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 21, 1995 Commission File Number 1-1066
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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,
22,146,552 shares outstanding as of June 29, 1995.
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.
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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(In thousands, except per share amounts)
Sixteen Weeks Ended
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MAY 21, May 22,
1995 1994
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REVENUES:
Sales $ 201,998 $ 185,190
Other income 604 325
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202,602 185,515
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COSTS AND EXPENSES:
Cost of sales, including buying and occupancy 138,417 126,579
Selling, general and administrative 45,088 41,048
Interest and debt expense 7,246 7,104
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190,751 174,731
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INCOME BEFORE INCOME TAXES 11,851 10,784
INCOME TAXES 817 1,353
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NET INCOME $ 11,034 $ 9,431
========= =========
NET EARNINGS PER SHARE:
Primary $ .50 $ .43
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Fully diluted $ .43 $ .38
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AVERAGE SHARES OUTSTANDING:
Primary 22,141 22,105
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Fully diluted 29,049 29,013
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See accompanying notes.
4
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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(Dollars in thousands)
MAY 21, May 22, January 29,
1995 1994 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 125,979 $ 68,481 $ 83,362
Accounts and notes receivable 3,219 6,633 3,682
Merchandise inventory 118,054 111,229 87,238
Prepaid expenses and other
current assets 9,057 8,645 8,589
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Total current assets 256,309 194,988 182,871
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PROPERTY, PLANT AND EQUIPMENT,
LESS ACCUMULATED DEPRECIATION
OF $148,747, $139,074 AND $142,621 247,765 273,753 253,311
INTANGIBLES, LESS ACCUMULATED
AMORTIZATION OF $9,105,
$8,170 AND $8,818 16,814 17,749 17,101
OTHER ASSETS AND DEFERRED CHARGES 11,457 11,936 11,575
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$ 532,345 $ 498,426 $ 464,858
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 121,895 $ 79,133 $ 56,726
Accrued expenses 35,768 37,285 40,623
Provision for store closings and
other costs 4,791 8,221 6,379
Current portion of long-term debt 74,576 5,651 5,694
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Total current liabilities 237,030 130,290 109,422
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LONG-TERM DEBT:
Senior debt 91,742 169,378 163,311
Subordinated debt, less original
issue discount 65,000 65,000 65,000
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Total long-term debt 156,742 234,378 228,311
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DEFERRED INCOME TAXES 1,000
OTHER LIABILITIES AND DEFERRED CREDITS 9,803 14,613 9,475
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $1.00 par value,
100,000,000 shares authorized,
31,752,450 shares issued 31,752 31,752 31,752
Capital in excess of par value 81,297 84,822 81,163
Retained earnings 108,826 104,974 97,802
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221,875 221,548 210,717
Cost of 9,615,548, 10,649,478
and 9,611,497 shares of
common stock in treasury (91,144) (100,945) (91,106)
Unearned compensation (497)
Notes receivable from exercise of
stock options (1,961) (1,961) (1,961)
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Total shareholders' equity 128,770 118,145 117,650
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$ 532,345 $ 498,426 $ 464,858
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See accompanying notes.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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(Dollars in thousands)
Sixteen Weeks Ended
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MAY 21, May 22,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,034 $ 9,431
Noncash charges included in results:
Depreciation and amortization 6,931 7,511
Deferred income taxes 1,000
Other 80
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17,965 18,022
Changes in current assets and current liabilities:
Decrease in accounts and notes receivable 570 476
Increase in inventory (30,816) (23,422)
(Increase) decrease in prepaid expenses (468) 1,360
Increase in accounts payable 65,169 29,582
Increase (decrease) in accrued expenses (4,741) 115
Decrease in provision for store closings and
other costs (1,588) (3,381)
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Net cash provided by continuing operations 46,091 22,752
Net cash used for discontinued operations (126) (38)
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45,965 22,714
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (664) (1,362)
Other 3 126
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Net cash used for investing activities (661) (1,236)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt and capital lease
obligations (2,687) (15,852)
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Net cash used for financing activities (2,687) (15,852)
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Increase in cash and cash equivalents 42,617 5,626
Cash and cash equivalents at beginning of year 83,362 62,855
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Cash and cash equivalents at end of quarter $ 125,979 $ 68,481
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See accompanying notes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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NOTE 1
On March 1, 1995 the Company declared a 5% stock dividend for shareholders of
record on March 17, 1995. The stock dividend representing 1,056,065 shares was
paid on April 7, 1995. Share and per share data for 1994 have been restated to
reflect the 5% stock dividend.
