FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended: October 25, 1998
Commission File Number: 0-24442
GARDEN RIDGE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3671679
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19411 Atrium Place, Suite 170, Houston, Texas 77084
(Address of principal executive offices) (Zip Code)
(281) 579-7901
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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.
CLASS OUTSTANDING AT DECEMBER 8, 1998
Common Stock, $.01 Par Value 18,126,350 shares
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
January 25, October 25,
ASSETS 1998 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................................. $ 44,586 $ 3,416
Marketable securities ..................................................................... 3,150 --
Accounts receivable ....................................................................... 1,785 4,174
Inventories ............................................................................... 57,773 106,284
Deferred income taxes ..................................................................... 1,225 1,225
Prepaid expenses .......................................................................... 2,492 3,045
Deposits and other ........................................................................ 80 80
------------ ------------
Total current assets ................................................................. 111,091 118,224
PROPERTY AND EQUIPMENT, at cost:
Land held for sale/leaseback .............................................................. 241 241
Leasehold improvements .................................................................... 18,830 23,314
Furniture and fixtures .................................................................... 13,832 17,778
Equipment ................................................................................. 24,741 32,193
------------ ------------
Total property and equipment ........................................................ 57,644 73,526
Less - Accumulated depreciation and amortization .......................................... (17,977) (24,535)
------------ ------------
Net property and equipment .......................................................... 39,667 48,991
OTHER ASSETS:
Intangibles and deferred charges, net ..................................................... 9,454 9,007
------------ ------------
Total assets ........................................................................ $ 160,212 $ 176,222
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................................... $ 17,448 $ 36,098
Accrued liabilities ....................................................................... 8,529 11,100
Federal income taxes payable .............................................................. 7,587 1,562
------------ ------------
Total current liabilities ........................................................... 33,564 48,760
LONG-TERM DEBT, net ............................................................................ 100 100
DEFERRED INCOME TAXES .......................................................................... 595 595
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' EQUITY:
Common stock, 17,991,890 and 18,126,350 shares outstanding ................................ 183 183
Paid-in capital ........................................................................... 93,293 93,886
Retained earnings ......................................................................... 32,512 32,721
Less - Treasury stock, 322,226 and 207,942 shares at cost ................................. (35) (23)
------------ ------------
Total common stockholders' equity .................................................. 125,953 126,767
------------ ------------
Total liabilities and common stockholders' equity .................................. $ 160,212 $ 176,222
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty Nine Weeks Ended
--------------------------- ---------------------------
October 26, October 25, October 26, October 25,
1997 1998 1997 1998
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
SALES .............................................................. $ 71,122 $ 86,107 $ 194,250 $ 224,375
COST OF SALES ...................................................... 44,762 54,717 126,086 144,960
----------- ------------ ----------- ------------
Gross profit ................................................. 26,360 31,390 68,164 79,415
OPERATING EXPENSES:
Store operating ................................................ 21,767 26,908 57,261 67,825
General and administrative ..................................... 2,564 4,177 6,571 9,836
Amortization of intangibles and deferred charges ............... 188 149 564 439
Preopening costs ............................................... 349 1,850 1,122 2,219
----------- ------------ ----------- ------------
Total operating expenses .................................... 24,868 33,084 65,518 80,319
----------- ------------ ----------- ------------
Income (loss) from operations ............................... 1,492 (1,694) 2,646 (904)
INTEREST INCOME .................................................... 163 125 838 1,231
----------- ------------ ----------- ------------
Income (loss) before income taxes ........................... 1,655 (1,569) 3,484 327
INCOME TAXES (BENEFIT) ............................................. 612 (565) 1,289 118
=========== ============ =========== ============
Net income (loss) ........................................... $ 1,043 $ (1,004) $ 2,195 $ 209
=========== ============ =========== ============
INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Net income (loss), basic .................................... $ .06 $ (.06) $ .12 $ .01
Net income (loss), diluted .................................. $ .06 $ (.06) $ .12 $ .01
WEIGHTED AVERAGE SHARES OUTSTANDING,
BASIC ........................................................... 17,932,081 18,071,640 17,888,356 18,034,151
=========== ============ =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING,
DILUTED ......................................................... 18,521,463 18,071,640 18,452,966 18,584,476
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty Nine Weeks Ended
--------------------------
October 26, October 25,
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................................... $ 2,195 $ 209
----------- -----------
Adjustments to reconcile net income to net cash used in operating activities --
Depreciation and amortization of property and equipment ..................................... 4,856 6,566
