-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C+IWLcfFUT3zs6lHl6VGrElvrEeevTnRVF4ZSDtlMwdJo7Hp/k+QQ1SKneoyqvcN zfHcQlMIcZUppwY35iy5vA== 0000890566-99-000595.txt : 19990504 0000890566-99-000595.hdr.sgml : 19990504 ACCESSION NUMBER: 0000890566-99-000595 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARDEN RIDGE CORP CENTRAL INDEX KEY: 0000923408 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 133671679 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13077 FILM NUMBER: 99608503 BUSINESS ADDRESS: STREET 1: 19411 ATRIUM PL STREET 2: STE 170 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 7135797901 MAIL ADDRESS: STREET 1: 19411 ATRIUM PLACE SUITE 170 STREET 2: 19411 ATRIUM PLACE SUITE 170 CITY: HOUSTON STATE: TX ZIP: 77084 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ___________ 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, INCLUDING ZIP CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (281) 579-7901 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $0.01 par value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in the Proxy Statement or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]. The aggregate market value of the outstanding Common Stock of the registrant held by non-affiliates of the registrant as of April 16, 1999, based on the closing sale price of the Common Stock on the Nasdaq National Market on said date, was $111,595,867. There were 17,168,595 shares of Common Stock of the registrant outstanding as of April 16, 1999. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement issued in connection with the 1999 Annual Meeting of Stockholders are incorporated into Part III of this Report. P A R T I ITEM 1. BUSINESS Garden Ridge Corporation ("Garden Ridge" or the "Company") is a rapidly growing megastore retailer offering dominant assortments of products related to its central merchandise theme of decorative home accessories, seasonal products and crafts. The Company's ten complementary product categories are: o floral (silk and dried flowers) o party supplies o housewares o pottery o seasonal o home accents o pictures and frames o crafts o candles o baskets The Company's strategy of clustering dominant assortments of merchandise from related categories in a single retail location differentiates Garden Ridge from traditional single category superstores. The Company believes that combining these related product categories in one store creates significant cross-merchandising opportunities which fulfill, at a single destination, most product requirements for the customer seeking decorative home accessories, seasonal products and crafts. Garden Ridge uses an everyday low pricing strategy and emphasizes customer service in its stores. The Company currently operates 29 megastores in twelve states, primarily in the southern United States. Garden Ridge began as a single location near San Antonio, Texas in 1979. In 1988, the founder sold the Company, which then consisted of three stores. The present management team was recruited in June 1990 and refocused the Company's merchandise strategy, instituted tighter cost controls, improved management information systems and developed the current megastore format and expansion strategy. Since fiscal 1995, the Company has been expanding primarily in the southern United States. MERCHANDISING PRODUCT CATEGORIES. Garden Ridge offers dominant assortments of merchandise (aggregating over 70,000 stock keeping units ("SKUs")) in ten related categories. FLORAL. The Company believes that it stocks one of the largest assortments of silk and dried floral merchandise in the United States. Floral is the Company's largest product category, representing 20% of sales in fiscal 1999. The assortment of silk stems, dried flowers, silk and dried floral arrangements, silk bushes, artificial trees, ribbons and supplies attracts both retail and commercial customers such as professional floral designers. Customers shop in this department for value-priced basic items as well as the newest seasonal and promotional items. Additionally, the Company centrally manufactures floral arrangements at its San Antonio facility for all its stores and each store has a floral arranging staff to make custom floral arrangements. HOUSEWARES. This department offers a broad assortment of competitively priced basic items as well as specialty items. The assortment focuses on both highly identifiable branded product lines and defined product groupings such as kitchen gadgets, pantry and closet supplies, glassware, kitchen linens, canning supplies, bakeware, cookware, enamelware, serveware and dinnerware. Management believes the Company's stores offer one of the broadest assortments of Rubbermaid(TM) products in the United States. SEASONAL. These products are for the Christmas, Thanksgiving, Halloween and Easter holidays. Some of the major items within this category are artificial Christmas trees, ornaments, greenery, lights, outdoor decor (such as nativity scenes, wire sculptures and lighted displays) and costumes. PICTURES AND FRAMES. The Company offers over 4,000 items in this category, of which 50% are framed art items in a wide assortment of themes from many different manufacturers. Low "value" prices on basic items are supplemented by special purchases on assorted framed prints to further increase customer traffic. Picture frames are offered in a variety of sizes and materials. The Company also offers custom framing to its customers. 2 CANDLES. The candle department carries a vast selection of basic and decorative candles, scented candles, unique candle holders and potpourri. Garden Ridge carries branded as well as private label items. This product category has over 4,000 SKUs. PARTY SUPPLIES. Garden Ridge carries an extensive assortment of party supplies including paper plates and napkins, plastic cutlery, ribbons and wrap, gourmet party foods, party favors and novelty gifts, balloons, pinatas and greeting cards. The stores also feature a large assortment of wedding decorations and other wedding related supplies. POTTERY. This category includes a wide range of decorative clay, ceramic and plastic pottery, as well as lawn art, concrete sculptures, wind chimes and bird baths. The Company sources pottery and related items domestically as well as from Italy, the Dominican Republic, Vietnam, Mexico and other countries. HOME ACCENTS. This category includes a range of distinctive decorative items such as oriental ceramics, statuary items, vases, accent furniture pieces, porcelain products, metal decorative items and tabletop decor. CRAFTS. The crafts department includes wearable arts (T-shirts, paints and iron-on transfers), children's crafts, needlework kits, unfinished woods, paints, glues and stains and instructional books. The craft department sells primarily branded product lines. Craft classes taught by outside instructors are held in the stores on a regular basis. BASKETS. The Company offers an extensive selection of natural woven baskets and other related wicker and rattan products. This department offers an estimated 3,000 SKUs, including products such as door mats, tiki torches and decorative products. The Company sources these products from around the world, including products from China, Thailand, the Philippines, Indonesia, India and Haiti. Direct import purchases are made to ensure low costs and unique assortments. OTHER. In addition to the above ten categories, Garden Ridge carries other categories of products, such as nursery and tropical plants and decorator pillows, and each store has a snack bar with seating area. MANAGEMENT INFORMATION SYSTEMS The Company believes that its management information system is an important factor in allowing the Company to support its growth and enhance its competitive industry position. The Company has invested over $12 million in this system, which provides integration of store, merchandising, replenishment, distribution, and financial systems. Merchandise is bar coded, enabling management to control inventory and pricing by SKU, manage assortment within a category and produce desired gross margins and inventory turnover. Sales are updated daily in the merchandise reporting systems by polling all sales information from each store's point-of-sale ("POS") terminals. The Company's POS system consists of registers providing price look-up and scanning of bar-coded tickets. Through automated nightly two-way electronic communication with each store, sales information and store initiated transfers are uploaded to the host system and price changes are downloaded through the POS devices. This technology allows the Company to provide price discounts at both the store level and the SKU level rather than at the category level as is the case with some of its competitors. The nightly communication with the stores also enables the Company to receive store transfer and physical inventory details and send electronic mail. Information obtained from such daily polling results in automatic merchandise replenishment in response to specific SKU requirements of each store. The Company also evaluates information obtained through daily reporting to implement merchandising decisions. On a daily basis the Company monitors sales and cost of goods sold by SKU, based on the average cost of actual SKUs sold and gross margin by store and department. MARKETING AND ADVERTISING The Company budgets an amount equivalent to approximately 4-5% of its annual sales to spend on its advertising through television, radio, newspapers, newspaper inserts, the yellow pages and billboards. Management believes television is an efficient medium for reaching the Company's target audience and visually demonstrating the stores' size and product selection. To reinforce its television advertising schedule, the Company distributes eight-to-twelve page product inserts on a select zip code basis. The inserts are theme driven by seasonal promotion and feature top-selling items in each merchandise department. The inserts feature actual prices in order to reinforce the everyday low price policy. 3 The Company also uses radio and newspaper advertisements prior to extended holiday weekends. The Company advertises in the yellow pages and through billboards, which are primarily intended to call attention to, and give customers directions, to the stores. The Company's major vendors provide cooperative advertising funding to Garden Ridge. PRODUCT SOURCING AND DISTRIBUTION The Company purchases all of its inventory through its central purchasing system. Management believes this strategy allows the Company to take advantage of volume purchase discounts and improve controls over inventory and product mix. The Company purchases its merchandise from over 800 suppliers, and no supplier represents over 3% of total purchases. In fiscal 1999, approximately 75% of the Company's merchandise was purchased from domestic suppliers (including distributors that import goods) and the remaining 25% was imported from foreign manufacturers or their agents, principally in the Far East (Hong Kong, China, Taiwan and Thailand). Garden Ridge purchases overseas products on a free-on-board (FOB) shipping point basis, meaning the Company takes possession of the goods when they are shipped by the manufacturer. The Company insures its overseas purchases at their retail value. Garden Ridge has the majority of its domestic products shipped directly to its stores, thereby reducing freight and handling charges. The Company leases and operates a 280,000 square foot warehouse in Dallas and also leases a 120,000 square foot warehouse in Dallas for bulk storage. In April 1999, Garden Ridge opened a 290,000 square foot distribution center in Statesville, North Carolina to distribute goods to its southeastern stores. The Company believes this will result in a more effective means of distributing its imported products. As is customary in the industry, the Company does not have long-term or exclusive contracts with any suppliers. The Company believes that alternate sources of merchandise for all product categories are readily available at comparable prices. Goods manufactured in the Far East generally require long lead times and are ordered three to nine months in advance of delivery. All purchases are made in United States dollars. ASSOCIATES As of April 16, 1999, Garden Ridge employed approximately 3,500 associates, consisting of approximately 2,500 full-time equivalent associates, of whom 85% were hourly sales associates. The majority of Garden Ridge's store personnel earn slightly above minimum wage. Based on the level of transactions experienced at different times of the day, week and year, store labor is planned so as to serve customers effectively during peak periods while minimizing overall labor costs. The Company's associates are not represented by any union, and management believes that labor relations are good. Due to the level of temporary help the Company employs, such as college students during summer and Christmas vacation, employee turnover is approximately 133% per annum for stores open more than one year. COMPETITION The presence in the Company's markets of department stores, mass merchandisers and specialty retailers (including superstores), which carry merchandise similar to that of Garden Ridge makes these markets very competitive. The Company believes that its stores compete on the basis of price, depth and breadth of merchandise assortment, customer service and convenience. Management believes that the Company's merchandise selection, everyday low prices, marketing strategies and the size and location of its stores distinguish the Company from its competitors. Management believes that department stores do not pose significant competition for the Company because, although they carry some housewares, candles, pictures and frames and other merchandise in common with Garden Ridge, their product offerings with such categories are limited in comparison to Garden Ridge, are generally at higher price points and are targeted to a more upscale consumer. While mass merchandisers carry several of Garden Ridge's product lines, they generally lack the breadth of selection to be specific destination locations for those merchandise categories. However, to the extent that mass merchandisers carry particular items in common with the Company, they provide price competition. 4 In general, the specialty retailers in Garden Ridge's markets do not carry all of the Company's product categories. Their stores are much smaller, ranging from approximately 10,000 to 30,000 square feet of selling space. Management believes that Garden Ridge generally carries a much broader selection of merchandise than these stores. In addition, Garden Ridge buyers regularly shop these stores to ensure that Garden Ridge's prices are competitive. See "Merchandising." TRADEMARKS The Company owns the following federally registered servicemarks for its retail services: "Garden Ridge," "Garden Ridge Pottery World Imports" (with design), "Shopping Fun in the Giant Economy Size!" and "Do It Up Big!." The Company also owns a federal trademark registration for "Garden Ridge Pottery and World Imports," which is used on certain products sold at the Company's stores, and has filed a federal servicemark application for "The Home Decor Marketplace." The Company believes that certain of its marks are valuable and intends to defend and maintain such marks and the related registrations. However, in the event the Company ceases to use a particular mark, the Company may permit any registration as to such mark to lapse. The Company is not aware of any pending claims of infringement or other challenges to the Company's right to use its marks in the United States. 5 ITEM 2. PROPERTIES The Company currently operates 29 stores and has four stores scheduled to open in the following locations:
APPROXIMATE FISCAL SQUARE FEET YEAR CITY STORE NAME OF SELLING SPACE OPENED ------ ------------ ------------------ ---------- CURRENT STORES: San Antonio, Texas Schertz 207,000 1980 Houston, Texas Katy 179,000 1987 Houston, Texas Airtex 207,000 1987 Houston, Texas Meadows 129,000 1993 Austin, Texas Round Rock 125,000 1995 Dallas/Ft. Worth, Texas Plano 125,000 1995 Dallas/Ft. Worth, Texas North Richland Hills 125,000 1995 Louisville, Kentucky Louisville 125,000 1996 Memphis, Tennessee Memphis 125,000 1996 Dallas/Ft. Worth, Texas Mesquite 125,000 1996 Oklahoma City, Oklahoma Oklahoma City 125,000 1996 Charlotte, North Carolina Pineville 125,000 1997 Jacksonville, Florida Jacksonville 125,000 1997 Tulsa, Oklahoma Tulsa 125,000 1997 Houston, Texas Webster 135,000 1997 St. Louis, Missouri St. Louis 125,000 1997 Greenville, South Carolina Greenville 125,000 1997 Richmond, Virginia Richmond 125,000 1997 Atlanta, Georgia Kennesaw 125,000 1998 Atlanta, Georgia Norcross 125,000 1998 Dallas/Ft. Worth, Texas Lewisville 106,000 1998 O'Fallon, Illinois O'Fallon 125,000 1999 Atlanta, Georgia Stockbridge 125,000 1999 Dallas/Ft. Worth, Texas Hulen 106,000 1999 Nashville, Tennessee Nashville 106,000 1999 Lexington, Kentucky Lexington 106,000 1999 Columbus, Ohio Hilliard 106,000 1999 Greensboro, North Carolina Greensboro 106,000 2000 Cincinnati, Ohio Eastgate 106,000 2000 STORES SCHEDULED TO OPEN: San Antonio, Texas Ingram 106,000 (1) Austin, Texas Austin 106,000 (1) Kansas City, Missouri Independence 106,000 (1) Atlanta, Georgia Douglasville 96,000 (1)
- ------------------ (1) Scheduled to open in fiscal 2000. The Company's three original stores (the Schertz Store, Katy Store and Airtex Store) are larger than the Company's current megastore format. All stores opened subsequent to these three stores are in the megastore format with at least 100,000 square feet of selling space. The Company's corporate offices are located at the Katy Store. All of the Company's 29 existing stores are leased. The Company intends to lease stores or arrange with third parties to build-to-suit stores for lease by the Company. Certain leases provide for fixed minimum rentals and provide for contingent rental payments based on various specified percentages of sales above minimum levels. The leases carry varying terms expiring between 2004 and 2020, excluding options to extend. All stores and store sites are located adjacent to an interstate or other major highways. 6 ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings incidental to the conduct of its business. The Company currently is not engaged in any legal proceeding that is expected to have a material adverse effect on the Company's results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None P A R T I I ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK PRICE RANGE AND DIVIDEND POLICY The Common Stock of the Company is traded in the over-the-counter market and is quoted on the Nasdaq National Market System under the symbol "GRDG." The following table sets forth on a per share basis, for the periods indicated, the high and low sale prices of the Common Stock as reported by the Nasdaq National Market System. These price quotations reflect inter-dealer prices, without adjustment for retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions. PRICE RANGE ------------------------- HIGH LOW --------- --------- Year Ended January 25, 1998 First Quarter ...................... 9 15/16 6 1/4 Second Quarter ..................... 14 3/4 7 3/4 Third Quarter ...................... 15 7/8 11 3/4 Fourth Quarter ..................... 161/2 13 1/8 Year Ended January 31, 1999 First Quarter ........................ 21 13/16 14 13/16 Second Quarter ....................... 22 1/2 13 3/4 Third Quarter ........................ 14 5/8 4 7/8 Fourth Quarter ....................... 9 1/16 6 13/32 On April 16, 1999, the last sale price of the Common Stock as reported on the Nasdaq National Market System was $6.50 per share. As of April 16, 1999, there were approximately 200 holders of record of Common Stock and approximately 5000 beneficial holders. The Company has never paid cash dividends on its Common Stock, and the Company does not intend to pay cash dividends at any time in the foreseeable future. The Company expects that earnings will be retained for the continued growth and development of the Company's business. Future dividends, if any, will depend upon the Company's earnings, financial condition, cash requirements, compliance with covenants in agreements to which the Company is or may be subject, future prospects and other factors deemed relevant by the Company's Board of Directors. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 7 ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following table sets forth consolidated financial data of Garden Ridge Corporation and subsidiaries as of and for the fiscal years ended January 29, 1995, January 28, 1996, January 26, 1997, January 25, 1998 and January 31, 1999 derived from the financial statements audited by Arthur Andersen LLP.
FISCAL YEAR ENDED JANUARY ------------------------------------------------------------- 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Sales .......................................... $ 100,002 $ 148,087 $ 225,315 $ 304,732 $ 364,742 Cost of Sales .................................. 61,938 92,328 144,054 195,290 232,441 --------- --------- --------- --------- --------- Gross profit ........................... 38,064 55,759 81,261 109,442 132,301 Operating expenses: Store operating ........................ 24,146 37,318 60,320 80,912 100,282 General and administrative ............. 4,287 5,157 6,672 10,280 14,451 Amortization of intangibles and deferred charges ........................... 621 612 717 735 599 Preopening costs ....................... 1,017 1,395 2,368 1,122 2,219 --------- --------- --------- --------- --------- Total operating expenses ....................... 30,071 44,482 70,077 93,049 117,551 Income from operations ................. 7,993 11,277 11,184 16,393 14,750 Interest expense ............................... (1,859) (744) (67) (59) (44) Interest income ................................ 459 735 1,538 1,478 1,694 --------- -------- --------- --------- --------- Income before income taxes ............. 6,593 11,268 12,655 17,812 16,400 Income taxes ................................... 2,441 4,390 4,619 6,379 5,904 --------- -------- --------- --------- --------- Net income ............................. 4,152 6,878 8,036 11,433 10,496 Preferred stock dividends ...................... (562) (153) -- -- -- --------- --------- --------- --------- --------- Net income available to common stockholders ...................... $ 3,590 $ 6,725 $ 8,036 $ 11,433 $ 10,496 ========= ========= ========= ========= =========
8
FISCAL YEAR ENDED JANUARY ------------------------------------------------------------- 1995 1996 1997 1998 1999 -------- --------- --------- --------- ---------- PER SHARE DATA: Selected income per common and common equivalent share: Net income ......................................... $ 0.41 $ 0.47 $ 0.45 $ 0.62 $ 0.57 Net income available to common stockholders, basic . $ 0.40 $ 0.51 $ 0.47 $ 0.64 $ 0.58 Net income available to common stockholders, diluted $ 0.36 $ 0.46 $ 0.45 $ 0.62 $ 0.57 Weighted average number of common shares and equivalents outstanding, basic .................... 8,978 13,083 17,158 17,904 18,063 Weighted average number of common shares and equivalents outstanding (1), diluted .............. 10,096 14,515 17,925 18,473 18,565
JANUARY 29, JANUARY 28, JANUARY 26, JANUARY 25, JANUARY 31, 1995 1996 1997 1998 1999 ------------- ------------- ------------- ------------ ------------- BALANCE SHEET DATA: Working capital .................. $ 12,168 $ 23,076 $ 63,277 $ 77,527 $ 79,481 Total assets ..................... 43,992 73,326 137,382 160,212 170,524 Long-term debt obligations ....... 16,730 300 200 100 -- Redeemable 8% cumulative preferred stock ....................... 7,345 -- -- -- -- Common stockholders' equity ...... 7,922 55,531 113,763 125,953 137,197
- ------------- (1) Computed based on the weighted average number of shares of Common Stock and common stock equivalents, which consist of warrants and options outstanding during the period presented. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth for the periods indicated income statement data expressed as a percentage of sales.
FISCAL YEAR ENDED JANUARY ---------------------------- 1997 1998 1999 ------ ------- ------- Sales ........................................................ 100.0% 100.0% 100.0% Cost of sales ................................................ 63.9 64.0 63.7 ----- ----- ----- Gross profit ................................... 36.1 36.0 36.3 Operating expenses: Store operating ............................... 26.8 26.6 27.5 General and administrative ..................... 3.0 3.4 4.0 Amortization of intangibles and deferred charges 0.3 0.2 0.2 Preopening costs ............................... 1.0 0.4 0.6 ----- ----- ----- Income from operations ............. 5.0 5.4 4.0 Interest income .............................................. 0.6 0.5 0.5 Income taxes ................................................. (2.0) (2.1) (1.6) ===== ===== ===== Net income ............ 3.6% 3.8% 2.9% ===== ===== =====
FISCAL 1999 COMPARED TO FISCAL 1998 Sales in fiscal 1999 increased $60.0 million, or 19.7%, to $364.7 million from $304.7 million in fiscal 1998. This increase was attributable to (i) the opening of six new stores (which contributed $40.5 million in incremental sales), (ii) the inclusion of a full year of sales for the three stores opened in fiscal 1998, and (iii) a comparable store sales increase of 2.2%. Gross profit as a percentage of sales increased to 36.3% in fiscal 1999 as compared to 36.0% in fiscal 1998, as a result of higher product margins. Store operating expenses increased $19.4 million, or 23.9%, in fiscal 1999 to $100.3 million from $80.9 million in fiscal 1998. Store operating expenses as a percentage of sales was 27.5% for fiscal 1999 and 26.6% for fiscal 1998. The increased store operating expenses were caused primarily by the addition of six new stores and the inclusion of a full year of operating expenses for the three stores opened in fiscal 1998. General and administrative expenses increased $4.2 million, or 40.6%, in fiscal 1999 to $14.5 million from $10.3 million in fiscal 1998. This increase was primarily a result of increased corporate payroll expense reflecting personnel additions to support the Company's expansion program. General and administrative expenses as a percentage of sales increased to 4.0% of sales in fiscal 1999 from 3.4% in fiscal 1998. Amortization of intangible assets in fiscal 1999 (see Note 3 of the Notes to Consolidated Financial Statements) decreased to $599,000, from $735,000 in fiscal 1998 primarily as a result of fully amortized deferred loan costs. Preopening costs of $2.2 million in fiscal 1999 consisted of all labor, operating and advertising charges incurred prior to the opening of the six new stores in fiscal 1999. The Company opened three new stores in fiscal 1998. The Company's policy is to expense all preopening costs in the month a store commences operations. Income from operations decreased 10.0% to $14.8 million, or 4.0% of sales, as compared to 5.4% of sales in fiscal 1998. Interest income in fiscal 1999 was $1.7 million, or 0.5% of sales as compared to $1.5 million, or 0.5% of sales in fiscal 1998. Income taxes in fiscal 1999 were $5.9 million, representing an effective tax rate of 36.0%, as compared to $6.4 million, or an effective tax rate of 35.8% in fiscal 1998. 10 Net income in fiscal 1999 was $10.5 million, or 2.9% of sales, as compared to $11.4 million, or 3.8% of sales, in fiscal 1998. FISCAL 1998 COMPARED TO FISCAL 1997 Sales in fiscal 1998 increased $79.4 million, or 35.2%, to $304.7 million from $225.3 million in fiscal 1997. This increase was attributable to (i) the opening of three new stores (which contributed $31.2 million in incremental sales), (ii) the inclusion of a full year of sales for the seven stores opened in fiscal 1997, and (iii) a comparable store sales increase of 10.0%. Gross profit as a percentage of sales decreased to 36.0% in fiscal 1998 as compared to 36.1% in fiscal 1997 as a result of increased domestic freight costs and buying expense offset by higher product margins. Store operating expenses increased $20.6 million, or 34.1%, in fiscal 1998 to $80.9 million from $60.3 million in fiscal 1997. Store operating expenses as a percentage of sales was 26.6% for fiscal 1998 and 26.8% for fiscal 1997. The increased store operating expenses associated with the addition of three new stores and the inclusion of a full year of operating expenses for the seven stores opened in fiscal 1997 were offset by the sales increase allowing store operating expenses to decline as a percentage of sales. General and administrative expenses increased $3.6 million, or 54.1%, in fiscal 1998 to $10.3 million from $6.7 million in fiscal 1997. This increase was primarily a result of increased corporate payroll expense reflecting personnel additions to support the Company's expansion program. General and administrative expenses as a percentage of sales increased to 3.4% of sales in fiscal 1998 from 3.0% in fiscal 1997. Amortization of intangibles and deferred charges in fiscal 1998 which consisted of net assets and deferred loan costs (see Note 3 of the Notes to Consolidated Financial Statements) increased to $735,000, from $717,000 in fiscal 1997. As a percentage of sales, amortization of intangibles and deferred charges decreased to 0.2% of sales in fiscal 1998 from 0.3% in fiscal 1997. Preopening costs of $1.1 million in fiscal 1998 consisted of all labor, operating and advertising charges incurred prior to the opening of the three new stores in fiscal 1998. The Company opened seven new stores in fiscal 1997. Income from operations increased 0.4% to $16.4 million, or 5.4% of sales, as compared to 5.0% of sales in fiscal 1997. Interest income in fiscal 1998 was $1.5 million, or 0.5% of sales as compared to $1.5 million, or 0.6% of sales in fiscal 1997. Income taxes in fiscal 1998 were $6.4 million, representing an effective tax rate of 35.8%, as compared to $4.6 million, or an effective tax rate of 36.5% in fiscal 1997. The Company's lower effective tax rate is attributable to the Company's geographic expansion resulting in a lower effective state tax rate. Net income in fiscal 1998 was $11.4 million, or 3.8% of sales, as compared to $8.0 million, or 3.6% of sales, in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES Garden Ridge's primary sources of working capital are cash flows from operations and borrowings under its Line of Credit. The Company had working capital of $63.3 million, $77.5 million and $79.5 million at the end of fiscal 1997, 1998 and 1999, respectively. The principal uses of working capital are to purchase inventory and finance the expansion of the Company's operations. The Company currently has a $15 million unsecured Line of Credit with Bank of America (formerly NationsBank, N.A.). The Company has no outstanding borrowings under the credit agreement, which expires June 30, 2000. Garden Ridge's primary capital requirements are for the opening of new stores. The Company estimates the total cash required to open a leased store, including store fixtures, equipment, inventory and preopening expenses, to be