CONFORMED COPY
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
Exchange Act of 1934
For the quarterly period ended September 9, 2000
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 24, 2000:
Homeland Holding Corporation Common Stock: 4,925,871 shares
HOMELAND HOLDING CORPORATION
FORM 10-Q
FOR THE THIRTY-SIX WEEKS ENDED SEPTEMBER 9, 2000
INDEX
Page
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements 1
Consolidated Balance Sheets
September 9, 2000, and January 1, 2000 1
Consolidated Statements of Operations
Twelve Weeks and Thirty-six Weeks ended
September 9, 2000, and September 11, 1999 3
Consolidated Statements of Cash Flows
Twelve Weeks and Thirty-six Weeks ended
September 9, 2000, and September 11, 1999 4
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
ITEM 3. Exhibits and Reports on Form 8-K 16
i
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
Selected Financial Data
<CAPTION>
ASSETS
(Unaudited)
September 9, January 1,
___2000 2000
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,604 $ 6,136
Receivables, net of allowance
for uncollectible accounts of
$718 and $1,361 10,621 11,353
Inventories 55,132 52,663
Prepaid expenses and other
current assets 2,317 2,176
Total current assets 73,674 72,328
Property, plant and equipment:
Land and land improvements 8,820 9,046
Buildings 21,675 21,962
Fixtures and equipment 41,122 36,818
Leasehold improvements 21,647 20,446
Software 7,672 7,181
Leased assets under capital leases 8,737 8,737
Construction in progress 1,176 19
110,849 104,209
Less, accumulated depreciation
and amortization 37,967 30,728
Net property, plant and equipment 72,882 73,481
Other assets and deferred charges 26,275 22,045
Total assets $ 172,831 $ 167,854
</TABLE>
Continued
<TABLE>
Selected Financial Data
<CAPTION>
(Unaudited)
September 9, January 1,
___2000 2000
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 20,380 $ 22,968
Salaries and wages 2,127 3,168
Taxes 4,794 3,616
Accrued interest payable 886 2,671
Other current liabilities 7,338 6,992
Current portion of long-term debt 3,048 2,918
Current portion of obligations
under capital leases 501 501
Total current liabilities 39,074 42,834
Long-term obligations:
Long-term debt 103,608 94,668
Obligations under capital leases 838 1,197
Other noncurrent liabilities 3,034 1,501
Total long-term obligations 107,480 97,366
Stockholders' equity:
Common stock $0.01 par value,
authorized - 7,500,000 shares,
issued 4,925,871 shares and
4,917,860 shares at September 9,
2000, and January 1, 2000,
respectively 49 49
Additional paid-in capital 56,254 56,254
Accumulated deficit (30,026) (28,649)
Total stockholders' equity 26,277 27,654
Total liabilities and stockholders'
equity $ 172,831 $ 167,854
</TABLE>
<TABLE>
Selected Financial Data
<CAPTION>
12 weeks ended 36 weeks ended
September 9, September 11, September 9, September 11,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales, net $ 136,501 $ 125,867 $ 415,728 $ 376,811
Cost of sales 104,141 94,953 318,412 286,745
Gross profit 32,360 30,914 97,316 90,066
Selling and administrative expenses 32,111 28,323 91,864 81,858
Amortization of excess reorgani-
zation value - 1,712 - 6,890
Asset impairment - closed store - 925 - 925
Operating profit (loss) 249 (46) 5,452 393
Gain (loss) on disposal of assets - 203 (29) 217
Interest income 176 132 520 391
Interest expense (2,522) (2,073) (7,319) (6,086)
Loss before income taxes (2,097) (1,784) (1,376) (5,085)
Income tax provision (benefit) (274) (24) - 685
Net loss $ (1,823) $ (1,760) $ (1,376) $ (5,770)
Net loss per share:
Basic $ (0.37) $ (0.36) $ (0.28) $ (1.18)
Diluted $ (0.37) $ (0.36) $ (0.28) $ (1.18)
Weighted average shares
outstanding:
Basic 4,924,869 4,912,979 4,922,130 4,909,842
Diluted 4,924,869 4,912,979 4,922,130 4,909,842
</TABLE>
<TABLE>
Selected Financial Data
<CAPTION>
12 weeks ended 36 weeks ended
September 9, September 11, September 9, September 11,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,823) $ (1,760) $ (1,376) $ (5,770)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 2,568 2,439 7,636 7,104
Amortization of beneficial interest
