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