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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 September 30, 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 September 30, 2004 1-2
and June 30, 2004
Consolidated statements of operations for the three months ended 3
September 30, 2004 and the three months ended September 30,
2003 (Predecessor)
Consolidated statements of cash flows for the three months ended 4-5
September 30, 2004 and the three months ended September 30,
2003 (Predecessor)
Notes to consolidated financial statements 6-7
Item 2. - Management's Discussion and Analysis of Financial 8-13
Condition and Results of Operations
Item 3. - Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. - Controls and Procedures 13-14
Part II. - Other Information
Item 1. - Legal Proceedings 15
Item 6. - Exhibits and Reports on Form 8-K 15
Signatures 15-16
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Balance Sheets
================================================================================
September 30, June 30,
2004 2004
- -----------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current:
Cash and cash equivalents $ 585,000 $ 441,000
Accounts receivable, less allowance for doubtful accounts
of $126,000 and $193,000 13,128,000 26,753,000
Inventories 5,116,000 5,428,000
Prepaid expenses and other current assets 810,000 583,000
Current assets of discontinued operations -- 275,000
- -----------------------------------------------------------------------------------------------------
Total Current Assets 19,639,000 33,480,000
Property and Equipment, net 3,618,000 3,395,000
Deferred financing costs, net of accumulated amortization of
$193,000 and $130,000 1,307,000 1,333,000
Intangible Assets:
Goodwill 48,174,000 48,174,000
Trademarks 23,587,000 23,565,000
Non-compete agreements, net of accumulated amortization of
$186,000 and $135,000 1,384,000 1,435,000
Package tooling costs, net of accumulated amortization of
$489,000 and $352,000 856,000 902,000
Other intangible assets, net of accumulated
amortization of $84,000 and $61,000 892,000 915,000
Other Assets 3,482,000 3,538,000
- -----------------------------------------------------------------------------------------------------
$102,939,000 $116,737,000
=====================================================================================================
See accompanying notes to consolidated financial statements.
1
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Balance Sheets
================================================================================
September 30, June 30,
2004 2004
- -------------------------------------------------------------------------------------------------------
(Unaudited)
Liabilities and Capital
Current:
Revolving credit facility $ 8,995,000 $ 13,525,000
Accounts payable 5,826,000 11,158,000
Accrued rebates 1,485,000 1,848,000
Accrued commissions 497,000 1,111,000
Accrued co-op advertising 234,000 587,000
Accrued income taxes payable -- 325,000
Accrued other expenses 740,000 665,000
Current portion of long-term debt 1,865,000 1,646,000
Current liabilities of discontinued operations 691,000 1,230,000
- -------------------------------------------------------------------------------------------------------
Total Current Liabilities 20,333,000 32,095,000
Long Term Debt 25,807,000 25,928,000
Deferred Tax Liability 10,180,000 10,862,000
Junior Subordinated Debentures, net of discount of $20,772,000
and $20,797,0000 45,431,000 44,403,000
- -------------------------------------------------------------------------------------------------------
Total Liabilities 101,751,000 113,288,000
- -------------------------------------------------------------------------------------------------------
Commitments and Contingencies -- --
Partners' Capital:
Capital 2,675,000 2,675,000
Retained earnings/(deficit) (1,487,000) 774,000
Total Partners' Capital 1,188,000 3,449,000
- -------------------------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 102,939,000 $ 116,737,000
=======================================================================================================
See accompanying notes to consolidated financial statements.
