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 August 14, 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,
21,094,872 shares outstanding as of September 26, 1994.
2
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.
3
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Twelve Weeks Ended Twenty-Eight Weeks Ended
---------------------- ------------------------
AUGUST 14, August 15, AUGUST 14, August 15,
1994 1993 1994 1993
---------- ---------- ---------- -----------
REVENUES:
Sales $ 114,905 $ 108,882 $ 300,095 $ 296,885
Other income 770 538 1,095 794
--------- --------- --------- ---------
115,675 109,420 301,190 297,679
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of sales, including
buying and occupancy 84,595 84,657 211,174 212,657
Selling, general and
administrative 29,743 31,863 70,791 76,944
Interest and debt expense 5,194 5,134 12,298 12,270
--------- --------- --------- ---------
119,532 121,654 294,263 301,871
--------- --------- --------- ---------
Income (loss) before
income taxes and
net equity earnings (loss) (3,857) (12,234) 6,927 (4,192)
Income tax (benefit) provision (484) (4,649) 869 (1,593)
Net equity earnings (loss) in
an unconsolidated affiliate (967) 623
--------- --------- --------- ---------
Net income (loss) $ (3,373) $ (8,552) $ 6,058 $ (1,976)
========= ========= ========= =========
Net income (loss) per share $ (.16) $ (.41) $ .29 $ (.10)
========= ========= ========= =========
AVERAGE SHARES OUTSTANDING 21,101 21,017 21,071 20,423
========= ========= ========= =========
CASH DIVIDENDS PER SHARE $ .00 $ .095 $ .00 $ .19
========= ========= ========= =========
See accompanying notes.
4
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in thousands)
AUGUST 14, August 15, January 30,
1994 1993 1994
--------- --------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 48,895 $ 41,397 $ 62,855
Marketable securities 8,062 120
Accounts and notes receivable 2,630 4,766 4,924
Federal income tax receivable 1,665 2,185
Merchandise inventory 101,954 138,789 87,807
Prepaid expenses and other
current assets 9,350 15,707 10,005
--------- --------- ---------
Total current assets 162,829 210,386 167,896
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
LESS ACCUMULATED DEPRECIATION
OF $139,197, $124,271 AND $133,756 264,368 281,379 280,210
INTANGIBLES, LESS ACCUMULATED
AMORTIZATION OF $8,386,
$7,447 AND $7,881 17,533 18,472 18,038
INVESTMENT IN AN UNCONSOLIDATED
AFFILIATE 18,388
OTHER ASSETS AND DEFERRED CHARGES 13,220 13,204 12,061
--------- --------- ---------
$ 457,950 $ 541,829 $ 478,205
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 49,656 $ 58,167 $ 49,551
Accrued expenses 34,958 29,693 37,365
Provision for store closings and
other related costs 5,099 11,575
Current portion of long-term debt 5,636 18,739 18,880
--------- --------- ---------
Total current liabilities 95,349 106,599 117,371
--------- --------- ---------
LONG-TERM DEBT:
Senior debt 167,123 174,613 172,995
Subordinated debt, less original
issue discount 65,000 65,000 65,000
--------- --------- ---------
Total long-term debt 232,123 239,613 237,995
--------- --------- ---------
DEFERRED INCOME TAXES 642 20,482
OTHER LIABILITIES AND DEFERRED CREDITS 14,864 8,534 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 84,811 88,251 85,145
Retained earnings 101,601 159,810 95,543
--------- --------- ---------
218,164 279,813 212,440
Cost of 10,654,678, 11,736,692
and 10,735,904 shares of
common stock in treasury (100,994) (111,251) (101,765)
Unearned compensation (237)
Notes receivable from exercise of
stock options (1,961) (1,961) (1,961)
--------- --------- ---------
Total shareholders' equity 114,972 166,601 108,714
--------- --------- ---------
$ 457,950 $ 541,829 $ 478,205
========= ========= =========
See accompanying notes.
