Item 1. Business
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Report contains statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking information involves important known and unknown risks and uncertainties that could significantly affect actual results, performance or achievements in the future and, accordingly, such actual results, performance or achievements may materially differ from those expressed or implied in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the Company's growth strategy, customer concentration, outstanding indebtedness, dependence on weather conditions, seasonality, expansion, changes in interest rates, ability to service debt, activities of competitors, ability to successfully introduce new products and product lines, changes in federal or state environmental laws and the administration of such laws, protection of trademarks and other proprietary rights, the ability to maintain adequate financing arrangements necessary to fund operations and the general condition of the economy and its effect on the securities markets and other risks detailed in other filings with the Securities and Exchange Commission. The words "believe," "expect," "anticipate," "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
General
Easy Gardener Products, Ltd, (the "Company"), manufactures and markets a broad range of brand-name consumer lawn and garden products through its own operations and through its wholly owned subsidiaries, Weatherly Consumer Products Group, Inc. which owns Weatherly Consumer Products, Inc.("Weatherly"), and Easy Gardener UK Ltd. The products include weed preventive landscape fabrics, fertilizer and plant food spikes, decorative landscape edging, shade cloth and root feeders, which are sold under recognized brand names such as WeedBlock(R), Easy Gardener(R), Jobe's(R), Emerald Edge(R), Sun Screen Fabric(TM), Ross(R), Tensar(R), and Landmaster(R). The Company believes it has significant market share and favorable brand-name recognition in several of its primary product categories. It markets products through most large national home improvement
and mass merchant retailers ("Retail Accounts"), including Home Depot, Lowe's, Kmart, Wal-Mart, Ace Hardware and TruServe in North America and Europe. These operations were acquired from U.S. Home & Garden Inc. (the "Predecessor") effective November 1, 2003. In accordance with the requirements of purchase accounting, all acquired assets and liabilities were restated to reflect their respective fair values at the date of purchase. As a result of the acquisition, the Company recorded $27,115,000 of acquired intangible assets, $23,565,000 was assigned to brand values having an indefinite useful life, $976,000 was assigned to patents and other intangibles having a weighted average useful life of nine years, $1,570,000 was assigned to non-compete agreements having a weighted average useful life of eight years, and $1,004,000 was allocated to package design having a useful life of three years. The Company assigned $48,174,000 of the purchase price of the acquired operations to goodwill, which is not being amortized. Goodwill and brand values will be subject to testing for impairment losses in future years. The amounts assigned to assets and liabilities acquired and the related computation of amortization were based on preliminary estimates for prior quarters. The Company has completed its valuation of these assets and liabilities and all adjustments were reflected in the June 30, 2004 financial statements.
The acquisition of the operations comprised approximately 99% of the consolidated sales, 98% of the consolidated assets and 99% of the consolidated liabilities of (the "Predecessor"), U.S. Home & Garden Inc. The accompanying consolidated financial statements also include the previously issued audited consolidated balance sheet of U.S. Home & Garden Inc. at June 30, 2003 and the consolidated audited statements of operations and audited consolidated statements of cash flows for the years ended June 30, 2003 and 2002. The accompanying consolidated financial statements also include the unaudited consolidated statements of operations and unaudited consolidated statements of cash flows of U.S. Home & Garden Inc. for the four months ended October 31, 2003 before transaction costs and the gain on the sale of the operations. The U.S. Home & Garden Inc. consolidated financial statements describe above and include herein are referred to as the "Predecessor" financial statements.
The consumer lawn and garden market continues to become more consolidated with fewer retailers accounting for an increasing percentage of all lawn and garden products sold. This increasing concentration leverage provides the largest retailers with greater leverage over their suppliers, such as the Company. This leverage can result in the decreased margins
for suppliers, including the Company, who may be required to make greater price concessions to their large retail accounts without being able to reduce the costs of products sold by them to the retailers. This leverage by the large retailers can also increase sales volatility for the Company as well as other suppliers of lawn and garden products. There also continues to be a consolidation of the vendors supplying fewer retailers.
The Company is organized under the laws of the State of Texas in June 2002 and commenced operations in November 2003. The Company conducts operations directly and through subsidiaries. The fertilizer and plant food spikes operations are conducted through Weatherly Consumer Products Group, Inc. and its subsidiary, Weatherly Consumer Products, Inc ("Weatherly"). Most of the International operations, excluding sales to Canada are conducted through the Easy Gardener UK Ltd. subsidiary. Unless the context suggests otherwise, references in this Report to "we", "us", "the Company", or "our" refer to Easy Gardener Products, Ltd. and its subsidiaries. The executive offices are located at 3022 Franklin Avenue, Waco, Texas 76710, and the telephone number is (254) 753-5353.
Lawn and Garden Industry
Historically, the lawn and garden industry was comprised of relatively small regional manufacturers and distributors whose products were sold to consumers primarily through local nurseries and garden centers. As the industry has grown, national home improvement and mass merchant retailers have replaced many of these local garden centers as the primary retail source for lawn and garden products. In an effort to improve operating margins and reduce the number of vendors needed to source high volume lawn and garden products, the preference among home improvement and mass merchant retailers has shifted towards single source suppliers that offer broad product lines of consumer brand-name merchandise and the product support necessary to stimulate consumer demand and ensure timely and cost effective order fulfillment. Smaller regional suppliers generally lack the capital and other resources necessary to offer the variety and number of product lines, the product support and the inventory stocking and tracking capabilities required by national home improvement and mass merchant retailers. As previously noted, the consolidation of garden retailers from local nurseries and garden centers to national home improvement and mass merchant retailers provide the largest retailers with greater leverage on their suppliers, including the Company.
Consumer Lawn and Garden Products
The primary consumer lawn and garden products marketed by the Company are as follows. Historical sales data includes data of the Predecessor prior to November 1, 2003.
Landscape Fabric. The Company markets different types of landscape fabric in varying thicknesses and strengths under the trade names WeedBlock(R), MicroPore(R), Pro WeedBlock(TM), and Landmaster(R). Landscape fabrics allow water, nutrients and oxygen to filter through to the soil but prevent weed growth by blocking sunlight. The Company's primary landscape fabrics are made from non-woven fabrics, which are generally manufactured with extruded polymers, pressed or vacuum formed into thin sheets having the feel and texture of light plastics. For the fiscal years ended June 30, 2004, 2003, and 2002, sales of landscape fabric represented approximately 54%, 48%, and 51%, respectively, of consolidated invoiced sales.
Fertilizer and Plant Food. Fertilizer spikes deliver plant food nutrients directly to the root of the plant, an alternative method of maintaining plant health to surface-delivered liquid or solid fertilizers. The Company markets a variety of indoor and outdoor specialty fertilizer and plant food spikes primarily under the Jobe's(R) tradename, one of the most recognized brands in the consumer lawn and garden industry. For the years ended June 30, 2004, 2003, and 2002, sales of fertilizer and plant food constituted approximately 11%, 12%, and 14%, respectively, of consolidated invoiced sales.
Landscape Edging. The Company markets a variety of resin-based decorative landscape edgings under trade names including Emerald Edge(R), Fiber Edge(R), and Terra Cotta Tiles(TM). The decorative edgings are used by consumers to define the perimeter of planting areas with a variety of designs which include stone, log, terra cotta tiles and picket fences. For the years ended June 30, 2004, 2003, and 2002, sales of landscape edging constituted approximately 13%, 10%, and 10%, respectively, of consolidated invoiced sales.
Sun Screen Fabric. The Company markets sun screen fabrics in a variety of sizes and colors. Sun Screen is utilized generally in conjunction with some type of outdoor structure such as a patio veranda, and provides shade, privacy or protection from wind for people, plants and pets.
Fertilizers and Root Feeders. The Company also markets fertilizers under the Ross(TM) trade name. The Ross fertilizer, when applied through a Ross Root Feeder, a long steel irrigation tube with a hose connector that is inserted deep into the
ground, provides the homeowner with a means of deep feeding and irrigating trees and shrubs. The Ross Root Feeder may also be used without fertilizer as a deep watering device.
Lawn and Garden Fencing. The Company markets resin-based fencing for lawns and gardens. The fencing products are marketed for use by the consumer for numerous applications including preventing animals from entering a garden or orchard.
Other Products. In addition to landscape fabrics, fertilizer and plant food spikes, landscape edging, sun screen, fertilizers and root feeders, and lawn and garden fencing the Company also sells complementary lawn and garden products for the home gardener. The products include a line of animal repellents that are formulated to deter dogs, cats, deer and rabbits from destroying garden and landscape environs, a variety of protective plant and tree covers, bird and animal mesh blocks, protective garden and tree netting to prevent animal damage, and synthetic mulch and fabric pegs.
Conversion, Manufacturing and Supply
Except for the materials for the WeedBlock(R) landscape fabric, which are obtained primarily from a single source, the basic materials for consumer lawn and garden products are purchased from a variety of suppliers. All of such materials are converted, packaged and shipped by the Company from either the Waco, Texas facility, the Paris, Kentucky facility or the facility located in Colorado.
The Company purchases most of the landscape fabric used to manufacture WeedBlock(R) from Tredegar Industries, Inc. ("Tredegar"). The Company purchases large rolls of various types of landscape fabric from Tredegar for shipment to the Waco, Texas facility where it is sized, cut and packaged for consumer sale. Although the Company has purchased most of its supply from Tredegar for over 10 years and believes that its relationship with Tredegar is good, Tredegar is free to terminate its relationship with the Company at any time and accordingly could market its fabrics to other companies, including competitors. Nevertheless, the Company owns the registered trademark "WeedBlock(R)" and to the extent that it establishes alternative supply arrangements, the Company's rights to market products under the WeedBlock(R) brand name would continue without restriction.
