<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 0-19305
CALLOWAY'S NURSERY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2092519
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4800 Blue Mound Road
Fort Worth, Texas 76106
(817) 624-8222
(Address, including zip code, of principal executive
offices and Registrant's telephone number, including area code)
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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding as
Title of July 26, 1996
Common Stock, par value $.01 per share 5,112,035
<PAGE 2>
CALLOWAY'S NURSERY, INC.
FORM 10-Q
JUNE 30, 1996
PART I - FINANCIAL INFORMATION
Item 1
Index to Financial Statements Page
Condensed Balance Sheets 3
Condensed Statements of Operations 4
Condensed Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Items 1-6 10
<PAGE 3>
<TABLE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CALLOWAY'S NURSERY, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
(In thousands, except share amounts)
ASSETS
<CAPTION>
June 30, September 30,
1996 1995
<S> <C> <C>
Cash and cash equivalents $ 4,888 $ 1,046
Accounts receivable 155 55
Inventories 1,170 996
Prepaids and other assets 113 81
Property and equipment held for sale, net 3,084 3,124
_____ _____
Total current assets 9,410 5,302
Property and equipment, net 1,491 1,630
Goodwill, net 1,309 1,390
Other assets 100 95
_____ _____
Total assets $12,310 $ 8,417
LIABILITIES AND SHAREHOLDERS' EQUITY
Payable to bank $ 524 $ --
Accounts payable 3,347 1,369
Accrued expenses 878 659
_____ _____
Total current liabilities 4,749 2,028
Deferred rent payable 1,165 1,131
_____ _____
Total liabilities 5,914 3,159
Commitments
Shareholders equity:
Voting convertible preferred stock; par
value $.625 per share; 3,200,000 shares
authorized; no shares issued or outstanding -- --
Preferred stock; par value $.01 per share;
10,000,000 shares authorized; no shares
issued or outstanding -- --
Common stock; par value $.01 per share;
30,000,000 shares authorized; 5,343,909
and 5,204,456 shares issued, respectively,
5,093,909 and 4,954,456 shares
outstanding, respectively 53 52
Additional paid-in capital 8,225 8,107
Accumulated deficit (486) (1,505)
_____ _____
7,792 6,654
Less: Treasury stock, at
cost (250,000 shares) (1,396) (1,396)
_____ _____
Total shareholders' equity 6,396 5,258
_____ _____
Total liabilities and shareholders' equity $12,310 $ 8,417
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
<PAGE 4>
<TABLE>
CALLOWAY'S NURSERY, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $12,347 $10,783 $20,734 $19,086
Cost of goods sold 6,278 5,353 10,855 10,056
______ ______ ______ ______
Gross profit 6,069 5,430 9,879 9,030
Operating expenses 2,144 1,889 5,407 5,065
Occupancy expenses 760 761 2,195 2,228
Advertising expenses 431 398 1,002 895
Other, net 48 96 256 367
______ ______ ______ ______
Total expenses 3,383 3,144 8,860 8,555
Income before provision for
income taxes 2,686 2,286 1,019 475
Provision for income taxeS -- -- -- --
______ ______ ______ ______
Net income $ 2,686 $ 2,286 $ 1,019 $ 475
Net income per common share $ .53 $ .47 $ .20 $ .10
Weighted average number of
common shares outstanding 5,068 4,888 5,020 4,849
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
<PAGE 5>
<TABLE>
CALLOWAY'S NURSERY, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<CAPTION>
Nine Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,019 $ 475
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation and amortization 324 379
Net change in operating assets and
liabilities 1,920 (119)
_____ _____
Net cash provided by operating activities 3,263 735
Cash flows from investing activities:
Additions to property and equipment (64) (9)
Proceeds from sales of real properties -- 1,164
Other, net -- 5
_____ _____
Net cash provided by (used for) investing activities (64) 1,160
Cash flows from financing activities:
Proceeds from issuance of common stock 119 137
Payable to bank 524 (132)
Net repayments of debt -- (864)
_____ _____
Net cash provided by (used for) financing activities 643 (859)
Net increase in cash and cash equivalents 3,842 1,036
Cash and cash equivalents at beginning of
period 1,046 1,748
_____ _____
Cash and cash equivalents at end of period $4,888 $2,784
<FN>
The accompanying notes are an integral part of these condensed financial
statements.
