Slide 1: Presentation to ISS
Presentation to ISS July 12, 2013
Slide 2: Agenda
Agenda • Overview • History • Strategy • Financial Performance • Board of Directors Nominees • Conclusion 2
Slide 3: Overview
(CALLOWAY’S NURSERY Overview
Slide 4: Calloway's Nursery, Inc.
Calloway’s Nursery, Inc. • Texas‐based garden center chain • Founded by local nurserymen, Jim Estill, John Cosby and John Peters • 16 Calloway’s Nursery stores in the Dallas/Fort Worth market • 2 Cornelius Nursery stores in the Houston market 4
Slide 5: Fun and Informative Stores
Fun and Informative Stores • Nearly 100 of the company’s employees are Texas Certified Nursery Professionals • Expert advice to gardeners of all levels • Weekly gardening clinics • Displays and instructions to aid gardeners with design and color development in their yards • Diverse product selection
Slide 6: Variety of Gardening Products
Variety of Gardening Products • Flowering annual and perennial plants, trees, shrubs, vines and interior house plants • Gardening‐related products such as imported pottery, tools, fertilizers, soil amendments, mulch and potting soil • Largest selection of specialty pumpkins, squash and gourds • Fres
Slide 7: Community Support
Community Support • Good Neighbor (HOA) Program • Community Sponsorship (Donations) Program • Callie’s Garden Circle • Garden Tours and Events • Lena Pope Home 7
Slide 8: Competition
Competition Calloway’s competes with the large, well‐ financed home center chains, as well as Walmart and hundreds of local independent nurseries 8
Slide 9: History
(CALLOWAY’S NURSERY History
Slide 10: Inception - 1990
Inception ‐ 1990 Year Event Jim Estill, John Cosby and John Peters form Calloway’s 1986 Nursery, Inc. First four retail stores open in Dallas‐Fort Worth 1987 market 1988 General Host Corporation acquires 80% ownership Calloway’s opens 10th store and achieves first 1990 profitable year 10
Slide 11: Initial Public Offering
Initial Public Offering 1991 General Host sells its interest in IPO [June] 11
Slide 12: 1993 - 1998
1993 ‐ 1998 Year Event General Host acquires control of Wolfe Nursery 1993 (“Wolfe”) and launches competitive expansion Home Depot (NYSE:HD) expands garden centers in 1994 Texas Lowe’s (NYSE:LOW) expands into Texas market 1997 including garden centers Calloway’s acquires Miller Plant Farm growing 19
Slide 13: 1999 - 2002
1999 ‐ 2002 Year Event Calloway’s enters Houston market with acquisition of Cornelius Nursery 1999 Calloway’s also acquires Turkey Creek Farms (“Turkey”) and Wholesale Landscape Distributors (“WLD”) 2001 WLD sold [October] Calloway’s enters San Antonio market by leasing 8 2002 former Wolfe stores in
Slide 14: 2002 - 2008
2002 ‐ 2008 Year Event Home Depot opens 6 free‐standing Landscape Supply 2002 stores in Dallas‐Fort Worth market (“HDLS”) 2003 Turkey [March] and Miller [September] sold 2004 SEC deregistration completed [May] 2005 4 of 8 San Antonio stores closed [May] 2007 HDLS closes all stores [November] 2008 Re
Slide 15: 2008 - 2009
2008 ‐ 2009 Year Event Arson‐caused fire destroys flagship Cornelius Nursery 2008 store in Houston [July] Senior lender cancels credit line and requires company 2009 to refinance other debt by December 2010 [August] Cornelius Nursery store re‐opens after sixteen months 2009 rebuilding [November] Str
Slide 16: 2009 - Today
2009 ‐ Today Year Event JPMorgan Chase provides short‐term credit facility 2010 [January] 2010 JPMorgan Chase refinances long‐term debt [December] 2010 Calloway’s rebounds with $0.7 million net income 2011 Second straight profitable year 2012 Third straight profitable year Store expansion resumes wi
Slide 17: Retail Revenue, 1987-2013
Retail Revenue, 1987‐2013 17
Slide 18: Strategy
(CALLOWAY’S NURSERY Strategy
Slide 19: Investment of Choice
Investment of Choice Create long‐term value for all Calloway’s shareholders by consistently and dependably delivering on our promise to be: – Provider of Choice – Employer of Choice – Partner of Choice 19
Slide 20: Provider of Choice - Principles
Provider of Choice ‐ Principles • Be the first place our customers want to shop for their living plants and garden products • Provide excellent personal service, beauty, selection, knowledge and fun in our Calloway’s and Cornelius stores 20
Slide 21: Provider of Choice - Initiatives
Provider of Choice ‐ Initiatives • Early this year we implemented new, advanced technology in all of our stores, which has: – Sharply improved our customer checkout experience – Expanded the reach and value of our garden club program – Provided operational efficiencies and cost‐ savings 21
Slide 22: Provider of Choice - Initiatives
Provider of Choice ‐ Initiatives • In 2012 we initiated our In‐Store Experience and Presentation initiative, which enhances our customers’ shopping experience with visual décor and products for the gardening seasons • Our floor plans have been redesigned, and are now continuously updated, to best sh
Slide 23: Provider of Choice - Initiatives