2
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Statements of Operations
================================================================================
Three Months | Three Months
Ended | Ended
September 30, 2004 | September 30, 2003
- --------------------------------------------------------------------------|--------------------
(Unaudited) | (Unaudited)
| (Predecessor)
Net Sales $ 14,225,000 | $ 14,517,000
Cost of Sales 8,980,000 | 8,784,000
- --------------------------------------------------------------------------|--------------------
|
Gross Profit 5,245,000 | 5,733,000
- --------------------------------------------------------------------------|--------------------
|
Operating Expenses: |
Selling and shipping 4,350,000 | 4,637,000
General and administrative 1,314,000 | 1,817,000
Depreciation and amortization 208,000 | 359,000
- --------------------------------------------------------------------------|--------------------
|
Total Operating Expenses 5,872,000 | 6,813,000
- --------------------------------------------------------------------------|--------------------
|
Loss From Operations (627,000) | (1,080,000)
|
Other Expense: |
Refinance and transaction costs -- | (159,000)
Interest expense (2,638,000) | (2,188,000)
- --------------------------------------------------------------------------|--------------------
|
Loss From Continuing Operations Before Income Taxes (3,265,000) | (3,427,000)
|
Income Tax Benefit 1,004,000 | 5,000
- --------------------------------------------------------------------------|--------------------
|
Loss from Continuing Operations (2,261,000) | (3,422,000)
|
Loss from discontinued operations -- | (74,000)
- --------------------------------------------------------------------------|--------------------
|
Net Loss $ (2,261,000) | $ (3,496,000)
===============================================================================================
See accompanying notes to consolidated financial statements.
3
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Three months | Three months
Ended | Ended
September 30, 2004 | September 30, 2003
- ------------------------------------------------------------------------------|--------------------
(Unaudited) | (Unaudited)
| (Predecessor)
Cash Flows from Operating Activities: |
|
Net loss from continuing operations $ (2,261,000) | $ (3,422,000)
Adjustments to reconcile net loss to net cash |
Changes in operating assets and liabilities: |
Accounts receivable 13,625,000 | 9,690,000
Inventories 313,000 | 721,000
Prepaid expenses, refundable income taxes and |
other current assets (228,000) | (17,000)
Other assets 57,000 | 25,000
Accounts payable and accrued expenses (7,084,000) | (2,583,000)
Income taxes payable (325,000) | --
Non-cash interest expense 1,314,000 | 56,000
Depreciation and other amortization 547,000 | 702,000
Deferred income tax benefit (682,000) | --
Compensation related to repriced stock options -- | 30,000
Trademarks (21,000) | --
- ------------------------------------------------------------------------------|--------------------
|
Net Cash Provided by Operating Activities 5,255,000 | 5,202,000
- ------------------------------------------------------------------------------|--------------------
|
Cash Flows From Investing Activities: |
Purchase of equipment (498,000) | (57,000)
Purchase of package tooling and other intangibles (91,000) | (38,000)
- ------------------------------------------------------------------------------|--------------------
|
Net Cash Used in Investing Activities $ (589,000) | $ (95,000)
- ---------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
Easy Gardener Products, Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
================================================================================
Three months | Three months
Ended | Ended
September 30, 2004 | September 30, 2003
- ----------------------------------------------------------------------------|--------------------
(Unaudited) | (Unaudited)
| (Predecessor)
Cash Flows From Financing Activities: |
|
Net payments on revolving credit facility $(4,531,000) | $(4,205,000)
Payments on long-term debt (187,000) | (21,000)
Deferred financing costs (37,000) | (227,000)
- ----------------------------------------------------------------------------|--------------------
|
Net Cash Used In Financing Activities (4,755,000) | (4,453,000)
- ----------------------------------------------------------------------------|--------------------
|
Net increase (decrease) in cash and cash |
equivalents from continuing operations (89,000) | 654,000
|
Net cash provided by (used in) discontinued operations 233,000 | (74,000)
- ----------------------------------------------------------------------------|--------------------
|
Net increase in cash and cash equivalents 144,000 | 580,000
|
Cash and Cash Equivalents, beginning of period 441,000 | 822,000
- ----------------------------------------------------------------------------|--------------------
|
Cash and Cash Equivalents, end of period $ 585,000 | $ 1,402,000
============================================================================|====================
|
Supplemental Disclosure of Cash Flow |
Information |
Cash paid for interest $ 1,259,000 | $ 2,165,000
Cash received for taxes $ 32,000 | $ 36,000
- -------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
1. The accompanying consolidated financial statements include the
consolidated statements of operations and cash flows for the three months
ended September 30, 2003 of U.S. Home & Garden, Inc. (the "Predecessor")
from whom the Company acquired its operations effective November 1, 2003.
The accompanying consolidated financial statements at September 30, 2004
and for the three months ended September 30, 2004 and 2003 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 three months
ended September 30, 2004 are not necessarily indicative of the results of
operations for a full year.