approximately $3.0 million, including approximately $1.5 million in initial inventory (net of approximately $500,000 of vendor financing). An additional $6.0 million to $9.0 million (depending on real estate costs) would be required for the Company to construct a store. Management believes it will be able to lease stores or arrange with third parties to build-to-suit stores for lease by the Company, although there can be no assurance that it will be able to do so. 11 The Company anticipates opening six additional stores by fiscal year end 2000. The Company continually reassesses its expansion plan and has not yet established any expansion plans for fiscal 2001. The Company has adequate capital to open at least six additional stores if such an expansion decision is made. The Company estimates the total cash required to open the six additional stores in fiscal 2000 will be approximately $18.0 million. The Company believes cash generated from operations, availability under its Line of Credit, traditional funding sources and financing provided by the Company's vendors will be adequate to fund its anticipated capital requirements for expansion through at least the end of fiscal 2001. YEAR 2000 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 July 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 accelerate approximately $2 million in capital costs in fiscal year 2000 to replace or upgrade certain management information systems that are not Year 2000 compliant. The amount charged to expense in fiscal 1999, as well as the amounts expected to be charged to expense related to Year 2000 testing and modifications in fiscal 2000, have not been and are not expected to be material to the Company's financial position, results of operations or cash flow. In evaluating the risks to the Company, the most serious risk would be interruption in the ability to communicate and interface with suppliers. Management is in the process of surveying the Company's suppliers and believes that in most cases suppliers will be in compliance or have plans to be compliant. The Company believes that in an emergency it could revert to the use of manual systems that do not rely on computers and could perform the minimum functions required to provide information reporting to maintain satisfactory control of business. Should the Company have to utilize manual systems, it is uncertain that it could maintain the same level of operations, and this could have a material adverse impact on the business. The Company intends to maintain constant surveillance of this situation and will develop such contingency plans as required by the changing environment. OTHER MATTERS The Company experiences seasonal fluctuations in its business. The highest sales period for the Company is generally the fourth fiscal quarter. This period, which includes the Christmas selling season, accounted for approximately 34%, 35% and 35% of the Company's sales for stores open the entire fiscal year, and approximately 80%, 84% and 100% of the Company's income from operations (including income from stores not open for the entire fiscal year) in fiscal 1997, 1998 and 1999, respectively. The Company also experiences lower gross margins in January due to clearance sales. Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations. STOCK REPURCHASE Subsequent to fiscal year end, the Company's board of directors authorized the repurchase of up to one million shares of the Company's common stock on the open market through January 31, 2000. During March 1999, the company repurchased one million shares at a cost of approximately $5.67 million. These shares will be held in treasury for future use. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company could be exposed to market risk from changes in interest rates. The Company continually monitors exposure to market risk and, when appropriate, develops strategies to manage this risk. Management does not use derivative financial instruments for trading or to speculate on changes in interest rates. Currently, the Company's interest rate risk, if any, relates to its line of credit, under which no amounts are outstanding. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Filed herein as pages 18 through 31. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 P A R T I I I In accordance with paragraph (3) of General Instruction G to Form 10-K, Part III of this Report is omitted because the Registrant will file with the Securities and Exchange Commission, not later than 120 days after January 31, 1999, a definitive proxy statement pursuant to Regulation 14A involving the election of directors. Reference is made to the sections of such proxy statement entitled "Common Stock Outstanding and Principal Holders Thereof," "Proposal No. 1 -- Election of Directors" and "Certain Transactions," which sections of such proxy statement are incorporated herein. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) FINANCIAL STATEMENTS: PAGE NO. IN THE FINANCIAL STATEMENTS -------------- Report of Independent Public Accountants ........................... 17 Consolidated Balance Sheets as of January 25, 1998 and January 31, 1999 ............................................... 18 Consolidated Statements of Operations for the Fifty-Two Week Periods Ended January 26, 1997 and January 25, 1998 and for the Fifty-Three Week Period Ended January 31, 1999 ..... 19 Consolidated Statements of Stockholders' Equity for the Fifty-Two Week Periods Ended January 26, 1997 and January 25, 1998 and for the Fifty-Three Week Period Ended January 31, 1999 ......................................... 20 Consolidated Statements of Cash Flows for the Fifty-Two Week Periods Ended January 26, 1997 and January 25, 1998 and for the Fifty-Three Week Period Ended January 31, 1999 ..... 21 Notes to Consolidated Financial Statements ......................... 22 - 31 (2) FINANCIAL STATEMENT SCHEDULE: None. (3) EXHIBITS EXHIBIT NUMBER IDENTIFICATION OF EXHIBITS --------- ---------------------------- *3.1 -- Restated Certificate of Incorporation effective May 16, 1995 (filed as Exhibit 3.5 to the Registration Statement on Form S-1 (No. 33-90748) (the "1995 Form S-1"), and incorporated herein by reference) *3.2 -- Bylaws (filed as Exhibit 3.4 to the 1995 Form S-1, and incorporated herein by reference) *3.3 -- Form of Amendment No. 1 to the Bylaws effective May 16, 1995 (filed as Exhibit 3.6 to the 1995 Form S-1, and incorporated herein by reference) *4.1 -- Specimen Common Stock Certificate (filed as Exhibit 4.1 to the 1995 Form S-1, and incorporated herein by reference) *10.1 -- Amended and Restated 1992 Stock Option Plan (filed as Exhibit 10.1 to the 1995 Form S-1, and incorporated herein by reference) 10.2 -- Amended and Restated 1994 Stock Option Plan 13 Exhibit NUMBER IDENTIFICATION OF EXHIBITS *10.3 -- Second Amended and Restated Credit Agreement dated October 26, 1995 between NationsBank of Texas, N.A. and the Company (filed as Exhibit 10.3 to the Form 10-K for the fiscal year ended January 28, 1996, and incorporated herein by reference) *10.4 -- Amendment No. 1 dated as of November 15, 1996, between NationsBank of Texas, N.A. and the Company (filed as Exhibit 10.4 to the Form 10-K for the fiscal year ended January 26, 1997, and incorporated herein by reference) 10.5 -- Amendment No. 2 dated as of June 4, 1998 between NationsBank of Texas, N.A. and the Company 10.6 -- Amended and Restated 1996 Non-Employee Director Stock Option Plan *10.7 -- Demand Registration Rights Agreement dated May 16, 1995 by and among the Company and the parties named therein (filed as Exhibit 10.24 to the 1995 Form S-1, and incorporated herein by reference) *10.8 -- Advisory Agreement dated July 16, 1996 between the Company and Three Cities Research, Inc. (filed as Exhibit 10.9 to Form 10-K for the fiscal year ended January 26, 1997, and incorporated herein by reference) 21.1 -- Subsidiaries of the Company 23.1 -- Consent of Arthur Andersen LLP 27.1 -- Financial Data Schedule - --------------------- * Incorporated by reference (B) REPORTS ON FORM 8-K: None. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. GARDEN RIDGE CORPORATION By: /s/ JANE L. ARBUTHNOT JANE L. ARBUTHNOT Chief Financial Officer Date: May 3, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE ------------- ------- ------ /s/ ARMAND SHAPIRO Chairman of the Board and May 3, 1999 - ---------------------------- Chief Executive Officer ARMAND SHAPIRO (Principal Executive Officer) /s/ JANE L. ARBUTHNOT Chief Financial Officer and May 3, 1999 - ---------------------------- Secretary (Principal JANE L. ARBUTHNOT Financial and Accounting Officer) /s/ TERRY S. BOYCE Director May 3, 1999 - ---------------------------- TERRY S. BOYCE /s/ ALYSON HENNING Director May 3, 1999 - ---------------------------- ALYSON HENNING /s/ IRA NEIMARK Director May 3, 1999 - ---------------------------- IRA NEIMARK /s/ SAM J. SUSSER Director May 3 ,1999 - ---------------------------- SAM J. SUSSER /s/ BARBARA S. TAPP Director May 3, 1999 - ---------------------------- BARBARA S. TAPP /s/ H. WHITNEY WAGNER Director May 3, 1999 - ---------------------------- H. WHITNEY WAGNER 15 GARDEN RIDGE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ------ Report of Independent Public Accountants .............................. 17 Consolidated Balance Sheets as of January 25, 1998 and January 31, 1999 .............................................. 18 Consolidated Statements of Operations for the Fifty-Two Week Periods Ended January 26, 1997 and January 25, 1998 and for the Fifty-Three Week Period Ended January 31, 1999 ............ 19 Consolidated Statements of Stockholders' Equity for the Fifty-Two Week Periods Ended January 26, 1997 and January 25, 1998 and for the Fifty-Three Week Period Ended January 31, 1999 ............ 20 Consolidated Statements of Cash Flows for the Fifty-Two Week Periods Ended January 26, 1997 and January 25, 1998 and for the Fifty-Three Week Period Ended January 31, 1999 ............ 21 Notes to Consolidated Financial Statements ............................ 22 - 31 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Garden Ridge Corporation: We have audited the accompanying consolidated balance sheets of Garden Ridge Corporation, a Delaware corporation, and subsidiaries (the Company) as of January 25, 1998 and January 31, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the fifty-two week periods ended January 26, 1997 and January 25, 1998, and the fifty-three week period ended January 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 25, 1998 and January 31, 1999, and the results of their operations and their cash flows for the fifty-two week periods ended January 26, 1997 and January 25, 1998, and the fifty-three week period ended January 31, 1999, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas March 12, 1999 17 GARDEN RIDGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ( DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 25, JANUARY 31, 1998 1999 ------------ ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents ............................ $ 44,586 $ 35,882 Marketable securities ................................ 3,150 -- Accounts receivable .................................. 1,785 2,783 Inventories .......................................... 57,773 68,009 Deferred income taxes ................................ 1,225 1,329 Prepaid expenses ..................................... 2,492 3,756 Deposits ............................................. 80 72 --------- --------- Total current assets ............................ 111,091 111,831 PROPERTY AND EQUIPMENT, at cost: Leasehold improvements ............................... 18,830 23,770 Furniture and fixtures ............................... 13,832 18,760 Equipment ............................................ 24,982 34,731 --------- --------- Total property and equipment ................... 57,644 77,261 Less - Accumulated depreciation and amortization ..... (17,977) (27,423) --------- --------- Net property and equipment ..................... 39,667 49,838 OTHER ASSETS: Intangible assets, net ............................... 9,454 8,855 ========= ========= Total assets ................................... $ 160,212 $ 170,524 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ..................................... $ 17,448 $ 18,731 Accrued liabilities .................................. 8,529 7,149 Federal income taxes payable ......................... 7,587 6,470 --------- --------- Total current liabilities ...................... 33,564 32,350 LONG-TERM DEBT, net ....................................... 100 -- DEFERRED INCOME TAXES ..................................... 595 977 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 40,000,000 shares authorized, 18,314,116 and 18,341,950 shares issued, and 17,991,890 and 18,159,508 shares outstanding in fiscal 1998 and 1999, respectively 183 183 Paid-in capital ...................................... 93,293 94,026 Retained earnings .................................... 32,512 43,008 Less - Treasury stock, 322,226 and 182,442 shares at cost in fiscal 1998 and 1999, respectively ...... (35) (20) --------- --------- Total stockholders' equity .................... 125,953 137,197 ========= ========= Total liabilities and stockholders' equity .... $ 160,212 $ 170,524 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 18 GARDEN RIDGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FIFTY-THREE WEEK FIFTY-TWO WEEK PERIODS WEEK PERIOD ENDED ENDED ---------------------------- ------------------ JANUARY 26, JANUARY 25, JANUARY 31, 1997 1998 1999 ------------ ------------ ------------ SALES .............................................. $ 225,315 $ 304,732 $ 364,742 COST OF SALES ...................................... 144,054 195,290 232,441 ------------ ------------ ------------ Gross profit ................................. 81,261 109,442 132,301 OPERATING EXPENSES: Store operating ................................ 60,320 80,912 100,282 General and administrative ..................... 6,672 10,280 14,451 Amortization of intangibles and deferred charges 717 735 599 Preopening costs ............................... 2,368 1,122 2,219 ------------ ------------ ------------ Total operating expenses .................... 70,077 93,049 117,551 ------------ ------------ ------------ Income from operations ...................... 11,184 16,393 14,750 INTEREST EXPENSE ................................... (67) (59) (44) INTEREST INCOME .................................... 1,538 1,478 1,694 ------------ ------------ ------------ Income before income taxes .................. 12,655 17,812 16,400 INCOME TAXES ....................................... 4,619 6,379 5,904 ============ ============ ============ Net income .................................. $ 8,036 $ 11,433 $ 10,496 ============ ============ ============ INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Net income, basic .......................... $ .47 $ .64 $ .58 ============ ============ ============ Net income, diluted ........................ $ .45 $ .62 $ .57 ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC ........................................ 17,157,742 17,904,447 18,062,727 ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED ...................................... 17,924,980 18,472,759 18,564,776 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 19 GARDEN RIDGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
