SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended:
September 30, 1997
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from: ____ to _____
Commission file number: 33-64142
United States Leather, Inc
(Exact name of registrant as specified in its charter)
Wisconsin 13-3503310
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1403 West Bruce Street, Milwaukee, WI 53204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 383-6030
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares Outstanding
Class at September 30, 1997
Common Stock, 100
$.01 par value
As of September 30, 1997, there was no public market for the Company's
common stock.
UNITED STATES LEATHER, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Condensed Statements of Operations . . . . 3
Consolidated Condensed Balance Sheets . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows . . . . 5-6
Notes to Consolidated Condensed Financial Statements . 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 10
PART II - OTHER INFORMATION AND SIGNATURES
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
3 Months Ended 9 Months Ended
September 30, September 30,
1997 1996 1997 1996
Net sales $70,158 $75,325 $242,365 $235,407
Cost of sales 65,364 68,370 226,955 213,791
--------- -------- --------- ---------
Gross profit 4,794 6,955 15,410 21,616
Selling, general and
administrative expenses 5,780 5,702 17,480 17,967
Asset valuation loss 7,000 - 7,000 -
Restructuring expense - - - 2,468
Amortization of intangible
assets 987 925 2,950 3,085
--------- -------- --------- ---------
Income (loss) from operations (8,973) 328 (12,020) (1,904)
Other expense 162 - 162 159
Interest expense 4,826 4,177 14,208 12,790
--------- -------- --------- ---------
Loss before taxes (13,961) (3,849) (26,390) (14,853)
Income tax expense (benefit) 91 (1,147) (2,383) (4,553)
--------- -------- --------- ---------
Net loss $(14,052) $(2,702) $(24,007) $(10,300)
========= ======== ========= =========
Net loss per share $(140,520) $(27,020) $(240,070) $(103,000)
========= ======== ========= =========
Weighted average shares
outstanding 100 100 100 100
========= ======== ========= =========
The accompanying notes are an integral part of these statements.
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
As of As of
September 30, December 31,
Current Assets: 1997 1996
Cash $443 $2,894
Accounts receivable, less allowances
of $2,439 and $2,892 48,959 35,819
Inventories 46,779 64,749
Prepaid expenses and other 1,154 1,228
Refundable income tax - 2,700
-------- --------
Total current assets 97,335 107,390
Property, plant and equipment, net 39,644 47,601
Goodwill, net of amortization of
$27,988 and $25,612 93,995 101,371
Other 10,486 8,460
-------- --------
Total assets $241,460 $264,822
======== ========
Current Liabilities:
Current maturities of long-term debt $208 $210
Revolving credit facility 45,852 31,795
Payable to bank 3,996 5,358
Accounts payable 7,314 7,898
Accrued liabilities 9,563 17,457
Deferred income taxes 534 555
-------- --------
Total current liabilities 67,467 63,273
Long-term debt, less current maturities 129,970 130,047
Deferred income taxes - 794
Other long-term liabilities 6,957 9,635
Stockholder's Equity:
Preferred Stock, $.01 par value - 5,000,000
shares authorized, no shares issued - -
Common Shares:
Common Stock, voting, $.01 par value -
35,000,000 shares authorized,
100 shares issued 1 1
Additional paid-in-capital 92,344 92,344
Cumulative translation adjustment (112) (112)
Accumulated deficit (55,167) (31,160)
-------- --------
Total stockholder's equity 37,066 61,073
-------- --------
Total liabilities and stockholder's equity $241,460 $264,822
======== ========
The accompanying notes are an integral part of these statements.
