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 November 6, 1994 Commission File Number 1-1066
GENERAL HOST CORPORATION
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(Exact name of Registrant as specified in its Charter)
NEW YORK STATE 13-0762080
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
One Station Place, P.O. Box 10045, Stamford, Connecticut 06904
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(Address of principal executive office) (Zip Code)
Registrant's Telephone Number: (203) 357-9900
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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
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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,
21,092,822 shares outstanding as of December 13, 1994.
2
GENERAL HOST CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
reviewed by Price Waterhouse LLP, independent accountants, whose
report thereon is included elsewhere in this Item 1. The review by
Price Waterhouse LLP 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 Forty Weeks Ended
----------------------- -----------------------
NOVEMBER 6, November 7, NOVEMBER 6, November 7,
1994 1993 1994 1993
---------- ---------- ---------- ----------
REVENUES:
Sales $ 98,022 $ 105,370 $ 398,117 $ 402,255
Other income 3,809 232 4,904 1,026
---------- ---------- ---------- ----------
101,831 105,602 403,021 403,281
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales, including
buying and occupancy 76,217 81,240 287,391 293,897
Selling, general and
administrative 29,304 32,851 100,095 109,795
Interest and debt expense 5,226 5,429 17,524 17,699
---------- ---------- ---------- ----------
110,747 119,520 405,010 421,391
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LOSS BEFORE INCOME TAXES
AND NET EQUITY LOSS (8,916) (13,918) (1,989) (18,110)
INCOME TAX BENEFIT (1,869) (5,092) (1,000) (6,685)
NET EQUITY LOSS IN AN
UNCONSOLIDATED AFFILIATE (2,580) (1,957)
---------- ---------- ---------- ---------
NET LOSS $ (7,047) $ (11,406) $ (989) $ (13,382)
========== ========== ========== =========
NET LOSS PER SHARE $ (.33) $ (.54) $ (.05) $ (.65)
========== ========== ========== =========
AVERAGE SHARES OUTSTANDING 21,095 21,017 21,078 20,601
========== ========== ========== =========
CASH DIVIDENDS PER SHARE $ .00 $ .095 $ .00 $ .285
========== ========== ========== =========
See accompanying notes.
4
Consolidated Balance Sheet (Unaudited)
(Dollars in thousands)
NOVEMBER 6, November 7, January 30,
1994 1993 1994
---------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,297 $ 32,738 $ 62,855
Marketable securities 120 120
Accounts and notes receivable 3,698 4,789 4,924
Federal income tax receivable 2,185
Merchandise inventory 122,790 167,062 87,807
Prepaid expenses and other
current assets 9,676 22,293 10,005
---------- ---------- ----------
Total current assets 175,461 227,002 167,896
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT,
LESS ACCUMULATED DEPRECIATION
OF $139,743, $129,296 AND $133,756 257,730 283,301 280,210
INTANGIBLES, LESS ACCUMULATED
AMORTIZATION OF $8,602,
$7,664 AND $7,881 17,317 18,255 18,038
INVESTMENT IN AN UNCONSOLIDATED
AFFILIATE 15,746
OTHER ASSETS AND DEFERRED CHARGES 11,794 13,602 12,061
---------- ---------- ----------
$ 462,302 $ 557,906 $ 478,205
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 67,829 $ 62,580 $ 49,551
Accrued expenses 34,499 31,563 37,365
Notes payable to banks 25,000
Provision for store closings and
other related costs 6,052 11,575
Current portion of long-term debt 5,718 18,807 18,880
---------- ---------- ----------
Total current liabilities 114,098 137,950 117,371
---------- ---------- ----------
LONG-TERM DEBT:
Senior debt 164,169 173,210 172,995
Subordinated debt, less original
issue discount 65,000 65,000 65,000
---------- ---------- ----------
Total long-term debt 229,169 238,210 237,995
---------- ---------- ----------
DEFERRED INCOME TAXES 19,976
OTHER LIABILITIES AND DEFERRED CREDITS 11,110 8,476 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 84,744 88,251 85,145
Retained earnings 94,554 146,503 95,543
---------- ---------- ----------
211,050 266,506 212,440
Cost of 10,659,278, 11,736,692
and 10,735,904 shares of
common stock in treasury (101,038) (111,251) (101,765)
Unearned compensation (126)
Notes receivable from exercise of
stock options (1,961) (1,961) (1,961)
---------- ---------- ----------
Total shareholders' equity 107,925 153,294 108,714
---------- ---------- ----------
$ 462,302 $ 557,906 $ 478,205
========== ========== ==========
See accompanying notes.
