-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hv3s8HIsWi33ZvAUma2Vi2DRvrlczu6vXzfdHBaUyiygCkGUP2NWqZpPZ/9PdS3Q 8wXcsoVwl0UHxyG/tu+tcg== /in/edgar/work/0000912057-00-050408/0000912057-00-050408.txt : 20001116 0000912057-00-050408.hdr.sgml : 20001116 ACCESSION NUMBER: 0000912057-00-050408 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INDUSTRIES CORP CENTRAL INDEX KEY: 0001083200 STANDARD INDUSTRIAL CLASSIFICATION: [2870 ] IRS NUMBER: 431025604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-76055 FILM NUMBER: 770558 BUSINESS ADDRESS: STREET 1: 8825 PAGE BOULEVARD CITY: ST LOUIS STATE: MO ZIP: 63114 BUSINESS PHONE: 3144270780 MAIL ADDRESS: STREET 1: 8825 PAGE BOULEVARD CITY: ST LOUIS STATE: MO ZIP: 63114 10-Q 1 a2030965z10-q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 SEPTEMBER 30, 2000 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 ------------------------ UNITED INDUSTRIES CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 43-1025604 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.)
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 / /. There is no established public market for the Registrant'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 Class A Preferred Stock outstanding. Documents Incorporated by Reference: None - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNITED INDUSTRIES CORPORATION BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31 2000 1999 1999 ------------- ------------- ----------- ASSETS Current assets: Cash and cash equivalents............................ $ 17,146 $ 11,853 $ -- Accounts receivable (less allowance for doubtful accounts of $875 at September 30, 2000, $535 at September 30, 1999 and $1,031 at December 31, 1999).............................................. 31,376 32,750 19,165 Inventories.......................................... 31,799 35,987 53,243 Prepaid expenses..................................... 2,666 1,352 3,501 --------- --------- --------- Total current assets............................. 82,987 81,942 75,909 Equipment and leasehold improvements, net.............. 25,871 27,567 27,860 Deferred income tax.................................... 116,268 107,574 116,268 Other assets........................................... 19,806 21,018 20,870 --------- --------- --------- Total assets..................................... $ 244,932 $ 238,101 $ 240,907 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current maturities of long-term debt and capital lease obligations.................................. $ 11,846 $ 12,165 $ 12,178 Accounts payable..................................... 11,789 13,024 25,507 Accrued expenses..................................... 23,049 19,876 27,464 Short-term borrowings................................ 15,000 -- -- --------- --------- --------- Total current liabilities........................ 61,684 45,065 65,149 Long-term debt......................................... 343,375 352,000 349,125 Capital lease obligations.............................. 5,261 8,127 7,952 Other liabilities...................................... 6,725 5,377 5,483 --------- --------- --------- Total liabilities................................ 417,045 410,569 427,709 Stockholders' deficit.................................. Common stock......................................... 554 554 554 Additional paid-in capital........................... 126,865 116,687 126,865 Accumulated deficit.................................. (296,832) (287,009) (311,521) --------- --------- --------- Common stock held in grantor trust................... (2,700) (2,700) (2,700) --------- --------- --------- Total stockholders' deficit...................... (172,113) (172,468) (186,802) --------- --------- --------- Total liabilities and stockholders' deficit...... $ 244,932 $ 238,101 $ 240,907 ========= ========= =========
See accompanying notes to financial statements. 2 UNITED INDUSTRIES CORPORATION STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net sales........................................ $ 51,080 $53,536 $263,134 $281,819 -------- ------- -------- -------- Operating costs and expenses: Cost of goods sold............................. 26,563 25,224 132,535 137,925 Advertising and promotion expenses............. 4,021 4,115 23,489 29,024 Selling, general and administrative expenses... 15,078 16,425 51,974 54,331 Recapitalization transaction fees.............. -- -- -- 10,690 Change of control bonuses...................... -- -- -- 8,645 Severance charges.............................. -- -- -- 1,606 Durshan related expenses (see note 11)......... 8,000 -- 8,000 -- Non-recurring litigation charges............... -- -- -- 1,500 -------- ------- -------- -------- Total operating costs and expenses............. 53,662 45,764 215,998 243,721 -------- ------- -------- -------- Operating income (loss).......................... (2,582) 7,772 47,136 38,098 Interest expense................................. 10,120 9,020 31,204 26,388 -------- ------- -------- -------- Income (loss) before provision for income taxes, and extraordinary item......................... (12,702) (1,248) 15,932 11,710 Income tax expense (benefit)..................... (5,120) 1,693 1,243 9,468 -------- ------- -------- -------- Income (loss) before extraordinary item.......... (7,582) (2,941) 14,689 2,242 Extraordinary loss from early extinguishment of debt, net of income tax benefit of $1,425...... -- -- -- (2,325) -------- ------- -------- -------- Net income (loss)................................ $ (7,582) $(2,941) $ 14,689 $ (83) ======== ======= ======== ========
See accompanying notes to financial statements. 3 UNITED INDUSTRIES CORPORATION STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2000 1999 -------- --------- Cash flows from operating activities: Net income (loss)......................................... $ 14,689 $ (83) Loss from early extinguishment of debt.................. -- 3,750 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Non cash reduction of capital lease obligation........ (1,182) -- Deferred compensation................................. -- 2,700 Depreciation and amortization......................... 4,088 3,468 Recapitalization transaction fees..................... -- 10,690 Amortization of deferred financing fees............... 1,779 1,493 Provision for deferred income tex expense............. 1,243 8,043 Changes in assets and liabilities: Increase in accounts receivable..................... (12,211) (15,575) Decrease in inventories............................. 21,444 5,457 Decrease in prepaid expenses........................ 