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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 28, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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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 no.)
One Station Place, P.O. Box 10045, Stamford, CT 06904
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(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (203) 357-9900
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $1.00 Par Value New York Stock Exchange
and Pacific Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
and Pacific Stock Exchange
8% Convertible Subordinated New York Stock Exchange
Notes due February 15, 2002
11 1/2% Senior Notes due New York Stock Exchange
February 15, 2002
[Cover page 1 of 2 pages]
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether General Host Corporation, 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of General Host Corporation's Common Stock,
$1.00 par value, held by non-affiliates of General Host as of April 1, 1996:
$74,585,116*
Number of voting shares of General Host Corporation's Common Stock
outstanding as of April 1, 1996: 22,140,337.
DOCUMENTS INCORPORATED BY REFERENCE
General Host Corporation Proxy Part III, Items 10, 11, 12 and 13
Statement for Annual Meeting of
Shareholders to be held on
May 16, 1996 (hereinafter "the
Company's 1996 Proxy Statement")
* Does not include the market value of the outstanding Common Stock held by the
directors and officers of General Host which aggregates $9,824,919, since such
directors and officers may be considered affiliates of General Host.
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PART I
ITEM 1. BUSINESS
General Host Corporation ("General Host", the "Company" or the
"Registrant") operates a chain of specialty retail stores devoted to the sale
of lawn and garden products, crafts, Christmas merchandise and pet food and
supplies. Measured by sales and number of stores, the Company believes it is
the largest chain in the United States concentrating on the sale of such
products. As of January 28, 1996, the Company operated 261 stores in 16 states
under the name Frank's Nursery & Crafts(R) and three stores under the name
Frank's SuperCrafts(R). Unless otherwise stated, all statistics in this Item
were compiled as of January 28, 1996.
The Company's executive offices are located at One Station Place,
Stamford, Connecticut. The Company's mailing address is Post Office Box 10045,
Stamford, Connecticut 06904, and its telephone number is (203) 357-9900.
General Host was incorporated under the laws of the State of New York
in 1911 as General Baking Company. The Company has engaged in a number of
businesses since its organization.
With the acquisition of Frank's Nursery & Crafts, Inc. ("Frank's") in
1983, the Company began focusing its resources on developing the first national
chain of garden and crafts stores. At the time of its acquisition, Frank's had
95 stores principally located in the Midwest. In 1984, through the acquisition
of Flower Time, Inc., the Company obtained 17 stores in the New York
metropolitan area. In 1986, the Company further expanded into the eastern
United States when it acquired Scott's Seaboard Corporation, adding 14 stores
in the Washington, D.C. and Baltimore markets. In early 1989, the Company
increased its presence in the Philadelphia metropolitan area through the
acquisition of 12 store leases. Since 1983, the Company has built, leased or
acquired a net of 169 stores in existing and new markets.
In October 1994, the Company sold its interest in Sunbelt Nursery
Group, Inc. (See Note 3 on Page F-9 of this Annual Report on Form 10- K for a
discussion regarding Sunbelt.)
During the fourth quarter of 1993 the Company approved a plan to exit
26 unprofitable Frank's stores primarily in the Nashville, South Florida and
Orlando markets and to dispose of certain other properties. All stores were
closed as of February 7, 1994, with the exception of one store which closed
March 7, 1994.
The national lawn and garden market is highly fragmented, consisting
of thousands of local garden centers plus mass merchandisers who sell lawn and
garden products as part of their overall product lines. In fiscal 1995, the
Company's lawn and garden and nursery sales averaged approximately $1.1 million
per store. In addition to approximately $295 million in lawn and garden and
nursery sales, the Company generated approximately $266
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million in revenues in the last fiscal year from the sale of crafts and
Christmas products and $32 million from the sale of pet food and supplies.
Although no single company directly competes with the Company's
overall product lines, many retailers and mass merchandisers provide
competition with respect to certain of the Company's lines of business. The
Company competes with mass merchandisers, home center chains and many local and
regional garden centers in the lawn and garden and nursery business. The
Company competes in the crafts business with mass merchandisers, crafts store
chains and local craft stores. The Company competes with major department
stores, mass merchandisers, local garden centers and other retailers in the
Christmas business. The Company competes with mass merchandisers,
supermarkets, pet supply chains and local pet supply stores in the pet food and
supply business.
The Company's business is highly seasonal and subject to the impact of
weather conditions, which may affect consumer purchasing patterns. In fiscal
1995, 38% of the Company's sales occurred during the spring season (late March
to mid-June) and 25% occurred at Christmas time (November to late December).
Normally, spring is the most profitable season, and Christmas is the next most
profitable season. Losses usually are experienced during the other periods of
the year. The Company's slowest selling seasons are typically the period from
the beginning of the calendar year until the start of the spring selling
season, and from mid-July to Labor Day.
Live nursery goods, which constitute a significant portion of the
Company's products, have limited shelf lives in some cases. If customer
purchases of live nursery goods are delayed because of adverse weather
conditions, such goods may remain unsold past their shelf life and require
markdowns or disposal.
Lawn and garden and nursery sales are highest in the spring with the
largest impact being in the first fiscal quarter and the early part of the
second fiscal quarter. There is an early fall season in these products that is
of less importance than the spring season, and sales during middle and late
summer are slow. In the winter months, sales of such products are minimal.
Crafts and pet food and supplies sell at a fairly even pace throughout
the year. Craft sales are stimulated by fall and late winter promotions.
During the winter months (other than the Christmas season) crafts constitute
the majority of the Company's sales.
Christmas merchandise is sold almost entirely in November and December.
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The Company's most significant capital requirements are for seasonal
buildup of Christmas and crafts inventories, new stores and the modernization
of existing stores.
Capital expenditures of the Company totalled $5.5 million in fiscal
1995. Expenditures for fiscal 1995 included the purchase of land and building
for one new store to be opened in fiscal 1996 and expenditures for facility
improvements at existing stores. The Company anticipates spending
approximately $6 million for capital expenditures in fiscal 1996.
The Company closed one store in fiscal 1995. In 1996 the Company
plans to open two to three new stores in existing markets, relocate three to
four stores and remodel three to four existing stores. Expansion in existing
markets improves the Company's operating margins by decreasing advertising
costs on a per store basis, permitting more efficient distribution of products
to stores and increasing the utilization of existing supervisory and managerial
staff.
The aggregate cost of any future expansion is dependent upon the
method of financing new stores. Such methods include build-to-suit leases,
conversion of existing buildings, and land purchases with Company-funded
construction. The cost of these methods ranges from approximately $500,000 per
store for build-to-suit leases to $2.5 million per store for land purchases
with Company-funded construction.
In 1990, looking to capitalize on its expertise in the Christmas
decoration business, the Company entered the temporary retail marketplace with
the introduction of "Christmas by Frank's". The "Christmas by Frank's"
boutiques are temporary sites, typically located in high traffic regional malls
and open only during the Christmas shopping season. These boutiques carry a
broad selection of seasonal merchandise and capitalize on the increased mall
traffic during the holidays. During 1995 the Company operated 119 temporary
Christmas boutiques. In addition the Company tested two other temporary
concepts: "Frank's Kids Corner", featuring educational toys for children, and
"In the Garden by Frank's", offering gifts for the gardener. A total of eleven
"Frank's Kids Corner" and four "In the Garden by Frank's" were open in 1995.
The success of the Company's temporary business will depend upon the Company's
ability from year to year to obtain favorable short-term locations in various
malls that are in close proximity to existing stores.
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The principal products sold at the Company's retail garden and crafts
stores are as follows:
Percentage of
Sales In
Product Line Fiscal Year 1995 Description
- ------------ ---------------- -----------
Lawn and garden 24% Fertilizers, herbicides and pesticides, seeds
and bulbs, mulches, plant accessories, hoses
and garden tools and equipment
Live nursery 26 Trees, shrubs, roses, potted plants, annual
and perennial flowering plants and indoor
plants
Crafts 29 Yarns, macrame, art supplies, needlework and
children's crafts, wood crafts, ribbon, and
artificial and silk flowers and arrangements
Christmas 16 Artificial and live Christmas trees,
decorations and trimmings and Christmas
plants
Pet 5 Pet food and supplies, bird seed and
--- accessories
100%
===
Substantially all of the plants and products the Company sells are
purchased from approximately 1,200 outside vendors. Alternative sources of
supply are generally available for all products sold by the Company.
As of January 28, 1996, 127 of the Company's stores were leased and
137 were owned (36 of which are subject to ground leases). All store leases
are long-term. If no options are exercised, 108 leases will terminate prior to
December 31, 2006.
Stores are generally located on three-acre sites. A prototype store
in which the overhang area leading to the yard has been
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enclosed includes 18,500 square feet of indoor space (16,000 square feet of
sales area and 2,500 square feet of storage area), 17,000 square feet of
outdoor selling area and ample offstreet parking. The stores are designed in a
"supermarket" format familiar to customers, and shopping is done with carts in
wide aisles with attractive displays. Traffic design is intended to enhance
the opportunity for impulse purchases. Most stores are free-standing and
located adjacent to or near shopping centers; some stores are part of strip
centers.
Typically, stores are open 80 hours per week. The average store has
approximately 20-25 employees, including a store manager, assistant manager and
up to seven department managers responsible for the various product lines of
the business. The in-store staff is supplemented at seasonal peak selling
periods by temporary employees. Overall, the Company had 7,150 employees at
January 28, 1996, including seasonal employees. Approximately 24 warehouse and
distribution center employees in Detroit are members of the Teamsters Union
under a contract which expires January 1, 1997.
The Company operates distribution centers in Detroit, Michigan;
Chicago, Illinois; and Harrisburg, Pennsylvania. The Company owns the Detroit
center which also contains Frank's headquarters, and leases the Chicago and
Harrisburg centers. These centers delivered approximately 49% of all
merchandise to the stores in 1995, primarily using contract carriers. The
balance of the products are delivered directly to stores by vendors.
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ITEM 2. PROPERTIES
Principal operating facilities owned or leased by the Company are
described in Item 1 of this Annual Report on Form 10-K. General Host leases
its executive offices. No material adverse effect is foreseen as a result of
the expiration of leases of the Company's facilities.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business the Company is subject to various
claims. In the opinion of management, any ultimate liability arising from or
related to these claims should not have a material adverse affect on future
results of operations or the consolidated financial position of the Company.
In 1995 the Company charged to discontinued operations a loss of $3
million, or $.13 per share, as a result of a judgment against the Company in a
1991 saltwater pollution lawsuit. The Company has appealed. The lawsuit
involves claims by farmers in Rice County, Kansas who alleged that saltwater
pollution of the ground water by the American Salt Company, a former subsidiary
of the Company, rendered it unfit for irrigation. In August 1995, a jury
verdict awarded the plaintiffs $.5 million in compensatory damages for the
period 1989 to 1995 and in October 1995 the plaintiffs were awarded $.5 million
in punitive damages and the judgment was entered. The judgment, together with
approximately $1.1 million in legal defense costs, $.5 million in related
costs, principally for technical consulting and expert witnesses, and $.4
million for future legal and related costs, totalled $3 million.
