1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 30, 1994
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 1-1066
GENERAL HOST CORPORATION
(Exact name of registrant as specified in its charter)
New York State 13-0762080
----------------------- ----------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
One Station Place, P.O. Box 10045, Stamford, CT 06904
- ------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (203) 357-9900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $1.00 Par Value New York Stock Exchange
and Pacific Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
and Pacific Stock Exchange
8% Convertible Subordinated New York Stock Exchange
Notes due February 15, 2002
11 1/2% Senior Notes due New York Stock Exchange
February 15, 2002
[Cover page 1 of 2 pages]
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether General Host Corporation, 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. [ ]
Aggregate market value of General Host Corporation's Common Stock, $1.00 par
value, held by non-affiliates of General Host as of March 15, 1994:
$113,826,855*
Number of voting shares of General Host Corporation's Common Stock
outstanding as of March 15, 1994: 20,015,758.
DOCUMENTS INCORPORATED BY REFERENCE
None
General Host Corporation Proxy Part III, Items 10, 11, 12 and 13
Statement for Annual Meeting of
Shareholders to be held on
May 19, 1994 (hereinafter "the
Company's 1994 Proxy Statement")
* Does not include market value of Common Stock held by directors and officers
who may be deemed to be affiliates of General Host which aggregates
$13,773,602.
[Cover page 2 of 2 pages]
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PART I
ITEM 1. BUSINESS
General Host Corporation ("General Host", the "Company" or the "Registrant")
operates a chain of specialty retail stores devoted to the sale of lawn and
garden products, crafts, Christmas merchandise and pet food and supplies.
Measured by sales and number of stores, the Company believes it is the largest
chain in the United States concentrating on the sale of such products. As of
January 30, 1994, the Company operated 280 stores in 38 metropolitan markets in
17 states under the name Frank's Nursery & Crafts(R) and two stores in the
Detroit, Michigan metropolitan area under the name Frank's Super Crafts(R).
Unless otherwise stated, all statistics in this Item were compiled as of
January 30, 1994.
The Company's executive offices are located at One Station Place, Stamford,
Connecticut. The Company's mailing address is Post Office Box 10045, Stamford,
Connecticut 06904, and its telephone number is (203) 357-9900.
General Host was incorporated under the laws of the State of New York in 1911
as General Baking Company. The Company has engaged in a number of businesses
since its organization.
With the acquisition of Frank's Nursery & Crafts, Inc. ("Frank's") in 1983,
the Company began focusing its resources on developing the first national chain
of garden and crafts stores. At the time of its acquisition, Frank's had 95
stores principally located in the Midwest. In 1984, through the acquisition of
Flower Time, Inc., the Company obtained 17 stores in the New York metropolitan
area. In 1986, the Company further expanded into the eastern United States
when it acquired Scott's Seaboard Corporation, adding 14 stores in the
Washington, D.C. and Baltimore markets. In early 1989, the Company increased
its presence in the Philadelphia metropolitan area through the acquisition of
12 store leases. Since 1983, the Company has built, leased or acquired a net
of 187 stores in existing and new markets.
In April 1993, the Company acquired a 49.5% interest in Sunbelt Nursery, Inc.
from Pier Imports, Inc. Sunbelt is a specialty retailer of nursery and garden
products, operating 93 stores primarily in the six major metropolitan areas of
Dallas-Fort Worth, Houston, San Antonio-Austin, Phoenix, San Diego and Los
Angeles. Sunbelt conducts its business through three subsidiaries, each
operating under its own trade name: Wolfe Nursery in Texas and Oklahoma,
Nurseryland Garden Center in California, and Tip Top Nursery in Arizona.
During the fourth quarter of 1993 the Company approved a plan to exit 26
unprofitable Frank's stores primarily in the Nashville, South Florida and
Orlando markets and to dispose of certain other properties. The intent of the
plan is to focus on improving the Company's long-term profitability. All
stores were closed as of February 7, 1994, with the exception of one store
which closed March 7, 1994.
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The national lawn and garden market is highly fragmented, consisting of
thousands of local garden centers plus mass merchandisers who sell lawn and
garden products as part of their overall product lines. In fiscal 1993, the
Company's lawn and garden and nursery sales averaged approximately one million
dollars per store in its 282 stores. In addition to approximately $284 million
in lawn and garden and nursery sales, the Company generated approximately $273
million in revenues in the last fiscal year from the sale of crafts and
Christmas products and $12 million from the sale of pet food and supplies.
Although no single company directly competes with the Company's overall
product lines, many retailers and mass merchandisers provide competition with
respect to certain of the Company's lines of business. The Company competes
with mass merchandisers, home center chains and many local and regional garden
centers in the lawn and garden and nursery business. The Company competes in
the crafts business with mass merchandisers, crafts store chains and local
crafts stores. The Company competes with major department stores, mass
merchandisers, local garden centers and other retailers in the Christmas
business. The Company competes with mass merchandisers, supermarkets, pet
supply chains and local pet supply stores in the pet supply business.
The Company's business is highly seasonal and subject to the impact of
weather conditions, which may affect consumer purchasing patterns. In fiscal
1993, approximately 37% of the Company's sales occurred during the spring
season (late March to mid-June) and 25% occurred at Christmas time (November to
late December). Normally, spring is the most profitable season, and Christmas
is the next most profitable season. Losses usually are experienced during the
other periods of the year. The Company's slowest selling season is typically
the period from the beginning of the calendar year until the start of the spring
selling season, with the next slowest period being early July to Labor Day.
Live nursery goods, which constitute a significant portion of the Company's
products, have limited shelf lives in some cases. If customer purchases of
live nursery goods are delayed because of adverse weather conditions, such
goods may remain unsold past their shelf life and require markdowns or
disposal.
Lawn and garden and nursery sales are highest in the spring with the largest
impact being in the first fiscal quarter and the early part of the second
fiscal quarter. There is an early fall season in these products that is of
less importance than the spring season, and sales during middle and late summer
are slow. In the winter months, sales of such products are minimal.
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Crafts and pet supplies sell at a fairly even pace throughout the year.
Craft sales are stimulated by fall and late winter promotions. During the
winter months (other than the Christmas season) crafts constitute the majority
of the Company's sales.
Christmas merchandise is sold almost entirely in November and December.
The Company's most significant capital requirements are for seasonal buildup
of Christmas and crafts inventories, technology improvements and modernization
of existing stores.
Capital expenditures of the Company totalled $30 million in fiscal 1993.
Expenditures for fiscal 1993 included the addition of new stores and remodeling
of existing stores. The Company anticipates spending approximately $10 million
for capital expenditures in fiscal 1994.
The Company opened seven new stores in fiscal 1993 and plans to open
approximately three new stores in fiscal 1994. Expansion in the near future
is expected to be minimal. The seven store openings in 1993 were all in
existing markets. Expansion in existing markets improves the Company's
operating margins by decreasing advertising costs on a per store basis,
permitting more efficient distribution of products to stores and increasing the
utilization of existing supervisory and managerial staff.
The three stores scheduled to open in fiscal 1994 will be crafts-only
"superstores". These stores, approximately 22,000 square feet in size, will
supplement the crafts business of the Company's full-line stores and will allow
the Company to better compete with crafts store chains by offering an expanded
line of craft merchandise and specialized, in-store services such as customized
framing and silk floral arrangements. This concept will also allow the Company
to enter new markets and further penetrate existing markets which may not
accommodate full-line stores requiring an outdoor sales area.
The aggregate cost of any future expansion is dependent upon the method of
financing new stores. Such methods include build-to-suit leases, conversion of
existing buildings, and land purchases with Company-funded construction. The
cost of these methods range from approximately $500,000 per store for
build-to-suit leases to $2.5 million per store for land purchases with
Company-funded construction.
The Company has begun to place greater strategic emphasis on the Christmas
products market by operating temporary Christmas shops for about eight weeks
during the holiday season. These smaller shops, typically 3,000 to 5,000
square feet, will supplement the Christmas business of the Company's full-line
stores and offer substantially the same Christmas merchandise,
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except live trees. In 1990, the Company experimented with three Christmas
shops and, encouraged by the results, opened 100 for the 1991 Christmas season
and 137 for the 1992 Christmas season. In fiscal 1993, the Company operated
104 Christmas shops with an emphasis on mall locations which provided a higher
concentration of shoppers than strip shopping centers or stand-alone shops.
The success of the Company's Christmas shop business will depend upon the
Company's ability from year to year to obtain favorable short-term locations in
various malls that are in close proximity to existing stores. It is
anticipated that favorable economic conditions will adversely affect the
availability of these locations because they will be leased to long-term
tenants.
The principal products sold at the Company's retail garden and crafts stores
are as follows:
Percentage of
Sales In
Product Line Fiscal Year 1993 Description
- ------------ ---------------- -----------
Lawn and garden 26% Fertilizers, herbicides and pesticides, seeds
and bulbs, mulches, bird feed, pet food and
supplies, plant accessories, hoses and garden
tools and equipment
Live nursery 24 Trees, shrubs, roses, potted plants, annual
and perennial flowering plants and indoor
plants
Crafts 32 Yarns, macrame, art supplies, needlework and
boutique crafts, wood crafts, ribbon, and
artificial and silk flowers and arrangements
Christmas 16 Artificial and live Christmas trees,
decorations and trimmings and Christmas
plants
Pet 2 Pet food and supplies
100%
----
----
Substantially all of the plants and products the Company sells are purchased
from approximately 1,300 outside vendors. Alternative sources of supply are
generally available for all products sold by the Company.
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As of January 30, 1994, 144 of the Company's stores were leased and 138 were
owned. All store leases are long-term; 42 will terminate prior to December 31,
2004.
Stores are generally located on three-acre sites. A prototype store in which
the overhang area leading to the yard has been enclosed includes 18,500 square
feet of indoor space (16,000 square feet of sales area and 2,500 square feet of
storage area), 17,000 square feet of outdoor selling area and ample offstreet
parking. The stores are designed in a "supermarket" format familiar to
customers, and shopping is done with carts in wide aisles with attractive
displays. Traffic design is intended to enhance the opportunity for impulse
purchases. Most stores are free-standing and located adjacent to or near
shopping centers; some stores are part of strip centers.
Typically, stores are open 80 hours per week. The average store has
approximately 20-25 employees, including a store manager and department
managers for (i) live goods and related products; (ii) crafts; (iii) office
and cashier supervision; and at larger stores, (iv) customer service. The
in-store staff is supplemented at seasonal peak selling periods by temporary
employees. Overall, the Company had 7,216 employees at January 30, 1994,
including seasonal employees. Approximately 32 warehouse and distribution
center employees in Detroit are members of the Teamsters Union under a contract
which expires January 1, 1995.
The Company operates distribution centers in Detroit, Michigan; Chicago,
Illinois; and Harrisburg, Pennsylvania. The Company owns the Detroit center
which also contains Frank's headquarters, and leases the Chicago and Harrisburg
centers. These centers delivered approximately 50% of all merchandise to the
stores in 1993, primarily using contract carriers. The balance of the products
are delivered directly to stores by vendors.
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ITEM 2. PROPERTIES
Principal operating facilities owned or leased by the Company are described
in Item 1 of this Annual Report on Form 10-K. General Host leases its
executive offices. No material adverse effect is foreseen as a result of the
expiration of leases of the Company's facilities.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business the Company is subject to various claims.
In the opinion of management, any ultimate liability arising from or related to
these claims should not have a material adverse affect on future results of
operations or the consolidated financial position of the Company.
