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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(Mark
One)
[X](MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 19992000
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 No.
FOR THE TRANSITION PERIOD FROM TO ______________ TO ______________
COMMISSION FILE NO. 333-76055
------------------------
UNITED INDUSTRIES CORPORATION
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)
DELAWARE 43-1025604
(State or Other Jurisdiction of (IRSits charter)
DELAWARE 43-1025604
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
Incorporation or Organization)
8825 Page Boulevard
St. Louis, MissouriPAGE BOULEVARD
ST. LOUIS, MISSOURI 63114
(Address of Principal Executive Office, Including Zip Code)principal executive office, including zip code)
(314) 427-0780
(Registrant's Telephone Number, Including Area Code)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 [X]
Indicate/ /.
There is no established public market for the numberRegistrant's common stock.
As of November 15, 2000, the Registrant had 27,650,000 Class A voting and
27,650,000 Class B non-voting shares of common stock outstanding and 15,000
non-voting shares of each of the registrant's
classes of CommonClass A Preferred Stock as of the latest practicable date.
Shares Outstanding
November 4, 1999
------------------
Common Stock, $0.01 par value............................. 55,300,000
outstanding.
Documents Incorporated by Reference: None
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PART I1 FINANCIAL INFORMATION
UNITED INDUSTRIES CORPORATION
ItemITEM 1. Financial Statements
FINANCIAL STATEMENTS
UNITED INDUSTRIES CORPORATION
BALANCE SHEETS
September 30, 1999 and December 31, 1998
(Dollars in thousands)
(Unaudited)(DOLLARS IN THOUSANDS)
(UNAUDITED)
SeptemberSEPTEMBER 30, DecemberSEPTEMBER 30, DECEMBER 31
2000 1999 19981999
------------- ------------------------- -----------
ASSETS
Current assets:
Cash and cash equivalents.........................equivalents............................ $ 17,146 $ 11,853 $ --
Accounts receivable (less allowance for doubtful
accounts of $60$875 at September 30, 2000, $535 at
September 30, 1999 and $1,031 at December 31,
1998)............................... 33,225 17,650
Inventories.......................................1999).............................................. 31,376 32,750 19,165
Inventories.......................................... 31,799 35,987 41,44453,243
Prepaid expenses..................................expenses..................................... 2,666 1,352 2,1723,501
--------- ----------------- ---------
Total current assets............................ 82,417 61,266assets............................. 82,987 81,942 75,909
Equipment and leasehold improvements, net...........net.............. 25,871 27,567 20,15627,860
Deferred income tax.................................tax.................................... 116,268 107,574 --116,268
Other assets........................................assets........................................... 19,806 21,018 6,948
Investment in discontinued operations............... -- 5,79120,870
--------- ----------------- ---------
Total assets....................................assets..................................... $ 238,576244,932 $ 94,161238,101 $ 240,907
========= ================= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITYDEFICIT
Current liabilities:
Current maturities of long-term debt and capital
lease obligation.................................obligations.................................. $ 11,846 $ 12,165 $ 92912,178
Accounts payable..................................payable..................................... 11,789 13,024 18,51925,507
Accrued expenses.................................. 20,351 12,705expenses..................................... 23,049 19,876 27,464
Short-term borrowings................................ 15,000 -- --
--------- ----------------- ---------
Total current liabilities....................... 45,540 32,153liabilities........................ 61,684 45,065 65,149
Long-term debt......................................debt......................................... 343,375 352,000 3,716349,125
Capital lease obligation............................obligations.............................. 5,261 8,127 --7,952
Other liabilities...................................liabilities...................................... 6,725 5,377 355,483
--------- ----------------- ---------
Total liabilities............................... 411,044 35,904
Commitments and contingenciesliabilities................................ 417,045 410,569 427,709
Stockholders' (deficit) equity:deficit..................................
Common stock...................................... 553 2stock......................................... 554 554 554
Additional paid-in capital........................capital........................... 126,865 116,687 972
Retained earnings................................. (287,008) 70,193126,865
Accumulated deficit.................................. (296,832) (287,009) (311,521)
--------- --------- ---------
Common stock held in Grantor Trust................grantor trust................... (2,700) --
Treasury stock.................................... -- (12,910)(2,700) (2,700)
--------- ----------------- ---------
Total stockholders' (deficit) equity............deficit...................... (172,113) (172,468) 58,257(186,802)
--------- ----------------- ---------
Total liabilities and stockholders' (deficit)
equity.........................................deficit...... $ 238,576244,932 $ 94,161238,101 $ 240,907
========= ================= =========
See accompanying notes to financial statements.
2
UNITED INDUSTRIES CORPORATION
STATEMENTS OF OPERATIONS
September 30, 1999 and September 30, 1998
(Dollars in thousands)
(Unaudited)(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months
Ended September Nine Months EndedTHREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SeptemberSEPTEMBER 30,
---------------- ----------------------------------------- -----------------------
2000 1999 19982000 1999
1998
------- --------------- -------- -------- --------
Net sales.................................sales........................................ $ 51,080 $53,536 $47,952$263,134 $281,819
$257,178-------- ------- -------- --------
Operating costs and expenses:
Cost of goods sold......................sold............................. 26,563 25,224 25,407132,535 137,925 127,102
Advertising and promotion expenses......expenses............. 4,021 4,115 4,17323,489 29,024 29,226
Selling, general and administrative expenses...............................expenses... 15,078 16,425 14,15251,974 54,331 50,138
Recapitalization transaction fees.......fees.............. -- -- -- 10,690
--
Change of control bonuses...............bonuses...................... -- -- -- 8,645
--
Severance charge........................charges.............................. -- -- -- 1,606
Durshan related expenses (see note 11)......... 8,000 -- 8,000 --
Non-recurring litigation charges........charges............... -- -- -- 1,500
1,200
--------------- ------- -------- --------
Total operating costs and expenses....expenses............. 53,662 45,764 43,732215,998 243,721
207,666
--------------- ------- -------- --------
Operating income..........................income (loss).......................... (2,582) 7,772 4,22047,136 38,098
49,512
Interest expense (income).................expense................................. 10,120 9,020 (93)31,204 26,388
961
--------------- ------- -------- --------
Income (loss) before provision for income taxes,
discontinued operations and extraordinary item.......................item......................... (12,702) (1,248) 4,31315,932 11,710 48,551
Income tax expense........................expense (benefit)..................... (5,120) 1,693 761,243 9,468
855
------- ------- -------- --------
Income (loss) from continuing operations,
before extraordinary item................ (2,941) 4,237 2,242 47,696
Income from discontinued operations, net
of tax................................... -- 424 -- 1,378
------- ------- -------- --------
Income (loss) before extraordinary item...item.......... (7,582) (2,941) 4,66114,689 2,242 49,074
Extraordinary loss from early extinguishment of
debt, net of income tax benefit of $1,425........................$1,425...... -- -- -- (2,325)
--
--------------- ------- -------- --------
Net income (loss)......................................................... $ (7,582) $(2,941) $ 4,66114,689 $ (83)
$ 49,074
=============== ======= ======== ========
See accompanying notes to financial statements.
3
UNITED INDUSTRIES CORPORATION
STATEMENTS OF CASH FLOWS
September 30, 1999 and September 30, 1998
(Dollars in thousands)
(Unaudited)(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine months Ended
SeptemberFOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------------------
2000 1999
1998-------- --------- --------
Cash flows from operating activities:
Net income (loss)................................................................................ $ (83)14,689 $ 49,074(83)
Loss from early extinguishment of debt................debt.................. -- 3,750 --
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Income from discontinued operations...................Non cash reduction of capital lease obligation........ (1,182) -- (1,378)
Deferred compensation................................. -- 2,700 --
Depreciation and amortization......................... 4,088 3,468 2,742
Recapitalization transaction fees..................... -- 10,690 --
Amortization of deferred financing fees............... 1,779 1,493 --
Provision for deferred income taxtex expense............. 1,243 8,043 --
Changes in assets and liabilities:
Increase in accounts receivable..................... (12,211) (15,575) (17,842)
Decrease in inventories............................. 21,444 5,457 15,573
Decrease in prepaid expenses........................ 835 820
801
(Decrease) increaseDecrease in accounts payable and accrued expenses...........................................expenses... (13,437) (3,649)
3,884
Increase in Dursban related expenses................ 7,479 --
Decrease in other assets............................ (75) (413) (17)
Other, net.......................................... -- 188
60-------- --------- --------
Cash flow from continuing operations.............. 16,889 52,897
Cash flow from discontinued operations............ -- 765
--------- --------
Net cash provided by operating activities......... 24,652 16,889 53,662
Investing activities:
PurchasesPurchase of equipment and leasehold improvements.......improvements.......... (3,175) (1,499)
(2,489)
Increase in amounts due from affiliates................. -- (13,949)-------- --------- --------
Cash used by investing activities--continuing
operations............................................. (1,499) (16,438)
Cash used by investing activities--discontinued
operations............................................. -- (145)
--------- --------
Net cash used byfor investing activities.............activities............ (3,175) (1,499) (16,583)
Financing activities:
Redemption of commontreasury stock.............................. (12,175) (337,896) --
Transaction costs related to the Recapitalization.......redemption of treasury
stock................................................... -- (11,378)
Recapitalization transactions with affiliate.............. -- Net advances to affiliated company...................... (5,700) --
Issuance of common stock................................stock.................................. -- 1,990 --
Shareholder equity contribution.........................contribution........................... -- 8,425 --
Debt issuance costs.....................................costs....................................... (924) (19,271) --
Proceeds from the issuance of debt......................short-term debt............. 15,000 520,205
73,895
PaymentPayments on debt.........................................debt.......................................... (6,232) (160,162) (66,905)
Repayment of note receivable from employee..............employee................ -- 250
--
Issuance of treasury stock.............................. -- (5,818)
Distributions paid...................................... -- (38,392)-------- --------- --------
Net cash used byfor financing activities.............activities............ (4,331) (3,537)
(37,220)
Net increase (decrease) in cash and cash equivalents......equivalents................... 17,146 11,853 (141)
Cash and cash equivalents--beginningequivalents - beginning of period............period............. -- 316--
-------- --------- --------
Cash and cash equivalents--endequivalents - end of period..................period................... $ 17,146 $ 11,853
$ 175======== ========= ========
See accompanying notes to financial statements.
