UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly Report Under Section 13 or 15 (d) of the Securities
X Exchange Act of 1934
For the quarterly period ended September 6, 1997
OR
Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from _________to _________
Commission file No.: 33-48862
HOMELAND HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1311075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2601 Northwest Expressway
Oil Center-East, Suite 1100
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
(405) 879-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed by
a court. Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of October 17, 1997:
Homeland Holding Corporation Common Stock: 4,816,602 shares
HOMELAND HOLDING CORPORATION
FORM 10-Q
FOR THE THIRTY-SIX WEEKS ENDED SEPTEMBER 6, 1997
INDEX
Page
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements......................................... 1
Consolidated Balance Sheets as of
September 6, 1997, and December 28, 1996.................. 1
Consolidated Statements of Operations
12 Weeks ended September 6, 1997, 4 Weeks ended September
7, 1996, (Successor Company), and 8 Weeks ended August
2, 1996, Predecessor Company)............................. 3
Consolidated Statements of Operations
36 Weeks ended September 6, 1997, 4 Weeks ended September
7, 1996 (Successor Company), and 32 Weeks ended August
2, 1996 (Predecessor Company)............................. 4
Consolidated Statements of Stockholders Equity (Deficit)
36 Weeks ended September 6, 1997, 4 Weeks ended September
7, 1996 (Successor Company), and 32 Weeks ended August
2, 1996 (Predecessor Company)............................. 5
Consolidated Statements of Cash Flows
36 Weeks ended September 6, 1997, 4 Weeks ended September
7, 1996 (Successor Company), and 32 Weeks ended August
2, 1996 (Predecessor Company)............................. 6
Notes to Consolidated Financial Statements................... 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 9
PART II OTHER INFORMATION
ITEM 4. Submission of Matters of a Vote of Security Holders.......... 14
ITEM 5. Other Information............................................ 15
ITEM 6. Exhibits and Reports on Form 8-K............................. 15
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
ASSETS
September 6, December 28,
1997 1996
(Unaudited)
Current assets:
Cash and cash equivalents $ 5,707 $ 1,492
Receivables, net of allowance for
uncollectible accounts of $1,298
and $1,587 7,815 8,522
Inventories 44,197 45,009
Prepaid expenses and other current assets 2,602 2,760
Total current assets 60,321 57,783
Property, plant and equipment:
Land and land improvements 8,745 8,731
Buildings 18,312 18,124
Fixtures and equipment 17,980 15,078
Leasehold improvements 12,025 11,374
Software 4,431 2,930
Leased assets under capital leases 7,447 7,569
Construction in progress 3,113 2,675
72,055 66,481
Less, accumulated depreciation
and amortization 8,283 3,012
Net property, plant and equipment 63,772 63,469
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $15,369 at
September 6, 1997, and $5,819 at
December 28, 1996 28,007 39,570
Other assets and deferred charges 7,605 7,664
Total assets $ 159,705 $ 168,486
Continued
The accompanying notes are an integral part
of these consolidated financial statements.
1
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 6, December 28,
1997 1996
(unaudited)
Current liabilities:
Accounts payable - trade $ 17,858 $ 17,416
Salaries and wages 2,704 3,499
Taxes 4,465 2,903
Accrued interest payable 860 2,689
Other current liabilities 7,553 8,470
Current portion of long-term debt 1,727 894
Current portion of obligations under
capital leases 1,343 1,343
Total current liabilities 36,510 37,214
Long-term obligations:
Long-term debt 73,817 72,724
Obligations under capital leases 2,002 3,005
Other noncurrent liabilities 2,691 2,602
Total long-term obligations 78,510 78,331
Stockholders' equity:
Common Stock,
$0.01 par value, authorized - 7,500,000
shares, issued 4,816,602 shares at September
6, 1997, and, issued 4,758,025
shares at December 28, 1996 48 48
Additional paid-in capital 56,017 56,013
Accumulated deficit (11,380) (3,120)
Total stockholders' equity 44,685 52,941
Total liabilities and stockholders'
equity $ 159,705 $ 168,486
The accompanying notes are an integral part
of these consolidated financial statements.
