's warehouse and distribution center,
which eliminated the high fixed overhead costs associated with the operation
of the warehouse and distribution center and thereby permitted the Company to
close marginal and unprofitable stores; and (d) to obtain the benefits of
becoming a member of the AWG cooperative, including increased purchases of
private label products, special product purchases, dedicated support programs
and access to AWG's store systems and participation in the membership rebate
and patronage programs.
Restructuring
On May 13, 1996, Holding and Homeland filed voluntary petitions
under Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
Simultaneously with such filings, the Company submitted a "pre-arranged"
plan of reorganization which sets forth the terms of the restructuring of
the Company (the "Restructuring"). The purpose of the Restructuring was to
substantially reduce the Company's debt service obligations and labor costs
and to create a capital and cost structure that would allow the Company to
maintain and enhance the competitive position of its business and operations.
The Restructuring was negotiated with, and supported by, the lenders under
the Company's then existing revolving credit facility, an ad hoc committee
(the "Noteholders Committee") representing approximately 80% of the Company's
outstanding Old Notes (as defined under "Management's Discussion and Analysis
of Financial Conditions and Results of Operations -- Liquidity and Capital
Resources") and the Company's labor unions. The Bankruptcy Court confirmed
the Company's First Amended Joint Plan of Reorganization, as modified (the
"Plan of Reorganization") on July 19, 1996, and the Plan of Reorganization
became effective on August 2, 1996 (the "Effective Date").
Pursuant to the Restructuring, the $95 million of the Company's
Old Notes (as defined hereinafter) plus accrued interest were cancelled, and
the holders of the Old Notes received in the aggregate, $60 million face
amount of newly-issued 10% Senior Subordinated Notes Due 2003 of the Company
(the "New Notes") and $1.5 million in cash. In addition, the Noteholders
and the Company's general unsecured creditors will receive approximately 60%
and 35%, respectively, of the equity of reorganized Holding (assuming total
unsecured claims of approximately $63 million, including Noteholder
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unsecured claims). Holding's existing equity holders will receive the
remaining 5% of the new equity, together with five-year warrants to purchase
an additional 5% of such equity.
In connection with the Restructuring, the Company negotiated an
agreement with its labor unions to modify certain elements of the Company's
existing collective bargaining agreements. These modifications include,
among other things, wage and benefit modifications, the buyout of certain
employees and the issuance to and purchase of new equity by a trust acting
on behalf of the unionized employees. The modified collective bargaining
agreements became effective on the Effective Date. See "Business -- Employees
and Labor Relations."
On the Effective Date, the Company entered into a loan agreement
(the "Loan Agreement") with National Bank of Canada ("NBC"), as agent and
lender, and two other lenders, Heller Financial, Inc. and IBJ Schroder Bank
and Trust Company, under which the lenders provided working capital and letter
of credit facility and a term loan. The Loan Agreement permits the Company
to borrow, under the working capital and letter of credit facility, up to
the lesser of: (a) $27.5 million and (b) the applicable borrowing base.
Funds borrowed under such facility are available for general corporate
purposes of the Company. The Loan Agreement also provides the Company a
$10.0 million term loan, which has been used to fund certain obligations of
the Company under the Plan of Reorganization, including an employee buyout
offer and a health and welfare plan required by the modified collective
bargaining agreements, professional fees and "cure amounts" relating to
executory contracts, secured financing and unexpired leases. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" for a description of the Loan Agreement.
Business Strategy
The Company's general business strategy is to continue to build
and improve on its current strengths which consist of: (a) high quality
perishable departments; (b) effective merchandising of the "high-low" pricing
approach; (c) reputation of quality customer service; (d) excellent
locations; and (e) the "Homeland Savings Card," a customer loyalty card
program. The Company is also able to effectively reach a large customer
base with its weekly advertising inserts and radio and television media
advertisement. In addition, the Company is upgrading its stores by focusing
its capital expenditures on projects that will improve the overall condition
of the stores.
Having been in its market for more than 65 years (through its
predecessor Safeway), the Company enjoys a high recognition with its
customers. The Company continues to build this rapport with its customers by
participating in local community events and offering the "Apples for
Students" program, whereby schools can obtain computers and other educational
products by collecting Homeland receipts. The Company is also a major
sponsor of the Easter Seals program in its markets.
3
In line with the increasing customer demand for convenient
"prepackaged" meals, the Company introduced its "Dinner in a Dash" program
in early 1996. This program provides customers the convenience of having
prepared meals that are ready to be cooked immediately. The Company's deli
and bakery departments also provide customers with the convenience of prepared
meals, sandwiches, salads, hot foods and holiday dinner programs.
As part of its strategic plan, the Company also implemented a
program to close marginal and unprofitable stores. The Company closed 14
stores in 1995 and closed two additional stores in 1996. The Company also
sold its store in Ponca City, Oklahoma in April 1996.
For additional information, see also "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
Homeland Supermarkets
The Company's current network of stores features three basic store
formats. Homeland's conventional stores are primarily in the 25,000 total
square feet range and carry the traditional mix of grocery, meat, produce and
variety products. These stores contain more than 20,000 stock keeping units,
including food and general merchandise. Sales volumes of conventional stores
range from $60,000 to $125,000 per week. Homeland's superstores are in the
35,000 total square feet range and offer, in addition to the traditional
departments, two or more specialty departments. Sales volumes of superstores
range from $95,000 to $265,000 per week. Homeland's combo store format
includes stores of approximately 45,000 total square feet and larger and was
designed to enable the Company to expand shelf space devoted to general
merchandise. Sales volumes of combo stores range from $140,000 to $315,000
per week. The Company's new stores and certain remodeled locations have
incorporated Homeland's new, larger superstore and combo formats.
Of the 66 stores operated by the Company at March 18, 1997, 10 are
conventional stores, 45 are superstores and 11 are combo stores.
4
The chart below summarizes Homeland's store development over the
last three fiscal years:
Fiscal Year Ended
12/28/96 12/30/95 12/31/94
Average sales per store
(in millions)........................... $ 7.9 $ 7.9 (1) $ 7.1
Average total square feet
per store............................... 37,295 38,204 (1) 34,700
Average sales per
square foot............................. $ 212 $207 (1) $205
Number of stores:
Stores at start of period............... 68 111 112
Stores remodled......................... 4 5 10
New stores opened....................... 1 0 0
Stores sold or closed................... 3 43 1
Stores at end of period................. 66 68 111
Size of stores:
Less than 25,000 sq. ft................. 7 8 24
25,000 to 35,000 sq. ft................. 24 24 38
35,000 sq. ft. or greater............... 35 36 49
Store formats:
Conventional............................ 10 11 29
SuperStore.............................. 45 44 65
Combo................................... 11 13 17
(1) Reflects the operations of 68 stores in 1995.
The Company's network of stores is managed by district managers on
a geographical basis through four districts. Each district manager oversees
store operations for approximately 17 stores. Store managers are responsible
for determining staffing levels, managing store inventories (within the
confines of certain parameters set by the Company's corporate headquarters)
and purchasing products. Store managers have significant flexibility with
respect to the quantities of items carried while the Company's corporate
headquarters is directly responsible for merchandising, advertising, pricing
and capital expenditure decisions.
5
Merchandising Strategy and Pricing
The Company's merchandising strategy emphasizes competitive pricing
through a high-low pricing structure, as well as the Company's leadership in
quality products and service, selection, convenient store locations, specialty
departments and perishable products (i.e., meat, produce, bakery and seafood).
The Company's strategy is to price competitively with each conventional
supermarket operator in each market area. In areas with discount store
competition, the Company attempts to be competitive on high-volume, price
sensitive items. The Company's in-store promotion strategy is to offer all
display items at a lower price than the store's regular price and at or below
the price offered by the store's competitors. The Company also currently
offers double coupons, with some limitations, in all areas in which it
operates.
Customer Service
The Company's stores provide a variety of customer services
including, among other things, carry-out services, facsimile services,
automated teller machines, pharmacies, video rentals, check cashing, money
transfers and money orders. The Company believes it is able to attract new
customers and retain its existing customers because of its high level of
customer service.
Advertising and Promotion
All advertising and promotion decisions are made by the Company's
corporate merchandising and advertising staff. The Company's advertising
strategy is designed to enhance its value-oriented merchandising concept and
emphasize its reputation for fast, friendly service, variety and quality.
Accordingly, the Company is focused on presenting itself as a competitively-
priced, promotions-oriented operator that offers value to its customers and
an extensive selection of high quality merchandise in clean, attractive
stores. This strategy allows the Company to accomplish its marketing goals of
attracting new customers and building loyalty with existing customers. In
May 1995, the Company introduced a new weekly advertising layout that improved
product presentation and enhanced price perception. In addition, new signage
was implemented in the stores calling attention to various in-store specials
and creating a friendlier and more stimulating shopping experience.
The Company currently utilizes a broad range of print and broadcast
advertising in the markets it serves, including newspaper advertisements,
advertising inserts and circulars, television and radio commercials and
promotional campaigns that cover substantially all of the Company's markets.
The Company receives cooperative and performance advertising reimbursements
from vendors which reduce its advertising costs.
In September 1995, the Company introduced a customer loyalty card
called the "Homeland Savings Card," in its Amarillo, Texas stores. The
Company believes that it is the
6
only supermarket chain that can capitalize on a customer loyalty card program
because of the Company's advertising coverage and its leading market share.
The Company introduced the "Homeland Savings Card" in its other stores in
August 1996. As of year-end 1996, the Company had cardholders representing
approximately 30% of the households in the market it serves.
Products
The Company provides a wide selection of name-brand and private
label products to its customers. All stores carry a full line of meat,
dairy, produce, frozen food, health and beauty aids and selected general
merchandise. As of the close of fiscal year 1996, approximately 85% of the
Company's stores had service delicatessens and/or bakeries and approximately
65% had in-store pharmacies. In addition, some stores provide additional
specialty departments that offer ethnic food, fresh and frozen seafood, floral
services and salad bars.
The Company's private label name is "Pride of America." The
Company's private label program allows customers to purchase high quality
products at lower than national brand retail prices. The Company's private
label products include over 400 items covering virtually every major category
in the Company's stores, including dairy products, meat, frozen foods, canned
fruits and vegetables, eggs, health and beauty care products and plastic wrap.
As a result of the Company's supply relationship with AWG, the
Company's stores also offer certain AWG private label goods, including Best
Choicer and Always Saver.
Private label products generally represent quality and value to
customers and typically contribute to a higher gross profit margin than
national brands. The promotion of private label products is an integral part
of the Company's merchandising philosophy of building customer loyalty as well
as improving the Company's "pricing image."
Supply Arrangements
The Company is a party to the supply agreement with AWG (the
"Supply Agreement"), pursuant to which the Company became a member of the AWG
cooperative and AWG became the Company's primary supplier. AWG currently
supplies approximately 70% of the goods sold in the Company's stores. See
"Business -- AWG Transaction."
Pursuant to the Supply Agreement, AWG is required to supply
products to the Company at the lowest prices and on the best terms available
to AWG's retail members. In addition, the Company is: (a) eligible to
participate in certain cost-savings programs available to AWG's other retail
members; (b) is entitled to receive certain member rebates and refunds based
on the dollar amount of the Company's purchases from AWG's distribution
center; and (c) is to receive periodic cash payments from AWG, up to a maximum
of approximately $1.3
7
million per fiscal quarter for the first two years of the Supply Agreement
and then up to $1.2 million per fiscal quarter for the remaining term, based
on the dollar amount of the Company's purchases from AWG's distribution
centers during such fiscal quarter.
The Company purchases goods from AWG on an open account basis.
AWG requires that each member's account be secured by a letter of credit or
certain other collateral in an amount based on such member's estimated weekly
purchases through the AWG distribution center. The Company's open account
with AWG, as of March 18, 1997, is secured by a $5.7 million letter of credit
(the "AWG Letter of Credit") issued in favor of AWG by NBC. In addition,
the Company's obligations to AWG are secured by a first lien on all "AWG
Equity" owned from time to time by the Company, which includes, among other
things, AWG membership stock, the Company's right to receive monthly payments
and certain other rebates, refunds and other credits owed to the Company by
AWG (including patronage refund certificates, direct patronage or year-end
patronage and concentrated purchase allowances).
The amount of the AWG Letter of Credit may be decreased on a
biannual basis upon the request of the Company based on the Company's
then-current average weekly volume of purchases and by an amount equal to the
face amount of the Company's issued and outstanding AWG patronage refund
certificates. In the event that the Company's open account with AWG exceeds
the amount of the AWG Letter of Credit plus any other AWG Equity held as
collateral for the Company's open account, AWG is not required to accept
orders from, or deliver goods to, the Company until the amount of the AWG
Letter of Credit has been increased to make up for any such deficiency.
The Supply Agreement with AWG contains certain "Volume Protection
Rights," including: (a) the right of first offer (the "First Offer Rights")
with respect to any proposed sales of stores supplied under the Supply
Agreement (the "Supplied Stores") and a sale of more than 50% of the
outstanding stock of Holding or Homeland to an entity primarily engaged in
the retail or wholesale grocery business; (b) the Company's agreement not to
compete with AWG as a wholesaler of grocery products during the term of the
Supply Agreement; and (c) the Company's agreement to dedicate the Supplied
Stores to the exclusive use of a retail grocery facility owned by a retail
member of AWG (the "Use Restrictions"). The Company's agreement not to
compete and the Use Restrictions contained in the Supply Agreement are
terminable with respect to a Supplied Store upon the occurrence of certain
events, including the Company's compliance with AWG's First Offer Rights
with respect to any proposed sale of such store. In addition, the Supply
Agreement provides AWG with certain purchase rights in the event the Company
closes 90% or more of the Supplied Stores.
Employees and Labor Relations
At March 18, 1997, the Company had a total of 4,451 employees, of
whom 3,200, or approximately 71%, were employed on a part-time basis. The
Company employs
8
4,345 in its supermarket operations. The remaining employees are corporate
and administrative personnel.
The Company is the only unionized grocery chain in its market
areas. Approximately 93% of the Company's employees are union members,
represented primarily by the United Food and Commercial Workers of North
America ("UFCWNA").
In March and April of 1996, prior to the Restructuring, the
Company entered into new collective bargaining agreements with the UFCWNA and
the local union chapter of the Bakery, Confectionery and Tobacco Workers
International Union (collectively, the "Modified Union Agreements").
The Modified Union Agreements have a term of five years commencing
on the Effective Date. The Modified Union Agreements consist of five basic
elements: (a) wage rate and benefit contribution reductions and work rule
changes; (b) the Employee Buyout Offer, pursuant to which the Company made up
to $6.4 million available for the buyout of certain unionized employees; (c)
the establishment of an employee stock option trust (acting on behalf of the
Company's unionized employees), which will receive, or be entitled to
purchase, up to 522,222 shares of New Common Stock, or 10% of the New Common
Stock, pursuant to the terms of the Modified Union Agreements; (d) the
UFCWNA's right to designate one member of the Boards of Directors of Homeland
and Holding following the Restructuring; and (e) the elimination of certain
"snap back" provisions, incentive plans and "maintenance of benefits"
provisions.
As of August 3, 1996, the consummation date of the Employee Buyout
Offer, 833 of the Company's unionized employees had accepted the Employee
Buyout Offer. The Company paid approximately $6.0 million in the aggregate
(which excludes the Company's portion of payroll taxes) with each employee
receiving an amount that ranged from $4,500 to $11,000 (depending on job
classification, date of hire and full- or part-time status). The Employee
Buyout Offer payment was funded through borrowings under the Loan Agreement.
