1
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 26, 1997
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
- ------------------- ------------------------
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, 1997: $69,092,237*
Number of voting shares of General Host Corporation's Common Stock
outstanding as of April 1, 1997: 23,249,345.
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 15, 1997 (hereinafter "the
Company's 1997 Proxy Statement")
* Does not include the market value of the outstanding Common Stock held by the
directors and officers of General Host which aggregates $9,374,302, since such
directors and officers may be considered affiliates of General Host.
[Cover page 2 of 2 pages]
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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 26, 1997, the Company operated 259 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 26, 1997.
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's objective was to develop 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 167 stores in
existing and new markets.
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 1996, the
Company's lawn and garden and nursery sales averaged approximately $1 million
per store. In addition to approximately $269 million in lawn and garden and
nursery sales, the Company generated approximately $237 million in revenues in
the last fiscal year from the sale of crafts and Christmas products and $25
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
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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
1996, 39% 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 October.
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.
The Company's most significant capital requirements are for seasonal buildup
of merchandise inventories.
Capital expenditures of the Company totalled $4.4 million in fiscal 1996.
Expenditures for fiscal 1996 included expenditures for facility improvements at
existing stores and at the new distribution center in Howe, Indiana. The
Company anticipates spending approximately $6 million for capital expenditures
in fiscal 1997.
The Company closed three stores in fiscal 1996. In 1997 the Company plans to
open one new store and remodel three to four existing stores.
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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 1996 the Company operated 76 temporary Christmas
boutiques.
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.
The principal products sold at the Company's retail garden and crafts stores
are as follows:
Percentage of
Sales In
Product Line Fiscal Year 1996 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
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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 26, 1997, 123 of the Company's stores were leased and 139 were
owned (40 of which are subject to ground leases). All store leases are
long-term. If no options are exercised, 107 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 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 7,090 employees at
January 26, 1997, including seasonal employees.
The Company operated distribution centers in Detroit, Michigan; Chicago,
Illinois; and Harrisburg, Pennsylvania during the majority of the fiscal year.
In August 1996, the Company opened a new distribution center in Howe, Indiana,
which replaced and consolidated the Chicago and Detroit facilities, both of
which are now closed. The Company owns the Frank's headquarters and leases the
Harrisburg and Howe centers. These centers delivered approximately 49% of all
merchandise to the stores in 1996, 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 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 million,
or $.12 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
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Fiscal 1996 *
First Quarter $ 4-1/4 $ 3-3/8 $ .00
Second Quarter $ 3-3/4 $ 2-3/8 $ .00
Third Quarter $ 3 $ 2-3/8 $ .00
Fourth Quarter $ 3-7/8 $ 2-1/2 $ .00
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
*Five percent stock dividends were paid on April 5, 1996 and April 4, 1997
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 $20.4 million at January 26,
1997.
At April 1, 1997, there were approximately 3,841 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-21 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 $531 million for the 1996 fiscal year compared to $593 million for
the 1995 fiscal year. Same-store sales (stores open for a full year in both
years) for 1996 decreased 9.4% due primarily to a 14.3% drop in the first
quarter, when the Company experienced unseasonably cold and wet weather
throughout its 16-state operating area. In addition, same-store sales declines
of 13% and 7.9%, respectively, were recorded in the third and fourth quarters
as the Company's merchandising and marketing efforts failed to produce
satisfactory results. Sales were $593 million for the 1995 fiscal year
compared to $568 million for the 1994 fiscal year. Same-store sales 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.
Other income decreased $2.5 million to $.8 million in 1996. The decrease was
due primarily to lower levels of cash equivalents, which resulted from a net
reduction of long-term debt at the end of 1995. 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.
Cost of sales, including buying and occupancy, decreased $46.1 million to
$383.1 million or 72.2% of sales in 1996. This compares with $429.2 million or
72.3% of sales in 1995. Merchandise margins, as a percentage of sales,
improved by 1.4 percentage points due to a less promotional strategy and
tighter inventory management during 1996. Buying and occupancy costs for 1996
decreased $1.8 million, but as a percentage of sales, increased by 1.2
percentage points compared to 1995. Cost of sales, including buying and
occupancy, increased $26.4 million to $429.2 million or 72.3% of sales in 1995.
This compares with $402.8 million or 70.9% of sales in 1994. The increase of
1.4 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.
Selling, general and administrative expense decreased $10.1 million to $138.4
million in 1996 compared to $148.5 million in 1995, which resulted from expense
reductions initiated during 1996. As a percentage of sales, selling, general
and administrative expense was 26.1% of sales in 1996 and 25% of sales in 1995.
Selling, general and administrative expense increased $8.3 million
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to $148.5 million in 1995 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 administrative expense was 25% of sales in 1995 and 24.7% of sales
in 1994.
Interest and debt expense was $20.9 million in 1996 compared to $23.8
million in 1995. The decrease was primarily due to the Company's repayment of
$76 million of Adjustable Rate First Mortgage Notes (the "mortgage notes") at
the end of 1995. The Company replaced this financing, in part, with new
mortgage financings that totalled $39 million as of January 26, 1997. 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 mortgage
notes due March 29, 1996 that were repaid as of January 28, 1996.
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 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, a valuation allowance for the net
deferred tax asset balance is recorded at January 26, 1997. As a result of the
valuation allowance, approximately $31 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.
In 1994 the Company sold its 49.5% interest in Sunbelt Nursery Group, Inc.
and recognized a net gain of $3.6 million.
The loss from operations in 1996 was $10.7 million, an increase of $6.4
million compared with 1995. The 1995 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.
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. This item
combined with the respective income or loss from
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continuing operations resulted in net losses of $10.7 million in 1996, $7.3
million in 1995 and net income of $8.6 million in 1994.
Liquidity and Capital Resources
- -------------------------------
Continuing operations provided net cash of $14.5 million compared to net cash
used of $2.6 million in 1995. The 1996 decrease in inventory of $6.6 million
compared to the 1995 increase of $.9 million was due to tighter inventory
control in 1996, which resulted in a reduction of purchases during 1996. 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 higher decrease in accounts payable for 1995 of $9
million compared to the 1996 decrease of $3.9 million. The change in accrued
expenses for 1996 compared to 1995 is due to the timing of payments. Included
in accrued expenses is a reserve for closed stores. As of January 26, 1997 the
Company had terminated and entered into sublease arrangements for all but six
leased stores and one owned location. 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 26, 1997 the remaining reserve of $2.1 million
primarily represents lease termination costs for the remaining six store
locations and estimated losses associated with the sale and or sublease of real
estate.
