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 March 31, 1997
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 April 14, 1997
Common Stock, par value $.01 per share 5,253,284
CALLOWAY'S NURSERY, INC.
FORM 10-Q
MARCH 31, 1997
PART I - FINANCIAL INFORMATION Page
Item 1
Index to Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated 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
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share amounts)
ASSETS
March 31, September 30,
1997 1996
Cash and cash equivalents $ 2,826 $ 2,358
Accounts receivable 611 132
Inventories 1,912 985
Prepaids and other assets 29 86
Total current assets 5,378 3,561
Property and equipment, net 4,687 3,947
Goodwill, net 1,227 1,282
Other assets 71 73
Total assets $ 11,363 $ 8,863
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 4,431 $ 1,454
Accrued expenses 675 634
Current portion of long-term debt 35 --
Total current liabilities 5,141 2,088
Deferred rent payable 1,196 1,169
Long-term debt, net of current portion 519 --
Total liabilities 6,856 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; 5,503,284 and 5,392,474 shares
issued, respectively, 5,253,284 and 5,142,474
shares outstanding, respectively 55 54
Additional paid-in capital 8,343 8,252
Accumulated deficit (2,495) (1,304)
5,903 7,002
Less: Treasury stock, at cost (250,000 shares) (1,396) (1,396)
Total shareholders' equity 4,507 5,606
Total liabilities and shareholders' equity $ 11,363 $ 8,863
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31 March 31
1997 1996 1997 1996
Net sales $5,303 $4,223 $9,564 $8,387
Cost of goods sold 2,642 2,291 5,130 4,577
Gross profit 2,661 1,932 4,434 3,810
Operating expenses 1,646 1,555 3,327 3,263
Occupancy expenses 736 743 1,498 1,435
Advertising expenses 284 276 628 571
Other, net 103 110 172 208
Total expenses 2,769 2,684 5,625 5,477
Loss before provision for income
taxes (108) (752)(1,191) (1,667)
Provision for income taxes -- -- -- --
Net loss ($ 108) ($ 752)($1,191) ($1,667)
Net loss per common share ($.02) ($.15) ($.23) ($.33)
Weighted average number of
common shares outstanding 5,222 5,015 5,195 4,997
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
March 31,
1997 1996
Cash flows from operating activities:
Net income $ (1,191) $ ($1,667)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 197 223
Net change in operating assets and liabilities 1,698 700
Net cash provided by (used for) operating
activities 704 (744)
Cash flows from investing activities:
Additions to property and equipment (882) (51)
Net cash (used for) investing activities (882) (51)
Cash flows from financing activities:
Proceeds from issuance of common stock 92 61
Net borrowings of debt 554 --
Net cash provided by financing activities 646 61
Net increase (decrease) in cash and cash equivalents 468 (734)
Cash and cash equivalents at beginning of period 2,358 1,046
Cash and cash equivalents at end of period $ 2,826 $ 312
CALLOWAY'S NURSERY, INC.
NOTES TO CONDENSED CONSOLIDATED 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 March 31, 1997, and the results of operations and cash flows for the
six-month and three-month periods ended March 31, 1997 and 1996 have been made.
Such adjustments are of a normal recurring nature.
Because of seasonal and other factors, the results of operations for the
six-month and three-month periods ended March 31, 1997 and cash flows for the
six-month period ended March 31, 1997 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.
2. Recent Accounting Pronouncements
In February 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 Earnings Per Share, ("SFAS 128"). SFAS
128 simplifies the standards for computing earnings per share ("EPS") previously
found in APB Opinion No. 15, Earnings Per Share ("APB 15"), and make them
comparable to international EPS standards. SFAS 128 replaces the presentation of
primary EPS with a presentation of basic EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
15. SFAS 128 also requires dual presentation of basic and diluted EPS on the
face of the income statement for entities with complex capital structures and a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. SFAS
requires restatement of all prior-period EPS data presented. The Company is
currently evaluating SFAS 128; however, management does not believe that SFAS
128 will have a material impact on the financial statements of the Company.