2
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Prececessor
Successor Company Company
12 weeks 4 weeks 8 weeks
ended ended ended
September 6, September 7, August 10,
1997 1996
<S> <C> <C> <C>
Sales, net $ 114,935 $ 39,536 $ 77,416
Cost of sales 87,690 29,684 58,513
Gross profit 27,245 9,852 18,903
Selling and administrative expenses 25,801 8,953 17,578
Amortization of excess reorganization value 3,271 1,154 -
Operating profit (loss) (1,827) (255) 1,325
Interest expense 1,890 627 432
Income (loss) before reorganization items,
income taxes and extraordinary items (3,717) (882) 893
Reorganization items:
Allowed claims in excess of liabilities - - 7,200
Professional fees - - 1,100
Employee buyout expense - - 6,386
Adjustment of accounts to estimated
fair value - - 8,160
Loss before income taxes and
extraordinary items (3,717) (882) (21,953)
Income tax benefit (250) - - -
Loss before extraordinary items (3,467) (882) (21,953)
Extraordinary items-debt discharged - - 63,118
Net income (loss) $ (3,467) $ (882) $ 41,165
Loss before extraordinary items per
common share $ (.73) $ (.19) $ (.68)
Extraordinary items per common share - - 1.94
Net income (loss) per common share $ (.73) $ (.19) $ 1.26
Weighted average shares outstanding 4,782,294 4,758,025 32,599,707
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
36 weeks 36 weeks 32 weeks
ended ended ended
September 6, September 7, August 10,
1997 1996
<S> <C> <C> <C>
Sales, net $ 351,249 $ 39,536 $ 323,747
Cost of sales 266,171 29,684 244,423
Gross profit 85,078 9,852 79,324
Selling and administrative expenses 76,067 8,953 73,000
Amortization of excess reorganization value 10,095 1,154
Operating profit (loss) (1,084) (255) 6,324
Interest expense 5,705 627 5,639
Income (loss) before reorganization items,
income taxes and extraordinary items (6,789) (882) 685
Reorganization items:
Allowed claims in excess of liabilities - - 7,200
Professional fees - - 4,250
Employee buyout expense - - 6,386
Adjustments of accounts to estimated
fair value - - 8,160
- - 25,996
Loss before income taxes and
extraordinary items (6,789) (882) (25,311)
Income tax expense 1,471 - -
Loss before extraordinary items (8,260) (882) (25,311)
Extraordinary items-debt discharged - - 63,118
Net income (loss) (8,260) (882) 37,807
Loss before extraordinary items per
common share $ (1.73) $ (.19) $ (.78)
Extraordinary items per common share - - 1.94
Net income (loss) per common share $ (1.73) $ (.19) $ 1.16
Weighted average shares outstanding 4,766,115 4,758,025 32,599,707
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share and per share amounts)
(Unaudited)
<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, December 30, 1995 - 33,748,482 $ 337 $ 55,886 $ (80,188) $ (1,327)
Net income - - - - 37,807 -
Eliminate predecessor equity - (33,748,482) ( 337) (55,886) (2,637) -
Issuance of successor's common
stock 4,758,025 - 48 56,013 - -
Eliminate adjustment of
minimum pension liability - - - - - 1,327
Record excess of reorganization
value - - - - 45,018 -
Balance, August 10, 1996 4,758,025 - $ 48 $ 56,013 $ - $ -
Net loss - - - - (882) -
Balance, September 7, 1996 4,758,025 - $ 48 $ 56,013 $ (882) $ -
Balance, December 28, 1996 4,758,025 - $ 48 $ 56,013 $ (3,120) -
Net loss - - - - (8,260) -
Issuance of successor's common
stock 58,577 - - 4 - -
Balance, September 6, 1997 4,816,602 - $ 48 $ 56,017 $ (11,380) -
Continued
</TABLE>
Total
Treasury Stock Stockholders'
Shares Amount Equity/Deficit
Balance, December 30, 1995 2,869,493 $ (2,814) $ (28,106)
Net income - - 37,807
Eliminate predecessor equity (2,869,493) 2,814 (56,046)
Issuance of successor's common
stock - - 56,061
Eliminate adjustment of
minimum pension liability - - 1,327
Record excess of reorganization
value - - 45,018
Balance, August 10, 1996 - $ - $ 56,061
Net loss - - (882)
Balance, September 7, 1996 - $ - $ 55,179
Balance, December 28, 1996 - - $ 52,941
Net loss - - (8,260)
Issuance of successor's common
stock - - 4
Balance, September 6, 1997 - $ - $ 44,685
The accompanying notes are an integral part
of these consolidated financial statements.
