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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO ______________ TO ______________
COMMISSION FILE NO. 333-76055
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UNITED INDUSTRIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-1025604
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
8825 PAGE BOULEVARD
ST. LOUIS, MISSOURI 63114
(Address of principal executive office, including zip code)
(314) 427-0780
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of March 31, 2001, the Registrant had 27,624,000 Class A voting and
27,624,000 Class B non-voting shares of common stock outstanding and 15,000
non-voting shares of Class A preferred stock outstanding.
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PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED INDUSTRIES CORPORATION
BALANCE SHEETS
MARCH 31, 2001 AND 2000, AND DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
--------- --------- ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ -- $ --
Accounts receivable (less allowance for doubtful accounts
of $1,164 and $1,187 at March 31, 2001 and 2000 and $777
at December 31, 2000)................................... 70,769 70,083 19,944
Inventories............................................... 48,618 56,250 47,007
Prepaid expenses.......................................... 5,204 2,854 6,357
--------- --------- ---------
Total current assets.................................... 124,591 129,187 73,308
Equipment and leasehold improvements, net................... 24,068 33,590 24,736
Deferred income tax......................................... 116,763 116,268 116,763
Other assets................................................ 19,358 21,123 20,087
--------- --------- ---------
Total assets............................................ $284,780 $300,168 $ 234,894
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt and capital lease
obligation.............................................. $ 5,684 $ 6,820 $ 5,675
Accounts payable.......................................... 31,114 30,103 18,625
Accrued expenses.......................................... 27,177 38,957 24,791
Short-term borrowings..................................... 47,500 35,550 15,000
--------- --------- ---------
Total current liabilities............................... 111,475 111,430 64,091
Long-term debt.............................................. 326,346 352,000 329,000
Capital lease obligation.................................... 4,528 13,169 4,626
Other liabilities........................................... 9,532 6,555 7,940
--------- --------- ---------
Total liabilities....................................... 451,881 483,154 405,657
Stockholders' deficit
Common Stock (27.6 million shares of $0.01 par value Class
A and 27.6 million $0.01 par value Class B)............. 554 554 554
Preferred Stock (15,000 shares of $0.01 par value Class
A)...................................................... -- -- --
Warrants.................................................. 2,784 -- 2,784
Additional paid-in capital................................ 139,081 126,865 139,081
Accumulated deficit....................................... (306,820) (307,705) (310,482)
Common stock held in grantor trust........................ (2,700) (2,700) (2,700)
--------- --------- ---------
Total stockholders' deficit............................. (167,101) (182,986) (170,763)
--------- --------- ---------
Total liabilities and stockholders' deficit............. $284,780 $300,168 $ 234,894
========= ========= =========
See accompanying notes to financial statements.
2
UNITED INDUSTRIES CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Sales before promotion expense.............................. $88,436 $88,546
Promotion expense........................................... 8,517 7,651
------- -------
Net sales................................................... 79,919 80,895
------- -------
Operating costs and expenses:
Cost of goods sold........................................ 43,959 43,837
Selling, general and administrative expenses.............. 20,064 21,639
------- -------
Total operating costs and expenses........................ 64,023 65,476
------- -------
Operating income............................................ 15,896 15,419
Interest expense............................................ 10,013 10,605
------- -------
Income before provision for income taxes.................... 5,883 4,814
Income tax expense.......................................... 1,647 997
------- -------
Net income.................................................. $ 4,236 $ 3,817
======= =======
See accompanying notes to financial statements.
3
UNITED INDUSTRIES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income................................................ $ 4,236 $ 3,817
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization........................... 1,199 1,447
Amortization of deferred financing fees................. 673 565
Provision for deferred income tax expense............... 1,647 997
Changes in assets and liabilities:
Increase in accounts receivable....................... (50,825) (50,918)
Increase in inventories............................... (1,611) (3,007)
Decrease in prepaid expenses.......................... 1,153 647
Increase in accounts payable and accrued expenses..... 18,652 16,089
Decrease in Dursban charge............................ (4,350) --
Decrease in other assets.............................. 17 29
Other, net............................................ (62) 75
-------- --------
Net cash used by operating activities............... (29,271) (30,259)
Investing activities:
Purchases of equipment and leasehold improvements......... (486) (1,254)
-------- --------
Net cash used by investing activities............... (486) (1,254)
Financing activities:
Debt issuance costs....................................... -- (902)
Proceeds from the issuance of debt........................ 32,500 35,550
Repayment of borrowing on revolver and other debt......... (2,743) (3,135)
-------- --------
Net cash provided by financing activities........... 29,757 31,513
Net increase (decrease) in cash and cash equivalents........ -- --
Cash and cash equivalents--beginning of period.............. -- --
-------- --------
Cash and cash equivalents--end of period.................... $ -- $ --
======== ========
Noncash financing activity:
Execution of capital lease................................ $ -- $ 5,344
Dividends declared........................................ $ 573 $ --
See accompanying notes to financial statements.
