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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
--
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2002
------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
JARDEN CORPORATION
DELAWARE 0-21052 35-1828377
State of Incorporation Commission File Number IRS Identification Number
555 THEODORE FREMD AVENUE
RYE, NEW YORK 10580
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 967-9400
----------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 2, 2002
----- -----------------------------
Common Stock,
par value $.01 per share 14,255,837 shares
JARDEN CORPORATION
Quarterly Report on Form 10-Q
For the period ended June 30, 2002
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income for the three and six month
periods ended June 30, 2002 and July 1, 2001 3
Consolidated Statements of Comprehensive Income for the three
and six month periods ended June 30, 2002 and July 1, 2001 4
Consolidated Balance Sheets at June 30, 2002 and December 31,
2001 5
Consolidated Statements of Cash Flows for the six month periods
ended June 30, 2002 and July 1, 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Signature
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
JARDEN CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Three Month Six Month
Period Ended Period Ended
------------ ------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
---- ---- ---- ----
Net sales.............................................. $105,113 $ 90,598 $152,677 $159,625
Costs and expenses
Cost of sales....................................... 62,850 65,921 97,904 120,013
Selling, general and administrative expenses........ 24,547 13,898 32,924 26,274
Goodwill amortization............................... - 1,625 - 3,250
Special charges (credits) and reorganization
expenses ......................................... - (2,016) - (3,668)
----------- ----------- ----------- -----------
Operating earnings..................................... 17,716 11,170 21,849 13,756
Interest expense, net.................................. 3,753 3,047 4,985 6,171
----------- ----------- ----------- -----------
Income before taxes and minority interest.............. 13,963 8,123 16,864 7,585
Provision for income taxes............................. 5,875 3,095 1,584 2,890
Minority interest in consolidated subsidiary .......... - (83) - (178)
----------- ----------- ----------- -----------
Net income............................................. $ 8,088 $ 5,111 $ 15,280 $ 4,873
=========== =========== =========== ===========
Basic earnings per share.............................. $ .58 $ .40 $ 1.11 $ .38
Diluted earnings per share............................. $ .56 $ .40 $ 1.09 $ .38
Weighted average shares outstanding:
Basic.............................................. 14,011 12,715 13,723 12,695
Diluted............................................ 14,337 12,744 14,058 12,718
See accompanying notes to consolidated financial statements.
3
JARDEN CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Three Month Six Month
Period Ended Period Ended
------------ ------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
---- ---- ---- ----
Net income....................................... $ 8,088 $ 5,111 $ 15,280 $ 4,873
Foreign currency translation................... 1,139 292 1,124 (50)
Interest rate swap unrealized gain (loss)
Transition adjustment........................ - - - 45
Change during period........................ - (197) - (865)
Maturity of interest rate swaps............. - - 524 -
---------- ---------- ---------- ----------
Comprehensive income......................... $ 9,227 $ 5,206 $ 16,928 $ 4,003
========== ========== ========== ===========
See accompanying notes to unaudited consolidated financial statements.
4
JARDEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
June 30, December 31,
2002 2001
---------------- --------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 38,618 $ 6,376
Accounts receivable, net...................................... 43,247 13,628
Inventories, net.............................................. 49,358 26,994
Income taxes receivable....................................... 1,006 16,252
Deferred taxes on income...................................... 5,632 4,832
Prepaid expenses and other current assets..................... 7,520 3,134
---------------- -------------
Total current assets.................................. 145,381 71,216
---------------- -------------
Noncurrent assets:
Property, plant and equipment, at cost............................ 136,280 131,244
Accumulated depreciation.......................................... (92,096) (87,701)
---------------- -------------
44,184 43,543
Intangibles, net................................................. 124,885 15,487
Deferred taxes on income......................................... 9,355 25,417
Other assets..................................................... 13,863 5,282
---------------- -------------
Total assets..................................................... $337,668 $160,945
================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt....... $ 14,602 $ 28,500
Accounts payable............................................ 24,678 14,197
Accrued salaries, wages and employee benefits............... 10,196 9,252
Other current liabilities................................... 26,229 11,232
---------------- -------------
Total current liabilities........................... 75,705 63,181
---------------- -------------
Noncurrent liabilities:
Long-term debt.............................................. 198,999 56,375
Other noncurrent liabilities................................ 4,760 6,260
---------------- -------------
Total noncurrent liabilities........................ 203,759 62,635
---------------- -------------
Commitments and contingencies................................... - -
Stockholders' equity:
Common stock ($.01 par value, 15,926 and 15,926 shares issued
and 14,254 and 12,796 shares outstanding at June 30, 2002
and December 31, 2001, respectively)...................... 159 159
Additional paid-in capital................................... 34,609 41,694
Retained earnings............................................ 48,004 32,724
Notes receivable for stock purchases......................... (5,008) -
Accumulated other comprehensive loss:
Cumulative translation adjustment......................... 183 (941)
Minimum pension liability................................. (397) (397)
Interest rate swap........................................ - (524)
---------------- -------------
77,550 72,715
Less treasury stock (1,672 and 3,130 shares at cost at June 30,
2002 and December 31, 2001, respectively)................. (19,346) (37,586)
---------------- -------------
Total stockholders' equity.......................... 58,204 35,129
---------------- -------------
Total liabilities and stockholders' equity....................... $337,668 $160,945
================ =============
See accompanying notes to unaudited consolidated financial statements.
5
JARDEN CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six month period ended
----------------------------
June 30, July 1,
2002 2001
----------- -----------
Cash flows from operating activities
Net income......................................................... $ 15,280 $ 4,873
Reconciliation of net income to net cash provided by operating
activities:
Depreciation................................................... 4,539 7,459
Amortization................................................... 250 3,377
Special charges (credits) and reorganization expenses.......... - (5,056)
Deferred employee benefits..................................... (1,892) 502
Deferred income taxes.......................................... 475 -
Non-cash interest expense...................................... 923 217
Other, net..................................................... 385 (301)
Changes in working capital components (including tax refunds of
$38,458 in 2002).............................................. 27,193 4,133
----------- -----------
Net cash provided by operating activities...................... 47,153 15,204
----------- -----------
Cash flows from financing activities
Proceeds from revolving credit borrowings......................... 25,200 22,450
Payments on revolving credit borrowings........................... (34,600) (25,950)
Proceeds from bond issuance....................................... 147,654 -
Payments on long-term debt........................................ (75,475) (12,059)
Proceeds from issuance of senior long-term debt................... 50,000 -
Debt issue and amendment costs.................................... (7,499) (637)
Proceeds from issuance of common stock............................ 3,544 413
----------- -----------
Net cash provided by (used in) financing activities............ 108,824 (15,783)
----------- -----------
Cash flows from investing activities
Additions to property, plant and equipment......................... (3,070) (6,551)
Acquisition of Tilia, net of cash acquired......................... (120,665) -
Proceeds from the surrender of insurance contracts................. - 6,706
Insurance proceeds from property casualty.......................... - 1,535
Loans to former officers........................................... - (4,059)
Other, net......................................................... - 25
----------- -----------
Net cash used in investing activities........................... (123,735) (2,344)
----------- -----------
Net increase (decrease) in cash and cash equivalents................... 32,242 (2,923)
Cash and cash equivalents, beginning of period......................... 6,376 3,303
----------- -----------
Cash and cash equivalents, end of period.................................$ 38,618 $ 380
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
6
JARDEN CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
Certain information and footnote disclosures, including significant
accounting policies normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States, have been condensed or omitted. In the opinion of management, the
accompanying unaudited consolidated financial statements include all
adjustments considered necessary for a fair presentation of the results for
the interim periods presented. Results of operations for the periods shown
are not necessarily indicative of results for the year, particularly in
view of the seasonality for home food preservation products. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements of Jarden Corporation (formerly Alltrista
Corporation) (the "Company" or "Jarden") included in the Company's latest
annual report.