in operating leases 28 28 84 84
Amortization of excess reorganization
value - 1,712 - 6,890
Amortization of goodwill 177 55 495 97
Amortization of financing costs 15 3 42 26
Loss (gain) on disposal of assets - (203) 29 (217)
Asset impairment - closed store - 925 - 925
Deferred income taxes (214) 199 - 901
Change in assets and liabilities:
(Increase) decrease in receivables (567) (1,269) 732 (193)
Decrease (increase) in inventories 82 (44) 1,119 223
(Increase) decrease in prepaid expenses
and other current assets (292) 551 (25) (256)
(Increase) decrease in other assets and
deferred charges (16) 22 (237) 9
Decrease in accounts payable - trade (412) (931) (2,588) (2,405)
Increase (decrease) in salaries and wages 69 332 (1,041) (354)
Increase in taxes 371 147 1,235 923
Decrease in accrued interest payable (1,614) (1,655) (1,785) (1,787)
Increase (decrease) in other current
liabilities (797) 187 (155) (1,267)
Decrease in other noncurrent
liabilities (144) (122) (892) (348)
Total adjustments (746) 2,376 4,649 10,355
Net cash provided by (used in)
operating activities (2,569) 616 3,273 4,585
Cash flows from investing activities:
Capital expenditures (1,603) (1,389) (3,166) (4,484)
Acquisition of stores - - (3,663) (1,315)
Cash received from sale of assets 2 209 475 226
Net cash used in investing
activities (1,601) (1,180) (6,354) (5,573)
Cash flows from financing activities:
Borrowings under term loan - - 5,000 -
Payments under term loan (595) (417) (1,424) (834)
Borrowings under revolving credit loans 33,063 31,061 110,979 94,174
Payments under revolving credit loans (29,847) (30,366) (107,728) (91,707)
Payment on tax notes (13) - (37) (31)
Proceeds from issuance of common stock - 21 - 52
Principal payments under notes payable (290) (115) (3,882) (2,304)
Principal payments under capital lease
obligations (112) (261) (359) (779)
Net cash provided by (used in)
financing activities 2,206 (77) 2,549 (1,429)
Net decrease in cash and cash equivalents (1,964) (641) (532) (2,417)
Cash and cash equivalents at beginning
of period 7,568 6,080 6,136 7,856
Cash and cash equivalents at end of
period $ 5,604 $ 5,439 $ 5,604 $ 5,439
Continued
12 weeks ended 36 weeks ended
September 9, September 11, September 9, September 11,
2000 1999 2000 1999
Supplemental information:
Cash paid during the period
for interest $ 4,076 $ 3,760 $ 8,731 $ 7,884
Cash paid during the period for
income taxes $ - $ - $ 30 $ -
Supplemental schedule of noncash
investing and financing activities:
Debt assumed in acquisition of stores $ - $ - $ 6,162 $ 6,752
</TABLE>
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
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"), through its
wholly-owned subsidiary, Homeland Stores, Inc. ("Homeland") and
Homeland's wholly-owned subsidiary, JCH Beverage, Inc. ("JCH") and
JCH's wholly-owned subsidiary, SLB Marketing, Inc., (collectively
referred to herein as 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.
These unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements of
the Company for the 52 weeks ended January 1, 2000, 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 January 1, 2000, and the notes thereto.
3. Reserves for Doubtful Accounts:
In the fourth quarter of 1999, the Company increased its
reserves for doubtful accounts by approximately $0.6 million related
to the uncertainty of collection of a receivable from a vendor.
This receivable was subsequently collected during the twelve weeks
ended June 17, 2000, resulting in the reduction of the related
reserves for doubtful accounts and a reduction in selling and
administrative expenses during the second quarter.
4. Store Acquisitions:
In February 2000, the Company completed its acquisition of
three stores from Belton Food Center Inc. ("BFC"), in Oklahoma
City. The net purchase price was $0.2 million which represents
$4.2 million for fixtures and equipment, leasehold improvements
and goodwill, plus $2.0 million for inventory and $0.2 million for
transaction costs, offset by $6.2 million of long-term debt, which
relates to BFC's obligations to Associated Wholesale Grocers, Inc.
