1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
/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]
2
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]
3
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.
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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.
Financial Statements for Sunbelt Nursery Group, Inc.
- - ----------------------------------------------------
- Report of Independent Accountants. F-31
- Consolidated Balance Sheet - for the years F-32
ended January 31, 1994 and January 31, 1993.
- Consolidated Statement of Operations - for the F-33
years ended January 31, 1994, January 31, 1993
and January 31, 1992.
- Consolidated Statement of Cash Flows - for the F-34
years ended January 31, 1994, January 31, 1993
and January 31, 1992.
- Consolidated Statement of Changes in F-35
Shareholders' Equity - for the years ended
January 31, 1994, January 31, 1993 and
January 31, 1992.
- Notes to Consolidated Financial Statements. F-36
17
5
Financial Statement Schedules for Sunbelt Nursery Group, Inc.
- - -------------------------------------------------------------
V - Property and equipment - years ended F-53
January 31, 1994, January 31, 1993 and
January 31, 1992.
VI - Accumulated depreciation of property F-54
and equipment - years ended January 31, 1994,
January 31, 1993 and January 31, 1992.
VIII - Valuation and qualifying accounts - years F-55
ended January 31, 1994, January 31, 1993
and January 31, 1992.
IX - Short-term borrowings - years ended F-56
January 31, 1994, January 31, 1993 and
January 31, 1992.
X - Supplementary income statement F-57
information - years ended January 31, 1994,
January 31, 1993 and January 31, 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 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
18
6
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 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 &
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7
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 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,
20
8
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.
21
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(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.
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10
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: June 3, 1994 By /s/ James R. Simpson
---------------------------
James R. Simpson
Controller
(Principal Accounting Officer)
By /s/ Robert M. Lovejoy
---------------------------
Robert M. Lovejoy
Vice President and
Treasurer
23
11
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.
PRICE WATERHOUSE
Stamford, Connecticut
March 18, 1994
F-1
12
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
13
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
14
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
15
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
16
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
17
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
18
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
19
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
20
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
21
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
22
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
23
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
24
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
25
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
26
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
27
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
28
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
29
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
30
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
31
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
32
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.
F-22
33
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
34
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
35
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".
F-25
36
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.
F-26
37
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.
F-27
38
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.
F-28
39
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.
F-29
40
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
41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Sunbelt Nursery Group, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(A)(2) on pages 17 and 18 present fairly, in all
material respects, the financial position of Sunbelt Nursery Group, Inc. and
its subsidiaries at January 31, 1994, and 1993, and the results of their
operations and their cash flows for the three years ended January 31, 1994, 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.
The consolidated financial statements listed in the index appearing
under Item 14(A)(2) on pages 17 and 18 have been prepared assuming that the
Company will continue as a going concern. As described in Note 3 to the
consolidated financial statements, the Company's financing agreement with Pier
1 Imports expires on June 30, 1994, and Pier 1 Imports has given no indication
that it intends to extend the loan terms, which raises substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to this matter are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in fiscal 1994.
PRICE WATERHOUSE
Fort Worth, Texas
May 5, 1994
F-31
42
SUNBELT NURSERY GROUP, INC.
CONSOLIDATED BALANCE SHEET
(in thousands)
January 31
1994 1993
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,674 $ 2,346
Accounts receivable, net 504 335
Inventories 29,295 28,686
Other current assets 1,578 2,269
------- -------
Total current assets 36,051 33,636
------- -------
Property and equipment, at cost 48,419 28,807
Less accumulated depreciation 9,704 6,443
------- -------
Net property and equipment 38,715 22,364
Goodwill, net 20,217 20,163
Other assets 246 1,090
------- -------
Total Assets $95,229 $77,253
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 9,500 $8,000
Notes payable - Pier 1 Imports 2,000 -
Current portion of long-term debt and capital leases 17,157 521
Accounts payable 18,304 17,025
Accrued compensation 2,704 2,986
Other current liabilities 5,101 4,751
------- ------
Total current liabilities 54,766 33,283
------- ------
Long-term debt and capital leases 7,135 1,168
Reserve for store closing 2,226 3,331
Other long-term liabilities 840 471
Shareholders' equity:
Common stock, $.01 par value, 25 million shares
authorized, 8,480,000 issued and outstanding 85 85
Additional paid-in capital 45,118 45,118
Retained deficit (14,941) (6,203)
------- -------
Total shareholders' equity 30,262 39,000
Commitments and contingencies (Notes 3, 6, 7 and 14)
Total Liabilities and Shareholders' Equity $95,229 $77,253
------- -------
------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
43
SUNBELT NURSERY GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
YEAR ENDED JANUARY 31,
1994 1993 1992
------------ ----------- -----------
Net sales $146,034 $138,601 $140,078
Cost of goods sold 82,614 77,452 75,060
-------- -------- -------
Gross profit 63,420 61,149 65,018
General, administrative and
selling expense 65,154 62,512 55,964
Depreciation and amortization 4,459 4,010 3,499
Interest income (90) (255) (506)
Interest expense 2,056 554 1,628
Provision for store closings - 2,300 -
-------- -------- --------
Income (loss) before provision for income
taxes, extraordinary item and cumulative
effect of change in accounting principle (8,159) (7,972) 4,433
Provision for (benefit from) income taxes 213 (730) 1,898
-------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principal (8,372) (7,242) 2,535
Extraordinary item - utilization
of net operating loss
carryforwards - - 679
Cumulative effect of change in accounting
principle for income taxes (366) - -
-------- --------- ---------
Net income (loss) $ (8,738) $ (7,242) $ 3,214
-------- -------- -------
-------- -------- -------
Income (loss) per share before
extraordinary item and cumulative
effect of change in accounting principle $(0.99) $(0.85) $0.43
Extraordinary item - utilization
of net operating loss
carryforwards - - 0.11
Cumulative effect of change in
accounting principle for income taxes (0.04) - -
