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 December 31, 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)
4200 Airport Freeway
Fort Worth, Texas 76117-6200
817.222.1122
(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 February 7, 1997
Common Stock, par value $.01 per share 5,211,062
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CALLOWAY'S NURSERY, INC.
FORM 10-Q
DECEMBER 31, 1996
PART I - FINANCIAL INFORMATION Page
Item 1
Index to Financial Statements
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
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<TABLE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CALLOWAY'S NURSERY, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
(In thousands, except share amounts)
ASSETS
December 31, September 30,
1996 1996
<S> <C> <C>
Cash and cash equivalents $2,325 $ 2,358
Accounts receivable 39 132
Inventories 406 985
Prepaids and other assets 57 86
Total current assets 2,827 3,561
Property and equipment, net 4,553 3,947
Goodwill, net 1,254 1,282
Other assets 71 73
Total assets $ 8,705 $ 8,863
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,583 $ 1,454
Accrued expenses 805 634
Current portion of long-term debt 35 --
Total current liabilities 2,423 2,088
Deferred rent payable 1,182 1,169
Long-term debt, net of current portion 527 --
Total liabilities 4,132 3,257
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; 5,448,520 and 5,392,474 shares
issued, respectively, 5,198,520 and 5,142,474
shares outstanding, respectively 54 54
Additional paid-in capital 8,302 8,252
Accumulated deficit (2,387) (1,304)
5,969 7,002
Less: Treasury stock, at cost (250,000 shares) (1,396) (1,396)
Total shareholders' equity 4,573 5,606
Total liabilities and shareholders' equity $ 8,705 $ 8,863
</TABLE>
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<TABLE>
CALLOWAY'S NURSERY, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share amounts)
Three Months Ended
December 31
1996 1995
<S> <C> <C>
Net sales $ 4,261 $ 4,164
Cost of goods sold 2,488 2,286
Gross profit 1,773 1,878
Operating expenses 1,681 1,708
Occupancy expenses 762 692
Advertising expenses 344 295
Other, net 69 98
Total expenses 2,856 2,793
Loss before provision for income taxes (1,083) (915)
Provision for income taxes -- --
Net loss $ (1,083) $ (915)
Net loss per common share ($0.21) ($0.19)
Weighted average number of common
shares outstanding 5,167 4,977
</TABLE>
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<TABLE>
CALLOWAY'S NURSERY, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ (1,083) $(915)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 98 113
Net change in operating assets and liabilities 1,016 765
Net cash provided by (used for) operating
activities 31 (37)
Cash flows from investing activities:
Additions to property and equipment (676) (12)
Net cash (used for) investing activities (676) (12)
Cash flows from financing activities:
Proceeds from issuance of common stock 50 45
Net advances of debt 562 --
Net cash provided by financing activities 612 45
Net decrease in cash and cash equivalents (33) (4)
Cash and cash equivalents at beginning of period 2,358 1,046
Cash and cash equivalents at end of period $ 2,325 $ 1,042
</TABLE>
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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 December 31, 1996, and the results of operations and cash flows
for the three-month periods ended December 31, 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 the three-month period ended December 31, 1996 are not necessarily
indicative of expected results of operations and cash flows for the fiscal
year ending September 30, 1997.
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, 1996
included in the Company's Form 10-K.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
General
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 they bear to net sales of the Company
(amounts in thousands):
<TABLE>
Quarter Ended December 31,
1996 1995
<S> <C> <S> <C>
Amount % Amount %
Net sales 4,261 100% $4,164 100%
Gross profit 1,773 42 1,878 45
Operating expenses 1,681 39 1,708 41
Occupancy expenses 762 18 692 17
Advertising expenses 344 8 295 7
Other, net 69 2 98 2
Total expenses 2,856 67 2,793 67
Loss before provision for income taxes (1,083) (25) (915) (22)
Provision for income taxes (benefit) -- -- -- --
Net loss $(1,083) (25%) ($915) (22%)
</TABLE>
Quarter Ended December 31, 1996 Compared with Quarter Ended December 31, 1995
The Company implemented a new merchandising practice of requiring that
merchandise be sold-out at the end of its "selling season" as opposed to
carrying excess merchandise into future seasons. This is a more realistic
approach; however, since it is a different practice from prior years, it led to
a recorded net loss that was larger in the quarter ended December 31, 1996 than
in the comparable quarter one year ago. The Company believes that this new
practice has and will continue to lead to a positive consumer response to a
fresher and more timely merchandise selection.
Net sales increased by 2% to $4,261,000 for the quarter ended December 31,
1996 from $4,164,000 for the quarter ended December 31, 1995. The improved
sales were primarily generated by Christmas merchandise, where the Company's
efforts to improve merchandise quality and the related in-store visual
marketing met with favorable results.
Gross profit decreased by 6% from $1,878,000 for the quarter ended December 31,
1995 to $1,773,000 for the quarter ended December 31, 1996. Gross margins
declined to 42% for the quarter ended December 31, 1996 from 45% for the
quarter ended December 31, 1995. The decreases were a result of the
aforementioned change in merchandising practice, rather than a reflection of
weakness in the Company's fall and Christmas merchandise programs.
<PAGE>
Operating expenses decreased by 2% from $1,708,000 for the quarter ended
December 31, 1995 to $1,681,000 for the quarter ended December 31, 1996
primarily due to lower costs of operating the corporate office. The Company
sold its corporate office building in August 1996 and now operates from leased
office space.
Occupancy expenses increased by 10% from $692,000 for the quarter ended
December 31, 1995 to $762,000 for the quarter ended December 31, 1996. The
increase primarily resulted from changes in the computation of deferred rent
expenses for certain leases recorded during the quarter ended December 31, 1995
which reduced occupancy expenses for that period. No such adjustments were made
in the quarter ended December 31, 1996.
Advertising expenses increased by 17% from $295,000 for the quarter ended
December 31, 1995 to $344,000 for the quarter ended December 31, 1996. The
increase was primarily due to increased costs associated with the Company's
in-store visual marketing programs.
Other (net) expenses decreased by 30% from $98,000 for the quarter ended
December 31, 1995 to $69,000 for the quarter ended December 31, 1996 due to
increased net income on consistently larger cash balances.
Capital Resources and Liquidity
Cash flows provided by operating activities improved to $31,000 for the
quarter ended December 31, 1996 from $37,000 in cash flows used for operating
activities for the quarter ended December 31, 1995. The improvement was
reflective of the fact that, even though a larger net loss was recorded for the
quarter ended December 31, 1996, it was directly related to the aforementioned
change in merchandising practices related to inventory, and not to weakness in
the Company's core business operations.
In December 1996 the Company purchased one retail store location that had
previously been leased. The purchase was financed with a long-term note payable
to a financial institution for $560,000. The lease on the property was to
expire in 2007, and required minimum lease payments of $125,000 annually.
<PAGE>
Part 2. 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.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
<PAGE>
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 u
ndersigned thereunto duly authorized.
Dated: February 7, 1997
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
<TABLE> <S> <C>
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