5
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
36 weeks 4 weeks 32 weeks
ended ended ended
September 6, September 7, August 10,
1997 1996 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,260) $ (882) $ 37,807
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 5,355 588 4,163
Amortization of excess reorganization value 10,095 1,154 -
Amortization of financing costs 43 5 359
Reorganization items - - 15,360
Extraordinary gain on debt discharged - - (63,118)
Gain on disposal of assets 59 85 -
Amortization of beneficial interest in
operating leases 84 10 75
Impairment of assets - - -
Adjustment to excess reorganization value 292 - -
Deferred income taxes 1,176 - -
Change in assets and liabilities:
(Increase) decrease in receivables 707 (876) (32)
Decrease (increase) in inventories 812 (666) 4,175
Decrease (increase) in prepaid expenses
and other current assets 158 41 (83)
Increase in other assets and
deferred charges (92) (21) (649)
Increase (decrease) in accounts payable-trade 442 (545) 298
Increase (decrease) in salaries and wages (791) (167) 105
Increase in taxes 1,562 304 226
Increase (decrease) in accrued interest payable (1,829) 582 3,823
Decrease in other current liabilities (917) (791) (2,656)
Decrease in noncurrent
restructuring reserve - - (1,396)
Increase (decrease) in other noncurrent
liabilities 133 (146) (886)
Total adjustment 17,289 (443) (40,236)
Net cash provided by operating activities 9,029 (1,325) (2,429)
Cash flow used in investing activities:
Capital expenditures (5,762) (180) (2,395)
Cash received from sale of assets 25 1 1,738
Net cash (used in) provided by investing
activities (5,737) (179) (657)
Cash flows used by financing activities:
Borrowings under term loan - - 10,000
Borrowings under revolving credit loans 94,476 6,273 74,250
Payments under revolving credit loans (92,504) (6,273) (79,718)
Principal payments under note payable (46) - -
Principal payments under capital lease obligations (1,003) (141) (1,596)
Payments of secured debt obligations - - (1,500)
Net cash used in financing activities 923 (141) 1,436
Net increase (decrease) in cash and cash equivalents 4,215 (1,645) (1,650)
Cash and cash equivalents at beginning of period 1,492 4,707 6,357
Cash and cash equivalents at end of period $ 5,707 $ 3,062 $ 4,707
Supplemental information:
Cash paid during the period for interest $ 7,378 $ 48 $ 1,566
Cash paid during the period for income taxes $ - $ - $ -
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
6
HOMELAND HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Preparation of Consolidated Financial Statements:
The accompanying unaudited interim consolidated financial
statements of Homeland Holding Corporation ("Holding") and its
Subsidiary, Homeland Stores, Inc. ("Stores" and together with Holding,
the "Company"), reflect all adjustments, which consist only of normal
and recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the consolidated financial
position and the consolidated results of operations and cash flows
for the periods presented. The consolidated financial statements as of
and for the periods subsequent to August 10, 1996, were prepared in
accordance with the American Institute of Certified Public Accountants
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP No. 90-7"). The
accounting under SOP No. 90-7 resulted in "fresh-start" reporting for
the Company in which a new entity was created for financial reporting
purposes. The periods prior to August 10, 1996, have been designated
"Predecessor Company" and the periods subsequent to August 10, 1996,
have been designated "Successor Company."
These unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements of the Company
for the period ended December 28, 1996, and the notes thereto.
2. Accounting Policies:
The significant accounting policies of the Company are summarized
in the consolidated financial statements of the Company for the 52 weeks
ended December 28, 1996, and the notes thereto.
