<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-52657
INDESCO INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3987915
(State of Incorporation) (I.R.S. Employer Identification No.)
950 THIRD AVENUE
NEW YORK, NEW YORK 10022
(Address of Principal Executive Offices) (Zip Code)
(212) 593-2009
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No[ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (May 1, 2000)
Common Stock: 200 Shares, Par Value $0.01
<PAGE> 2
INDESCO INTERNATIONAL, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Condensed Consolidated Balance Sheets of Indesco International,
Inc. and Subsidiaries at March 31, 2000 (Unaudited) and December 31, 1999.................... 2
Condensed Consolidated Statements of Operations of Indesco
International, Inc. and Subsidiaries for the Three Months Ended
March 31, 2000 and 1999 (Unaudited).......................................................... 3
Condensed Consolidated Statements of Cash Flows of Indesco
International, Inc. and Subsidiaries for the Three Months Ended
March 31, 2000 and 1999 (Unaudited).......................................................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited)............................. 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................... 18
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................................................. 21
SIGNATURE ............................................................................................. 22
</TABLE>
1
<PAGE> 3
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31,
(UNAUDITED) 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 965 $ 377
Accounts Receivable, Net 13,186 14,275
Inventories 13,156 12,623
Prepaid Expenses and Other Assets 454 407
------------- ------------
Total Current Assets 27,761 27,682
Property, Plant and Equipment, Net 62,863 65,253
Excess of Cost Over Fair Value of Net Assets Acquired, Net 58,368 59,470
Patents and Other Intangibles, Net 7,411 7,557
Deferred Financing Costs 5,287 5,463
Other Assets 404 421
------------- ------------
TOTAL ASSETS $ 162,094 $ 165,846
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current Portion of Long-Term Debt and Capital Lease Obligations $ 829 $ 871
Credit Facilities 1,520 1,827
Accounts and Drafts Payable 8,019 8,951
Income Taxes Payable 78 --
Accrued Expenses 11,078 6,933
------------- ------------
Total Current Liabilities 21,524 18,582
Long-Term Debt and Capital Lease Obligations 162,535 167,832
Deferred Income Taxes 509 535
------------- ------------
Total Liabilities 184,568 186,949
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common-Stock, Authorized 3,000 Shares of $.01 Par Value;
200 Shares Issued and Outstanding -- --
Additional Paid-in Capital 5,062 5,062
Accumulated Deficit (27,517) (26,166)
Accumulated Other Comprehensive Income (19) 1
-------------- ------------
Total Stockholders' Equity (Deficit) (22,474) (21,103)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 162,094 $ 165,846
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Net Sales $ 26,563 $ 27,684
Cost of Sales 20,110 20,783
------------ ------------
Gross Profit 6,453 6,901
Operating Expenses:
Selling, General and Administrative 2,601 2,963
Research and Development 191 554
Amortization of Intangibles 692 684
------------ ------------
Total Operating Expenses 3,484 4,201
------------ ------------
Income From Operations 2,969 2,700
Other (Income) Expense:
Interest 4,143 4,146
Other (22) (103)
------------ ------------
Total Other Expense, Net 4,121 4,043
------------ ------------
Income (Loss) Before
Provision for Income Taxes (1,152) (1,343)
Provision for Income Taxes 199 50
------------ ------------
Net Loss $ (1,351) $ (1,393)
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $(1,351) $(1,393)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities:
Depreciation 2,229 1,769
Amortization 868 684
Loss on Disposal of Property, Plant and Equipment -- 55
Changes in Operating Assets and Liabilities:
Accounts Receivable 382 (1,862)
Inventories (666) 1,983
Prepaid Expenses and Other Assets 1,222 22
Accounts and Drafts Payable (836) (651)
Income Taxes Payable 36 43
Accrued Expenses 4,319 4,517
------- ----------
Total Adjustments 7,554 6,560
------- ----------
Net Cash Provided (Used) by Operating Activities 6,203 5,167
------- ----------
Cash Flows From Investing Activities:
Acquisition of CSI, Net of Cash Acquired -- --
Expenditures for Property, Plant and Equipment (304) (2,663)
Proceeds From Disposal of Property, Plant and Equipment -- --
Other (11) (7)
------- ----------
Net Cash Used by Investing Activities (315) (2,670)
------- ----------
Cash Flows From Financing Activities:
Repayment of Long-Term Debt (339) (236)
Net Borrowings (Reductions) Under Revolving Credit Agreements (4,953) (1,141)
------- ----------
Net Cash Provided (Used) by Financing Activities (5,292) (1,377)
Effect of Exchange Rate Changes on Cash (15) (25)
------- ----------
Net Increase in Cash and Cash Equivalents 588 1,095
Cash and Cash Equivalents at Beginning of Year 377 1,569
------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 965 $ 2,664
======= ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ 437 $ 565
------- ----------
Income Taxes $ 36 $ 7
------- ----------
Non-Cash Investing and Financing Information:
</TABLE>
During the three month periods ended March 31, 2000 and 1999, the Company
entered into capital leases for machinery and equipment aggregating $ 0 and
$105, respectively.
See notes to consolidated financial statements.
4
<PAGE> 6
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Indesco International, Inc. (the "Company"), is a wholly owned
subsidiary of Indesco Holdings Co., formerly AFA Holdings Co. ("Parent"). The
Company manufactures and sells finger activated liquid dispensing devices
("trigger sprayers") primarily in the United States and the Netherlands. The
Parent was formed in July 1997 to acquire, through a wholly-owned subsidiary,
the assets and liabilities of AFA Products, Inc. ("AFA"), located in Forest
City, North Carolina. Concurrent with this transaction, the stockholder of the
Parent and an affiliate of another stockholder of the Parent acquired the
outstanding capital stock of AFA Polytek B.V. ("Polytek") based in The
Netherlands. In addition, effective February 1, 1998, the Company acquired
certain assets and liabilities of Continental Sprayers International ("CSI"), a
division of Contico International, Inc. for approximately $94 million.