("AWG") assumed by the Company. The Company leases all three of
the stores from AWG. The Company financed this acquisition
principally through the assumption of $6.2 million in long-term
debt, together with increased borrowings under its Revolving
Facility. The debt incurred by the Company to AWG is secured by
liens on, and security interest in, the assets associated with the
three stores. Subsequent to the closing of the acquisition, the
Company repaid a portion of its indebtedness to AWG, which related
to inventory, and, therefore, AWG released its security interest
in the inventory. The Company subsequently closed one of the
stores due to the proximity to other Company stores and
established a reserve, which approximated $1.3 million for future
rent payments and other holding costs.
On April 25, 2000, the Company completed its acquisition of
three Baker's Supermarkets from Fleming Companies Inc. ("Fleming").
The purchase price was approximately $3.5 million, which represents
$1.7 million for fixtures and equipment, leasehold improvements,
goodwill and a non-compete agreement, $1.6 million for inventory,
and approximately $0.2 million in transaction costs. In
conjunction with the transaction, the Company also recorded $1.6
million of identified intangibles and $1.6 million in liabilities
related to an unfavorable contract. The Company subleases the three
stores from Fleming. On September 15, 2000, the Company
subsequently leased a fourth location from Fleming upon the
completion of its construction. The Company financed this
acquisition principally through increased borrowings under its
working capital facility.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
General
The table below sets forth selected items from the Company's
consolidated income statement as a percentage of net sales for the
periods indicated:
<TABLE>
Selected Financial Data
<CAPTION>
12 weeks ended 36 weeks ended
Sept. 9, Sept. 11, Sept. 9, Sept. 11,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.3 75.4 76.6 76.1
Gross Profit 23.7 24.6 23.4 23.9
Selling and administrative
expenses 23.5 22.5 22.1 21.7
Amortization of excess reorgani-
zation value - 1.4 - 1.8
Asset impairment - 0.7 - 0.3
Operating profit 0.2 - 1.3 0.1
Gain (loss) on disposal of assets - 0.2 - -
Interest income 0.1 0.1 0.2 0.1
Interest expense (1.8) (1.7) (1.8) (1.6)
Loss before income taxes (1.5) (1.4) (0.3) (1.4)
Income tax provision (benefit) (0.2) - - 0.1
Net loss (1.3) (1.4) (0.3) (1.5)
</TABLE>
Results of Operations.
Comparison of the Twelve Weeks Ended September 9, 2000 with
the Twelve Weeks Ended September 11, 1999
Net sales increased $10.6 million, or 8.5%, from $125.9
million for the twelve weeks ended September 11, 1999, to $136.5 million
for the twelve weeks ended September 9, 2000. The increase in sales is
attributable to the acquisition of four stores in November 1999, the
acquisition of three stores in February 2000, and the acquisition of
three stores in April 2000, partially offset by a 4.2% decline in
comparable store sales and the closing of one store in 1999. The
decrease in comparable store sales is primarily attributable to
competitive openings during fiscal year 2000, and a labor dispute at
AWG, the Company's primary supplier of merchandise.
Since the beginning of Fiscal 2000, there have been nine new
competitive openings within the Company's markets including: five Wal-
Mart Neighborhood Markets in Oklahoma City, three Wal-Mart Supercenters
in Oklahoma City and one United Supermarket in Amarillo, Texas. Based
on information publicly available, the Company expects that, during the
remainder of 2000, Wal-Mart will open a total of two Supercenters and
three Neighborhood Markets; and regional chains and independents will
open one additional store.
AWG's labor dispute involved warehousing and transportation
employees and impacted the Company's sales through informational
leaflets dissuading customers from patronizing Company stores, through
inaccurate store order fulfillment, and through late deliveries. The
labor dispute, which began April 1, 2000 was resolved in mid-June.
Based in part on the anticipated impact of proposed and
recent new store openings and remodelings by competitors, management
believes that market conditions will remain highly competitive,
placing continued pressure on comparable store sales and net sales.
