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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
From the transition period from ___________________ to ___________________
Commission File Number 333-102296
Easy Gardener Products, Ltd.
(Exact name of registrant as specified in its charter)
Texas 37-1433686
(State or other jurisdiction IRS Employer
of incorporation or organization) (Identification Number)
3022 Franklin Avenue
Waco, Texas 76710
(Address of Principal Executive Offices) (Zip Code)
(254) 753-5353
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Not applicable, registrant is a limited partnership
Part I. - Financial Information
Item 1. - Consolidated Financial Statements
Consolidated balance sheets as of March 31, 2004 (Unaudited) 1-2
and June 30, 2003 (Predecessor)
Consolidated statements of operations for the three months ended 3
March 31, 2004 and the three months ended March 31, 2003
(Predecessor) (Unaudited)
Consolidated statements of operations for the five months ended 4
March 31, 2004 and the four months ended October 31, 2003
(Predecessor) and the nine months ended March 31, 2003
(Predecessor) (Unaudited)
Consolidated statements of cash flows for the five months ended 5-6
March 31, 2004 and the four months ended October 31, 2003
(Predecessor) and the nine months ended March 31, 2003
(Predecessor) (Unaudited)
Notes to consolidated financial statements 7-14
Item 2. - Management's Discussion and Analysis of Financial 15-25
Condition and Results of Operations
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. - Controls and Procedures 26
Part II. - Other Information
Item 2. - Changes of Securities and Use of Proceeds 26
Item 5. - Other Information 26
Item 6. - Exhibits and Reports on Form 8-K 26-29
Signatures 29
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Balance Sheets
================================================================================
March 31, 2004
(Unaudited) June 30, 2003
-------------- -------------
(Predecessor)
Assets
Current
Cash and cash equivalents $ 512,000 $ 822,000
Accounts receivable, less allowance for doubtful
accounts of $247,000 and $630,000 23,911,000 24,467,000
Inventories 6,824,000 9,138,000
Prepaid expenses and other current assets 670,000 721,000
Refundable income taxes -- 137,000
Deferred tax asset -- 385,000
Current assets of discontinued operations -- 62,000
- -------------------------------------------------------------------------------------------------
Total Current Assets 31,917,000 35,732,000
Property and Equipment, net 4,290,000 4,018,000
Intangible Assets
Goodwill 51,992,000 49,878,000
Deferred financing costs, net of accumulated
amortization of $137,000 and $969,000 1,504,000 3,975,000
Non-compete agreements, net of accumulated
amortization of $224,000 and $855,000 1,651,000 744,000
Package tooling costs, net of accumulated
amortization of $211,000 and $1,956,000 1,015,000 1,204,000
Product rights, patents and trademarks, net of
accumulated amortization of $514,000 and $213,000 17,592,000 467,000
- -------------------------------------------------------------------------------------------------
Total Intangible Assets 73,754,000 56,268,000
Officer Receivables -- 512,000
Other Assets 38,000 29,000
- -------------------------------------------------------------------------------------------------
Total Assets $109,999,000 $96,559,000
=================================================================================================
See accompanying notes to consolidated financial statements.
1
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Balance Sheets
================================================================================
March 31, 2004
(Unaudited) June 30, 2003
-------------- -------------
(Predecessor)
Liabilities and Partners' Capital/Stockholders' (Deficit)
Current
Revolving credit facility $ 9,287,000 $15,085,000
Accounts payable 10,375,000 8,954,000
Accrued rebates 981,000 1,433,000
Accrued commissions 824,000 1,074,000
Accrued co-op advertising 440,000 774,000
Accrued expenses 1,178,000 1,786,000
Current portion of long-term debt 1,458,000 12,142,000
Current liabilities of discontinued operations -- 16,000
- -------------------------------------------------------------------------------------------------
Total Current Liabilities 24,543,000 41,264,000
Revolving Credit Facility 6,000,000 --
Long-Term Debt 26,150,000 --
Deferred Tax Liability 9,990,000 239,000
Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debentures 40,822,000 57,092,000
- -------------------------------------------------------------------------------------------------
Total Liabilities 107,505,000 98,595,000
Partners' Capital/Stockholders' (Deficit)
Preferred stock, 1,000,000 shares authorized and unissued --
Common stock, $0.001 par value - shares authorized,
75,000,000; 21,642,000 shares issued -- 22,000
Additional paid-in capital -- 52,470,000
Partners' Capital 2,675,000 --
Partners' loss/ (Retained deficit) (181,000) (41,700,000)
- -------------------------------------------------------------------------------------------------
2,494,000 10,792,000
Less: Treasury Stock, 3,890,000 shares at cost -- (12,828,000)
- -------------------------------------------------------------------------------------------------
Total Partners' Capital/Stockholders' (Deficit) 2,494,000 (2,036,000)
- -------------------------------------------------------------------------------------------------
Total Liabilities and Capital $109,999,000 $96,559,000
=================================================================================================
See accompanying notes to consolidated financial statements.
2
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Statements of Operations
================================================================================
Three Months Ended Three Months Ended
March 31, March 31,
2004 2003
Unaudited Unaudited
------------------ ------------------
(Predecessor)
Gross Sales $ 28,786,000 $ 27,541,000
Sales Adjustments 3,698,000 3,505,000
- --------------------------------------------------------------------------------
Net Sales 25,088,000 24,036,000
Cost of Sales 13,633,000 12,758,000
- --------------------------------------------------------------------------------
Gross Profit 11,455,000 11,278,000
Operating Expenses
Selling and shipping 4,839,000 5,413,000
General and administrative 1,371,000 2,028,000
Depreciation and amortization 560,000 454,000
- --------------------------------------------------------------------------------
Total Operating Expenses 6,770,000 7,895,000
- --------------------------------------------------------------------------------
Income from Continuing Operations 4,685,000 3,383,000
Other Expenses
Refinancing and transaction costs -- (116,000)
Interest expense, net (2,628,000) (1,998,000)
- --------------------------------------------------------------------------------
Income from Continuing Operations
Before Income Tax 2,057,000 1,269,000
Income Tax Expense (766,000) (3,000)
- --------------------------------------------------------------------------------
Income from Continuing Operations 1,291,000 1,266,000
Discontinued Operations -
Loss from discontinued operations -- (41,000)
- --------------------------------------------------------------------------------
Net Income $ 1,291,000 $ 1,225,000
================================================================================
See accompanying notes to consolidated financial statements.
3
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Statements of Operations
================================================================================
Five Months Four Months Nine Months
Ended Ended Ended
March 31, October 31, March 31,
2004 2003 2003
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
(Predecessor) (Predecessor)
Gross Sales $ 38,238,000 $ 21,702,000 $ 58,193,000
Sales Adjustments 5,652,000 4,229,000 8,655,000
- -------------------------------------------------------------------------------------------------
Net Sales 32,586,000 17,473,000 49,538,000
Cost of Sales 18,372,000 10,953,000 28,111,000
- -------------------------------------------------------------------------------------------------
Gross Profit 14,214,000 6,520,000 21,427,000
Operating Expenses
Selling and shipping 6,986,000 5,838,000 12,969,000
General and administrative 2,238,000 2,557,000 6,108,000
Depreciation and amortization 943,000 431,000 1,290,000
- -------------------------------------------------------------------------------------------------
Total Operating Expenses 10,167,000 8,826,000 20,367,000
- -------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations 4,047,000 (2,306,000) 1,060,000
Other Expenses
Refinancing and transaction costs -- (159,000) (4,179,000)
Interest expense, net (4,220,000) (2,868,000) (5,658,000)
- -------------------------------------------------------------------------------------------------
Loss from Continuing Operations
Before Income Tax (173,000) (5,333,000) (8,777,000)
Income Tax Expense (8,000) (44,000) (111,000)
- -------------------------------------------------------------------------------------------------
Loss from Continuing Operations (181,000) (5,377,000) (8,888,000)
Discontinued Operations -
Loss from discontinued operations -- (75,000) (1,234,000)
- -------------------------------------------------------------------------------------------------
Net Loss $ (181,000) $ (5,452,000) $(10,122,000)
=================================================================================================
See accompanying notes to consolidated financial statements.
4
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Five Months Four Months Nine Months
Ended Ended Ended
March 31, October 31, March 31,
2004 2003 2003
Unaudited Unaudited Unaudited
----------- ----------- -----------
(Predecessor) (Predecessor)
Cash Flows from Operating Activities:
Net loss from continuing operations $ (181,000) $ (5,377,000) $(8,888,000)
Adjustments to reconcile net loss from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 1,593,000 886,000 2,374,000
Trust Preferred interest applied
against option price and PIK interest 590,000 75,000 164,000
Write-off of deferred financing costs and
discounts -- -- 1,928,000
Compensation related to stock options -- 40,000 90,000
Changes in operating assets and liabilities:
Accounts receivable (14,331,000) 14,509,000 (1,018,000)
Inventories (307,000) 492,000 (4,475,000)
Deferred taxes (1,000) -- --
Prepaid expenses and other current assets (55,000) 51,000 111,000
Accounts payable and accrued expenses 3,670,000 (3,511,000) 4,924,000
Refundable income taxes -- -- 268,000
Other assets (31,000) 50,000 3,000
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used in) Operating
Activities (9,053,000) 7,215,000 (4,519,000)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Payments related to purchase of business -- -- (17,000)
Purchase of property and equipment (121,000) (91,000) (707,000)
Purchase of intangibles (144,000) (76,000) (427,000)
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (265,000) (167,000) (1,151,000)
=========================================================================================================================
See accompanying notes to consolidated financial statements.