Concurrent with the CSI acquisition, Polytek became a wholly-owned subsidiary of
the Company.
The accompanying unaudited condensed consolidated balance sheet of the
Company as of March 31, 2000 includes the accounts of the Company and its
subsidiaries (AFA, Polytek and CSI) as compared to the balance sheet as of
December 31, 1999.
The accompanying unaudited condensed consolidated statements of
operations and cash flows of the Company for the three months ended March 31,
2000 and 1999 include the results of operations of the Company and its
subsidiaries (AFA, Polytek and CSI).
The unaudited condensed consolidated balance sheet as of March 31, 2000
and the unaudited condensed consolidated statements of operations and cash flows
for the three months ended March 31, 2000 and 1999, in the opinion of
management, have been prepared on the same basis as the Company's audited
financial statements as of and for the year ended December 31, 1999 and include
all significant adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the results of the interim periods. The
data disclosed in the notes to the condensed consolidated financial statements
for these periods are also unaudited. Certain information and footnote
disclosure normally included in the Company's annual financial statements have
been condensed or omitted. The unaudited condensed consolidated financial
statements and notes thereto should be read in conjunction with the related
annual audited financial statements and notes thereto. Results for the three
months ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the entire year.
(2) SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements have been prepared
using the accounting policies disclosed in the related annual audited financial
statements.
Foreign Currency Translation
Assets and liabilities of Polytek are translated at exchange rates in
effect at the balance sheets dates ($.4343 and $.4567 per guilder at March 31,
2000 and December 31, 1999, respectively). Items of revenue and expense are
translated at average exchange rates during the period ($.4382 and $.4838 per
guilder for the three-month periods ended March 31, 2000 and 1999,
respectively). Translation adjustments resulting from translating the Polytek
financial statements into dollars are reported in the equity section of the
accompanying balance sheet under the caption "Accumulated Other Comprehensive
Income."
5
<PAGE> 7
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(3) INVENTORIES
The components of inventories as of March 31, 2000 and December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Raw Material $ 2,790 $ 3,252
Work-in-Process 6,139 5,267
Finished Goods 4,227 4,104
---------- ----------
$ 13,156 $ 12,623
========== ==========
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, summarized by major classification and
estimated useful lives for depreciation purposes, is as follows:
<TABLE>
<CAPTION>
USEFUL MARCH 31, DECEMBER 31,
LIVES (YEARS) 2000 1999
------------- ---- ----
<S> <C> <C> <C>
Land $ 2,497 $ 2,538
Buildings 30-40 14,060 14,241
Machinery and Equipment 5-7 53,118 53,453
Furniture and Fixtures 5-7 3,503 3,431
Vehicles 5 23 23
Construction in Progress 7,318 7,174
----------- ----------
80,519 80,860
Less: Accumulated Depreciation and Amortization (17,656) (15,607)
----------- ----------
Property, Plant and Equipment, Net $ 62,863 $ 65,253
=========== ==========
</TABLE>
Construction in progress primarily consists of additions and
improvements to buildings, molds and machinery. Property, plant and equipment
include approximately $1,533 for assets recorded under capital leases.
6
<PAGE> 8
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(5) DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Working Capital line of credit, Dutch Guilder
("NLG") denominated bearing interest at 4.75 percent (a) $ 1,520 $ 1,827
============= ==========
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Revolving credit facility, dollar denominated bearing
interest at 8.63 percent (b) $ 13,292 $ 18,245
Senior subordinated notes, dollar denominated bearing interest
at 9.75 percent (c) 145,000 145,000
ABN/AMRO loan, NLG denominated, bearing interest at
6.10 percent (d) 2,769 3,009
Senior mortgage note, NLG denominated,
payable in quarterly principal installments
(NLG 175,000 or US $84,000 per annum),
bearing interest at 5.50 percent (e) 893 959
Capital lease obligations, NLG denominated,
bearing interest at rates ranging from 7.10 percent
to 7.75 percent 1,410 1,490
------------- ----------
163,364 168,703
Less: Current Portion 829 871
------------- ----------
TOTAL LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS $ 162,535 $ 167,832
============= ==========
</TABLE>
Working Capital Borrowings
(a) Netherlands
Borrowings under the NLG denominated line of credit have a maximum
limit of NLG 11,000 ($4,777 and $5,024 at March 31, 2000 and December 31, 1999,
respectively). Interest payments on the NLG denominated line of credit are due
quarterly, or with respect to interest due on short-term loans borrowed under
the line of credit, at the end of the short-term loan period. Borrowings under
the NLG line of credit are collateralized by a lien on certain real property of
Polytek. This line of credit contains certain covenants, the most significant of
which relates to minimum net worth requirements.
7
<PAGE> 9
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Long-Term Debt
(b) U.S.
Credit Facility
General--As of September 29, 1998, the Company, AFA and CSI entered
into a credit facility (the "Credit Facility") with First Union National Bank
("First Union") for a term of five years. As amended on March 30, 2000, the
Credit Facility provides for up to $25,000 of borrowings from time to time and
includes a subfacility for the issuance of letters of credit up to a maximum
aggregate amount at any one time outstanding not to exceed $2,000.
Collateral--Indebtedness under the Credit Facility is collateralized by
a first priority security interest in all accounts receivable, inventory,
machinery and equipment (including molds), certain U.S. real property and all
of the U.S. intellectual property of the Company and its domestic
subsidiaries. In addition, the Company has agreed to pledge the stock of its
domestic subsidiaries.
