<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 1998
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 000-23483
---------
COLOR SPOT NURSERIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 68-0363266
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3478 BUSKIRK AVENUE, PLEASANT HILL, CA 94523
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (925) 934-4443
--------------
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
----- -----
As of September 24, 1998, the Registrant had outstanding 6,937,068 shares
of Common Stock, par value $0.001 per share.
<PAGE>
COLOR SPOT NURSERIES, INC.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS UNDER THE CAPTIONS "ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK," AND ELSEWHERE
THROUGHOUT THIS QUARTERLY REPORT ON FORM 10-Q ("QUARTERLY REPORT") OF COLOR
SPOT NURSERIES, INC. (THE "COMPANY") WHICH ARE NOT HISTORICAL IN NATURE ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934. FORWARD-LOOKING STATEMENTS DEAL WITH THE CURRENT INTENTIONS, BELIEFS
AND EXPECTATIONS OF MANAGEMENT WITH RESPECT TO THE COMPANY'S BUSINESS AND ARE
TYPICALLY IDENTIFIED BY PHRASES SUCH AS "THE COMPANY PLANS," "MANAGEMENT
BELIEVES" AND OTHER PHRASES OF SIMILAR MEANING. THESE STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS,
LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY OR THE
INDUSTRY IN WHICH THE COMPANY COMPETES TO DIFFER, PERHAPS MATERIALLY, FROM
ANTICIPATED RESULTS. THESE RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS:
THE COMPANY'S SUBSTANTIAL LEVERAGE AND DEBT SERVICE; RESTRICTIONS IMPOSED BY
DEBT COVENANTS AND THE EFFECT OF A DEFAULT ON THE COMPANY'S OPERATIONS; THE
ABILITY OF THE COMPANY TO DEVELOP AND ACQUIRE ADDITIONAL PRODUCTION
FACILITIES AND THE SUCCESSFUL INTEGRATION OF SUCH FACILITIES INTO THE
COMPANY'S NETWORK; THE EFFECT OF GROWTH ON THE COMPANY'S RESOURCES; THE
AVAILABILITY OF SUITABLE NEW MARKETS AND SUITABLE LOCATIONS WITHIN SUCH
MARKETS; CHANGES IN THE COMPANY'S OPERATING OR EXPANSION STRATEGY AND THE
DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH; FAILURE TO CONSUMMATE OR
SUCCESSFULLY INTEGRATE PROPOSED DEVELOPMENTS OR ACQUISITIONS; THE UNCERTAINTY
OF ADDITIONAL FINANCING TO FUND DESIRED GROWTH AND OTHER FUTURE CAPITAL
NEEDS; WEATHER AND GENERAL AGRICULTURAL RISKS; SEASONALITY AND THE
VARIABILITY OF QUARTERLY RESULTS; THE COMPANY'S DEPENDENCE ON MAJOR CUSTOMERS
SUCH AS HOME DEPOT; REGULATORY CONSTRAINTS AND CHANGES IN LAWS OR REGULATIONS
CONCERNING THE GARDENING INDUSTRY; LABOR LAWS AND CHANGES IN THE MINIMUM
WAGE; THE COMPANY'S SHORT OPERATING HISTORY UNDER CURRENT MANAGEMENT;
SENSITIVITY TO PRICE INCREASES OF CERTAIN RAW MATERIALS; THE COMPANY'S
DEPENDENCE ON LEASED FACILITIES; COMPETITION; LACK OF A MARKET FOR THE
COMPANY'S SECURITIES; PAYMENT OR NONPAYMENT OF DIVIDENDS AND CASH OUTLAYS FOR
INCOME TAXES; RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE AND ESTIMATED COSTS
ASSOCIATED WITH THE COMPANY'S AND ITS MAJOR CUSTOMERS' AND SUPPLIERS'
COMPLIANCE EFFORTS; TRENDS IN THE GARDENING INDUSTRY, THE SPECIFIC MARKETS IN
WHICH THE COMPANY'S PRODUCTION FACILITIES ARE LOCATED OR ARE PROPOSED TO BE
LOCATED, AND THE GENERAL ECONOMY OF THE UNITED STATES; AND OTHER FACTORS AS
MAY BE IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION OR IN THE COMPANY'S PRESS RELEASES.
FOR A DISCUSSION OF THESE FACTORS AND OTHERS, PLEASE SEE THE
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION--CERTAIN BUSINESS FACTORS" OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1998 (AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON OCTOBER 15, 1998). READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS MADE IN, OR INCORPORATED
BY REFERENCE INTO, THIS QUARTERLY REPORT OR OTHER FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, ANY DOCUMENT OR STATEMENT REFERRING TO THIS
QUARTERLY REPORT OR THE COMPANY'S PRESS RELEASES.