4
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 1--Basis of presentation
Interim Financial Statements(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for any quarter are not necessarily indicative of the results for any
other quarter or for the full year. These statements should be read in
conjunction with the financial statements and notes thereto included in the
annual report on Form 10-K of United Industries Corporation (the "Company") for
the year ended December 31, 1998.
Note 2--Recapitalization of1999. Certain balance sheet accounts have been
reclassified from the CompanySeptember 30, 1999 and other mattersDecember 31, 1999 balance sheets in
order to provide a consistent comparison with the September 30, 2000 balance
sheet.
NOTE 2--RECAPITALIZATION OF THE COMPANY AND NON-RECURRING CHARGES
On January 20, 1999, pursuant to a recapitalizationRecapitalization agreement with UIC
Holdings, L.L.C. (the "Equity Investor"), which is owned by Thomas H. Lee Equity
Fund IV, L.P. ("THL Fund IV" and, together with its affiliates, the "THL
Parties"), the Company was recapitalized (the "Recapitalization") in a
transaction in which: (i) the Equity Investor purchased common stock from ourthe
Company's existing stockholders for approximately $254.7 million;$254,700; (ii) Thethe Company's
senior managers purchased common stock from ourthe Company's existing stockholders
for approximately $5.7 million;$5,700; and (iii) the Company used the net proceeds of a
senior subordinated facility (the "Senior Subordinated Facility") and borrowings
under a senior credit facilitySenior Credit Facility (the "Senior Credit Facility") to redeem a
portion of the common stock held by the Company's existing stockholders.
Following the Recapitalization, the Equity Investor ownsowned approximately 91.9% of
the Company's issued and outstanding common stock, the existing stockholders
retainretained approximately 6.0% and the Company's senior managers ownowned
approximately 2.1%. On January 20, 1999, the total transaction value of the
Recapitalization was approximately $652.0 million,$652,000, including related fees and
expenses, and the implied total equity value following the Recapitalization was
approximately $277.0 million.$277,000. The total consideration paid to redeem the Company's
common stock was subject to both upward and downward adjustments based on the
Company's working capital on the date of the Recapitalization and the excess taxes
of certain stockholders arising from the Company's Section 338(h)(10) election.
In OctoberDecember 1999, the Company reached an
agreement with these stockholders on the method used to compute their excess
taxes. Based upon this computation method, the Company believes that its
estimated liability for the excess taxes of these stockholders is
approximately $13.0 million, of which the Company has recorded a $7,200 charge to equity of $5.8 million forto finalize the
nine months ended September 30, 1999. The
Company will record an additional charge of $7.2 million incosts associated with the fourth quarter
of 1999, for an aggregate charge of $13.0 million for excess taxes. TheRecapitalization increasing the total
consideration was not required to be adjusted based on the Company's working
capital on the date of the Recapitalization. The final transaction
value for
the Recapitalization after these adjustment provisions was approximately
$659.2 million.to $659,200.
On January 20, 1999, the Recapitalization was funded by: (i) $225.0 million$225,000 of
borrowings under the Senior Credit Facility; (ii) $150.0 million$150,000 of borrowings under
the Senior Subordinated Facility; (iii) approximately $254.7
million$254,700 equity investment by the THL
Parties through the Equity Investor; (iv) approximately $5.7 million$5,700 equity investment by the
Company's senior management team; and (v) equity retained by the Company's
existing stockholders having an implied fair market value of approximately
$16.6
million.$16,600.
The Recapitalization was accounted for as a leveraged recapitalization,
which had no impact on the Company's historical basis of assets and liabilities
for financial reporting purposes.
5
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(Unaudited)
Note 2--Recapitalization of the Company and other matters (continued)
The Senior Subordinated Facility was redeemed through the issuance of 9
7/8% Senior Subordinated Notes due 2009. In connection with this redemption,
the Company incurred an extraordinary loss from the early extinguishment of
debt, net of tax of $2,325.
For the nine months ended September 30,During 1999, the Company has recorded $36,449$31,312 in fees and expenses associated
with the Recapitalization. SuchThe total fees and expenses consist of: (i) fees and
expenses related to the debt and
5
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 2--RECAPITALIZATION OF THE COMPANY AND NON-RECURRING CHARGES (CONTINUED)
equity transactions, including bank commitment fees and underwriting discounts
and commissions; (ii) professional, advisory and investment banking fees and
expenses; and (iii) miscellaneous fees and expenses such as printing and filing
fees. The fees and expenses that could be specifically identified as relating to
the issuance of debt were capitalized and will be amortized over the life of the
debt as interest expense. The fees and expenses that could be specifically
identified as relating to the equity transactions were charged directly to
equity. Other transaction fees were allocated between debt and recapitalizationRecapitalization
transaction fees based on the Company's estimate of the effort spent in the
activity giving rise to the fee or expense. The allocation of fees and expenses
to the debt, equity and recapitalizationRecapitalization transaction fees is as follows:
Recapitalization
Debt Equity Transaction Fees Totals
------- ------ ---------------- -------DEBT EQUITY FEES TOTALS
-------- -------- -------- --------
Direct costs........................ $16,543 $6,488costs.............................. $17,205 $688 $ -- $23,031$17,893
Allocated costs..................... 2,728costs........................... 2,729 -- 10,690 13,41813,419
------- ---------- ------- -------
Total fees and expenses........... $19,271 $6,488expenses................... $19,934 $688 $10,690 $36,449$31,312
======= ========== ======= =======
In connection withDuring the Recapitalization of the Company as described above,
the Company formed a wholly-owned subsidiary DW Wej-it, Inc., a Delaware
corporation ("DW"). All of the Company's assets and liabilities related to the
Company's business of manufacturing and marketing construction anchoring
fasteners and providing contract-manufacturing services in metals fabrication
(which is collectively referred to as the "Metals Business") were contributed
to DW. Effective January 1, 1999, the Company distributed all of the shares of
capital stock of DW owned by the Company to its shareholders.
For thefirst nine months ended September 30,of 1999, the Company recorded various
non-recurring charges as followsfollows: (i) change of control bonuses to some members
of senior management totaling $8,645, which were contractually required as a
result of the Recapitalization (Senior(senior management reinvested $2,700 of their
change in control bonuses in the Company's common stock through a Grantor
Trust); (ii) $1,100 to cost of goods sold for the write-off of its "Citri-Glow"
candle inventory (the Company discontinued this product line during 1999 and
(ii) $1,606 of severance charges incurred as a resultchose to dispose of the Presidentinventory by selling it through discount channels at
prices below cost); and Chief Executive Officer's termination(iii) $900 related to deductions taken by customers for
advertising and promotional spending in excess of employment withcontractual obligations for
which the Company.
Note 3--Common stock and stock split
The Company's articles of incorporation previously authorized 20,000 shares
of $1.00 par value Class A Voting shares and 20,000 shares of $1.00 par value
Class B Non-Voting shares. At December 31, 1998, 740 Class A Voting shares and
740 Class B Non-Voting shares were outstanding.Company elected not to pursue collection.
NOTE 3--COMMON STOCK AND STOCK SPLIT
On January 20, 1999, the Company's Board of Directors declared an
83,378.37838 to 1 stock split and increased the Company's authorized capital to
65 million65,000 shares, of which 32.5 million32,500 have been designated as Class A Voting Common
Stock and 32.5 million32,500 have been designated as Class B Non-
VotingNon-Voting Common Stock. As of
January 20, 1999, there were 27.7 million27,600 shares of Class A Voting Common Stock
outstanding and 27.7 million27,600 shares of Class B Non-Voting Common Stock outstanding. In
conjunction with the stock split, the Company's board of directors reduced the
par value of both the Class A Voting shares and Class B Non-Voting shares to
$0.01 per share.