The Company manufactures and packages the Jobe's(R) fertilizer spikes at its Paris, Kentucky facility. The raw materials that comprise indoor fertilizer spikes are mixed with
a binding agent and then passed through an extrusion process which feeds a continuous strand of fertilizer through a heat-drying system. The strand is then cut into ready-to-use fertilizer spikes which are then machine counted and packaged into shelf-ready blisterpacks. Outdoor fertilizer spikes are manufactured in a similar manner except rather than passing through an extrusion process, the outdoor spikes are processed through molds, which shape the spikes into their final form. The outdoor spikes are packaged in either a foil pouch, bag or box.
The specifications for the landscape edging and root feeder products and packaging are designed by the Company and independent design consultants. The products are then manufactured and packaged by third party manufacturers according to the Company's specifications and generally are sent to the Company's facilities for shipment to customers.
The material used in the sun screen fabric and resin-based fencing is manufactured for the Company pursuant to open purchase orders. The material is then sized and cut for consumer sale at the Waco, Texas facility.
Customers
Customers include home improvement centers, mass merchandisers, hardware stores, nurseries, and garden centers and other retail channels throughout North America and Europe. Using the historical data of the Predecessor prior to November 1, 2003, the Company's customer profile is as follows.
The two largest customers for fiscal 2004, Home Depot and Lowes, accounted for approximately 55% and 8%, respectively, of consolidated invoiced sales during that period. The two largest customers for fiscal 2003, Home Depot and Ace Hardware, accounted for approximately 54% and 6%, respectively, of consolidated invoiced sales during that period. The two largest customers for fiscal 2002, Home Depot and Lowe's, accounted for approximately 49% and 10%, respectively, of consolidated invoiced sales during such year. The ten largest customers as a group accounted for approximately 81%, 77% and 78% of consolidated invoiced sales during fiscal 2004, 2003, and 2002, respectively. Sales to such customers are not governed by any contractual arrangement and are made pursuant to standard purchase orders. Though the Company believes that relations with its largest customers are good, the loss of any of these customers could have an adverse effect upon the results of operations. International sales are subject to certain additional risks in doing business in foreign countries including, but not limited to, currency exchange rate fluctuations and tariffs.
The sales are concentrated in the United States, with international sales (primarily in Europe and Canada) accounting for approximately 10%, 10%, and 6% of invoiced sales for each of fiscal 2004, 2003 and 2002, respectively. The Company is currently attempting to develop additional relationships with distributors outside of the United States.
Sales and Marketing
The selling efforts are managed by two Vice Presidents of Sales. One specializes in national home center customers and the other directs four regional sales managers responsible for mass merchants, hardware and all other marketing channels. Because of the service-oriented nature of the business, the sales managers devote a substantial amount of their time to servicing and maintaining relationships with the largest customers in addition to managing the overall sales operations. The Company also utilizes the services of over 36 non-exclusive independent sales organizations. This integrated sales approach is designed to help achieve sales of all products to all customers in a cost effective manner.
The marketing activities are coordinated by the National Marketing Manager. In addition to designing and developing the distinctive packaging and overall advertising and promotional activities of the product offerings, the National Marketing Manager works closely with the sales organization to help develop programs which are tailored to the strategies of the key Retail Accounts.
The Company expects that the lawn and garden products will continue to be marketed by retailers primarily through the use of special displays and in-store consumer promotions in Retail Accounts, hardware stores, nurseries and garden centers. In addition the Company believes that a substantial portion of lawn and garden sales are impulse driven and not overly price sensitive. Therefore the Company seeks to increase consumer awareness, understanding and brand identification of the products through distinctive packaging and point-of-sale displays. Retail Accounts and other customers receive the products in packaging that is easily displayed. The retail product packaging is informative to the end-user and incorporates attention getting, eye-pleasing color schemes. The Company also tailors its displays to the evolving needs of retailers. Because many home improvement and mass merchant retailers maintain outdoor sales areas for their lawn and garden products, the Company utilizes waterproof displays for many of the products. In addition, the Company meets the specific needs of many of its larger customers by tailoring the size of its displays to the dimensions requested by such customers. The independent sales representatives periodically visit individual
retail outlets to assist Retail Accounts in achieving innovative and optimal use of the distinctive store displays.
The Company and its Predecessor spent approximately $2.8 million in fiscal 2004 on a combination of media development, print, radio and television advertising, cooperative advertising (advertising done in conjunction with retailers), attendance at trade shows and public relations to promote awareness, understanding and brand identification of the lawn and garden products.
The Company and its Predecessor utilized a substantial portion of its marketing budget for fiscal 2004 on cooperative advertising in conjunction with key retail customers.
New Product Development
The Company believes that new product development is critical to its long-term success. Accordingly, it has established a new product development organization using two experienced individuals who are very experienced with all facets of the Company's operations to lead and coordinate these activities together with the help of consultants specializing in new product development research. As a new Company with limited recent experience in new product development and with limited financial resources, the Company's ability to execute an aggressive new product development strategy to enhance operating results and cash flow is unknown.
Information Systems
The Company maintains a sophisticated retail data information system, which enables it to provide timely and efficient order fulfillment to its Retail Accounts and other customers. Internally, the information system tracks orders and deliveries and provides exception reports if product is not delivered on time. The systems "push" the necessary information to the proper personnel, allowing them to react quickly to information. The purchase order process can be paperless, with most Retail Accounts placing their orders through an electronic data interchange with the Company.
The Company has implemented the QAD Applications e-business supply-chain enabled enterprise planning software.
Seasonality
The Company's sales are seasonal due to the nature of the lawn and garden business. The Company's seasonality
generally parallels the annual growing season. The Company's sales and shipping are usually most active from late March through May when home lawn and garden customers are purchasing supplies for spring planting and retail stores are replenishing their inventory of lawn and garden products. These patterns are effected by a number of events; weather being the largest single event. The buying pattern of retailers, including the Company's retail customers, is changing. Retailers are buying enough product to begin the season just prior to the beginning of the season and stores are replenishing their inventory when sales are made by them rather than buying large quantities of inventory in advance of the selling season. Sales typically decline in mid-summer.
Due to the seasonality of the Company's business as described above, a substantial portion of the Company's sales and cash flows are generated in the peak growing season of the year which are the March 31 quarter and most significantly the June 30 quarter. Adverse weather in the June 30, 2004 quarter had a negative impact on sales.
Inventory and Distribution
In order to meet product demand, the Predecessor historically kept relatively large amounts of product inventory on hand during the months of highest demand. As a result of changes in customer inventory purchasing patterns described in the second preceding paragraph and improved communications with customers and suppliers, the Company improved its ability to meet customer demands without maintaining high inventory levels. Retail Accounts generally require delivery within five business days. Orders are normally processed within 48 hours and shipped by common carrier. The Company's shipping and freight costs have increased due to increasing oil prices, higher costs from the freight carriers and smaller order size, and increased volume to a significant customer that stipulates which freight carriers are to be used. The required freight carriers are frequently not the lowest cost.
Competition
The consumer lawn and garden care industry is highly competitive and somewhat fragmented. With respect to the Company's sale of consumer lawn and garden products, the Company competes with a combination of national and regional companies including catalog and Internet e-commerce businesses specializing in the marketing of lawn and garden care products. The Scotts Company, in particular, has captured a significant and controlling share in a variety of categories as a result of their acquisition of the Ortho brand and the licensing of the
Roundup brand for the consumer market. Scotts also markets products under the Scotts and Miracle-Gro brands which compete both directly and indirectly with many of the Company's products. Many of the Company's competitors have achieved significant national, regional and local brand name and product recognition and engage in frequent and extensive advertising and promotional programs. Many of these companies have substantially greater financial, technical, marketing and other resources than the Company.
Large, dominant manufacturers, which manufacture and sell lawn and garden products, such as the Scotts Company, and other lawn and garden care companies have, in the past, manufactured and marketed landscape fabrics. However, currently few of such competitors compete with the Company in this product category. Nevertheless, well-capitalized companies and smaller regional firms may develop and market landscape fabrics and compete with the Company for customers who purchase such products.
Among the Company's competitors in the lawn and garden market for the Jobe's spike line of fertilizer products is the Scotts Company, which markets competing products under the Miracle-Gro brand.
Government Regulation
The Company is subject to many laws and governmental regulations and the changes in these laws and regulations resulting from their interpretation by agencies and the courts.
Fertilizer and Pesticide Regulation. Products marketed, or which may be marketed, by the Company as fertilizers or pesticides, are subject to an extensive and frequently evolving statutory and regulatory framework, at both the Federal and state levels. The distribution and sale of pesticides is subject to regulation by the U.S. Environmental Protection Agency ("EPA") pursuant to the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), as well as regulation by many states in a manner similar to FIFRA. Under FIFRA and similar state laws, all pesticides must be registered with the EPA and the state and must be approved for their intended use. FIFRA and state regulations also impose other stringent requirements on the marketing of such products. Moreover, many states also impose similar requirements upon products marketed for use as fertilizing materials, which are not typically regulated under FIFRA. Failure to comply with the requirements of FIFRA and state laws that regulate marketing and distribution of pesticides and fertilizers could result in the imposition of
sanctions, including, but not limited to suspension or restriction of product distribution, civil penalties or criminal sanctions.