The Company has certain lease obligations which extend to the year 2001 for
businesses sold. In the opinion of management, any ultimate liability arising
from or related to these obligations, to the extent not otherwise provided for,
should not have a material adverse effect on future operations or the
consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The New York Stock Exchange is the principal market on which the Company's
Common Stock is traded. The high and low sales prices per share of Common
Stock as traded on the New York Stock Exchange and cash dividends paid per
share of Common Stock during each quarter of the last two fiscal years are as
follows:
Cash Dividends
High Low Per Share
---- --- ---------
Fiscal 1993
First Quarter $10-5/8 $ 8-7/8 $ .095
Second Quarter $ 9-1/4 $ 7-5/8 $ .095
Third Quarter $ 8-1/4 $ 6-7/8 $ .095
Fourth Quarter $ 7-3/4 $ 5-7/8 $ .095
Fiscal 1992
First Quarter $ 9-7/8 $ 8 $ .09
Second Quarter $ 9-3/8 $ 7-3/4 $ .09
Third Quarter $10-1/2 $ 8-3/8 $ .09
Fourth Quarter $ 9-5/8 $ 8-1/8 $ .09
A description of the most restrictive provisions in the Company's loan
agreements which may limit the payment of dividends is as follows:
Under the most restrictive provisions of any of the debt and bank agreements,
total shareholders' equity available to pay cash dividends or purchase treasury
stock was below the required minimum level by $14,763,000 at January 30, 1994.
At March 18, 1994, there were approximately 3,701 holders of record of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Five Year Financial Data concerning the Company is listed in Item 14 of this
Report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Sales increased 1.9% to $568.6 million for the 52-week 1993 fiscal year
compared to $557.8 million for the 53-week 1992 fiscal year. The addition of
seven new stores in 1993 and twelve new stores in 1992, and the sales from the
temporary Christmas boutiques of $11.2 million in 1993 compared to $9.8 million
in 1992 contributed to the sales increase. Same-store sales (stores open for a
full year in both years) for 1993 compared to 1992 on a comparative 52-week
basis decreased 1% due to extremely hot early summer weather and excessive
winter snows (in both the first and fourth quarters) in most of the Company's
major eastern markets, and excessive rain and flooding in the Midwest. Sales
increased 7.3% for the 53-week 1992 fiscal year compared to sales for the
52-week 1991 fiscal year. Sales at Frank's were $557.8 million, representing
an 11.3% increase compared to 1991. Same-store sales for 1992 compared to 1991
on a comparative 53-week basis increased 7.1%. The addition of twelve new
stores in 1992 and ten new stores in 1991, and the sales from the temporary
Christmas boutiques of $9.8 million in 1992 compared to $6.2 million in 1991
also contributed to the sales increase. The 1991 sales included $18.9 million
from Calloway's Nursery, Inc. ("Calloway's"), an 80% owned subsidiary, sold in
an initial public offering in July 1991.
Other income decreased by $5.7 million to $1.3 million in 1993. The decrease
was due to a decline in interest earned on marketable securities resulting from
lower levels of short-term investments in 1993. Also in 1992 the Company had
income from non-competition agreements and dividends. Other income decreased
by $12.3 million to $7 million in 1992 compared to 1991. The decrease was due
mainly to the 1991 gain from the sale of the Company's interest in Calloway's
of $13.5 million offset by increased interest income due to higher levels of
short-term investments.
Cost of sales, including buying and occupancy, increased $33.7 million to
$425.7 million or 74.9% of sales in 1993. This compares to $392 million or
70.3% of sales in 1992. The increase of 4.6 percentage points results from
lower merchandise margins due to the Company's inventory reduction program in
January 1994, the liquidation sales related to the closing of 26 unprofitable
stores and the adverse weather conditions which affected sales throughout the
entire year. In addition, increases in occupancy costs related primarily to
the 1993 and 1992 new store openings and depreciation contributed to the cost
of sales increase in 1993. Cost of sales, including buying and occupancy,
increased $30 million, to $392 million in 1992 compared to $362 million in
1991, which included $12 million related to Calloway's. As a percentage of
sales, cost of sales increased .7 of a percentage point to 70.3%. Eliminating
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the effect of Calloway's in 1991 would have resulted in an increase in cost of
sales, as a percentage of sales, by .5 of a percentage point, which was due to
increased occupancy costs of the new stores opened in 1992 and lower
merchandise margins compared to 1991 partially offset by reduced shrinkage
expenses.
Selling, general and administrative expenses in 1993 increased by $3.4
million to $152 million compared to $148.6 million in 1992. The increase was
due mainly to increased expenses for new stores opened in 1993 and 1992 and
increased advertising expenses in the 1993 fourth quarter. As a percentage of
sales, selling, general and administrative expenses increased .1 of a
percentage point to 26.7% of sales in 1993 compared to 26.6% in 1992. Selling,
general and administrative expenses in 1992 increased by $3.9 million to $148.6
million compared to $144.7 million in 1991. The increase was due principally
to the increased expenses for new stores and the increase in the number of
temporary Christmas boutiques from 100 in 1991 to 137 in 1992. As a percentage
of sales, selling, general and administrative expenses decreased 1.2 percentage
points to 26.6% of sales in 1992 compared to 27.8% in 1991.
During the fourth quarter of 1993 the Company approved a plan to exit 26
unprofitable Frank's stores primarily in the Nashville, South Florida and
Orlando markets and to dispose of certain other properties. The intent of the
plan is to focus on improving the Company's long-term profitability. The
decision resulted in the Company recording a reserve of $22.9 million ($15.1
million, net of tax benefit) in the 1993 fourth quarter comprised primarily of
$20 million for the closing of the 26 stores and $2.9 million primarily for
expected losses on the sale of the other properties. The $20 million store
closing reserve includes a provision for termination of lease agreements,
brokers fees and legal costs of $12.9 million representing expected future cash
outflows; a provision of $3.5 million for expected losses from the sale of real
estate and the write-off of leasehold improvements and equipment of the closed
stores (sale of real estate is expected to generate $3.9 million of proceeds
over the next two years); and a provision of $3.6 million representing
operating losses for January 1994 through closure date and employee severance
for the closed stores. All stores were closed as of February 7, 1994, with the
exception of one store which closed March 7, 1994. The reserve of $2.9 million
primarily for expected losses on the sale of other properties is estimated to
bring future cash flows of $1.5 million over the next two years.
Interest and debt expense was $23.3 million in 1993 compared to $23.2 million
in 1992. Interest and debt expense increased $5.1 million to $23.2 million in
1992 compared to $18.1 million in 1991. The increase was directly related to
the February 1992 issuance of $78 million of Senior Notes and $65 million of
Convertible Subordinated Notes. The increase was partially offset by the
redemption of the 11 7/8% Senior Subordinated Notes totalling $37.6
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million in April 1992 and lower interest rates on the $84.3 million of mortgage
notes compared to 1991.
In 1993 the Company provided a valuation allowance to the extent of net
deferred tax assets ($8.6 million), accordingly, full tax benefit of the 1993
loss was not recognized. Income taxes included the elimination of income tax
reserves of $1.9 million in 1992.
In April 1993 the Company acquired a 49.5% interest in Sunbelt Nursery Group,
Inc. ("Sunbelt") by exchanging 1.94 million shares of its common stock for 4.2
million shares of common stock of Sunbelt held by Pier 1 Imports, Inc. Since
the third quarter of 1993, the Company has been reviewing its equity interest
in Sunbelt because of Sunbelt's lack of long-term financing. As of late March
1993, Sunbelt still had been unable to secure such financing. Consequently,
the Company decided to reduce to zero the carrying value of its investment in
Sunbelt as of fiscal year end 1993. This resulted in an additional charge of
$15.7 million which, when combined with the net equity losses recognized
through the 1993 third quarter of $2 million, amounts to $17.7 million for
fiscal 1993.
The loss from continuing operations in 1993 was $55.2 million, a decline of
$58.1 million over 1992. Income from continuing operations was $2.9 million in
1992, a decline of $5.8 million over 1991.
Discontinued operations and extraordinary losses included (A) a loss reserve
of $.8 million in 1993 and $.4 million in 1992, net of taxes, for lease
obligations of businesses sold in prior years, (B) elimination of income tax
reserves no longer required of $5.9 million in 1991 that were related to
businesses sold, (C) original issue discount and unamortized debt
extinguishment losses of $.9 million in 1991, net of tax, related to the
retirement of the Company's 11 7/8% Senior Subordinated Notes from the proceeds
of the public offering concluded in February 1992, and (D) income of $2.9
million representing the cumulative effect for the adoption of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" in 1992. These
items combined with the respective income or loss from continuing operations
resulted in a net loss of $56.1 million in 1993 and net income of $5.3 million
in 1992 and $13.8 million in 1991.
The Company adopted Statement of Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" in 1993. The
adoption was not material to the results of operations or the consolidated
financial position of the Company.
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Liquidity and Capital Resources
Continuing operations provided $27.6 million of net cash in 1993 compared to
net cash used of $18.1 million in 1992. The increase was due primarily to the
reduction in inventory purchases in 1993 compared to 1992. In 1993 the
decrease in inventory was $33.4 million compared to an increase in inventory of
$37.2 million in 1992. This was due mainly to an inventory reduction program
in January 1994 and the closing of the 26 stores. In 1992 the inventory
increase was due to: the addition of new product lines, particularly pet food
and supplies; an increase in craft and floral inventory resulting from a 20%
aisle space addition for crafts and the installation of new fixtures for floral
displays; and the twelve new stores added during the second half of 1992.
Effective April 2, 1993, the Company acquired a 49.5% interest in Sunbelt.
The noncash acquisition was completed by issuing 1.94 million shares of the
Company's common stock having a market value of $17.7 million in exchange for
4.2 million shares of Sunbelt held by Pier 1 Imports, Inc. The 4.2 million
shares of Sunbelt have been pledged as security for payment of a $12 million
revolving credit facility between Sunbelt and Pier 1 Imports Inc., which
matures in April 1994. The Company has reduced to zero the carrying value of
its investment in Sunbelt because there is no assurance that Sunbelt will be
able to repay this facility, however, the Company believes that it may be able
to recover part or all of its investment in the future.
Discontinued operations used net cash of $1.3 million in 1993 and $2.3
million in 1992 related to payments for operations disposed of in prior years
and in 1992 included payments made to fund a defined benefit pension plan which
covers former hourly employees of several discontinued operations.
Net cash used for investing activities was $2.8 million in 1993 which
included $29.9 million for property, plant and equipment for the addition of
new stores offset by the reduction of marketable securities. Net cash used for
investing activities was $74.1 million in 1992 which included $47.4 million for
property, plant and equipment for the addition of new stores, remodeling of
existing stores, installation of new store fixtures, the enclosure of the area
beneath 112 store overhangs and the installation of the satellite
communications system and radio frequency units. In addition the Company
increased its investment in marketable securities utilizing the proceeds
received from the debt offerings early in fiscal 1992.
Net cash used for financing activities was $11.8 million in 1993 which
represented payment of long-term debt and dividends. Net cash provided by
financing activities was $84 million in 1992 which included net proceeds of
$137.7 million from the issuance of $78 million of 11 1/2% Senior Notes and $65
million of 8%
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Convertible Subordinated Notes offset by the redemption of the $37.6 million of
11 7/8% Senior Subordinated Notes from the net proceeds.
