UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2001
Commission File No. 0-19305
CALLOWAY'S NURSERY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2092519
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
4200 Airport Freeway
Fort Worth, Texas 76117-6200
817.222.1122
(Address, zip code and telephone number of principal executive offices)
-----------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.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 registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-K. |X|
As of December 14, 2001, Registrant had outstanding 6,284,563 shares of Common
Stock. The aggregated market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on
December 14, 2001 as reported on the Nasdaq Stock Market, was approximately
$4,200,000.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 2002 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-K.
INDEX
Page
Reference
Form 10-K
PART I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 18
Item 13. Certain Relationships and Related Transactions 18
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and
Reports on Form 8-K 19
2
PART I
ITEM 1. BUSINESS
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ABOUT CALLOWAY'S NURSERY, INC.
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At the largest retail nursery chain in Texas, all of us feel a responsibility to
our customers to provide timely information about the care and nurturing of
quality plants and the proper use and enjoyment of the related products we sell.
In fact, all of the companies that are part of the Calloway's Nursery, Inc.
("the Company") family are known for treating each of our customers with caring
respect. Satisfaction is guaranteed.
Our management team consists of professionals that have worked together for most
of the time that the Company has been in operation. This hard-working team of
specialists enables each area of our Company to evolve and upgrade its services
and products continuously. And by taking advantage of available technology we
are especially responsive to the ever-changing demands of the market.
Because we hold the largest number of shares in our Company, the Company's
team's interests are tightly aligned with those of every shareholder.
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ABOUT OUR OPERATIONS
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Founded in 1986, the Company has become the largest lawn and garden retailer in
Texas.
We opened the first four retail stores in 1987. Since that time, we have grown
to twenty retail stores: seventeen Calloway's Nursery retail stores in the
Dallas-Fort Worth market ("Calloway's Nursery") and three Cornelius Nurseries
retail stores in the Houston market ("Cornelius Nurseries").
We have added two established growing operations for the production of living
plants: Miller Plant Farms in 1997 and Turkey Creek Farms in 1999.
Near the end of fiscal 1999 we acquired Cornelius Nurseries, Inc. (the
"Cornelius Acquisition"), which included Cornelius Nurseries and Turkey Creek
Farms, as well as the Wholesale Landscape Distributors wholesale operations in
Houston and Austin ("WLD"). Fiscal 2000 was the first year that the operations
acquired in the Cornelius Acquisition were included in the Company's results of
operations.
During Fiscal 2001 we decided to discontinue the wholesale aspects of our
operations, which have been a part of the wholesale and growing segment. We sold
all of the WLD operations in October 2001. We have also repositioned Turkey
Creek Farms to grow plant material exclusively for our retail stores, thus
discontinuing our wholesale sales to unrelated third parties. We completed the
sale of excess inventory at Turkey Creek Farms by December 2001. In connection
with that decision, we incurred a loss from discontinued operations of
$3,687,000, or $.59 per diluted share in Fiscal 2001.
3
RETAIL
CALLOWAY'S NURSERY
CORNELIUS NURSERIES
We operate twenty retail stores: seventeen Calloway's stores in the Dallas-Fort
Worth and three Cornelius Nurseries stores in Houston. Our locations are
selected on the basis of demographic data, traffic patterns and shopping habits.
All Calloway's Nursery and Cornelius Nurseries stores are Company-operated. We
lease twelve of the Calloway's Nursery store locations and own the other five.
We own all three Cornelius Nurseries store locations.
We focus on quality and breadth of selection in bedding plants and nursery
stock, complemented by other related garden products such as soil amendments and
fertilizers. Apart from Christmas, approximately two-thirds of our annual retail
sales are derived from living plants. The remaining one-third is made up of
products that primarily relate to their care and nurturing.
All Calloway's Nursery and Cornelius Nurseries stores sell Christmas
merchandise. The Cornelius Nurseries stores have developed a stronger and more
financially beneficial focus on Christmas than have the Calloway's Nursery
stores.
The quality selection of living plants and garden products found throughout all
Calloway's Nursery and Cornelius Nurseries retail stores offer our customers
appropriate living plants, while informing them about the care and additional
products that may be required to provide the best results with their selections.
Our staff is known for treating customers with respect and guaranteeing their
satisfaction.
Living plants are ecologically sound investments that cleanse the air and
replenish the earth's oxygen and more. We believe that the living plants we sell
do more than just benefit our customers with decoration. They provide spiritual
and physical buffers against the stresses of urban life.
We seek to maintain balance with our natural habitat by informing our customers
as to the manner they may use our products in harmony with the environment.
GROWING
MILLER PLANT FARMS
In 1997 the Company acquired an established facility for the production of
living plants - Miller Plant Farms. This growing facility was developed by Mike
Miller, who has continued to manage the facility since it was acquired by the
Company. Miller Plant Farms produces roses, ground covers, caladiums,
perennials, hollies and flowering shrubs. Miller Plant Farms allows the Company
to provide its customers with the very best selection and value in top-quality
living plants. Since its acquisition, Miller Plant Farms has been providing the
Calloway's Nursery stores with first quality products in the appropriate
quantities at the appropriate time.
Founder Mike Miller is Past President of the International Plant Propagation
Society - Southern Region; Past President of Northeast Texas Nursery Growers
Association; and Past Director of the Texas Nursery and Landscape Association
("TNLA") Region III. He is a Texas Certified Nursery Professional and received
his BS in Horticulture from Kansas State University in 1974.
4
TURKEY CREEK FARMS
The Cornelius family began Turkey Creek Farms in 1951 to meet the demand for
quality nursery-grown products in Texas. At the time of the Cornelius
Acquisition, Turkey Creek Farms was primarily a wholesale business.
During fiscal 2001 Turkey Creek Farms was repositioned as a growing operation
similar to Miller Plant Farms. Turkey Creek Farms has become an additional
source for first quality plant material to enhance the offering of our twenty
retail stores. Turkey Creek Farms is expected to generate greater sales volumes
in 2002 to the Company's twenty retail stores than it generated in 2001 through
sales to both the Company's stores and unaffiliated third party customers.
Turkey Creek Farms continues to be professionally managed by Tom Henry. A Texas
Certified Nursery Professional and a member of the International Plant
Propagation Society, Tom Henry received his BS with a double major in
Agriculture and Business from Stephen F. Austin State University in 1989.
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ABOUT OUR INDUSTRY
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Texas is the third largest retail market in the United States for lawn and
garden center "green goods" and the third largest producer of green goods for
the retail and landscape markets in the United States.
According to the Texas Comptroller's research Division, Texas retailers of
ornamental nursery products reported sales of $1.6 billion in 1999. During the
past ten years, sales by nursery retailers have increased by 26%. This increase
has occurred despite the proliferation of retailers such as Home Depot, Lowe's
and Wal-Mart that do not separately report their sales of nursery products.
Wholesale green goods produced in Texas are sold primarily in Texas. The state
offers varying climates and soils allowing a broad range of plant production.
Reported wholesale sales of ornamental nursery products in Texas have increased
by 45% during the past ten years.
Two geographic areas where green goods production is predominant are Houston
(the location of Turkey Creek Farms) and Tyler (the location of Miller Plant
Farms). In the Houston area, mild weather, high humidity and a long growing
season combine to make conditions favorable for production of a wide variety of
ornamental and blooming plants. In Tyler, climatic cycles, soils and water make
production of roses and woody evergreens favorable.
5
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EXECUTIVE OFFICERS OF THE REGISTRANT
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JIM ESTILL, 54, is Chairman of the Board, President and Chief Executive Officer.
Along with John Cosby and John Peters, Jim co-founded the Company in 1986. Prior
to that, Jim worked with Sunbelt Nursery Group, as President and Chief Executive
Officer. Jim received his BBA in Finance from Texas Christian University in
1969, and his MBA from TCU in 1977. A Texas Master Certified Nursery
Professional, Jim is Vice-Chairman of the Texas Certified Nursery Professional
Committee, Member of the Nursery/Floral Advisory Committee of the Texas
Department of Agriculture and Past Chairman of the TNLA Education and Research
Foundation.
STERLING CORNELIUS, 79, is President of Cornelius Nurseries, Inc., and a
Director of the Company. Sterling has been with Cornelius Nurseries since his
father founded the business in 1937, except for the period 1941-1945, when he
served in the U.S. Navy during World War II. Sterling is a recognized leader in
the nursery industry, having been President of the TNLA, President of the
Houston Landscape Nurserymen's Association, Chairman of the Drafting Committee -
Texas Certified Nursery Professional Manual and Examination, Member of the Board
of Trustees of the Texas Agricultural Lifetime Leadership Board, and a member of
the Texas Certified Nurserymen's Professional Committee. He is the only two-time
recipient of the ARP Award - the highest honor that TNLA can bestow on one of
its members. Sterling is also active in many community efforts, including past
membership on the Board of Directors of the Houston Chamber of Commerce and the
President's Council of Houston Baptist University.
JOHN COSBY, 58, is Vice President, Secretary and a Director. John, along with
Jim Estill and John Peters, co-founded the Company in 1986. He developed all of
Calloway's Nursery retail store locations, including site selection and
development, as well as lease and acquisition negotiations. Prior to 1986, John
worked at Sunbelt Nursery Group, serving as Vice President -- Corporate
Development and at Pier 1 Imports as Real Estate Manager. John received his BBA
in Management from Texas Wesleyan College in 1969 and his MBA in Management from
the University of Dallas in 1983. A Certified Master Mediator, John is Past
Chairman of Optical Federal Credit Union, and Past President of the Dispute
Resolution Services of Tarrant County.
JOHN PETERS, 50, is Vice President and Director of the Company. John, along with
Jim Estill and John Cosby, co-founded the Company in 1986. He developed the
original staff into a team of industry professionals. He has primary
responsibility for operations, distribution, human resources and administration.
Prior to 1986, John worked with Sunbelt Nursery Group as Senior Vice President
of Operations, where he was responsible for operations of all subsidiaries,
including more than 100 stores in five states, and two growing operations. John
attended Texas Christian University. A Texas Master Certified Nursery
Professional, John is Past Chairman of the TNLA.