As a result of these highly competitive conditions, management
believes that comparable store sales will decline approximately 4.0%
to 5.0% during the fourth quarter of 2000. In response to this
highly competitive environment, the Company intends to build on its
strengths which consist of: (a) high quality perishable departments;
(b) market position and competitive pricing; (c) customer service; (d)
excellent locations; and (e) the "Homeland Savings Card," a customer
loyalty card program. The Company is upgrading its stores by focusing
its capital expenditures on projects that will improve the overall
appeal of its stores to targeted customers and is using its
merchandising strategy to emphasize a competitive pricing structure, as
well as leadership in quality products and services, selection and
convenient store locations. Additionally, the in-store merchandising
strategy combines a strong presentation of fresh products along with
meaningful values throughout the store on a wide variety of fresh and
shelf stable products each week. The Company's main vehicle of value
delivery is its Homeland Savings Card, which allows customers with the
card the opportunity to purchase over 2,000 items at a reduced cost
each week. Finally, the Company continues the use of market research
in order to maintain a better understanding of customer behavior and
trends in certain markets.
Gross profit as a percentage of sales decreased 0.9% from
24.6% for the twelve weeks ended September 11, 1999, to 23.7% for the
twelve weeks ended September 9, 2000. The decrease in gross profit
margin reflects a reduction in the anticipated AWG annual patronage
rebate due to the labor dispute; the impact of specific promotional
activities as the Company responded to certain new competitive store
openings and special advertisements for the Company's acquired stores.
The need to respond to competitive new store openings and the
additional investment in the acquired stores may put continued pressure
on gross profit for the foreseeable future.
Selling and administrative expenses as a percentage of sales
increased 1.0% from 22.5% for the twelve weeks ended September 11, 1999,
to 23.5% for the twelve weeks ended September 9, 2000. The increase in
operating expenses as a percentage of sales is primarily attributable to
increased occupancy costs associated with the acquired stores, to an
increase in labor costs, to the increased cost of store supplies, to
increased utility costs due to the extreme summer heat, and to the
start-up expenses related to the Company's new store, which opened on
September 15, 2000. The Company continues to review the alternatives
to reduce selling and administrative expenses and cost of sales,
though there is no assurance that any such reduction will be
realized.
The amortization of the excess reorganization value amounted
to $1.7 million for the twelve weeks ended September 11, 1999. The
excess reorganization value was amortized over three years, on a
straight-line basis, and became fully amortized in the third quarter of
1999.
The Company recorded an asset impairment provision, during the
twelve weeks ended September 11, 1999, in the amount of $0.9 million
related to a previously closed store. The provision reduced the
carrying value of the real property to a current estimate of fair value.
Operating results increased $0.3 million from an operating
loss of $46,000 for the twelve weeks ended September 11, 1999, to an
operating profit of $0.2 million for the twelve weeks ended September 9,
2000. Excluding the amortization of the excess reorganization value and
the asset impairment provision from the 1999 results, operating profit
decreased $2.4 million from $2.6 million for the twelve weeks ended
September 11, 1999, to $0.2 million for the twelve weeks ended September
9, 2000. The decrease in operating profit reflects the decline in gross
profit as a percentage of sales combined with the increase in selling
and administrative expenses.
Interest expense, net of interest income, increased $0.4
million from $1.9 million for the twelve weeks ended September 11, 1999,
to $2.3 million for the twelve weeks ended September 9, 2000. The
increase reflects additional interest expense attributable to the
acquired stores and increases in variable interest rates, partially
offset by additional interest income from the interest bearing
certificates of AWG held by the Company. During 2000, the Company
anticipates that interest expense will increase due to increased debt
and additional increases in variable interest rates. See "Liquidity and
Capital Resources."
The Company recorded $0.3 million of income tax benefit for
the twelve weeks ended September 9, 2000, substantially all of which
is deferred income tax. In accordance with SOP 90-7, the tax benefit
realized from utilizing the pre-reorganization net operating loss
carryforwards is recorded as a reduction of the reorganization value
in excess of amounts allocable to identifiable assets rather than
realized as a benefit on the statement of operations. Additionally,
upon the completion of the amortization of reorganization value in
excess of amounts allocable to identifiable assets, the tax benefit
realized from utilizing the pre-reorganization net operating loss
carryforwards is recorded as a reduction of other intangibles
existing at the reorganization date until reduced to zero and then as
an increase to stockholder's equity. Due to the uncertainty of
realizing future tax benefits, a full valuation allowance has been
deemed necessary to entirely offset the net deferred tax assets. At
January 1, 2000, the Company had a tax net operating loss
carryforward of approximately $29.5 million, which may be utilized to
offset future taxable income to the limited amount of $5.7 million
for 2000 and $3.3 million each year thereafter.