The Company markets certain animal repellent and pesticide products that are subject to FIFRA and to similar state regulations. The Company believes that it is in substantial compliance with material FIFRA and applicable state regulations regarding its material business operations. However, there can be no assurance that the Company will be able to comply with future regulations in every jurisdiction in which it conducts material business operations without substantial cost or interruption of operations. Moreover, there can be no assurance that future products marketed by the Company will not also be subject to FIFRA or to state regulations. If future costs of compliance with regulations governing pesticides or fertilizers exceed the historical costs for such items, the business could be adversely affected. If any of the products are distributed or marketed in violation of any of these regulations, the Company could be subject to a recall of, or a sales limitation placed on, one or more of the products, or civil or criminal sanctions, any of which could have a material adverse effect upon the business.
Environmental Regulation. The Company's manufacturing operations are subject to various evolving federal, state and local laws and regulations relating to the protection of the environment, which laws govern, among other things, emissions to air, discharges to ground, surface water, and groundwater, and the generation, handling, storage, transportation, treatment and disposal of a variety of hazardous and non-hazardous substances and wastes. Federal and state environmental laws and regulations often require manufacturers to obtain permits for these emissions and discharges. Failure to comply with environmental laws or to obtain, or comply with, the necessary state and federal permits can subject the manufacturer to substantial civil and criminal penalties. The Company operates two manufacturing facilities and its wholly-owned subsidiary, Weatherly, operates one manufacturing facility. Although the Company believes that its manufacturing facilities are in substantial compliance with applicable material environmental laws, it is possible that there are material environmental liabilities of which it is unaware. If the costs of compliance with the various existing or future environmental laws and regulations including any penalties which may be assessed for failure to obtain necessary permits, exceed the historical costs for such items, the Company could be adversely affected.
Potential Environmental Cleanup Liability. The Federal Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), and many similar state statutes, impose joint and several liability for environmental damages and cleanup costs on past or current owners and operators of facilities at which hazardous substances have been discharged, as well as on persons who generate, transport, or arrange for disposal of hazardous wastes at a particular site. In addition, the operator of a facility may be subject to claims by third parties for personal injury, property damage or other costs resulting from contamination present at or emanating from property on which its facility is located. As noted above, the Company operates two manufacturing facilities and Weatherly operates one manufacturing facility. Predecessors of the Company have owned or operated other manufacturing facilities in the past and may have liability for remediation of such facilities in the future, to the extent any is required. In this regard, Weatherly previously owned a facility that was the subject of certain soil remediation activities. Although this facility was sold by Weatherly prior to the Company's acquisition of Weatherly, there can be no assurance that the Company will not be liable for any previously existing environmental contamination at the facility. Moreover, although the purchaser of the facility indemnified Weatherly for any environmental liability and the sellers of Weatherly, in turn, indemnified the Company from such liability, there can be no assurance that, if required, the indemnifying parties will be able to fulfill their respective obligations to indemnify the Company. The Company could also incur liability under CERCLA or similar state statutes for any damage caused as a result of the mishandling or release of hazardous substances owned by it but processed and manufactured by others on its behalf. As a result, there can be no assurance that the manufacture of the products sold by the Company will not subject it to liability pursuant to CERCLA or a similar state statute.
Other Regulations. The Company is also subject to various other federal, state and local regulatory requirements such as worker health and safety, transportation, and advertising requirements. Failure to comply with these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants.
Trademarks, Proprietary Information and Patents
Product recognition is an important competitive factor in the lawn and garden products industry. Accordingly, in connection with the Company's marketing activities of lawn and
garden products, it promotes, and intends to promote, certain trade names and trademarks, which are believed to have value to it.
In connection with the acquisition, the Company acquired certain trademarks and copyrights which are being used by it in its business including, but not limited to, the trademarks, WeedBlock(R), Easy Gardener(R), MicroPore(R), Landmaster(R), Polyspun 350(R), Nature Shield(R) and Diamondback(R) and BirdBlock(R). In connection with the Company's acquisition of Weatherly, it acquired certain patents, as well as certain copyrights and trademarks used in connection with Weatherly's business including, but not limited to, Jobe's(R), Ross(R), Green Again(R), Gro-Stakes(R), Tree Guard(R) and XP-20(R). Tensar Corporation also granted the Company an exclusive royalty-free perpetual license to use the trademark Tensar(R) in connection with a wide range of polymeric grid, mesh, net and related products supplied to the Company by The Tensar Corporation. There can be no assurance that the Company will apply for any additional trademark or patent protections relating to its products or that its current trademarks and patents will be enforceable or adequately protect from infringement of proprietary rights.
Although the Company believes that the products sold do not and will not infringe upon the patents or violate the proprietary rights of others, it is possible that such infringement or violation has or may occur. In the event that products sold by the Company are deemed to infringe upon the patents or proprietary rights of others, it could be required to pay damages and modify its products or obtain a license for the manufacture or sale of such products. There can be no assurance that, in such an event, the Company would be able to do so in a timely manner, upon acceptable terms and conditions or at all, and the failure to do any of the foregoing could have a material adverse effect upon the Company.
Product Liability
The Company, as a manufacturer of lawn and garden products including pesticide products, may be exposed to significant product liability claims by consumers. Although the Company has obtained product liability insurance coverage in the aggregate amount of $2.0 million with all policies limited to $1.0 million per occurrence, and have obtained an umbrella policy in the amount of $5.0 million, there can be no assurance that such insurance will provide coverage for any claim against the Company or will be sufficient to cover all possible liabilities. In the event a successful suit is brought against the Company, unavailability or insufficiency of insurance coverage could have
a material adverse effect on the Company. Moreover, any adverse publicity arising from claims made against the Company, even if such claims were not successful, could adversely affect the reputation and sales of its products.
Employees
As of August 30, 2004 the Company had 157 full-time employees. Of such employees, 3 are executive officers of the Company, 39 were engaged in administration and finance, 15 were engaged in sales and marketing, 48 were engaged in warehouse, shipping and receiving, and 52 were engaged in production. None of the employees are covered by collective bargaining agreements. The Company believes that it has a good relationship with its employees.
Segment Information
The Company's operations are in one segment - the manufacture and sale of consumer lawn and garden products. Product and major customer information are disclosed separately above.
Item 2.
Item 2. Properties.
The Company leases approximately 250,000 square feet of office and warehouse space in Waco, Texas for which it pays $19,386 per month in rent, pursuant to a lease agreement that expires in February 2005. The facility contains landscape fabric converters, packaging equipment and warehouse and shipping facilities.
Weatherly leases approximately 72,000 square feet of manufacturing and warehouse space in Paris, Kentucky for $9,931 per month in rent pursuant to a lease that expires in June 2006. Weatherly also leases an additional 59,000 feet of warehouse space in Paris, Kentucky for $9,845 per month in rent, pursuant to a lease agreement that expires in June 2006.
The Company also has entered into a lease with 60,000 square feet of warehouse space in Colorado, which it uses for the storage, packaging and distribution of certain of its commercial grade landscape fabric products. The lease, which expires on May 31, 2005, provides for a rental rate of $16,010 per month, which increases 5% per year on June 1 of each year.
The Company believes that its current manufacturing and warehouse space is adequate for its planned future operations and that leases when they expire can be replaced at acceptable terms.
Item 3.
Item 3. Legal Proceedings
Not applicable
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Part II.
Item 5
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.
Not Applicable - Registrant is a limited partnership and the registered securities are not common stock.
Item 6.
Item 6. Selected Consolidated Financial Data (in thousands, except per share data).
The following selected consolidated financial data at and for the eight months ended June 30, 2004 is based upon the Company's audited consolidated financial statements. The consolidated financial data for the four months ended October 31, 2003 is the Predecessor's unaudited consolidated financial data and the financial data at and for the years ended June 30, 2000, 2001, 2002 and 2003 has been derived from the Predecessor's audited consolidated financial statements. Such information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto appearing elsewhere in this Report. Differences between amounts included below and amounts previously reported are due to presentation reclassifications.
(1) Amount represents restructuring charges of the Predecessor relating to the closing and sale of the Ampro facility.
(2) Amount represents gain incurred by the Predecessor on the repurchase of Trust Preferred Securities of U.S. Home & Garden Trust I. Amount was reclassified from extraordinary gain upon adoption of Statement of Financial Accounting Standards No. 145.
(3) Amounts represent operations of Ampro which was discontinued by the Company and for the Predecessor, the amounts reflect the
operations and estimated loss on disposal of the Predecessor's Weed Wizard and Egarden subsidiaries. See further discussion in Note 3 to the Consolidated Financial Statements included in Part II, Item 8.
(4) Amount represents the cumulative effect of the Predecessor's change in accounting principle related to goodwill. See further discussion at Note 7 to the Consolidated Financial Statements included in Part II, Item 8.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
General
The Company manufactures and markets a broad range of brand-name consumer lawn and garden products through its own operations and through its wholly-owned subsidiaries, Weatherly Consumer Products Group, Inc. which owns Weatherly Consumer Products, Inc.("Weatherly") and Easy Gardener UK Ltd. These operations were acquired from U.S. Home & Garden, Inc.(the "Predecessor") effective November 1, 2003. As a result of that acquisition, the Company has recorded $48.2 million in goodwill.