5
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Five Months Four Months Nine Months
Ended Ended Ended
March 31, October 31, March 31,
2004 2003 2003
Unaudited Unaudited Unaudited
----------- ----------- -----------
(Predecessor) (Predecessor)
Cash Flows from Financing Activities:
Deferred financing costs $ (29,000) $ (227,000) $ (1,974,000)
Net (payments) proceeds on lines-of-credit 10,017,000 (6,736,000) 4,977,000
Proceeds from long-term debt -- -- 12,000,000
Principal payments on long-term debt (625,000) (21,000) (8,616,000)
- ------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used In) Financing Activities 9,363,000 (6,984,000) 6,387,000
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents from
continuing operations 45,000 64,000 717,000
Cash provided by (used in) discontinued operations -- (14,000) (457,000)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 45,000 50,000 260,000
Cash and Cash Equivalents, beginning of period 467,000 822,000 219,000
- ------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of period $ 512,000 $ 872,000 $ 479,000
- ------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow
Information
Cash paid for interest $ 3,625,000 $ 2,654,000 $ 5,556,000
Cash received for taxes - net 78,000 36,000 157,000
==================================================================================================================
See accompanying notes to consolidated financial statements.
6
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
General
Effective November 1, 2003, Easy Gardener Products, Ltd., the Company,
acquired substantially all of the operating assets and assumed substantially all
of the liabilities of U.S. Home & Garden Inc., the Seller. These assets
comprised approximately 99% of the consolidated sales, 98% of the consolidated
assets and 99% of the consolidated liabilities of the Seller and represent all
of the operations of the Company.
The Company is a Texas limited partnership. The Company is 1% owned by a
general partner, EG Product Management, L.L.C., and is 99% owned by a limited
partner, EG, L.L.C. EG Product Management, L.L.C. and EG, L.L.C. are wholly
owned subsidiaries of EYAS International, Inc.
Basis of Presentation
The Company effectively began operations on November 1, 2003 with the
acquisition of operations from U. S. Home & Garden Inc. In accordance with the
requirements of purchase accounting, the opening balance sheet reflects all
acquired assets and liabilities at their respective fair values at the date of
purchase. The consolidated financial statements of the Company include the
accounts of the Company and its subsidiaries, Weatherly Consumer Products Group,
Inc., Easy Gardener U.K., NBU Group, LLC and Easy Gardener Products Trust I.
The accompanying consolidated financial statements included the
consolidated balance sheet of the Company at March 31, 2004 and the consolidated
statement of operations, and cash flows for the five months ended March 31,
2004. The consolidated statement of cash flows for the five months ended March
31, 2004 does not include the acquisition of assets and the assumption of
liabilities and the incurring of debt described in footnote 5. The accompanying
consolidated financial statements include the previously issued consolidated
balance sheet of U.S. Home & Garden Inc. at June 30, 2003 and the consolidated
statements of operations and cash flows for the nine months ended March 31,
2003. The accompanying consolidated financial statements also include the
consolidated statements of operations and cash flows for the four months ended
October 31, 2004 for U. S. Home & Garden Inc. before transaction costs and the
gain on the sale of the operations. The U.S. Home & Garden Inc. consolidated
financial statements described above and included herein are referred to as
"Predecessor" financial statements.
1. The accompanying consolidated financial statements at March 31, 2004 and
for the five months ended March 31, 2004 are unaudited, but, in the
opinion of management, include all adjustments necessary for a fair
presentation of consolidated financial position and results of operations
for the periods presented. The results for the five months ended March 31,
2004 are not necessarily indicative of the results of operations for a
full year.
2. Please refer to the audited consolidated financial statements of U.S. Home
& Garden Inc. for the year ended June 30, 2003, for details of accounting
policies and detailed notes to the predecessor consolidated financial
statements.
7
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
3. Inventories consist of:
March 31, 2004 June 30, 2003
----------------------------------------------------------------------
(Predecessor)
Raw materials $2,011,000 $4,834,000
Finished goods 4,813,000 4,304,000
--------------------------------------------------------------------
$6,824,000 $9,138,000
====================================================================
4. All shipping and handling expenses are included in the selling and
shipping caption and totaled approximately $1,917,000 and $1,936,000 for
the three months ended March 31, 2004 and three months ended March 31,
2003, respectively, and $2,673,000, $2,075,000, and $4,369,000 for the
five months ended March 31, 2004, the four months ended October 31, 2003
and the nine months ended March 31, 2003, respectively.
5. Effective November 1, 2003 the Company acquired substantially all of the
operating assets and liabilities of U.S. Home & Garden, Inc. These
operations have been included in the consolidated financials statements of
the Company since that date.
The operations consist of the manufacturing and marketing of a broad range
of brand-name consumer lawn and garden products in the United States,
Canada, and in Europe and other minor international locations.
The aggregate purchase price was $14,414,000 which includes expenses of
$1,670,000, the cost of an agreement not to talk of $1,250,000 and
$11,494,000 to the seller of which $1,600,000 was a subordinated note. The
Company also assumed debt of the Seller having a fair value of $67,196,000
and accounts payable and accrued expenses of the Seller of $11,112,000 and
recorded deferred taxes on certain fair value adjustments of $3,809,000.
Deferred taxes related to the discount to arrive at the fair value of
assumed debt have been included in deferred taxes. The total purchase
price including the assumption of debt was $96,531,000.
8
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The following table summarized the estimated fair values of assets
acquired and liabilities assumed and new debt incurred at the date of the
acquisition.
Current assets $ 17,176,000
Property and equipment 4,701,000
Intangible assets acquired 21,063,000
Deferred financing costs 1,592,000
Goodwill 51,992,000
Other assets 7,000
-------------------------------------------------------------------
Total assets acquired 96,531,000
-------------------------------------------------------------------
Accounts Payable & Accruals assumed 11,112,000
Deferred taxes 3,809,000
Debt assumed 67,196,000
-------------------------------------------------------------------
Purchase Price 14,414,000
Accounts Payable & Accruals assumed paid at close 988,000
Debt incurred, net (12,727,000)
-------------------------------------------------------------------
Cash $ 2,675,000
===================================================================
The Company incurred additional debt of $12,727,000 and raised capital of
$2,675,000 to pay for the net assets acquired and certain of the expenses
assumed at the closing of the purchase.
Of the $21,063,000 of intangible assets acquired, which are assets subject
to amortization, $16,000,000 was assigned to brand values having an
estimated useful life of fifteen years, $1,650,000 was assigned to
trademarks and patents having an estimated useful life of twelve years,
$1,875,000 was assigned to non-compete agreements having a weighted
average useful life of 8 years, $1,082,000 was allocated to package design
having a useful life of three years and $456,000 was allocated to product
rights with a useful life of fifteen years. The Company did not acquire or
write off any research and development assets.
The Company assumed no residual value in the computation of the
amortization of these intangible assets. Total amortization was $654,000
and $442,000 for the three months ended March 31, 2004 and the three
months ended March 31, 2003, respectively and $1,066,000, $531,000, and
$1,214,000 for the five months ended March 31, 2004, the four months ended
October 31, 2003 and nine months ended March 31, 2003, respectively.
Estimated amortization expense for each of the five succeeding fiscal
years is as follows:
Year ended June 30, Amount
---------------------------------------------------
2004 $1,752,000
2005 2,252,000
2006 2,169,000
2007 2,169,000
2008 2,169,000
9
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company assigned $51,992,000 of the purchase price of the acquired
operations to goodwill which is not being amortized but will be subject to
testing for impairment losses. The Company did not recognize an impairment
loss or include goodwill in the disposal of the operations relating to the
single segment in which the Company operates. Of the total goodwill
balance, the Company expects approximately two-thirds to be deductible for
tax purposes.
The amounts assigned to assets and liabilities acquired and the related
computation of amortization are based on preliminary estimates and are
subject to change when the Company completes its valuation of these assets
and liabilities which is expected to be completed so that any adjustments
will be reflected in the June 30, 2004 financial statements.
6. The following unaudited pro forma financial information presents a summary
of the consolidated results of operations of the Company as if the
purchase of the operations had occurred at the beginning of the periods
presented.