Net loss of $1.8 million, or a net loss per diluted share of $0.36, for
the twelve weeks ended September 11, 1999 was equal to a net loss of
$1.8 million, or a net loss per diluted share of $0.37, for the twelve
weeks ended September 9, 2000. Excluding the amortization of
reorganization value and the asset impairment provision during the
twelve weeks ended September 11, 1999, net income decreased $2.4
million from net income of $0.6 million, or net income per diluted
share of $0.12, for the twelve weeks ended September 11, 1999 to a net
loss of $1.8 million, or a net loss per diluted share of $0.37, for the
twelve weeks ended September 9, 2000.
EBITDA (as defined below) decreased $2.1 million from $5.1
million, or 4.1% of sales, for the twelve weeks ended September 11,
1999 to $3.0 million, or 2.2% of sales for the twelve weeks ended
September 9, 2000. 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 the 36 Weeks Ended September 9, 2000 with the 36
Weeks Ended September 11, 1999
Net sales increased $38.9 million, or 10.3%, from $376.8
million for the 36 weeks ended September 11, 1999, to $415.7 million for
the 36 weeks ended September 9, 2000. The increase in sales is
attributable to the acquisition of nine stores in April 1999, the
acquisition of four stores in November 1999, the acquisition of three
stores in February 2000, and the acquisition of three stores in April
2000, partially offset by a 3.2% decline in comparable store sales and
the closing of one store in 1999. The decrease in comparable store
sales is the result of competitive openings during fiscal year 2000,
the advancement of purchases by customers into the final week of 1999
due to uncertainty with the year 2000 year-end transition, the labor
dispute at AWG, the cycling of strong promotions in the first quarter
of 1999, and the mild winter weather in the Company's trade areas.
Gross profit as a percentage of sales decreased 0.5% from
23.9% for the 36 weeks ended September 11, 1999, to 23.4% for the 36
weeks ended September 9, 2000. Gross profit margin reflects the
impact of specific promotional activities as the Company responded to
certain new competitive store openings and special advertisements for
the grand openings of the Company's acquired stores; the impact of a
reduction in the anticipated AWG annual patronage rebate due to the
labor dispute; and the impact of increased cost of goods for
pharmaceutical products.
Selling and administrative expenses as a percentage of sales
increased 0.4% from 21.7% for the 36 weeks ended September 11, 1999, to
22.1% for the 36 weeks ended September 9, 2000. The increase in
operating expenses as a percentage of sales is attributable to increased
occupancy costs associated with the acquired stores, to increased
depreciation costs attributable to the Company's capital expenditure
program for store remodels and maintenance and modernization, to
increased labor costs, to increases in the cost of store supplies, to
increases in utility costs due to the extreme summer heat and to start-
up expenses related to the Company's February and April 2000
acquisitions, partially offset by a reduction in the reserves for
doubtful accounts and a reduction in general liability reserves due to
improved claims experience.
The amortization of the excess reorganization value amounted
to $6.9 million for the 36 weeks ended September 11, 1999. The excess
reorganization value was amortized over three years, on a straight-line
basis, and became fully amortized in the third quarter of 1999.
The Company recorded an asset impairment provision, during the
36 weeks ended September 11, 1999, in the amount of $0.9 million related
to a previously closed store. The provision reduced the carrying value
of the real property to a current estimate of fair value.
Operating profit increased $5.1 million from $0.4 million for
the 36 weeks ended September 11, 1999, to $5.5 million for the 36 weeks
ended September 9, 2000. Excluding the amortization of the excess
reorganization value and the asset impairment provision from the 1999
results, operating profit decreased $2.7 million from $8.2 million for
the 36 weeks ended September 11, 1999, to $5.5 million for the 36 weeks
ended September 9, 2000. The decrease in operating profit reflects the
decline in gross profit as a percentage of sales combined with the
increase in selling and administrative expenses.