</TABLE>
<PAGE 6>
CALLOWAY'S NURSERY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The interim financial statements contained herein have been prepared by
Calloway's Nursery, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments considered necessary for a fair presentation of
the financial position at June 30, 1996 and September 30, 1995, and the
results of operations and cash flows for the three month and nine month
periods ended June 30, 1996 and 1995 have been made. Such adjustments
are of a normal recurring nature.
Because of seasonal and other factors, the results of operations and cash
flows for any interim period are not necessarily indicative of expected
results of operations and cash flows for the entire fiscal year ending
September 30, 1996.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
these financial statements should be read in conjunction with the audited
financial statements and related notes of the Company for the fiscal year
ended September 30, 1995 included in the Company's Form 10-K.
<PAGE 7>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
General
<TABLE>
The information presented below sets forth, for the periods indicated, the
amounts of certain items derived from the statements of operations and the
relative percentages that each item bears to net sales of the Company.
<CAPTION>
Quarter Ended June 30, Nine Months Ended June 30,
1996 1995 1996 1995
Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $12,347 100% $10,783 100% $20,734 100% $19,086 100%
Gross profit 6,069 49 5,430 50 9,879 48 9,030 47
Operating expenses 2,144 17 1,889 17 5,407 26 5,065 26
Occupancy expenses 760 6 761 7 2,195 11 2,228 12
Advertising expenses 431 4 398 4 1,002 5 895 5
Other, net 48 -- 96 1 256 1 367 2
Total expenses 3,383 27 3,144 29 8,860 43 8,555 45
Income before
provision for
income taxes 2,686 22 2,286 21 1,019 5 475 2
Provision for income
taxes -- -- -- -- -- -- -- --
Net income $ 2,686 22% $ 2,286 21% $ 1,019 5% $ 475 2%
</TABLE>
Quarter Ended June 30, 1996 Compared with Quarter Ended June 30, 1995
The Company achieved a 17% improvement in net income for the quarter
on a 15% increase in net sales. Net income for the quarter ended June 30,
1996 was approximately $2.7 million on net sales of approximately $12.3
million, as compared to net income of approximately $2.3 million on net
sales of approximately $10.8 million for the quarter ended June 30, 1995.
Gross profit increased by $639,000 on the increased sales volumes, as
gross profit margins declined by only one percentage point, from 50% in
1995 to 49% in 1996.
The improved net sales and gross profit resulted from the execution of
the Company's relatively new merchandising programs, which provided
coordinated merchandise planning, replenishment processes, and enhanced
visual merchandising.
Operating expenses increased by 13% to approximately $2.1 million for
the quarter ended June 30, 1996 from approximately $1.9 million for the
quarter ended June 30, 1995. The Company incurred the additional
expenses to support the aforementioned merchandising programs.
<PAGE 8>
Occupancy expenses were virtually unchanged: $761,000 for the quarter
ended June 30, 1996, and $760,000 for the quarter ended June 30, 1995.
Advertising expenses increased by 8% from $398,000 for the quarter
ended June 30, 1995 to $431,000 for the quarter ended June 30, 1996. The
increase was attributable to the Company's enhanced in-store visual
merchandising efforts, and to increased rates for newspaper advertising.
No income tax benefits have been recorded for either fiscal 1996 or fiscal
1995 due to the full utilization of net operating income carrybacks in fiscal
1994.
Nine Month Period Ended June 30, 1996 Compared with Nine Month Period
Ended June 30, 1995
The Company achieved a 115% improvement in net income for the nine
months on a 9% increase in net sales. Net income for the nine months ended
June 30, 1996 was $1,019,000 on net sales of approximately $20.7 million,
as compared to net income of $475,000 on net sales of approximately $19.1
million for the nine months ended June 30, 1995.
Same-store net sales for the nine months ended June 30, 1996 improved
by 9% to approximately $20.7 million from approximately $19.0 million for
the nine months ended June 30, 1995. The Company closed one store in
December 1994, reducing the number of stores to the current total of
sixteen. The same-store sales comparison is for the remaining sixteen
stores, all of which have been open for at least one year.