3. Net Loss Per Share:
Net loss per share of common stock is based on the weighted
average outstanding shares during the period. Net loss per share of
common stock for periods prior to the reorganization, which was
consummated in August 1996, is not meaningful due to the significant
change in capital structure.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company's plan of reorganization became effective on
August 2, 1996. For financial reporting purposes, the Company
accounted for the consummation of the reorganization effective as
of August 10, 1996.
As a result of the adoption of "fresh-start" reporting and the
consummation of the reorganization, the periods prior to and
subsequent to August 10, 1996, for financial reporting purposes are
not necessarily comparable.
For purposes of the discussion of Results of Operations and
Liquidity and Capital Resources for the results of the twelve- and
thirty-six weeks ended September 7, 1996, the results of the
Predecessor Company and Successor Company have been combined.
The table below sets forth selected items from the Company's
consolidated income statement as a percentage of net sales of the
periods indicated:
12 weeks ended 36 weeks ended
September 6, September 7, September 6, September 7,
1997 1996 1997 1996
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 76.3 75.4 75.8 75.5
Gross Profit 23.7 24.6 24.2 24.5
Selling and
administrative 22.4 22.7 21.7 22.6
Amortization of
excess reorganization
value 2.8 1.0 2.9 0.3
Operating profit
(loss) (1.6) 0.9 (0.3) 1.7
Interest expense 1.6 0.9 1.6 1.7
Loss before
reorganization
items, income taxes
and extraordinary
items (3.2) 0.0 (1.9) (0.1)
Reorganization
items - 19.5 - 7.2
Loss before income
tax and
extraordinary
items (3.2) (19.5) (1.9) (7.2)
Income tax
provision (0.2) - 0.4 -
(benefit)
Loss before
extraordinary
items (3.0) (19.5) (2.4) (7.2)
Extraordinary
items - (54.0) - (17.4)
Net loss (3.0) 34.4 (2.4) 10.2
Results of Operations.
Comparison of Twelve Weeks and Thirty-Six Weeks ended
September 6, 1997, with Twelve Weeks and Thirty-Six Weeks ended
September 7, 1996.
Net sales for the 12 weeks and 36 weeks ended September 6, 1997,
decreased 1.7% and 3.3%, respectively, from the net sales of the
corresponding periods of 1996. The reduction in net sales was primarily
due to lower comparable store sales. Comparable store sales for the 12
weeks and 36 weeks ended September 6, 1997, decreased by 3.2% and 2.5%,
respectively, as compared to the corresponding periods of 1996. The
decrease in comparable store sales was attributed to the opening of five
new competing stores in the Company's trade areas during the third quarter,
plus lower food price inflation and lower sales to food stamps recipients
as a result of more stringent eligibility requirements. These factors
were offset somewhat by grand openings at six of the Company's remodeled
stores. The Company's anticipated acquisition of three Food Lion stores
in the fourth quarter of 1997, and the announced closing of five other
Food Lion stores in the Company's trade area are expected to have a
positive effect on the Company's net sales (see Liquidity and Capital
Resources).
Gross profit as a percentage of sales for the 12 weeks ended
September 6, 1997, was 23.7%, a decrease from the corresponding period of
1996 of 24.6%. The decrease in gross profit margin was primarily a result
of increased promotional activities relating to new competitors and grand
opening sales of the six remodeled stores. Gross profit as a percentage of
sales for the 36 weeks ended September 6, 1997, was 24.2% as compared to
24.5% of the corresponding period in 1996.
Selling and administrative expenses for the 12 weeks ended
September 6, 1997, decreased to 22.4%, as a percentage of net sales,
compared to 22.7% for the corresponding period of 1996. For the 36
weeks ended September 6, 1997, selling and administrative expenses as a
percentage of sales decreased by 0.9% to 21.7% from 22.6% in the
corresponding period of 1996. The reduction in selling and
administrative expenses resulted primarily from lower labor costs
associated with the modified union agreements and lower occupancy cost that
resulted from renegotiated leases, all commencing in August 1996.
For the 12 weeks and 36 weeks ended September 7, 1996, the
Company incurred $22.8 million and $26.0 million of reorganization items.