The Company has certain lease obligations which extend to the year
2001 for businesses sold. In the opinion of management, any ultimate liability
arising from or related to these obligations, to the extent not otherwise
provided for, should not have a material adverse effect on future operations or
the consolidated financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The New York Stock Exchange is the principal market on which the
Company's Common Stock is traded. The high and low sales prices per share of
Common Stock as traded on the New York Stock Exchange and cash dividends paid
per share of Common Stock during each quarter of the last two fiscal years are
as follows:
Cash Dividends
High Low Per Share
---- --- ---------
Fiscal 1995 *
First Quarter $ 7 $ 4-7/8 $ .00
Second Quarter $ 7-5/8 $ 5-5/8 $ .00
Third Quarter $ 6-1/2 $ 4-3/4 $ .00
Fourth Quarter $ 5 $ 3-5/8 $ .00
Fiscal 1994
First Quarter $ 6-7/8 $ 5-1/4 $ .00
Second Quarter $ 6-1/4 $ 4-3/4 $ .00
Third Quarter $ 5-5/8 $ 3-3/4 $ .00
Fourth Quarter $ 5-3/8 $ 4 $ .00
*Five percent stock dividends were paid on April 7, 1995 and April 5,
1996 and all stock-related data in the financial statements in this Report
reflect the aforementioned stock dividends for all periods presented.
Under the most restrictive provisions of any of the debt and bank
agreements, total shareholders' equity available to pay cash dividends or
purchase treasury stock was below the required minimum level by $10.8 million
at January 28, 1996.
At April 1, 1996, there were approximately 3,845 holders of record of
the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Five Year Financial Data concerning the Company is listed on F-23 of
this Annual Report on Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Sales were $593 million for the 1995 fiscal year compared to $568 million for
the 1994 fiscal year. Same-store sales (stores open for a full year in both
years) for 1995 increased 4.5% led by a 25% sales gain in the pet food and
supplies business as well as a strong first half performance in the lawn and
garden business. Also contributing to the sales increase was improved
in-store merchandising, and the sales from the temporary Christmas boutiques of
$14.4 million in 1995 compared to $12.9 million in 1994. Sales were $568
million for the 1994 fiscal year compared to $568.6 million for the 1993 fiscal
year. The 1993 sales included sales of $34.9 million for the 26 stores closed
in February 1994. Eliminating the sales for the closed stores in 1993 would
have resulted in a sales increase for 1994 of 6.4%. Same-store sales for 1994
increased 5.2%. Also contributing to the sales increase was improved in-store
merchandising, and the sales from the temporary Christmas boutiques of $12.9
million in 1994 compared to $11.2 million in 1993.
Other income increased $1.3 million to $3.3 million in 1995. The
increase was due to increased interest income resulting from higher rates of
return in 1995. Other income increased $.7 million to $2 million in 1994. The
increase was due to increased interest income resulting from higher levels of
cash equivalents.
Cost of sales, including buying and occupancy, increased $28.7 million
to $431.5 million or 72.7% of sales. This compares with $402.8 million or
70.9% of sales in 1994. The increase of 1.8 percentage points was due to lower
merchandise margins resulting from increased promotional activity and extremely
hot, dry weather in the second quarter of 1995, the mix of goods sold during
1995 and increased occupancy costs related to the temporary Christmas business.
Cost of sales, including buying and occupancy, decreased $22.9 million to
$402.8 million or 70.9% of sales in 1994. This compares to $425.7 million or
74.9% of sales in 1993. The decrease of 4 percentage points was due to higher
merchandise margins resulting from improved inventory management, in addition
to the benefits from the operations improvement program in 1994 compared with
1993 when the Company underwent an inventory reduction program and closed 26
stores.
Selling, general and administrative expense increased $6 million to
$146.2 million compared to $140.2 million in 1994. The increase was
attributable to the increases in store payroll, advertising and administrative
costs that occurred in the first half of 1995 and increased costs associated
with the temporary Christmas business. As a percentage of sales, selling,
general and
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administrative expense was 24.6% of sales in 1995 and 24.7% of sales in 1994.
Selling, general and administrative expense in 1994 decreased $11.8 million to
$140.2 million compared to $152 million in 1993. The decrease was attributable
to the operations improvement program initiated at the end of 1993, which
resulted in lower administrative costs in 1994. As a percentage of sales,
selling, general and administrative expense decreased 2 percentage points to
24.7% of sales in 1994 compared to 26.7% in 1993.
During the fourth quarter of 1993 the Company approved a plan to exit
26 unprofitable Frank's stores primarily in the Nashville, South Florida and
Orlando markets and to dispose of certain other properties. The decision
resulted in the Company recording a reserve of $22.9 million ($15.1 million,
net of tax benefit) in the 1993 fourth quarter comprised primarily of $20
million for the closing of the 26 stores and $2.9 million primarily for
expected losses on the sale of the other properties. The $20 million store
closing reserve included a provision for termination of lease agreements,
brokers fees and legal costs of $12.9 million representing expected future cash
outflows; a provision of $3.5 million for expected losses from the sale of real
estate and the write-off of leasehold improvements and equipment of the closed
stores; and a provision of $3.6 million representing operating losses for
January 1994 through closure date and employee severance for the closed stores.
All stores were closed as of February 7, 1994, with the exception of one store
which closed March 7, 1994.
Interest and debt expense was $23.8 million in 1995 compared to $22.9
million in 1994. The increase was primarily due to increased interest rates
for the Adjustable Rate First Mortgage Notes (the "mortgage notes") due March
29, 1996 that were repaid as of January 28, 1996. Interest and debt expense
was $22.9 million in 1994 compared to $23.3 million in 1993. The decrease was
primarily due to the redemption of the 7% Subordinated Debentures on February
1, 1994.
The income tax benefit for 1995 included the elimination of income tax
reserves no longer required of $.6 million. In 1995, the tax provision was
unfavorably impacted by an increase in the valuation allowance as a result of
the current year loss not being benefitted. A valuation allowance was provided
in 1993 against the net deferred tax asset resulting from the Company's net
operating loss and the loss from an investment in an unconsolidated affiliate.
Due to the Company's historical operating results prior to 1995, a valuation
allowance for the deferred tax asset balance remained at January 28, 1996. As
a result of the valuation allowance, approximately $21 million of these loss
carryforwards have not been benefitted and utilization will be recognized
against future income. Income taxes included the elimination of income tax
reserves no longer required of $1 million in 1994.
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In April 1993 the Company acquired a 49.5% interest in Sunbelt Nursery
Group, Inc. ("Sunbelt") by exchanging 1.94 million shares of its common stock
for 4.2 million shares of common stock of Sunbelt held by Pier 1 Imports, Inc.
The 4.2 million shares of Sunbelt were subsequently pledged as security for
payment of a $12 million revolving credit facility between Sunbelt and Pier 1
Imports, Inc. which was scheduled to mature in April 1994. The Company
received no assurances that the maturity of this facility would be extended or
that Sunbelt had the ability to repay this facility [which resulted in a going
concern qualification in the audit opinion to Sunbelt's financial statements
for the year ended January 31, 1994]. As a result there existed the
possibility that Pier 1 Imports, Inc. would foreclose on the Sunbelt shares
pledged as security. Consequently, the Company decided to reduce to zero the
carrying value of its investment in Sunbelt as of fiscal year end 1993. This
resulted in a charge of $15.7 million which, when combined with the net equity
losses recognized through the 1993 third quarter of $2 million, amounted to
$17.7 million for fiscal 1993. In October 1994 the Company sold its interest in
Sunbelt and recognized a net gain of $3.6 million.
The loss from continuing operations was $4.3 million, a decline of
$12.9 million compared with 1994. Income for 1994 included $3.6 million from
the sale of the Company's investment in Sunbelt. Income from continuing
operations was $8.6 million in 1994, an improvement of $63.8 million over 1993.
The 1993 loss included a reserve of $22.9 million for the closing of the 26
unprofitable stores and a loss of $17.7 million from the net equity loss and
write-down of the Company's investment in Sunbelt.
The loss from discontinued operations for 1995 of $3 million resulted
from an October 1995 judgment of $1 million against the Company in a 1991
saltwater pollution lawsuit. The judgment, together with approximately $1.1
million in legal defense costs, $.5 million in related costs, principally for
technical consulting and expert witnesses, and $.4 million for future legal and
related costs, totalled $3 million. The Company has appealed the case.
Discontinued operations in 1993 represented a loss reserve of $.8 million for
lease obligations of businesses sold in prior years. These items combined with
the respective income or loss from continuing operations resulted in a net loss
of $7.3 million in 1995, net income of $8.6 million in 1994 and a net loss of
$56.1 million in 1993.
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Liquidity and Capital Resources
Continuing operations used $2.6 million of net cash in 1995 compared to net
cash provided of $38.4 million in 1994. In 1995 the early receipt of Christmas
season merchandise in the 1995 fourth quarter and reduced purchases for the
1996 spring season in the fourth quarter of 1995 resulted in a decrease in
accounts payable for 1995 compared to 1994. The change in accrued expenses for
1995 compared to 1994 is due to the timing of payments. The 1995 loss also
contributed to the utilization of net cash in 1995.
During the fourth quarter of 1993 the Company recorded a noncash
reserve of $22.9 million for the closing of 26 stores. As of January 28, 1996
the Company had terminated leases and entered into sublease arrangements for
all but five stores. The annual sublease income generated approximates the
Company's annual costs. The Company retains its primary obligation under the
prime lease should a sublease tenant default on its sublease obligation. At
January 28, 1996 the remaining reserve of $4.3 million primarily represents
lease termination costs for the remaining five store locations and estimated
losses associated with the sale and or sublease of real estate. In 1995 the
Company utilized net cash of $3.6 million to pay lease termination costs for
leases terminated at the end of 1994 and in 1995 and to pay brokers fees and
legal costs. Net cash of $8.6 million was used in 1994 to terminate lease
arrangements, pay brokers fees, legal costs and severance. Noncash charges of
$2.2 million in 1994 reduced the reserve primarily for asset write-offs.
Discontinued operations used net cash of $1.9 million in 1995
primarily for legal expenditures incurred to defend the Company in a 1991
saltwater pollution lawsuit. Net cash of $.3 million in 1994 related to
payments for operations disposed of in prior years.
In 1994 the Company issued restricted stock grants under the 1986
stock incentive plan, as amended in 1992, to employees of the Company. The
noncash transaction was completed by issuing shares of treasury stock. The
market value of the shares granted amounted to $.3 million and was charged to
selling expense in 1994. On January 28, 1996 the restrictions expired and in
February 1996, 59,301 shares were issued.
In April 1993 the Company acquired a 49.5% interest in Sunbelt. The
noncash acquisition was completed by issuing 1.94 million shares of the
Company's common stock at the then market value of $17.7 million in exchange
for 4.2 million shares of Sunbelt. At 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 1994 the Company sold its interest in Sunbelt for
cash, which resulted in a net gain of $3.6 million.