Interest--Indebtedness under the Credit Facility bears interest at a
floating rate based (at the Company's option) upon (i) LIBOR (for either one,
two, three or six months), plus an Applicable Margin ranging from 1.25 percent
to 2.50 percent or (ii) the Base Rate (the greater of the Prime Rate announced
by First Union or the Federal Funds Rate plus 0.50 percent) plus an Applicable
Margin ranging from 0.00 percent to 1.25 percent.
Borrowing Base--The availability of borrowings under the New Credit
Facility is subject to a borrowing base equal to the sum of (i) 85 percent of
eligible accounts receivable, (ii) 60 percent of eligible inventory, (iii) 100
percent of the orderly liquidation value of selected eligible machinery and
equipment, (iv) Year 2000 Fixed Availability (as defined in the Credit
Agreement, as amended) and (v) the lesser of (a) $2,000 and (b) 40% of the
Original Real Estate Value ($5,440 reduced by 1/28%th quarterly). The lender
has the right to set reserves which can limit the amount of borrowing base
availability. Effective April 30, 2000, a monthly reserve of $1,178 has been
established against the Borrowing Base, which reserve reduces to zero after
each semi-annual payment of interest under the New Notes.
Covenants--The New Credit Facility requires the Company (on a
consolidated basis, including all domestic subsidiaries and Polytek) to meet
certain financial tests at the end of each fiscal quarter, including minimum
quarterly EBITDA levels, maximum Funded Indebtedness of EBITDA levels (waived
through December 31, 2000) determined on a rolling four-quarter basis as of the
last day of each fiscal quarter, and a Fixed Charge Coverage Ratio.
The New Credit Facility also contains covenants that include, without
limitation: (i) required delivery of financial statements, other reports and
borrowings base certificates; (ii) limitations on liens; (iii) limitations on
mergers, consolidations and sales of assets; (iv) limitations on incurrence of
debt; (v) limitations on permitted capital expenditures; (vi) limitations on
restricted payments; (vii) limitations on investments and acquisitions; (viii)
limitations on transactions with affiliates; and (ix) limitations on changes in
the Company's line of business.
8
<PAGE> 10
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(c) Senior Subordinated Notes
On April 23, 1998, the Company issued $145,000 of 9.75 percent Senior
Subordinated Notes due April 15, 2008 (the "Old Notes") which have been
exchanged for New Notes, as defined below. The net proceeds were used by the
Company to refinance U.S. indebtedness, including borrowings incurred in
connection with the acquisition in February 1998 of substantially all of the
assets of CSI, as previously mentioned in Notes (1) and (3). Interest on the Old
Notes was payable semi-annually on April 15 and October 15.
The Old Notes were redeemable at the option of the Company, in whole or
in part, on or after April 15, 2003, at certain specified redemption prices,
plus accrued and unpaid interest thereon to the redemption date. In addition, at
any time on or before April 15, 2001, the Company could redeem up to 35 percent
of the initial aggregate principal amount of the Old Notes with the net proceeds
of one or more equity offerings at a redemption price equal to 109.75 percent of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of redemption; provided that at least 65 percent of the initial aggregate
principal amount of the Old Notes remained outstanding. The terms of the Old
Notes required the Company to make an offer to purchase all outstanding Old
Notes at 101 percent of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase, upon a change of control of the Company.
The Old Notes were unsecured senior subordinated obligations of the
Company and were subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, including indebtedness under its Revolving
Credit Facility. The Old Notes were ranked pari passu with all existing and
future senior subordinated indebtedness of the Company, were ranked senior to
all other existing and future Subordinated Indebtedness of the Company and were
fully and unconditionally guaranteed, jointly and severally, on an unsecured
senior subordinated basis by each of the Company's existing and future U.S.
subsidiaries (the "Subsidiary Guarantors") (see Note 13). The Old Notes were
also effectively subordinated to all existing and future Senior Indebtedness of
the Company's subsidiaries.
On August 17, 1998, the Company filed with the Securities and Exchange
Commission a registration statement on Form S-4 with respect to its 9.75% Senior
Subordinated Notes due April 15, 2008 ("New Notes") which are fully and
unconditionally guaranteed, jointly and severally, on an unsecured senior
subordinated basis, by the Subsidiary Guarantors (see Note 13). On September 16,
1998, the Company concluded its exchange offer and the New Notes were exchanged
for $145,000 aggregate principal amount of the Old Notes. The New Notes are
subordinated in right of payment to all existing and future Senior Indebtedness,
including indebtedness under the New Credit Facility and, except for certain
transfer restrictions and registration rights relating to the Old Notes, are
identical in all material respects to the Old Notes.
(d) ABN/AMRO Loan
Polytek has a credit facility with the ABN-AMRO Bank, The Netherlands.
This credit facility includes a loan of up to NLG 8,500 ($3,692) requiring
quarterly payments of NLG 216 ($94) through 2007. This Note is collateralized by
a lien on certain real property of Polytek. This Note contains certain
covenants, the most significant of which relate to minimum net worth
requirements.
9
<PAGE> 11
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(e) Senior Mortgage Note
In connection with the construction of a manufacturing facility,
Polytek obtained a NLG 3,500 ($1,520) mortgage from ABN-AMRO Bank, The
Netherlands. Borrowings under this Mortgage Note are collateralized by a lien on
certain real property of Polytek.
