-----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, CZiwkGQaKisW/D8J+4FGwIu+b5uzWGolrjkrrLVTZLvVSvd4uNqYjuCbuk3flWhA mvM0tvypWJLL4hCTQxtcUA== 0000891554-96-000721.txt : 19961023 0000891554-96-000721.hdr.sgml : 19961023 ACCESSION NUMBER: 0000891554-96-000721 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960809 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961022 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US HOME & GARDEN INC CENTRAL INDEX KEY: 0000879911 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 770262908 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19899 FILM NUMBER: 96646381 BUSINESS ADDRESS: STREET 1: 655 MONTGOMERY ST STE 830 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156168111 MAIL ADDRESS: STREET 1: 655 MONTGOMERY ST STREET 2: SUITE 830 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 FORMER COMPANY: FORMER CONFORMED NAME: NATURAL EARTH TECHNOLOGIES INC DATE OF NAME CHANGE: 19930328 8-K/A 1 AMENDMENT NO. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported): August 9, 1996 U.S. HOME & GARDEN INC. (Exact name of registrant as specified in its charter) DELAWARE 0-19899 77-0262908 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) Identification No.) 655 Montgomery Street, Suite 830, San Francisco, California 94111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 616-8111 - -------------------------------------------------------------------------------- Former name or former address, if changed since last report Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Business Acquired WEATHERLY CONSUMER PRODUCTS GROUP, INC. AND SUBSIDIARIES Financial Page No. ------------------ Report of Independent Public Accountants F-1 Consolidated Balance Sheets F-2 as of August 9, 1996 and September 30, 1995 Consolidated Statement of Operations for the period F-3 October 1, 1995 through August 9, 1996 and the years ended September 30, 1995 and 1994 Consolidated Statements of Stockholders' Equity for the F-4 period October 1, 1995 through August 9, 1996 and the years ended September 30, 1995 and 1994 Consolidated Statement of Cash Flows for the period F-5 October 1, 1995 through August 9, 1996 and the years ended September 30, 1995 and 1994. Notes to Consolidated Financial Statements F-6-14 (b) Pro forma financial information. ACQUISITION OF WEATHERLY CONSUMER PRODUCTS GROUP, INC. Introduction PF-1 Pro forma condensed consolidated balance sheet - June 30, 1996 PF-2 Pro forma condensed consolidated statements of operations for the year ended June 30, 1996 PF-3 Notes to pro forma condensed consolidated financial statements PF4-5 (c) Exhibits Exhibit 23 Consent of Arthur Andersen LLP -2- Report of Independent Public Accountants To the Board of Directors of Weatherly Consumer Products Group, Inc., and Subsidiaries: We have audited the accompanying consolidated balance sheets of WEATHERLY CONSUMER PRODUCTS GROUP, INC. (a Delaware Corporation) and SUBSIDIARIES as of August 9, 1996 and September 30, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the period October 1, 1995 through the date of the sale of the Company (Note 1) and the years ended September 30, 1995 and 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Weatherly Consumer Products Group, Inc. and Subsidiaries as of August 9, 1996 and September 30, 1995, and the results of their operations and their cash flows for the period October 1, 1995 through August 9, 1996 and the years ended September 30, 1995 and 1994 in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, effective October 1, 1993, the Company changed its method of accounting for income taxes. Cincinnati, Ohio, September 26, 1996 /s/ Arthur Andersen, LLP -------------------- ARTHUR ANDERSEN, LLP F-1 Weatherly Consumer Products Group, Inc. And Subsidiaries Consolidated Balance Sheets As of August 9, 1996 and September 30, 1995 (Note 1)
1996 1995 ------------ ------------ ASSETS CURRENT ASSETS (Notes 3 and 4): Cash and cash equivalents $ 2,452,604 $ 1,053,668 Trade accounts receivable and other, net of allowance for doubtful accounts of $85,000 and $201,000 in 1996 and 1995, respectively 1,342,439 812,559 Inventories 1,806,028 3,055,746 Prepaid expenses and other 114,483 22,371 Income tax receivable 1,082,407 -- Future tax benefit -- 209,902 ------------ ------------ Total current assets 6,797,961 5,154,246 ------------ ------------ EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 4): Machinery and equipment 3,000,381 2,987,350 Furniture and vehicles 302,884 347,138 Leasehold improvements 575,167 487,370 ------------ ------------ 3,878,432 3,821,858 Less-accumulated depreciation and amortization (2,954,190) (2,617,163) ------------ ------------ 924,242 1,204,695 ------------ ------------ OTHER ASSETS (Notes 2 and 4): Patents and trademarks, net 1,786,544 1,908,807 Goodwill, net 907,296 1,010,401 Deferred financing costs, net -- 596,593 Product packaging and other 46,772 133,488 ------------ ------------ 2,740,612 3,649,289 ------------ ------------ $ 10,462,815 $ 10,008,230 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term obligations (Note 4) $ 1,400,000 $ 1,321,353 Trade accounts payable 347,826 532,167 Long-term obligations repaid in conjunction with the sale (Note 4) 11,131,757 -- Accrued liabilities: Redemption of officer and employee contracts 6,000,000 -- Other 1,023,815 1,051,423 ------------ ------------ Total current liabilities 19,903,398 2,904,943 LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES (Note 4) -- 8,411,135 SUBORDINATED NOTES PAYABLE, NET OF CURRENT MATURITIES (NOTE 4) -- 3,374,363 ------------ ------------ 19,903,398 14,690,441 ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT) (Notes 2 and 8): Class A common stock, $.01 par value, voting, 11,765 authorized, 10,000 shares issued and outstanding 100 100 Class B common stock, $.01 par value, non-voting, 1,765 authorized at September 30, 1995 -- -- Warrants for 1,765 Class B common shares 1,160,442 350,000 Additional paid-in-capital 6,324,712 6,324,712 Accumulated deficit (16,925,837) (11,357,023) ------------ ------------ (9,440,583) (4,682,211) ------------ ------------ $ 10,462,815 $ 10,008,230 ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. F-2 Weatherly Consumer Products Group, Inc. And Subsidiaries Consolidated Statements of Operations For the Period October 1, 1995 through August 9, 1996 And the Years Ended September 30, 1995 and 1994 (Note 1)
1996 1995 1994 ------------ ------------ ------------ NET SALES (Note 7) $ 18,184,995 $ 18,532,297 $ 17,889,321 COST OF GOODS SOLD 7,677,707 8,872,354 7,562,604 ------------ ------------ ------------ Gross profit 10,507,288 9,659,943 10,326,717 ------------ ------------ ------------ OPERATING EXPENSES: Selling and marketing 5,251,782 4,960,793 4,603,633 Administrative 2,414,193 2,552,570 3,112,548 Redemption of employment contracts 6,000,000 -- -- ------------ ------------ ------------ 13,665,975 7,513,363 7,716,181 ------------ ------------ ------------ Operating income (loss) (3,158,687) 2,146,580 2,610,536 ------------ ------------ ------------ OTHER EXPENSES: Interest, net 1,546,311 1,361,987 1,232,272 Other, net 8,575 (67,636) (4,370) ------------ ------------ ------------ 1,554,886 1,294,351 1,227,902 ------------ ------------ ------------ Income (loss) before (provision) benefit for income taxes, extraordinary item and cumulative effect of accounting change (4,713,573) 852,229 1,382,634 (PROVISION) BENEFIT FOR INCOME TAXES (Note 3) 475,535 (400,033) (405,820) ------------ ------------ ------------ Income (loss) before extraordinary item and cumulative effect of accounting change (4,238,038) 452,196 976,814 EXTRAORDINARY ITEM - Write-off of deferred financing costs and debt prepayment charges, net of related income tax benefit of $57,815 (520,334) -- -- ------------ ------------ ------------ Income (loss) before cumulative effect of accounting change (4,758,372) 452,196 976,814 CUMULATIVE EFFECT FOR YEARS ENDED PRIOR TO OCTOBER 1, 1993, OF CHANGE IN ACCOUNTING FOR INCOME TAXES (Note 3) -- -- 200,000 ------------ ------------ ------------ Net income (loss) $ (4,758,372) $ 452,196 $ 1,176,814 ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. F-3 Weatherly Consumer Products Group, Inc. And Subsidiaries Consolidated Statements of Stockholders' Equity For the Period October 1, 1995 through August 9, 1996 And the Years Ended September 30, 1995 and 1994 (Note 1)
Preferred Common Additional Accumulated Stock Stock Warrants Paid-In-Capital Deficit Total ------------ ------------ ------------ --------------- ------------ ------------ BALANCE, September 30, 1993 $ 9,118,998 $ (458,850) $ 350,000 $ -- $(12,121,369) $ (3,111,221) Net income -- -- -- -- 1,176,814 1,176,814 Dividends (Note 8) 864,664 -- -- -- (864,664) -- ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, September 30, 1994 9,983,662 (458,850) 350,000 -- (11,809,219) (1,934,407) Net income -- -- -- -- 452,196 452,196 Conversion or retirement of Common and Preferred Stock and Warrants (Note 8) (9,983,662) 458,950 -- 6,324,712 -- (3,200,000) ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, September 30, 1995 -- 100 350,000 6,324,712 (11,357,023) (4,682,211) Net income (loss) -- -- -- -- (4,758,372) (4,758,372) Accretion of warrants (Note 2) -- -- 810,442 -- (810,442) -- ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, August 9, 1996 $ -- $ 100 $ 1,160,442 $ 6,324,712 $(16,925,837) $ (9,440,583) ============ ============ ============ ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. F-4 Weatherly Consumer Products Group, Inc. And Subsidiaries Consolidated Statements of Cash Flows For the Period October 1, 1995 through August 9, 1996 And the Years Ended September 30, 1995 and 1994 (Note 1)