6
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(Unaudited)
Note 4--InventoriesSTATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 4--INVENTORIES
Inventories at September 30, 1999 and December 31, 1998 are as follows:
SeptemberSEPTEMBER 30, DecemberSEPTEMBER 30, DECEMBER 31,
2000 1999 19981999
-------------- -------------- ------------- ------------
Raw materials..................................materials.......................................... $ 6,0847,715 $ 7,7485,899 $ 9,916
Finished goods................................. 29,903 33,696goods......................................... 25,071 30,919 44,149
Allowance for obsolete and slow-moving inventory....... (987) (831) (822)
------- ------- -------
Total inventories............................inventories...................................... $31,799 $35,987 $41,444$53,243
======= ======= =======
Note 5--Other Assets
Other assets at September 30, 1999NOTE 5--EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Equipment and December 31, 1998 consist of:leasehold improvements, net are as follows:
SeptemberSEPTEMBER 30, DecemberSEPTEMBER 30, DECEMBER 31,
2000 1999 19981999
-------------- -------------- ------------- ------------
Goodwill.......................................
Machinery and equipment................................ $27,514 $25,763 $26,791
Office furniture and equipment......................... 10,227 9,182 9,606
Automobiles, trucks and aircraft....................... 6,412 9,574 9,573
Leasehold improvements................................. 6,985 6,834 6,848
------- ------- -------
51,138 51,353 52,818
Less: accumulated depreciation......................... 25,267 23,786 24,958
------- ------- -------
$25,871 $27,567 $27,860
======= ======= =======
NOTE 6--OTHER ASSETS
Other assets are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------
Goodwill............................................... $ 7,988 $ 7,988 $ 7,988
Accumulated amortization.......................amortization............................... (2,130) (1,909) (1,744)(1,964)
------- ------- -------
5,858 6,079 6,244
Debt issuance costs, net of amortization.......6,024
------- ------- -------
Deferred financing fees................................ 17,108 15,534 16,184
Accumulated amortization............................... (3,770) (1,506) (1,991)
------- ------- -------
13,338 14,028 --
Other..........................................14,193
------- ------- -------
Other.................................................. 610 911 704653
------- ------- -------
Total other assets...........................assets..................................... $19,806 $21,018 $ 6,948$20,870
======= ======= =======
Note 6--Accrued expenses
Accrued expenses at September 30, 1999 and December 31, 1998 consist of:
September 30, December 31,
1999 1998
------------- ------------
Advertising and promotional expenses........... $10,150 $ 5,018
Recapitalization fees and expenses............. 5,800 --
Settlement charges............................. 1,200 1,200
Severance...................................... 1,115 --
Commissions.................................... 417 262
Cash overdraft................................. -- 3,148
Litigation expenses............................ -- 1,121
Freight expense................................ -- 238
Other.......................................... 1,669 1,718
------- -------
Total accrued expenses....................... $20,351 $12,705
======= =======
Note 7--Income taxes
In conjunction with the Recapitalization, the Company converted from an "S"
corporation to a "C" corporation. The impact of the conversion was a charge of
$2,062, which has been reflected as income tax expense in the accompanying
financial statements.
7
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(DollarsSTATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 7--ACCRUED EXPENSES
Accrued expenses are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------
Recapitalization costs................................. $ -- $ 5,800 $13,000
Advertising and promotional............................ 8,009 10,150 4,799
Dursban................................................ 7,479 -- --
Interest............................................... 3,782 -- 3,840
Cash overdraft......................................... -- -- 2,078
Severance charges...................................... 952 1,115 1,805
Settlement charges and litigation...................... -- 1,200 114
Other.................................................. 2,827 1,611 1,828
------- ------- -------
Total accrued expenses................................. $23,049 $19,876 $27,464
======= ======= =======
NOTE 8--LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt is comprised of the following:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2000 1999 1999
-------------- -------------- -------------
Senior Credit Facility:
Term loan A.......................................... $ 57,500 $ 65,000 $ 62,500
Term loan B.......................................... 147,375 148,500 148,125
Revolving credit facility.............................. 15,000 -- --
9 7/8% Series B Registered Senior Subordinated Notes... 150,000 150,000 150,000
-------- -------- --------
369,875 363,500 360,625
Less portion due within one year....................... (26,500) (11,500) (11,500)
-------- -------- --------
Total long-term debt net of current portion............ $343,375 $352,000 $349,125
======== ======== ========
The Senior Credit Facility was provided by NationsBank, N.A., Morgan Stanley
Senior Funding, Inc. and CIBC Inc. and consists of (i) a $110,000 revolving
credit facility (the "Revolving Credit Facility"); (ii) a $75,000 term loan
facility ("Term Loan A"); and (iii) a $150,000 term loan facility ("Term Loan
B"). The Revolving Credit Facility and Term Loan A matures on January 20, 2005,
and Term Loan B matures on January 20, 2006.
The Revolving Credit Facility is subject to a clean-down period during which
the aggregate amount outstanding under the Revolving Credit Facility shall not
exceed $10,000 for 30 consecutive days occurring during the period between
August 1 and November 30 in thousands)
(Unaudited)
Note 7--Income taxes (continued)
Deferred income taxeseach calendar year. In 2000, the actual clean-down
period began on August 2. On September 30, 2000, $15,000 was outstanding under
the $110,000 revolving credit facility. There were recordedno compensating balance
requirements for the temporary differences that were
created in conjunction with the Recapitalization and conversion to a "C"
Corporation. The deferred income taxes were as follows on 1/21/99:
Goodwill....................................................... $ 266,300
Equipment and leasehold improvements........................... (2,668)
Other.......................................................... 606
---------
Gross deferred tax asset....................................... 224,238
Valuation allowance............................................ (113,150)
---------
Net deferred tax asset......................................... $ 111,088
=========
The temporary difference for goodwill results from the step up in tax basis
due to the recapitalization while maintaining historical basis for book
purposes. This benefit will be realized over 15 years. Based on historical
levels of income and the length of time required to utilize this benefit, a
valuation allowance representing 50% of the total benefit has been
established.
Deferred tax assets and liabilities included in the balance sheet$110,000 revolving credit facility at September 30, 2000.
8
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 8--LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
The principal amount of Term Loan A is to be repaid in twenty-three
consecutive quarterly installments commencing March 30, 1999 with a final
installment due January 20, 2005. $10,000 will be payable in each of the first
four years and $17,500 will be repaid in each of the last two years. The
principal amount of Term Loan B is to be repaid in twenty-seven consecutive
quarterly installments commencing March 30, 1999 with a final installment due
January 20, 2006. $1,500 will be paid in each of the first six years and
$141,000 will be payable in year seven.
The Senior Credit Facility agreement contains restrictive affirmative,
negative and financial covenants. Affirmative and negative covenants put
restrictions on levels of investments, indebtedness, insurance and capital
expenditures. Financial covenants require the maintenance of certain financial
ratios at defined levels. At December 31, 1999, the Company was not in
compliance with certain financial covenants. On January 24, 2000 the Senior
Credit Facility agreement was amended to provide new provisions for financial
covenant requirements and a waiver of the covenant requirements at December 31,
1999. The amendment contains provisions for the increase in interest rates upon
reaching certain maximum leverage ratios. As part of the amended agreement, the
Company paid bank fees of $862, which were reflected as deferred financing fees
in January 2000 and will be amortized over the life of the debt as interest
expense. At September 30, 2000, the Company was not in compliance with certain
financial covenants. See subsequent event footnote.
Under the January 24, 2000 covenants, interest on the Revolving Credit
Facility, Term Loan A and Term Loan B ranges from 200 to 375 basis points above
LIBOR depending on certain financial ratios. Unused commitments under the
Revolving Credit Facility are subject to a 50 basis point annual commitment fee.
LIBOR was 6.62% at September 30, 2000.
The Senior Credit Facility may be prepaid at any time in whole or in part
without premium or penalty. During 1999, principal payments on Term Loans A and
B of $12,500 and $1,875, respectively, were paid, which included optional
principal prepayments of $5,000 and $675 on Term Loan A and Term Loan B,
respectively. According to the Senior Credit Facility agreement, each prepayment
on Term Loan A and Term Loan B can be applied to the next principal repayment
installments. In the nine months ended September 30, 2000, principal payments on
Term Loans A and B of $5,000 and $750, respectively, were paid. The optional
principal payments were applied September 2000.
Obligations under the Senior Credit Facility are secured by substantially
all of the properties and assets of the Company and substantially all of the
properties and assets of the Company's future domestic subsidiaries.
The Company's previous Senior Subordinated Facility was redeemed through the
issuance of 9 7/8% Senior Subordinated Notes due April 1, 2009. In connection
with this redemption, the Company incurred an extraordinary loss from the early
extinguishment of debt, net of tax of $2,325. In the fourth quarter of 1999, the
Company exchanged the 9 7/8% Senior Subordinated Notes for new notes registered
under the Securities Act of 1933. The new notes are substantially identical to
the old notes.
The carrying amount of the Company's obligation under the Senior Credit
Facility approximates fair value because the interest rates are based on
floating interest rates identified by reference to market rates.
9
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 8--LONG-TERM DEBT AND CREDIT FACILITIES (CONTINUED)
Aggregate maturities under the Senior Credit Facility (excluding the
revolving credit facility) and the Senior Subordinated Notes are as follows:
Deferred income tax............................................. $107,574
Other liabilities............................................... (2,668)2000 Remainder of year...................................... $ 2,875
2001........................................................ 11,500
2002........................................................ 11,500
2003........................................................ 17,125
2004........................................................ 18,375
Thereafter.................................................. 293,500
--------
$104,906$354,875
========
Note 8--Commitments andThe company entered into a capital lease agreement in March 1999 for $9,215,
which was cancelled in May of 2000. A new capital lease agreement was entered
into in March of 2000 for $5,869. The effect of the two capital lease
transactions with related partieswas a non-cash gain of $1,182.