4
UNITED INDUSTRIES CORPORATION
NOTES TO 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 U.S. generally accepted accounting
principles for complete financial statements. In the opinion of management, all
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, 2000. Certain balance sheet accounts have been
reclassified from the March 31, 2000 balance sheets in order to provide a
consistent comparison with the March 31, 2001 balance sheet.
NOTE 2--INVENTORIES
Inventories are as follows:
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
--------- --------- ------------
Raw materials................................ $ 9,633 $10,142 $10,663
Finished goods............................... 40,602 47,134 37,343
Allowance for obsolete and slow-moving
inventory.................................. (1,617) (1,026) (999)
------- ------- -------
Total inventories............................ $48,618 $56,250 $47,007
======= ======= =======
NOTE 3--EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are as follows:
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
--------- --------- ------------
Machinery and equipment...................... $27,663 $27,195 $27,435
Office furniture and equipment............... 10,808 9,077 10,565
Automobiles, trucks and aircraft............. 6,062 15,521 6,067
Leasehold improvements....................... 7,062 6,878 7,043
------- ------- -------
51,595 58,671 51,110
Less: accumulated depreciation............... 27,527 25,081 26,374
------- ------- -------
$24,068 $33,590 $24,736
======= ======= =======
5
NOTE 4--OTHER ASSETS
Other assets are as follows:
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
--------- --------- ------------
Goodwill..................................... $ 7,175 $ 7,988 $ 7,988
Accumulated amortization..................... (1,411) (2,019) (2,175)
------- ------- -------
5,764 5,969 5,813
------- ------- -------
Deferred financing fees...................... 18,067 17,086 18,067
Accumulated amortization..................... (5,084) (2,557) (4,411)
------- ------- -------
12,983 14,529 13,656
------- ------- -------
Other........................................ 611 625 618
------- ------- -------
Total other assets........................... $19,358 $21,123 $20,087
======= ======= =======
NOTE 5--ACCRUED EXPENSES
Accrued expensed are as follows:
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
--------- --------- ------------
Amounts due certain shareholders for
recapitalization costs..................... $ -- $13,000 $ --
Advertising and promotional.................. 8,502 8,119 5,520
Dursban charge............................... 1,716 -- 6,066
Interest..................................... 9,433 8,144 3,886
Cash overdraft............................... 2,336 5,774 6,181
Dividend payable............................. 893 -- 320
Severence charges............................ 734 1,443 1,010
Settlement charges and litigation............ 6 -- 52
Other........................................ 3,557 2,477 1,756
------- ------- -------
Total accrued expenses....................... $27,177 $38,957 $24,791
======= ======= =======
NOTE 6--LONG-TERM DEBT AND CREDIT FACILITIES
Long-term debt is comprised of the following:
MARCH 31, MARCH 31, DECEMBER 31,
2001 2000 2000
--------- --------- ------------
Senior Credit Facility:
Term Loan A............................... $ 46,124 $ 60,000 $ 48,430
Term Loan B............................... 135,530 147,750 135,878
Revolving Credit Facility................. 47,500 35,550 15,000
9 7/8% Series B Registered Senior
Subordinated Notes........................ 150,000 150,000 150,000
-------- -------- --------
379,154 393,300 349,308
Less portion due within one year............ (52,808) (41,300) (20,308)
-------- -------- --------
Total long-term debt net of current
portion................................... $326,346 $352,000 $329,000
======== ======== ========
6
The Senior Credit Facility was provided by NationsBank, N.A., Morgan Stanley
Senior Funding, Inc. and CIBC Inc. and consists of (i) a $80,000 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 $10.0 million for 30
consecutive days occurring during the period between August 1 and November 30 in
each calendar year. On March 31, 2001, $47,500 was outstanding under the
Revolving Credit Facility. There were no compensating balance requirements for
the Revolving Credit Facility at March 31, 2001.