DAN REYNOLDS, 44, is Vice President, Chief Financial Officer and Assistant
Secretary. Dan joined the Company in 1990, where he developed its financial,
operating and merchandising decision-support systems. His responsibilities
include all financial and management reporting, treasury management, credit
facilities, corporate and shareholder records, SEC and stock market compliance,
public, media and investor relations, risk management and budgeting. Dan also
oversees design, development, implementation and review of all transactional and
decision-support systems. Prior to 1990, Dan worked with Atmos Energy
Corporation as Financial Systems Manager and KPMG LLP as Supervising Senior
Accountant. Dan received his BBA in Accounting from the University of Texas at
Arlington. A Certified Public Accountant, Dan is Past President of the Fort
Worth Chapter of Financial Executives Institute.
6
SAM WEGER, 51, is Vice President of Merchandising. Sam began with the Company in
retail store management in 1987 with the opening of the first stores. He has
primary responsibility for the administration of planning, procurement and
replenishment of all merchandise lines. Prior to 1987, Sam was Landscape
Designer with Odessa Nursery. He has also been Co-Owner of Lessmon-Weger Garden
Center in Colby, Kansas. Sam received his BBA in Political Science and Education
from Fort Hays State University. A Texas Master Certified Nursery Professional,
Sam is a Director of the TNLA, Past President of TNLA, Region 5, and Past
Chairman of the TNLA Education Committee.
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ABOUT OUR CHALLENGES
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Like any business, we face certain challenges. The biggest challenges are:
The nursery business is highly competitive in the United States. In the
Dallas, Fort Worth and Houston markets, we compete for the loyalty of our
customers with large "mass merchants" such as Home Depot, Lowe's, Kmart,
Wal-Mart, and several grocery store chains that sell plants, flowers, seeds
and other gardening products. Most of these other chains have longer
operating histories and considerably greater financial, marketing and sales
resources than does the Company. Dallas, Fort Worth and Houston are also
home to many independent garden centers.
For us to succeed in this environment, we must consistently and dependably
represent to our customers a clearly superior value.
Our business is seasonal. About 40% of our annual sales occur in the third
fiscal quarter, which is our most profitable quarter. Fiscal 2000 was the
first year for which sales from the operations acquired in the Cornelius
Acquisition were included.
7
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-K Report contains forward-looking statements. We are including this
cautionary statement for the express purpose of providing the Company with the
protections of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 with respect to all forward-looking statements. Several
important factors, in addition to the specific factors discussed in connection
with such forward-looking statements individually, could affect future results
and could cause those results to differ materially from those expressed in the
forward-looking statements contained in this Report.
Our expected future results, products and service performance or other
non-historical facts are forward-looking and reflect our current perspective on
existing trends and information. These statements involve risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among others,
the seasonality of our business, geographic concentration, the impact of weather
and other growing conditions, the ability to manage growth, the impact of
competition, the ability to obtain future financing, government regulations,
market risks associated with variable-rate debt, the costs and benefits of
discontinuing certain operations, and other risks and uncertainties defined from
time to time in our Securities and Exchange Commission filings.
Therefore, each reader of this report is cautioned to consider carefully the
risk factors listed above, as well as any specific factors discussed with a
forward-looking statement in this Report and disclosed in our filings with the
Securities and Exchange Commission, as such risks and factors, in some cases,
have affected, and in the future (together with other factors) could affect, our
ability to implement our business strategy and may cause actual results to
differ materially from those contemplated by the statements expressed in this
Report.
8
ITEM 2. PROPERTIES
The typical Calloway's Nursery (Dallas and Fort Worth markets) and Cornelius
Nurseries (Houston market) retail store is located in a high-traffic shopping
area. All are free standing stores. The typical Calloway's Nursery retail store
consists of a building (approximately 10,000 square feet), a greenhouse
(approximately 12,000 square feet) and an outdoor nursery yard (approximately
40,000 square feet). Though each Cornelius Nurseries retail store has a somewhat
different configuration, they are about the same overall size as a Calloway's
Nursery retail store.
As of September 30, 2001 we operated seventeen Calloway's Nursery retail stores.
We own the land and buildings at five locations. The other twelve locations are
leased under the terms of long-term leases. All three of the Cornelius Nurseries
retail stores are owned by the Company.
We own two nursery growing facilities. Miller Plant Farms, near Tyler, Texas
(approximately 80 acres), and Turkey Creek Farms, north of Houston
(approximately 160 acres).
We lease our corporate office, which is located in an office building in Fort
Worth, Texas. We also lease a warehouse/distribution center in Fort Worth,
Texas.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our common stock has been traded on the Nasdaq National Market under the symbol
CLWY since the initial public offering on June 26, 1991. The following table
sets forth the high, low and closing price information for each quarter of the
most recent five fiscal years:
High Low Close
------ ------ ------
FISCAL YEAR 1997
First Quarter $1.063 $ .719 $ .750
Second Quarter .938 .688 .813
Third Quarter 1.094 .688 1.063
Fourth Quarter 1.375 1.000 1.281
------ ------ ------
FISCAL YEAR 1998
First Quarter 2.063 1.094 1.375
Second Quarter 2.875 1.313 2.844
Third Quarter 3.125 1.875 2.250
Fourth Quarter 2.313 .938 1.188
------ ------ ------
FISCAL YEAR 1999
First Quarter 1.375 1.000 1.125
Second Quarter 1.500 1.125 1.313
Third Quarter 2.000 1.250 1.375
Fourth Quarter 1.563 1.125 1.125
------ ------ ------
FISCAL YEAR 2000
First Quarter 1.438 .938 1.188
Second Quarter 1.500 .969 1.375
Third Quarter 1.500 .813 1.188
Fourth Quarter 1.750 1.125 1.375
------ ------ ------
FISCAL YEAR 2001
First Quarter 1.750 1.063 1.250
Second Quarter 1.625 1.141 1.188
Third Quarter 1.600 1.000 1.300
Fourth Quarter $1.390 $ .850 $ .940
------ ------ ------
The closing price of the common stock on December 14, 2001, as reported by
Nasdaq, was $1.02. As of December 14, 2001 there were approximately 500
shareholders of record, and approximately 1,800 beneficial shareholders.
We have never paid cash dividends on common stock. We intend to retain earnings
for further development of the business and, therefore, do not intend to pay
cash dividends on common stock in the foreseeable future.
10
ITEM 6. SELECTED FINANCIAL DATA
The following table of selected financial data should be read in conjunction
with the Consolidated Financial Statements included in Item 8, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in Item 7. Comparability of the Statement of Operations data for 2001
and 2000, and the Balance Sheet data for 2001, 2000 and 1999, was impacted by
the Cornelius Acquisition. In addition, the Statement of Operations data
reflects the discontinuance of the wholesale operations.
SELECTED FINANCIAL DATA
(Amounts in millions, except per share amounts)
o STATEMENT OF OPERATIONS DATA 2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Net sales $ 43.5 $ 44.6 $ 30.4 $ 27.1 $ 26.2
Income (loss) from continuing operations $ 1.6 $ 2.0 $ .4 $ (.3) $ 1.7
Net income (loss) $ (2.1) $ 1.7 $ .4 $ (.3) $ 1.7
Income (loss) per common share
from continuing operations:
Basic $ .20 $ .32 $ .07 $ (.05) $ .33
Diluted $ .20 $ .30 $ .07 $ (.05) $ .33
Net income (loss) per common share:
Basic $ (.40) $ .26 $ .07 $ (.05) $ .33
Diluted $ (.39) $ .25 $ .07 $ (.05) $ .33
o BALANCE SHEET DATA 2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Total assets $ 27.3 $ 31.0 $ 26.3 $ 14.7 $ 13.1
Long-term obligations 8.6 9.8 9.0 3.0 1.8
Redeemable preferred stock $ 2.2 $ 1.9 $ 1.9 -- --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
In September 1999 we completed the Acquisition of Cornelius Nurseries, Inc. and
affiliated companies (the "Cornelius Acquisition"). The results of operations
for fiscal 2000 and fiscal 2001 include the Cornelius Acquisition, while the
results of operations for fiscal 1999 and prior years do not.
On August 7, 2001 the Company adopted a formal plan to dispose of the wholesale
operations that had been a part of its wholesale and growing segment (see Note
21 to Consolidated Financial Statements). Accordingly, the following discussion
of results of operations has been separated into (i) Continuing Operations and
(ii) Discontinued Operations.
11
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
YEAR ENDED SEPTEMBER 30, 2001 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2000
Income from Continuing Operations Before Income Taxes for 2001 was lower than it
was for 2000 (when we had our most profitable year of operations since becoming
a public company in 1991).
[PERFORMANCE GRAPH]
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES
($ thousands)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
2,363 3,290 799 (327) 767
Sales declined 2.5% from 2000. Strong Sales during the spring season were not
enough to offset slower Sales during the fall and winter seasons, which saw
consumer demand for nursery products reduced due to unfavorable weather for
gardening.
[PERFORMANCE GRAPH]
SALES
($ millions)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
43.5 44.6 30.4 27.1 26.2
12
Gross Margin (Gross Profit as a percentage of net Sales) declined to 49.5% in
2001 from 51.1% for 2000. The 2000 Gross Margin was the highest in the Company's
history, a result of strong Sales that kept stock loss and markdowns to a
minimum. The 2001 Gross Margin was more consistent with the 1999 Gross Margin of
49.3%, which was achieved under similar market conditions.
[PERFORMANCE GRAPH]
GROSS MARGIN
% of sales
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
49.5% 51.1% 49.3% 45.1% 47.3%
Operating Expenses decreased 4.0%. The decrease was primarily the result of
fewer bonuses paid due to the reduction in Income from Continuing Operations for
2001 compared to 2000.
Occupancy Expenses decreased by 3.1%. The decrease was primarily due to a
reduction in accrued property taxes. The real properties added in the Cornelius
Acquisition are Company-owned instead of leased. Occupancy Expenses do not
include the Depreciation and Amortization or Interest Expenses related to the
cost of Company-owned facilities.