On a stand alone basis, without the consolidation of its subsidiaries, the
Company has no independent assets or operations. The guarantees by its
subsidiaries of the 9 3/4% senior subordinated notes ("Notes"), which are
discussed in Note 4, are full and unconditional and joint and several. The
subsidiaries that are not guarantors of the Notes are minor. There are no
significant restrictions on the Company's or the guarantors' ability to
obtain funds from their respective subsidiaries by dividend or loan.
The Company recognizes revenue when title transfers. In most cases, title
transfers when product is shipped. For certain customers, depending on the
agreed terms of sale, title transfers when the product is received by the
customer.
All earnings per share amounts have been retroactively adjusted to give
effect to a 2-for-1 split of the Company's outstanding shares of common
stock that was effected in the second quarter of 2002.
Certain reclassifications have been made in the Company's financial
statements of prior years to conform to the current year presentation.
These reclassifications have no impact on previously reported net income.
2. INVENTORIES
Inventories at June 30, 2002 and December 31, 2001 were comprised of the
following (in thousands):
December
June 30, 31,
2002 2001
-------------- ---------------
Raw materials and supplies............................. $ 3,074 $ 5,563
Work in process........................................ 7,105 4,746
Finished goods......................................... 39,179 16,685
-------------- ---------------
Total inventories.................................... $ 49,358 $ 26,994
============== ===============
3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations, and No. 142 (SFAS 142), Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized, but will be subject to annual impairment tests in
accordance with the Statements. Other intangible assets will continue to be
amortized over their useful lives. The Company applied the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. The Company has performed the first of the required
impairment tests of goodwill and indefinite lived intangible assets and,
based on the results, has not recorded any charges related to the adoption
of SFAS 142.
During the three months ended June 30, 2002, in connection with the
acquisition of the business of Tilia International, Inc. and its
subsidiaries Tilia, Inc. and Tilia Canada, Inc. (collectively "Tilia"), the
Company capitalized the following intangible assets: $53.2 million of
goodwill, $50.9 million for the FoodSaver(R) brand and $5.5 million for
Tilia's manufacturing process expertise (see Note 4). Such capitalized
amounts are preliminary and will be finalized by the
7
Company during 2002. The only intangible asset subject to amortization is
the manufacturing process expertise, which will be amortized over a period
of 8 years at approximately $0.7 million per year.
As a result of the adoption of SFAS 142 the Company did not record goodwill
amortization and no impairment losses were recognized for the three and six
month periods ended June 30, 2002. Amortization of the intangible asset for
the Tilia manufacturing processes in the amount of $0.2 million was
recorded in both the three and six month periods ended June 30, 2002, and
was included in selling, general and administrative expenses. Goodwill
amortization of approximately $1.6 million and $3.3 million had been
recorded in the three and six month periods ended July 1, 2001.
As of June 30, 2002, all intangible assets are included in the assets of
the Consumer Products Group segment. For the three and six month periods
ended July 1, 2001, goodwill amortization of $1.3 million and $2.7 million,
respectively, related to entities that were disposed of in 2001, which had
been included in the Materials Based Group segment. The remaining goodwill
amortization for these 2001 periods related to the Consumer Products Group
segment.
Net income and earnings per share amounts on an adjusted basis to reflect
the add back of goodwill and other intangible assets amortization would be
as follows (in thousands, except for per share amounts):
Three month period ended Six month period ended
--------------------------- --------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
------------ ------------- ------------ ------------
Reported net income..................................... $8,088 $ 5,111 $ 15,280 $ 4,873
Add back: goodwill amortization
(net of tax expense of $622 and $1,244, 2,006
respectively) ................................... - 1,003 -
----------- ------------ ------------ ------------
Adjusted net income................................. $8,088 $ 6,114 $ 15,280 $ 6,879
=========== ============ ============ ============
Basic earnings per share:
Reported net income.................................. $ 0.58 $ 0.40 $ 1.11 $ 0.38
Goodwill amortization................................ - 0.08 - 0.16
----------- ------------ ------------ ------------
Adjusted net income.................................. $ 0.58 $ 0.48 $ 1.11 $ 0.54
=========== ============ ============ ============
Diluted earnings per share:
Reported net income.................................. $ 0.56 $ 0.40 $ 1.09 $ 0.38
Goodwill amortization................................ - 0.08 - 0.16
----------- ------------ ------------ ------------
Adjusted net income.................................. $ 0.56 $ 0.48 $ 1.09 $ 0.54
=========== ============ ============ ============
The adoption of SFAS 141 did not have a material impact on the Company's
results of operations or financial position.
In August 2001, the FASB issued Statement of Financial Accounting Standard
No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived
Assets, effective for fiscal years beginning after December 15, 2001. This
standard superceded Statement of Financial Accounting Standard No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and provided a single accounting model for
long-lived assets to be disposed of. The new standard also superceded the
provisions of APB Opinion No. 30 with regard to reporting the effects of a
disposal of a segment of a business and required expected future operating
losses from discontinued operations to be displayed in discontinued
operations in the period(s) in which the losses are incurred. SFAS 144 was
effective for the Company beginning with the first quarter of 2002 and its
adoption did not have a material impact on the Company's results of
operations or financial position.
4. ACQUISITIONS AND DIVESTITURES
Effective November 26, 2001, the Company sold the assets of its Triangle,
TriEnda and Synergy World plastic thermoforming operations ("TPD Assets")
to Wilbert, Inc. for $21.0 million in cash, a $1.9 million non-interest
bearing one-year note as well as the assumption of certain identified
liabilities.
Effective November 1, 2001, the Company sold its majority interest in
Microlin, LLC ("Microlin"), for $1,000 in cash plus contingent
consideration based upon future performance through December 31, 2012 and
the cancellation of future funding requirements.
8
The combined net sales of TPD Assets and Microlin included in the Company's
historical results were $18.2 million and $37.0 million for the three and
six month periods ended July 1, 2001, respectively. Operating losses
associated with these businesses were $2.4 million and $5.0 million for the
three and six month periods ended July 1, 2001, respectively.
On April 24, 2002, the Company completed its acquisition of the business of
Tilia, pursuant to an asset purchase agreement (the "Acquisition"). Based
in San Francisco, California, Tilia is a developer, manufacturer and
marketer of a patented vacuum packaging system for home use, primarily for
food storage, under the FoodSaver(R) brand. The Acquisition was entered
into as part of the Company's plan to pursue growth in food preservation
and branded domestic consumer products. Pursuant to the Acquisition, the
Company acquired Tilia for approximately $145 million in cash and $15
million in seller debt financing. Note 3 includes a discussion of the
intangible assets that were recorded in connection with the Acquisition. As
of June 30, 2002, the Company had incurred transaction fees in the amount
of approximately $4.1 million, including transaction bonuses paid to
certain officers in the aggregate amount of $0.9 million, principally
consisting of transaction bonuses paid to Martin E. Franklin, our Chairman
and Chief Executive Officer, in the amount of $0.5 million and Ian Ashken,
our Vice Chairman, Chief Financial Officer, and Secretary, in the amount of
$0.3 million. In addition, the Acquisition includes an earn-out provision
with a potential payment in cash or Company common stock of up to $25
million payable in 2005, provided that certain earnings performance targets
are met.
Due to the Company having effective control of Tilia as of April 1, 2002,
the results of Tilia have been included in the Company's results from such
date. The Company recorded $0.6 million of imputed interest expense in the
second quarter of 2002 to reflect the financing that would have been
required for the period from the effective date (April 1, 2002) to the date
of closing (April 24, 2002). The imputed interest expense reduced the
amount of goodwill recorded.