1996 1995 1994 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(4,758,372) $ 452,196 $ 1,176,814 Adjustments to reconcile net income (loss) to net cash provided by operating activities- Depreciation and amortization 977,986 1,018,594 947,631 Write-off of deferred financing costs and prepayment charges 578,149 -- 315,233 Reserves for certain property and other assets 247,661 -- -- Loss (gain) on disposition of assets -- (63,512) (220,730) Future tax benefit 209,902 10,828 -- Income tax receivable (1,082,407) -- -- Changes in assets and liabilities- Accounts receivable (529,880) 67,931 144,046 Inventory 1,249,718 (714,412) 208,848 Prepaid expenses and other (103,273) 37,203 4,566 Accounts payable and accrued liabilities (211,949) (161,761) (188,091) Redemption of employment contracts 6,000,000 -- -- ----------- ----------- ----------- Net cash provided by operating activities 2,577,535 647,067 2,388,317 ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on debt 4,131,547 3,308,801 46,642 Payments on debt (4,978,047) (4,692,601) (1,025,000) Proceeds from sale of land and building -- 74,492 -- Bank loan refinancing costs -- -- (21,167) ----------- ----------- ----------- Net cash used in financing activities (846,500) (1,309,308) (999,525) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in other assets (4,348) (53,746) (14,506) Capital expenditures, net (327,751) (359,134) (451,036) ----------- ----------- ----------- Net cash used in investing activities (332,099) (412,880) (465,542) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,398,936 (1,075,121) 923,250 CASH AND CASH EQUIVALENTS, beginning of period 1,053,668 2,128,789 1,205,539 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 2,452,604 $ 1,053,668 $ 2,128,789 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 1,039,261 $ 1,295,209 $ 1,225,872 =========== =========== =========== Cash paid for income taxes $ 334,000 $ 192,532 $ 447,500 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Conversion of preferred stock to long-term stockholder debt (Note 8) $ -- $ 3,200,000 $ -- =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. F-5 Weatherly Consumer Products Group, Inc. And Subsidiaries Notes to Financial Statements (1) Sale of the Company- Weatherly Consumer Products Group, Inc. (WCPG) and Subsidiaries (the Company) is engaged in the manufacture and sale of fertilizer, watering, insecticide and garden netting products. On August 9, 1996, all outstanding capital stock of the Company was acquired by Easy Gardener Acquisition Corp., a subsidiary of U.S. Home & Garden Inc. for approximately $8 million dollars of cash consideration and approximately one million shares of U.S. Home & Garden Inc. stock. Prior to and/or in conjunction with the sale; o Certain of the officer and employee contracts were redeemed for approximately $6 million. This expense and related obligation has been included as a component of administrative expenses and accrued liabilities, as applicable, in the accompanying 1996 financial statements. o The holders of the Company's warrants for Class B common shares agreed to have their warrants redeemed for $1,160,442. Accordingly, the accretion of the warrants was accelerated in the accompanying 1996 financial statements to reflect the warrants at their respective redemption price. o Severance agreements were provided to certain Company employees. Severance of approximately $450,000 was accrued or paid as of August 9, 1996 and is included in selling and marketing (approximately $395,000) and administrative expenses ($55,000) in the accompanying 1996 financial statements. o Immediately subsequent to the sale of the Company's stock, the preexisting debt obligations were paid off. Accordingly, the accretion of the Company's bank loan with detachable warrants was accelerated, unamortized deferred financing costs were written off and related prepayment penalties were accrued. The expense associated with the accretion of the bank loan with detachable warrants (approximately $271,000) is included as a component of the 1996 interest expense, whereas the costs associated with the prepayment of the debt obligations (approximately $578,000) are reflected, net of the related tax