Advertising Expenses increased 12.7%. The increase was primarily due to
increased newspaper and radio advertising done to stimulate consumer demand
during the 2001 spring season.
Depreciation and Amortization was flat, with a 0.4% increase.
Interest Expense increased 7.9%, primarily due to increased seasonal borrowings
under the Company's revolving credit lines.
Interest Income decreased 55.0%, due to lower levels of Cash maintained during
the year.
YEAR ENDED SEPTEMBER 30, 2000 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999
Income from Continuing Operations Before Income Taxes was higher for 2000 than
it was for 1999. We had our most profitable year of operations since becoming a
public company in 1991.
Sales increased 47.0% over 1999, marking the fifth consecutive year that sales
have risen. Most of the increase was a result of adding the Cornelius Nurseries
retail stores from the Cornelius Acquisition.
Gross Margin improved to 51.1% for 2000 from 49.3% for 1999. The increase was
primarily due to reduced stock loss and markdowns.
13
Operating Expenses increased 48.3%. Substantially all of the increase was due to
the Cornelius Acquisition.
Occupancy Expenses increased 0.4%. The percentage increase was much lower than
the percentage increase in Sales because substantially all of the real
properties added in the Cornelius Acquisition are Company-owned instead of
leased. Occupancy Expenses do not include the Depreciation and Amortization or
Interest Expenses related to the cost of Company-owned facilities.
Advertising Expenses decreased 2.3%. We changed the media mix in the Dallas-Fort
Worth markets to optimize our Advertising budget. Those savings were more than
the Advertising Expenses needed for the Houston market.
Depreciation and Amortization increased 29.6%. The increase was attributable to
the assets added in the Cornelius Acquisition.
Interest Expense increased 224.6%, primarily due to the debt incurred to finance
the Cornelius Acquisition.
Interest Income decreased 23.8%, due to lower levels of Cash maintained during
the year.
DISCONTINUED OPERATIONS
YEAR ENDED SEPTEMBER 30, 2001 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2000
Sales decreased 6%. The decrease in sales was primarily attributed to continued
pressure from lower cost wholesalers.
Gross Margin declined from 32% for fiscal 2000 to 13% for fiscal 2001. The
decline was a result of the substantial decline in sales, through June 30, 2001,
which caused excessive quantities of inventory that had to be marked down to
lower of cost or market.
Expenses declined 29%. The decline was a result of reduced expenses needed to
support the reduced volume of sales.
The aforementioned factors caused the Loss before Income Taxes to increase from
approximately $0.5 million for fiscal 2000 to approximately $1.2 million for
fiscal 2001.
14
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Flows Used for Operating Activities were $1,754,000 for fiscal 2001,
compared to Cash Flows Provided by Operating Activities of $2,979,000 for fiscal
2000. The decline was primarily attributed to (i) the payment of approximately
$1.5 million of income taxes in 2001 that were accrued in 2000, and (ii)
increase in income taxes receivable of approximately $1.2 million related to the
carry back of the 2001 net operating loss (see Note 8 to Consolidated Financial
Statements).
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Flows Used for Investing Activities decreased to $458,000 for fiscal 2001
from $1,791,000 for fiscal 2000. During fiscal 2000 we opened one new retail
Store; none were opened during fiscal 2001.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Flows Used for Financing Activities were $187,000 for fiscal 2001 compared
to Cash Flows Provided by Financing Activities of $467,000 for fiscal 2000. We
borrowed $750,000 during fiscal 2000 to acquire the Land to construct a new
retail store. The only significant borrowings during fiscal 2001 were to
refinance existing long-term debt to obtain lower, fixed interest rates and
longer maturities.
In October 1999 we redeemed 5,798 shares of Preferred Stock for a cash payment
of $158,500. The redeemed Preferred Stock had a redemption value of $579,800 and
a carrying amount of $274,000. Thus, the remaining redemption amount of the
Preferred Stock was reduced to $3,420,200.
We anticipate that cash flows from operations and the $5,000,000 revolving line
of credit arrangement (see Note 7 to Consolidated Financial Statements) will be
sufficient to meet all working capital needs.
15
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001 the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("Statement") No. 141, Business Combinations
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 requires that goodwill and intangible assets with
indefinite lives no longer be amortized, but instead tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142
also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with Statement 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which has been superceded by Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which is effective for fiscal years beginning
after December 15, 2001.
The Company is required to adopt, and has adopted, the provisions of Statement
141 immediately. Statement 142 is effective for fiscal years beginning after
December 15, 2001. The Company intends to adopt Statement 142 as of October 1,
2002. Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized prior to the adoption of
Statement 142.
Statement 141 will also require, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassification in order to conform to the new criteria in Statement 141 for
recognition apart from goodwill.
Upon adoption of Statement 142 the Company will be required to reassess the
useful lives and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption. In addition, to the extent
an intangible asset is identified as having an indefinite useful life, the
Company will be required to test the intangible asset for impairment in
accordance with the provisions of Statement 142 within the first interim period.
Any impairment loss will be measured as of the date of adoption and recognized
as the cumulative effect of a change in accounting principle in the first
interim period.
As of October 1, 2002 the Company expects to have unamortized goodwill in the
amount of $632,000 that will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $108,000
for the fiscal year ended September 30, 2001. Because of the extensive effort
that will be needed to comply with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's consolidated financial statements at the date of this report,
including whether any transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting principle.
16
In August 2001 the FASB issued Statement 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Statement 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Statement 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
Statement 144 requires companies to separately report discontinued operations
and extends that reporting to a component of an entity that either has been
disposed of (by sale, abandonment, or in a distribution to owners) or is
classified as held for sale. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
The Company is required to adopt Statement 144 as of October 1, 2002. Management
does not expect the adoption of Statement 144 to have a material impact on the
Company's consolidated financial statements because the impairment assessment
under Statement 144 is largely unchanged from Statement 121.
ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks, including fluctuations in
interest rates. We do not enter into transactions designed to mitigate such
market risks, nor do we enter into any transactions in derivative securities for
trading or speculative purposes. As of September 30, 2001, we had no foreign
exchange contracts or options outstanding.
We manage our interest rate risk by balancing (a) the amount of variable-rate
long-term debt with (b) the amounts due under long-term leases, which typically
have fixed rental payments that do not fluctuate with interest rate changes. For
our variable-rate debt, interest rate changes generally do not affect the fair
market value of such debt, but do impact future operations and cash flows,
assuming other factors are held constant.
At September 30, 2001 the Company had variable rate long-term debt of $3.4
million, out of total long-term debt of $9.4 million. Holding other variables,
such as debt levels, constant, a one percentage point increase in interest rates
would be expected to have an estimated impact on income before income taxes and
cash flows for next year of approximately $34,000 for the variable-rate
long-term debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are included in a separate section
of this Report. The index is included under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with regard to executive officers is
included in Part I of this Report. The other information required by this item
is incorporated by reference from the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Proxy Statement.
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
Page
----
(a)(1) FINANCIAL STATEMENTS
Independent Auditors' Report - KPMG LLP F-1
Consolidated Balance Sheets - September 30, 2001 and 2000 F-2
Consolidated Statements of Operations - Years Ended September 30, 2001,
2000 and 1999 F-3
Consolidated Statements of Shareholders' Equity - Years Ended September 30,
2001, 2000 and 1999 F-4
Consolidated Statements of Cash Flows - Years Ended September 30, 2001, 2000 and
1999 F-5
Notes to Consolidated Financial Statements F-7
(a)(2) SCHEDULES
Schedules, for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are omitted because they either are
not required under the related instructions, are inapplicable, or the required
information is shown in the consolidated financial statements or notes thereto.
19
(a)(3) EXHIBITS
(3) (a) Restated Articles of Incorporation of the Registrant. (Exhibit
(3)(a))(1)
(b) Form of Bylaws of the Registrant. (Exhibit (3(b))(1)
(c) Amendment to Bylaws Adopted on May 19, 1993. (Exhibit (3(c))(1)
(4) (a) Specimen Stock Certificate. (Exhibit (4)(a)(1)
(b) Form of Shareholder Rights Plan. (Exhibit (4)(b)(1)
(10) (a) Form of Employment Agreement dated July 3, 1991 between the
Registrant and James C. Estill. (Exhibit (10)(a))(1)
(b) Form of Employment Agreement dated July 3, 1991 between the
Registrant and John T. Cosby. (Exhibit (10)(b))(1)
(c) Form of Employment Agreement dated July 3, 1991 between the
Registrant and John S. Peters. (Exhibit (10)(c))(1)
(d) Left blank intentionally.
(e) Form of Indemnity Agreement dated July 3, 1991 between the
Registrant and each of James C. Estill and John T. Cosby. (Exhibit
(10)(g))(1)
(f) Form of Indemnity Agreement dated July 3, 1991 between the
Registrant and John S. Peters. (Exhibit (10)(h))(1)
(g) Form of Indemnity Agreement dated July 3, 1991 between the
Registrant and each of Robert E. Glaze and Dr. Stanley Block.