Discontinued operations used net cash of $.3 million related to payments for
operations disposed of in prior years. Net cash of $1.9 million in 1995 was
primarily for legal expenditures incurred to defend the Company in a 1991
saltwater pollution lawsuit.
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 restrictions on the grants expired and in
February 1996, 59,301 shares were issued.
Net cash used for investing activities in 1996 was $3.4 million compared to
$5.2 million in 1995.
Net cash provided by financing activities was $2.7 million, which included
additional mortgage financings of $5.1 million. Net cash used of $43.8 million
in 1995 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
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financings, which the Company entered into during the third and fourth quarters
of 1995.
The weighted average interest rate on debt outstanding at January 26, 1997
was 10%. The Company has a $25 million secured credit agreement with a bank
that expires June 30, 1997. The credit agreement is secured by mortgages on
retail properties owned by Frank's Nursery & Crafts, Inc. The credit 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 credit agreement at
January 26, 1997.
As of February 26, 1997 the Company had $21 million outstanding under the
secured credit agreement. The Company plans either to extend the maturity of
the existing credit facility or negotiate a new credit facility prior to June
30, 1997. If the Company is unable to secure a replacement credit facility,
the Company believes that its cash flow from operations, together with
additional capital raised through a) additional mortgage financings, b)
expense reductions or c) new debt offerings, will be sufficient to meet its
seasonal working capital requirements.
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 $20.4 million
at January 26, 1997, 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 26, 1997 a 5% stock
dividend for shareholders of record on March 14, 1997 was declared. The stock
dividend is payable on April 4, 1997. The Company was in compliance with all
other covenants.
Total shareholders' equity in 1996 decreased $10.7 million to $99.5 million
from $110.2 million in 1995, due primarily to the 1996 net loss. Long-term
debt as a percentage of total capitalization increased from 64% in 1995 to 66%
in 1996.
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 26, 1997 the total remaining authorization was for
628,750 shares. The Company did not repurchase any shares in fiscal 1996 or
1995.
Working Capital
- ---------------
Working capital amounted to $53 million at January 26, 1997 compared to $45
million at January 28, 1996. The ratio of current assets to current
liabilities was 1.6 in 1996 compared to 1.5 in 1995. Working capital included
$43 million of cash and cash
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equivalents at January 26, 1997 compared to $30 million of cash and cash
equivalents at January 28, 1996.
The Company believes its cash flow from operations, utilization of available
borrowings under the credit agreement (either the existing, renewed or new
credit agreement) and/or additional capital raised through a) additional
mortgage financings, b) expense reductions or c) new debt offerings, will be
sufficient to meet its seasonal working capital needs, pay approximately $21
million in fixed interest charges and to fund capital expenditures of
approximately $6 million for 1997. In 1997 the Company currently plans to open
one new store 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.
- --------------------------------------------------------
SAFE HARBOR STATEMENT under the Private Securities Litigation Reform Act of
1995: Except for the historical information contained herein, the matters
discussed in this annual report are forward-looking statements that involve
risks and uncertainties, including but not limited to economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices, and other factors discussed in the
Company's filings with the Securities and Exchange Commission.
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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.
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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 1997 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 64 Chairman of the Board of Directors, President
and Chief Executive Officer
Ernest W. Townsend 51 Executive Vice President, President and Chief
Operating Officer - Frank's
William C. Boyd 67 Executive Vice President - Frank's
Robert M. Lovejoy, Jr. 53 Vice President and Treasurer
James R. Simpson 45 Vice President and Controller
J. Theodore Everingham 57 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. Townsend has been President and Chief Operating Officer of Frank's and
Executive Vice President of General Host since January 13, 1997. He was most
recently President of Dole Food Company North America, having joined Dole in
1992. Prior thereto he was President of Kraft's Frozen Food Group, having
joined Kraft in 1987 as President and Chief Operating Officer of The All
American Gourmet Company, a subsidiary of General Host, which was purchased by
Kraft. Prior thereto he was employed by General Host in various capacities
since 1972.
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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. Lovejoy was named Vice President on February 22, 1991. He has been
Treasurer of the Company since September 1988.
Mr. Simpson was named Vice President on February 22, 1991. He has been
Controller of the Company since July 1989.
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 through
15 of the Company's 1997 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 1997
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 14 through 18 of the Company's 1997 Proxy Statement, is
incorporated by reference in this Annual Report on Form 10-K.
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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 26, 1997 and January 28, 1996.
- Consolidated Statements of Income - for the F-3
years ended January 26, 1997, January 28, 1996
and January 29, 1995.
- Consolidated Statements of Changes in F-4
Shareholders' Equity - for the years ended
January 26, 1997, January 28, 1996 and
January 29, 1995.
- Consolidated Statements of Cash Flow - for F-5
the years ended January 26, 1997,
January 28, 1996 and January 29, 1995.
- Notes to Consolidated Financial Statements F-6 to F-19
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-22 to F-24
years ended January 26, 1997, January
28, 1996 and January 29, 1995.
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3. EXHIBITS
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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. (Incorporated by reference to the Company's Annual
Report on Form 10-K for its fiscal year ended January 28, 1996,
File No. 1-1066 ("1995 Form 10-K"), Exhibit 3.01(f))
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))
16
19
Exhibit No. Description of Exhibit
----------- ----------------------
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
the Company's 1995 Form 8-A, Exhibit 1a)
4.02* (a) Promissory Note in the original principal amount of $825,000 dated
August 31, 1995 from Frank's Nursery & Crafts, Inc. ("Frank's") to
MetLife Capital Financial Corporation ("MetLife"). (Incorporated
by reference to the 1995 Form 10-K, Exhibit 4.02(a))
(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. (Incorporated by reference to the
1995 Form 10-K, Exhibit 4.02(b))
(c) Security Agreement dated as of August 31, 1995 by and between
Frank's and MetLife. (Incorporated by reference to the 1995 Form
10-K, Exhibit 4.02(c))
(d) Assignment of Rents and Leases dated as of August 31, 1995 by and
between Frank's and MetLife. (Incorporated by reference to the
1995 Form 10-K, Exhibit 4.02(d))
(e) Guaranty dated as of August 31, 1995 by the Company in favor of
MetLife. (Incorporated by reference to the 1995 Form 10-K,
Exhibit 4.02(e))
17
20
Exhibit Description of Exhibit
------- ----------------------
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").
