<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
(MARK ONE)
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 18, 1997
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period
from to
------------ ------------
Commission file number 1-1066
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GENERAL HOST CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK STATE 13-0762080
- -------------------------- -----------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
One Station Place, P.O. Box 10045, Stamford, Connecticut 06904
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: (203) 357-9900
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities and Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: Common Stock, $1.00 par value,
24,413,686 shares outstanding as of July 2, 1997.
<PAGE> 2
GENERAL HOST CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been reviewed
by Price Waterhouse LLP, independent accountants, whose report thereon
is included elsewhere in this Item 1. The review by Price Waterhouse
LLP was based on procedures adopted by the American Institute of
Certified Public Accountants and was not an audit.
In the opinion of the Company, the accompanying consolidated financial
statements reflect all adjustments necessary to a fair statement of the
results for the interim periods presented herein. In the opinion of
management such adjustments consisted of normal recurring items.
Financial results of the interim period are not necessarily indicative
of results that may be expected for any other interim period or for the
fiscal year.
The consolidated financial statements and notes are presented in
accordance with the rules and regulations of the Securities and
Exchange Commission and do not contain certain information included in
the Company's Annual Report. Therefore, the interim statements should
be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended January 26, 1997.
-1-
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
----------------------
MAY 18, May 19,
1997 1996
--------- ---------
<S> <C> <C>
REVENUES:
Sales $ 178,243 $ 172,708
Other income 35 3
--------- ---------
178,278 172,711
--------- ---------
COSTS AND EXPENSES:
Cost of sales, including buying and occupancy 121,946 119,769
Selling, general and administrative 44,106 43,475
Interest and debt expense 6,624 6,463
--------- ---------
172,676 169,707
--------- ---------
INCOME BEFORE INCOME TAXES 5,602 3,004
INCOME TAXES 210
--------- ---------
NET INCOME $ 5,602 $ 2,794
========= =========
NET EARNINGS PER SHARE:
Primary $ .23 $ .11
========= =========
Fully diluted $ .22 $ .11
========= =========
AVERAGE SHARES OUTSTANDING:
Primary 24,414 24,414
========= =========
Fully diluted 32,613 24,414
========= =========
</TABLE>
See accompanying notes.
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<PAGE> 4
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
MAY 18, May 19, January 26,
1997 1996 1997
----------- ----------- -----------
(UNAUDITED) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 96,695 $ 83,806 $ 43,320
Accounts and notes receivable 3,662 4,206 4,420
Merchandise inventory 108,936 121,926 81,575
Prepaid expenses and other
current assets 10,440 9,033 10,671
--------- --------- ---------
Total current assets 219,733 218,971 139,986
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
LESS ACCUMULATED DEPRECIATION
OF $177,915, $160,454 AND $173,228 213,983 231,482 220,626
INTANGIBLES, LESS ACCUMULATED
AMORTIZATION OF $10,907,
$10,061 AND $10,653 15,012 15,858 15,266
OTHER ASSETS AND DEFERRED CHARGES 10,198 10,637 10,544
--------- --------- ---------
$ 458,926 $ 476,948 $ 386,422
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 109,217 $ 120,952 $ 43,868
Accrued expenses 40,673 36,640 40,595
Current portion of long-term debt 2,926 2,115 2,254
--------- --------- ---------
Total current liabilities 152,816 159,707 86,717
--------- --------- ---------
LONG-TERM DEBT:
Senior debt 127,046 129,337 127,761
Subordinated debt, less original
issue discount 65,000 65,000 65,000
--------- --------- ---------
Total long-term debt 192,046 194,337 192,761
--------- --------- ---------
OTHER LIABILITIES AND DEFERRED CREDITS 8,967 9,882 7,449
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $1.00 par value,
100,000,000 shares authorized,
31,752,450 shares issued 31,752 31,752 31,752
Capital in excess of par value 81,186 81,186 81,186
Retained earnings 63,729 82,700 58,127
--------- --------- ---------
176,667 195,638 171,065
Cost of 7,338,764, 8,503,105
and 7,338,605 shares of
common stock in treasury (69,561) (80,600) (69,561)
Notes receivable from exercise of
stock options (2,009) (2,016) (2,009)
--------- --------- ---------
Total shareholders' equity 105,097 113,022 99,495
--------- --------- ---------
$ 458,926 $ 476,948 $ 386,422
========= ========= =========
</TABLE>
See accompanying notes.