The Company estimates that the Modified Union Agreements will
result in cost savings of approximately $10 million during the first full
contract year following the Restructuring. There can be no assurance,
however, that such cost savings will actually be realized. Additionally,
cost savings will be offset in part by certain contractual wage and benefit
increases plus the recent federally mandated minimum wage increases.
Computer and Management Information Systems
During 1995, the Company installed new client/server systems in
order to enhance its information management capabilities, improve its
competitive position and enable the Company to terminate its outsourcing
arrangement. The new systems include the following features: time and
attendance, human resource, accounting and budget tracking, and scan
9
support and merchandising systems. The Company is currently in the process
of installing a direct store delivery system and a check verification and
credit card system which is expected to be completed by the end of 1997.
The Company has scanning checkout systems in all of its 66 stores.
The Company will continue to invest and upgrade its scanning and point-of-sale
systems to improve efficiency. The Company utilizes the information collected
through its scanner systems to track sales and to coordinate purchasing. The
Company also utilizes the information collected on the purchases made by its
"Homeland Savings Card" holders to target its promotional activities on this
market segment. (See "Business -- Advertising and Promotion.")
Competition
The supermarket business is highly competitive, but very
fragmented, and includes numerous independent operators. The Company
estimates that these operators represent a significant percentage of its
markets. The Company also competes with larger store chains such as
Albertson's and Wal-Mart, which operate 22 stores and 9 stores, respectively,
in the Company's market areas, "price impact" stores such as Crest, large
independent store groups such as IGA, regional chains such as United and
discount warehouse stores.
The Company is a leading supermarket chain in Oklahoma, southern
Kansas and the Texas Panhandle region. The Company attributes its leading
market position to certain advantages it has over certain of its competitors
including its high quality perishable departments, effective advertising,
excellent store locations and a strong reputation within the communities in
which the Company operates.
The Company's business has been adversely affected in recent years
by the entry of new competition into the Company's key markets, which has
resulted in a decline in the Company's comparable store sales. In 1994,
there were 11 competitive openings in the Company's market areas including 8
new Wal-Mart supercenters, 2 new Albertson's and 1 new Mega Market. In 1995,
there were 8 additional competitive openings in the Company's market areas,
including 3 new Albertson's and 1 new Wal-Mart. In 1996, there were 6
additional competitive openings in the Company's market area, including 1 new
Albertson's. Based on information publicly available, the Company expects
that, between mid- to late-1997, Albertson's will open 1 new store and
Wal-Mart will open 3 new stores.
Trademarks and Service Marks
During the transition from "Safeway" to "Homeland," the Company
was able to generate a substantial amount of familiarity with the "Homeland"
name. The Company continues to build and enhance this name recognition
through promotional advertising campaigns. The "Homeland" name is considered
material to the Company's business and is registered for
10
use as a service mark and trademark. The Company has received federal and
certain state registrations of the "Homeland" mark as a service mark and a
trademark for use on certain products. The Company also received a federal
registration of the service mark "A Good Deal Better" in early 1994.
Regulatory Matters
Homeland is subject to regulation by a variety of local, state
and federal governmental agencies, including the United States Department of
Agriculture, state and federal pharmacy regulatory agencies and state and
local alcoholic beverage and health regulatory agencies. By virtue of this
regulation, Homeland is obligated to observe certain rules and regulations,
the violation of which could result in suspension or revocation of various
licenses or permits held by Homeland. In addition, most of Homeland's
licenses and permits require periodic renewals. To date, Homeland has
experienced no material difficulties in obtaining or renewing its licenses
and permits.
ITEM 2. PROPERTIES
Of the 66 supermarkets operated by the Company, 13 are owned by
Homeland and the balance are held under leases which expire at various times
between 1997 and 2013. Most of the leases are subject up to six (6) five-year
renewal options. Out of 53 leased stores, only seven have terms (including
option periods) of fewer than 20 years remaining. Most of the leases require
the payment of taxes, insurance and maintenance costs and many of the leases
provide for additional contingent rentals based on sales in excess of certain
stipulated amounts. No individual store operated by Homeland is by itself
material to the financial performance or condition of Homeland as a whole.
The average rent per square foot under Homeland's existing leases is $3.07
(without regard to amortization of beneficial interest).
Substantially all of the Company's properties are subject to
mortgages securing the borrowings under the Loan Agreement (see "Management's
Discussion and Analysis of Financial Conditions and Results of Operations --
Liquidity and Capital Resources").
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary routine litigation incidental
to its business.
Homeland and Holding were debtors in cases styled In re Homeland
Holding Corporation, Debtor, Case No. 96-748 (PJW), and In re Homeland Stores,
Inc., Debtor, Case No. 96-747 (PJW), initiated with the Bankruptcy Court on
May 13, 1996. While the Plan of Reorganization was confirmed on July 19,
1996, and became effective on August 2, 1996, the Company is still involved
in the resolution of claims filed in these proceedings.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by Holding to a vote of Holding's
security holders during the quarter ended December 28, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
There is no established public trading market for the Common Stock,
the only class of common equity of Holding currently issued and outstanding.
Under the Plan of Reorganization, the Company has undertaken to use its best
efforts to secure the listing of the Common Stock on the NASDAQ National
Market System (or, in the event the Company fails to meet the listing
requirements of the NASDAQ National Market System, on such other exchange or
system on which the Common Stock may be listed) as soon as practicable
following the Effective Date. The Company filed a listing application in
December 1996. The application was denied in February 1997 and the Company
has appealed the denial. The Company anticipates that it will prevail in its
appeal to be listed on NASDAQ National Market System. However, if the appeal
is denied, then the Company will apply for listing with NASDAQ SmallCap
Market. There can be no assurance, however, that the Common Stock will
ultimately be listed on the NASDAQ National Market System or any such other
exchange or system.
As of March 11, 1997, there are 420 stockholders of record. As
additional claims are resolved pursuant to the Plan of Reorganization, the
Company expects that the number of stockholders will increase, assuming that
there is no change in the number of current stockholders.
No cash dividends were declared or paid during the last two years.
Holding is restricted from paying dividends by the Loan Agreement and
Indenture. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial
data of the Company which has been derived from financial statements of the
Company for the 20 weeks ended December 28, 1996 (Successor Company), 32
weeks ended August 10, 1996, the 52 weeks ended December 30, 1995, December
31, 1994, January 1, 1994, and the 53 weeks ended January 2, 1993
(Predecessor Company), respectively, which have been audited by Coopers &
Lybrand L.L.P. See "Notes to Selected Consolidated Financial Data" for
additional information.
As discussed in "Business -- Restructuring," the Company emerged
from Chapter 11 proceedings effective August 2, 1996. For financial reporting
purposes, the Company accounted for the consummation of the Restructuring
effective as of August 10, 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."
The selected consolidated financial data should be read in
conjunction with the respective consolidated financial statements and notes
thereto which are contained elsewhere herein.
13
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
----------------- ------------------------------------------------------------
20 weeks 32 weeks 52 weeks 52 weeks 52 weeks 53 weeks
ended ended ended ended ended ended
12/28/96 8/10/96 12/30/95 12/31/94 01/01/94 01/02/93
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations Date:
Sales, net........................................ $204,026 $323,747 $630,275 $785,121 $810,967 $830,964
Cost of Sales..................................... 154,099 244,423 479,119 588,405 603,220 609,906
Gross profit...................................... 49,927 79,324 151,156 196,716 207,747 221,058
Selling and administrative........................ 44,029 73,000 151,985 193,643 190,483 199,547
Operational restructuring costs (1).............. - - 12,639 23,205 - -
Amortization of excess reorganization value (2)... 5,819 - - - - -
Operating profit (loss)........................... 79 6,324 (13,468) (20,132) 17,264 21,511
Gain on sale of plants............................ - - - - 2,618 -
Interest expense.................................. (3,199) (5,639) (15,992) (18,067) (18,928) (24,346)
Income (loss) before reorganization items, income
taxes and extraordinary items.................... (3,120) 685 (29,460) (38,199) 954 (2,835)
Reorganization items(3)........................... - 25,996 - - - -
Income taxes...................................... - - - (2,446) 3,252 (982)
Income (loss) before extraordinary items.......... (3,120) (25,311) (29,460) (40,645) 4,206 (3,817)
Extraordinary items (4) (5) (6) (7).............. - 63,118 (2,330) - (3,924) (877)
Net income (loss)................................. (3,120) 37,807 (31,790) (40,645) 282 (4,694)
Reduction in redemption value of
redeemable common stock.......................... - - 940 7,284 - -
Net income (loss) available to common
stockholders..................................... $(3,120) $ 37,807 $(30,850) $(33,361) $ 282 $ (4,694)
Net income (loss) per common share (8)............ $ (.66) $ 1.16 $ (.93) $ (.96) $ .01 $ (.13)
Consolidated Balance Sheet Data: 12/28/96 8/10/96 12/30/95 12/31/94 01/01/94 01/02/93
Total assets...................................... $168,486 $129,679 $137,582 $239,134 $274,290 $305,644
Long-term obligations, including current
portion of long-term obligations................ $ 80,558 $124,411 $124,242 $176,731 $172,600 $198,380
Redeemable common stock.......................... $ - $ 17 $ 17 $ 1,235 $ 8,853 $ 9,470
Stockholders' equity (deficit)................... $ 52,941 $(38,057) $(28,106) $ 4,071 $ 36,860 $ 37,150
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands)
(1) Operational restructuring costs during 1995 included the write-off of
software no longer utilized by the Company, the write-off of goodwill
in connection with the Restructuring and a termination charge resulting
from the cancellation of the Company's computer outsourcing agreement.
Operational restructuring costs during 1994 included the estimated
losses to be incurred on the AWG Transaction and associated expenses and
the estimated losses and expenses in connection with the anticipated
closing of 15 stores during 1995.
(2) The Company's reorganization value in excess of amounts allocable to
identifiable assets, established in accordance with "fresh-start"
reporting, of $45,389 is being amortized on a straight-line basis over
three years.
(3) As a result of the Company's Restructuring, the Company recorded certain
reorganization expenses separately in accordance to SOP 90-7.
Reorganization items for 1996 are made of: (a) $7,200 of allowed claims
in excess of liabilities; (b) $4,250 in professional fees; (c) $6,386 in
employee buyout expenses; and (d) $8,160 in adjusting certain assets and
liabilities to estimated fair value.
(4) Extraordinary items during 1996 are made up of obligations of the
Company that were discharged by the Bankruptcy Court pursuant to the
Company's Plan of Reorganization.
(5) Extraordinary items during 1995 included the payment of $906 in premiums
and consent fees on the redemption of $15,600 of the Company's Old Notes
and $1,424 in unamortized financing costs related to the Old Notes so
redeemed as well as the replacement of the prior revolving credit
facility.
(6) Extraordinary items during 1993 included the payment of approximately
$2,776 in premiums on the redemption of $47,750 in aggregate principal
amount of the Company's remaining 15-1/2% Subordinated Notes due
November 1, 1997 (the "Subordinated Notes") at a purchase price of
105.8% of the outstanding principal amount, and $1,148 in unamortized
financing costs related to the Subordinated Notes so redeemed.
(7) Extraordinary items during 1992 included the payment of approximately
$1,225 in premiums on the repurchase of $12,250 in aggregate principal
amount of the Company's Subordinated Notes at a purchase price of 110%
of the outstanding principal amount, $371 in unamortized financing
costs related to the Subordinated Notes so purchased, and a credit
representing the discount of $500 on the Company's prepayment of $1,500
on the $5,000 note payable to Furrs, Inc. issued in connection with the
Company's acquisition of certain stores from Furrs, Inc. in September
1991. The extraordinary items have been shown net of income taxes of
$219.
(8) Old Common Stock held by management investors are presented as
redeemable common stock and excluded from stockholder's equity since
the Company had agreed to repurchase such shares under certain defined
conditions, such as death, retirement or permanent disability. In
addition, net income (loss) per common share reflects the accretion
in/reduction to redemption value as a reduction/increase in income
available to all common stockholders.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
As discussed in Note 2 to the accompanying Consolidated
Financial Statements of Holding and Subsidiary, the Company's 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 10, 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 fifty-two weeks ended December 28, 1996, the results of the Predecessor
Company and Successor Company have been combined.
Because of the adjustments associated with the adoption of
"fresh-start" reporting pursuant to SOP No. 90-7, the periods prior to and
subsequent to the Effective Date for financial reporting purposes are not
necessarily comparable. In addition, it is difficult to identify trends
between which are not necessarily comparable, particularly to the extent
prior trends have been affected by the Restructuring.
16
The table below sets forth selected items from the Company's
consolidated income statement as a percentage of net sales for the periods
indicated:
Fiscal Year
1996 1995 1994
Net Sales..................................... 100.00% 100.00% 100.00%
Cost of sales................................. 75.51 76.02 74.94
Gross profit................................ 24.49 23.98 25.06
Selling and administrative.................... 22.17 24.11 24.67
Amortization of excess
reorganization value......................... 1.10 - -
Operational restructuring costs............... - 2.01 2.96
Operating profit (loss)....................... 1.22 (2.14) (2.57)
Interest expense.............................. (1.67) (2.53) (2.30)
Income (loss) before reorganization
items, income taxes and
extraordinary items.......................... (0.45) (4.67) (4.87)
Reorganization items.......................... (4.93) - -
Income (loss) before income
taxes and extraordinary items................ (5.38) (4.67) (4.87)
Income tax benefit (provision)................ - - ( .31)
Income (loss) before
extraordinary items......................... (5.38) (4.67) (5.18)
Extraordinary items........................... 11.96 (0.37) -
Net income (loss)............................. 6.58 (5.04) (5.18)
Comparison of Fifty-Two Weeks Ended December 28, 1996 with
Fifty-Two Weeks Ended December 30, 1995
Net sales for 1996 amounted to $527.8 million, a decrease of 16.3%
from the net sales of $630.3 million in 1995, which is attributable
primarily to a decline in the number of stores operated by the Company. The
Company began 1996 with 68 stores. In April 1996, it sold one store and
closed two additional stores during the year. The Company opened one new
store in December 1996 but its impact on net sales was negligible.
The Company's comparable store sales for the 65 stores in
operation throughout 1996 increased by 0.3%. This increase was due primarily
to the introduction of the "Homeland Savings Card" in August 1996, and
increased promotional activities. See "Business -- Advertising and
Promotion."
17
Gross profit as a percentage of sales for 1996 increased to 24.5%
from 24.0% in 1995. This improvement in gross profit is attributable to an
improved purchasing environment resulting from the Company better adapting
to purchasing its merchandise from AWG, rather than operating on a
self-supplied basis as it did prior to April 1995. See "Business -- AWG
Transaction." During 1995 (after the consummation of the AWG Transaction in
April 1995), the Company experienced a number of difficulties associated with
this conversion. These difficulties were largely resolved in 1996 and the
Company improved its purchasing skills. The higher gross profit from the
improved purchasing environment was partially offset by more promotional
activities in the fourth quarter of 1996 with the introduction of the
"Homeland Savings Card."
Selling and administrative expenses as a percentage of sales
decreased in 1996 to 22.2% of sales from 24.1% in 1995. The percentage
decline is due to cost controls, including reductions in corporate support
functions and lower operating and occupancy costs commencing as of the
Effective Date. These lower costs include wage rate and benefit contribution
reduction associated with the Modified Union Agreements, certain lease and
secured financing concessions, and the rejection of certain burdensome
executory contracts. See "Business -- Restructuring". Cost savings from the
Modified Union Agreements were somewhat offset by increased costs associated
with training new employees that were hired to replace the 19% of the work
force that accepted the Employee Buyout Offer and an increase in the
federally mandated minimum wage on October 1, 1996. See "Business --
Employees and Labor Relations."
