UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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, including zip code, of principal executive offices
and Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding as
Title of February 14, 2002
----- ---------------------
Common Stock, par value $.01 per share 6,345,077
CALLOWAY'S NURSERY, INC.
FORM 10-Q
DECEMBER 31, 2001
TABLE OF CONTENTS
PAGE
FORWARD-LOOKING STATEMENTS OR INFORMATION 3
PART I - FINANCIAL INFORMATION
ITEM 1
Index to Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Operations 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2
Management's Discussion and Analysis of Financial Condition and Results of Operations 10
ITEM 3
Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
Items 1-6 16
2
FORWARD-LOOKING STATEMENTS OR INFORMATION
This Form 10-Q Report contains forward-looking statements. We are including this
statement for the express purpose of providing Calloway's the protections of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
with respect to all forward-looking statements. Several important factors, in
addition to the specific factors discussed in connection with such
forward-looking statements individually, could affect future results and could
cause those results to differ materially from those expressed in the
forward-looking statements contained in this Report.
Our expected future results, products and service performance or other
non-historical facts are forward-looking and reflect our current perspective of
existing trends and information. These statements involve risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among others,
the seasonality of our business, geographic concentration, the impact of weather
and other growing conditions, the ability to manage growth, the impact of
competition, the ability to obtain future financing, government regulations,
market risks associated with variable-rate debt, 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 these
factors as well as the specific factors discussed with each forward-looking
statement in this Report and disclosed in our filings with the Securities and
Exchange Commission as such factors, in some cases, have affected, and in the
future (together with other factors) could affect, our ability to implement our
business strategy and may cause actual results to differ materially from those
contemplated by the statements expressed in this Report.
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
ASSETS
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
2001 2001 2000
------------ ------------ ------------
Cash and cash equivalents $ 2,534 $ 279 $ 204
Accounts receivable 125 433 213
Inventories 4,293 6,042 4,949
Prepaids and other assets 197 230 187
Deferred income taxes, current 298 55 --
Income taxes receivable 1,180 1,180 --
Current assets of discontinued operations 262 2,847 7,377
------------ ------------ ------------
Total current assets 8,889 11,066 12,930
Property and equipment, net 13,714 13,888 14,210
Goodwill, net 713 740 821
Deferred income taxes 1,301 1,301 1,406
Other assets 258 266 260
Noncurrent assets of discontinued operations -- -- 637
------------ ------------ ------------
Total assets $ 24,875 $ 27,261 $ 30,264
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 2,770 $ 2,128 $ 3,116
Accrued expenses 1,680 1,534 1,916
Income taxes payable -- -- 269
Notes payable, current 28 730 543
Current portion of long-term debt 564 732 708
Deferred income taxes, current 187 187 59
Current liabilities of discontinued operations 289 2,304 800
------------ ------------ ------------
Total current liabilities 5,518 7,615 7,411
Deferred rent payable 901 929 1,005
Long-term debt, net of current portion 8,708 8,646 10,106
------------ ------------ ------------
Total liabilities 15,127 17,190 18,522
------------ ------------ ------------
Commitments and contingencies
Non-voting preferred stock, with mandatory redemption
provisions 2,258 2,180 1,949
Shareholders' equity:
Voting convertible preferred stock -- -- --
Preferred stock -- -- --
Common stock 66 65 62
Additional paid-in capital 9,686 9,610 9,379
Retained earnings (accumulated deficit) (866) (388) 1,748
------------ ------------ ------------
8,886 9,287 11,189
Less: Treasury stock, at cost (1,396) (1,396) (1,396)
------------ ------------ ------------
Total shareholders' equity 7,490 7,891 9,793
------------ ------------ ------------
Total liabilities and shareholders'
equity $ 24,875 $ 27,261 $ 30,264
============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
2001 2000
------------ ------------
Net sales $ 10,228 $ 9,912
Cost of goods sold 5,894 5,228
------------ ------------
Gross profit 4,334 4,684
------------ ------------
Operating expenses 3,301 3,332
Occupancy expenses 687 685
Advertising expenses 472 446
Depreciation and amortization 236 223
Interest expense 227 262
Interest income (3) (5)
------------ ------------
Total expenses 4,920 4,943
------------ ------------
Loss from continuing operations before income taxes (586) (259)
Income tax benefit (223) (81)
------------ ------------
Loss from continuing operations (363) (178)