(Exhibit (10)(i))(1)
(h) Extension of Employment Agreement between the Registrant and
James C. Estill dated July 2, 1996. (Exhibit (10)(m))(2)
(i) Extension of Employment Agreement between the Registrant and
John T. Cosby dated July 2, 1996. (Exhibit (10)(n))(2)
(j) Extension of Employment Agreement between the Registrant and
John S. Peters dated July 2, 1996. (Exhibit (10)(o))(2)
(k) Employment Agreement between the Registrant and
C. Sterling Cornelius dated September 21, 1999.(9)
(l) Extension of Employment Agreement between the Registrant and
James C. Estill dated May 9, 2001. (Exhibit (10)(p))(3)
(m) Extension of Employment Agreement between the Registrant and
John T. Cosby dated May 9, 2001. (Exhibit (10)(q))(3)
(n) Extension of Employment Agreement between the Registrant and
John S. Peters dated May 9, 2001. (Exhibit (10)(r))(3)
(o) Calloway's Nursery, Inc. Vice President of Merchandising Profit
Improvement Bonus Plan for the Fiscal Year Ending September 30,
2002. (Exhibit (10)(s))(3)
(p) Calloway's Nursery, Inc. Profit Improvement Bonus Plan for the
Fiscal Year Ending September 30, 2002. (Exhibit (10)(t))(3)
(q) Calloway's Nursery, Inc. Monthly Sales Gain Bonus Plan for the
Fiscal Year Ending September 30, 2002. (Exhibit (10)(u))(3)
(21) (a) Subsidiaries of the Registrant.(3)
(23) (d) Consent of KPMG LLP.(3)
(99) (a) Calloway's Nursery, Inc. Stock Purchase Plan. (Exhibit (28))(4)
(99) (b) Calloway's Nursery, Inc. 1991 Stock Option Plan. (Exhibit
(10)(d))(1)
20
(99) (c) Calloway's Nursery, Inc. 1995 Stock Option Plan for Independent
Directors. (Exhibit (99)(c))(5)
(99) (d) Calloway's Nursery, Inc. 1997 Stock Option Plan. (Exhibit A)(6)
(99) (e) Calloway's Nursery, Inc. 1998 Stock Option Plan. (Exhibit A)(7)
(99) (f) Calloway's Nursery, Inc. 1999 Stock Option Plan. Exhibit A)(8)
(99) (g) Cornelius Nurseries, Inc. and Turkey Creek Farms, Inc. Combined
Financial Statements as of and for the years ended September 30,
1998 and 1997. (Exhibit 99.1)(9)
(99) (h) Calloway's Nursery, Inc. and Subsidiaries Unaudited Pro Forma
Condensed Financial Information as of June 30, 1999 and for the
nine month period ended June 30, 1999 and for the year ended
September 30, 1998. (Exhibit 99.2)(8)
(99) (i) Calloway's Nursery, Inc. 2000 Stock Option Plan.(10)
(99) (j) Form of Calloway's Nursery, Inc. 2001 Stock Option Plan.(3)
(99) (k) Calloway's Nursery, Inc. 1996 Stock Option Plan. (Exhibit A)(11)
--------
(1) Incorporated by reference to the Exhibit shown in parenthesis to
Registration Statement No. 33-40473 on Form S-1, and amendments thereto, filed
by the Company with the Securities and Exchange Commission and effective June
26, 1991.
(2) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's form 10-Q Report for the quarter ended June 30, 1996.
(3) Filed herewith.
(4) Incorporated by reference to the Exhibit shown in parenthesis to
Registration Statement No. 33-46170 on Form S-8, and amendments thereto, filed
by the Company with the Securities and Exchange Commission and effective March
3, 1992.
(5) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Form 10-K Report for the fiscal year ended September 30, 1995.
(6) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 1998 Annual Meeting of Shareholders.
(7) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 1999 Annual Meeting of Shareholders.
(8) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
(9) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Form 8-K Report filed October 1, 1999.
(10) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 2001 Annual Meeting of Shareholders.
(11) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders.
(b) REPORTS ON FORM 8-K
None.
21
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.
CALLOWAY'S NURSERY, INC.
By:
/s/ James C. Estill
-------------------
James C. Estill, President and
Chief Executive Officer
/s/ Daniel G. Reynolds
----------------------
Daniel G. Reynolds, Vice
President and Chief Financial
Officer
Dated: December 20, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following on behalf of the Company and in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ James C. Estill Director December 20, 2001
-------------------
James C. Estill
/s/ John T. Cosby Director December 20, 2001
-----------------
John T. Cosby
/s/ John S. Peters Director December 20, 2001
------------------
John S. Peters
/s/ Dr. Stanley Block Director December 20, 2001
---------------------
Dr. Stanley Block
/s/ C. Sterling Cornelius Director December 20, 2001
-------------------------
C. Sterling Cornelius
/s/ Daniel R. Feehan Director December 20, 2001
--------------------
Daniel R. Feehan
/s/ Timothy J. McKibben Director December 20, 2001
-----------------------
Timothy J. McKibben
22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Calloway's Nursery, Inc.:
We have audited the accompanying consolidated balance sheets of Calloway's
Nursery, Inc. and subsidiaries as of September 30, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Calloway's Nursery,
Inc. and subsidiaries as of September 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
KPMG LLP
Fort Worth, Texas
November 16, 2001
F-1
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share amounts)
ASSETS
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
------------- -------------
Cash and cash equivalents $ 279 $ 413
Accounts receivable 433 250
Inventories 6,042 5,843
Prepaids and other assets 230 316
Deferred income taxes, current 55 --
Income taxes receivable 1,180 --
Current assets of discontinued operations 2,847 6,907
------------- -------------
Total current assets 11,066 13,729
Property and equipment, net 13,888 14,228
Goodwill, net of accumulated amortization of $1,233 and $1,125,
respectively 740 848
Deferred income taxes 1,301 1,348
Other assets 266 187
Noncurrent assets of discontinued operations -- 637
------------- -------------
Total assets $ 27,261 $ 30,977
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,128 $ 3,202
Accrued expenses 1,534 1,672
Income taxes payable -- 1,518
Notes payable, current 730 55
Current portion of long-term debt 732 555
Deferred income taxes, current 187 118
Current liabilities of discontinued operations 2,304 1,049
------------- -------------
Total current liabilities 7,615 8,169
Deferred rent payable 929 1,056
Long-term debt, net of current portion 8,646 9,870
------------- -------------
Total liabilities 17,190 19,095
------------- -------------
Commitments and contingencies
Non-Voting Acquisition Preferred Stock with mandatory
redemption provisions; par value $.01 per share; 40,000 shares
authorized; 40,000 shares issued and 34,202 shares outstanding 2,180 1,877
Shareholders' equity:
Voting convertible preferred stock; par value $.625 per share;
3,200,000 shares authorized; no shares issued or outstanding -- --
Preferred stock; par value $.01 per share; 9,960,000 shares
authorized; no shares issued or outstanding -- --
Common stock; par value $.01 per share; 30,000,000 shares authorized;
6,498,346 and 6,237,760 shares issued, respectively; 6,248,346 and
5,987,760 shares outstanding, respectively 65 62
Additional paid-in capital 9,610 9,288
Retained earnings (accumulated deficit) (388) 2,051
------------- -------------
9,287 11,401
Less: treasury stock, at cost (250,000 common shares) (1,396) (1,396)
------------- -------------
Total shareholders' equity 7,891 10,005
------------- -------------
Total liabilities and shareholders' equity $ 27,261 $ 30,977
============= =============
The accompanying notes are an integral part of
these consolidated financial statements.
F-2
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 1999
------------- ------------- -------------
Net sales $ 43,494 $ 44,619 $ 30,355
Cost of goods sold 21,957 21,839 15,397
------------- ------------- -------------
Gross profit 21,537 22,780 14,958
------------- ------------- -------------
Operating expenses 12,959 13,501 9,101
Occupancy expenses 2,638 2,721 2,709
Advertising expenses 1,583 1,404 1,437
Depreciation and amortization 906 902 696
Interest expense 1,124 1,042 321
Interest income (36) (80) (105)
------------- ------------- -------------
Total expenses 19,174 19,490 14,159
------------- ------------- -------------
Income from continuing operations before
income taxes 2,363 3,290 799
Income tax expense 812 1,300 408
------------- ------------- -------------
Income from continuing operations 1,551 1,990 391
------------- ------------- -------------
Discontinued operations:
Loss from discontinued operations, net of tax
benefits of $416, $202, and $-- (794) (323) --
Loss on disposal of discontinued operations, net
of tax benefit of $1,515, $--, and $-- (2,893) -- --
------------- ------------- -------------
Loss from discontinued operations (3,687) (323) --
------------- ------------- -------------
Net income (loss) (2,136) 1,667 391
Accretion of preferred stock (303) (261) --
Retirement of preferred stock -- 115 --
------------- ------------- -------------
Net income (loss) attributable to common shareholders $ (2,439) $ 1,521 $ 391
============= ============= =============
Weighted average number of common shares outstanding
Basic 6,107 5,823 5,579
Diluted 6,290 6,002 5,758
Basic net income (loss) per common share
Income from continuing operations $ .20 $ .32 $ .07
Loss from discontinued operations (.60) (.06) --
Net income (loss) $ (.40) $ .26 $ .07
Diluted net income (loss) per common share
Income from continuing operations $ .20 $ .30 $ .07
Loss from discontinued operations (.59) (.05) --
Net income (loss) $ (.39) $ .25 $ .07
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands)
Retained
Common Stock Additional Earnings
--------------- Paid-in (Accumulated Treasury
Shares Amount Capital Deficit) Stock Total
------ ------ ---------- ------------ --------- --------
Balance as of September 30, 1998 5,736 $ 57 $ 8,666 $ 139 $ (1,396) $ 7,466
Issuance of common stock 205 2 261 -- -- 263
Net income -- -- -- 391 -- 391
------ ------ ---------- ------------ --------- --------
Balance as of September 30, 1999 5,941 59 8,927 530 (1,396) 8,120
Issuance of common stock 297 3 361 -- -- 364
Net income -- -- -- 1,667 -- 1,667
Accretion of preferred stock -- -- -- (261) -- (261)
Retirement of preferred stock -- -- -- 115 -- 115
------ ------ ---------- ------------ --------- --------
Balance as of September 30, 2000 6,238 62 9,288 2,051 (1,396) 10,005
Issuance of common stock 260 3 322 -- -- 325
Net loss -- -- -- (2,136) -- (2,136)
Accretion of preferred stock -- -- -- (303) -- (303)
------ ------ ---------- ------------ --------- --------
Balance as of September 30, 2001 6,498 $ 65 $ 9,610 $ (388) $ (1,396) $ 7,891
====== ====== ========== ============ ========= ========
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Cash flows from operating activities:
Net income (loss) $ (2,136) $ 1,667 $ 391
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Loss from discontinued operations (net of tax) 794 323 --
Loss on disposal of discontinued operations (net of tax) 2,893 -- --
Depreciation and amortization 906 902 696
Gains on property sales -- -- (21)
Deferred income taxes 61 (460) 291
Stock compensation 140 124 116
(Increase) decrease (net of effects from acquisition) in:
Accounts receivable (183) (196) 94
Inventories (199) (993) (895)
Income taxes receivable (1,180) -- --
Prepaid expenses and other assets 7 (227) (22)
Increase (decrease) (net of effects from acquisition) in:
Accounts payable (1,074) (75) 36
Accrued expenses (138) 532 379
Income taxes payable (1,518) 1,439 79
Deferred rent payable (127) (57) 20
------------- ------------- -------------
Net cash flows provided by (used for) operating activities (1,754) 2,979 1,164
------------- ------------- -------------
Cash flows from investing activities:
Additions to property and equipment (458) (1,791) (1,333)
Acquisition of Cornelius Nurseries -- -- (9,051)
Proceeds from property sales -- -- 457
------------- ------------- -------------
Net cash flows used for investing activities (458) (1,791) (9,927)
------------- ------------- -------------
Continued on Page F-6
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
(amounts in thousands)
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
Cash flows from financing activities: 2001 2000 1999
------------- ------------- -------------
Proceeds from issuance of common stock 185 240 147
Proceeds from issuance of long-term debt 3,769 3,138 6,522
Net borrowings (repayments) under revolving line of credit 675 (408) 463
Repayments of long-term debt (4,716) (2,114) (197)
Lease payments under capital lease (100) (160) (146)
Bank overdraft -- -- 483
Payment of debt issuance costs -- (70) (96)
Retirement of preferred stock -- (159) --
------------- ------------- -------------
Net cash flows provided by (used for) financing activities (187) 467 7,176
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents from continuing
operations (2,399) 1,655 (1,587)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents from discontinued
operations 2,265 (1,304) --
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (134) 351 (1,587)
------------- ------------- -------------
Cash and cash equivalents at beginning of year 413 62 1,649
------------- ------------- -------------
Cash and cash equivalents at end of year $ 279 $ 413 $ 62
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,124 $ 1,043 $ 321
Income taxes $ 1,518 -- 72
In 1999 the Company issued non-dividend preferred stock with mandatory
redemption provisions with a fair value of $1,890, and assumed accounts payable
of $845, in exchange for certain assets relating to the Cornelius Acquisition.