Interest expense, net of interest income, increased $1.1
million from $5.7 million for the 36 weeks ended September 11, 1999, to
$6.8 million for the 36 weeks ended September 9, 2000. The increase
reflects additional interest expense attributable to the acquired stores
and increases in variable interest rates, partially offset by additional
interest income from the interest bearing certificates of AWG. See
"Liquidity and Capital Resources."
Net loss decreased $4.4 million from a net loss of $5.8
million, or a net loss per diluted share of $1.18, for the 36 weeks
ended September 11, 1999 to a net loss of $1.4 million, or a net loss
per diluted share of $0.28, for the 36 weeks ended September 9, 2000.
Excluding the amortization of reorganization value and the asset
impairment provision during the 36 weeks ended September 11, 1999, net
income decreased $3.1 million from net income of $1.7 million, or net
income per diluted share of $0.34, for the 36 weeks ended September 11,
1999 to net loss of $1.4 million, or net loss per diluted share of
$0.28, for the 36 weeks ended September 9, 2000.
EBITDA (as defined below) decreased $1.8 million from $15.5
million, or 4.1% of sales, for the 36 weeks ended September 11, 1999 to
$13.7 million, or 3.3% of sales for the 36 weeks ended September 9,
2000.
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.
On December 17, 1998, the Company entered into a Loan
Agreement with NBC, as agent and lender, and two other lenders,
Heller Financial, Inc. and IBJ Whitehall Business Credit, Inc., under
which these lenders provide a working capital and letter of credit
facility ("Revolving Facility"), a term loan ("Term Loan") and, prior
to its termination in April, 2000, an acquisition term loan
("Acquisition Term Loan") through August 2, 2002.
The Loan Agreement, as amended, permits the Company to borrow
under the Revolving Facility up to the lesser of (a) $37.0 million or
(b) the applicable borrowing base. Funds borrowed under the Revolving
Facility are available for general corporate purposes of the Company.
The Term Loan, which had an outstanding balance as of
September 9, 2000, of $9.4 million, represents the remaining balance of
$5.0 million borrowed under the prior loan agreement to finance costs
and expenses associated with the consummation of the restructuring of
the Company under its bankruptcy reorganization proceedings in August,
1996, plus $5.0 million borrowed in connection with the termination of
the Acquisition Term Loan, permitting a corresponding reduction in the
Revolving Facility, in April 2000. The Company is required to make
quarterly principal paydowns of approximately $0.6 million.
The interest rate payable quarterly 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) whether it is the
Revolving Facility or the Term Loan; (b) the time period; and (c)
whether the Company elects to use a London Interbank Offered Rate.
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 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 and payment of dividends. The Loan Agreement also
requires the Company to comply with certain financial and other
covenants.
As of August 2, 1996, the Company entered into an Indenture
with Fleet National Bank (predecessor to State Bank and Trust
Company), as trustee, under which the Company issued $60.0 million of
10% Senior Subordinated Notes due 2003 ("New Notes"). The New Notes,
which are unsecured, will mature on August 2, 2003. Interest on the
New Notes accrues at the rate of 10% per annum and is payable on
February 2 and August 2 of each year.
The Indenture contains certain customary restrictions on
acquisitions, asset sales, consolidations and mergers, distributions,
indebtedness, transactions with affiliates and payment of dividends.
Working Capital and Capital Expenditures. The Company's
primary sources of capital have been borrowing availability under the
Revolving 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.
The Company's EBITDA (earnings before net interest expense,
taxes, depreciation and amortization, asset impairment, and gain/loss
on disposal of assets), as presented below, is the Company's
measurement of internally-generated operating cash for working capital
needs, capital expenditures and payment of debt obligations:
<TABLE>
Selected Financial Data
<CAPTION>
12 weeks ended 36 weeks ended
Sept. 9, Sept. 11, Sept. 9, Sept. 11,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Income before income taxes $ (2,097) $ (1,784) $ (1,376) $ (5,085)
Interest income (176) (132) (520) (391)
Interest expense 2,522 2,073 7,319 6,086
(Gain) loss on disposal of
assets - (203) 29 (217)
Amortization of excess reorgani-
zation value - 1,712 - 6,890
Asset impairment - 925 - 925
Depreciation and amortization 2,773 2,522 8,215 7,285
EBITDA $ 3,022 $ 5,113 $13,667 $15,493
As a percentage of sales 2.21% 4.06% 3.29% 4.11%
As a multiple of interest
expense, net of interest
income 1.29x 2.63x 2.01x 2.72x
</TABLE>
Net cash provided by operating activities for the 36 weeks
ended September 9, 2000 decreased $1.3 million from $4.6 million in
1999 to $3.3 million in 2000. The decrease principally reflects
decreased EBITDA partially offset by reductions in inventories and
receivables.