These items were related to the reorganization consummated in August 1996
and are not recurring.
The Company recorded amortization of excess reorganization value
of $3.3 million and $10.1 million for the 12 weeks and 36 weeks ended
September 6, 1997, respectively. For the 12 weeks and 36 weeks ended
September 7, 1996, the Company recorded $1.2 million for amortization
of excess reorganization value. The amortization of the excess
reorganization value will negatively affect earnings for the next eight
fiscal quarters.
Interest expense for the 12 weeks ended September 6, 1997,
was $1.9 million, as compared to $1.1 million in the corresponding period
of 1996. Interest expense for the 36 weeks ended September 6, 1997, was
$5.7 million, a reduction of $0.6 million from the corresponding period
of $6.3 million in 1996. The higher interest expense for the 12 weeks ended
September 6, 1997, as compared to the comparable period for the prior year
was due to lower interest expense during the 1996 period as a result of
the non-accrual of interest from May 13 through August 2, 1996 on the
Company's outstanding senior secured notes that were stayed during the
Company's bankruptcy proceeding. The reduction in interest expenses for
the 36 week period versus the prior year was due primarily to the
reduction of debt level resulting from the consummation of the
reorganization in August 1996.
The Company recorded an income tax credit of $0.3 million and
an income tax provision of $1.5 million for the 12 weeks and 36 weeks ended
September 6, 1997, respectively. The benefit recorded for the 12 weeks
ended September 6, 1997, resulted from the reversal of previously-recorded
expenses, as the Company adjusted its expected taxable income for fiscal
1997. The effective tax rate differs from the statutory rate due to
amortization of excess reorganization value, which is not deductible for
income tax purposes. The net operating loss carryforwards available for
utilization in 1997 ("NOL Carryforward") are limited to approximately
$4.5 million, the benefit of which is being recorded as a reduction of
excess reorganization value rather than a reduction of income tax expense.
As a result of the reorganization that was consummated in
August 1996, certain debt of the Company was discharged. The debt
discharged resulted in the Company recognizing an extraordinary gain of
$63.1 million for the 12 weeks and 36 weeks ended September 7, 1996.
The Company's EBITDA (as defined hereinafter) for the 12 weeks
ended September 6, 1997, decreased to $3.3 million or 2.9% of net sales,
from the EBITDA of $3.7 million, before reorganization items, or 3.2 % of
net sales for the corresponding period of 1996. For the 36 weeks ended
September 6, 1997, EBITDA was $ 14.5 million or 4.1% of net sales as
compared to $12.1 million, before reorganization items, or 3.3% of net
sales for the corresponding period of 1996. The improvement in EBITDA for
the 36 week period, is attributable to the cost savings realized as a
result of the reorganization that was consummated in August 1996. The
savings from the reorganization efforts were somewhat offset by reduced
net sales and a lower gross profit margin.
Net loss for the 12 weeks ended September 6, 1997, was $3.5
million or $0.73 per share compared to a net income of $40.3 million or
$1.07 per share for the corresponding period in 1996. Net loss for the
36 weeks ended September 6, 1997, was $8.3 million or $1.73 per share
compared to a net income of $36.9 million or $0.97 per share for the
corresponding period in 1996. The net income for the 12 weeks and 36
weeks ended September 7, 1996 included an extraordinary gain of $63.1
million or $1.94 per share. As a result of the reorganization that was
consummated in August 1996, the Company's financial structure has changed
significantly such that results of earnings per share are not comparable
to prior years.
The Company is amortizing its excess reorganization value of $45
million over a three-year period, and such amortization has affected
earnings significantly. If the Company excluded such amortization of
excess reorganization value for the 12 weeks and 36 weeks ended September
6, 1997, the Company would record a loss of $0.2 million or $0.04 per share
and an income of $1.8 million or $0.39 per share, respectively.
Liquidity and Capital Resources
The primary sources of liquidity and capital for the Company's
operations have been borrowing under the revolving credit facility and
internally-generated funds.