benefit, in the accompanying 1996 financial statements as an extraordinary item. F-6 o Immediately prior to the sale, specific assets were transferred to certain employees and shareholders. The carrying amount of the net assets transferred (approximately $248,000) is included in administrative expenses in 1996. o Upon receipt of income tax receivables reported as of August 9, 1996, amounts realized net of certain offsets are to be remitted to the selling shareholders. (2) Summary of Accounting Policies- (a) Principles of Consolidation--The consolidated financial statements include the accounts of WCPG and its subsidiaries, Weatherly Consumer Products, Inc. and Ross Daniels, Inc. (WCP and RDI). All material intercompany transactions and balances have been eliminated. (b) Translation of Foreign Currencies--Accounts of the United Kingdom branch are stated in United States dollars. Cash, receivables, payables and accrued expenses are translated at the exchange rate at yearend. Currency gains and losses have been reflected in the statements of operations. Cumulative translation adjustments are not material to the financial statements taken as a whole. (c) Cash and Cash Equivalents--Cash and cash equivalents include operating cash accounts and money market funds. (d) Inventories--Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The components of inventories at August 9, 1996 and September 30, 1995 include the following: 1996 1995 ---------- ---------- Raw materials $ 693,814 $ 811,604 Finished products 1,112,214 2,244,142 ---------- ---------- $1,806,028 $3,055,746 ========== ========== (e) Equipment and Leasehold Improvements--Equipment and leasehold improvements are depreciated over their estimated useful lives using the straight-line method. Major expenditures for renewals and betterments are charged to the property accounts while repairs and maintenance, which do not improve or extend the life of the assets, are charged to operations. F-7 The estimated useful lives of the various classes of assets are as follows: Years ------- Machinery and equipment 3 to 10 Furniture and vehicles 3 to 10 Leasehold improvements 3 to 18 (f) Research and Development--Costs incurred in connection with the development of new products and changes to existing products are charged to operations as incurred. (g) Other Assets--Patents, trademarks, product packaging costs and goodwill are amortized over their estimated lives using the straight-line method. The estimated lives of these assets are summarized as follows: Years ------ Patents 11 Trademarks 25 Goodwill 25 Product packaging and other 3 to 8 The Company capitalizes significant expenditures for product packaging development and design work. (h) Warrants for Common Stock--Detachable warrants to purchase 15% of WCPG's common stock were issued to Nations Credit Commercial Corporation (Nations) as part of the financing agreement with Nations and were redeemed in conjunction with the sale of Company stock (Note 1). Prior to 1996, the warrants were exercisable through July 30, 2003 and subject to redemption at the option of Nations on or after July 30, 1997 at a redemption price equal to the greater of the appraised value of the Company, liquidation value, consolidated net worth, as defined, or a multiple of earnings, as defined. The original value assigned to the warrants was $350,000 and included in common stock in the accompanying financial statements. The redemption price was estimated annually and adjustments to accrete the warrants to the estimated redemption price were recorded, as applicable, with a corresponding charge to retained earnings. No accretion was recorded in fiscal 1995 or 1994. In connection with the sale of the Company, there was a charge of $810,442 to accumulated deficit to accrete the value of the warrants to the agreed-upon redemption price. F-8 (i) Advertising--The Company expenses the costs of advertising as incurred. Advertising expense for the period October 1, 1995 through August 9, 1996 and the year ended September 30, 1995 and 1994 approximated $732,000, $782,000 and $735,000, respectively. (j) Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (k) Reclassifications--Certain reclassifications have been made to the 1995 and 1994 financial statements to conform with the 1996 presentation. (l) New Accounting Pronouncements--In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of (SFAS 121), effective for fiscal years beginning after December 15, 1995. The new standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company does not expect that the adoption of SFAS 121 will have a material impact on the financial statements. (3) Income Taxes- Effective October 1, 1993, the Company elected to adopt Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). The cumulative effect of this change in income tax accounting was to increase net income in fiscal 1994 by approximately $200,000. Under SFAS 109, deferred tax assets or liabilities are computed based on the difference between the financial statement basis and income tax basis of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. F-9 The provision (credit) for income taxes includes the following:
1996 1995 1994 ----------- ----------- ----------- Current payable (receivable) $ (685,437) $ 493,801 $ 690,066 Benefit of net operating loss carryforwards (959,709) (104,596) (261,153) Deferred (68,291) 10,828 (23,093) Change in valuation allowance 1,237,902 -- -- ----------- ----------- ----------- (475,535) 400,033 405,820 Tax benefit of extraordinary item (57,815) -- -- ----------- ----------- ----------- $ (533,350) $ 400,033 $ 405,820 =========== =========== ===========
The following is a reconciliation between the statutory federal income tax rate and the provision (benefit) for income taxes:
1996 1995 1994 -------------------------- ------------------------ ------------------------ Amount Rate Amount Rate Amount Rate ----------- ----- --------- ---- --------- ---- Computed provision (benefit) for federal income taxes at the statutory rate $(1,602,614) (34.0%) $ 289,757 34.0% $ 470,096 34.0% State and local income taxes, net of federal income taxes (263,960) (5.6%) 47,432 5.6% 77,390 5.6% Changes in valuation allowance 1,237,902 26.4% (104,596) (12.3%) (261,153) (18.8%) Nondeductible amortization and other, net 153,137 3.2% 167,440 19.6% 119,487 8.6% ----------- ----- --------- ---- --------- ---- $ (475,535) (10.0%) $ 400,033 46.9% $ 405,820 29.4% =========== ===== ========= ==== ========= ====
At August 9, 1996 and September 30,1995, the net future tax benefit consists of the following: 1996 1995 ----------- -------- Advertising and rebate accruals $ 65,808 $ 81,137 Warranty reserves 16,486 24,543 Accounts receivable reserves 6,554 37,367 Inventory costs 23,586 29,873 Other 63,798 36,982 Benefit of net operating loss and credit carryforwards 1,061,670 -- ----------- -------- 1,237,902 209,902 Valuation allowance (1,237,902) -- ----------- -------- $ -- $209,902 =========== ======== F-10 The valuation allowance is required due to the uncertainty of realizing the net deferred tax assets through future operations. As of August 9, 1996, the Company has accumulated approximately $2,400,000 of tax net operating losses and approximately $85,000 of tax credits, substantially all of which expire in 2011, which can be carried forward and used to reduce future taxable income. (4) Debt Obligations- At August 9, 1996 and September 30, 1995 debt obligations consist of the following:
1996 1995 ------------ ----------- Bank senior loan, interest at commercial paper rate plus 4.5%, (10.005% at August 9, 1996) interest payable monthly, principal payable quarterly, paid in full August 10, 1996 $ 4,419,342 $ 5,369,342 Bank loan, interest at a floating rate equal to the greater of 11% or the commercial paper rate plus 6%, (11.505% at August 9, 1996) interest payable monthly, principal due June 30, 2000, includes detachable warrants of $350,000, paid in full August 10, 1996 4,500,000 4,228,593 Subordinated note to a stockholder, interest at prime, not to exceed 10% or less than 6%, (8.25% at August 9, 1996) interest payable annually subject to the senior debt, principal due January 1, 2001, paid in full August 10, 1996 3,200,000 3,200,000 Subordinated note to a stockholder, interest at prime, not to exceed 10% or less than 6%, (8.25% at August 9, 1996) interest payable annually subject to the senior debt, principal due January 1, 2001, paid in full August 10, 1996 100,000 100,000 Accrued interest on subordinated notes to stockholders, paid in full August 10, 1996 312,415 74,363 Other -- 134,553 ------------ ----------- 12,531,757 13,106,851 Scheduled maturities of long-term obligations (1,400,000) (1,321,353) Long-term obligations repaid in conjunction with the sale (A) (11,131,757) -- ------------ ----------- $ -- $11,785,498 ============ ===========