(6) INCOME TAXES
The profit (loss) before provision for income taxes consisted of:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, MARCH 31,
2000 1999
---- ----
<S> <C> <C>
United States $ (1,567) $ (480)
Foreign 415 (863)
---------- -----------
Total Pre-Tax Loss $ (1,152) $ (1,343)
=========== ===========
</TABLE>
The condensed consolidated statements of operations include income
taxes on foreign subsidiary income and minimum state taxes. The Company has
recorded a full valuation allowance related to the potential tax benefit of the
net operating loss carryforward and other deferred tax assets.
The Company paid income taxes of $36 and $7 for the three month periods
ended March 31, 2000 and 1999, respectively. The Company has U.S. net operating
loss carryforwards of approximately $22,000, expiring in years 2012 through
2019. The net deferred tax liability of $509 relates to foreign taxes.
The Company has established valuation allowances in accordance with the
provision of FASB Statement No. 109, "Accounting for Income Taxes." The Company
will review the adequacy of the valuation allowance in the future years and
recognize only those benefits as the reassessment indicates that it is more
likely than not that the benefits will be realized.
(7) CONTINGENCIES
Litigation
There are pending claims and litigation against the Company arising in
the ordinary course of business. Management believes, on the basis of its
understanding and advice of counsel, that these actions will not result in
payment of amounts, if any, which would have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
(8) RELATED PARTY TRANSACTIONS
Management Fees
The Company has a management agreement with an affiliate of one of the
shareholders of the Parent that provides for annual payments of $300 and expires
on July 29, 2008, subject to renewal for successive five-year periods.
10
<PAGE> 12
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
For each of the three months ended March 31, 2000 and 1999, the Company
incurred approximately $75 of management fees. As of March 31, 2000 and December
31, 1999, all fees had been paid.
Transactions with Affiliates
Until October 1999, Polytek purchased molds from an affiliate for
approximately $189. In addition, the affiliate provided certain repairs and
maintenance at a cost to Polytek of approximately $217. Included in accounts
payable in the accompanying balance sheet at December 31, 1999, is approximately
$68 relating to these assets and services provided by the affiliate. In October
1999, Polytek completed a transaction in which it sold back to the affiliate
all its shares of the affiliate for a total amount of NLG 1,238 (US $562).
The loss on sale of the shares was not material.
Professional Services
The law firm of Gratch Jacobs & Brozman, P.C., of which one of the
Parent's shareholders is a non-practicing principal, provides legal services on
an ongoing basis to the Company and its subsidiaries. For the three months ended
March 31, 2000 and 1999, the Company incurred fees of approximately $90 and
$130, respectively, to Gratch Jacobs & Brozman, P.C.
(9) EMPLOYEE BENEFIT PLANS
The Company offers an employee savings plan (the "Plan") under Section
401(k) of the Internal Revenue Code. The Plan covers substantially all full-time
U.S. employees of the Company and its domestic subsidiaries, and the Company
matches 25 percent of each employee's contribution up to a maximum of 6 percent
of the employee's annual compensation. Polytek has various pension plans
covering substantially all employees. Polytek funds all costs through insurance
contracts which provide for retiree benefits under the terms of the plan; there
were no unfunded or overfunded benefit obligations.
(10) PLANT CLOSEDOWN COST
Pursuant to its plan approved in 1998, the Company closed its El Paso,
Texas and Juarez, Mexico manufacturing facilities in June 1999. The estimated
cost of this plan was approximately $5,344, which was reflected in operating
expenses in 1998. The estimated costs consisted of employee separation costs of
$1,100, asset impairments of $3,978, and other exit costs of $266. During 1999,
the Company sold and disposed of certain assets of its El Paso and Juarez
facilities and incurred related severance costs. The remaining reserve of
approximately $600 at March 31, 2000 and December 31, 1999 reflects the
estimated loss on the sale of the El Paso facility.
(11) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The New Notes (described in Note 6) are fully and unconditionally
guaranteed, jointly and severally, on an unsecured senior subordinated basis, by
the Subsidiary Guarantors. Polytek is a non-guarantor subsidiary.
The following condensed consolidating financial statements include the
accounts of the Company, the Subsidiary Guarantors, and the non-guarantor
subsidiary.