Amortization of intangibles and deferred charges ............................................ 564 439
(Increase) decrease in assets -
Accounts receivable ....................................................................... (974) (2,389)
Inventories ............................................................................... (35,719) (48,511)
Prepaid expenses .......................................................................... 552 (553)
Deposits and other ........................................................................ 321 --
Increase (decrease) in liabilities -
Accounts payable .......................................................................... 10,299 18,650
Accrued liabilities ....................................................................... 4,145 2,571
Federal income taxes payable .............................................................. (1,010) (6,025)
----------- -----------
Total adjustments ......................................................................... (16,966) (29,252)
----------- -----------
Net cash used in operating activities ..................................................... (14,771) (29,043)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities ........................................................................... (747) 3,150
Capital expenditures ............................................................................ (3,933) (15,882)
----------- -----------
Net cash used in investing activities ..................................................... (4,680) (12,732)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock .......................................................... -- 234
Proceeds from exercise of stock options and warrants ............................................ 564 359
Common stock reissued from treasury ............................................................. 1 12
----------- -----------
Net cash provided by financing activities ................................................ 565 605
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................................................ (18,886) (41,170)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................................................... 32,494 44,586
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................................................... $ 13,608 $ 3,416
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest ................................................................................... $ 46 $ 35
Income taxes ............................................................................... 2,175 6,400
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
GARDEN RIDGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared by
the Company without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. In the opinion of the Company, all adjustments necessary
for the fair presentation of the unaudited results for the periods have been
included. Because of the seasonal nature of the Company's business, results for
such interim periods are not necessarily indicative of the results for the full
year. These interim consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for fiscal year ended
January 25, 1998.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." The new standard simplifies the computation of earnings per share (EPS)
and increases comparability to international standards. Under SFAS No. 128,
primary EPS is replaced by "Basic" EPS, which 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, which is
computed similarly to fully 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.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." At adoption, SOP 98-5 requires the Company to write-off
any unamortized start-up costs as a cumulative change in accounting principle
and, going forward, expense all start-up activity costs as they are incurred.
The Company is required to and will adopt SOP 98-5 in the first quarter of
fiscal 2000 and believes that adoption will not have a significant effect on its
consolidated financial statements.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's fiscal year ends on the last Sunday in January in each year
resulting in either a 52 or 53 week year. References to fiscal years by date
refer to the fiscal year ending in that calendar year; for example, "fiscal
1999" refers to the fiscal year ending January 31, 1999.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated income statement
data expressed as a percentage of sales.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty Nine Weeks Ended
--------------------------- ---------------------------
October 26, October 25, October 26, October 25,
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales .............................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ...................................................... 62.9 63.6 64.9 64.6
----------- ----------- ----------- -----------
Gross profit .................................................. 37.1 36.4 35.1 35.4
Operating expenses:
Store operating ............................................... 30.6 31.2 29.5 30.2
General and administrative .................................... 3.6 4.9 3.3 4.4
Amortization of intangibles and deferred charges .............. 0.3 0.2 0.3 0.2
Preopening costs .............................................. 0.5 2.1 0.6 1.0
----------- ----------- ----------- -----------
Income (loss) from operations ............................ 2.1 (2.0) 1.4 (0.4)
Interest income .................................................... 0.3 0.1 0.4 0.6
Income (taxes) benefit ............................................. (0.9) 0.7 (0.7) (0.1)
=========== =========== =========== ===========
Net income (loss) ............................... 1.5% (1.2)% 1.1% 0.1%
=========== =========== =========== ===========
</TABLE>
THIRD QUARTER ENDED OCTOBER 25, 1998 COMPARED TO THIRD QUARTER ENDED OCTOBER 26,
1997
Sales in the third quarter of fiscal 1999 increased $15.0 million, or
21.1%, to $86.1 million from $71.1 million in the third quarter of fiscal 1998.
The increase was primarily attributable to (i) five stores opening in the third
quarter of fiscal 1999 and (ii) one store opening in the second quarter of
fiscal 1999. In addition, comparable store sales were 1% higher than the same
period last year.
Gross profit as a percentage of sales decreased to 36.4% in the third
quarter of fiscal 1999 as compared to 37.1% for the comparable period in fiscal
1998. This decrease in gross profit as a percentage of sales resulted from
higher buying and occupancy costs for the third quarter of fiscal 1999 compared
to the third quarter of fiscal 1998.