The Acquisition was financed by (i) an offering of $150 million of Notes to
qualified institutional buyers in a private placement pursuant to Rule 144A
under the Securities Act of 1933, (ii) a refinancing of the Company's
existing indebtedness with a new $100 million five-year senior secured
credit facility, which includes a $50 million term loan facility and a $50
million revolving credit facility ("New Credit Agreement") and (iii) cash
on hand.
The Notes were issued at a discount such that the Company received
approximately $147.7 million in net proceeds. The Notes will mature on May
1, 2012, however, on or after May 1, 2007, the Company may redeem all or
part of the Notes at any time at a redemption price ranging from 100% to
104.875% of the principal amount, plus accrued and unpaid interest and
liquidated damages, if any. Prior to May 1, 2005, the Company may redeem up
to 35% of the aggregate principal amount of the Notes with the net cash
proceeds from certain public equity offerings at a redemption price of
109.75% of the principal amount, plus accrued and unpaid interest and
liquidated damages, if any. Interest on the Notes accrues at the rate of
9.75% per annum and is payable semi-annually in arrears on May 1 and
November 1, commencing on November 1, 2002.
The revolving credit facility and the term loan facility bear interest at a
rate equal to (i) the Eurodollar Rate pursuant to an agreed formula or (ii)
a Base Rate equal to the higher of (a) the Bank of America prime rate and
(b) the federal funds rate plus .50%, plus, in each case, an applicable
margin ranging from 2.00% to 2.75% for Eurodollar Rate loans and from .75%
to 1.5% for Base Rate loans.
The New Credit Agreement contains certain restrictions on the conduct of
the Company's business, including, among other things restrictions,
generally, on: incurring debt; making investments; exceeding certain agreed
upon capital expenditures; creating or suffering liens; completing certain
mergers; consolidations and sales of assets and with permitted exceptions,
acquisitions; declaring dividends; redeeming or prepaying other debt; and
certain transactions with affiliates. The New Credit Agreement also
requires the Company to maintain certain financial covenants.
As of June 30, 2002, the Company had drawn down $50 million under the term
loan facility, but had not drawn down the $50 million available under the
revolving credit facility of the New Credit Agreement, although the Company
had used an amount of approximately $4.1 million of availability for the
issuance of letters of credit.
As of June 30, 2002, the Company had incurred costs in connection with the
issuance of the Notes and the New Credit Agreement of approximately $7.5
million.
9
The following unaudited pro forma financial information gives pro forma
effect to the sale of the TPD Assets and Microlin with the related tax
refunds and the acquisition of Tilia with the related financings as if they
had been consummated as of the beginning of each period presented. The
unaudited pro forma information presented does not exclude special charges
(credits) and reorganization expenses from the three and six month periods
ended July 1, 2001 or the net $4.9 million income tax valuation allowance
released from the three and six month periods ended June 30, 2002 (in
thousands of dollars, except per share data).
Three month period ended Six month period ended
---------------------------------- ------------------------------------
June 30, 2002 July 1, 2002 June 30, 2002 July 1, 2001
As reported Pro Forma Pro Forma Pro Forma
--------------- --------------- --------------- ----------------
Net sales................................... $105,113 $103,984 $191,202 $194,798
Net income.................................. 8,088 6,040 16,631 10,627
Diluted earnings per share.................. 0.56 0.47 1.18 0.84
5. INCOME TAXES
As a result of the losses arising from the sale of the TPD Assets, the
Company recovered in January 2002 approximately $15.7 million of federal
income taxes paid in 1999 and 2000 by utilizing the carryback of a tax net
operating loss generated in 2001. On March 9, 2002, The Job Creation and
Workers Assistance Act of 2002 was enacted which provides, in part, for the
carryback of 2001 net operating losses for five years instead of the
previous two year period. As a result, the Company filed for an additional
refund of $22.8 million, of which $22.2 million was received in March 2002
and the remainder was received in April 2002.
At December 31, 2001, the federal net operating losses were recorded as a
deferred tax asset with a valuation allowance of $5.4 million. Such
valuation allowance was released in the first quarter of 2002. Second
quarter 2002 tax expense includes a $0.5 million reversal of a portion of
the release of the valuation allowance recorded in the first quarter of
2002. As a result of this, for the six months ended June 30, 2002, a net
$4.9 million of the valuation allowance has been released, resulting in a
reduction of the Company's effective tax rate.
6. CONTINGENCIES
The Company is involved in various legal disputes in the ordinary course of
business. In addition, the Environmental Protection Agency has designated
the Company as a potentially responsible party, along with numerous other
companies, for the clean up of several hazardous waste sites. Based on
currently available information, the Company does not believe that the
disposition of any of the legal or environmental disputes the Company is
currently involved in will require material capital or operating
expenditures or will otherwise have a material adverse effect upon the
financial condition, results of operations, cash flows or competitive
position of the Company. It is possible, that as additional information
becomes available, the impact on the Company of an adverse determination
could have a different effect.
7. EXECUTIVE LOAN PROGRAM
On January 24, 2002, Martin E. Franklin, Chairman and Chief Executive
Officer, and Ian G.H. Ashken, Vice Chairman, Chief Financial Officer and
Secretary exercised 600,000 and 300,000 non-qualified stock options,
respectively, which had been granted under the Company's 2001 Stock Option
Plan. The Company issued these shares out of its treasury stock account.
The exercises were accomplished via loans from the Company under its
Executive Loan Program. The principal amounts of the loans are $3.3 million
and $1.6 million, respectively, and bear interest at 4.125% per annum. The
loans are due on January 23, 2007 and are classified within the
stockholders' equity section. The loans may be repaid in cash, shares of
the Company's common stock, or a combination thereof.
8. RESTRICTED STOCK PROGRAM
During the first quarter of 2002, restricted shares of common stock in the
aggregate amount of 143,500 were issued to certain officers and key
employees of the Company under its 1998 Long-Term Equity Incentive Plan, as
amended and restated. The restrictions on 140,000 of these shares shall
lapse upon the Company's common stock achieving a set price, currently $35
per share, or on a change in control. The restrictions on the remaining
3,500 shares will lapse ratably over 5 years of employment with the
Company.
10
9. SPECIAL CHARGES (CREDITS) AND REORGANIZATION EXPENSES
During the first quarter of 2001, certain participants in the Company's
deferred compensation plans agreed to forego balances in those plans in
exchange for loans from the Company in the same amounts. The loans, which
were completed during 2001, bear interest at the applicable federal rate
and require the individuals to secure a life insurance policy having the
death benefit equivalent to the amount of the loan payable to the Company.
All accrued interest and principal on the loans will be payable upon the
death of the participant and their spouse. The Company recognized $1.9
million and $2.2 million of pre-tax income during the first and second
quarters of 2001, respectively, related to the discharge of the deferred
compensation obligations.
The Company also incurred $0.2 million and $1.2 million of costs during the
first and second quarters of 2001, respectively, to evaluate strategic
options. Additionally, the Company's divested TPD Assets division
recognized a gain of $1.0 million from an insurance recovery in the second
quarter of 2001.
10. EARNINGS PER SHARE CALCULATION
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share are calculated based on the weighted average
number of outstanding common shares plus the dilutive effect of stock
options as if they were exercised and restricted common stock.
A computation of earnings per share is as follows (in thousands, except per
share data):
Three month Six month
period ended period ended
------------------------- --------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
------------ ----------- ---------- -------------
Net income....................................... $8,088 $5,111 $ 15,280 $ 4,873
------------ ----------- ---------- -------------
Weighted average shares outstanding............. 14,011 12,715 13,723 12,695
Additional shares assuming conversion of
stock options and restricted common stock... 326 29 335 23
------------ ----------- ---------- -------------
Weighted average shares outstanding
assuming conversion.......................... 14,337 12,744 14,058 12,718
------------ ----------- ---------- -------------
Basic earnings per share......................... $ .58 $ .40 $ 1.11 $ .38
Diluted earnings per share....................... $ .56 $ .40 $ 1.09 $ .38
11. SEGMENT INFORMATION
Following the sale of the TPD Assets and Microlin and the third quarter
2001 appointment of new executive management, the Company reorganized its
business segments to reflect the new business and management strategy.