F-11 (A) Given the sale of the Company stock (Note 1) and related repayment of all long-term obligations, these otherwise long-term obligations are included as current liabilities in the accompanying financial statements. The Company had a $20 million credit arrangement with Nations, which was secured by substantially all the assets of the Company. The working capital commitment of $7.5 million included within the arrangement permitted borrowings based on a percentage of eligible receivables and inventory, as defined. There were no borrowings outstanding on the working capital loan at August 9, 1996 or September 30, 1995. The terms of the Nations agreement stipulated, among others, that the Company maintain certain financial ratios; limit capital expenditures and retirements; limit lease and debt commitments; may not merge, consolidate, acquire or sell operating assets; limit compensation to key employees. The notes payable to stockholders were subordinated to all bank debt. Accordingly, these notes stipulated that if payments of annual interest to the stockholders would violate the terms of the Nations agreement, the interest payments would be deferred until the next annual interest payment date. The Company's debt bears interest at variable interest rates which approximate current rates. Accordingly, the debt as stated approximates fair value. (5) Royalty Commitments- WCP has exclusive licenses under patent applications to make, lease, or sell certain of its products. Royalty expense under the agreements is based on a percentage of net sales and amounted to approximately $150,000, $121,000 and $146,000 for the period October 1, 1995 through August 9, 1996 and the years ended September 30, 1995 and 1994, respectively. (6) Commitments- WCP conducts a portion of its operations in leased facilities and leases equipment under noncancelable operating leases. The total amount charged to rental expense was approximately $298,000, $343,000 and $375,000 in 1996, 1995 and 1994, respectively. The minimum scheduled lease payments for the noncancelable operating leases as of August 9, 1996 are as follows: 1997 $325,000 1998 262,000 1999 158,000 -------- $745,000 ======== F-12 (7) Significant Customers and Concentration of Credit Risk- WCP deals mainly with major distributors and retailers, both domestic and international, in the hardware and lawn and garden industries, and thus does not require its customer to pledge collateral in satisfaction of trade receivable obligations. Approximately 27%, 24% and 23% of consolidated gross sales in 1996, 1995 and 1994, respectively, were with two customers. These two customers accounted for approximately 19% and 26% of the Company's receivables at August 9, 1996 and September 30, 1995, respectively. (8) Reorganization- In June, 1995, the Board of Directors approved an amendment of the Certificate of Incorporation which converted all common and preferred shares outstanding, except for the 12% Preferred "A" stock, into a new class of common stock (Class A common stock). The 12% Preferred "A" stock, owned by one stockholder, was converted into a $3,200,000 subordinated note. In addition, previously accrued dividends owed by WCP to the stockholders were canceled, preexisting stock option plans were terminated, certain stock was effectively canceled for no consideration and consideration was provided to certain stockholders for certain waivers and releases. (9) Related Party Activities- In conjunction with the acquisition of the Company by WCPG, the prior sole stockholder (and a current stockholder of WCPG) entered into a consulting agreement with the Company which provided for annual consulting fees of $125,000. This agreement was terminated January 1, 1995. Consulting fees expensed in 1995 and 1994 approximated $31,000 and $125,000, respectively. In July 1993, the Company entered into a two year agreement, subject to renewals, to sublease office space at fair market rental with its prior sole stockholder. Rentals, as per the agreement, approximated $4,500 and $18,000 in 1995 and 1994, respectively. The lease agreement was amended and renewed during 1995 and provides for annual rentals of $1 per year. In 1993, the Company entered into a fully insured two year renewable exclusive distributor agreement with its prior sole stockholder whereby WCP markets and distributes lawn and garden products owned or controlled by its prior sole stockholder. The Company distributed products under this agreement in 1995 and no products were distributed under the agreement in 1994. Commencing F-13 October 1, 1995 this agreement expired and the products were owned and controlled by WCP. (10) Employee Benefit Plans- (a) Health Plan--The Company has a fully insured health benefit plan which provides for hospitalization, surgical, major medical and other benefits for eligible employees. (b) 401(k) Plan--The Company has a 401(k) plan for the benefit of all employees meeting certain minimum eligibility requirements. The Company contributed approximately $43,000, $45,000 and $40,000 to this plan in matching contributions in 