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Net cash used for investing activities was $5.2 million in 1995. Net
cash provided in 1994 was $1.4 million, which included the net proceeds from
the sale of the Company's interest in Sunbelt.
Net cash used for financing activities was $43.8 million in 1995,
which included the payment of long-term debt and capital lease obligations of
$77.1 million (principally the mortgage notes of $76 million). Offsetting, in
part, the mortgage note repayment was $35 million of new mortgage financings,
which the Company entered into during the third and fourth quarters of 1995.
Interest rates on the new mortgage notes vary from 7.8% to 8.7%, and the notes
mature with balloon payments on varying dates from February 1, 2001 to February
1, 2006. Net cash used for financing activities was $18.9 million in 1994,
which included the repayment of $13.2 million of 7% Subordinated Debentures on
February 1, 1994 and payments of long-term debt.
The weighted average interest rate on debt outstanding at January 28,
1996 was 10%. The Company has a $25 million unsecured credit agreement with a
bank which expires May 31, 1996. The 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 the agreement at January 28, 1996.
As of February 28, 1996 the Company had $25 million outstanding under
the unsecured credit agreement. The Company plans either to extend the
maturity of the existing credit facility or negotiate a new credit facility
prior to May 31, 1996. If the Company is unable to secure a replacement credit
facility, the Company believes that its cash flow from operations will be
sufficient to meet its working capital requirements. The Company, if
necessary, could raise capital through a) additional mortgage financings
(currently there are 64 properties having a net book value of approximately $95
million available for such financing), b) expense reductions or c) new debt
offerings. The Company is required to maintain a minimum credit facility of
$15 million at all times prior to May 31, 1997 under $5 million of the new
mortgage financings.
Under the most restrictive provisions of any of the Company's debt
agreements, total shareholders' equity available to pay cash dividends or
purchase treasury stock was below the required minimum level by $10.8 million
at January 28, 1996, thus prohibiting the Company from paying cash dividends or
purchasing treasury stock. None of the Company's debt agreements affect its
ability to declare and pay a stock dividend. On February 28, 1996 a 5% stock
dividend for shareholders of record on March 15, 1996 was declared. The stock
dividend is payable on April 5, 1996. The Company was in compliance with all
other covenants.
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Total shareholders' equity in 1995 decreased $7.5 million to $110.2
million from $117.7 million in 1994, due primarily to the 1995 net loss.
Long-term debt as a percentage of total capitalization decreased from 67% in
1994 to 64% in 1995.
In December 1988 the Board of Directors authorized the repurchase, in
open market transactions, of up to 2,000,000 additional shares of the Company's
common stock. As of January 28, 1996 the total remaining authorization was for
628,750 shares. The Company did not repurchase any shares in fiscal 1995 or
1994.
Working Capital
Working capital amounted to $45 million at January 28, 1996 compared to $73
million at January 29, 1995. The ratio of current assets to current
liabilities was 1.5 in 1995 compared to 1.7 in 1994. Working capital included
$30 million of cash and cash equivalents at January 28, 1996 compared to $83
million of cash and cash equivalents at January 29, 1995.
The Company has sufficient cash and cash equivalents and plans to
generate sufficient cash flow from operations to meet its seasonal working
capital needs, pay approximately $20 million in fixed interest charges and to
fund capital expenditures of approximately $6 million for 1996. In 1996 the
Company plans to open two to three new stores, relocate three to four stores
and to remodel three to four existing stores.
Inflation
Inflation has been modest in recent years and has not had a significant effect
on the Company. If merchandise costs were to increase because of inflation,
management believes such increases could be recovered through higher selling
prices, since virtually all retailers would be similarly affected.
Recent Accounting Pronouncements
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets" (SFAS 121). The effect of implementing SFAS 121 is not
expected to be material to the Company's financial position or results of
operations. Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123) issued in October 1995 sets forth
standards for accounting for stock-based compensation or allows companies to
continue to account for stock-based compensation under the requirements of
Accounting Principles Board (APB) Opinion No. 25 and make additional disclosure
in the notes to the financial
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statements. It is the Company's intention to continue to account for
stock-based compensation in accordance with APB Opinion No. 25 and provide the
additional disclosure in the notes to the financial statements beginning in
1996.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
The Company's consolidated financial statements and supplementary data are
listed in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
15
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
Information on Nominee and Incumbent Directors, which
appears on pages 5 and 6 of the Company's 1996 Proxy
Statement, is incorporated by reference in this
Annual Report on Form 10-K.
(b) Executive Officers
POSITION AND OFFICE WITH
NAME AGE THE COMPANY
- ---- --- ------------------------
Harris J. Ashton 63 Chairman of the Board of Directors, President and
Chief Executive Officer
William C. Boyd 66 Executive Vice President - Frank's
Scott A. Hessler 47 President and Chief Operating Officer - Frank's
Robert M. Lovejoy, Jr. 52 Vice President and Treasurer
James R. Simpson 44 Vice President and Controller
J. Theodore Everingham 56 Vice President, General
Counsel and Secretary
Mr. Ashton has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1970, and President of the Company since
1974. Prior thereto he was President and Chief Executive Officer from October
1969 to June 1970, President and Chief Administrative Officer from December
1967 to October 1969, Secretary from May 1965 to December 1967 and a Director
of the Company since May 1965.
Mr. Boyd has been Executive Vice President of Frank's since June 1987
and prior thereto was employed by Frank's in various capacities since 1949.
Mr. Hessler has been President and Chief Operating Officer of Frank's
since May 1994. He was Senior Vice President, Merchandising/Marketing of
Wherehouse Entertainment, Inc. from 1992 to 1994 and was employed by Broadway
Stores prior thereto from 1986 to 1992, most recently as Senior Vice President,
General Merchandise Manager. Prior thereto he was employed by May
16
19
Department Stores and R.H. Macy in senior merchandising positions since 1974.
Mr. Lovejoy was named Vice President on February 22, 1991. He has
been Treasurer of the Company since September 1988 and previously he had been
employed by Bankers Trust Company since 1977, most recently as Vice President,
Corporate Finance and Global Markets.
Mr. Simpson was named Vice President on February 22, 1991. He has
been Controller of the Company since July 1989. He was Senior Vice President
and Chief Financial Officer of Consumers Distributing, Inc., from January 1988
to July 1989 and was employed by Herman's Sporting Goods, Inc. from 1973 to
1988, most recently as Vice President and Controller.
Mr. Everingham was named Vice President, General Counsel and Secretary
on July 12, 1995. He was self-employed in the private practice of law from
January 1995 to July 1995 and was a partner of the law firm of Dykema Gossett
PLLC for more than five years prior thereto.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation and Other Information which appears on pages 8
to 15 of the Company's 1996 Proxy Statement is incorporated by reference in
this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on the ownership of Company securities by certain
beneficial owners and management which appears on pages 2 through 4 of the
Company's 1996 Proxy Statement is incorporated by reference in this Annual
Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on transactions with management and others which appears
on pages 6 and 7 and pages 15 and 18-19 of the Company's 1996 Proxy Statement,
is incorporated by reference in this Annual Report on Form 10-K.
17
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
A. List of documents filed as part of this report:
1. Financial Statements
Page No.
--------
- Report of Independent Accountants. F-1
- Consolidated Balance Sheets - for the years F-2
ended January 28, 1996 and January 29, 1995.
- Consolidated Statements of Income - for the F-3
years ended January 28, 1996, January 29, 1995
and January 30, 1994.
- Consolidated Statements of Changes in F-4
Shareholders' Equity - for the years ended
January 28, 1996, January 29, 1995 and
January 30, 1994.
- Consolidated Statements of Cash Flows - for the F-5
years ended January 28, 1996, January 29, 1995
and January 30, 1994.
- Notes to Consolidated Financial Statements. F-6 - F-21
2. Financial Statement Schedules
Schedules not included have been omitted because
they are not applicable or the required
information is shown in the consolidated financial
statements or notes thereto.
VIII - Valuation and qualifying accounts - F-24
years ended January 28, 1996, January
29, 1995 and January 30, 1994.
18
21
3. Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
3. Articles of Incorporation and By-laws
3.01 (a) Restated Certificate of Incorporation of the Company ("Restated Certificate"), filed
November 13, 1968. (Incorporated by reference to the Company's Annual Report on
Form 10-K for its fiscal year ended January 31, 1993, File No. 1-1066 ("1992 Form 10-K"),
Exhibit 3(a))
(b) Certificate of Amendment of the Restated Certificate, filed January 24, 1969. (Incorporated
by reference to the 1992 Form 10-K, Exhibit 3(b))
(c) Certificate of Amendment of the Restated Certificate, filed October 30, 1969. (Incorporated
by reference to the 1992 Form 10-K, Exhibit 3(c))
(d) Certificate of Amendment of the Restated Certificate, filed June 15, 1977. (Incorporated
by reference to the 1992 Form 10-K, Exhibit 3(d))
(e) Certificate of Amendment of the Restated Certificate, filed June 27, 1985. (Incorporated
by reference to the Company's Annual Report on Form 10-K for its fiscal year ended
January 26, 1992, File No. 1-1066 ("1991 Form 10-K"), Exhibit 3(f))
(f) Certificate of Amendment of the Restated Certificate, filed April 14, 1988. (Filed herewith)
3.02 By-Laws of the Company, amended as of November 6, 1986. (Incorporated by reference to the 1992
Form 10-K, Exhibit 3(g))
4. Instruments Defining the Rights of Security Holders, Including Indentures
4.01 (a) Rights Agreement, dated as of March 7, 1990, by and between the Company and Manufactures Hanover
Trust Company. (Incorporated by reference to the Company's Form 8-A Registration Statement, filed
March 23, 1995 ("1995 Form 8-A"), Exhibit 1, 2)
(b) Amendment No. 1 to the Rights Agreement dated as of March 1, 1995 by and between the Company and
Chemical Bank, as successor to Manufactures Hanover Trust Company. (Incorporated by reference to
1995 Form 8-A, Exhibit 1a)
19
22
Exhibit No. Description of Exhibit
----------- ----------------------
4.02*(a) Promissory Note in the original principal amount of $690,000 dated August 31, 1995 from Frank's
Nursery & Crafts, Inc. ("Frank's") to MetLife Capital Financial Corporation ("MetLife").
(Filed herewith)
(b) Commercial Mortgage, Security Agreement, Assignment of Leases and Rents, and Fixture Filing
dated as of August 31, 1995 by and between Frank's and MetLife. (Filed herewith)
(c) Security Agreement dated as of August 31, 1995 by and between Frank's and MetLife. (Filed herewith)
(d) Assignment of Rents and Leases dated as of August 31, 1995 by and between Frank's and MetLife.
(Filed herewith)
(e) Guaranty dated as of August 31, 1995 by the Company in favor of MetLife. (Filed herewith)
4.03*(a) Mortgage Note in the original principal amount of $4,950,000 dated January 25, 1996 from Frank's to
People's Bank ("People's"). (Filed herewith)
(b) Mortgage Deed and Security Agreement dated as of January 25, 1996 by and between Frank's and People's.