The weighted average interest rate on debt outstanding at January 30, 1994
was 8.4%. The Company had a $25 million unsecured credit agreement with a bank
on January 30, 1994. The revolving credit agreement is committed through July
19, 1996. In September 1993 the Company borrowed $25 million under the
agreement and repaid the full amount in November 1993. In February 1994 there
was an amendment to the agreement which reduced the available credit to $15
million. The Company subsequently borrowed $15 million. In addition, the
Company has available $15 million of short-term lines of credit. No amounts
were borrowed under the lines of credit during 1993.
The bank agreement requires the Company, among other things, to maintain
minimum levels of earnings, tangible net worth and certain minimum financial
ratios. Effective January 30, 1994 the Company obtained a waiver of the
required minimum level of earnings, tangible net worth and required financial
ratios. The waiver enabled the Company to comply with the aforementioned bank
loan covenants at January 30, 1994. It is likely that the Company will not be
in compliance with the bank loan covenants at the end of the 1994 first
quarter. There is no assurance that the Company will be able to obtain a
waiver at that time. But the Company anticipates repayment of all outstanding
sums prior to that date.
Under the most restrictive provisions of any of the debt and bank agreements,
total shareholders' equity available to pay cash dividends or purchase treasury
stock was below the required minimum level by $14.8 million at January 30,
1994. On March 3, 1994 the Company declared a 5% stock dividend for
shareholders of record on March 18, 1994. The stock dividend is payable on
April 8, 1994.
Total shareholders' equity in 1993 decreased $45.7 million to $108.7 million
from $154.4 million in 1992, due primarily to the 1993 net loss which included
$15.1 million, net of tax benefit, for the reserve for store closings and other
costs and a $17.7 million loss from the Company's investment in Sunbelt.
Long-term debt as a percentage of total capitalization increased from 63% in
1992 to 70% in 1993.
In December 1988 the Board of Directors authorized the repurchase, in open
market transactions, of up to 2,000,000 additional shares of the Company's
common stock. As of January 30, 1994 the total remaining authorization was for
628,750 shares. The Company did not repurchase any shares in fiscal 1993 or
1992.
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Working Capital
Working capital amounted to $51 million at January 30, 1994 compared to $131
million at January 31, 1993. The ratio of current assets to current
liabilities was 1.4 in 1993 compared to 2.4 in 1992. Working capital included
$63 million of cash and cash equivalents at January 30, 1994 compared to $51
million of cash and cash equivalents and $27 million of marketable securities
at January 31, 1993.
The Company has sufficient cash and cash equivalents and plans to generate
sufficient cash flow from operations to meet its seasonal working capital
needs, pay approximately $22.5 million in fixed interest charges and to fund
capital expenditures of approximately $10 million for 1994. The Company
anticipates opening three new SUPERCRAFT stores in 1994.
Inflation
Inflation has been modest in recent years and has not had a significant effect
on the Company. If merchandise costs were to increase because of inflation,
management believes such increases could be recovered through higher selling
prices, since virtually all retailers would be similarly affected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
The Company's consolidated financial statements and supplementary data are
listed in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
Information on Nominee and Incumbent Directors, which
appears on pages 4, 5 and 6 of the Company's 1994 Proxy Statement, is
incorporated by reference in this Annual Report on Form 10-K.
(b) Executive Officers
POSITION AND OFFICE WITH
NAME AGE THE COMPANY
---- --- ------------------------
Harris J. Ashton 61 Chairman of the Board of Directors, President and
Chief Executive Officer
William C. Boyd 64 Executive Vice President - Frank's
John R. Ficarro 42 Vice President, General Counsel and Secretary
Robert M. Lovejoy, Jr. 50 Vice President and Treasurer
James R. Simpson 42 Vice President and Controller
Mr. Ashton has been Chairman of the Board of Directors and Chief Executive
Officer of the Company since 1970, and President of the Company since 1974.
Prior thereto he was President and Chief Executive Officer from October 1969 to
June 1970, President and Chief Administrative Officer from December 1967 to
October 1969, Secretary from May 1965 to December 1967 and a Director of the
Company since May 1965. He is currently Chairman of the Board of Directors of
Sunbelt Nursery Group, Inc.
Mr. Boyd has been Executive Vice President of Frank's since June 1987 and
prior thereto was employed by Frank's in various capacities since 1949.
Mr. Ficarro was named Vice President and General Counsel on February 22,
1991. He was Associate General Counsel of the Company from May 1989 to
February 1991 and has been Counsel for several of the Company's retail
businesses since 1981. He is currently a director of Sunbelt Nursery Group,
Inc.
14
17
Mr. Lovejoy was named Vice President on February 22, 1991. He has been
Treasurer of the Company since September 1988 and previously he had been
employed by Bankers Trust Company since 1977, most recently as Vice President,
Corporate Finance and Global Markets. He is currently a director of Sunbelt
Nursery Group, Inc.
Mr. Simpson was named Vice President on February 22, 1991. He has been
Controller of the Company since July 1989. He was Senior Vice President and
Chief Financial Officer of Consumers Distributing, Inc., from January 1988 to
July 1989 and was employed by Herman's Sporting Goods, Inc. since 1973, most
recently as Vice President and Controller. He is currently a director of
Sunbelt Nursery Group, Inc.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation and Other Information which appears on pages 8 to 16
of the Company's 1994 Proxy Statement, is incorporated by reference in this
Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on the ownership of Company securities by certain beneficial
owners and management, which appears on pages 2 and 3 of the Company's 1994
Proxy Statement, is incorporated by reference in this Annual Report on Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on transactions with management and others, which appears on
pages 6 and 7 and pages 15 and 16 of the Company's 1994 Proxy Statement, is
incorporated by reference in this Annual Report on Form 10-K.
15
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. List of documents filed as part of this report:
1. Financial Statements
Page No.
--------
- Report of Independent Accountants. F-1
- Consolidated Balance Sheet - for the years F-2
ended January 30, 1994 and January 31, 1993.
- Consolidated Statement of Income - for the F-3
years ended January 30, 1994, January 31, 1993
and January 26, 1992.
- Consolidated Statement of Changes in F-4
Shareholders' Equity - for the years ended
January 30, 1994, January 31, 1993 and
January 26, 1992.
- Consolidated Statement of Cash Flows - for the F-5
years ended January 30, 1994, January 31, 1993
and January 26, 1992.
- Notes to Consolidated Financial Statements. F-6
2. Financial Statement Schedules
Schedules not included have been omitted because they are not applicable
or the required information is shown in the financial statements or notes
thereto. Financial statements for Sunbelt Nursery Group, Inc. will be filed as
an amendment to this report when such statements have been filed by Sunbelt. It
should be noted that the registrant wrote down its investment in Sunbelt to
zero. Refer to page F-8, Note 3 for further discussion.
16
19
Page No.
--------
II - Amounts receivable from related F-23
parties, underwriters, promoters
and employees other than related
parties - years ended January 30,
1994, January 31, 1993 and January
26, 1992.
V - Property, plant and equipment - years F-24
ended January 30, 1994, January 31, 1993
and January 26, 1992.
VI - Accumulated depreciation of property, F-24
plant and equipment - years ended
January 30, 1994, January 31, 1993 and
January 26, 1992.
VIII - Valuation and qualifying accounts - F-27
years ended January 30, 1994, January
31, 1993 and January 26, 1992.
X - Supplementary income statement F-30
information - years ended January 30,
1994, January 31, 1993 and January 26,
1992.
3. Exhibits
(3) Articles of Incorporation and By-Laws:
(a) Restated Certificate of Incorporation of the Company, filed
November 13, 1968. Incorporated by reference to the Company's
Annual Report on Form 10-K for its fiscal year ended January
31, 1993, Exhibit 3(a).
(b) Certificate of Amendment, filed January 24, 1969, of the
Company's Restated Certificate of Incorporation, Exhibit 3(b).
Incorporated by reference to the Company's Annual Report on
Form 10-K for its fiscal year ended January 31, 1993, Exhibit
3(b).
(c) Certificate of Amendment, filed October 30, 1969, of the
Company's Restated Certificate of Incorporation. Incorporated
by reference to the
17
20
Company's Annual Report on Form 10-K for its fiscal year ended
January 31, 1993, Exhibit 3(c).
(d) Certificate of Change, filed June 15, 1977, of the
Company's Restated Certificate of Incorporation. Incorporated
by reference to the Company's Annual Report on Form 10-K for its
fiscal year ended January 31, 1993, Exhibit 3(d).
(e) Composite Certificate of Incorporation of the
Company, as amended. Incorporated by reference to the Company's
Annual Report on Form 10-K for its fiscal year ended January 31,
1993, Exhibit 3(e).
(f) Certificate of Amendment, filed June 27, 1985, of the Company's
Restated Certificate of Incorporation. Incorporated by
reference to the Company's Annual Report on Form 10-K for its
fiscal year ended January 26, 1992, Exhibit 3(f).
(g) By-Laws of the Company, amended as of November 6, 1986.
Incorporated by reference to the Company's Annual Report on
Form 10-K for its fiscal year ended January 31, 1993, Exhibit
3(g).
(4) Instruments Defining the Rights of Security Holders, Including
Indentures:
(a) Rights Agreement, dated as of March 7, 1990, by and
between the Company and Manufacturers Hanover Trust Company.
Incorporated by reference to the Company's Form 8-A Registration
Statement, dated March 28, 1990, Exhibits 1 and 2.
(b) Form of Note Purchase Agreement between Frank's Nursery &
Crafts, Inc., Flower Time, Inc., and various Purchasers, dated
September 1, 1988. Incorporated by reference to the Company's
current report on Form 8-K dated September 28, 1988, Exhibit
10(a). A copy of this Exhibit can be obtained from the Public
Reference Section of the Securities and Exchange
18
21
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, File No. 1-1066.
(c) Indenture of Mortgage, Deed of Trust and Security
Agreement from Frank's Nursery & Crafts, Inc., to the
Connecticut Bank and Trust Company, N.A., Lese Amato and Bank of
New England Trust Company, N.A., as trustees, dated as of
September 1, 1988. Incorporated by reference to the Company's
current report on Form 8-K dated September 28, 1988, Exhibit
10(b). A copy of this Exhibit can be obtained from the Public
Reference Section of the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549,
File No. 1-1066.
(d) Indenture of Mortgage, Deed of Trust and Security
Agreement from Flower Time, Inc., to the Connecticut Bank and
Trust Company, N.A., and Lese Amato, as trustees, dated as of
September 1, 1988. Incorporated by reference to the Company's
current report on Form 8-K dated September 28, 1988, Exhibit
10(c). A copy of this Exhibit can be obtained from the Public
Reference Section of the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549,
File No. 1-1066.
(e) Guaranty from General Host Corporation to the
Connecticut Bank and Trust Company, N.A., and Lese Amato, as
trustees, dated as of September 1, 1988, relating to Frank's
Nursery & Crafts, Inc., notes. Incorporated by reference to the
Company's current report on Form 8-K dated September 28, 1988,
Exhibit 10(d). A copy of this Exhibit can be obtained from the
Public Reference Section of the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, File No. 1-1066.
(f) Guaranty from General Host Corporation to the
Connecticut Bank and Trust Company, N.A., and Lese Amato, as
trustees, dated as of September 1, 1988, relating to Flower
Time, Inc., notes. Incorporated
19
22
by reference to the Company's current report on Form 8-K
dated September 28, 1988, Exhibit 10(e). A copy of this Exhibit
can be obtained from the Public Reference Section of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, DC 20549, File No. 1-1066.