2. Refer to the audited consolidated financial statements for the year ended
June 30, 2004, for details of accounting policies and detailed notes to
the consolidated financial statements.
3. Inventories consist of:
September 30, 2004 June 30, 2004
--------------------------------------------------------------------------
Raw and packaging materials $1,522,000 $2,025,000
Finished goods 3,594,000 3,403,000
--------------------------------------------------------------------------
$5,116,000 $5,428,000
==========================================================================
4. All shipping and handling expenses are included in the selling and
shipping caption and totaled approximately $1,932,000 and $1,690,000 for
the three months ended September 30, 2004 and 2003 respectively.
5. The Company and its parent, EYAS International, Inc., and their
subsidiaries have a revolving credit facility with LaSalle Business
Credit, L.L.C. who is the Agent for and one of the lenders on the
facility, and a term loan facility with Capital Source Finance, L.L.C. The
revolving credit facility has a maximum borrowing level of $25 million.
Interest is at variable annual rates based upon the prime rate plus 0.5%
or LIBOR plus 3.25%. The revolving credit facility has various financial
covenants including minimum EBITDA, minimum EBITDA to pay interest on the
Junior Subordinated Debentures, a Fixed Charge Coverage Ratio, a Funded
Senior Debt Ratio/Leverage Ratio and limits on Capital Expenditures.
Borrowings on the revolving credit facility were $8,995,000 at September
30, 2004 and are based on eligible borrowing base of $10,582,000 at
September 30, 2004. There are two term loans. The term loan A had
$12,750,000 outstanding at September 30, 2004 and term loan B had
$9,500,000 outstanding at September 30, 2004 plus accrued interest. Term
loan A bears interest at the greater of 5.75% over the prime rate or
10.00% and has monthly repayment of principal of $104,167 per month in
year one, 166,667 per month in year two. Term Loan B bears interest at the
greater of 8.75% over the prime rate or 13.00% plus 7.00% 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 from the excess cash flow as
defined in the loan agreement. The principal pre-payments ranges from 50%
to 75% of the excess cash flow. The facility has financial covenants
identical to those of the revolving credit facility described above.
The Company was below its minimum EBITDA levels in July and August 2004
creating a default which has been waived by the lenders. The Company also
is below the minimum EBITDA level required by the lenders to continue to
pay the interest on the Junior Subordinated Debentures. As permitted by
the Amended and Restated Junior Subordinated Indenture, the Company has
notified the Trustee that it has
6
Easy Gardener Products, Ltd. and Subsidiaries
Notes to Consolidated Financials Statements
================================================================================
exercised its right to defer (not cancel) the monthly interest payment
commencing with the August 2004 payment. The Trustee uses the interest on
the Junior Subordinated Debentures to pay the interest on the 9.40%
Cumulative Trust Preferred Securities.
6. The Company's previous business combinations were accounted for using the
purchase method. As a result of such combinations, the Company has
recognized a significant amount of goodwill, which, in the aggregate, was
$48,174,000 at September 30, 2004 and June 30, 2004.
Amortization expense for all intangible assets during the three months
ended September 30, 2004 and 2003 (Predecessor) was $273,000 and $442,000,
respectively. Estimated amortization expense for each of the five
succeeding fiscal years is as follows:
Year Ended June 30, Amount
------------------------------------------------
2005 $1,094,000
2006 $1,094,000
2007 $1,094,000
2008 $ 924,000
2009 $ 924,000
7
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 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, dependence on weather conditions, seasonality, expansion, changes
in interest rates, ability to service debt, 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, the ability to maintain adequate
financing arrangements necessary to fund operations and the general condition of
the economy and its effect on the securities markets and other risks detailed in
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 own operations
and through its wholly owned subsidiaries, Weatherly Consumer Products Group,
Inc. which owns Weatherly Consumer Products, Inc., and Easy Gardener UK Ltd.