(Incorporated by reference to the 1995 Form 10-K, Exhibit 4.03(a))
(b) Mortgage Deed and Security Agreement dated as of January 25, 1996
by and between Frank's and People's. (Incorporated by reference
to the 1995 Form 10-K, Exhibit 4.03(b))
(c) Assignment of Rents and Leases dated as of January 25, 1996 by and
between Frank's and People's. (Incorporated by reference to the
1995 Form 10-K, Exhibit 4.03(c))
(d) Guaranty and Indemnity Agreement dated as of January 25, 1996 by
the Company in favor of People's. (Incorporated by reference to
the 1995 Form 10-K, Exhibit 4.03(d))
(e) Escrow Agreement dated as of January 25, 1996 by and among
Frank's, People's and Commonwealth Land Title Insurance Company.
(Incorporated by reference to the 1995 Form 10-K, Exhibit 4.03(e))
- ---------------------
* See Schedule of Substantially Identical Documents filed herewith.
18
21
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"). (Incorporated by
reference to the 1995 Form 10-K, Exhibit 4.04(a))
(b) Mortgage, Security Agreement and Assignment of Leases and Rents
dated as of March 14, 1996 by and between Frank's and Midland.
(Incorporated by reference to the 1995 Form 10-K, Exhibit 4.04(b))
(c) Assignment of Rents and Leases dated as of March 14, 1996 by and
between Frank's and Midland. (Incorporated by reference to the
1995 Form 10-K, Exhibit 4.04(c))
(d) Guaranty dated as of March 14, 1996 by the Company in favor of
Midland. (Incorporated by reference to the 1995 Form 10-K, Exhibit
4.04(d))
(e) Escrow Agreement dated as of March 14, 1996 by and between Frank's
and Midland in its capacities as lender and escrow agent.
(Incorporated by reference to the 1995 Form 10-K, Exhibit 4.04(e))
4.05*(a) Promissory Note in the original principal amount of $741,000 dated
as of April 22, 1996 from Frank's Nursery & Crafts, Inc.
("Frank's") to First Union National Bank of North Carolina ("First
Union"). (Filed herewith)
(b) Mortgage, Security Agreement and Assignment of Leases and Rents
dated as of April 22, 1996 by and between Frank's and First Union.
(Filed herewith)
(c) First Amendment to Mortgage and Security Agreement dated as of May
1, 1996 by and between Frank's and First Union. (Filed herewith)
(d) Guaranty dated as of April 22, 1996 by the Company in favor of
First Union. (Filed herewith)
- ------------------
* See Schedule of Substantially Identical Documents filed herewith.
19
22
Exhibit No. Description of Exhibit
----------- ----------------------
4.06*(a) Mortgage-backed Credit Agreement in the aggregate face amount of
$40,000,000 dated as of November 29, 1996 by and between the
Company, Frank's Nursery & Crafts, Inc. ("Frank's") and Comerica
Bank ("Comerica"). (Filed herewith)
(b) Mortgage-Backed Note in the original principal amount of
$25,000,000 dated as of November 29, 1996 by and between the
Company, Frank's and Comerica. (Filed herewith)
(c) Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement dated as of November 29,
1996 by and between Frank's and Comerica. (Filed herewith)
(d) Guaranty dated as of November 29, 1996 by the Company in favor of
Comerica. (Filed herewith)
4.07 (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))
4.08 (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.
20
23
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
("1990 10-K"), Exhibit 10(b), File No. 1-1066)
10.03 (a) Frank's 1997 Executive Compensation Program. (Filed herewith)
(b) The Company's 1997 Executive Compensation Program. (Filed
herewith)
10.04 1996 Stock Incentive Plan adopted May 16, 1996. (Incorporated
by reference to the Company's Proxy Statement for its fiscal
year ended January 28, 1996, Exhibit A)
10.05 (a) 1994 Non-Employee Directors Stock Option Plan adopted October
12, 1994. (Incorporated by reference to the 1995 Form 10-K,
Exhibit 10.05(a), File No. 1-1066)
(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)
21
24
Exhibit No. Description of Exhibit
----------- ----------------------
24.01 Powers of Attorney. (Filed herewith)
(a) Christopher A. Forster Director
(b) S. Joseph Fortunato Director
(c) Philip B. Harley Director
(d) Richard W. Haskel Director
(e) Edward H. Hoornstra Director
(f) Charles B. Johnson Director
(g) Kelly Ashton Sant Albano Director
27.01 Financial Data Schedule. (Filed herewith)
22
25
SCHEDULE OF SUBSTANTIALLY IDENTICAL DOCUMENTS
---------------------------------------------
Exhibit No.
- -----------
4.02 (1) (a) Promissory notes in the original principal amounts of
$975,000, $937,000 and $825,000; (b) related Commercial
Mortgages on properties located in Merrilville, Indiana,
Columbus, 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, $690,000 and $825,000; (b) related
Commercial Mortgages on properties located in Waukegan,
Illinois, Evergreen Park, Illinois, St. Charles, 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) (a) Mortgage and Security Agreement on property located in
Kingston, New York; and (b) Assignment of Rents and Leases, each
dated as of January 25, 1996 and governed by New York law.
23
26
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.
24
27
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.
4.05 (1) (a) Promissory Notes in the original principal amount of $683,000
and $657,000; (b) related Mortgages, Security Agreements and
Assignments of Leases and Rents on properties located in
Louisville, Kentucky and Louisville, Kentucky; and (c) related
Guaranty, all dated as of April 22, 1996 and governed by Kentucky
law.
(2) (a) Promissory Notes in the original principal amount of
$849,000 and $659,000; (b) related Mortgages, Security
Agreements and Assignments of Leases and Rents on properties
located in Flint, Michigan and Grand Rapids, Michigan; and (c)
related Guaranty, all dated as of April 22, 1996 and governed by
Michigan law.
25
28
Exhibit No.
- -----------
4.05 (cont.)
(3) (a) A Promissory Note in the original principal amount of
$865,000; (b) related Mortgage, Security Agreement and
Assignment of Leases and Rents on property located in
Cincinnati, Ohio; and (c) related Guaranty, all dated as of
April 22, 1996 and governed by Ohio law.
4.06 (1) Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Milford, Connecticut, dated November 29, 1996 and governed by
Connecticut law.