Four Months Three Months Nine Months
Ended Ended Ended
October 31, March 31, March 31,
2003 2003 2003
------------- ------------- -------------
(Predecessor) (Predecessor) (Predecessor)
Net Sales $ 17,258,000 $23,934,000 $ 49,189,000
Gross Margin 6,367,000 11,210,000 21,183,000
Income (Loss) from operations (1,774,000) 3,623,000 2,253,000
Net income (loss) $ (5,000,000) $ 1,084,000 $ (5,254,000)
These unaudited pro forma results have been prepared for comparative
purposes only and primarily include adjustments to reflect only the
operations acquired and adjustments for interest expense and amortization
of intangible assets acquired in the purchase. Excluded from the pro forma
net loss are the expenses of the Seller related to its refinancing of debt
and costs associated with the sale of the seller's assets of $159,000,
$116,000 and $4,179,000 for the four months ended October 31, 2003, the
three months ended March 31, 2003 and nine months ended March 31, 2003,
respectively. Also excluded from the pro forma net loss are the costs of
the Seller related to discontinued operations which were not acquired by
the Company of $75,000, $41,000 and $1,234,000 for the four months ended
October 31, 2003, the three months ended March 31, 2003 and nine months
ended March 31, 2003, respectively.
These results do not purport to be indicative of the results of operations
which actually would have resulted had the purchase occurred at the
beginning of each of the periods presented or of the future operations of
the Company.
10
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
7. The Company and its parent, EYAS International, Inc., and their
subsidiaries entered into four credit arrangements on October 29, 2003 to
finance the acquisition of the operations and to provide working capital.
The Company also assumed from the Seller a Mandatorily Redeemable
Preferred Securities Trust Holding Solely Junior Subordinated Debentures.
The first credit facility is the amended and restated Loan and Security
Agreement with Wells Fargo Foothill, Inc., which is a three year asset
based lending revolving credit facility. This facility has a maximum
borrowing level of $25 million, which is limited based upon having
eligible accounts receivable and inventory. Interest is at variable annual
rates based upon the prime rate plus 0.5% or LIBOR plus 2.75%, but not
less than 5.25%. The facility has various covenants including minimum
EBITDA, minimum EBITDA to pay Trust Preferred interest, a Funded Senior
Debt Ratio, a Fixed Charge Coverage Ratio, and limits on Capital
Expenditures. The facility has a term ending October 29, 2006 and is
secured by all of the assets of the Company and it's parents and
subsidiaries.
On April 27, 2004 the Company and its parents and subsidiaries entered
into a new senior credit facility replacing the Wells Fargo Foothill, Inc.
facility described in the previous paragraph. The new facility is with the
La Salle Business Credit, L.L.C. who is the Agent for and one of the
lenders on the facility. The new asset based lending revolving credit
facility has an original term of three years and then is automatically
renewable from year to year at the option of the lenders and borrower. The
facility has a maximum borrowing level of $25 million. The facility is
secured by all the assets of the Company and it's parents and
subsidiaries. The actual borrowing level is limited based upon having
eligible accounts receivable, inventory and for parts of the year, the
seasonal availability amount. Interest is at variable annual rates based
upon the prime rate plus 0.5% or LIBOR plus 3.25%. The new facility has
various financial covenants identical to the replaced facility including
minimum EBITDA, minimum EBITDA to pay Trust Preferred interest, a Fixed
Charge Coverage Ratio, a Funded Senior Debt Ratio/Leverage Ratio and
limits on Capital Expenditures.
The second credit facility is with CapitalSource Finance LLC and includes
two term loans. Term Loan A in the amount of $14,315,000 of which
$14,000,000 has been borrowed and Term Loan B in the amount of $9,713,750
of which $9,500,000 has been borrowed. Both Term Loans A and B mature on
October 29, 2008 and are secured by all of the assets of the Company and
it's parents and subsidiaries. Term Loan A bears interest at the greater
of 5.75% over the prime rate or 10% and has monthly repayment of principal
of $104,167 per month in year one growing to $312,500 per month in year
five. The principal repayment schedule has the loan principal fully repaid
at maturity. Term Loan B bears interest at the greater of 8.75% over the
prime rate or 13% plus 7.0% of non-cash interest which is to be paid at
the maturity of Term Loan B. Term Loans A and B also require mandatory
pre-payments of the excess cash flow as defined in the loan agreements.
The principal reduction ranges from 25% to 50% of the excess cash flow
generated by the Company. The facility has financial covenants identical
to those of the revolving credit facility described above.
The Company also entered into two subordinated loan agreements, one with
the Seller aggregating $1,600,000 and one with another party aggregating
$2,675,000. The subordinated Seller note is the more junior of the
subordinated notes. Both of these subordinated loans bear interest at 9%
per annum and mature on April 29, 2008. The Seller note has a repayment
feature based upon excess cash flow as defined in the second credit
facility described in the preceding paragraph. The $2,675,000 subordinated
11
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
note gives the holder of the note the right to convert the note plus
accrued interest into a 49% ownership interest in the Company.
The Mandatorily Redeemable Preferred Securities Trust Holding Solely
Junior Subordinated Debentures assumed from the Seller includes 78,000
common securities with a liquidation value of $25 per common share and
2,530,000 of 9.40% Cumulative Trust Preferred Securities with a
liquidation value of $25 per security due April 15, 2008. The Seller had
previously redeemed 251,981 shares of such securities. The previously
redeemed shares were acquired by the Company leaving 2,278,019 shares
outstanding with a face value of $57,092,000. The Company has entered into
two agreements with a prior lender of U.S. Home & Garden, Inc. giving the
prior lender the rights to acquire up to 189,750 of such redeemed shares.
Under the first agreement, the prior lender can purchase up to 94,875
shares of the redeemed shares at an exercise price of $9.00 per share.
Under the second agreement, the prior lender is forgoing monthly cash
interest on an additional 94,875 of the redeemed shares until the exercise
price of such shares is reduced to $0 at which point the underlying
securities will be transferred to the prior lender and cash interest will
begin being paid to the prior lender on such securities. The exercise
price on these securities at the date of purchase of the operations was
$4.30 and is reduced by approximately $.20 each month. The options expire
on May 19, 2009. The fair value of the total 189,750 options granted have
been reflected at the average quoted market price of $17.00 per share
reduced by the proceeds to be received on the exercise of the options of
$1,262,000. The $17.00 per share calculation is described in the second
following paragraph.
During the quarter ended March 31, 2004, the prior lender of U.S. Home &
Garden, Inc. exercised their right under the first option agreement, to
acquire 94,875 shares of the Mandatorily Redeemable Preferred Securities
at an exercise price of $9.00 per share. The option agreement provided for
a cashless exercise which was used for this transaction. The Company
received back 37,620 shares of the option securities, which based on the
market value of such shares at the exercise date of $22.70 per share,
represents the total exercise price of the option of $854,000. The 37,620
shares are now reflected as Treasury shares owned by the Company and are
reflected as a reduction in the obligation for the Mandatorily Redeemable
Preferred Securities.
The fair value of the Mandatorily Redeemable Preferred Securities at the
acquisition date including the optioned shares but excluding treasury
shares was approximately $41,952,000 based on the average quoted market
prices of $17.00 on the five days before and five days after the
acquisition date. This amount has been reduced by the proceeds to be
received on the exercise of options totaling $1,262,000. The securities
have been reflected in the opening balance sheet of the Company at fair
value and the discount from the face value is being amortized using the
constant yield to maturity method of amortization over 25 years to the
maturity date. Deferred taxes have been recorded on the discount amount.
The amortization of discount for the five months ended March 31, 2004 was
$39,000. As a result of the exercise of options described in the preceding
paragraph, the number of treasury shares increased 37,620 shares with a
value of $854,000 and the amount due of the exercise of the options was
reduced by an equal amount. As a result of the foregoing of monthly cash
interest as described in the second preceding paragraph, the amount due at
the exercise of the options was reduced by the forgone interest of
$93,000.
Distributions of interest on the Trust Securities are payable monthly in
arrears by the Trust.
The Subordinated Debentures are unsecured obligations of the Company and
are subordinate and junior in right to certain other indebtedness of the
Company. Currently, the company does not have any
12
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
indebtedness outstanding which rank equal to or junior to such securities.
The Company may and its more senior lenders will, if certain of their loan
covenants are not met, require the deferral of the payment of interest on
the Subordinated Debentures. The deferral of interest can be done for a
period not to exceed 60 consecutive months with no change in the rights of
the lenders. If interest payments on the Subordinated Debentures are so
deferred, distributions on the Trust Securities will also be deferred.
During any such deferral period, interest on the Subordinated Debentures
and distributions on the Trust Securities will accrue and compound monthly
and, subject to certain exceptions, the Company may not declare or pay
distributions on its capital or debt securities that rank equal to or
junior to the Subordinated Debentures.
The Trust Securities are subject to mandatory redemption upon the
repayment of the Subordinated Debentures at a redemption price equal to
the aggregate liquidation amount of the securities plus any accumulated
and unpaid distributions. The Subordinated Debentures mature in total on
April 15, 2028, but may be redeemed at the option of the Company at any
time. The Company effectively provides a full and unconditional guarantee
of the Trusts' obligations under the Trust Securities to the extent that
the Trust has funds sufficient to make such payments.