-3-
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
----------------------
MAY 18, May 19,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,602 $ 2,794
Noncash adjustments:
Depreciation and amortization 6,429 6,815
Other (261) 75
--------- ---------
11,770 9,684
Changes in current assets and current liabilities:
(Increase) decrease in accounts and
notes receivable 797 (63)
Increase in inventory (27,361) (33,764)
Decrease in prepaid expenses 231 384
Increase in accounts payable 65,349 73,176
Increase in accrued expenses 1,196 482
--------- ---------
Net cash provided by continuing operations 51,982 49,899
Net cash used for discontinued operations (56) (148)
--------- ---------
51,926 49,751
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (951) (553)
Other 3,077 548
--------- ---------
Net cash provided by (used for)
investing activities 2,126 (5)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 5,137
Debt issue costs (421)
Payment of long-term debt and capital lease
obligations (677) (557)
--------- ---------
Net cash provided by (used for)
financing activities (677) 4,159
--------- ---------
Increase in cash and cash equivalents 53,375 53,905
Cash and cash equivalents at beginning of year 43,320 29,901
--------- ---------
Cash and cash equivalents at end of quarter $ 96,695 $ 83,806
========= =========
</TABLE>
See accompanying notes.
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<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
On February 26, 1997 the Company declared a 5% stock dividend for shareholders
of record on March 14, 1997. The stock dividend representing 1,164,341 shares
was paid on April 4, 1997. Share and per share data for 1996 have been
restated to reflect the 5% stock dividend.
NOTE 2
No income tax provision for financial reporting purposes has been provided for
1997 due to previously unrecognized tax benefits. The effective income tax
rate used in 1996 reflects the utilization of previously unrecognized tax
benefits.
NOTE 3
Primary earnings per share is based upon the weighted average number of shares
of common stock outstanding.
Fully diluted earnings per share is based on the assumed conversion of all of
the 8% Convertible Subordinated Notes into common stock. Interest expense, net
of taxes, on the 8% Convertible Subordinated Notes is added back to net
earnings.
NOTE 4
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1997 presentation.
Interest payments amounted to $8,864,000 for the sixteen weeks ended May 18,
1997 and $8,805,000 for the sixteen weeks ended May 19, 1996. Tax payments
amounted to $16,000 for the sixteen weeks ended May 18, 1997 and $5,000 for the
sixteen weeks ended May 19, 1996.
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<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
General Host Corporation
We have reviewed the accompanying consolidated balance sheets of General Host
Corporation and its subsidiaries as of May 18, 1997 and May 19, 1996, and the
related consolidated statements of income and of cash flows for the
sixteen-week periods ended May 18, 1997 and May 19, 1996. This financial
information is the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of January 26, 1997, and the related
consolidated statements of income, of changes in shareholders' equity, and of
cash flows for the year then ended (not presented herein), and in our report
dated February 26, 1997 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet information as of January 26,
1997, is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
Price Waterhouse LLP
Detroit, Michigan
June 11, 1997
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<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations
Sales
Sales for the Company's principal operating subsidiary, Frank's Nursery &
Crafts, Inc., increased 3.2% to $178,243,000 for the sixteen week first quarter
ended May 18, 1997 compared with $172,708,000 in the 1996 first quarter which
ended May 19, 1996. Same-store sales (stores open for a full year in both
years) increased 3.7% for the 1997 first quarter.
Earnings
Net income for the 1997 first quarter was $5,602,000 compared to $2,794,000 in
the 1996 first quarter.
Cost of sales, including buying and occupancy expenses, increased $2,177,000
to $121,946,000 in the 1997 first quarter compared to $119,769,000 in the 1996
first quarter. As a percentage of sales, cost of sales decreased by .9 of a
percentage point in the 1997 quarter compared to the 1996 quarter. The
improvement, as a percentage of sales, results from a .3 percentage point
increase in merchandise margins and a decrease of .6 of a percentage point in
buying and occupancy expenses compared to the prior year's quarter.
Selling, general and administrative expenses, in the 1997 first quarter,
increased by $631,000 to $44,106,000 compared to $43,475,000 in the 1996 first
quarter. The increase in expenses in the 1997 first quarter is primarily due
to increased advertising expense, particularly electronic media and direct mail
as the Company looks to broaden its customer reach. As a percentage of sales
selling, general and administrative expenses decreased by .4 of a percentage
point to 24.8% of sales compared to 25.2% of sales in the 1996 quarter.