COMMON STOCK ($.01 PAR VALUE) -------------------- PAID-IN RETAINED TREASURY SHARES AMOUNT CAPITAL EARNINGS STOCK -------- -------- --------- --------- --------- BALANCE AT JANUARY 28, 1996 ................................... 15,805 $ 158 $42,410 $13,043 $ (80) Secondary public offering, net of $3,019 of offering costs 2,000 20 48,721 -- -- Exercise of warrants ..................................... 382 4 1,346 -- -- Exercise of employee options ............................. -- -- 65 -- 40 Net income ............................................... -- -- -- 8,036 -- ------- ------- ------- ------- ------- BALANCE AT JANUARY 26, 1997 ................................... 18,187 182 92,542 21,079 (40) Exercise of warrants ..................................... 112 1 477 -- -- Exercise of employee options ............................. -- -- 108 -- 5 Employee stock purchase plan ............................. 15 -- 166 -- -- Net income ............................................... -- -- -- 11,433 -- ------- ------- ------- ------- ------- BALANCE AT JANUARY 25, 1998 ................................... 18,314 183 93,293 32,512 (35) Exercise of employee options ............................. -- -- 440 -- 15 Employee stock purchase plan ............................. 28 -- 293 -- -- Net income ............................................... -- -- -- 10,496 -- ------- ------- ------- ------- ------- BALANCE AT JANUARY 31, 1999 ................................... 18,342 $ 183 $94,026 $43,008 $ (20) ======= ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 20 GARDEN RIDGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FIFTY-THREE FIFTY-TWO WEEK PERIODS WEEK PERIOD ENDED ENDED -------------------------- ----------------- JANUARY 26, JANUARY 25, JANUARY 31, 1997 1998 1999 ----------- ------------ ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ...................................................... $ 8,036 $ 11,433 $ 10,496 -------- -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities -- Depreciation and amortization of property and equipment ... 4,797 6,629 9,446 Amortization of intangibles and deferred charges .......... 717 735 599 Deferred income tax (benefit) provision ................... 268 (187) 278 (Increase) decrease in assets - Marketable securities .................................... (5,168) 2,018 3,150 Accounts receivable ...................................... (819) (60) (998) Notes receivable ......................................... 2,582 -- -- (15,767) (14,156) (10,236) Inventories Prepaid expenses ......................................... (1,836) 458 (1,264) Deposits and other ....................................... (263) 321 8 Intangibles assets, net .................................. (15) -- -- Increase (decrease) in liabilities - Accounts payable .......................................... 4,448 2,437 1,283 Accrued liabilities ....................................... 822 4,152 (1,380) Federal income taxes payable .............................. 617 3,593 (1,117) -------- -------- -------- Total adjustments ................................. (9,617) 5,940 (231) -------- -------- -------- Net cash provided by (used in) operating activities (1,581) 17,373 10,265 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ............................................ (18,067) (11,673) (19,848) Sale (purchase) of land held for sale/leaseback ................. (5,498) 5,735 231 -------- -------- -------- Net cash used in investing activities ..................... (23,565) (5,938) (19,617) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable ....................................... (100) (100) (100) Sale of common stock, net of offering costs ..................... 48,741 -- -- Common stock reissued from treasury ............................. 40 5 15 Proceeds from exercise of stock options and warrants ............ 1,415 752 733 -------- -------- -------- Net cash provided by financing activities ................. 50,096 657 648 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 24,950 12,092 (8,704) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 7,544 32,494 44,586 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 32,494 $ 44,586 $ 35,882 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for -- Interest ............................................................. $ 67 $ 59 $ 44 Income taxes ............................................... 3,010 2,775 6,400
The accompanying notes are an integral part of these consolidated financial statements. 21 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND CONSOLIDATION: The consolidated financial statements include the accounts of Garden Ridge Corporation (a Delaware corporation) and its wholly owned subsidiaries (collectively, the Company or Garden Ridge). Significant intercompany accounts and transactions are eliminated in consolidation. The Company operates 27 retail megastores in twelve states, primarily in Texas and the southeastern United States, which sell a broad assortment of decorative home accessories, seasonal products and crafts. The Company's business is seasonal, with its highest sales levels occurring in its fourth fiscal quarter. This period, which includes the Christmas selling season, accounted for approximately 34 percent, 35 percent and 35 percent of the Company's sales for stores open the entire fiscal year, and approximately 80 percent, 84 percent and 100 percent of the Company's income from operations (including income from stores not open for the entire fiscal year) in fiscal 1997, 1998 and 1999, respectively. A significant adverse trend in sales for the fourth fiscal quarter would have a material adverse effect on the Company's results of operations for the full year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires the use of certain estimates by management in determining the Company's assets, liabilities, revenues and expenses. Actual results could differ from those estimates. FISCAL YEAR The fiscal year of the Company ends on the last Sunday in January of each calendar year, resulting in either a 52- or 53-week fiscal year. RECLASSIFICATION Certain reclassifications have been made to the fiscal 1997 and 1998 financial statements to conform with the fiscal 1999 presentation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. MARKETABLE SECURITIES The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". All of the Company's marketable securities are classified as held to maturity securities. At January 25, 1998, the carrying value approximated fair value. There were no marketable securities at January 31, 1999. 22 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES Inventories are stated at the lower of cost or market, determined by the weighted average cost method. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation and amortization are determined using the straight-line method for financial reporting purposes. The amortization of leasehold improvements is based on the shorter of the term of the respective lease or the estimated useful life of the related improvement. Depreciation of all other tangible assets is based on the estimated useful life of the respective asset, which is five years for substantially all assets. Expenditures for major renewals and betterments are capitalized while maintenance and repairs are expensed. When property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations. INTANGIBLE ASSETS Excess cost over net assets acquired is amortized on a straight-line basis over 20 years. Management continually evaluates the realization of its intangible assets based upon projected income from operations over the lives of such assets. Management believes all such assets are fully realizable. However, in the event of any impairment, such intangibles would be charged to expense and reflected as a direct write-down in the balance sheet in the period such impairment is deemed to have occurred. COST OF SALES Included in cost of sales are cost of merchandise sold, occupancy and buying costs. PREOPENING COSTS The Company capitalizes certain direct costs incurred in conjunction with site selection for future store locations and with the commencement of each store's operations. Amounts capitalized are expensed in the month the store commences operations. As of January 25, 1998 and January 31, 1999 there were no such preopening costs that were required to be expensed. Included in prepaid expenses in the accompanying consolidated balance sheets as of January 25, 1998 and January 31, 1999, were $1,400,000 and $2,772,000, respectively, related to capitalizable costs incurred in conjunction with the opening of new stores, most of which will be recorded to property and equipment when the stores are completed. The American Institute of Certified Public Accountants (AICPA) issued Statement of Position 98-5 (SOP 98-5), "Reporting on Costs of Start-Up Activities" in April 1998. The SOP 98-5 is effective for fiscal years beginning after December 15, 1998 and requires that costs related to start-up activities be expensed as incurred. The Company intends to adopt the provisions of SOP 98-5 in its financial statements for the first quarter of fiscal 2000. ADVERTISING Advertising costs are expensed as incurred and were $10,452,000, $13,867,000 and $17,552,000 for fiscal 1997, 1998 and 1999, respectively. 23 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK SPLIT On June 28, 1996, the Company's board of directors approved a 2-for-1 stock split. The impact of the stock split has been reflected in the accompanying consolidated financial statements and notes thereto. 3. INTANGIBLES ASSETS: Intangible assets consists of the following (in thousands): JANUARY 25, JANUARY 31, 1998 1999 ----------- ----------- Cost in excess of net assets acquired ......... $ 11,708 $ 11,708 Noncompetition agreement ...................... 500 500 -------- -------- 12,208 12,208 Less - Accumulated amortization ............... (2,754) (3,353) ======== ======== $ 9,454 $ 8,855 ======== ======== The Company entered into an asset purchase agreement in December 1995 whereby the Company paid $2.3 million to acquire store fixtures, equipment and goodwill associated with a store in Houston, Texas and entered into a noncompetition agreement with the seller for $500,000. As of January 25, 1998 and January 31, 1999, the noncompetition agreement has an outstanding liability of $200,000 and $100,000, respectively, which is to be paid in annual increments of $100,000. 4. DEBT: The Company has a line-of-credit agreement, as amended (Line of Credit), which provides for a commitment not to exceed the greater of $15.0 million or the Company's borrowing base, as defined, reduced by the aggregate amount of outstanding letters of credit and bears interest at the prime rate or, at the Company's option, LIBOR plus either 1.75 percent or 2.25 percent depending upon certain financial conditions. The Line of Credit extends through June 30, 2000. The Company is required to pay an annual commitment fee of 0.25 percent per annum on the unused portion of the Line of Credit. During fiscal 1998 and 1999, the Company made no borrowings under the Line of Credit and at January 31, 1999, there was approximately $15.0 million of available borrowings. Restrictions under the Line of Credit include, among other things, limits on capital expenditures, annual store openings, incurrence of additional indebtedness and mergers or consolidations and certain financial covenants. 5. FEDERAL INCOME TAXES: INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". This standard provides the method for determining the appropriate asset and liability for deferred taxes, which are computed by applying applicable tax rates to temporary (timing) differences. Therefore, expenses recorded for financial statement purposes before they are deducted for tax purposes create temporary differences, which give rise to deferred tax assets. Expenses deductible for tax purposes before they are recognized in the financial statements create temporary differences which give rise to deferred tax liabilities. The Company and its subsidiaries file a consolidated tax return. Deferred income taxes are provided in recognition of timing differences in reporting certain transactions for financial reporting and income tax reporting purposes. 24 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for income taxes is as follows (in thousands): FIFTY-THREE FIFTY-TWO WEEK WEEK PERIOD PERIODS ENDED ENDED --------------------------- ------------- JANUARY 26, JANUARY 25, JANUARY 31, 1997 1998 1999 ---------- ----------- ---------- Current ................. $ 4,351 $ 6,566 $ 5,626 Deferred ................ 268 (187) 278 ======= ======= ======= $ 4,619 $ 6,379 $ 5,904 ======= ======= ======= The primary reasons for the difference between income taxes computed by applying the statutory federal income tax rate and the provision for income taxes in the financial statements are as follows: FIFTY-THREE FIFTY-TWO WEEK WEEK PERIOD PERIODS ENDED ENDED ------------------------ ------------- JANUARY 26, JANUARY 25, JANUARY 31, 1997 1998 1999 ----------- ----------- ------------- Statutory federal rate ............ 35% 35% 35% State taxes and expenses not deductible for tax purposes ..... 2 1 1 ===== ===== ===== 37% 36% 36% ===== ===== ===== The significant components of the deferred tax assets and liabilities are as follows (in thousands): JANUARY 25, JANUARY 31, 1998 1999 ---------- ----------- Deferred tax assets - Inventory ................................... $1,030 $1,264 Deferred rent ............................... 451 632 Accruals .................................... 556 422 Other ....................................... 60 42 ------ ------ Total deferred tax assets .......... 2,097 2,360 Deferred tax liabilities - Depreciation ................................ 873 1,418 Prepaid expenses ............................ 361 344 Other ....................................... 233 246 ------ ------ Total deferred tax liabilities ..... 1,467 2,008 ------ ------ Net deferred tax assets ............................. $ 630 $ 352 ====== ====== A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Management of the Company believes the net deferred tax assets will be utilized in full based on the nature of the assets and the Company's estimates of the timing of reversals of temporary differences and on the expected generation of taxable income before such reversals. 25 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. STOCKHOLDERS' EQUITY: The Company completed a secondary public offering of its common stock on April 30, 1996 (the "Secondary Offering"), pursuant to which the Company sold 2,000,000 shares of common stock at the price of $25.88 per share (including 420,000 shares sold pursuant to the exercise of the underwriters' over-allotment option). Net proceeds of the Secondary Offering, after deducting the underwriting discount and expenses were approximately $48.7 million. Proceeds were retained to fund expansion and for general working capital purposes. Although there are no shares of preferred stock outstanding and the Company has no present plans to issue any shares of preferred stock, the Amended and Restated Certificate of Incorporation authorizes the Board, without further action of the stockholders of the Company, to issue up to 2,500,000 shares of preferred stock at $.01 par value. 7. EARNINGS PER SHARE The Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share" which requires dual presentation of earnings per share (EPS); basic EPS and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income 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. For purposes of this calculation, outstanding stock options are considered common stock equivalents. The following table summarizes the basic EPS and diluted EPS computations for fiscal 1997, 1998 and 1999: (In thousands, except per share data).