Prior periods have been reclassified to conform to the current segment
definitions.
The Company is now organized into two distinct segments: Consumer Products
Group and Materials Based Group. The Consumer Products Group consists of
the Tilia and Alltrista Consumer Products Company (ACPC) divisions. Tilia
is a developer, manufacturer and marketer of the FoodSaver(R) line which is
the U.S. market leader in home vacuum packaging systems and accessories.
ACPC markets a line of home food preservation products under the Ball(R),
Kerr(R) and Bernardin(R) brands. Products include home canning jars which
are sourced from major commercial glass container manufacturers, home
canning metal closures, and related food products, which are distributed
through a wide variety of retail outlets.
The Materials Based Group is the largest producer of zinc strip in the
United States and manufactures injection molded and industrial plastics.
For the three and six month periods ended July 1, 2001, this segment also
included the business which comprised the TPD Assets and Microlin.
11
Net sales, operating earnings and assets employed in operations by segment
are summarized as follows (thousands of dollars):
Three month Six month
period ended period ended
------------------------- --------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
------------ ----------- ----------- -------------
Net sales:
Consumer products group................... $ 75,523 $ 42,785 $ 95,374 $ 62,151
Materials based group..................... 29,619 47,951 57,805 98,001
Intercompany.............................. (29) (138) (502) (527)
------------ ----------- ----------- -------------
Total net sales ...................... $105,113 $ 90,598 $152,677 $159,625
============ =========== =========== =============
Operating earnings:
Consumer products group.................... $ 12,525 $ 8,273 $ 13,051 $ 8,071
Materials based group...................... 5,180 861 8,794 1,997
Intercompany............................... 11 20 4 20
Unallocated corporate expenses (1)......... - 2,016 - 3,668
------------ ----------- ----------- -------------
Total operating earnings.............. 17,716 11,170 21,849 13,756
Interest expense, net............................ 3,753 3,047 4,985 6,171
------------ ----------- ----------- -------------
Income before taxes and minority interest........ $ 13,963 $ 8,123 $ 16,864 $ 7,585
============ =========== =========== =============
June 30, December 31,
2002 2001
---------------- ----------------
Assets employed in operations:
Consumer products group........................ $218,359 $ 50,943
Materials based group............................ 57,299 55,152
------------- ----------------
Total assets employed in operations....... 275,658 106,095
Corporate (2).................................... 62,010 54,850
------------- ----------------
Total assets.................................. $337,668 $ 160,945
============= ================
(1) Unallocated corporate expenses in 2001 comprise of special charges (credits)
and reorganization expenses.
(2) Corporate assets primarily include cash and cash equivalents, amounts
relating to benefit plans, deferred tax assets and corporate facilities and
equipment.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's derivative activities do not create additional risk because
gains and losses on derivative contracts offset losses and gains on the
assets, liabilities and transactions being hedged. As derivative contracts
are initiated, the Company designates the instruments individually as
either a fair value hedge or a cash flow hedge. Management reviews the
correlation and effectiveness of its derivatives on a periodic basis.
Under its prior senior credit facility, as amended ("Old Credit
Agreement"), the Company used interest rate swaps to manage a portion of
its exposure to short-term interest rate variations with respect to the
London Interbank Offered Rate ("LIBOR") on its term debt obligations. The
Company designated the interest rate swaps as cash flow hedges. Gains and
losses related to the effective portion of the interest rate swaps were
reported as a component of other comprehensive income and reclassified into
earnings in the same period the hedged transaction affected earnings.
Because the terms of the swaps exactly matched the terms of the underlying
debt, the swaps were perfectly effective. The interest rate swap agreements
expired in March 2002.
In conjunction with the Notes (See Note 4), on April 24, 2002, the Company
entered into a $75 million interest rate swap to receive a fixed rate of
interest and pay a variable rate of interest based upon LIBOR. The initial
effective rate of interest on this swap is 6.05% and will be recalculated
effective November 1, 2002. This contract is considered to be a hedge
against changes in the fair value of the Company's fixed-rate debt
obligation. Accordingly, the interest rate swap contract will be reflected
at fair value in the Company's consolidated balance sheet and the related
portion of fixed-rate debt being hedged will be reflected at an amount
equal to the sum of its carrying value plus an adjustment representing the
change in fair value of the debt obligations attributable to the interest
rate risk being hedged. The fair market value of the interest rate swap as
of June 30, 2002 was approximately $1.3 million and is included as an asset
within other assets in the consolidated balance
12
sheet, with a corresponding offset to long-term debt. In addition, changes
during any accounting period in the fair value of this interest rate swap,
as well as offsetting changes in the adjusted carrying value of the related
portion of fixed-rate debt being hedged, will be recognized as adjustments
to interest expense in the Company's consolidated statements of income. The
net effect of this accounting on the Company's operating results is that
interest expense on the portion of fixed-rate debt being hedged is
generally recorded based on variable interest rates. The Company is exposed
to credit loss in the event of non-performance by the counter party, a
large financial institution, however, the Company does not anticipate
non-performance by the counter party.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT AND CORPORATE OFFICE REORGANIZATION
On September 24, 2001, our board of directors appointed Martin E. Franklin as
our Chairman and Chief Executive Officer and Ian G.H. Ashken as our Vice
Chairman, Chief Financial Officer and Secretary. On October 15, 2001, we
announced the closing of our Indianapolis, Indiana corporate office. In the
first quarter of 2002, corporate functions were transitioned to our new
headquarters in Rye, New York and our consumer products division in Muncie,
Indiana.
Following the sale of our Triangle, TriEnda and Synergy World plastic
thermoforming operations ("TPD Assets") and the third quarter 2001 appointment
of new executive management, we reorganized our business segments to reflect the
new business and management strategy. We are now organized into two distinct
segments: Consumer Products Group and Materials Based Group. Prior periods have
been reclassified to conform to the current segment definitions.
ACQUISITION AND RELATED FINANCING
On April 24, 2002, we completed our acquisition of the business of Tilia
International, Inc. and its subsidiaries Tilia, Inc. and Tilia Canada, Inc.
(collectively "Tilia"), pursuant to an asset purchase agreement (the
"Acquisition"). Based in San Francisco, California, Tilia is a developer,
manufacturer and marketer of a patented vacuum packaging system for home use,
primarily for food storage, under the FoodSaver(R) brand. The Acquisition was
entered into as part of our plan to pursue growth in food preservation and
branded domestic consumer products. Pursuant to the Acquisition, we acquired
Tilia for approximately $145 million in cash and $15 million in seller debt
financing. Note 3 of the accompanying financial statements includes a discussion
of the intangible assets that were recorded in connection with the Acquisition.
As of June 30, 2002, we had incurred transaction fees in the amount of
approximately $4.1 million, including transaction bonuses paid to certain
officers in the aggregate amount of $0.9 million, principally consisting of
transaction bonuses paid to Martin E. Franklin, our Chairman and Chief Executive
Officer, in the amount of $0.5 million and Ian Ashken, our Vice Chairman, Chief
Financial Officer, and Secretary, in the amount of $0.3 million. In addition,
the Acquisition includes an earn-out provision with a potential payment in cash
or our common stock of up to $25 million payable in 2005, provided that certain
earnings performance targets are met.