(10) Material Contracts:
(a) Employment Agreement, dated as of January 1, 1992
between the Company and Harris J. Ashton. Incorporated by
reference to the Company's Annual Report on Form 10-K for its
fiscal year ended January 31, 1993, Exhibit 10(a).
(b) Agreement between the Company and a Trust
established for the benefit of Mr. and Mrs. Ashton's
beneficiaries dated November 1, 1989. Incorporated by reference
to the Company's Annual Report on Form 10-K for its fiscal year
ended January 27, 1991, Exhibit 10(b).
(c) 1994 Executive Compensation Program.
(d) Amended and Restated 1986 Stock Incentive Plan
dated April 8, 1992. Incorporated by reference to the Company's
Form S-8 Registration Statement dated July 24, 1992, Exhibit
28(a).
(e) Directors' Stock Option Plan dated March 20, 1986.
Incorporated by reference to the Company's Annual Report on Form
10-K for its fiscal year ended January 26, 1992, Exhibit 10(e).
(11) Computation of Primary Earnings Per Share.
(21) Subsidiaries.
(23) Consent of Price Waterhouse
20
23
(24) Powers of Attorney:
(a) C. Whitcomb Alden, Jr. Director
(b) Christopher A. Forster Director
(c) S. Joseph Fortunato Director
(d) Weston E. Hamilton Director
(e) Philip B. Harley Director
(f) Richard W. Haskel Director
(g) Edward H. Hoornstra Director
(h) Charles B. Johnson Director
Documents referred to in the list of Exhibits will be furnished upon
receipt by the Vice President, General Counsel and Secretary of the
Company, at the Company's principal executive offices referred to on the
cover of this Form 10-K, of written requests accompanied by a fee covering
the Company's reasonable expenses of $3.00 for handling and postage, plus
$.25 per page for photocopying.
B. Reports on Form 8-K
During the last quarter of the period covered by this report, the
Company did not file a report on Form 8-K.
21
24
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.
GENERAL HOST CORPORATION
Date: April 15, 1994 By /s/Harris J. Ashton
----------------------
Harris J. Ashton
Chairman of the Board of
Directors, President and
Chief Executive Officer
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.
Date: April 15, 1994 /s/Harris J. Ashton
------------------------------
Harris J. Ashton
Chairman of the Board of
Directors, President and
Chief Executive Officer
(Principal Executive and
Financial Officer)
Date: April 15, 1994 /s/James R. Simpson
------------------------------
James R. Simpson
Controller
(Principal Accounting Officer)
Date: April 15, 1994 C. WHITCOMB ALDEN, JR.*
------------------------------
C. Whitcomb Alden, Jr.
Director
Date: April 15, 1994 CHRISTOPHER A. FORSTER*
------------------------------
Christopher A. Forster
Director
22
25
Date: April 15, 1994 S. JOSEPH FORTUNATO*
------------------------------
S. Joseph Fortunato
Director
Date: April 15, 1994 WESTON E. HAMILTON*
------------------------------
Weston E. Hamilton
Director
Date: April 15, 1994 PHILIP B. HARLEY*
------------------------------
Philip B. Harley
Director
Date: April 15, 1994 RICHARD W. HASKEL*
------------------------------
Richard W. Haskel
Director
Date: April 15, 1994 EDWARD H. HOORNSTRA*
------------------------------
Edward H. Hoornstra
Director
Date: April 15, 1994 CHARLES B. JOHNSON*
------------------------------
Charles B. Johnson
Director
Date: April 15, 1994 *By /s/John R. Ficarro
------------------------------
(Attorney-in-Fact)
23
26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of
General Host Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(A)(1) and (2) on pages 16 and 17 present fairly, in all
material respects, the financial position of General Host Corporation and its
subsidiaries at January 30, 1994 and January 31, 1993, and the results of their
operations and their cash flows for the fiscal years ended January 30, 1994,
January 31, 1993 and January 26, 1992 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 6 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in the fiscal year ended
January 31, 1993.
Stamford, Connecticut
March 18, 1994
F-1
27
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
JANUARY 30, 1994 AND JANUARY 31, 1993
1993 1992
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 62,855 $ 51,185
Marketable securities 120 26,808
Accounts and notes receivable 4,924 6,451
Federal income tax receivable 2,185 3,160
Merchandise inventory 87,807 121,161
Prepaid expenses and other current assets 10,005 13,656
---------- ----------
Total current assets 167,896 222,421
---------- ----------
Property, plant and equipment, less accumulated
depreciation of $133,756 and $113,255 280,210 273,588
Intangibles, less accumulated amortization
of $7,881 and $6,941 18,038 18,978
Other assets and deferred charges 12,061 16,032
---------- ----------
$ 478,205 $ 531,019
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,551 $ 52,788
Accrued expenses 37,365 33,404
Provision for store closings
and other costs 11,575
Current portion of long-term debt 18,880 5,687
---------- ----------
Total current liabilities 117,371 91,879
---------- ----------
Long-term debt:
Senior debt 172,995 178,418
Subordinated debt, less original
issue discount 65,000 77,909
---------- ----------
Total long-term debt 237,995 256,327
---------- ----------
Deferred income taxes 20,496
Other liabilities and deferred credits 14,125 7,959
Commitments and contingencies
Shareholders' equity:
Common stock $1.00 par value, 100,000,000
shares authorized, 31,752,450 shares issued 31,752 31,752
Capital in excess of par value 85,145 88,937
Retained earnings 95,543 165,405
---------- ----------
212,440 286,094
Cost of 10,735,904 and 13,676,692 shares of
common stock in treasury (less
1,000,788 shares declared as a stock
dividend) (101,765) (129,640)
Notes receivable from exercise of
stock options (1,961) (2,096)
---------- ----------
Total shareholders' equity 108,714 154,358
---------- ----------
$ 478,205 $ 531,019
---------- ----------
---------- ----------
See accompanying notes.
F-2
28
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993, AND JANUARY 26, 1992
1993 1992 1991
---------- --------- ---------
Revenues:
Sales $ 568,602 $ 557,818 $ 520,072
Other income 1,338 6,970 19,248
---------- --------- ---------
569,940 564,788 539,320
---------- --------- ---------
Costs and expenses:
Cost of sales, including
buying and occupancy 425,724 391,955 361,991
Selling, general and
administrative 151,995 148,596 144,665
Provision for store closings
and other costs 22,876
Interest and debt expense 23,251 23,232 18,063
---------- --------- ---------
623,846 563,783 524,719
---------- --------- ---------
Income (loss) from continuing
operations before income taxes,
net equity loss and investment
write-down and minority interest (53,906) 1,005 14,601
Income taxes (16,389) (1,848) 5,460
Net equity loss and write-down of
investment in an unconsolidated
affiliate (17,703)
Minority interest 438
---------- --------- ---------
Income (loss) from continuing
operations (55,220) 2,853 8,703
Income (loss) from
discontinued operations (840) (381) 5,940
---------- --------- ---------
Income (loss) before extraordinary
loss and cumulative effect of
change in accounting principle (56,060) 2,472 14,643
Extraordinary loss (860)
Cumulative effect of change in
accounting principle
for income taxes 2,850
---------- --------- ---------
Net income (loss) $ (56,060) $ 5,322 $ 13,783
---------- --------- ---------
---------- --------- ---------
Earnings per share:
Income (loss) from continuing
operations $ (2.67) $ .15 $ .46
Income (loss) from
discontinued operations (.04) (.02) .31
---------- --------- ---------
Income (loss) before
extraordinary loss and
cumulative effect of
change in accounting principle (2.71) .13 .77
Extraordinary loss (.05)
Cumulative effect of change
in accounting principle for
income taxes .15
---------- --------- ---------
Net income (loss) $ (2.71) $ .28 $ .72
---------- --------- ---------
---------- --------- ---------
Average shares outstanding 20,697 18,989 19,021
---------- --------- ---------
---------- --------- ---------
See accompanying notes.
F-3
29
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993
AND JANUARY 26, 1992
(DOLLARS IN THOUSANDS)
Notes
Receivable
Cost of from
Shares of Common Stock Common Capital in Common Exercise Total
----------------------- Stock Excess of Retained Stock in of Stock Shareholders'
Issued In Treasury Issued Par Value Earnings Treasury Options Equity
---------- ----------- -------- ---------- --------- --------- ---------- ----------
Balance at January 27, 1991 31,752,450 (13,866,517) $ 31,752 $ 89,819 $ 158,913 $(131,738) $ (114) $ 148,632
Net income 13,783 13,783
Cash dividends (6,138) (6,138)
Treasury stock purchases (187,175) (1,480) (1,480)
Stock options exercised 276,000 (799) 2,621 (1,381) 441
Income tax benefit from stock
options exercised 37 37
Note repayments 114 114
---------- ----------- -------- ---------- --------- --------- --------- -----------
Balance at January 26, 1992 31,752,450 (13,777,692) 31,752 89,057 166,558 (130,597) (1,381) 155,389
Net income 5,322 5,322
Cash dividends (6,475) (6,475)
Stock options exercised 101,000 (160) 957 (715) 82
Income tax benefit from stock
options exercised 40 40
---------- ----------- -------- ---------- --------- --------- --------- -----------
Balance at January 31, 1993 31,752,450 (13,676,692) 31,752 88,937 165,405 (129,640) (2,096) 154,358
Net loss (56,060) (56,060)
Cash dividends (7,422) (7,422)
Stock dividend declared on
March 3, 1994 1,000,788 (3,106) (6,380) 9,486
Acquisition of equity interest
in Sunbelt Nursery Group, Inc. 1,940,000 (686) 18,389 17,703
Note repayments 135 135
---------- ----------- -------- ---------- --------- --------- --------- -----------
Balance at January 30, 1994 31,752,450 (10,735,904) $ 31,752 $ 85,145 $ 95,543 $(101,765) $ (1,961) $ 108,714
---------- ----------- -------- ---------- --------- --------- --------- -----------
---------- ----------- -------- ---------- --------- --------- --------- -----------
See accompanying notes.