5
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Twenty-Eight Weeks Ended
-------------------------
AUGUST 14, August 15,
1994 1993
------------ -----------
OPERATING ACTIVITIES
Net income (loss) $ 6,058 $ (1,976)
Noncash charges (credits) included in results:
Depreciation and amortization 13,036 12,970
Deferred income taxes 642 (14)
Amortization of compensation related to
stock grants 200
Equity earnings in an unconsolidated affiliate (685)
Other 337 459
--------- ---------
20,273 10,754
Changes in current assets and current liabilities:
Decrease in accounts, notes
and federal income tax receivables 2,914 5,300
Increase in inventory (14,147) (17,628)
(Increase) decrease in prepaid expenses 605 (2,051)
Increase in accounts payable 105 5,379
Decrease in accrued expenses (1,603) (2,904)
Decrease in provision for store closings
and other costs (5,275)
--------- ---------
Net cash provided by (used for)
continuing operations 2,872 (1,150)
Net cash used for discontinued operations (102) (854)
--------- ---------
2,770 (2,004)
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (2,597) (20,381)
Proceeds from the sales of marketable securities 120 25,298
Purchase of marketable securities (6,550)
Other 2,992 212
--------- ---------
Net cash provided by (used for)
investing activities 515 (1,421)
--------- ---------
FINANCING ACTIVITIES
Payment of long-term debt and capital lease
obligations (17,245) (2,879)
Cash dividends paid on common stock (3,619)
Other 135
--------- ---------
Net cash used for financing activities (17,245) (6,363)
--------- ---------
Decrease in cash and cash equivalents (13,960) (9,788)
Cash and cash equivalents at beginning of year 62,855 51,185
--------- ---------
Cash and cash equivalents at end of quarter $ 48,895 $ 41,397
========= =========
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 second quarter included net equity losses of $967,000 and the 1993
first half included net equity earnings of $623,000 representing the Company's
approximately 49.4% 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. In September 1994 the
Company signed an agreement to sell its interest in Sunbelt consisting of
4,200,000 common shares for $4,200,000 to a privately owned lawn and garden
chain. The transaction is subject to amendment of the existing credit
facilities between Sunbelt and Pier 1 Imports, Inc.
NOTE 3
Noncash financing activities for 1994 included the issuance of 81,250 shares of
common stock representing restricted stock grants. The unearned compensation
which is being amortized in accordance with the restrictions placed on the
stock grants 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 $1,664,000 and $12,071,000 for the twelve and
twenty-eight weeks ended August 14, 1994, and $2,024,000 and $11,397,000 for
the twelve and twenty-eight weeks ended August 15, 1993. Tax payments amounted
to $108,000 and $175,000 for the twelve and twenty-eight weeks ended August 14,
1994 and $408,000 and $773,000 for the twelve and twenty-eight weeks ended
August 15, 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 August 14, 1994 and August 15, 1993, and
the related consolidated statements of income and of cash flows for the twelve
and twenty-eight week periods ended August 14, 1994 and August 15, 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 LLP
Detroit, Michigan
September 8, 1994
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second quarter of 1994 compared with second quarter 1993
Results of operations
Sales
Sales for the Company's principal operating subsidiary, Frank's Nursery &
Crafts, Inc., increased 5.5% to $114,905,000 for the twelve weeks ended August
14, 1994 compared with $108,882,000 in the 1993 second quarter which ended on
August 15, 1993. The 1993 quarter included sales of $4,954,000 for the 26
stores closed in February 1994. Same-store sales (stores open for a full year
in both years) increased 8.9% for the 1994 second quarter.
Earnings
The net loss for the second quarter of 1994 was $3,373,000 compared to
$8,552,000 in the 1993 second quarter. The 1993 quarter included a net loss of
$967,000 representing the Company's approximately 49.4% interest in Sunbelt
Nursery Group, Inc. ("Sunbelt") and a net loss of approximately $1,026,000 for
the 26 stores closed in February 1994.
Cost of sales, including buying and occupancy, decreased $62,000 to
$84,595,000 in the second quarter of 1994 compared to $84,657,000 in 1993. As
a percentage of sales, cost of sales decreased 4.2 percentage points due
primarily to an increase in merchandise margins of 1.9 percentage points and a
decrease in buying and occupancy costs, as a percentage of sales, of 2.3
percentage points.
Selling, general and administrative expenses decreased $2,120,000 to
$29,743,000 in the second quarter of 1994 compared to $31,863,000 in 1993. As
a percentage of sales, selling, general and administrative expenses decreased
3.4 percentage points to 25.9% of sales compared to 29.3% 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 $232,000 to $770,000 in
the second quarter of 1994 compared to $538,000 in 1993.
Interest and debt expense increased $60,000 to $5,194,000 in the second
quarter of 1994 compared to $5,134,000 in 1993.
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First half of 1994 compared with the first half of 1993
Results of Operations
Sales
Sales were $300,095,000 for the twenty-eight weeks ended August 14, 1994
compared with $296,885,000 in the 1993 first half which ended August 15, 1993.
The 1993 first half included sales of $14,207,000 for the 26 stores closed in
February 1994. Same-store sales for the 1994 first half increased 4.7%
compared to the first half of 1993.
Earnings
Net income for the 1994 first half was $6,058,000 compared with a net loss of
$1,976,000 in the 1993 first half. The 1993 first half included net equity
earnings from Sunbelt of $623,000 and a net loss of approximately $1,717,000
for the 26 stores closed in February 1994.
Cost of sales, including buying and occupancy, decreased $1,483,000 in the
1994 first half to $211,174,000 compared to $212,657,000 in 1993. As a
percentage of sales, cost of sales decreased 1.2 percentage points due
primarily to a decrease in buying and occupancy costs.