1996, 1995 and 1994, respectively. (11) Write Down of Land and Building Held for Sale- In August 1994, the Company entered into an agreement to sell land and a building located in Iowa for less than its book value. In contemplation of the agreement, the Company wrote down the property to its estimated market value. The reserve and related expense recorded in fiscal 1994 as a result of this agreement was approximately $315,000. The transaction closed in March 1995 and resulted in the Company realizing approximately $64,000 more than the previously estimated market value. F-14 U.S. HOME & GARDEN INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) On August 9, 1996, Easy Gardener Acquisition Corporation, a wholly owned subsidiary of U.S. Home & Garden Inc. acquired all of the outstanding stock of Weatherly Consumer Products Group, Inc. (Weatherly), a lawn and garden care company, for 1,000,000 shares of the Company's common stock (valued at $3 per share) and $22,937,321, less an amount required to discharge certain outstanding indebtedness of the acquired company, and adjusted dollar for dollar based upon the ultimate value of the acquired company's net current assets in excess of $2 million. For purposes of these pro forma financial statements, this amount is estimated at $2.5 million. The company satisfied the cash portion of the purchase price by delivery of approximately $7,150,000 in cash, the issuance of a short term note payable for approximately $2.5 million to the sellers and increased bank borrowings of approximately $16 million. In connection with the above acquisition, the Company's outstanding notes payable were refinanced and a new line of credit arrangement was established. Under the terms of the new loan agreement, two promissory notes were issued for $23,000,000 and $2,250,000. The $23,000,000 note requires quarterly principal payments ranging from $570,000 to $1,350,000 beginning September 30, 1996 through June 30, 2002 and bears interest at the lower of prime or LIBOR rates, as defined. The $2,250,000 note requires quarterly principal payments totalling $140,625 beginning September 30, 1998 through December 30, 1999 and bears interest at prime plus 6%. The acquisition was accounted for as a purchase, with the assets acquired and liabilities assumed recorded at fair values. The results of Weatherly's operations will be included in the Company's consolidated financial statements from the date of acquisition. The accompanying condensed pro forma consolidated financial statements illustrate the effect of the acquisition on the Company's financial position at June 30, 1996 and results of operations for the year then ended as if the acquisition had taken place on June 30, 1996 with respect to the balance sheet and July 1, 1995 with respect to the statement of operations. The operating results for Weatherly as reflected on the pro forma statement of operations represents the year ended August 9, 1996. The pro forma condensed consolidated results of operations may not be indicative of the actual result which would have been obtained if the acquisition had occurred on July 1, 1995. PF-1 U.S. HOME & GARDEN INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 1996
U.S. Home & Garden Weatherly Adjustments Pro forma ----------- --------- ----------- --------- ASSETS Current Assets $ 5,300 (A) Cash and cash equivalents $ 680 $ 2,453 (8,000)(C) $ 433 Accounts receivable, net 7,109 1,342 8,451 Inventories 3,392 1,806 5,198 Prepaid expenses and other current assets 462 1,197 1,659 Deferred tax assets 1,333 1,333 -------- -------- -------- ------- Total current assets 12,976 6,798 (2,700) 17,074 Furniture, fixtures and equipment 1,216 924 2,140 Intangible Assets Excess of cost over net assets acquired 15,784 907 20,738 (C) 37,429 Deferred financing costs 1,004 396 (C) 1,400 Trademarks and patents 1,787 1,787 Other intangibles 379 47 500 (C) 926 Trade Credits 1,295 1,295 Officer Receivables 617 617 Other Assets 313 313 -------- -------- -------- ------- $ 33,584 $ 10,463 $ 18,934 $62,981 ======== ======== ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Line of credit $ 1,288 $ (222)(C) $ 1,066 Current maturities of long term debt 2,362 1,400 (1,482)(C) 2,280 Due to shareholders 3,492 (C) 3,492 Accounts payable and accrued (6,117)(C) expenses 2,917 7,372 1,321 (C) 5,493 Accrued interest 592 592 Accrued purchase price 489 489 -------- -------- -------- ------- Total current liabilities 7,648 8,772 (3,008) 13,412 Deferred income taxes 328 328 Notes payable, long-term 6,238 11,132 5,601(C) 22,971 -------- -------- -------- ------- Total liabilities 14,214 19,904 2,593 36,711 3,000 (B) (1,400)(D) 9,441 (C) Shareholders' equity 19,370 (9,441) 5,300 (A) 26,270 -------- -------- -------- ------- $ 33,584 $ 10,463 $ 18,934 $62,981 ======== ======== ======== =======