F-4
30
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993, AND JANUARY 26, 1992
1993 1992 1991
---------- ---------- ----------
Operations
Income (loss) from continuing operations $ (55,220) $ 2,853 $ 8,703
Noncash charges (credits) included in results:
Depreciation and amortization 24,610 21,179 20,325
Net gain from sale of interest in Calloway's
Nursery, Inc. (7,775)
Provision for store closings and other costs 22,876
Deferred income taxes (15,983) (635) 1,328
Net equity loss and write-down of investment
in an unconsolidated affiliate 17,703
Other 129 1,447 1,002
----------- --------- ---------
(5,885) 24,844 23,583
Changes in current assets and current liabilities,
excluding the effects of Calloway's:
(Increase) decrease in accounts and
notes receivable 3,683 (840) 121
(Increase) decrease in federal income tax receivable 975 (3,160) 3,341
(Increase) decrease in inventory 33,354 (37,183) (7,393)
Increase in prepaid expenses (931) (47) (1,707)
Increase (decrease) in accounts payable (3,020) 4,087 2,448
Increase (decrease) in accrued expenses 3,034 (5,791) (3,844)
Decrease in provision for store
closings and other costs (3,655)
---------- --------- --------
Net cash provided by (used for) continuing
operations 27,555 (18,090) 16,549
Net cash used for discontinued operations (1,286) (2,271) (2,142)
---------- --------- --------
26,269 (20,361) 14,407
---------- --------- --------
Investing activities
Additions to property, plant and equipment (29,946) (47,396) (19,347)
Proceeds from sales of property, plant and equipment 430 38 2,166
Proceeds from sales of businesses 17,492
Proceeds from the sales of marketable securities 26,690 94,407
Purchases of marketable securities (121,104)
---------- --------- ---------
Net cash provided by (used for) investing activities (2,826) (74,055) 311
---------- --------- ---------
Financing Activities
Net proceeds from issuance of long-term debt 137,714
Payment of long-term debt and capital lease
obligations (4,486) (6,745) (7,342)
Repurchase of long-term debt (40,545) (4,100)
Cash dividends paid on common stock (7,422) (6,475) (6,138)
Treasury stock purchases (1,480)
Stock options exercised 135 82 441
---------- --------- ---------
Net cash provided by (used for) financing activities (11,773) 84,031 (18,619)
---------- --------- ---------
Increase (decrease) in cash and cash equivalents 11,670 (10,385) (3,901)
Cash and cash equivalents at beginning of year 51,185 61,570 65,471
---------- --------- ---------
Cash and cash equivalents at end of year $ 62,855 $ 51,185 $ 61,570
---------- --------- ---------
---------- --------- ---------
See accompanying notes.
F-5
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACCOUNTING POLICIES
THE FISCAL YEAR ends on the last Sunday in January. Fiscal year 1993 consisted
of 52 weeks and ended on January 30, 1994. Fiscal year 1992 consisted of 53
weeks and ended on January 31, 1993. Fiscal year 1991 consisted of 52 weeks
and ended on January 26, 1992.
THE CONSOLIDATED FINANCIAL STATEMENTS include the accounts of General Host
Corporation and its subsidiaries (the "Company"). Intercompany balances and
transactions are eliminated.
CASH EQUIVALENTS are highly liquid investments, such as U.S. government
securities and bank certificates of deposit having original maturities of three
months or less, and are carried at cost plus accrued interest.
MARKETABLE SECURITIES are carried at the lower of cost or market. Declines
in market value below cost that are other than temporary are charged to
operations in the period that the determination is made.
MERCHANDISE INVENTORIES are valued at the lower of first-in, first-out cost
or market.
PRE-OPENING COSTS are costs incurred in the opening of new stores (primarily
payroll costs) which are capitalized prior to the opening of a new store and
amortized over a one year period commencing with the first period after the new
store opens.
STORE CLOSING COSTS include provisions for estimated future net lease
obligations, nonrecoverable investments in fixed assets, and other expenses
directly related to discontinuance of operations and estimated operating losses
through expected closing dates. Provisions for store closings are charged to
operations in the period when the decision is made to close a retail unit.
PROPERTY, PLANT AND EQUIPMENT, including significant improvements thereto,
are recorded at cost. Expenditures for repairs and maintenance are charged to
expense as incurred. The cost of plant and equipment is depreciated over the
estimated useful lives using the straight-line method. Leasehold improvements
are depreciated over the terms of the respective leases, or if shorter, the
estimated useful lives.
INTANGIBLES, including costs in excess of net assets of acquired businesses,
are amortized over the estimated periods of related benefit, ranging from 10 to
40 years, using the straight-line method. On an annual basis the Company
reviews the recoverability of intangibles, specifically goodwill. The
F-6
32
measurement of possible impairment is based primarily on the ability to recover
the balance of the goodwill from expected future operating cash flows on an
undiscounted basis.
OTHER POSTRETIREMENT BENEFITS are recognized in the financial statements
during the period in which service is provided to the Company under Statement
of Financial Accounting Standards No. 106 (SFAS No. 106). See Note 13 for
further description.
LEASES which meet the accounting criteria for capital leases are recorded as
property, plant and equipment, and the related capital lease obligations (the
aggregate present value of minimum future lease payments, excluding executory
costs such as taxes, maintenance and insurance) are included in long-term debt.
Depreciation and interest are charged to expense, and rent payments are treated
as payments of long-term debt, accrued interest and executory costs. All other
leases are accounted for as operating leases, and rent payments are charged to
expense as incurred.
INCOME TAX EXPENSE is based on the asset and liability method under Statement
of Financial Accounting Standards No. 109 (SFAS No. 109).
PRIMARY EARNINGS PER SHARE is based on the weighted average number of common
shares outstanding, which includes 1,000,788 shares representing the 5% stock
dividend without regard to rounding.
FULLY DILUTED EARNINGS PER SHARE is based on the assumed conversion of all of
the 8% Convertible Subordinated Notes into common stock. Interest expense on
the 8% Convertible Subordinated Notes is added back to net earnings. Fully
diluted earnings per share impacted only the first quarter of 1993 and 1992.
SUBSEQUENT TO FISCAL 1993 a 5% stock dividend was declared by the Board of
Directors for shareholders of record on March 18, 1994. The stock dividend is
payable on April 8, 1994 and all stock related data in the consolidated
financial statements reflect the stock dividend for all periods presented.
NOTE 2: PROVISION FOR STORE CLOSINGS
During the fourth quarter of 1993 the Company approved a plan to exit 26
unprofitable Frank's stores primarily in the Nashville, South Florida and
Orlando markets and to dispose of certain other properties. The intent of the
plan is to focus on improving the Company's long-term profitability. The
decision resulted in the Company recording a reserve of $22,876,000
($15,098,000 net of tax benefit) in the 1993 fourth quarter comprised primarily
of $19,944,000 for the closing of the 26 stores and $2,932,000 primarily for
expected losses on the sale of the other properties. The $19,944,000 store
closing reserve includes a provision for termination of lease agreements,
brokers fees and
F-7
33
legal costs of $12,862,000 representing expected future cash outflows; a
provision of $3,518,000 for expected losses from the sale of real estate and
the write-off of leasehold improvements and equipment of the closed stores
(sale of real estate is expected to generate $3,938,000 of proceeds over the
next two years); and a provision of $3,564,000 representing operating losses
for January 1994 through closure date and employee severance for the closed
stores. All stores were closed as of February 7, 1994, with the exception of
one store which closed March 7, 1994. The reserve of $2,932,000 primarily for
expected losses on the sale of other properties is estimated to bring future
cash flows of $1,526,000 over the next two years.
NOTE 3: EQUITY INTEREST IN SUNBELT NURSERY GROUP, INC.
In April 1993 the Company acquired a 49.5% interest in Sunbelt Nursery Group,
Inc. ("Sunbelt") by exchanging 1,940,000 shares of its common stock for
4,200,000 shares of common stock of Sunbelt held by Pier 1 Imports, Inc. The
Sunbelt investment was recorded on the General Host consolidated balance sheet
at the time of acquisition based upon fair value. The 4,200,000 shares of
Sunbelt have been pledged as security for payment of a $12,000,000 revolving
credit facility, between Sunbelt and Pier 1 Imports, Inc., which matures in
April 1994. Since the third quarter of 1993, the Company has been reviewing
its equity interest in Sunbelt because of Sunbelt's lack of long-term
financing. As of late March 1994, Sunbelt still had been unable to secure such
financing. Consequently, the Company decided to reduce to zero the carrying
value of its investment in Sunbelt as of fiscal year end 1993. This resulted
in an additional charge of $15,746,000 which, when combined with the net equity
losses recognized through the 1993 third quarter of $1,957,000, amounts to
$17,703,000 for fiscal 1993.
NOTE 4: DISCONTINUED OPERATIONS
In prior years' the Company has sold businesses which have been treated as
discontinued operations for financial statement presentation.
As of January 30, 1994 and January 31, 1993 there were no remaining assets.
The liabilities for discontinued operations sold in prior years' were as
follows:
(In thousands) 1993 1992
- ------------------------------------------------------------
Accrued expenses $ 1,059 $ 1,091
Other liabilities 1,547 1,961
-------- --------
Total $ 2,606 $ 3,052
-------- --------
-------- --------
F-8
34
The Company charged to discontinued operations losses of $840,000 or $.04 per
share in 1993 and $381,000 or $.02 per share after income tax benefit in 1992
for lease obligations which extend to the year 2001 for businesses sold in
prior years (Note 15).
Income from discontinued operations in 1991 of $5,940,000 represented the
elimination of income tax reserves no longer required that were related to
businesses sold in 1987 which were treated as discontinued operations.
NOTE 5: OTHER INCOME
- -----------------------------------------------------------
(In thousands) 1993 1992 1991
- -----------------------------------------------------------
Interest on cash
equivalents and
marketable securities $ 1,046 $ 3,777 $ 1,981
Gain on the sale of
Calloway's Nursery, Inc.
(Note 17) 13,500
Non-competition agreement
income 1,615 3,537
Dividend income 10 1,211 174
Miscellaneous 282 367 56
-------- -------- --------
$ 1,338 $ 6,970 $ 19,248
-------- -------- --------
-------- -------- --------
NOTE 6: INCOME TAXES
The Company adopted SFAS No. 109 retroactively as of January 27, 1992, the
beginning of the 1992 fiscal year. The cumulative effect of adopting SFAS No.
109 increased net income for the 1992 fiscal year by $2,850,000. The 1991
fiscal year was not restated for the adoption of SFAS No. 109.
F-9
35
The components of the income tax provisions are as follows:
- -------------------------------------------------------------------------------
(In thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
CONTINUING OPERATIONS:
Current federal income taxes $ (1,730) $ (166) $ 4,085
Current state and other income taxes 1,324 (1,200) 163
Deferred federal income taxes (13,859) 1,218 1,258
Deferred state and other income taxes (2,124) (1,700) (46)
-------- ------- -------
(16,389) (1,848) 5,460
-------- ------- -------
DISCONTINUED OPERATIONS:
Current federal income taxes (144)
Current state and other income taxes (2,000)
Deferred federal income taxes (52) 3,060
Deferred state and other income taxes (7,000)
-------- ------- -------
(196) (5,940)
-------- ------- -------
EXTRAORDINARY LOSSES:
Current federal income taxes (443)
Deferred federal income taxes 443 (443)
Deferred state and other income taxes (69)
-------- ------- -------
(512)
-------- ------- ------
Total income taxes (benefit) $(16,389) $(2,044) $ (992)
-------- ------- -------
-------- ------- -------
Differences between income taxes of continuing operations and income
taxes based on statutory federal income tax rates applied to income before
taxes are as follows:
- -------------------------------------------------------------------------------
(In thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
Federal income taxes based on
statutory rates $(18,867) $ 342 $4,964
Increases (decreases) from:
Limitation on utilization
of tax benefits 2,262
Dividends received deduction (286)
Elimination of reserves no
longer required (528) (1,914)
Effect of graduated rates 539
Amortization of intangibles
and other acquisition costs 136 136 599
Other 69 (126) (103)
-------- ------- ------
$(16,389) $(1,848) $5,460
-------- ------- ------
-------- ------- ------
F-10
36
The tax effects of the principal temporary deferred tax assets and
liabilities are as follows:
- ----------------------------------------------------------------------
(In thousands) 1993 1992
- ----------------------------------------------------------------------
Property, plant & equipment $ (19,647) $ (17,298)
Other (3,198)
--------- ---------
Net deferred liabilities (19,647) (20,496)
--------- ---------
Inventory 875 1,406
Accrued expenses 2,943 3,107
Other 271
Loss on equity investment in an
unconsolidated affiliate 6,019
Store closing reserve 6,977
NOL carryforward 11,129
--------- ---------
Net deferred assets 28,214 4,513
--------- ---------
Net deferred asset (liability) 8,567 (15,983)
Valuation allowance (8,567)
--------- ---------
Net deferred tax liability $ -- $ (15,983)
--------- ---------
--------- ---------
Due to the operating loss and the loss from the Company's investment in an
unconsolidated affiliate in 1993, the Company has provided a valuation
allowance against the net deferred tax asset. The federal tax NOL carryforward
approximates $32,500,000 and will expire in January 2009.