Store operating expenses increased $5.1 million, or 23.6%, in the third
quarter of fiscal 1999 primarily as a result of operating 27 stores in the third
quarter of fiscal 1999 compared to operating 21 stores in the third quarter of
fiscal 1998.
6
<PAGE>
General and administrative expenses increased $1.6 million, or 62.9%, to
$4.2 million in the third quarter of fiscal 1999 as compared to $2.6 million in
the third quarter of fiscal 1998. This increase relates to an $800,000 severance
package to the Company's former president, corporate personnel additions and
increased depreciation expense related to the Company's new management
information systems. General and administrative expenses as a percentage of
sales increased in the third quarter of fiscal 1999 to 4.9% from 3.6% in the
comparable period of fiscal 1998.
Preopening costs of $1,850,000 in the third quarter of fiscal 1999 relate
to the opening of the five new stores in the following markets: Lexington,
Kentucky; Nashville, Tennessee; Atlanta, Georgia; Fort Worth, Texas and
Columbus, Ohio. The Company's policy is to expense preopening costs in the month
a store commences operations.
Interest income was $125,000, or 0.1% of sales in the third quarter of
fiscal 1999, as compared to $163,000, or 0.3% of sales in the comparable period
of fiscal 1998.
The income tax benefit was $565,000, representing an effective tax rate of
36.0% for the third quarter of fiscal 1999, as compared to taxes of $612,000, or
37.0%, in the comparable period of fiscal 1998. The Company's lower effective
tax rate is attributable to the Company's geographic expansion resulting in a
lower effective state tax rate.
THIRTY NINE WEEKS ENDED OCTOBER 25, 1998 COMPARED TO THIRTY NINE WEEKS ENDED
OCTOBER 26, 1997
Sales in the first three quarters of fiscal 1999 increased $30.1 million,
or 15.5%, to $224.4 million from $194.3 million in the first three quarters of
fiscal 1998. This increase was primarily attributable to (i) five stores opening
in the third quarter of fiscal 1999 and (ii) one store opening in the second
quarter of fiscal 1999. Comparable store sales increased 3% over the same period
last year.
Gross profit as a percentage of sales was 35.4% in the first three
quarters of fiscal 1999, as compared to 35.1% for the comparable period in
fiscal 1998. The increase in gross profit as a percentage of sales were
primarily due to higher product margins, offset by higher buying and occupancy
costs.
Store operating expenses increased $10.5 million, or 18.5%, in the first
three quarters of fiscal 1999 due to operating 27 stores in fiscal 1999 compared
to 21 stores in fiscal 1998.
General and administrative expenses increased $3.3 million, or 49.7%, to
$9.8 million in the first three quarters of fiscal 1999 as compared to $6.5
million in the same period last year. This increase principally relates to an
$800,000 severance package to the Company's former president and corporate
personnel additions. As a percentage of sales, general and administrative
expenses increased to 4.4% for the first three quarters of fiscal 1999 compared
to 3.3% for the same period last year.
Interest income increased $393,000, or 46.9% to $1.2 million in the first
three quarters of fiscal 1999 as compared to interest income of $838,000 in the
same period last year. This increase resulted from the investment of the
Company's excess cash.
7
<PAGE>
Income taxes were $118,000, an effective tax rate of 36.0% for the first
three-quarters of fiscal 1999 compared to 37.0% in the comparable period of the
prior year. The Company's lower effective tax rate is attributable to the
Company's geographic expansion resulting in a lower effective state tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of working capital are cash flow from
operations and borrowings under its lines of credit. The Company had working
capital of $69.5 million at October 25, 1998. The Company currently has a $15
million line of credit, which has no outstanding borrowings under it. Management
believes the Company has sufficient working capital, cash flow from operating
activities and available unused credit capacity to sustain current growth plans.
The Company is currently assessing the impact of "Year 2000" related
issues on its operational and financial computer systems, and intends to
complete its assessment and testing phases by April 1999. In connection with a
management information systems upgrade that the Company has undertaken over the
last several years, the Company has recently installed new computer systems that
are Year 2000 compliant and will include these new systems in its testing phase.
Since the Company has not completed its assessment, the Company has not yet
determined the operational impact of Year 2000 issues, if any, which may result
in the future. Therefore, the Company is unable to determine the potential
impact, if any, on its results of operations or financial condition.
8
<PAGE>
PART II - OTHER INFORMATION
Iems 1, 2, 3, 4 and 5 are not applicable and have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed with this report.