The principal amount of Term Loan A is to be repaid in twenty-three
consecutive quarterly installments commencing June 30, 1999 with a final
installment due January 20, 2005. The principal amount of Term Loan B is to be
repaid in twenty-seven consecutive quarterly installments commencing June 30,
1999 with a final installment due January 20, 2006.
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 March 31, 2001, the Company was in compliance with
all financial covenants.
Under the covenants, interest on the Revolving Credit Facility, Term Loan A
and Term Loan B ranges from 250 to 400 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 5.08% at
March 31, 2001.
The Senior Credit Facility may be prepaid at any time in whole or in part
without premium or penalty. During fiscal 2000, principal payments on Term Loans
A and B of $14.1 million and $12.2 million, respectively, were paid, which
included optional principal prepayments of $4.1 million and $10.8 on Term Loan A
and Term Loan B, respectively. During the three month period ended March 31,
2001, optional principal prepayments of $2.3 million and $.3 million on Term
Loan A and Term Loan B, respectively, were paid. The optional payments were made
in order for the Company to remain two quarterly payments ahead. 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. Management
intends to pay a full year of principal repayment installments in 2001 in
accordance with the Senior Credit Facility agreement.
In November 1999, the Company issued 9 7/8% Senior Subordinated Notes for
$150 million that are due April 1, 2009.
Interest accrues at the rate of 9 7/8% per annum, payable semi-annually on
each April 1 and October 1.
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 secure obligations under the Senior Credit Facility.
The carrying amount of the Company's obligation under the Senior Credit
Facility approximate fair value because the interest rates are based on floating
interest rates identified by reference to market rates.
7
Aggregate maturities under the Senior Credit Facility (excluding the
Revolving Credit Facility) and the Senior Subordinated Notes are as follows:
2001 Remainder of year.................................... $ 2,654
2002...................................................... 10,615
2003...................................................... 15,804
2004...................................................... 17,533
2005...................................................... 102,382
Thereafter................................................ 182,666
--------
$331,654
========
NOTE 7--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, 2010. The Company has options to terminate the leases on a
year-to-year basis 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. The Company has two
five-year options to renew this lease, beginning January 1, 2006. 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.
The Company is obligated under other operating leases for use of warehouse
space. The leases expire at various dates through December 1, 2006. The leases
provide as many as five five-year options to renew.
NOTE 9--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.
NOTE 10--DURSBAN CHARGE
During 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 withdrawal of virtually all residential
uses of Dursban. Formulation of new Dursban products intended for residential
use were required to cease by December 1, 2000. Formulators can no longer sell
such products to retailers as of February 1, 2001 and retailers will no longer
be able to sell Dursban products after December 31, 2001. A charge of $8,000 was
recorded in September 2000 for costs associated with this agreement.
8
The Company feels that the accrual is adequate and not excessive as of
March 31, 2001. Details of this charge and the accrual balances remaining are as
follows:
ACCRUAL BALANCES FIRST QUARTER AMOUNT TO BE UTILIZED
AT THE END OF 2000 2001 UTILIZATION DURING REMAINDER OF 2001
------------------ ---------------- -------------------------
Customer returns and markdowns............. $4,509 $2,454 $2,055
Inventory.................................. 1,118 1,064 54
Disposal and related costs................. 439 832 (393)
------ ------ ------
$6,066 $4,350 $1,716
====== ====== ======
NOTE 11--SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in the selling, general and
administrative expenses line item on the Company's Statements of Operations. The
amount is $3,676 and $3,613 for the three months ended March 31, 2001 and 2000,
respectively. The remaining shipping and handling cost are included in the cost
of goods sold line item.
ITEM 2: MANAGEMENT'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 Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange 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 plans and
objectives of management 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 risks and
other factors set forth under Item 7A in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 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. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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-soluble fertilizers, under a variety of brand names. The Company believes
that the key drivers of growth for the $2.7 billion consumer lawn and garden
pesticide and household insecticide retail markets include: (a) the aging of the
United State population; (b) growth in the home improvement center and mass
merchandiser channels; and (c) shifting consumers' preferences toward
value-oriented branded products.
9
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 and selling and general and administrative expenses,
which the Company defines as follows:
- Net sales are gross sales of products sold to customers in accordance with
the shipping terms applicable to each sale less any customer discounts
from list price and customer returns, and promotion expense of products
through cooperative programs with retailers.