Interest expense decreased from $16.0 million in 1995 to $8.8
million in 1996. This decrease is primarily due to the non-accrual of
interest on the Olds Notes during the bankruptcy proceedings and the
restructuring of certain indebtedness of the Company, principally the Old
Notes. The decline in indebtedness associated with the restructuring of
the Old Notes was offset, in part, by the term loan obtained by the Company
under the Plan of Reorganization to fund certain costs associated with the
Restructuring.
The Company recorded reorganization expenses of $26.0 million in
1996. The reorganization expenses consist primarily of professional fees and
"fresh-start" reporting adjustments. The excess reorganization value is
being amortized over a three-year period and the amortized amount for 1996
was $5.8 million, reflecting amortization commencing after the Effective
Date. The amortization of the excess reorganization value will have the
effect of increasing the expenses of the Company and reducing the net income
of the Company during the next three years.
The Company did not record any provision for income taxes for
1996. Operating loss carryforwards of the Company have been partially reduced
by the debt discharged pursuant to the Plan of Reorganization. At December
28, 1996, the Company had tax net operating loss carryforwards of
approximately $42.0 million. The utilization of the net operating loss
carryforwards is limited to approximately $4.5 million in 1997 and $3.2
million per year thereafter, due to the change of ownership in the Company
that resulted from the Restructuring.
18
As of the Effective Date, pursuant to the terms of the Plan of
Reorganization, certain debt of the Company, principally related to the Old
Notes and the general unsecured claims, was discharged. This resulted in a
recognition of extraordinary gain amounting to $63.1 million.
EBITDA (as defined hereinafter), before operational restructuring
charges, amounted to $19.5 million or 3.69% of sales in 1996 versus $10.5
million and 1.67% of sales in 1995. The improvement in EBITDA is due
primarily to factors reflected above including improved comparable store
sales and decreases in selling and administrative expenses and interest
expense associated with the Restructuring. The Company believes that EBITDA
is a useful supplemental disclosure for the investment community. EBITDA,
however, should not be construed as a substitute for earnings or cash flow
information required under generally accepted accounting principles.
Comparison of Fifty-Two Weeks Ended December 30, 1995 with Fifty-
Two Weeks Ended December 31, 1994
Net sales for 1995 declined to $630.3 million, a 19.7% decrease
from net sales of $785.1 million in 1994. 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 underperforming stores over the course of 1995. These stores were
closed pursuant to the Company's plan to close certain marginal and
underperforming stores. Net sales were also impacted by increased
competition in the Company's market area resulting from additional store
openings of Wal-Mart supercenter stores and Albertson's stores during 1994.
There was one new Wal-Mart supercenter store and three Albertson's stores
that opened in the Company's market area during 1995.
The Company's comparable stores sales for the 68 stores in
operation during all of 1995 increased by 0.2% compared to 1994, due
primarily to improved store conditions, a new advertising program and
increased promotional pricing.
Gross profit as a percentage of sales decreased to 24.0% in 1995
compared to 25.1% in 1994. The continued erosion of the Company's gross
margins was the result of a number of factors including: (a) the difficulties
in transforming the Company from a self-supplier to a member of a purchasing
cooperative; and (b) additional competitive openings (there were eight
additional competitive openings in the Company's market areas in 1995) and
the aggressive pricing practices of certain competitors.
Selling and administrative expenses as a percentage of sales
decreased in 1995 to 24.1% from 24.7% in 1994. The Company was able to
implement personnel and other cost reductions at the corporate office as a
result of the sale of 29 stores and its distribution center to AWG. This
included a reduction of head count by approximately 50% at the corporate
office, lower travel, telephone, and service charges, computer expenses and
other related administrative expenses. The decrease was also due to an
additional workers' compensation accrual during 1994 that did not recur in
1995.
19
Operational restructuring costs for 1995 amounted to $12.6
million which included the write-off of computer software no longer being
utilized by the Company, the write-off of goodwill in connection with the
Restructuring and a termination fee associated with the cancellation of the
Company's computer outsourcing agreement.
Operating loss was $13.5 million in 1995 compared to an operating
loss of $20.1 million in 1994. The lower operating loss was due primarily to
lower operational restructuring costs which declined from $23.2 million in
1994 to $12.6 million in 1995.
Interest expense for 1995 decreased to $16.0 million from $18.1
million in 1994. The lower interest expense was due primarily to the
partial redemption of $25.0 million of the Old Notes on June 1, 1995.
The Company did not record any provision for income taxes for
1995.
Extraordinary items for the year consist of the payment of $600,000
in consent fees to the holders of the Old Notes (as defined in Liquidity
and Capital Resources of this section), $306,000 in premiums on the
redemption of $15.6 million of Series C Senior Secured Fixed Rate Notes (as
defined in Liquidity and Capital Resources of this section) and $1.4 million
in unamortized financing costs related to the redemption of $25.0 million
of Old Notes and the replacement of the prior revolving credit agreement.
Liquidity and Capital Resources
Debt. The primary sources of liquidity for the Company's
operations have been borrowings under credit facilities and internally
generated funds. In March 1992, the Company refinanced its indebtedness by
entering into an Indenture, as amended and supplemented, with United States
Trust Company of New York, as trustee, pursuant to which the Company had
outstanding as of May 13, 1996, $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 Series A Senior Secured Floating Rates
Notes due 1997 (collectively, the "Old Notes").
On April 21, 1995, the Company entered into a revolving credit
agreement (the "Prior Credit Agreement") with NBC, as agent and as lender,
and Heller Financial, Inc. The Prior Credit Agreement permitted borrowings
up to $25 million, subject to a borrowing base, for working capital needs
including certain letters of credit.
On May 13, 1996, the Company entered into an interim debtor-in-
possession lending facility ("DIP Facility"), with its existing bank group to
provide up to $27 million of working capital financing. The DIP Facility
permitted the Company to borrow up to the lesser of $27 million or the
borrowing base. Interest on the borrowings under the DIP Facility was at a
rate equal to the prime rate announced publicly by NBC from time to time in
New York, New York plus two percent. The DIP Facility matured on the
Effective Date.
20
On the Effective Date, pursuant to the Plan of Reorganization,
the Company entered into a Loan Agreement with NBC, as agent and lender, and
two other lenders, Heller Financial, Inc. and IBJ Schroder Bank and Trust
Company, under which those lenders provided a working capital and letter of
credit facility and a term loan. The Loan Agreement permits the Company to
borrow, under the working capital and letter of credit facility, up to the
lesser of (a) $27.5 million or (b) the applicable borrowing base. Funds
borrowed under such facility are available for general corporate purposes
of the Company.
The Loan Agreement also provided the Company a $10.0 million term
loan (the "Term Loan"), which was used to fund certain obligations of the
Company under the Plan of Reorganization, including the Employee Buyout Offer
and a new health and welfare plan required by the Modified Union Agreements,
professional fees and "cure amounts" which were required to be paid under the
Plan of Reorganization in connection with executory contracts, secured
financing and unexpired leases.
The interest rate under the Loan Agreement is based on the prime
rate publicly announced by National Bank of Canada from time to time in New
York, New York plus a percentage which varies based on a number of factors,
including (a) the amount which is part of the working capital and letter of
credit facility and the amount which is part of the term loan, (b) the time
period, (c) whether the Company elects to use a London Interbank Offered
Rate, and (d) the earnings of the Company before interest, taxes,
depreciation and amortization expenses.
The indebtedness under the Loan Agreement will mature three years
from the Effective Date on August 1, 1999. The Term Loan, however, requires
a principal paydown of approximately $0.4 million each quarter commencing on
September 30, 1997.
The obligations of the Company under the Loan Agreement are
secured by liens on, and security interests in, substantially all of the
assets of Homeland and are guaranteed by Holding, with a pledge of its
Homeland stock to secure its obligation. The collateral includes the assets
which, prior to the Effective Date, secured the obligations of the Company to
the holders of the Old Notes.
The Loan Agreement includes certain customary restrictions on
acquisitions, asset dispositions, capital expenditures, consolidations and
mergers, distributions, divestitures, indebtedness, liens and security
interests and transactions with affiliates. The Loan Agreement also requires
the Company to comply with certain financial and other covenants.
As of the Effective Date, the Company entered into an Indenture
with Fleet National Bank, as trustee, under which the Company issued $60.0
Million of Unsecured Subordinated Notes. The New Notes will mature on August
1, 2003. Interest on the New Notes will accrue at the rate of 10% per annum
and will be payable on February 1 and August 1 of each year.
21
The Indenture contains certain customary restrictions on
acquisitions, asset sales, consolidations and mergers, distributions,
indebtedness, transactions with affiliates and payment of dividends.
Labor Savings. An integral part of the Restructuring is the
Company's negotiated deal with its labor unions to modify certain elements of
the Company's existing collective bargaining agreements. The Modified Union
Agreements provided for, among other things, wage and benefit modifications,
the Employee Buyout Offer and the issuance to and purchase of new equity by a
trust acting on behalf of the unionized employees. The Modified Union
Agreements became effective on the Effective Date.
The Company estimates that the Modified Union Agreements will
result in cost savings of approximately $10 million during the first full
contract year following the Restructuring. There can be no assurance,
however, that such cost savings will actually be realized. In addition,
cost savings in future contract years will be offset in part by contractual
wage and benefit increases and also the recent federally mandated wage
increases.
Working Capital and Capital Expenditures. The
Company's primary sources of capital have been borrowing
availability under the revolving credit facility and cash flow
from operations, to the extent available. The Company uses the
available capital resources for working capital needs, capital
expenditures and repayment of debt obligations.
22
The Company's EBITDA (earnings before interest, taxes,
depreciation and amortization) before operational restructuring charges, as
presented below, is the Company's measurement of internally-generated
operating cash for working capital needs, capital expenditures and payment
of debt obligations:
52 Weeks Ended
Dec. 28, 1996 Dec. 30, 1995 Dec. 31, 1994
Income before reorganization
items, income taxes and
extraordinary items $ (2,435) $(29,460) $(38,199)
Interest expense 8,838 15,992 18,067
Amortization of excess
reorganization value 5,819 - -
Operational restructuring costs - 12,639 23,205
Depreciation and amortization 7,243 11,373 17,716
EBITDA $ 19,465 $ 10,544 $ 20,789
As a percentage of sales 3.69% 1.67% 2.65%
As a multiple of interest expense 2.20x 0.66x 1.15x
The Company experienced negative cash flow from operations (cash
flow after working capital changes, interest expense and taxes) of $5.6
million and $8.0 million for 1996 and 1995, respectively, as compared to
positive cash flow of $0.3 million in 1994. The negative cash flow in 1996
resulted primarily from the one-time payment made for the Employee Buyout
Offer and professional fees paid relating to the Restructuring and to a
lesser degree, the increase in inventories and AWG patronage certificates.
The Company's investing activities used net cash of $4.8 million
and $4.0 million for 1996 and 1994, respectively, while it provided net cash
of $65.1 million in 1995. The substantial increase in cash provided in
investing activities for 1995 was the result of the sale of the warehouse,
29 stores and inventory to AWG. The Company invested $6.5 million, $4.7
million and $5.4 million in capital expenditures for 1996, 1995 and 1994,
respectively. The capital expenditures for 1996 were funded by the remaining
escrow funds of $1.7 million that were deposited with United States Trust
Company of New York, the Prior Credit Agreement, the DIP Facility and the
Loan Agreement.
23
Financing activities of the Company provided net cash of $5.5
million and $1.9 million in 1996 and 1994, respectively, and used net cash
of $51.0 million in 1995. The net cash provided in financing activities
for 1996 was primarily the result of the borrowing under the Term Loan.
The Company considers its capital expenditure program a critical
and strategic part of the overall plan to support its market competitiveness.
Cash capital expenditures for 1997 are expected to be at approximately $11.6
million. The Loan Agreement limits the Company's capital expenditures for
1997 to $12.0 million in cash capital expenditures and $7.0 million for
capital leases. The 1997 capital expenditures is expected to be invested in
remodel and upgrade of certain stores and improvement in its store and
corporate information systems. The funds for the capital expenditures are
expected to be obtained from the Company's operating activities and
borrowings under the Loan Agreement. As of March 18, 1997, the Company had
$13.2 million of availability under the Loan Agreement.
The Company's ability to meet its working capital needs, meet its
debt and interest obligations and capital expenditure requirements is
dependent on its future operating performance. Management believes that the
Restructuring will have a favorable effect on the Company's future liquidity
by: (a) reducing future interest cost; (b) reducing labor costs; (c)
extending the maturities of the Company's long-term debt; and (d) permitting
additional borrowings through the release of collateral under the Indenture
relating to the Old Notes. There can be no assurance that future operating
performance will provide positive net cash or that the Restructuring will
ultimately be successful. If the Company is not able to generate positive
cash flow from its operations or if the Restructuring is not ultimately
successful, management believes that this could have a material adverse
effect on the Company's business and the continuing viability of the Company.
Recently-Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" and Statement No. 129, "Disclosure
of Information About Capital Structure." Statement No. 128 specifies the
computation, presentation, and disclosure requirements for earnings per share.
Statement No. 129 consolidates existing requirements to disclose certain
information about an entity's capital structure. Both statements are
effective for financial statements issued for periods ending after December
15, 1997. Based on the Company's present capital structure and common stock
equivalents (stock options), the Company does not believe the implementation
of these new standards will have an impact on its financial statements.
Inflation/Deflation
Although the Company does not expect inflation or deflation to
have a material impact in the future, there can be no assurance that the
Company's business will not be affected by inflation or deflation in future
periods.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and notes thereto
are included in this report following the signature pages.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, present positions and years
of service (in the case of members of management) of the directors and
management of Homeland:
Years with the
Company and/or
Age Position Safeway
James A. Demme* 57 Chairman of the Board, 2
President, Chief Executive
Officer and Director
Larry W. Kordisch* 49 Executive Vice President - 2
Finance, Chief Financial
Officer and Secretary
Steven M. Mason 42 Vice President - Marketing 26
Terry M. Marczewski* 42 Vice President and Controller 2
Prentess E. Alletag, Jr. 50 Vice President - Human 29
Resources
Francis T. Wong* 37 Treasurer and Assistant 8
Secretary
Robert E. (Gene) Burris 50 Director --
Edward B. Krekeler, Jr. 53 Director --
Laurie M. Shahon 45 Director --
John A. Shields 54 Director --
William B. Snow 65 Director --
David N. Weinstein 38 Director --
* Holding's Board of Directors is identical to that of Homeland. Mr.
Demme serves as Holding's Chairman of the Board, President and Chief
Executive Officer, Mr. Kordisch as Executive Vice President - Finance,
Chief Financial Officer and Secretary and Mr. Marczewski as Vice
President and Controller and Mr. Wong as Treasurer and Assistant
Secretary.
25
James A. Demme was elected Chairman of the Board in September 1996.
He became President, Chief Executive Officer and a director of the Company as
of November 30, 1994. From 1992 to 1994, Mr. Demme served as Executive Vice
President of Retail Operations of Scrivner, Inc. He was responsible for the
operations of its 170 retail stores which had a total volume exceeding $2
billion. From 1991 to 1992, Mr. Demme served as Senior Vice President of
Marketing of Scrivner, Inc. where he was responsible for restructuring and
refocusing the merchandising department to retail orientation. From 1988 to
1991, Mr. Demme was President and Chief Operating Officer of Shaws
Supermarkets, which was the nation's fifteenth largest retail chain with
sales of $1.7 billion.
Larry W. Kordisch joined the Company in February 1995 and became
Executive Vice President - Finance, Treasurer, Chief Financial Officer and
Secretary as of May 1995. Prior to joining Homeland, Mr. Kordisch served as
Executive Vice President - Finance and Administration, Chief Financial
Officer and member of the Board of Directors of Scrivner, Inc. and was
responsible for the Finance, Accounting, Risk Management, Legal and
Administrative functions.
