-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WjwXgGFteQBBNxmTibjwTjEcb6VBUbpoQ6voUmilK11GzuRcd/uzhWZPVeaT5bxd lLnqS+aCpbBqJE+M7623/A== 0000950128-94-000105.txt : 19940617 0000950128-94-000105.hdr.sgml : 19940617 ACCESSION NUMBER: 0000950128-94-000105 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940430 FILED AS OF DATE: 19940613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL NUTRITION INC CENTRAL INDEX KEY: 0000317030 STANDARD INDUSTRIAL CLASSIFICATION: 5400 IRS NUMBER: 251027307 STATE OF INCORPORATION: PA FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08055 FILM NUMBER: 94534052 BUSINESS ADDRESS: STREET 1: 921 PENN AVE CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122884600 MAIL ADDRESS: STREET 2: 921 PENN AVE CITY: PITTSBURGH STATE: PA ZIP: 15222 10-Q 1 GENERAL NUTRITION, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________ FORM 10-Q (MARK ONE) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the twelve weeks ended April 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8055 GENERAL NUTRITION, INCORPORATED (Exact name of Registrant as specified in its charter) PENNSYLVANIA 25-1027307 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 921 Penn Avenue 15222 Pittsburgh, Pennsylvania (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (412) 288-4600 Indicate by a 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 _________ As of June 8, 1994, the number of shares outstanding of the registrant's common stock was 140. 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENERAL NUTRITION, INCORPORATED CONSOLIDATED CONDENSED AND SUMMARIZED BALANCE SHEETS (In thousands, except share data)
April 30, February 5, 1994 1994 ----------- ----------- (Unaudited) ASSETS CURRENT ASSETS: Cash and equivalents................................................ $ -- $ -- Restricted cash..................................................... 1,125 1,144 Receivables......................................................... 28,618 26,610 Inventories......................................................... 102,798 94,917 Deferred taxes on income, current portion........................... 5,647 5,647 Other current assets................................................ 3,576 6,839 -------- -------- TOTAL CURRENT ASSETS.............................................. 141,764 135,157 Property, plant and equipment, net..................................... 75,692 74,050 Other assets........................................................... 11,660 11,197 Deferred financing fees, net of accumulated amortization of $1,893 and $1,652.................................................... 5,227 5,723 Goodwill, net of accumulated amortization of $31,756 and $30,194....... 238,948 240,510 -------- -------- $473,291 $466,637 ======== ======== LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable.................................................... $ 48,965 $ 45,458 Accrued salaries, wages, benefits and related taxes................. 8,075 10,202 Accrued income taxes................................................ 9,459 1,949 Accrued interest.................................................... 1,385 3,758 Other current liabilities........................................... 19,778 21,934 Redeemable preferred stock, current portion......................... 1,125 1,144 Long-term debt, current portion..................................... 9,770 9,770 -------- -------- TOTAL CURRENT LIABILITIES......................................... 98,557 94,215 Deferred taxes on income............................................... 4,272 4,272 Long-term debt......................................................... 163,888 171,437 Preferred stock, Series B.............................................. 40,000 40,000 SHAREHOLDER'S EQUITY: Common Stock, $.01 par value; 3,000 shares authorized and 140 shares issued and outstanding at April 30, 1994 and February 5, 1994.............................................. 186,649 186,649 Earnings deficit....................................................... (20,075) (29,936) -------- -------- 166,574 156,713 -------- -------- $473,291 $466,637 ======== ========
Notes to Consolidated Financial Statements are an integral part of these statements. 2 3 GENERAL NUTRITION, INCORPORATED CONSOLIDATED CONDENSED AND SUMMARIZED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share data)
12 Weeks 12 Weeks Ended Ended April 30, May 1, 1994 1993 ---------- ---------- Net revenue........................................................... $147,728 $124,007 Cost of sales, including costs of warehousing, distribution and occupancy......................................... 90,265 75,711 Selling, general and administrative................................... 33,173 29,112 Amortization of goodwill.............................................. 1,562 1,562 -------- -------- Operating earnings.................................................... 22,728 17,622 Interest expense...................................................... 3,731 5,464 -------- -------- Earnings before income taxes and extraordinary item................................................. 18,997 12,158 Income taxes.......................................................... 7,923 5,421 -------- -------- Earnings before extraordinary item.................................... 11,074 6,737 Extraordinary loss from early retirement of debt, net of income tax benefit of $275.......................... 511 -- -------- -------- Net earnings.......................................................... $ 10,563 $ 6,737 ======== ======== Average number of shares outstanding................................ 140 140