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in Thousands, Except Share and Per Share Data)
For The Nine Months Ended
September 30,
1997 1996
Cash Flows from Operating Activities:
Net loss $(24,007) $(10,300)
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 8,476 8,617
Noncash interest expense 731 857
Deferred income taxes (815) (3,509)
Asset valuation loss 7,000 -
Change in assets and liabilities:
Accounts receivable (13,140) (1,045)
Inventories 17,970 15,902
Prepaid expenses and other 2,441 135
Accounts payable (584) 1,008
Accrued liabilities (7,789) (1,100)
Income taxes payable (105) (727)
Other long-term liabilities (2,678) (851)
--------- --------
Net cash (used) provided by
operating activities (12,500) 8,987
--------- --------
Cash Flows from Investing Activities
Capital expenditures (2,232) (4,431)
Proceeds from sales of fixed assets 424 -
Purchase of software license (838) (679)
--------- --------
Net cash used in investing activities (2,646) (5,110)
--------- --------
Cash Flows from Financing Activities:
Payments of revolving credit facility (107,506) (65,750)
Borrowings under revolving credit facility 121,563 60,596
Net change in payable to bank (1,362) (16)
Payment of long-term debt - (94)
Payment of common stock dividend - (50)
--------- --------
Net cash provided (used) by
financing activities 12,695 (5,314)
--------- --------
Effect of Exchange Rate Changes on Cash - (20)
--------- --------
Net decrease in cash (2,451) (1,457)
Cash, beginning of period 2,894 4,614
--------- --------
Cash, end of period $443 $3,157
========= ========
Supplemental cash flow disclosures:
Interest paid $16,909 $15,429
Income taxes refunded (net) $(962) $(188)
The accompanying notes are an integral part of these statements.
UNITED STATES LEATHER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
(Unaudited)
(1) Basis of Presentation:
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
required disclosures have been presented and all necessary adjustments
(consisting only of normal recurring adjustments) have been included to
fairly present the results of operations, financial position and cash
flows of United States Leather, Inc. (the "Company"). These consolidated
condensed financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(2) Net Loss Per Share:
Net loss per share is calculated by dividing the loss by the weighted
average number of the Company's shares of Common Stock, $.01 par value,
outstanding during the period.
(3) Inventories:
Inventories consist of the following:
September 30, December 31,
1997 1996
At lower of cost, using the first-in,
first-out (FIFO) cost method or market:
Raw materials and supplies $14,088 $18,556
Work in process 21,193 29,655
Finished goods 18,355 25,253
------- -------
Total FIFO inventories 53,636 73,464
Difference between FIFO and LIFO cost
of inventories (6,857) (8,715)
------- -------
Total LIFO inventories $46,779 $64,749
======= =======
(4) Revolving Credit Agreement:
In September 1997 the New Revolving Credit Facility was amended to (a)
modify FIFO EBITDA related covenants for August and September 1997, (b)
increase the availability reserves for the remainder of 1997, and (c)
reduce the maximum amount of the credit facility to $65,000 from $80,000.
The New Revolving Credit Facility was again amended in November 1997 to
modify FIFO EBITDA related covenants for October and November 1997.
Letters of credit of $3,706 as of September 30, 1997, reduced available
capacity under revolving credit facilities to $5,500.
(5) 1996 Restructuring:
During 1996, the Company began a series of initiatives to strengthen the
Company's financial position and return it to profitability. Among these
initiatives were (1) the reorganization of the management of the Company,
which included the elimination of division presidents and a general
reduction of salaried workforce, (2) comprehensive reviews of the
Company's products and inventories, (3) closing two operations which had
not been profitable and were not strategically critical to the Company,
(4) replacing critical talent which had been lost in prior years, and (5)
vacating the Company's corporate offices and moving such offices into one
of the Company's operating facilities. During 1996, the Company also
continued efforts to grow the business of its Automotive Group. The
Company recorded a series of charges during 1996 pertaining to these
initiatives which management believes were unusual or non-recurring items.
Such charges during the second quarter of 1996 aggregated $9.4 million,
increased cost of goods sold by $ 6.6 million, resulted in a charge for
restructuring expenses of $2.5 million, and increased amortization of
goodwill by $0.3 million. In addition, the Company incurred operating
losses during the first nine months of 1996 aggregating $0.8 million in
connection with the activities of USL Trading Operation and German
operations prior to their being discontinued.
(6) Asset Valuation Loss:
During the third quarter of 1997 the Company approved a plan to sell two
of its operations; Caldwell Moser Leather Co. and Berlin Leather. Both
operations are part of the Company's Footwear and Specialty Leather Group.
These operations are being sold to enable the Company to continue to focus
its resources on its core businesses and are expected to be consummated by
the second quarter of 1998. The Company recorded a pretax charge of $7.0
million in the third quarter to reduce the book value of the long-lived
assets (property, plant, equipment and goodwill) of these operations to
their estimated aggregated fair market value. The Company believes that
the book value of inventories and receivables for these operations
approximates market value. The assets and sales of these two operations
do not represent a material portion of the Company's total assets or
sales.