8. In June 2002, U.S. Home & Garden Inc., the "Predecessor" company,
announced that it was discontinuing the operations conducted through its
subsidiary Weed Wizard Acquisition Corp. ("Weed Wizard") effective
September 30, 2002.
Revenues for Weed Wizard for the three months and nine months ended March
31, 2003 were not material. U.S. Home & Garden Inc. had a net loss from
the discontinued operations of Weed Wizard of $75,000 for the four months
ended October 31, 2003, and the net losses were $41,000 and $1,234,000 for
the three months and nine months ended March 31, 2003, respectively.
In June 2001, U.S. Home & Garden Inc. announced that it was discontinuing
its e-commerce initiative, which it was conducting through its subsidiary,
Egarden, Inc. (Egarden), effective June 30, 2001. All severance payments
were made by June 30, 2002. No adjustments were required to the liability
recorded for severance payments since June 30, 2001.
The Company did not acquire any assets or assume any liabilities related
to either Weed Wizard or Egarden.
The assets and liabilities of discontinued Egarden operations reported in
the consolidated balance sheets of U.S. Home & Garden Inc. (Predecessor)
consist of the following:
13
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
June 30, 2003
-------------
(Predecessor)
--------------------------------------------------------------------
Total
--------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $62,000
--------------------------------------------------------------------
Total Current Assets $62,000
====================================================================
Current Liabilities:
Accrued expenses $16,000
--------------------------------------------------------------------
Total Current Liabilities $16,000
====================================================================
14
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Report
contains statements that are forward-looking, such as statements relating to
plans for the Company's future activities. Such forward-looking information
involves important known and unknown risks and uncertainties that could
significantly affect actual results, performance or achievements in the future
and, accordingly, such actual results, performance or achievements may
materially differ from those expressed or implied in any forward-looking
statements made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those relating to
the Company's growth strategy, customer concentration, outstanding indebtedness,
changes in interest rates, ability to service debt, dependence on weather
conditions, seasonality, expansion and activities of competitors, ability to
successfully introduce new products and product lines, changes in federal or
state environmental laws and the administration of such laws, protection of
trademarks and other proprietary rights, and the general condition of the
economy and its effect on the securities markets and other risks detailed in the
Company's other filings with the Securities and Exchange Commission. The words
"believe," "expect," "anticipate," "intend" and "plan" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made.
General
Easy Gardener Products, Ltd., ("the Company"), manufactures and markets a broad
range of brand-name consumer lawn and garden products through its owned
operations and through its wholly owned subsidiaries, Weatherly Consumer
Products Group, Inc. and Easy Gardener UK Ltd. These operations were acquired
from U.S. Home & Garden Inc. effective November 1, 2003. In accordance with the
requirements of purchase accounting, all acquired assets and liabilities were
restated to reflect their respective fair values at the date of purchase. As a
result of the acquisition, the Company recorded $21,063,000 of acquired
intangible assets, $16,000,000 was assigned to brand values having an estimated
useful life of fifteen years, $1,650,000 was assigned to trademarks and patents
having an estimated useful life of twelve years, $1,875,000 was assigned to
non-compete agreements having a weighted average useful life of 8 years,
$1,082,000 was allocated to package design having a useful life of three years
and $456,000 was allocated to product rights with a useful life of fifteen
years. The Company assigned $51,992,000 of the purchase price of the acquired
operations to goodwill which is not being amortized but will be subject to
testing for impairment losses. The amounts assigned to assets and liabilities
acquired and the related computation of amortization are based on preliminary
estimates and are subject to change when the Company completes its valuation of
these assets and liabilities which is expected to be completed so that any
adjustments will be reflected in the June 30, 2004 financial statements.
The acquisition of the operations comprised approximately 99% of the
consolidated sales, 98% of the consolidated assets and 99% of the consolidated
liabilities of the Seller, U. S. Home & Garden Inc. The accompanying
consolidated financial statements also include the previously issued
consolidated balance sheet of U. S . Home & Garden Inc. at June 30, 2003 and the
consolidated statements of operations for the three and nine months ended March
31, 2003 and the consolidated statement of cash flows for the nine months ended
March 31, 2003. The accompanying consolidated financial statements also include
the consolidated statements of operations of U.S. Home & Garden, Inc. for the
four months ended October 31, 2003 before transaction costs and the gain on the
sale of the operations. The U.S. Home & Garden Inc. consolidated financial
statements described above and included herein are referred to as "Predecessor"
financial statements.
The consumer lawn and garden market continues to become more consolidated with
fewer retailers accounting for an increasing percentage of all lawn and garden
products sold. This increasing concentration leverage provides the largest
retailers with greater leverage over their suppliers, such as the Company. This
leverage can result in decreased margins for suppliers, including the Company,
who may be required to make greater price concessions to their large retail
accounts without being able to reduce the costs of the products sold by them to
the retailers. This leverage by the large retailers can also increase sales
volatility for the
15
Company as well as other suppliers of lawn and garden products. There also
continues to be a consolidation of the vendors supplying the fewer retailers.
Seasonality
The Company's sales are seasonal due to the nature of the lawn and garden
business. The Company's seasonality generally parallels the annual growing
season. The Company's sales and shipping are usually most active from late March
through May when home lawn and garden customers are purchasing supplies for
spring planting and retail stores are replenishing their inventory of lawn and
garden products. These patterns are effected by a number of events; weather
being the largest single event. The buying pattern of retailers, including the
Company's retail customers, is changing. Retailers are buying enough product to
begin the season just prior to the beginning of the season and stores are
replenishing their inventory when sales are made by them rather than buying
large quantities of inventory in advance of the selling season. Sales typically
decline in mid-summer.
Results of Operations
The following table sets forth, for the periods indicated, certain selected
financial data as a percentage of gross sales:
Three Months Three Months Five Months Four Months Nine Months
Ended Ended Ended Ended Ended
March 31, March 31, March 31, October 31, March 31,
2004 2003 2004 2003 2003
----------------------------- --------------------------------------------
Predecessor Predecessor Predecessor
Gross sales 100.0% 100.0% 100.0% 100.0% 100.0%
Sales adjustments 12.8 12.7 14.8 19.5 14.9
----------------------- -------------------------------------------
Net sales 87.2 87.3 85.2 80.5 85.1
Cost of sales 47.4 46.3 48.0 50.5 48.3
----------------------- -------------------------------------------
Gross profit 39.8 41.0 37.2 30.0 36.8
Selling and shipping expenses 16.8 19.7 18.3 26.9 22.3
General and administrative expenses 4.8 7.4 5.9 11.8 10.5
Depreciation and amortization 1.9 1.6 2.4 2.0 2.2
----------------------- -------------------------------------------
Income (Loss) from operations 16.3 12.3 10.6 (10.7) 1.8
Refinance and transaction costs -- (0.4) -- (0.7) (7.2)
Interest expense, net (9.1) (7.3) (11.0) (13.2) (9.7)
----------------------- -------------------------------------------
Income (Loss) from continuing
operations before income
taxes 7.2 4.6 (0.4) (24.6) (15.1)
Income taxes (2.7) -- -- (0.2) (0.2)
----------------------- -------------------------------------------
Income (Loss) from continuing operations 4.5 4.6 (0.4) (24.8) (15.3)
Loss from discontinued operations -- (0.1) -- (0.3) (2.1)
======================= ===========================================
Net income (loss) 4.5% 4.5% (0.4%) (25.1%) (17.4%)
======================= ===========================================
16
Overview
With changes in the Company's customers buying patterns, where products are now
purchased closer to the expected sales to the consumer, the Company's sales for
the March 31, 2004 periods are up slightly. Continued pricing pressure from the
Company's customers resulted in additional discounts and returns, rebates and
allowances which have a negative impact on net sales and gross margin. Recent
price increases in petroleum based products have negatively impacted material
costs. Due primarily to a significant customer mandating the freight carriers we
are required to use for shipping product to them and the decreasing average
order size of their shipments, the Company continues to have increases in
outbound freight costs. The Company has and is continuing to look for ways to
reduce or eliminate the increase in outbound freight costs. Interest expense is
a significant expenditure for the Company. Interest expense is also based upon
variable interest rates for a substantial portion of the Company's debt. An
increase in interest rates would have a negative impact on the Company's
operating performance and cash flows.
Weather during the gardening season has the greatest impact on the Company's
financial performance. Due to the seasonality of the Company's business as
described above, a substantial portion of the Company's sales and cash flows are
generated in the peak growing season of the year which are the March 31 quarter
and most significantly the June 30 quarter.
The Company is focused on the consumers' demand for the products and works to
enhance the current product offering and to introduce new products, which meet
consumer needs. As a new Company with limited recent experience in new product
development and with limited financial resources, the Company's ability to
execute an aggressive new product development strategy to enhance operating
results and cash flows is unknown.
Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003
(Predecessor)
Gross sales. Gross sales were $28,786,000 for the three months, an increase of
$1,254,000 or 4.5% as compared to the three months ended March 31, 2003 of
$27,541,000. The increase in gross sales was the result of a shift in customers'
buying patterns from buying before the growing season in December to closer to
the beginning and throughout the gardening season, which are the March 31
quarter and most significantly the June 30 quarter. This shift is at least
partially responsible for the growth in sales for the three months ended March
31, 2004.