(Filed herewith)
(c) Assignment of Rents and Leases dated as of January 25, 1996 by and between Frank's and People's.
(Filed herewith)
(d) Guaranty and Indemnity Agreement dated as of January 25, 1996 by the Company in favor of People's.
(Filed herewith)
(e) Escrow Agreement dated as of January 25, 1996 by and among Frank's, People's and Commonwealth Land
Title Insurance Company. (Filed herewith)
- ---------------
* See Schedule of Substantially Identical Documents filed herewith.
20
23
Exhibit No. Description of Exhibit
----------- ----------------------
4.04*(a) Promissory Note in the original principal amount of $682,878 dated March 14, 1996 from Frank's
Nursery & Crafts, Inc. ("Frank's") to Midland Loan Services, L.P. ("Midland"). (Filed herewith)
(b) Mortgage, Security Agreement and Assignment of Leases and Rents dated as of March 14, 1996 by
and between Frank's and Midland. (Filed herewith)
(c) Assignment of Rents and Leases dated as of March 14, 1996 by and between Frank's and Midland.
(Filed herewith)
(d) Guaranty dated as of March 14, 1996 by the Company in favor of Midland. (Filed herewith)
(e) Escrow Agreement dated as of March 14, 1996 by and between Frank's and Midland in its capacities as
lender and escrow agent. (Filed herewith)
4.05 (a) Indenture among the Company, certain guarantors named therein and Bankers Trust Company, as Trustee,
dated as of February 28, 1992. (Incorporated by reference to the Company's Amendment No. 2 to the
Form S-3 Registration Statement, filed January 31, 1992, Exhibit 4(c), File No. 33-43504)
(b) Specimen of 11 1/2% Senior Notes due 2002. (Incorporated by reference to the Company's Form 8-A
Registration Statement, dated February 21, 1992, Exhibit 2(a))
4.06 (a) Indenture among the Company and United States Trust Company of New York, as Trustee, dated as of
February 28, 1992. (Incorporated by reference to the Company's Amendment No. 2 to the Form S-3
Registration Statement, filed January 31, 1992, Exhibit 4(b), File No. 33-43504)
(b) Specimen of 8% Convertible Subordinated Notes due 2002. (Incorporated by reference to the Company's
Form 8-A Registration Statement, dated February 21, 1992, Exhibit 2(a))
- ---------------
* See Schedule of Substantially Identical Documents filed herewith.
21
24
Exhibit No. Description of Exhibit
----------- ----------------------
10. Material Contracts
10.01 Employment Agreement dated as of January 1, 1992 by and between the Company and Harris J. Ashton.
(Incorporated by reference to the 1992 Form 10-K, Exhibit 10(a), File No. 1-1066)
10.02 Agreement between the Company and a Trust established for the benefit of Mr. and Mrs. Ashton's beneficiaries
dated November 1, 1989. (Incorporated by reference to the Company's Annual Report on Form 10-K for its fiscal
year ended January 27, 1991, Exhibit 10(b), File No. 1-1066)
10.03(a) Frank's 1996 Executive Compensation Program.(Filed herewith)
(b) The Company's 1996 Executive Compensation Program. (Filed herewith)
10.04 Amended and Restated 1986 Stock Incentive Plan dated April 8, 1992. (Incorporated by reference to the
Company's Form S-8 Registration Statement dated July 24, 1992, Exhibit 28(a))
10.05(a) 1994 Non-Employee Directors Stock Option Plan adopted October 12, 1994. (Filed herewith)
(b) Directors' Stock Option Plan dated March 20, 1986. (Incorporated by reference to the 1991 Form 10-K,
Exhibit 10(e), File No. 1-1066)
11.01 Statement re: computation of per share earnings. (Filed herewith)
12.01 Statement re: computation of ratios. (Filed herewith)
21.01 Subsidiaries of the Registrant. (Filed herewith)
23.01 Consent of Price Waterhouse LLP. (Filed herewith)
22
25
Exhibit No. Description of Exhibit
----------- ----------------------
24.01 Powers of Attorney. (Filed herewith)
(a) C. Whitcomb Alden, Jr. Director
(b) Christopher A. Forster Director
(c) S. Joseph Fortunato Director
(d) Philip B. Harley Director
(e) Richard W. Haskel Director
(f) Edward H. Hoornstra Director
(g) Charles B. Johnson Director
(h) Kelly Ashton Sant Albano Director
27.01 Financial Data Schedule. (Filed herewith)
Documents referred to in the list of Exhibits will be furnished upon receipt by the Treasurer of the
Company, at the Company's principal executive offices referred to on the cover of this Form 10-K, of
written requests accompanied by a fee covering the Company's reasonable expenses of $3.00 for handling
and postage, plus $.25 per page for photocopying.
B. Reports on Form 8-K
During the last quarter of the period covered by this report,
the Company did not file a report on Form 8-K.
23
26
SCHEDULE OF SUBSTANTIALLY IDENTICAL DOCUMENTS
Exhibit No.
- -----------
4.02 (1) (a) Promissory notes in the original principal amounts of $975,000, $937,000, $825,000 and $825,000; (b) related
Commercial Mortgages on properties located in Merrilville, Indiana, Columbus, Indiana, Michigan City, Indiana and
South Bend, Indiana, respectively; (c) related Security Agreements; (d) related Assignments of Rents
and Leases; and (e) related Guaranties, all dated August 31, 1995 and governed by Indiana law.
(2) (a) Promissory notes in the original principal amounts of $660,000, $675,000 and $825,000; (b) related Commercial
Mortgages on properties located in Waukegan, Illinois, Evergreen Park, Illinois and Naperville, Illinois,
respectively; (c) related Security Agreements; (d) related Assignments of Rents and Leases; and (e) related
Guaranties, all dated August 31, 1995 and governed by Illinois law.
(3) (a) A promissory note in the original principal amount of $855,000; (b) related Commercial Mortgage on property
located in Coon Rapids, Minnesota; (c) related Security Agreement; (d) related Assignment of Rents and Leases;
and (e) related Guaranty, all dated August 31, 1995 and governed by Minnesota law.
(4) (a) A promissory note in the original principal amount of $1,200,000; (b) related Commercial Mortgage on property
located in Franklin, Ohio; (c) related Security Agreement; (d) related Assignment of Rents and Leases; and (e)
related Guaranty, all dated August 31, 1995 and governed by Ohio law.
(5) (a) Promissory notes in the original principal amounts of $1,125,000 and $1,125,000; (b) related Commercial
Mortgages on properties located in Clinton Township, Michigan and Canton Township, Michigan, respectively; (c)
related Security Agreements; (d) related Assignments of Rents and Leases; and (e) related Guaranties, all dated
August 31, 1995 and governed by Michigan law.
4.03 (1) (b) Mortgage and Security Agreement on property located in Kingston, New York; and (c) Assignment of Rents and
Leases, each dated as of January 25, 1996 and governed by New York law.
24
27
Exhibit No.
- -----------
4.04 (1) (a) Promissory notes in the original principal amounts of $867,548, $862,893, $857,318 and $883,802; (b) related
Mortgages on properties located in Libertyville, Illinois, Lake Zurich, Illinois, Crystal Lake, Illinois and
Schaumburg, Illinois, respectively; (c) related Assignments of Rents and Leases; (d) related Guaranties; and (e)
related Escrow Agreements, all dated January 26, 1996 and governed by Illinois law.
(2) (a) Promissory notes in the original principal amounts of $726,793 and $1,330,423; (b) related Mortgages on
properties located in Battle Creek, Michigan and Bloomfield Township, Michigan respectively; (c) related
Assignments of Rents and Leases; (d) related Guaranties; and (e) related Escrow Agreements, all dated
January 26, 1996 and governed by Michigan law.
(3) (a) Promissory notes in the original principal amounts of $956,708, $909,974 and $849,344; (b) related Mortgages
on properties located in Roseville, Minnesota, Eden Prairie, Minnesota and Eagan, Minnesota, respectively; (c)
related Assignments of Rents and Leases; (d) related Guaranties; and (e) related Escrow Agreements, all dated
January 26, 1996 and governed by Minnesota law.
(4) (a) Promissory notes in the original principal amounts of $730,026, $734,319 and $753,432; (b) related Mortgages
on properties located in Bridgeton, Missouri, St. Charles, Missouri and St. Charles, Missouri, respectively; (c)
related Assignments of Rents and Leases; (d) related Guaranties; and (e) related Escrow Agreements, all dated
January 26, 1996 and governed by Missouri law.
(5) (a) Promissory notes in the original principal amounts of $1,280,990, $1,379,474 and $1,316,019; (b) related
Mortgages on properties located in Deptford, New Jersey, Bridgewater, New Jersey and Bricktown, New Jersey,
respectively; (c) related Assignments of Rents and Leases; (d) related Guaranties; and (e) related Escrow
Agreements, all dated January 26, 1996 and governed by New Jersey law.
25
28
Exhibit No.
- -----------
4.04(cont.) (6) (a) A promissory note in the original principal amount of $1,373,432; (b) related Mortgage on property
located in Staten Island, New York; (c) related Assignment of Rents and Leases; (d) related Guaranty;
and (e) related Escrow Agreement, all dated January 26, 1996 and governed by New York law.
(7) (a) A promissory note in the original principal amount of $892,829; (b) related Mortgage on property
located in Brookhaven, Pennsylvania; (c) related Assignment of Rents and Leases; (d) related Guaranty;
and (e) related Escrow Agreement, all dated January 26, 1996 and governed by Pennsylvania law.
(8) (a) Amended and Restated Promissory Note in the original principal amount of $2,583,273.69 dated as of
December 1, 1995 from Frank's to Midland Commercial Financing Corp; (b) related Mortgages dated as of
October 16, 1995, as amended as of December 1, 1995 on properties located in Okemos, Michigan and Joliet,
Illinois; (c) related Assignments of Rents and Leases dated as of October 16, 1995, as amended as of
December 1, 1995; (d) Amended and Restated Guaranty dated as of December 1, 1995 from the Company in
favor of Midland Commercial Financing Corp; and (e) related Escrow Agreements dated as of
October 13, 1995.