Selling, general and administrative expenses decreased $6,153,000 to
$70,791,000 in the 1994 first half compared to $76,944,000 in 1993. As a
percentage of sales, selling, general and administrative expenses decreased 2.3
percentage points to 23.6% of sales in the 1994 first half compared to 25.9% in
1993. The decrease is primarily attributable to the productivity program
begun at the end of 1993 which resulted in lower administrative costs.
Other income increased $301,000 to $1,095,000 in the first half of 1994
compared to $794,000 in the 1993 first half.
Interest and debt expense increased $28,000 to $12,298,000 in the 1994 first
half compared to $12,270,000 in the 1993 first half.
The effective income tax rate used in the 1994 second quarter and first half
represented an estimated annual effective tax rate which reflected the
utilization of previously unrecognized tax benefits.
10
Capital Resources and Liquidity
Net cash provided by continuing operations increased $4,022,000 to $2,872,000
in the 1994 first half. Inventory increased $14,147,000 for the 1994 first
half compared to an increase of $17,628,000 in 1993 while accounts payable
increased $105,000 in 1994 compared to an increase of $5,379,000 in 1993. The
accounts payable change for 1994 and 1993, described above, included amounts
payable to brokers of $14,998,000 at August 14, 1994 compared to $24,998,000 at
the end of fiscal 1993, and $14,999,000 at August 15, 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 first half the reserve utilized net cash of $5,275,000 which included
$3,245,000 for the ongoing facility expenses of the closed stores and
severance; $1,804,000 for the termination of nine lease agreements, including
brokers fees and legal costs; and $226,000 of other related costs. All stores
were closed as of February 7, 1994, with the exception of one store which
closed March 7, 1994.
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"). 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. 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 October 15, 1994.
If Sunbelt is unable to refinance the Indebtedness prior to October 15, 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. On September 9, 1994 the Company signed an agreement to sell its
approximately 49.4% interest in Sunbelt consisting of 4,200,000 common shares
for $4,200,000 to a privately owned lawn and garden chain. The transaction is
subject to amendment of the existing credit facilities between Sunbelt and Pier
1.
Net cash used for discontinued operations in the first half of 1994 and 1993
related to payments for operations disposed of in prior years.
Net cash provided by investing activities was $515,000 in 1994 compared to
net cash used of $1,421,000 in 1993. The decrease in cash used for investing
activities was due primarily to purchases of property, plant and equipment for
new stores in 1993 offset by the sale of marketable securities in 1993.
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Net cash used for financing activities was $17,245,000 in 1994 compared to
$6,363,000 in 1993. The 1994 first half included the repayment of $13,191,000
of 7% Subordinated Debentures on February 1, 1994 and payments of $3,563,000
for the mortgage notes. The 1993 first half included the payment of long-term
debt, primarily for the mortgage notes of $2,375,000 and payment of cash
dividends. In April 1994 the Company issued restricted stock grants to
employees of the Company which total 81,250 shares of common stock at August
14, 1994. The noncash transaction was completed by issuing shares of treasury
stock offset by a reduction of stockholders' equity for unearned compensation
which is being amortized in accordance with the restrictions placed on the
stock grants.
Working capital at August 14, 1994 was $67,480,000 or $16,955,000 higher than
the $50,525,000 working capital level at January 30, 1994. The quarter-end
included $48,895,000 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 $10,836,000 of fixed interest charges and fund capital
expenditures of approximately $3,528,000 primarily for maintenance and
improvements to existing locations during the remainder of fiscal 1994.
The Company has a revolving credit agreement with a bank which currently
provides for $15,000,000 of unsecured credit through July 1, 1995. The Company
was in compliance with all of its covenants under the agreement at August 14,
1994.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10) Stock Purchase Agreement, effective as of September 9, 1994 by
and between General Host Corporation, SNG Acquisition Company,
Inc., a wholly owned subsidiary of General Host Corporation and
Timothy R. Duoos. Incorporated by reference to the Schedule 13-D
relating to Sunbelt Nursery Group, Inc. (Issuer) filed September
19, 1994, by General Host Corporation (Reporting Person), Item 7,
Exhibit A.
(11) Computation of Primary Earnings Per Share.
(15) Letter regarding unaudited interim financial information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter and through the date of this report, the
Registrant filed the following report on Form 8-K:
September 9, 1994-reporting the execution of a Stock Purchase
Agreement for the sale of 4.2 million shares of Common Stock of
Sunbelt Nursery Group, Inc.
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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/ John R. Ficarro
-----------------------
John R. Ficarro
Vice President, General
Counsel and Secretary
By: /s/ James R. Simpson
-----------------------
James R. Simpson
Vice President and
Controller
Dated: September 26, 1994