Loss from discontinued operations, net of income tax benefit
(37) (53)
------------ ------------
Net loss (400) (231)
Accretion of preferred stock (78) (72)
------------ ------------
Net loss attributable to common shareholders $ (478) $ (303)
============ ============
Weighted average number of common shares outstanding - basic and
diluted 6,281 6,010
Net loss per common share - basic and diluted
Loss from continuing operations $ (.07) $ (.04)
Loss from discontinued operations $ (.01) $ (.01)
Net loss $ (.08) $ (.05)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
CALLOWAY'S NURSERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
2001 2000
---------- ----------
Cash flows from operating activities:
Net loss $ (400) $ (231)
Adjustments to reconcile net loss to net cash provided by (used
for) operating activities:
Loss from discontinued operations (net of tax) 37 53
Depreciation and amortization 236 223
Net change in operating assets and liabilities 2,615 (245)
---------- ----------
Net cash provided by (used for) operating activities 2,488 (200)
---------- ----------
Cash flows from investing activities -
Additions to property and equipment (35) (178)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 77 91
Borrowings on debt -- 4,233
Repayments of debt (808) (3,356)
---------- ----------
Net cash provided by (used for) financing activities (731) 968
---------- ----------
Net increase in cash and cash equivalents from continuing operations 1,722 590
Net increase (decrease) in cash and cash equivalents from discontinued
operations 533 (799)
---------- ----------
Net increase (decrease) in cash and cash equivalents 2,255 (209)
Cash and cash equivalents at beginning of period 279 413
---------- ----------
Cash and cash equivalents at end of period $ 2,534 $ 204
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These interim unaudited consolidated financial statements were prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC). In
management's opinion, all adjustments considered necessary for a fair
presentation of the financial position at December 31, 2001, and the results of
operations and cash flows for the three-month periods ended December 31, 2001
and 2000 have been made. Such adjustments are of a normal recurring nature.
Because of seasonal and other factors, the results of operations and cash flows
for the three-month period ended December 31, 2001 are not necessarily
indicative of expected results of operations and cash flows for the fiscal year
ending September 30, 2002.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
SEC rules and regulations referred to above. Accordingly, these financial
statements should be read in conjunction with the audited financial statements
and related notes for the fiscal year ended September 30, 2001 included in the
Form 10-K covering such period.
2. RECLASSIFICATIONS
Certain amounts for fiscal 2001 have been reclassified to conform to the fiscal
2002 presentation.
3. INVENTORIES
Inventories consist of the following (amounts in thousands):
December 31, September 30, December 31,
2001 2001 2000
------------ ------------ ------------
Finished goods $ 2,052 $ 3,921 $ 3,673
Work in process 1,898 1,884 1,170
Supplies 343 237 106
------------ ------------ ------------
$ 4,293 $ 6,042 $ 4,949
============ ============ ============
7
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. SEGMENT INFORMATION
The Company has two reportable segments: (i) Retail, and (ii) Growing.
The following is a tabulation of business segment information as of and for the
three-month periods ended December 31, 2001 and 2000. Intersegment elimination
information is included to reconcile segment data to the condensed consolidated
financial statements. Amounts are in thousands:
Three month Three month
period ended period ended
December 31, December 31,
2001 2000
------------ ------------
REVENUES
From external customers
Retail $ 10,218 $ 9,884
Growing 10 28
------------ ------------
Totals 10,228 9,912
------------ ------------
From other operating segments
Retail -- --
Growing 180 108
------------ ------------
Totals 180 108
Elimination of intersegment sales (180) (108)
------------ ------------
Total consolidated net sales $ 10,228 $ 9,912
============ ============
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Retail $ (502) $ (256)
Growing (84) (3)
------------ ------------
Total loss from continuing operations before income taxes
$ (586) $ (259)
============ ============
December 31, December 31,
2001 2000
------------ ------------
TOTAL ASSETS
Retail $ 22,280 $ 21,040
Growing 2,333 1,210
------------ ------------
Totals $ 24,613 $ 22,250
============ ============
8
CALLOWAY'S NURSERY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. 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 exited its wholesale operations by the end of December 2001. 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 now exclusively grows plants for
sale at its retail stores. The adopted disposal plan included: (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 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 was completely sold or otherwise disposed of by the end of December
2001.