Due to the Company having effective control of Tilia as of April 1, 2002, the
results of Tilia have been included in the Company's results from such date. The
Company recorded $0.6 million of imputed interest expense in the second quarter
of 2002 to reflect the financing that would have been required for the period
from the effective date (April 1, 2002) to the date of closing (April 24, 2002).
The imputed interest expense reduced the amount of goodwill recorded.
The Acquisition was financed by (i) an offering of $150 million of 9 3/4% senior
subordinated notes ("Notes") to qualified institutional buyers in a private
placement pursuant to Rule 144A under the Securities Act of 1933, (ii) a
refinancing of our existing indebtedness with a new $100 million five-year
senior secured credit facility, which includes a $50 million term loan facility
and a $50 million revolving credit facility ("New Credit Agreement") and (iii)
cash on hand. See "Financial Condition, Liquidity and Capital Resources" below
for further information.
DIVESTITURES
Effective November 26, 2001, we sold the TPD Assets to Wilbert, Inc. for $21.0
million in cash, a $1.9 million non-interest bearing one-year note as well as
the assumption of certain identified liabilities.
As a result of the losses arising from the sale of the TPD Assets, we recovered
in January 2002 approximately $15.7 million of federal income taxes paid in 1999
and 2000 by utilizing the carryback of a tax net operating loss generated in
2001. On March 9, 2002, The Job Creation and Workers Assistance Act of 2002 was
enacted which provides, in part, for the carryback of 2001 net operating losses
for five years instead of the previous two year period. As a result, we filed
for an additional refund of $22.8 million, of which $22.2 million was received
in March 2002 and the remainder was received in April 2002.
Effective November 1, 2001, we sold our majority interest in Microlin, LLC, a
developer of proprietary battery and fluid delivery technology, for $1,000 in
cash plus contingent consideration based upon future performance through
December 31, 2012 and the cancellation of future funding requirements.
14
The combined net sales of TPD Assets and Microlin included in the Company's
historical results were $18.2 million and $37.0 million for the three and six
month periods ended July 1, 2001, respectively. Operating losses associated with
these businesses were $2.4 million and $5.0 million for the three and six month
periods ended July 1, 2001, respectively.
RESULTS OF OPERATIONS - COMPARISON OF SECOND QUARTER 2002 TO SECOND QUARTER 2001
We reported net sales of $105.1 million for the second quarter of 2002, a 16.0%
increase from net sales of $90.6 million in the second quarter of 2001. Second
quarter 2002 operating earnings of $17.7 million increased 58.6% from second
quarter 2001 operating earnings of $11.2 million. In second quarter 2002, our
consumer products group reported $75.5 million in net sales and $12.5 million in
operating earnings, while our materials based group reported $29.6 million in
net sales and $5.2 million in operating earnings.
Net sales of our consumer products group increased by $32.7 million in the
second quarter of 2002 compared to the second quarter of 2001. This increase was
principally the result of the acquisition of Tilia as well as sales volume
increases in the home canning business. Net sales within the materials based
group segment decreased by $18.3 million in the second quarter of 2002 compared
to the second quarter of 2001, of which the divestiture of the TPD Assets and
Microlin accounted for $18.2 million of such change.
Gross margin percentages increased to 40.2% in the second quarter of 2002 from
27.2% in the second quarter of 2001, reflecting the higher gross margins of the
acquired Tilia business, the lower gross margins of the disposed TPD Assets and
Microlin businesses and cost efficiency increases in our other divisions.
Selling, general and administrative expenses increased from $13.9 million in the
second quarter of 2001 to $24.5 million in the second quarter of 2002. Expenses
within our consumer products group segment increased as a result of the
acquisition of Tilia. Expenses within our materials based group segment
decreased primarily due to the divestiture of TPD Assets and Microlin and lower
expenses in the remaining divisions. Selling, general and administrative
expenses as a percentage of net sales increased from 15.3% in the second quarter
of 2001 to 23.4% for the second quarter of 2002. The increase in the percentage
resulted primarily from the higher percentage of the acquired Tilia business,
partially offset by the higher percentage of the divested TPD Assets and
Microlin businesses.
We incurred net special charges (credits) and reorganization expenses of $(2.0)
million in the second quarter of 2001, comprising of $2.2 million in pre-tax
income related to the discharge of certain deferred compensation obligations and
$1.0 million of gain from insurance recovery, partially offset by $1.2 million
of costs to evaluate strategic options.
As a result of the adoption of SFAS 142, we did not record goodwill amortization
for the three month period ended June 30, 2002. Goodwill amortization of
approximately $1.6 million had been recorded in the three month period ended
July 1, 2001.
Net interest expense increased to $3.8 million for the second quarter of 2002
compared to $3.0 million in the same period last year primarily due to us
recording $0.6 million of imputed interest expense in connection with the
acquisition of Tilia. In the second quarter of 2002 our weighted average
interest rate was lower than it was in the second quarter of 2001, which was
offset by the higher average debt levels outstanding in the second quarter of
2002 compared to the second quarter of 2001.
Second quarter 2002 tax expense includes a $0.5 million reversal of the release
of the valuation allowance recorded in the first quarter of 2002. Excluding this
valuation allowance, our effective tax rate was approximately 38% in both the
second quarter of 2002 and the second quarter of 2001. Additionally, net income
for the second quarter of 2002 would have been $8.6 million or $0.60 diluted
earnings per share if this valuation allowance reversal was excluded.
RESULTS OF OPERATIONS - COMPARISON OF YEAR TO DATE 2002 TO YEAR TO DATE 2001
We reported net sales of $152.7 million for the first six months of 2002, a 4.4%
decrease from net sales of $159.6 million in the first six months of 2001.
Operating earnings of $21.8 million for the first six months of 2002 increased
58.8% from operating earnings of $13.8 million for the first six months of 2001.
In the first six months of 2002, our consumer products group segment reported
$95.4 million in net sales and $13.1 million in operating earnings, while our
materials based group segment reported $57.8 million in net sales and $8.8
million in operating earnings.
Net sales of our consumer products group increased by $33.2 million in the first
six months of 2002 compared to the first six months of 2001. This increase was
principally the result of the acquisition of Tilia as well as sales volume
increases in the home canning business. Net sales within the materials based
group segment decreased by $40.2 million in the first six
15
months of 2002 compared to the first six months of 2001, of which the
divestiture of the TPD Assets and Microlin accounted for $37.0 million of such
change. Additionally, sales of zinc products decreased $4.6 million, due
primarily to reduced sales to the U.S. Mint in connection with its inventory
reduction program for all coinage. Partially offsetting these effects were
favorable sales volume increases in our remaining materials based group
businesses.
Gross margin percentages increased to 35.9% in the first six months of 2002 from
24.8% in the first six months of 2001, reflecting the higher gross margins of
the acquired Tilia business, the lower gross margins of the disposed TPD Assets
and Microlin businesses and cost efficiency increases in our other divisions.
Selling, general and administrative expenses increased from $26.3 million in the
first six months of 2001 to $32.9 million in the first six months of 2002.
Expenses within our consumer products group increased as a result of the
acquisition of Tilia. Expenses within our materials based group segment
decreased primarily due to the divestiture of TPD Assets and Microlin and lower
expenses in the remaining divisions. Selling, general and administrative
expenses as a percentage of net sales increased from 16.5% in the first six
months of 2001 to 21.6% for the first six months of 2002. The increase in the
percentage resulted from the higher percentage of the acquired Tilia business,
partially offset by cost savings in our corporate office function and lower
selling, general and administrative costs as a percentage of sales in the
materials based group segment.
We incurred net special charges (credits) and reorganization expenses of $(3.7)
million in the first six months of 2001, comprising of $4.1 million in pre-tax
income related to the discharge of certain deferred compensation obligations and
$1.0 million of gain from insurance recovery, partially offset by $1.4 million
of costs to evaluate strategic options.