Provider of Choice ‐ Initiatives • Store expansion resumes after four years – Brand‐new Calloway’s Nursery retail store in Little Elm, Texas planned to open in September – This store, with an exciting new look, based on proven operations experience, will serve the burgeoning Little Elm and Frisco co
Slide 24: Provider of Choice - Accolades
Provider of Choice ‐ Accolades • Named 2013 Neely Alumni Business of the Year – In presenting the award, Dean O. Homer Erekson stated – “Calloway’s represents the very best model for a values‐centered business. In addition to being a successful garden center providing exceptional customer service, C
Slide 25: Employer of Choice - Principles
Employer of Choice ‐ Principles • Our goal is to offer professional service and accurate advice so that our customers’ visits to our store lead to success in their gardens • That’s why we support the Texas Nursery and Landscape Association (TNLA), both monetarily and through volunteer services – Onl
Slide 26: Employer of Choice - TCNP
Employer of Choice ‐ TCNP • To become a TCNP, an individual must – Have completed 2,000 hours of industry work or attained equivalent university degrees in horticultural studies and six months on the job experience – Master the training to pass a comprehensive examination covering marketing, custome
Slide 27: Employer of Choice - TMCNP
Employer of Choice ‐ TMCNP • The TMCNP certification requires far more of the professional, including extensive training by instructors and professors from Texas A&M University • This additional training provides knowledge of the latest research and technology • Exam is exacting, rigorous and costly
Slide 28: Partner of Choice - Principles
Partner of Choice ‐ Principles • To consistently and dependably offer our customers – The very best quality – The most innovative and exciting new living plants and garden products • Requires close and careful partnering with the best growers and suppliers in the industry 28
Slide 29: Partner of Choice - Initiatives
Partner of Choice ‐ Initiatives • Over the years we’ve built a solid supplier network with reliable and mutually‐ beneficial relationships • Several years ago we sold our internal growing operations so that we could – Focus on our retail customers – Stop competing with our own suppliers 29
Slide 30: Partner of Choice - Initiatives
Partner of Choice ‐ Initiatives • More recently, we’ve expanded our integration with key suppliers to – Improve inventory control and gross margins – Further enhance the freshness and variety of living plants in our retail store 30
Slide 31: Partner of Choice - Initiatives
Partner of Choice ‐ Initiatives • This unique and advanced technology and business process goes well beyond electronic data interchange models by providing our trusted suppliers direct access to our system to facilitate collaboration between suppliers and our corporate buyers on planning and repleni
Slide 32: Partner of Choice - Initiatives
Partner of Choice ‐ Initiatives • So far, 38 of our top living plants suppliers, representing over 83% of our total living plants purchases, take advantage of this technology, with even more planned for the future 32
Slide 33: Investment of Choice - What's Ahead
Investment of Choice – What’s Ahead • New Dallas‐Fort Worth market store • Continued debt reduction • Refinance existing debt to lower rates • Sale of excess land as market improves • Development of Houston market • New equity issuance has already ended 33
Slide 34: Financial Performance
(CALLOWAY’S NURSERY Financial Performance
Slide 35: Five Straight Years of Profits, then...
Five Straight Years of Profits, then… • Calloway’s was profitable every year from 2004 through 2008 – After growing operations sold – After SEC deregisration completed • July 13, 2008 changed everything – We were awakened early Sunday morning with news that our flagship Voss Road store in Houston ha
Slide 36: Voss Road Fire
Voss Road Fire • Voss Road accounted for 10% of total revenue and about $1.0 million contribution margin • It took over 16 months and over $2.0 million to rebuild this community landmark 36
Slide 37: Re-opened November 25, 2009
Re‐opened November 25, 2009 Hard work and determination paid‐off, and we proudly re‐ opened a new and improved facility on November 25, 2009 37
Slide 38: In the meantime...
In the meantime… • While we were redesigning, receiving approvals and letting construction contracts • The most serious recession to strike the U.S. in decades caused retailers across the country to suffer double‐digit revenue declines • The banking crisis locked‐up commercial credit • Fire insuranc
Slide 39: Board and Management Actions
Board and Management Actions • $0.7 million administrative cost reductions • Compensation frozen • Prior year senior management bonuses voluntarily cancelled • Management began direct equity investments through the stock purchase plan 39
Slide 40: Stock Purchase Plan
Stock Purchase Plan • Modeled on substantially‐identical plan adopted by Pier 1 Imports, Inc. (NYSE:PIR) – Adopted in 1980 – Still in use today • Alignment of interests of management with all shareholders – There are no stock options, restricted stock, etc. • Plan allows participants to invest after
Slide 41: Good for the Company, but...