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):
Three Months Ended March 31, Six Months Ended March 31,
1997 1996 1997 1996
Amount % Amount % Amount % Amount %
Net sales 5,303 100 4,223 100 9,564 100 8,387 100
Gross profit 2,662 50 1,932 46 4,434 46 3,810 45
Operating expenses 1,646 31 1,555 37 3,327 35 3,263 39
Occupancy expenses 736 14 743 17 1,498 16 1,435 17
Advertising expenses 284 5 276 7 628 7 571 7
Other, net 103 2 110 3 172 2 208 2
Total expenses 2,769 52 2,684 64 5,625 59 5,477 65
Loss before provision for
income taxes (108) (2) (752) (18) (1,191) (13) (1,667) (20)
Provision for income taxes -- -- -- -- -- -- -- --
Net loss (108) (2) (752) (18) (1,191) (13) (1,667) (20)
Quarter Ended March 31, 1997 Compared with Quarter Ended March 31, 1996
The Company recorded an 86% improvement in net operating results on a 26% sales
gain.
Net sales increased by 26% to $5,303,000 for the quarter ended March 31, 1997
from $4,223,000 for the quarter ended March 31, 1996. Early-season demand for
garden products in the Dallas-Fort Worth market was strong, and consumers
responded favorably to the Company's enhanced selection of merchandise more
effectively displayed in its remodeled and updated retail stores.
Gross profit improved by 38% from $1,931,000 for the quarter ended March 31,
1996 to $2,661,000 for the quarter ended March 31, 1997. Gross margins rose to
50% for the quarter ended March 31, 1997 from 46% for the quarter ended
March 31, 1996. The increases were a result of execution of the Company's
merchandising programs, which provide fresh inventory to the Company's retail
stores based on actual rates of sale, and have been demonstrated to improve
gross margins by reducing stock loss.
Operating expenses increased by 6% from $1,555,000 for the quarter ended
March 31, 1996 to $1,646,000 for the quarter ended March 31, 1997, primarily due
to increased payroll expenses to maintain strong customer service for the
increased traffic in the Company's retail stores. The 6% increase was much
smaller than the corresponding increase in sales; therefore, operating expenses
as a percentage of sales dropped from 37% for the quarter ended March 31, 1996
to 31% for the quarter ended March 31, 1997.
Occupancy expenses decreased by 1% from $743,000 for the quarter ended
March 31, 1996 to $736,000 for the quarter ended March 31, 1997. The decrease
primarily resulted from the December 1996 purchase by the Company of one retail
store location that had previously been leased.
Advertising expenses increased by 1% from $276,000 for the quarter ended
March 31, 1996 to $284,000 for the quarter ended March 31, 1997. The increase
was primarily due to increased costs associated with the Company's in-store
visual marketing programs.
Other (net) expenses decreased by 7% from $110,000 for the quarter ended
March 31, 1996 to $103,000 for the quarter ended March 31, 1997. Interest
expense on the mortgage related to the December 1996 purchase of one retail
store location that had previously been leased was offset by increased net
interest income on generally larger cash balances in 1997 than in 1996. Also,
the Company recorded slightly lower depreciation expense for the three months
ended March 31, 1996 than for the three months ended March 31, 1997.
Six Months Ended March 31, 1997 Compared with Six Months Ended March 31, 1996
The Company reduced its year-to-date net loss by $476,000, or 29% on a 14%
sales improvement.
Net sales increased by 14% to $9,563,000 for the six months ended
March 31, 1997 from $8,387,000 for the six months ended March 31, 1996. Early-
season demand for garden products in the Dallas-Fort Worth market was strong,
and consumers responded favorably to the Company's enhanced selection of
merchandise displayed in its remodeled and updated retail stores. Improved sales
were also generated by Christmas merchandise, where the Company's efforts to
improve merchandise quality and the related in-store visual marketing met with
favorable results for that season.