11
<PAGE> 13
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARY
------------------ -------------
INDESCO
INTERNATIONAL, AFA
INC. PRODUCTS CSI POLYTEK ELIMINATIONS CONSOLIDATED
---- -------- --- ------- ------------ ------------
ASSETS:
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $ 1,246 (434) (216) 369 -- $ 965
Accounts Receivable, Net 9,508 11,587 12,811 3,687 (24,407) 13,186
Inventories -- 6,493 4,143 2,520 -- 13,156
Prepaid Expenses & Other 284 16 26 128 -- 454
-------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 11,038 17,662 16,764 6,704 (24,407) 27,761
Property, Plant & Equipment, Net 349 20,950 32,730 8,881 (47) 62,863
Excess Purchase Price Over Fair Value
of Net Assets Acquired, Net -- 11,485 50,381 (3,498) -- 58,368
Patents & Other Intangibles, Net 15 3,829 3,567 -- -- 7,411
Deferred Financing Costs, Net 5,287 -- -- -- -- 5,287
Deferred Tax Asset -- 2,041 8,099 -- (9,856) 284
Investments in Subsidiaries 18,515 -- -- -- (18,515) --
Other 126,015 109 11 -- (126,015) 120
-------------------------------------------------------------------------------------
TOTAL ASSETS 161,219 56,076 111,552 12,087 (178,840) 162,094
=====================================================================================
LIABILITIES & STOCKHOLDERS EQUITY:
CURRENT LIABILITIES:
Current Portion of Long Term Debt and
Capital Lease Obligations $ -- -- 829 -- -- $ 829
Credit Facility -- -- -- 1,520 -- 1,520
Accounts Payable - Trade 295 2,782 3,977 2,868 (1,903) 8,019
Income Taxes Payable -- 78 -- -- -- 78
Accrued Expenses 30,864 656 7,684 1,526 (29,652) 11,078
-------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 31,159 3,516 11,661 6,743 (31,555) 21,524
Long Term Debt 158,292 36,855 91,285 4,243 (128,140) 162,535
Deferred Income Taxes -- 2,041 7,815 509 (9,856) 509
-------------------------------------------------------------------------------------
TOTAL LIABILITIES 189,451 42,412 110,761 11,495 (169,551) 184,568
-------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common Stock (2,500) 3,000 -- 242 (742) --
Additional Paid - In Capital -- 5,521 15,795 510 (16,764) 5,062
Accumulated Deficit (25,732) 5,143 (15,004) (141) 8,217 (27,517)
Accumulated Other Comprehensive Income -- -- -- (19) -- (19)
-------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (28,232) 13,664 791 592 (9,289) (22,474)
-------------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 161,219 $ 56,076 111,552 12,087 (178,840) 162,094
=====================================================================================
</TABLE>
12
<PAGE> 14
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARY
INDESCO -------------------- ----------
INTERNATIONAL, AFA
INC. PRODUCTS CSI POLYTEK ELIMINATIONS CONSOLIDATED
---- -------- --- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ -- 9,865 10,128 6,808 (238) $ 26,563
Cost of Sales -- 7,115 8,080 5,345 (430) 20,110
-------- -------- ------- ------- -------- --------
Gross Profit -- 2,750 2,048 1,463 192 6,453
Operating Expenses 1,031 818 958 677 -- 3,484
-------- -------- ------- ------- -------- --------
Income from Operations (1,031) 1,932 1,090 786 192 2,969
Other (Income) Expense
Interest 4,061 959 2,397 82 (3,356) 4,143
Equity in Income of Subsidiaries (659) -- -- -- 659 --
Other (3,379) (321) (158) 289 3,547 (22)
-------- -------- ------- ------- -------- --------
Total Other Expense, Net 23 638 2,239 371 850 4,121
Income (Loss) Before
Provision for Income Taxes (1,054) 1,294 (1,149) 415 (658) (1,152)
Provision for Income Taxes -- 60 -- 139 -- 199
-------- -------- ------- ------- -------- --------
Net Income (Loss) $ (1,054) 1,234 (1,149) 276 (658) $ (1,351)
======== ======== ======= ======= ======== ========
</TABLE>
13
<PAGE> 15
INDESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSIDIARY NON-GUARANTOR
GUARANTORS SUBSIDIARY
----------------- -------------
INDESCO
INTERNATIONAL, AFA
INC. PRODUCTS CSI POLYTEK ELIMINATIONS CONSOLIDATED
---- -------- --- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $(1,054) 1,234 (1,149) 276 (658) $(1,351)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 13 863 991 362 2,229
Amortization 176 183 541 (32) 868
Equity in Income of Affiliate (659) - - - 659 -
(INCREASE)/DECREASE IN OPERATING ASSETS:
Accounts Receivable 2 825 128 (573) - 382
Intercompany Receivable (15) 231 250 - (466) --
Inventory (212) (518) 64 - (666)
Prepaid Expenses and Other Assets (132) - 767 587 - 1,222
INCREASE/(DECREASE) IN OPERATING LIABILITIES
Accounts Payable 102 (436) (384) (118) - (836)
Accrued Expenses 4,148 181 363 (414) 41 4,319
Income Taxes Payable (5) 41 - - 36
Intercompany Payable 11 (246) (726) 493 468 -
----------------------------------------------------------------------------
Total Adjustments 3,641 1,430 1,412 369 702 7,554
----------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,587 2,664 263 645 44 6,203
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of Property Plant and Equipment (15) (84) - (205) - (304)
Increase in other Assets - - (11) - (11)
----------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (15) (84) (11) (205) - (315)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(Decrease) in Line of Credit (4,953) - - - (4,953)
Repayment of Long Term Debt/
Capital Lease Obligation - - - (339) - (339)
Advances (to)/from Parent Company 3,413 (3,072) (298) - (43) -
------ ------ ---- ---- --- -------
NET CASH FROM FINANCING ACTIVITIES (1,540) (3,072) (298) (339) (43) (5,292)
Effect of exchange rate change on cash - - - (15) (15)
Increase (decrease) in Cash and Cash
Equivalents 1,032 (485) (46) 87 - 588
Cash and Cash Equiv.at Beginning of Year 214 51 (170) 282 377
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,246 (434) (216) 369 - $ 965
============================================================================
</TABLE>
14
<PAGE> 16
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARY
----------------------- -------------
INDESCO AFA
INTERNATIONAL, INC. PRODUCTS CSI POLYTEK ELIMINATION CONSOLIDATED
------------------- ---------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents... $ 461 $ 450 $ 1,147 $ 606 $ 2,664
Accounts Receivable, Net.... 10,816 12,427 13,721 4,031 $ (25,503) 15,491
Inventories................. -- 4,907 3,648 2,654 11,209
Prepaid Expenses and Other
Assets................... 231 -- 25 570 826
-------- ------- -------- ------- --------- --------
Total Current
Assets............ 11,507 17,784 18,541 7,861 (25,503) 30,190
Property, Plant and Equipment,
Net......................... 74 17,418 37,031 11,223 65,746
Excess Cost Over Fair Value of