Following is a summary of the asset and liabilities of the discontinued
wholesale operations as of the applicable periods (amounts in thousands):
December 31, December 31,
2001 2000
------------ ------------
Cash $ -- $ 57
Accounts receivable 262 695
Inventories -- 6,611
Prepaid expenses -- 14
------------ ------------
Current assets of discontinued operations $ 262 $ 7,377
============ ============
Noncurrent assets of discontinued operations $ -- $ 637
============ ============
Accounts payable $ 230 $ 501
Accrued expenses 59 293
Current portion of long-term debt -- 6
------------ ------------
Current liabilities of discontinued operations $ 289 $ 800
============ ============
Following is a summary of the operating results of the discontinued wholesale
operations for the applicable periods (amounts in thousands):
Three Months Three Months
Ended Ended
December 31, December 31,
2001 2000
------------ ------------
Sales $ 1,352 $ 1,241
Cost of goods sold 1,132 813
------------ ------------
Gross profit 220 428
Expenses 277 517
------------ ------------
Loss from discontinued operations before income taxes
(57) (89)
Income tax benefit (20) (36)
------------ ------------
Loss from discontinued operations $ (37) $ (53)
============ ============
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
INTRODUCTION
In August 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 5
to Condensed Consolidated Financial Statements). Accordingly, the following
discussion of results of operations has been separated into (i) Continuing
Operations and (ii) Discontinued Operations.
CONTINUING OPERATIONS
(Amounts in millions, except per share amounts)
-------------------------------------------------------------------------------------------
First quarter highlights (unaudited) Fiscal 2002 Fiscal 2001
------------------------------------ ------------ ------------
Consolidated net sales $ 10.2 $ 9.9
Retail segment sales 10.2 9.9
Growing segment sales .2 .1
Less: internal sales $ (.2) $ (.1)
Sales increase (decrease) 3% (10%)
Same-store sales increase (decrease) 3% (11%)
Number of retail stores (end of quarter) 20 20
Gross profit margin 42% 47%
Loss from continuing operations before income taxes $ (.6) $ (.3)
Net loss per share (basic and diluted) (.08) (.05)
Cash flows provided by (used for) operations 2.5 (.2)
Retail inventories 2.1 3.7
Growing inventories 2.2 1.3
Current ratio 1.6 1.7
Property, plant and equipment (net) 13.7 14.2
Long-term debt (including current portion) $ 9.3 $ 10.8
Quarter Ended December 31, 2001 Compared with Quarter Ended December 31, 2000
Sales increased by 3% in the Company's 20 retail stores; however, larger
markdowns were necessary to sell the Christmas inventory during the December
2001 Quarter than during the December 2000 Quarter, resulting in lower Gross
Margin.
The Company typically reports a loss during its first fiscal quarter. For the
first quarter of fiscal 2002 (the "December 2001 Quarter"), the Loss from
Continuing Operations before Income Taxes was somewhat larger than it was for
the prior year (the "December 2000 Quarter"). The larger loss was primarily due
to lower Gross Margin (Gross Profit divided by Sales), which declined from 47%
for the December 2000 Quarter to 42% for the December 2001 Quarter.
Operating Expenses were essentially unchanged at approximately $3.3 million for
both the December 2001 Quarter and the December 2000 Quarter.
10
Advertising Expenses rose 6%, from $446,000 for the December 2000 Quarter to
$472,000 for the December 2001 Quarter. The increase was primarily due to an
increase in the number of weekends of advertising that the Company paid for in
the December 2001 Quarter compared to the December 2000 Quarter.
Occupancy Expenses were essentially unchanged, increasing from $685,000 for the
December 2000 Quarter to $687,000 for the December 2001 Quarter.
Depreciation and Amortization Expenses rose 6% from $223,000 for the December
2000 Quarter to $236,000 for the December 2001 Quarter as a result of capital
additions completed and placed in service during fiscal 2001.
Interest Expense decreased 13%, from $262,000 for the December 2000 Quarter to
$227,000 for the December 2001 Quarter, as the Company used proceeds from the
sale of its wholesale operations to reduce debt.