<PAGE>
COLOR SPOT NURSERIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 24, 1998 and
June 30, 1998. . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations for the Quarter
Ended September 24, 1998 and September 25, 1997. . . . . 2
Consolidated Statement of Changes in Stockholders' Equity
and Comprehensive Loss as of September 24, 1998. . . . . 3
Consolidated Statements of Cash Flows for the Quarter
Ended September 24, 1998 and September 25, 1997. . . . . 4
Condensed Notes to Consolidated Financial Statements as
of September 24, 1998 . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . . 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . 15
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders. . . 15
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 24, June 30,
1998 1998
------------- ----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 710 $ 2,244
Accounts receivable, net of allowances of $1,856 and $3,084, respectively 14,070 28,463
Inventories, net 50,106 42,306
Prepaid expenses and other 913 1,803
------------- ----------
Total current assets 65,799 74,816
TREE INVENTORIES 4,988 3,607
PROPERTY, PLANT AND EQUIPMENT, net 54,210 54,197
INTANGIBLE ASSETS, net 52,931 56,117
DEFERRED INCOME TAXES 25,883 20,167
NOTES RECEIVABLE AND OTHER ASSETS 1,409 1,446
------------- ----------
Total assets $ 205,220 $ 210,350
------------- ----------
------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 13,438 $ 16,305
Accrued liabilities 17,112 14,404
Dividends payable to stockholders 145 232
Deferred income taxes 16,013 16,013
Current maturities of long-term debt 1,070 1,053
------------- ----------
Total current liabilities 47,778 48,007
LONG-TERM DEBT 140,401 135,044
------------- ----------
Total liabilities 188,179 183,051
------------- ----------
SERIES A PREFERRED STOCK, $0.01 par value, 100,000 shares authorized,
43,884 and 42,504 shares issued and outstanding, respectively 34,109 32,524
REDEEMABLE COMMON STOCK, $0.001 par value, 1,163,550
shares issued and outstanding 2,346 2,266
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value, 4,900,000 shares authorized,
no shares issued and outstanding - -
Common stock, $0.001 par value, 50,000,000 shares authorized,
5,773,518 shares issued and outstanding 12 12
Additional paid-in capital 51,052 50,975
Treasury stock, 6,200,228 shares (45,488) (45,488)
Warrants, 825,000 exercisable at $0.01 per share 8,250 8,250
Accumulated deficit (33,240) (21,240)
------------- ----------
Total stockholders' deficit (19,414) (7,491)
------------- ----------
Total liabilities and stockholders' deficit $ 205,220 $ 210,350
------------- ----------
------------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended
September 24, September 25,
1998 1997
------------ ----------------
<S> <C> <C>
NET SALES $ 27,706 $ 25,482
COST OF SALES 19,386 18,018
------------ ----------------
Gross profit 8,320 7,464
SALES, MARKETING AND DELIVERY EXPENSES 9,893 8,388
GENERAL AND ADMINISTRATIVE EXPENSES 3,479 2,682
SPECIAL CHARGES AND OTHER 3,652 -
AMORTIZATION OF INTANGIBLE ASSETS 429 612
------------ ----------------
Loss from operations (9,133) (4,218)
INTEREST EXPENSE 4,017 2,392
OTHER EXPENSE 375 102
------------ ----------------
Loss before income taxes and cumulative effect of
change in accounting principle (13,525) (6,712)
INCOME TAX BENEFIT 4,791 3,021
------------ ----------------
Loss before cumulative effect of change in accounting principle (8,734) (3,691)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE, net of tax benefit 1,687 -
------------ ----------------
Net loss (10,421) (3,691)
SERIES A PREFERRED STOCK DIVIDENDS/ACCRETION 1,499 -
------------ ----------------
Net loss applicable to common stock $ (11,920) $ (3,691)
------------ ----------------
------------ ----------------
Net loss per common share:
Loss before cumulative effect of change in accounting principle $ (1.48) $ (0.55)
Cumulative effect of change in accounting principle (0.24) -
------------ ----------------
Total $ (1.72) $ (0.55)
------------ ----------------
------------ ----------------
Shares used in per share calculation 6,937,068 6,674,220
------------ ----------------
------------ ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT COMMON SHARES)
<TABLE>
<CAPTION>
Additional
Common Common Paid-In Treasury
Shares Stock Capital Stock Warrants
--------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 5,773,518 $ 12 $ 50,975 $ (45,488) $ 8,250
Accretion of Series A preferred - - - - -
Accretion of redeemable common stock - - - - -
Series A preferred stock dividends - - - - -
Deferred compensation - - 77 - -
Net loss - - - - -
--------- ------ ---------- --------- --------
Balance, September 24, 1998 (unaudited) 5,773,518 $ 12 $ 51,052 $ (45,488) $ 8,250
--------- ------ ---------- --------- --------
--------- ------ ---------- --------- --------
Retained Total
Earnings Stockholders' Comprehensive
(Deficit) Equity Loss
--------- ------------ -------------
<S> <C> <C> <C>
Balance, June 30, 1998 $ (21,240) $ (7,491) $ -
Accretion of Series A preferred (205) (205) -
Accretion of redeemable common stock (80) (80) -
Series A preferred stock dividends (1,294) (1,294) -
Deferred compensation - 77 -
Net loss (10,421) (10,421) (10,421)
--------- ---------- ----------
Balance, September 24, 1998 (unaudited) $ (33,240) $ (19,414) $ (10,421)
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
COLOR SPOT NURSERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
September 24, September 25,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,421) $ (3,691)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation an amortization 1,764 1,320
Interest paid in kind 161 -
Deferred compensation 77 -
Deferred income taxes (5,716) (2,619)
Write-off of organization costs 2,612 -
Changes in operating assets and liabilities, net of effect of
acquired businesses:
Decrease in accounts receivable 14,430 11,306
Increase in inventories (9,081) (8,257)
Decrease in prepaid expenses and other assets 890 21
Increase (decrease) in accounts payable (2,867) 3,429
Increase (decrease) in accrued and other liabilities 2,852 (1,264)
---------- ---------
Net cash provided by (used in) operating activities (5,299) 245
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in business acquisitions, less cash acquired - (40,539)
Purchases of fixed assets (1,448) (3,030)
---------- ---------
Net cash used in investing activities (1,448) (43,569)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock - 5,111
Purchase of treasury stock - (260)
Financing and organizational costs - (472)
Dividends paid - (24)
Proceeds from borrowings - 36,829
Net borrowings under revolving line of credit 5,400 1,241
Repayments of long-term debt (187) (182)
---------- ---------
Net cash provided by financing activities 5,213 42,243
NET DECREASE IN CASH (1,534) (1,081)
CASH AT BEGINNING OF PERIOD 2,244 2,762
---------- ---------
CASH AT END OF PERIOD $ 710 $ 1,681
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 564 $ 442
---------- ---------
---------- ---------
Income taxes $ - $ -
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Stock issued for acquisitions $ - $ 625
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COLOR SPOT NURSERIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 1998
NOTE 1 - BASIS OF PRESENTATION AND OPERATIONS
The information contained in the following notes to the consolidated
financial statements of Color Spot Nurseries, Inc. (the "Company") is
condensed from that which would appear in the annual consolidated financial
statements. Accordingly, these financial statements should be read in
conjunction with the Company's annual financial statements for its fiscal
year ended June 30, 1998 contained in its Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
In 1998, the Company reported a net loss before income taxes and
extraordinary items of $29.7 million and used $25.9 million of cash in
operating activities. During the quarter ended September 24, 1998, the
Company reported a net loss before income taxes and cumulative effect of
change in accounting principle of $8.7 million and used $5.3 million of cash
in operating activities. Consequently, the Company was not in compliance with
certain financial covenants on its revolving credit facility at June 30,
1998, but a waiver was obtained from the banks for the violations. The
Company's 1998 operating results were adversely impacted by the severe
weather and inventory overproduction that resulted in the write-off of
unsaleable excess products. The Company's first quarter results were
adversely impacted by its seasonal cycles, high operating costs as well as
special charges. In order to improve its operating results the Company has
hired several new executives with significant operating experience to bolster
its current management team and adjust the production process to attempt to
better match supply and demand and limit excess inventory while maintaining
high quality customer service. The Company recorded a $3.7 million
non-recurring special charge in the quarter ended September 24, 1998 relating
to facility closings, employee severance and other non-recurring consulting
costs associated with actions taken by the new management team. The Company
may record additional charges as management finalizes its review of the
Company's operations.