(2) Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
St. Petersburg, Florida, New Port Richey, Florida, Largo,
Florida, Tampa, Florida, Tampa, Florida, Bradenton, Florida and
Clearwater, Florida, all dated November 29, 1996 and governed by
Florida law.
(3) Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement on property located in
Bedford Park, Illinois, dated November 29, 1996 and governed by
Illinois law.
26
29
Exhibit No.
- -----------
4.06 (cont.)
(4) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Fort Wayne,
Indiana, Fort Wayne, Indiana and Mishawaka, Indiana, all dated
November 29, 1996 and governed by Indiana law.
(5) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Florence,
Kentucky, dated November 29, 1996 and governed by Kentucky law.
(6) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Owings Mills,
Maryland, dated November 29, 1996 and governed by Maryland law.
(7) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Tauton,
Massachusetts, Brockton, Massachusetts, Hadley, Massachusetts,
Springfield, Massachusetts and Westfield, Massachusetts, all dated
November 29, 1996 and governed by Massachusetts law.
(8) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Dearborn
Heights, Michigan, Saginaw, Michigan, Saginaw, Michigan, Utica,
Michigan, Grandville, Michigan, Flint, Michigan, Warren, Michigan, Bay
City, Michigan, Lincoln Park, Michigan, Portage, Michigan, Lansing,
Michigan and Norton Shores, Michigan, all dated November 29, 1996 and
governed by Michigan law.
(9) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Bloomington,
Minnesota, Blain, Minnesota and St. Paul, Minnesota all dated November
29, 1996 and governed by Minnesota law.
(10) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Ballwin,
Missouri, dated November 29, 1996 and governed by Missouri law.
27
30
Exhibit No.
- -----------
4.06 (cont.)
(11) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Sea Girt, New
Jersey, West Long Branch, New Jersey, Kenvil, New Jersey, Hazlet, New
Jersey and Howell, New Jersey, all dated November 29, 1996 and
governed by New Jersey law.
(12) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Columbus, Ohio,
Columbus, Ohio, Columbus, Ohio, Toledo, Ohio, Toledo, Ohio, Northwood,
Ohio, Springfield, Ohio, Cincinnati, Ohio, Cincinnati, Ohio and Huber
Heights, Ohio, all dated November 29, 1996 and governed by Ohio law.
(13) Mortgage, Security Agreement, Assignment of Rents and Leases, Fixture
Filing and Financing Statement on property located in Philadelphia,
Pennsylvania and Exton, Pennsylvania, both dated November 29, 1996 and
governed by Pennsylvania law.
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.
28
31
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 23, 1997 By /s/ Harris J. Ashton
--------------------------------
Harris J. Ashton
Chairman of the Board of
Directors, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 23, 1997 By /s/ Harris J. Ashton
-------------------------------
Harris J. Ashton
Chairman of the Board of
Directors, President and
Chief Executive Officer
(Principal Executive and
Financial Officer)
Date: April 23, 1997 By /s/ James R. Simpson
--------------------------------
James R. Simpson
Vice President and Controller
(Principal Accounting Officer)
Date: April 23, 1997 By
-------------------------------
C. Whitcomb Alden, Jr.
Director
Date: April 23, 1997 By CHRISTOPHER A. FORSTER*
-------------------------------
Christopher A. Forster
Director
Date: April 23, 1997 By S. JOSEPH FORTUNATO*
-------------------------------
S. Joseph Fortunato
Director
Date: April 23, 1997 By KELLY ASHTON SANT ALBANO*
-------------------------------
Kelly Ashton Sant Albano
Director
Date: April 23, 1997 By PHILIP B. HARLEY*
-------------------------------
Philip B. Harley
Director
Date: April 23, 1997 By RICHARD W. HASKEL*
-------------------------------
Richard W. Haskel
Director
Date: April 23, 1997 By EDWARD H. HOORNSTRA*
--------------------------------
Edward H. Hoornstra
Director
Date: April 23, 1997 By CHARLES B. JOHNSON*
--------------------------------
Charles B. Johnson
Director
Date: April 23, 1997 * By /s/ J. Theodore Everingham
------------------------------
(Attorney-in-Fact)
29
32
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 15 present fairly, in all
material respects, the financial position of General Host Corporation and its
subsidiaries at January 26, 1997 and January 28, 1996, and the results of their
operations and their cash flows for the three years in the period ended January
26, 1997 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 26, 1997, except as to the
stock dividend described in Note 1
which is as of March 14, 1997
F-1
33
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JANUARY 26, 1997 AND JANUARY 28, 1996
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43,320 $ 29,901
Accounts and notes receivable 4,420 3,823
Merchandise inventory 81,575 88,162
Prepaid expenses and other current assets 10,671 9,417
---------- ----------
Total current assets 139,986 131,303
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION OF $173,228 AND $154,830 220,626 237,803
INTANGIBLES, LESS ACCUMULATED AMORTIZATION
OF $10,653 AND $9,783 15,266 16,136
OTHER ASSETS AND DEFERRED CHARGES 10,544 10,543
---------- ----------
$ 386,422 $ 395,785
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 43,868 $ 47,776
Accrued expenses 40,595 36,359
Current portion of long-term debt 2,254 1,974
---------- ----------
Total current liabilities 86,717 86,109
---------- ----------
LONG-TERM DEBT:
Senior debt 127,761 124,898
Subordinated debt 65,000 65,000
---------- ----------
Total long-term debt 192,761 189,898
---------- ----------
OTHER LIABILITIES AND DEFERRED CREDITS 7,449 9,550
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 81,186
Retained earnings 58,127 79,924
---------- ----------
171,065 192,862
Cost of 7,338,605 and 8,505,096 shares of
common stock in treasury (69,561) (80,618)
Notes receivable from exercise of
stock options (2,009) (2,016)
---------- ----------
Total shareholders' equity 99,495 110,228
---------- ----------
$ 386,422 $ 395,785
========== ==========
See accompanying notes.
