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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 13, 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,
22,142,858 shares outstanding as of September 22, 1995.
2
The Registrant hereby files this Form 10-Q/A for the purpose of amending Items
1, 2 and 6 of the Form 10-Q for the quarter ended August 13, 1995.
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)
(In thousands, except per share amounts)
Twelve Weeks Ended Twenty-Eight Weeks Ended
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AUGUST 13, August 14, AUGUST 13, August 14,
1995 1994 1995 1994
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REVENUES:
Sales $ 126,741 $ 114,905 $ 328,739 $ 300,095
Other income 1,505 770 2,109 1,095
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128,246 115,675 330,848 301,190
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COSTS AND EXPENSES:
Cost of sales, including
buying and occupancy 95,450 84,595 233,867 211,174
Selling, general and
administrative 30,846 29,743 75,934 70,791
Interest and debt expense 5,505 5,194 12,751 12,298
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131,801 119,532 322,552 294,263
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INCOME (LOSS) BEFORE
INCOME TAXES (3,555) (3,857) 8,296 6,927
INCOME TAX (BENEFIT)
PROVISION (640) (484) 177 869
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NET INCOME (LOSS) $ (2,915) $ (3,373) $ 8,119 $ 6,058
========= ========= ========= =========
NET EARNINGS (LOSS)
PER SHARE $ (.13) $ (.15) $ .37 $ .27
========= ========= ========= =========
AVERAGE SHARES OUTSTANDING 22,145 22,157 22,143 22,127
========= ========= ========= =========
See accompanying notes.
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
AUGUST 13, August 14, January 29,
1995 1994 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 70,999 $ 48,895 $ 83,362
Accounts and notes receivable 3,499 2,630 3,682
Merchandise inventory 104,892 101,954 87,238
Prepaid expenses and other
current assets 9,783 9,350 8,589
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Total current assets 189,173 162,829 182,871
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PROPERTY, PLANT AND EQUIPMENT,
LESS ACCUMULATED DEPRECIATION
OF $152,461, $139,197 AND $142,621 245,071 264,368 253,311
INTANGIBLES, LESS ACCUMULATED
AMORTIZATION OF $9,321,
$8,386 AND $8,818 16,598 17,533 17,101
OTHER ASSETS AND DEFERRED CHARGES 8,668 13,220 11,575
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$ 459,510 $ 457,950 $ 464,858
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 59,229 $ 49,656 $ 56,726
Accrued expenses 30,128 34,958 40,623
Provision for store closings and
other costs 4,382 5,099 6,379
Current portion of long-term debt 73,425 5,636 5,694
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Total current liabilities 167,164 95,349 109,422
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LONG-TERM DEBT:
Senior debt 91,515 167,123 163,311
Subordinated debt 65,000 65,000 65,000
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Total long-term debt 156,515 232,123 228,311
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DEFERRED INCOME TAXES 642
OTHER LIABILITIES AND DEFERRED CREDITS 10,077 14,864 9,475
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $1.00 par value,
100,000,000 shares authorized,
31,752,450 shares issued 31,752 31,752 31,752
Capital in excess of par value 81,187 84,811 81,163
Retained earnings 105,890 101,601 97,802
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218,829 218,164 210,717
Cost of 9,606,651, 10,654,678
and 9,611,497 shares of
common stock in treasury (91,059) (100,994) (91,106)
Unearned compensation (237)
Notes receivable from exercise of
stock options (2,016) (1,961) (1,961)
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Total shareholders' equity 125,754 114,972 117,650
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$ 459,510 $ 457,950 $ 464,858
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See accompanying notes.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Twenty-Eight Weeks Ended
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AUGUST 13, August 14,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,119 $ 6,058
Noncash charges included in results:
Depreciation and amortization 12,227 13,036
Deferred income taxes 642
Amortization of compensation related
to stock grants 200
Other (38) 337
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20,308 20,273
Changes in current assets and current liabilities:
Decrease in accounts and notes receivable 2,821 2,914
Increase in inventory (17,654) (14,147)
(Increase) decrease in prepaid expenses (1,194) 605
Increase in accounts payable 2,503 105
Decrease in accrued expenses (10,327) (1,603)
Decrease in provision for store closings and
other costs (1,997) (5,275)
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Net cash provided by (used for)
continuing operations (5,540) 2,872
Net cash used for discontinued operations (155) (102)
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(5,695) 2,770
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,795) (2,597)
Other 192 3,112
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Net cash provided by (used for)
investing activities (2,603) 515
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt and capital lease
obligations (4,065) (17,245)
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Net cash used for financing activities (4,065) (17,245)
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Decrease in cash and cash equivalents (12,363) (13,960)
Cash and cash equivalents at beginning of year 83,362 62,855
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Cash and cash equivalents at end of quarter $ 70,999 $ 48,895
========= ==========
See accompanying notes.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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
Income taxes for the twelve and twenty-eight week periods of 1995 included the
elimination of income tax reserves of $396,000, which were no longer required.