As of September 24, 1998, the Company has $140.4 million of long-term
indebtedness and an accumulated deficit of $33.2 million. The Company is
highly leveraged. On October 15, 1998, the Company entered into a new
three-year loan agreement providing up to $70.0 million of availability. In
connection with this refinancing, the Company's existing revolving credit
facility and its associated acquisition term loan facility and supplemental
line were terminated (see Note 9). Although the Company succeeded in
refinancing its debt on October 15, 1998, there can be no assurance that the
Company will be able to generate sufficient cash flows or meets its financial
goals to comply with debt covenants in the future. The Company may incur
additional indebtedness in the future, subject to certain limitations
contained in the instruments governing its indebtedness and capital stock.
Accordingly, the Company has significant debt service obligations. The
Company's debt service obligations will have important consequences to
holders of its debt, preferred stock, warrants and common stock including the
following: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for
operations, acquisitions, future business opportunities and other purposes
and increasing the Company's vulnerability to adverse general economic and
industry conditions; (ii) the Company's leveraged position may increase its
vulnerability to competitive pressures; (iii) the financial covenants and
other restrictions contained in the new loan agreement, the indenture for its
outstanding senior subordinated notes and the certificate of designation for
the Series A Preferred Stock will require the Company to meet certain
financial tests and will restrict its ability to borrow additional funds, to
dispose of assets or to pay cash dividends on, or repurchase, preferred or
common stock; and (iv) funds available for working capital, capital
5
<PAGE>
COLOR SPOT NURSERIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 1998
expenditures, acquisitions and general corporate purposes may be limited.
Although the accompanying financial statements have been prepared
contemplating the realization of all recorded assets, including intangible
assets and deferred tax assets and the satisfaction of liabilities in the
normal course of business, the Company must generate sufficient cash flow to
meet its obligations as they come due, comply with the terms of its new
credit facility, and ultimately attain profitability or there will be a
material adverse impact on the Company's business, financial position and
results of operations. No assurances can be provided that the Company will
be able to attain profitability or achieve its business objectives.
The consolidated financial statements as of September 24, 1998 and the
quarter ended September 24, 1998 and September 25, 1997 are unaudited.
However, in the opinion of management, these financial statements reflect all
adjustments (of a normal and recurring nature) which are necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of 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. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The
Company's operations are highly seasonal and the results of operations for
the interim periods are not necessarily indicative of the results to be
expected for the entire year.
NOTE 2 - INVENTORIES
Inventories at September 24, 1998 and June 30, 1998, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 24, JUNE 30,
1998 1998
------------- --------
(UNAUDITED)
<S> <C> <C>
Current:
Plants, shrubs and ground cover $45,316 $39,764
Raw materials and supplies 7,381 7,565
Inventory reserve (2,591) (5,023)
------- -------
Total current inventories 50,106 42,306
Noncurrent:
Christmas trees 4,988 3,607
------- -------
Total inventories $55,094 $45,913
------- -------
------- -------
</TABLE>
6
<PAGE>
COLOR SPOT NURSERIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 1998
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 24, 1998 and June 30, 1998
consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 24, JUNE 30,
1998 1998
------------- ---------
(UNAUDITED)
<S> <C> <C>
Land $10,049 $10,047
Greenhouses and buildings 21,304 21,157
Furniture and fixtures 4,888 4,593
Machinery and equipment 17,447 16,333
Leasehold improvements 5,521 5,356
Other 3,513 3,789
------- -------
62,772 61,275
Less: Accumulated depreciation (8,512) (7,078)
------- -------
Total property, plant and equipment $54,210 $54,197
------- -------
------- -------
</TABLE>
NOTE 4 - INTANGIBLE ASSETS
Intangible assets at September 24, 1998 and June 30, 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 24, JUNE 30,
1998 1998
------------- ---------
(UNAUDITED)
<S> <C> <C>
Goodwill $47,517 $47,517
Organization costs - 3,578
Financing costs 5,911 5,911
Non-compete agreements 1,694 1,694
Other 917 911
------- -------
56,039 59,611
Less: Accumulated amortization (3,108) (3,494)
------- -------
Total intangible assets $52,931 $56,117
------- -------
------- -------
</TABLE>
In April 1998, the AICPA issued Statement of Position 98-5 "Reporting on
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires
non-governmental entities to expense start-up costs, including organization
costs, as incurred. The Company early-adopted SOP 98-5 on July 1, 1998 and
recognized a $2.6 million pre-tax charge ($1,687 after tax benefit), which
was accounted for as a change in accounting principle.