Sales Adjustments. Sales adjustments were $3,698,000 for the three months ended
March 31, 2004 an increase of $193,000 or 5.5% from the three months ended March
31, 2003 of $3,505,000. Sales adjustments include discounts, rebates, returns,
and allowances. As a percentage of gross sales, sales adjustments were 12.8% for
the three months ended March 31, 2004 compared to 12.7% for the comparable
quarter in 2003.
Net sales. Net sales were $25,088,00 for the three months ended March 31, 2004,
an increase of $1,052,000 or 4.4% from the three months ended March 31, 2003 of
$24,036,000. Net sales increased as a result of increases in gross sales and
offset in part by the increase in sales adjustments as described above.
Cost of sales. Cost of sales were $13,633,000 for the three months ended March
31, 2004, an increase of $875,000, or 6.9% from the three months ended March 31,
2003 of $12,758,000. Cost of sales increased as a result of the increase in
gross sales and by increased material costs of $666,000, primarily purchase
price increases, on a number of petroleum based products. Cost of sales as a
percentage of gross sales increased to 47.4% during the three months ended March
31, 2004 from 46.3% during the comparable period in 2003.
17
Gross profit. Gross profit was $11,455,000 for the three months ended March 31,
2004 an increase of $177,000, or 1.6% from the three months ended March 31, 2003
of $11,278,000. Gross profit as a percentage of gross sales decreased to 39.8%
during the three months ended March 31, 2003, from 41.0% during the comparable
period in 2003. The increase in gross profit dollars results from the increase
in gross sales offset in part by the increase in sales adjustments and material
prices as noted above.
Selling and shipping expenses. Selling and shipping expenses were $4,839,000 for
the three months ended March 31, 2004 a decrease of $574,000, or 10.6% from the
three months ended March 31, 2003 of $5,413,000. The decrease in selling and
shipping expenses was primarily attributable to decreased variable expenses for
coop advertising of $144,000 and store service of $162,000 as well as decreased
marketing costs of $160,000 and the elimination of costs incurred by the seller
of $96,000 and reduction of other selling and shipping costs of $12,000 in the
three months ended March 31, 2004. The decrease in coop advertising and store
service is not expected to continue in future periods. As a percentage of gross
sales, selling and shipping expenses decreased to 16.8% of gross sales during
the three months ended March 31, 2004 from 19.7% during the comparable period in
2003.
General and administrative expenses. General and administrative expenses were
$1,371,000 for the three months ended March 31, 2004 a decrease of $657,000, or
32.4% from the three months ended March 31, 2003 of $2,028,000. This decrease is
a result of the elimination of the Seller's administrative costs for the three
months ended March 31, 2004, which were not assumed by the Company and slightly
lower retained costs. Such Seller expenses were $624,000 for the three months
ended March 31, 2003. As a percentage of gross sales, general and administrative
expenses decreased to 4.8% during the three months ended March 31, 2004 from
7.4% during the comparable period in 2003.
Depreciation and amortization. Depreciation and amortization expenses were
$560,000 for the three months ended March 31, 2004 an increase of $106,000 or
23.3% from the three months ended March 31, 2003 of $454,000. This increase is
primarily due to additional amortization of $345,000 related to the identifiable
intangible assets acquired in the acquisition including product rights, patents
and trademarks and the cost of an agreement not to talk that the Company began
amortizing in November 2003, offset in part by some property and equipment
becoming fully depreciated, which had a depreciation expense in the comparable
2003 period of $180,000 and the elimination of the Seller's depreciation and
amortization expense of $59,000. As a percent of gross sales, depreciation and
amortization expenses increased to 1.9% during the three months ended March 31,
2004 from 1.6% during the comparable period in 2003.
Income from continuing operations. Income from continuing operations was
$4,685,000 for the three months ended March 31, 2004, an increase of $1,302,000
or 38.5% from the three months ended March 31, 2003 of $3,383,000. The increase
in income from continuing operations was primarily due to increased gross profit
and reduced selling and shipping and general and administrative expenses, offset
in part by increased amortization expense as noted above. As a percentage of
gross sales, income from operations increased to 16.3% for the three months
ended March 31, 2004 from 12.3% during the comparable period in 2003.
Refinancing and transaction costs. The Seller incurred $116,000 in refinancing
and transaction costs during the three months ended March 31, 2003. The
transaction costs were related to the sale of operations to the Company. There
were no such costs during the three months ended March 31, 2004.
18
Interest expense. Net interest expense was $2,628,000 for the three months ended
March 31, 2004, an increase of $630,000, or 31.5% from the three months ended
March 31, 2003 of $1,998,000. The increase in interest expense is related to an
increase in debt due to the purchase of the operations by the Company. Of the
interest expense incurred during the three months ended March 31, 2004, $388,000
is deferred and not currently due in cash. A substantial portion of the
Company's interest expense is based upon variable interest rates. Increases in
such interest rates would have a negative impact on operating performance and
cash flow.
Income tax expense. Income tax expense of $766,000 for the three months ended
March 31, 2004 increased $763,000 from the three months ended March 31, 2003
income tax expense of $3,000. The increase in income tax expense results from
the Company not having a tax loss carry forward which the Seller had in the
comparable period.
Discontinued Operations. Loss from discontinued operations of $41,000 was
related to the Seller's Weed Wizard operation for the three months ended March
31, 2003. The decrease in loss from discontinued operations results from the
Company not assuming any obligations related to Weed Wizard.
Net income. Net income was $1,291,000 for the three months ended March 31, 2004,
an increase of $66,000, from the three months ended March 31, 2003 of
$1,225,000. The increase in net income is due to the increase in income from
continuing operations and the reduced refinancing and transaction costs and loss
from discontinued operations, partially offset by the increase in interest and
tax expense recorded in the three months ended March 31, 2003, as noted above.
Five Months Ended March 31, 2004 and Four Months Ended October 31, 2003
(Predecessor) Combined Compared to Nine Months Ended March 31, 2003
(Predecessor)
Gross sales. Gross sales were $38,238,000 for the five months ended March 31,
2004 and $21,702,000 for the four months ended October 31, 2003 for a combined
nine month amount of $59,940,000, an increase of $1,747,000 or 3.0% as compared
to the nine months ended March 31, 2003 of $58,193,000. Gross sales increased
due to increases in units of product sold primarily to existing customers.
Sales adjustments. Sales adjustments were $5,652,000 for the five months ended
March 31, 2004 and $4,229,000 for the four months ended October 31, 2003 for a
combined nine month amount of $9,881,000, an increase of $1,226,000 or 14.2% as
compared to the nine months ended March 31, 2003 of $8,655,000. Sales
adjustments include discounts, rebates, returns, and allowances. Discounts and
returns increased $948,000 during the nine months ended March 31, 2004 compared
to the nine months ended March 31, 2003. A significant customer reached a higher
sales level late in December 2003, allowing them an increase in rebate levels
for all sales made to them in calendar year 2003 and for subsequent periods.
This higher rebate level of approximately $430,000 was recorded in the three
months ended December 31, 2003 while most of the sales were recorded in earlier
quarters. Sales adjustments as a percentage of gross sales increased to 16.5%
during the nine months ended March 31, 2004 up from 14.9% during the comparable
period in 2003.
Net sales. Net sales were $32,586,000 for the five months ended March 31, 2004
and $17,473,000 for the four months ended October 31, 2003 for a combined nine
month amount of $50,059,000, an increase of $521,000, or 1.1%, as compared to
the nine months ended March 31, 2003 of $49,538,000. Net sales increased as a
result of increases in gross sales offset by increase in sales adjustments as
described above.
Cost of sales. Cost of sales of $18,372,000 for the five months ended March 31,
2004 and $10,953,000 for the four months ended October 31, 2003, for a combined
nine month amount of $29,325,000 increased $1,214,000, or 4.3% as compared to
the nine months ended March 31, 2003 of $28,111,000. The increase in cost of
sales is primarily due to increased material costs, primarily purchase price
increases on a number of petroleum based products. Cost of sales as a percentage
of gross sales increased to 48.9% during the nine months ended March 31, 2004 up
from 48.3% during the comparable period in 2003.
19
Gross profit. Gross profit of $14,214,000 for the five months ended March 31,
2004 and $6,520,000 for the four months ended October 31, 2003 for a combined
nine month amount of $20,734,000, decreased $693,000, or 3.2%, as compared to
the nine months ended March 31, 2003 of $21,427,000. Gross profit as a
percentage of gross sales decreased to 34.6% during the nine months ended March
31, 2004, from 36.8% during the comparable period in 2003. This decrease in
gross profit dollars and as a percentage of gross sales resulted from increased
costs of certain petroleum based products and increased sales adjustments as
noted above.