5
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Forty Weeks Ended
-------------------------
NOVEMBER 6, November 7,
1994 1993
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OPERATING ACTIVITIES
Net loss $ (989) $ (13,382)
Noncash charges (credits) included in results:
Depreciation and amortization 18,477 18,677
Deferred income taxes (520)
Amortization of compensation related to
stock grants 200
Equity loss in an unconsolidated affiliate 1,957
Other 936 82
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18,624 6,814
Changes in current assets and current liabilities:
Decrease in accounts, notes
and federal income tax receivables 2,629 6,942
Increase in inventory (34,983) (45,901)
(Increase) decrease in prepaid expenses 272 (8,637)
Increase in accounts payable 18,278 9,792
Decrease in accrued expenses (2,004) (1,063)
Decrease in provision for store closings
and other costs (6,194)
---------- ---------
Net cash used for continuing operations (3,378) (32,053)
Net cash used for discontinued operations (161) (1,182)
---------- ---------
(3,539) (33,235)
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INVESTING ACTIVITIES
Additions to property, plant and equipment (4,479) (27,640)
Proceeds from the sales of marketable securities 120 33,240
Purchase of marketable securities (6,550)
Other 2,997 402
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Net cash used for investing activities (1,362) (548)
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FINANCING ACTIVITIES
Increase in notes payable to banks 25,000
Payment of long-term debt and capital lease
obligations (18,657) (4,279)
Cash dividends paid on common stock (5,520)
Other 135
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Net cash provided by (used for)
financing activities (18,657) 15,336
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Decrease in cash and cash equivalents (23,558) (18,447)
Cash and cash equivalents at beginning of year 62,855 51,185
---------- ---------
Cash and cash equivalents at end of quarter $ 39,297 $ 32,738
========== =========
See accompanying notes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
In October 1994 the Company sold its approximately 49.4% interest in Sunbelt
Nursery Group, Inc. consisting of 4,200,000 common shares. The resulting gain
of $3,612,000 was recorded in other income for the 1994 twelve and forty week
periods. The 1993 twelve and forty week periods included net equity losses
from Sunbelt of $2,580,000 and $1,957,000, respectively.
NOTE 2
Income taxes for the twelve and forty week periods of 1994 included elimination
of income tax reserves of $1,000,000 which were no longer required.
NOTE 3
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 4
Noncash financing activities for 1994 included the issuance of 76,650 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 at the then market
value of $17,703,000 in exchange for an equity investment in an unconsolidated
affiliate.
Interest payments amounted to $8,893,000 and $20,964,000 for the twelve and
forty weeks ended November 6, 1994, and $8,680,000 and $20,077,000 for the
twelve and forty weeks ended November 7, 1993. Tax payments amounted to
$189,000 and $364,000 for the twelve and forty weeks ended November 6, 1994 and
$209,000 and $982,000 for the twelve and forty weeks ended November 7, 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 November 6, 1994 and November 7, 1993,
and the related consolidated statements of income and of cash flows for the
twelve and forty week periods ended November 6, 1994 and November 7, 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
November 30, 1994
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third quarter of 1994 compared with third quarter 1993
Results of operations
Sales
Sales for the Company's principal operating subsidiary, Frank's Nursery &
Crafts, Inc., decreased 7% to $98,022,000 for the twelve weeks ended November
6, 1994 when compared with $105,370,000 in the 1993 third quarter which ended
on November 7, 1993. The 1993 quarter included sales of $6,131,000 for the 26
stores closed in February 1994. Same-store sales (stores open for a full year
in both years) decreased 2.4% for the 1994 third quarter.
Earnings
The net loss for the third quarter of 1994 was $7,047,000 compared to a net
loss of $11,406,000 in the 1993 third quarter. The 1993 quarter included a net
loss of $2,580,000 representing the Company's approximately 49.4% interest in
Sunbelt Nursery Group, Inc. ("Sunbelt") and a net loss of approximately
$781,000 for the 26 stores closed in February 1994.
Cost of sales, including buying and occupancy, decreased $5,023,000 to
$76,217,000 in the third quarter of 1994 compared to $81,240,000 in 1993. As a
percentage of sales, cost of sales increased .7 of a percentage point due
primarily to a decrease in merchandise margins of 1.2 percentage points and a
decrease in buying and occupancy costs, as a percentage of sales, of .4 of a
percentage point.
Selling, general and administrative expenses decreased $3,547,000 to
$29,304,000 in the third quarter of 1994 compared to $32,851,000 in 1993. As a
percentage of sales, selling, general and administrative expenses decreased 1.3
percentage points to 29.9% of sales compared to 31.2% in the 1993 quarter. The
decrease is primarily attributable to the productivity program initiated at the
end of 1993 which resulted in lower administrative costs. Additionally, the
Company deferred making certain advertising expenditures in the traditionally
slow third quarter in favor of making them in the fourth quarter where the
productivity of advertising expenditures are much higher.
Other income increased $3,577,000 to $3,809,000 in the third quarter of 1994
compared to $232,000 in 1993. The increase is due to the sale of the Company's
approximately 49.4% interest in Sunbelt consisting of 4,200,000 common shares
in October 1994. The Company recognized a gain of $3,612,000 which was
recorded in other income in the third quarter of 1994.
9
Interest and debt expense decreased $203,000 to $5,226,000 in the third
quarter of 1994 compared to $5,429,000 in 1993.