Steven M. Mason joined Safeway in 1970 and the Oklahoma Division
in 1986. At the time of the Acquisition, he was serving as Special Projects
Coordinator for the Oklahoma Division. In November 1987, he joined Homeland
and in October 1988, he was appointed to the position of Vice President -
Retail Operations. In October 1993, Mr. Mason was appointed to the position
of Vice President - Marketing.
Terry M. Marczewski joined the Company in April 1995 and became
the Chief Accounting Officer, Assistant Treasurer and Assistant Secretary as
of May 1995. From July 1994 to April 1995, he was the controller at Fleming
Companies, Inc.- Scrivner Group. From 1990 to July 1994, Mr. Marczewski was
the Vice President and Controller at Scrivner, Inc., the nation's third
largest grocery wholesaler, prior to its acquisition by Fleming Companies,
Inc. In December 1996, Mr. Marczewski was appointed to the position of Vice
President and Controller.
Prentess E. Alletag, Jr. joined the Oklahoma Division in October
1969, where, at the time of the Acquisition, he was serving as Human Resources
and Public Affairs Manager. In November 1987, Mr. Alletag joined Homeland
as Vice President - Human Resources.
Francis T. Wong joined the Company in July 1989. In December 1996,
Mr. Wong was appointed to the position of Treasurer and Assistant Secretary.
Prior to this appointment, Mr. Wong served as Director of Finance, Assistant
Secretary and Assistant Treasurer of the Company.
Robert E. (Gene) Burris became a director of the Company on August
2, 1996. Since 1988, Mr. Burris has been President of the UFCW Local No.
1000, which represents approximately 65% of the Company's unionized employees.
Pursuant to the Modified Union Agreements, the UFCW has the right to
designate one member of the
26
Boards of Directors of Holding and Homeland. Mr. Burris is the designee of
the UFCW. Since February 1995, Mr. Burris has been the Chief Executive
Officer and owner of G&E Railroad, a retail store.
Edward B. Krekeler, Jr. became a director of the Company on
August 2, 1996. Since 1994, he has been owner of Krekeler Enterprises, Ltd.,
a corporate financial consulting firm. From 1984 to 1994, he served in
various positions as an officer of Washington Square Capital, Inc., including
Vice-President, Special Investments, Vice-President, Administration, Private
Placements, Vice-President, Portfolio Manager, Private Placements, and Chief
Investment Analyst. From 1970 to 1984, Mr. Krekeler was Director, Fixed
Income Investments, of The Ohio National Life Insurance Company, Inc. He was
Chairman of the Board of Directors of Convenient Food Marts, Inc. from 1990
to 1994.
Laurie M. Shahon became a director of the Company on August 2,
1996. Ms. Shahon has been President of Wilton Capital Group, a private direct
investment firm since January 1994. Ms. Shahon previously served as Vice
Chairman and Chief Operating Officer of Color Tile, Inc. in 1989. From 1988
to 1993, she served as Managing Director of `21' International Holdings, Inc.,
a private holding company. From 1980 to 1988, she was Vice President of
Salomon Brothers, Inc., where she was founder and head of the retailing and
consumer products group. From 1976 to 1980, Ms. Shahon was an Associate
with Morgan Stanley & Co., Incorporated. Ms. Shahon is a director of Arbor
Drugs, Inc., One Price Clothing Stores, Inc. and Ames Department Stores, Inc.
John A. Shields became a director of the Company in May 1993.
Mr. Shields has been the Chairman and Chief Executive Officer of Delray Farms
Fresh Markets, a retail perishables specialty chain, since January 1994. From
1983 to 1993, he served as President, Chief Executive Officer, Chief
Operating Officer and a member of the Board of Directors of First National
Supermarkets. Mr. Shields is a director of D.I.Y. Home Warehouse, Inc.,
Delray Farms, Inc., Wild Oats Markets, Inc. and Shore Bank, Inc.
William B. Snow became a director of the Company on August 2,
1996. Mr. Snow has served as Vice Chairman of Movie Gallery, Inc., the second
largest video specialty retailer in the United States, since 1994. From 1985
to 1994, he was Executive Vice President and a director of Consolidated
Stores Corporation. From 1980 to 1985, Mr. Snow was Chairman, President and
Chief Executive Officer of Amerimark, Inc., a diversified supermarket retailer
and institutional food service distributor. From 1974 to 1980, he was
President of Continental Foodservice, Inc. From 1966 to 1974, Mr. Snow was
Senior Vice President of Hartmarx, Inc. Mr. Snow is a director of Movie
Gallery, Inc. and Action Industries, Inc.
David N. Weinstein became a director of the Company on August 2,
1996. He is the Managing Director of the High Yield Capital Markets group at
BancBoston Securities, Inc. From 1993 to March 1996, he served as Managing
Director and High Yield Capital Market Specialist of Chase Securities, Inc.
From 1990 to 1993, Mr. Weinstein was head of the Capital Markets group in the
High Yield Department of
27
Lehman Brothers and later was a director in the High Yield/Private Financing
Group of Smith Barney Shearson. Mr. Weinstein is also a director of Ithaca
Industries, Inc.
Compliance with Section 16 (a) of the Securities Exchange Act of 1934 (the
"1934 Act")
Section 16 (a) of the 1934 Act requires directors, executive
officers and persons who are the beneficial owners of more than 10% of any
class of any equity security of the Company to file reports with the
Securities and Exchange Commission (the "SEC"). Each of the directors and
executive officers of the Company were required to file a Form with the SEC
no later than the date on which the Registration Statement on Form 10 with
respect to the Common Stock became effective (December 6, 1996). The directors
and executive officers filed their respective Forms in December 1996 (after
December 6, 1996) and January 1997. Accordingly, such Forms were filed
untimely. This was the sole occasion on which the directors and the
executive officers made untimely filings in 1996. Based solely on the
Company's review of reporting forms provided by the directors and executive
officers of the Company, no Form 5 reports were required.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information
concerning compensation paid or accrued by the Company to, or on behalf of,
the Company's Chief Executive Officer, each of the four other most highly
compensated executive officers of the Company (hereinafter referred to as
the "Named Executive Officers") for the fiscal years ended December 28, 1996,
December 30, 1995, and December 31, 1994:
28
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Long-Term
Principal Compensation All Other
Position Year Salary Bonus Option Awards Compensation (3)
<S> <C> <C> <C> <C> <C>
James A. Demme(1)(2) 1996 $200,000 $200,000 135,000 $ 4,675
Chairman, President 1995 200,000 100,000 - 4,396
and Chief Executive 1994 11,538 - - -
Officer
Larry W. Kordisch(2)(4) 1996 $150,000 $150,000 62,500 $ 1,539
Executive Vice 1995 126,923 100,000 - 3,907
Pres. Finance,
Chief Financial Officer
and Secretary
Steven M. Mason(2) 1996 $130,500 $130,500 - $ 2,620
Vice President - 1995 130,500 19,575 - 6,414
Marketing 1994 130,500 110,925 - 8,963
Terry M. Marczewski(2)(5) 1996 $ 90,000 $ 45,000 - $ 86
Vice President - 1995 69,326 20,000 - 43
Controller
Alfred F. Fideline, Sr.(2)(6) 1996 $ 80,000 $ 40,000 - $ 270
Former Vice President - 1995 $ 80,000 $ 12,000 - 247
Retail Operations 1994 $ 78,462 $ 53,074 - 370
</TABLE>
(1) Mr. Demme joined the Company as President, Chief Executive Officer and a
director as of November 30, 1994.
(2) Personal benefits provided to the Named Executive Officer under various
Company programs do not exceed 10% of total annual salary and bonus
reported for the Named Executive Officer.
(3) The Company provides reimbursement for medical benefit insurance premiums
for certain of the Named Executive Officers. These persons obtain
individual private medical benefit insurance policies with benefits
substantially equivalent to the medical benefits currently provided
under the Company's group plan. The Company also provides for life
insurance premiums for executive officers, including certain Named
Executive Officers and one other executive officer, who obtain private
term life insurance policies with benefits of $500,000 per person.
Amounts paid during 1996 are as follows: James A. Demme, $3,325; Larry
W. Kordisch, $1,191; and Steven M. Mason, $2,445.
(4) Mr. Kordisch joined the Company in February 1995 and was appointed
Executive Vice President-Finance, Chief Financial Officer, Treasurer and
Secretary of the Company as of May 5, 1995.
(5) Mr. Marczewski joined the Company in April 1995 and was appointed the
Chief Accounting Officer and Controller of the Company as of May 5, 1995.
(6) Mr. Fideline was Vice President - Retail Operations until his resignation
in January 1997.
29
The following table sets forth certain information with respect to grants of
options to the Named Executive Officers during 1996:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realized Value at
Assumed Rates of Stock
Appreciation for
Individual Grants Option Terms
_____________________________________________________________________________ ___________________
Number of
Securities % of Total
Underlying Options Granted
Options to Employees Exercise Expiration
Name Granted in Fiscal Year Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James A. Demme 135,000 (1) 60.3% $8.00 Dec. 26, 2006 $679,206 $1,721,242
Larry W. Kordisch 62,500 (1) 39.7% $8.00 Dec. 26, 2006 $314,447 $ 796,871
(1) The options are exercisable immediately upon issuance. None of these
options have been exercised.
</TABLE>
Compensation of Directors
Directors who are not employees of the Company or otherwise
affiliated with the Company (presently consisting of Ms. Shahon and Messrs.
Burris, Krekeler, Shields, Snow and Weinstein) are paid annual retainers of
$15,000 and meeting fees of $1,000 for each meeting of the board or any
committee attended in person and $250 for each meeting attended by telephone.
Mr. Shields previously served as a consultant to the Company at the request
of CD&R. During 1995, Mr. Shields received $166,662 from CD&R for consulting
fees for services provided to the Company.
Employment Agreements
In November 1994, the Company entered into an employment agreement
with James A. Demme, the Company's President and Chief Executive Officer, for
an indefinite term. The agreement provides a base annual salary of not less
than $200,000 subject to increase from time to time at the discretion of the
Board of Directors. The agreement entitles Mr. Demme to participate in the
Company's Management Incentive Plan with a maximum annual bonus equal to 100%
of base salary. The agreement also provides for awards under a long term
incentive compensation plan which is to be established by the Company and
authorizes reimbursement for certain business-related expenses. The
agreement was amended in April 1996, to provide that, if the agreement is
terminated by the Company for other than cause or disability prior to
December 31, 1997, or is terminated by Mr. Demme following a change of
control or a trigger event (as defined), Mr. Demme is entitled to receive
(a) payment, which would not be subject to any offset as a result of his
receiving compensation from other employment, equal to two years' salary,
plus a pro rata amount of the incentive compensation for the portion of the
incentive year that precedes the date of termination, and (b) continuation of
welfare benefit arrangements for a period of two years after the date of
termination. The Restructuring is a
30
trigger event under the agreement only if Mr. Demme terminates his employment
for good reason (as defined) or if, following the Effective Date, a
subsequent trigger event occurs, such as a change of control or sale of
assets.
On September 26, 1995, the Company entered an employment agreement
with Larry W. Kordisch, the Company's Executive Vice President-Finance and
Chief Financial Officer. The agreement provides for a base annual salary of
not less than $150,000, subject to increase from time to time at the
discretion of the Board of Directors. Mr. Kordisch is also entitled to
participate in the Management Incentive Plan based upon the attainment of
performance objectives as the Board of Directors shall determine from time to
time. The agreement was amended in April 1996, to provide that, if the
agreement is terminated by the Company for other than cause or disability
prior to December 31, 1997, or is terminated by Mr. Kordisch following a
change of control or a trigger event (as defined), Mr. Kordisch is entitled
to receive (a) payment, which would not be subject to any offset as a result
of his receiving compensation from other employment, equal to two years'
salary, plus a pro rata amount of the incentive compensation for the portion
of the incentive year that precedes the date of termination, and (b)
continuation of welfare benefit arrangements for a period of two years after
the date of termination. The Restructuring is a trigger event under the
agreement only if Mr. Kordisch terminates his employment for good reason
(as defined) or if, following the Effective Date, a subsequent trigger event
occurs, such as a change of control or sale of assets.
On September 26, 1995, the Company entered into an employment
agreement with Terry M. Marczewski, the Company's Controller and Chief
Accounting Officer. The agreement, which is for an indefinite term, provides
for a base annual salary of $90,000, subject to increase from time to time at
the discretion of the Board of Directors. Mr. Marczewski is also entitled to
participate in the Management Incentive Plan based upon the attainment of
performance objectives as the Board shall determine from time to time. The
agreement was amended in April 1996, to provide that, in the event his
employment is terminated prior to December 31, 1997 for any reason other than
cause or disability, the Company will pay Mr. Marczewski his annual salary
for a period of one year after the termination date or until December 31,
1997, whichever is longer, plus a pro rata amount of the incentive
compensation for the portion of the incentive year that precedes the date of
terminations.
In April 1996, the Company entered into employment agreements with
Steve Mason, the Company's Vice President of Marketing. The agreement,
which is for an indefinite term, provides a base annual salary of $130,500
for Mr. Mason, subject to increase from time to time at the discretion of the
Board of Directors. In the event his employment is terminated prior to
December 31, 1997 for any reason other than cause or disability, the Company
will pay Mr. Mason his annual salary for a period of one year after the
termination date or until December 31, 1997, whichever is longer, plus a
pro rata amount of the incentive compensation for the portion of the
incentive year that precedes the date of termination.
On January 8, 1997, the Company entered into a settlement
agreement (the "Settlement Agreement") with Alfred F. Fideline, Sr., the
Company's former Vice President - Retail Operations, in connection with his
termination of employment with the Company. Pursuant to the terms of the
Settlement Agreement, the Company agreed to provide Mr.
31
Fideline with the following: (a) medical and dental benefits through December
31, 1997; (b) payment of his base salary through January 2, 1998; and (c)
conveyance of the Company car.
Management Incentive Plan
Homeland maintains a Management Incentive Plan to provide
incentive bonuses for members of its management and key employees. Bonuses
are determined according to a formula based on both corporate, store and
individual performance and accomplishments or other achievements and are paid
only if minimum performance and/or accomplishment targets are reached.
Minimum bonuses range from 0 to 50% of salary for officers (as set forth in
the plan), including the Chief Executive Officer. Maximum bonus payouts
range from 100% to 200% of salary for officers and up to 200% of salary for
the Chief Executive Officer. Performance levels must significantly exceed
target levels before the maximum bonuses will be paid. Under limited
circumstances, individual bonus amounts can exceed these levels if approved
by the Compensation Committee of the Board. Incentive bonuses paid to
managers and supervisors vary according to their reporting and responsibility
levels. The plan is administered by a committee consisting, unless otherwise
determined by the Board of Directors, of members of the Board who are
ineligible to participate in the plan. Incentive bonuses earned for certain
highly compensated executive officers under the plan for performance during
fiscal year 1996 are included in the Summary Compensation Table.
Retirement Plan
Homeland maintains a retirement plan in which all non-union
employees, including members of management, participate. Under the plan,
employees who retire at or after age 65 and after completing five years of
vesting service (defined as calendar years in which employees complete at
least 1,000 hours of service) will be entitled to retirement benefits equal
to 1.50% of career average annual compensation (including basic, overtime and
incentive compensation) plus .50% of career average annual compensation in
excess of the social security covered compensation, such sum multiplied by
years of benefit service (not to exceed 35 years). Service with Safeway
prior to the Acquisition is credited for vesting purposes under the plan.
Retirement benefits will also be payable upon early retirement beginning at
age 55, at rates actuarially reduced from those payable at normal retirement.