JANUARY 26, JANUARY 25, JANUARY 31, 1997 1998 1999 ------------ ------------ ------------ Basic earnings per share: Net income ...................................... $ 8,036 $11,433 $10,496 ------- ------- ------- Weighted average number of common shares ........ 17,158 17,904 18,063 ======= ======= ======= Basic earnings per share ........................ $ 0.47 $ 0.64 $ 0.58 ======= ======= ======= Diluted earnings per share: Net income ...................................... $ 8,036 $11,433 $10,496 ------- ------- ------- Weighted average number of common shares ........ 17,158 17,904 18,063 Stock options and other ......................... 767 569 502 ------- ------- ------- Adjusted weighted average number of common shares 17,925 18,473 18,565 ------- ------- ------- Diluted earnings per share ........................... $ 0.45 $ 0.62 $ 0.57 ======= ======= =======
Options to purchase 15,434, 35,847 and 51,551 shares of common stock were outstanding during fiscal 1997, 1998 and 1999, respectively, but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. 26 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. STOCK OPTIONS AND WARRANTS: Pro forma information regarding net income and earnings per share is required by SFAS No. 123, "Accounting for Stock-Based Compensation", and has been determined as if the Company has accounted for its stock options under the fair value method as provided therein. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for options issued in fiscal 1997, 1998 and 1999, respectively: risk-free interest rate of 6.6 percent, 6.5 percent and 5.7 percent; expected lives of eight years, seven years and ten years; expected volatility of 43 percent, 27 percent and 28 percent; and no expected dividends. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Set forth below is a summary of the Company's net income and earnings per share as reported and pro forma as if the fair value based method of accounting defined in SFAS No. 123 had been applied. The pro forma information is not meant to be representative of the effects of reported net income for future years because, as provided by SFAS No. 123, only the effects of awards granted after January 30, 1995, are considered in the pro forma calculation. NET INCOME (IN THOUSANDS) EARNINGS PER SHARE ------------------------- ------------------ January 26, 1997 As reported ................ $ 8,036 $ 0.45 Pro Forma .................. $ 7,763 $ 0.43 January 25, 1998 As reported ................ $11,433 $ 0.62 Pro Forma .................. $11,131 $ 0.60 January 31, 1999 As reported ................ $10,496 $ 0.57 Pro Forma .................. $10,235 $ 0.55 In August 1992, the Company adopted the 1992 Stock Option Plan, as amended (the 1992 Plan), which expired upon the public offering of the Company's common stock in May 1995. The 1992 Plan permitted the Company to grant incentive and nonqualified stock options to purchase 1,130,822 shares of the Company's common stock to key executives and employees. The exercise price of incentive stock options is not less than the fair value of the shares at the date of grant, and the exercise price of nonqualified stock options is determined by the compensation committee of the Company's board of directors, subject to certain restrictions. Options presently outstanding are fully vested at January 31, 1999, and expire 10 years from the date of grant. A summary of stock option activity under the 1992 Plan follows: OPTIONS WEIGHTED AVERAGE OUTSTANDING EXERCISE PRICE ------------- ------------------ Balance at January 28, 1996 ........... 923,128 $ 0.99 Exercised ..................... (336,962) $ 0.16 Canceled ...................... (3,974) $ 2.84 -------- Balance at January 26, 1997 ........... 582,192 $ 1.48 Exercised ..................... (32,776) $ 3.16 Canceled ...................... (976) $ 2.22 -------- Balance at January 25, 1998 ........... 548,440 $ 1.37 Exercised ..................... (82,150) $ 3.11 -------- Balance at January 31, 1999 ........... 466,290 $ 1.07 ======== At January 31, 1999, there were no shares reserved for future stock option grants under the 1992 Plan and options to acquire 466,290 shares were exercisable under the 1992 Plan. 27 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In April 1994, the Company adopted the 1994 Stock Option Plan (the 1994 Plan). The 1994 Plan permits the Company to grant incentive and nonqualified stock options to purchase 769,176 shares of the Company's common stock to key executives and employees. The exercise price of incentive stock options will not be less than the fair value of the shares at the date of grant and the exercise price of nonqualified stock options will be determined by the compensation committee of the Company's board of directors, subject to certain restrictions. The vesting and terms of each stock option will be determined by the compensation committee, subject to certain limitations. The 1994 Plan expires 10 years after its effective date. A summary of stock option activity under the 1994 Plan follows: OPTIONS WEIGHTED AVERAGE OUTSTANDING EXERCISE PRICE ------------- ---------------- Balance at January 28, 1996 ........... 97,300 $ 3.28 Granted ....................... 160,000 $ 13.43 Exercised ..................... (21,198) $ 2.39 Canceled ...................... (4,000) $ 16.44 -------- Balance at January 26, 1997 ........... 232,102 $ 10.39 Granted ....................... 176,000 $ 12.05 Exercised ..................... (1,950) $ 3.33 Canceled ...................... (25,000) $ 10.78 -------- Balance at January 25, 1998 ........... 381,152 $ 9.66 Granted ....................... 111,000 $ 12.39 Exercised ..................... (57,634) $ 3.46 Canceled ...................... (26,834) $ 11.17 -------- Balance at January 31, 1999 ........... 407,684 $ 11.19 ======== At January 31, 1999, there were 280,710 shares reserved for future stock option grants and 194,795 shares were exercisable under the 1994 Plan. The weighted average fair value of options granted using the Black-Scholes option pricing model in fiscal 1997, 1998 and 1999 was$8.84, $5.29 and $6.42, respectively, under the 1994 Plan. The following tables summarize information pertaining to stock options outstanding and exercisable at January 31, 1999: 1992 PLAN NUMBER WEIGHTED-AVERAGE RANGE OF OUTSTANDING AND REMAINING CONTRACTUAL WEIGHTED-AVERAGE EXERCISE PRICES EXERCISABLE LIFE (YEARS) EXERCISE PRICE - ---------------- ---------------- --------------------- ------------------ $0.11 to $0.78 329,756 4 $0.18 $2.22 to $3.33 136,534 5 $3.20 -------- $0.11 to $3.33 466,290 4 $1.07 -------- 28 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1994 PLAN
OPTIONS EXERCISABLE --------------------------------- WEIGHTED-AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISEABLE PRICE ------------------ -------------- ------------------- ---------- ---------------- ------------ $ 3.33 to $ 6.44 16,850 6 $ 3.70 14,850 $ 3.33 $ 6.88 to $ 9.33 156,000 8 $ 8.05 62,667 $ 8.56 $10.00 to $14.63 182,334 8 $12.13 102,444 $11.21 $15.25 to $21.63 52,500 9 $18.10 14,834 $18.44 ------------ -------- $3.33 to $21.63 407,684 8 $11.19 194,795 $10.31 ============ ========
In fiscal 1994, the Company issued warrants to purchase 450,000 shares of common stock to certain investors and a warrant to purchase 194,400 shares of common stock to the Lessor in connection with a lease agreement for retail space. Both of the warrants were exercisable at a price of $3.33 per share. The Lessor exercised his warrants in May 1995. The remaining unexercised warrants issued to the investors were exercised in full during fiscal year 1998. During fiscal 1996, the Company issued warrants to purchase 135,000 shares of common stock to outside parties for $5.00 per share. The outside parties exercised 45,000 shares in April 1996, and 90,000 shares in May 1997. No value was assigned to these warrants in the accompanying consolidated financial statements as their value as of the valuation date was deemed to be de minimis. The Non-Employee Directors Stock Option Plan adopted in fiscal 1997 permits the issuance of up to 120,000 shares of common stock to directors who are not employees of the Company. Under this plan, 5,000 options to purchase shares of common stock at the fair market value on the date of grant are granted to each non-employee director annually. As of January 25, 1998 and January 31, 1999 options for 57,500 and 82,500 shares, respectively, had been granted to non-employee directors under this Plan. 9. EMPLOYEE STOCK PURCHASE PLAN: In May 1996, the stockholders approved the Employee Stock Purchase Plan (the "Stock Purchase Plan") and reserved 100,000 shares of common stock for issuance thereunder. The plan permits full-time employees who meet certain requirements to purchase common stock through payroll deductions (which cannot exceed 10% of each employee's compensation) at 85% of the fair market value at the end of each calendar quarter. The Plan became effective on January 1, 1997. As of January 31, 1999, 57,651 shares remain available for future issuances under the Stock Purchase Plan. 10. COMMITMENTS AND CONTINGENCIES: LEASES The Company leases its retail facilities pursuant to noncancelable operating leases that expire at various dates through 2020. A number of the leases have renewal options for various periods of time at the option of the Company. Total rental expense included in the accompanying consolidated financial statements for fiscal 1997, 1998 and 1999 is $12,530,000, $17,054,000 and $20,675,000, respectively. 29 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company is responsible for taxes, utilities, insurance and repairs and maintenance of each of the retail properties. Certain leases require the payment of contingent rentals based on a specified percentage of a store's gross sales, as defined and subject to certain limitations. Future minimum rentals required under the operating leases are as follows (in thousands): Fiscal year ending --- 2000 ......................................... $ 24,916 2001 ......................................... 25,259 2002 ......................................... 24,628 2003 ......................................... 24,201 2004 ......................................... 24,240 Thereafter ................................... 286,542 -------- $409,786 ======== INSURANCE The Company is fully insured for claims over certain deductible amounts. The insurance provides for payment of accidental death and medical claims of employees as specified within the policies. Historically, the Company has not incurred any significant losses on workers' compensation or employee medical insurance claims, and management believes the Company's reserves are sufficient to cover the Company's liabilities for claims incurred. LITIGATION The Company is involved in various legal proceedings incidental to the conduct of its business. The Company currently is not engaged in any legal proceedings that are expected to have a material adverse effect on the Company's results of operations or financial position. 11. RELATED-PARTY TRANSACTIONS: FINANCIAL ADVISORY AND CONSULTING AGREEMENTS In July 1996, the Company entered into a five-year financial advisory agreement with a stockholder. The agreement provides for an annual fee of $50,000 and reimbursement of out-of-pocket expenses. OTHER In fiscal 1997, 1998, and 1999, the Company paid approximately $996,024, $455,484 and $1,313,288, respectively, to a supplier for the design, construction and installation of its signs. The owner of the supplier is the spouse of an officer of the Company. The Company believes the foregoing transactions were on terms at least as favorable to the Company as those which could have been obtained elsewhere. 30 GARDEN RIDGE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. SUBSEQUENT EVENTS (UNAUDITED) STOCK REPURCHASE Subsequent to fiscal year end, the Company's board of directors authorized the repurchase of up to one million shares of the Company's common stock on the open market through January 31, 2000. During March 1999, the company repurchased one million shares at a cost of approximately $5.67 million. These shares will be held in treasury for future use. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): (In thousands, except per share data)
FISCAL QUARTER ENDED --------------------------------------------------------- APRIL 27, JULY 27, OCTOBER 26, JANUARY 25, 1997 1997 1997 1998 ---------- --------- ------------ ------------ Sales ...................................... $ 59,493 $ 63,634 $ 71,122 $110,483 Gross profit ............................... 20,600 21,203 26,360 41,279 Income from operations ..................... 355 799 1,492 13,747 Net income ................................. 470 682 1,043 9,238 Net income per common share, diluted ....... $ .03 $ .04 $ .06 $ .50 Weighted average shares outstanding, diluted 18,355 18,473 18,521 18,548 FISCAL QUARTER ENDED --------------------------------------------------------- APRIL 26, JULY 26, OCTOBER 25, JANUARY 31, 1998 1998 1998 1999 ---------- --------- ------------ ------------ Sales ...................................... $ 68,683 $ 69,585 $ 86,107 $140,367 Gross profit ............................... 24,291 23,734 31,390 52,886 Income (loss) from operations .............. 1,030 (240) (1,694) 15,654 Net income (loss) .......................... 1,045 168 (1,004) 10,287 Net income (loss) per common share, diluted $ .06 $ .01 $ (.05) $ .56 Weighted average shares outstanding, diluted 18,625 18,626 18,507 18,493