NOTE 9--COMMITMENTS
The Company leases the majority of its operating facilities from a company
owned by a significant shareholder of the Company under various operating leases
expiring December 31, 1999. Minimum annual rentals under these
operating leases amount to approximately $2,637.2010. The Company has options to renewterminate the leases on a
year-to-year basis for an additional ten years,
beginning January 1, 2000.by giving advance notice of at least twelve months. The
Company leases a portion of its operating facilities from the same company under
a sublease agreement expiring on December 31, 2005 with minimum annual rentals
ranging from $140$578 to $368.$653. The Company has two five-year options to renew thethis
lease, beginning January 1, 2006.
The Company is also obligated under other operating leases for use of
warehouse space. The leases expire at various dates through January 31, 2001.
Three of the leases provide as many as three five-year options to renew. Management believes that the terms and
expenses associated with the related party leases described above are similar to
those negotiated by unrelated parties at arm's length.
In connection with the Recapitalization Agreement, theThe Company entered into
a professional service agreement with the Thomas H. Lee Company.is obligated under other operating leases for use of warehouse
space. The agreement
extends for a term of three years, beginning January 20, 1999, and
automatically extends for successive one-year periods thereafter, unless the
parties give 30 days' notice prior to the endleases expire at various dates through December 1, 2006. Several of
the term. The agreement
provides that the Thomas H. Lee Company will receive $62.5 per month for
management and other consulting services providedleases provide as many as five five-year options to the Company. For the nine
months ended September 30, 1999, the Company has paid $522 under this
agreement. The agreement also provides that the Company will reimburse out-of-
pocket expenses incurred in connection with management advisory services.
8
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands)
(Unaudited)
Note 9--Contingencies
In March 1998, a judgement for $1,200 was entered against the Company for a
lawsuit filed in 1992 by the spouse of a former employee claiming benefits
from a Company-owned key man life insurance policy. On August 24, 1999 the
Missouri Court of Appeals, Eastern District, affirmed the trial court's
decision. The Company has filed an application to transfer the case to the
Missouri Supreme Court for further review. The Company has reflected the
judgement amount as non-recurring litigation charges for the nine months ended
September 30, 1998, of which no amounts have been paid as of September 30,
1999.
In October 1998, the FTC and several state attorneys general filed a suit
against the Company seeking to enjoin the Company's advertising of Spectracide
Terminate as a "termite home defense system." The suit alleges that the
Company made deceptive and unsubstantiated claims regarding Spectracide
Terminate; the Company has denied the allegations. The Company has entered
into a settlement agreement regarding its advertising claims with the FTC and
the state attorney generals involved in the litigation. As part of the
settlement, the Company agreed that it would not, without competent and
reliable scientific evidence, represent to consumers that: (a) use of
Spectracide Terminate alone is effective in preventing terminate infestations
or eliminating active termite infestations; (b) Spectracide Terminate provides
"protection for you home against subterranean termites"; and (c) Spectracide
Terminate is a "termite home defense system" or make any representations
comparing the performance of Spectracide Terminate to other termite control
methods. The Company further agreed to apply to the federal EPA to rename the
product as "Spectracide Terminate" (without reference to "termite home defense
system"). The agreement provides that the Company may describe the product as
a "do-it-yourself termite killing system for subterranean termites." Finally,
in virtually any advertisement that indicates, either expressly or implicitly,
that Spectracide Terminate kills termites or prevents termite damage or
infestation, the Company agreed to make the following disclosure: "Not
recommended as sole protection against termites, and for active infestations,
get a professional inspection." The Company incurred charges from this suit
totaling $1,100, including $400 paid to 10 states' attorneys general for
reimbursement of their legal expenses and $700 for other legal expenses we
incurred in connection with this suit. These expenses were reflected as non-
recurring litigation charges in the fourth quarter of 1998 and were paid in
the first quarter of 1999.
In March 1999, the Company took a charge of $1,500 to primarily reserve for
the expected cost of an adverse judgement on a counterclaim. On July 29, 1999,
the Company paid $900 in liquidating damages and $112 in past commissions in
settlement of this case. The remaining amounts accrued in connection with the
$1,500 charge will primarily be used to cover unpaid legal costs associated
with this case.renew.
NOTE 10--CONTINGENCIES
The Company is involved in litigation and arbitration proceedings in the
normal course of business that assert product liability and other claims. The
Company is contesting all such claims. When it appears probable in management's
judgment that the Company will incur monetary damages or other costs in
connection with such claims and proceedings, and such costs can be reasonably
estimated, appropriate liabilities are recorded in the financial statements and
charges are made against earnings.
Management believes the possibility of a material adverse effect on the
Company's consolidated financial position, results of operations and cash flows from the
claims and proceedings described above is remote.
10
UNITED INDUSTRIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NOTE 11--DURSBAN RELATED EXPENSES
On September 7, 2000 the US Environmental Protection Agency and
manufacturers of chlorpyrifos (the active ingredient in Dursban pesticidal
products) entered into a voluntary agreement that provides for phasing out most
nonresidential uses and virtually all residential uses of Dursban. Formulation
of new Dursban products intended for residential use must cease by December 1,
2000, and formulators can no longer sell such products to retailers after
February 1, 2001. Retailers will no longer be able to sell Dursban products
after December 31, 2001.
The Company has assessed the potential financial impact of the Dursban
agreement on its operations. A charge of $8,000 was booked in September of 2000
for costs associated with this agreement. The Company currently has a
replacement chemical for the active ingredient in Dursban, which chemical is
already being used in production of new pesticidal products.
Details of this charge and the accrual balances remaining are as follows:
THIRD
QUARTER AMOUNTS UTILIZED THIRD QUARTER
2000 CHARGE DURING THIRD QUARTER 2000 ACCRUAL BALANCE
----------- -------------------- --------------------
Returns..................................... $5,415 $ 68 $5,347
Inventory................................... 1,370 -- 1,370
Disposal and related costs.................. 1,215 453 762
------ ---- ------
$8,000 $521 $7,479
====== ==== ======
NOTE 12--SUBSEQUENT EVENT
On November 9, 2000, the Senior Credit Facility was amended to provide new
financial covenants and a waiver of certain covenants at September 30, 2000. As
a condition to the effectiveness of this amendment and waiver, the Company
agreed to the following items:
1. The Company agreed to terminate $30,000 of the unused portion of the
Revolving Credit Facility under the credit agreement, thereby reducing the
Revolving Credit Facility from $110,000 to $80,000.
2. The Company agreed to sell Common Stock and/or permitted Preferred Stock to
the Equity Investors for net cash proceeds equal to $15,000, which net cash
proceeds have been applied to the prepayment of Term Loan advances.
3. Interest rate increase will range from 25 to 75 basis points higher than
previous Revolving Credit Facility.
On November 8, 2000, the Company Board of Directors, authorized the creation
of 15,000 shares of Class A Preferred Stock to be sold to UIC Holdings LLC at a
price of $1,000 per share.
11
ItemITEM 2: Management's DiscussionMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements
within the meaning of Section27A of the Securities Act of 1933, as amended, and
AnalysisSection 21E of Financial Conditionthe Securities Act of 1934, as amended." All statements other
than statements of historical facts included in this report regarding the
Company's financial position, business strategy, budgets and Resultsplans and
objectives of Operations
Overviewmanagement for future operations are forward-looking statements.
Although the management of the Company believes that the expectations reflected
in such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company, or
industry results to be materially different from those contemplated or
projected, forecasted, estimated or budgeted in or expressed or implied by such
forward-looking statements. Such factors include, among others, the risk and
other factors set forth under "Risk Factors" in the Company's Registration
Statement on Form S-4 filed with the Commission and in the Company's Annual
Report on Form 10-K for 1999 as well as the following: general economic and
business conditions; governmental regulations; industry trends; the loss of
major customers or suppliers; cost and availability of raw materials; changes in
business strategy or development plans; availability and quality of management;
and availability, terms and deployment of capital.
OVERVIEW
The Company is the leading manufacturer and marketer of value-oriented
branded products for the consumer lawn and garden pesticide and household
insecticide markets in the United States. The Company manufactures and markets
one of the broadest lines of pesticides in the industry, including herbicides
and indoor and outdoor insecticides, as well as insect repellents and
water-
solublewater-soluble fertilizers, under a variety of brand names. ResultsThe Company believes
that the key drivers of Operationsgrowth for the $2.7 billion consumer lawn and garden
pesticide and household insecticide retail markets include: (a) the aging of the
United States population; (b) growth in the home improvement center and mass
merchandiser channels; and (c) shifting consumers preferences' toward
value-oriented branded products.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the historical
financial information included in the unaudited quarterly financial statements
and the related notes to the unaudited quarterly financial statements.
RESULTS OF OPERATIONS
The following discussion regarding results of operations refers to net
sales, cost of goods sold, advertising and promotion expensesexpense and selling, and
general and administrative expenses which the Company defines as follows:
.- Net sales are gross sales of products sold to customers upon shipment of
product less any customer discounts from list price and customer returns.