------ ------ -----
Net income (loss) per share $(1.03) $(0.85) $0.54
------ ------ -----
------ ------ -----
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
44
SUNBELT NURSERY GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended January 31,
1994 1993 1992
----------- ----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $(8,738) $(7,242) $3,214
Adjustments to reconcile net income
(loss) to cash provided by (used for)
operating activities:
Depreciation and amortization 4,459 4,010 3,499
Deferred income taxes 415 - (781)
Cumulative effect of change in accounting principle 366 - -
Loss (gain) on sale of fixed assets (10) 40 (153)
Provision for store closings - 2,300 -
Payment of store closing costs included
in provision for store closings (527) (655) (285)
Imputed interest on payable to
Pier 1 Imports - - 1,228
Changes in operating assets and liabilities:
Inventories (893) (4,538) (1,681)
Accounts receivable and other assets 1,180 (1,329) 657
Accounts payable 1,279 4,055 1,171
Pier 1 Imports intercompany account - - (2,513)
Accrued compensation (282) (418) 283
Other liabilities 321 312 2,453
------- ------- -------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (2,430) (3,465) 7,092
------- ------- -------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,382) (11,333) (5,943)
Purchase of net assets of acquired business - (2,098) -
Proceeds from the sale of property and
equipment 10 42 32
------- -------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (3,372) (13,389) (5,911)
------- ------- --------
FINANCING ACTIVITIES:
Increase in short-term borrowings 1,500 8,000 -
Increase in short-term borrowings - Pier 1 Imports 2,000 - -
Proceeds from Pier 1 Imports lease facility 5,360 - -
Principal payments on long-term debt,
including notes payable and capital
lease obligations (730) (855) (695)
Payment of dividend to Pier 1 Imports - - (18,072)
Proceeds from issuance of stock - - 28,072
------- ------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,130 7,145 9,305
------- ------- --------
Increase (decrease) in cash and cash
equivalents 2,328 (9,709) 10,486
Cash and cash equivalents at beginning
of period 2,346 12,055 1,569
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,674 $ 2,346 $12,055
------- ------- -------
------- ------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
45
SUNBELT NURSERY GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
ADDITIONAL RETAINED
Common PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT)
---------- --------------- ----------------
BALANCE AT JANUARY 31, 1991 $ 1 $10,544 $ (2,175)
Issuance of stock 84 27,988 -
Capital contributed by Pier 1 Imports - 6,586 -
Net income - - 3,214
--- ------- --------
BALANCE AT JANUARY 31, 1992 85 45,118 1,039
Net loss - - (7,242)
--- -------- --------
BALANCE AT JANUARY 31, 1993 85 45,118 (6,203)
Net loss - - (8,738)
--- -------- --------
BALANCE AT JANUARY 31, 1994 $85 $45,118 ($14,941)
--- ------- --------
--- ------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
46
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND BASIS OF PRESENTATION
Sunbelt Nursery Group, Inc. ("Sunbelt" or the "Company") is
a specialty retailer of nursery and garden products operating under three
prominent retail trade names: Wolfe Nursery and Wolfe's Gardenland in Oklahoma
and Texas, Nurseryland Garden Centers in California and Tip Top Nurseries in
Arizona. No single customer accounts for more than 10% of sales. Prior to
October 1, 1990, Intermark, Inc. ("Intermark") owned a 50.4% interest in the
Company and also owned a controlling interest in Pier 1 Imports. Intermark
subsequently disposed of its entire interest in Pier 1 Imports. Effective
October 1, 1990, Pier 1 Imports acquired Intermark's interest in the Company
and commenced a tender offer for the remaining shares, which was consummated
effective November 30, 1990, at which time Pier 1 Imports became the sole
shareholder of the Company.
On August 14, 1991, the Company's Board of Directors and
sole shareholder approved the recapitalization of the Company by adopting a
Restated Certificate of Incorporation authorizing 25,000,000 shares of common
stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par
value $.01 per share, and by exchanging the former 1,000 shares of issued and
outstanding common stock for 4,800,000 shares of common stock.
In October 1991, the Company completed the sale of
3,680,000 shares of newly issued common stock in a public offering. Subsequent
to the sale, Pier 1 Imports' ownership approximated 56.6%. Net proceeds of the
offering approximated $28.1 million, of which $18.1 million was utilized to pay
a dividend to Pier 1 Imports and the remainder was retained by the Company to
finance store openings, relocations, renovations and store acquisitions. At
the time, the Company's consolidated financial statements reflected pushed-down
debt based on a pre-offering estimate of the dividend to Pier 1 Imports of
$24.7 million. Subsequent to the completion of the stock offering, an
adjustment of $6.6 million was recorded to eliminate the remaining pushed-down
debt resulting from the difference between the amount reflected in the
Company's consolidated financial statements and the amount of the dividend paid
to Pier 1 Imports, with such difference credited to additional paid-in capital
representing an addition to the permanent equity of the Company.
In February 1992, Pier 1 Imports sold 600,000 shares of common stock which
reduced Pier 1 Imports' ownership in the Company to 49.5%. Effective April 28,
1993, Pier 1 Imports sold its remaining 4,200,000 shares of common stock to
General Host Corporation in exchange for 1,940,000 shares of General Host
common stock. Subsequent to the exchange, General Host's ownership interest in
the Company approximated 49.5%.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned.
All significant intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts in the consolidated financial statements have
been reclassified to conform to the current year's
F-36
47
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
presentation.
REVENUE RECOGNITION - The Company recognizes revenue when the customer takes
possession of merchandise.
CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
INVENTORIES - Inventories are comprised primarily of finished merchandise and
are stated at the lower of average cost or market, average cost being
determined principally on the retail inventory method.
PROPERTY AND EQUIPMENT - Property and equipment, including renewals and
improvements which extend the life of existing properties, are capitalized at
cost and depreciated using the straight-line method over estimated useful lives
or lease terms, if shorter. Expenditures for normal maintenance and repairs
are expensed as incurred. The cost of property and equipment sold or otherwise
retired and the related accumulated depreciation and amortization are removed
from the accounts and any resultant gain or loss, after taking into
consideration proceeds from sale, is credited or charged to income.
STORE CLOSING AND RELOCATION COSTS - When the decision to close or relocate a
retail unit is made, the Company provides for estimated future net lease
obligations, nonrecoverable investments in fixed assets and other expenses
directly related to the cessation of operations.
INCOME TAXES - The Company and its subsidiaries filed consolidated tax returns
through December 31, 1990. For the period January 1, 1991 through September
30, 1991, the operations of the Company and its subsidiaries were included in
Pier 1 Imports' consolidated tax returns. The Company and its subsidiaries
filed a consolidated return for the five months ended February 29, 1992 and
filed a consolidated return for the eleven months ended January 31, 1993 and
will file a consolidated return for the year ended January 31, 1994. Income
taxes in the accompanying financial statements for the period subsequent to
December 31, 1990 through September 30, 1991 are recorded in accordance with
the income tax sharing agreement between the Company and Pier 1 Imports. This
agreement requires the recording of income taxes as if separate tax returns had
been filed by each company, except that the tax benefit of interest expense
resulting from the debt pushed down to the Company is allocated to Sunbelt.