As a result of the adoption of SFAS 142, we did not record goodwill amortization
for the six month period ended June 30, 2002. Goodwill amortization of
approximately $3.2 million had been recorded in the six month period ended July
1, 2001.
Net interest expense of $5.0 million for the first six months of 2002 was lower
than the $6.2 million recorded in the same period last year primarily due to
lower levels of outstanding debt in the first quarter of 2002 compared to the
same period in 2001, partially offset by higher interest expense in the second
quarter of 2002 compared to the same period in 2001 as discussed above in
Results of Operations - Comparison of Second Quarter 2002 to Second Quarter
2001.
At December 31, 2001, we had federal net operating losses that were recorded as
a deferred tax asset with a valuation allowance of $5.4 million. Due to the
impact of the Job Creation Act and the tax refunds that we received as a result,
a net $4.9 million of this valuation allowance was released in the first six
months of 2002 resulting in an income tax provision of $1.6 million. Excluding
the release of this valuation allowance, our effective tax rate was
approximately 38% in both the first six months of 2002 and the first six months
of 2001. Our net income for the first six months of 2002 would have been $10.4
million or $0.74 diluted earnings per share if this valuation allowance release
was excluded.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, our senior credit facility, as amended ("Old Credit
Agreement"), provided for a revolving credit facility of $40 million and a term
loan which amortized periodically as required by the terms of the agreement.
During first quarter 2002, as required by the November 2001 amendment to the Old
Credit Agreement, $15 million of the tax refunds we received were used to repay
a portion of the term loan.
Interest on borrowings under the Old Credit Agreement's term loan and the
revolving credit facilities were based upon fixed increments over adjusted LIBOR
or the agent bank's alternate borrowing rate as defined in the agreement. The
agreement also required the payment of commitment fees on the unused balance. As
of July 1, 2001, the outstanding borrowings under our credit facility were
$109.0 million.
In May 1999, we entered into a three-year interest rate swap with an initial
notional value of $90 million. The swap effectively fixed the interest rate on
approximately 60% of our term debt at a maximum rate of 7.98% for the three-year
period. The swap matured and was terminated in March 2002.
The Old Credit Agreement was replaced as a result of the Acquisition, which was
financed by (i) the offering of $150 million of Notes, (ii) the New Credit
Agreement and (iii) cash on hand.
The Notes were issued at a discount such that we received approximately $147.7
million in net proceeds. The Notes will mature on May 1, 2012, however, on or
after May 1, 2007, we may redeem all or part of the Notes at any time at a
redemption price ranging from 100% to 104.875% of the principal amount, plus
accrued and unpaid interest and liquidated damages, if any. Prior to May 1,
2005, we may redeem up to 35% of the aggregate principal amount of the Notes
with the
16
net cash proceeds from certain public equity offerings at a redemption price of
109.75% of the principal amount, plus accrued and unpaid interest and liquidated
damages, if any. Interest on the Notes accrues at the rate of 9.75% per annum
and is payable semi-annually in arrears on May 1 and November 1, commencing on
November 1, 2002.
In conjunction with the Notes, on April 24, 2002, we entered into a $75 million
interest rate swap to receive a fixed rate of interest and pay a variable rate
of interest based upon LIBOR. The initial effective rate of interest on this
swap is 6.05% and will be recalculated effective November 1, 2002. This contract
is considered to be a hedge against changes in the fair value of our fixed-rate
debt obligation. Accordingly, the interest rate swap contract will be reflected
at fair value in our consolidated balance sheet and the related portion of
fixed-rate debt being hedged will be reflected at an amount equal to the sum of
its carrying value plus an adjustment representing the change in fair value of
the debt obligations attributable to the interest rate risk being hedged. The
fair market value of the interest rate swap as of June 30, 2002 was
approximately $1.3 million and is included as an asset within other assets in
the consolidated balance sheet, with a corresponding offset to long-term debt.
In addition, changes during any accounting period in the fair value of this
interest rate swap, as well as offsetting changes in the adjusted carrying value
of the related portion of fixed-rate debt being hedged, will be recognized as
adjustments to interest expense in our Company's consolidated statements of
income. The net effect of this accounting on our operating results is that
interest expense on the portion of fixed-rate debt being hedged is generally
recorded based on variable interest rates. We are exposed to credit loss in the
event of non-performance by the counter party, a large financial institution,
however, we do not anticipate non-performance by the counter party.
The revolving credit facility and the term loan facility bear interest at a rate
equal to (i) the Eurodollar Rate pursuant to an agreed formula or (ii) a Base
Rate equal to the higher of (a) the Bank of America prime rate and (b) the
federal funds rate plus .50%, plus, in each case, an applicable margin ranging
from 2.00% to 2.75% for Eurodollar Rate loans and from .75% to 1.5% for Base
Rate loans.
The New Credit Agreement contains certain restrictions on the conduct of our
business, including, among other things restrictions, generally, on:
o incurring debt;
o making investments;
o exceeding certain agreed upon capital expenditures;
o creating or suffering liens;
o completing certain mergers;
o consolidations and sales of assets and with permitted exceptions,
acquisitions;
o declaring dividends;
o redeeming or prepaying other debt; and
o certain transactions with affiliates.
The New Credit Agreement also requires our Company to maintain certain financial
covenants.
As of June 30, 2002, we had drawn down $50 million under the term loan facility,
but had not drawn down the $50 million available under the revolving credit
facility of the New Credit Agreement, although we have used an amount of
approximately $4.1 million of availability for the issuance of letters of
credit.
As of June 30, 2002, we had incurred costs in connection with the issuance of
the Notes and the New Credit Agreement of approximately $7.5 million.
Working capital (defined as current assets less current liabilities) increased
to $69.7 million at June 30, 2002 from $17.2 million at July 1, 2001 due
primarily to: the tax refunds of $38.5 million that we received, the working
capital of Tilia and a lower amount of current portion of debt, partially offset
by the working capital of the TPD Assets and reduced levels of inventory in our
consumer products group caused by an additional focus on just-in-time
purchasing.
Accounts receivable, accounts payable and inventories increased in the six-month
period ended June 30, 2002, due primarily to the acquisition of Tilia and the
customary build-up in anticipation of seasonal home food preservation activity.
Capital expenditures were $3.1 million in the first six months of 2002 compared
to $6.6 million for the same period in 2001 and are largely related to
maintaining facilities, improving manufacturing efficiencies and the
installation of new packaging lines for the ACPC division. As of June 30, 2002,
we have capital expenditure commitments of approximately $5.7 million, of which
$4.2 million relates to the installation of the new packaging line.
17
We believe that our existing funds, cash generated from our operations and our
debt facility, are adequate to satisfy our working capital and capital
expenditure requirements for the foreseeable future. However, we may raise
additional capital from time to time to take advantage of favorable conditions
in the capital markets or in connection with our corporate development
activities.
CONTINGENCIES
We are involved in various legal disputes in the ordinary course of business. In
addition, the Environmental Protection Agency has designated our Company as a
potentially responsible party, along with numerous other companies, for the
clean up of several hazardous waste sites. Based on currently available
information, we do not believe that the disposition of any of the legal or
environmental disputes our Company is currently involved in will require
material capital or operating expenditures or will otherwise have a material
adverse effect upon the financial condition, results of operations, cash flows
or competitive position of our Company. It is possible, that as additional
information becomes available, the impact on our Company of an adverse
determination could have a different effect.