Good for the Company, but… • Management investments in the company gave lenders confidence in Calloway’s despite poor 2009 financial results • However, the economics are challenging for employees – Both employee investment and company match are considered taxable pay – For employee in 28% tax bracke
Slide 42: Challenging Employee Economics
Challenging Employee Economics Assumptions Annual salary $ 130,000.00 Em ployee invests 10% M arginal rate 28% Com pany m atches 10% M edicare rate 1.45% Biweekly payroll 26 Results Don't invest Invest Cost Gross pay before m atch $ 5,000.00 $ 5,000.00 $ ‐ M atch $ 500.00 $ 500.00 Gross taxable inco
Slide 43: Management Commitment
Management Commitment Management’s fully‐paid investments in the company are a strong incentive to deliver long‐term shareholder value 43
Slide 44: Improved Performance Since 2009
Improved Performance Since 2009 • All key performance indicators have improved –Greater Liquidity –Reduced Debt –Improved Book Value –Improved Debt‐to‐Equity Ratio 44
Slide 45: Greater Liquidity
Greater Liquidity Year‐end cash position has improved 73% 45
Slide 46: Reduced Debt
Reduced Debt Debt has been reduced 19% 46
Slide 47: Improved Book Value
Improved Book Value Book value per share has risen 59% 47
Slide 48: Improved Debt-to-Equity Ratio
Improved Debt‐to‐Equity Ratio Better debt ratio lowers borrowing costs 48
Slide 49: Total Shareholder Return
Total Shareholder Return • Total Shareholder Return (“TSR”) for the – Five‐year, – Three‐year, – One‐year, and – Six‐month • periods through May 9, 2013 (the day before Kamin announced his hostile takeover attempt) • clearly demonstrates – how the fire impacted performance, and – the successful reco
Slide 50: Five-Year TSR
Five‐Year TSR Calloway's Nursery Inc. (2.2%) S&P 500 Index 30.2% Russell 3000 Index 32.6% Five‐Year TSR includes impact of fire early in that period 50
Slide 51: Three-Year TSR
Three‐Year TSR Calloway's Nursery Inc. 69.2% S&P 500 Index 49.6% Russell 3000 Index 50.0% Three‐Year TSR shows the durability of post‐fire recovery 51
Slide 52: One-Year TSR
One‐Year TSR Calloway's Nursery Inc. 18.8% S&P 500 Index 22.9% Russell 3000 Index 23.2% One‐Year TSR is good, though indices also surged early 52
Slide 53: Six-Month TSR
Six‐Month TSR Calloway's Nursery Inc. 23.9% S&P 500 Index 15.7% Russell 3000 Index 16.1% Six‐Month TSR has sharply outperformed 53
Slide 54: Most Recent Results
Most Recent Results • Year to date results demonstrate continued strong results from execution of our strategic plan –Net Income –Same‐store Revenue –EBITDA 54
Slide 55: Net Income - Up
Net Income ‐ Up Net income rose 50% for the second quarter and 13% for the six‐month period ended June 30, 2013 55
Slide 56: Same-Store Revenue - Up
Same‐Store Revenue ‐ Up Same‐store revenue rose 15% for the second quarter, and 5% for the six‐month period ended June 30, 2013 56
Slide 57: EBITDA Margin - Up
EBITDA Margin ‐ Up EBITDA Margin reached a new high for the most recent twelve‐ month period ended June 30, 2013 57
Slide 58: Board of Directors
(CALLOWAY’S NURSERY Board of Directors
Slide 59: Directors
Directors • Continued strong performance requires leadership from experienced, highly‐ qualified directors • Calloway’s is led by strong, experienced directors who are focused on serving all of Calloway’s shareholders • Two of the directors are independent of management, and these two members consti
Slide 60: Board Composition
Board Composition • Calloway’s currently has a five‐member Board of Directors – One independent director retired in March 2011 – A value‐added replacement has not yet been recruited • Two Committees composed solely of independent directors – Audit Committee – Compensation Committee 60
Slide 61: Board Meetings and Compensation
Board Meetings and Compensation • Board meetings at least quarterly – Detailed financial review – Strategy and execution – Properties and corporate development – Capital resources and liquidity • Independent director compensation – Quarterly retainer ‐ $5,000 – Meeting fees ‐ $700 – Last increased i
Slide 62: Committees
Committees • Audit Committee – Meets four times each year – Executive sessions to review performance of independent auditors and CFO – Approves all earnings releases • Compensation Committee – Meets four times each year – Executive sessions to set compensation for all executive officers – Establishe
Slide 63: Nominating and Governance
Nominating and Governance • Intent to establish a Nominating and Governance Committee led by independent directors • Will be responsible for regularly evaluating the Board’s composition to ensure it has the right skillset for the company • Identify and recruit new value‐added directors 63