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
- -----------------------------------------------------------------
(In thousands) 1993 1992
- -----------------------------------------------------------------
Land $ 45,960 $ 45,258
Buildings:
Owned 172,328 162,359
Capital leases (Note 11) 23,717 25,690
Equipment 115,550 103,004
Leasehold improvements 52,587 44,732
Construction in progress 3,824 5,800
-------- --------
413,966 386,843
Less accumulated depreciation,
including capital lease amounts
of $13,023 and $13,073 133,756 113,255
$280,210 $273,588
-------- --------
-------- --------
Interest cost capitalized as property, plant and equipment amounted to $542,000
in 1993, $1,000,000 in 1992 and $38,000 in 1991.
F-11
37
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable include amounts payable to brokers for purchases of cash
equivalents of $24,998,000 in 1993 and $14,999,000 in 1992.
Accrued expenses are as follows:
- -----------------------------------------------------------------
(In thousands) 1993 1992
- -----------------------------------------------------------------
Income taxes $ 2,253 $ 383
Taxes, other than income taxes 7,031 6,357
Payroll 4,087 5,115
Insurance 3,899 4,164
Interest 8,193 7,210
Other 11,902 10,175
------- -------
$37,365 $33,404
------- -------
------- -------
NOTE 9: LONG-TERM DEBT
- -----------------------------------------------------------------
(In thousands) 1993 1992
- -----------------------------------------------------------------
SENIOR DEBT:
Adjustable Rate First Mortgage
Notes due December 31, 1995 $ 80,750 $ 84,313
11 1/2% Senior Notes due
February 15, 2002 78,000 78,000
Capital leases (Note 11) 19,934 21,792
-------- --------
178,684 184,105
Less current portion 5,689 5,687
-------- --------
172,995 178,418
-------- --------
SUBORDINATED DEBT:
8% Convertible Subordinated Notes
due February 15, 2002 65,000 65,000
7% Subordinated Debentures due
February 1, 1994, less
original issue discount of
$282 for 1992 13,191 12,909
-------- --------
78,191 77,909
Less current portion 13,191
-------- --------
65,000 77,909
-------- --------
Total long-term debt $237,995 $256,327
-------- --------
-------- --------
In February 1992 the Company concluded a combined public offering for
$78,000,000 of Senior Notes due 2002 and $65,000,000 of Convertible
Subordinated Notes due 2002. The Senior Notes, issued at par, bear interest at
11 1/2%. The Convertible
F-12
38
Subordinated Notes, issued at par, bear interest at 8% and are convertible into
common stock of the Company at a conversion price of $9.88 per share, subject
to adjustments in certain events. The Company received net proceeds of
$137,714,000 after deducting fees and expenses and used $37,620,000 of the
proceeds to retire the principal balance of the 11 7/8% Senior Subordinated
Notes in April 1992. In connection with the retirement of the 11 7/8% Notes,
the Company wrote-off the related original issue discount and unamortized debt
expenses in the 1991 fiscal year resulting in an extraordinary loss of $860,000
after income tax benefit.
The Mortgage Notes due December 31, 1995 bear interest at 1 1/2% above the
three-month London Interbank Offered Rate (LIBOR) and are repayable in
$1,187,500 quarterly installments. At January 30, 1994 the interest rate was
4.9%. The Mortgage Notes are secured by first mortgages of 67 nursery and
crafts retail stores having a net book value of $88,672,000 including equipment
at January 30, 1994.
On January 30, 1994 the Company had a $25,000,000 unsecured credit agreement
with a bank. The revolving credit agreement is committed through July 19,
1996. There is a commitment fee of 1/2 of 1% on the unused portion. At the
Company's option, interest under the agreement may be based on LIBOR or the
certificate of deposit rate, as defined in the agreement, instead of on the
prime rate. The Company borrowed $25,000,000 under the agreement in September
1993 and repaid the full amount in November 1993. In February 1994 there was
an amendment to the agreement which reduced the available credit to
$15,000,000. The Company subsequently borrowed $15,000,000.
The bank agreement requires the Company, among other things, to maintain
minimum levels of earnings, tangible net worth and certain minimum financial
ratios. Effective January 30, 1994 the Company obtained a waiver of the
required minimum level of earnings, tangible net worth and required financial
ratios. The waiver enabled the Company to comply with the aforementioned bank
loan covenants at January 30, 1994. It is likely that the Company will not be
in compliance with the bank loan covenants at the end of the 1994 first
quarter. There is no assurance that the Company will be able to obtain a
waiver at that time. But the Company anticipates repayment of all outstanding
sums prior to that date.
Under the most restrictive provisions of any of the debt and bank agreements,
total shareholders' equity available to pay cash dividends or purchase treasury
stock was below the required minimum level by $14,763,000 at January 30, 1994.
The Company also has available unsecured short-term lines of credit under
which $15,000,000 may be borrowed at the prime rate or at other rates as
offered by various banks. These agreements require the Company to maintain
average compensating balances of
F-13
39
up to 4% of the credit line. During 1993 no amounts were borrowed under these
agreements.
The 7% Debentures were redeemed on February 1, 1994. Amortization of the
original issue discount was based on an effective interest rate of 9% and
amounted to $282,000 in 1993, $261,000 in 1992 and $232,000 in 1991.
Aggregate maturities of long-term debt for the five years subsequent to 1993,
excluding capital lease obligations (Note 11), are $17,941,000 in 1994,
$76,000,000 in 1995, $-0- in 1996, $-0- in 1997 and $-0- in 1998.
NOTE 10: SHAREHOLDERS' EQUITY
The Company's 1986 stock incentive plan, as amended in 1992, provides for the
granting of options to purchase up to 2,500,000 shares of common stock.
Options are granted to key employees and expire no later than ten years after
grant. The directors' stock option plan provides for the issuance of options
to members of the Board of Directors who are not employees of the Company;
options expire no later than five years after grant. Under both plans, options
are granted at prices not less than fair market value on the date of grant.
Changes in stock options during the three years ended January 30, 1994 are as
follows:
Shares Option Prices
--------- -------------
OUTSTANDING AT JANUARY 27, 1991 980,500 $ 5.50-14.38
Options granted 48,750 8.50
Options exercised (276,000) 5.50- 8.75
Options cancelled (179,000) 5.50-14.38
--------- ------------
OUTSTANDING AT JANUARY 26, 1992 574,250 5.50-14.38
Options granted 400,000 8.25- 9.00
Options exercised (101,000) 7.31- 8.50
Options cancelled (70,000) 7.31- 8.50
--------- ------------
OUTSTANDING AT JANUARY 31, 1993 803,250 5.50-14.38
Options granted 166,150 8.38-10.06
Options cancelled (26,000) 8.50-10.06
--------- -----------
OUTSTANDING AT JANUARY 30, 1994 943,400 $ 5.50-14.38
--------- ------------
--------- ------------
At January 30, 1994 outstanding options for 777,750 shares are exercisable
and 1,509,100 shares are available for granting additional options.
F-14
40
The Company's certificate of incorporation authorizes the issuance of
1,000,000 shares of $1.00 par value preferred stock, none of which has been
issued.
Each share of the Company's common stock carries with it one right to
purchase one additional share of common stock from the Company for $60 upon the
occurrence of certain events, at which time the rights become exercisable.
Separate rights certificates will then be issued and the rights can be traded
separately. In the event the rights become exercisable and thereafter the
Company is acquired in a merger or other business combination, each right will
entitle the holder, upon payment of the exercise price, to receive a number of
shares of the surviving corporation's common stock equal to the exercise price
divided by 50% of the market price. At the Company's option, the rights are
redeemable in their entirety at $.01 per right. The rights are subject to
adjustment to prevent dilution and expire March 7, 1995.
NOTE 11: LEASES
The Company's capital leases are principally for offices and retail stores, for
periods ranging up to 25 years. The Company's operating leases are principally
for retail store locations.
At January 30, 1994 lease obligations under capital leases, included in
long-term debt (Note 9), and operating leases with lease terms longer than one
year, are as follows:
- -----------------------------------------------------------------
Capital Operating
(In thousands) Leases Leases
- -----------------------------------------------------------------
Payable in 1994 $ 3,128 $ 17,561
1995 3,251 17,168
1996 3,245 15,589
1997 3,246 14,735
1998 3,175 13,894
Payable after 1998 23,208 122,640
-------- --------
Total minimum lease obligations 39,253 $201,587
--------
--------
Executory costs (73)
Amount representing future interest (19,246)
--------
Present value of net minimum lease
obligations $ 19,934
--------
--------
Future sublease rental income $ 4,802
--------
--------
F-15
41
Rent expense was $24,602,000 in 1993, $22,976,000 in 1992 and $20,838,000 in
1991. Rent expense includes additional rentals based on retail store sales (in
excess of the minimums specified in leases) of $804,000 in 1993, $634,000 in
1992 and $508,000 in 1991 and is reduced by sublease rental income of $824,000
in 1993, $924,000 in 1992 and $879,000 in 1991.
NOTE 12: PENSION PLAN
Retirement benefits for both salaried and hourly employees were provided
through a noncontributory, defined contribution plan. Contributions were a
percent of each covered employee's salary. Costs of the plan charged to
operations were $2,041,000 in 1991. Effective September 1992 the plan was
amended and contributions are now determined by the Board of Directors based
upon assessment of the Company's fiscal year's profitability as related to
pre-established financial objectives. There were no contributions made to the
plan for 1993 and 1992. The plan also includes a 401(k) component, permitting
employees to invest from 1% to 10% of their salary in the employee's choice of
an equity fund, a balanced fund or a fixed income fund. The Company does not
match employee contributions.
The Company also sponsors a noncontributory, defined benefit pension plan
which covers former hourly employees of several discontinued operations and
provides pension benefits of stated amounts multiplied by years of service.
The Company contributes to this plan based on funding requirements determined
by consulting actuaries using the accrued benefit (unit credit) method.
Net periodic pension cost consisted of the following:
- ------------------------------------------------------------------------
(In thousands) 1993 1992 1991
- ------------------------------------------------------------------------
Interest cost on projected benefit
obligations $ 2,289 $ 2,381 $ 2,563
Actual return on plan assets (3,342) (4,042) (5,729)
Net amortization and deferrals 610 1,369 3,324
-------- -------- --------
Net periodic pension (income) expense $ (443) $ (292) $ 158
-------- -------- --------
-------- -------- --------
F-16
42
The following table summarizes the plan's funding status and the liability
recognized in the consolidated balance sheet as of January 30, 1994 and January
31, 1993:
- ------------------------------------------------------------
(In thousands) 1993 1992
- ------------------------------------------------------------
Actuarial present value of
pension benefit obligations,
all of which are vested $(30,787) $(30,266)
Plan assets at fair value 31,944 32,158
Unrecognized gain (1,404) (2,582)
-------- --------
Pension liability in the
consolidated balance sheet $ (247) $ (690)
-------- --------
-------- --------
The above amounts were determined as of December 31 each year. The assumed
discount rate for projected benefit obligations was 7.25% for 1993 and 8% for
1992. The expected long-term return on plan assets was 9% for 1993 and 1992.
The assets of the plan consist primarily of U.S. government securities and
listed stocks and bonds, including common stock of the Company with a quoted
market value of $2,461,000 at December 31, 1993 and $3,252,000 at December 31,
1992.