FORWARD-LOOKING INFORMATION
From time to time, we may make or publish forward-looking statements relating to
such matters as anticipated financial performance, business prospects,
technological developments, new products, and similar matters. Such statements
are necessarily estimates reflecting management's best judgment based on current
information. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. Such statements are usually
identified by the use of words or phases such as "believes," "anticipates,"
"expects," "estimates," "planned," "outlook," and "goal." Because
forward-looking statements involve risks and uncertainties, our actual results
could differ materially. In order to comply with the terms of the safe harbor,
we note that a variety of factors could cause our actual results and experience
to differ materially from the anticipated results or other expectations
expressed in forward-looking statements.
While it is impossible to identify all such factors, the risks and uncertainties
that may affect the operations, performance and results of our business include
the following:
o Our significant indebtedness could adversely affect our financial
health, and prevent us from fulfilling our obligations under the Notes
and the New Credit Agreement;
o We will require a significant amount of cash to service our
indebtedness. Our ability to generate cash depends on many factors
beyond our control;
o Reductions, cancellations or delays in customer purchases would
adversely affect our profitability;
o We may be adversely affected by the trend towards retail trade
consolidation;
o Sales of some of our products are seasonal and weather related;
o Competition in our industries may hinder our ability to execute our
business strategy, achieve profitability, or maintain relationships
with existing customers;
o If we fail to develop new or expand existing customer relationships,
our ability to grow our business will be impaired;
o Our operations are subject to a numbers of Federal, state and local
environmental regulations;
o We may be adversely affected by remediation obligations mandated by
applicable environmental laws;
o We depend on key personnel;
o We enter into contracts with the United States government and other
governments;
o Our operating results can be adversely affected by changes in the cost
or availability of raw materials;
o Our business could be adversely affected because of risks which are
particular to international operations;
o We depend on our patents and proprietary rights;
18
o Certain of our employees are represented by labor unions; and
o Any other factors which may be identified from time to time in our
periodic SEC filings and other public announcements.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in the forward-looking statement, we do not intend to update
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In general, business enterprises can be exposed to market risks including
fluctuations in commodity prices, foreign currency values, and interest rates
that can affect the cost of operating, investing, and financing. The Company's
exposures to these risks are low. The majority of the Company's zinc business is
conducted on a tolling basis whereby customers supply zinc to the Company for
processing, or supply contracts provide for fluctuations in the price of zinc to
be passed on to the customer.
The Company, from time to time, invests in short-term financial instruments with
original maturities usually less than fifty days. The Company is exposed to
short-term interest rate variations with respect to Eurodollar or Base Rate on
its term and revolving debt obligations and LIBOR on its interest rate swap. The
initial effective rate of interest on the interest swap is 6.05% for the period
through November 1, 2002, at which point the swap will be repriced based upon
the current LIBOR plus a 400 basis points spread at such time. The Company is
exposed to credit loss in the event of non-performance by the counter party, a
large financial institution, however, the Company does not anticipate
non-performance by the counter party.
Changes in Eurodollar or LIBOR interest rates would affect the earnings of the
Company either positively or negatively depending on the changes in short-term
interest rates. Assuming that Eurodollar and LIBOR rates each increased 100
basis points over period end rates on the outstanding term debt and interest
rate swap, the Company's interest expense would have increased by approximately
$0.3 million for both the six month periods ended June 30, 2002 and July 1,
2001, respectively. The amount was determined by considering the impact of the
hypothetical interest rates on the Company's borrowing cost, short-term
investment rates, interest rate swap and estimated cash flow. Actual changes in
rates may differ from the assumptions used in computing this exposure.
The Company does not invest or trade in any derivative financial or commodity
instruments, nor does it invest in any foreign financial instruments.
19
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On May 2, 2002, our board of directors adopted resolutions approving a 2-for-1
split of our shares of common stock. Stockholders of record at the close of
business on May 20, 2002 received, on or about June 3, 2002, one additional
share of our common stock for every share of our common stock held.
On April 30, 2002, each of our then non-employee directors, including Douglas W.
Huemme, Richard L. Molen, Lynda W. Popwell, Patrick W. Rooney, David L. Swift,
and Robert L. Wood, was granted an option to purchase 2,000 shares of our common
stock (after giving effect to the stock split) under our 1998 Long-Term Equity
Incentive Plan, as amended and restated, and 2,000 shares of our common stock
(after giving effect to the stock split) under our 2001 Stock Option Plan, as
amended. As a result of Mr. Rooney's retirement, effective May 30, 2002, all of
the options granted to him on April 30, 2002 were terminated. In addition,
options to purchase an aggregate of 56,000 shares of our common stock were
granted to our employees on April 15, 2002 and April 24, 2002. These were
private transactions not involving a public offering that were exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof. At the time of issuance, the foregoing securities were deemed to
be restricted securities for purposes of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders
We held our annual meeting of stockholders on May 30, 2002. Of the 7,020,309
shares of common stock entitled to vote at the meeting, 6,381,431 shares of
common stock were present in person or by proxy and entitled to vote. Such
number of shares represented approximately 90.9% of our outstanding shares of
common stock. Listed below are the matters voted upon at our annual meeting of
stockholders and the respective voting results:
Abstained/
Voted Broker
FOR Withheld Non-Votes
------------- ------------- ------------
Election of Class III Directors for three-year terms expiring in
2005
Douglas W. Huemme................................................ 6,337,200 44,231 -
Robert L. Wood................................................... 5,388,205 993,226 -
Irwin D. Simon................................................... 6,362,464 18,967 -
Withheld/
Abstained/
Voted Voted Broker
FOR AGAINST Non-Votes
------------- ------------- ------------
Approval of the amendment to our restated certificate of
incorporation to change our name from "Alltrista Corporation"
to "Jarden Corporation".......................................... 6,281,147 71,833 28,448
Ratification of the appointment of Ernst & Young LLP as our
independent auditors for the year ending December 31, 2002.... 6,369,124 2,939 9,368
Our board of directors is currently comprised of each of the Class I Directors,
including Martin E. Franklin and David L. Swift, the Class II Directors,
including Ian G.H. Ashken, Richard L. Molen, and Lynda W. Popwell, and the Class
III Directors listed in the table above.
Stockholders of record at the close of business on April 5, 2002 were entitled
to vote at the annual meeting of stockholders and, therefore, the number of
shares represented at the meeting does not reflect the 2-for-1 stock split.
20
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Description
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3.1 Restated Certificate of Incorporation of Jarden Corporation (filed as Exhibit 3.1 to Jarden's Annual Report on
Form 10-K, filed with the Commission on March 27, 2002 and incorporated herein by reference).
3.2 Certificate of Amendment of Restated Certificate of Incorporation of Jarden Corporation (filed as Exhibit 3.2
to Jarden's Current Report on Form 8-K, filed with the Commission on June 4, 2002 and incorporated herein by
reference).
3.3 Bylaws of Jarden Corporation (filed as Exhibit C to Jarden's Definitive Proxy Statement, filed with the
Commission on November 26, 2001 and incorporated herein by reference).
4.1 Indenture, dated as of April 24, 2002, among Jarden, Alltrista Newco Corporation, Alltrista Plastics
Corporation, Alltrista Unimark, Inc., Alltrista Zinc Products, L.P., Caspers Tin Plate Company,
Hearthmark, Inc., Lafayette Steel & Aluminum Corporation, LumenX Corporation, Penn Video, Inc., Quoin
Corporation, Tilia, Inc., Tilia Direct, Inc., Tilia International, Inc., TriEnda Corporation, and Unimark
Plastics, Inc. (the "Domestic Subsidiaries"), and The Bank of New York, as trustee (filed as Exhibit 4.1
to Jarden's Current Report on Form 8-K, filed with the Commission on May 9, 2002 and incorporated herein by
reference).
4.2 Registration Rights Agreement, dated as of April 24, 2002, among Jarden, the Domestic Subsidiaries,
and Banc of America Securities LLC, CIBC World Markets Corp., and NatCity Investments, Inc., a representatives
of the several initial purchasers (filed as Exhibit 10.13 to Jarden's Current Report on Form 8-K, filed with
the Commission on May 9, 2002 and incorporated herein by reference).