835 820 Decrease in accounts payable and accrued expenses... (13,437) (3,649) Increase in Dursban related expenses................ 7,479 -- Decrease in other assets............................ (75) (413) Other, net.......................................... -- 188 -------- --------- Net cash provided by operating activities......... 24,652 16,889 Investing activities: Purchase of equipment and leasehold improvements.......... (3,175) (1,499) -------- --------- Net cash used for investing activities............ (3,175) (1,499) Financing activities: Redemption of treasury stock.............................. (12,175) (337,896) Transaction costs related to redemption of treasury stock................................................... -- (11,378) Recapitalization transactions with affiliate.............. -- (5,700) Issuance of common stock.................................. -- 1,990 Shareholder equity contribution........................... -- 8,425 Debt issuance costs....................................... (924) (19,271) Proceeds from the issuance of short-term debt............. 15,000 520,205 Payments on debt.......................................... (6,232) (160,162) Repayment of note receivable from employee................ -- 250 -------- --------- Net cash used for financing activities............ (4,331) (3,537) Net increase in cash and cash equivalents................... 17,146 11,853 Cash and cash equivalents - beginning of period............. -- -- -------- --------- Cash and cash equivalents - end of period................... $ 17,146 $ 11,853 ======== =========
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 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, 1999. Certain balance sheet accounts have been reclassified from the September 30, 1999 and December 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 Recapitalization 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 the Company's existing stockholders for approximately $254,700; (ii) the Company's senior managers purchased common stock from the Company's existing stockholders for approximately $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 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 owned approximately 91.9% of the Company's issued and outstanding common stock, the existing stockholders retained approximately 6.0% and the Company's senior managers owned approximately 2.1%. On January 20, 1999, the total transaction value of the Recapitalization was approximately $652,000, including related fees and expenses, and the implied total equity value following the Recapitalization was approximately $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 excess taxes of certain stockholders arising from the Company's Section 338(h)(10) election. In December 1999, the Company recorded a $7,200 charge to equity to finalize the costs associated with the Recapitalization increasing the total transaction value to $659,200. On January 20, 1999, the Recapitalization was funded by: (i) $225,000 of borrowings under the Senior Credit Facility; (ii) $150,000 of borrowings under the Senior Subordinated Facility; (iii) $254,700 equity investment by the THL Parties through the Equity Investor; (iv) $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 $16,600. 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. During 1999, the Company recorded $31,312 in fees and expenses associated with the Recapitalization. The 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 Recapitalization 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 Recapitalization transaction fees is as follows:
DEBT EQUITY FEES TOTALS -------- -------- -------- -------- Direct costs.............................. $17,205 $688 $ -- $17,893 Allocated costs........................... 2,729 -- 10,690 13,419 ------- ---- ------- ------- Total fees and expenses................... $19,934 $688 $10,690 $31,312 ======= ==== ======= =======
During the first nine months of 1999, the Company recorded various non-recurring charges as follows: (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 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 chose to dispose of the inventory by selling it through discount channels at prices below cost); and (iii) $900 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. 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 65,000 shares, of which 32,500 have been designated as Class A Voting Common Stock and 32,500 have been designated as Class B Non-Voting Common Stock. As of January 20, 1999, there were 27,600 shares of Class A Voting Common Stock outstanding and 27,600 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--INVENTORIES Inventories are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 2000 1999 1999 -------------- -------------- ------------- Raw materials.......................................... $ 7,715 $ 5,899 $ 9,916 Finished goods......................................... 25,071 30,919 44,149 Allowance for obsolete and slow-moving inventory....... (987) (831) (822) ------- ------- ------- Total inventories...................................... $31,799 $35,987 $53,243 ======= ======= =======
NOTE 5--EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET Equipment and leasehold improvements, net are as follows:
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, 2000 1999 1999 -------------- -------------- ------------- 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............................... (2,130) (1,909) (1,964) ------- ------- ------- 5,858 6,079 6,024 ------- ------- ------- Deferred financing fees................................ 17,108 15,534 16,184 Accumulated amortization............................... (3,770) (1,506) (1,991) ------- ------- ------- 13,338 14,028 14,193 ------- ------- ------- Other.................................................. 610 911 653 ------- ------- ------- Total other assets..................................... $19,806 $21,018 $20,870 ======= ======= =======
7 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (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 each 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 no compensating balance requirements for the $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: 2000 Remainder of year...................................... $ 2,875 2001........................................................ 11,500 2002........................................................ 11,500 2003........................................................ 17,125 2004........................................................ 18,375 Thereafter.................................................. 293,500 -------- $354,875 ========