Benefits are paid in annuity form over the life of the employee or the joint
lives of the employee and his or her spouse or other beneficiary.
Under the retirement plan, estimated annual benefits payable to
the named executive officers of Homeland upon retirement at age 65, assuming
no changes in covered compensation or the social security wage base, would be
as follows: James A. Demme, $28,503; Larry W. Kordisch, $47,417; Steven M.
Mason, $85,134; and Terry M. Marczewski, $67,591.
32
Management Stock Option Plan
In December 1996, the Board of Directors of the Company, pursuant
to the Plan of Reorganization, adopted the Homeland Holding Corporation 1996
Stock Option Plan (the `Stock Option Plan"). The Stock Option Plan, to be
administered by the Board of Directors ("Board"), or a committee of the Board
(the "Committee"), provides for the granting of options to purchase up to an
aggregate of up to 263,158 shares of Common Stock. Options granted under the
Stock Option Plan shall be "non-qualified options." The option price of each
option must not be less than the fair market value as determined by the Board
or the Committee. Unless the Board or the Committee otherwise determines,
options shall become exercisable ratably over a five-year period or
immediately in the event of a "change of control" as defined in the Stock
Option Plan. Each option must be evidenced by a written agreement and must
expire and terminate on the earliest of (a) ten years from the date the
option is granted (b) termination for cause and (c) three months after
termination for other than cause.
Compensation Committee Report
The Company's Compensation and Benefits Committee was formed in
September 1996 at the first meeting of the newly installed Board of
Directors. See "Directors and Executive Officers of the Registrant".
The duties of the Compensation and Benefits Committee will include the
review and recommendation of salary, other compensation arrangements for
the officers, management incentive and stock option plans, including the 1996
Management Incentive Plan and the Stock Option Plan.
No member of the Compensation Committee is a current or former
officer or employee of the Company.
Compensation Committee Interlocks and Insider Participation
Ms. Shahon and Messrs. Snow and Shields serve on the Company's
Compensation and Benefits Committee of the Board of Directors. During 1995,
Mr. Shields received $166,662 from CD&R for consulting fees for services
provided to the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Under the Company's Plan of Reorganization, each holder of a
general unsecured claim against the Company, including $40.1 million of
general unsecured claims in respect of the Old Notes, will receive its
ratable share of 4,450,000 shares of Common Stock, based on the amount of
such holder's claim relative to all general unsecured claims. As of March
18, 1997, the final amount of the general unsecured claims has not been
determined.
33
Under the Plan of Reorganization, the Company has reserved for
the account of each creditor holding a disputed general unsecured claim the
Common Stock that would otherwise be distributable to such creditor on the
Effective Date if such disputed claim were allowed by the Bankruptcy Court.
If a disputed claim is disallowed in whole or in part, the Company will
distribute the Common Stock held in reserve ratably to holders of general
unsecured claims allowed by the Bankruptcy Court. Such distribution will be
made on June 30 and December 31 of each following year until the earlier of
(a) the date on which all disputed claims have been resolved or (b) less than
5,000 shares of Common Stock are on deposit in the disputed claims reserve.
If any time after the Effective Date, the number of shares of Common Stock in
the disputed claims reserve is less than 5,000, the remaining shares of
Common Stock held in such reserve will, at the Company's option, be
cancelled or treated as treasury shares.
The Company estimates that total general unsecured claims will be
approximately $63.1 million, consisting of approximately $40.1 million in
general unsecured claims in respect of the Old Notes and approximately $23.0
million of other general unsecured claims. Based on such estimate (a)
holders of the Old Notes will receive (in the aggregate) approximately
2,827,922 shares of Common Stock representing approximately 60.2% of the
Common Stock to be outstanding upon consummation of the Restructuring and (b)
holders of the other general unsecured claims will receive (in the aggregate)
approximately 1,622,029 shares of Common Stock representing approximately
34.5% of the Common Stock to be outstanding upon consummation of the
Restructuring.
In addition, under the Plan of Reorganization, all of the
Company's issued and outstanding Class A Common Stock, par value $.01 per
share (the "Old Common Stock"), will be exchanged for (a) an aggregate of
250,000 shares of Common Stock, representing approximately 5.3% of the Common
Stock to be outstanding, and (b) warrants to purchase (in the aggregate) up
to 263,158 shares of Common Stock (the "New Warrants") at an exercise price
of $11.85 per share. Each holder of the Old Common Stock will receive
7.73 shares of Common Stock and 8.14 New Warrants for each 1,000 shares of
Old Common Stock held by such holder.
34
Set forth below is certain information as of March 18, 1997,
regarding the beneficial ownership of Holding's Common Stock by: (a) any
person or group known to have beneficial ownership of more than 5% of the
Common Stock of Holding; (b) each of the Named Executive Officers; (c) each
director; (d) other officers of the Company and (e) all directors, Named
Executive Officers and officers as a group:
Shares
Beneficially Percent of
Name of Beneficial Owner Owned Class
Credit Suisse First Boston, Inc. (1) 246,460 5.2%
11 Madison Avenue
New York, NY 10010
James A. Demme (2) 135,000 2.8%
Larry W. Kordisch (2) 62,500 1.3%
Steve M. Mason (3) 665 *
Terry M. Marczewski - -
Prentess E. Alletag - -
Francis T. Wong - -
Robert E. (Gene) Burris - -
Edward B. Krekeler, Jr. - -
Laurie M. Shahon - -
John A. Shields - -
William B. Snow - -
David N. Weinstein - -
Officers and directors as a
group (12 persons) 198,165 4.0%
______________________
* Less than 1%
(1) Credit Suisse First Boston, Inc. is the parent corporation of
Credit Suisse First Boston Corporation, a registered broker-dealer,
which owns these shares of Common Stock of record. Credit Suisse
Group, the ultimate parent corporation of Credit Suisse First
Boston Corporation, disclaims ownership of these shares of Common
Stock.
(2) Messrs. Demme and Kordisch were awarded stock options pursuant to
the Stock Option Plan in December 1996 amounting to 135,000 and
62,500 shares, respectively. Their options are exercisable
immediately upon issuance and will expire December 26, 2006.
(3) Mr. Mason is the beneficial owner of 324 shares of Common Stock and
341 New Warrants.
35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Effective Date, the Company's largest stockholders
were Clayton & Dubilier Private Equity Fund III Limited Partnership ("C&D
Fund III") which owned approximately 35.9% of the Old Common Stock, and
Clayton Dubilier Private Equity Fund IV Limited Partnership ("C&D Fund IV")
which owned approximately 40.4% of the Old Common Stock. After consummation
of the Restructuring, C&D Fund III and C&D Fund IV owned less than 5% of the
outstanding Common Stock. The Company believes that C&D Fund III and C&D
Fund IV sold all of their Common Stock prior to year-end 1996.
C&D Fund III and C&D Fund IV are private investment funds managed
by CD&R. Amounts contributed to C&D Fund III and C&D Fund IV by the limited
partners thereof are invested at the discretion of the general partner in the
equity of corporations organized for the purpose of carrying out leveraged
acquisitions involving the participation of management, or, in the case of
C&D Fund IV, in corporations where the infusion of capital coupled with the
provision of managerial assistance by CD&R can be expected to generate
returns on investments comparable to returns historically achieved in
leveraged buy-out transactions. The general partner of C&D Fund III is
Clayton & Dubilier Associates III Limited Partnership, a Connecticut limited
partnership ("Associates III"). The general partner of C&D Fund IV is
Clayton & Dubilier Associates IV Limited Partnership, a Connecticut limited
partnership ("Associates IV"). B. Charles Ames, a principal of CD&R, a
holder of an economic interest in Associates III and a general partner of
Associates IV, also served as Chairman of the Board of the Company until the
Effective Date. Andrall E. Pearson, a principal of CD&R and a former
director of the Company, is a general partner of Associates IV. Michael G.
Babiarz, a former director of the Company, is a professional employee of
CD&R. Hubbard C. Howe, a principal of CD&R and a former director of the
Company, is a general partner of Associates IV.
Through 1995, CD&R received an annual fee for management and
financial consulting services provided to the Company and reimbursement of
certain expenses. The consulting fees paid to CD&R were $125,000 in 1995,
$150,000 in 1994 and $200,000 in 1993. CD&R agreed to forgo the consulting
fee after October 1995, in view of the Company's financial position and in
order to facilitate the proposed Restructuring. To further assist the
Company, CD&R paid Donaldson, Lufkin and Jenrette, an investment
banking firm, approximately $250,000 in 1995 and $500,000 plus expenses in
1996 for consulting services relating to the Restructuring.
CD&R, C&D Fund III and the Company entered into an Indemnification
Agreement on August 14, 1990, pursuant to which the Company agreed to
indemnify CD&R, C&D Fund III, Associates III and their respective directors,
officers, partners, employees, agents and controlling persons against certain
liabilities arising under the federal securities laws and certain other
claims and liabilities.
CD&R, C&D Fund III, C&D Fund IV and the Company entered into a
separate Indemnification Agreement, dated as of March 4, 1992, pursuant to
which the Company agreed, subject to any applicable restrictions in the
Indenture relating to the Old
36
Notes, the Prior Credit Agreement, the Subordinated Note Indenture, the
1987 Registration and Participation Agreement, and the 1990 Registration
and Participation Agreement, to indemnify CD&R, C&D Fund III, C&D Fund IV,
Associates III, Associates IV and their respective directors, officers,
partners, employees, agents and controlling persons against certain
liabilities arising under the federal securities laws and certain other
claims and liabilities.
Mr. Gene Burris, a director of the Company, is President of UFCW
Local No. 1000, which represents approximately 65% of the Company's unionized
employees. Pursuant to the Modified Union Agreements, the UFCW has the right
to designate one member of the Board of Directors of Holding and Homeland.
Mr. Burris is the designee of the UFCW.
Ms. Shahon and Messrs. Krekeler, Snow and Weinstein were nominated
by the Noteholders' Committee to serve as directors of the Company.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
The following documents are filed as part of this Report:
(a) Financial Statements and Exhibits.
1. Financial Statements. The Company's financial statements
are included in this report following the signature pages.
See Index to Financial Statements and Financial Statement
Schedules on page F-1.
2. Exhibits. See attached Exhibit Index on page E-1.
(b) Reports on Form 8-K. The following report on Form 8-K was
filed during the last quarter of the period covered by this
report:
Date Filed Description
September 20, 1996 Confirmation of the Plan of Reorganization
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 1997 By: /s/ James A. Demme
James A. Demme, Chairman
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ James A. Demme Chairman of the Board March 28, 1997
James A. Demme President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ Larry W. Kordisch Executive Vice President/ March 28, 1997
Larry W. Kordisch Finance, C.F.O. and Secretary
(Principal Financial Officer)
/s/ Terry M. Marczewski Vice President, Controller March 28, 1997
Terry M. Marczewski (Principal Accounting Officer)
II-1
Signature Title Date
Director March 28, 1997
Robert E. (Gene) Burris
/s/ Edward B. Krekeler, Jr. Director March 28, 1997
Edward B. Krekeler, Jr.
Director March 28, 1997
Laurie M. Shahon
/s/ John A. Shields Director March 28, 1997
John A. Shields
Director March 28, 1997
William B. Snow
/s/ David N. Weinstein Director March 28, 1997
David N. Weinstein
II-2
INDEX TO FINANCIAL STATEMENTS
HOMELAND HOLDING CORPORATION
Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 28, 1996
(Successor Company), and December 30, 1995
(Predecessor Company) F-3
Consolidated Statements of Operations
for the 20 weeks ended December 28, 1996
(Successor Company), 32 weeks ended
August 10, 1996, and 52 weeks ended December 30,
1995, and December 31, 1994 (Predecessor Company) F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the 20 weeks ended December 28, 1996
(Successor Company), 32 weeks ended August 10,
1996 and 52 weeks ended December 30, 1995,
and December 31, 1994 (Predecessor Company) F-6
Consolidated Statements of Cash Flows for the 20 weeks
ended December 28, 1996 (Successor Company),
32 weeks ended August 10, 1996, and 52 weeks
ended December 30, 1995, and December 31, 1994
(Predecessor Company) F-7
Notes to Consolidated Financial Statements F-9
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Homeland Holding Corporation
We have audited the accompanying consolidated financial statements of Homeland
Holding Corporation and Subsidiary listed in the index on page F-1 of this
Form 10-K. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Homeland
Holding Corporation and Subsidiary as of December 28, 1996, and December 30,
1995, and the consolidated results of their operations and their cash flows
for the 20 weeks ended December 28, 1996, the 32 weeks ended August 10, 1996,
and the 52 weeks ended December 30, 1995, and December 31, 1994, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Oklahoma City, Oklahoma
March 24, 1997
F-2
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
<TABLE>
<CAPTION>
Successor Company Predecessor Company
December 28, December 30,
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes 4 and 6) $ 1,492 $ 6,357
Receivables, net of allowance for uncollectible
accounts of $1,587 and $2,661 8,522 8,051
Inventories 45,009 42,830
Prepaid expenses and other current assets 2,760 2,052
Total current assets 57,783 59,290
Property, plant and equipment:
Land and land improvements 8,731 9,919
Buildings 18,124 22,101
Fixtures and equipment 15,078 44,616
Leasehold improvements 11,374 23,629
Software 2,930 1,991
Leased assets under capital leases (Note 10) 7,569 29,062
Construction in progress 2,675 4,201
66,481 135,519
Less, accumulated depreciation
and amortization 3,012 63,827
Net property, plant and equipment 63,469 71,692
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $5,819 at
December 28, 1996 39,570 -
Other assets and deferred charges 7,664 6,600
Total assets $ 168,486 $ 137,582
Continued
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
December 28, December 30,
1996 1995
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 17,416 $ 17,732
Salaries and wages 3,499 1,609
Taxes 2,903 4,876
Accrued interest payable 2,689 2,891
Other current liabilities 8,470 14,321
Current portion of long-term debt(Notes 5 and 6) 894 -
Long-term debt in default classified as current
(Notes 5 and 6) - 100,467
Current portion of obligations under capital
leases (Note 10) 1,343 2,746
Current portion of restructuring reserve (Note 13) - 3,062
Total current liabilities 37,214 147,704
Long-term obligations:
Long-term debt (Notes 5 and 6) 72,724 -
Obligations under capital leases (Note 10) 3,005 9,026
Other noncurrent liabilities 2,602 6,133
Noncurrent restructuring reserve (Note 13) - 2,808
Total long-term obligations 78,331 17,967
Commitments and contingencies (Notes 9, 10 and 12) - -
Redeemable common stock, Class A, $.01 par value,
1,720,718 shares at December 30, 1995, at
redemption value (Note 4) - 17
Stockholders' equity (deficit):
Old common stock (Note 2):
Class A, $0.01 par value, authorized - 40,500,000
shares, issued 33,748,482 shares at
December 30,1995, outstanding - 30,878,989 shares - 337
New common stock (Note 2):
Class A, $0.01 par value, authorized - 7,500,000
shares, issued 4,758,025 shares at
December 28, 1996 48 -
Additional paid-in capital 56,013 55,886
Accumulated deficit (3,120) (80,188)
Minimum pension liability adjustment (Note 9) - (1,327)
Treasury stock, 2,869,493 shares at December 30,
1995, at cost - (2,814)
Total stockholders' equity (deficit) 52,941 (28,106)
Total liabilities and stockholders' equity (deficit) $ 168,486 $ 137,582
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
20 weeks 32 weeks 52 weeks 52 weeks
ended ended ended ended
December 28, August 10, December 30, December 31,
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Sales, net $ 204,026 $ 323,747 $ 630,275 $ 785,121
Cost of sales 154,099 244,423 479,119 588,405
Gross profit 49,927 79,324 151,156 196,716
Selling and administrative expenses 44,029 73,000 151,985 193,643
Operational restructuring costs - - 12,639 23,205
Amortization of excess reorganization
value 5,819 - - -
Operating profit (loss) 79 6,324 (13,468) (20,132)
Interest expense (3,199) (5,639) (15,992) (18,067)
Income (loss) before reorganization items,
income taxes and extraordinary items (3,120) 685 (29,460) (38,199)
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 - -
Income tax provision (Note 7) - - - (2,446)
Income (loss) before extraordinary items (3,120) (25,311) (29,460) (40,645)
Extraordinary items - debt discharge (Note 3) - 63,118 - -
Extraordinary items - other - - (2,330) -
Net income (loss) (3,120) 37,807 (31,790) (40,645)
Reduction in redemption value -
redeemable common stock - - 940 7,284
Net income (loss) available to
common stockholders $ (3,120) $ 37,807 $ (30,850) $ (33,361)