In February 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes.
The adoption of FAS 109 changes the Company's method of accounting for income
taxes from the deferred method (APB 11) to an asset and liability approach.
Previously, the Company deferred the past tax effects of timing differences
between financial reporting and taxable income. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
F-37
48
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The adjustments to the February 1, 1993 balance sheet to
adopt FAS 109 totalled a charge of $366,000. This amount is reflected in the
fiscal 1994 net loss as the cumulative effect of a change in accounting
principle. Under FAS 109, the Company recognizes deferred tax assets if it is
more likely than not that a benefit will be realized. The cumulative effect
primarily represents the effect of providing a valuation allowance for all net
tax assets with the exception of alternative minimum tax credits which may be
carried forward indefinitely. See Note 10 for further discussion of income
taxes.
GOODWILL - Goodwill represents the excess purchase cost over the fair value of
the net assets of businesses acquired. In fiscal 1992, the Company reduced
goodwill by $2,575,000 as a result of the recognition of tax benefits
associated with purchased net operating losses and the realization of tax
benefits resulting from the higher tax basis of net assets acquired over their
estimated fair value. No retroactive restatement of the Company's financial
statements related to the adjustment of goodwill amortization is reflected in
the accompanying financial statements since the effect of such adjustments
would be immaterial. As a result of the Company's adoption of FAS 109 at
February 1, 1993, the Company increased goodwill by $682,000 reflecting a
valuation allowance for certain of the tax benefits previously recognized under
APB 11 that were associated with the higher tax basis acquired over their
estimated fair value. In fiscal 1993 the Company recorded goodwill of $432,000
as a result of the acquisition of stores in California and Texas. Goodwill is
being amortized on a straight-line basis over 40 years. Accumulated
amortization at January 31, 1994 and 1993 is $2,084,000 and $1,456,000,
respectively.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share are computed on the
weighted average number of shares plus common stock equivalents outstanding
during the period. For the years ended January 31, 1994 and 1993, the average
number of shares outstanding approximated 8,480,000, and for the year ended
January 31, 1992, the average number of shares outstanding approximated
5,947,000.
NOTE 3 -- LIQUIDITY AND OPERATING LOSSES
LIQUIDITY - The Company has historically satisfied its capital expenditure
and working capital requirements with a combination of cash flow from
operations and debt from bank loans. During the last two fiscal years,
however, the Company has experienced substantial losses during a period in
which it also was involved in a program to relocate and expand its existing
stores and open new larger format stores. As a result, the Company has been
unable to generate cash flow from operations to fund its working capital or
capital expenditure requirements. During this period, the Company has
satisfied its capital requirements primarily through borrowings under lines of
credit, loans and leasing facilities either provided or guaranteed by Pier 1
Imports.
As of January 31, 1994, the Company had two revolving credit facilities
with commercial banks (the "Banks") aggregating $10 million, each guaranteed by
Pier 1 Imports, and an additional $2 million line of
F-38
49
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
credit provided directly by Pier 1 Imports. These facilities were guaranteed
or provided, as the case may be, by Pier 1 Imports pursuant to that certain
credit facilities agreement dated as of April 28, 1993 between the Company and
Pier 1 Imports (the "Pier 1 Credit Facility"). As of January 31, 1994,
outstanding borrowings under the Pier 1 Credit Facility were $11.5 million and
$.4 million was utilized for letters of credit, leaving $.1 million of unused
capacity at that date. The Pier 1 Credit Facility was scheduled to expire and
all debt thereunder would mature on April 28, 1994.
Pier 1 Imports also made available up to $25 million of properties for
lease to the Company, which properties were to be acquired or constructed by an
unaffiliated third party. Pursuant to this agreement, Pier 1 Imports agreed to
make this facility available through April 28, 1996, after which date no
additional properties can be constructed or purchased by the unaffiliated third
party for lease to the Company. As of January 31, 1994, the Company has
utilized $21.7 million of this facility and has remaining availability of $3.3
million. Also, at January 31, 1994, $16.4 million of properties are required
to be refinanced or purchased by the Company by January 31, 1995. The
remaining $5.3 million of properties has to be either refinanced or purchased
by October 20, 1995.
The Company's lines of credit with its banks, guaranteed by Pier 1
Imports, were originally scheduled to mature on April 25, 1994 and April 28,
1994, and Pier 1 Imports guaranty was to expire on April 28, 1994. In April
1994, Pier-SNG, Inc., a subsidiary of Pier 1 Imports, purchased the notes
representing the Company's obligations to the banks aggregating $10 million at
April 25, 1994 under the lines of credit. On April 25, 1994, the Company
entered into an Extension Agreement (the "Extension") with Pier 1 Imports and
Pier-SNG, Inc. (together with Pier 1 Imports, the "Lender") pursuant to which
the maturity date of the approximately $12 million (the "Indebtedness") owed by
the Company to the Lender pursuant to the Pier 1 Credit Facility was extended
from April 28, 1994 to June 30, 1994. Following June 30, 1994, the Lender has
no obligation to further extend the maturity date of the Indebtedness and to
date has not given any indication that it will extend the maturity date.
The Company requested the Extension because it anticipated
that it would be unable to repay the indebtedness on April 28, 1994 and needed
additional time to refinance the indebtedness. The Company is actively
pursuing refinancing alternatives and has retained a financial advisor to
assist in such efforts. Financing alternatives that the Company is considering
include a private placement of debt and/or equity, discussions with banks and
other potential lenders and sale/leaseback financing on certain owned
facilities; however, no assurance can be given that the Company will be
successful in its efforts to refinance the indebtedness. If the Company is
unable to refinance the indebtedness prior to June 30, 1994 and Pier 1 Imports
does not agree to renegotiate the terms of the indebtedness or grant a further
extension, the Company anticipates that it would be unable to repay the
indebtedness on such date and meet its other obligations, including the leasing
facility obligations, as they come due. In such event, the Company would be in
default under the Pier 1 Credit
F-39
50
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Facility, the $12 million would be immediately due and payable and Pier 1
Imports could foreclose, in complete or partial satisfaction of the
indebtedness, on General Host's 49.5% interest in the Company. A default under
the Pier 1 Credit Facility could also cause the Company to be in default under
certain other agreements, including the lease facility described above. Such a
default could also force the Company to consider legal proceedings to
restructure its obligations and preserve shareholder equity.
