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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, 2000
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 9, 2001
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Common Stock, par value $.01 per share 6,071,348
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CALLOWAY'S NURSERY, INC.
FORM 10-Q
DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
FORWARD-LOOKING STATEMENTS OR INFORMATION 3
PART I - FINANCIAL INFORMATION
ITEM 1
Index to Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of Operations 9
ITEM 3
Quantitative and Qualitative Disclosures about Market Risk 11
PART II - OTHER INFORMATION
Items 1-6 12
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3
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Form 10-Q Report contains forward-looking statements. We are including this
statement for the express purpose of providing Calloway's the protections of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
with respect to all forward-looking statements. Several important factors, in
addition to the specific factors discussed in connection with such
forward-looking statements individually, could affect future results and could
cause those results to differ materially from those expressed in the
forward-looking statements contained in this Report.
Our expected future results, products and service performance or other
non-historical facts are forward-looking and reflect our current perspective of
existing trends and information. These statements involve risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among others,
the seasonality of our business, geographic concentration, the impact of weather
and other growing conditions, the ability to manage growth, the impact of
competition, the ability to obtain future financing, government regulations,
market risks associated with variable-rate debt, and other risks and
uncertainties defined from time to time in our Securities and Exchange
Commission filings.
Therefore, each reader of this report is cautioned to consider carefully these
factors as well as the specific factors discussed with each forward-looking
statement in this Report and disclosed in our filings with the Securities and
Exchange Commission as such factors, in some cases, have affected, and in the
future (together with other factors) could affect, our ability to implement our
business strategy and may cause actual results to differ materially from those
contemplated by the statements expressed in this Report.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
ASSETS
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2000 2000 1999
------------ ------------- ------------
Cash and cash equivalents $ 261 $ 413 $ 51
Accounts receivable 907 1,068 788
Inventories 11,548 11,932 8,817
Prepaids and other assets 202 316 186
------------ ------------- ------------
Total current assets 12,918 13,729 9,842
Property and equipment, net 14,848 14,865 14,053
Goodwill, net 821 848 929
Deferred income taxes 1,406 1,348 1,371
Other assets 271 187 197
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Total assets $ 30,264 $ 30,977 $ 26,392
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 3,184 $ 4,001 $ 3,962
Accrued expenses 2,910 3,440 1,566
Notes payable, current 543 55 --
Current portion of long-term debt 715 555 708
Deferred income taxes, current 59 118 498
------------ ------------- ------------
Total current liabilities 7,411 8,169 6,734
Deferred rent payable 1,005 1,056 1,110
Long-term debt, net of current portion 10,106 9,870 8,865
------------ ------------- ------------
Total liabilities 18,522 19,095 16,709
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Commitments and contingencies
Non-voting preferred stock, with mandatory
redemption provisions 1,949 1,877 1,677
Shareholders' equity:
Voting convertible preferred stock -- -- --
Preferred stock -- -- --
Common stock 62 62 60
Additional paid-in capital 9,379 9,288 8,985
Retained earnings 1,748 2,051 357
------------ ------------- ------------
11,189 11,401 9,402
Less: Treasury stock, at cost (1,396) (1,396) (1,396)
------------ ------------- ------------
Total shareholders' equity 9,793 10,005 8,006
------------ ------------- ------------
Total liabilities and shareholders'
equity $ 30,264 $ 30,977 $ 26,392
============ ============= ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
DECEMBER 31,
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2000 1999
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Net sales $ 11,153 $ 12,980
Cost of goods sold 6,041 7,035
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Gross profit 5,112 5,945
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Operating expenses 3,744 4,678
Occupancy expenses 778 772
Advertising expenses 447 383
Depreciation and amortization 237 209
Interest expense 259 228
Interest income (5) (5)
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Total expenses 5,460 6,265
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Loss before income taxes (348) (320)
Income tax benefit (117) (93)
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Net loss (231) (227)
Accretion of preferred stock (72) (61)
Retirement of preferred stock -- 115
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Net loss attributable to common shareholders $ (303) $ (173)
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Weighted average number of common shares outstanding
Basic 6,010 5,715
Diluted 6,010 5,715
Net loss per common share
Basic $ (.05) $ (.03)
Diluted $ (.05) $ (.03)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
------------------------
2000 1999
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Cash flows from operating activities:
Net loss $ (231) $ (227)
Adjustments to reconcile net loss to net cash provided by (used
for) operating activities:
Depreciation and amortization 237 209
Net change in operating assets and liabilities (940) 934
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Net cash provided by (used for) operating activities (934) 916
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Cash flows from investing activities:
Additions to property and equipment (193) (376)
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Net cash used for investing activities (193) (376)
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Cash flows from financing activities:
Proceeds from issuance of common stock 91 59
Retirement of preferred stock -- (159)
Borrowings on debt 4,240 160
Repayments of debt (3,356) (611)
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Net cash provided by (used for) financing activities 975 (551)
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Net decrease in cash and cash equivalents (152) (11)
Cash and cash equivalents at beginning of period 413 62
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Cash and cash equivalents at end of period $ 261 $ 51
========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These interim unaudited consolidated financial statements were prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC). In
management's opinion, all adjustments considered necessary for a fair
presentation of the financial position at December 31, 2000, and the results of
operations and cash flows for the three-month periods ended December 31, 2000
and 1999 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, 2000 are not necessarily
indicative of expected results of operations and cash flows for the fiscal year
ending September 30, 2001.