10.1 Amendment to the Amended and Restated 1992 Stock Option Plan
10.2 Amendment to the Amended and Restated 1994 Stock Option Plan
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the period
covered by this report.
9
<PAGE>
GARDEN RIDGE CORPORATION
SIGNATURE
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.
Date: December 8, 1998 GARDEN RIDGE CORPORATION
(Registrant)
By: Jane L. Arbuthnot
---------------------------------------
Jane L. Arbuthnot
Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NUMBER DESCRIPTION PAGE NUMBER
10.1 Amendment to the Amended and Restated 1994
Stock Option Plan 12
10.2 Amendment to the Amended and Restated 1994 13
Stock Option Plan
27 Financial Data Schedule 14
11
EXHIBIT 10.1
GARDEN RIDGE CORPORATION
AMENDMENT TO THE
AMENDED AND RESTATED 1992 STOCK OPTION PLAN
Article V, subparagraph (e) of the Garden Ridge Corporation Amended and Restated
1992 Stock Option Plan is hereby amended and restated in its entirety as
follows:
(e) TERMINATION OF EMPLOYMENT. In the event of an optionee's
termination of employment with the Company for any reason other than
death, all stock options shall terminate to the extent they were not
exercisable at the date of the optionee's termination, but to the extent
they were then exercisable by the optionee, the optionee shall be entitled
to exercise such options for a period of 60 days from the date of the
optionee's termination. Upon the termination of an optionee's employment
by reason of death, the optionee's stock options shall terminate to the
extent they are not exercisable at the date of the optionee's death, but
to the extent they were then exercisable by the optionee, the optionee's
estate or the beneficiaries thereof shall be entitled to exercise such
options for a period of six (6) months from the date of the optionee's
death but not thereafter. Notwithstanding the foregoing, the Committee
may, in its sole discretion, accelerate the vesting of stock options that
were not exercisable on the date of termination of an optionee's
employment with the Company, and extend the period in which stock options
may be exercised by an optionee, an optionee's estate or the beneficiaries
thereof, as applicable, following the date of termination, but no stock
options shall be exercised after the expiration of ten years from the
effective date of the Plan.
Effective:
September 17, 1998.
EXHIBIT 10.2
GARDEN RIDGE CORPORATION
AMENDMENT TO THE
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
Article V, subparagraph (e) of the Garden Ridge Corporation Amended and Restated
1994 Stock Option Plan is hereby amended and restated in its entirety as
follows:
(e) TERMINATION OF EMPLOYMENT. In the event of an optionee's
termination of employment with the Company for any reason other than
death, all stock options shall terminate to the extent they were not
exercisable at the date of the optionee's termination, but to the extent
they were then exercisable by the optionee, the optionee shall be entitled
to exercise such options for a period of 30 days from the date of the
optionee's termination. Upon the termination of an optionee's employment
by reason of death, the optionee's stock options shall terminate to the
extent they are not exercisable at the date of the optionee's death, but
to the extent they were then exercisable by the optionee, the optionee's
estate or the beneficiaries thereof shall be entitled to exercise such
options for a period of one (1) year from the date of the optionee's death
but not thereafter. Notwithstanding the foregoing, the Committee may, in
its sole discretion, accelerate the vesting of stock options that were not
exercisable on the date of termination of an optionee's employment with
the Company, and extend the period in which stock options may be exercised
by an optionee, an optionee's estate or the beneficiaries thereof, as
applicable, following the date of termination, but no stock options shall
be exercised after the expiration of ten years from the date such stock
option is granted.
Effective:
September 17, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ITEM 8.,
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> OCT-25-1998
<CASH> 3,416
<SECURITIES> 0
<RECEIVABLES> 4,174
<ALLOWANCES> 0
<INVENTORY> 106,284
<CURRENT-ASSETS> 118,224
<PP&E> 73,526
<DEPRECIATION> (24,535)
<TOTAL-ASSETS> 176,222
<CURRENT-LIABILITIES> 48,760
<BONDS> 0
0
0
<COMMON> 183
<OTHER-SE> 126,584
<TOTAL-LIABILITY-AND-EQUITY> 176,222
<SALES> 86,107
<TOTAL-REVENUES> 86,107
<CGS> 54,717
<TOTAL-COSTS> 33,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> (1,569)
<INCOME-TAX> (565)
<INCOME-CONTINUING> (1,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,004)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