Notes to Consolidated Financial Statements are an integral part of these statements. 3 4 GENERAL NUTRITION, INCORPORATED CONSOLIDATED CONDENSED AND SUMMARIZED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
12 Weeks 12 Weeks Ended Ended April 30, May 1, 1994 1993 --------- -------- Cash flows from operating activities: Net earnings................................................................................ $ 10,563 $ 6,737 -------- -------- Adjustments to reconcile net earnings to net cash provided by operating activities: Extraordinary loss from early retirement of debt....................................... 511 -- Depreciation and amortization.......................................................... 5,563 4,808 Increase in deferred tax liability..................................................... -- 894 Other adjustments...................................................................... 61 370 Change in operating assets and liabilities: Increase in receivables.............................................................. (1,443) (2,596) Increase in inventories.............................................................. (7,881) (7,420) Increase in accrued taxes............................................................ 7,785 4,409 Increase in other assets............................................................. (72) (112) Increase in accounts payable and accrued liabilities................................. 1,417 17,709 Increase in other working capital items.............................................. (1,237) (6,090) -------- -------- Total adjustments................................................................. 4,704 11,972 -------- -------- Net cash provided by operating activities................................................... 15,267 18,709 -------- -------- Cash flows from investing activities: Capital expenditures........................................................................ (5,404) (3,025) Increase in franchisee notes receivable..................................................... (956) (666) Proceeds from sale or disposal of fixed assets.............................................. 2 200 -------- -------- Net cash used in investing activities....................................................... (6,358) (3,491) -------- -------- Cash flows from financing activities: Long-term debt agreements: Payments............................................................................... (35,500) (22,913) Borrowings............................................................................. 36,000 7,500 -------- -------- Net (payments) borrowings on long-term debt................................................. 500 (15,413) Retirement of long-term debt................................................................ (7,641) -- Decrease in capital lease obligations....................................................... (409) (373) Cash dividends on Series B Preferred stock.................................................. (767) -- Redemption of redeemable preferred stock.................................................... (19) (43,048) Premiums paid on early retirement of debt................................................... (592) -- -------- -------- Net cash used in financing activities....................................................... (8,928) (58,834) Net decrease in cash and equivalents............................................................ (19) (43,616) Beginning balance, cash and equivalents......................................................... 1,144 44,948 -------- -------- Ending balance, cash and equivalents............................................................ $ 1,125 $ 1,332 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest............................................................................... $ 5,901 $ 9,562 Income taxes........................................................................... $ 137 $ 118 _________ Supplemental schedule of non-cash financing activities: (a) GNI elected to pay dividends on its Redeemable Series B Preferred Stock in additional shares until January 28, 1993, when the election to pay cash dividends was made. At May 1, 1993, dividends of $597,893 were accrued to be paid on May 15, 1993. At April 30, 1994, dividends of $624,999 were accrued to be paid on May 15, 1994.
Notes to Consolidated Financial Statements are an integral part of these statements. 4 5 GENERAL NUTRITION, INCORPORATED NOTES TO CONSOLIDATED CONDENSED AND SUMMARIZED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of General Nutrition, Incorporated and Subsidiaries (the "Company"), the information furnished includes all adjustments necessary for fair presentation of the consolidated financial position of the Company at April 30, 1994 and February 5, 1994 and the results of operations for the twelve weeks ended April 30, 1994 and May 1, 1993. All such adjustments are of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been either condensed or omitted. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and footnotes included in the Company's Form 10-K filed with the Securities and Exchange Commission. The Consolidated Condensed and Summarized Financial Statements include the accounts of the Company and its wholly owned subsidiaries after the elimination of material intercompany balances and transactions. The results of operations for the twelve weeks ended April 30, 1994 are not necessarily indicative of the operating results for the full year. 2. The Company utilizes a cash management system under which a book balance cash overdraft exists for the Company's primary disbursement accounts. This overdraft represents uncleared checks in excess of cash balances in bank accounts. The Company's funds are borrowed on an as needed basis to pay for clearing checks. At April 30, 1994, cash overdrafts of $1,413,000 were included in accounts payable. 3. Certain amounts in previously issued financial statements have been reclassified to conform to the 1994 presentation. 4. Inventories consist of the following:
April 30, February 5, 1994 1994 --------- ----------- (In thousands) Product ready for sale . . . . . . . . . . . . $ 90,350 $81,531 Unpackaged bulk product and raw material . . . 10,955 11,769 Packaging supplies . . . . . . . . . . . . . . 1,493 1,617 -------- ------- $102,798 $94,917 ======== =======
5. The Company and certain subsidiaries are named as defendants in legal actions brought in federal and state courts by certain parties seeking damages resulting from the ingestion of certain products containing manufactured L-Tryptophan. No provision has been made in the financial statements for any loss that may result to the Company as a result of these actions. See Note 12 in the Company's Annual Report on Form 10-K for the fiscal year ended on February 5, 1994. 5 6 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUE. Consolidated revenue for the twelve weeks ended April 30, 1994 was $147.7 million; an increase of $23.7 million or 19.1% compared with the same period in 1993. Below is a comparison of revenue for each of the Company's business segments for the twelve week periods: CONSOLIDATED REVENUE
12 Weeks 12 Weeks Ended % of Ended % of April 30, Total May 1, Total 1994 Revenue 1993 Revenue -------------- ------- -------------- ------- (In thousands) (In thousands) Retail . . . . . . . . . $112,515 76.2 $102,040 82.3 Franchising . . . . . . 21,861 14.8 12,885 10.4 Manufacturing . . . . . 13,333 9.0 8,870 7.2 Corporate . . . . . . . 19 - 212 .1 -------- ----- -------- ----- Total . . . . . . . . $147,728 100.0% $124,007 100.0% ======== ===== ======== =====
RETAIL REVENUE. In the twelve weeks ended April 30, 1994, revenue from the retail segment increased 10.3% compared with the same period in 1993. The Company operated 1,062 stores at April 30, 1994 compared with 948 stores at May 1, 1993. The retail stores had comparable store sales increases of approximately 7.5% for the twelve weeks ended April 30, 1994 compared with the same period in 1993. This revenue increase was generated primarily from the continuing success of the Company's Gold Card program, the conversion of the Company's stores to the updated format and the addition of new Company stores in 1993 and the first quarter of 1994. FRANCHISING REVENUE. Revenue from the franchise segment increased 69.7% in the twelve weeks ended April 30, 1994 compared with the same period in 1993, as the number of operating franchises increased from 321 at May 1, 1993 to 555 at April 30, 1994. Franchise revenue, which in the twelve weeks ended April 30, 1994 and May 1, 1993, represented 14.8% and 10.4%, respectively, of total revenue, was generated primarily from the sale of products and fixtures, royalties, franchise fees and interest income on franchise notes receivable. Comparable store sales at the franchise locations for the twelve weeks ended April 30, 1994 increased approximately 21%. Comparable store sales for first year converted franchise stores increased an average of 23% for the twelve weeks ended April 30, 1994 when compared with the same period in the year prior to conversion. Of the 555 operating franchise stores at the end of the period, 513 were domestic locations and 42 were international locations. At April 30, 1994 an additional 152 franchises had been awarded but were not yet opened. MANUFACTURING REVENUE. Revenue from sales to third parties was $13.3 million for the twelve weeks ended April 30, 1994, an increase of 50.3% compared with the same period in 1993. The 1994 revenue increase was primarily the result of increased capacity in the soft gelatin production area, allowing the Company to remain competitive in the wholesale vitamin supplement market with respect to pricing, quality and customer service. The Company plans to add further capacity for soft gelatin production later this year. 6 7 ANALYSIS OF OPERATING COSTS AND EXPENSES
12 Weeks 12 Weeks Ended Ended April 30, May 1, 1994 1993 --------- -------- (In thousands) Cost of sales, including costs of warehousing, distribution and occupancy . . . . . . . . . . $90,265 $75,711 Percent of net revenue . . . . . . . . . . . . . 61.1% 61.1% Selling, general and administrative . . . . . . . $34,735 $30,674 Percent of net revenue . . . . . . . . . . . . . 23.5% 24.7% Operating earnings . . . . . . . . . . . . . . . $22,728 $17,622 Percent of net revenue . . . . . . . . . . . . . 15.3% 14.2%
Cost of sales, including cost of warehousing, distribution and occupancy remained constant as a percentage of net revenue for the twelve weeks ended April 30, 1994 compared with the twelve weeks ended May 1, 1993. Consolidated product costs increased as a percentage of revenue for the quarter when compared with the first quarter of 1993, due primarily to increased revenue in the franchising and manufacturing segments as a percentage of consolidated net revenue. Margins generated by these segments are significantly lower than those of the retail segment. As revenue from these segments continues to increase as a percentage of consolidated revenue, the consolidated product costs will continue to increase. Consolidated warehousing, distribution and occupancy costs declined as a percentage of revenue for the quarter offsetting the increase in consolidated product costs. The Company continued to leverage its selling, general and administrative costs which declined as a percentage of net revenue for the quarter from 24.7% in 1993 to 23.5% in 1994. The dollar increase of $4,061,000 in the first quarter was a result of increased salaries and operating costs associated with new