NOTE 2
The income tax provision for financial reporting purposes has been calculated
using an annual effective rate method. The difference between the statutory
rate for federal purposes and taxes provided for in 1995 and 1994 is due to the
utilization of previously unrecognized tax benefits.
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, net
of taxes, on the 8% Convertible Subordinated Notes is added back to net
earnings.
NOTE 4
Noncash financing activities for 1994 included the issuance of restricted stock
grants and the unearned compensation value is shown as a reduction of
stockholders' equity in the consolidated balance sheets.
Interest payments amounted to $10,451,000 for the sixteen weeks ended May 21,
1995 and $10,407,000 for the sixteen weeks ended May 22, 1994. Tax payments
amounted to $190,000 for the sixteen weeks ended May 21, 1995 and $67,000 for
the sixteen weeks ended May 22, 1994.
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REPORT OF INDEPENDENT ACCOUNTANTS
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To the Board of Directors and Shareholders of
General Host Corporation
We have reviewed the accompanying consolidated balance sheets of General Host
Corporation and its subsidiaries as of May 21, 1995 and May 22, 1994, and the
related consolidated statements of income and of cash flows for the
sixteen-week periods ended May 21, 1995 and May 22, 1994. 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 previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of January 29, 1995, 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 1, 1995 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of January 29, 1995, 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
June 8, 1995
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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., increased 9.1% to $201,998,000 for the sixteen weeks
ended May 21, 1995 compared with $185,190,000 in the 1994 first quarter which
ended May 22, 1994. Same-store sales (stores open for a full year in both
years) increased 9.1% for the 1995 first quarter, under weather conditions that
were less-than-ideal for lawn and garden sales. Increased sales in the crafts
line, which is traditionally slower early in the year and stronger later, as
well as substantial increases in sales in the pet food and supply lines,
contributed to the increased sales in the 1995 quarter.
Earnings
Net income increased $1,603,000 or 17% to $11,034,000 in the 1995
quarter compared to $9,431,000 in the 1994 quarter.
Cost of sales, including buying and occupancy, increased $11,838,000
to $138,417,000 in 1995 compared to $126,579,000 in 1994. As a percentage of
sales, cost of sales increased .1 of a percentage point. Lower merchandise
margins, due in part to increased promotional activity in certain product lines
and the mix of goods sold, resulted in a cost of sales increase of .8 of a
percentage point. The increase was largely offset by a decrease in buying and
occupancy costs of .7 of a percentage point.
Selling, general and administrative expenses increased $4,040,000 to
$45,088,000 in 1995 compared to $41,048,000 in 1994. As a percentage of sales,
selling, general and administrative expenses increased .1 of a percentage point
to 22.3% of sales compared to 22.2% in the 1994 quarter. The increase is
primarily attributable to a planned increase in administrative costs designed
to provide long term benefits.
Other income, primarily interest income, increased $279,000 to
$604,000 in the 1995 quarter compared to $325,000 in the 1994 quarter due
primarily to increased levels of cash equivalents.
Interest and debt expense increased by $142,000 to $7,246,000 in the
1995 quarter compared to $7,104,000 in the 1994 quarter.
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The income tax provision for financial reporting purposes has been
calculated using an annual effective rate method. The difference between the
statutory rate for federal purposes and taxes provided for in 1995 and 1994 is
due to the utilization of previously unrecognized tax benefits.
With regard to current accounting pronouncements, the Company has
determined that Statement of Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets," will not be material to the results of
operations or the consolidated financial position of the Company.
Liquidity and Capital Resources
Net cash provided by continuing operations increased by $23,339,000 to
$46,091,000 in the 1995 quarter. Inventory increased $30,816,000 in 1995
compared to an increase of $23,422,000 in 1994 while accounts payable increased
$65,169,000 in 1995 compared to an increase of $29,582,000 in 1994. The
accounts payable increase for the 1995 and 1994 quarters, described above,
included amounts payable to brokers at May 21, 1995 of $14,997,000 compared to
$14,998,000 at the end of fiscal 1994. At May 22, 1994 there were no amounts
payable to brokers compared to $24,998,000 at the end of fiscal 1993. At May
21, 1995 the remaining store closing reserve of $6,791,000 primarily represents
lease termination costs for the remaining seven store locations and estimated
losses associated with the sale and or sublease of real estate. The Company
utilized net cash of $1,600,000 in the 1995 quarter to pay lease termination
costs for leases terminated at the end of fiscal 1994 and to pay brokers fees
and legal costs.