.- Cost of goods sold includes chemicals, container and packaging material
costs as well as direct labor, outside labor, manufacturing overhead and
freight.
.- Advertising and promotion expensesexpense includes the cost of advertising of
products through national and regional media as well as the advertising
and promotion of products through cooperative programs with retailers.
.12
- Selling, and general and administrative expenses includesinclude all costs associated
with the selling and distribution of product, product registrations, and
administrative functions such as finance, information systems and human
resources.
10
The following table sets forth the percentage relationship of certain items
in the Company's income statement of operations to net sales for the three months ended
September 30, 19992000 and the three months ended September 30, 1998:1999 (percentages are calculated based on
actual data, but columns may not add due to rounding):
Three Months Ended Three Months Ended
SeptemberTHREE MONTHS
ENDED
SEPTEMBER 30,
1998 September 30,----------------------
2000 1999
------------------ -------------------------- --------
Net sales:Sales:
Value brands........................... 72.7% 71.6%brands.............................................. 74.7% 77.8%
Opening price point brands............. 27.3 28.4brands................................ 25.3 22.2
----- -----
Total net sales..........................sales............................................. 100.0 100.0
Operating costs and expenses:
Cost of goods sold..................... 53.0sold........................................ 52.0 47.1
Advertising and promotion expenses..... 8.7expenses........................ 7.9 7.7
Selling, general and administrative expenses..............................expenses.............. 29.5 30.6
Recapitalization transaction fees......................... -- --
Change of control bonuses................................. -- --
Severance charge.......................................... -- --
Dursban related expenses.................................. 15.7 --
Non-recurring litigation charges.......................... -- --
----- -----
Total operating costs and expenses....... 91.2expenses.......................... 105.1 85.4
----- -----
Operating income......................... 8.8income (loss)..................................... (5.1) 14.6
Interest (income) expense................ (0.2)expense............................................ 19.8 16.8
----- -----
Income (loss) before provision for income taxes and
discontinued operations....... 9.0extraordinary item........................................ (24.9) (2.2)
Income tax expense....................... 0.2expense (benefit)................................ (10.0) 3.2
----- -----
Income (loss) from continuing operations. 8.8% (5.4%)Loss before extraordinary item.............................. (14.9)% (5.4)%
===== =====
Three Months EndedTHREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES. Net sales decreased 4.6% to $51.1 million for the three months
ended September 30, 1999 compared to Three Months Ended September
30, 1998
Net Sales. Net sales increased 11.5% to2000 from $53.5 million for the three months ended
September 30, 1999 from $48.01999. This decrease was driven by a combination of factors
including:
- Lost sales opportunity due to voluntary phase-out of Dursban between EPA
and manufacturer.
- Extreme weather conditions in our major markets in the United States.
- Decline in value brand sales due to the elimination of item listings at
Home Depot, partially offset by gains at other customers.
- Retail inventory balancing issues affecting shipments of Spectracide
Terminate-TM-.
Net sales of the Company's value brands decreased 8.4% to $38.1 million for the
three months ended September 30, 1998. This increase was driven by expanded distribution of the
company's value brands and opening price point brands at home improvement
centers and mass merchandisers as well as the continued shift in consumer
preferences toward value and opening price point brands. Net sales of the
Company's value brands increased 9.7% to $38.32000 from $41.7 million for the three months
ended September 30, 1999 from $34.91999. Value brand sales to Home Depot were impacted by Home
Depot's strategy to move more listings to opening price point brands, as well as
overall category sales performed below market trends at Home Depot. The extreme
drought in the South and Southwest combined with unusually wet weather in the
Northeast severely impacted customer point-of-sales in all seasonal goods.
Spectracide Terminate-TM- shipments
13
were impacted by high retail inventory levels. However, retail point-of-sale
trend continues to show improved consumer acceptance. Net sales of opening price
point brands increased 9.0% to $12.9 million for the three months ended
September 30, 1998. This increase was a result of continued growth of the
Company's core value brands including Bag-a-Bug, Hot Shot and Cutter. Net
sales of opening price point brands increased 16.0% to $15.22000 from $11.9 million for the three months ended September 30,
1999 from $13.11999. The increase was driven primarily by an increase in opening price point
listings at Home Depot and continued same store and new store growth at Lowes.
GROSS PROFIT. Gross profit decreased 13.4% to $24.5 million for the three
months ended September 30, 1998 driven by the continued rapid pace of store openings
by the Company's top retail customers.
Gross Profit. Gross profit increased 25.8%2000, compared to $28.3 million for the three months
ended September 30, 1999 compared to $22.5 million for the three months
ended September 30, 1998.1999. As a percentage of sales, gross profit increaseddecreased to
48.0% as compared to 52.9% for the three months ended September 30, 1999 as compared to 47.0% for
the three months ended September 30, 1998.1999. The
increasedecrease in gross profit as a percentage of sales was the result of a change in
sales mix to slightly lower margin products, offset by lower material costs
primarily driven by increased supplier rebates which were received earlier in 1999 than in 1998.
Advertising and Promotion Expenses.rebates.
ADVERTISING AND PROMOTION EXPENSES. Advertising and promotion expenses
decreased 2.4%2.3% to $4.0 million for the three months ended September 30, 2000,
compared to $4.1 million for the three months ended September 30, 1999
compared1999. As a
percentage of net sales, advertising and promotion expenses increased to $4.27.9%
for the three months ended September 30, 2000 from 7.7% for the three months
ended September 30, 1999. The reduction in advertising and promotion expense is
due to the shift from media spending to supporting in store retail selling
programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 8.2% to $15.1 million for the three months
ended September 30, 1998 due to
a reduction in cooperative advertising costs with grocery store customers in
the third quarter of 1999. This decrease was offset by increased cooperative
advertising with home improvement centers due to continued store expansion.
11
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 15.5% to2000 from $16.4 million for the three months ended
September 30, 1999 from $14.2 million for the three months ended
September 30, 1998.1999. As a percentage of net sales, selling, general and
administrative expenses increaseddecreased to 30.6% for the three months ended
September 30, 1999 from 29.5% for the three months ended
September 30, 1998.2000 from 30.7% for the three months ended September 30, 1999. The
overall increasedecrease in selling, general and administrative expenses was primarily
due to reduction of marketing and sales expenses related to higher selling, marketingsales volume
decrease and distribution costs to supportother cost reduction efforts.
DURSBAN RELATED EXPENSES. The Company recorded a non-recurring expense of
$8.0 million as a result of the growthEPA and manufacturers voluntary phase-out of the
active chemical in sales.
Operating Income.the Company's products.
OPERATING INCOME (LOSS). Operating income increased 85.7%(loss) decreased to $(2.6)
million for the three months ended September 30, 2000 from $7.8 million for the
three months ended September 30, 1999 from $4.2 million for the three months
ended September 30, 1998.1999. As a percentage of net sales, operating
income increaseddecreased to 14.6%(5.1)% for the three months ended September 30, 19992000 from
8.8%14.5% for the three months ended September 30, 1998 as a result of the factors described
above.
Income tax expense.1999.
INCOME TAX EXPENSE. For the three months ended September 30, 1999,2000, the
Company's effective income tax rate reflects a reduction in the estimated utilization of the
goodwill deduction in fiscal year 19992000 and the related
changea reduction in the valuation allowance.taxable income
estimate for fiscal year 2000 taxable income. The goodwill deduction is related
to the step-up in tax basis in conjunction with the Recapitalization.
14
The following table sets forth the percentage relationship of certain items
in the Company's income statement to net sales for the nine months ended
September 30, 19992000 and the nine months ended September 30, 1998:1999 (percentages are calculated based on
actual data, but columns may not add due to rounding):
Nine Months Ended Nine Months Ended
SeptemberNINE MONTHS
ENDED
SEPTEMBER 30,
1998 September 30,----------------------
2000 1999
------------------ -------------------------- --------
Net sales:Sales:
Value brands........................... 77.2%brands.............................................. 75.7% 80.2%
Opening price point brands............. 22.8brands................................ 24.3 19.8
----- -----
Total net sales..........................sales............................................. 100.0 100.0
Operating costs and expenses:
Cost of goods sold..................... 49.4sold........................................ 50.4 48.9
Advertising and promotion expenses..... 11.4expenses........................ 8.9 10.3
Selling, general and administrative expenses.............................. 19.5expenses.............. 19.8 19.3
Recapitalization transaction fees......fees......................... -- 3.8
Change of control bonuses..............bonuses................................. -- 3.1
Severance charge.......................charge.......................................... -- 0.6
Dursban related expenses.................................. 3.0 --
Non-recurring litigation charges....... 0.5charges.......................... -- 0.5
----- -----
Total operating costs and expenses....... 80.8expenses.......................... 82.1 86.5
----- -----
Operating income......................... 19.2income............................................ 17.9 13.5
Interest expense......................... 0.4expense............................................ 11.9 9.4
----- -----
Income before provision for income taxes and discontinued operations............. 18.8extraordinary
item...................................................... 6.1 4.1
Income tax expense....................... 0.3expense.......................................... 0.5 3.3
----- -----
Income from continuing operations........ 18.5%Loss before extraordinary item.............................. 5.6% 0.8%
===== =====
Nine Months EndedNINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES. Net sales decreased 6.7% to $263.1 million for the nine months
ended September 30, 1999 compared to Nine Months Ended September
30, 1998
Net Sales. Net sales increased 9.6% to2000 from $281.8 million for the nine months ended
September 30, 1999. This decrease was driven by a combination of factors
including:
- Extreme weather conditions in our major markets in the United States.