31 EX-10.2 2 EXHIBIT 10.2 GARDEN RIDGE CORPORATION AMENDED AND RESTATED 1994 STOCK OPTION PLAN Effective June 3, 1998 ARTICLE I PURPOSE The purpose of this Amended and Restated 1994 Stock Option Plan (the "Plan") of Garden Ridge Corporation, a Delaware corporation (the "Company"), is to secure for the Company and its stockholders the benefits arising from stock ownership by selected executive employees and other key employees of the Company or its subsidiaries as the Board of Directors of the Company (the "Board"), or a Committee constituted for such purpose, may from time to time determine. The Plan will provide a means whereby (i) such employees may purchase shares of the common stock, $0.01 par value per share (the "Common Stock"), of the Company pursuant to stock options which will qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and (ii) such employees may purchase shares of the Common Stock of the Company pursuant to "non-incentive" or "non-qualified" stock options. ARTICLE II ADMINISTRATION The Plan shall be administered by the Stock Option Committee (the "Committee"), which shall at all times consist of not less than two members of the Board, and all members of the Committee shall be "disinterested persons" within the meaning of Rule 16b-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "1934 Act"). All members of the Committee shall be selected by (and serve at the pleasure of) the Board. Subject to the express provisions of the Plan and the policies of each stock exchange on which any of the Company's stock may at any time be traded, the Committee shall have plenary authority, in its discretion, to recommend to the Board the individuals within the class set forth in ARTICLE IV to whom, and the time and price per share at which, stock options shall be granted, the number of shares to be subject to each stock option and the other terms and provisions of their respective Agreements (as defined herein), which need not be identical. In making such recommendations and determinations, the Committee may take into account the nature of the services rendered by the respective employees, their present and potential contributions to the Company's success and such other factors as the Committee in its discretion shall deem relevant. Subject to the express provisions of the Plan, the Committee shall have authority (i) to construe and interpret the Plan, (ii) to define the terms used therein, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, (iv) to recommend to the Board the terms and provisions of the respective stock options, (v) to approve and determine the duration of leaves of absence which may be granted to participants without constituting a termination of their employment for the purposes of the Plan, and (vi) to make all other determinations necessary or advisable for the administration of the Plan. All determinations and interpretations made by the Committee shall be binding and conclusive on all participants in the Plan and their legal representatives and beneficiaries. The Committee shall hold meetings at such times and places as it may determine. Acts by the majority of the Committee or acts reduced to or approved in writing by a majority of the members of the Committee shall be the valid acts of the Committee. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), and appoint new members in substitution therefore, or fill vacancies however caused, subject to the requirements that the members of the Committee shall be "disinterested persons" as described above and that there always be at least two members of the Committee. No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to the Plan or any transaction under the Plan. ARTICLE III SHARES SUBJECT TO PLAN AND DURATION OF PLAN Under the Plan, the Board may, but only upon recommendation of the Committee, grant to eligible persons incentive stock options (as defined in the Code) and/or non-qualified stock options, to purchase up to but not exceeding an aggregate amount of 769,176 shares of the Company's Common Stock (subject to adjustment as provided in ARTICLE X). Shares subject to stock options under the Plan may be either authorized and unissued shares or issued shares that have been acquired by the Company and held in its treasury, in the discretion of the Board. When stock options have been granted under the Plan and have lapsed unexercised or partially unexercised or have been surrendered for cancellation by the optionee thereof, the unexercised shares which were subject thereto may be reoptioned under the Plan. No stock options shall be granted after April 2004. ARTICLE IV ELIGIBILITY AND PARTICIPATION To the fullest extent permitted by applicable laws, all executive employees and other key employees of the Company or of any subsidiary corporation (as defined in Section 424(f) of the Code) shall be eligible for selection to fully participate in the Plan; provided, however, that no member of the Committee shall be entitled to receive a stock option under this Plan while serving as a member of the Committee. Directors of the Company who are not regular employees of the Company are not eligible to participate in the Plan. An individual who has been granted an option may, if such individual is otherwise eligible, be granted an additional option or options if the Board or the Committee shall so determine, subject to the other provisions of the Plan. ARTICLE V TERMS AND CONDITIONS OF STOCK OPTIONS Each stock option granted under the Plan shall be evidenced by a stock option agreement (the "Agreement"), the form of which shall have been approved by the Committee. The Agreement shall be executed by the Company and the optionee and shall set forth the terms and conditions of the stock option, which terms and conditions shall include, but not be limited to the following: (a) OPTION PRICE. The option price shall be determined by the Committee, but shall not in any event be less than the par value of the Common Stock. (b) TERM OF STOCK OPTION. The term of the stock option shall be selected by the Committee, but in no event shall such term exceed ten years from the grant thereof. Each stock option shall be subject to earlier termination as hereinafter provided. (c) TRANSFERABILITY. The stock options granted hereunder shall not be transferable other than by will or operation of the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules thereunder. During the lifetime of the optionee, stock options granted hereunder shall be exercisable only by the optionee, the optionee's guardian or legal representative. (d) VESTING. The Committee shall have complete discretion in determining when stock options granted hereunder are to vest; provided, however, that the sale of shares of Common Stock issued upon the exercise of a stock option by any person subject to Section 16 of the 1934 Act shall not be allowed until at least six months after the grant of the stock option. Such determination for each stock option is to be made prior to or at the time that stock option is granted and shall be set forth in each Agreement. (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 were 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 year from the date of the optionee's death but not thereafter. Notwithstanding any other provisions of this subparagraph (e), no stock option shall be exercised after the expiration of ten years from the date such stock option is granted. (f) OTHER CONDITIONS. At its sole discretion, the Committee may impose other conditions upon the stock options granted hereunder, so long as those conditions do not conflict with any other provisions of the Plan. Such conditions may include, by way of illustration, but not by way of limitation, percentage limitations upon the exercisability of stock options granted hereunder. ARTICLE VI INCENTIVE STOCK OPTIONS The Committee, in recommending and granting stock options hereunder, shall have the discretion to determine that certain stock options shall be incentive stock options, as defined in Section 422 of the Code, while other stock options shall be non-qualified stock options. Neither the members of the Committee, the members of the Board nor the Company shall be under any obligation or incur any liability to any person by reason of the determination by the Committee or the Board whether a stock option granted under the Plan shall be an incentive stock option or a non-qualified stock option. The provisions of this ARTICLE VI shall be applicable to all incentive stock options at any time granted or outstanding under the Plan. All incentive stock options granted or outstanding under the Plan shall be granted and held subject to and in compliance with terms and conditions previously set forth in ARTICLES II, III, IV AND V hereof and, in addition, subject to and in compliance with the following further terms and conditions: (a) The per share option price of all incentive stock options shall not be less than 100% of the Fair Market Value (as defined below) of one share of the Company's Common Stock at the time the stock option is granted (notwithstanding any provision of ARTICLE V hereof to the contrary); (b) No incentive stock option shall be granted to any person who, at the time of the grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation of the Company; provided, however, that this ownership limitation will be waived if at the time the option is granted the per share option price is at least 110% of the Fair Market Value of one share of the Company's Common Stock and such stock option by its terms is not exercisable after the expiration of five years from the date such option is granted; (c) An incentive stock option shall not be transferable other than by will or the laws of descent and distribution, and shall be exercisable during the lifetime of the optionee, only by the optionee; and (d) The aggregate Fair Market Value of all shares of Common Stock (determined at the time of the grant of the stock option) with respect to which incentive stock options are exercisable for the first time by any optionee during any one calendar year shall not exceed $100,000. ARTICLE VII EXERCISE OF STOCK OPTIONS Each stock option granted hereunder may be exercised in such installments during the period prior to its expiration date as the Committee shall determine; provided that, unless otherwise determined by the Committee, if the optionee shall not in any given installment period purchase all of the shares which the optionee is entitled to purchase in such installment period, then the optionee's right to purchase any shares not purchased in such installment period shall continue until the expiration date or sooner termination of the optionee's stock option. The purchase price of the shares of Common Stock acquired upon exercise of a stock option shall be paid in full at the time of exercise in cash or by certified or cashier's check payable to the order of the Company, or, upon receipt of all required regulatory approvals, if any, by delivery of shares of Common Stock of the Company already owned by, and in the possession of, the stock option holder having a Fair Market Value equal to such stock option price, or any combination thereof. Shares of Common Stock used to satisfy the exercise price of a stock option shall be valued at their Fair Market Value determined as of the close of business on the date such stock option is exercised, or if such date is not a business day, on the business day immediately preceding the date of exercise. Deliveries of cash, shares and notices to the Company shall be directed to the Secretary of the Company. No stock option granted hereunder shall be exercisable unless the Plan and all shares issuable on the exercise thereof have been registered under the Securities Act of 1933, as amended (the "1933 Act"), and all other applicable securities laws, and there is available for delivery a prospectus meeting the requirements of Section 10 of the 1933 Act, or the Company shall have first received assurance that registration under the 1933 Act and all other applicable securities laws is not required in connection with such issuance. At the time of exercise, if the shares with respect to which the stock option is being exercised have not been registered under the 1933 Act and all other applicable securities laws, the Company may require the optionee to provide the Company whatever written assurance counsel for the Company may require that the shares are being acquired for investment and not with a view to the distribution thereof, and that the shares will not be disposed of without the written opinion of counsel acceptable to the Company that registration under the 1933 Act and all other applicable securities laws is not required. Share certificates issued to the optionee upon exercise of the stock option shall bear a legend to the foregoing effect to the extent counsel for the Company deems it advisable. ARTICLE VIII FAIR MARKET VALUE OF COMMON STOCK For purposes of the Plan, the term "Fair Market Value" on any date shall mean (i) if the Common Stock is not listed or admitted to trade on a national securities exchange and if bid and asked prices for the Common Stock are not furnished through NASDAQ or a similar organization as described below, the value established by the Committee, in its sole discretion, for purposes of the Plan; (ii) if the Common Stock is listed or admitted to trade on a national securities exchange or national market system, the closing price of the Common Stock, as published in THE WALL STREET JOURNAL, so listed or admitted to trade on such date or, if there is no trading of the Common Stock on such date, then the closing price of the Common Stock on the next preceding date on which there was trading in such shares; or (iii) if the Common Stock is not listed or admitted to trade on a national securities exchange or national market system, the mean between the bid and asked price for the Common Stock on such date, as furnished by the National Association of Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting such information. In addition to the above rules, Fair Market Value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. ARTICLE IX WITHHOLDING TAX Upon (i) the disposition by an employee or other person of shares of Common Stock acquired pursuant to the exercise of an incentive stock option granted pursuant to the Plan within two years of the granting of the incentive stock option or within one year after exercise of the incentive stock option, or (ii) the exercise of "non-incentive" or "non-qualified" options, the Company shall have the right to require such employee or such other person to pay the Company the amount of any taxes (including but not limited to any federal, state and local income taxes, old- age, survivors, and disability insurance premiums and taxes, medicare taxes, FICA taxes and any other withholding taxes) which the Company may be required to withhold with respect to such shares. ARTICLE X ADJUSTMENTS (a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required action by the Company's directors and stockholders, the number of shares provided for in each outstanding stock option and the price per share thereof, and the number of shares provided for in the Plan, shall be proportionately adjusted for any increase or decrease in the number