Net cash used for discontinued operations in the first quarter of 1995
and 1994 related to payments for operations disposed of in prior years.
Net cash used for investing activities was $661,000 in the 1995
quarter compared to $1,236,000 in the 1994 quarter.
Net cash used for financing activities was $2,687,000 in the 1995
quarter compared to $15,852,000 in the 1994 quarter. The 1995 quarter included
payments of $2,375,000 for the mortgage notes. 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. In April 1994 the Company
issued 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 shareholders' equity for unearned compensation which was
recognized in fiscal 1994 in accordance with the restrictions placed on the
stock grants. At May 21, 1995, 65,866 shares remain subject to restriction.
On March 1, 1995 the Company declared a 5% stock dividend for
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shareholders of record on March 17, 1994. The stock dividend representing
1,056,065 shares was paid on April 7, 1995. Share and per share data for 1994
have been restated to reflect the 5% stock dividend.
Working capital at May 21, 1995 was $19,279,000 or $54,170,000 lower
than the $73,449,000 working capital level at January 29, 1995. The decrease
in working capital is due to the reclassification of the mortgage notes due
March 29, 1996 of $73,625,000 to the current portion of long-term debt at May
21, 1995. The quarter-end included $125,979,000 of cash and cash equivalents.
The Company is currently discussing certain financing alternatives to
satisfy the payment of $70,062,500 due March 29, 1996 for the mortgage notes.
The Company believes that it will be able to implement a repayment plan that
will benefit the long-term growth of the Company.
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 $17,000,000 of fixed interest charges and fund
capital expenditures of approximately $4,376,000 for the remainder of fiscal
1995. During the next eighteen months, the Company anticipates opening 10 to
12 new full-line stores. These new stores would require minimal capital
investment as the stores would be under lease arrangements.
The Company has a $15,000,000 unsecured credit agreement with a bank.
The agreement has been extended from July 1, 1995 to October 1, 1995, as the
Company reviews and negotiates an expanded credit facility. The bank agreement
requires the Company, among other things, to maintain minimum levels of
earnings, tangible net worth and certain minimum financial ratios. The Company
was in compliance with all of its covenants under this agreement at May 21,
1995. In addition, the Company was in compliance with restrictions under all
other debt agreements at such date.
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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 May
18, 1995. Ms. Ashton Sant Albano was elected a director of
the Company for a two year term with 19,144,714 shares voted
in favor and 622,886 shares withheld out of a total of
21,090,680 eligible to vote. Messrs. C. Whitcomb Alden, Jr.,
Philip B. Harley, and Richard W. Haskel were elected directors
of the Company for three year terms with votes cast as
follows: Mr. Alden - 19,525,122 shares voted in favor and
416,274 shares withheld; Mr. Harley - 19,530,685 shares voted
in favor and 410,711 shares withheld; Mr. Haskel - 19,555,984
shares voted in favor and 385,412 shares withheld. The
appointment of Price Waterhouse as the Company's independent
accountants for the 1995 fiscal year was ratified as follows:
19,678,756 shares in favor; 184,579 shares against; 78,061
shares abstained. The proposal to adopt the Company's 1994
Non-Employee Directors Stock Option Plan was approved as
follows: 18,124,318 shares in favor; 1,546,586 shares
against; 270,586 shares abstained.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Additional Earnings Per Share Information.
(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 a Form 8-K on March 8, 1995 to report Amendment
No. 1 to the Rights Agreement between the Registrant and
Manufacturers Hanover Trust Company as Rights Agent relating
to the Registrant's Shareholder Rights Plan.
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SIGNATURES
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/ Marguerite M. Gritenas
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Marguerite M. Gritenas
Vice President, General Counsel
and Secretary
By: /s/ James R. Simpson
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James R. Simpson
Vice President and Controller
Dated: June 30, 1995
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
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(11) Additional Earnings Per Share Information.
(15) Letter regarding unaudited interim financial
information.
(27) Financial Data Schedule.