In 2000 the Company redeemed 5,798 shares of Preferred Stock for a cash payment
of $159. The redeemed Preferred Stock had a redemption value of $580 and a
carrying amount of $274. In 2001 and 2000 the carrying amount of the Preferred
Stock was accreted by $303 and $261, respectively to a carrying amount of $2,180
and $1,877 at September 30, 2001 and 2000, respectively.
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF THE COMPANY
Calloway's Nursery, Inc. and Subsidiaries (the "Company") has been engaged in
the retail, and wholesale and growing segments of the nursery business. The
Company opened its first three retail stores in 1987.
The Company derives the majority of its revenues from sales to consumers of
living plants and related products. No single product or customer accounts for a
material portion of its revenues.
In September 1999 the Company acquired certain assets of Cornelius Nurseries,
Inc. and two affiliated entities ("the Cornelius Acquisition"). The Cornelius
Acquisition added three retail stores in the Houston market, a growing operation
near Houston and two wholesale distribution centers (one in Houston and one near
Austin).
On August 7, 2001 the Company adopted a formal plan to dispose of the wholesale
operations, which had been a part of its wholesale and growing segment (see Note
21). The Company has three wholly owned subsidiaries:
Calloway's Nursery of Texas, Inc. -- operates the Company's Calloway's
retail stores in the Dallas-Fort Worth area.
Miller Plant Farms, Inc. - is the Company's growing facility near
Tyler, Texas.
Cornelius Nurseries, Inc. -- operates three Cornelius retail stores in
the Houston market, and the growing operation near Houston.
Economic, weather and other circumstances that may exist from time-to-time in
these areas can have a significant impact on the Company's results of
operations.
All significant intercompany accounts and transactions have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of these financial statements.
Revenue recognition - The Company recognizes revenue when the customer takes
possession of the merchandise.
Accounts receivable - The Company's accounts receivable are primarily related to
credit card transactions. The Company's retail Stores accept MasterCard, VISA,
American Express and Discover. No allowance for doubtful accounts is considered
necessary since substantially all amounts are collected within five business
days.
Inventories - Inventories are stated at the lower of cost or market, with cost
being determined principally on a first-in, first-out basis.
F-7
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and equipment - Property and equipment are capitalized at cost and
depreciated using the straight-line method over the estimated useful lives of
the various classes of assets. Leasehold improvements are amortized on a
straight-line basis over the lease term. Expenditures for normal maintenance and
repairs are expensed as incurred. The cost of property and equipment sold or
otherwise retired, and the related accumulated depreciation and amortization,
are removed from the accounts and any resultant gain or loss is included in
operating results. The useful lives for purposes of calculating depreciation and
amortization are as follows:
Leasehold improvements Term of lease
Land improvements 15 years
Buildings 33 years
Furniture and fixtures 5 years
Vehicles 3 years
The Company reevaluates the propriety of the carrying amounts of its properties
as well as the amortization periods when events and circumstances indicate that
impairment may have occurred. Recoverability of assets to be held and used is
measured by the comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Management
believes that no impairment has occurred and that no reduction of the estimated
useful lives is warranted.
Net income (loss) per share - Basic EPS is computed by dividing income (loss)
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings or loss of the entity.
Income taxes - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in operations in the period that includes the
enactment date.
Intangibles - Goodwill is being amortized on a straight-line basis over 20
years. The Company assesses the recoverability of this goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows. The amount of
goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved. Management believes no
impairment has occurred.
F-8
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash equivalents - For purposes of the consolidated statements of cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Stock Based Compensation - The Company sponsors a stock-based compensation plan
for its employees and directors. The Company applies the intrinsic value-based
method of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations,
in accounting for its fixed plan stock options. As such, compensation expense
would be recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. See Note 11 for pro forma
disclosures that show the effect on the Company's net income (loss) and net
income (loss) per share as if the Company had adopted the cost recognition
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS 123").
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The amount of the valuation allowance related to deferred tax assets at
September 30, 2001 and 2000 has been estimated based on the weight of available
evidence at September 30, 2001 and 2000. Such estimate could change in the
future based on the occurrence of one or more future events.
Fair Value of Financial Instruments - The carrying values of the Company's
financial instruments, other than long-term debt, approximate fair values due to
the short maturities of such instruments. The Company's borrowings, if
recalculated based on current interest rates, would not differ significantly
from the amounts recorded at September 30, 2001 and 2000.
Reclassifications - Certain amounts for 1999 and 2000 have been reclassified to
conform to the 2001 presentation of the Discontinued Operations.
F-9
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In June 2001 the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("Statement") No. 141, Business Combinations
and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 requires that goodwill and intangible assets with
indefinite lives no longer be amortized, but instead tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142
also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with Statement 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which has been superceded by Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which is effective for fiscal years beginning
after December 15, 2001.
The Company is required to adopt, and has adopted, the provisions of Statement
141 immediately. Statement 142 is effective for fiscal years beginning after
December 15, 2001. The Company intends to adopt Statement 142 as of October 1,
2002. Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized prior to the adoption of
Statement 142.
Statement 141 will also require, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassification in order to conform to the new criteria in Statement 141 for
recognition apart from goodwill.
Upon adoption of Statement 142 the Company will be required to reassess the
useful lives and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period adjustments by
the end of the first interim period after adoption. In addition, to the extent
an intangible asset is identified as having an indefinite useful life, the
Company will be required to test the intangible asset for impairment in
accordance with the provisions of Statement 142 within the first interim period.
Any impairment loss will be measured as of the date of adoption and recognized
as the cumulative effect of a change in accounting principle in the first
interim period.
As of October 1, 2002 the Company expects to have unamortized goodwill in the
amount of $632,000 that will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $108,000
for the fiscal year ended September 30, 2001. Because of the extensive effort
that will be needed to comply with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on
the Company's consolidated financial statements at the date of this report,
including whether any transitional impairment losses will be required to be
recognized as the cumulative effect of a change in accounting principle.
F-10
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2001 the FASB issued Statement 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Statement 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Statement 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
Statement 144 requires companies to separately report discontinued operations
and extends that reporting to a component of an entity that either has been
disposed of (by sale, abandonment, or in a distribution to owners) or is
classified as held for sale. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
The Company is required to adopt Statement 144 as of October 1, 2002. Management
does not expect the adoption of Statement 144 to have a material impact on the
Company's consolidated financial statements because the impairment assessment
under Statement 144 is largely unchanged from Statement 121.
NOTE 3 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following (amounts in thousands):
September 30, September 30,
2001 2000
------------- -------------
Money market fund $ 2 $ 1
Demand deposit accounts 246 376
Petty cash 31 36
------------- -------------
$ 279 $ 413
============= =============
NOTE 4 - INVENTORIES
Inventories consist of the following (amounts in thousands):
September 30, September 30,
2001 2000
------------- -------------
Finished goods $ 3,921 $ 4,757
Work in process 1,884 1,021
Supplies 237 65
------------- -------------
$ 6,042 $ 5,843
============= =============
F-11
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (amounts in thousands):
September 30, September 30,
2001 2000
------------- -------------
Land $ 7,028 $ 7,159
Land improvements 1,012 1,005
Leasehold improvements 1,138 1,121
Buildings 5,463 5,412
Furniture, fixtures and equipment 3,208 2,625
Vehicles 575 569
Construction in Process -- 14
Less: accumulated depreciation and
amortization (4,536) (3,677)
------------- -------------
$ 13,888 $ 14,228
============= =============
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist of the following (amounts in thousands):
September 30, September 30,
2001 2000
------------- -------------
Accrued salaries and related taxes and
expenses $ 910 $ 631
Accrued bonuses 20 324
Accrued property taxes 429 549
Accrued sales and use taxes 175 168
------------- -------------
$ 1,534 $ 1,672
============= =============
F-12
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
The Company entered into a $5,000,000 revolving line of credit arrangement with
a bank that matures on May 31, 2002 and is collateralized by inventory, accounts
receivable and certain real property. The line of credit was established to
supplement sources available to meet the Company's seasonal working capital
needs. At September 30, 2001 and 2000 the outstanding balances were $730,000 and
$55,000, respectively, and the unused available credit was $4,270,000 and
$4,945,000, respectively. The interest rate is variable, tied to the bank's
current prime lending rate. The interest rate was 5.5% at September 30, 2001.