26
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: April 24, 1996 By /s/ James R. Simpson
-----------------------------
James R. Simpson
Vice President and Controller
27
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
General Host Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(A)(1) and (2) on page 18 present fairly, in all
material respects, the financial position of General Host Corporation and its
subsidiaries at January 28, 1996 and January 29, 1995, and the results of their
operations and their cash flows for the three years in the period ended January
28, 1996 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Detroit, Michigan
February 28, 1996, except as to the
stock dividend described in Note 1
which is as of March 15, 1996
F-1
31
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JANUARY 28, 1996 AND JANUARY 29, 1995
1995 1994
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,901 $ 83,362
Accounts and notes receivable 3,823 3,682
Merchandise inventory 88,162 87,238
Prepaid expenses and other current assets 9,417 8,589
---------- ----------
Total current assets 131,303 182,871
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $154,830 AND $142,621 237,803 253,311
INTANGIBLES, LESS ACCUMULATED AMORTIZATION
OF $9,783 AND $8,818 16,136 17,101
OTHER ASSETS AND DEFERRED CHARGES 10,543 11,575
---------- ----------
$ 395,785 $ 464,858
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 47,776 $ 56,726
Accrued expenses 33,012 40,623
Provision for store closings
and other costs 3,347 6,379
Current portion of long-term debt 1,974 5,694
---------- ----------
Total current liabilities 86,109 109,422
---------- ----------
LONG-TERM DEBT:
Senior debt 124,898 163,311
Subordinated debt 65,000 65,000
---------- ----------
Total long-term debt 189,898 228,311
---------- ----------
OTHER LIABILITIES AND DEFERRED CREDITS 9,550 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
Capital in excess of par value 81,186 81,163
Retained earnings 79,924 97,802
---------- ----------
192,862 210,717
Cost of 8,505,096 and 9,611,497 shares of
common stock in treasury (80,618) (91,106)
Notes receivable from exercise of
stock options (2,016) (1,961)
---------- ----------
Total shareholders' equity 110,228 117,650
---------- ----------
$ 395,785 $ 464,858
========== ==========
See accompanying notes.
F-2
32
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
1995 1994 1993
---------- --------- ---------
REVENUES:
Sales $ 593,270 $ 567,987 $ 568,602
Other income 3,294 2,007 1,338
---------- --------- ---------
596,564 569,994 569,940
---------- --------- ---------
COSTS AND EXPENSES:
Cost of sales, including
buying and occupancy 431,481 402,839 425,724
Selling, general and
administrative 146,202 140,171 151,995
Provision for store closings
and other costs 22,876
Interest and debt expense 23,845 22,911 23,251
---------- --------- ---------
601,528 565,921 623,846
---------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES,
NET GAIN, NET EQUITY LOSS AND
INVESTMENT WRITE-DOWN (4,964) 4,073 (53,906)
INCOME TAX BENEFIT (625) (900) (16,389)
NET GAIN ON SALE OF AND NET EQUITY
LOSS AND WRITE-DOWN OF INVESTMENT
IN AN UNCONSOLIDATED AFFILIATE 3,612 (17,703)
---------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (4,339) 8,585 (55,220)
LOSS FROM DISCONTINUED OPERATIONS (3,000) (840)
---------- --------- ---------
NET INCOME (LOSS) $ (7,339) $ 8,585 $ (56,060)
========== ========= =========
EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations $ (.19) $ .37 $ (2.42)
Loss from discontinued operations (.13) (.03)
---------- --------- ---------
Net income (loss) $ (.32) $ .37 $ (2.45)
========== ========= =========
AVERAGE SHARES OUTSTANDING 23,249 23,244 22,860
========== ========= =========
See accompanying notes.
F-3
33
GENERAL HOST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995
AND JANUARY 30, 1994
(DOLLARS IN THOUSANDS)
Shares of Common Stock Common Capital in
---------------------------- Stock Excess of
Issued In Treasury Issued Par Value
---------- ----------- -------- ----------
BALANCE AT JANUARY 31, 1993 31,752,450 (13,676,692) $ 31,752 $ 88,937
Net loss
Cash dividends
Stock dividend 1,000,788 (3,106)
Acquisition of equity interest in
Sunbelt Nursery Group, Inc. 1,940,000 (686)
Note repayments
---------- ----------- -------- ----------
BALANCE AT JANUARY 30, 1994 31,752,450 (10,735,904) 31,752 85,145
Net income
Stock dividend 1,054,307 (3,668)
Restricted stock grants issued 68,300 (306)
Issuance of common stock 1,800 (8)
---------- ----------- -------- ----------
BALANCE AT JANUARY 29, 1995 31,752,450 (9,611,497) 31,752 81,163
Net loss
Stock dividend declared on
February 28, 1996 1,108,751 (6)
Restricted stock grants cancelled (12,350) 54
Stock option exercised 10,000
Income tax effect (net) related to
stock options and grants (25)
---------- ----------- -------- ----------
BALANCE AT JANUARY 28, 1996 31,752,450 (8,505,096) $ 31,752 $ 81,186
========== =========== ======== ==========
Notes
Receivable
Cost of from
Common Exercise Total
Retained Stock in of Stock Shareholders'
Earnings Treasury Options Equity
--------- --------- ---------- ------------
BALANCE AT JANUARY 31, 1993 $ 165,405 $(129,640) $ (2,096) $ 154,358
Net loss (56,060) (56,060)
Cash dividends (7,422) (7,422)
Stock dividend (6,380) 9,486
Acquisition of equity interest in
Sunbelt Nursery Group, Inc. 18,389 17,703
Note repayments 135 135
--------- --------- --------- -----------
BALANCE AT JANUARY 30, 1994 95,543 (101,765) (1,961) 108,714
Net income 8,585 8,585
Stock dividend (6,326) 9,994
Restricted stock grants issued 648 342
Issuance of common stock 17 9
--------- --------- --------- -----------
BALANCE AT JANUARY 29, 1995 97,802 (91,106) (1,961) 117,650
Net loss (7,339) (7,339)
Stock dividend declared on
February 28, 1996 (10,504) 10,510
Restricted stock grants cancelled (117) (63)
Stock option exercised (40) 95 (55)
Income tax effect (net) related to
stock options and grants 5 (20)
--------- --------- --------- -----------
BALANCE AT JANUARY 28, 1996 $ 79,924 $ (80,618) $ (2,016) $ 110,228
========= ========= ========= ===========
See accompanying notes.
F-4
34
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
1995 1994 1993
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (4,339) $ 8,585 $ (55,220)
Noncash adjustments:
Depreciation and amortization 22,888 23,836 24,610
Provision for store closings and other costs 22,876
Deferred income taxes (15,983)
Net equity loss and write-down of investment
in an unconsolidated affiliate 17,703
Net gain on sale of investment in an
unconsolidated affiliate (3,612)
Other (585) 1,674 129
---------- --------- ---------
17,964 30,483 (5,885)
Changes in current assets and current liabilities:
Decrease in accounts and notes receivable 2,499 2,751 4,658
(Increase) decrease in inventory (924) 569 33,354
(Increase) decrease in prepaid expenses (828) 1,333 (931)
Increase (decrease) in accounts payable (8,950) 7,175 (3,020)
Increase (decrease) in accrued expenses (8,727) 4,662 3,034
Decrease in provision for store
closings and other costs (3,621) (8,613) (3,655)
---------- --------- --------
Net cash provided by (used for)
continuing operations (2,587) 38,360 27,555
Net cash used for discontinued operations (1,905) (333) (1,286)
---------- --------- --------
(4,492) 38,027 26,269
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (5,497) (5,391) (29,946)
Proceeds from sales of property, plant and equipment 342 3,016 430
Net proceeds from the sale of investment in an
unconsolidated affiliate 3,612
Proceeds from the sales of marketable securities 120 26,690
---------- --------- ---------
Net cash provided by (used for) investing activities (5,155) 1,357 (2,826)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 34,984
Debt issue costs (1,681)
Payment of long-term debt and capital lease
obligations (77,117) (18,877) (4,486)
Cash dividends paid on common stock (7,422)
Other 135
---------- --------- ---------
Net cash used for financing activities (43,814) (18,877) (11,773)
---------- --------- ---------
Increase (decrease) in cash and cash equivalents (53,461) 20,507 11,670
Cash and cash equivalents at beginning of year 83,362 62,855 51,185
---------- --------- ---------
Cash and cash equivalents at end of year $ 29,901 $ 83,362 $ 62,855
========== ========= =========
See accompanying notes.
F-5
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACCOUNTING POLICIES
General Host is the nation's leading specialty retailer of lawn and garden
products, crafts and Christmas merchandise. Below are those accounting
policies considered to be significant.
The fiscal year is comprised of 52 or 53 weeks, ending on the last Sunday in
January. The 1995, 1994 and 1993 fiscal years each reflect a 52-week period.
The consolidated financial statements include the accounts of General Host
Corporation and its subsidiaries (the "Company"). Intercompany balances and
transactions are eliminated. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and, as
such, include amounts based on management's best estimates. Actual results
could differ from those estimates. Certain reclassifications have been made to
prior years' financial statements to conform to the 1995 presentation.
Cash equivalents are highly liquid investments, such as U.S. government
securities and bank certificates of deposit having original maturities of three
months or less, and are carried at cost plus accrued interest.
Merchandise inventories are stated at the lower of cost or market, with cost
being determined under the first-in, first-out method.
Pre-Opening costs are costs incurred in the opening of new stores (primarily
payroll costs) that are capitalized prior to the opening of a new store and
amortized over a one year period commencing with the first period after the new
store opens.
Advertising costs are expensed when the advertising first takes place.
Advertising expenditures were $22,073,000 for 1995, $21,721,000 for 1994 and
$22,802,000 for 1993.
Store closing costs include provisions for estimated future net lease
obligations, nonrecoverable investments in fixed assets, and other expenses
directly related to discontinuance of operations and in 1993 included estimated
operating losses through expected closing dates. Provisions for store closings
are charged to operations in the period when the decision is made to close a
retail unit.
F-6
36
Property, plant and equipment, including significant improvements thereto, are
recorded at cost. Expenditures for repairs and maintenance are charged to
expense as incurred. The cost of plant and equipment is depreciated over the
estimated useful lives using the straight-line method. Estimated useful lives,
including capital leases, are buildings, 10-40 years or, if shorter, the terms
of the lease; equipment, 3-20 years. Leasehold improvements are depreciated
over the terms of the respective leases or, if shorter, the estimated useful
lives. Upon sale or other disposition of assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain
or loss, if any, is reflected in the statements of income.
Intangibles, including costs in excess of net assets of acquired businesses,
are amortized over the estimated periods of related benefit, ranging from 10 to
40 years, using the straight-line method. On an annual basis the Company
reviews the recoverability of intangibles, specifically goodwill. The
measurement of possible impairment is based primarily on the ability to recover
the balance of the goodwill from expected future operating cash flows on an
undiscounted basis.
Other postretirement benefits are recognized in the financial statements during
the period in which service is provided.
Leases that meet the accounting criteria for capital leases are recorded as
property, plant and equipment, and the related capital lease obligations (the
aggregate present value of minimum future lease payments, excluding executory
costs such as taxes, maintenance and insurance) are included in long-term debt.
Depreciation and interest are charged to expense, and rent payments are treated
as payments of long-term debt, accrued interest and executory costs. All other
leases are accounted for as operating leases, and rent payments are charged to
expense as incurred.
Deferred income tax assets and liabilities are determined based on the
difference between the financial carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
Primary earnings per share is based on the weighted average number of common
shares outstanding, which includes 1,108,751 shares representing the 5% stock
dividend described below.
F-7
37
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. Fully
diluted earnings per share impacted the first quarters of 1995 and 1994, the
fourth quarter of 1994 and the first quarter of 1993.
Subsequent to fiscal 1995 a 5% stock dividend was declared on February 28, 1996
by the Board of Directors for shareholders of record on March 15, 1996. The
stock dividend is payable on April 5, 1996 and all stock related data in the
consolidated financial statements reflect the stock dividend for all periods
presented.
