1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended May 22, 1994 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 Number)
One Station Place, P.O. Box 10045, Stamford, Connecticut 06904
(Address of principal executive office) (Zip Code)
Registrant's Telephone Number: (203) 357-9900
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: Common Stock, $1.00 par value,
21,101,022 shares outstanding as of June 27, 1994.
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GENERAL HOST CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
reviewed by Price Waterhouse, independent accountants, whose report
thereon is included elsewhere in this Item 1. The review by Price
Waterhouse was based on procedures adopted by the American Institute of
Certified Public Accountants and was not an audit.
In the opinion of the Company, the accompanying consolidated
financial statements reflect all adjustments necessary to a fair
statement of the results for the interim periods presented herein. In
the opinion of management such adjustments consisted of normal
recurring items. Financial results of the interim period are not
necessarily indicative of results that may be expected for any other
interim period or for the fiscal year.
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CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Sixteen Weeks Ended
-----------------------
MAY 22, May 23,
1994 1993
----------- ----------
REVENUES:
Sales $ 185,190 $ 188,003
Other income 325 256
--------- ---------
185,515 188,259
--------- ---------
COSTS AND EXPENSES:
Cost of sales, including buying and occupancy 126,579 128,000
Selling, general and administrative 41,048 45,081
Interest and debt expense 7,104 7,136
--------- ---------
174,731 180,217
--------- ---------
INCOME BEFORE INCOME TAXES AND NET EQUITY EARNINGS 10,784 8,042
INCOME TAXES 1,353 3,056
NET EQUITY EARNINGS IN AN UNCONSOLIDATED
AFFILIATE 1,590
--------- ---------
NET INCOME $ 9,431 $ 6,576
========= =========
NET EARNINGS PER SHARE:
Primary $ .45 $ .33
========= =========
Fully diluted $ .38 $ .29
========= =========
AVERAGE SHARES OUTSTANDING:
Primary 21,049 19,977
========= =========
Fully diluted 27,628 26,556
========= =========
CASH DIVIDENDS PER SHARE $ .00 $ .095
========= =========
See accompanying notes.
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CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
MAY 22, May 23, January 30,
1994 1993 1994
--------- --------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 68,481 $ 100,814 $ 62,855
Marketable securities 8,038 120
Accounts and notes receivable 4,448 7,061 4,924
Federal income tax receivable 2,185 1,665 2,185
Merchandise inventory 111,229 143,183 87,807
Prepaid expenses and other
current assets 8,645 14,557 10,005
--------- --------- ---------
Total current assets 194,988 275,318 167,896
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
LESS ACCUMULATED DEPRECIATION
OF $139,074, $119,288 AND $133,756 273,753 277,473 280,210
INTANGIBLES, LESS ACCUMULATED
AMORTIZATION OF $8,170,
$7,230 AND $7,881 17,749 18,689 18,038
INVESTMENT IN AN UNCONSOLIDATED
AFFILIATE 19,416
OTHER ASSETS AND DEFERRED CHARGES 11,936 13,551 12,061
--------- --------- ---------
$ 498,426 $ 604,447 $ 478,205
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 79,133 $ 98,105 $ 49,551
Accrued expenses 37,285 40,871 37,365
Provision for store closings and
other costs 8,221 11,575
Current portion of long-term debt 5,651 18,672 18,880
--------- --------- ---------
Total current liabilities 130,290 157,648 117,371
--------- --------- ---------
LONG-TERM DEBT:
Senior debt 169,378 176,016 172,995
Subordinated debt, less original
issue discount 65,000 65,000 65,000
--------- --------- ---------
Total long-term debt 234,378 241,016 237,995
--------- --------- ---------
DEFERRED INCOME TAXES 1,000 20,482
OTHER LIABILITIES AND DEFERRED CREDITS 14,613 8,246 14,125
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 31,752
Capital in excess of par value 84,822 88,251 85,145
Retained earnings 104,974 170,264 95,543
--------- --------- ---------
221,548 290,267 212,440
Cost of 10,649,478, 11,736,692
and 10,735,904 shares of
common stock in treasury (100,945) (111,251) (101,765)
Unearned compensation (497)
Notes receivable from exercise of
stock options (1,961) (1,961) (1,961)
--------- --------- ---------
Total shareholders' equity 118,145 177,055 108,714
--------- --------- ---------
$ 498,426 $ 604,447 $ 478,205
========= ========= =========
See accompanying notes.