7
<PAGE>
COLOR SPOT NURSERIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 1998
NOTE 5 - ACQUISITIONS
Between July 31, 1997 and September 3, 1997, the Company effected six
business acquisitions. The Company accounted for all of these acquisitions
using the purchase method of accounting whereby the purchase price, including
liabilities assumed, is allocated based upon the fair value of the tangible
and intangible assets of the acquired entity. Results of operations of the
acquired entities subsequent to the purchase date are included in the
consolidated financial statements.
Pro forma operating results of the Company for the quarter ended
September 25, 1997, assuming all the above acquisitions occurred on July 1,
1997, are presented below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 25,
1997
-------------
(UNAUDITED)
<S> <C>
Net Sales $27,345
Loss before cumulative effect of change in
accounting principle (4,338)
Loss per share before cumulative effect of
change in accounting principle (0.67)
Shares used in per share calculation 6,444,565
</TABLE>
NOTE 6 - DEBT
Debt at September 24, 1998 and June 30, 1998 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 24, JUNE 30,
1998 1998
------------- ----------
(UNAUDITED)
<S> <C> <C>
Revolving line of credit $ 29,438 $ 24,038
Senior subordinated notes 100,000 100,000
Convertible note 8,147 7,986
Non-compete agreements 1,025 1,073
Other 2,861 3,000
-------- --------
141,471 136,097
Less: Current maturities (1,070) (1,053)
-------- --------
Long-term portion $140,401 $135,044
-------- --------
-------- --------
</TABLE>
On October 15, 1998, the Company's revolving line of credit was refinanced
(see Note 9).
8
<PAGE>
COLOR SPOT NURSERIES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 24, 1998
NOTE 7 - EARNINGS PER SHARE
Earnings per share is as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 24, 1998
-------------------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Basic and diluted earnings per share:
Loss before cumulative effect of
change in accounting principle $ (8,734)
Preferred stock dividends/accretion (1,499)
---------
Loss before extraordinary loss $(10,233) $ (1.48)
Cummulative effect of change in
accounting principle (1,687) (0.24)
--------- --------
Net loss applicable to Common stock (11,920) 6,937,068 $ (1.72)
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 25, 1997
-------------------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Basic and diluted earnings per share:
Net loss $ ( 3,691) 6,674,220 (0.55)
</TABLE>
For the quarters ended September 24, 1998 and September 25, 1997, the effect
of options, warrants and convertible securities was antidilutive and is
therefore excluded from the computaion of earnings per share.
NOTE 8 - SPECIAL CHARGES AND OTHER
During the first quarter of 1999, the Company recorded a pre-tax special
charge of $3.7 million related to the closure of two facilities, employee
severance, and other incurred, non-recurring consulting costs. These costs
were associated with new management's ongoing review of the Company's
operations.
NOTE 9 - SUBSEQUENT EVENTS
On October 15, 1998, the Company entered into a Loan and Security
Agreement with Fleet Capital Corporation, as agent (the "Fleet Loan
Agreement"), and the Company's existing $40.0 million revolving credit
facility was repaid in full. The Fleet Loan Agreement provides a $70.0
million revolving credit facility, $55.0 million of which is subject to
certain borrowing base limitations based on a percentage of eligible
inventory and eligible accounts receivable and $15.0 million of which is
available from November 1 through April 30 of each fiscal year.
The Fleet Loan Agreement is secured by substantially all of the
Company's assets. Interest under the Fleet Loan Agreement accrues at a
variable rate equal to the Base Rate (as defined) plus 1.00% or the LIBOR
rate (as defined) plus 3.00%. In addition, to the extent that the Company's
borrowings exceed certain borrowing base limitations during the period from
November 1 through April 30, the interest rates increase by an additional
0.50%. The interest rates may also increase by such amount 90 days following
October 15, 1998 in the event that the Company fails to take certain
specified actions with respect to the collateral securing the Fleet Loan
Agreement. The Fleet Loan Agreement terminates October 15, 2001. The Fleet
Loan Agreement restricts among other things, the Company's ability to incur
additional indebtedness, incur liens, pay or declare dividends, or enter into
certain transactions. In addition, the Fleet Loan Agreement requires the
Company to meet certain financial covenants.
The Company will record a $0.8 million non-cash extraordinary charge,
net of tax benefit, related to the write-off of unamortized financing costs
associated with the terminated facilities in its second fiscal quarter of
fiscal 1999.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is one of the largest wholesale nurseries in the United
States, based on revenue and greenhouse square footage. The Company sells a
wide assortment of high-quality bedding plants, shrubs, potted flowering
plants, ground cover and Christmas trees as well as provides extensive
merchandising services primarily to leading home centers and mass merchants.
The Company's business is highly seasonal with a peak selling season in the
spring generally from March through June. Consequently, the Company has
historically reported losses and lower revenues during its first and second
fiscal quarters.
QUARTER ENDED SEPTEMBER 24, 1998 AS COMPARED TO THE QUARTER ENDED
SEPTEMBER 25, 1997
NET SALES. Net sales increased $2.2 million, or 8.7%, to $27.7 million
for the quarter ended September 24, 1998 from $25.5 million during the
quarter ended September 25, 1997. This increase is primarily the result of
business acquisitions during the quarter ended September 25, 1997.
GROSS PROFIT. Gross profit increased $0.9 million, or 11.5%, to $8.3
million for the quarter ended September 24, 1998 from $7.5 million during the
quarter ended September 25, 1997. Gross profit as a percentage of net sales
increased to 30.0% for the quarter ended September 24, 1998 from 29.3% for
the quarter ended September 25, 1997. The increase in gross profit percentage
was primarily the result of less inventory shrink recognized in the first
quarter of fiscal 1999.