NOTE 2: PROVISION FOR STORE CLOSINGS
During the fourth quarter of 1993 the Company approved a plan to exit 26
unprofitable Frank's stores primarily in the Nashville, South Florida and
Orlando markets and to dispose of certain other properties. The decision
resulted in the Company recording a reserve of $22,876,000 ($15,098,000 net of
tax benefit) in the 1993 fourth quarter comprised primarily of $19,944,000 for
the closing of the 26 stores and $2,932,000 primarily for expected losses on
the sale of the other properties. The $19,944,000 store closing reserve
included a provision for termination of lease agreements, brokers fees and
legal costs of $12,862,000 representing expected future cash outflows; a
provision of $3,518,000 for expected losses from the sale of real estate and
the write-off of leasehold improvements and equipment of the closed stores; and
a provision of $3,564,000 representing operating losses for January 1994
through closure date and employee severance for the closed stores. All stores
were closed as of February 7, 1994, with the exception of one store which
closed March 7, 1994.
As of January 28, 1996 the Company had terminated leases and entered
into sublease arrangements for all but five stores. The annual sublease income
generated approximates the Company's annual costs. The Company retains its
primary obligation under the prime lease should a sublease tenant default on
its sublease obligation.
At January 28, 1996 the remaining reserve of $4,347,000 primarily
represents lease termination costs for the remaining five store locations and
estimated losses associated with the sale and or sublease of real estate.
During 1995 the Company utilized net cash of $3,621,000 to pay lease
termination costs for leases terminated at the end of fiscal 1994 and in 1995
and to pay brokers fees and legal costs.
F-8
38
NOTE 3: EQUITY INTEREST IN SUNBELT NURSERY GROUP, INC.
In April 1993 the Company acquired a 49.5% interest in Sunbelt Nursery Group,
Inc. ("Sunbelt") by exchanging 1,940,000 shares of its common stock for
4,200,000 shares of common stock of Sunbelt held by Pier 1 Imports, Inc. The
Sunbelt investment was recorded on the General Host consolidated balance sheet
at the time of acquisition based upon fair value. The 4,200,000 shares of
Sunbelt were subsequently pledged as security for payment of a $12,000,000
revolving credit facility between Sunbelt and Pier 1, Imports, Inc. which was
scheduled to mature in April 1994.
The Company received no assurances that the maturity of this facility would be
extended or that Sunbelt had the ability to repay this facility [which resulted
in a going concern qualification in the audit opinion to Sunbelt's financial
statements for the year ended January 31, 1994]. As a result there existed the
possibility that Pier 1 Imports, Inc. would foreclose on the Sunbelt shares
that were pledged as security. Consequently, the Company decided to reduce to
zero the carrying value of its investment in Sunbelt as of fiscal year end
1993. This resulted in a charge of $15,746,000 which, when combined with the
net equity losses recognized through the 1993 third quarter of $1,957,000,
amounted to $17,703,000 for fiscal 1993. In October 1994 the Company sold its
interest in Sunbelt for cash, which resulted in a net gain of $3,612,000.
F-9
39
NOTE 4: DISCONTINUED OPERATIONS
In prior years' the Company has sold businesses that have been treated as
discontinued operations for financial statement presentation.
The assets and liabilities for discontinued operations sold in prior years'
were as follows:
- ------------------------------------------------------------
(In thousands) 1995 1994
- ------------------------------------------------------------
Prepaid pension asset (Note 12) $ 501 $ 372
======== ========
Accrued expenses $ 1,721 $ 599
Other liabilities 1,401 1,427
-------- --------
$ 3,122 $ 2,026
======== ========
In 1995 the Company charged to discontinued operations a loss of
$3,000,000, or $.13 per share, as a result of a judgment against the Company in
a 1991 saltwater pollution lawsuit (Note 15). In 1993 the Company charged to
discontinued operations a loss of $840,000, or $.03 per share, for lease
obligations that extend to the year 2001 for businesses sold in prior years
(Note 15).
NOTE 5: OTHER INCOME
- ------------------------------------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------------
Interest on cash
equivalents and
marketable securities $ 2,363 $ 1,365 $ 1,046
Miscellaneous 931 642 292
-------- -------- --------
$ 3,294 $ 2,007 $ 1,338
======== ======== ========
F-10
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NOTE 6: INCOME TAXES
The components of the income tax provisions are as follows:
- -----------------------------------------------------------------------
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------
CONTINUING OPERATIONS:
Current federal income taxes $ (25) $ (900) $ (1,730)
Current state and other income taxes (600) 1,324
Deferred federal income taxes (13,859)
Deferred state and other income taxes (2,124)
-------- -------- --------
Total income tax benefit $ (625) $ (900) $(16,389)
======== ======== ========
Differences between income taxes of continuing operations and income
taxes based on statutory federal income tax rates applied to income before
taxes are as follows:
- ------------------------------------------------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------
Federal income taxes based on
statutory rates $ (2,708) $ 2,613 $(18,867)
Increases (decreases) in rates
resulting from:
Limitation (utilization)
of tax loss carryforwards 2,145 (2,207) 2,262
Elimination of reserves no
longer required (600) (1,000) (528)
Effect of graduated rates 539
Amortization of intangibles
and other acquisition costs 136 136 136
Other 402 (442) 69
-------- -------- --------
$ (625) $ (900) $(16,389)
======== ======== ========
F-11
41
The tax effects of the principal temporary deferred tax assets and
liabilities are as follows:
- ----------------------------------------------------------------------
(In thousands) 1995 1994
- ----------------------------------------------------------------------
LIABILITIES:
Property, plant & equipment $ (16,168) $ (17,004)
--------- ---------
Gross deferred tax liabilities (16,168) (17,004)
--------- ---------
ASSETS:
Inventory 1,043 1,134
Accrued expenses 3,091 2,962
Other 244 717
Loss on equity investment in an
unconsolidated affiliate 721 728
Store closing reserve 1,545 3,148
NOL carryforward 18,029 14,675
--------- ---------
Gross deferred tax assets 24,673 23,364
--------- ---------
Net deferred tax asset 8,505 6,360
Valuation allowance (8,505) (6,360)
--------- ---------
$ -- $ --
========= =========
In 1995, the tax provision was unfavorably impacted by an increase in
the valuation allowance as a result of the current year loss not being
benefitted. A valuation allowance was provided in 1993 against the net
deferred tax asset resulting from the Company's net operating loss and the loss
from an investment in an unconsolidated affiliate. Due to the Company's
historical operating results prior to 1995, a valuation allowance for the
deferred tax asset balance remained at January 28, 1996.
At January 28, 1996 the federal tax NOL carryforwards approximated
$53,000,000. As a result of the valuation allowance, approximately $20,700,000
of these carryforwards have not been benefitted and utilization will be
recognized against future income. The net operating loss will expire as
follows: in January 2008 -- $5,000,000, January 2009 -- $39,000,000, January
2010 -- $3,000,000 and January 2011 -- $6,000,000.
F-12
42
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
- ------------------------------------------------------------------
(In thousands) 1995 1994
- ------------------------------------------------------------------
Land $ 45,928 $ 46,623
Buildings:
Owned 168,964 168,248
Capital leases (Note 11) 17,445 18,050
Equipment 106,610 111,792
Leasehold improvements 48,107 47,291
Construction in progress 5,579 3,928
-------- --------
392,633 395,932
Less accumulated depreciation,
including capital lease amounts
of $10,046 and $9,780 154,830 142,621
-------- --------
$237,803 $253,311
======== ========
NOTE 8: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable include amounts payable to brokers for purchases of cash
equivalents of $19,997,000 in 1995 and $14,998,000 in 1994.
Accrued expenses are as follows:
- -----------------------------------------------------------------
(In thousands) 1995 1994
- -----------------------------------------------------------------
Income taxes $ 301 $ 1,007
Taxes, other than income taxes 6,580 6,595
Payroll 2,338 4,063
Insurance 3,669 3,943
Interest 6,637 8,013
Litigation 1,336
Other 12,151 17,002
------- -------
$33,012 $40,623
======= =======
F-13
43
NOTE 9: LONG-TERM DEBT
- -----------------------------------------------------------------
(In thousands) 1995 1994
- -----------------------------------------------------------------
SENIOR DEBT:
11 1/2% Senior Notes due
February 15, 2002 $ 78,000 $ 78,000
Adjustable Rate First Mortgage
Notes due March 29, 1996 76,000
Mortgage notes due on varying
dates from February 1, 2001
to February 1, 2006 34,804
Capital leases (Note 11) 13,384 14,172
Other 684 833
-------- --------
126,872 169,005
Less current portion 1,974 5,694
-------- --------
124,898 163,311
-------- --------
SUBORDINATED DEBT:
8% Convertible Subordinated Notes
due February 15, 2002 65,000 65,000
-------- --------
Total long-term debt $189,898 $228,311
======== ========
The Senior Notes, issued at par, bear interest at 11 1/2%. The Convertible
Subordinated Notes, issued at par, bear interest at 8% and are convertible into
common stock of the Company at a conversion price of $8.96 per share, subject
to adjustments in certain events.
The Company repaid the remaining balance of the Adjustable Rate First
Mortgage Notes due March 29, 1996 during the last half of 1995. As part of the
plan to repay the mortgage notes, the Company entered into new mortgage
financings totalling $34,984,000 during the third and fourth quarters of 1995.
Interest rates on the new mortgage notes vary from 7.8% to 8.7%, and the notes
mature with balloon payments on varying dates from February 1, 2001 to February
1, 2006. The new mortgage notes are secured by 37 nursery and crafts retail
stores having a net book value of $47,260,000 at January 28, 1996.
The Company has a $25,000,000 unsecured credit agreement with a bank.
The credit agreement is committed through May 31, 1996. There is a commitment
fee of 1/2 of 1% on the unused portion. At the Company's option, interest
under the agreement may be based on the London Interbank Offering Rate (LIBOR)
or on
F-14
44
the bank's prime rate. On November 6, 1995 the Company borrowed $10,000,000
under the agreement, which was repaid on December 6, 1995. As of February 28,
1996, $25,000,000 was outstanding under the agreement.
The bank agreement requires the Company, among other things, to
maintain minimum levels of earnings, tangible net worth and certain minimum
financial ratios. In addition, the Company is required to maintain a minimum
credit facility of $15,000,000 at all times prior to May 31, 1997 under
$4,950,000 of the new mortgage financings. The Company was in compliance with
all of the bank agreement covenants and other restrictions under all other debt
agreements at January 28, 1996.
Under the most restrictive provisions of any of the Company's debt
agreements, total shareholders' equity available to pay cash dividends or
purchase treasury stock was below the required minimum level by $10,799,000 at
January 28, 1996.
Aggregate maturities of long-term debt for the five years subsequent
to 1995, excluding capital lease obligations (Note 11), are $1,054,000 in 1996,
$1,171,000 in 1997, $1,306,000 in 1998, $1,327,000 in 1999 and $1,304,000 in
2000.