of issued shares of the Company's Common Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock), a stock split, a reverse stock split, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company, and shall also be proportionately adjusted in the event of a spin-off, spin-out, or other distribution of assets to stockholders of the Company, to the extent necessary to prevent dilution of the interests of grantees pursuant to the Plan or of the other stockholders of the Company, as applicable. If the Company shall engage in a merger, consolidation, reorganization or recapitalization, each outstanding stock option (or if such transaction involves less than all of the shares of the Company's Common Stock, then a number of stock options proportionate to the number of such involved shares), shall become exercisable for the securities and other consideration to which a holder of the number of shares of the Company's Common Stock subject to each such stock option would have been entitled to receive in any such merger, consolidation, reorganization or recapitalization. (b) SIGNIFICANT EVENT. In the event of a potential merger or consolidation involving the Company regardless of whether the Company is the surviving entity of such merger or consolidation, a potential liquidation or dissolution of the Company, a potential sale or other disposition by the Company of all or substantially all of its assets, a potential sale or other disposition by the stockholders of the Company of all or substantially all of the outstanding Common Stock to one purchaser, or an underwritten public offering of the Common Stock of the Company (any such merger, consolidation, liquidation, dissolution, sale or offering being referred to herein as a "Significant Event"), then the Company, upon obtaining approval of the Board, may (but shall not be required to) waive any and all restrictions on the vesting of optionees' rights under stock options granted pursuant to the Plan by providing written notice thereof to the optionees. If the Company, upon obtaining approval of the Board, elects to waive any such vesting restrictions, the optionees' rights under their respective stock options shall vest in accordance with the terms of such waiver, subject to the actual occurrence of the Significant Event. In consideration for any such waiver of vesting restrictions by the Company, the Company shall have the option (the "Termination Option") to require all optionees to exercise their vested (determined after taking into account any waiver of vesting restrictions) but unexercised stock options upon the occurrence of the Significant Event, by providing written notice to all optionees at least 10 days before the occurrence of the Significant Event. Any exercise by an optionee in these circumstances may be conditioned upon the occurrence of the Significant Event. If the Company exercises the Termination Option under this paragraph (b), upon the actual occurrence of the Significant Event, each stock option that is vested (determined after taking into account any waiver of vesting restrictions) but unexercised as of such date shall terminate. If the potential Significant Event does not in fact occur for any reason, then any waiver by the Company of the vesting restrictions and any exercise by the Company of the Termination Option under this paragraph (b) shall have no effect, and the optionee's rights will be vested only to the extent that they would be vested if no restrictions on vesting had been waived by the Company herein. (c) CHANGE OF PAR VALUE. In the event of a change in the Company's Common Stock which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of the Plan. (d) MISCELLANEOUS. The adjustments provided for in this Article shall be made by the Committee whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided in this Article, the holder of a stock option shall not be entitled to the privilege of stock ownership as to any shares of Common Stock or other stock not actually issued and delivered to the holder. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect and no adjustment by reason thereof shall be made with respect to the number or price of shares of the Company's Common Stock subject to any stock option. The grant of a stock option pursuant to the Plan shall not affect in any way the right or power of the Company to, among other things, make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve or liquidate or sell or transfer all or any part of its business or assets. ARTICLE XI PRIVILEGES OF STOCK OWNERSHIP No person entitled to exercise any stock option granted under the Plan shall have any of the rights or privileges of a stockholder of the Company in respect of any shares of stock issuable upon exercise of such stock option until certificates representing such shares shall have been issued and delivered. Upon exercise of a stock option, the person exercising the stock option shall be entitled to one stock certificate evidencing the shares acquired upon such exercise. ARTICLE XII CONTINUATION OF EMPLOYMENT Nothing contained in the Plan (or in any stock option granted pursuant to the Plan) shall confer upon any employee any right to continue in the employ of the Company or any subsidiary corporation or constitute any contract or agreement of employment or interfere in any way with the right of the Company or any subsidiary corporation to reduce any person's compensation from the rate in existence at the time of the granting of a stock option or to terminate such person's employment. Nothing contained herein or in any Agreement shall affect any other contractual rights of an employee. ARTICLE XIII AMENDMENT OR DISCONTINUANCE The Board or the Committee may at any time and from time to time amend, rescind, suspend or terminate the Plan, as it shall deem advisable, provided that the Plan may not be amended more than once every six months, other than to comport with changes in the Code, ERISA, or the rules thereunder. In addition to Board approval of any amendment to the Plan, if the Board or Committee further determines on advice of counsel that it is necessary or desirable to obtain stockholder approval of any amendment to the Plan in order to comply with Rule 16b-3 of the General Rules and Regulations under the 1934 Act, or any successor rule, as it shall read as of the time of amendment, or for any other reason, then the effectiveness of any such amendment may be conditioned upon its approval by the affirmative votes of the holders of a majority of the outstanding voting stock of the Company (voting as a single class) present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the state or other jurisdiction in which the Company is incorporated. No change may be made in, and no amendment, rescission, suspension or termination of the Plan shall have an effect on, stock options previously granted under the Plan which may impair or alter the rights or obligations of the holders thereof, except that any change may be made in stock options previously granted with the consent of the optionees. ARTICLE XIV EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL The Plan shall be effective as of March 6, 1996, the date on which it received the approval of a majority of the disinterested members of the Board. However, the Plan and all stock options granted under the Plan shall be void if the Plan is not approved by the stockholders within twelve (12) months from the date the Plan is approved by the Board. The Plan shall be deemed approved by the holders of the outstanding voting stock of the Company by the affirmative votes of the holders of a majority of the outstanding voting stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the state or other jurisdiction in which the Company is incorporated. No stock option granted under the Plan shall be exercisable in whole or in part unless and until such stockholder approval is obtained. EX-10.5 3 EXHIBIT 10.5 AMENDMENT NO. 2 This Amendment No. 2 dated as of June 4, 1998 ("Amendment") is between Garden Ridge Corporation, a Delaware corporation ("Borrower"), and NationsBank, N.A. (successor in interest by merger to NationsBank of Texas, N.A.) ("Bank"). A. The Borrower and the Bank are parties to the Second Amended and Restated Credit Agreement dated as of October 26, 1995, as amended by Amendment No. 1 dated as of November 15, 1996 (as so amended and as the same may be further amended, modified or supplemented from time-to-time, the "Credit Agreement"). B. The Borrower and the Bank wish to amend the Credit Agreement in order to (i) extend the revolving credit facility evidenced by the Credit Agreement and (ii) amend certain other covenants under the Credit Agreement. THEREFORE, the Borrower and the Bank hereby agree as follows: Section 1. DEFINITION, REFERENCES. Unless otherwise defined in this Amendment, each term used in this Amendment which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Section 2. AMENDMENTS. (a) MATURITY DATE. The definition of "Maturity Date" contained in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "MATURITY DATE" means the earlier of (A) June 30, 2000, and (B) the earlier termination in whole of the Commitment pursuant to Section 2.4 or Section 7. (b) SECTION 2.3. The phrase "3/8 of 1% per annum" in Section 2.3 is deleted and replaced with the phrase "1/4 of 1% per annum". Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the execution, delivery and performance of this Agreement are within the corporate power and authority of the Borrower and have been duly authorized by appropriate proceedings and (b) this Agreement constitutes a legal, valid, and binding obligation of the Borrower enforcement in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and general principles of equity. Section 4. EFFECTIVENESS. The Amendment shall be effective on the date first set forth above where: (a) the Borrower and the Bank shall have duly and validly executed originals of this Agreement and delivered them to the Bank; (b) each of the Guarantors shall have duly and validly executed original reaffirmations of their respective Guaranties in form and substance satisfactory to the Bank and delivered them to the Bank; (c) each of the Borrower and the Guarantors (other than Garden Ridge, L.P.) shall have delivered a certificate of its Secretary or Assistant Secretary certifying its certificate of incorporation, bylaws, resolutions and incumbency and in form and substance satisfactory to the Bank; and (d) Garden Ridge, L.P. shall have delivered a copy of its Agreement of Limited Partnership certified by the Secretary or Assistant Secretary of Garden Ridge Management, Inc., its general partner (or the Secretary or Assistant Secretary of Garden Ridge Management, Inc. shall have certified to the Bank that such Agreement of Limited Partnership shall not have been amended, modified or supplemented since November 15, 1996). Section 5. CHOICE OF LAW. This Amendment shall be governed by and construed and enforced in accordance with the laws of the State of Texas. Section 6. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be an original. PURSUANT TO SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, A CREDIT AGREEMENT IN WHICH THE AMOUNT INVOLVED IN THE CREDIT AGREEMENT EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE CREDIT AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR THAT PARTY'S AUTHORIZED REPRESENTATIVE. THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO AN AGREEMENT SUBJECT TO THE PRECEDING PARAGRAPH SHALL BE DETERMINED SOLELY FROM THE WRITTEN CREDIT AGREEMENT, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE CREDIT AGREEMENT. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EXECUTED as of the date first above written. BORROWER: GARDEN RIDGE CORPORATION /s/ JANE ARBUTHNOT Jane Arbuthnot Chief Financial Officer BANK: NATIONSBANK, N.A. (successor in interest by merger to NationsBank of Texas, N.A.) /s/ WILLIAM T. GRIFFIN, JR. William T. Griffin, Jr. Vice President EX-10.6 4 EXHIBIT 10.6 GARDEN RIDGE CORPORATION AMENDED AND RESTATED 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN ARTICLE I PURPOSE Garden Ridge Corporation, a Delaware corporation (the "Company"), is dependent for the successful conduct of its business on the initiative, effort and judgment of its directors. This 1996 Non-Employee Director Stock Option Plan (the "Plan") is intended to provide the non-employee directors of the Company additional compensation for their service as directors and an incentive, through options to acquire stock in the Company, to increase the value of the Company's Common Stock, par value $0.01 per share ("Common Stock"). ARTICLE II ADMINISTRATION The Plan shall be administered by the Board of Directors of the Company (the "Board"). Subject to the express provisions of the Plan and the policies of each stock exchange on which any of the Company's stock at any time may be traded, the Board shall have plenary authority (i) to construe and interpret the Plan, (ii) to define the terms used therein, (iii) to prescribe, amend and rescind rules and regulations relating to the Plan, and (iv) to make all other determinations necessary or advisable for the administration of the Plan. All determinations and interpretations made by the Board shall be binding and conclusive on all participants in the Plan and their legal representatives and beneficiaries. No member of the Board shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to the Plan or any transaction under the Plan. ARTICLE III SHARES SUBJECT TO PLAN AND DURATION OF PLAN The Plan shall expire and terminate on the earlier of (i) the date ten years from the effective date of this Plan, or (ii) the date on which there have been granted to eligible non-employee Directors pursuant to the Plan stock options to purchase an aggregate of 120,000 shares of the Common Stock. Shares subject to stock options under the Plan may be either authorized and unissued shares or issued shares that have been acquired by the Company and held in its treasury, in the sole discretion of the Board. When stock options have been granted under the Plan and have lapsed unexercised or partially unexercised or have been surrendered for cancellation by the optionee thereof, the unexercised shares which were subject thereto may be reoptioned under the Plan. ARTICLE IV ELIGIBILITY AND PARTICIPATION Under the Plan, non-employee directors shall be entitled to receive stock