- Cost of goods sold includes chemicals, container and packaging material
costs as well as direct labor, outside labor, manufacturing overhead and
freight.
- Selling and general and administrative expenses include all costs
associated with the selling and distribution of product, product
registrations, and administrative functions such as finance, information
systems and human resources.
The following table sets forth the percentage relationship of certain items
in the Company's Statements of Operations to net sales for the three months
ended March 31, 2001 and March 31, 2000:
THREE MONTHS
ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Net sales:
Value brands................................................ 83.4% 78.4%
Opening price point brands.................................. 16.6 21.6
----- -----
Total net sales............................................. 100.0 100.0
Operating costs and expenses:
Cost of goods sold.......................................... 55.0 54.2
Selling, general and administrative expenses................ 25.1 26.7
Total operating costs and expenses.......................... 80.1 80.9
----- -----
Operating income............................................ 19.9 19.1
Interest expense............................................ 12.5 13.1
----- -----
Income before provision for income taxes.................... 7.4 6.0
Income tax expense.......................................... 2.1 1.2
----- -----
Net income.................................................. 5.3% 4.7%
===== =====
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
NET SALES. Net sales decreased 0.1% to $79.9 million for the three months
ended March 31, 2001 from $80.9 million for the three months ended March 31,
2000. This decrease was driven by a combination of offsetting factors including:
- Loss of Kmart Kgro private label business for 2001;
- Increased sales of Spectracide Terminate-TM-;
- Increase in promotion expense; and
- Decreased sales related to products that contain chlorpyrifos.
10
Net sales of the Company's value brands increased 5.7% to $66.7 million for
the three months ended March 31, 2001 from $63.1 million for the three months
ended March 31, 2000. Value brand sales of Spectracide Terminate-TM- increased
$4.9 million primarily due to a fast start to the season. The gains achieved by
Spectracide Terminate-TM-, were partially offset by loss sales of products that
contained chlorpyrifos. During 2000 the US Environmental Protection Agency and
manufacturers of chlorpyrifos (the active ingredient in Dursban pesticidal
products) entered into a voluntary agreement that provided for the withdrawal of
virtually all residential uses of Dursban. The increase in promotion expense was
due to growth of the home centers business and grocery channels.
Net sales of opening price point brands decreased 25.6% to $13.2 million for
the three months ended March 31, 2001 from $17.8 million for the three months
ended March 31, 2000. The decrease was driven by the loss of Kmart Kgro business
that was discontinued in the third quarter of 2000.
GROSS PROFIT. Gross profit decreased 3.0% to $36.0 million for the three
months ended March 31, 2001 compared to $37.0 million for the three months ended
March 31, 2000. As a percentage of sales, gross profit decreased to 45.0% for
the three months ended March 31, 2001 as compared to 45.8% for the three months
ended March 31, 2000. The decrease in gross profit as a percentage of sales was
the result of change in sales mix to lower margin products not containing
chlorpyrifos. The discontinuance of chlorpyrifos was a result of the fiscal 2000
voluntary withdrawal between US Environmental Protection Agency and
manufacturers of chlorpyrifos (the active ingredient in Dursban pesticidal
products) providing for the withdrawal of virtually all residential uses of
Dursban.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased 7.3% to $20.0 million for the three months
ended March 31, 2001 from $21.6 million for the three months ended March 31,
2000. As a percentage of net sales, selling, general and administrative expenses
decreased to 25.1% for the three months ended March 31, 2001 from 26.7% for the
three months ended March 31, 2000. The overall decrease was primarily due to the
elimination of selling and marketing expenses of $0.8 for Spectracide
Pro-Registered Trademark-, which was a product line that was discontinued for
fiscal 2001. The Company also received $0.3 related to merchandising services
offered to unrelated companies that carry product in the same home center
customers as the Company.
OPERATING INCOME. Operating income increased 3.1% to $15.9 million for the
three months ended March 31, 2001 from $15.4 million for the three months ended
March 31, 2000. As a percentage of net sales, operating income increased to
19.9% for the three months ended March 31, 2001 from 19.1% for the three months
ended March 31, 2000.
INCOME TAX EXPENSE. For the three months ended March 31, 2001, the
Company's effective income tax rate is 28.0%, which reflects the estimated
utilization of the goodwill deduction in fiscal year 2001. The goodwill
deduction is related to the step up in tax basis in conjunction with the
Recapitalization.