Selling and shipping expenses. Selling and shipping expenses of $6,986,000 for
the five months ended March 31, 2004 and $5,838,000 for the four months ended
October 31, 2003, for a combined nine month amount of $12,824,000 decreased
$145,000, or 1.1% as compared to the nine months ended March 31, 2003 of
$12,969,000. The decrease in expense was attributable to the elimination of
costs incurred by the seller of $202,000 for the five months ended March 31,
2003 and reduced selling and marketing costs of $457,000, offset in part by an
increase in outbound freight and handling costs of $514,000. As a percentage of
gross sales, selling and shipping expenses decreased to 21.4% during the nine
months ended March 31, 2004 from 22.3% during the comparable period in 2003.
General and administrative expenses. General and administrative expenses were
$2,238,000 for the five months ended March 31, 2004 and $2,557,000 for the four
months ended October 31, 2003, for a combined nine month amount of $4,795,000, a
decrease of $1,313,000 or 21.5%, from the nine months ended March 31, 2003 of
$6,108,000. The decrease is primarily a result of the elimination of the
Seller's administrative costs, which aggregated $1,040,000 for the five months
ended March 31, 2003, and by slightly lower costs retained by the Company. As a
percentage of gross sales, general and administrative expenses decreased to 8.0%
during the nine months ended March 31, 2004 from 10.5% during the comparable
period in 2003.
Depreciation and amortization. Depreciation and amortization expenses were
$943,000 for the five months ended March 31, 2004 and $431,000 for the four
months ended October 31, 2003 for a combined nine month amount of $1,374,000, an
increase of $84,000 or 6.5% from the nine months ended March 31, 2003 of
$1,290,000. This increase is primarily due to additional amortization of
$576,000 related to identifiable intangible assets acquired in the acquisition
including product rights, patents and trademarks and the cost of an agreement
not to talk that the Company began amortizing in November 2003, offset in part
by some property and equipment becoming fully depreciated which had depreciation
expense in the comparable 2003 period of $314,000 and the elimination of the
Seller's depreciation and amortization expense of $178,000. As a percentage of
gross sales, depreciation and amortization expenses increased slightly to 2.3%
during the nine months ended March 31, 2004, compared to 2.2% during the nine
months ended March 31, 2003.
Income (loss) from continuing operations. Income from continuing operations was
$4,047,000 for the five months ended March 31, 2004 and a loss of $2,306,000 for
the four months ended October 2003 for a combined nine month income of
$1,741,000, an increase of $681,000 or 64.2% from the nine months ended March
31, 2003 of $1,060,000. The increase was primarily due to reduced selling and
shipping and general and administrative expenses, offset in part by reduced
gross profit and slightly higher depreciation and amortization as noted above.
As a percentage of gross sales, income from operations increased to 2.9% for the
combined nine months ended March 31, 2003 from 1.8% during the comparable period
in 2003.
Refinancing and transaction costs. The Company incurred no refinancing and
transaction costs for the five months ended March 31, 2004 while the Seller
incurred such costs during the four months ended October 31, 2003 of $159,000,
for a combined nine month amount of $159,000, a decrease of $4,020,000 or 96.2%
as compared to the nine months ended March 31, 2003 of $4,179,000. Included in
such prior year costs is a write-off of $1,928,000 for deferred financing costs
and discounts, $1,668,000 of fees and expenses related to the replaced financing
arrangements entered into in October 2002 and $583,000 of transaction costs
related to the sale of the operations to the Company. The transaction costs
incurred in October 2003 by the Seller were reflected in the gain on the sale of
the transaction and not reflected in the income statement presented herein,
which is prior to the transaction costs and gain on the sale.
20
Interest expense. Net interest expense was $4,220,000 for the five months ended
March 31, 2004 and $2,868,000 for the four months ended October 31, 2003, for a
combined nine month amount of $7,088,000, an increase of $1,430,000, or 25.3%
from the nine months ended March 31, 2003, of $5,658,000. Of the increase in
interest expense, $424,000 relates to the four months ended October 31, 2003
when the Seller's borrowing levels and interest rates increased and $1,006,000
relates to the increase in debt due to the purchase of operations of the
Company. Of the increase in interest expenses, $590,000 for the five months
ended March 31, 2004 is deferred and not currently due in cash. A substantial
portion of the Company's interest expense is based upon variable interest rates.
Increases in such rates will have a negative impact on operating performance and
cash flow.
Income tax expense. Income tax expense of $8,000 for the five months ended March
31, 2004 and income tax expense of $44,000 incurred during the four months ended
October 31, 2003 for a combined tax expense of $52,000 decreased $59,000 from
the tax expense for the three months ended March 31, 2003 of $111,000. The
Company does not have a tax loss carry forward while the Seller had a tax loss
carry forward. This difference did not materially change the income tax expense
for the nine months ended March 31, 2004 as compared with the nine months ended
March 31, 2003.
Discontinued operations. Loss from discontinued operations which related to the
Seller's Weed Wizard operations was $75,000 for the four months ended October
31, 2003 and the combined nine months ended March 31, 2004, a decrease of
$1,159,000, or 93.9% from the nine months ended March 31, 2003 of $1,234,000.
The decrease in loss from discontinued operations results from the Company not
assuming any obligations related to Weed Wizard.
Net income (loss). Net loss was $181,000 for the five months ended March 31,
2004, and the net loss was $5,452,000 for the four months ended October 31, 2003
for a combined nine month loss of $5,633,000, a decrease of $4,489,000 from the
nine months ended March 31, 2003 loss of $10,122,000. The decrease in net loss
is due to the decreased refinancing and transaction costs, decreased income tax
expense, and increased income from continuing operations offset by an increase
in interest expense as described above.
Liquidity and Capital Resources
The Company, which effectively commenced operations on November 1, 2003, has
financed its operations through borrowings from lending institutions. As noted
below, the Company may and or its more senior lenders will require, if certain
of their loan covenants are not met, that the Company finance part of its
operations by deferring the interest on the Mandatorily Redeemable Preferred
Securities Trust Holding Solely Junior Subordinated Debentures.
The Company's cash flow is dependent on its sales which as previously noted are
seasonal and significantly impacted by weather conditions during the key
gardening season. A substantial portion of the Company's sales are generated in
the last two quarters of the Company's fiscal year, and most significantly the
last quarter of the fiscal year which ends June 30. Interest expense is a
significant expenditure for the Company and a substantial amount of its interest
expense is based upon variable interest rates. Increases in such interest rates
would have a negative impact on operating performance and cash flow.
The Company's cash flow and liquidity levels are driven by sales and the
resulting accounts receivable and collections thereof and the purchase of
inventory and labor to produce finished inventory, and operating expenses and
the related payment of accounts payable and accrued expenses.
The Company has significant fixed expenditures in the form of principal and
interest requirements and believes it will have sufficient cash flow to meet
these obligations as they come due. However, adverse weather and other factors
could leave the Company with insufficient cash flows to meet these and other
obligations.
At March 31, 2004, the Company had consolidated cash and short-term investments
totaling $517,000, current assets of $31,917,000 and working capital of
$7,374,000. At June 30, 2003, U.S. Home & Garden Inc., the Seller, had
consolidated cash and short-term investments totaling $822,000, current assets
of $35,732,000 and a working capital deficit of $5,532,000. The increase in
working capital was primarily attributable to the financing terms obtained by
the Company during the quarter ended December 31, 2003, which resulted in
21
$6,000,000 of the outstanding borrowing under the new revolving credit facility
and $26,150,000 of the term loan and subordinated debt being classified as
long-term liabilities.
Net cash used in operating activities for the five months ended March 31, 2004
of $9.1 million consisted primarily of an increase in accounts receivable,
prepaid expenses and inventory of $14.8 million, offset in part by an increase
in accounts payable and accrued expenses of $3.7 million and net loss plus
non-cash charges of $2.0 million.
Net cash used in investing activities for the five months ended March 31, 2004
of $0.3 million is primarily due to capital purchases of equipment and
intangible assets.
Net cash provided by financing activities for the five months ended March 31,
2004 of $9.4 million is primarily due to proceeds from the credit facilities
used to fund the cash used in operating and investing activities and the
long-term debt repayment.
The Company's operations are not capital intensive and accordingly funding
capital expenditures does not require high levels of cash flow or significant
financing arrangements. The Company does however require cash flows to finance
new product development.
The Company and its parent, EYAS International, Inc., and their subsidiaries
entered into four credit arrangements on October 29, 2003 to finance the
acquisition of the operations and to provide working capital. The Company also
assumed from the Seller a Mandatorily Redeemable Preferred Securities Trust
Holding Solely Junior Subordinated Debentures.
The first credit facility is the amended and restated Loan and Security
Agreement with Wells Fargo Foothill, Inc., which is a three year asset based
lending revolving credit facility. This facility has a maximum borrowing level
of $25 million, which is limited based upon having eligible accounts receivable
and inventory. Interest is at variable annual rates based upon the prime rate
plus 0.5% or LIBOR plus 2.75%, but not less than 5.25%. The facility has various
covenants including minimum EBITDA, minimum EBITDA to pay Trust Preferred
interest, a Funded Senior Debt Ratio, a Fixed Charge Coverage Ratio, and limits
on Capital Expenditures. The facility has a term ending October 29, 2006 and is
secured by all of the assets of the Company and it's parents and subsidiaries.