OPERATING LOSSES - During fiscal 1993 and 1994, the Company experienced losses
before the cumulative effect of change in accounting principle of $7.2 million
and $8.4 million, respectively. The Company believes that these losses are
primarily attributable to lower than expected sales volumes caused by unusually
rainy and otherwise inclement weather during the peak spring and early summer
selling seasons during both of these years. Losses during these years were
further exacerbated by increases in expenses associated with implementation of
the Company's renovation and expansion program, including a $2.3 million charge
in fiscal 1993 for store closings.
Management has taken certain actions in an effort to return the Company to
profitability and improve its cash flow. These actions include implementation
of cost controls, streamlining of operations including eliminating corporate
staff positions and consolidating districts, postponing indefinitely salary
increases for all exempt associates, closing of 13 unprofitable stores, and the
suspension of its renovation and expansion program pending the outcome of its
efforts to refinance the Pier 1 Credit Facilities. In management's opinion,
these steps in combination with a return to normal weather patterns should
allow the Company to improve its cash flow and return to profitability.
However, there can be no assurance that such profitability will be achieved,
and, if not, the Company may be required to close additional stores, liquidate
inventories, sell certain assets or take other measures to meet working capital
needs.
NOTE 4 -- STORE ACQUISITIONS, CLOSINGS AND RELOCATIONS
During August 1992, the Company purchased the assets of
California Garden Centers consisting of two retail nursery stores, one in San
Juan Capistrano, California and one in Temecula, California and one wholesale
nursery operation in San Juan Capistrano, California. During November 1992,
the Company purchased the assets of Smith's Garden Town which consisted of two
retail nursery stores, one in Wichita Falls, Texas and one in Lawton, Oklahoma.
The Company has used the purchase method of accounting for these acquisitions,
allocating the cost of acquisition to the assets acquired and liabilities
assumed. Results of operations for these acquisitions have been included in
the Company's accompanying results of operations since their respective dates
of acquisition. The combined purchase price consisted of cash consideration of
$2.1 million and the assumption of liabilities of $2.1 million. Pro-forma
information is not presented due to immateriality.
F-40
51
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
During the fourth quarter of fiscal 1993 the Company
decided, based upon its success to date of its new larger format stores, to
convert or relocate additional existing stores. As a result of this decision,
the Company recognized a restructuring charge of $2,300,000 in the fourth
quarter of fiscal 1993 which represents the estimated costs of this program.
The Company continued to reevaluate and close stores during fiscal 1994. No
additional restructuring charge was necessary.
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, including capital leases, consisted of
the following as of January 31:
1994 1993
------- -------
(in thousands)
Buildings $15,362 $ 6,684
Equipment, furniture and fixtures 11,670 8,920
Leasehold interests and improvements 13,510 10,346
Land 7,877 2,857
------- -------
48,419 28,807
Less accumulated depreciation 9,704 6,443
------- -------
$38,715 $22,364
------- -------
------- -------
NOTE 6 -- NOTES PAYABLE AND OTHER INDEBTEDNESS
Effective December 30, 1991 and January 31, 1992, the
Company entered into loan agreements with two commercial banks to provide a
total of $10 million of revolving lines of credit until June 30, 1993 and May
31, 1993. Such maturity dates were subsequently extended through April 28,
1994 and April 25, 1994. Advances accrue interest at prime. In addition, a
facility fee of 1/4% and a commitment fee of 1/4% are charged on any unutilized
loan amounts. Both commitments require the maintenance of certain covenants
which include a minimum level of net worth, inventory turnover and current
ratio tests, restrictions on the sale of assets, limitation on indebtedness,
and prohibition of certain payments, including dividends. Both commitments are
guaranteed by Pier 1 Imports and provide for cross-default provisions in the
event of a default under either loan agreement or under Pier 1 Imports'
revolving credit loan agreement. At January 31, 1994, $361,000 of one of the
$5 million credit agreements was utilized for letters of credit. At January
31, 1994 $139,000 was available under these agreements.
Effective April 28, 1993 and pursuant to Pier 1 Imports'
agreement to sell its 49.5% interest in the Company's common stock, Pier 1
Imports agreed to provide a $12 million revolving credit facility (the
"Revolving Credit Facility") to the Company. The Revolving Credit Facility was
funded initially by Pier 1 Imports' continuing $10 million guarantee of the
Company's revolving credit facilities with its banks and a $2 million loan from
Pier 1 Imports. The unpaid balance of all outstanding loans owed to Pier 1
Imports plus the total amount of Pier 1 Imports' potential liability
F-41
52
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
under each guarantee could not exceed $12 million in the aggregate. The
Company agreed to pay Pier 1 Imports a financing facility fee equal to $60,000
during the term of this agreement. Interest accrues at either LIBOR plus 1
1/2% or the defined prime rate plus 1/4%. This agreement expired April 28,
1994. At January 31, 1994 $12 million had been either guaranteed or loaned by
Pier 1 Imports to the Company under the Revolving Credit Facility. Subsequent
to year-end, Pier-SNG, Inc., a subsidiary of Pier 1 Imports, acquired all of
the $10 million in bank notes. On April 25, 1994, the maturity date of such
notes, plus the $2 million note to Pier 1 Imports, was extended from April 28,
1994 to June 30, 1994. See Note 3 for further discussion.
During April 1993, Pier 1 Imports agreed to make available
up to $25 million of properties, either acquired or constructed, for sublease
to the Company, subject to purchase by an unaffiliated third party. Pier 1
Imports agreed to make this facility available through April 28, 1996, after
which date, no additional properties will be constructed or purchased by the
unaffiliated third party for leasing to the Company. The agreement requires
the Company to pay monthly rental payments equal to LIBOR plus 1 1/2%
(approximately 4.7% at January 31, 1994) of the total cost of the property.
These payments have been classified as interest expense in the accompanying
consolidated statement of operations. The agreement also requires the Company
to pay Pier 1 Imports an annual facility fee of $202,000 for three years and 1%
of the total amount of properties which are, or may be, included within the
lease facility. As of January 31, 1994 the Company has utilized approximately
$21.7 million of this facility. Four properties, aggregating $5.4 million, were
owned and in operation at the time of funding and approximately $16.3 million
of the funds were used to finance the purchase of land and construction of new
stores thereon.