(7) Long-Lived Assets:
The Company has continued to incur substantial losses in 1997. As part of
the Company's efforts to evaluate its future liquidity and cash flows, it
is in the process of preparing a long-term strategic business plan.
Although the Company does not have reason to believe its long-lived assets
are currently impaired, it will re-evaluate the realizability of such
assets, including goodwill, when the business plan is completed in the
fourth quarter of 1997.
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain matters discussed herein are "forward-looking statements" within
the meaning of section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements
can generally be identified as such because the context of the statement
will include words such as Company "believes," "anticipates," "expects" or
words of similar import. Similarly, statements that describe the
Company's future plans, objectives or goals are forward-looking
statements. Such forward-looking statements are subject to certain risks
and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from
those currently anticipated. Readers are urged to consider these factors
carefully in evaluating the forward-looking statements and are cautioned
not to place undue reliance on such forward-looking statements. The
forward-looking statements made herein are only made as of the date of
this report and the Company undertakes no obligation to publicly update
such forward-looking statements to reflect subsequent events or
circumstances.
Selected Financial Data
The following table sets forth certain consolidated income statement data
of the Company as a percentage of net sales for the periods indicated.
Percentage of Net Sales
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.2 90.8 93.6 90.8
----- ----- ----- -----
Gross profit 6.8 9.2 6.4 9.2
Selling, general & administrative 8.2 7.6 7.2 7.6
Asset valuation loss 10.0 - 3.0 -
Restructuring expenses - - - 1.0
Amortization of intangible assets 1.4 1.2 1.2 1.4
----- ----- ----- -----
Income (loss) from operations (12.8) 0.4 (5.0) (0.8)
Other (income) expense 0.2 - 0.1 0.1
Interest expense 6.9 5.5 5.9 5.4
----- ----- ----- -----
Loss before taxes (19.9) (5.1) (11.0) (6.3)
Income tax expense (benefit) 0.1 (1.5) (1.0) (1.9)
----- ----- ----- -----
Net loss (20.0)% (3.6)% (10.0)% (4.4)%
===== ===== ===== =====
Results of Operations - Nine Month Period
Ended September 30, 1997
Sales
The Company's finished leather operations are divided into three principal
lines of business. The following chart summarizes the Company's sales by
line of business:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 %change 1997 1996 %change
Furniture Group $15.2 $19.7 (22.8)% $55.2 $71.2 (22.5)%
Automotive Group 12.8 9.0 42.2 39.1 16.8 132.7
Footwear & Specialty
Leather Group 42.2 45.8 (7.9) 148.1 136.4 8.6
----- ----- ------ ------
Continuing Sales 70.2 74.5 (5.8) 242.4 224.4 8.0
Discontinued Operations - 0.8 100.0 - 11.0 100.0
----- ----- ------ ------
Total Sales $70.2 $75.3 (6.8)% $242.4 $235.4 3.0%
===== ===== ====== ======
During the second quarter of 1996, the Company announced the
discontinuation of its USL Trading Division and the German operations of
its Furniture Group. Sales for these two operations during the third
quarter and the first nine months of 1996, prior to their discontinuance,
were $0.8 million and $11.0 million respectively.
Results of Operations
General. The Company experienced a loss of $14.1 million in the
third quarter of 1997, compared with a loss of $2.7 million during the
same period in the prior year. For the nine month year-to-date period,
the Company recorded a loss of $24.0 million versus a loss of $10.3
million the prior year. Excluding the effects of non-recurring items
recorded in the third quarter of 1997 (see Note 6) and the second quarter
of 1996 (see Note 5), net loss for the first nine months of 1997 increased
by $12.5 million, compared to the first nine months of 1996. The effect
of significantly higher cattlehide costs during the first half of 1997 was
the principal reason for these increased losses as hide cost increases
incurred during this period could not be recovered through increased
finished leather selling prices. A weak retail market in the Furniture
Group and Footwear & Specialty Leather Group led to lower than expected
sales volumes during the third quarter of 1997 which negatively impacted
operating results, more than offsetting the favorable effects of hide
prices which had declined during the third quarter of 1997.