The Company's EBITDA (earnings before interest, taxes,
depreciation and amortization) before reorganization items, as presented
below, is the Company's measurement of internally-generated cash for
working capital needs, capital expenditures and payment of debt obligations:
12 weeks ended 36 weeks ended
Sept.6, Sept.7, Sept. 6, Sept.7,
1997 1996 1997 1996
Loss before income
taxes and extraordinary
items (3,717) (22,835) (6,789) (26,193)
Interest expense 1,890 1,059 5,705 6,266
Amortization of
reorganization value 3,271 1,154 10,095 1,154
Reorganization items - 22,846 - 25,996
Depreciation and
amortization 1,889 1,495 5,439 4,836
EBITDA 3,333 3,719 14,450 12,059
As a percentage of
sales 2.9% 3.2% 4.1% 3.3%
As a multiple of
interest expense 1.8x 3.5x 2.5x 1.9x
Cash flow from operations provided $9.0 million for the 36 weeks
ended September 6, 1997, as compared to net cash used in operations of
$3.8 million for the 36 weeks ended September 7, 1996. The improvement in
cash flow from operations was due primarily to cost savings realized from
the reorganization that was consummated in August 1996.
The Company's investing activities used net cash of $5.7 million
in the 36 weeks ended September 6, 1997, while the corresponding period of
1996 investing activities used $0.8 million. Cash used in investing
activities was primarily for the 1997 remodeling program. The Company has
completed 18 of its remodeling projects as of October 17, 1997. In August
1997, the Company acquired a Pratt Discount Foods store in Oklahoma City
(the "Pratt Acquisition"). In October 1997, the Company entered into an
agreement with Food Lion, Inc. to acquire three of its stores located at
Yukon, Shawnee and Lawton, Oklahoma (the "Food Lion Acquisition"). The Food
Lion Acquisition is expected to use approximately $4.4 million. Although
the Food Lion Acquisition is expected to close in December 1997, the
Company has commenced operations in the three stores as of October 15,
1997. With the Pratt Acquisition and the Food Lion Acquisition, the
Company will operate a total of 70 stores.
The revolving credit facility currently limits the Company's
cash capital expenditures for fiscal 1997 to $12.0 million. As a result of
the Food Lion Acquisition, the Company expects to expend approximately
$16.0 million in cash capital expenditures, and accordingly has obtained a
waiver, effective through December 15, 1997, from its lenders. The Company
has also received approval from its lenders with respect to amending its
revolving credit facility to increase the revolving credit facility from
$27.5 million to $32.0 million, adding vendor receivables to the borrowing
base and to otherwise address the Food Lion Acquisition. The Company
expects completion of the definitive documentation with respect to such
amendment to its revolving credit facility prior to December 15, 1997.
Financing activities of the Company provided net cash of $0.9
million and $1.3 million for the 36 weeks ended September 6, 1997, and
September 7, 1996, respectively.
Management believes that the revolving credit facility, with the
amendments discussed above, and cash flows from operations will be adequate
for the Company's short-term requirements including its 1997 capital
expenditure program, the Food Lion Acquisition and the scheduled quarterly
payments required under the term loan. As of October 17, 1997, the Company
had $9.4 million of borrowings and $5.7 million of letters of credit
outstanding under its revolving credit facility. The revolving credit
facility, before the amendments discussed above, provides for borrowings of
up to the lesser of (a) $27.5 million or (b) the applicable borrowing base.
The applicable borrowing base on October 17, 1997, was approximately $27.1
million.
Safe Harbor Statements Under the Private Securities Litigation Reform Act
of 1995
The statements made under Item 2: Management's Discussion and
Analysis of Financial Condition and Results of Operations and other
statements in this Form 10-Q which are not historical facts, particularly
with respect to future net sales, are forward-looking statements. These
forward-looking statements are subject to risks and uncertainties that
could render them materially inaccurate or different. The risks and
uncertainties include, but are not limited to, the effect of economic
conditions, the impact of competitive promotional and new store activities,
labor cost, capital constraints, availability and costs of inventory,
changes in technology and the effect of regulatory and legal developments.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1997 Annual Meeting of Stockholders on July
9, 1997. At such meeting, Robert E. (Gene) Burris, James A. Demme, Edward
B. Krekeler, Jr., Laurie M. Shahon, John A. Shields, William B. Snow and
David N. Weinstein were elected to serve on the Board of Directors
for a one year term, ending at the next annual meeting.