Other income, principally interest income, increased $32,000 to $35,000 in
the 1997 first quarter compared to $3,000 in the 1996 quarter. Included in the
1997 quarter is a charge of $250,000 associated with the closing of a leased
store. The 1996 quarter includes a charge of $263,000 for the write-off of
leasehold improvements incurred in the closing of a leased store and a loss on
the sale of an unprofitable store that was closed in the 1996 first quarter.
-7-
<PAGE> 9
Interest and debt expense increased $161,000 to $6,624,000 in the 1997 first
quarter compared to $6,463,000 in the 1996 quarter, primarily due to the cost
associated with the Company's secured credit agreement.
Due to previously unrecognized tax benefits no income tax provision, for
financial reporting purposes, has been provided for in the 1997 first quarter.
In the 1996 first quarter the income tax provision was calculated using an
annual effective rate method. The difference between the statutory rate for
federal income tax purposes and the taxes provided is due to utilization of
previously unrecognized tax benefits.
With regard to current accounting pronouncements, the Company has determined
that Statement of Accounting Standards No. 128, "Earnings per Share", relating
to the presentation of earnings per share (EPS), will not be material to the
financial statements. If the statement was applied for fiscal 1996, there
would be no effect on the financial statements as the Company's primary EPS
equalled basic EPS. Differences could exist in the future based on the
dilutive effect of the Company's outstanding options.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations in the 1997 first quarter was $51,982,000
compared to $49,899,000 provided in the 1996 first quarter. Inventory
increased $27,361,000 in 1997 compared to an increase of $33,764,000 in 1996,
while accounts payable increased $65,349,000 in 1997 compared to an increase of
$73,176,000 in 1996. The accounts payable increases mentioned above include
amounts payable to brokers at May 18, 1997 of $20,997,000 compared to
$15,998,000 at January 26, 1997 and $24,996,000 at May 19, 1996 compared to
$19,997,000 at January 28, 1996. At May 18, 1997 the remaining store closing
reserve of $1,634,000 primarily represents leases termination cost for the
remaining five store locations and estimated losses associated with the sale
and sublease of real estate. During the 1997 first quarter the Company
utilized net cash of $498,000 in connection with the store closing reserve.
Net cash used for discontinued operations in the 1997 and 1996 first quarters
related to payments for operations disposed of in prior years.
Net cash provided by investing activities in the 1997 first quarter was
$2,126,000, which included net proceeds of $2,717,000 received from a
sale\leaseback transaction of an owned store. Net cash used for investing
activities in the 1996 first quarter was $5,000, which included $548,000 for
the write-off of leasehold improvements incurred in the closing of one leased
store and a loss on the sale of an unprofitable store that was closed in the
1996 first quarter.
-8-
<PAGE> 10
Net cash used for financing activities in the 1997 first quarter represented
payments of long-term debt and capital leases. In the 1996 first quarter net
cash provided by financing activities was $4,159,000, which included new
mortgage financing of $5,137,000, offset in part by debt issue costs of
$421,000 and payments of long-term debt and capital leases of $557,000.
On February 26, 1997 the Company declared a 5% stock dividend for
shareholders record on March 14, 1997. The stock dividend representing
1,164,341 was paid on April 4, 1997. Share and per share data for 1996 have
been restated to reflect the 5% stock dividend.
Working capital at May 18, 1997 was $66,917,000 or $13,648,000 higher than
the $53,269,000 working capital level at January 26, 1997. The quarter-end
included $96,695,000 of cash and cash equivalents, of which $20,997,000
represented amounts payable to brokers.
The Company has a $25,000,000 secured credit agreement with a bank that
expires on July 31, 1997. The Company plans either to extend the maturity of
the existing credit facility or negotiate a new credit facility prior to July
31, 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. The credit agreement is secured by mortgages on
the 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 May 18, 1997. During the 1997 first quarter the Company borrowed
$21,000,000 under the agreement and fully repaid all amounts as of April 23,
1997. There were no amounts outstanding at May 18, 1997.
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 $14,277,000 at
May 18, 1997.