options to purchase from the Company the number of shares of Common Stock as set forth below. For purposes of the Plan, the term "non-employee director" shall be limited to directors who, at the time of the grant, are not (i) serving as officers or employees of the Company or any subsidiary, (ii) serving as consultants to the Company or any subsidiary, or (iii) affiliates of consultants to the Company. (a) GRANT UPON INITIAL ELECTION TO BOARD. Effective as of the date of a non-employee director's initial election to the Board, each non-employee director shall be granted a stock option to purchase from the Company a certain number of shares of Common Stock at a price determined as set forth in ARTICLE V below. The number of shares subject to such stock option shall be adjusted to reflect the fiscal quarter in which the non-employee director is initially elected to the Board, and shall be as follows: (i) second quarter election on or prior to the date three days following the Company's release of financial results for its first fiscal quarter, 0 shares, (ii) second quarter election after the date three days following the Company's release of financial results for its first fiscal quarter, 5,000 shares, (iii) third quarter election, 3,750 shares, (iv) fourth quarter election, 2,500 shares, and (v) first quarter election, 1,250 shares. (b) ANNUAL GRANTS. Effective each year on the date which is three days following the Company's release of financial results for its first fiscal quarter, each non-employee director shall be granted a stock option to purchase from the Company 5,000 shares of Common Stock at a price determined as set forth in ARTICLE V below. ARTICLE V TERMS AND CONDITIONS OF STOCK OPTIONS; STOCK OPTION PRICE; TRANSFERABILITY Each stock option granted under the Plan shall be evidenced by a stock option agreement (the "Agreement"), the form of which shall have been approved by the Board. The Agreement shall be executed by the Company and the optionee, and shall set forth the terms and conditions of the stock option, which terms and conditions shall include, but not be limited to the following: (a) OPTION PRICE. The per share stock option price shall be an amount equal to the Fair Market Value (as defined below) of the Common Stock on the date of grant of the stock option. In no event shall the stock option price be less than the par value of the Company's Common Stock. -2- (b) TERM. The term of each stock option granted under the Plan shall be for a period of five years from the grant thereof. (c) TRANSFERABILITY. Except as set forth below, the stock options granted hereunder shall not be transferable otherwise than by will or operation of the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended (the "Code"), or Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules thereunder. During the lifetime of the optionee, stock options granted hereunder shall be exercisable only by the optionee, the optionee's guardian or legal representative. (d) VESTING. Each stock option granted under the Plan shall vest immediately; provided, however, that the sale of the shares issued upon the exercise of a stock option by any person subject to Section 16 of the Securities Act of 1934 (the "1934 Act") shall not be allowed until at least six months after the later of (i) the approval of this Plan by the stockholders of the Company in accordance with ARTICLE XI hereof or (ii) the grant of the stock option. ARTICLE VI EXERCISE OF STOCK OPTIONS The purchase price of shares of Common Stock acquired upon exercise of a stock option shall be paid in full at the time of exercise in cash or by certified or cashier's check payable to the order of the Company, or, upon receipt of all required regulatory approvals, if any, by delivery of shares of Common Stock of the Company already owned, and in the possession of, the stock option holder having a Fair Market Value equal to such stock option price, or any combination thereof. Shares of Common Stock used to satisfy the exercise price of a stock option shall be valued at their Fair Market Value determined as of the close of business on the date such stock option is exercised, or if such date is not a business date, on the business day immediately preceding the date of exercise. Deliveries of cash, shares and notices to the Company shall be directed to the Secretary of the Company. No stock option granted hereunder shall be exercisable unless the Plan and all shares issuable on the exercise thereof have been registered under the Securities Act of 1933, as amended (the "1933 Act") and all other applicable securities laws, and there is available for delivery a prospectus meeting the requirements of Section 10 of the 1933 Act, or the Company shall have first received the opinion of its counsel that registration under the 1933 Act and all other applicable securities laws is not required in connection with such issuance. At the time of exercise, if the shares with respect to which the stock option is being exercised have not been registered under the 1933 Act and all other applicable securities laws, the Company may require the optionee to provide the Company whatever written assurance counsel for the Company may require that the shares are being acquired for investment and not with a view to the distribution thereof, and that the shares will not be disposed of without the written opinion of such counsel that registration under the 1933 Act and all other applicable securities laws is not required. Share -3- certificates issued to the optionee upon exercise of the stock option shall bear a legend to the foregoing effect to the extent counsel for the Company deems it advisable. ARTICLE VII FAIR MARKET VALUE OF COMMON STOCK For purposes of the Plan, the term "Fair Market Value" on any date shall mean (i) if the Common Stock is not listed or admitted to trade on a national securities exchange and if bid and asked prices for the Common Stock are not so furnished through NASDAQ or a similar organization, the value established by the Board for purposes of the Plan; (ii) if the Common Stock is listed or admitted to trade on a national securities exchange or national market system, the closing price of the Common Stock, as published in the WALL STREET JOURNAL, so listed or admitted to trade on such date or, if there is no trading of the Common Stock on such date, then the closing price of the Common Stock on the next preceding date on which there was trading in such shares; or (iii) if the Common Stock is not listed or admitted to trade on a national securities exchange or national market system, the mean between the bid and asked price for the Common Stock on such date, as furnished by the National Association of Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting such information. In addition to the above rules, Fair Market Value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. ARTICLE VIII ADJUSTMENTS (a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required action by the Company's directors and stockholders, the number of shares provided for in each outstanding stock option and the price per share thereof, and the number of shares provided for in the Plan, shall be proportionately adjusted for any increase or decrease in the number of issued shares of the Company's Common Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Common Stock), a stock split, a reverse stock split, or any other increase or decrease in the number of such shares effected without receipt of consideration by the Company, and shall also be proportionately adjusted in the event of a spin-off, spin-out, or other distribution of assets to stockholders of the Company, to the extent necessary to prevent dilution of the interests of grantees pursuant to the Plan or of the other stockholders of the Company, as applicable. If the Company shall engage in a merger, consolidation, reorganization or recapitalization, each outstanding stock option (or if such transaction involves less than all of the shares of the Company's Common Stock, then a number of stock options proportionate to the number of such involved shares), shall become exercisable for the securities and other consideration to which a holder of the number of shares of the Company's Common Stock subject to each such stock option would have been entitled to receive in any such merger, consolidation, reorganization or recapitalization. -4- (b) SIGNIFICANT EVENT. In the event of a potential merger or consolidation involving the Company regardless of whether the Company is the surviving entity of such merger or consolidation, a potential liquidation or dissolution of the Company, a potential sale or other disposition by the Company of all or substantially all of its assets, or a potential sale or other disposition by the stockholders of the Company of all or substantially all of the outstanding Common Stock to one purchaser (any such merger, consolidation, liquidation, dissolution, or sale being referred to herein as a "Significant Event"), then the Company shall have the option of terminating all outstanding stock options upon the actual occurrence of the Significant Event, by notice to all optionees at least 10 days before the occurrence of the Significant Event. Any exercise by an optionee in these circumstances may be conditioned upon the occurrence of the Significant Event. Upon the actual occurrence of the Significant Event, each outstanding stock option shall terminate if the Company exercises its option under this paragraph (b). If the potential Significant Event does not in fact occur for any reason, then the Company's exercise of its option under this paragraph (b) shall have no effect and his or her rights will be the same as if the Company had never exercised its option under this paragraph (b). (c) CHANGE OF PAR VALUE. In the event of a change in the Company's Common Stock which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of the Plan. (d) MISCELLANEOUS. The adjustments provided for in this Article shall be made by the Board whose determination in that respect shall be final, binding and conclusive. Except as hereinbefore expressly provided in this Article, the holder of a stock option shall not be entitled to the privilege of stock ownership as to any shares of Common Stock or other stock not actually issued and delivered to the holder. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect and no adjustment by reason thereof shall be made with respect to the number or price of shares of the Company's Common Stock subject to any stock option. The grant of a stock option pursuant to the Plan shall not affect in any way the right or power of the Company to, among other things, make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve or liquidate or sell or transfer all or any part of its business or assets. ARTICLE IX PRIVILEGES OF STOCK OWNERSHIP No person entitled to exercise any stock option granted under the Plan shall have any of the rights or privileges of stockholder of the Company in respect of any shares of stock issuable upon exercise of such stock option until certificates representing such shares shall have been issued and delivered. Upon exercise of a stock option, the person exercising the stock option shall be entitled to one stock certificate evidencing the shares acquired upon such exercise. ARTICLE X -5- AMENDMENT OR DISCONTINUANCE The Board may at any time and from time to time amend, rescind, suspend or terminate the Plan, as it shall deem advisable, provided that the Plan may not be amended more than once every six months, other than to comport with changes in the Code, ERISA, or the rules thereunder. In addition to Board approval of any amendment to the Plan, if the Board further determines on advice of counsel that it is necessary or desirable to obtain stockholder approval of any amendment to the Plan in order to comply with Rule 16b-3 of the General Rules and Regulations under the 1934 Act, or any successor rule, as it shall read as of the time of amendment, or for any other reason, then the effectiveness of any such amendment may be conditioned upon its approval by the affirmative votes of the holders of a majority of the outstanding voting stock of the Company (voting as a single class), present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the state or other jurisdiction in which the Company is incorporated. No change may be made in, and no amendment, rescission, suspension or termination of the Plan shall have an effect on, stock options previously granted under the Plan which may impair or alter the rights or obligations of the holders thereof, except that any change may made in stock options previously granted with the consent of the optionees. ARTICLE XI EFFECTIVE DATE; STOCKHOLDER APPROVAL The Plan shall be effective as of March 6, 1996, the date on which it received the approval of a majority of the disinterested members of the Board. However, the Plan and all stock options granted under the Plan shall be void if the Plan is not approved by the stockholders within twelve (12) months from the date the Plan is approved by the Board. The Plan shall be deemed approved by the holders of the outstanding voting stock of the Company by the affirmative votes of the holders of a majority of the outstanding voting stock of the Company present, or represented, and entitled to vote at a meeting of such stockholders duly held in accordance with the applicable laws of the state or other jurisdiction in which the Company is incorporated. No stock option granted under the Plan shall be exercisable in whole or in part unless and until such stockholder approval is obtained. -6- EX-21.1 5 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY STATE OF NAME ORGANIZATION ------ -------------- Garden Ridge Management, Inc. Delaware Garden Ridge Investment, Inc. Delaware Garden Ridge Finance Corporation Delaware Garden Ridge, L.P. Delaware EX-23.1 6 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statement File No. 33-95064, and Form S-8 Registration Statement File No. 333-13785. ARTHUR ANDERSEN LLP Houston, Texas April 29, 1999 EX-27.1 7
5 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. 1,000 YEAR JAN-31-1999 JAN-31-1999 35,882 0 2,783 0 68,009 111,831 77,261 (27,423) 170,524 32,350 0 0 0 183 137,014 170,524 364,742 364,742 232,441 117,551 0 0 (1,650) 16,400 5,904 10,496 0 0 0 10,496 .58 .57
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