Inventories declined by 13%, from $4.9 million at December 31, 2000 to $4.3
million at December 31, 2001. Retail inventories declined $1.6 million from $3.7
million at December 31, 2000 to $2.1 million at December 31, 2001, while growing
inventories rose from $1.3 million at December 31, 2000 to $2.2 million at
December 31, 2001. The decrease in Retail inventories was due to clearance of
slower-moving merchandise items, including certain Christmas items, while the
increase in growing inventories was primarily due to the establishment of the
Company's Turkey Creek Farms operation to join Miller Plant Farms as growing
operations producing plants exclusively for sale at the Company's retail stores.
DISCONTINUED OPERATIONS
Quarter Ended December 31, 2001 Compared with Quarter Ended December 31, 2000
Sales increased 9%. The WLD operations were sold near the end of October 2001,
so that operation only contributed one month of Sales for the December 2001
Quarter; however, that was offset by greater Sales for the Turkey Creek Farms
wholesale operation, which liquidated a substantial amount of excess inventory
by the end of December 2001.
Gross Profit decreased 49%, as a result of the inventory liquidation sale at
Turkey Creek Farms.
Expenses decreased 46%, as a result of the WLD operations being sold near the
end of October 2001.
The aforementioned factors caused the Loss before Income Taxes to decrease from
$89,000 for the December 2000 Quarter to $57,000 for the December 2001 Quarter.
11
FINANCIAL CONDITION - CAPITAL RESOURCES AND LIQUIDITY
Cash Flows Provided By Operating Activities were approximately $2,488,000 for
the December 2001 Quarter, compared to Cash Flows Used For Operating Activities
of approximately $200,000 for the December 2000 Quarter. The improvement
occurred despite a larger Loss from Continuing Operations before income taxes
because of two major factors:
o Reduction in Inventories of approximately $1.7 for the December 2001
Quarter compared to a reduction in Inventories of approximately
$900,000 for the December 2000 Quarter;
o No payment of federal income taxes during the December 2001 Quarter
due to a net operating loss for fiscal 2001, compared to payment of
approximately $1.4 million in federal income tax during the December
2000 Quarter based on taxable income for fiscal 2000.
Cash flows Used For Investing Activities of approximately $35,000 for the
December 2001 Quarter compared to $178,000 for the December 2000 Quarter. The
Company is limiting the amount of capital expenditures for fiscal 2002 to a
greater extent than it did for fiscal 2001.
Cash Flows Used For Financing Activities were $731,000 for the December 2001
Quarter compared to Cash Flows Provided By Financing Activities of $968,000 for
the December 2000 Quarter. During the December 2001 Quarter the Company sold or
otherwise disposed of substantially all of its wholesale operations, using the
proceeds to retire certain long-term debt and repay $702,000 of seasonal
borrowings under its line of credit arrangement. By comparison, during the
December 2000 Quarter the Company refinanced certain long-term debt, increasing
the total amount of indebtedness, and borrowed approximately $488,000 under its
revolving line of credit arrangement.
The Company's business is seasonal, and it relies on its revolving line of
credit arrangement to provide working capital during seasons of lower sales
volumes. Typically, the Company borrows from the revolving line of credit during
the quarter ending March 31, and repays those borrowings quickly during the
spring selling season included in the quarter ending June 30. Continued
availability of funds from the revolving line of credit depends upon the
Company's continued compliance with its loan covenants. At December 31, 2001 the
Company was in compliance with all of its loan covenants.
12
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
As of September 30, 2001 the Company had the following contractual obligations
(amounts in thousands):
FISCAL YEAR ENDING SEPTEMBER 30
--------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Totals
-------- -------- -------- -------- -------- ---------- --------
Long-term debt (including current portion) $ 732 $ 696 $ 1,405 $ 1,965 $ 704 $ 3,876 $ 9,378
Future minimum lease payments under
noncancellable operating leases 2,000 1,645 1,630 1,187 1,001 2,322 9,785
Preferred stock with mandatory redemption
provisions (1) -- -- 3,420 -- -- -- 3,420
-------- -------- -------- -------- -------- -------- --------
Totals $ 2,732 $ 2,341 $ 6,455 $ 3,152 $ 1,705 $ 6,198 $ 22,583
======== ======== ======== ======== ======== ======== ========
During the December 2001 Quarter there were no changes to the September 30, 2001
amounts other than scheduled principal payments on long-term debt and scheduled
rental payments on operating leases.