Net Sales. The Company's net sales in the third quarter of 1997 were
$70.2 million, a decrease of $5.1 million or 6.8% from the same period one
year ago. Sales from continuing operations decreased $4.3 million or
5.8%. Year-to-date sales were $242.4 million, an increase of $7.0 million
or 3.0% over the prior year nine month period. Year-to-date, sales from
continuing operations increased $18.0 million, or 8.0%. Sales of by-
products, principally splits and wet blues, and products tanned on a
contract basis for other tanneries, principally deerhides, accounted for
1.6% of the quarter and 1.3% of the year-to-date increase. Square footage
of finished leather shipped decreased 6.3% for the quarter and increased
5.3% year-to-date. The decrease in the third quarter was principally due
to a weak retail market in the Furniture Group and Footwear and Specialty
Leather Group. The increase in net sales year-to-date was due primarily
to an increase in the Automotive cut-to-pattern volume.
Furniture Group. Furniture Group sales during the third quarter were
$15.2 million, a decrease of $4.5 million or 22.8% from the third quarter
of 1996. Year-to-date sales were $55.2 million, a decrease of $16.0
million or 22.5% from the prior year period. Contributing to the decline
was a downturn in retail furniture sales and market share loss in some of
the Group's product lines because of lower-priced foreign competition.
Automotive Group. Automotive Group sales increased significantly
from the comparable periods in 1996. Third quarter sales were $12.8
million or $3.8 million higher than the prior year quarter. Year-to date
sales were $39.1 million or $22.3 million higher than the prior year
period. The increase is primarily attributable to increased volume in the
Group's cut-to-pattern business.
Footwear and Specialty Leather Group. Footwear and Specialty Leather
Group sales were $42.2 million during the third quarter of 1997, a
decrease of $3.6 million or 7.9% from the third quarter of 1996. Year-to-
date sales were $148.1 million, an increase of $11.7 million, or 8.6% over
the comparable 1996 period. Square feet of finished leather shipped
decreased 7.2% for the quarter, and increased 8.9% year-to-date. Weakened
retail footwear demand was the principal reason for the decrease from the
third quarter of 1997, while strong demand for the water-proof family of
products, and increased finished split sales were the principal drivers of
the increased year-to-date sales.
Gross Profit. Gross profit for the third quarter of 1997 was $4.8
million, a decrease of $2.2 million or 31.1% from the third quarter of
1996. Year-to-date gross profit was $15.4 million, a decrease of $6.2
million or 28.7% from the comparable prior year period. Excluding the
effects of non-recurring charges recorded during the second quarter of
1996, gross profits declined $12.8 million during the first nine months of
1997.
Gross margins were 6.8% for the three months ended September 30, 1997
compared to 9.2% for the same period in 1996. Several factors negatively
impacted gross margins for the third quarter of 1997, including low sales
volumes in the Furniture Group and Footwear & Specialty Leather Group and
lingering inefficiencies in the Automotive Group's cut-to-pattern plant.
The lower volume in the Furniture Group and Footwear & Specialty Leather
Group resulted in higher conversion costs at the facilities manufacturing
these products. Year to date gross margins were 6.4% and 9.2% for 1997 and
1996, respectively. Excluding the effects of non-recurring charges, gross
margins were 12.0% for the nine months ended September 30, 1996. The
primary factors affecting the decrease in gross margin for the nine month
period include decreased sales volume in the Furniture Group,
inefficiencies in the Automotive Group's cut-to-pattern plant, and
increased cattlehide prices. For the nine month period, average
cattlehide prices have increased approximately 10% over the same period in
1996. As a result of these increases in average cattlehide prices, the
cost of hides purchased during the first nine months of 1997 was
approximately $7.3 million higher than the same period a year earlier.
Although cattlehide prices have declined significantly during the third
quarter of 1997, increased hide prices during the first six months of the
year will continue to adversely impact gross margin into the fourth
quarter of 1997. Hide purchase commitments made during September 1997
were at prices approximately 25% below the year to date high points.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses during the first nine months of 1997 were $0.5
million lower than the same period of 1996, with the majority of this
decrease occurring in the second quarter of 1997. The principal reasons
were lower staffing and sales commission expenses.