F-2
34
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS ENDED JANUARY 26, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
1996 1995 1994
---------- --------- ---------
REVENUES:
Sales $ 530,752 $ 593,270 $ 567,987
Other income 825 3,294 2,007
---------- --------- ---------
531,577 596,564 569,994
---------- --------- ---------
COSTS AND EXPENSES:
Cost of sales, including
buying and occupancy 383,099 429,181 402,839
Selling, general and
administrative 138,355 148,502 140,171
Interest and debt expense 20,863 23,845 22,911
---------- --------- ---------
542,317 601,528 565,921
---------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND NET INVESTMENT GAIN (10,740) (4,964) 4,073
INCOME TAX BENEFIT (625) (900)
NET GAIN ON SALE OF INVESTMENT
IN AN UNCONSOLIDATED AFFILIATE 3,612
---------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (10,740) (4,339) 8,585
LOSS FROM DISCONTINUED OPERATIONS (3,000)
---------- --------- ---------
NET INCOME (LOSS) $ (10,740) $ (7,339) $ 8,585
========== ========= =========
INCOME (LOSS) PER SHARE:
Income (loss) from continuing
operations $ (.44) $ (.18) $ .35
Loss from discontinued operations (.12)
---------- --------- ---------
Net income (loss) $ (.44) $ (.30) $ .35
========== ========= =========
AVERAGE SHARES OUTSTANDING 24,414 24,416 24,411
========== ========= =========
See accompanying notes.
F-3
35
GENERAL HOST CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED JANUARY 26, 1997, JANUARY 28, 1996
AND JANUARY 29, 1995
(DOLLARS IN THOUSANDS)
Notes
Receivable
Cost of from
Common Capital in Common Exercise Total
Shares of Common Stock Stock Excess of Retained Stock in of Stock Shareholders'
Issued In Treasury Issued Par Value Earnings Treasury Options Equity
---------- ----------- -------- ---------- --------- --------- ---------- -------------
BALANCE AT JANUARY 30, 1994 31,752,450 (10,735,904) $ 31,752 $ 85,145 $ 95,543 $(101,765) $ (1,961) $ 108,714
Net income 8,585 8,585
Stock dividend 1,054,307 (3,668) (6,326) 9,994
Restricted stock grants issued 68,300 (306) 648 342
Issuance of common stock 1,800 (8) 17 9
---------- ----------- -------- ---------- --------- --------- --------- ---------
BALANCE AT JANUARY 29, 1995 31,752,450 (9,611,497) 31,752 81,163 97,802 (91,106) (1,961) 117,650
Net loss (7,339) (7,339)
Stock dividend 1,108,751 (6) (10,504) 10,510
Restricted stock grants cancelled (12,350) 54 (117) (63)
Stock option exercised 10,000 (40) 95 (55)
Income tax effect (net) related to
stock options and grants (25) 5 (20)
---------- ----------- -------- ---------- --------- --------- --------- ---------
BALANCE AT JANUARY 28, 1996 31,752,450 (8,505,096) 31,752 81,186 79,924 (80,618) (2,016) 110,228
Net loss (10,740) (10,740)
Stock dividend declared on
February 26, 1997 1,166,491 (11,057) 11,057
Note repayment 7 7
---------- ----------- -------- ---------- --------- --------- --------- ---------
BALANCE AT JANUARY 26, 1997 31,752,450 (7,338,605) $ 31,752 $ 81,186 $ 58,127 $ (69,561) $ (2,009) $ 99,495
========== =========== ======== ========== ========= ========= ========= =========
See accompanying notes.
F-4
36
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FISCAL YEARS ENDED JANUARY 26, 1997, JANUARY 28, 1996 AND JANUARY 29, 1995
1996 1995 1994
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $ (10,740) $ (4,339) $ 8,585
Noncash adjustments:
Depreciation and amortization 22,377 22,888 23,836
Net gain on sale of investment in an
unconsolidated affiliate (3,612)
Other 775 (585) 1,674
---------- --------- ---------
12,412 17,964 30,483
Changes in current assets and current liabilities:
(Increase) decrease in accounts and notes receivable (21) 2,499 2,751
(Increase) decrease in inventory 6,587 (924) 569
(Increase) decrease in prepaid expenses (1,254) (828) 1,333
Increase (decrease) in accounts payable (3,908) (8,950) 7,175
Increase (decrease) in accrued expenses 665 (12,348) (3,951)
---------- --------- ---------
Net cash provided by (used for)
continuing operations 14,481 (2,587) 38,360
Net cash used for discontinued operations (325) (1,905) (333)
---------- --------- ---------
14,156 (4,492) 38,027
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (4,371) (5,497) (5,391)
Proceeds from sales of property, plant and equipment 930 342 3,016
Net proceeds from the sale of investment in an
unconsolidated affiliate 3,612
Proceeds from the sales of marketable securities 120
---------- --------- ---------
Net cash provided by (used for) investing activities (3,441) (5,155) 1,357
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 5,137 34,984
Debt issue costs (439) (1,681)
Payment of long-term debt and capital lease
obligations (1,994) (77,117) (18,877)
---------- --------- ---------
Net cash provided by (used for) financing activities 2,704 (43,814) (18,877)
---------- --------- ---------
Increase (decrease) in cash and cash equivalents 13,419 (53,461) 20,507
Cash and cash equivalents at beginning of year 29,901 83,362 62,855
---------- --------- ---------
Cash and cash equivalents at end of year $ 43,320 $ 29,901 $ 83,362
========== ========= =========
See accompanying notes.
F-5
37
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 1996, 1995 and 1994 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 1996 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 $22,262,000 for 1996, $24,373,000 for 1995 and
$21,721,000 for 1994.
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. Provisions for store
closings are charged to operations in the period when the decision is made to
close a retail unit.
F-6
38
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 lease terms of the respective leases or 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 recognized in the statement 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.
IMPAIRMENT OF LONG-LIVED ASSETS is reviewed annually by the Company in
accordance with Statement of Financial Accounting Standards No. 121,
"Impairment of Long-Lived Assets," (FAS 121) by comparing estimated future
undiscounted cash flows associated with the asset to the asset's carrying value
to determine if an impairment exists. The adoption of FAS 121 in fiscal 1996
did not require an adjustment to the results of operations or the financial
position of the Company.
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.
F-7
39
PRIMARY EARNINGS PER SHARE is based on the weighted average number of
common shares outstanding, which includes 1,166,491 shares representing the
5% stock dividend described below.
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 quarter of
1995.
SUBSEQUENT TO FISCAL 1996 a 5% stock dividend was declared on February 26,
1997 by the Board of Directors for shareholders of record on March 14,
1997. The stock dividend is payable on April 4, 1997 and all stock-related
data in the consolidated financial statements reflect the stock dividend
for all periods presented.