Net cash used in investing activities for the 36 weeks ended
September 9, 2000 increased $0.8 million, from $5.6 million in 1999 to
$6.4 million in 2000. The Company invested $9.0 million and $12.4
million in capital expenditures for 1999 and 1998, respectively.
In April 1999, the Company completed its acquisition of nine
stores from AWG, in eastern Oklahoma. The net purchase price was $1.3
million which represents $5.6 million for real property, fixtures and
equipment and goodwill plus $2.3 million for inventory and $0.2 million
for transaction costs, offset by $6.8 million in long-term debt assumed
by the Company. The Company acquired title to one store and leases the
remaining eight from AWG. The one store to which Homeland acquired
title in Pryor, Oklahoma, was closed (and subsequently sold to a non-
grocery user) as a result of the proximity to an existing Company
store. The Company financed this acquisition principally through the
assumption of $6.8 million in long-term debt, together with increased
borrowings under its Revolving Facility. The debt incurred by the
Company to AWG is secured by liens on, and security interests in, the
assets associated with the nine stores. Subsequent to the closing of
the acquisition, the Company repaid a portion of its indebtedness to
AWG which related to inventory and the Pryor store which was sold.
Therefore, AWG released its security interest in the assets relating to
the Pryor store and the inventory.
In November 1999, the Company completed its acquisition of
four stores from Brattain Foods, Inc. ("BFI"), in Muskogee, Oklahoma.
The net purchase price was $1.1 million which represents $6.0 million
for fixtures and equipment and goodwill plus $1.9 million for inventory
and $0.2 million for transaction costs, offset by $7.0 million of long-
term debt (BFI's obligation to AWG) assumed by the Company. The
Company leases three of the stores from AWG and leases the fourth from
a third party. The Company financed this acquisition principally
through the assumption of $7.0 million in long-term debt, together with
increased borrowings under its Revolving Facility. The debt incurred by
the Company to AWG is secured by liens on, and security interests in,
the assets associated with the four stores. Subsequent to the closing
of the acquisition, the Company repaid a portion of its indebtedness to
AWG, which related to inventory and therefore, AWG released its
security interest in the inventory.
In February 2000, the Company completed its acquisition of
three stores from BFC in Oklahoma City. The net purchase price was
$0.2 million which represents $4.2 million for fixtures and equipment,
leasehold improvements and goodwill, plus $2.0 million for inventory
and $0.2 million for transaction costs, offset by $6.2 million of long-
term debt (BFC's obligation to AWG) assumed by the Company. The
Company leases all three of the stores from AWG. The Company financed
this acquisition principally through the assumption of $6.2 million in
long-term debt, together with increased borrowings under its Revolving
Facility. The debt incurred by the Company to AWG is secured by liens
on, and security interests in, the assets associated with the three
stores. Subsequent to the closing of the acquisition, the Company
repaid a portion of its indebtedness to AWG, which related to inventory
and therefore, AWG released its security interest in the inventory.
In April 2000, the Company completed its acquisition of three
Baker's Supermarkets from Fleming. The purchase price was
approximately $3.5 million, which represents $1.7 million for fixtures
and equipment, leasehold improvements, goodwill and a non-compete
agreement, $1.6 million for inventory, and approximately $0.2
million in transaction costs. In conjunction with the transaction, the
Company also recorded $1.6 million of identified intangibles and $1.6
million in liabilities related to an unfavorable contract. The Company
subleases the three stores from Fleming. On September 15, 2000, the
Company subsequently leased a fourth location from Fleming upon the
completion of its construction. The Company financed this
acquisition principally through increased borrowings under its
Revolving Facility.