NOTE 13: OTHER POSTRETIREMENT BENEFITS
The Company provides certain life insurance benefits to eligible retired
employees. The cost of this benefit is not significant to the Company. In
addition, the Company has provided for certain health care and life insurance
benefits which cover former hourly employees of several discontinued
operations. The unfunded liability for these benefits has been previously
provided for in the consolidated financial statements of the Company.
The Company adopted SFAS No. 106 as of February 1, 1994. The Statement
requires that the cost of such benefits be recognized in the financial
statements during the period employees provide service to the Company. The
Company elected to immediately recognize the accumulated liability. At the
date of adoption, the unrecognized accumulated liability was not material to
the consolidated financial statements of the Company. Prior years' financial
statements have not been restated.
F-17
43
The accrued postretirement liability recognized in the consolidated balance
sheet as of January 30, 1994 was $1,463,000 and the net periodic postretirement
benefit cost for 1993 was $99,000. The amounts were determined as of December
31, 1993. The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25%. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 11% in 1993
grading down uniformly to 6% in 2005. If the health care cost trend rate
assumptions were increased by 1%, the accumulated postretirement benefit
obligation would be increased by 7.6% for 1993. The effect of this change on
the interest cost component of net periodic postretirement benefit cost for
1993 would be an increase of 8%.
NOTE 14: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying value amount approximates fair value because of the short maturity
of those investments.
MARKETABLE SECURITIES
The carrying value amount approximates fair value because they are recorded at
the lower of cost or market and declines in market below cost that are other
than temporary are charged to operations.
INVESTMENT IN UNCONSOLIDATED AFFILIATE
The carrying value represents the fair value of the Sunbelt investment at the
time of acquisition subsequently reduced by the Company's share of Sunbelt
losses and the write-down of the investment to zero. Market value is based
upon the quoted market price of Sunbelt common stock.
OTHER INVESTMENTS
The Company's other investments represent investments in untraded companies.
Based upon the Company's review of the financial statements of these companies
the carrying amount approximates fair value.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based upon the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
F-18
44
The estimated fair values of the Company's financial instruments at January
30, 1994 and January 31, 1993 are as follows:
- ----------------------------------------------------------------------------
(In thousands) 1993 1992
- ----------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------
Cash and cash equivalents $ 62,855 $ 62,855 $ 51,185 $ 51,185
Marketable securities 120 120 26,808 26,808
Investment in
unconsolidated affiliate -- 13,650
Other investments 2,277 2,277 3,927 3,927
Long-term debt 256,875 256,290 262,014 276,336
NOTE 15: LITIGATION AND OTHER CONTINGENCIES
In the normal course of business the Company is subject to various claims. In
the opinion of management, any ultimate liability arising from or related to
these claims should not have a material adverse affect on future results of
operations or the consolidated financial position of the Company.
The Company has certain lease obligations which extend to the year 2001 for
businesses sold. In the opinion of management, any ultimate liability arising
from or related to these obligations, to the extent not otherwise provided for,
should not have a material adverse effect on future operations or the
consolidated financial position of the Company.
NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION
Income tax payments were $922,000 in 1993, $6,409,000 in 1992 and $800,000 in
1991. Interest payments were $20,912,000 in 1993, $17,935,000 in 1992, and
$16,950,000 in 1991. Noncash investing and financing activities included the
issuance of 1,940,000 shares of common stock having a market value of
$17,703,000 in exchange for an equity investment in an unconsolidated
affiliate.
NET CASH USED FOR DISCONTINUED OPERATIONS:
Net cash used for discontinued operations for fiscal 1991 is primarily related
to payments made to fund a defined benefit pension plan which covers former
hourly employees of several discontinued operations (Note 12).
Net cash used for discontinued operations for fiscal 1993 and 1992 is
primarily related to payments related to businesses sold in prior years which
were treated as discontinued operations and in 1992 included payments made to
fund a defined benefit
F-19
45
pension plan which covers former hourly employees of several discontinued
operations.
NOTE 17: CALLOWAY'S NURSERY, INC.
In July 1991 the Company sold, in an initial public offering, 3,200,000 shares
of common stock of Calloway's Nursery, Inc. representing all of the Company's
80% interest in Calloway's. A gain of approximately $13,500,000 ($7,775,000
net of taxes) was recognized in other income for the 1991 fiscal year.
Calloway's results of operations, included in the Company's Consolidated
Statement of Income, are as follows:
- -------------------------------------------------------
(In thousands) 1991
- -------------------------------------------------------
Sales $ 18,888
--------
--------
Income from
continuing operations $ 1,775
--------
--------
Earnings per share from
continuing operations $ .10
--------
--------
Pro forma results of operations for the Company, excluding Calloway's are as
follows:
- -------------------------------------------------------
(In thousands) 1991
- -------------------------------------------------------
Sales $501,184
--------
--------
Income from
continuing operations $ 6,928 1
--------
--------
Earnings per share from
continuing operations $ .38 1
--------
--------
1 Includes a gain of $7,775 on the sale of Calloway's Nursery, Inc.
F-20
46
QUARTERLY INFORMATION
- --------------------------------------------------------------------------------------------------------
Fourth
Quarter Third Second First
(12 wks in 1993) Quarter Quarter Quarter
(13 wks in 1992) (12 wks) (12 wks) (16 wks)
- --------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
1993 (2)(4)
Sales $166,347 $105,370 $108,882 $188,003
-------- -------- -------- --------
-------- -------- -------- --------
Cost of sales, including buying and occupancy $131,827 $ 81,240 $ 84,657 $128,000
-------- -------- -------- --------
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and net equity
loss and investment write-down $(35,796) $(13,918) $(12,234) $ 8,042
-------- -------- -------- --------
-------- -------- -------- --------
Loss from discontinued operations $ (840)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) $(42,678)(1) $(11,406) $ (8,552) $ 6,576
-------- -------- -------- --------
-------- -------- -------- --------
Primary earnings per share (5):
Income (loss) from continuing operations $ (1.99) $ (.54) $ (.41) $ .33
Loss from discontinued operations (.04)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) $ (2.03) $ (.54) $ (.41) $ .33
-------- -------- -------- --------
-------- -------- -------- --------
Fully diluted earnings per share (5):
Income (loss) from continuing operations $ (1.99) $ (.54) $ (.41) $ .29
Loss from discontinued operations (.04)
-------- -------- -------- --------
Net income (loss) $ (2.03) $ (.54) $ (.41) $ .29
-------- -------- -------- --------
-------- -------- -------- --------
1992 (3)(4)
Sales $164,677 $100,182 $120,418 $172,541
-------- -------- -------- --------
-------- -------- -------- --------
Cost of sales, including buying and occupancy $117,853 $ 73,448 $ 86,596 $114,058
-------- -------- -------- --------
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes $ (649) $ (9,262) $ 200 $ 10,716
-------- -------- -------- --------
-------- -------- -------- --------
Loss from discontinued operations $ (381)
-------- -------- -------- --------
-------- -------- -------- --------
Cumulative effect of change in
accounting principle $ 2,850
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) $ 258 $ (4,991) $ 132 $ 9,923
-------- -------- -------- --------
-------- -------- -------- --------
Primary earnings per share (5):
Income (loss) from continuing operations $ .03 $ (.26) $ .01 $ .37
Loss from discontinued operations (.02)
Cumulative effect of change in
accounting principle .15
-------- -------- -------- --------
Net income (loss) $ .01 $ (.26) $ .01 $ .52
-------- -------- -------- --------
-------- -------- -------- --------
Fully diluted earnings per share (5):
Income (loss) from continuing operations $ .03 $ (.26) $ .01 $ .33
Loss from discontinued operations (.02)
Cumulative effect of change in
accounting principle .12
-------- -------- -------- --------
Net income (loss) $ .01 $ (.26) $ .01 $ .45
-------- -------- -------- --------
-------- -------- -------- --------
1 Includes $22,876 ($15,098 net of tax benefit) representing a reserve for
store closings and other costs and $15,746 representing the
write-down of the Sunbelt investment.
2 Had the actual annual effective tax rate been applied to the quarterly
information, the first quarter net income would have increased by
$3,056, or $.15 per share, and the fourth quarter net loss would have
increased by $3,056 or $.15 per share.
3 The 1992 quarters have been restated for the effect of the adoption of
SFAS No. 109, "Accounting for Income Taxes". The effect of this
restatement on fiscal 1992 was to increase first quarter net income by
$3,337 or $.18 per share, including the $2,850 or $.16 per share
cumulative effect; decrease second quarter net income by $39 with no per
share impact; decrease third quarter net income by $514 or $.03
per share; and increase fourth quarter net income by $66 with no per share
impact.
4 Share and per share data have been restated to reflect the 5% stock
dividend.
5 Due to changes in the number of shares outstanding during the year,
quarterly earnings per share do not necessarily add to the totals for
the year.
F-21
47
FIVE YEAR FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Sales of continuing operations $568,602 $557,818 $520,072 $515,470 $495,767
Income (loss) from continuing operations before
income taxes $(53,906)1 $ 1,005 $ 14,601 4 $ 1,757 $(12,408)7
Income (loss) from continuing operations $(55,220) $ 2,853 2 $ 8,703 $ 3,303 6 $ 1,423 8
Net income (loss) $(56,060) $ 5,322 3 $ 13,783 5 $ 3,303 $ (2,001)
Income (Loss) per share from continuing operations 9 $ (2.67)1 $ .15 2 $ .46 4 $ .17 6 $ .07 8
Net income (loss) per share 9 $ (2.71) $ .28 3 $ .72 5 $ .17 $ (.10)
Cash dividends per share $ .38 $ .36 $ .34 $ .32 $ .30
Average shares outstanding 9 20,697 18,989 19,021 19,479 20,363
Working capital $ 50,525 $130,542 $ 62,278 $ 60,240 $ 92,023
Ratio of current assets to current liabilities 1.4-1 2.4-1 1.6-1 1.6-1 1.7-1
Total year-end assets $478,205 $531,019 $435,304 $445,735 $505,456
Long-term debt, including current portion $256,875 $262,014 $166,043 $177,743 $221,375
Shareholders' equity $108,714 $154,358 $155,389 $148,632 $156,711
Long-term debt as a percentage of total capitalization 70% 63% 52% 54% 59%
Number of common shares outstanding 9 21,017 19,077 18,976 18,887 19,999
Book value per share 9,10 $ 5.27 $ 8.20 $ 8.26 $ 7.88 $ 7.88
Price range per share as traded on the
New York Stock Exchange $10 5/8-5 7/8 $10 1/2-7 3/4 $9 3/4-5 7/8 $7 1/2-3 7/8 $9 3/4-5 1/8
- ----------------------------------------------------------------------------------------------------------------------------------
1 Includes $22,876 ($15,098 net of taxes) representing a reserve for store
closings and other costs and $17,703 representing the net equity
loss and write-down of the Sunbelt investment.
2 Includes $1,914 of income tax reserves no longer required.
3 Includes $2,850 representing the cumulative effect of the Company's
adoption of SFAS 109.
