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, 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
of February 13, 1998 Title
5,387,438 Common Stock, par value $.01 per share
CALLOWAY'S NURSERY, INC.
FORM 10-Q
DECEMBER 31, 1997
PART I - FINANCIAL INFORMATION Page
Item 1
Index to Consolidated 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 8
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
December 31, September 30,
1997 1997
Cash and cash equivalents $ 1,788 $ 3,688
Accounts receivable 19 132
Inventories 1,482 1,533
Deferred income taxes 819 428
Prepaids and other assets 67 60
Total current assets 4,175 5,841
Property and equipment, net 7,532 5,466
Goodwill, net 1,146 1,173
Deferred income taxes 581 581
Other assets 49 50
Total assets $ 13,483 $ 13,111
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 1,890 $ 1,745
Accrued expenses 901 880
Current portion of long-term debt 106 97
Total current liabilities 2,897 2,722
Deferred rent payable 1,074 1,098
Long-term debt, net of current portion 2,537 1,803
Total liabilities 6,508 5,623
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; 5,626,773
and 5,582,364 shares issued, respectively,
5,376,773 and 5,332,364 shares outstanding,
respectively 56 55
Additional paid-in capital 8,478 8,406
Retained earnings (accumulated deficit) (163) 423
8,371 8,884
Less: Treasury stock, at cost
(250,000 shares) (1,396) (1,396)
Total shareholders' equity 6,975 7,488
Total liabilities and shareholders' equity $ 13,483 $ 13,111
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(amounts in thousands, except per share amounts)
Three Months Ended
December 31
1997 1996
Net sales $ 4,480 $ 4,261
Cost of goods sold 2,450 2,488
Gross profit 2,030 1,773
Operating expenses 1,890 1,681
Occupancy expenses 677 762
Advertising expenses 323 344
Other, net 115 69
Total expenses 3,007 2,856
Loss before provision for income taxes (977) (1,083)
Provision for income taxes (391) --
Net loss $ (586) $ (1,083)
Net loss per common share
Basic ($.11) ($.21)
Diluted ($.11) ($.21)
Weighted average number of common shares
outstanding 5,351 5,167
The accompanying notes are an integral part of these condensed
consolidated financial statements.
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
December 31,
1997 1996
Cash flows from operating activities:
Net loss $ (586) $ (1,083)
Adjustments to reconcile net income to
net cash provided by (used for)
operating activities:
Depreciation and amortization 100 98
Net change in operating assets and liabilities (91) 1,016
Net cash provided by (used for) operating
activities (577) 31
Cash flows from investing activities:
Additions to property and equipment (2,139) (676)
Net cash used for investing activities (2,139) (676)
Cash flows from financing activities:
Proceeds from issuance of common stock 73 50
Net borrowings of debt 743 562
Net cash provided by financing activities 816 612
Net decrease in cash and cash equivalents (1,900) (33)
Cash and cash equivalents at beginning of
period 3,688 2,358
Cash and cash equivalents at end of period $ 1,788 $ 2,325
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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 December 31,
1997, and the results of operations and cash flows for the
three-month periods ended December 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
and cash flows for the three-month period ended December 31,
1997 are not necessarily indicative of expected results of
operations and cash flows for the fiscal year ending September 30,
1998.
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, 1997 included in the
Company's Form 10-K.
2. Earnings Per Share
In February 1997 the FASB 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
stock 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 presentation of both 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 128 requires restatement of all prior-period EPS
data presented.
Under SFAS 128, a potentially dilutive security is actually dilutive
if its inclusion in the computation reduces EPS or increases a
loss per share. If the inclusion of the security increases earnings
per share or decreases a loss per share, then the security is
considered anit-dilutive. Anti-dilutive securities are not
reflected in EPS computations. For each of the quarters ended
December 31, 1997 and 1996, respectively, the Company incurred
a loss from continuing operations. Therefore, none of its
potentially dilutive securities are considered actually dilutive
for such periods, and the basic EPS and diluted EPS are the same.
EPS for the quarters ended December 31, 1997 and 1996 is computed
as follows (amounts, except per share amounts, in thousands):
Basic EPS 1997 1996
Net loss $(586) $(1,083)
Weighted average number of shares
outstanding 5,351 5,167
Net loss per common share $(.11) $(.21)
Diluted EPS 1997 1996
Net loss $(586) $(1,083)
Weighted average number of shares
outstanding 5,351 5,167
Net loss per common share $(.11) $(.21)
The Company had 941,500 outstanding stock options at
December 31, 1997 and 636,000 stock options outstanding at
December 31, 1996. Such stock options are not included in the
above EPS computations since they were anti-dilutive. Such stock
options could potentially dilute EPS in a future period.