- Decline in value brand sales due to the elimination of item listings at
Home Depot, partially offset by gains at other customers.
- Retail inventory balancing issues affecting shipments of Spectracide
Terminate-TM-.
- Lost sales opportunity due to voluntary phase-out of Dursban between EPA
and manufacturer.
- 1999 from $257.2Spectracide Pro-Registered Trademark- sales reflected initial sell in
to stock retail shelves.
Net sales of the Company's value brands decreased 11.9% to $199.2 million for
the nine months ended September 30, 1998. This increase was driven2000 from $226.1 million for the nine months
ended September 30, 1999. Value brand sales to Home Depot were impacted by a combination of factors
including:
. the continued shift of consumers' preferences towards value andHome
Depot's strategy to move more listings to opening price point brands;
.brands as well as
overall category sales performed below market trends at Home Depot. The declines
at Home Depot were partially offset by the continual same store and new product introductions, includingstore
growth at Lowes. The extreme drought in the South and Southwest combined with
unusually wet weather in the Northeast severely impacted customer Point-of-Sales
in all seasonal goods. Spectracide Pro; and
12Terminate-TM- shipments were impacted by high
retail inventory levels. However, retail point-of-sale trends continue
15
. expanded distribution at home improvement centers and mass merchandisers
through increased shelf space and continued store expansion.
Netto show improved consumer acceptance. Spectracide Pro's net sales ofdecreased
38.6% to $3.6 million for the Company's value brands increased 7.4% to $213.2nine months ended September 30, 2000 from
$5.9 million for the nine months ended September 30, 1999, from $198.6as the first half of
1999 reflected the initial sell in to stock retail shelves. Net sales of opening
price point brands increased 14.8% to $63.9 million for the nine months ended
September 30, 1998. This increase was a result of continued
growth of core value brands including Spectracide, Bag-a-Bug, Hot Shot and
Cutter and the introduction of Spectracide Pro. Net sales of opening price
point brands increased 17.1% to $68.62000 from $55.7 million for the nine months ended September 30,
1999 from $58.61999. The increase was driven by an increase in opening price point listings at
Home Depot and continued same store and new store growth at Lowes.
GROSS PROFIT. Gross profit decreased 9.2% to $130.6 million for the nine
months ended September 30, 1998 driven by the continued rapid pace of store openings by the Company's top
retail customers.
Gross Profit. Gross profit increased 10.6%2000 compared to $143.9 million for the nine months
ended September 30, 1999 compared to $130.1 million for the nine months
ended September 30, 1998.1999. As a percentage of sales, gross profit increased
slightlydecreased to
49.6% as compared to 51.1% for the nine months ended September 30, 1999 as compared to
50.6% for the nine months ended September 30, 1998. This increase1999. The
minimal decrease in gross profit as a percentage of sales was the result of a
change in sales mix to slightly lower margin products, offset by lower material
costs primarily driven by increased supplier rebates which were received earlierrebates.
ADVERTISING AND PROMOTION EXPENSES. Advertising and promotion expenses
decreased 19.1% to $23.5 million for the nine months ended September 30, 2000,
compared to $29.0 million for the nine months ended September 30, 1999. As a
percentage of net sales, advertising and promotion expenses decreased to 8.9%
for nine months ended September 30, 2000 from 10.3% for the nine months ended
September 30, 1999. The reduction in advertising and promotion expense is due to
the shift from media spending to supporting in store retail selling programs.
Additionally, a $0.9 million charge was taken in 1999 thanfor customer deductions
taken in 1998.excess of contractual obligations, which the Company elected not to
pursue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 4.3% to $52.0 million for the nine months
ended September 30, 2000 from $54.3 million for the nine months ended
September 30, 1999. As a percentage of net sales, selling, general and
administrative expenses increased to 19.8% for the nine months ended
September 30, 2000 from 19.3% for the nine months ended September 30, 1999. The
overall decrease in selling, general and administrative expenses was primarily
due to a reduction of marketing and sales expenses related to sales volume
decrease, termination of a capital lease and other cost reduction efforts.
RECAPITALIZATION TRANSACTION FEES. No charges were recorded for the nine
months ended September 30, 2000. For the nine months ended September 30, 1999,
the Company recorded a charge of $1.1 million to cost of goods sold for the write-off of
the Company's "Citro-Glow" candle inventory. The Company discontinued the
production of this product line during 1999 and chose to dispose of the
inventory by selling it through discount channels at prices below cost. If
this charge had not been recorded, gross profit for the nine months ended
September 30, 1999 would have been 51.5% of sales and would have increased
11.5% to $145.0 million as compared to $130.1$10.7 million for the nine months
ended September 30, 1998.
Advertising and Promotion Expenses. Advertising and promotion expenses
decreased 0.7% to $29.0 million for the nine months ended September 30, 1999
compared to $29.2 million for the nine months ended September 30, 1998 due to
a reduction in cooperative advertising costs with grocery store customers in
the third quarter of 1999. This decrease was offset by increased cooperative
advertising with home improvement centers due to continued store expansion.
For the nine months ended September 30, 1999, the Company recorded a charge of
$0.9 million related to deductions taken by customers for advertising and
promotional spending in excess of contractual obligations for which the
Company elected not to pursue collection. This charge has been included in
advertising and promotion expense for the nine months ended September 30,
1999. If this charge had not been recorded in the nine months ended September
30, 1999, advertising and promotional expenses would have decreased 3.8% to
$28.1 as compared to $29.2 million for the nine months ended September 30,
1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 8.4% to $54.3 million for the nine months
ended September 30, 1999 from $50.1 million for the nine months ended
September 30, 1998. As a percentage of net sales, selling, general and
administrative expenses decreased slightly to 19.3% for the nine months ended
September 30, 1999 from 19.5% for the nine months ended September 30, 1998.
The overall increase in selling, general and administrative expenses was
related to higher selling, marketing and distribution costs to support the
growth in sales.
Recapitalization Transaction Fees.recapitalization transaction
fees. As of September 30, 1999,2000, the Company recorded $36.4$32.2 million in fees and
expenses associated with the Recapitalization. Fees and expenses that could be
specifically identified as relating to the issuance of debt were capitalized and
will be amortized over the life of the debt as interest expense. The fees and
expenses that could be specifically identified as relating to the equity
transactions were charged directly to equity. Other transaction fees were
allocated between debt and recapitalization transaction fees expense based on
the Company's estimate of the effort spent in the activity givingactivity-giving rise to the
fee or expense.
For the
nine months ended September 30, 1999, the CompanyCHANGE OF CONTROL BONUSES. No charges were recorded a charge of $10.7
million for recapitalization transaction fees. In October, 1999, the Company
reached an agreement with certain stockholders on the method used to compute
their excess taxes. Based upon this computation method, the Company believes
its estimated liability for the excess taxes of these stockholders is
approximately $13.0 million, of which the Company has recorded a charge of
$5.8 million for the nine months
ended September 30, 1999. The Company will
record an additional charge of $7.2 million in the fourth quarter of 1999 for
an aggregate charge of $13.0 million for excess taxes. This amount will be
charged to equity as additional costs of the treasury stock redemption.
13
Change of Control Bonuses.2000. For the nine months ended September 30, 1999, the
Company recorded charges for change of control bonuses paid to some members of
senior management amounting to $8.6 million, which were contractually required
as a result of the Recapitalization.
Severance Charges.SEVERANCE CHARGES. No charges were recorded for the nine months ended
September 30, 2000. For the nine months ended September 30, 1999, the Company
recorded a severance chargecharges of $1.6 million incurred as a result of the Company's
President and Chief Executive Officer's termination ofOfficer terminating employment with the Company.
Non-recurring Litigation Charges. The Company16
NON-RECURRING LITIGATION CHARGES. No charges were recorded non-recurring
litigation charges of $1.5 million for the nine
months ended September 30, 1999 and $1.2 million for2000. For the nine months ended September 30, 1998. In March 1999,
the Company took a charge of $1.5 million to primarily reserve for the expected
cost of an adverse judgmentjudgement on a counterclaim.counterclaim filed by defendants in the case
of United Industries Corporation vs. John Allman, Craig Jackman et al. The
Company alleged that defendants breached contracts by failing to perform various
services. Defendants counterclaimed for sales commissions allegedly earned by
them but not paid by the Company. On July 29, 1999, the Company paid
$900$0.9 million in liquidating damages and $112$0.1 million in past commissions. The
remaining amounts accrued in connection with the $1,500$1.5 million charge willwere
primarily
be used to cover unpaid legal costscost associated with this case.
Chargesthe claim.
DURSBAN RELATED EXPENSES. The Company recorded a non-recurring expense of
$8.0 million as a result of September 30, 1998the EPA and manufacturers voluntary phase-out of $1.2the
active chemical in the Company's products.