The Predecessor also recognized a significant amount of goodwill which, in the aggregate, was approximately $49.9 million as of June 30, 2003. Effective July 1, 2001 the Predecessor adopted Statement of Financial Accounting Standards (SFAS) No. 142. Accordingly, no amortization of goodwill was reflected in the financial statements for the fiscal years ended June 30, 2003 and 2002 compared to $2.5 million for the year ended June 30, 2001. The Predecessor completed the transitional goodwill impairment test during fiscal 2002 and recorded an impairment loss of $9.9 million which relates primarily to the Ampro operations. This loss is reflected as a cumulative effect of a change in accounting principle. See also "Summary of Accounting Policies - Intangible Assets" and Note 7 to the Consolidated Financial Statements included in Part II, Item 8.
The results of operations for the fiscal year ended June 30, 2004 which is the combined total of the Company's eight months ended June 30, 2004 and the Predecessor's four months ended October 31,2003 were adversely affected by continual pricing pressure from customers, price increases from suppliers and from adverse weather in the peak gardening season. Many of the Company's products are petrochemical based and the costs of such products typically increase when oil prices increase. Also, freight expenses were negatively impacted by increasing oil prices and other factors. A significant customer with increasing sales has mandated the freight carriers the Company
must use to ship product to them, which frequently is not the lowest cost freight carrier. That same customer has also decreased the size of their average order to better manage their inventory levels. Both of these actions have resulted in increasing freight costs.
Interest expense is a significant expenditure for the Company. Interest expense is also based upon variable interest rates for a substantial portion of the Company's debt. An increase in interest rates will have a negative impact on the Company's operating performance and cash flows.
The Predecessor's results of operations for the fiscal year ended June 30, 2003 were adversely affected by the prolonged periods of inclement weather in many portions of the United States during the late spring and early summer which negatively impacted the lawn and garden industry. Their results were also adversely affected by the refinancing costs and related write-offs and transaction expenses related to the proposed sale of assets. Their results were also adversely affected by the discontinued Weed Wizard operations that generated a loss of $1.4 million for that year. Results were also impacted in the third and fourth quarters by changes in the buying pattern of certain of the key customers who carried less inventory than in prior years and replenished their lower inventory levels as sales were made by them.
There continues to be a consolidation in the lawn and garden industry which creates, over time, a downward pressure on operating margins.
Historical Results of Operations
The following table sets forth for the periods indicated certain selected income data as a percentage of net sales:
Eight Months Ended June 30, 2004 and Four Months Ended October 31, 2003 (Predecessor) Combined Compared to Year Ended June 30, 2003 (Predecessor)
Net sales. Net sales were $60.1 million for the eight months ended June 30, 2004 and $17.4 million for the four months ended October 31, 2003 for a combined twelve month amount of $77.5 million, an increase of $1.3 million, or 1.7%, as compared to the twelve months ended June 30, 2003 of $76.2 million. Net sales are gross sales less adjustments for discounts, rebates, returns, and allowances given to customers and such adjustments are collectively referred to as sales adjustments. Gross sales less discounts equal invoice sales and are the amounts billed to customer before deductions for rebates, returns, and allowances. Net sales increased as a result of increases in gross sales partially offset by increases in sales adjustments.
Cost of sales. Cost of sales of $33.4 million for the eight months ended June 30, 2004 and $11.0 million for the four months ended October 31, 2003, for a combined twelve month amount of $44.4 million increased $0.9 million, or 2.1% as compared to the twelve months ended June 30, 2003 of $43.5 million. The increase in cost of sales is a result of increased sales and increased material costs, primarily purchase price increases on a number of petroleum based products. Cost of sales as a percentage of net sales increased to 57.3% during the twelve months ended June 30, 2004 up from 57.0% during the comparable period in 2003. Depreciation and amortization included in cost of sales for the eight months ended June 30, 2004, the four months ended October 31, 2003 and year ended June 30, 2003 were $833,000, $496,000 and $1,476,000 respectively.
Gross profit. Gross profit of $26.6 million for the eight months ended June 30, 2004 and $6.5 million for the four months ended October 31, 2003 for a combined twelve month amount of $33.1 million, an increase of $0.3 million, or 1.0%, as compared to the twelve months ended June 30, 2003 of $32.8 million. Gross profit as a percentage of net sales decreased to 42.7% during the twelve months ended June 30, 2004, from 43.0% during the comparable period in 2003. This decrease in gross profit as a percentage of net sales resulted from increased costs as noted above.
Selling and shipping expenses. Selling and shipping expenses of $13.4 million for the eight months ended June 30,
2004 and $5.8 million for the four months ended October 31, 2003, for a combined twelve month amount of $19.2 million an increase of $0.6 million, or 3.2% as compared to the twelve months ended June 30, 2003 of $18.6 million. The increase in expense was primarily a result of increased freight costs of $0.8 million, advertising, commissions and other expenses of $0.3 million partially offset by decreases in selling and marketing costs of $0.5 million. As a percentage of net sales, selling and shipping expenses increased to 24.8% during the twelve months ended June 30, 2004 from 24.4% during the comparable period in 2003.
General and administrative expenses. General and administrative expenses were $3.3 million for the eight months ended June 30, 2004 and $2.6 million for the four months ended October 31, 2003, for a combined twelve month amount of $5.9 million, a decrease of $1.7 million or 22.3%, from the twelve months ended June 30, 2003 of $7.6 million. The decrease is a result of the elimination of the Predecessor's administrative costs, which aggregated $1.7 million for the eight months ended June 30, 2003. As a percentage of net sales, general and administrative expenses decreased to 7.7% during the twelve months ended June 30, 2004 from 10.0% during the comparable period in 2003.
Depreciation and amortization. Depreciation and amortization expenses were $0.6 million for the eight months ended June 30, 2004 and $0.4 million for the four months ended October 31, 2003 for a combined twelve month amount of $1.0 million, a decrease of $0.7 million or 40.5% from the twelve months ended June 30, 2003 of $1.7 million. The decrease is primarily due to reduced depreciation and amortization during the four months ended October 2003 due to some depreciable and amortizable assets becoming fully depreciated or amortized and during the eight months ended June 30, 2004 due to the revaluation of the fixed assets to market value which resulted in less depreciation during the period. The elimination of the Predecessor's depreciation and amortization of $0.2 million during the eight months ended June 30, 2004 and $0.1 million of the Ampro discontinued operations during the same period also contributed to the reduction in depreciation and amortization. As a percentage of net sales, depreciation and amortization expenses decreased to 1.3% during the twelve months ended June 30, 2004, compared to 2.3% during the twelve months ended June 30, 2003.
Income (loss) from operations. Income from operations was $9.2 million for the eight months ended June 30, 2004 and a loss of $2.3 million for the four months ended October 2003 for a combined twelve month income of $6.9 million, an increase of $2.1 million or 45.0% from the twelve months ended June 30, 2003 of $4.8 million. The increase was due to matters described above. As a percentage of net sales, income from operations increased to 8.9% for the combined twelve months ended June 30, 2004 from 6.3% during the comparable period in 2003.
Refinancing and transaction costs. The Company incurred refinancing costs for the eight months ended June 30, 2004 of $0.4 million related to the replacement of its revolving credit facility, while the Predecessor incurred transaction costs during the four months ended October 31, 2003 of $0.2 million, for a combined twelve month amount of $0.6 million, a decrease of $3.7 million or 86.7% as compared to the twelve months ended June 30, 2003 of $4.3 million. Included in such prior year costs is a write-off of $2.0 million for deferred financing costs and discounts, $1.7 million of fees and expenses related to the replaced financing arrangements entered into in October 2002 and $0.6 million of transaction costs related to the sale of the operations to the Company. The transaction costs incurred in the month of October 2003 by the Predecessor were reflected in the gain on the sale of the transaction and not reflected in the income statement presented herein, which is prior to the transaction costs and gain on the sale.
Interest expense. Net interest expense was $6.9 million for the eight months ended June 30, 2004 and $2.9 million for the four months ended October 31, 2003, for a combined twelve month amount of $9.8 million, an increase of $1.8 million, or 21.9% from the twelve months ended June 30, 2003, of $8.0 million. Of the increase in interest expense, $0.4 relates to the four months ended October 31, 2003 when the Predecessor's borrowing levels and interest rates increased and $1.4 million relates to the increase in debt due to the purchase of operations of the Company in the eight months ended June 30, 2004. Of the increase in interest expenses, $1.0 million for the eight months ended June 30, 2004 is deferred (non-cash) and not currently due in cash. A substantial portion of the Company's interest expense is based upon variable interest rates. Increases in such rates will have a negative impact on operating performance and cash flow.
Income tax expense. Income tax expense of $0.7 million for the eight months ended June 30, 2004 and income tax expense of $0.0 million incurred during the four months ended October 31, 2003 for a combined income tax expense of $0.7 million increased $0.6 million from the tax expense for the twelve months ended June 30, 2003 of $0.1 million. The Company does not have a tax loss carry forward while the Predecessor had a tax loss carry forward which impacted its taxes for the four months ended October 31, 2003 and year ended June 30, 2003.