As of September 9, 2000, the Company had an outstanding
balance on the assumed obligations to AWG of $10.7 million. The loans
have a seven year term with principal and interest payments scheduled
each week, and have a variable interest rate equal to the prime rate
plus 100 basis points. Under the various agreements with respect to the
acquisitions, the individual markets where the stores are located are
subject to non-compete, supply and right-of-first-refusal agreements
with AWG. In addition to the other customary terms associated with a
right-of-first refusal agreement, the right-of-first refusal agreement
provides for the repurchase by AWG of the stores based upon the
occurrence of certain exercise events. The exercise events include,
among other events, a change in control of Homeland and a transfer of
more than 20% of the ownership interest of Holding or Homeland.
Net cash provided by financing activities increased $3.9
million, from net cash used by financing activities of $1.4 million in
1999, to net cash provided by financing activities of $2.5 million in
2000. The increase primarily reflects the borrowings under the Term
Loan in connection with the termination of the Acquisition Term Loans,
partially offset by principal payments made to AWG under the various
obligations assumed by the Company.
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 2000 are expected to be
approximately $8.0 million. The Loan Agreement limits the Company's
capital expenditures for 2000 to $13.0 million plus $2.6 million in
carryover from the previous year. The estimated 2000 capital
expenditures of $8.0 million is expected to be invested primarily in
the equipment and leasehold improvements of the one store recently
acquired from Fleming, and the remodeling and maintenance of selected
stores. The funds for the capital expenditures are expected to be
provided by internally-generated cash flows from operations and
borrowings under the Loan Agreement. As of September 9, 2000, the
Company had $26.4 million of borrowings, $30,000 of letters of credit
outstanding and $7.9 million of availability under its Revolving
Facility.
The Company's ability to meet its working capital needs, meet
its debt and interest obligations and meet its capital expenditure
requirements is dependent on its future operating performance. There
can be no assurance that future operating performance will provide
positive net cash and, if the Company is not able to generate positive
cash flow from its operations, management believes that this could have
a material adverse effect on the Company's business.
This report contains certain "forward-looking
statements" within the protection of the statutory safe-harbors of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts, which address activities,
events or developments that the Company expects or anticipates will or
may occur in the future, including such things as expansion and growth
of the Company's business, future capital expenditures and the
Company's business strategy, are forward-looking statements. In
reviewing such information, it should be kept in mind that actual
results may differ materially from those projected or suggested in such
forward-looking statements. This forward-looking information is based
on various factors and was derived utilizing numerous assumptions.
Important assumptions and other important factors that could
cause actual results to differ materially from those set forth in the
forward-looking statements include: changes in the general economy or
in the Company's primary markets, changes in consumer spending,
competitive factors, the nature and extent of continued consolidation
in the industry, changes in the rate of inflation and interest costs on
borrowed funds, changes in state or federal legislation or regulation,
changes in the availability and cost of labor, inability to develop new
stores or complete remodels as rapidly as planned, and stability of
product costs and supply or quality control problems with the Company's
vendors.
The Company does not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking information.
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.
PART II - OTHER INFORMATION
Item 3. Exhibits and Reports on Form 8-K
(a) Exhibits: The following exhibit is filed as part of
this report:
Exhibit No. Description
27 Financial Data Schedule.
(b) Report on Form 8-K: The Company did not file any
Form 8-K during the quarter ended September 9, 2000.
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 24, 2000 By: /s/ David B. Clark __
David B. Clark, President,
Chief Executive Officer, and Director
(Principal Executive Officer)
Date: October 24, 2000 By: /s/ Wayne S. Peterson
Wayne S. Peterson, Senior Vice
President/Finance, Chief Financial
Officer and Secretary
(Principal Financial Officer)
5
6
The accompanying notes are an integral part
of these consolidated financial statements.
1
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands, except share and per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
The accompanying notes are an integral part
of these consolidated financial statements.
2
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
The accompanying notes are an integral part
of these consolidated financial statements.
3
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, except share and per share amounts)
(Unaudited)
The accompanying notes are an integral part
of these consolidated financial statements.
4
HOMELAND HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, continued
(In thousands, except share and per share amounts)
(Unaudited)
The accompanying notes are an integral part
of these consolidated financial statements.
5
6
13