On April 27, 2004 the Company and its parents and subsidiaries entered into a
new senior credit facility replacing the Wells Fargo Foothill, Inc. facility
described in the previous paragraph. The new facility is with the La Salle
Business Credit, L.L.C. who is the Agent for and one of the lenders on the
facility. The new asset based lending revolving credit facility has an original
term of three years and then is automatically renewable from year to year at the
option of the lenders and borrower. The facility has a maximum borrowing level
of $25 million. The facility is secured by all the assets of the Company and
it's parents and subsidiaries. The actual borrowing level is limited based upon
having eligible accounts receivable, inventory and for parts of the year, the
seasonal availability amount. Interest is at variable annual rates based upon
the prime rate plus 0.5% or LIBOR plus 3.25%. The new facility has various
financial covenants identical to the replaced facility including minimum EBITDA,
minimum EBITDA to pay Trust Preferred interest, a Fixed Charge Coverage Ratio, a
Funded Senior Debt Ratio/Leverage Ratio and limits on Capital Expenditures.
The second credit facility is with CapitalSource Finance LLC and includes two
term loans. Term Loan A in the amount of $14,315,000 of which $14,000,000 has
been borrowed and Term Loan B in the amount of $9,713,750 of which $9,500,000
has been borrowed. Both Term Loans A and B mature on October 29, 2008 and are
secured by all of the assets of the Company and it's parents and subsidiaries.
Term Loan A bears interest at the greater of 5.75% over the prime rate or 10%
and has monthly repayment of principal of $104,167 per month in year one growing
to $312,500 per month in year five. The principal repayment schedule has the
loan principal fully repaid at maturity. Term Loan B bears interest at the
greater of 8.75% over the prime rate or 13% plus 7.0% of non-cash interest which
is to be paid at the maturity of Term Loan B. Term Loans A and B also require
mandatory pre-payments of the excess cash flow as defined in the loan
agreements. The principal reduction ranges from 25% to 50% of the excess cash
flow generated by the Company. The facility has financial covenants identical to
those of the revolving credit facility described above.
The Company also entered into two subordinated loan agreements, one with the
Seller aggregating $1,600,000 and one with another party aggregating $2,675,000.
The subordinated Seller note is the more
22
junior of the subordinated notes. Both of these subordinated loans bear interest
at 9% per annum and mature on April 29, 2008. The Seller note has a repayment
feature based upon excess cash flow as defined in the second credit facility
described in the preceding paragraph. The $2,675,000 subordinated note gives the
holder of the note the right to convert the note plus accrued interest into a
49% ownership interest in the Company.
The Mandatorily Redeemable Preferred Securities Trust Holding Solely Junior
Subordinated Debentures assumed from the Seller includes 78,000 common
securities with a liquidation value of $25 per common share and 2,530,000 of
9.40% Cumulative Trust Preferred Securities with a liquidation value of $25 per
security due April 15, 2008. The Seller had previously redeemed 251,981 shares
of such securities. The previously redeemed shares were acquired by the Company
leaving 2,278,019 shares outstanding with a face value of $57,092,000. The
Company has entered into two agreements with a prior lender of U.S. Home &
Garden, Inc. giving the prior lender the rights to acquire up to 189,750 of such
redeemed shares. Under the first agreement, the prior lender can purchase up to
94,875 shares of the redeemed shares at an exercise price of $9.00 per share.
Under the second agreement, the prior lender is forgoing monthly cash interest
on an additional 94,875 of the redeemed shares until the exercise price of such
shares is reduced to $0 at which point the underlying securities will be
transferred to the prior lender and cash interest will begin being paid to the
prior lender on such securities. The exercise price on these securities at the
date of purchase of the operations was $4.30 and is reduced by approximately
$.20 each month. The options expire on May 19, 2009. The fair value of the total
189,750 options granted have been reflected at the average quoted market price
of $17.00 per share reduced by the proceeds to be received on the exercise of
the options of $1,262,000. The $17.00 per share calculation is described in the
second following paragraph.
During the quarter ended March 31, 2004, the prior lender of U.S. Home & Garden,
Inc. exercised their right under the first option agreement, to acquire 94,875
shares of the Mandatorily Redeemable Preferred Securities at an exercise price
of $9.00 per share. The option agreement provided for a cashless exercise which
was used for this transaction. The Company received back 37,620 shares of the
option securities, which based on the market value of such shares at the
exercise date of $22.70 per share, represents the total exercise price of the
option of $854,000. The 37,620 shares are now reflected as Treasury shares owned
by the Company and are reflected as a reduction in the obligation for the
Mandatorily Redeemable Preferred Securities.
The fair value of the Mandatorily Redeemable Preferred Securities at the
acquisition date including the optioned shares but excluding treasury shares was
approximately $41,952,000 based on the average quoted market prices of $17.00 on
the five days before and five days after the acquisition date. This amount has
been reduced by the proceeds to be received on the exercise of options totaling
$1,262,000. The securities have been reflected in the opening balance sheet of
the Company at fair value and the discount from the face value is being
amortized using the constant yield to maturity method of amortization over 25
years to the maturity date. Deferred taxes have been recorded on the discount
amount. The amortization of discount for the five months ended March 31, 2004
was $39,000. As a result of the exercise of options described in the preceding
paragraph, the number of treasury shares increased 37,620 shares with a value of
$854,000 and the amount due of the exercise of the options was reduced by an
equal amount. As a result of the foregoing of monthly cash interest as described
in the second preceding paragraph, the amount due at the exercise of the options
was reduced by the forgone interest of $93,000.
Distributions of interest on the Trust Securities are payable monthly in arrears
by the Trust.
The Subordinated Debentures are unsecured obligations of the Company and are
subordinate and junior in right to certain other indebtedness of the Company.
Currently, the company does not have any indebtedness outstanding which rank
equal to or junior to such securities. The Company may and its more senior
lenders will, if certain of their loan covenants are not met, require the
deferral of the payment of interest on the Subordinated Debentures. The deferral
of interest can be done for a period not to exceed 60 consecutive months with no
change in the rights of the lenders. If interest payments on the Subordinated
Debentures are so deferred, distributions on the Trust Securities will also be
deferred. During any such deferral period, interest on the Subordinated
Debentures and distributions on the Trust Securities will accrue and compound
monthly and, subject to certain exceptions, the Company may not declare or pay
distributions on its capital or debt securities that rank equal to or junior to
the Subordinated Debentures.
The Trust Securities are subject to mandatory redemption upon the repayment of
the Subordinated Debentures at a redemption price equal to the aggregate
liquidation amount of the securities plus any accumulated and unpaid
distributions. The Subordinated Debentures mature in total on April 15, 2028,
but
23
may be redeemed at the option of the Company at any time. The Company
effectively provides a full and unconditional guarantee of the Trusts'
obligations under the Trust Securities to the extent that the Trust has funds
sufficient to make such payments.
Commitments
The Company leases office and warehouse space, certain office equipment and
automobiles under operating leases expiring through 2008. The future minimum
annual lease payments under these non-cancelable operating leases are as
follows:
Year Ended June 30, Amount
-------------------------------------
2004 $681,000
2005 544,000
2006 206,000
2007 28,000
2008 18,000
-------------------------------------
$977,000
-------------------------------------
24
Critical Accounting Policies
The preparation of financial statements requires the adoption and implementation
of accounting policies and the use of assumptions and estimates in their
presentation. The accounting policies and uncertainties, judgments and estimates
make it likely that materially different amounts would be reported under
different conditions and different assumptions.
The Company has included below a discussion of the more critical accounting
policies that are affected by the significant judgments and estimates used in
the preparation of the financial statements, how such policies are applied, and
how results differing from the estimates and assumptions would affect the
amounts presented in the financial statements. Other accounting policies also
have a significant effect on the financial statements, and some of these
policies also require the use of estimates and assumptions.
Allowance for Doubtful Accounts Receivable. The Company maintains an allowance
for doubtful accounts receivable, which represents the potential estimated
losses resulting from the inability of customers to make required payments for
amounts owed. The allowance is estimated based on historical experience of
write-offs, the level of past due amounts and information known about specific
customers with respect to their ability to make payments at the balance sheet
date. If the financial condition of the Company's customers were to change,
resulting in an impairment or improvement in their ability to make payments,
additional allowances may be required or allowances may be reduced.
Inventories. The Company records inventory reserves for estimated obsolescence
of inventory equal to the difference between the cost of inventory owned and the
estimated market value. Market value is based upon the age of specific inventory
on hand and assumptions about future demand and market conditions. If actual
market conditions for the sale of the inventory are less favorable than those
anticipated by management, additional reserves may be required.
Accrued Expenses. The Company records its estimated costs for customer rebates
and co-op adverting, freight and commission expenses as the related sales occur
during the year. These accruals involve the use of estimates as to the expected
program costs and the expected sales levels. If the program costs and / or the
expected sales levels were to change from the estimates used in the accrual
process, the accrued amounts might be either overstated or understated.