(1) Carrying amount of $2,180 as of September 30, 2001.
13
CRITICAL ACCOUNTING POLICIES
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.
Some assets and liabilities by their nature are subject to estimates and
assumptions. For the Company, those assets and liabilities include:
o Inventories;
o Deferred income taxes;
o Property and equipment;
o Goodwill;
o Accrued expenses;
o Current and noncurrent assets and liabilities of discontinued
operations.
Inventories - The Company values its inventories using the lower of cost or
market on a first-in, first-out basis. The Company conducts physical inventories
three times each year: December, June and September.
The Company's retail inventories turn-over several times each year; therefore,
the cost of each inventory item is approximately the same as its current
replacement cost. Merchandise that is considered to have declined in quality is
marked-down to estimated net realizable value on a regular basis. The physical
inventories are taken at retail prices and adjusted to cost using sampling
techniques that determine a markup percentage for each merchandise category in
each market area.
The Company's growing inventories turn over more slowly than the retail
inventories, and items continue to grow and absorb costs until they are sold. At
each physical inventory, the accumulated cost of growing inventories is compared
to published wholesale prices from competing growers on a gallon-equivalent
basis, with allowance for the estimated costs of disposal of such inventories.
The growing inventories are then recorded at the lower of cost or market. In
addition, merchandise that is considered to have declined in quality is
marked-down to estimated net realizable value on a regular basis.
Deferred income taxes - As of December 31, 2001 and 2000, and September 30, 2001
the Company has recorded a valuation allowance of $0 for its deferred tax assets
on the weight of available evidence at those balance sheet dates. The primary
factor in not providing for a valuation allowance is the expectation that future
taxable income and the reversal of temporary differences will be sufficient for
the Company to realize the deferred tax assets. Such estimate could change in
the future based on the occurrence of one or more future events.
14
Property and Equipment - 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 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. As of December 31, 2001 and September 30, 2001
management believes that no impairment has occurred and that no reduction of the
estimated useful lives is warranted. As described below, during the fiscal year
ended September 30, 2001 the Company adopted a formal plan to discontinue
certain operations, and included in a loss on disposal of discontinued
operations an adjustment of the carrying amount of certain property and
equipment to its estimated net realizable value.
Goodwill - The Company assesses the recoverability of its 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 the 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 that no impairment has occurred.
Accrued expenses - The Company routinely accrues for various costs and expenses
for which it has received goods or services, but for which it has not been
invoiced. Typically, accrued expenses include such items as salaries and related
taxes, bonuses, and sales and use taxes for which amounts are readily
determinable and significant estimates are not necessary. Property taxes are
estimated and accrued based on the amounts paid for such taxes for the previous
year, until a new tax bill is received. Various other expenses are accrued from
time to time before an invoice is rendered based on the estimated costs of those
goods or services.
Current and Noncurrent Assets and Liabilities of Discontinued Operations -- As
noted above, in August 2001 the Company adopted a formal plan to discontinue
certain operations. Management used estimates to determine the amounts to be
recorded as a loss on disposal of discontinued operations. Those estimates
included:
o Net realizable value of wholesale inventories;
o Net realizable value of accounts receivable;
o Net realizable value of property and equipment;
o Expenses associated with selling and/or terminating discontinued
operations.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Calloway's is exposed to certain market risks, including fluctuations in
interest rates. We do not enter into transactions designed to mitigate such
market risk, nor do we enter into any transactions in derivative securities for
trading or speculative purposes. As of December 31, 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 earnings and cash flows,
assuming other factors are held constant.
At December 31, 2001 Calloway's had variable rate debt of $3.4 million, out of
total long-term debt of $9.3 million. Holding other variables, such as debt
levels, constant, a one percentage point increase in interest rates would be
expected to have an estimated impact on pre-tax earnings and cash flows for next
year of approximately $34,000 for the variable-rate debt.
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 14, 2002
CALLOWAY'S NURSERY, INC.
By /s/ James C. Estill
-------------------------------------
James C. Estill, President and
Chief Executive Officer
By /s/ Daniel G. Reynolds
-------------------------------------
Daniel G. Reynolds, Vice President
and Chief Financial Officer
17