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 SEC rules and regulations
referred to above. Accordingly, these financial statements should be read in
conjunction with the audited financial statements and related notes for the
fiscal year ended September 30, 2000 included in the Form 10-K covering such
period.
2. RECLASSIFICATIONS
Certain amounts for fiscal 2000 have been reclassified to conform to the fiscal
2001 presentation.
3. INVENTORIES
Inventories consist of the following (amounts in thousands):
December 31, September 30, December 31,
2000 2000 1999
------------ ------------- ------------
Finished goods $ 4,305 $ 4,757 $ 3,136
Work in process 6,850 6,817 5,280
Supplies 393 358 401
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$ 11,548 $ 11,932 $ 8,817
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. SEGMENT INFORMATION
The Company has two reportable segments: (i) Retail, and (ii) Growing and
Wholesale.
The following is a tabulation of business segment information as of and for the
three-month periods ended December 31, 2000 and 1999. Intersegment elimination
information is included to reconcile segment data to the condensed consolidated
financial statements. Amounts are in thousands:
Three month Three month
period ended period ended
December 31, December 31,
2000 1999
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REVENUES
From external customers
Retail $ 9,855 $ 10,889
Growing and Wholesale 1,298 2,091
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Totals 11,153 12,980
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From other operating segments
Retail -- --
Growing and Wholesale 221 479
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Totals 221 479
Elimination of intersegment sales (221) (479)
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Total consolidated net sales $ 11,153 $ 12,980
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INCOME (LOSS) BEFORE INCOME TAXES
Retail $ (275) $ 157
Growing and Wholesale (98) (394)
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Totals (373) (237)
Recognition (elimination) of intersegment profits 25 (83)
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Total consolidated loss before income taxes $ (348) $ (320)
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December 31, December 31,
2000 1999
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TOTAL ASSETS
Retail $ 19,492 $ 17,487
Growing and Wholesale 10,772 8,905
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Totals $ 30,264 $ 26,392
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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INTRODUCTION
In September 1999 we completed the acquisition of Cornelius Nurseries, Inc. and
affiliated companies (the "Cornelius Acquisition"). The quarters ended December
31, 2000 and 1999 include the results of operations of the Cornelius
Acquisition.
(Amounts in millions, except per share amounts)
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First quarter highlights (unaudited) Fiscal 2001 Fiscal 2000 Fiscal 1999
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Consolidated net sales 11.2 13.0 5.5
Retail segment sales 9.9 10.9 5.5
Wholesale and growing segment sales 1.5 2.6 .2
Less: internal sales (.2) (.5) (.2)
Sales increase (decrease) (14%) 137% 22%
Same-store sales increase (decrease) (11%) 17% 18%
Number of retail stores (end of quarter) 20 20 16
Gross profit margin 46% 46% 43%
Loss before income taxes (.3) (.3) (1.0)
Net loss per share (basic and diluted) (.05) (.03) (.11)
Cash flows provided by (used for) operations (.9) .9 --
Retail inventories 3.7 2.7 1.6
Growing and Wholesale inventories 7.8 6.1 1.0
Current ratio 1.76 1.46 1.31
Property, plant and equipment (net) 14.8 14.1 8.1
Long-term debt (including current portion) 10.8 9.6 3.3
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Quarter Ended December 31, 2000 Compared with Quarter Ended December 31, 1999
The Company's operating results for its first fiscal quarter were about the same
as the comparable quarter one year ago despite soft demand for nursery products.
Sales declined by 14%. Both the Retail and the Wholesale and Growing segments
saw sales decline. Same-store sales (sixteen Calloway's stores in Dallas-Fort
Worth and three Cornelius stores in Houston) declined 11%. The decline in Retail
sales was primarily attributable to reduced consumer demand resulting from wet
weather in the Company's market areas. The decline in Wholesale and Growing
sales was partially related to the decline in Retail sales; in addition, the
Company is changing the production and sales focus of its Turkey Creek Farms
operation to produce a higher proportion of items suitable for sale to specialty
garden centers, including the Company's own Calloway's and Cornelius Retail
stores. Those items are currently Work In Process, and will become Finished
Goods over the course of Fiscal 2001 and Fiscal 2002.
Gross margins remained about the same at 46%.
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Operating Expenses declined by 20%, from $4.7 million to approximately $3.7
million. Most of that decrease resulted from decreased labor and related costs,
a direct result of management's program to consolidate administrative functions
across the organization.
Advertising Expenses rose 17%, from $383,000 to $447,000 primarily due to
increased newspaper advertising rates.