NOTE 2: 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) 1996 1995
- ------------------------------------------------------------
Prepaid pension asset (Note 10) $ 1,123 $ 501
======== ========
Accrued expenses $ 1,619 $ 1,721
Other liabilities 1,178 1,401
-------- --------
$ 2,797 $ 3,122
======== ========
In 1995 the Company charged to discontinued operations a loss of
$3,000,000, or $.12 per share, as a result of a judgment against the Company in
a 1991 saltwater pollution lawsuit (Note 13).
NOTE 3: OTHER INCOME
- ------------------------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------
Interest on cash
equivalents and
marketable securities $ 788 $ 2,363 $ 1,365
Miscellaneous 37 931 642
-------- -------- --------
$ 825 $ 3,294 $ 2,007
======== ======== ========
F-8
40
NOTE 4: INCOME TAXES
The components of the income tax benefit are as follows:
- -----------------------------------------------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
CONTINUING OPERATIONS:
Current federal income taxes $ $ (25) $ (900)
Current state and other income taxes (600)
Deferred federal income taxes
Deferred state and other income taxes
-------- -------- --------
Total income tax benefit $ --- $ (625) $ (900)
======== ======== ========
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) 1996 1995 1994
- ------------------------------------------------------------------------
Federal income taxes based on
statutory rates $ (3,652) $ (2,708) $ 2,613
Increases (decreases) in rates
resulting from:
Limitation (utilization)
of tax loss carryforwards 3,493 2,145 (2,207)
Elimination of reserves no
longer required (600) (1,000)
Effect of graduated rates
Amortization of intangibles
and other acquisition costs 136 136 136
Other 23 402 (442)
-------- -------- --------
$ --- $ (625) $ (900)
======== ======== ========
F-9
41
The tax effects of the principal temporary deferred tax assets and
liabilities are as follows:
- ----------------------------------------------------------------------
(In thousands) 1996 1995
- ----------------------------------------------------------------------
LIABILITIES:
Property, plant & equipment $ (14,708) $ (16,168)
--------- ---------
Gross deferred tax liabilities (14,708) (16,168)
--------- ---------
ASSETS:
Inventory 736 1,043
Accrued expenses 3,241 3,091
Other 422 244
Loss on equity investment in an
unconsolidated affiliate 721 721
Store closing reserve 796 1,545
NOL carryforward 20,917 18,029
--------- ---------
Gross deferred tax assets 26,833 24,673
--------- ---------
Net deferred tax asset 12,125 8,505
Valuation allowance (12,125) (8,505)
--------- ---------
$ -- $ --
========= =========
In 1995, the tax provision was unfavorably impacted by an increase in
the valuation allowance as a result of the 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, a valuation allowance for the net deferred tax asset
balance is recorded at January 26, 1997.
At January 26, 1997 the federal tax NOL carryforwards approximated
$61,500,000. As a result of the valuation allowance, approximately
$31,000,000 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, January 2011 -- $6,000,000 and
January 2012 -- $8,500,000.
F-10
42
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
- -----------------------------------------------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------
Land $ 45,328 $ 45,928
Buildings:
Owned 169,141 168,964
Capital leases (Note 9) 17,445 17,445
Equipment 110,361 106,610
Leasehold improvements 48,328 48,107
Construction in progress 3,251 5,579
-------- --------
393,854 392,633
Less accumulated depreciation,
including capital lease amounts
of $10,889 and $10,046 173,228 154,830
-------- --------
$220,626 $237,803
======== ========
NOTE 6: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable include amounts payable to brokers for purchases of cash
equivalents of $15,998,000 in 1996 and $19,997,000 in 1995.
Accrued expenses are as follows:
- -----------------------------------------------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------
Income taxes $ 400 $ 301
Taxes, other than income taxes 6,136 6,580
Payroll and other compensation 5,689 2,338
Advertising 2,150 2,406
Insurance 3,476 3,669
Interest 6,832 6,637
Litigation 1,132 1,336
Other 14,780 13,092
------- -------
$40,595 $36,359
======= =======
F-11
43
NOTE 7: LONG-TERM DEBT
- -----------------------------------------------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------
SENIOR DEBT:
11 1/2% Senior Notes due
February 15, 2002 $ 78,000 $ 78,000
Mortgage notes due on varying
dates from February 1, 2001
to May 1, 2006 38,979 34,804
Capital leases (Note 9) 12,518 13,384
Other 518 684
-------- --------
130,015 126,872
Less current portion 2,254 1,974
-------- --------
127,761 124,898
-------- --------
SUBORDINATED DEBT:
8% Convertible Subordinated Notes
due February 15, 2002 65,000 65,000
-------- --------
Total long-term debt $192,761 $189,898
======== ========
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 $8.54 per share, subject
to adjustments in certain events.
The mortgage notes have interest rates varying from 7.8% to 9.625%, and the
notes mature with balloon payments on varying dates from February 1, 2001 to May
1, 2006. The mortgage notes are secured by retail properties owned by Frank's
Nursery & Crafts, Inc.
The Company has a $25,000,000 secured credit agreement with a bank. The
credit agreement is committed through June 30, 1997. There is a commitment fee
of 5/8 of 1% on the $25,000,000. The credit agreement is secured by mortgages
on retail properties owned by Frank's Nursery & Crafts, Inc. At the Company's
option, interest under the agreement may be based on the London Interbank
Offering Rate (LIBOR) or on the bank's prime rate. As of February 26, 1997,
$21,000,000 was outstanding under the credit agreement.
The credit 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 mortgage financings. The Company was in compliance with all of the bank
agreement covenants and other restrictions under all other debt agreements at
January 26, 1997.
F-12
44
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 $20,364,000 at
January 26, 1997.
Aggregate maturities of long-term debt for the five years subsequent to
1996, excluding capital lease obligations (Note 9), are $1,296,000 in 1997,
$1,412,000 in 1998, $1,445,000 in 1999, $1,433,000 in 2000 and $5,204,000 in
2001.
NOTE 8: SHAREHOLDERS' EQUITY
The Company's 1996 stock incentive plan provides for the granting of options to
key employees. Outstanding options under the 1996 stock incentive plan and the
1986 stock incentive plan, as amended in 1992, become exercisable at varying
vesting rates and expire no later than ten years after grant date.
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 date.
All of the aforementioned plans provide for adjustment of the exercise
prices or number of shares to reflect changes in the corporate structure or
shares of the Company. Under all plans, options are granted at prices not less
than fair market value on the date of grant.