3. New store construction
In October 1997 the Company purchased land and began construction
of a new retail store location in Fort Worth, Texas. The
purchase and construction are being financed with an interim
construction loan from a financial institution. The Company has
obtained a commitment from the financial institution to provide
permanent financing with a long-term note payable. At December 31,
1997 the outstanding balance of the interim construction loan
was $726,000. The interest rate is variable (9.5% at December
31, 1997).
4. Inventories
Inventories consist of the following (amounts in thousands):
December 31, September 30,
1997 1997
Finished goods $898 $1,197
Work in process 509 294
Supplies 75 42
$1,482 $1,533
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
consolidated statements of operations and the relative percentages
that they bear to net sales of the Company (amounts in thousands):
Quarter Ended December 31,
1997 1996
Amount % Amount %
Net sales 4,480 100 4,261 100
Gross profit 2,030 45 1,773 42
Operating expenses 1,890 42 1,681 39
Occupancy expenses 677 15 762 18
Advertising expenses 323 7 344 8
Other, net 115 3 69 2
Total expenses 3,007 67 2,856 67
Loss before provision for income taxes (977) (22) (1,083) (25)
Provision for income taxes (benefit) (391) (9) -- --
Net loss (586) (13) (1,083) (25)
Quarter Ended December 31, 1997 Compared with Quarter Ended
December 31, 1996
Net sales increased by 5% to $4,480,000 for the quarter ended
December 31, 1997 from $4,261,000 for the quarter ended December 31,
1996. 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. Same-store sales increased by 9.6% from $4,089,000 for the
quarter ended December 31, 1996 to $4,480,000 for the quarter ended
December 31, 1997. In September 1997 the Company converted one store
location into a distribution center, leaving the Company with
fifteen retail stores for the quarter ended December 31, 1997
as compared to sixteen retail stores for the quarter ended December
31, 1996.
Gross profit improved by 14% from $1,773,000 for the quarter ended
December 31, 1996 to $2,030,000 for the quarter ended December 31,
1997. Gross margins improved to 45% for the quarter ended December
31, 1997 from 42% for the quarter ended December 31, 1996. The
improvement was a result of continued strength in the Company's
Christmas merchandise lines as well as increased unit sales of
certain higher margin items in the Company's nursery merchandise
lines.
Operating expenses increased by 12% from $1,681,000 for the quarter
ended December 31, 1996 to $1,890,000 for the quarter ended
December 31, 1997 primarily due to higher payroll expenses in
support of the Company's enlarged scope of operations.
Occupancy expenses decreased by 11% from $762,000 for the quarter
ended December 31, 1996 to $677,000 for the quarter ended December
31, 1997. The decrease primarily resulted from reduced rents at
some of the Company's retail stores.
Advertising expenses decreased by 6% from $344,000 for the quarter
ended December 31, 1996 to $323,000 for the quarter ended December
31, 1997. The decrease was primarily a result of cost-reduction
efforts in the visual marketing area.
Other (net) expenses increased by 67% from $69,000 for the quarter
ended December 31, 1996 to $115,000 for the quarter ended December
31, 1997 due to increased net interest expense related to long-term
debt incurred to finance the Company's enlarged scope of operations.
Capital Resources and Liquidity
Cash flows used for operating activities were $577,000 for the quarter
ended December 31, 1997, as compared to cash flows provided by
operating activities of $31,000 for the quarter ended December 31,
1996. The change was primarily a result of investment in inventory
production at the Company's new Miller Plant Farms subsidiary. The
merchandise being produced there is planned for sale at the Company's
retail stores for spring 1998.
Cash flows used by investing activities increased from $676,000 for
the quarter ended December 31, 1996 to $2,139,000 for the quarter
ended December 31, 1997. Cash flows provided by financing activities
increased from $612,000 for the quarter ended December 31, 1996
to $816,000 for the quarter ended December 31, 1997. The increase was
primarily attributable to new store construction and related
indebtedness.
In October 1997 the Company purchased land and began construction
of a new retail store location in Fort Worth, Texas. The purchase
and construction are being partially financed with an interim
construction loan from a financial institution. The Company has
obtained a commitment from the financial institution to provide
permanent financing with a long-term note payable.
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.
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: February 13, 1998
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
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