NOTE 10: SHAREHOLDERS' EQUITY
The Company's 1986 stock incentive plan, as amended in 1992, provides for the
granting of options to purchase up to 2,500,000 shares of common stock and
expires by its terms on March 19, 1996. Options are granted to key employees
and expire no later than ten years after grant. Effective April 7, 1995 the
exercise prices of all outstanding options under the plan were adjusted to
reflect the 5% stock dividends paid on April 7, 1995 and April 8, 1994. The
1996 stock incentive plan is subject to shareholder approval at the annual
meeting of shareholders in May 1996. In April 1994 the Company issued
restricted stock grants under the plan to employees of the Company. The market
value of the shares granted amounted to $341,500 for fiscal 1994 and was
charged to selling expense. Restrictions on the grants expired on January 28,
1996 and in February 1996, 59,301 shares were issued. The directors' stock
option plan provides for the issuance of options to members of the Board of
Directors who are not employees of the Company; options expire no later than
five years after grant. In October 1994 the Company granted each outside
director options to purchase a total of 25,000 shares of common stock under a
newly created plan that was approved by the shareholders in May 1995 and
therefore have been included in the following option information for fiscal
1994. Effective April 7, 1995 all
F-15
45
outstanding options under the plan were adjusted to reflect the 5% stock
dividend paid on April 7, 1995 and the resulting additional options of 11,250
were included in options granted for fiscal 1995. Under both plans, options
are granted at prices not less than fair market value on the date of grant.
Changes in stock options during the three years ended January 28, 1996
are as follows:
Shares Option Prices
--------- -------------
OUTSTANDING AT JANUARY 31, 1993 803,250 $ 5.50-14.38
Options granted 166,150 8.38-10.06
Options cancelled (26,000) 8.50-10.06
--------- ------------
OUTSTANDING AT JANUARY 30, 1994 943,400 5.50-14.38
Options granted 356,000 4.44- 5.75
Options cancelled (64,000) 5.50-14.38
--------- ------------
OUTSTANDING AT JANUARY 29, 1995 1,235,400 4.44-14.38
Options granted 633,038 3.75- 7.25
Options exercised (15,000) 4.96- 5.46
Options cancelled (678,750) 4.44-12.97
--------- -----------
OUTSTANDING AT JANUARY 28, 1996 1,174,688 $ 3.75-12.97
========= ============
At January 28, 1996 outstanding options for 786,988 shares are
exercisable and 1,440,099 shares are available for granting additional options.
During 1995 the Company cancelled 540,000 options (300,000 at $7.73 and 240,000
at $7.45). These options were reissued at $3.75.
The Company's certificate of incorporation authorizes the issuance of
1,000,000 shares of $1.00 par value preferred stock, none of which have been
issued.
Each share of the Company's common stock carries with it one right to
purchase one additional share of common stock from the Company for $60 upon the
occurrence of certain events, at which time the rights become exercisable.
Separate rights certificates will then be issued and the rights can be traded
separately. In the event the rights become exercisable and thereafter the
Company is acquired in a merger or other business combination, each right will
entitle the holder, upon payment of the exercise price, to receive a number of
shares of the surviving corporation's common stock equal to the exercise price
divided by 50% of the market price. At the Company's option, the rights are
redeemable in their entirety at $.01 per right. The rights are subject to
adjustment to prevent dilution and expire March 7, 2000.
F-16
46
NOTE 11: LEASES
The Company's capital leases are principally for offices and retail stores, for
periods ranging up to 25 years. The Company's operating leases are principally
for retail store locations.
At January 28, 1996 lease obligations under capital leases, included
in long-term debt (Note 9), and operating leases with lease terms longer than
one year, are as follows:
- ----------------------------------------------------------------
Capital Operating
(In thousands) Leases Leases
- ----------------------------------------------------------------
Payable in 1996 $ 2,369 $ 14,401
1997 2,499 13,698
1998 2,422 12,742
1999 2,363 11,960
2000 2,322 11,395
Payable after 2000 12,633 83,569
-------- --------
Total minimum lease obligations 24,608 $147,765
========
Executory costs (43)
Amount representing future interest (11,180)
--------
Present value of net minimum lease
obligations $ 13,385
========
Future sublease rental income $ 4,995
========
Rent expense was $22,473,000 in 1995, $21,045,000 in 1994 and
$24,602,000 in 1993. Rent expense includes additional rentals based on retail
store sales (in excess of the minimums specified in leases) of $815,000 in
1995, $760,000 in 1994 and $804,000 in 1993 and is reduced by sublease rental
income of $832,000 in 1995, $873,000 in 1994 and $824,000 in 1993.
NOTE 12: PENSION PLAN
Retirement benefits for both salaried and hourly employees are provided through
a noncontributory, defined contribution plan. Contributions are determined by
the Board of Directors based upon assessment of the Company's fiscal year's
profitability as related to pre-established financial objectives. There were
no contributions made to the plan for 1995 and 1993. The 1994 contribution
approved by the Board of Directors was $500,000. The plan also includes a
401(k)component, permitting employees to
F-17
47
invest from 1% to 10% of their salary in the employee's choice of an equity
fund, a balanced fund or a fixed income fund. The Company does not match
employee contributions.
The Company also sponsors a noncontributory, defined benefit pension
plan, which covers former hourly employees of several discontinued operations
and provides pension benefits of stated amounts multiplied by years of service.
The Company contributes to this plan based on funding requirements determined
by consulting actuaries using the accrued benefit (unit credit) method.
Net periodic pension cost consisted of the following:
- ------------------------------------------------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------
Interest cost on projected benefit
obligations $ 2,139 $ 2,065 $ 2,289
Actual return on plan assets (2,269) (2,684) (3,342)
Net amortization and deferrals 610
-------- -------- --------
Net periodic pension income $ (130) $ (619) $ (443)
======== ======== ========
The following table summarizes the plan's funding status and the asset
recognized in the consolidated balance sheets as of January 28, 1996 and
January 29, 1995:
- ------------------------------------------------------------
(In thousands) 1995 1994
- ------------------------------------------------------------
Actuarial present value of
pension benefit obligations,
all of which are vested $(27,439) $(26,892)
Plan assets at fair value 29,332 26,906
Unrecognized (gain) loss (1,392) 358
-------- --------
Pension asset in the
consolidated balance sheets $ 501 $ 372
======== ========
The above amounts were determined as of December 31 each year. The
assumed discount rate for projected benefit obligations was 7.25% for 1995 and
8.5% for 1994. The expected long-term return on plan assets was 9% for 1995
and 1994.
The assets of the plan consist primarily of U.S. government securities
and listed stocks and bonds, including common stock of the Company with a
quoted market value of $1,550,000 at December 31, 1995 and $1,707,000 at
December 31, 1994.
F-18
48
NOTE 13: OTHER POSTRETIREMENT BENEFITS
The Company provides certain life insurance benefits to eligible retired
employees. The cost of this benefit is not significant to the Company. In
addition, the Company has provided for certain health care and life insurance
benefits which cover former hourly employees of several discontinued
operations.
The Company adopted SFAS No. 106 as of February 1, 1994. The
Statement requires that the cost of such benefits be recognized in the
financial statements during the period employees provide service to the
Company. The Company elected to immediately recognize the accumulated
liability. At the date of adoption, the unrecognized accumulated liability was
not material to the consolidated financial statements of the Company.
The accrued postretirement liability recognized in the consolidated
balance sheets was $1,577,000 at January 28, 1996 and $1,598,000 at January 29,
1995. The net periodic postretirement benefit cost was $105,000 for 1995 and
$119,000 for 1994. The amounts were determined as of December 31 each year.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25% for 1995 and 8.5% for 1994. The assumed health care cost
trend rate used in measuring the accumulated postretirement benefit obligation
was 9.9% in 1995 grading down uniformly to 5.25% in 2005. If the health care
cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation would be increased by 7.2% for 1995. The
effect of this change on the interest cost component of net periodic
postretirement benefit cost for 1995 would be an increase of 6.6%.
NOTE 14: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents
The carrying value amount approximates fair value because of the short maturity
of those investments.
F-19
49
Other investments
The Company's other investments represent investments in untraded companies.
Based upon the Company's review of the financial statements of these companies
the carrying amount approximates fair value.
Long-term debt
The fair value of the Company's long-term debt is estimated based upon the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
The estimated fair values of the Company's financial instruments at
January 28, 1996 and January 29, 1995 are as follows:
- ----------------------------------------------------------------------------
(In thousands) 1995 1994
- ----------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- ----------------------------------------------------------------------------
Cash and cash equivalents $ 29,901 $ 29,901 $ 83,362 $ 83,362
Other investments 1,088 1,088 3,344 3,344
Long-term debt 191,872 179,083 234,005 216,065
NOTE 15: LITIGATION AND OTHER CONTINGENCIES
In the normal course of business the Company is subject to various claims. In
the opinion of management, any ultimate liability arising from or related to
these claims should not have a material adverse effect on future results of
operations or the consolidated financial position of the Company.
In 1995 the Company charged to discontinued operations a loss of
$3,000,000, or $.13 per share, as a result of a judgment against the Company in
a 1991 saltwater pollution lawsuit. The Company has appealed. The lawsuit
involves claims by farmers in Rice County, Kansas who alleged that saltwater
pollution of the ground water by the American Salt Company, a former subsidiary
of the Company, rendered it unfit for irrigation. In August 1995, a jury
verdict awarded the plaintiffs $480,000 in compensatory damages for the period
1989 to 1995 and in October 1995 the plaintiffs were awarded $550,000 in
punitive damages and the judgment was entered. The judgment, together with
approximately $1,130,000 in legal defense costs, $470,000 in related costs,
principally for technical consulting and expert witnesses, and $370,000 for
future legal and related costs, totalled $3,000,000.
F-20
50
The Company has certain lease obligations which extend to the year
2001 for businesses sold. In the opinion of management, any ultimate liability
arising from or related to these obligations, to the extent not otherwise
provided for, should not have a material adverse effect on future operations or
the consolidated financial position of the Company.
NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION
Income tax payments were $449,000 in 1995, $414,000 in 1994 and $922,000 in
1993. Interest payments were $23,286,000 in 1995, $21,431,000 in 1994, and
$20,912,000 in 1993. Noncash investing and financing activities for 1994
included the purchase of land for $891,000 in exchange for a mortgage payable
and the issuance of 68,300 shares of common stock representing restricted stock
grants. 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.
Net cash used for discontinued operations:
Net cash used for discontinued operations for fiscal 1995, 1994 and 1993 is
primarily for payments related to businesses sold in prior years, which were
treated as discontinued operations.