5
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Sixteen Weeks Ended
-----------------------
MAY 22, May 23,
1994 1993
----------- ----------
OPERATIONS
Net income $ 9,431 $ 6,576
Noncash charges (credits) included in results:
Depreciation and amortization 7,511 7,356
Deferred income taxes 1,000 (14)
Equity earnings in an
unconsolidated affiliate (1,713)
Other 80 84
--------- ---------
18,022 12,289
Changes in current assets and current liabilities:
Decrease in accounts, notes
and federal income tax receivables 476 3,005
Increase in inventory (23,422) (22,022)
(Increase) decrease in prepaid expenses 1,360 (901)
Increase in accounts payable 29,582 45,317
Increase in accrued expenses 115 8,121
Decrease in provision for store closings and
other costs (3,381)
--------- ---------
Net cash provided by continuing operations 22,752 45,809
Net cash used for discontinued operations (38) (685)
--------- ---------
22,714 45,124
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (1,362) (11,417)
Proceeds from the sales of marketable securities 120 21,465
Purchases of marketable securities (2,693)
Other 6 210
--------- ---------
Net cash provided by (used for)
investing activities (1,236) 7,565
--------- ---------
FINANCING ACTIVITIES
Payment of long-term debt and capital lease
obligations (15,852) (1,478)
Cash dividends paid on common stock (1,717)
Other 135
--------- ---------
Net cash used for financing activities (15,852) (3,060)
--------- ---------
Increase in cash and cash equivalents 5,626 49,629
Cash and cash equivalents at beginning of year 62,855 51,185
--------- ---------
Cash and cash equivalents at end of quarter $ 68,481 $ 100,814
========= =========
See accompanying notes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
On March 3, 1994 the Company declared a 5% stock dividend for shareholders of
record on March 18, 1994. The stock dividend representing 1,000,764 shares was
paid on April 8, 1994. Share and per share data for 1993 have been restated to
reflect the 5% stock dividend.
NOTE 2
The 1993 quarter included net equity earnings of $1,590,000 representing the
Company's 49.5% interest in Sunbelt Nursery Group, Inc. As of fiscal year-end
1993 the Company reduced to zero the carrying value of its investment in
Sunbelt due to Sunbelt's lack of long-term financing.
NOTE 3
Primary earnings per share is based upon the weighted average number of shares
of common stock outstanding.
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.
NOTE 4
Noncash financing activities for 1994 included the issuance of 86,450 shares of
common stock representing restricted stock grants and the unearned compensation
value is shown as a reduction of stockholders' equity in the consolidated
balance sheet. In 1993 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.
Interest payments amounted to $10,407,000 for the sixteen weeks ended May 22,
1994 and $9,373,000 for the sixteen weeks ended May 23, 1993. Tax payments
amounted to $67,000 for the sixteen weeks ended May 22, 1994 and $365,000 for
the sixteen weeks ended May 23, 1993.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of
General Host Corporation
We have reviewed the accompanying consolidated balance sheet of General Host
Corporation and its subsidiaries as of May 22, 1994 and May 23, 1993, and the
related consolidated statements of income and of cash flows for the
sixteen-week periods ended May 22, 1994 and May 23, 1993. This financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 30, 1994, and the
related consolidated statements of income, of changes in shareholders' equity,
and of cash flows for the year then ended (not presented herein), and in our
report dated March 18, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information as of
January 30, 1994, set forth in the accompanying consolidated balance sheet is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
Price Waterhouse
Detroit, Michigan
June 14, 1994
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations
Sales
Sales for the Company's principal operating subsidiary, Frank's Nursery &
Crafts, Inc., decreased 1.5% to $185,190,000 for the sixteen weeks ended May
22, 1994 compared with $188,003,000 in the 1993 first quarter which ended May
23, 1993. The 1993 quarter included sales of $9,253,000 for the 26 stores
closed in February 1994. Same-store sales (stores open for a full year in both
years) increased 2.3% for the 1994 first quarter.