The Company believes its cash flow from operations, utilization of available
borrowings under the credit agreement (either the existing, renewed or a new
credit agreement) and/or additional capital raised through a) additional
mortgage financing, b) expense reductions or c) new debt offerings, will be
sufficient to meet its seasonal working capital needs, pay approximately
$14,300,000 of fixed interest charges and to fund capital expenditures of
approximately $11,500,000 for the remainder of the year. The Company plans to
open one new store and remodel two stores during the remainder of the year.
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<PAGE> 11
Subsequent Events - Related Party Transactions
On June 5, 1997 the Compensation Committee of the Board of Directors approved
a reduction of the amount of the loans due the Company by the Chairman of the
Board of Directors. These loans, which were issued pursuant to various Stock
Option Plans, were reduced from $2,480,209 to $1,231,341. The Company will
charge the difference to expense in the second quarter of 1997.
-10-
<PAGE> 12
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was
held May 15, 1997. Management's nominees, Edward H. Hoornstra, Charles
B. Johnson and Kelly Ashton Sant Albano, were elected directors of the
Company for three- year terms ending at the Annual Meeting of
Shareholders in 2000 with votes cast as follows: Mr. Hoornstra -
20,148,480 shares voted in favor and 848,180 shares withheld; Mr.
Johnson - 20,193,650 shares voted in favor and 803,010 shares
withheld; Ms. Sant Albano - 20,114,958 shares voted in favor and
881,702 shares withheld. The appointment of Price Waterhouse LLP as
the Company's independent accountants for the 1997 fiscal year was
ratified by a vote of 20,544,625 shares in favor, 320,778 shares voted
against and 131,257 shares abstained.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Additional Earnings Per Share Information.
(15) Letter regarding unaudited interim financial information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter and through the date of this Report, the
Registrant filed no reports on Form 8-K.
-11-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL HOST CORPORATION
By: /s/ J. Theodore Everingham
-----------------------------
J. Theodore Everingham
Vice President, General Counsel
and Secretary
By: /s/ James R. Simpson
-----------------------------
James R. Simpson
Vice President and Controller
Dated: July 2, 1997
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<PAGE> 14
EXHIBIT INDEX
Exhibit Number Description of Exhibit
(11) Additional Earnings Per Share Information.
(15) Letter regarding unaudited interim financial information.
(27) Financial Data Schedule.
<PAGE> 1
EXHIBIT 11
GENERAL HOST CORPORATION
ADDITIONAL EARNINGS PER SHARE INFORMATION (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Sixteen Weeks Ended
----------------------
MAY 18, May 19,
1997 1996
---------- ---------
<S> <C> <C>
Earnings for full dilution:
Net income $ 5,602 $ 2,794
Add interest on 8% Convertible
Debentures, net of tax effect 1,600 1,600
---------- ---------
Net income, as adjusted $ 7,202 $ 4,394
========== =========
Shares used for calculating primary
earnings per share 24,414 24,414
Additional shares from assumed
conversion of 8% Convertible Debentures 7,611 7,611
Additional shares resulting from
assumed exercise of stock options 588 0
---------- ---------
32,613 32,025
========== =========
Fully diluted earnings per share $ .22 $ .14 (1)
========== =========
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K item 601
(b)(11) although it is contrary to paragraph 40 of APB Opinion 15 because
it produces an anti-dilutive result.
<PAGE> 1
EXHIBIT 15
July 2, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that the May 18, 1997 Quarterly Report on Form 10-Q of General
Host Corporation which includes our report dated June 11, 1997 (issued pursuant
to the provisions of Statements on Auditing Standards No. 71 and 42), is
incorporated by reference in its Registration Statement No. 33-50020 on Form
S-8 filed on July 27, 1992. We are also aware of our responsibilities under
the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
Detroit, Michigan
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-25-1998
<PERIOD-START> JAN-27-1997
<PERIOD-END> MAY-18-1997
<CASH> 96,695
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 108,936
<CURRENT-ASSETS> 219,733
<PP&E> 391,898
<DEPRECIATION> 177,915
<TOTAL-ASSETS> 458,926
<CURRENT-LIABILITIES> 152,816
<BONDS> 192,046
0
0
<COMMON> 31,752
<OTHER-SE> 73,345
<TOTAL-LIABILITY-AND-EQUITY> 458,926
<SALES> 178,243
<TOTAL-REVENUES> 178,278
<CGS> 121,946
<TOTAL-COSTS> 121,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,624
<INCOME-PRETAX> 5,602
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,602
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,602
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
</TABLE>