Net Assets Acquired, Net.... -- 11,905 52,972 (4,095) 60,782
Patents and Other Intangibles,
Net......................... -- 4,142 3,446 -- 7,588
Deferred Financing Costs...... 5,989 -- -- -- 5,989
Investment in Subsidiaries.... 19,906 -- -- 626 (19,906) 626
Other Assets.................. 129,035 878 8,110 -- (137,661) 362
-------- ------- -------- ------- --------- --------
Total Assets........ $166,511 $52,127 $120,100 $15,615 $(183,070) $171,283
======== ======= ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current Portion of L.T. Debt
and Cap. Lease
Obligations.............. $ -- $ -- $ -- $ 998 $ 998
Credit Facilities........... -- -- -- 3,326 3,326
Accounts and Drafts
Payable.................. 571 1,833 2,582 3,320 $ (1,327) 6,979
Income Taxes Payable........ -- 2 77 -- 79
Other Accrued Expenses...... 29,772 911 12,391 1,610 (33,449) 11,235
-------- ------- -------- ------- --------- --------
Total Current
Liabilities....... 30,343 2,746 15,050 9,254 (34,776) 22,617
Advances from Parent.......... -- 39,530 89,505 -- (129,035) --
Long-Term Debt & Capitalized
Lease Obligations........... 155,938 -- -- 5,606 161,544
Deferred Income Taxes......... -- 811 7,815 647 (8,626) 647
-------- ------- -------- ------- --------- --------
Total Liabilities... 186,281 43,087 112,370 15,507 (172,437) 184,808
Stockholders' Deficit:
Common Stock................ (2,500) 3,000 -- 242 (742) --
Additional Paid-In
Capital.................. -- 5,521 15,795 510 (16,764) 5,062
Accumulated Deficit......... (17,270) 519 (8,065) (683) 6,873 (18,626)
Accumulated Other
Comprehensive Income..... -- -- -- 39 39
-------- ------- -------- ------- --------- --------
Total Stockholders'
Deficit........... (19,770) 9,040 7,730 (108) (10,633) (13,525)
-------- ------- -------- ------- --------- --------
Total Liabilities
and Stockholders'
Deficit........... $166,511 $52,127 $120,100 $15,615 $(183,070) $171,283
======== ======= ======== ======= ========= ========
</TABLE>
15
<PAGE> 17
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY
------------------ ----------
INDESCO AFA CSI
INTERNATIONAL, INC. PRODUCTS U.S.(A) POLYTEK ELIMINATIONS CONSOLIDATED
------------------- -------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales...................... $ -- $8,920 $12,522 $6,288 $ (46) $27,684
Cost of Sales.................. (25) 6,188 9,273 5,393 (46) 20,783
------- ------ ------- ------ ------- -------
Gross Profit................. 25 2,732 3,249 895 -- 6,901
Operating Expenses............. 810 484 1,819 1,088 4,201
------- ------ ------- ------ ------- -------
Income from Operations....... (785) 2,248 1,430 (193) -- 2,700
Other (Income) Expense
Interest..................... 3,981 1,007 2,238 166 (3,245) 4,146
Other........................ (3,246) (103) -- 1 3,245 (103)
Equity in Income of
Consolidated
Subsidiaries.............. (128) -- -- -- 128 --
------- ------ ------- ------ ------- -------
Total Other Expense,
Net................ 607 904 2,238 (359) 128 4,043
Income (Loss) Before
Provision for Income
Taxes..................... (1,392) 1,344 (808) (863) (128) (1,343)
Provision for Income Taxes..... 1 16 33 -- -- 50
------- ------ ------- ------ ------- -------
Net Income (Loss).... $(1,393) $1,328 $ (841) $ (359) $ (128) $(1,393)
======= ====== ======= ====== ======= =======
</TABLE>
(A) Note that for the First Quarter 1999, CSI sales include sales of products
manufactured in both the St. Peters, Missouri and El Paso, Texas plants.
16
<PAGE> 18
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR
GUARANTOR SUBSIDIARIES SUBSIDIARY
---------------------- ----------
INDESCO AFA CSI
INTERNATIONAL, INC. PRODUCTS U.S. POLYTEK ELIMINATIONS CONSOLIDATED
------------------- ---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss).................... $(1,393) $ 1,328 $ (841) $ (359) $ (128) $(1,393)
Adjustments to Reconcile Net Income
(Loss) Provided (Used) by Operating
Activities:
Depreciation....................... -- 610 734 425 1,769
Amortization....................... -- 184 538 (38) 684
Loss on disposal of property plant
and equipment................... -- 55 -- -- 55
Equity in (Earnings) Loss of
Subsidiaries and Affiliate...... (128) -- -- -- 128 --
Changes in Operating Assets and
Liabilities:
Accounts Receivable.................. (2,013) (2,017) 1,108 (618) 1,678 (1,862)
Inventories.......................... -- 892 456 635 1,983
Prepaid Expenses and Other Assets.... 12 1 13 (4) 22
Accounts and Drafts Payable.......... 586 (210) 633 849 (2,509) (651)
Income Taxes Payable................. (1) (33) 77 -- 43
Other Accrued Expenses............... 3,631 64 (109) 100 831 4,517
------- ------- ------- ------ ------- -------
Net Cash Provided by Operating
Activities.................. 694 874 2,609 990 -- 5,167
Cash Flows From Investing Activities:
Expenditures for Property, Plant and
Equipment.......................... (74) (531) (1,819) (239) (2,663)
Proceeds from Disposal of Property,
Plant and Equipment................ -- -- -- -- --
Other................................ -- -- (7) -- (7)
------- ------- ------- ------ ------- -------
Net Cash Used by Investing
Activities.................. (74) (531) (1,827) (239) (2,670)
Cash Flows From Financing Activities:
Repayment of Long-Term Debt.......... -- -- -- (236) (236)
Net (Repayment) Borrowings Under
Revolving Credit Agreements........ (1,120) -- -- (21) (1,141)
Advances from Parent................. 893 (893) -- -- --
------- ------- ------- ------ ------- -------
Net Cash Used by Financing
Activities.................. (227) (893) -- (257) (1,377)
------- ------- ------- ------ ------- -------
Effect of Exchange Rate Change on
Cash................................. -- -- -- (25) (25)
Net Increase (Decrease) in
Cash and Cash Equivalents... 393 (550) 783 469 1,095
Cash and Cash Equivalents at Beginning
of Year.............................. 68 1,000 365 136 1,569
------- ------- ------- ------ ------- -------
Cash and Cash Equivalents at
End of Period............... $ 461 $ 450 $ 1,148 $ 605 $ $ 2,664
======= ======= ======= ====== ======= =======
</TABLE>
17
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The accompanying unaudited condensed consolidated statements of
operations of the Company include (i) the results of operations of the Company,
AFA, Polytek and CSI for the three months ended March 31, 2000 and 1999. See
Note 2 to the Company's condensed consolidated financial statements for
description of exchange rates used in the translation of Polytek's operating
results. All dollar amounts are presented in thousands.