Discontinued operations. Loss from discontinued operations related to the Ampro operations totaled $0.5 million for the eight months ended June 30, 2004. Loss from discontinued operations, which related to the Predecessor's Weed Wizard operations, was $0.1 million for the four months ended October 31, 2003 and the combined twelve months ended June 30, 2004 totaled $0.6 million. This is a decrease of $0.9 million or 62.9% from the twelve months ended June 30, 2003 of $1.5 million. The decrease in loss from discontinued operations results from the Company not assuming any obligations related to Weed Wizard offset by the loss from the Ampro division for the eight month period ended June 30, 2004.
Net income (loss). Net income was $0.8 million for the eight months ended June 30, 2004, and the net loss was $5.5 million for the four months ended October 31, 2003 for a combined twelve month loss of $4.7 million, a decrease of $4.4 million from the twelve months ended June 30, 2003 loss of $9.1 million. The decrease in net loss is due to the decreased refinancing and transaction costs, decrease in loss from discontinued items, and increased income from operations offset by increases in interest expense and income tax expense as described above.
Fiscal Year Ended June 30, 2003 (Predecessor) Compared to Fiscal Year Ended June 30, 2002 (Predecessor)
Net sales. Net sales decreased $2.7 million, or 3.4%, to $76.2 million for the fiscal year ended June 30, 2003 from $78.9 million during the fiscal year ended June 30, 2002. The decline was due to prolonged periods of inclement weather in many areas of the United States as well as increased discounts, returns and allowances.
Gross profit. Gross profit decreased by $2.8 million, or 7.9%, to $32.8 million for the fiscal year ended June 30, 2003 from $35.6 million during the comparable period in 2002.
Gross profit as a percentage of net sales decreased to 43.0% during the fiscal year ended June 30, 2003 from 45.1% during the comparable period in 2002. The decrease in gross profit is due to the decrease in sales volume and the increased discounts, returns and allowances.
Selling and shipping expenses. Selling and shipping expenses increased $.4 million, or 2.2% to $18.6 million during the fiscal year ended June 30, 2003 from $18.2 million during the comparable period in 2002. Selling and shipping expenses as a percentage of net sales increased to 24.5% during the fiscal year ended June 30, 2003 from 23.1% during the comparable period in 2002. This increase in expense and percentage was primarily a result of increased out bound freight costs resulting from a reduction in the average size of shipments, increase in freight costs, and increase in volume to a significant customer that stipulated the Predecessor to use a required carrier.
General and administrative expenses. General and administrative expenses decreased $0.3 million or 3.2% to $7.6 million during the fiscal year ended June 30, 2003 from $7.9 million during the comparable period in 2002. As a percentage of net sales, general and administrative expenses remained constant at 10.0% during the fiscal year ended June 30, 2003 during the comparable period in 2002.
Depreciation and amortization. Depreciation and amortization expenses increased $0.2 million or 12.3% to $1.8 million from $1.6 million during the comparable period in 2002. As a percentage of net sales, depreciation and amortization expenses increased to 2.3% during the fiscal year ended June 30, 2003 from 2.0% during the comparable period in 2002.
Income from operations. Income from operations decreased by $3.1 million, or 39.7% to $4.8 million during the fiscal year ended June 30, 2003 compared to $7.9 million for the comparable period in 2002. The decrease in income from operations for the 2003 period is primarily attributable to the reduction in sales and increase in discounts, returns and allowances. As a percentage of net sales, income from operations decreased to 6.3% for the fiscal year ended June 30, 2003 from 10.0% during the comparable period in 2002.
Refinancing and transaction costs. Refinancing and transaction costs increased $4.0 to $4.3 million during the year ended June 30, 2003 from $0.3 million during the comparable period in 2002. Included in such costs for the year ended 2003 is $2.0 million of previously deferred finance costs and
discounts related to the replaced finance agreements and $2.3 million of refinancing and transaction expenses. The Predecessor wrote-off $0.3 million of deferred finance costs during the comparable period in 2002 as a result of refinancing.
Net interest expense. Net interest expense increased $0.7 million, or 9.6% to $8.0 million during the fiscal year ended June 30, 2003 compared to $7.3 million during the comparable period in 2002. The increase in expense is primarily due to increased borrowings under the term loan and the revolver and increased borrowing rates at the end of the year due to covenant violations.
Income tax expense. Income tax expense was $0.1 million during the fiscal year ended June 30, 2003 compared to $0.2 million during the comparable period in 2002.
Discontinued operations. In June 2002, the Predecessor announced they were discontinuing the Weed Wizard line of products effective September 30, 2002 due to continued operating losses, the loss of sales due to the product recall in fiscal 2000, and the current and future prospects for the operation.
The net loss from discontinued operations was $1.4 million during the year ended June 30, 2003 compared to $1.8 million in fiscal 2002. In fiscal 2002, the Predecessor recorded an estimated net loss on disposal of Weed Wizard of $1.1 million related to the write-down of inventory and long-lived assets. As of June 30, 2003, all Weed Wizard assets were written off. The remaining assets at June 30, 2002 consisted of accounts receivable of $0.4 million, inventory of $0.3 million, other current assets of $0.3 million, and net property and equipment of $0.1 million. Remaining liabilities included accounts payable and accrued expenses of $0.3 million. As of June 30, 2003, the Predecessor recorded cash of $0.1 million and accrued liabilities of less than $0.1 million for the discontinued Egarden operation. Such liabilities exclude leases guaranteed having an unpaid balance of $0.1 million at June 30, 2003.
Pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the consolidated financial statements and notes of the Predecessor have previously been restated for all periods presented to reflect the discontinued components. The assets and liabilities of the discontinued components have been classified as "Held for Sale" and the net operations and net cash flows have been reported as "Discontinued Operations". See Note 3 to the Consolidated Financial Statements included in Part II, Item 8.
Cumulative effect of a change in accounting principle. The Predecessor recorded a cumulative effect of a change in accounting principle for the fiscal year ended June 30, 2002 as a result of the completion of the transitional goodwill impairment test in conjunction with the adoption of SFAS No. 142. The recording of an impairment loss of $9.9 million, which is primarily related to the Ampro operations, is reflected as a cumulative effect of a change in accounting principle. See Note 7 to the Consolidated Financial Statements included in Part II, Item 8.
Net loss. Net loss decreased by $2.4 million to $9.1 million during the fiscal year ended June 30, 2003 from a net loss of $11.5 million during the comparable period in 2002 due to the matters described above.
Quarterly Results of Operations and Seasonality
The Company and its Predecessor's sales are seasonal due to the nature of the lawn and garden business. The Company's seasonality generally parallels the annual growing season. The Company's sales and shipping are usually most active from late March through May when home lawn and garden customers are purchasing supplies for spring planting and retail stores are replenishing their inventory of lawn and garden products. The patterns are effected by a number of events; weather being the largest single event. The buying patterns of retailers, including the Company's retail customers, is changing. Retailers are buying enough product to begin the season just prior to the beginning of the season and stores are replenishing their inventory when sales are made by them rather than buying large quantities of inventory in advance of the selling season. Sales typically decline by mid-summer.
Related Party Transactions
See discussion regarding the Predecessor's related party transactions in Part II, Item 13 and Note 8 to the Consolidated Financial Statements included in Part II, Item 8.
Set forth below is certain unaudited quarterly financial information:
Differences between amounts included above and amounts previously reported on Form 10-Q are due to reclassifications.
Liquidity and Capital Resources
The Company, which effectively commenced operations on November 1, 2003, has financed its operations through borrowings from lending institutions. As noted below, the Company's senior lenders have required that the Company finance part of its operations by deferring the interest on the Junior Subordinated Debentures since the loan requirements to pay such interest have not been met.
The Company's cash flow is dependent on its sales which as previously noted are seasonal and significantly impacted by weather conditions during the key gardening season. A substantial portion of the Company's sales are generated in the last two quarters of the Company's fiscal year, and most significantly the last quarter of the fiscal year which ends June 30.
Interest expense is a significant expenditure for the Company and a substantial amount of its interest expense is based upon variable interest rates. Increases in such interest rates would have a negative impact on operating performance and cash flow.
The Company's cash flow and liquidity levels are driven by sales and the resulting accounts receivable and their collections, the purchase of inventory and labor to produce finished inventory, operating expenses and the related payment of accounts payable and accrued expenses.
The Company has significant fixed expenditures in the form of principal and interest requirements and believes it will have sufficient cash flow to meet these obligations as they come due. However, adverse weather and other factors could leave the Company with insufficient cash flows to meet these and other obligations.
At June 30, 2004, the Company had consolidated cash and short-term investments totaling $0.4 million, current assets of $33.5 million and working capital of $1.4 million. At June 30, 2003, the Predecessor, had consolidated cash and short-term investments totaling $0.8 million, current assets of $35.7 million and a working capital deficit of $5.5 million. The increase in working capital of the Company was primarily attributable to the refinancing terms obtained by the Company
during the quarter ended December 31, 2003 as part of it acquisition. The revolving credit facility has provisions whereby collections from customers be deposited into cash collateral accounts that directly pay down the revolving note payable and if the Company has a "Material Adverse Change" as determined by the lenders, the loan could become currently due and payable. As a result of these loans provisions, the Company has not classified any portion of the revolving credit facility as a long term debt.
Net cash used in operating activities for the eight months ended June 30, 2004 of $7.6 million consisted primarily of an increase in accounts receivable of $17.0 million, offset in part by increases in accounts payable and accrued expenses of $4.6 million, a decrease in inventory of $0.4 million, non-cash charges of $3.1 million and net income of $1.3 million.