In the matter of the election of directors, the votes cast were as
follows (there were no brokers no-votes):
For Withheld/Abstained
Robert E. Burris 3,876,572 40/752
James A. Demme 3,876,572 40/752
Edward B. Krekeler, Jr. 3,876,572 40/752
Laurie M. Shahon 3,876,572 40/752
John A. Shields 3,876,572 40/752
William B. Snow 3,876,572 40/752
David N. Weinstein 3,876,572 40/752
In the matter of amending the bylaws for the purpose of
staggering the Board of Directors, the filing of vacant directorships and the
removal of directors only for cause, 2,253,072 votes were cast against,
1,371,073 votes cast in favor, and holders of 466 shares abstained or did
not vote.
In the matter of ratification of the appointment of Coopers and
Lybrand, LLP as independent certified public accountants, 3,877,213 votes
were cast in favor of approval, 102 votes were cast against, and holders of
96 shares abstained or did not vote.
In the matter of approving Homeland Holding Corporation 1997
Non-Employee Directors Stock Option Plan, 2,988,124 votes were cast in
favor of approval, 636,378 votes were cast against, and holders of 109
shares abstained or did not vote.
In the matter of approving the increase in the number of shares
available for options to be granted under the Homeland Holding Corporation
1996 Stock Option Plan, 2,991,340 votes were cast in favor of approval,
633,162 votes were cast against, and holders of 109 shares abstained
or did not vote.
All of such matters (other than the staggering of the Board of
Directors and the related bylaw amendments) were approved.
Item 5. Other Information
On September 19,1997, Mr. James A. Demme resigned his position as
Chairman of the Board of Directors, Chief Executive Officer, President and
as a member of the Board of Directors of the Company. On the same day, the
Board of Directors appointed Mr. John A. Shields to the position of Acting
Chairman of the Board of Directors and Mr. Larry W. Kordisch to the
position of Acting Chief Executive Officer of the Company. The Board of
Directors has retained a search firm to conduct a nationwide search for
a replacement for Mr. Demme.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibits are filed as part
of this report:
Exhibit No. Description
27 Financial Data Schedule.
99 Press release of September 19, 1997,
announcing the acquisition of three
Food Lion stores and the resignation of
Mr. James A. Demme.
(b) Report on Form 8-K: The Company did not file any
Form 8-K during the quarter ended September 6, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HOMELAND HOLDING CORPORATION
Date: October 21, 1997 By: /s/ Larry W. Kordisch
Larry W. Kordisch, Acting Chief
Executive Officer and Secretary
(Principal Executive Officer)
Date: October 21, 1997 By: /s/ Francis T. Wong
Francis T. Wong, Vice
President/Finance, Treasurer
and Asst. Secretary (Principal
Financial Officer)
HMLD Reports Management Changes and Letter of Intent
Page 3
September 19, 1997
-MORE-
FOR IMMEDIATE RELEASE
Contact: Larry W. Kordisch
Chief Executive Officer
(405) 879-6600
HOMELAND STORES REPORTS RESIGNATION OF JAMES A. DEMME AS
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
APPOINTS JOHN A. SHIELDS ACTING CHAIRMAN AND
LARRY W. KORDISCH ACTING CHIEF EXECUTIVE OFFICER
ALSO ANNOUNCES LETTER OF INTENT TO PURCHASE
THREE SUPERMARKETS IN OKLAHOMA FROM FOOD LION
Oklahoma City, Oklahoma (September 19, 1997) Homeland Stores, Inc.
(Nasdaq/NM: HMLD) today announced the resignation of James A. Demme as
Chairman, President and Chief Executive Officer of the Company. Mr. Demme,
who will become Chairman and Chief Executive Officer of Bruno's, Inc., a
southeastern chain of 220 supermarkets, will be replaced by a current
Director of the Company, John A. Shields, as the acting Chairman of the
Board, and by the current Executive Vice President - Finance and Chief
Financial Officer, Larry W. Kordisch, as acting Chief Executive Officer of
the Company.