At January 31, 1994 the Company's obligations under this
agreement aggregated $21.7 million of which $16.4 million has been classified
as current maturities of debt in the accompanying consolidated balance sheet
and in the table of maturities presented below as the Company must either
refinance these leases, purchase the properties or pay 80% of the total cost of
the properties in fiscal 1995. The Company's remaining obligation under this
facility, aggregating $5.3 million, is due by October 20, 1995. See Note 3 for
a discussion of the Company's ability and plans to meet these obligations.
F-42
53
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Notes payable and other long-term debt consisted of the following as of January
31:
1994 1993
------- --------
(In thousands)
Notes payable under credit agreements
with two banks due at or before maturity
in April 1994, plus interest at 6% and
4.56% on $2.5 million and $7 million,
respectively $ 9,500 $8,000
Note payable to Pier 1 Imports due at or
before maturity in April 1994, plus
interest at 8.5% 2,000 -
Financing provided through lease facility
with Pier 1 Imports 21,660 -
Capital lease obligations 2,420 1,372
Other 212 317
------- ------
35,792 9,689
Less current portion due within one year 28,657 8,521
------- ------
$ 7,135 $1,168
------- ------
------- ------
Notes payable and other long-term debt outstanding at January 31, 1994 mature
as follows:
Fiscal year (in thousands)
-----------
1995 $28,657
1996 5,871
1997 520
1998 418
1999 195
Thereafter 131
-------
Total $35,792
-------
-------
At January 31, 1994 the Company was in technical default of
a covenant of the Revolving Credit Facility which requires that the Company's
current ratio exceed .8 to 1. In addition, audited financial statements were
not delivered to Pier 1 Imports within 90 days of year-end as required by
another covenant of the Revolving Credit Facility and timely notice was not
provided of such breaches. Cross-default provisions provide that any default
on the Revolving Credit Facility cause the Company to be in default under the
lease facility agreement, too. In May 1994, Pier 1 Imports waived the
Company's breach of certain covenants relating to the Company's failure to (i)
timely deliver its annual report to lender, (ii) satisfy the required current
ratio and (iii) timely provide notice of such breaches. The waiver expires on
June 30, 1994. Pier 1 Imports has no obligation to extend the waivers after
June 30, 1994. If the waivers are not extended or amended, the Company
anticipates that it would be in breach of the covenant described in (ii) above.
In connection with such waiver, the Company agreed to not borrow additional
funds under the Pier 1 Credit Facility in excess of the amount outstanding at
the time the waiver was consummated.
F-43
54
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7 -- LEASE OBLIGATIONS
The Company leases certain property, consisting principally
of retail stores, under leases expiring through the year 2010. Capital leases
are recorded in the Company's balance sheet as assets along with the related
lease obligation. All other lease obligations are operating leases, and
payments are reflected in the Company's consolidated statement of operations as
rental expense. Assets recorded under capital leases are included in property
and equipment as follows:
1994 1993
------- -------
(In thousands)
Buildings $ 502 $ 763
Equipment, furniture
and fixtures 2,414 625
------- -------
2,916 1,388
Less accumulated amortization 680 436
------- -------
$ 2,236 $ 952
------- -------
------- -------
At January 31, 1994, the Company had the following minimum
lease commitments:
Fiscal Capital Operating
Year leases leases
- - --------------------------------------------------------------------------------------------------------
(In thousands)
1995 $ 769 $ 7,408
1996 729 6,658
1997 614 5,616
1998 472 5,132
1999 218 4,480
Thereafter 173 19,031
------ -------
Total lease commitments 2,975 $48,325
-------
-------
Less imputed interest 555
------
Present value of total capital
lease obligations, including
current portion of $573,000 $2,420
------
------
Rental expense approximated $8,234,000, $7,663,000 and
$7,332,000, including approximately $320,000, $433,000 and $528,000 of
contingent rentals based upon a specified percentage of sales for the fiscal
years 1994, 1993 and 1992, respectively. Sublease rentals were immaterial each
year.
NOTE 8 -- MANAGEMENT BENEFIT PLANS
On August 14, 1991, the Company's Board of Directors adopted an Executive
Officers' Medical Plan under which qualifying medical, dental and related
expenses incurred by certain key employees and officers and
F-44
55
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
their dependents, subject to annual limits, are paid to each plan participant.
The Company's contributions to this plan for fiscal 1994 and 1993 were
approximately $10,000 and $11,000, respectively. The Company made no
contributions to this plan in fiscal 1992. Also on August 14, 1991, the
Company's Board of Directors authorized an Executive Officers' Financial
Planning Plan pursuant to which the Company pays an annual tax and financial
planning allowance to certain executives in an amount equal to 1.5% of the
participant's annual base salary to cover tax and financial planning expenses.
The Company's contributions under this plan for fiscal 1994, 1993 and 1992 were
approximately $8,550, $8,000 and $6,000, respectively.
On August 14, 1991 the Company's Board of Directors adopted a Benefit
Restoration Plan (the "Restoration Plan") to permit certain members of
management and highly compensated employees to defer current income which
cannot be contributed to the Company's retirement plan due to statutory funding
and contribution limitations. A participant's contributions to the Restoration
Plan receives a matching Company contribution as if the participant's salary
deferral had been contributed to the Retirement Plan. Participants vest in
their Restoration Account balance in the same manner as if deferrals and
Company contributions under the Restoration Plan had been contributed to the
retirement plan. As of January 31, 1994, there were 10 employees in the plan.
The Company's contributions under this plan for fiscal 1994, 1993 and 1992 were
approximately $4,000, $5,000 and $3,000, respectively.
NOTE 9 -- STOCK OPTION PLANS
On August 14, 1991, the Company's Board of Directors and sole shareholder
approved the Company's 1991 Stock Option Plan (the "Plan"), which provides for
the issuance of stock options to the Company's officers, directors and key
employees. Options covering an aggregate of 500,000 shares of common stock may
be granted under the Plan. Shares subject to any option that expires,
terminates or is forfeited will again be available for options subsequently
granted. Currently, there are 35 participants in the Plan. The vesting period
of options is determined at the discretion of the plan administrative
committee. Options become exercisable at the rate of 20% per year on a
cumulative basis beginning one year after the date of grant. All options
granted have been priced at market value at date of grant. All options
outstanding at January 31, 1994 are exercisable in light of the change in
control, as defined in the 1991 Stock Option Plan, occurring in fiscal 1994.