8
Results of Operations
The following table sets forth, for the periods indicated, certain selected
financial data as a percentage of net sales:
September 30,
2004 | 2003
----------|--------------
| (Predecessor)
|
Net sales 100.0% | 100.0%
Cost of sales 63.1 | 60.5
----------|--------------
Gross profit 36.9 | 39.5
Selling and shipping expenses 30.6 | 31.9
General and administrative expenses 9.2 | 12.5
Depreciation and amortization 1.5 | 2.5
----------|--------------
Loss from operations (4.4) | (7.4)
Refinancing and transaction costs -- | (1.1)
Interest expense, net (18.5) | (15.1)
----------|--------------
Loss from continuing operations before income tax (22.9) | (23.6)
Income tax benefit 7.0 | --
----------|--------------
Loss from continuing operations (15.9) | (23.6)
----------|--------------
Loss from discontinued operations -- | (0.5)
----------|--------------
Net loss (15.9%) | (24.1%)
-------------------------
9
Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003 (Predecessor)
Net sales. Net sales decreased by $292,000, or 2.0%, to $14,225,000 during the
three months ended September 30, 2004, from $14,517,000 during the comparable
period in 2003. Net sales are gross sales less adjustments for discounts,
rebates, returns and allowances given to customers and such adjustments are
collectively referred to as sales adjustments. The decrease in net sales was the
result of a decrease in the volume of products sold and an increase in rebates
and discounts to customers of $645,000, offset in part by $495,000 of returns
recorded during the three months ended September 30, 2003 by the Predecessor for
the Ampro Division. The Company disposed of the Ampro division in June 2004. The
Predecessor also had $149,000 in net sales for operations not acquired by the
Company.
Cost of sales. Cost of sales increased by $196,000, or 2.2% to $8,980,000 for
the three months ended September 30, 2004 from $8,784,000 during the comparable
period in 2003. The increase was a result of increases in material costs,
primarily purchase price increases on a number of petroleum based products of
$36,000 and by a reduction in cost of sales in the comparable quarter related to
returns of the Ampro Division, such returns reducing cost of sales by $206,000
in the prior year. There were no such returns in the current period. These
returns were offset in part in the current period by a reduction in cost of
sales of $46,000 for operations not acquired by the Company. Cost of sales as a
percentage of net sales increased to 63.1% during the three months ended
September 30, 2004 from 60.5% during the comparable period in 2003. Depreciation
and amortization included in cost of sales for the three months ended September
30, 2004 and the three months ended September 30, 2003 were $311,000 and
$374,000, respectively.
Gross profit. Gross profit decreased by $488,000, or 8.5%, to $5,245,000 for the
three months ended September 30, 2004 from $5,733,000 during the comparable
period in 2003. Gross profit as a percentage of net sales decreased to 36.9%
during the three months ended September 30, 2004, from 39.5% during the
comparable period in 2003. This decrease in gross profit dollars and as a
percentage of net sales results from the matters described above.
Selling and shipping expenses. Selling and shipping expenses decreased by
$287,000, or 6.2% to $4,350,000 during the three months ended September 30, 2004
from $4,637,000 during the comparable period in 2003. As a percentage of net
sales, selling and shipping expenses decreased to 30.6% during the three months
ended September 30, 2004 from 31.9% during the comparable period in 2003. This
decrease in expense and as a percent of net sales was attributable to a decrease
in cooperative advertising, commission and store service costs of $431,000 and
the elimination of costs not assumed from the Predecessor of $88,000, offset in
part by an increase of $232,000 in outbound freight costs.
General and administrative expenses. General and administrative expenses
decreased by $503,000 or 27.7%, to $1,314,000 during the three months ended
September 30, 2004 from $1,817,000 during the comparable period in 2003. This
decrease is primarily costs of the Predecessor not assumed by the Company. As a
percentage of net sales, general and administrative expenses decreased to 9.2%
during the three months ended September 30, 2004 from 12.5% during the
comparable period in 2003.
Depreciation and amortization. Depreciation and amortization expenses decreased
by $151,000 or 42.1% to $208,000 during the three months ended September 30,
2004 from $359,000 during the comparable period in 2003. This decrease is
primarily as a result of the Predecessor having a shorter life on its
amortizable intangible assets. As a percentage of net sales, depreciation and
amortization expenses decreased to 1.5% during the three months ended September
30, 2004 from 2.5% during the comparable period in 2003.