Income (loss) before extraordinary
items per common share $ (.66) $ (.78) $ (.86) $ (.96)
Extraordinary items per common share - 1.94 (.07) -
Net income (loss) per common share $ (.66) $ 1.16 $ (.93) $ (.96)
Weighted average shares outstanding 4,758,025 32,599,707 33,223,675 34,752,527
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-5
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Minimum
Common Stock Additional Pension
Successor Predecessor Paid-in Accumulated Liability
Shares Shares Amount Capital (Deficit) Adjustment
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 - 31,498,989 $ 315 $46,358 $ (7,753) $ (572)
Purchase of treasury stock - 106,000 1 254 - -
Adjustment to eliminate
minimum pension liability - - - - - 572
Redeemable common stock
reduction in redemption value - - - 7,284 - -
Net loss - - - - (40,645) -
Balance, December 31, 1994 - 31,604,989 316 53,896 (48,398) -
Purchase of treasury stock - 2,143,493 21 1,050 - -
Adjustment to recognize
minimum pension liability - - - - - (1,327)
Redeemable common stock
reduction in redemption value - - - 940 - -
Net loss - - - - (31,790) -
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 - -
Adjustment to eliminate
minimum pension liability - - - - - 1,327
Record excess of
reorganization value - - - - 45,018 -
Balance, August 10, 1996 4,758,025 - 48 56,013 - -
Net loss - - - - (3,120) -
Balance, December 28, 1996 4,758,025 - $ 48 $56,013 $ (3,120) $ -
</TABLE>
Continued
The accompanying notes are an integral part
of these consolidated financial statements
F-6
HOMELAND HOLDING CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(In thousands, except per share and per share amounts)
<TABLE>
<CAPTION>
Total
Treasury Stock Stockholders'
Shares Amount Equity (Deficit)
<S> <C> <C> <C>
Balance, January 1, 1994 620,000 $(1,488) $ 36,860
Purchase of treasury stock 106,000 (255) -
Adjustment to eliminate
minimum liability - - 572
Redeemable common stock
reduction in redemption value - - 7,284
Net Loss - - (40,645)
Balance, December 31, 1994 726,000 (1,743) 4,071
Purchase of Treasury Stock 2,143,493 (1,071) -
Adjustment to recognize
minimum liability - - (1,327)
Redeemable common stock
reduction in redemption value _ _ 940
Net loss - - (31,790)
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
Adjustment to eliminate
minimum pension liability - - 1,327
Record excess of
reorganization value - - 45,018
Balance, August 10, 1996 - - 56,061
Net Loss - - (3,120)
Balance, December 28, 1996 $ - $ - $ 52,941
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-6
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
20 weeks 32 weeks 52 weeks 52 weeks
ended ended ended ended
December 28, August 10, December 30, December 31,
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,120) $ 37,807 $ (31,790) $ (40,645)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,954 4,163 11,192 17,458
Amortization of beneficial interest
in operating leases 51 75 181 258
Amortization of excess reorganization
value 5,819 - - -
Amortization of financing costs 24 359 1,019 1,443
Write-off of financing costs on
long-term debt retired - - 1,424 -
Reorganization items - 15,360 - -
Extraordinary gain on debt discharged - (63,118) - -
Loss on disposal of assets 90 (114) 8,349 384
Gain on sale of stores - - (15,795) -
Impairment of assets - - 2,360 14,325
Deferred income taxes - - - 3,997
Provision for losses on accounts
receivable - - 1,750 1,213
Provision for write down of
inventories - - 847 -
Change in assets and liabilities:
(Increase) decrease in receivables (439) (32) 3,227 2,301
(increase) decease in receivable
for taxes - - 2,270 (2,270)
(Increase) decrease in inventories (6,225) 3,754 18,297 2,097
(Increase) decrease in prepaid ex-
penses and other current assets 531 (83) 5,542 (2,687)
(Increase) decrease in other
assets and deferred charges (3,110) (649) (1,215) 103
Increase (decrease) in accounts
payable - trade 2,460 298 (12,587) 832
Increase (decrease) in salaries
and wages 846 105 (316) (821)
Increase (decrease) in taxes (2,198) 226 (1,616) 1,768
Increase (decrease) in accrued
interest payable 2,672 3,823 (422) (53)
Increase (decrease) in other current
liabilities (1,181) (2,656) (3,264) (34)
Increase (decrease) in restructuring
reserve - (1,396) 1,356 5,005
Increase (decrease) in other non-
current liabilities 122 (886) 1,157 (4,417)
Net cash provided by (used in)
operating activities (704) (2,964) (8,034) 257
</TABLE>
Continued
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Successor Company Predecessor Company
20 weeks 32 weeks 52 weeks 52 weeks
ended ended ended ended
December 28, August 10, December 30, December 31,
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures (5,085) (1,860) (4,681) (5,386)
Purchase of assets under capital leases - - (3,966) -
Cash received from sale of assets 5 1,738 73,721 1,363
Net cash provided by (used in)
investing activities (5,080) (122) 65,074 (4,023)
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 42,349 74,250 104,087 66,000
Payments under revolving credit loans (39,080) (79,718) (123,620) (56,000)
Net payments under swing loans - - (1,500) (3,500)
Principal payments under notes payable - - (750) (1,000)
Principal payments under capital
lease obligations (700) (1,596) (3,166) (3,334)
Payment of secured debt obligation - (1,500) - -
Payments to acquire treasury stock - - (1,073) (255)
Net cash provided by (used in)
financing activities 2,569 1,436 (51,022) 1,911
Net increase (decrease) in cash and
cash equivalents (3,215) (1,650) 6,018 (1,855)
Cash and cash equivalents at beginning
of period 4,707 6,357 339 2,194
Cash and cash equivalents at end of
period $ 1,492 $ 4,707 $ 6,357 $ 339
Supplemental information:
Cash paid during the period for interest $ 524 $ 1,566 $ 13,439 $ 16,642
Cash paid during the period for
income taxes $ - $ - $ - $ 236
Supplemental schedule of noncash
investing activities:
Capital lease obligations assumed $ - $ - $ - $ 1,493
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-8
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Organization:
Homeland Holding Corporation ("Holding"), a Delaware corporation, was
incorporated on November 6, 1987, but had no operations prior to
November 25, 1987. Effective November 25, 1987, Homeland Stores, Inc.
("Homeland"), a wholly-owned subsidiary of Holding, acquired
substantially all of the net assets of the Oklahoma Division of Safeway
Inc. Holding and its consolidated subsidiary, Homeland, are
collectively referred to herein as the "Company."
Holding has guaranteed substantially all of the debt issued by
Homeland. Holding is a holding company with no significant operations
other than its investment in Homeland. Separate financial statements
of Homeland are not presented herein since they are identical to the
consolidated financial statements of Holding in all respects except for
stockholder's equity of the Predecessor Company (which is equivalent to
the aggregate of total stockholders' equity and redeemable common
stock of Holding) which is as follows:
Successor Company Predecessor Company
December 28, December 30,
1996 1995
Homeland stockholder's equity:
Common stock, $.01 par value,
authorized, issued and
outstanding 100 shares 1 1
Additional paid-in capital 56,060 53,435
Accumulated deficit (3,120) (80,198)
Minimum pension liability adjustment - (1,327)
Total Homeland stockholder's
equity (deficit) $ 52,941 $ (28,089)
2. Reorganization:
On May 13, 1996, the Company 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 a 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
F-9
HOMELAND HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
2. Reorganization, continued:
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").
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 (the "Old Common Stock") and
old class B common stock of Holding, (b) authorize 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 $59,375 of Series C Senior
Secured Fixed Rate Notes due 1999, $26,126 of Series D Senior Secured
Floating Rate Notes due 1997 and $9,499 of Series A Senior Secured
Floating Rate Notes due 1997, (collectively, the "Old Notes"),
($95,000 in aggregate face amount plus accrued interest), were
cancelled and such holders received (in the aggregate) $60,000 face
amount of newly-issued 10% Senior Subordinated Notes due 2003 (the
"New Notes"), $1,500 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.
Each Warrant entitles the holder to purchase one share of New Common
Stock at any time up to August 2, 2001. 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 a new Loan Agreement
(as defined hereinafter) consisting of a revolving credit facility of
up to $27,500 (subject to a borrowing base requirement) and a term
loan facility of $10,000. The Loan Agreement is collateralized by a
security interest in, and liens on, substantially all of the Company's
assets and is guaranteed by Holding.
F-10
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
2. Reorganization, continued:
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 entitle plan participants to receive/purchase up to 522,222
shares of New Common Stock, (d) the 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."
3. Basis of Presentation:
The Company's Restructuring was accounted for 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 Company
applied the provisions of 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 Company 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 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 value to a discounted
projected cash flow calculation. Based on analyses 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
F-11
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
3. Basis of Presentation, continued:
Bankruptcy Court. The total reorganization value as of the Effective
Date was estimated to be $167.4 million, which was $45.4 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.
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
Revaluation of property, plant and
equipment, net 4,004
Other adjustments to estimated fair value 4,156
Total fresh-start 15,360
Employee buyout expense 6,386
Professional fees incurred with
the Restructuring 4,250
Total reorganization items $ 25,996
(ii) Gain on debt discharged:
Elimination of Old Notes and accrued interest $101,697
Elimination of other liabilities 22,921
Cash payment to holders of Old Notes (1,500)
Issuance of New Notes (60,000)
Gain on debt discharged $ 63,118
F-12
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined
(In thousands, except share and per share amounts)
4. Summary of Significant Accounting Policies:
Fiscal year - The Company has adopted a fiscal year which ends on the
Saturday nearest December 31. Fiscal 1996 includes the 32 weeks prior
to the Effective Date which has been designated "Predecessor Company"
and the 20 weeks subsequent to the Effective Date which has been
designated "Successor Company."
Basis of consolidation - The consolidated financial statements include
the accounts of Homeland Holding Corporation and its wholly owned
subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation.
Revenue recognition - The Company recognizes revenue at the "point of
sale," which occurs when groceries and related merchandise are sold to
its customers.
Concentrations of credit and business risk - Financial instruments
which potentially subject the Company to concentrations of credit risk
consist principally of temporary cash investments and receivables. The
Company places its temporary cash investments with high quality
financial institutions. Concentrations of credit risk with respect to
receivables are limited due to the diverse nature of those receivables,
including a large number of retail customers within the region and
receivables from vendors throughout the country. The Company purchases
approximately 70% of its products from Associated Wholesale Grocers,
Inc. ("AWG"). Although there are similar wholesalers that could
supply the Company with merchandise, if AWG were to discontinue
shipments, this could have a material adverse effect on the Company's
financial condition.
Restricted Cash - As of December 30, 1995, the Company had $2,529
deposited in escrow accounts at United States Trust Company of New
York. The deposited funds were distributed in their entirety to
holders of the Old Notes and the Company in 1996 pursuant to the Plan.
Inventories - Inventories are stated at the lower of cost or market,
with cost being determined primarily using the gross margin method.
F-13
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined
(In thousands, except share and per share amounts)
4. Summary of Significant Accounting Policies, continued:
Property, plant and equipment - Property, plant and equipment are
stated at cost. As discussed in Note 3, in conjunction with the
emergence from Chapter 11 proceedings, the Company implemented
"fresh-start" reporting and, accordingly, all property, plant and
equipment was restated to reflect reorganization value, which
approximates fair value in continued use. Depreciation and
amortization, including amortization of leased assets under capital
leases, are computed on a straight-line basis over the lesser of the
estimated useful life of the asset or the remaining term of the lease.
Depreciation and amortization of newly acquired assets, for financial
reporting purposes are based on the following estimated lives:
Estimated lives
Buildings 10 - 40
Fixtures and equipment 5 - 12.5
Leasehold improvements 15
Software 3 - 5
The costs of repairs and maintenance are expensed as incurred, and the
costs of renewals and betterments are capitalized and depreciated at
the appropriate rates. Upon sale or retirement, the cost and related
accumulated depreciation are eliminated from the respective accounts
and any resulting gain or loss is included in the results of operations
for that period. In the fourth quarter of 1995, approximately $7.9
million of capitalized software costs, net of accumulated depreciation,
were charged to operational restructuring costs as a result of
management's decision to replace such software.
Reorganization value in excess of amounts allocable to identifiable
assets - The Company's reorganization value in excess of amounts
allocable to identifiable assets, established in accordance with
"fresh start" reporting (see Note 3), is being amortized on a
straight-line basis over three years.
F-14
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined
(In thousands, except share and per share amounts)
4. Summary of Significant Accounting Policies, continued:
Other assets and deferred charges - Other assets and deferred charges
consist primarily of patronage refund certificates issued by AWG as
part of its year-end distribution of income from AWG's cooperative
operations and beneficial interests in operating leases amortized on a
straight-line basis over the remaining terms of the leases, including
all available renewal option periods. The AWG patronage refund
certificates bear annual interest of 6% and are redeemable for cash
seven years from the date of issuance.
Net loss per common share - Net loss per common share is computed based
on the weighted average number of shares, including shares of
redeemable common stock, outstanding during each period. Net loss is
increased by the reduction in redemption value to determine the net
loss available to common stockholders. Net loss per common share data
is not meaningful for periods prior to the Effective Date due to the
significant change in the Company's capital structure.
Cash and cash equivalents - For purposes of the statements of cash
flows, the Company considers all short-term investments with an
original maturity of three months or less when purchased to be cash
equivalents.
Capitalized interest - The Company capitalizes interest as a part of
the cost of acquiring and constructing certain assets. No interest
cost was capitalized in 1996 and 1995. Interest costs of $35 were
capitalized in 1994.
Advertising costs - Costs of advertising are expensed as incurred.
Gross advertising costs for 1996, 1995 and 1994, were $8,453, $10,700
and $13,615, respectively.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting periods.
The most significant assumptions and estimates relate to the reserve
for self-insurance programs, the deferred income tax valuation
allowance, the accumulated benefit obligation relating to the employee
retirement plan and the allowance for bad debts. Actual results could
differ from those estimates.
F-15
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
4. Summary of Significant Accounting Policies, continued:
Income taxes - The Company provides for income taxes based on enacted
tax laws and statutory tax rates at which items of income and expense
are expected to be settled in the Company's income tax return.
Certain items of revenue and expense are reported for Federal income
tax purposes in different periods than for financial reporting
purposes, thereby resulting in deferred income taxes. Deferred taxes
also are recognized for operating losses that are available to offset
future taxable income and tax credits that are available to offset
future Federal income taxes. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Self-insurance reserves - The Company is self-insured for property
loss, general liability and automotive liability coverage and was
self-insured for workers' compensation coverage until June 30, 1994,
subject to specific retention levels. Estimated costs of these
self-insurance programs are accrued at their present value based on
projected settlements for claims using actuarially determined loss
development factors based on the Company's prior history with similar
claims. Any resulting adjustments to previously recorded reserves are
reflected in current operating results. Accordingly, the insurance
reserve was increased by $5,700 in 1994. There were no increases in
insurance reserves for 1995. As a result of the Company's filing of
Chapter 11 petitions with the Bankruptcy Court on May 13, 1996, all
outstanding claims under the self-insured programs, as of that date,
will be settled under the terms of the Plan.