OPERATING EXPENSES. Operating expenses include sales, marketing and
delivery expenses, general and administrative expenses, amortization of
intangible assets and special charges. Sales, marketing and delivery
expenses increased $1.5 million, or 17.9%, to $9.9 million for the quarter
ended September 24, 1998 from $8.4 million in the quarter ended September 25,
1997. As a percentage of net sales, sales, marketing and delivery expenses
increased to 35.7% for the quarter ended September 24, 1998 from 32.9% for
the quarter ended September 25, 1997. This increase as a percentage of net
sales was the result of increased costs associated with growth of the
Company's sales force. General and administrative expenses increased $0.8
million, to $3.5 million for the quarter ended September 24, 1998 from $2.7
million in the quarter ended September 25, 1997. As a percentage of net
sales, general and administrative expenses increased to 12.6% for the quarter
ended September 24, 1998 from 10.5% for the quarter ended September 25, 1997.
This increase as a percentage of net sales is primarily the result of hiring
additional members of management to support the Company's operations. The
Company is currently reviewing all delivery, sales, marketing, general and
administrative expenses. Amortization of intangible assets decreased $0.2
million to $0.6 million for the quarter ended September 24, 1998 due to the
write-off of unamortized financing costs associated with the terminated
credit facilities during the first quarter of fiscal 1998.
SPECIAL CHARGES AND OTHER. During the first quarter of fiscal 1999,
the Company recorded a pre-tax special charge of $3.7 million related to the
closure of two facilities, employee severance, and other incurred,
non-recurring consulting costs. These costs were associated with new
management's ongoing review of the Company's operations.
INTEREST EXPENSE. Interest expense increased $1.8 million to $4.8
million for the quarter ended September 24, 1998 from $3.0 million in quarter
ended September 25, 1997 as a result of significantly higher levels of
borrowings required to fund operating losses and the Company's working
capital requirements.
TAXES. While the Company's financial statements include tax expense,
the Company has historically not paid income taxes. Agricultural companies
are permitted to calculate taxable income on a cash basis. As a result of the
Company's growth, this treatment has enabled the Company to generate
significant net operating losses since its inception and accumulate a large
net operating loss carryforward. In addition, the
10
<PAGE>
Company's effective tax rate has been different than the U.S. statutory rate
of 34%. The difference between the Company's effective tax rate and the U.S.
statutory rate is due to state tax provisions and other California tax
limitations on the use of net operating loss carryforwards. The Company's
effective tax rate decreased to 35.4% for the quarter ended September 24,
1998 from 45.0% for the quarter ended September 25, 1997. This decrease was
primarily the result of expected full year results and the corresponding
impact of the various state limitations thereon..
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are primarily to fund seasonal working capital
requirements and capital expenditures. During the quarter ended September
24, 1998, the Company's primary source of capital was a revolving line of
credit. At June 30, 1998 and throughout the first quarter of fiscal 1999, the
Company was not in compliance with certain financial covenants on its
revolving credit facility, but a waiver was obtained from the banks. The
Company's first quarter results were adversely impacted by its seasonal
cycles, high operating costs and special charges. In order to improve its
operating results the Company has hired several new executives with
significant operating experience to bolster its current management team and
adjust the production process to attempt to better match supply and demand
and limit excess inventory while maintaining high quality customer service.
The company recorded a $3.7 million pre-tax, non-recurring special charge in
the quarter ended September 24, 1998 relating to the closing of two
facilities, employee severance and other incurred, non-recurring consulting
costs. These costs were associated with management's ongoing review of the
Company's operations. The Company may record additional charges as
management finalizes its review of the Company's operations.
On October 15, 1998, the Company entered into a Loan and Security
Agreement with Fleet Capital Corporation, as agent (the "Fleet Loan
Agreement"), and repaid the existing revolving credit facility in full. The
Fleet Loan Agreement provides a $70.0 million revolving credit facility,
$55.0 of which is subject to certain borrowing base limitations based on a
percentage of eligible inventory and eligible accounts receivable and $15.0
million of which is available from November 1 through April 30 of each fiscal
year.
During the quarter ended September 24, 1998, net cash used in operating
activities was $5.3 million primarily as a result of operating losses and
increases in inventory partially offset by decreased receivables. Net cash
used in investing activities during the quarter ended September 24, 1998 and
September 25 1997 was $1.4 million and $43.6 million, respectively. The
Company used cash to acquire six businesses during the quarter ended
September 25, 1997 and spent $1.4 million and $3.0 million on capital
expenditures during the quarter ended September 24, 1998 and September 25,
1997, respectively. The business acquisitions during the quarter ended
September 25, 1997 were financed with $36.8 million of bank loans. The
Company anticipates that it will spend a total of $2.6 million during the
year ended June 30, 1999, of which approximately $1.4 million is expected to
be used for expansion capital expenditures. Expansion capital expenditures
represent expenditures for capital which increases the Company's productive
capabilities and typically includes grading of new land, purchasing and
building new greenhouses and related improvements, such as the installation
of ventilation and irrigation systems.
The Company is highly leveraged. As of September 24, 1998, the Company
has $140.4 million of long-term indebtedness and an accumulated deficit of
$33.2 million. Although the Company believes that the cash available from the
Fleet Loan Agreement will be sufficient to finance working capital
requirements and capital expenditures for the next 12 months, there is no
assurance that the Company will be able to generate sufficient cash flows or
meet its financial goals to comply with debt covenants in the future. The
Company may incur additional indebtedness in the future, subject to certain
limitations
11
<PAGE>
contained in the instruments governing its indebtedness and capital stock.
The Company's debt service obligations have important consequences to holders
of its debt, preferred stock, warrants and common stock including the
following: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for
operations, acquisitions, future business opportunities and other purposes
and increasing the Company's vulnerability to adverse general economic and
industry conditions; (ii) the Company's leveraged position may increase its
vulnerability to competitive pressures; (iii) the financial covenants and
other restrictions contained in the Fleet Loan Agreement, the indenture for
the outstanding senior subordinated notes and the certificate of designation
for the Series A Preferred Stock will require the Company to meet certain
financial tests and will restrict its ability to borrow additional funds, to
dispose of assets or to pay cash dividends on, or repurchase, preferred or
common stock; and (iv) funds available for working capital, capital
expenditures, acquisitions and general corporate purposes may be limited.