Loss from operations. Loss from operations decreased by $453,000 or 41.9% to
$627,000 during the three months ended September 30, 2004, from $1,080,000
during the comparable period in 2003. The decrease in loss from continuing
operations was primarily due to reduced operating expenses offset in part by
reduced sales and increased cost of sales as noted above. As a percentage of net
sales, loss from
10
operations decreased to 4.4% for the three months ended September 30, 2004 from
7.4% during the comparable period in 2003.
Refinancing and transaction costs. The Company did not incur refinancing and
transaction costs during the quarter ended September 30, 2004. In the comparable
quarter in the prior year, the Predecessor incurred $159,000 in refinancing and
transaction costs.
Interest expense. Net interest expense increased $450,000, or 20.6% to
$2,638,000 during the three months ended September 30, 2004, from $2,188,000
during the comparable period in 2003. Interest on the revolving credit facility
decreased $104,000 as a result of reduced borrowing levels and reduced interest
rates. The Predecessor paid additional default interest of $100,000 in the
quarter on its revolving credit facility. The Company has approximately
$22,893,000 in term loans outstanding in the September 2004 quarter compared to
$12,121,000 for the Predecessor in the prior comparable period. The interest
expense of the Company on its term loans was $853,000 of which $179,000 is due
on October 29, 2008 and is considered non-cash interest. The Predecessor had
interest expense of $534,000 on its term loans including additional default
interest of $93,000 for the quarter ended September 30, 2003. The Company also
has two subordinated loans with non-cash interest expense for the September 2004
quarter of $107,000. The remaining interest expense in the September 30, 2004
quarter and comparable period in 2003 relates to the Junior Subordinated
Debentures and was $1,504,000 and $1,380,000, respectively. As permitted by the
Amended and Restated Subordinated Indentures, the Company has elected to defer
payment of the interest on the Subordinated Junior Debentures beginning in
August 2004. This decision increased the amount of non-cash interest by
$1,003,000. The total non-cash interest for the September 30, 2004 quarter was
$1,314,000. A portion of the Company's interest expense is based upon variable
interest rates. Increases in such rates would have a negative impact on
operating performance and cash flow.
Income taxes. An income tax benefit of $1,004,000 was recorded during the three
months ended September 30, 2004. An income tax benefit of $5,000 was recorded
for the three months ended September 30, 2003. The Predecessor had a tax loss
carry forward which impacted its taxes for the three months ended September 30,
2003.
Discontinued Operations. Loss from discontinued operations decreased from
$74,000 to $0 during the three months ended September 30, 2004, from the
comparable period in 2003. The Predecessor's loss was due to its discontinued
Weed Wizard operations.
Net loss. Net loss decreased by $1,235,000 to $2,261,000 during the three months
ended September 30, 2004 from a net loss of $3,496,000 during the comparable
period in 2003. The decrease in net loss is due primarily to the increased
income tax benefit and other matters as noted above.
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.
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.
11
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily through cash
generated by operations, and net borrowings from lending institutions. As noted
below, the Company's senior lenders have required that the Company finance part
of its operations by deferring the interest on the Junior Subordinated
Debentures since the loan requirement to pay such interest have not been met.
The Company was below its minimum EBITDA levels in July and August 2004 creating
a default which has been waived by the lenders. The Company also is below the
minimum EBITDA level required by the lenders to continue to pay the interest on
the Junior Subordinated Debentures. As permitted by the Amended and Restated
Junior Subordinated Indenture, the Company has notified the Trustee that it has
exercised its right to defer (not cancel) the monthly interest payment
commencing with the August 2004 payment. The Trustee uses the interest on the
Junior Subordinated Debentures to pay the interest on the 9.40% Cumulative Trust
Preferred Securities.
At September 30, 2004, the Company had cash and short-term investments totaling
$585,000 and a working capital deficit of $694,000. At June 30, 2004, the
Company had cash and short-term investments totaling $441,000 and working
capital of $1,385,000. The working capital deficit at September 30, 2004 was
primarily attributable to the loss for the quarter.
Net cash provided by operating activities for the three months ended September
30, 2004 of $5.3 million consisted primarily of a decrease in accounts
receivable, other assets and inventory of $14.0 million, offset by a decrease in
accounts payable, current taxes and prepaid expenses of $7.6 million and the net
loss from continuing operations of $2.3 million, adjusted for non-cash expenses
and deferred taxes of $1.2 million. These changes are consistent with the
seasonal nature of the Company's business.