First three quarters of 1994 compared with the first three quarters of 1993
Results of Operations
Sales
Sales were $398,117,000 for the forty weeks ended November 6, 1994 (the "1994
three quarters") compared with $402,255,000 for the forty weeks ended
November 7, 1993 (the "1993 three quarters"). The 1993 three quarters included
sales of $20,338,000 for the 26 stores closed in February 1994. Same-store
sales for the 1994 three quarters increased 2.9% compared to the 1993 three
quarters.
Earnings
The net loss for the 1994 three quarters was $989,000 compared with a net
loss of $13,382,000 in the 1993 three quarters. The 1993 three quarters
included a net equity loss from Sunbelt of $1,957,000 and a net loss from
operations for the 26 stores closed in February 1994 of approximately
$2,526,000.
Cost of sales, including buying and occupancy, decreased $6,506,000 in the
1994 three quarters to $287,391,000 compared to $293,897,000 in the 1993 three
quarters. As a percentage of sales, cost of sales decreased .9 of a percentage
point due primarily to a decrease in buying and occupancy costs.
Selling, general and administrative expenses decreased $9,700,000 to
$100,095,000 in the 1994 three quarters compared to $109,795,000 in the 1993
three quarters. As a percentage of sales, selling, general and administrative
expenses decreased 2.2 percentage points to 25.1% of sales in the 1994 three
quarters compared to 27.3% in the 1993 three quarters. The decrease is
primarily attributable to the productivity program initiated at the end of 1993
which resulted in lower administrative costs.
Other income increased $3,878,000 to $4,904,000 in the 1994 three quarters
compared to $1,026,000 in the 1993 three quarters. The increase is due to the
sale of the Company's approximately 49.4% interest in Sunbelt consisting of
4,200,000 common shares. The Company recognized a gain of $3,612,000 which was
recorded in other income in the third quarter of 1994.
Interest and debt expense decreased $175,000 to $17,524,000 in the 1994 three
quarters compared to $17,699,000 in the 1993 three quarters.
10
Income taxes for the twelve and forty week periods of 1994 included the
elimination of income tax reserves of $1,000,000 which were no longer required.
Capital Resources and Liquidity
Net cash used for continuing operations was $3,378,000 in the 1994 three
quarters compared with $32,053,000 in the 1993 three quarters. Inventory
increased $34,983,000 for the 1994 three quarters compared to an increase of
$45,901,000 in the 1993 three quarters while accounts payable increased
$18,278,000 in 1994 compared to an increase of $9,792,000 in 1993. The
accounts payable change for the 1994 and 1993 three quarters, described above,
included amounts payable to brokers of $14,998,000 at November 6, 1994 compared
to $24,998,000 at the end of fiscal 1993, and $9,999,000 at November 7, 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 $3,646,000 is currently
classified as a long-term liability. As of the end of the 1994 third quarter
the reserve utilized net cash of $6,194,000 for the 1994 three quarters which
included $4,107,000 for the ongoing facility expenses of the closed stores and
severance; $2,485,000 for the termination and sublease of 16 lease agreements,
including brokerage fees and legal costs; and $352,000 of other related costs
offset by $750,000 received from the sale of other properties. 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 the then 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. In October 1994 the
Company sold its approximately 49.4% interest in Sunbelt consisting of
4,200,000 common shares and recognized a gain on the sale of $3,612,000.
Net cash used for discontinued operations in the 1994 and 1993 three quarters
related to payments for operations disposed of in prior years.
Net cash used for investing activities was $1,362,000 in the 1994 three
quarters compared to $548,000 in the 1993 three quarters. The increase 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.
11
Net cash used for financing activities was $18,657,000 in the 1994 three
quarters compared to net cash provided of $15,336,000 in the 1993 three
quarters. The 1994 three quarters included the repayment of $13,191,000 of 7%
Subordinated Debentures on February 1, 1994 and payments of $4,750,000 for
mortgage notes. The 1993 three quarters included an increase in notes payable
to banks of $25,000,000, the payment of long-term debt, primarily for mortgage
notes of $3,563,000 and payment of cash dividends.
In April 1994 the Company issued restricted stock grants to employees of the
Company which total 76,650 shares of common stock at November 6, 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 November 6, 1994 was $61,363,000 or $10,838,000 higher
than the $50,525,000 working capital level at January 30, 1994. The
quarter-end included $39,297,000 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 $5,365,000 of fixed interest charges and fund capital
expenditures of approximately $1,550,000 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 November 6,
1994.
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PART II - OTHER INFORMATION
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.
(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:
October 19, 1994 - reporting the sale of 4.2 Million shares
of Common Stock of Sunbelt Nursery Group, Inc. to Timothy R.
Duoos for $4.2 Million in cash.
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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
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John R. Ficarro
Vice President, General
Counsel and Secretary
By: /s/James R. Simpson
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James R. Simpson
Vice President and
Controller
Dated: December 16, 1994
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EXHIBIT INDEX
Exhibit
Number Description Page No.
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(11) Computation of Primary
Earnings Per Share.
(15) Letter regarding unaudited
interim financial information.
(27) Financial Data Schedule