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 Company applies Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" in accounting for stock options under its stock
incentive plans. If compensation cost had been determined based upon the fair
value method in accordance with Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation", the pro forma net loss in fiscal
1996 and fiscal 1995 would have been $11,634,000, or $.48 per share, and
$7,904,000, or $.32 per share, respectively. For pro forma purposes the fair
value of each stock option grant was estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions for grants in
fiscal 1996 and 1995, respectively; risk-free interest rates of 6.41% and 5.35%
and expected volatility of 37.62% and 35.77%, and an expected option life of 5
years and 3.07 years. For each year it was further assumed that no cash
dividends would be issued.
F-13
45
Changes in stock options during the three years ended January 26, 1997 are
as follows:
Shares Option Prices
--------- -------------
OUTSTANDING AT JANUARY 30, 1994 943,400 $ 5.50-14.38
Options granted 356,000 4.44- 5.75
Options cancelled/expired (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/expired (678,750) 4.44-12.97
--------- ------------
OUTSTANDING AT JANUARY 28, 1996 1,174,688 3.75-12.97
Options granted 603,000 3.19
Options cancelled/expired (340,550) 3.56- 8.63
--------- ------------
OUTSTANDING AT JANUARY 26, 1997 1,437,138 $ 3.19-12.32
========= ============
At January 26, 1997 outstanding options for 1,153,738 shares are
exercisable and 1,987,000 shares are available for granting additional options.
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-14
46
NOTE 9: LEASES
The Company's capital leases are principally for retail stores, for periods
ranging up to 25 years. The Company's operating leases are principally for
retail store locations.
At January 26, 1997 lease obligations under capital leases, included in
long-term debt (Note 7), and operating leases with lease terms longer than one
year, are as follows:
- ----------------------------------------------------------------
Capital Operating
(In thousands) Leases Leases
- ----------------------------------------------------------------
Payable in 1997 $ 2,368 $ 13,207
1998 2,422 12,992
1999 2,363 12,185
2000 2,322 11,685
2001 2,202 11,098
Payable after 2001 10,430 76,038
-------- --------
Total minimum lease obligations 22,107 $137,205
========
Executory costs (28)
Amount representing future interest (9,561)
--------
Present value of net minimum lease
obligations $ 12,518
========
Future sublease rental income $ 4,342
========
Rent expense was $21,915,000 in 1996, $22,473,000 in 1995 and $21,045,000
in 1994. Rent expense includes additional rentals based on retail store sales
(in excess of the minimums specified in leases) of $691,000 in 1996, $815,000 in
1995 and $760,000 in 1994 and is reduced by sublease rental income of $859,000
in 1996, $832,000 in 1995 and $873,000 in 1994.
F-15
47
NOTE 10: 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 1996 and 1995. The 1994 contribution
approved by the Board of Directors was $500,000. The plan also includes a
401(k)component, permitting employees to 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 income consisted of the following:
- ------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------
Interest cost on projected benefit
obligations $ 1,869 $ 2,139 $ 2,065
Actual return on plan assets (2,491) (2,269) (2,684)
-------- -------- --------
Net periodic pension income $ (622) $ (130) $ (619)
======== ======== ========
The following table summarizes the plan's funding status and the asset
recognized in the consolidated balance sheets as of January 26, 1997 and January
28, 1996:
- ------------------------------------------------------------
(In thousands) 1996 1995
- ------------------------------------------------------------
Actuarial present value of
pension benefit obligations,
all of which are vested $(25,684) $(27,439)
Plan assets at fair value 32,787 29,332
Unrecognized gain (5,980) (1,392)
-------- --------
Pension asset in the
consolidated balance sheets $ 1,123 $ 501
======== ========
F-16
48
The above amounts were determined as of December 31 each year. The assumed
discount rate for projected benefit obligations was 7.5% for 1996 and 7.25% for
1995. The expected long-term return on plan assets was 9% for 1996 and 1995.
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 $1,068,000 at December 31, 1996 and $1,550,000 at December 31,
1995.
NOTE 11: OTHER POSTRETIREMENT BENEFITS
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 $1,358,000 at January 26, 1997 and $1,577,000 at January 28, 1996.
The net periodic postretirement benefit cost was $82,000 for 1996 and $105,000
for 1995. The amounts were determined as of December 31 each year. The discount
rate used in determining the accumulated postretirement benefit obligation was
7.5% for 1996 and 7.25% for 1995. The assumed health care cost trend rate used
in measuring the accumulated postretirement benefit obligation was 9.4% in 1996
grading down uniformly to 5.5% in 2005. If the health care cost trend rate
assumptions were increased by 1%, the accumulated postretirement benefit
obligation would be increased by 6.3% for 1996. The effect of this change on
the interest cost component of net periodic postretirement benefit cost for 1996
would be an increase of 5.8%.
NOTE 12: 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-17
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
26, 1997 and January 28, 1996 are as follows:
- ---------------------------------------------------------------------------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------
Cash and cash equivalents $ 43,320 $ 43,320 $ 29,901 $ 29,901
Other investments $ 1,067 $ 1,067 $ 1,088 $ 1,088
Long-term debt $ 195,015 $ 178,180 $ 191,872 $ 179,083
NOTE 13: 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 $.12 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 groundwater 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-18
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 14: SUPPLEMENTAL CASH FLOW INFORMATION
Income tax payments were $55,000 in 1996, $449,000 in 1995 and $414,000 in
1994. Interest payments were $19,685,000 in 1996, $23,286,000 in 1995, and
$21,431,000 in 1994. 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.
Net cash used for discontinued operations for fiscal 1996, 1995 and 1994 is
primarily for payments related to businesses sold in prior years, which were
treated as discontinued operations.