Long-term debt consists of the following (amounts in thousands):
Monthly
Payment
September 30, September 30, (Principal
Description 2001 2000 Matures Interest Rate Collateral and Interest)
----------- ------------- ------------- -------------- ---------------- ----------- -------------
1. Term loan, financial institution $ 1,053 $ 4,625 September 2004 Variable (7.0)% Real estate $12
2. Term loan, financial institution 359 409 December 2006 Variable (9.5)% Real estate 7
3. Term loan, financial institution 853 889 August 2012 Variable (9.125)% Real estate 10
4. Term loan, financial institution 241 270 July 2007 Variable (7.75)% Real estate 5
5. Term loan, financial institution 939 1,003 October 2003 Variable (7.0)% Real estate 13
6. Term loan, financial institution 972 1,008 March 2015 Fixed 8.5% Real estate 10
7. Term loan, financial institution 1,157 1,199 April 2015 Fixed 8.5% Real estate 12
8. Term loan, financial institution 1,176 750 November 2020 Fixed 10.0% Real estate 12
9. Term loan, financial institution 2,492 -- December 2015 Fixed 8.5% Real estate $25
Capital lease -- 100 September 2001 N/A
Other 136 172
------------- -------------
Totals 9,378 10,425
Less: amounts due within one year (732) (555)
------------- -------------
$ 8,646 $ 9,870
============= =============
At September 30, 2000 the term loan described in (1) in the above table included
amounts related to discontinued operations for 2000, which were refinanced in
2001.
F-13
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maturities of long-term debt are as follows (amounts in thousands):
Year Ending September 30,
2002 $ 732
2003 696
2004 1,405
2005 1,965
2006 704
Thereafter 3,876
-------
$ 9,378
=======
At September 30, 2001 the Company was in compliance with all of its loan
covenants.
NOTE 8 - INCOME TAXES
Total income taxes for the years ended September 30, 2001, 2000 and 1999 were
allocated as follows:
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Income from continuing operations $ 812 $ 1,300 $ 408
Discontinued operations (1,931) (202) --
------------- ------------- -------------
$ (1,119) $ 1,098 $ 408
============= ============= =============
Components of income tax expense (benefit) attributable to continuing operations
consist of the following (amounts in thousands):
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Current expense
Federal $ 751 $ 1,495 $ 8
State -- 265 109
------------- ------------- -------------
Total current 751 1,760 117
------------- ------------- -------------
Deferred expense (benefit):
Federal 61 (460) 291
------------- ------------- -------------
Total deferred 61 (460) 291
------------- ------------- -------------
Total expense $ 812 $ 1,300 $ 408
============= ============= =============
F-14
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The differences between the Company's effective tax rate and the federal
statutory tax rate of 34%, as applied to income from continuing operations
before income taxes, for the fiscal years ended September 30, 2001, 2000 and
1999 are as follows (amounts in thousands):
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Income tax expense at statutory rate $ 803 $ 1,119 $ 272
State income tax, net of federal benefit -- 175 72
Amortization of goodwill 37 37 37
Other, net (28) (31) 27
------------- ------------- -------------
Total income tax expense $ 812 $ 1,300 $ 408
============= ============= =============
Effective tax rate 34.4% 39.5% 51.1%
Significant components of the Company's deferred tax assets and liabilities as
of September 30, 2001 and 2000 are as follows (amounts in thousands):
September 30, September 30,
2001 2000
------------- -------------
Deferred tax liabilities:
Basis difference in inventories $ -- $ (118)
Gain on disposal of assets (187) --
------------- -------------
Total deferred tax liabilities (187) (118)
------------- -------------
Deferred tax assets:
Deferred rent 353 390
State net operating loss carryforward 66 --
Inventory capitalization 55 --
Assets marked to market 203 203
Basis difference in property and equipment 679 755
------------- -------------
Total deferred tax assets 1,356 1,348
------------- -------------
Net deferred tax asset $ 1,169 $ 1,230
============= =============
Management has determined that it is more likely than not that the Company's
deferred tax assets will be realized; therefore, no valuation allowance was
necessary as of September 30, 2001, 2000 and 1999. In assessing the need for a
valuation allowance, management has considered future reversals of existing
taxable temporary differences and future taxable income exclusive of such
reversing differences. Positive evidence considered includes the Company's
history of income from continuing operations before income taxes, and the
availability of its existing net operating loss carryforwards. At September 30,
2001 the Company has net operating loss carryforwards of approximately $178,000
for state income tax purposes.
F-15
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - SHAREHOLDERS' EQUITY
During 2001, 2000 and 1999, the Company issued shares of common stock to the
Calloway's Nursery, Inc. Stock Purchase Plan (see Note 12) and upon the exercise
of stock options (see Note 11), receiving proceeds as follows (amounts in
thousands):
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Number of shares issued 260 297 205
Proceeds $ 185 $ 240 $ 147
Compensation expense 140 124 116
------------- ------------- -------------
$ 325 $ 364 $ 263
============= ============= =============
NOTE 10 - COMMON STOCK PURCHASE RIGHTS
Effective July 1991, the Company adopted a shareholder rights plan ("Rights
Plan") that entitles each registered shareholder to one common share purchase
right ("Right") per common share held. The Rights attach to all certificates
representing outstanding shares of common stock; no separate Rights certificates
have been distributed. The terms of the Rights Plan provide that in the event of
an unapproved tender to acquire 20 percent or more of the Company's common
stock, the Right holders, except as noted below, can purchase common stock at
50% of the then current market price. The Rights Plan also provides that all
Rights held by parties to the unapproved tender shall be null and void; thus,
such party cannot participate in the discounted purchase of common stock. The
Rights are redeemable, at the Company's option, at any time at $.01 per Right.
NOTE 11 - STOCK OPTION PLANS AND STOCK-BASED COMPENSATION
The Company's stock option plans provide for the awarding of incentive stock
options to employees and non-qualified stock options to employees and
independent directors. The employee plans are administered by the Compensation
Committee of the Board of Directors, which consists entirely of independent
directors. The independent director stock options are initially granted on a
formula basis. Additional nonqualified stock options are provided to independent
directors on an individual grant basis. All options are exercisable according to
predetermined vesting schedules (all options vest within three years of the date
of the grant) and remain in effect for ten years from the date of the grant. An
aggregate of 2,267,000 shares of common stock have been reserved for issuance
under the Company's stock option plans, including 302,000 shares in connection
with the Company's 2000 Stock Option Plan that was approved in fiscal 2001.
F-16
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As permitted by SFAS 123, the Company applies Accounting Principles Board (APB)
Opinion 25 and related interpretations in accounting for its stock option plans.
Accordingly, no expense has been recognized for its stock option plans, as the
exercise price equals the stock price on the date of grant. Had compensation
expense been determined for stock options granted based on the "fair value" at
grant dates provided for in SFAS 123, the Company's pro forma net income (loss)
and diluted net income (loss) per share for 2001, 2000 and 1999 would
approximate the amounts below (amounts in thousands, except per share amounts):
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Net income (loss) $ (2,292) $ 1,667 $ 326
Net income (loss) per share $ (.41) $ .25 $ .06
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. The pro forma amounts were estimated using the Black Scholes
option-pricing model with the following assumptions:
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Weighted average expected life
(years) 10 N/A 10
Expected volatility 90.75% -- 88.21%
Expected dividends None -- None
Risk free interest rate 5.68% -- 5.88%
Weighted average fair value of
options granted $ 1.2763 N/A $ 1.0174
F-17
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes activity in the stock option plans for the three
years ended September 30, 2001:
Weighted
Average
Exercise
Shares Price
------------- ----------
September 30, 1998 921,500 $ 1.075
Granted 64,000 1.156
Exercised 400 1.000
Forfeited -- --
Expired -- --
------------- ----------
September 30, 1999 985,100 1.0806
Granted -- --
Exercised -- --
Forfeited 31,400 1.0645
Expired -- --
------------- ----------
September 30, 2000 953,700 1.0800
Granted 122,000 1.4380
Exercised 3,500 1.0000
Forfeited 4,300 1.1163
Expired -- --
------------- ----------
September 30, 2001 1,067,900 $ 1.1221
============= ==========
Exercisable, September 30, 2001 1,027,900 $ 1.1220
The following table summarizes information regarding stock options outstanding
at September 30, 2001:
Weighted Weighted Weighted
Average Average Average
Range of Exercise Options Remaining Exercise Options Exercise
Prices Outstanding Life Prices Exercisable Prices
----------------- ----------- --------- -------- ----------- --------
$0.875 to $1.188 938,900 4.6 $ 1.0438 930,900 $ 1.0428
$1.189 to $6.125 129,000 8.6 1.6923 97,000 1.7762
----------- --------- -------- ----------- --------
1,067,900 5.1 $ 1.1221 1,027,900 $ 1.1120
=========== ========= ======== =========== ========
F-18
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - STOCK PURCHASE PLAN
In 1992, the Company's Board of Directors and shareholders adopted a Stock
Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase Plan is designed
to provide employees and directors with the opportunity to acquire an ownership
interest in the Company and thereby provide those who will be responsible for
the continued growth of the Company with a more direct concern about its welfare
and a common interest with the Company's other shareholders. The Stock Purchase
Plan is not subject to the Employee Retirement Income Security Act of 1974.