Occupancy Expenses were substantially unchanged at $778,000 for the quarter. The
Company did not open any new leased stores during fiscal 2000 (though it did
open a new store for which the property is owned).
Depreciation and Amortization Expenses rose 13% from $209,000 to $237,000 as a
result of capital additions (including one new retail store) completed and
placed in service during fiscal 2000.
Interest Expense rose 14%, from $228,000 to $259,000 as a result of borrowings
made during fiscal 2000 to construct a retail store and to refinance certain
long-term debt.
During the first quarter of fiscal 2000 there was a Retirement of Preferred
Stock that resulted in a credit of $115,000 that was included in Net Loss
Attributable to Common Shareholders. There was not a comparable transaction for
the first quarter for fiscal 2001, but there was a charge for Accretion of
Preferred Stock in both quarters, as there will be for each quarter until the
Preferred Stock is retired. These charges for Accretion of Preferred Stock and
credits for Retirement of Preferred Stock account for the difference between Net
Loss and Net Loss Attributable to Common Shareholders in each of the quarters
ended December 31, 2000 and 1999, respectively.
Inventories rose 31%, from $8.8 million at December 31, 1999 to $11.5 million at
December 31, 2000. Retail inventories rose 37% and Wholesale and Growing
inventories rose 28%. The increase in Retail inventories was primarily
attributable to the continued addition of new items to existing product lines.
Such new items are introduced to provide higher gross margins and the potential
for increased sales. The increase in Wholesale and Growing inventories was
primarily attributable to a proportional increase in the quantity of merchandise
produced at the Turkey Creek Farms operation that are suitable for sale to
specialty garden centers, including the Company's own Calloway's and Cornelius
Retail stores. Such items are expected to be more profitable to produce and sell
than the items they replaced. Those items are currently Work In Process, and
will become Finished Goods over the course of Fiscal 2001 and Fiscal 2002.
--------------------------------------------------------------------------------
CAPITAL RESOURCES AND LIQUIDITY
--------------------------------------------------------------------------------
Cash Flows Used For Operating Activities were approximately $934,000, compared
to Cash Flows Provided By Operating Activities of approximately $916,000 for the
comparable period in fiscal 2000. The primary cause of the difference was the
payment of approximately $1.4 million in estimated Federal Income Tax during the
period based on the taxable income for fiscal 2000. There was no such payment
during fiscal 2000 due to the existence of Net Operating Loss Carryforwards,
which have now been substantially used.
Cash flows Used For Investing Activities of approximately $193,000 were below
the $376,000 for the comparable quarter in fiscal 2000. There was no store
construction activity during the fiscal 2001 quarter, while the first quarter of
fiscal 2000 saw construction work beginning on a new retail store that
eventually opened in April 2000.
Cash flows Provided By Financing Activities totaled approximately $975,000 for
the quarter, compared to Cash Flows Used for Financing Activities of
approximately $551,000 for the comparable quarter one year ago.
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During the first quarter of fiscal 2001 the Company entered into two notes
payable totaling approximately $3.8 million. One of the two notes was for
approximately $2.6 million, and it refinanced approximately $2.5 million of a
separate real estate note payable, reducing the balance from approximately $4.5
million to approximately $2.0 million, extending the maturity date, and
providing a fixed interest rate instead of a variable interest rate. The second
note payable was for approximately $1.2 million, and it replaced a construction
loan of approximately $0.8 million, extending the maturity date and providing a
fixed interest rate instead of a variable interest rate.
During the first quarter of fiscal 2001 the Company made net borrowings of
approximately $488,000 under its revolving line of credit arrangement, compared
to net repayments of approximately $463,000 for the comparable period in fiscal
2000. The Company uses the revolving line of credit for a few months each year
to provide working capital during slower seasons.
We anticipate that cash flows from operations and our $5,000,000 revolving line
of credit arrangement will be sufficient to meet our working capital needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Calloway's is exposed to certain market risks, including fluctuations in
interest rates. We do not enter into transactions designed to mitigate such
market risks for trading or speculative purposes. As of December 31, 2000, we
had no foreign exchange contracts and/or options outstanding.
We manage our interest rate risk by balancing (a) the amount of variable-rate
long-term debt with (b) the amounts due under long-term leases, which typically
have fixed rental payments that do not fluctuate with interest rate changes. For
our variable-rate debt, interest rate changes generally do not affect the fair
market value of such debt, but do impact future earnings and cash flows,
assuming other factors are held constant.
At December 31, 2000 Calloway's had variable rate debt of $9.5 million. In
addition, we had future minimum lease payments under noncancellable operating
leases of $13.7 million. Holding other variables, such as debt levels, constant,
a one percentage point increase in interest rates would be expected to have an
estimated impact on pre-tax earnings and cash flows for next year of
approximately $95,000 for the variable-rate debt.
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PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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.
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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 9, 2001
CALLOWAY'S NURSERY, INC.
By /s/ James C. Estill
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James C. Estill, President and
Chief Executive Officer
By /s/ Daniel G. Reynolds
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Daniel G. Reynolds, Vice President
and Chief Financial Officer