PF-2 U.S. HOME & GARDEN INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED JUNE 30, 1996
Weatherly U.S. Home & Consolidated Weatherly Adjustments Pro Forma Garden Adjustments Pro Forma -------- -------- -------- -------- ------ -------- Net sales $ 19,071 $ 19,071 $ 27,031 $ 46,102 Cost of sales 8,356 8,356 12,671 21,027 -------- -------- -------- -------- Gross profit 10,715 10,715 14,360 25,075 Operating Expenses: Selling and shipping 5,784 (395)(4) 5,389 6,264 11,653 (248)(4) Administrative and general 8,815 (6,055)(4) 2,512 4,348 721(1) 7,581 -------- -------- -------- -------- ------- -------- Income from operations (3,884) 6,698 2,814 3,748 (721) 5,841 Interest expense, net 1,803 (271)(4) 1,532 1,940 (2) 3,472 -------- -------- -------- -------- ------- -------- Income (loss) before income taxes and extraordinary item (5,687) 6,969 1,282 1,808 (721) 2,369 Income tax benefit (expense) 378 378 715 1,093 -------- -------- -------- -------- ------- -------- Income before extraordinary items (5,309) 6,969 1,660 2,523 (721) 3,462 Extraordinary item (520) (520) (1,400)(D) (1,920) -------- -------- -------- -------- ------- -------- Net income (loss) $ (5,829) $ 6,969 $ 1,140 $ 2,523 (2,121) $ 1,542 ======== ======== ======== ======== ======= ======== (Income) loss per common share Income before extraordinary item $0.25 $0.25 Extraordinary item 0 (0.14) ---------- ---------- Net Income $0.25 $0.11 ========== ========== Weighted average shares outstanding 10,206,000 13,591,000(3) ========== ==========
PF-3 U.S. HOME & GARDEN INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A-BASIS OF PRESENTATION Reference is made to the introduction at page PF-1 NOTE B-PRO FORMA ADJUSTMENTS The pro forma adjustments to the condensed consolidated balance sheet are as follows: (A) To reflect the exercise of approximately 2,385,000 common stock warrants (proceeds $5.3 million) in July and August 1996 for which such proceeds were used for the Weatherly Acquisition. (B) To reflect the issuance of 1,000,000 share of common stock issued to Weatherly shareholders. (C) To reflect the acquisition of Weatherly and the allocation of purchase price on the basis of fair values of the assets acquired and the liabilities assumed. The components of purchase price and its allocation of assets and liabilities of Weatherly are as follows: Components of Purchase price (OOO): Cash for selling shareholders $ 7,150 Promissory notes associated with acquisition 15,787 Promissory notes issued to shareholders of Weatherly for working capital adjustment 2,500 Stock issued 3,000 ---------- Total Purchase Price $ 28,437 Allocation of purchase price: Adjusted shareholders deficit of Easy Gardener 9,441 Liabilities not assumed (18,649) Other adjustments 2,416 ---------- Cost in excess of net assets acquired $ 21,645 ========== (D) Extraordinary loss incurred by the Company relating to write off of the old deferred financing fees plus certain prepayment penalties. PF-4 U.S. HOME & GARDEN INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The pro forma adjustments to the condensed consolidated statement of operations are as follows: (1) Amortization of excess of cost over fair value of net assets acquired over 30 years. (2) No adjustment to interest expense since the lower interest rate offsets the increase in principal loan balances. (3) Weighted average shares have been increased by 3,385,000 shares to reflect the exercise of approximately 2,385,000 common stock warrants and the issuance of 1,000,000 shares of common stock to the Weatherly shareholders as if they had occurred at the beginning of the year. Common stock equivalents are not included as their effect is antidilutive. (4) To eliminate certain nonrecurring expenses including $6,000,000 buy-out of employment agreements, severance payments of $450,000, $248,000 salary expense relating to distribution of assets and nonrecurring interest expense of $271,000. PF-5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized. U.S. HOME & GARDEN INC. By: /s/Robert Kassel ------------------------------- Robert Kassel, President Date: October 21, 1996 EX-23 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K, into U.S. Home & Garden Inc.'s previously filed Registration Statements No. 33-89800, No.33-94924 and 33-82758 on Form S-3 and No. 33-55020 on Form S-8. /s/ Arthur Andersen LLP ------------------------- ARTHUR ANDERSEN LLP Cincinnati, Ohio October 21, 1996 -----END PRIVACY-ENHANCED MESSAGE-----