Pre-opening Costs - Store pre-opening costs are charged to expense as
incurred.
Impact of new financial accounting pronouncements - In February 1997,
the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" and Statement No. 129, "Disclosure of Information
About Capital Structure." Statement No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share.
Statement No. 129 consolidates existing requirements to disclose
certain information about an entity's capital structure. Both
statements are effective for financial statements issued for periods
ending after December 15, 1997. Based on the Company's present
capital structure and common stock equivalents (stock options), the
Company does not believe the implementation of these new
standards will have an impact on its financial statements.
F-16
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined
(In thousands, except share and per share amounts)
5. Current and Long-Term Debt:
Long-term debt at year-end consists of:
Successor Company Predecessor Company
December 28, December 30,
1996 1995
Senior Subordinated Notes $ 60,000 $ -
Term Loan 10,000 -
Revolving Credit Loans 3,269 5,467
Note Payable 349 -
Senior Notes Series A,
settled pursuant to the Plan - 9,499
Senior Notes Series D,
settled pursuant to the Plan - 26,126
Senior Notes Series C,
settled pursuant to the Plan - 59,375
73,618 100,467
Less current portion 894 -
Less long-term debt in default
classified as current - 100,467
Long-term debt due after one year $ 72,724 $ -
Prior to the Effective Date, the Company had outstanding amounts of
$9,499 Series A Senior Secured Floating Rate Notes due 1997, $26,126
Series D Senior Secured Floating Rate Notes due 1997, and $59,375
Series C Senior Secured Fixed Rate Notes due 1999 that were issued
pursuant to an Indenture with United States Trust Company of New York,
as amended and supplemented, dated as of March 1992. As of the
Effective Date, the Old Notes were cancelled in exchange for $60,000
New Notes, $1,500 cash and approximately 60% of the New Common Stock
(see Note 2).
The New Notes bear an interest rate of 10%, which is payable
semi-annually each February 1 and August 1, commencing February 1,
1997. The New Notes are unsecured and will mature on August 1, 2003.
The Indenture relating to the New Notes has certain customary
restrictions on consolidations and mergers, indebtedness, issuance of
preferred stocks, asset sales and payment of dividends.
F-17
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
5. Current and Long-Term Debt, continued:
On May 13, 1996, the Company entered into an interim debtor-in
-possession revolving credit agreement with its bank group (the "DIP
Facility"). The DIP Facility provided the Company up to $27,000 in the
form of a revolving credit facility for the Company's working capital
and general corporate needs during the bankruptcy proceedings. The DIP
Facility was secured by first liens on certain of the assets of the
Company. Interest on borrowings under the DIP Facility was at a rate
equal to the Prime Rate, as defined, plus two percent. The DIP
Facility matured on the Effective Date.
On the Effective Date, the Company entered into a new bank credit
agreement with a group of lenders (the "Loan Agreement"). The Loan
Agreement consists of a $27,500 revolving facility for working capital
and letters of credit (the "Revolving Facility") and a $10,000 term
loan (the "Term Loan"). The Revolving Facility permits the Company to
borrow up to the lesser of $27,500 or the applicable borrowing base.
The interest rate, payable quarterly, under the Loan Agreement is based
on the Prime Rate, as defined, plus a percentage that varies based on
a number of factors, including (a) whether it is the Revolving Facility
or the Term Loan, (b) the time period, (c) whether the Company elects
to use London Interbank Offered Rate and (d) the earnings of the
Company before interest, taxes, depreciation and amortization expenses.
At December 28, 1996, the interest rate on borrowings on the Revolving
Facility was 9.00% and the Term Loan was 8.75%.
The Revolving Facility provides for certain mandatory prepayments based
on occurrence of certain defined and specified transactions. The Term
Loan requires quarterly principal payments of $417 commencing on
September 30, 1997. The Loan Agreement will mature on August 1, 1999.
The obligations of the Company under the Loan Agreement are
collateralized by liens on, and security interest in, substantially
all of the assets of Homeland and are guaranteed by Holding. The Loan
Agreement, among other things, requires a maintenance of EBITDA,
consolidated fixed charge ratio, Debt-to-EBITDA ratio, current ratio,
excess cash flow paydown, each as defined, and limits the Company's
capital expenditures, incurrence of additional debt, consolidation
and mergers, acquisitions and payments of dividends.
In connection with the early redemption of a portion of the Old Notes
on April 21, 1995, the Company incurred an extraordinary loss of
$2,330. The loss was comprised of premium and consent fees paid and
the write-off of unamortized financing costs.
F-18
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS, Contined
(In thousands, except share and per share amounts)
5. Current and Long-Term Debt, continued:
At December 28, 1996, the aggregate annual debt maturities
were as follows:
1997 $ 894
1998 1,729
1999 10,828
2000 61
2001 61
Thereafter 60,045
$ 73,618
6. Fair Value of Financial Instruments:
The estimated fair value of financial instruments has been determined
by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is
necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts. The carrying amount and fair
value of financial instruments as of December 28, 1996, and December
30, 1995, are as follows:
Successor Company Predecessor Company
December 28, December 30,
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Cash and Cash
Equivalents $ 1,492 $ 1,492 $ 6,357 $ 6,357
Liabilities:
Current and Long-Term
Obligations in default
classified as current $ - $ - $100,467 $56,411
Current and Long-Term Deb $ 73,618 $ 68,818 - -
Cash and cash equivalents - The carrying amount of this item is a
reasonable estimate of its fair value due to its short-term nature.
F-19
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS, Continued
(In thousands, except share and per share amounts)
6. Fair Value of Financial Instruments, continued:
Current and long-term obligations in default classified as current;
current and long-term debt - The fair value of publicly traded debt
is valued based on quoted market values. Based on borrowing rates
currently available to the Company for bank borrowings with similar
terms and maturities, the Company believes the carrying amount of
borrowings under the Loan Agreement approximates fair value.
7. Income Taxes:
The components of the income tax benefit (provision) for the 20 weeks
ended December 28, 1996, 32 weeks ended August 10, 1996, and fiscal
years 1995 and 1994 were as follows:
Successor Company Predecessor Company
20 Weeks 32 Weeks
Ended Ended
12/28/96 08/10/96 1995 1994
Federal:
Current - AMT $ - $ - $ - $ 1,551
Deferred - - - (3,997)
Total income tax benefit
(provision) $ - $ - $ - $ (2,466)
F-20
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
7. Income Taxes, continued:
A reconciliation of the income tax benefit (provision) at the statutory
Federal income tax rate to the Company's effective tax rate is as
follows:
Successor Company Predecessor Company
20 Weeks 32 Weeks
Ended Ended
12/28/96 08/10/96 1995 1994
Federal income tax at
statutory rate $ 1,092 $(13,232) $ 11,127 $ 13,370
Benefit of non-taxable
foregiveness of debt 945 14,720 - -
Non-deductible
reorganization expenses - (1,488) - -
Amortization of intangibles (2,037) - - -
AMT loss carryback - - - 1,551
Limitation of benefit
of deferred tax assets - - (10,074) (16,075)
Other - net - - ( 1,053) (1,292)
Total income tax benefit
(provision) $ - $ - $ - $ (2,446)
During the year ended December 30, 1995, the Company received an income
tax refund amounting to $1,339, due to the recognition of a tax benefit
from its year ended December 31, 1994 for a net alternative minimum tax
operating loss that was carried back to prior tax years.
F-21
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
7. Income Taxes, continued:
The components of deferred tax assets and deferred tax liabilities are
as follows:
Successor Company Predecessor Company
December 28, December 30,
1996 1995
Current assets (liabilities):
Allowance for uncollectible
receivables $ 555 $ 1,090
Operational restructuring reserve - 1,282
Prepaid pension (507) (423)
Other, net 12 829
Net current deferred tax assets 60 2,778
Noncurrent assets (liabilities):
Property, plant and equipment 170 251
Targeted job credit carryforward 815 815
Employee compensation and benefits 929 -
Self-insurance reserves 522 2,150
Operational restructuring reserve - 969
Net operating loss carryforwards 14,704 17,001
AMT credit carryforwards 630 630
Capital leases 159 1,111
Other, net 742 444
Net noncurrent deferred tax
assets 18,671 23,371
Total net deferred
assets 18,731 26,149
Valuation allowance (18,731) (26,149)
Net deferred tax assets $ - $ -
Due to the uncertainty of realizing the future tax benefits, the full
valuation allowance was established to entirely offset the net deferred
tax assets as of December 28, 1996. At December 28, 1996, the Company
had the following operating loss and tax credit carryforwards available
for tax purposes:
F-22
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
7. Income Taxes, continued:
Expiration
Amount Dates
Federal regular tax net
operating loss carryforwards $42,011 2002-2010
Federal AMT credit carryforwards
against regular tax $630 indefinite
Federal tax credit carryforwards
(Targeted Jobs Credit) $815 2003-2009
The net operating loss carryforwards are subject to utilization
limitations due to ownership changes. The net operating loss
carryforwards may be utilized to offset future taxable income as
follows: $4,501 in 1997, $3,251 in each of years 1988 through 2008
and $1,749 in 2009. Loss carryforwards not utilized in any year that
they are available may be carried over and utilized in subsequent
years, subject to their expiration provisions.
In accordance with SOP 90-7, the tax benefit realized from utilizing
the pre-reorganization net operating loss carryforwards will be
recorded as a reduction of the reorganization value in excess of
amounts allocable to identifiable assets rather than be realized as a
benefit on the statement of operations.
8. Incentive Compensation Plans:
The Company has bonus arrangements for store management and other key
management personnel. During 1996, 1995, and 1994, approximately
$2,273, $934, and $1,939, respectively, were charged to costs and
expenses for such bonuses.
In December 1996, the Board of Directors of the Company, pursuant to
the Plan, adopted the Homeland Holding Corporation 1996 Stock Option
Plan (the "Stock Option Plan"). The Company applies APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for this plan. SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS") was issued by the
FASB in 1995 and, if fully adopted, changes the methods for recognition
of cost on plans similar to the Company's. Adoption of SFAS 123 is
optional; however, pro forma disclosures as if the Company adopted the
cost recognition requirements under SFAS 123 in 1996 are presented
below.
F-23
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
8. Incentive Compensation Plans, continued
The Stock Option Plan, to be administered by the Board of Directors
(the "Board"), or a committee of the Board (the "Committee"), provides
for the granting of options to purchase up to an aggregate of 263,158
shares of New Common Stock. Options granted under the Stock Option
Plan must be "non-qualified options." The option price of each option
is determined by the Board or the Committee and it must be not less
than the fair market value at the date of grant. Unless the Board or
the Committee otherwise determines, options must become exercisable
ratably over a five-year period or immediately in the event of a
"change of control" as defined in the Stock Option Plan. Each option
must be evidenced by a written agreement and must expire and terminate
on the earliest of: (a) ten years from the date the option is granted
(b) termination for cause; or (c) three months after termination for
other than cause.
Options granted under the Stock Option Plan as of December
28,1996, are as follows:
Weighted Average
Shares Exercise Price
Options granted 197,500 $8.00
Options exercised - -
Options expired/terminated - -
Outstanding options, end of year 197,500 $8.00
Options exercisable at year-end 197,500 $8.00
As of December 28, 1996, the stock options outstanding under the Stock
Option Plan have a weighted average remaining contractual life of 10
years. The weighted average fair value of options granted during 1996
was $4.02. No compensation was charged against income in 1996.
The fair value of the options granted during 1996 was estimated on the
date of the grant using the Black-Scholes option-pricing model with
the following assumptions used: (a) dividend yield of 0%; (b) expected
volatility of 30%; (c) a risk-free interest rate of 6.4%; and (d)
expected life of 8 years for the options granted.
Had compensation cost of the Company's Stock Option Plan been
determined using the fair value at the grant date of awards consistent
with the method of SFAS 123, the Company's net loss and net loss per
common share for the Successor Company would have been $(3,914) and
$(.82), respectively.
F-24
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
8. Incentive Compensation Plans, continued:
Pursuant to the terms of the Modified Union Agreements, the Company
established an employee stock bonus plan for the benefit of the
unionized employees (the "Stock Bonus Plan"). The Stock Bonus Plan
consists of three separate elements: (a) the issuance of 58,025 shares
of New Common Stock each year for three years; (b) up to 58,025 shares
of the New Common Stock may be purchased by the plan participants on
each of the first, second and third anniversaries of the Modified Union
Agreements (the "Stock Purchase") and (c) the granting of 58,025 shares
of New Common Stock for each of the first, second and third
anniversaries of the Modified Union Agreements upon the Company's
achievement of certain escalating EBITDA-based performance goals (see
Note 2). The purchase price of the shares under the Stock Purchase
element shall be equal to the appraised value or at fair value if the
shares are readily tradable on a securities market. For each share of
New Common Stock purchased by a participant under the Stock Purchase
element, the Company will match 33 1/3% of such purchase in the form
of stock. The Stock Bonus Plan does not fall under the provisions of
SFAS 123.
9. Retirement Plans:
Effective January 1, 1988, the Company adopted a non-contributory,
defined benefit retirement plan for all executive and administrative
personnel. Benefits are based on length of service and career average
pay with the Company. The Company's funding policy is to contribute
an amount equal to or greater than the minimum funding requirement of
the Employee Retirement Income Security Act of 1974, but not in excess
of the maximum deductible limit. Plan assets were held in investment
mutual funds during 1996 and 1995.
Net pension cost consists of the following:
1996 1995 1994
Service cost $ 503 $ 517 $ 709
Interest cost 574 465 366
Loss (return) on assets (918) (1,140) 63
Net amortization and deferral 345 690 (419)
Curtailment charge - (37) -
Net periodic pension cost $ 504 $ 495 $ 719
F-25
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
9. Retirement Plans, continued:
The funded status of the plan and the amounts recognized in the
Company's balance sheet at December 28, 1996, and December 30, 1995,
consist of the following:
Successor Company Predecessor Company
1996 1995
Actuarial present value of benefit
obligations:
Vested benefits $ (7,066) $ (6,928)
Non-vested benefits (152) (88)
Accumulated benefit
obligations $ (7,218) $ (7,016)
Projected benefit obligations $ (7,694) $ (7,693)
Plan assets at fair value 8,436 6,902
Excess (deficiency) of plan assets
versus projected benefit
obligations 742 (791)
Unrecognized prior service cost (84) (95)
Unrecognized net loss from past
experience different from that
assumed and changes in actuarial
assumptions 867 2,096
Adjustment to recognize minimum
liability - (1,327)
Net pension asset (liability)
recognized in statement of
financial position $ 1,525 $ (117)
F-26
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
9. Retirement Plans, continued:
Actuarial assumptions used to determine year-end plan status were as
follows:
1996 1995
Assumed rate for determination of net
periodic pension cost 7.25% 9.0%
Assumed discount rate to determine
the year-end plan disclosures 7.75% 7.25%
Assumed long-term rate of return
on plan assets 9.0% 9.0%
Assumed range of rates of future
compensation increases
(graded by age) for net
periodic pension cost 3.5% to 5.5% 5.0% to 7.0%
Assumed range of rates of future
compensation increases
(graded by age) for year-end
plan disclosures 3.5% to 5.5% 3.5% to 5.5%
The prior service cost is being amortized on a straight line basis over
approximately 13 years.