LIQUIDITY 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 cash requirements for debt service relating to the
Company's Senior Subordinated Notes and Senior Credit Facility. As of
December 31, 2000, the Company had total debt outstanding of $354.3 million. As
of March 31, 2001, the Company had total debt outstanding of $384.1 million. The
Company will rely on internally generated funds and, to the extent necessary,
borrowings under the Company's Revolving Credit Facility to meet liquidity
needs.
The Company's Senior Credit Facility consists of:
- The $80.0 million Revolving Credit Facility, under which $47.5 million in
borrowings were outstanding at March 31, 2001;
11
- The $75.0 million Term Loan A ($46.1 million outstanding at March 31,
2001); and
- The $150.0 million Term Loan B ($135.5 million outstanding at March 31,
2001).
The Company's Revolving Credit Facility and the Term Loan A mature in
January 2005, and the Term Loan B matures in January 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 $10.0 million
for 30 consecutive days occurring during the period August 1 and November 30 in
each calendar year.
The Company's principal liquidity requirements are for working capital,
capital expenditures and debt service under the Senior Credit Facility and the
notes. Cash flow from continuing operations provided net cash of approximately
$29.3 million, and $30.3 million for the three months ended 2001 and 2000,
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) during the
first half of the year, with the second and third quarters being significant
cash collection periods.
In November 1999, the Company issued 9 7/8% Senior Subordinated Notes for
$150 million that are due April 1, 2009.
Interest accrues at the rate of 9 7/8% per annum, payable semi-annually on
each April 1 and October 1.
Capital expenditures are related to the enhancement of the Company's
existing facilities and the construction of additional productions and
distribution capacity. Cash used for capital was $0.5 million and $1.3 million
for the three months ended 2001 and 2000, respectively. In addition, the Company
entered into a capital lease agreement in March 2000 for $5.3 million. Cash used
for capital expenditures for the remainder of fiscal 2001 is expected to be less
than $5.0 million.
Principal on Term Loan A is to be repaid in twenty-three consecutive
quarterly installments commencing June 30, 1999 with a final installment due
January 20, 2005. The principal amount of Term Loan B is to be repaid in
twenty-seven consecutive quarterly installments commencing June 30, 1999 with a
final balloon installment due January 20, 2006.
The Company believes that cash flow from operations, together with available
borrowings under the 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 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.
SEASONALITY
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.
12
IMPACT OF FISCAL 2000 VOLUNTARY WITHDRAWAL OF DURSBAN
During 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 withdrawal of virtually all residential
uses of Dursban. Formulation of new Dursban products intended for residential
use was required to cease by December 1, 2000. Formulators can no longer sell
such products to retailers as of February 1, 2001. Retailers will no longer be
able to sell Dursban products after December 31, 2001.
The Company recorded a charge of $8.0 million in September 2000 for costs
associated with this agreement. The Company currently has replacement chemicals
for Dursban, and the replacement chemicals are currently being used in
production of new pesticidal products.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Emerging Issues Task Force (EITF) issued EITF 00-25. This issue
addresses when consideration from a vendor to a retailer (a) in connection with
the retailer's purchase of the vendor's products or (b) to promote sales of the
vendor's products by the retailer should be classified in the vendor's income
statement as a reduction of revenue. The Company has adopted EITF 00-25 for
fiscal year 2001. The Company has reclassified all trade and co-op promotional
expense in the Statements of Operations to net sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE
The Company is exposed to market risks relating to changes in interest
rates. 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. As of March 31, 2001, variable rate debt was
$229.2 million.
Interest ranges from 250 to 400 basis points above LIBOR depending on
certain financial ratios. LIBOR was 5.08% on March 31, 2001.
EXCHANGE RATE
The Company does not use derivative instruments to hedge against foreign
currency exposures related to transactions denominated in other than the
Company's functional currency. Substantially all foreign currency transactions
are denominated in United States dollars.
COMMODITY PRICE
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 its exposure to price
changes in commodity and specialty chemicals.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. The Company has no reportable legal proceedings in
the current period.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were
submitted.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Report on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of 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
Dated: May 15, 2001
By: /s/ DANIEL J. JOHNSTON
---------------------------------------
Name: Daniel J. Johnston
Title: SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
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