OPERATING INCOME. Operating income increased to $47.1 million were related to
legal proceedings pertaining to a suit filed in 1992 by the spouse of a former
employee claiming benefits from a Company-owned key man life insurance policy.
EBITDA for the nine
months ended September 30, 1999 was $64.0 million,
which excludes charges recorded for recapitalization transaction fees, change
of control bonuses, a severance charge and non-recurring litigation charges.
If the Company had excluded the $1.1 million write-off of the Company's
"Citri-Glow" candle inventory and the $0.9 million charge related to
advertising deductions taken by customers in excess of contractual
obligations, EBITDA would have been $66.02000 from $38.1 million for the nine months ended
September 30, 1999. Operating Income. Operating income decreased 23.0% to $38.1 million for the
nine months ended September 30, 1999 from $49.5 million for the nine months
ended September 30, 1998. As a percentage of net sales, operating income decreasedincreased to
17.9% for the nine months ended September 30, 2000 and a reduction in the
estimates for fiscal year 2000 taxable income. Operating income was 13.5% for
the nine months ended September 30, 1999. Operating income in 1999 from 19.2% forwas primarily
negatively impacted by recapitalization transaction fees of $10.7 million and
change of control bonuses as a result of the recapitalization of $8.6 million.
INCOME TAX EXPENSE. For the nine months ended September 30, 1998, primarily as a result of charges
related to2000, the Company's Recapitalization, as described above.
Income tax expense. In conjunction with the Recapitalization, the Company
converted from an "S" corporation to a "C" corporation. The one-time impact of
this conversion was $2.1 million. The
Company's effective income tax rate reflects the one timeestimated utilization of the
goodwill deduction in fiscal year 2000. The goodwill deduction is related to the
step-up in tax basis in conjunction with the Recapitalization. For the nine
months ended September 30, 1999, income tax expense included the one-time impact
of the conversion of the Company from an "S" corporation to a "C" corporation offset by the estimated fiscal year 1999 benefit related to
the step up in tax basisof
$2.1 million. This conversion was in conjunction with the Recapitalization.
Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has utilized internally generated funds and
borrowings under credit facilities to meet ongoing working capital and capital
expenditure requirements. As a result of the Recapitalization, the Company has
significantly increased its cash requirements for debt service relating to the
Company's 9 7/8 Series B Registered Senior Subordinated Notesnotes and Senior Credit Facility. As of September 30,December 31, 1999, the Company
had total debt and capital lease obligations outstanding of $372.3$369.3 million. As
of September 30, 2000, the Company had total debt and capital lease obligations
outstanding of $375.5 million. The Company will rely on internally generated
funds and, to the extent necessary, borrowings under the Company's revolving
credit facilityRevolving
Credit Facility to meet liquidity needs.
The Company's Senior Credit Facility consists of:
.- The September 30, 2000, $110.0 million revolving credit facility,Revolving Credit Facility, under
which no borrowings were outstanding at the closing of the
Recapitalization. As of September 30, 1999;
.2000, $15.0 million was outstanding.
The amount is a current liability and will be paid by funds from
operations;
- The $75.0 million Term Loan A ($65.057.5 million outstanding at September 30,
1999)2000); and
.- The $150.0 million Term Loan B ($148.5147.4 million outstanding at
September 30, 1999)2000).
14
The Company's revolving credit facilityRevolving Credit Facility and the Term Loan A mature six years
frommatures on
January 20, 2005, and the closing date of the Senior Credit Facility, and Term Loan B matures seven years from the closing date of the Senioron January 20, 2006. The Revolving
Credit Facility. The revolving
credit facilityFacility is subject to a clean-down period during which the aggregate
amount outstanding under the revolving credit facility shall not exceed
$10.0 million for 30 consecutive days occurring during the period August 1 and
November 30 in a calendar year.
17
On January 24, 2000, The Senior Credit Facility agreement was amended to
provide new provisions for financial covenant requirements and a waiver of the
covenant requirements at December 31, 1999. The amendment contains provisions
for an increase in interest rates upon reaching certain maximum leverage ratios.
As part of the amended agreement, the Company paid bank fees of $0.9 million,
which were reflected as deferred financing fees in January 2000 and will be
amortized over the life of the debt as interest expense.
On November 9, 2000, the Senior Credit Facility was amended to provide new
financial covenants and a waiver of certain covenants at September 30, 2000. As
a condition to the effectiveness of this amendment and waiver, the Company
agreed to the following items:
1. The Company has $150.0 millionagreed to terminate $30,000 of the unused portion of the
Revolving Credit Facility under the credit agreement, thereby reducing the
Revolving Credit Facility from $110,000 to $80,000.
2. The Company agreed to sell Common Stock and/or permitted Preferred Stock to
the Equity Investors for net cash proceeds equal to $15,000, which net cash
proceeds have been applied to the prepayment of Term Loan advances.
3. Interest rate increase will range from 25 to 75 basis points higher than
previous Revolving Credit Facility.
On November 8, 2000, the Company Board of Directors, authorized the creation
of 15,000 shares of Class A Preferred Stock to be sold to UIC Holdings LLC at a
price of $1,000 per share.
The Company's previous Senior Subordinated Facility was redeemed through the
issuance of 9 7/8% Series B Registered Senior Subordinated Notes that mature ondue April 1, 2009. In connection
with this redemption, the Company incurred an extraordinary loss from the early
extinguishment of debt, net of tax, of $2.3 million. In the fourth quarter of
1999, the Company exchanged the 9 7/8% Senior Subordinated Notes for new notes
registered under the Securities Act of 1933. The new notes are substantially
identical to the old notes.
The Company's principal liquidity requirements are for working capital,
capital expenditures and debt service under the Senior Credit Facility and the
senior subordinated notes. Cash flow from continuing operationsNet cash provided net
cash of $16.9by operating activities was $24.7 million and
$52.9$16.9 million for the nine months ended September 30, 19992000 and September 30, 1998,1999,
respectively. Net cash used by operating activities fluctuates during the year
as the seasonal nature of the Company's sales results in a significant increase
in working capital (primarily accounts receivable and inventory)receivable) during the first half of the
year, with the second and third quarters being significant cash collection
periods.
Capital expenditures are related to the enhancement of the Company's
existing facilities and the construction of additional productionsproduction and
distribution capacity. Cash used for capital expenditures was $1.5$3.2 million and
$2.5$1.5 million for the nine months ended September 30, 19992000 and September 30,
1998,1999,
respectively. In addition, the Company entered into a capital lease agreement in
March 19992000 for $9.2$5.9 million. Cash used for capital expenditures for the
remainder of 19992000 is expected to be less than $1.0$5.0 million.
Principal on the Term Loan A is required to be repaid quarterly in annual
amounts of $10.0 million for years one through four and $17.5 million for years
five and six after the closing of the Senior Credit Facility. Principal on the Term
Loan B is required to be repaid quarterly in annual amounts of $1.5 million for
the first six years and $141.0 million for the seventh year after the closing of
the Senior Credit Facility. Principal onsenior credit facility. For the 9 7/8 Series
B Registered Senior Subordinated Notes is required to be repaid on April 1,
2009. Onnine months ended September 30, 1999,2000,
principal payments on Term Loans A and B of $7.5
million$5,000 and $1.1 million,$750, respectively, were
paid, which includes optional
principal prepayments of $5.0 million and $0.8 on Term Loan A and Term Loan B,
respectively.paid.
The Company believes that cash flow from operations, together with available
borrowings under the revolving credit facility,Revolving Credit Facility, will be adequate to meet the
anticipated requirements for working capital, capital expenditures and scheduled
principal and interest payments for at least the next two years. However, the
Company cannot ensure that sufficient cash flow will be generated from
operations
18
to repay the notes and amounts outstanding under the senior credit facility at
maturity without requiring additional financing. The Company's ability to meet
debt service and clean-down obligations and reduce debt will be dependent on the
Company's future performance, which in turn, will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond the Company's control. Because a portion of the Company's debt bears
interest at floating rates, the Company's financial condition is and will
continue to be affected by changes in prevailing interest rates.
SeasonalitySEASONALITY
The Company's business is highly seasonal because the Company's products are
used primarily in the spring and summer. For the past two years, approximately
75% of the Company's net sales have occurred in the first and second quarters.
The Company's working capital needs, and correspondingly the Company's
borrowings, peak near the end of the Company's first quarter.
Recently Issued Accounting Pronouncements
The Financial Accounting Standard Board issued SFAS No. 133, "AccountingIMPACT OF SEPTEMBER 7, 2000 DURSBAN AGREEMENT
On September 7, 2000, the U.S. Environmental Protection Agency and
manufacturers of chlorpyrifos (the active ingredient in Dursban pesticidal
products) entered into a voluntary agreement that provides for Derivative Instrumentsphasing out most
nonresidential uses and Hedging Activities" in June 1998. SFAS 133
provides standards on accountingvirtually all residential uses of Dursban. Formulation
of new Dursban products intended for residential use must cease by December 1,
2000, and disclosure for derivative instruments and
requires that all derivativesformulators can no longer sell such products to retailers after
February 1, 2001. Retailers will no longer be measured at fair value and reported as either
assets or liabilities on the balance sheet. The Company will be requiredable to adopt this statement no later than the beginning of fiscal yearsell Dursban products
after December 31, 2001.