10.1 Credit Agreement, dated as of April 24, 2002, among Jarden, Bank of America, N.A., as Administrative
Agent, Swing Line Lender, and L/C Issuer, Canadian Imperial Bank of Commerce, as Syndication Agent, National
City Bank of Indiana, as Documentation Agent, and the other Lenders party thereto, including The Bank of New
York, Fleet National Bank, Harris Trust and Savings Bank, U.S. Bank National Association, Allfirst Bank,
Transamerica Business Capital Corporation, and Union Federal Bank of Indianapolis (filed as Exhibit 10.1 to
Jarden's Current Report on Form 8-K, filed with the Commission on May 9, 2002 and incorporated herein by
reference).
10.2 Guaranty Agreement, dated as of April 24, 2002, by the Domestic Subsidiaries to Bank of America, N.A., as
administrative agent (filed as Exhibit 10.2 to Jarden's Current Report on Form 8-K, filed with the Commission
on May 9, 2002 and incorporated herein by reference).
10.3 Security Agreement dated as of April 24, 2002, among Jarden, the Domestic Subsidiaries, and Bank of America,
N.A., as administrative agent (filed as Exhibit 10.3 to Jarden's Current Report on Form 8-K, filed with the
Commission on May 9, 2002 and incorporated herein by reference).
10.4 Intellectual Property Security Agreement, dated as of April 24, 2002, among Jarden, the Domestic
Subsidiaries, and Bank of America, N.A., as administrative agent (filed as Exhibit 10.4 to Jarden's
Current Report on Form 8-K, filed with the Commission on May 9, 2002 and incorporated herein by reference).
10.5 Securities Pledge Agreement, dated as of April 24, 2002, among Jarden, Quoin Corporation, Alltrista Newco
Corporation, Caspers Tin Plate Company, and Bank of America, NA., as administrative agent (filed as Exhibit
10.5 to Jarden's Current Report on Form 8-K, filed with the Commission on May 9, 2002 and incorporated herein
by reference).
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10.6 Asset Purchase Agreement, dated as of March 27, 2002, among Jarden, Tilia International, Inc., Tilia, Inc.,
Tilia Canada, Inc., and Andrew Schilling (filed as Exhibit 10.6 to Jarden's Current Report on Form 8-K, filed
with the Commission on May 9, 2002 and incorporated herein by reference).
10.7 Amendment No. 1 to the Asset Purchase Agreement, dated as of April 24, 2002, among Jarden, Tilia
International, Inc., Tilia, Inc., Tilia Canada, Inc., and Andrew Schilling (filed as Exhibit 10.7 to Jarden's
Current Report on Form 8-K, filed with the Commission on May 9, 2002 and incorporated herein by reference).
10.8 Unsecured Subordinated Note, dated as of April 24, 2002, by Jarden in favor of Tilia International,
Inc. in the principal amount of $5,000,000 (filed as Exhibit 10.8 to Jarden's Current Report on Form 8-K, filed
with the Commission on May 9, 2002 and incorporated herein by reference).
10.9 Unsecured Subordinated Note, dated as of April 24, 2002, by Jarden in favor of Tilia International,
Inc. in the principal amount of $10,000,000 (filed as Exhibit 10.9 to Jarden's Current Report on Form 8-K,
filed with the Commission on May 9, 2002 and incorporated herein by reference).
10.10 Escrow Agreement, dated as of April 24, 2002, among Jarden, Tilia International, Inc., Tilia, Inc., Tilia
Canada, Inc., Andrew Schilling, and J. P. Morgan Trust Company, National Association, as escrow agent (filed as
Exhibit 10.10 to Jarden's Current Report on Form 8-K, filed with the Commission on May 9, 2002 and incorporated
herein by reference).
10.11 Long Term Escrow Agreement, dated as of April 24, 2002, among Jarden, Tilia International, Inc., Andrew
Schilling, and J. P. Morgan Trust Company, National Association, as escrow agent (filed as Exhibit 10.11 to
Jarden's Current Report on Form 8-K, filed with the Commission on May 9, 2002 and incorporated herein by
reference).
10.12 Purchase Agreement, dated as of April 10, 2002, among Jarden, the Domestic Subsidiaries and Banc of America
Securities LLC, CIBC World Markets Corp., and NatCity Investments, Inc., as representatives of the several
initial purchasers (filed as Exhibit 10.12 to Jarden's Current Report on Form 8-K, filed with the Commission on
May 9, 2002 and incorporated herein by reference).
# 10.13 Alltrista Corporation 1998 Long-Term Equity Incentive Plan, as amended and restated. *
# 10.14 Alltrista Corporation 2001 Stock Option Plan (filed as Exhibit 10.6 to Jarden's Quarterly Report on
Form 10-Q, filed with the Commission on November 14, 2001 and incorporated herein by reference).
# 10.15 Amendment No. 1 to the Alltrista Corporation 2001 Stock Option Plan. *
+ 10.16 Amendment No. 1 to Employment Agreement, dated April 24, 2002, between Jarden and Martin E. Franklin. *
+ 10.17 Amendment No. 1 to Employment Agreement, dated April 24, 2002, between Jarden and Ian G.H. Ashken. *
+ 10.18 Restricted Stock Award Agreement, dated January 2, 2002, between Jarden and Martin E. Franklin.*
+ 10.19 Amendment No. 1 to Restricted Stock Award Agreement, dated February 7, 2002, between Jarden and Martin E.
Franklin. *
+ 10.20 Amendment No. 2 to Restricted Stock Award Agreement, dated April 15, 2002, between Jarden and Martin E.
Franklin. *
+ 10.21 Amendment No. 3 to Restricted Stock Award Agreement dated July 25, 2002 between Jarden and Martin E.
Franklin. *
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+ 10.22 Restricted Stock Award Agreement, dated January 2, 2002, between Jarden and Ian G.H. Ashken.*
+ 10.23 Amendment No. 1 to Restricted Stock Award Agreement, dated February 7, 2002, between Jarden and Ian G.H.
Ashken. *
+ 10.24 Amendment No. 2 to Restricted Stock Award Agreement, dated April 15, 2002, between Jarden and Ian G.H.
Ashken. *
+ 10.25 Amendment No. 3 to Restricted Stock Award Agreement dated July 25, 2002 between Jarden Corporation and Ian G.H.
Ashken. *
99.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
* Filed herewith.
# This represents a compensatory plan.
+ This represents a management contract.
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b. Reports on Form 8-K
We filed a Current Report on Form 8-K (Date of Event - April 24, 2002) on May 9,
2002, with respect to Items 2, 5, and 7, relating to the completed acquisition
of the business of Tilia, the refinancing of our existing senior indebtedness
with a new senior credit facility, and the issuance of our 9 3/4% senior
subordinated notes due 2012 to qualified institutional buyers in the aggregate
principal amount of $150 million. We filed (a) audited consolidated balance
sheets of Tilia as of December 31, 2000 and 2001 and related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years ended December 31, 1999, 2000 and 2001 and (b) unaudited pro forma
condensed consolidated statements of operations for the year ended December 31,
2001 of Jarden which gives effect to the acquisition of Tilia as if it had
occurred on January 1, 2001.
We filed a Current Report on Form 8-K (Date of Event - May 30, 2002) on June 4,
2002, with respect to Items 5 and 7, relating to, respectively, our change of
name from "Alltrista Corporation" to "Jarden Corporation" and the 2-for-1 split
of our issued shares of common stock.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JARDEN CORPORATION
Date: August 12, 2002 By: /s/ Ian G.H. Ashken
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Ian G.H. Ashken
Vice Chairman,
Chief Financial
Officer and
Secretary