Net cash used in investing activities for the eight months ended June 30, 2004 of $75.2 million is primarily due to the purchase of assets net of the assumption of accounts payable and accrued liabilities assumed from the Predecessor and the capital purchases of equipment and intangible assets.
Net cash provided by financing activities for the eight months ended June 30, 2004 of $81.8 million is primarily due to the assumption of liabilities from the Predecessor and the additional debt incurred and capital raised to acquire the Predecessor's operations and the proceeds from the credit facilities used to fund the cash used in operating and investing activities and the long-term debt repayment.
The Company's operations are not capital intensive and accordingly funding capital expenditures does not require high levels of cash flow or significant financing arrangements. The Company does however require cash flows to finance new product development.
The Company and its parent, EYAS International, Inc., and their subsidiaries entered into four credit arrangements on October 29, 2003 to finance the acquisition of the operations and to provide working capital. The Company also assumed from the Predecessor an obligation for the Junior Subordinated Debentures.
The first credit facility was the amended and restated Loan and Security Agreement with Wells Fargo Foothill, Inc., which was a three year asset based lending revolving credit facility. This facility had a maximum borrowing level of $25 million, which was limited based upon having eligible accounts
receivable and inventory. Interest was at variable annual rates based upon the prime rate plus 0.5% or LIBOR plus 2.75%, but not less than 5.25%. The facility had various covenants including minimum EBITDA, minimum EBITDA to pay interest on the Junior Subordinated Debentures, a Funded Senior Debt Ratio, a Fixed Charge Coverage Ratio, and limits on Capital Expenditures. EBITDA is defined as Earnings Before Interest, Taxes, Depreciation and Amortization. The facility had a term ending October 29, 2006 and was secured by all of the assets of the Company and it's parents and subsidiaries.
On April 27, 2004 the Company and its parents and subsidiaries entered into a new senior credit facility replacing the Wells Fargo Foothill, Inc. facility described in the previous paragraph. The new facility is with La Salle Business Credit, L.L.C. who is the Agent for and one of the lenders on the facility. The new asset based lending revolving credit facility has an original term of three years and then is automatically renewable from year to year at the option of the lenders and borrower. The facility has a maximum borrowing level of $25 million. The facility is secured by all the assets of the Company and it's parents and subsidiaries. The actual borrowing level is limited based upon having eligible accounts receivable, inventory and for parts of the year, the seasonal availability amount. Interest is at variable annual rates based upon the prime rate plus 0.5% or LIBOR plus 3.25%. The new facility has various financial covenants identical to the replaced facility including minimum EBITDA, minimum EBITDA to pay interest on the Junior Subordinated Debentures, a Fixed Charge Coverage Ratio, a Funded Senior Debt Ratio/Leverage Ratio and limits on Capital Expenditures.
The second credit facility is with CapitalSource Finance LLC and includes two term loans. Term Loan A in the amount of $14,315,000 of which $14,000,000 has been borrowed and Term Loan B in the amount of $9,713,750 of which $9,500,000 has been borrowed. Both Term Loans A and B mature on October 29, 2008 and are secured by all of the assets of the Company and it's parents and subsidiaries. Term Loan A bears interest at the greater of 5.75% over the prime rate or 10% and has monthly repayment of principal of $104,167 per month in year one, $166,667 per month in year two, $291,667 per month in years three and four and $312,500 per month in year five. The principal repayment schedule has the loan principal fully repaid at maturity. Term Loan B bears interest at the greater of 8.75% over the prime rate or 13% plus 7.0% of non-cash interest which is to be paid at the maturity of Term Loan B. Term Loans A and B also require mandatory pre-payments of the excess cash flow as
defined in the loan agreements. The principal reduction ranges from 50% to 75% of the excess cash flow generated by the Company. The facility has financial covenants identical to those of the revolving credit facility described above.
At June 30, 2004, the Company had exceeded its Fixed Charge Coverage Ratio and for the months of July 2004 and August 2004 the Company was below its minimum EBITDA level. The lenders have waived these defaults. The Company also was below the minimum EBITDA level required by the lenders to continue to pay the interest on the Junior Subordinated Debentures. As permitted by the Amended and Restated Junior Subordinated Indenture, the Company has notified the Trustee that it has exercised its right to defer the monthly interest payment commencing with the August 2004 payment as described below.
The third credit facility the Company entered into was two subordinated loan agreements, one with the Predecessor aggregating $1,600,000 and one with Central Garden & Pet Company aggregating $2,675,000. The subordinated Predecessor loan is the more junior of the subordinated loans. Both of these subordinated loans bear interest at 9% per annum. Interest is payable at maturity, on April 29, 2008, and interest is reflected in the financial statements as non-cash interest. The Predecessor's loan has a repayment feature based upon excess cash flow as defined in the second credit facility described in the second preceding paragraph. The $2,675,000 subordinated note gives the holder of the note the right to convert the note plus accrued interest into a 49% ownership interest in the Company.
The fourth credit facility is the Company's assumption from the Predecessor, certain of the Predecessor's obligations under the Junior Subordinated Debentures which were originally issued to U.S. Home & Garden Trust I, a wholly owned subsidiary of the Predecessor. Concurrent with this assumption, the name of U.S. Home & Garden Trust I was changed to Easy Gardener Products Trust I (the "Trust"), which is a wholly owned subsidiary of the Company. The purpose of the Trust is to hold as an asset, the Junior Subordinated Debentures which is a liability of the Company owed to the Trust and to reflect the Trust's obligation to the Company for the 78,000 common securities outstanding with a liquidation value of $25 per common share, with a face value of $1,950,000 and the obligation of the Trust for the 2,530,000 of 9.40% Cumulative Trust Preferred Securities with a liquidation value of $25 per security (the "Trust Preferred Securities"), having a total face value at the date of issuance to the public of $63,250,000. The common securities and Trust Preferred Securities are collectively
referred to as the "Trust Securities". In accordance with FASB Interpretation No. 46 with Revisions, the Trust has not been consolidated in the Company's financial statements at June 30, 2004. Accordingly, the Company's financial statements include in other assets, its interest in the common shares of the Trust, the 9.40% Cumulative Trust Preferred Securities it acquired and the amounts due from the prior lender of the Predecessor as described in the following paragraph and its liability to the Trust for the Junior Subordinated Debentures. The Trust Preferred Securities were first issued in a public offering in 1998. The Junior Subordinated Debentures are the only assets of the Trust and have a face value outstanding of $65,200,000 and interest rate of 9.40% and mature on April 15, 2028. Distribution of interest on the Junior Subordinated Debentures are payable monthly in arrears by the Trust. The Trust Preferred Securities are subject to mandatory redemption upon the repayment of the Subordinated Debentures at a redemption price equal to the aggregate liquidation amount of the securities plus any accumulated and unpaid distributions. The Subordinated Debentures mature in total on April 15, 2028, but may be redeemed at the option of the Company at any time.
The Company has entered into two agreements with a prior lender of the Predecessor giving the prior lender the rights to acquire up to 189,750 of the 9.40% Cumulative Trust Preferred Securities acquired by the Company. Under the first agreement, the prior lender acquired 94,875 shares of the Trust Preferred Securities at an exercise price of $9.00 per share. The option agreement provided for a cashless exercise which was used for this transaction. The Company received back 37,620 shares of the option securities, which based on the market value of such shares at the exercise date of $22.70 per share, represents the total exercise price of the option of $854,000. The effect on liquidity is to increase interest expense by approximately $11,000 per month as a result of having 57,255 additional shares outstanding and to reduce the number of shares outstanding at maturity by 37,620. Under the second agreement, the prior lender is forgoing monthly cash interest on an additional 94,875 of the redeemed shares until the exercise price of such shares is reduced to $0 at which point the underlying securities will be transferred to the prior lender and the non-cash interest expenses of approximately $19,000 per month will become cash interest expense. The prior lender can also use option shares as consideration for the exercise price. The exercise price on these securities at the date of purchase of the operations was $4.30 and is reduced by approximately $.20 each month.
Interest on the Subordinated Debentures can be deferred for a period not to exceed 60 consecutive months with no change in the rights of the lenders. During any such deferral period, interest on the Trust Preferred Securities will accrue and compound monthly at an annualized rate of 9.40% and, subject to
certain exceptions, the Company may not declare or pay distributions on its capital or debt securities that rank equal to or junior to the Subordinated Debentures.
The Company announced in early August that it had informed the Trustee for the Amended and Restated Junior Subordinated Indenture, under which the Trust Preferred Securities were issued, that in accordance with Section 3.11 of the Indenture, it has exercised its right to defer (not cancel) the monthly interest payments commencing with the August 2004 payment. The Company has not determined the length of time it will exercise its rights to defer the monthly interest. It does not believe that payments will be deferred for the maximum 60 consecutive months allowed. The deferred interest plus interest thereon will be included in the financial statements as non-cash interest.
As a result of the Predecessor's loan covenant violations, the opinion of its certified public accountants on its consolidated financial statements included in Part II, Item 8 as of June 30, 2003 and 2002 for each of the three years in the period ended June 30, 2003 included an explanatory paragraph due to the uncertainty of its ability to obtain financing at a commercially reasonable rate, which raised doubt about the Predecessor's ability to continue as a going concern.