Goodwill. The Company under the purchase method has incurred costs in excess of
the value of net assets acquired which has been recorded as goodwill. Goodwill
is tested for impairment by comparing the carrying value of the assets to their
fair value. The fair value of the assets could vary significantly over time and
different assumptions and estimates will result in different valuations.
Deferred Income Taxes. The Company records deferred income taxes based on
enacted income tax rates in effect on the dates temporary differences between
the financial reporting and tax bases of assets and liabilities reverse. To the
extent that available evidence about the future raises doubt about the
realization of a deferred tax asset, a valuation allowance is established.
Inflation
Inflation has historically not had a material effect on the Company's
operations.
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a result of its variable rate revolving credit line and term debt, the
Company is exposed to the risk of rising interest rates. The Company also has
minor exposure to changes in foreign exchange rates. The following table
provides information on the Company's fixed maturity debt as of March 31, 2004
that are sensitive to changes in interest rates.
The Revolving Credit Facility with Wells Fargo
Foothill, Inc had a variable interest rate of 5.25%
for the period ended March 31, 2004 $15.3 million
The Term Loan A with CapitalSource Finance, LLC
had a variable interest rate of 10.0% for the period
ended March 31, 2004 $13.4 million
The Term Loan B with CapitalSource Finance, LLC had
a variable interest rate of 13.0% for the period
ended March 31, 2004 $9.8 million
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"), of the effectiveness of the Company's disclosure
controls and procedures. Based on that evaluation, the CEO and CFO have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the date of
their evaluation, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 2. Changes of Securities and Use of Proceeds.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Easy Gardener Products, Ltd., a Texas Limited Partnership, Amended
and Restated Limited Partnership Agreement dated as of October 29,
2003
10.2 Loan and Security Agreement with LaSalle Business Credit, LLC, as
Agent, certain financial institutions as Lenders and Easy Gardener
Products, Ltd., as Borrower, EYAS International, Inc., as a Credit
Party, EG Product Management, L.L.C., as a Credit Party, EG, L.L.C.,
as a Credit Party, Weatherly Consumer Products Group, Inc., as a
Credit Party, Weatherly Consumer Products, Inc., as a Credit Party,
and NBU Group, LLC, as a Credit Party dated as of April 27, 2004
10.3 Revolving Note executed as of the 27th day of April, 2004 by and
among LaSalle National Bank National Association, as Lender and Easy
Gardener Products, Ltd., as Borrower
10.4 Revolving Note executed as of the 27th day of April, 2004 by and
among LaSalle Business Credit, LLC, as Lender and Easy Gardener
Products, Ltd., as Borrower
26
10.5 Patent Security Agreement made as of the 27th day of April, 2004, by
Easy Gardener Products, Ltd., as Borrower, in favor of LaSalle
Business Credit, LLC, as agent for the Lenders party to the Loan
Agreement
10.6 Patent Security Agreement made as of the 27th day of April, 2004, by
Weatherly Consumer Products, Inc., in favor of LaSalle Business
Credit, LLC, as agent for the Lenders party to the Loan Agreement
10.7 Trademark Security Agreement made as of the 27th day of April, 2004,
by Easy Gardener Products, Ltd., as Borrower, in favor of LaSalle
Business Credit, LLC., as agent for the Lenders party to the Loan
Agreement
10.8 Copyright Security Agreement made as of the 27th day of April, 2004,
by Easy Gardener Products, Ltd., as Borrower, in favor of LaSalle
Business Credit, LLC., as agent for the Lenders party to the Loan
Agreement
10.9 Copyright Security Agreement made as of the 27th day of April, 2004,
by Weatherly Consumer Products, Inc., in favor of LaSalle Business
Credit, LLC., as agent for the Lenders party to the Loan Agreement
10.10 Master Pledge Agreement made as of April 27, 2004, by Weatherly
Consumer Products, Inc., a Delaware corporation and Easy Gardener
Products, Ltd., in favor of LaSalle Business Credit, LLC., as agent
for itself and the Lenders
10.11 Subordination and Intercreditor Agreement dated as of April 27,
2004, by and between CapitalSource Finance, LLC, a Delaware limited
liability company , and in its capacity as a Junior Lender, LaSalle
Business Credit, LLC, a Delaware limited liability company, and in
its capacity as a Senior Lender and LaSalle Bank National
Association, in its capacity as a Senior Lender
10.12 Subordination Agreement between Central Garden & Pet Company and
LaSalle Business Credit, LLC, as Agent
10.13 Subordination Agreement between U.S. Home & Garden, Inc. and LaSalle
Business Credit, LLC, as Agent
10.14 Term Loan and Security Agreement by and among Easy Gardener
Products, Ltd., as Borrower, EYAS International, Inc., E G Product
Management, L.L.C., EG, L.L.C., Weatherly Consumer Products Group,
Inc., Weatherly Consumer Products, Inc. and NBU Group, LLC, each as
Guarantor, and CapitalSource Finance LLC, as Agent and Lender dated
as of October 29, 2003
10.15 Term A Loan Note dated as of October 29, 2003 by and between Easy
Gardener Products, Ltd., and CapitalSource Finance LLC
10.16 Term B Loan Note dated as of October 29, 2003 by and between Easy
Gardener Products, Ltd., CapitalSource Finance LLC
10.17 PIK Note dated as of October 29, 2003 by and between Easy Gardener
Products, Ltd. and CapitalSource Finance LLC
10.18 Subordination Agreement between Central Garden & Pet Company and
CapitalSource Finance LLC, as Agent
10.19 Subordination Agreement between U.S. Home & Garden, Inc. and
CapitalSource Finance LLC, as Agent
27
10.20 Pledge Agreement entered into as of October 29, 2003, by and between
CapitalSource Finance, LLC, as administrative, payment and
collateral agent for the Lenders under the Term Loan and Security
Agreement, and Easy Gardener Products, Ltd.
10.21 Pledge Agreement entered into as of October 29, 2003, by and between
CapitalSource Finance, LLC, as administrative, payment and
collateral agent for the Lenders under the Term Loan and Security
Agreement, and E G Product Management, LLC
10.22 Pledge Agreement entered into as of October 29, 2003, by and between
CapitalSource Finance, LLC, as administrative, payment and
collateral agent for the Lenders under the Term Loan and Security
Agreement, and EG, L.L.C.
10.23 Pledge Agreement entered into as of October 29, 2003, by and between
CapitalSource Finance, LLC, as administrative, payment and
collateral agent for the Lenders under the Term Loan and Security
Agreement, and EYAS International, Inc.
10.24 Central Garden Pledge Agreement, as Exhibit B to Subordination
Agreement, entered into as of October 29, 2003, by and between
CapitalSource Finance LLC, as administrative, payment and collateral
agent for the Lenders under the Term Loan and Security Agreement,
and Central Garden & Pet Company
10.25 Pledge Agreement entered into as of October 29, 2003, by and between
CapitalSource Finance, LLC, as administrative, payment and
collateral agent for the Lenders under the Term Loan and Security
Agreement, and NBU Group, LLC
10.26 Pledge Agreement entered into as of October 29, 2003, by and between
CapitalSource Finance, LLC, as administrative, payment and
collateral agent for the Lenders under the Term Loan and Security
Agreement, and Weatherly Consumer Products, Inc.
10.27 Acknowledgement of Intellectual Property and Collateral Lien dated
as of October 29, 2003, by and among Easy Gardener Products, Ltd.,
as Borrower, EYAS International, Inc., EG, L.L.C., E G Product
Management, L.L.C., Weatherly Consumer Products Group, Inc.,
Weatherly Consumer Products, Inc., and NBU Group, LLC, each as
Guarantor, in favor of CapiralSource Finance LLC, as administrative
agent and collateral agent under the Loan Agreement
10.28 Amendment to Subordination Agreement dated as of October 29, 2003 by
and between Central Garden & Pet Company and CapitalSource Finance,
LLC dated as of April 27, 2004
10.29 Amendment to Subordination Agreement dated as of October 29, 2003 by
and between U.S. Home & Garden, Inc. and CapitalSource Finance, LLC
dated as of April 27, 2004
10.30 Subordinated Promissory Note by and among Easy Gardener Products,
Ltd. and EG Product Management L.L.C., as general partner and U.S.
Home & Garden, Inc. as Lender dated as of October 29, 2003
10.31 Note and Warrant Purchase Agreement made as of October 29, 2003 by
and between Easy Gardener Products, Ltd., and Central Garden & Pet
Company
31.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-14 and 15d-14 implementing Section 302 of the
Sarbanes-Oxley act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-14 and 15d-14 implementing Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
28
32.2 Certification of the Chief Financial Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
(b) A report on Form 8-K was filed during the quarter ended March 31, 2004.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 14, 2004
Easy Gardener Products, Ltd.
(Registrant)
By: /s/ Richard M. Grandy
-----------------------------------
Richard M. Grandy
Manager/CEO
By: /s/ Richard M. Kurz
-----------------------------------
Richard M. Kurz
Manager/CFO
29