Gross profit margins rose to 48% for the nine months ended June 30,
1996 from 47% for the nine months ended June 30, 1995. The improved
margins on the improved sales caused gross profit to increase to
approximately $9.9 million for the nine months ended June 30, 1996 from
approximately $9.0 million for the nine months ended June 30, 1995.
The improved gross profit margins resulted from the execution of the
Company's merchandising programs, which provided coordinated
merchandise planning, replenishment processes, and enhanced visual
merchandising. One benefit of such programs is reduced inventory
shrinkage, since inventory levels are kept consistent with achieved rates of
sale.
<PAGE 9>
Operating expenses increased to approximately $5.4 million for the nine
months ended June 30, 1996 from approximately $5.1 million for the nine
months ended June 30, 1995. The Company incurred the additional
expenses to support the aforementioned merchandising programs.
Occupancy expenses were virtually unchanged at approximately $2.2
million for each of the nine months ended June 30, 1996 and 1995.
Advertising expenses increased by 12% from $895,000 for the nine
months ended June 30, 1995 to $1,002,000 for the nine months ended June 30,
1996. The increase was attributable to the Company's enhanced in-store
visual merchandising efforts, and to increased rates for newspaper
advertising.
No income tax benefits have been recorded for either fiscal 1996 or fiscal
1995 due to the full utilization of net operating income carrybacks in fiscal
1994.
Capital Resources and Liquidity
Cash flows provided by operating activities improved from $735,000 for
the nine months ended June 30, 1995 to approximately $3.3 million for the
nine months ended June 30, 1996. The improvement was due to the
improvement in net income for the period and improved utilization of
supplier financing for the acquisition of merchandise inventories.
During the nine months ended June 30, 1996 the Company made
relatively minor capital improvements totaling $64,000. During the nine
months ended June 30, 1995 the Company received cash proceeds of
approximately $1.2 million from the sale-leaseback of certain property and
equipment, and used $864,000 to retire its remaining long-term
indebtedness.
For the nine months ended June 30, 1996 the Company issued
approximately 139,000 common shares to the Calloway's Nursery, Inc. Stock
Purchase Plan, receiving proceeds of approximately $119,000, compared to
approximately 120,000 common shares issued for proceeds of
approximately $137,000 for the nine months ended June 30, 1995.
<PAGE 10>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Registrant expects to sell its corporate office building during the
fourth quarter ending September 30, 1996. Effective August 5, 1996, the
Registrant's new mailing address will be:
Calloway's Nursery, Inc.
4200 Airport Freeway
Fort Worth, Texas 76117
Telephone 817.222.1122
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(10)(m)Extension of Employment Agreement between the
Registrant and James C. Estill
(10)(n)Extension of Employment Agreement between the
Registrant and John T. Cosby
(10)(o)Extension of Employment Agreement between the
Registrant and John S. Peters
(27) Financial Data Schedule
(b) Reports on Form 8-K:
On June 10, 1996 the Registrant filed a Form 8-K for the purpose
of providing evidence to the Nasdaq Stock Market that the Registrant
meets the net tangible assets and market value of public float
requirements set forth in Part III, Section 5(a)(5) of Schedule D
of the NASD By-Laws.
<PAGE 11>
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.
Dated: July 26, 1996
CALLOWAY'S NURSERY, INC.
By_/s/_James C. Estill
James C. Estill, President and
Chief Executive Officer
By_/s/_Daniel G. Reynolds
Daniel G. Reynolds, Vice
President and Chief Financial Officer
Exhibit (10)(m)
EXTENSION OF EMPLOYMENT AGREEMENT
This Extension of Employment Agreement (the "Agreement"), is entered into
as of the 2nd day of July, 1996, by and between Calloway's Nursery, Inc., a
Texas corporation ("Employer"), and James C. Estill ("Employee").
WHEREAS, Employee has been employed by Employer under the terms of an
employment agreement dated July 2, 1991 (the "Original Agreement"), which would
terminate by its terms on July 2, 1996; and
WHEREAS, Employer and Employee each desire to renew and extend the term
of the Original Agreement:
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreement contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is acknowledged, the
parties agree as follows:
1. In accordance with the provisions of the last sentence of Section 3
of the Original Agreement, the Term, as defined in that agreement,
is amended so that it will end on July 2, 2001, unless earlier
terminated by either party pursuant to its terms.