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
The Company is the defendant in a lawsuit filed in 1991 in which farmers in
Rice County, Kansas alleged that saltwater pollution of the ground water by the
American Salt Company, a former sibsidiary of the Company, rendered it unfit
for irrigation. In August 1995, a jury verdict awarded the plaintiffs
approximately $500,000 in compensatory damages for the period 1989 to 1995.
The Company believes that the verdict could be overturned as a matter of law,
and will file a motion for judgment in its favor notwithstanding the verdict,
when a judgment is entered by the court. Consequently, the Company has not
provided a liability for the jury verdict.
In September 1995, a hearing on punitive damages was held, the outcome of such
is yet to be determined. The Company is reviewing its grounds for appeal in
this case. Accordingly, the Company cannot predict the amount of punitive
damages that may be awarded and has not provided a liability.
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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
shareholders' equity in the consolidated balance sheets.
Interest payments amounted to $1,850,000 and $12,301,000 for the twelve and
twenty-eight weeks ended August 13, 1995, and $1,664,000 and $12,071,000 for
the twelve and twenty-eight weeks ended August 14, 1994. Tax payments amounted
to $232,000 and $422,000 for the twelve and twenty-eight weeks ended August 13,
1995, and $108,000 and $175,000 for the twelve and twenty-eight weeks ended
August 14, 1994.
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REPORT OF INDEPENDENT ACCOUNTANTS
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 August 13, 1995 and August 14, 1994, and
the related consolidated statements of income and of cash flows for the twelve
and twenty-eight week periods ended August 13, 1995 and August 14, 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
September 11, 1995
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second quarter of 1995 compared with second quarter 1994
Results of operations
Sales
Sales for the Company's principal operating subsidiary, Frank's Nursery &
Crafts, Inc., increased 10.3% to $126,741,000 for the twelve weeks ended August
13, 1995 compared with $114,905,000 in the 1994 second quarter which ended on
August 14, 1994. Same-store sales (stores open for a full year in both years)
increased 10.6% for the 1995 second quarter. Increased sales in the lawn and
garden area, as well as substantial increases in sales in the pet food and
supply lines, contributed to the increased sales in the 1995 second quarter.
Earnings
The net loss for the second quarter of 1995 was $2,915,000 compared to
$3,373,000 in the 1994 second quarter.
Cost of sales, including buying and occupancy, increased $10,855,000 to
$95,450,000 in the second quarter of 1995 compared to $84,595,000 in 1994. As
a percentage of sales, cost of sales increased 1.7 percentage points due
primarily to a decrease in merchandise margins. The decrease in merchandise
margins was attributed to increased promotional activity due in part to the
hot, dry weather experienced in most of the Company's major markets during the
later part of the second quarter as well as the mix of goods sold.
Selling, general and administrative expenses increased $1,103,000 to
$30,846,000 in the second quarter of 1995 compared to $29,743,000 in 1994. The
increase in expense is primarily attributable to planned increases in store
payroll, advertising and administrative costs. As a percentage of sales,
selling, general and administrative expenses decreased 1.6 percentage points to
24.3% of sales compared to 25.9% in the 1994 quarter.
Other income, primarily interest income, increased $735,000 to $1,505,000
in the second quarter of 1995 compared to $770,000 in 1994. The increase was
due primarily to increased levels of cash equivalents and higher rates of
return compared to 1994.
Interest and debt expense increased $311,000 to $5,505,000 in the second
quarter of 1995 compared to $5,194,000 in 1994 primarily due to increased
interest rates on the mortgage notes.
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Income taxes for the 1995 second quarter included the elimination of
income tax reserves of $396,000, which were no longer required.
First half of 1995 compared with the first half of 1994
Results of Operations
Sales
Sales were $328,739,000 for the twenty-eight weeks ended August 13, 1995
compared with $300,095,000 in the 1994 first half which ended August 14, 1994.
Same-store sales for the 1995 first half increased 9.7% compared to the first
half of 1994. A strong second quarter performance from our lawn and garden
business as well as increased sales in the crafts line, and substantial
increases in the pet food and supply lines, contributed to the increased sales
in the 1995 first half.
Earnings
Net income for the 1995 first half was $8,119,000 compared to $6,058,000
in the 1994 first half.
Cost of sales, including buying and occupancy, increased $22,693,000 in
the 1995 first half to $233,867,000 compared to $211,174,000 in 1994. As a
percentage of sales, cost of sales increased .7 of a percentage point due
primarily to a decrease in merchandise margins resulting from increased
promotional activity and extremely hot, dry weather in the second quarter of
1995 offset in part by a decrease in buying and occupancy cost as a percentage
of sales.