F-19
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)
1996 (1)
Sales $149,230 $ 83,305 $125,509 $172,708
======== ======== ======== ========
Cost of sales, including buying and occupancy $105,977 $ 66,050 $ 91,303 $119,769
======== ======== ======== ========
Income (loss) from continuing operations
before income taxes $ 682 $(15,133) $ 707 $ 3,004
======== ======== ======== ========
Net income (loss) $ 682 $(14,873) $ 657 $ 2,794
======== ======== ======== ========
Primary earnings (loss) per share(3) $ .03 $ (.61) $ .03 $ .11
======== ======== ======== ========
Fully diluted earnings (loss) per share(3) $ .03 $ (.61) $ .03 $ .11
======== ======== ======== ========
Price range per share as traded on the
New York Stock Exchange $3 7/8-2 1/2 $3-2 3/8 $3 3/4-2 3/8 $4 1/4-3 3/8
1995 (1,2)
Sales $168,555 $ 95,976 $126,741 $201,998
======== ======== ======== ========
Cost of sales, including buying and occupancy $121,219 $ 75,311 $ 94,981 $137,670
======== ======== ======== ========
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)(4) $ 11,034
======== ======== ======== ========
Primary earnings (loss) per share(3):
Income (loss) from continuing operations $ (.02) $ (.49) $ (.12) $ .45
Loss from discontinued operations (.01) (.11)
-------- -------- -------- --------
Net income (loss) $ (.03) $ (.60) $ (.12) $ .45
======== ======== ======== ========
Fully diluted earnings (loss) per share(3):
Income (loss) from continuing operations $ (.02) $ (.49) $ (.12) $ .39
Loss from discontinued operations (.01) (.11)
-------- -------- -------- --------
Net income (loss) $ (.03) $ (.60) $ (.12) $ .39
======== ======== ======== ========
Price range per share as traded on the
New York Stock Exchange $5-3 5/8 $6 1/2-4 3/4 $7 5/8-5 5/8 $7-4 7/8
(1) Share and per share data have been restated to reflect the 5% stock
dividend declared on February 26, 1997.
(2) Had the actual annual effective tax rate been applied to the quarterly
information, the first quarter net income would have increased by $817, or
$.03 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 $.04 per share, and the fourth quarter net loss would have
decreased by $313, or $.01 per share.
(3) 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.
(4) Includes $600 of income tax reserves no longer required.
F-20
52
FIVE YEAR FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Sales of continuing operations $530,752 $593,270 $567,987 $568,602 $557,818
Income (loss) from continuing operations before
income taxes $(10,740) $ (4,964) $ 4,073 $(53,906) $ 1,005
Income (loss) from continuing operations $(10,740) $ (4,339)(1) $ 8,585(2,3) $(55,220)(4) $ 2,853(6)
Net income (loss) $(10,740) $ (7,339) $ 8,585 $(56,060) $ 5,322(7)
Income (loss) per share from continuing operations(8) $ (.44) $ (.18)(1) $ .35(2,3) $ (2.30)(4) $ .13(6)
Net income (loss) per share(8) $ (.44) $ (.30) $ .35 $ (2.33) $ .24(7)
Cash dividends per share $ .00(10) $ .00(10) $ .00(10) $ .38 $ .36
Average shares outstanding(8) 24,414 24,416 24,411 24,027 22,319
Working capital $ 53,269 $ 45,194 $ 73,499 $ 50,525 $130,542
Ratio of current assets to current liabilities 1.6-1 1.5-1 1.7-1 1.4-1 2.4-1
Total year-end assets $386,422 $395,785 $464,858 $478,205 $531,019
Long-term debt, including current portion $195,015 $191,872 $234,005 $256,875 $262,014
Shareholders' equity $ 99,495 $110,228 $117,650 $108,714 $154,358
Long-term debt as a percentage of total capitalization 66% 64% 67% 70% 63%
Ratio of earnings to fixed charges .62 .85 1.27 (.71)(5) 1.00
Number of common shares outstanding(8) 24,414 24,414 24,417 24,347 22,407
Book value per share(8,9) $ 4.16 $ 4.60 $ 4.90 $ 4.55 $ 6.98
Price range per share as traded on the
New York Stock Exchange $4 1/4-2 3/8 $7 5/8-3 5/8 $6 7/8-3 3/4 $10 5/8-5 7/8 $10 1/2-7 3/4
- ------------------------------------------------------------------------------------------------------------------------------------
(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) 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.
(9) Includes notes receivable from exercise of stock options.
(10) In lieu of a cash dividend, a 5% stock dividend was distributed.
F-21
53
Schedule VIII
GENERAL HOST CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEAR ENDED JANUARY 26, 1997
(In thousands)
Additions
-----------------------
Balance, Charged Charged Balance,
Beginning to Costs to Other End
of Year and Expenses Accounts Deductions of Year
--------- ------------ -------- ---------- ---------
Non-current assets:
Accumulated amortization of
intangible assets $ 9,783 $ 870 $10,653
Accumulated amortization of
deferred mortgage costs 5,076 205 $ 5,063 218
Other liabilities and deferred credits:
Estimated liabilities in connection
with discontinued operations 1,401 87 309 (1) 1,179
Other liabilities 7,148 1,310 3,188 (2) 5,270
(1) Represents payments of liabilities.
(2) Reclassification to accrued expenses.
F-22
54
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-23
55
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-24
56
INDEX OF EXHIBITS FILED HEREWITH
Exhibit No. Description of Exhibit
4.05 (a) Promissory Note in the original principal amount of $741,000
dated as of April 22, 1996 from Frank's Nursery & Crafts, Inc.
("Frank's") to First Union National Bank of North Carolina ("First
Union").
(b) Mortgage, Security Agreement and Assignment of Leases and Rents
dated as of April 22, 1996 by and between Frank's and First Union.
(c) First Amendment to Mortgage and Security Agreement dated as of
May 1, 1996, by and between Frank's and First Union.
(d) Guaranty dated as of April 22, 1996 by the Company in favor of First
Union.
4.06 (a) Mortgage-backed Credit Agreement in the aggregate face amount of
$40,000,000 dated as of November 29, 1996 by and between the
Company, Frank's Nursery & Crafts, Inc. ("Frank's") and Comerica
Bank ("Comerica").
(b) Mortgage-Backed Note in the original principal amount of $25,000,000
dated as of November 29, 1996 by and between the Company, Frank's
and Comerica.
(c) Mortgage, Security Agreement, Assignment of Rents and Leases,
Fixture Filing and Financing Statement dated as of November 29,
1996 by and between Frank's and Comerica.
(d) Guaranty dated as of November 29, 1996 by the Company in favor of
Comerica.
10.03(a) Frank's 1997 Executive Compensation Program.
(b) The Company's 1997 Executive Compensation Program.
11.01 Statement re: computation of per share earnings.
12.01 Statement re: computation of ratios.
21.01 Subsidiaries of the Registrant.
57
Exhibit No. Description of Exhibit
23.01 Consent of Price Waterhouse LLP.
24.01 Powers of Attorney
(a) Christopher A. Forster Director
(b) S. Joseph Fortunato Director
(c) Philip B. Harley Director
(d) Richard W. Haskel Director
(e) Edward H. Hoornstra Director
(f) Charles B. Johnson Director
(g) Kelly Ashton Sant Albano Director
27.01 Financial Data Schedule.