2. The references in Section 2 of the Original Agreement to the
offices of "Chairman of the Board, President, Chief Executive
Officer and Chief Financial Officer" is amended to refer instead to
"Chairman of the Board, President and Chief Executive Officer."
3. The address of the Employee in Section 10 is amended to read as
follows:
James C. Estill
XXXXXXXXXXXXX
XXXXXXXXXXXXX
4. The address for the Employer in Section 10 is amended to read as
follows:
Calloway's Nursery, Inc.
4800 Blue Mound Road
Fort Worth, TX 76106-1911
5. Except as amended by this Agreement, all of the terms and
provisions of the Original Agreement are ratified, confirmed and
approved.
EMPLOYER:
CALLOWAY'S NURSERY, INC.
BY:______________________________
Its: ____________________________
EMPLOYEE: _______________________
Exhibit (10)(n)
EXTENSION OF EMPLOYMENT AGREEMENT
This Extension of Employment Agreement (the "Agreement"), is entered into as
of the 2nd day of July, 1996, by and between Calloway's Nursery,
Inc., a Texas corporation ("Employer"), and John T. Cosby ("Employee").
WHEREAS, Employee has been employed by Employer under the terms of an
employment agreement dated July 2, 1991 (the "Original Agreement"), which
would terminate by its terms on July 2, 1996; and
WHEREAS, Employer and Employee each desire to renew and extend the term of
the Original Agreement:
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreement contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, the parties agree as
follows:
1. In accordance with the provisions of the last sentence of Section 3 of
the Original Agreement, the Term, as defined in that agreement, is
amended so that it will end on July 2, 2001, unless earlier terminated
by either party pursuant to its terms.
2. The address of the Employee in Section 10 is amended to read as follows:
John T. Cosby
XXXXXXXXXXXXX
XXXXXXXXXXXXX
3. The address for the Employer in Section 10 is amended to read as
follows:
Calloway's Nursery, Inc.
4800 Blue Mound Road
Fort Worth, TX 76106-1911
4. Except as amended by this Agreement, all of the terms and
provisions of the Original Agreement are ratified, confirmed and
approved.
EMPLOYER:
CALLOWAY'S NURSERY, INC.
BY:______________________________
Its: ____________________________
EMPLOYEE: _______________________
Exhibit (10)(o)
EXTENSION OF EMPLOYMENT AGREEMENT
This Extension of Employment Agreement (the "Agreement"), is entered into as
of the 2nd day of July, 1996, by and between Calloway's Nursery,
Inc., a Texas corporation ("Employer"), and John S. Peters ("Employee").
WHEREAS, Employee has been employed by Employer under the terms of an
employment agreement dated July 2, 1991 (the "Original Agreement"), which
would terminate by its terms on July 2, 1996; and
WHEREAS, Employer and Employee each desire to renew and extend the term of
the Original Agreement:
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreement contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, the parties agree as
follows:
1. In accordance with the provisions of the last sentence of Section 3 of
the Original Agreement, the Term, as defined in that agreement, is
amended so that it will end on July 2, 2001, unless earlier terminated
by either party pursuant to its terms.
2. The address of the Employee in Section 10 is amended to read as follows:
John S. Peters
XXXXXXXXXXXXX
XXXXXXXXXXXXX
3. The address for the Employer in Section 10 is amended to read as
follows:
Calloway's Nursery, Inc.
4800 Blue Mound Road
Fort Worth, TX 76106-1911
4. Except as amended by this Agreement, all of the terms and
provisions of the Original Agreement are ratified, confirmed and
approved.
EMPLOYER:
CALLOWAY'S NURSERY, INC.
BY:______________________________
Its: ____________________________
EMPLOYEE: _______________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,888
<SECURITIES> 0
<RECEIVABLES> 155
<ALLOWANCES> 0
<INVENTORY> 1,170
<CURRENT-ASSETS> 9,410
<PP&E> 1,491
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,310
<CURRENT-LIABILITIES> 4,749
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 6,343
<TOTAL-LIABILITY-AND-EQUITY> 12,310
<SALES> 20,734
<TOTAL-REVENUES> 20,734
<CGS> 10,855
<TOTAL-COSTS> 8,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,019
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,019
<EPS-PRIMARY> .20
<EPS-DILUTED> .0
</TABLE>