Earnings
Net income increased $2,855,000 to $9,431,000 in 1994 compared to $6,576,000
in the 1993 quarter. The 1993 quarter included net income of $1,590,000
representing the Company's 49.5% interest in Sunbelt Nursery Group, Inc.
("Sunbelt") and a net loss of approximately $691,000 for the 26 stores closed
in February 1994.
Cost of sales, including buying and occupancy, decreased $1,421,000 to
$126,579,000 in 1994 compared to $128,000,000 in 1993. As a percentage of
sales, cost of sales increased .3 of a percentage point. A decrease in
merchandise margins of one percentage point was offset in part by a decrease in
buying and occupancy costs of .7 of a percentage point.
Selling, general and administrative expenses decreased $4,033,000 to
$41,048,000 in 1994 compared to $45,081,000 in 1993. As a percentage of sales,
selling, general and administrative expenses decreased 1.7 percentage points to
22.2% of sales compared to 23.9% in the 1993 quarter. The decrease is
primarily attributable to the productivity program begun at the end of 1993
which resulted in lower administrative costs.
Other income, primarily interest income, increased $69,000 to $325,000 in the
1994 quarter compared to $256,000 in 1993.
Interest and debt expense decreased by $32,000 to $7,104,000 in the 1994
quarter compared to $7,136,000 in 1993.
The effective income tax rate used in the 1994 quarter represented an
estimated annual effective tax rate which reflected the utilization of
previously unrecognized tax benefits.
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Liquidity and Capital Resources
Net cash provided by continuing operations decreased by $23,057,000 to
$22,752,000 in the 1994 quarter. Inventory increased $23,422,000 in 1994
compared to an increase of $22,022,000 in 1993 while accounts payable increased
$29,582,000 in 1994 compared to an increase of $45,317,000 in 1993. The
accounts payable increase for the 1994 and 1993 quarters, described above,
included no amounts payable to brokers at May 22, 1994 compared to $24,998,000
at the end of fiscal 1993, and $14,995,000 at May 23, 1993 compared to
$14,999,000 at the end of fiscal 1992. During the fourth quarter of 1993 the
Company recorded a noncash reserve of $22,876,000 for the closing of 26 stores
of which $7,646,000 was classified as a long-term liability. At the end of the
1994 quarter the reserve utilized net cash of $3,381,000 which included
$2,427,000 for the ongoing operating expenses of the closed stores and
severance; $616,000 for the termination of five lease agreements, brokers fees
and legal costs; and $338,000 of other related costs. The increase in accrued
expenses of $115,000 for the 1994 quarter compared to $8,121,000 for the 1993
quarter was due primarily to the timing of payments at quarter-end.
In April 1993 the Company acquired a 49.5% interest in Sunbelt. The
noncash acquisition was completed by issuing 1,940,000 shares of the Company's
common stock at a market value of $17,702,500 in exchange for 4,200,000 shares
of Sunbelt held by Pier 1, Imports, Inc. ("Pier 1"). The 4,200,000 shares of
Sunbelt have been pledged as security for payment of a $12,000,000 revolving
credit facility (the "Indebtedness") between Sunbelt and Pier 1 which matures
September 20, 1994. If Sunbelt is unable to refinance the Indebtedness prior to
September 20, 1994 and Pier 1 does not agree to renegotiate the Indebtedness or
grant a further extension of the maturity date, Pier 1 could foreclose, in
complete or partial satisfaction of such Indebtedness, on the Company's
4,200,000 shares of Sunbelt. As of fiscal year end 1993 the Company reduced to
zero the carrying value of its investment in Sunbelt due to Sunbelt's lack of
long-term financing.