Directors who are not employees of either the Company or any of its
subsidiaries or its parent ("Non-employee Directors") are automatically granted
non-qualified stock options to purchase 3,000 shares of common stock on the day
following each annual shareholders' meeting with an exercise price equivalent
to the market value of the shares at the date of grant.
F-45
56
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
All stock options currently outstanding are non-qualified. Shares
available for grant amounted to 198,000, 103,000 and 194,000 at January 31,
1994, 1993 and 1992. The following summarizes Plan activity for the three
years ended January 31, 1994.
Employee stock Non-employee director
options stock options
- - --------------------------------------------------------------------------------------------
Number Option Number Option
of price of price
shares per share shares per share
------- ----------- ------- -----------
Outstanding at
January 31, 1991 - - - -
Granted 330,000 $4.65.8.50 6,000 $ 8.50
Canceled 30,000 6.57 - -
------- ---------- ------- ----------
Outstanding at
January 31, 1992 300,000 4.65-8.50 6,000 8.50
Granted 88,000 5.00 6,000 5.00
Canceled 3,000 5.93 - -
------- ---------- ------- ----------
Outstanding at
January 31, 1993 385,000 4.65-8.50 12,000 5.00-8.50
Granted - - - -
Canceled 83,000 5.00-8.50 12,000 5.00-8.50
------- ---------- ------- ----------
Outstanding at
January 31, 1994 302,000 $4.65-8.50 - $ -
------- ---------- ------- ----------
------- ---------- ------- ----------
Exercisable at
January 31, 1994 302,000 $4.65-8.50 - $ -
------- ---------- ------- ----------
------- ---------- ------- ----------
NOTE 10 -- INCOME TAXES
The Company adopted FAS No. 109 effective February 1, 1993. The adoption of
FAS No. 109 changes the Company's method of accounting for income taxes from
the deferred method under APB 11 to an asset and liability approach.
Previously, the Company deferred the effects of timing differences between
financial reporting and taxable income. The asset and liability approach
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the book and
tax bases of assets and liabilities.
The adjustment to adopt FAS No. 109 totalled a charge of $366,000 which has
been reflected in fiscal 1994 net income as the cumulative effect of a change
in accounting principle. Under FAS No. 109, the Company recognizes deferred
tax assets if it is more likely than not that a benefit will be recognized.
The cumulative effect primarily represents the effect of providing a valuation
allowance for all net tax assets with the exception
F-46
57
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
of alternative minimum tax credits in the amount of $415,000 which may be
carried forward indefinitely. During the quarter ended July 31, 1993, $195,000
of the $415,000 related to the alternative minimum tax credits was realized as
the result of a carryback to prior years; however, based upon the Company's
operating performance for the nine months ended October 31, 1993, the Company
increased its valuation allowance by $220,000 to fully reserve the remaining
tax benefit associated with the alternative minimum tax credits. The $220,000
adjustment was recorded as a charge to income tax expense.
The components of the income tax provisions for the three years ended January
31 are as follows:
(In thousands)
1994 1993 1992
---- ----- ----
Federal:
Charge in lieu of taxes payable $ - $ - $2,393
Current - (730) 98
Deferred 213 - (781)
State:
Current - - 188
---- ----- ------
$213 $(730) $1,898
---- ----- ------
---- ----- ------
The accompanying consolidated financial statements reflect an extraordinary
item of $679,000 for fiscal 1992, representing the tax benefit attributable to
the utilization of net operating loss carryforwards.
Differences between the provision for income taxes and income taxes based on
statutory federal income tax rates for the three years ended January 31 are as
follows:
1994 1993 1992
---- ---- ----
Federal tax provision (benefit)
computed at statutory rate (34)% (34)% 34%
Realization of tax benefit not
recognized at acquisition - (2) -
Amortization of intangible 3 3 5
State taxes - - 3
Loss for which no current tax
benefit is available 31 21 -
Alternative minimum tax credits - 3 -
Increase in valuation allowance
of tax benefits 3 - -
Other - - 1
---- ---- ----
3% (9)% 43%
---- ---- ----
---- ---- ----
F-47
58
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Deferred tax assets and liabilities as of January 31, 1994 were comprised of
the following:
(In thousands)
Loss carryforwards $ 2,919
Reserve for store closings 1,083
Lease obligations 823
Depreciation 739
Insurance reserves 368
Other 849
-------
6,781
Valuation allowance (6,781)
-------
Total deferred tax assets $ 0
-------
-------
At January 31, 1994, the Company has net operating loss carryforwards of
approximately $8.6 million for regular tax purposes which will expire
commencing in fiscal 2008 through fiscal 2009. Approximately $4.4 million of
the $6.8 million valuation allowance will be recorded as a reduction of
goodwill upon subsequent recognition.
NOTE 11 -- EMPLOYEE BENEFIT PLANS
From February 1, 1991 through October 31, 1991, substantially all
employees of the Company were eligible to participate in Pier 1 Imports' Stock
Purchase Plan. Each employee participant could contribute up to 10% of the
eligible portions of annual compensation. The Company contributed from 10% to
50% of the participants' contributions, depending upon length of participation
and date of entry into the plan. Company contributions to the plan amounted to
$255,000 in fiscal 1992.
On August 14, 1991, the Board of Directors of the Company authorized the
Company's Stock Purchase Plan, under which common stock is purchased on behalf
of participants at market prices through regular payroll deductions.
Commencing November 1, 1991, the Company makes matching contributions ranging
from 10% to 50% (up to a maximum of 10% of annual compensation) with the amount
of the Company's contribution depending upon the years of continuous
participation by the employees in the Stock Purchase Plan. Participants in the
plan who were participants in the Company's Stock Purchase Plans in effect
prior to November 1990 and who were allocated Company contributions under prior
plans at rates between 50% and 100% receive matching Company contributions at
the highest rate attained by the participants under prior plans. Contributions
by outside Directors are limited to the amount of their monthly Directors'
fees. Company contributions to the plan for fiscal 1994, 1993, and 1992 were
$362,000, $505,000, and $115,000, respectively.