YEAR 2000 COMPLIANCE PROGRAM
YEAR 2000 PROBLEM
The Year 2000 problem is the result of computer programs being written
using two digits (rather that four) to define the applicable year. Any of
the Company's programs that have time-sensitive software or equipment that
has time-sensitive embedded components may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company also may be vulnerable to other
companies' Year 2000 issues. The Company's current estimates of the impact
of the Year 2000 problem on its operations and financial results do not
include costs and time that may be incurred as a result of any vendors' or
customers' failure to become Year 2000 compliant on a timely basis. See "--
Certain Business Considerations -- Year 2000."
STATE OF READINESS
During fiscal 1998, Color Spot developed and began to implement a Year
2000 compliance plan to ensure that its business is not interrupted by the
year 2000 problem. In its compliance plan, the Company identified seven
basic operational areas that have been and will continue to be examined:
-- financial systems, such as general ledger, accounts receivable and
payable, inventory, order entry, sales force automation and purchasing
-- computer hardware, including major hardware to operate the financial
systems and related operating software
-- operational and support systems, such as telephone equipment,
greenhouse automation and watering systems
-- secondary computer systems, including custom built software
-- customers' compliance efforts, including identifying whether the
Company's high-volume customers are Year 2000 compliant
-- suppliers' compliance efforts, including whether significant suppliers
are Year 2000 compliant
-- service vendors' compliance efforts, including identifying significant
service venders and whether they are Year 2000 compliant.
12
<PAGE>
The Company has tested its primary financial systems and hardware and
determined that they are Year 2000 compliant. The Company has determined
that one of its divisional financial systems and certain of its operational
and support systems and secondary systems are not Year 2000 compliant, but
that the cost in making the necessary changes to ensure Year 2000 compliance
will not be material. See "--Cost of Compliance and Risks of
Non-Compliance." With respect to its customers, the Company has contacted,
or has been contacted by, its major customers and determined that such
customers are Year 2000 compliant. The Company is in the process of
contacting its major suppliers and service vendors regarding Year 2000
compliance and anticipates that its compliance plan will be completed by the
end of calendar 1998 or early 1999.
COST OF COMPLIANCE AND RISKS OF NON-COMPLIANCE
Color Spot believes that the cost of ensuring Year 2000 compliance for
its own financial systems, computer hardware, operational and support systems
and secondary computer systems will be less than $50,000 ($20,000 of which
was incurred in fiscal 1998). Such costs will be expensed as incurred. The
Company continues to bear some risk, however, related to the Year 2000 issue
and could be adversely affected if other entities affiliated with the Company
do not appropriately address their own Year 2000 compliance issues. Although
the Company believes that its major customers are Year 2000 compliant, the
Company is still in the process of reviewing the compliance programs of
suppliers and service vendors. The Company's current estimates of the impact
of the Year 2000 problem on its operations and financial results do not
include costs and time that may be incurred as a result of other companies'
failure to become Year 2000 compliant on a timely basis. There can be no
assurance that such other companies will achieve Year 2000 compliance or that
any conversions by such companies to become Year 2000 compliant will be
compatible with the Company's computer system. The inability of the Company
or any of its principal vendors or customers to become Year 2000 compliant in
a timely manner could have a material adverse effect on the Company's
financial condition or results of operation.
CONTINGENCY PLANS
If the Company's suppliers and service vendors are not Year 2000
compliant, the Company may have to arrange for alternative sources of supply
and stockpiling raw materials in the fall of 1999 in preparation for the Year
2000 growing season. Because most of the Company's raw material purchases
are made prior to year end, the Company does not expect that its contingency
plans will have an material effect on cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's liabilities consist primarily of a revolving line of
credit, senior subordinated notes and other notes and accounts payable. The
Company has also issued Series A Preferred Stock and Redeemable Common Stock.
Such liabilities and stockholders' equity have varying levels of sensitivity
to changes in market interest rates. Interest rate risk results when, due to
different maturity dates and repricing intervals, interest rate indices for
interest-bearing liabilities increase relative to income earning assets,
thereby creating a risk of decreased net earnings and cash flow.
The following table provides information about the Company's market
sensitive liabilities, categorized by maturity, and constitutes a
"forward-looking statement." For more information, please refer to Item 1.
"Financial Statements and Notes to Consolidated Financial Statements."
<TABLE>
<CAPTION>
June 30, 1998
Expected Maturities
-------------------------------------------------------------------
There-
Long-term Liabilities: 1999 2000 2001 2002 2003 after Total
------ ------ ------ ------ ------ ------ ------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate:
Series A Preferred Stock - - - - $2.6 $94.6 $97.2
Average Interest Rate 13% 13% 13% 13% 13% 13%
Senior Subordinated
Notes $10.5 $10.5 $10.5 $10.5 $10.5 $142.0 $194.5
Average Interest Rate 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Heller Note - - - - - $12.2 $12.2
Average Interest Rate 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
ODA Note $0.1 $0.1 $0.1 $0.1 0.1 $1.0 $1.6
Average Interest Rate 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
Variable Rate:
Fleet Loan Agreement $70.0(1) $70.0
Average Interest Rate Base Rate, as defined, plus 1.0% or LIBOR, as defined, plus 3.0%
</TABLE>
(1) On October 15, 1998, the Company entered into the Fleet Loan Agreement,
borrowed approximately $32 million, and repaid in full amounts due under its
existing credit facility. The Fleet Loan Agreement terminates in October
2001 (fiscal 2002). See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources" and Note 20 to the Notes to Consolidated Financial Statements.
14
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time subject to
various legal proceedings incidental to its business. Management believes
that the ultimate resolution of these proceedings will not have a material
adverse effect on the Company's financial position or results of operations,
taken as a whole.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At June 30, 1998, the Company was in default of certain of its financial
covenants under its loan agreement with Credit Agricole Indosuez and a
syndicate of banks and was therefore in default under section 8.03(a) of the
agreement. On August 7, 1998, the credit agreement was amended and the banks
waived any default or event of default caused by the Company's failure to
meet certain covenants at June 30, 1998 and through October 15, 1998, when
the Company entered into the Fleet Loan Agreement.