F-21
51
QUARTERLY INFORMATION
- --------------------------------------------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
(12 wks) (12 wks) (12 wks) (16 wks)
- --------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
1995 1,6
Sales $168,555 $ 95,976 $126,741 $201,998
======== ======== ======== ========
Cost of sales, including buying and occupancy $121,919 $ 75,695 $ 95,450 $138,417
======== ======== ======== ========
Income (loss) from continuing operations
before income taxes $ (478) $(12,782) $ (3,555) $ 11,851
======== ======== ======== ========
Loss from discontinued operations $ (207) $ (2,793) $ $
======== ======== ======== ========
Net income (loss) $ (766) $(14,692) $ (2,915)2 $ 11,034
======== ======== ======== ========
Primary earnings (loss) per share 7:
Income (loss) from continuing operations $ (.02) $ (.51) $ (.13) $ .47
Loss from discontinued operations (.01) (.12)
-------- -------- -------- --------
Net income (loss) $ (.03) $ (.63) $ (.13) $ .47
======== ======== ======== ========
Fully diluted earnings (loss) per share 7:
Income (loss) from continuing operations $ (.02) $ (.51) $ (.13) $ .41
Loss from discontinued operations (.01) (.12)
-------- -------- -------- --------
Net income (loss) $ (.03) $ (.63) $ (.13) $ .41
======== ======== ======== ========
1994 3,6
Sales $169,870 $ 98,022 $114,905 $185,190
======== ======== ======== ========
Cost of sales, including buying and occupancy $115,448 $ 76,217 $ 84,595 $126,579
======== ======== ======== ========
Income (loss) from continuing operations
before income taxes $ 9,674 $(12,528) $ (3,857) $ 10,784
======== ======== ======== ========
Net income (loss) $ 9,574 $ (7,047)4,5 $ (3,373) $ 9,431
======== ======== ======== ========
Primary earnings (loss) per share 7:
Net income (loss) $ .41 $ (.30) $ (.14) $ .41
======== ======== ======== ========
Fully diluted earnings (loss) per share 7:
Net income (loss) $ .35 $ (.30) $ (.14) $ .36
======== ======== ======== ========
1 Had the actual annual effective tax rate been applied to the quarterly
information, the first quarter net income would have increased by
$817, or $.04 per share, the second quarter net loss would have
increased by $40, with no per share effect, the third quarter net loss
would have increased by $1,090, or $.05 per share, and the fourth
quarter net loss would have decreased by $313, or $.01 per share.
2 Includes $600 of income tax reserves no longer required.
3 Had the actual annual effective tax rate been applied to the quarterly
information, the first quarter net income would have increased by
$1,353, or $.06 per share, the second quarter net loss would have
increased by $484, or $.02 per share, and the third quarter net loss
would have increased by $869, or $.04 per share.
4 Includes a net gain of $3,612 from the sale of the Company's
investment in Sunbelt Nursery Group, Inc.
5 Includes $1,000 of income tax reserves no longer required.
6 Share and per share data have been restated to reflect the 5% stock
dividend declared on February 28, 1996.
7 Due to changes in the number of shares outstanding during the year,
quarterly earnings per share do not necessarily add to the totals for
the year.
F-22
52
FIVE YEAR FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Sales of continuing operations $593,270 $567,987 $568,602 $557,818 $520,072
Income (loss) from continuing operations before
income taxes $ (4,964) $ 4,073 $(53,906) $ 1,005 $ 14,601 8
Income (loss) from continuing operations $ (4,339) 1 $ 8,585 2,3 $(55,220)4 $ 2,853 6 $ 8,703
Net income (loss) $ (7,339) $ 8,585 $(56,060) $ 5,322 7 $ 13,783 9
Income (loss) per share from continuing operations 10 $ (.19) 1 $ .37 2,3 $ (2.42)4 $ .13 6 $ .41 8
Net income (loss) per share 10 $ (.32) $ .37 $ (2.45) $ .25 7 $ .65 9
Cash dividends per share $ .00 12 $ .00 12 $ .38 $ .36 $ .34
Average shares outstanding 10 23,249 23,244 22,860 21,152 21,184
Working capital $ 45,194 $ 73,499 $ 50,525 $130,542 $ 62,278
Ratio of current assets to current liabilities 1.5-1 1.7-1 1.4-1 2.4-1 1.6-1
Total year-end assets $395,785 $464,858 $478,205 $531,019 $435,304
Long-term debt, including current portion $191,872 $234,005 $256,875 $262,014 $166,043
Shareholders' equity $110,228 $117,650 $108,714 $154,358 $155,389
Long-term debt as a percentage of total capitalization 64% 67% 70% 63% 52%
Ratio of earnings to fixed charges .85 1.27 (.71)5 1.00 1.59
Number of common shares outstanding 10 23,247 23,250 23,180 21,240 21,139
Book value per share 10,11 $ 4.83 $ 5.14 $ 4.77 $ 7.37 $ 7.42
Price range per share as traded on the
New York Stock Exchange $7 5/8-3 5/8 $6 7/8-3 3/4 $10 5/8-5 7/8 $10 1/2-7 3/4 $9 3/4-5 7/8
- ------------------------------------------------------------------------------------------------------------------------------------
1 Includes $600 of income tax reserves no longer required.
2 Includes a net gain of $3,612 from the sale of the Company's
investment in Sunbelt Nursery Group, Inc.
3 Includes $1,000 of income tax reserves no longer required.
4 Includes $22,876 ($15,098 net of taxes) representing a reserve for
store closings and other costs and $17,703 representing the net equity
loss and write-down of the Sunbelt investment.
5 Pre-tax earnings from continuing operations were inadequate to cover
fixed charges to the extent of $54,266.
6 Includes $1,914 of income tax reserves no longer required.
7 Includes $2,850 representing the cumulative effect of the Company's
adoption of SFAS No. 109, "Accounting for Income Taxes".
8 Includes gain from the sale of Calloway's Nursery, Inc. of
approximately $13,503 ($7,775 net of taxes).
9 Includes $5,940 of income tax reserves no longer required that were
related to discontinued operations.
10 Share and per share data have been restated to reflect the 5% stock
dividend described in Note 1 of the Notes to Consolidated Financial
Statements.
11 Includes notes receivable from exercise of stock options.
12 In lieu of a cash dividend, a 5% stock dividend was distributed.
F-23
53
Schedule VIII
GENERAL HOST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED JANUARY 28, 1996
(In thousands)
Additions
-----------------------
Balance, Charged Charged Balance,
Beginning to Costs to Other End
of Year and Expenses Accounts Deductions of Year
--------- ------------ -------- ---------- ---------
Deducted from accounts receivable:
Allowance for doubtful accounts $ 200 $ 200
Non-current assets:
Accumulated amortization of
intangible assets 8,818 $ 965 $ 9,783
Accumulated amortization of
deferred mortgage costs 3,938 1,138 5,076
Other liabilities and deferred credits:
Estimated liabilities in connection
with discontinued operations 1,427 132 158 (1) 1,401
Other liabilities 6,048 1,100 7,148
(1) Represents payments of liabilities.
F-24
54
Schedule VIII
GENERAL HOST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED JANUARY 29, 1995
(In thousands)
Additions
-----------------------
Balance, Charged Charged Balance,
Beginning to Costs to Other End
of Year and Expenses Accounts Deductions of Year
--------- ------------ -------- ---------- ---------
Deducted from accounts receivable:
Allowance for doubtful accounts $ 200 $ 200
Non-current assets:
Accumulated amortization of
intangible assets 7,881 $ 937 8,818
Accumulated amortization of
deferred mortgage costs 3,258 680 3,938
Other liabilities and deferred credits:
Estimated liabilities in connection
with discontinued operations 1,547 278 398 (1) 1,427
Other liabilities 4,932 1,135 19 (1) 6,048
(1) Primarily represents reclassification to current assets.
F-25
55
Schedule VIII
GENERAL HOST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED JANUARY 30, 1994
(In thousands)
Additions
-----------------------
Balance, Charged Charged Balance,
Beginning to Costs to Other End
of Year and Expenses Accounts Deductions of Year
--------- ------------ -------- ---------- ---------
Deducted from marketable securities:
Valuation allowance for marketable
securities $ 10 $ 10 $ -0-
Deducted from accounts receivable:
Allowance for doubtful accounts 101 $ 100 1 200
Non-current assets:
Accumulated amortization of
intangible assets 6,941 940 7,881
Accumulated amortization of
deferred mortgage costs 2,603 655 3,258
Other liabilities and deferred credits:
Estimated liabilities in connection
with discontinued operations 1,961 189 603 (1) 1,547
Other liabilities 5,998 1,246 2,312 (2) 4,932
(1) Primarily reclassification to accrued expenses.
(2) Primarily related to the provision for store closings.
F-26
56
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No. Description of Exhibit
----------- ----------------------
3.01 (f) Certificate of Amendment of the Restated Certificate, filed April 14, 1988.
4.02 (a) Promissory Note in the original principal amount of $690,000 dated August 31, 1995 from Frank's
Nursery & Crafts, Inc. ("Frank's") to MetLife Capital Financial Corporation ("MetLife").
(b) Commercial Mortgage, Security Agreement, Assignment of Leases and Rents, and Fixture Filing dated as of
August 31, 1995 by and between Frank's and MetLife.
(c) Security Agreement dated as of August 31, 1995 by and between Frank's and MetLife.
(d) Assignment of Rents and Leases dated as of August 31, 1995 by and between Frank's and MetLife.
(e) Guaranty dated as of August 31, 1995 by the Company in favor of MetLife.
4.03 (a) Mortgage Note in the original principal amount of $4,950,000 dated January 25, 1996 from Frank's to
People's Bank ("People's").
(b) Mortgage Deed and Security Agreement dated as of January 25, 1996 by and between Frank's and People's.
(c) Assignment of Rents and Leases dated as of January 25, 1996 by and between Frank's and People's.
(d) Guaranty and Indemnity Agreement dated as of January 25, 1996 by the Company in favor of People's.
(e) Escrow Agreement dated as of January 25, 1996 by and among Frank's, People's and Commonwealth Land
Title Insurance Company.
57
Exhibit No. Description of Exhibit
----------- ----------------------
4.04 (a) Promissory Note in the original principal amount of $682,878 dated March 14, 1996 from Frank's
Nursery & Crafts, Inc. ("Frank's") to Midland Loan Services, L.P. ("Midland").
(b) Mortgage, Security Agreement and Assignment of Leases and Rents dated as of March 14, 1996 by
and between Frank's and Midland.
(c) Assignment of Rents and Leases dated as of March 14, 1996 by and between Frank's and Midland.
(d) Guaranty dated as of March 14, 1996 by the Company in favor of Midland.
(e) Escrow Agreement dated as of March 14, 1996 by and between Frank's and Midland in its capacities as
lender and escrow agent.
10.03 (a) Frank's 1996 Executive Compensation Program.
(b) The Company's 1996 Executive Compensation Program.
10.05 (a) 1994 Non-Employee Directors Stock Option Plan adopted
October 12, 1994.
11.01 Statement re: computation of per share earnings.
12.01 Statement re: computation of ratios.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Price Waterhouse LLP.
24.01 Powers of Attorney
(a) C. Whitcomb Alden, Jr. Director
(b) Christopher A. Forster Director
(c) S. Joseph Fortunato Director
(d) Philip B. Harley Director
(e) Richard W. Haskel Director
(f) Edward H. Hoornstra Director
(g) Charles B. Johnson Director
(h) Kelly Ashton Sant Albano Director
27.01 Financial Data Schedule.