Commenting on the announcement, Mr. Shields said, "Speaking for
Homeland's Board of Directors, we regret Jim's decision to leave Homeland,
but we wish him well in his new position. Jim came to Homeland during a
very difficult period for the Company. Through his determination and
expertise, Homeland successfully completed a total restructuring during the
past three years, which has greatly strengthened the Company's competitive
position within its markets and its growth prospects.
"Because of the strong foundation developed under Jim's leadership, we
believe that his departure will not significantly affect the ongoing
implementation of the Company's growth strategy or diminish its ability to
pursue profitable growth. We have every confidence in Larry Kordisch's
ability to run the Company as acting CEO. Prior to joining Homeland in
May 1995, Larry was Executive Vice President - Finance and Administration,
Chief Financial Officer and Director of Scrivner, Inc., which, until its
acquisition by the Fleming Companies, Inc., was the nation's third largest
grocery wholesaler. Larry was also integrally involved in every aspect of
Homeland's restructuring and has continued to play an instrumental role in
the formation and implementation of Homeland's growth strategies."
Mr. Shields has been a member of the Company's Board of Directors since
May 1993. His career spans more than 30 years in the retail grocery
industry, including 10 years at First National Supermarkets where he was
President, Chief Executive Officer and a Director, a position from which he
retired in 1993. Mr. Shields is an active investor and serves on the Board
of Directors of a number of retail and food related businesses.
Mr. Shields added, "The Board of Directors has engaged a national
executive search firm to conduct a formal search for Jim's permanent
replacement. The search is being conducted throughout the country and
includes candidates from both inside and outside the Company. Although we
expect the search to be thorough, we will make a final decision as
expeditiously as possible."
Mr. Demme remarked, "Homeland has undergone tremendous change since I
joined the Company nearly three years ago and is now positioned
competitively, managerially and financially to pursue profitable growth.
The Company's resurgence made it much easier for me to decide to act on an
exceptional opportunity as Chairman and CEO of Bruno's. While it is
difficult to leave Homeland, I have great confidence in the high caliber
individuals who succeed me."
Homeland also announced the signing of a letter of intent to purchase
three supermarkets from Food Lion, Inc. (Nasdaq/NM: FDLNA FDLNB) in Lawton,
Shawnee and Yukon, Oklahoma. Consummation of the transaction, which is
subject to customary closing conditions, including the execution of a
definitive purchase agreement, is expected in the fourth quarter of 1997.
Mr. Kordisch remarked, "Although the timing of the Company's
management changes and this purchase is coincidental, this transaction
provides tangible evidence of the great improvement in Homeland's prospects.
The purchase of these three supermarkets in our core Oklahoma market will
strengthen our existing presence in Yukon and provide us an entry into Lawton
and Shawnee. All three of these supermarkets are well located and well run.
We anticipate that they will be accretive to Homeland's financial results in
their first full year of operation and expect minimal disruption as we
integrate their operations and personnel into Homeland. The purchase will
improve Homeland's leadership position in the Oklahoma market and is
reflective of the opportunities we believe continue to exist for further
consolidation in the Company's markets."
This press release contains forward-looking statements which are based
upon current expectations and involve a number of risks and uncertainties.
In order for the Company to utilize the "safe harbor" provisions of the
Private Litigation Reform Act of 1995, you are hereby cautioned that these
statements may be affected by the important factors, among others, set forth
below, or in the Company's periodic filings with the S.E.C., and,
consequently, actual operations and results may differ materially from
those expressed in these forward-looking statements. As to the performance
of the supermarkets to be purchased, these important factors include: the
ability of the stores to generate projected volumes and the ability of
Homeland to staff and operate the stores as expected.
Homeland Stores, Inc. is the leading supermarket chain in Oklahoma,
southern Kansas, and the Texas panhandle region and, upon the consummation
of the purchase transaction, will operate a total of 70 stores. The Company
operates in four distinct marketplaces: Oklahoma City, Oklahoma; Tulsa,
Oklahoma; Amarillo, Texas; and certain rural areas of Oklahoma, Kansas
and Texas.
-END-
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