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
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant, incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 25, 1997 (SEC File
No. 000-23483), as previously filed with the Securities and Exchange
Commission.
3.2 Amended and Restated Bylaws, incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
3.3 Form of Certificate of Designation of the Series A Preferred Stock,
incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 25, 1997 (SEC File No. 000-
23483), as previously filed with the Securities and Exchange Commission.
4.1 Form of Preferred Stock Certificate, incorporated by reference to the
Company's Registration Statement on Form S-1 (SEC File No. 333-37335),
as previously filed with the Securities and Exchange Commission.
4.2 Indenture (including Form of Note), incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 25, 1997 (SEC File No. 000-23483), as previously filed with the
Securities and Exchange Commission.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
4.3 Warrant Agreement (including Form of Warrant), incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 25, 1997 (SEC File No. 000-23483), as previously filed
with the Securities and Exchange Commission.
10.1 Amendment No. 2 to Second Amended and Restated Credit Agreement dated as
of December 24, 1997, incorporated by reference to the Company's Current
Report on Form 8-K (SEC File No. 000-23483), as previously filed with
the Securities and Exchange Commission on August 14, 1998.
10.2 First Amendment and Waiver to Second Amended And Restated Credit
Agreement dated as of December 24, 1997, incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 26, 1998 (SEC File No. 000-23483), as previously filed with
the Securities and Exchange Commission.
10.3 Second Amended and Restated Credit Agreement dated as of December 24,
1997, incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended December 25, 1997 (SEC File No.
000-23483), as previously filed with the Securities and Exchange
Commission.
10.4 Amended and Restated credit Agreement dated as of February 20, 1997,
incorporated by reference to the Company's Registration Statement on
Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
10.5 Recapitalization and Stock Purchase Agreement among the Registrant,
Heller Equity Capital Corporation ("Heller"), M.F. Vukelich Co., Michael
F. Vukelich, Jerry Halamuda, Gary E. Mariani, Steven J. Bookspan,
Richard E. George and KCSN Acquisition Company, L.P. dated as of
December 31, 1996, incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.6 8% Subordinated Convertible Note issued to Heller, incorporated by
reference to the Company's Registration Statement on Form S-1 (SEC File
No. 333-37335), as previously filed with the Securities and Exchange
Commission.
10.7 Put/Call Option Agreement dated as of December 31, 1996, incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.8 Stockholders Agreement dated as of December 31, 1996, incorporated by
reference to the Company's Registration Statement on Form S-1 (SEC File
No. 333-37335), as previously filed with the Securities and Exchange
Commission.
10.9 Employee Stockholders Agreement dated as of June 1, 1997, incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.10 Employment Agreement with Michael F. Vukelich dated as of December 31,
1996, incorporated by reference to the Company's Registration Statement
on Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
10.11 Employment Agreement with Jerry L. Halamuda dated as of December 31,
1996. incorporated by reference to the Company's Registration Statement
on Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
10.12 1996 Stock Incentive Plan incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.13 1997 Stock Incentive Plan incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.14 Special Stock Option Plan incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.15 Form of Stock Purchase Option incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.16 Fee Agreement dated as of December 31, 1996 between Registrant and
Kohlberg Company, LLC incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.17 Merger Agreement dated as of February 20, 1997 for the acquisition of
Lone Star Growers Co. incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.18 Real Property Lease between M.F. Vukelich Co. and the Registrant dated
December 1, 1995, incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.19 Real Property Lease between Michael F. Vukelich as Guardian for Trisha
Vukelich and the Registrant dated as of December 31, 1995, incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.20 Asset Purchase Agreement dated as of March 14, 1997 between Color Spot
Christmas Trees, Inc. and Signature Trees, incorporated by reference to
the Company's Registration Statement on Form S-1 (SEC File No. 333-
37335), as previously filed with the Securities and Exchange Commission.
10.21 9% Subordinated Promissory Note issued to Oda Nursery, Inc. incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.22 Stockholders Repurchase Agreement dated as of December 31, 1996,
incorporated by reference to the Company's Registration Statement on
Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
10.23 Employment Agreement dated as of July 30, 1998 with Raju Boligala,
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 (SEC File No. 000-23483), as previously
filed with the Securities and Exchange Commission.
10.24 1998 Employees Stockholders Agreement incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1998
(SEC File No. 000-23483), as previously filed with the Securities and
Exchange Commission.
10.25 Loan and Security Agreement dated as of October 15, 1998, with Fleet
Capital Corporation as agent incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1998 (SEC File
No. 000-23483), as previously filed with the Securities and Exchange
Commission.
10.26 Subordination Agreement dated as of October 15, 1998, between Heller,
Fleet Capital Corporation, as agent, and the Registrant incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
June 30, 1998 (SEC File No. 000-23483), as previously filed with the
Securities and Exchange Commission.
11.1 Computations of Earnings Per Share -- See Note 7 to the Notes to
Consolidated Financial Statements.
27.1 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K.
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: November 9, 1998.
COLOR SPOT NURSERIES, INC.
a Delaware corporation
By: /s/ Michael F. Vukelich
-----------------------
Name: Michael F. Vukelich
Title: Chairman of the Board, Chief
Executive Officer and Director
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ Carlos R. Plaza
-------------------
Name: Carlos R. Plaza
Title: Executive Vice President and Chief
Financial Officer (PRINCIPAL
FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER)
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant, incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 25, 1997 (SEC File
No. 000-23483), as previously filed with the Securities and Exchange
Commission.
3.2 Amended and Restated Bylaws, incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
3.3 Form of Certificate of Designation of the Series A Preferred Stock,
incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended December 25, 1997 (SEC File No. 000-
23483), as previously filed with the Securities and Exchange Commission.