Commitments
The Company leases office and warehouse space, certain office equipment and automobiles under operating leases expiring through 2008. The future minimum annual lease payments under these non-cancelable operating leases are as follows:
Year Ended June 30, Amount ------------------------------------------------------------
2005 $ 602,000 2006 268,000 2007 9,000 2008 6,000 ------------------------------------------------------------ $ 885,000 ------------------------------------------------------------
Critical Accounting Policies
The preparation of financial statements requires the adoption and implementation of accounting policies and the use of assumptions and estimates in their presentation. The accounting policies and uncertainties, judgments and estimates
make it likely that materially different amounts would be reported under different conditions and different assumptions.
The Company has included below a discussion of the more critical accounting policies that are affected by the significant judgments and estimates used in the preparation of the financial statements, how such policies are applied, and how results differing from the estimates and assumptions would affect the amounts presented in the financial statements. Other accounting policies also have a significant effect on the financial statements, and some of these policies also require the use of estimates and assumptions.
Allowance for Doubtful Accounts Receivable. The Company maintains an allowance for doubtful accounts receivable, that represents the potential estimated losses resulting from the inability of customers to make required payments for amounts owed. The allowance is estimated based on historical experience of write-offs, the level of past due amounts and information known about specific customers with respect to their ability to make payments at the balance sheet date. If the financial condition of the Company's customers were to change, resulting in an impairment or improvement in their ability to make payments, additional allowances may be required or allowances may be reduced.
Inventories. The Company records inventory reserves for estimated obsolescence of inventory equal to the difference between the cost of inventory owned and the estimated market value. Market value is based upon the age of specific inventory on hand and assumptions about future demand and market conditions. If actual demand or market conditions for the sale of the inventory are less favorable than those anticipated by management, additional reserves may be required.
Accrued Expenses. The Company records its estimated costs for customer rebates and co-op adverting, freight and commission expenses as the related sales occur during the year. These accruals involve the use of estimates as to the expected program costs and the expected sales levels. If the program costs and / or the expected sales levels were to change from the estimates used in the accrual process, the accrued amounts might be either overstated or understated.
Goodwill. The Company under the purchase method has incurred costs in excess of the value of net assets acquired
which has been recorded as goodwill. Goodwill will be tested for impairment by comparing the carrying value of the assets to their fair value. The fair value of the assets could vary significantly over time and different assumptions and estimates will result in different valuations.
Trademarks. The Company obtained trademarks as part of the assets it acquired. The trademarks are estimated to have an indefinite life and are not being amortized. The fair value of the assets could vary significantly over time and different assumptions and estimates will result in different valuations.
Deferred Income Taxes. The Company records deferred income taxes based on enacted income tax rates in effect on the dates temporary differences between the financial reporting and tax bases of assets and liabilities reverse. To the extent that available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance is established. Actual results might differ from the estimates used in the computation of deferred income taxes.
New Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board (FASB) revised Statements of Financial Accounting Standards (SFAS) No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106. Amended SFAS No. 132 requires additional disclosures to those in the original SFAS No. 132 about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined postretirement plans. The provisions of the statement are effective for fiscal years ending after December 15,2003 and the interim period disclosures are effective for interim periods beginning after December 31, 2003. The amendments to SFAS No. 132 did not have an effect on the Company's financial statements.
Inflation
Inflation has historically not had a material effect on the Company's or Predecessor's operations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a result of its variable rate revolving credit line and term debt, the Company is exposed to the risk of rising interest rates. The Company also has minor exposure to changes in foreign exchange rates. The following table provides information on the Company's fixed maturity debt as of June 30, 2004 that are sensitive to changes in interest rates.
The Revolving Credit Facility with LaSalle Business Credit L.L.C. had a variable interest rate of 4.25% for the period ended
June 30, 2004 $13.5 million
The Term Loan A with Capital Source Finance, LLC had a variable interest rate of 10.0% for the period ended
June 30, 2004 $13.1 million
The Term Loan B with Capital Source Finance, LLC had a variable interest rate component of 13.0% for the period ended
June 30, 2004 $10.0 million
Item 8.
Item 8. Financial Statements and Supplementary Data.
This information appears in a separate section of this report following Part IV.
Item 9.
Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, as carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in timely alerting them to material information required to be included in the Company's periodic SEC filings at the reasonable assurance level.
(b) Changes in internal control over financial reporting. There has been no changes in the Company's internal control over financial reporting that occurred during the eight months ended June 30, 2004 that has materially affected or is reasonably likely to materially affect the internal controls over financial reporting.
Part II.
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Registrant is a limited partnership. EG Product Management LLC, a general partner, owns 1% of the Registrant and EG, LLC (Nevada) a limited partner, owns 99% of the Registrant. Both EG Product Management LLC and EG, LLC are wholly owned by EYAS International, Inc.
(1) Member, Audit Committee
Richard M. Grandy, has served as president and Chief Operations Officer of the Company and in the capacities noted
above since the entities commenced operations effective November 1, 2003. Prior to that he served as chief operating officer of U.S. Home & Garden, Inc (Predecessor) from June 30, 2001 to June 30, 2003 and President of Easy Gardener, Inc. from July 1997 to June 30, 2003. Prior to such time he served as vice president of Easy Gardener, Inc. from the date of its acquisition by U.S. Home & Garden, Inc. in September 1994. Mr. Grandy co-founded Easy Gardener, Inc. in 1983 after serving as marketing director at International Spike, Inc. from 1977 through 1983. From 1968 through 1977, Mr. Grandy was a sales representative of lawn and garden products for the Ortho Division of Chevron Chemical Co.
Wayne G. Fethke, has served in the capacities noted above since the entities commenced operations effective November 1, 2003. Mr Fethke has been involved with various private equity companies with investments in both consumer durable and industrial companies since July 2000 and is seeking to acquire companies in the consumer durable industry. From 1977 to April 2000, Mr. Fethke was employed as chief executive officer of Fiskars, Inc., a manufacturer of consumer durables, including scissors, knives, garden products, floor mats and tools. Mr. Fethke founded Fiskars USA in 1977. From 1974 to 1977, he was the manufacturing manager of Di-Arco Division, of Houdaille Industries, a manufacturer of metal forming machine tools. Prior to 1974, he was employed as the Supervisor of Industrial Engineering of the Browning Division of Emerson Electric.
Sheila Jones, has served in the capacities noted above since the entities commenced operations effective November 1, 2003. She has been vice president of Easy Gardener, Inc. since July 1997 and has also served as its general manager since U.S. Home & Garden, Inc.'s acquisition of Easy Gardener, Inc.'s assets in September 1994. Prior to that acquisition, Ms. Jones was employed by Easy Gardener, Inc.'s predecessor from its inception in September 1983, where she advanced to the positions of vice president and general manger. From April 1977 to September 1983, she was employed by International Spike, Inc., a manufacturer and marketer of fertilizer spikes, where she held various project management positions.
Richard M. Kurz, has served in the capacities noted above since the entities commenced operations effective November 1, 2003. Prior to that he was chief financial officer of U.S. Home & Garden, Inc. (Predecessor) since October 2001 and served as its vice president-finance from June 2001 until October 2001. He has also served as chief financial officer of Easy Gardener,
Inc. from October 2001 until October 29, 2003. From 1997 until December 2000, he was executive vice president and chief financial officer for Aircraft Interior Resources, Inc, a company that provides products and services to commercial airlines. From 1994 until 1997, he was senior vice president and chief financial officer of American Eagle Group, Inc., a service company that provided insurance services to the aviation and other specialized industries. From 1991 to 1994, he was chief financial and administrative officer of BDP International, Inc. a logistics service provider. From 1979 to 1991, he held a variety of senior financial positions with CIGNA Corporation, a healthcare provider. Mr. Kurz is a certified public accountant.
All directors hold office until the next annual meeting of the stockholders of EYAS International, Inc. and the election and qualification of their successors. The officers are elected by the Board and serve at the discretion of the Board.
Voting Security Ownership of Principal Beneficial Owners and Management of Easy Gardener Products, Inc.
EYAS International Inc. has outstanding 267,500 shares of common stock. The following table sets out the number of shares of EYAS International Inc. that are beneficially owned, as of the closing, by:
o each person known to be the owner of more than 5% of the outstanding shares of common stock of EYAS;
o each director;
o each executive officer; and
o all executive officers and directors as a group
The shares for Mr. Grandy include 88,800 shares owned by the Grandy Partnership, Ltd. And 27,000 shares held in Mr. Grandy's IRA.
Unless otherwise noted, the Company believes that all of the persons named in the table have sole voting and investment power with respect to all shares of common stock of EYAS beneficially owned by them.
As described earlier in this report, Central Garden & Pet Company, a subordinated lender, has the right to convert it's subordinated loan plus accrued interest into a 49% ownership interest in the Company. The Company has also given Central Garden & Pet Company an option, which is exercisable after October 29, 2006, to purchase the remaining 51% interest in the Company.
Item 11.
Item 11. Executive Compensation.
The following table discloses the compensation awarded by the Company since it commenced operations on November 1, 2003 through June 30, 2004 to the three executive officers noted below. While these individuals have various positions within the various affiliates of the Company as noted in Item 10, their only compensation comes from the Company.
Summary Compensation Table
(1) Represents Company contributions to the Named Officers 401(k)/profit sharing accounts. Excludes certain perquisites that did not exceed the lesser of $50,000 or 10% of the combined bonus and salary of the named officers.
Committees of the Board of Directors
The Company has established an Audit Committee which is currently comprised of Mr. Fethke. The Audit Committee, among other things, makes recommendations to the Board of Directors with respect to the engagement of the independent certified public accountants and reviews the scope and effect of the audit engagement.