Gross profit increased by 16% from $3,809,000 for the six months ended
March 31, 1996 to $4,432,000 for the six months ended March 31, 1997. Gross
margins improved to 46% for the six months ended March 31, 1997 from 45% for the
six months ended March 31, 1996. The increases were a result of execution of the
Company's merchandising programs, which provide fresh inventory to the Company's
retail stores based on actual rates of sale, and have been demonstrated to
improve gross margins by reducing stock loss.
Operating expenses increased by 2% from $3,263 for the six months ended
March 31, 1996 to $3,327,000 for the six months ended March 31, 1997 primarily
due to increased payroll expenses to maintain strong customer service for the
increased traffic in the Company's retail stores. The 2% increase was much
smaller than the corresponding increase in sales; therefore, operating expenses
as a percentage of sales dropped from 39% for the six months ended March 31,
1996 to 35% for the six months ended March 31, 1997.
Occupancy expenses increased by 4% from $1,435,000 for the six months ended
March 31, 1996 to $1,498,000 for the six months ended March 31, 1997. The
increase primarily resulted from changes in the computation of deferred rent
expenses for certain leases recorded during the six months ended March 31, 1996
which reduced occupancy expenses for that period. No such adjustments were made
in the six months ended March 31, 1997.
Advertising expenses increased by 7% from $571,000 for the six months ended
March 31, 1996 to $628,000 for the six months ended March 31, 1997. The increase
was primarily due to increased costs associated with the Company's in-store
visual marketing programs.
Other (net) expenses decreased by 17% from $208,000 for the six months ended
March 31, 1996 to $172,000 for the six months ended March 31, 1997 due to
increased net income on consistently larger cash balances. Interest expense on
the mortgage related to the December 1996 purchase of one retail store location
that had previously been leased was offset by increased net interest income on
generally larger cash balances in 1997 than in 1996. Also, the Company recorded
slightly lower depreciation expense for the six months ended March 31, 1996 than
for the six months ended March 31, 1997.
Capital Resources and Liquidity
Cash flows provided by operating activities improved to $704,000 for the six
months ended March 31, 1997 from $744,000 in cash flows used for operating
activities for the six months ended March 31, 1996. The improvement was a result
of the substantially improved operating results combined with continued careful
management of the Company's inventories.
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 $562,000. The lease on the property was to expire
in 2007, and the minimum lease payments were $125,000 annually.
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.
The Annual Meeting of the shareholders of the Company was held on February 12,
1997. The voting results at that meeting were as follows:
Election of Directors:
Nominee For Withheld Broker Non-Votes
James C. Estill 4,398,685 81,920 -0-
John T. Cosby 4,400,085 80,520 -0-
John S. Peters 4,400,085 80,520 -0-
Robert E. Glaze 4,400,685 79,920 -0-
Dr. Stanley Block 4,399,916 80,689 -0-
Approval of Calloway's Nursery, Inc. 1996 Stock Option Plan:
For Against Abstain Broker Non-Votes
4,223,863 136,852 25,010 -0-
Appointment of Coopers & Lybrand, LLP as auditors for fiscal year 1997:
For Against Abstain Broker Non-Votes
4,439,389 25,160 16,056 -0-
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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 under-
signed thereunto duly authorized.
Dated: April 23, 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>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 2826
<SECURITIES> 0
<RECEIVABLES> 611
<ALLOWANCES> 0
<INVENTORY> 1912
<CURRENT-ASSETS> 5378
<PP&E> 4687
<DEPRECIATION> 0
<TOTAL-ASSETS> 11363
<CURRENT-LIABILITIES> 5141
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 4452
<TOTAL-LIABILITY-AND-EQUITY> 11363
<SALES> 5303
<TOTAL-REVENUES> 5303
<CGS> 2642
<TOTAL-COSTS> 2769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