The 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 was 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, 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 with minimum annual rentals ranging from $578 to $653. 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. Several of the leases provide as many as five five-year options to 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 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 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 Section27A of the Securities Act of 1933, as amended, and Section 21E of the 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 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 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-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 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 expense and selling, 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 expense 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, 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 statement of operations to net sales for the three months ended September 30, 2000 and September 30, 1999 (percentages are calculated based on actual data, but columns may not add due to rounding):
THREE MONTHS ENDED SEPTEMBER 30, ---------------------- 2000 1999 -------- -------- Net Sales: Value brands.............................................. 74.7% 77.8% Opening price point brands................................ 25.3 22.2 ----- ----- Total net sales............................................. 100.0 100.0 Operating costs and expenses: Cost of goods sold........................................ 52.0 47.1 Advertising and promotion expenses........................ 7.9 7.7 Selling, general and administrative 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.......................... 105.1 85.4 ----- ----- Operating income (loss)..................................... (5.1) 14.6 Interest expense............................................ 19.8 16.8 ----- ----- Income (loss) before provision for income taxes and extraordinary item........................................ (24.9) (2.2) Income tax expense (benefit)................................ (10.0) 3.2 ----- ----- Loss before extraordinary item.............................. (14.9)% (5.4)% ===== =====
THREE 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, 2000 from $53.5 million for the three months ended September 30, 1999. 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, 2000 from $41.7 million for the three months ended September 30, 1999. 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, 2000 from $11.9 million for the three months ended September 30, 1999. 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, 2000, compared to $28.3 million for the three months ended September 30, 1999. As a percentage of sales, gross profit decreased to 48.0% as compared to 52.9% for the three months ended September 30, 1999. The 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 supplier rebates. ADVERTISING AND PROMOTION EXPENSES. Advertising and promotion expenses decreased 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. As a percentage of net sales, advertising and promotion expenses increased to 7.9% 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, 2000 from $16.4 million for the three months ended September 30, 1999. As a percentage of net sales, selling, general and administrative expenses decreased to 29.5% for the three months ended September 30, 2000 from 30.7% for the three months ended September 30, 1999. The overall decrease in selling, general and administrative expenses was primarily due to reduction of marketing and sales expenses related to sales volume decrease and other cost reduction efforts. DURSBAN RELATED EXPENSES. The Company recorded a non-recurring expense of $8.0 million as a result of the EPA and manufacturers voluntary phase-out of the active chemical in the Company's products. OPERATING INCOME (LOSS). Operating income (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. As a percentage of net sales, operating income decreased to (5.1)% for the three months ended September 30, 2000 from 14.5% for the three months ended September 30, 1999. INCOME TAX EXPENSE. For the three months ended September 30, 2000, the Company's effective income tax rate reflects the estimated utilization of the goodwill deduction in fiscal year 2000 and a reduction in the 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, 2000 and September 30, 1999 (percentages are calculated based on actual data, but columns may not add due to rounding):
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 2000 1999 -------- -------- Net Sales: Value brands.............................................. 75.7% 80.2% Opening price point brands................................ 24.3 19.8 ----- ----- Total net sales............................................. 100.0 100.0 Operating costs and expenses: Cost of goods sold........................................ 50.4 48.9 Advertising and promotion expenses........................ 8.9 10.3 Selling, general and administrative expenses.............. 19.8 19.3 Recapitalization transaction fees......................... -- 3.8 Change of control bonuses................................. -- 3.1 Severance charge.......................................... -- 0.6 Dursban related expenses.................................. 3.0 -- Non-recurring litigation charges.......................... -- 0.5 ----- ----- Total operating costs and expenses.......................... 82.1 86.5 ----- ----- Operating income............................................ 17.9 13.5 Interest expense............................................ 11.9 9.4 ----- ----- Income before provision for income taxes and extraordinary item...................................................... 6.1 4.1 Income tax expense.......................................... 0.5 3.3 ----- ----- Loss before extraordinary item.............................. 5.6% 0.8% ===== =====