The Company has not completedassessed the analysis to determine thepotential financial impact of the Dursban
agreement on its operations. A charge of $8,000 was recorded in September of
2000 for costs associated with this statement onagreement. The Company currently has
replacement chemicals for Dursban, which are currently being used in production
of new pesticidal products.
SIGNIFICANT CUSTOMER
During the Company's financial statements; however, the impact is not
expected to be material.
15
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than year 2000.
In connection with a $2.5 million management information systems upgrade,third quarter, Kmart notified the Company has substantially completed an inventory of computer programs and
assessed year 2000 readiness. The Company's information systems and computer
programs include programs developed for the Company's proprietary management
information system. For programs which were identified as not being year 2000
ready, the Company repaired or replaced the programs and has substantially
completed performing appropriate testing for year 2000. The Company believes
that substantially all of the Company's information systems are year 2000
compliant.
Costs related to the year 2000 issue are included in the $2.5 million
management information systems upgrade. The Company estimates that the remaining testing, repaircontract to
manufacture KGro private label products will not be renewed. Historically, the
KGro business has had low margins and replacement necessary to complete the Company's
year 2000 compliance program will cost less than $1.0 million.high operating costs. The Company does not
anticipate any additional costs relatingexpect this development to the year 2000 issue which
would have a material adverse effectsignificant impact on the Company's financial condition or
the Company's results of operations.
While the Company believes all necessary work will be completed in a timely
fashion, the Company cannot assure that all systems will be compliant by the
year 2000, or that the systems of other companies and government agencies on
which the Company relys will be compliant.EBITDA for 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE
The Company believes the most
likely worst-case scenarios that the Company might confront with respectis exposed to the year 2000 issues have to do with the possible failure of third-party
systems over which the Company has no control, including, but not limited to,
satellite, power and telephone services. If these failures were not
immediately corrected, the Company's supply and distribution functions would
be temporarily disrupted or delayed. Disruptions of the Company's supply and
distribution functions could also occur if any of the Company's personal
computers receiving electronic data interchange transmissions from third-party
suppliers were not Year 2000 compliant. The Company has exchanged Year 2000
information with most of the Company's third-party suppliers and major
customers. Of the third-party suppliers and major customers the Company has
contacted, over 90% have responded to the Company's requests for information.
The Company has developed a contingency plan to facilitate electronic date
interchange communication with the Company's main customers. The Company has
installed special "window adjustment" software to intercept non-Year 2000
compliant electronic data interchange transmissions and electronically correct
the transmission errors to make them Year-2000 compliant before the
transmissions are completed in the Company's system. The Company will have
replaced all non-Year 2000 personal computers utilized in the processing of
electronic data interchange transmission by December 31, 1999. Based on the
Company's assessment to date, the Company has not received any indication from
a third party indicating that it expects to experience year 2000 non-
compliance of a nature which would have a material impact on the Company.
However, the risk remains that the Company's customers or other third parties
may not have accurately determined their state of readiness, in which case
these parties' lack of year 2000 compliance may have a material adverse effect
on the Company's results of operations. The Company continues to monitor the
year 2000 compliance of third parties with which the Company does business.
Forward Looking Statements
This report and other public reports or statements made from time to time
by the Company or its management may contain "forward-looking" statements
concerning possible future events, objectives, strategies, trends or results.
Such statements are identified either by the context in which they appear or
by use of words such as "anticipate," "believe," "estimate," "expect," "plan"
or the like.
Readers are cautioned that any forward-looking statement reflects only the
beliefs of the Company or its management at the time the statement is made. In
addition, readers should keep in mind that, because all forward-
16
looking statements deal with the future, they are subject tomarket risks uncertainties and developments that might cause actual events or results to
differ materially from those envisioned or reflected in any forward-looking
statement. Moreover, the Company does not have and does not undertake any duty
to update any forward-looking statement to reflect events or circumstances
after the date on which the statement was made. For all of these reasons,
forward-looking statements should not be relied upon as a prediction of actual
future events, objectives, strategies, trends or results.
It is not possible to anticipate and list all of the risks, uncertainties
and developments which may affect the future operations or performance of the
Company, or which otherwise may cause actual events or results to differ from
forward-looking statements. However, some of these risks and uncertainties
include the following: general economic and market conditions and risks, such
as the rate of economic growth in the United States, inflation, interest
rates, taxation, and the like; risks and uncertainties which could affect
industries or markets in which the Company participates, such as growth rates
and opportunities in those industries, or changes in demand for certain
products; and factors which could impact costs, including but not limited to
the availability and pricing of raw materials and the availability of labor
and wage rates.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate
The Company has not in the past used derivative financial instruments to
hedge its exposure to interest rate risk. The table below provides information
about the Company's long-term debt obligations sensitiverelating to changes in interest
rates asrates. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. The Company enters into
financial instruments to manage and reduce the impact of changes in interest
rates.
The Company manages interest rate risk by balancing the amount of fixed and
variable debt. For fixed rate debt, interest rate changes affect the fair market
value of such debt but do not impact earnings or cash flows. Conversely, for
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 September 30, 1999:
Scheduled Maturity Date
--------------------------------------------------
September 30, December 31,
1999 2000 2001 2002 2003 Thereafter 1999 1998
------ ------ ------ ------ ------ ---------- ------------- ------------
(dollars in millions)
Principal fixed rate
debt:
9 7/8 Series B
Registered Senior
Subordinated Notes.... $ -- $ -- $ -- $ -- $ -- $150.0 $150.0 $ --
Average interest rate.. 9.875% 9.875% 9.875% 9.875% 9.875% 9.875% 9.875% --
Principal variable rate
debt:
Senior Credit Facility
Term Loan A.......... 2.5 10.0 10.0 10.0 15.6 21.9 70.0 --
Term Loan B.......... 0.4 1.5 1.5 1.5 1.5 142.9 149.3 --
Miscellaneous debt...... -- 4.6
------ -----
Total debt.............. 369.3 4.6
Less: optional
prepayments............ (5.8) --
Less: current
maturities............. (11.5) (0.9)
------ -----
Total long-term debt.... $352.0 $ 3.7
====== =====
2000, variable rate debt was
$219.9 million.
Interest on Term Loan A and Term Loan B ranges from 200 to 325375 basis points
above LIBOR depending on certain financial ratios. LIBOR was 5.38%6.62% as of
September 30, 1999. On September 30, 1999, the Company made optional
prepayments on Term Loan A and Term Loan B of $5.0 million and $0.8 million,
respectively.
Exchange Rate2000.
19
EXCHANGE RATE
The Company does not use derivative instruments to hedge against foreign
currency exposures related to transactions denominated in currencies other than
the Company's functional currency. Substantially all foreign currency
transactions are denominated in United States dollars.
Commodity PriceCOMMODITY PRICES
The Company does not use derivative instruments to hedge its exposures to
changes in commodity prices. The Company utilizes various commodity and
specialty chemicals in its production process. Purchasing procedures and
arrangements with major customers serve to mitigate itsthe Company's exposure to
price changes in commodity and specialty chemicals.
1820
PART II
OTHER INFORMATION
ItemTHERE IS NO INFORMATION REQUIRED TO BE REPORTED UNDER ANY ITEMS.
ITEM 1. Legal Proceedings.LEGAL PROCEEDINGS. The Company has no reportable legal proceedings in
the current period.
ItemITEM 2. Changes in Securities.CHANGES IN SECURITIES. None.
ItemITEM 3. Defaults Upon Senior Securities.
None.
ItemDEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. Submission of Matters to a Vote of Security Holders.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were
submitted.
ItemITEM 5. Other Information.
None.
ItemOTHER INFORMATION.
On November 9, 2000, the Senior Credit Facility was amended to provide new
financial covenants and a waiver of certain covenants at September 30, 2000. As
a condition to the effectiveness of this amendment and waiver, the Company
agreed to the following items:
1. The Company agreed to terminate $30,000 of the unused portion of the
Revolving Credit Facility under the credit agreement, thereby reducing the
Revolving Credit Facility from $110,000 to $80,000.
2. The Company agreed to sell Common Stock and/or permitted Preferred Stock to
the Equity Investors for net cash proceeds equal to $15,000, which net cash
proceeds have been applied to the prepayment of Term Loan advances.
3. Interest rate increase will range from 25 to 75 basis points higher than
previous Revolving Credit Facility.
On November 8, 2000, the Company Board of Directors, authorized the creation
of 15,000 shares of Class A Preferred Stock to be sold to UIC Holdings LLC at a
price of $1,000 per share.
ITEM 6. Exhibits and Reports on Form 8-K.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule.Schedule
(b) ReportsReport on Form 8-K
None.
II-1None
21
SignaturesSIGNATURES
Pursuant to the requirements of Section 13 or 15(d) off the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
United Industries Corporation
/s/ Daniel J. Johnston
Dated: November 12, 1999 By: _________________________________
Daniel J. Johnston
Chief Financial Officer
II-2
UNITED INDUSTRIES CORPORATION
Dated: November 15, 2000 By: /s/ DANIEL J. JOHNSTON
-----------------------------------------
Name: Daniel J. Johnston
Title: Chief Financial Officer
(Duly authorized officer and principal
officer of the registrant)
22