4 Includes gain from the sale of Calloway's Nursery, Inc. of approximately
$13,503 ($7,775 net of taxes).
5 Includes $5,940 of income tax reserves no longer required that were
related to discontinued operations.
6 Includes $2,651 of income tax reserves no longer required.
7 Includes loss of $4,521 ($2,758 net of taxes) recognized on a noncurrent
marketable equity security.
8 Includes $8,628 of income tax reserves no longer required.
9 Share and per share data have been restated to reflect the 5% stock
dividend described in Note 1 of the Notes to Consolidated Financial
Statements.
10 Includes notes receivable from exercise of stock options.
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48
Schedule II
GENERAL HOST CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES
UNDERWRITERS, PROMOTERS,
AND EMPLOYEES OTHER THAN RELATED PARTIES
FISCAL YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 and JANUARY 26, 1992
(In thousands)
Deductions Balance at
---------- End of Year
Amortization -------------
Interest Year of Beginning Amounts of Loan Non-
Employees (1) Rates Maturity of Year Additions Collected Forgiveness Current Current
- ------------------- -------- -------- --------- --------- --------- ----------- ------- -------
Year Ended January 30, 1994:
Harris J. Ashton 6% 1995/96/97 $2,505 $ 25 $2,480
C. Whitcomb Alden, Jr. 6% 1997/98 110 $ 14 124
Philip B. Harley 6% 1997 110 110
Robert M. Lovejoy 6% 1996/97/98 88 41 129
Year Ended January 31, 1993:
Harris J. Ashton 6% 1995/96/97 $2,035 $ 495 $ 25 $2,505
C. Whitcomb Alden, Jr. 6% 1997 110 110
Philip B. Harley 6% 1997 110 110
Year Ended January 26, 1992:
Harris J. Ashton 6% 1995/96 $ 831 $ 1,381 $ 177 $2,035
Robert Ench 6% 1991 250 250
Daniel J. Gilmartin 4%/6% 1992 178 178
(1) Includes notes receivable arising from exercise of stock options and notes
receivable to purchase the Company's Common Stock.
F-23
49
Schedule V
GENERAL HOST CORPORATION
FISCAL YEAR ENDED JANUARY 30, 1994
(In thousands)
PROPERTY, PLANT AND EQUIPMENT (1)
Other
Transfers Changes
Sales or Between ------- Balance,
Beginning Retire- Classifi- Additions End of
Classification of Year Additions at Cost ments cations (Deductions) Year
- ----------------------- --------- ----------------- -------- --------- ------------ ---------
Land $ 45,258 $ 33 $ 177 $ 846 $ $ 45,960
Buildings 188,049 1,203 1,973 8,766 196,045
Equipment 103,004 6,213 321 6,654 115,550
Leasehold improvements 44,732 1,217 198 6,836 52,587
Construction in progress 5,800 21,280 154 (23,102) 3,824
-------- ------- ------- -------- --------- --------
$386,843 $29,946 $ 2,823 $ -0- $ $413,966
-------- ------- ------- -------- --------- --------
-------- ------- ------- -------- --------- --------
Schedule VI
ACCUMULATED DEPRECIATION OF
PROPERTY, PLANT AND EQUIPMENT
Additions Other
Balance, Charged Changes Balance,
Beginning to Costs and Sales or Additions End of
Classification of Year Expenses Retirements (Deductions) Year
- ----------------------- --------- ------------ ----------- ------------ -------
Buildings $ 51,617 $ 7,498 $ 1,265 $ $ 57,850
Equipment 47,399 10,478 277 57,600
Leasehold improvements 14,239 4,209 142 18,306
-------- ------- ------- -------- --------
$113,255 $22,185 $ 1,684 $ $133,756
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
(1) The estimated useful lives used in computing depreciation of plant and
equipment, including capital leases, are: buildings, 10-40 years;
equipment, 3-20 years; or, if appropriate, for certain capital leases, the
terms of the leases.
F-24
50
Schedule V
GENERAL HOST CORPORATION
FISCAL YEAR ENDED JANUARY 31, 1993
(In thousands)
PROPERTY, PLANT AND EQUIPMENT (1)
Other
Transfers Changes
Sales or Between ------- Balance,
Beginning Retire- Classifi- Additions End of
Classification of Year Additions at Cost ments cations (Deductions) Year
- ----------------------- --------- ----------------- -------- --------- ------------ ---------
Land $ 40,164 $ 5,094 $ 45,258
Buildings 173,054 4,635 $ 168 $ 9,311 $ 1,217 188,049
Equipment 81,785 10,629 178 10,437 331 103,004
Leasehold improvements 36,488 3,671 4,227 346 44,732
Construction in progress 6,413 23,367 5 (23,975) 5,800
-------- ------- ------- -------- -------- --------
$337,904 $47,396 $ 351 $ -0- $ 1,894 (2) $386,843
-------- ------- ------- -------- -------- --------
-------- ------- ------- -------- -------- --------
Schedule VI
ACCUMULATED DEPRECIATION OF
PROPERTY, PLANT AND EQUIPMENT
Additions Other
Balance, Charged Changes Balance,
Beginning to Costs and Sales or Additions End of
Classification of Year Expenses Retirements (Deductions) Year
- ----------------------- --------- ------------ ----------- ------------ -------
Buildings $45,025 $ 6,648 $ 169 $ 113 $ 51,617
Equipment 38,738 8,655 144 150 47,399
Leasehold improvements 10,985 3,191 63 14,239
------- ------- ------- ------- --------
$94,748 $18,494 $ 313 $ 326 (2) $113,255
------- ------- ------- ------- --------
------- ------- ------- ------- --------
(1) The estimated useful lives used in computing depreciation of plant and
equipment, including capital leases, are: buildings, 10-40 years;
equipment, 3-20 years; or, if appropriate, for certain capital leases, the
terms of the leases.
(2) Represents the adjustment to carrying values of plant and equipment which
resulted from the adoption of SFAS No. 109, "Accounting for
Income Taxes".
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51
Schedule V
GENERAL HOST CORPORATION
FISCAL YEAR ENDED JANUARY 26, 1992
(In thousands)
PROPERTY, PLANT AND EQUIPMENT (1)
Transfers Other
Sales or Between Changes Balance,
Beginning Retire- Classifi- Additions End of
Classification of Year Additions at Cost ments cations (Deductions) Year
- ----------------------- --------- ----------------- -------- --------- ------------ ---------
Land $ 41,593 $ 600 $ 408 $(1,621) $ 40,164
Buildings 175,153 1,108 1,896 $ 1,079 (2,390) 173,054
Equipment 77,400 4,539 144 1,476 (1,486) 81,785
Leasehold improvements 32,351 1,138 378 3,907 (530) 36,488
Construction in progress 913 11,962 (6,462) 6,413
-------- ------- ------- -------- ------- --------
$327,410 $19,347 $ 2,826 $ -0- $(6,027)(2) $337,904
-------- ------- ------- -------- ------- --------
-------- ------- ------- -------- ------- --------
Schedule VI
ACCUMULATED DEPRECIATION OF
PROPERTY, PLANT AND EQUIPMENT
Additions Other
Balance, Charged Changes Balance,
Beginning to Costs and Sales or Additions End of
Classification of Year Expenses Retirements (Deductions) Year
- ----------------------- --------- ------------ ----------- ------------ -------
Buildings $38,548 $ 6,945 $ 390 $ (78) $45,025
Equipment 31,769 8,260 143 (1,148) 38,738
Leasehold improvements 8,466 2,733 127 (87) 10,985
------- ------- ----- ------- -------
$78,783 $17,938 $ 660 $(1,313)(2) $94,748
------- ------- ----- ------- -------
------- ------- ----- ------- -------
(1) The estimated useful lives used in computing depreciation of plant and
equipment, including capital leases, are: buildings, 10-35 years;
equipment, 4-10 years; or, if appropriate, for certain capital leases, the
terms of the leases.
(2) Represents the sale of property, plant and equipment relating to the sale
of Calloway's Nursery, Inc. and the write-off of fully
depreciated assets.
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52
Schedule VIII
GENERAL HOST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED JANUARY 30, 1994
(In thousands)
Additions
-----------------------
Balance, Charged Charged Balance,
Beginning to Costs to Other End
of Year and Expenses Accounts Deductions of Year
--------- ------------ -------- ---------- ---------
Deducted from marketable securities:
Valuation allowance for marketable
securities $ 10 $ 10 $ -0-
Deducted from accounts receivable:
Allowance for doubtful accounts 101 $ 100 1 200
Non-current assets:
Accumulated amortization of
intangible assets 6,941 940 7,881
Accumulated amortization of
deferred mortgage costs 2,603 655 3,258
Other liabilities and deferred credits:
Estimated liabilities in connection
with discontinued operations 1,961 189 603 (1) 1,547
Other liabilities 5,998 1,246 2,312 (2) 4,932
(1) Primarily reclassification to accrued expenses.
(2) Primarily related to the provision for store closings.
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53
Schedule VIII
GENERAL HOST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED JANUARY 31, 1993
(In thousands)
Additions
-----------------------
Balance, Charged Charged Balance,
Beginning to Costs to Other End
of Year and Expenses Accounts Deductions of Year
--------- ------------ -------- ---------- ---------
Deducted from marketable securities:
Valuation allowance for marketable
securities $ 10 $ 10
Deducted from accounts receivable:
Allowance for doubtful accounts $ 35 102 $ 36 101
Non-current assets:
Accumulated amortization of
intangible assets 6,000 941 6,941
Accumulated amortization of
deferred mortgage costs 1,971 632 2,603
Other liabilities and deferred credits:
Estimated liabilities in connection
with discontinued operations 2,094 201 (1) 334 (2) 1,961
Other liabilities 4,327 1,934 184 (1) 447 5,998
(1) Primarily reclassification from accrued expenses.
(2) Primarily charges related to discontinued operations.
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54
Schedule VIII
GENERAL HOST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED JANUARY 26, 1992
(In thousands)
Additions
-----------------------
Balance, Charged Charged Balance,
Beginning to Costs to Other End
of Year and Expenses Accounts Deductions of Year
--------- ------------ -------- ---------- ---------
Deducted from marketable securities:
Valuation allowance for marketable
securities $ 2 $ 2 $ -0-
Deducted from accounts receivable:
Allowance for doubtful accounts 396 $ 431 792 (1) 35
Non-current assets:
Accumulated amortization of
intangible assets 5,209 959 168 (2) 6,000
Accumulated amortization of
deferred mortgage costs 1,359 612 1,971
Other liabilities and deferred credits:
Estimated liabilities in connection
with discontinued operations 3,624 226 1,756 (3) 2,094
Other liabilities 4,183 1,047 903 (3) 4,327
(1) Represents the write-off of fully amortized assets.
(2) Represents the elimination of Calloway's Nursery, Inc. resulting from the
sale of General Host's 80% interest in Calloway's.
(3) Primarily reclassification to accrued expenses.
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Schedule X
GENERAL HOST CORPORATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FISCAL YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 and JANUARY 26, 1992
(In thousands)
1993 1992 1991
-------- -------- --------
Advertising costs $22,795 $19,658 $21,183
Maintenance and repairs 8,164 7,280 6,077
Taxes, other than payroll
and income:
Property taxes 10,709 9,530 9,325
Other taxes 603 802 1,063
The above amounts do not include charges related to discontinued operations.
F-30