stores that were opened in 1993 and the first quarter of 1994 and increased retail advertising. As a result of improved operations in each of the Company's business segments and continued emphasis on controlling costs, operating earnings increased 29.0% for the first twelve weeks ended April 30, 1994 when compared with the same period in 1993. NON-OPERATING INCOME (EXPENSE) ANALYSIS Interest expense, including amortization expense of deferred financing fees, decreased to $3.7 million in the twelve weeks ended April 30, 1994 compared with $5.5 million for the same period in 1993. The decrease was primarily the result of repurchases of senior subordinated debt in 1993 utilizing the proceeds from the stock offering completed by the Company's parent in July 1993 and borrowings from the Company's revolving credit facility. The Company recognized an after tax extraordinary loss of $0.5 million as a result of the retirement of $5.6 million of senior subordinated notes in the first quarter of 1994. REVIEW OF FINANCIAL CONDITION ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES In the first twelve weeks of 1994, increased earnings in each of the Company's business segments improved the financial condition of the Company. The Company's current ratio was unchanged from year end at 1.44, while the debt to equity ratio improved to 1.04 from 1.16 at February 5, 1994. The Company continued its new store expansion program opening 21 new Company-owned and 48 franchise locations in the first quarter of 1994. The funds necessary for the continuation of this expansion will be generated internally or from the Company's revolving credit facility. 7 8 The Company's first quarter cash flows from operating, investing and financing activities as reflected in the Consolidated Statements of Cash Flows is summarized as follows:
12 Weeks 12 Weeks Ended Ended April 30, May 1, 1994 1993 --------- -------- (In thousands) Cash provided by (used in) Operating activities . . . . . . . . $15,267 $ 18,709 Investing activities . . . . . . . . (6,358) (3,491) Financing activities . . . . . . . . (8,928) (58,834) ------- -------- Net increase (decrease) in Cash and equivalents . . . . . . . . $ (19) $(43,616) ======= ========
OPERATING ACTIVITIES. Cash provided by operating activities in the first twelve weeks of both 1994 and 1993, reflects continued improvement in the operations of each of the Company's business segments. The Company continued to reinvest operating funds into its inventory and franchise program to support the ongoing store expansion program and the increased retail and wholesale sales. INVESTING ACTIVITIES. The primary use of funds in each of the reported periods, excluding the funds used in financing activities, was for capital expenditures. The Company incurred capital expenditures of approximately $5.4 million and $3.0 million for the first twelve weeks of 1994 and 1993, respectively. The capital expenditures were used primarily for the Company's new store expansion program. The Company has planned capital expenditures of approximately $29 million for 1994. Receivables from franchisees increased by $956,000 in the first twelve weeks of 1994 as the number of operating franchise locations increased to 555 from 509 at February 5, 1994. The funds required for the Company's future investing activities will come from a number of sources including the operating cash flow, the revolving credit facility and repayment of franchisee notes. FINANCING ACTIVITIES. On April 15, 1994, the Company made a principal repayment of $2.0 million on its bank term loan. At April 30, 1994, the Company had $8.9 million available on its $51.0 million revolving credit facility after excluding $6.1 million restricted for letters of credit. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Interim review report of the Company's independent accountants, Deloitte & Touche, for the first fiscal quarter ended April 30, 1994 is attached. (b) No current reports on Form 8-K were filed during the twelve-week period ended April 30, 1994. 8 9 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 NUTRITION, INCORPORATED By: /s/ Edwin J. Kozlowski ----------------------- Edwin J. Kozlowski Senior Vice President, Chief Financial Officer and Principal Accounting Officer DATE: June 13, 1994 9 10 Deloitte & Touche 2500 One PPG Place Pittsburgh, Pennsylvania 15222-5401 Telephone: (412) 338-7200 Facsimile: (412) 338-7380 INDEPENDENT ACCOUNTANTS' REPORT To The Board of Directors and Stockholder of General Nutrition, Incorporated Pittsburgh, Pennsylvania We have reviewed the accompanying consoldiated condensed and summarized balance sheet of General Nutrition, Incorporated and subsidiaries as of April 30, 1994, and the related consolidated condensed and summarized statements of operations and cash flows for the twelve weeks ended April 30, 1994 and May 1, 1993. These financial statements are the responsibility of the Corporation'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 of 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 such consolidated condensed and summarized financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of General Nutrition, Incorporated and subsidiaries as of February 5, 1994, and the related consolidated statements of operations, stockholder's equity, and cash flows for the year then ended (not presented herein); our report on those consolidated financial statements, dated March 7, 1994, includes an explanatory paragraph as to a litigation uncertainty. In our opinion, the information set forth in the accompanying consolidated condensed and summarized balance sheet as of February 5, 1994 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Deloitte & Touche May 16, 1994 -----END PRIVACY-ENHANCED MESSAGE-----