Asset Valuation Loss. During the third quarter of 1997 the Company
approved a plan to sell two of its operations; Caldwell Moser Leather Co.
and Berlin Leather. Both operations are part of the Company's Footwear and
Specialty Leather Group. These operations are being sold to enable the
Company to continue to focus its resources on its core businesses and are
expected to be consummated by the second quarter of 1998. The Company
recorded a pretax charge of $7.0 million in the third quarter to reduce
the book value of the long-lived assets (property, plant, equipment and
goodwill) of these operations to their estimated aggregated fair market
value. The Company believes that the book value of inventories and
receivables for these operations approximates market value. The assets
and sales of these two operations do not represent a material portion of
the Company's total assets or sales.
Earnings before Interest, Taxes, Depreciation and Amortization.
Earnings before interest, taxes, depreciation and amortization (and
provisions for LIFO revaluations) ("FIFO EBITDA") during the third quarter
of 1997 was a $1.0 million loss compared to $4.1 million of income in the
third quarter of 1996. For the nine month period, FIFO EBITDA was $1.6
million for 1997 compared to $21.7 million for 1996, excluding the effects
of restructuring. FIFO EBITDA, which is the principal earnings measure in
the New Revolving Credit Facility, is not determined pursuant to generally
accepted accounting principles ("GAAP"), and should not be considered in
isolation or as an alternative to GAAP-derived measurements.
Amortization of Intangible Assets. Amortization of intangible assets
was $3.0 million in the first nine months of 1997 compared to $3.1 million
in the same period of 1996.
Interest Expense. Interest expense increased $1.4 million during the
first nine months of 1997 over the same period in 1996. Interest expense
increased $0.6 million for the three months ended September 30, 1997
compared to the same period in 1996. The increases were due to higher
outstanding borrowings during this period. The higher borrowings under
the New Revolving Credit Facility were required to fund greater working
capital requirements caused by higher cattlehide prices and sales volume
growth.
Loss Before Income Taxes. The Company incurred a loss before taxes
of $14.0 million in the third quarter of 1997, an increase of $10.2
million from a $3.8 million loss before taxes in the third quarter of
1996. The year to date loss before taxes for 1997 was $26.4 million, an
increase of $11.5 million from the same period of 1996. This increase was
principally the result of lower gross profits.
Income Tax Benefit. In accordance with SFAS No. 109, "Accounting for
Income Taxes", the Company recorded no tax benefit for the third quarter
of 1997 compared to a benefit of $2.4 million recorded during the same
period of 1996. The income tax benefit for the first nine months of 1997
was $2.4 million verses $4.6 in the same period of 1996. After adjusting
income before income taxes for nondeductible amortization of goodwill, the
effective tax rate was 10.2% during the first nine months of 1997,
compared to 38.7% for the same period in 1996.
Net Loss. Due to the factors previously discussed, the Company had a
net loss of $14.1 million in the third quarter of 1997, compared to a net
loss of $2.7 million during the third quarter of 1996. For the nine month
period ended September 1997, the net loss was $24.0 million compared to a
net loss of $10.3 million for the same period in 1996.
Liquidity and Capital Resources. The Company used $12.5 million of
cash for operations during the first nine months of 1997, compared with
$9.0 million of cash provided by operations during the same period of
1996. The principal reasons for change in cash flow were (1) a $12.1
million comparative increase in accounts receivable, (2) a $13.7 million
increase in net losses and (3) a $8.3 million comparative decrease in
accounts payable and accrued liabilities. Accounts receivable increased
by $13.1 million during the first nine months of 1997 principally because
of increased sales volume. Sales during November and December of 1996
were impacted by holiday-driven customer and factory shutdowns which, in
turn, generated lower accounts receivable balances as of December 31,
1996. Increased sales volume in the Company's Automotive Group was the
primary reason for the increase in accounts receivable as of September 30,
1997 compared to the same date in 1996. Days sales outstanding in
accounts receivable as of September 30, 1997 were 57 compared with 58 days
as of September 30, 1996. LIFO inventories decreased approximately $18.0
million during the first nine months of 1997. The decrease was due
principally to better asset management and improved quality.