Slide 64: Director Nominees
(CALLOWAY’S NURSERY Director Nominees
Slide 65: Dr. Stanley Block
Dr. Stanley Block Financial Expert 65
Slide 66: Dr. Stanley Block
Dr. Stanley Block • Chartered Financial Analyst • Emeritus Professor of Finance at Texas Christian University – Served on the faculty for 45 years; served as Chairman of the Finance Department for 10 years – Had an Endowed Chair in finance at Texas Christian University named for him – Selected as co
Slide 67: Dr. Stanley Block
Dr. Stanley Block • Author of over 30 books – His text, Block, Hirt, and Danielsen, Foundations of Financial Management, has been used by more than one million students • BBA from the University of Texas at Austin, MBA from Cornell University, Doctorate from LSU • Currently chairman of the Audit Com
Slide 68: Daniel R. Feehan
Daniel R. Feehan Financial/Retail Expert 68
Slide 69: Daniel R. Feehan
Daniel R. Feehan • President, chief executive officer and a member of the board of directors of Cash America International, Inc. – Joined Cash America in June of 1988 as its executive vice president of finance and administration – Then served as Cash America's president and chief operating officer f
Slide 70: Daniel R. Feehan
Daniel R. Feehan • Previously served on the Board of Directors of Chase Bank of Fort Worth • Active in his community serving on charitable boards and has also led several fund raising efforts on behalf of – United Way – YMCA – Juvenile Diabetes Research Foundation – Susan G. Komen Breast Cancer Foun
Slide 71: James C. Estill
James C. Estill Industry/Retail Expert 71
Slide 72: James C. Estill
James C. Estill • Chairman of the Board, President and Chief Executive Officer of the Company • Along with John Cosby and John Peters, co‐founded the Company in 1986 • Before founding Calloway’s, served as President and Chief Executive Officer of Sunbelt Nursery Group, Inc. • Prior to that, he serve
Slide 73: James C. Estill
James C. Estill • BBA in Management from Texas Christian University, MBA in Finance from TCU in 1977 • Texas Master Certified Nursery Professional • Past Chairman of the Certification Committee for the Texas Nursery & Landscape Association (“TNLA”) 73
Slide 74: James C. Estill
James C. Estill • In 2012, the TNLA bestowed on him the Arp Award, which is the highest honor granted to an individual by the association • This award signifies that, as a member, he has exemplified the TNLA’s ideal including innovation, service and highly ethical behavior in both his business and p
Slide 75: James C. Estill
James C. Estill • Active in the community – Member of the International Board of Visitors of the M.J. Neeley School of Business at Texas Christian University – Member of the Board of Governors of the Fort Worth Club – Member of the Board of Directors of the Lena Pope Home – Elder at the University C
Slide 76: John T. Cosby
John T. Cosby Industry/Retail Expert 76
Slide 77: John T. Cosby
John T. Cosby • Vice President and Secretary of the Company • Along with Jim Estill and John Peters, co‐founded the Company in 1986 • Has developed all of the Calloway’s Nursery retail locations, including site selection, site development and lease and acquisition negotiations • Prior to 1986, serve
Slide 78: John T. Cosby
John T. Cosby • Bachelor of Business Administration from Texas Wesleyan College • Master of Business Administration from the University of Dallas • Certified mediator • Serves on the Board of Directors of Dispute Resolution Services of North Texas • Past Chairman of Optical Credit Union 78
Slide 79: John S. Peters
John S. Peters Industry/Retail Expert 79
Slide 80: John S. Peters
John S. Peters • Vice President of Operations of the Company • Along with Jim Estill and John Cosby, co‐founded the Company in 1986 • Developed the original staff into a team of industry professionals • Has primary responsibility for distribution, human resources and administration • Prior to 1986,
Slide 81: John S. Peters
John S. Peters • Served as President of Wolfe Nursery, where he started his career in retail store management • Attended both Tarrant County College and Texas Christian University. • Active in the TNLA, where he has served as Past Chairman and currently serves on its Education and Research Foundatio
Slide 82: Conclusion
(CALLOWAY’S NURSERY Conclusion
Slide 83: Conclusion
Conclusion Calloway’s is a strong company, with • The right leaders, to continue • Taking the right actions, to • Position Calloway’s for continued success, and • Drive shareholder value over the long‐term 83