From February 1, 1991 through October 31, 1991, the Company's employees
were eligible to participate in Pier 1 Imports' defined contribution employee
retirement plan. All full and part-time personnel who were at least 21 years
old and who worked 1,000 hours in a 12 month period were eligible to
participate in the plan. Employees could
F-48
59
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
contribute from 1% to 15% of their compensation, subject to the statutory
ceiling, and the Company contributed up to 3%. Company contributions to the
plan were $156,000 in fiscal 1992.
As authorized by the Board of Directors of the Company on August 14, 1991,
and effective November 1, 1991, the Company implemented a defined contribution
retirement and savings plan that is intended to qualify under Section 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended. Employees of the
Company and its subsidiaries who are at least 21 years of age and have worked
1,000 hours in a 12 month period are eligible to participate. Participants may
contribute from 1% to 15% of annual earnings, subject to statutory limitations.
The Company makes matching contributions ranging from 1% up to a maximum of 3%
depending on the level of the participant's contributions. In addition, the
Company may make discretionary contributions out of net profits. Company
contributions under this plan for fiscal 1994, 1993, and 1992 were $275,000,
$308,000, and $60,000, respectively. As of January 31, 1994, approximately
1,100 employees were eligible to participate, of which 422 were participating
in the plan.
NOTE 12 -- OTHER RELATED PARTY TRANSACTIONS
Loan Commitments
Effective December 1991 and January 1992, the Company entered into loan
agreements with two commercial banks to provide a total of $10 million of
revolving lines of credit. Both commitments are guaranteed by Pier 1 Imports
under the Credit Facilities Agreement dated April 28, 1993 between Pier 1
Imports and Sunbelt Nursery Group. In fiscal year 1994 the Company paid Pier 1
Imports a total of $50,000 for the guarantee. Effective April 25, 1994 Pier 1
Imports purchased the notes from the banks and extended the maturity date to
June 30, 1994. During 1994, the Company paid $180,000 in interest to Pier 1
Imports for an 8.5% fixed rate loan of $2 million (See Note 6). The Company
also paid commitment fees totaling $396,000 to Pier 1 Imports pursuant to the
total credit facilities agreement, which includes a lease facility as described
in Note 6. Under the lease facility, the Company paid Pier 1 Imports $606,000
in interest and $395,000 in additional charges, which included a portion of all
non-capitalized amounts related to the properties under the lease facility as
well as any origination costs related to obtaining new financing or
establishing a new facility. See Note 3 for a further discussion of Pier 1
Imports guarantees, loans to the Company and the leasing facility.
During fiscal 1993, the Company paid Pier 1 Imports $50,000 for its
guarantee of the bank lines and $40,000 for its guarantee of a portion of its
agreements with two unaffiliated parties.
Commitments
The Company leases three stores, an office and warehouse from an employee
of the Company. The rental payments were $129,000, $163,000, and $170,000 for
the years ended January 31, 1994, 1993 and 1992, respectively.
F-49
60
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Future lease commitments are $591,000.
Other Charges
Net intercompany interest expense of $63,000 and interest income of
$301,000 was recorded for the years ended January 31, 1993 and 1992,
respectively, in relation to amounts due to/from Pier 1 Imports. During fiscal
1993 and 1992, interest income/expense was computed based on the net average
monthly due to/from Pier 1 Imports at 8.5% per annum.
The Company and Pier 1 Imports entered into a services agreement effective
until October 1996. Pursuant to the agreement, the Company paid $18,000 and
$87,000, during fiscal years 1994 and 1993, to Pier 1 Imports for their
in-house legal department's services. During fiscal 1992, the Company paid
Pier 1 Imports $469,000 for the following services: accounting payroll
services, administration of the Company's employee benefit plans, use of
certain telecommunications equipment, printing services, periodic use of
certain Pier 1 Imports' information systems personnel, legal services from Pier
1 Imports' in-house legal department, and use of certain personnel in Pier 1
Imports' real estate department.
In April 1993, General Host Corporation obtained a 49.5% ownership
interest in the Company. The Company paid General Host Corporation $54,000 for
in-house legal services during fiscal 1994.
During fiscal year 1994 the Company purchased inventory totaling $403,000
from Frank's Nursery and Crafts, Inc., the principal operating subsidiary of
General Host.
NOTE 13 -- SUPPLEMENTAL CASH FLOW INFORMATION
During fiscal 1994, the Company leased computer equipment
valued at $800,000 and store fixtures valued at $990,000, resulting in the
recording of capital lease obligations for those amounts.
During fiscal 1994 and 1993 the Company utilized $16.3
million of the Pier 1 Imports lease facility for the construction of new
stores.
During fiscal 1993, the Company leased computer equipment
valued at $412,000 resulting in the recording of a capital lease obligation for
that same amount.
During fiscal 1992, the Company entered into a capital
lease agreement to acquire office furniture valued at approximately $207,000.
In August 1992, the Company purchased the assets of a
nursery operation in Orange County, California. In conjunction with this
acquisition, liabilities of $2.1 million were recorded.
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61
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Cash paid for interest and income taxes was as follows:
Year ended January 31,
1994 1993 1992
----------- ----------- -----------
(In thousands)
Interest paid $ 2,056 $460 $1,929
Income taxes paid (refunded) (1,398) 509 249
NOTE 14 -- LITIGATION AND OTHER CONTINGENCIES
Litigation
On August 10, 1993, a class action suit was filed in the
court of Chancery of New Castle County, Delaware against the Company, each
director of the Company and General Host after the public announcement by
General Host that it was considering the acquisition of the remaining publicly
held shares of Company common stock at a price of $5.00 per share. Plaintiffs
allege that General Host breached its fiduciary duty to the Company's
shareholders by taking actions to cap the market price of the Company's common
stock and to position itself to purchase for an unreasonably low price the
common stock held by the public shareholders. Plaintiffs also assert that
Company directors breached fiduciary duties to the public shareholders.
Plaintiffs seek injunctive relief regarding General Host's proposed acquisition
and compensatory and/or rescissionary damages. General Host never formally
offered to purchase shares of the Company's common stock from public
shareholders.
On September 17, 1993, a shareholder derivative suit on
behalf of the Company was also filed in the Court of Chancery of New Castle
County, Delaware against the Company, General Host, Pier 1 Imports and the
directors of the Company, asserting claims and seeking relief similar to that
of the lawsuit referenced above and asserting a claim that Pier 1 Imports is
required to account to the shareholders of the Company for an alleged premium
over market price that Pier 1 Imports received in the sale of Company common
stock by Pier 1 Imports to General Host in April 1993.