FIRST QUARTER ENDED MARCH 31, 2000
The unaudited condensed consolidated operating results, expressed as a
percentage of sales, of the Company for the quarters ended March 31, 2000 and
1999 are presented below.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
-------------------
2000 1999
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 75.7 75.1
------ ------
Gross Profit 24.3 24.9
Operating expenses:
Selling, General and Administrative Expenses 9.8 10.7
Research and Development Expenses 0.7 2.0
Amortization of Intangibles 2.6 2.5
------ ------
Total Operating Expenses 13.1 15.2
------ ------
Income from Operations 11.2% 9.7%
====== ======
</TABLE>
Net sales for the quarter ended March 31, 2000 were $26,563, a decrease
of $1,121, or 4%, from sales of $27,684 for the quarter ended March 31, 1999. In
the First Quarter 2000, higher sales were generated from the Polytek operation,
but was offset by lower sales in the U.S. (primarily due to sales in the First
Quarter 1999 related to a customer's new product, sales of which were temporary
in nature).
Cost of sales for the First Quarter 2000 was $20,110, or 75.7% of sales,
as compared to $20,783, or 75.1% of sales, for the First Quarter 1999. Higher
cost of sales as a percentage of sales in First Quarter 2000 was due to higher
depreciation and manufacturing costs in the Company's U.S. operations; this was
partially offset by improved sales and manufacturing performance in the Polytek
facility.
Operating expenses for the First Quarter 2000 were $3,484, or 13% of
sales, as compared to $4,201, or 15% of sales, for the First Quarter 1999. The
$717 decrease was achieved principally by reducing legal and administrative
costs.
Interest expense for the First Quarter 2000 was $4,143, which was
relatively unchanged from interest expense of $4,146 for the First Quarter 1999.
On a comparative basis, average outstanding interest-bearing loan balances were
not materially changed from First Quarter 1999 to First Quarter 2000.
No U.S. tax liability has been incurred for the First Quarter 2000.
Provisions for taxes that have been recorded in the First Quarter 2000 relate to
state minimum taxes and foreign taxes. The Company has recorded a full valuation
allowance in connection with its consolidated net operating loss in the U.S.
18
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
In the First Quarter 2000, the Company's operating activities generated
net cash of $6,203 (the combination of the $1,351 net loss, $3,097 of non-cash
items added back, and a $4,457 net increase in working capital). In the First
Quarter 2000, the Company had capital expenditures of $304, which was
principally related to manufacturing equipment maintenance. The Company reduced
its net borrowings under bank credit agreements and capital lease arrangements
by $5,292 in the First Quarter 2000.
As previously reported, the Company further amended its New Credit
Facility with First Union National Bank, effective March 30, 2000. The March
2000 amendment, among other things, (i) reduces the Revolving Credit Commitment
to the lesser of the Borrowing Base or $25 million, (ii) effects certain changes
to the Borrowing Base, (iii) waives compliance with the Funded Indebtedness to
EBITDA ratio through the quarter ending December 31, 2000, (iv) grants First
Union a security interest in certain U.S. real property and in all of the U.S.
intellectual property of the Company and its domestic subsidiaries, (v) pledges
the stock of the Company's domestic subsidiaries, (vi) reduces the Capital
Expenditure limit (as defined in the New Credit Facility), (vii) increases by
0.25% the Applicable Margin on Eurodollar loans (currently 2.50%) and on Base
Rate loans (currently 1.25%) and (viii) establishes, effective April 30, 2000, a
monthly reserve of $1,178 against the Borrowing Base, which reserve reduces to
zero after each semi-annual payment of interest under the New Notes. In
addition, the amendment sets new financial covenants, including minimum
quarterly EBITDA levels for the year 2000 and thereafter, and maximum Funded
Indebtedness to EBITDA levels (determined on a rolling four-quarter basis as of
the last day of each fiscal quarter) commencing with the fiscal quarter ending
on March 31, 2001.
At March 31, 2000, the Company had available excess borrowing capacity of
approximately $11,615 and $4,300 (NLG 9,900), respectively, under its credit
facilities with First Union and ABN-AMRO Bank. (See Note 5 to the Company's
condensed consolidated financial statements for description of existing
indebtedness.)