Selling, general and administrative expenses increased $5,143,000 to
$75,934,000 in the 1995 first half compared to $70,791,000 in 1994. The
increase in expense is primarily attributable to planned increases in store
payroll, advertising and administrative costs. As a percentage of sales,
selling, general and administrative expenses decreased .5 of a percentage point
to 23.1% of sales in the 1995 first half compared to 23.6% in 1994.
Other income increased $1,014,000 to $2,109,000 in the first half of 1995
compared to $1,095,000 in the 1994 first half. The increase was due primarily
to increased levels of cash equivalents and higher rates of return compared to
1994.
Interest and debt expense increased $453,000 to $12,751,000 in the 1995
first half compared to $12,298,000 in the 1994 first half due primarily to
increased interest rates on the mortgage notes.
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Income taxes for the first half of 1995 included the elimination of income
tax reserves of $396,000, which were no longer required. The effective income
tax rate used in the 1995 and 1994 second quarter and first half represented an
estimated annual effective tax rate which reflected the utilization of
previously unrecognized tax benefits.
Capital Resources and Liquidity
Net cash used for continuing operations was $5,540,000 in the 1995 first
half compared to net cash provided of $2,872,000 in the 1994 first half.
Inventory increased $17,654,000 for the 1995 first half compared to an increase
of $14,147,000 in 1994 while accounts payable increased $2,503,000 in 1995
compared to $105,000 in 1994. The accounts payable change for 1995 and 1994,
described above, included amounts payable to brokers of $14,998,000 at August
13, 1995 compared to $14,998,000 at the end of fiscal 1994, and $14,998,000 at
August 14, 1994 compared to $24,998,000 at the end of fiscal 1993. The
decrease in accrued expenses for 1995 of $10,327,000 compared to $1,603,000 for
1994 was due to timing of payments. At August 13, 1995 the remaining store
closing reserve of $6,382,000 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
$1,997,000 in the 1995 first half 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 half of 1995 and
1994 related to payments for operations disposed of in prior years.
Net cash used for investing activities was $2,603,000 in 1995 compared to
net cash provided for of $515,000 in 1994 due primarily to the proceeds from
the sale of property, plant and equipment of $2,992,000 in 1994.
Net cash used for financing activities was $4,065,000 in 1995 compared to
$17,245,000 in 1994. The 1995 first half included the payments of $3,562,000
for the mortgage notes. The 1994 first half included the repayment of
$13,191,000 of 7% Subordinated Debentures on February 1, 1994 and payments of
$3,562,000 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 restriction placed on the stock grants. At August
13, 1995 64,763 shares remain subject to restriction.
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The Company is the defendant in a lawsuit filed in 1991 in which farmers
in Rice County, Kansas alleged that saltwater pollution of the ground water by
the American Salt Company, a former sibsidiary of the Company, rendered it
unfit for irrigation. In August 1995, a jury verdict awarded the plaintiffs
approximately $500,000 in compensatory damages for the period 1989 to 1995.
The Company believes that the verdict could be overturned as a matter of law,
and will file a motion for judgment in its favor notwithstanding the verdict,
when a judgment is entered by the court. Consequently, the Company has not
provided a liability for the jury verdict.
In September 1995, a hearing on punitive damages was held, the outcome of
such is yet to be determined. The Company is reviewing its grounds for appeal
in this case. Accordingly, the Company cannot predict the amount of punitive
damages that may be awarded and has not provided a liability.
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.
Working capital at August 13, 1995 was $22,009,000 or $51,440,000 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 $72,438,000 to the current portion of long-term debt at
August 13, 1995. The quarter-end included $70,999,000 of cash and cash
equivalents.
The Company is arranging new mortgage financings which, together with cash
generated from operations will be used to repay the $70,062,500 maturing
mortgage notes due March 29, 1996. On September 1, 1995 the Company concluded
a part of the new mortgage financing plan with a financial institution for
$10,717,000. The new mortgage notes bear interest at 8.69%, are payable
monthly based on a 15 year amortization schedule, and mature with a balloon
payment on September 1, 2005. These mortgage notes are secured by first
mortgages of 12 nursery and crafts retail stores.
The Company has an undrawn $15,000,000 unsecured credit agreement with a
bank. The agreement has been extended from October 1, 1995 to January 2, 1996.
The Company plans to negotiate an expanded credit facility, aggregating
approximately $40,000,000 with a group of banks, which is currently planned to
close in December 1995, after the Company has repaid the mortgage notes due
March 29, 1996. 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 August
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13, 1995. In addition, the Company was in compliance with restrictions under
all other debt agreements at such date.
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 $11,000,000 of fixed interest charges and fund
capital expenditures of approximately $2,500,000 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.
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PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Additional Earnings Per Share Information.
(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.
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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/ J. Theodore Everingham
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J. Theodore Everingham
Vice President, General Counsel
and Secretary
By: /s/ James R. Simpson
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James R. Simpson
Vice President and Controller
Dated: March 18, 1996
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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.