Management does not expect the ultimate outcome to
materially affect its financial position or results of operations.
There are various claims, lawsuits, investigations and
pending actions against the Company and its subsidiaries incident to the
operations of its business. Liability, if any, associated with these matters
is not determinable at January 31, 1994. While settlement of these lawsuits
may impact the Company's results of operations in the year of settlement or
resolution, it is the opinion of management that the ultimate resolution of
such litigation will not have a material adverse effect on the Company's
financial position.
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62
SUNBELT NURSERY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Environmental Contingencies
In connection with a possible sale-leaseback transaction,
which was not completed, the Company authorized a third party to undertake
environmental assessments of two owned, non-retail properties subsequent to the
fiscal year-end. The results were recently received and indicate potential
contamination at the two sites. The extent and nature of the contamination is
not clear. It is also not clear whether the Company has an obligation to
remediate whatever contamination is ultimately found to exist. If an
obligation does exist, it is not presently possible to estimate the potential
range of costs involved.
F-52
63
Sunbelt Nursery Group, Inc. SCHEDULE V
Property, Plant and Equipment
(in thousands)
Classification Balance Retire- Balance
1-31-93 Additions ments Other 1-31-94
--------- --------- ------- ----- ---------
Buildings $ 6,684 $ 9,047 ($260) ($109) $15,362
Equipment, furniture
and fixtures 8,920 3,063 (316) 3 11,670
Leasehold interests
and improvements 10,346 3,745 (704) 123 13,510
Land 2,857 5,623 - (603) 7,877
--------- --------- ------- ----- ---------
$28,807 $21,478 ($1,280) ($586) $48,419
--------- --------- ------- ----- ---------
--------- --------- ------- ----- ---------
Balance Retire- Balance
1-31-92 Additions ments Other 1-31-93
--------- --------- ------- ----- ---------
Buildings $ 2,278 $4,452 ($46) $ - $ 6,684
Equipment, furniture
and fixtures 5,043 3,900 (89) 66 8,920
Leasehold interests
and improvements 7,630 2,806 (92) 2 10,346
Land 1,306 1,551 - - 2,857
--------- --------- ------ ----- ---------
$16,257 $12,709 ($227) $ 68 $28,807
--------- --------- ------ ----- ---------
--------- --------- ------ ----- ---------
Balance Retire- Balance
1-31-91 Additions ments Other 1-31-92
--------- --------- ------- ----- ---------
Buildings $ 2,196 $ 218 ($137) $ 1 $2,278
Equipment, furniture
and fixtures 2,337 2,697 (8) 17 5,043
Leasehold interests
and improvements 4,960 2,688 - (18) 7,630
Land 759 547 - - 1,306
--------- --------- ------- ----- ---------
$10,252 $6,150 ($145) $ - $16,257
--------- --------- ------- ----- ---------
--------- --------- ------- ----- ---------
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64
Sunbelt Nursery Group, Inc. SCHEDULE VI
Accumulated Depreciation of Property and Equipment
(In thousands)
Classification Balance Retire- Balance
1-31-93 Additions ments Other 1-31-94
--------- --------- ------- ----- ---------
Buildings $692 $408 ($124) $ - $976
Equipment, furniture
and fixtures 2,761 1,785 (174) 4 4,376
Leasehold interests
and improvements 2,990 1,641 (279) - 4,352
--------- --------- ------- ----- ---------
$6,443 $3,834 ($577) $4 $9,704
--------- --------- ------- ----- ---------
--------- --------- ------- ----- ---------
Balance Retire- Balance
1-31-92 Additions ments Other 1-31-93
--------- --------- ------- ----- ---------
Buildings $376 $362 ($46) $ - $692
Equipment, furniture
and fixtures 1,227 1,492 (31) 73 2,761
Leasehold interests
and improvements 1,520 1,514 (44) - 2,990
--------- --------- ------- ----- ---------
$3,123 $3,368 ($121) $73 $6,443
--------- --------- ------- ----- ---------
--------- --------- ------- ----- ---------
Balance Retire- Balance
1-31-91 Additions ments Other 1-31-92
--------- --------- ------- ----- ---------
Buildings $277 $323 $ - ($224) $376
Equipment, furniture
and fixtures 34 1,144 (82) 131 1,227
Leasehold interests
and improvements 112 1,333 (18) 93 1,520
--------- --------- ------- ----- ---------
$423 $2,800 ($100) $0 $3,123
--------- --------- ------- ----- ---------
--------- --------- ------- ----- ---------
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65
Sunbelt Nursery Group, Inc. Schedule VIII
Valuation and Qualifying Accounts
(in thousands)
Balance at Charged to Payments Balance
beginning costs and and other at end
Description of period expenses dispositions of period
- - ----------------------------------- --------- --------- ------------ ---------
For the year ended January 31, 1994:
Reserve for-
Store closings $ 3,431 $ - $ 705 $ 2,726
Deferred tax assets (1) 4,003 2,778 - 6,781
For the year ended January 31, 1993:
Reserve for-
Store closings 1,817 2,300 686 3,431
For the year ended January 31, 1992:
Reserve for-
Store closings 2,963 - 1,146 1,817
(1) SFAS 109 was adopted effective February 1, 1993; therefore, this reserve
is not applicable to periods prior to fiscal 1994.
F-55
66
Sunbelt Nursery Group, Inc.
Schedule IX
Short-term Borrowings
(in thousands)
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
end of Interest During the During the During the
Category Period Rate (1) Period Period Period (2)
- - ----------------------------------- ---------- --------- ---------- ----------- -------------
For the year ended January 31, 1994:
Banks $9,500 4.9% $9,500 $8,464 5.4%
Pier 1 2,000 8.5 4,000 2,100 8.5
For the year ended January 31, 1993:
Banks 8,000 6.0 8,000 1,430 6.0
For the year ended January 31, 1992:
- - - - -
(1) Interest rate at fiscal year end.
(2) Calculated by dividing interest expense for the period by the average
borrowings during the year.
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67
Sunbelt Nursery Group Schedule X
Supplementary Income Statement Information
(in thousands)
Charged to costs and expenses
Year ended Year ended Year ended
January 31, January 31, January 31,
Item 1994 1993 1992
---- ---------- ------------ -----------
Advertising expense $6,938 $7,319 $6,802
F-57