As a result of the sale of the Company's warehouse and distribution
center and 29 stores to AWG, as well as the closure of 14 under-
performing stores during 1995, a significant number of employees were
terminated that participated in the Company's non-contributory defined
benefit retirement plan. The effect of the curtailment resulting from
the terminations of such employees was not material to the Statement
of Operations for the year ended December 30, 1995.
The Company also contributes to various union-sponsored, multi-employer
defined benefit plans in accordance with the collective bargaining
agreements. The Company could, under certain circumstances, be liable
for the Company's unfunded vested benefits or other costs of these
multi-employer plans. The allocation to participating employers of
the actuarial present
F-27
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Contined
(In thousands, except share and per share amounts)
9. Retirement Plans, continued:
value of vested and nonvested accumulated benefits in multi-employer
plans as well as net assets available for benefits is not available
and, accordingly, is not presented. The costs of these plans for 1996,
1995, and 1994 were $1,412, $2,110, and $3,309, respectively.
Effective January 1, 1988, the Company adopted a defined contribution
plan covering substantially all non-union employees of the Company.
Prior to 1994, the Company contributed a matching 50% for each one
dollar the participants contribute in pre-tax matched contributions.
Participants may contribute from 1% to 6% of their pre-tax compensation
which was matched by the Company. Participants may make additional
contributions of 1% to 6% of their pre-tax compensation, but such
contributions were not matched by the Company. Effective January 2,
1994, the plan was amended to allow a discretionary matching
contribution formula based on the Company's operating results. The
Company did not make any contributions to this plan in 1996, 1995
or 1994.
10. Leases:
The Company leases 53 of its retail store locations under
noncancellable agreements, which expire at various times between 1997
and 2013. These leases, which include both capital leases and
operating leases, generally are subject to six five-year renewal
options. Most leases also require the payment of taxes, insurance and
maintenance costs and many of the leases covering retail store
properties provide for additional contingent rentals based on sales
in excess of certain stipulated amounts.
Leased assets under capital leases consists of the following:
Successor Company Predecessor Company
December 28, December 31,
1996 1995
Buildings $ 2,738 $ 16,670
Equipment 1,658 7,014
Beneficial interest
in capital leases 3,173 5,378
7,569 29,062
Accumulated amortization 546 17,851
Net leased assets $ 7,023 $ 11,211
F-28
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
10. Leases, continued:
Future minimum lease payments under capital leases and noncancellable
operating leases as of December 28, 1996, are as follows:
Capital Operating
Fiscal Year Leases Leases
1997 $ 1,814 $ 6,089
1998 1,306 5,719
1999 1,001 5,194
2000 248 4,644
2001 182 3,198
Thereafter 1,652 18,013
Total minimum obligations 6,703 $ 42,857
Less estimated interest 1,855
Present value of net minimum
obligations 4,348
Less current portion 1,343
Long-term obligations under
capital leases $ 3,005
F-29
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
10. Leases, continued:
Rent expenses for 1996, 1995 and 1994 are as follows:
1996 1995 1994
Minimum rents $ 6,039 $10,264 $12,560
Contingent rents 105 107 178
$ 6,144 $10,371 $12,738
11. Related Party Transactions:
Clayton, Dubilier & Rice, Inc. ("CDR"), a private investment firm of
which four directors of the Predecessor Company are employees,
received $125 in 1995 and $150 in 1994, for financial advisory and
consulting services. As of the Effective Date, CDR, through C&D Fund
III and C&D Fund IV, received its ratable share of the 250,000 shares
of New Common Stock, and the 263,518 warrants (see Note 2) for
their 76.3% majority holding in the Old Common Stock of Holding.
The Company made loans during 1995 to certain members of management
and key employees for principal payments on their loans made in
connection with their purchase of Old Common Stock. The interest on
the loans was at the Company's prime lending rate plus 1%. Loans
outstanding at December 30, 1995, totaled $82.
12. Commitments and Contingencies:
On April 21, 1995, the Company and AWG entered into a seven-year supply
agreement (the "Supply Agreement"), whereby the Company became a retail
member of the AWG cooperative and AWG became the Company's primary
supplier (see Note 4 - Concentration of credit and business risk).
The terms of the Supply Agreement allow the Company to purchase
products at the lowest prices and best terms available to AWG members
and also entitle the Company to participate in its store cost savings
programs and receive member rebates and refunds on purchases.
The Company has entered into employment contracts with certain key
executives providing for the payment of minimum salary and bonus
amounts in addition to certain other benefits in the event of
termination of the executives or change of control of the Company.
F-30
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(In thousands, except share and per share amounts)
12. Commitments and Contingencies, continued:
The Company is also a party to various lawsuits arising from the
Restructuring and also in the normal course of business. Management
believes that the ultimate outcome of these matters will not have a
material effect on the Company's consolidated financial position,
results of operations and cash flows.
The Company has outstanding at December 28, 1996, $8,357 in letters of
credit which are not reflected in the accompanying financial
statements. The letters of credit are issued under the credit
agreements and the Company paid associated fees of $259 and $335 in
1996 and 1995, respectively.
13. Operational Restructuring:
In December 1994, the Board of Directors approved a strategic plan for
the Company. Pursuant to the plan, the Company sold 29 of its stores
and its warehouse and distribution center to AWG on April 21, 1995,
and closed sixteen under-performing stores in 1995 and 1996. The
charges recognized in 1994 and 1995 were $23,205 and $12,639,
respectively. The major components of the 1994 charges were expenses
associated with the closed stores, severance and transaction costs
associated with the AWG transaction and legal and consulting expenses.
The 1995 charges consist principally of the write-off of
capitalized software costs, write-off of the unamortized balance of the
excess purchase price over fair value of net assets acquired, the
expense associated with the termination of an EDP outsourcing
agreement, and expenses associated with closed stores.
At August 10, 1996, the carrying amount of reserve relating to the
operational restructuring was $3,424. As a result of the
Restructuring, certain obligations relating to the closed stores were
discharged under the terms of the Plan. The reserve relating to the
operational restructuring at December 28, 1996, amounts to $1,063
and it is included in other current and other non-current liabilities
of the Consolidated Balance Sheet.
F-31
EXHIBIT INDEX
Exhibit No. Description
2a Disclosure Statement for Joint Plan of Reorganization
of Homeland Stores, Inc. and Homeland Holding Corporation
dated as of May 13,1996, (Incorporated by reference to
Exhibit 2a to Form 8-K dated May 31, 1996)
2b First Amended Joint Plan of Reorganization, as modified,
of Homeland Holding Corporation ("Holding") and Homeland
Stores, Inc. ("Homeland"), dated July 19, 1996
(Incorporated by reference to Exhibit 2b to Form 10-Q for
the quarterly period ended June 15,1996).
3a Restated Certificate of Incorporation of Holding, dated
August 2, 1996.
3b By-laws of Holding, as amended and restated on
November 14, 1989 and further amended on September 23,
1992. (Incorporated by reference to Exhibit 3b to
Form 10-Q for quarterly period ended June 19, 1993)
3c Restated Certificate of Incorporation of Homeland, dated
August 2, 1996.
3d By-laws of Homeland, as amended and restated on November
14, 1989, and further amended on September 23, 1992.
(Incorporated by reference to Exhibit 3d to Form 10-Q for
quarterly period ended June 19, 1993)
4a Indenture, dated as of August 2, 1996, among Homeland,
Fleet National Bank, as Trustee, and Holding, as
Guarantor. (Incorporated by reference to Exhibit T3C
to Form T-3 of Homeland, SEC File No. 22-22239)
4b Warrant Agreement, dated as of August 2, 1996, between
Holding and Liberty Bank and Trust Company of Oklahoma
City, N.A., as Warrant Agent. (Incorporated by reference
to Exhibit 4h to Amendment No. 1 to Form 10)
4c Equity Registration Rights Agreement, dated as of
August 2, 1996, by Holding for the benefit of holders
of Old Common Stock. (Incorporated by reference to
Exhibit 4i to Amendment No. 1 to Form 10)
4d Noteholder Registration Rights Agreement, dated as of
August 2, 1996, by Holding for the benefit of holders
of Old Notes. (Incorporated by reference to Exhibit 4j
to Amendment No. 1 to Form 10)
10a 1 Homeland Profit Plus Plan, effective as of January 1,
1988. (Incorporated by reference to Exhibit 10q to
Form S-1 Registration Statement, Registration
No. 33-22829)
10a.1 1 Homeland Profit Plus Plan, effective as of January 1,
1989 (Incorporated by reference to Exhibit 10q.1 to
Form 10-K for the fiscal year ended December 29, 1990)
E-1
Exhibit No. Description
10b Homeland Profit Plus Trust, dated March 8, 1988, between
Homeland and the individuals named therein, as Trustees.
(Incorporated by reference to Exhibit 10r to Form S-1
Registration Statement, Registration No. 33-22829)
10c Homeland Profit Plus Trust, dated January 1, 1989,
between Homeland and Bank of Oklahoma, N.A., as Trustee
(Incorporated by reference to Exhibit 10r.1 to Form 10-K
for the fiscal year ended December 29, 1990)
10d.1 1 1994 Homeland Management Incentive Plan. (Incorporated
by reference to Exhibit 10.s6 to Form 10-K for fiscal
year ended December 31, 1994)
10d.2 1 1995 Homeland Management Incentive Plan. (Incorporated
by reference to Exhibit 10s.7 to Form 10-K for fiscal
year ended December 30, 1995)
10d.3*1 1996 Homeland Management Incentive Plan
10e 1 Form of Homeland Employees' Retirement Plan, effective
as of January 1, 1988. (Incorporated by reference to
Exhibit 10t to Form S-1 Registration Statement,
Registration No. 33-22829)
10e.1 1 Amendment No. 1 to Homeland Employees' Retirement Plan
effective January 1, 1989. (Incorporated herein by
reference to Form 10-K for fiscal year ended
December 30, 1989)
10e.2 1 Amendment No. 2 to Homeland Employees' Retirement Plan
effective January 1, 1989. (Incorporated herein by
reference to Form 10-K for fiscal year ended
December 30, 1989)
10e.3 1 Third Amendment to Homeland Employees' Retirement Plan
effective as of January 1, 1988. (Incorporated herein
by reference to Exhibit 10t.3 to Form 10-K for fiscal
year ended December 29, 1990)
10e.4 1 Fourth Amendment to Homeland Employees' Retirement Plan
effective as of January 1, 1989. (Incorporated herein
by reference to Exhibit 10t.4 to Form 10-K for the fiscal
year ended December 28, 1991)
10e.5 1 Fifth Amendment to Homeland Employees' Retirement Plan
effective as of January 1, 1989 (Incorporated herein by
reference to Form 10-Q for the quarterly period ended
September 9, 1995)
10f 1 Executive Officers Medical/Life Insurance Benefit Plan
effective as of December 9, 1993. (Incorporated by
reference to Exhibit 10kk to Form 10-K for the fiscal
year ended January 1, 1994)
10g 1 Employment Agreement, dated as of August 11, 1994,
between Homeland and Steve Mason. (Incorporated by
reference to Exhibit 10nn to Form 10-Q for the quarterly
period ended September 10, 1994)
10h 1 Employment Agreement, dated as of August 11, 1994,
between Homeland and Al Fideline. (Incorporated by
reference to Exhibit 10oo to Form 10-Q for the quarterly
period ended September 10, 1994)
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Exhibit No. Description
10i.1 Asset Purchase Agreement, dated as of February 6, 1995,
between Homeland and Associated Wholesale Grocers, Inc.
(Incorporated by reference to Exhibit 10pp.1 to Form 10-K
for fiscal year ended December 30, 1995)
10j 1 Employment Agreement, dated as of November 22, 1994,
between Homeland and James A. Demme. (Incorporated by
reference to Exhibit 10rr to Form 10-K for fiscal year
ended December 30, 1995)
10j.11 Amendment to Employment Agreement between Homeland and
James A. Demme, dated as of April 29, 1996. (Incorporated
by reference to Exhibit 10rr.1 to Form 10-K for fiscal
year ended December 30, 1995)
10k Amended and Restated Revolving Credit Agreement, dated
as of April 21, 1995, among Homeland, Holding, National
Bank of Canada, as Agent and lender, Heller Financial, Inc.
and any other lenders thereafter parties thereto.
(Incorporated by reference to Exhibit 10uu to Form 8-K
dated March 14, 1996)
10k.1 Waiver Agreement, dated as of December 29, 1995, among
Homeland, Holding, National Bank of Canada and Heller
Financial, Inc. (Incorporated by reference to Exhibit
10uu.1 to Form 8-K dated March 14, 1996)
10k.2 Second Waiver Agreement, dated as of March 1, 1996, among
Homeland, Holding, National Bank of Canada and Heller
Financial, Inc. (Incorporated by reference to Exhibit
10uu.2 to Form 8-K dated March 14, 1996)
10k.3 Ratification and Amendment Agreement to the $27,000,000
Amended and Restated Revolving Credit Agreement, dated
as of May 10, 1996, among Homeland, Holding, National
Bank of Canada, as Agent and lender, Heller Financial, Inc.
and any other lenders thereafter parties thereto.
(Incorporated by reference to Exhibit 10uu.3 to Form 10-Q
for quarterly period ended March 23, 1996)
10l 1 Employment Agreement dated as of July 10, 1995 and as
amended September 26, 1995, between Homeland and Larry
W. Kordisch. (Incorporated by reference to Exhibit 10pp
to Form 10-K dated September 9, 1995)
10l.11 Amendment to Employment Agreement between Homeland and
Larry W. Kordisch, dated as of April 29, 1996.
(Incorporated by reference to Exhibit 10vv.1 to Form 10-K
for fiscal year ended December 30, 1995)
10m 1 Employment Agreement dated as of April 29, 1996, between
Homeland and Terry M. Marczewski. (Incorporated by
reference to Exhibit 10ww.1 to Form 10-K for fiscal year
ended December 30, 1995)
10n 1 Employment Agreement, dated as of April 29, 1996, between
Homeland and Steve M. Mason. (Incorporated by reference
to Exhibit 10yy to Form 10-K for fiscal year ended
December 30, 1995)
E-3
Exhibit No. Description
10o 1 Employment Agreement, dated as of April 29, 1996, between
Homeland and Alfred Fideline. (Incorporated by reference
to Exhibit 10zz to Form 10-K for fiscal year ended
December 30, 1995)
10p Indenture, dated as of August 2, 1996, among Homeland,
Fleet National Bank, as Trustee, and Holding, as Guarantor.
(Incorporated by reference to Exhibit 10aaa to Form 8-K
dated September 30, 1996)
10q Loan Agreement, dated as of August 2, 1996, among IBJ
Schroder Bank & Trust Company, Heller Financial, Inc.,
National Bank of Canada, Homeland and Holding.
10r Subsidiaries. (Incorporated by reference to Exhibit 22
to Form S-1 Registration Statement, Registration
No. 33-22829)
10s*1 Employee Stock Bonus Plan for union employees effective
as of August 2, 1996
10t.*1 Management Stock Option Plan effective as of December
11, 1996
23* Consent of Coopers & Lybrand, L.L.P.
27* Financial Data Schedule.
99a Press Release issue by Homeland Stores, Inc. on March 1,
1996. (Incorporated by reference to Exhibit 99e to
Form 8-K dated March 14, 1996)
99b Press Release issued by Homeland Stores, Inc. on March 27,
1996. (Incorporated by reference to Exhibit 99f to
Form 10-K for fiscal year ended December 30, 1995)
99c Press Release issued by Homeland Stores, Inc. on July 19,
1996. (Incorporated by reference to Exhibit 99h to
Form 10-Q for quarterly period ended June 15, 1996)
99d* Press Release issued by Homeland Stores, Inc. on
February 7, 1997
E-4