Director Compensation
For the eight months ended June 30, 2004, Mr. Fethke, the non-employee director, was compensated under a Consulting Service Agreement in the amount of $40,000.00.
Item 14.
Item 14. Principal Accountant Fees and Services.
Audit Fees.
Fees billed for professional services by the principal accountant for the audit of the Company's annual financial statements as of June 30, 2004 and review of financial statements included in the Company's December 31, 2003 and March 31, 2004 Form 10-Q's as of June 30, 2004.
Audit-Related Fees
As of June 30, 2004 $110,850
Tax Fees
None
All Other Fees
None
All fees of the principal accountant have been approved by the Audit Committee.
Part IV.
Item 15.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements.
The Financial Statements and Index follow this
(2) Financial Statement Schedule.
Schedule II-Valuation and Qualifying Accounts.
(3) Exhibits
Exhibit No.
2.1 Asset Purchase Agreement, dated December 11, 2002, by and between USH&G, Easy Gardener, Ampro, Weed Wizard Acquisition Corp., EGP and EYAS International, Inc., and Amendment thereto dated July 31, 2003, with lists of exhibits attached.**
3.1 Certificate of Limited Partnership of Easy Gardener Products, Ltd.*
4.1 Amended and Restated junior Subordinated Indenture.**
4.2 Second Amended and Restated Trust Agreement.**
4.3 Trust Preferred Securities Certificate of Easy Gardener Products Trust I.**
4.4 9.40% Junior Subordinated Deferrable Interest Debenture of Easy Gardener Products, Ltd.**
4.5 Amended and Restated Guarantee Agreement.**
4.6 Amended and Restated Agreement as to Expense and Liabilities between Easy Gardener Products, Ltd. and Easy Gardener Products Trust I.**
10.1 Easy Gardener Products, Ltd., a Texas Limited Partnership, Amended and Restated Limited Partnership Agreement dated as of October 29, 2003. ***
10.2 Loan and Security Agreement with LaSalle Business Credit, LLC, as Agent, certain financial institutions as Lenders and Easy Gardener Products, Ltd., as Borrower, EYAS International, Inc., as a Credit Party, EG Product Management, L.L.C., as a Credit Party, EG, L.L.C., as a Credit Party, Weatherly Consumer Products Group, Inc., as a Credit Party, Weatherly Consumer Products, Inc., as a Credit Party, and NBU Group, LLC, as a Credit Party dated as of April 27, 2004. ***
10.3 Revolving Note executed as of the 27th day of April, 2004 by and among LaSalle National Bank National Association, as Lender and Easy Gardener Products, Ltd., as Borrower.***
10.4 Revolving Note executed as of the 27th day of April, 2004 by and among LaSalle Business Credit, LLC, as Lender and Easy Gardener Products, Ltd., as Borrower.***
10.5 Patent Security Agreement made as of the 27th day of April, 2004, by Easy Gardener Products, Ltd., as Borrower, in favor of LaSalle Business Credit, LLC, as agent for the Lenders party to the Loan Agreement.***
10.6 Patent Security Agreement made as of the 27th day of April, 2004, by Weatherly Consumer Products, Inc., in favor of LaSalle Business Credit, LLC, as agent for the Lenders party to the Loan Agreement.***
10.7 Trademark Security Agreement made as of the 27th day of April, 2004, by Easy Gardener Products, Ltd., as Borrower, in favor of LaSalle Business Credit, LLC., as agent for the Lenders party to the Loan Agreement.***
10.8 Copyright Security Agreement made as of the 27th day of April, 2004, by Easy Gardener Products, Ltd., as Borrower, in favor of LaSalle Business Credit, LLC., as agent for the Lenders party to the Loan Agreement.***
10.9 Copyright Security Agreement made as of the 27th day of April, 2004, by Weatherly Consumer Products, Inc., in favor of LaSalle Business Credit, LLC., as agent for the Lenders party to the Loan Agreement.***
10.10 Master Pledge Agreement made as of April 27, 2004, by Weatherly Consumer Products, Inc., a Delaware corporation and Easy Gardener Products, Ltd., in favor of LaSalle Business Credit, LLC., as agent for itself and the Lenders.***
10.11 Subordination and Intercreditor Agreement dated as of April 27, 2004, by and between CapitalSource Finance, LLC, a Delaware limited liability company , and in its capacity as a Junior Lender, LaSalle Business Credit, LLC, a Delaware limited liability company, and in its capacity as a Senior Lender and LaSalle Bank National Association, in its capacity as a Senior Lender.***
10.12 Subordination Agreement between Central Garden & Pet Company and LaSalle Business Credit, LLC, as Agent.***
10.13 Subordination Agreement between U.S. Home & Garden, Inc. and LaSalle Business Credit, LLC, as Agent.***
10.14 Term Loan and Security Agreement by and among Easy Gardener Products, Ltd., as Borrower, EYAS International, Inc., E G Product Management, L.L.C., EG, L.L.C., Weatherly Consumer Products Group, Inc., Weatherly Consumer Products, Inc. and NBU Group, LLC, each as Guarantor, and CapitalSource Finance LLC, as Agent and Lender dated as of October 29, 2003.***
10.15 Term A Loan Note dated as of October 29, 2003 by and between Easy Gardener Products, Ltd., and CapitalSource Finance LLC.***
10.16 Term B Loan Note dated as of October 29, 2003 by and between Easy Gardener Products, Ltd., CapitalSource Finance LLC.***
10.17 PIK Note dated as of October 29, 2003 by and between Easy Gardener Products, Ltd. and CapitalSource Finance LLC.***
10.18 Subordination Agreement between Central Garden & Pet Company and CapitalSource Finance LLC, as Agent.***
10.19 Subordination Agreement between U.S. Home & Garden, Inc. and CapitalSource Finance LLC, as Agent.***
10.20 Pledge Agreement entered into as of October 29, 2003, by and between CapitalSource Finance, LLC, as administrative, payment and collateral agent for the Lenders under the Term Loan and Security Agreement, and Easy Gardener Products, Ltd.***
10.21 Pledge Agreement entered into as of October 29, 2003, by and between CapitalSource Finance, LLC, as administrative, payment and collateral agent for the Lenders under the Term Loan and Security Agreement, and E G Product Management, LLC.***
10.22 Pledge Agreement entered into as of October 29, 2003, by and between CapitalSource Finance, LLC, as administrative, payment and collateral agent for the Lenders under the Term Loan and Security Agreement, and EG, L.L.C.***
10.23 Pledge Agreement entered into as of October 29, 2003, by and between CapitalSource Finance, LLC, as administrative, payment and collateral agent for the Lenders under the Term Loan and Security Agreement, and EYAS International, Inc.***
10.24 Central Garden Pledge Agreement, as Exhibit B to Subordination Agreement, entered into as of October 29, 2003, by and between CapitalSource Finance LLC, as administrative, payment and collateral agent for the Lenders under the Term Loan and Security Agreement, and Central Garden & Pet Company.***
10.25 Pledge Agreement entered into as of October 29, 2003, by and between CapitalSource Finance, LLC, as administrative, payment and collateral agent for the Lenders under the Term Loan and Security Agreement, and NBU Group, LLC.***
10.26 Pledge Agreement entered into as of October 29, 2003, by and between CapitalSource Finance, LLC, as administrative, payment and collateral agent for the
Lenders under the Term Loan and Security Agreement, and Weatherly Consumer Products, Inc.***
10.27 Acknowledgement of Intellectual Property and Collateral Lien dated as of October 29, 2003, by and among Easy Gardener Products, Ltd., as Borrower, EYAS International, Inc., EG, L.L.C., E G Product Management, L.L.C., Weatherly Consumer Products Group, Inc., Weatherly Consumer Products, Inc., and NBU Group, LLC, each as Guarantor, in favor of CapiralSource Finance LLC, as administrative agent and collateral agent under the Loan Agreement.***
10.28 Amendment to Subordination Agreement dated as of October 29, 2003 by and between Central Garden & Pet Company and CapitalSource Finance, LLC dated as of April 27, 2004.***
10.29 Amendment to Subordination Agreement dated as of October 29, 2003 by and between U.S. Home & Garden, Inc. and CapitalSource Finance, LLC dated as of April 27, 2004.***
10.30 Subordinated Promissory Note by and among Easy Gardener Products, Ltd. and EG Product Management L.L.C., as general partner and U.S. Home & Garden, Inc. as Lender dated as of October 29, 2003.***
10.31 Note and Warrant Purchase Agreement made as of October 29, 2003 by and between Easy Gardener Products, Ltd., and Central Garden & Pet Company.***
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1 Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference to the comparable exhibit filed with the Easy Gardener Products, Ltd. S-4 (Nos 333-102296).
** Incorporated by the reference to the applicable exhibit filed with the Registrant's Form 8-K November 13, 2003.
*** Incorporated by reference to the applicable exhibit filed with the registrant's Form 10-Q for the quarter ended March 31, 2004.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.
Easy Gardener Products, Ltd. (Registrant)
By: /s/ Richard Grandy ---------------------- Manager / CEO
Dated: October 13, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ----
/s/ Richard M. Grandy Manager / CEO October 13, 2004 - ---------------------- Richard M. Grandy
/s/ Richard Kurz Manager / CFO October 13, 2004 - ------------------ (Principal Financial Richard Kurz and Accounting Officer)
/s/ Wayne Fethke Director October 13, 2004 - ------------------ Wayne Fethke