Capital expenditures totaled $2.2 million during the first nine
months of 1997. This represents a decrease of approximately $2.2 million
from the same period in 1996.
On September 30, 1997, the Company's aggregate indebtedness was
$180.0 million. This consisted of $133.4 million of principal and accrued
interest on its 10-1/4% Senior Notes Due 2003 (the "Senior Debt") and $46.6
million due under the New Revolving Credit Facility. The New Revolving
Credit Facility is a $65 million facility (reduced during September form
$80 million), maturing on October 31, 2001. Borrowing availability is
based on accounts receivable and inventory balances, less certain
exclusions, amounts already borrowed under the facility and letters of
credit issued thereunder. Availability as of September 30, 1997 was $5.5
million. As of November 8, borrowing under the New Revolving Credit
Facility was $38.8 million, and availability was approximately
$3.0 million.
The Company incurred a substantial loss in 1996 and continued to
incur losses during the first nine months of 1997. Although management
has implemented measures which it believes will eventually improve the
financial performance of the Company, there can be no assurances that such
measures will be sufficient to permit the Company to reverse recent trends
and meet all of its obligations going forward. In March, July, September
and November 1997, the New Revolving Credit Facility was amended to, among
other things, amend or waive FIFO EBITDA covenants and, in the aggregate,
increase availability reserves. The most recent amendment modified the
FIFO EBITDA covenants for October and November of 1997, and the Company
currently projects that it will meet these amended covenants; however, the
Company anticipates that it will also need to amend the FIFO EBITDA
covenants for December 1997 and the 1998 covenants contained in the New
Revolving Credit Facility. The Company plans to meet with the lenders in
December to discuss the amendment of such FIFO EBITDA covenants. While
the Company has been successful previously in negotiating waivers and
amendments to the New Revolving Credit Facility, and believes it will
continue to be successful in such negotiations as needed in the future,
there can be no assurance that the Company will be able to obtain such
amendments or that the Company's operations will generate sufficient cash
flow, considered together with the amounts available under the New
Revolving Credit Facility to meet all of the Company's future liquidity
requirements. If the Company is unsuccessful in negotiating an amendment
or other arrangement with the lenders before the end of January, the
Company will be in default under the New Revolving Credit Facility, giving
the lenders the right to accelerate the maturity of all amounts due under
the New Revolving Credit Facility and declare all amounts borrowed under
such facility immediately due and payable. Such an acceleration would
cause a default under the Indenture governing the Senior Notes, permitting
the Trustee or the holders of at least 25% in aggregate principal amount
of the Senior Notes to declare the unpaid principal amount and all accrued
interest on the Senior Notes to be immediately due and payable. The
Company does not have the financial resources to repay the amounts that
would be owed under either the New Revolving Credit Facility or the Senior
Notes if the maturity of either of such amounts were accelerated as
described above, and unless the Company were able to secure an additional
source of liquidity, which cannot be assured under such circumstances, any
such acceleration would have a material adverse effect upon the Company.
In September, the Company conducted a special meeting of the holders of
its 10-1/4% Senior Notes due 2003 and announced its intention to seek a
deleveraging of its balance sheet. It is currently in the process of
facilitating negotiations to effect such a deleveraging.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
4.6 Amendment No. 4 dated as of September 29, 1997, to
Restated Revolving Credit Agreement dated as of
December 20, 1996, among United States Leather, Inc., A.R.
Clarke Limited, the First Bank of Boston and the other
banks which are parties thereto.
4.7 Amendment No. 5 dated as of November 12, 1997, to Restated
Revolving Credit Agreement dated as of December 20, 1996,
among United States Leather, Inc., A.R. Clarke Limited, the
First Bank of Boston and the other banks which are parties
thereto.
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated September 24, 1997 with
respect to the meeting held that day of the holders of 10-1/4%
Senior Notes Due 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1997
UNITED STATES LEATHER, INC.
By /s/ Kinzie L Weimer
Kinzie L Weimer
Senior Vice President and Chief Financial Officer
(Signing on behalf of the Registrant
and as Chief Financial Officer)
EXHIBIT INDEX
Exhibit No. Description
4.6 Amendment No. 4
4.7 Amendment No. 5
27 Data Financial Schedule