4.1 Form of Preferred Stock Certificate, incorporated by reference to the
Company's Registration Statement on Form S-1 (SEC File No. 333-37335),
as previously filed with the Securities and Exchange Commission.
4.2 Indenture (including Form of Note), incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 25, 1997 (SEC File No. 000-23483), as previously filed with the
Securities and Exchange Commission.
4.3 Warrant Agreement (including Form of Warrant), incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 25, 1997 (SEC File No. 000-23483), as previously filed
with the Securities and Exchange Commission.
10.1 Amendment No. 2 to Second Amended and Restated Credit Agreement dated as
of December 24, 1997, incorporated by reference to the Company's Current
Report on Form 8-K (SEC File No. 000-23483), as previously filed with
the Securities and Exchange Commission on August 14, 1998.
10.2 First Amendment and Waiver to Second Amended And Restated Credit
Agreement dated as of December 24, 1997, incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 26, 1998 (SEC File No. 000-23483), as previously filed with
the Securities and Exchange Commission.
10.3 Second Amended and Restated Credit Agreement dated as of December 24,
1997, incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended December 25, 1997 (SEC File No.
000-23483), as previously filed with the Securities and Exchange
Commission.
10.4 Amended and Restated credit Agreement dated as of February 20, 1997,
incorporated by reference to the Company's Registration Statement on
Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
10.5 Recapitalization and Stock Purchase Agreement among the Registrant,
Heller Equity Capital Corporation ("Heller"), M.F. Vukelich Co., Michael
F. Vukelich, Jerry Halamuda, Gary E. Mariani, Steven J. Bookspan,
Richard E. George and KCSN Acquisition Company, L.P. dated as of
December 31, 1996, incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.6 8% Subordinated Convertible Note issued to Heller, incorporated by
reference to the Company's Registration Statement on Form S-1 (SEC File
No. 333-37335), as previously filed with the Securities and Exchange
Commission.
10.7 Put/Call Option Agreement dated as of December 31, 1996, incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.8 Stockholders Agreement dated as of December 31, 1996, incorporated by
reference to the Company's Registration Statement on Form S-1 (SEC File
No. 333-37335), as previously filed with the Securities and Exchange
Commission.
10.9 Employee Stockholders Agreement dated as of June 1, 1997, incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.10 Employment Agreement with Michael F. Vukelich dated as of December 31,
1996, incorporated by reference to the Company's Registration Statement
on Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.11 Employment Agreement with Jerry L. Halamuda dated as of December 31,
1996. incorporated by reference to the Company's Registration Statement
on Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
10.12 1996 Stock Incentive Plan incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.13 1997 Stock Incentive Plan incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.14 Special Stock Option Plan incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.15 Form of Stock Purchase Option incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.16 Fee Agreement dated as of December 31, 1996 between Registrant and
Kohlberg Company, LLC incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.17 Merger Agreement dated as of February 20, 1997 for the acquisition of
Lone Star Growers Co. incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.18 Real Property Lease between M.F. Vukelich Co. and the Registrant dated
December 1, 1995, incorporated by reference to the Company's
Registration Statement on Form S-1 (SEC File No. 333-37335), as
previously filed with the Securities and Exchange Commission.
10.19 Real Property Lease between Michael F. Vukelich as Guardian for Trisha
Vukelich and the Registrant dated as of December 31, 1995, incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.20 Asset Purchase Agreement dated as of March 14, 1997 between Color Spot
Christmas Trees, Inc. and Signature Trees, incorporated by reference to
the Company's Registration Statement on Form S-1 (SEC File No. 333-
37335), as previously filed with the Securities and Exchange Commission.
10.21 9% Subordinated Promissory Note issued to Oda Nursery, Inc. incorporated
by reference to the Company's Registration Statement on Form S-1 (SEC
File No. 333-37335), as previously filed with the Securities and
Exchange Commission.
10.22 Stockholders Repurchase Agreement dated as of December 31, 1996,
incorporated by reference to the Company's Registration Statement on
Form S-1 (SEC File No. 333-37335), as previously filed with the
Securities and Exchange Commission.
10.23 Employment Agreement dated as of July 30, 1998 with Raju Boligala
incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998 (SEC File No. 000-23483), as previously
filed with the Securities and Exchange Commission.
10.24 1998 Employees Stockholders Agreement incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1998
(SEC File No. 000-23483), as previously filed with the Securities and
Exchange Commission.
10.25 Loan and Security Agreement dated as of October 15, 1998, with Fleet
Capital Corporation as agent incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1998 (SEC File
No. 000-23483), as previously filed with the Securities and Exchange
Commission.
10.26 Subordination Agreement dated as of October 15, 1998, between Heller,
Fleet Capital Corporation, as agent, and the Registrant incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
June 30, 1998 (SEC File No. 000-23483), as previously filed with the
Securities and Exchange Commission.
11.1 Computations of Earnings Per Share -- See Note 7 to the Notes to
Consolidated Financial Statements.
27.1 Financial Data Schedule.
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER FORM 10-Q FOR THE FISCAL YEAR 6/30/99 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-24-1998
<CASH> 710
<SECURITIES> 0
<RECEIVABLES> 14,070
<ALLOWANCES> 1,856
<INVENTORY> 50,106
<CURRENT-ASSETS> 65,799
<PP&E> 54,210
<DEPRECIATION> 8,512
<TOTAL-ASSETS> 205,220
<CURRENT-LIABILITIES> 47,778
<BONDS> 140,401
34,109
0
<COMMON> 12
<OTHER-SE> (19,426)
<TOTAL-LIABILITY-AND-EQUITY> 205,220
<SALES> 27,706
<TOTAL-REVENUES> 27,706
<CGS> 19,386
<TOTAL-COSTS> 19,386
<OTHER-EXPENSES> 17,828
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 4,017
<INCOME-PRETAX> (13,525)
<INCOME-TAX> (4,791)
<INCOME-CONTINUING> (8,734)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,687)
<NET-INCOME> (10,421)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