The Company uses EBITDA (defined as income before interest, income taxes,
depreciation, amortization, one-time charges and extraordinary items) to measure
its operating performance and ability to incur and service its debt. EBITDA
should not be considered as an alternative to, or more meaningful than, net
income or cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity. EBITDA does not include commitments by
the Company for capital expenditures and payment of debt and, therefore, should
not be deemed to represent funds available to the Company. EBITDA for the First
Quarter 2000 was $5,912 as compared to $5,256 for the First Quarter 1999; the
$656 increase was primarily the result of lower operating expenses in First
Quarter 2000.
Management believes that net cash generated by operations, together with
amounts available under the credit facilities with First Union and ABN-AMRO
Bank, will be adequate to fund the payment of interest and principal on the
Company's outstanding indebtedness as well as its capital expenditure plans and
working capital requirements.
Management believes that inflation did not have a significant impact on
operations.
19
<PAGE> 21
YEAR 2000 COMPLIANCE
With respect to core information systems at its operating sites ("core
information systems" refers to business processes in the areas of manufacturing,
materials management, distribution, sales and accounting), the Company in 1999
completed the process of upgrading to new software and modifying existing
software to achieve Year 2000 ("Y2K") Compliance. The Company, with its
suppliers, certified that the new software and the modified existing software
are Y2K Compliant. With respect to its assembly machines and injection molding
equipment in which a microprocessor is used, the Company has completed its
communications with suppliers, and no potential Y2K concerns were identified.
Thus, the Company completed its review in 1999 without significant issues, and
the overall cost to achieve Y2K compliance was not material to the Company.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENT
The information provided in this Quarterly Report on Form 10-Q contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such forward-looking
statements are based on the beliefs of management, as well as assumptions made
by and information currently available to the Company's management.
When used in this document, the words "anticipate", "believe",
"estimate" and "expect" identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions that could cause actual
results to differ materially from those reflected in the forward-looking
statement. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
----------------------------------
20
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: The exhibits listed on the accompanying Exhibit Index are
filed as part of this Form 10-Q:
(b) Reports on Form 8-K: None
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C> <C>
3.1 (a) -- Certificate of Incorporation of Indesco International, Inc.,
as amended.*
(b) -- Certificate of Incorporation of Continental Sprayers
International, Inc., as amended.*
(c) -- Certificate of Incorporation of AFA Products, Inc., as amended.*
3.2 (a) -- By-laws of Indesco International, Inc.*
(b) -- By-laws of Continental Sprayers International, Inc.*
(c) -- By-laws of AFA Products, Inc.*
4.1 -- Indenture, dated as of April 23, 1998, between Indesco
International, Inc., AFA Products, Inc. and Continental
Sprayers International, Inc., as subsidiary guarantors, and
Norwest Bank Minnesota, National Association, as trustee.*
4.2 -- Form of Notes.*
4.3 -- Form of Subsidiary Guarantees.*
4.4 -- Registration Rights Agreement, dated as of April 23, 1998,
between Indesco International, Inc., AFA Products, Inc. and
Continental Sprayers International, Inc., as subsidiary
guarantors, and NationsBanc Montgomery Securities LLC.*
10.1 -- Loan and Security Agreement, dated September 29, 1998, by and
among Indesco International, Inc., AFA Products, Inc.,
Continental Sprayers International, Inc. and First Union
National Bank.**
10.2 -- Amendment to Loan and Security Agreement and Waiver, dated
March 24, 1999, by and among Indesco International, Inc., AFA
Products, Inc., Continental Sprayers International, Inc. and
First Union National Bank.***
10.3 -- Amendment to Loan and Security Agreement and Waiver, dated
March 30, 2000, by and among Indesco International, Inc., AFA
Products, Inc., Continental Sprayers International, Inc. and
First Union National Bank.****
10.4 -- Management Agreement, dated as of February 4, 1998, between
Indesco International, Inc. and Gadraz, Inc.*
10.5 -- Employment Agreement, dated as of February 4, 1998, between
Indesco International, Inc. and Ariel Gratch.*
10.6 -- Tax Sharing Agreement, dated as of August 1, 1997, among
Indesco International, Inc., Continental Sprayers
International, Inc. and AFA Products, Inc.*
10.7 -- Supply Agreement, dated as of April 23, 1998, between Spring &
Wire Designs LLC and Indesco International, Inc.*
21 -- Subsidiaries of Indesco International, Inc.*
27 -- Financial Data Schedule.
</TABLE>
* Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-52657) and incorporated herein by reference.
** Previously filed as an exhibit to the Company's Form 10-Q for the
quarterly period ended July 5, 1998 and incorporated herein by
reference.
*** Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1998 and incorporated herein by
reference.
**** Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1999 and incorporated herein by
reference.
21
<PAGE> 23
SIGNATURE
Pursuant to the requirements 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.
Indesco International, Inc.
By: /s/ PETER GIALLORENZO
------------------------------
Peter Giallorenzo
Title: Vice President and Chief Financial Officer
Date: May 5, 2000
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INDESCO
INTERNATIONAL, INC. FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 965
<SECURITIES> 0
<RECEIVABLES> 13,186
<ALLOWANCES> 0
<INVENTORY> 13,156
<CURRENT-ASSETS> 27,761
<PP&E> 80,519
<DEPRECIATION> 17,656
<TOTAL-ASSETS> 162,094
<CURRENT-LIABILITIES> 21,524
<BONDS> 162,535
0
0
<COMMON> 5,062
<OTHER-SE> (27,536)
<TOTAL-LIABILITY-AND-EQUITY> 162,094
<SALES> 26,563
<TOTAL-REVENUES> 26,563
<CGS> 20,110
<TOTAL-COSTS> 20,110
<OTHER-EXPENSES> 3,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,143
<INCOME-PRETAX> (1,152)
<INCOME-TAX> 199
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,351)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