All employees who have attained the age of majority in the state of their
residence and have completed 60 days of full-time employment with the Company,
and all independent members of the Board of Directors, are eligible to
participate in the Stock Purchase Plan. Participants may elect to have payroll
deductions of a maximum of 10% of their compensation each pay period. The
Company matches up to 100% of such deductions based upon the participant's years
of continuous participation in the Stock Purchase Plan. Funds deducted from a
participant's pay and contributions made by the Company to the Stock Purchase
Plan on behalf of a participant (all of which is invested for the benefit of the
participant) are taxable to the participant as wages or compensation for
services. The Company contributions for the years ended September 30, 2001, 2000
and 1999 were $140,000, $124,000 and $116,000, respectively.
NOTE 13 - 401(K) PLAN
On January 1, 1999 the Company initiated a 401(k) plan for its employees. The
401(k) plan provides employees with a way to save and invest for their
retirement. The Company does not provide matching contributions for the 401(k)
plan.
NOTE 14 - INDEMNITY AGREEMENTS
The Company has entered into indemnity agreements with members of the Board
which, to the extent permitted under applicable law, indemnify such persons
against all expenses, judgments, fines and penalties incurred in connection with
the defense or settlement of actions brought against them by reason of the fact
that they are or were directors or officers of the Company or assumed certain
responsibilities while directing the Company.
F-19
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company has entered into indemnity agreements with two officers
of the Company that provide additional indemnification for all liabilities and
expenses in respect of certain lease obligations of the Company that have been
personally guaranteed by such officers. If the Company fails to indemnify either
of the officers as required in the indemnity agreement or if either of these
officers are terminated for any reason as an employee of the Company, the
Company will provide the terminated officer with one or more bank letters of
credit to cover an aggregate of $4,000,000 of such liability; however, the
Company shall not be obligated to provide letters of credit aggregating more
than $4,000,000 to these two officers.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
As of September 30, 2001 the Company leased twelve retail stores under
noncancellable operating leases. The leases expire in various years through
2013. The leases generally contain renewal options for periods ranging from 5 to
15 years and require the Company to pay all executory costs (such as property
taxes, maintenance and insurance). Rental payments include minimum rentals plus
contingent rentals based on sales. The Company has not had to pay contingent
rentals to date and does not expect to in the future.
Future minimum lease payments under noncancellable operating leases as of
September 30, 2001 are as follows (amounts in thousands):
Year Ending September 30,
2002 $ 2,000
2003 1,645
2004 1,630
2005 1,187
2006 1,001
Thereafter 2,322
-------
$ 9,785
=======
Rental expense for operating leases during the fiscal years ended September 30,
2001, 2000 and 1999 was approximately $2.1 million, $2.1 million, and $2.2
million, respectively.
There are various claims and pending actions incident to the business operations
of the Company. In the opinion of management, the Company's potential liability
in all pending actions and claims, in the aggregate, will not have a material
adverse effect on the Company's financial position, results of operations or
liquidity.
F-20
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - NET INCOME (LOSS) PER SHARE
A reconciliation between the weighted average shares outstanding used in the
basic and diluted net income (loss) per share computations is as follows (in
thousands, except per share amounts):
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
Net income (loss) $ (2,136) $ 1,667 $ 391
Accretion of preferred stock (303) (261) --
Retirement of preferred stock -- 115 --
------------- ------------- -------------
Net income (loss) attributable to
common shareholders $ (2,439) $ 1,521 $ 391
============= ============= =============
Weighted average shares outstanding
- basic 6,107 5,823 5,579
Effective of dilutive securities:
Assumed exercise of stock options 183 179 179
------------- ------------- -------------
Weighted average shares outstanding
- diluted 6,290 6,002 5,758
============= ============= =============
Net income (loss) per share:
Basic $ (.40) $ .26 $ .07
Diluted $ (.39) $ .25 $ .07
For the years ended September 30, 2001 and 2000, 129,000 and 7,000 options
respectively, were excluded from the diluted EPS computation because they
would have been antidilutive.
F-21
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 - SELECTED QUARTERLY DATA (UNAUDITED)
Amounts (except share data) are expressed in thousands:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------- -------------------- -------------------- --------------------
2001 2000 2001 2000 2001 2000 2001 2000
-------- -------- -------- -------- -------- -------- -------- --------
Net Sales $ 9,912 $ 10,882 $ 7,423 $ 9,454 $ 20,251 $ 17,940 $ 5,908 $ 6,343
Gross Profit 4,684 5,096 3,564 4,572 10,760 9,903 2,529 3,209
Income (loss) from continuing
operations (178) 31 (618) 86 3,319 2,688 (972) (815)
Net income (loss) $ (231) $ (227) $ (605) $ (120) $ (315) $ 3,231 $ (985) $ (1,217)
Income (loss) per share
Basic
Continuing operations $ (.04) $ .01 $ (.11) $ -- $ .53 $ .45 $ (.17) $ (.15)
Discontinued operations (.01) (.04) -- (.03) (.59) .09 -- (.07)
(.05) (.03) (.11) (.03) (.06) .54 (.17) (.22)
Diluted
Continuing operations (.04) (.01) (.11) -- .53 .43 (.17) (.15)
Discontinued operations (.01) (.04) -- (.03) (.59) .09 -- (.07)
$ (.05) $ (.03) $ (.11) $ (.03) $ (.06) .52 $ (.17) $ (.22)
In the third quarter of 2001 the Company recorded a loss from discontinued
operations of $3,674,000 (see Note 21).
F-22
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - ACQUISITION OF CORNELIUS NURSERIES
On September 21, 1999 the Company completed the Cornelius Acquisition.
The Cornelius Acquisition, recorded under the purchase method of accounting,
included the purchase of substantially all of the inventories and property,
plant and equipment of Cornelius for cash of approximately $8.5 million and $4.0
million redemption value of non-dividend, preferred stock with a mandatory
redemption after five years.
The purchase price totaled approximately $11.8 million as follows (amounts in
thousands):
Cash $ 8,500
Preferred stock, non-dividend, mandatory redemption
after five years, $4.0 million redemption value, at
estimated fair value 1,890
Accounts payable 845
Acquisition costs 551
--------
Total purchase price $ 11,786
========
The purchase price was allocated to assets acquired and liabilities assumed
based on estimated fair market values at the date of the acquisition. Since the
fair market value of assets acquired and liabilities assumed exceeded the
purchase price, the resulting excess was allocated proportionately to reduce the
carrying amounts of noncurrent assets, resulting in assets being recorded as
follows (amounts in thousands):
Inventories $ 6,500
Property and equipment 5,286
--------
Total assets $ 11,786
========
NOTE 19 - PREFERRED STOCK WITH MANDATORY REDEMPTION PROVISIONS
On September 21, 1999 the Company issued 40,000 shares of Non-Voting Acquisition
Preferred Stock (the "Preferred Stock"), $.01 par value, in connection with the
Cornelius Acquisition. The Preferred Stock has a liquidation preference of $100
per share and no voting rights, except as otherwise required by law. The Company
may, at any time prior to September 21, 2004, redeem any portion or all of the
outstanding shares of Preferred Stock for $100 per share. Any unredeemed shares
outstanding at September 21, 2004 must be redeemed for $100 per share.
The Preferred Stock was recorded at its estimated fair value of approximately
$1,890,000. The carrying amount of the Preferred Stock will be accreted at each
balance sheet date to its redemption amount using the interest method. The
resulting increase in the carrying amount of the Preferred Stock will reduce net
income attributable to common shareholders or increase net loss attributable to
common shareholders.
In October 1999 the Company redeemed 5,798 shares of Preferred Stock for a cash
payment of $158,500. The redeemed Preferred Stock had a redemption value of
$579,800 and a carrying amount of $274,000.
F-23
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 - SEGMENT INFORMATION
Through June 2001 the Company had two reportable segments: (i) retail, and (ii)
wholesale and growing. On August 7, 2001 the Company adopted a formal plan to
dispose of the wholesale operations that had been a part of its wholesale and
growing segment. Accordingly, the following segment information reflects the
aforementioned two segments, as well as elimination of the wholesale operations
from Consolidated Sales, Income from Continuing Operations before Income Taxes,
Total Assets, Interest Income, Interest Expense and Depreciation and
Amortization Expense. For future periods, the Company will have two reportable
segments as follows: (i) retail, and (ii) growing.
The Company aggregates its individual retail stores because they are all managed
in a similar way, they serve a similar type of customer, they use similar
methods to distribute their products and services, they carry similar product
lines, and they use similar marketing approaches. For example, the retail stores
sell plants, garden supplies and other merchandise, primarily to individuals, on
a cash-and-carry basis, at each retail store.
Likewise, the Company aggregates its two growing operations. These operations
are distinguished from the retail segment, but are similar to each other, in the
way they are managed, in the type of customer they serve, in the methods they
use to produce and ship their products, in the product lines they carry, and in
the way they market their products. For example, the growing segment operations
sell plants to the Company's retail stores, and ship goods via truck to the
retail stores.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies (see Note 2). Management evaluates a segment's
performance based upon income before income taxes. Intersegment sales or
transfers are recorded based upon prevailing market prices.
F-24
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a tabulation of business segment information for each of the
past three years. Intersegment elimination information is included to reconcile
segment data to the consolidated financial statements. Amounts are in thousands:
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
2001 2000 1999
------------- ------------- -------------
REVENUES
From external customers
Retail $ 43,385 $ 44,523 $ 30,305
Growing 109 96 50
------------- ------------- -------------
Totals 43,494 44,619 $ 30,355
------------- ------------- -------------
From other operating segments
Retail -- -- --
Growing 1,944 1,887 1,510
------------- ------------- -------------
Totals 1,944 1,887 1,510
------------- ------------- -------------
Intersegment Eliminations (1,944) (1,887) (1,510)
------------- ------------- -------------
Total consolidated net sales $ 43,494 $ 44,619 $ 30,355
============= ============= =============
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Retail $ 2,113 $ 2,984 $ 670
Growing 250 306 129
------------- ------------- -------------
Total consolidated income from continuing
operations before income taxes
$ 2,363 $ 3,290 $ 799
============= ============= =============
TOTAL ASSETS
Retail $ 21,973 $ 22,292 $ 19,854
Growing 2,441 1,141 967
------------- ------------- -------------
Totals $ 24,414 $ 23,433 $ 20,821
============= ============= =============
INTEREST INCOME
Retail $ 36 $ 80 $ 105
Growing -- -- --
------------- ------------- -------------
Totals $ 36 $ 80 $ 105
============= ============= =============
INTEREST EXPENSE
Retail $ 1,023 $ 992 $ 304
Growing 101 50 17
------------- ------------- -------------
Totals $ 1,124 $ 1,042 $ 321
============= ============= =============
DEPRECIATION AND AMORTIZATION EXPENSE
Retail $ 891 $ 887 $ 688
Growing 15 15 8
------------- ------------- -------------
Totals $ 906 $ 902 $ 696
============= ============= =============
F-25
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - DISCONTINUED OPERATIONS
On August 7, 2001 the Company adopted a formal plan to dispose of the wholesale
operations, which had been a part of its wholesale and growing segment. The
Company plans to exit its wholesale operations by the end of December 2001.