Net cash used in investing activities for the three months ended September 30,
2004 of $0.6 million is due to capital purchases of equipment and package
tooling costs.
Net cash used in financing activities for the three months ended September 30,
2004 of $4.8 million is primarily due to repayments made on the revolving credit
facility and the term loan with cash provided from operating activities.
The Company and its parent, EYAS International, Inc., and their subsidiaries
have a revolving credit facility with LaSalle Business Credit, L.L.C. who is the
Agent for and one of the lenders on the facility, and a term loan facility with
Capital Source Finance, L.L.C. The revolving credit facility has a maximum
borrowing level of $25 million. Interest is at variable annual rates based upon
the prime rate plus 0.5% or LIBOR plus 3.25%. The revolving credit facility has
various financial covenants including minimum EBITDA, minimum EBITDA to pay
interest on the Junior Subordinated Debentures, a Fixed Charge Coverage Ratio, a
Funded Senior Debt Ratio/Leverage Ratio and limits on Capital Expenditures.
Borrowings on the revolving credit facility were $8,995,000 at September 30,
2004 and are based on eligible borrowing bases of $10,582,000 at September 30,
2004. There are two term loans. The term loan A had $12,750,000 outstanding at
12
September 30, 2004 and term loan B had $9,500,000 outstanding at September 30,
2004 plus accrued interest. Term loan A bears interest at the greater of 5.75%
over the prime rate of 10.00% and has monthly repayment of principal of $104,167
per month in year one, 166,667 per month in year two. Term Loan B bears interest
at the greater of 8.75% over the prime rate or 13.00% plus 7.00% 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 from the excess cash flow as defined in the
loan agreement. The principal pre-payments ranges from 50% to 75% of the excess
cash flow. The facility has financial covenants identical to those of the
revolving credit facility described above.
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
----------------------------------------
2005 $602,000
2006 268,000
2007 9,000
2008 6,000
----------------------------------------
$885,000
----------------------------------------
Inflation
Inflation has historically not had a material effect on the Company's
operations.
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 September 30,
2004 that are sensitive to changes in interest rates. A 1% point increase in
the variable interest rate at the beginning of the quarter would have increased
interest expense $94,000. Actual interest expense on the debt subject to
variable interest was $844,000 for the three months ended September 30, 2004
The Revolving Credit Facility with LaSalle Business Credit L.L.C. had a variable
interest rate ranging from 4.25% to 4.75% for the period ended
September 30, 2004 $8.8 million
The Term Loan A with Capital Source Finance, LLC had a variable interest rate
ranging from 10.00% to 10.33% for the period ended
September 30, 2004 $12.8 million
The Term Loan B with Capital Source Finance, LLC had a variable interest rate
component ranging from 13.00% to 13.33% for the period ended
September 30, 2004 $10.1 million
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. As of the end of the
period covered by this report, as carried out an evaluation, under the
supervision and with the participation of the Company's Chief
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Executive Officer and Chief Financial Officer of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. Based on the
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures were effective in timely alerting them to material information
required to be included in the Company's periodic SEC filings at the reasonable
assurance level.
(b) Changes in internal control over financial reporting. There has been no
changes in the Company's internal control over financial reporting that occurred
during the three months ended September 30, 2004 that has materially affected or
is reasonably likely to materially affect the internal controls over financial
reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Second Amendment to the 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 dated as of October
12, 2004.
10.2 Waiver and Amendment No. 1 to the 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 dated as of
October 13, 2004.
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
32.2 Certification of the Chief Financial Officer pursuant to section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K were filed during the quarter ended September 30,
2004. A report on Form 8-K for the event dated July 22, 2004 pursuant to
Item 5 of that Form to report missing the EBITDA level required by the
senior lenders to continue to pay interest on the 9.40% Cumulative Trust
Preferred Securities. Also a Form 8-K for the event dated August 9, 2004
was furnished under item 5 of that Form to report the deferral of the
interest commencing on August 15, 2004, on the 9.40% Cumulative Trust
Preferred Securities.
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.
November 15, 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
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