Net cash used for discontinued operations in the first quarter of 1994
and 1993 related to payments for operations disposed of in prior years.
Net cash used for investing activities was $1,236,000 in the 1994
quarter compared to net cash provided by investing activities of $7,565,000 in
1993. The decrease in cash provided by investing activities was due primarily
to the sale of marketable securities and purchases of property, plant and
equipment for new stores in 1993.
Net cash used for financing activities was $15,852,000 in the 1994
quarter compared to $3,060,000 in 1993. The 1994 quarter included the
repayment of $13,191,000 of 7% Subordinated Debentures on February 1, 1994 and
payments of $2,375,000 for the mortgage notes. The 1993 quarter included the
payment of long-term debt, primarily for the mortgage notes of $1,188,000 and
payment of cash dividends. In April 1994 the Company issued 86,450 shares of
common stock representing restricted stock grants to employees of the Company.
The noncash transaction was completed by issuing 86,450 shares of treasury
stock offset by a reduction of
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stockholders' equity for unearned compensation which will be amortized in
accordance with the restrictions placed on the stock grants.
On March 3, 1994 the Company declared a 5% stock dividend for shareholders of
record on March 18, 1994. The stock dividend representing 1,000,764 shares was
paid on April 8, 1994. Share and per share data for 1993 have been restated to
reflect the 5% stock dividend.
Working capital at May 22, 1994 was $64,698,000 or $14,173,000 higher than
the $50,525,000 working capital level at January 30, 1994. The quarter-end
included $68,481,000 of cash and cash equivalents.
The Company has sufficient cash and cash equivalents and expects to generate
sufficient cash flow from operations to meet its seasonal working capital
needs, pay approximately $15,700,000 of fixed interest charges and fund capital
expenditures of approximately $4,500,000 primarily for the expected one new
store during the remainder of fiscal 1994 and for maintenance and improvements
to existing locations.
The Company had a $25,000,000 unsecured bank credit agreement on May 22,
1994. The bank agreement requires the Company, among other things, to maintain
minimum levels of earnings, tangible net worth and certain minimum financial
ratios. At the end of the 1994 quarter the Company would not have been in
compliance with the aforementioned bank loan covenants however, the Company did
not seek a waiver of these covenants because it did not seek to borrow under
this agreement. The Company is currently negotiating a new credit facility
with existing lenders.
The Company also has available $15,000,000 of existing unsecured short-term
lines of credit of which the Company borrowed $5,000,000 in March 1994. The
full amount was repaid in April 1994.
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PART II-OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on
May 19, 1994. Messrs. Hamilton, Hoornstra and Johnson were elected
directors of the Company for 3 year terms with votes cast as follows
out of a total of 20,015,055 eligible to vote: Mr. Hamilton -
17,518,699 shares voted in favor and 420,596 shares withheld; Mr.
Hoornstra - 17,517,568 shares voted in favor and 421,727 shares
withheld; Mr. Johnson - 17,527,885 shares voted in favor and 411,410
shares withheld. In addition, the appointment of Price Waterhouse as
the Company's independent accountants for the 1994 fiscal year was
ratified as follows: 17,703,326 shares in favor; 166,817 shares
against; 69,152 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Computation of Primary Earnings Per Share
(15) Letter regarding unaudited interim financial
information.
(b) Reports on Form 8-K
During the quarter and through the date of this report,
the Registrant filed no reports on Form 8-K.
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL HOST CORPORATION
By: /s/James R. Simpson
Vice President and
Controller
By: /s/John R. Ficarro
Vice President, General
Counsel and Secretary
Dated: June 28, 1994