NINE 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, 2000 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 Spectracide 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, 2000 from $226.1 million for the nine months ended September 30, 1999. 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 declines at Home Depot were partially offset by the continual same store and new store 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 Terminate-TM- shipments were impacted by high retail inventory levels. However, retail point-of-sale trends continue 15 to show improved consumer acceptance. Spectracide Pro's net sales decreased 38.6% to $3.6 million for the nine months ended September 30, 2000 from $5.9 million for the nine months ended September 30, 1999, as 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, 2000 from $55.7 million for the nine months ended September 30, 1999. 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, 2000 compared to $143.9 million for the nine months ended September 30, 1999. As a percentage of sales, gross profit decreased to 49.6% as compared to 51.1% for the nine months ended September 30, 1999. 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 supplier rebates. 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 for customer deductions taken in 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 $10.7 million for recapitalization transaction fees. As of September 30, 2000, the Company recorded $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-giving rise to the fee or expense. CHANGE OF CONTROL BONUSES. No charges were recorded for the nine months ended September 30, 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. No charges were recorded for the nine months ended September 30, 2000. For the nine months ended September 30, 1999, the Company recorded severance charges of $1.6 million as a result of the Company's President and Chief Executive Officer terminating employment with the Company. 16 NON-RECURRING LITIGATION CHARGES. No charges were recorded for the nine months ended September 30, 2000. For the nine months ended September 30, 1999, the Company took a charge of $1.5 million to primarily reserve for the expected cost of an adverse judgement on a 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 $0.9 million in liquidating damages and $0.1 million in past commissions. The remaining amounts accrued in connection with the $1.5 million charge were primarily used to cover legal cost associated with the claim. DURSBAN RELATED EXPENSES. The Company recorded a non-recurring expense of $8.0 million as a result of the EPA and manufacturers voluntary phase-out of the active chemical in the Company's products. OPERATING INCOME. Operating income increased to $47.1 million for the nine months ended September 30, 2000 from $38.1 million for the nine months ended September 30, 1999. As a percentage of net sales, operating income increased 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 was 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, 2000, the Company's effective income tax rate reflects the estimated 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 of $2.1 million. This conversion was 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 notes and Senior Credit Facility. As of December 31, 1999, the Company had total debt and capital lease obligations outstanding of $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 Facility to meet liquidity needs. The Company's Senior Credit Facility consists of: - The September 30, 2000, $110.0 million Revolving Credit Facility, under which no borrowings were outstanding at the closing of the Recapitalization. As of September 30, 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 ($57.5 million outstanding at September 30, 2000); and - The $150.0 million Term Loan B ($147.4 million outstanding at September 30, 2000). The Company's Revolving Credit Facility and the Term Loan A matures on January 20, 2005, and the 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 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 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. 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 $2.3 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 notes. Net cash provided by operating activities was $24.7 million and $16.9 million for the nine months ended September 30, 2000 and 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) 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 production and distribution capacity. Cash used for capital expenditures was $3.2 million and $1.5 million for the nine months ended September 30, 2000 and 1999, respectively. In addition, the Company entered into a capital lease agreement in March 2000 for $5.9 million. Cash used for capital expenditures for the remainder of 2000 is expected to be less than $5.0 million. Principal on 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 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. For the nine months ended September 30, 2000, principal payments on Term Loans A and B of $5,000 and $750, respectively, were paid. 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 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. 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. IMPACT 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 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 recorded in September of 2000 for costs associated with this agreement. The Company currently has replacement chemicals for Dursban, which are currently being used in production of new pesticidal products. SIGNIFICANT CUSTOMER During the third quarter, Kmart notified the Company that the contract to manufacture KGro private label products will not be renewed. Historically, the KGro business has had low margins and high operating costs. The Company does not expect this development to have a significant impact on EBITDA for 2001. 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. At September 30, 2000, variable rate debt was $219.9 million. Interest on Term Loan A and Term Loan B ranges from 200 to 375 basis points above LIBOR depending on certain financial ratios. LIBOR was 6.62% as of September 30, 2000. 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 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 the Company's exposure to price changes in commodity and specialty chemicals. 20 PART II OTHER INFORMATION THERE IS NO INFORMATION REQUIRED TO BE REPORTED UNDER ANY ITEMS. 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. 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 (a) Exhibits Exhibit 27.1 Financial Data Schedule (b) Report on Form 8-K None 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) f 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: 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 EX-27 2 a2030965zex-27.txt EXHIBIT 27
5 This schedule contains summary financial information extracted from balance sheets and statements of operations and is qualified in its entirety by reference to such financial statements. 9-MOS SEP-30-2000 JAN-01-2000 SEP-30-2000 17,146 0 32,251 875 31,799 82,987 51,138 25,267 244,932 61,684 0 0 0 554 (172,667) 172,113 263,134 263,134 132,535 215,998 0 0 31,204 15,932 1,243 14,689 0 0 0 14,689 0 0
-----END PRIVACY-ENHANCED MESSAGE-----