Specifically, the Company ceased in an orderly fashion production and marketing
of plants and related products grown or purchased for sale to wholesale
customers, including other nursery retailers and landscape contractors. The
wholesale operation included the wholesale growing operations of Turkey Creek
Farms as well as the wholesale landscape distribution centers ("WLD") in Austin
and Houston. At Turkey Creek Farms, the Company will exclusively grow plants for
sale at its retail stores. The adopted disposal plan includes: (i) the sale of
the Turkey Creek Farms wholesale inventories to unaffiliated customers, and (ii)
the sale of the WLD operations as an ongoing business to an unaffiliated third
party.
The Company has incurred operating losses and negative cash flows in the
wholesale operations for most of the last two fiscal years. The continued
pressure from lower cost wholesalers has impacted the profitability and
competitive position of these operations. The Company has concluded that market
conditions today and for the foreseeable future are such that these operations
are likely to remain uncompetitive. Additionally, incremental future investments
would not generate sufficient income to recover the cost of such investments.
The Company recorded a loss on disposal of discontinued operations of
approximately $2.9 million (net of income taxes) in the fiscal year ended
September 30, 2001 to cover the expected cash and non-cash costs of the
discontinued operations. The loss includes the write down to estimated net
realizable value of the investment in facilities and equipment, inventory, and
accounts receivable, as well as the accrual of anticipated operating losses
during the period after the date the disposal plan was adopted, through the date
the disposition is completed.
Prior to this decision, the Company grew plants for sale to external customers
in addition to plants grown for sale in its retail stores. The Company intends
to grow a greater amount of plants that are solely for sale in its retail
stores.
The sale of the WLD operations was completed in October 2001 and indebtedness
related to the WLD real property was paid off. The Turkey Creek Farms wholesale
inventory has proceeded since August 2001, and is expected to be completely sold
or otherwise disposed of by the end of December 2001.
F-26
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the asset and liabilities of the discontinued
wholesale operations as of the applicable periods (amounts in thousands):
September 30, September 30,
2001 2000
------------- -------------
Cash $ 41 $ --
Accounts receivable 717 818
Inventories 1,458 6,089
Property and equipment 631 --
------------- -------------
Current assets of discontinued operations $ 2,847 $ 6,907
============= =============
Noncurrent assets of discontinued operations $ -- $ 637
============= =============
Accounts payable $ 693 $ 799
Accrued expenses 495 250
Current portion of long-term debt 1,116 --
------------- -------------
Current liabilities of discontinued operations $ 2,304 $ 1,049
============= =============
The property and equipment of the discontinued wholesale operations is
classified as a current asset at September 30, 2001 since it was sold in October
2001. In addition, the debt related to such property is also classified as
current at September 30, 2001 since it was paid off in October 2001 with the
proceeds from the sale.
Following is a summary of the operating results of the discontinued wholesale
operations for the applicable periods (amounts in thousands):
Year ended Year ended
September 30, September 30,
2001 2000
------------- -------------
Sales $ 7,414 $ 7,886
Cost of goods sold 6,485 5,395
------------- -------------
Gross profit 929 2,491
Expenses 2,139 3,016
------------- -------------
Loss from discontinued operations before income taxes
(1,210) (525)
Income tax benefit (416) (202)
------------- -------------
Loss from discontinued operations $ (794) $ (323)
============= =============
The Company recorded a loss on disposal of discontinued operations (net of
income tax) of $2,893,000 for the fiscal year ended September 30, 2001. The loss
included the expected loss on the disposal of the Turkey Creek Farms wholesale
inventory, partially offset by expected gains on the sale of property and
equipment and other assets, and estimated income tax benefits of $1,515,000.
F-27
CALLOWAY'S NURSERY, INC.
Annual Report on Form 10-K
Fiscal Year Ended September 30, 2001
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
(3) (a) Restated Articles of Incorporation of the Registrant. (Exhibit
(3)(a))(1)
(b) Form of Bylaws of the Registrant. (Exhibit (3(b))(1)
(c) Amendment to Bylaws Adopted on May 19, 1993. (Exhibit (3(c))(1)
(4) (a) Specimen Stock Certificate. (Exhibit (4)(a)(1)
(b) Form of Shareholder Rights Plan. (Exhibit (4)(b)(1)
(10) (a) Form of Employment Agreement dated July 3, 1991 between the
Registrant and James C. Estill. (Exhibit (10)(a))(1)
(b) Form of Employment Agreement dated July 3, 1991 between the
Registrant and John T. Cosby. (Exhibit (10)(b))(1)
(c) Form of Employment Agreement dated July 3, 1991 between the
Registrant and John S. Peters. (Exhibit (10)(c))(1)
(d) Left blank intentionally.
(e) Form of Indemnity Agreement dated July 3, 1991 between the
Registrant and each of James C. Estill and John T. Cosby. (Exhibit
(10)(g))(1)
(f) Form of Indemnity Agreement dated July 3, 1991 between the
Registrant and John S. Peters. (Exhibit (10)(h))(1)
(g) Form of Indemnity Agreement dated July 3, 1991 between the
Registrant and each of Robert E. Glaze and Dr. Stanley Block.
(Exhibit (10)(i))(1)
(h) Extension of Employment Agreement between the Registrant and
James C. Estill dated July 2, 1996. (Exhibit (10)(m))(2)
(i) Extension of Employment Agreement between the Registrant and
John T. Cosby dated July 2, 1996. (Exhibit (10)(n))(2)
(j) Extension of Employment Agreement between the Registrant and
John S. Peters dated July 2, 1996. (Exhibit (10)(o))(2)
(k) Employment Agreement between the Registrant and
C. Sterling Cornelius dated September 21, 1999.(9)
(l) Extension of Employment Agreement between the Registrant and
James C. Estill dated May 9, 2001. (Exhibit (10)(p))(3)
(m) Extension of Employment Agreement between the Registrant and
John T. Cosby dated May 9, 2001. (Exhibit (10)(q))(3)
(n) Extension of Employment Agreement between the Registrant and
John S. Peters dated May 9, 2001. (Exhibit (10)(r))(3)
(o) Calloway's Nursery, Inc. Vice President of Merchandising Profit
Improvement Bonus Plan for the Fiscal Year Ending September 30,
2002. (Exhibit (10)(s))(3)
(p) Calloway's Nursery, Inc. Profit Improvement Bonus Plan for the
Fiscal Year Ending September 30, 2002. (Exhibit (10)(t))(3)
(q) Calloway's Nursery, Inc. Monthly Sales Gain Bonus Plan for the
Fiscal Year Ending September 30, 2002. (Exhibit (10)(u))(3)
(21) (a) Subsidiaries of the Registrant.(3)
(23) (d) Consent of KPMG LLP.(3)
(99) (a) Calloway's Nursery, Inc. Stock Purchase Plan. (Exhibit (28))(4)
(99) (b) Calloway's Nursery, Inc. 1991 Stock Option Plan. (Exhibit
(10)(d))(1)
(99) (c) Calloway's Nursery, Inc. 1995 Stock Option Plan for Independent
Directors. (Exhibit (99)(c))(5)
(99) (d) Calloway's Nursery, Inc. 1997 Stock Option Plan. (Exhibit A)(6)
(99) (e) Calloway's Nursery, Inc. 1998 Stock Option Plan. (Exhibit A)(7)
(99) (f) Calloway's Nursery, Inc. 1999 Stock Option Plan. Exhibit A)(8)
(99) (g) Cornelius Nurseries, Inc. and Turkey Creek Farms, Inc. Combined
Financial Statements as of and for the years ended September 30,
1998 and 1997. (Exhibit 99.1)(9)
(99) (h) Calloway's Nursery, Inc. and Subsidiaries Unaudited Pro Forma
Condensed Financial Information as of June 30, 1999 and for the
nine month period ended June 30, 1999 and for the year ended
September 30, 1998. (Exhibit 99.2)(8)
(99) (i) Calloway's Nursery, Inc. 2000 Stock Option Plan.(10)
(99) (j) Form of Calloway's Nursery, Inc. 2001 Stock Option Plan.(3)
(99) (k) Calloway's Nursery, Inc. 1996 Stock Option Plan. (Exhibit A)(11)
--------
(1) Incorporated by reference to the Exhibit shown in parenthesis to
Registration Statement No. 33-40473 on Form S-1, and amendments thereto, filed
by the Company with the Securities and Exchange Commission and effective June
26, 1991.
(2) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's form 10-Q Report for the quarter ended June 30, 1996.
(3) Filed herewith.
(4) Incorporated by reference to the Exhibit shown in parenthesis to
Registration Statement No. 33-46170 on Form S-8, and amendments thereto, filed
by the Company with the Securities and Exchange Commission and effective March
3, 1992.
(5) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Form 10-K Report for the fiscal year ended September 30, 1995.
(6) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 1998 Annual Meeting of Shareholders.
(7) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 1999 Annual Meeting of Shareholders.
(8) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders.
(9) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Form 8-K Report filed October 1, 1999.
(10) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 2001 Annual Meeting of Shareholders.
(11) Incorporated by reference to the Exhibit shown in parenthesis to the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders.