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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
( ) 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
----------------------------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K: [ ]
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES [X] NO [ ]
AS OF FEBRUARY 24, 2003, THE AGGREGATE MARKET VALUE OF VOTING COMMON STOCK
HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $285.2 MILLION BASED UPON THE
CLOSING MARKET PRICE ON SUCH DATE AS REPORTED ON THE NEW YORK STOCK EXCHANGE.
ALL (I) EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT AND (II) ALL
PERSONS FILING A SCHEDULE 13D WITH THE SECURITIES AND EXCHANGE COMMISSION IN
RESPECT TO REGISTRANT'S COMMON STOCK WHO HOLD 10% OR MORE OF THE REGISTRANT'S
OUTSTANDING COMMON STOCK, HAVE BEEN DEEMED, SOLELY FOR THE PURPOSE OF THE
FOREGOING CALCULATION, TO BE "AFFILIATES" OF THE REGISTRANT.
THERE WERE 14,370,601 SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK,
PAR VALUE $.01 PER SHARE, AS OF JANUARY 31, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN INFORMATION REQUIRED FOR ITEM 5 OF PART II AND PART III OF THIS
REPORT IS INCORPORATED HEREIN BY REFERENCE TO THE PROXY STATEMENT FOR THE 2003
ANNUAL MEETING OF THE COMPANY'S STOCKHOLDERS, WHICH IS ANTICIPATED TO BE HELD ON
APRIL 24, 2003.
JARDEN CORPORATION
INDEX TO FORM 10-K
PART I PAGE
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Company 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 51
PART III
Item 10. Directors and Executive Officers of the Registrant 52
Item 11. Executive Compensation 52
Item 12. Security Ownership of Certain Beneficial Owners and Management 52
Item 13. Certain Relationships and Related Transactions 52
PART IV
Item 14. Controls and Procedures 52
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 53
Signatures 60
Certifications 61
Financial Statement Schedule 63
Index to Exhibits 64
2
PART I
ITEM 1. BUSINESS
Jarden Corporation was reincorporated in the State of Delaware in
December 2001, having been originally incorporated in the State of Indiana in
1991. We are a leading provider of niche, branded consumer products used in the
home, under leading brand names including Ball(R), Bernardin(R), Diamond(R),
FoodSaver(R), Forster(R) and Kerr(R). In North America, we are the market leader
in several targeted categories, including home canning, branded retail plastic
cutlery, kitchen matches, toothpicks and home vacuum packaging. Many of our
products are affordable, consumable and fundamental household staples, resulting
in recurring revenues. Our highly recognized brands, innovative products and
multi-channel distribution strategy have resulted in significant growth in
revenue and earnings. In 2002, we generated $368.2 million and $36.3 million in
net sales and net income, respectively.
We have achieved leading market positions by selling branded products
through a variety of distribution channels, including grocery, mass merchant,
club, drug, department store and specialty retailers, as well as direct to
consumers. By leveraging our strong brand portfolio, category management
expertise and superior customer service, we have established and continue to
maintain long-term relationships with leading retailers within these channels.
For example, we have serviced Wal-Mart since its opening and are currently its
category manager for home canning related products. Moreover, several of our
leading brands, such as Diamond(R) kitchen matches and Ball(R) jars, have been
in continuous use for over 100 years. We continue to expand our existing
customer relationships and attract new customers by introducing new product line
extensions and entering new product categories.
We operate four business segments, which are branded consumables, home
vacuum packaging, and plastic consumables, which collectively comprise our
consumer products segments, and other. We derive approximately 90% of our sales
from our consumer products segments.
COMPETITIVE STRENGTHS
We believe that the following competitive strengths serve as a
foundation for our growth strategy:
Market Leadership Positions. In North America, we are the leader in several
targeted categories including, among others, home vacuum packaging, home
canning, branded retail plastic cutlery, kitchen matches and toothpicks. We
believe that the specialized nature of our niche categories and our leading
market shares therein provide us with competitive advantages in terms of demand
from major retailers and enhanced brand awareness. We have created the home
vacuum packaging category at most of our retailers and actively work with them
to promote the FoodSaver(R) brand and home vacuum packaging to consumers. We
also believe our market leadership positions contribute to our ability to
attract new customers and enter new distribution channels.
Strong Brand Name Recognition. We have built a portfolio of leading brands,
which enables us to gain retail shelf space and introduce new products. The
Ball(R) brand name has been in continuous use for over 100 years and is
internationally recognized within the home food preservation market. In the
United States, Kerr(R) is also a widely-recognized home canning brand while
Bernardin(R) is the leading home canning brand in Canada. Diamond(R) and
Forster(R) are the leading brands in retail plastic cutlery, kitchen matches
and toothpicks for use in the home. We believe the FoodSaver(R) brand is a
household name that is synonymous with home vacuum packaging systems. We believe
our strong brand recognition and consumer awareness, coupled with the
long-standing quality of our products, results in significant customer loyalty.
Comprehensive Product Offering. We provide retailers a comprehensive portfolio
of niche consumer products across multiple categories. Within these categories,
we service the needs of a wide range of consumers and satisfy their different
tastes, preferences and budgets. In home canning, we offer a range of branded
products to serve the value, mid-tier and premium price points, selling more
than 300 separate product offerings. We offer kitchen matches, plastic cutlery
and toothpicks of various counts, sizes and durability covering 900 separate
product offerings. FoodSaver(R)'s current offerings are well positioned to take
advantage of a "good, better, best" strategy in order to target consumers with
various levels of price sensitivity and product sophistication. We believe our
ability to serve
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retailers with a broad array of branded products and introduce new products
will continue to allow us to further penetrate existing customers.
Long-Term Customer Relationships. We have established and continue to maintain
strong relationships with our retail customers based, in part, on our product
innovation, portfolio of leading brands and superior customer service. We
provide marketing, technical and service support to our retail customers by
assisting with category management, in-store merchandising and customized
packaging. We also offer end users a broad array of services including product
warranties, toll-free customer service numbers and web sites featuring extensive
customer service information.
Recurring Revenue Stream. We derive recurring and, we believe, recession
resistant sales from many of our leading products due to their affordable nature
and position as a fundamental staple within many households. Our jar closures,
plastic cutlery, kitchen matches and toothpicks exemplify these traits.
Moreover, we believe that as the installed base of FoodSaver(R) appliances
increases, our patented disposable storage bags and related accessories used
with the FoodSaver(R) will constitute an increasing percentage of revenues. In
2002, revenues from the sale of storage bags generated nearly 27% of our home
vacuum packaging segment net sales, and we believe household penetration of
FoodSaver(R) machines will rise, resulting in increased sales of storage bags.
Low Cost Manufacturing and Sourcing. We believe we excel at manufacturing
programs involving high volumes with superior efficiencies, low cost and
exceptional quality. We have organized the production runs of our branded
consumable product lines to minimize the number of manufacturing functions and
the frequency of material handling. We also utilize, where practical, a flexible
process which uses cellular manufacturing to allow a continuous flow of parts
with minimal set up time. Our efficient and fully automated plastic cutlery
manufacturing operations enable us to automatically produce, count and package
plastic cutlery ready for retail distribution with minimal labor costs. Our home
vacuum packaging segment utilizes an efficient outsourced manufacturing network
of suppliers for our FoodSaver(R) products. Appliances, bags and accessories are
sourced through several facilities throughout Asia and the United States. This
diverse network allows us to maintain multiple sources of quality products while
keeping price points competitive.
Proprietary and Patented Technology. We believe we have proprietary expertise in
the design, development and manufacture of certain of our products supported by
patented technology, affording us a significant competitive advantage and
enabling us to maintain our market leading positions. We maintain patents on our
FoodSaver(R) home vacuum packaging systems and on the bags used for vacuum
sealing. This patent protection along with our well-developed manufacturing
expertise has enabled us to become the market leader within the home vacuum
packaging category. For our home canning products, we have developed a
proprietary two-piece closure system incorporating a plastisol sealant that
differentiates our jar lids from those of our competitors. We also have several
innovative new products in development for which patents are pending, including
our next generation of home vacuum packaging bags and systems.
Proven Management Team. Our management team has a proven track record of
successful management with positive operating and shareholder results. Our
management team is led by Martin E. Franklin, our Chairman and Chief Executive
Officer, and Ian G.H. Ashken, our Vice Chairman, Chief Financial Officer and
Secretary, both of whom joined Jarden in 2001. In addition, each of our
operating businesses is managed by professionals with an average of over 20
years of experience. Through organic growth and strategic acquisitions and
dispositions, the current management team has increased net sales by 21% and
achieved a net income of $36.3 million versus a net loss of $85.4 million, in
2002 compared to 2001.
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GROWTH STRATEGY
Our objective is to increase revenue, cash flow and profitability while
increasing our position as a leading manufacturer, marketer and distributor of
niche, branded consumer products. Our strategy for achieving that objective
includes the following key elements:
Further Penetrate Existing Distribution Channels. We will seek to further
penetrate existing distribution channels by capitalizing on our strong existing
customer relationships and attracting new customers. We intend to further
penetrate existing customers by continuing to (i) provide quality products, (ii)
efficiently and consistently fulfill logistical requirements and volume demands,
(iii) provide comprehensive product support from design to after-market customer
service and (iv) cross-sell our branded consumable and home vacuum packaging
products to our extensive combined customer base. As a result of our 2002
cross-selling initiatives, FoodSaver(R) products are now being sold through the
grocery and hardware channels. We intend to obtain new customers through our
portfolio of leading brands, innovative products and superior customer service.
Introduce New Products. We intend to leverage our strong brand names, customer
relationships and proven capacity for innovation to expand product offerings in
each of our major product categories. For example, our branded consumables
business is targeting several new product introductions, with a focus on
all-in-one Ball(R) home canning-related kits that provide consumers a simpler
and more convenient experience. In 2002, we successfully introduced jelly and
salsa kits and intend to introduce seven additional kits in 2003. Other product
line extensions in branded consumables include innovative packaging solutions
that meet specific consumer needs and drive profitability such as the recently
introduced Shake-A-Pick(R), an individual toothpick dispenser. Our FoodSaver(R)
line extensions include vacuum products as well as extending into non-vacuum
products, including an expanded assortment of canisters and re-usable vacuum
packaging bags.
Pursue Strategic Acquisitions. We anticipate that the fragmented nature of the
niche, branded consumables market will continue to provide significant
opportunities for growth through strategic acquisitions of complementary
businesses. Our acquisition strategy will continue to focus on businesses or
brands with product offerings that provide expansion into related categories and
can be marketed through our existing distribution channels or provide us new
distribution channels for our existing products, thereby increasing our
marketing and distribution efficiencies. Furthermore, we seek acquisition
candidates with attractive margins, strong cash flow characteristics, category
leading positions and products that are consumable in nature and generate
recurring revenue. We anticipate these acquisitions will be financed through a
combination of operating cash flow, debt and equity.
Expand Internationally. Historically, we have focused primarily on North
American operations while establishing a limited presence internationally. In
2002, sales outside of North America represented less than 2% of our sales. We
intend to expand our international sales primarily by developing distribution
channels for certain of our existing products and by pursuing strategic
acquisitions of foreign businesses with established complementary distribution
channels. We are in the early stages of implementing our proven North American
home vacuum packaging product introduction strategy in Asia and Europe, where we
have recently entered into limited distribution agreements for our FoodSaver(R)
products. In these markets, at this time, we intend to follow our historical
success by initially utilizing infomercials to build consumer awareness and
generate retail demand. Once a critical mass of consumer sales and interest has
been established, we intend to launch FoodSaver(R) products through traditional
retail channels.
BRANDED CONSUMABLES
We manufacture, market and distribute a broad line of branded products
that includes home canning jars, jar closures, plastic cutlery, kitchen matches,
toothpicks, food preparation kits, craft items and other accessories marketed
under the well-known Ball(R), Bernardin(R), Diamond(R), Forster(R), Fruit
Fresh(R) and Kerr(R), brand names. We distribute our branded consumable products
through approximately 2,600 grocery, mass merchant, hardware and specialty
retail customers and deliver these products to over 11,000 "ship to" locations.
5
On February 7, 2003, we acquired substantially all of the assets of
Diamond Brands, Incorporated and its subsidiaries (collectively, "Diamond
Brands"), which enhanced our portfolio of branded products with Diamond(R) and
Forster(R) plastic cutlery, kitchen matches, toothpicks and other products.
Customers
We have long-standing relationships with a diverse group of retail,
wholesale and institutional customers in North America. We sell through a wide
variety of retail formats, including grocery stores, mass merchants, department
stores, value retailers, hardware stores and craft stores. Our principal branded
consumable customers include Ace Hardware, Albertson's, Dollar General, Kroger,
and Wal-Mart, among others.
Sales and Marketing
Our branded consumables sales are led by our internal sales force, who
manage house accounts and oversee food brokerage firms and independent
manufacturer representatives. Regional sales managers are organized by
geographic area and are responsible for customer relations management, pricing
and distribution strategies, and sales generation. Our marketing and sales
departments work closely together to develop these pricing and distribution
strategies and to design packaging and develop product line extensions and new
products. Some of our planned marketing initiatives include in-store coupons,
strategically located display cases and the new "ultimate package" for home
canning jars.
Distribution and Fulfillment
We distribute our branded consumable products through two in-house
distribution centers and a number of third party warehouses throughout North
America. Whenever possible, we utilize highly automated packaging equipment,
allowing us to maintain our efficient and effective logistics and freight
management processes. We also work with outsourced providers for the delivery of
our products in order to ensure that as many shipments as possible are processed
as full truckloads, saving significant freight costs.
Manufacturing
We manufacture the metal closures for our home canning jars at our
Muncie, Indiana facility. Lithographed tin plated steel sheet is cut and formed
to produce the lids and bands. Liquid plastisol, which we formulate, is applied
to lids, forming an airtight seal, which is necessary for safe and effective
home canning. Finished products are packaged for integration with glass jars or
sold in multi-packs as replacement lids.
We manufacture kitchen matches, toothpicks, clothespins, and craft
items at our Cloquet, Minnesota and Strong, Maine locations. The plants purchase
local wood that we convert into veneer, from which we saw, stamp and mold the
various wood shapes. The shapes are dried and polished to prepare them for
packing. The kitchen match products are put though a secondary manufacturing
process to apply the match head and prepare it for packing and shipping to our
customers.
Raw Materials
Most of our glass canning jars are supplied under an agreement with a
primary vendor. Such glass materials are also available from other sources at
competitive prices. The tin plate raw material used in the manufacture of our
home canning jar lids and closures is supplied by multiple vendors and is
currently available from a variety of sources at competitive prices. Our wood is
supplied by multiple vendors and is readily available to our wood manufacturing
plants from local suppliers.
Historically, the raw materials and components that are necessary for
the manufacture of our products have been available in the quantities that we
require.
6
Intellectual Property
Management believes that none of our active trademarks or patents are
essential to the successful operation of our business as a whole. However, one
or more trademarks or patents may be material in relation to individual products
or product lines such as our rights to use the Ball(R), Bernardin(R),
Diamond(R), Forster(R) and Kerr(R) brand names in connection with the sale of
our branded consumables.
We own the rights to use Bernardin(R) in connection with home canning
and related products. We also own the rights to use Diamond(R) and Forster(R) in
connection with kitchen matches, plastic cutlery, toothpicks, clothespins,
straws and craft items.
Pursuant to the terms of the 1993 distribution agreement with Ball
Corporation ("Ball"), we were granted a license to use the Ball(R) brand name
for our branded consumables. In the event of a change of control of Jarden which
has not received the approval of a majority of our board of directors or causes
us to be controlled or majority owned by a competitor of Ball, Ball has the
option to terminate our license to use the Ball(R) brand name. Pursuant to the
terms of an agreement with Kerr Group, Inc. ("Kerr"), we have a perpetual
exclusive, worldwide license to use the Kerr(R) brand name for our branded
consumables. However, in the event of a change of control of Jarden which has
not received the approval of a majority of our board of directors, Kerr has the
option to terminate our license to use the Kerr(R) brand name.
Competition
We are the leading provider of home canning products, kitchen matches,
branded retail plastic cutlery and toothpicks in the United States. In addition
to direct competitors in our niche markets, we compete with companies who
specialize in other food preservation mediums such as freezing and dehydration.
The market for plastic cutlery is extremely price sensitive and our competitors
include Far East and domestic suppliers.
Seasonality
Sales of our home canning products generally reflect the pattern of the
growing season and retail sales of our plastic cutlery are concentrated in the
summer months and holiday periods. Sales of these products may be negatively
impacted by unfavorable weather conditions and other market trends. Periods of
drought, for example, may adversely affect the supply and price of fruit,
vegetables, and other foods available for home canning.
HOME VACUUM PACKAGING
We source, market and distribute an array of home vacuum packaging
machines under the market leading FoodSaver(R) brand name. We believe that the
FoodSaver(R) vacuum packaging system is superior to more conventional means of
food packaging, including freezer and storage bags and plastic containers, in
preventing dehydration, rancidity, mold, freezer burn and hardening of food. The
original FoodSaver(R) product was successfully launched through infomercials and
has since expanded its distribution channels to be based primarily on retail
customers. In addition to machines, we market and distribute an expanding line
of proprietary bags and bag rolls for use with FoodSaver(R) machines which
represent a recurring revenue source, along with accessories including
canisters, jar sealers, and wine stoppers.
We acquired our home vacuum packaging business effective April 1, 2002.
Customers
We sell through a diverse group of leading wholesale and retail
customers in North America and distributors in selected international markets.
We have successfully penetrated several traditional retail channels including
mass merchants, warehouse clubs and specialty retailers and also sell through
direct-to-consumer channels, primarily infomercials. Our leading customers
include Bed Bath and Beyond, Costco, Kohl's, Target and Wal-Mart.
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Sales and Marketing
Our home vacuum packaging products are led by our internal sales force,
who manage house accounts and oversee independent manufacturer representatives.
We also sell directly to the consumer through television infomercials, the
internet and other direct to consumer promotions. In addition to generating
direct sales, the infomercials serve as an advertising tool creating awareness
and demand at retail for the product line. Our marketing and sales departments
work closely together to develop customized product line and pricing strategies
to meet our customers' specialized needs. Our marketing department is
implementing a strategy to drive sustained growth over the next few years.
Advertising and brand-building programs will extend beyond infomercials. We
believe that new product innovation will increasingly capitalize on consumer
segmentation opportunities in vacuum packaging and in other food preservation
categories. We believe that our retail position will be reinforced by channel
marketing initiatives that optimize category volume and profitability for
retailers. We intend to expand direct marketing activities to reinforce the
brand loyalty and sustained usage rates for bags and accessories.
Distribution and Fulfillment
We utilize company-operated and independent warehouses located in
various regions of the United States and Canada to distribute our products.
During 2002, we entered into a contract with an outsourced, cost-effective
distribution center through which we expect to begin distributing the majority
of our products in the United States by summer 2003.
Manufacturing
Our research and development department designs and engineers products
in the United States, sets strict engineering specifications for the third-party
manufacturers and ensures us proprietary manufacturing expertise despite
outsourced production. We maintain ownership over all necessary production molds
and certain equipment. In order to ensure the quality and consistency of our
products manufactured by third party manufacturers in Asia, we employ a team of
inspectors who inspect the products we purchase on site at the factories and
ensure compliance with our strict quality standards. Appliances are currently
sourced through three facilities in China; bags and rolls are currently sourced
through suppliers in Korea and the United States; and accessories are sourced
from Taiwan, China and the United States.
Intellectual Property
We own the rights to the FoodSaver(R) brand for use in home vacuum
packaging machines, bags and related products and believe there is significant
value in this trademark.
Additionally, we hold patents throughout many primary worldwide markets
on the design of the FoodSaver(R) machine, the related bags and several of the
machine components. The key elements of the patented bags are a unique waffle
pattern that facilitates air removal, an oxygen barrier layer that prevents air
from entering the bag and a heat resistant outer layer to allow easy sealing
without burn-through. We have pending patent applications for continually
advancing bag and vacuum packaging technologies.
Competition
Our home vacuum packaging appliances and bags compete with marketers of
"conventional" food storage solutions, such as non-vacuum plastic bags and
containers. In addition, our competitors include other manufacturers of home
sealing appliances that heat- or vacuum- seal bags, however, as household
penetration of home vacuum packaging systems increases, we expect that more
competitors will enter the market. There are also several companies that
manufacture industrial and commercial vacuum packaging products, but we do not
believe that these manufacturers have attempted to enter the household
marketplace.
8
Seasonality
Sales of our home vacuum packaging appliances generally are strongest
in the fourth quarter preceding the holiday season and may be negatively
impacted by unfavorable retail or weather conditions and other market trends.
PLASTIC CONSUMABLES
We manufacture, market and distribute a wide variety of plastic
products including closures, contact lens packaging, plastic cutlery,
refrigerator door liners, sport shooting ammunition components, surgical devices
and syringes for industrial and manufacturing customers. Many of these products
are consumable in nature or represent components of consumer products. On
February 7, 2003, in conjunction with the acquisition of the business of Diamond
Brands, this segment began manufacturing plastic cutlery. Also included in this
segment in prior periods were the results of divested assets. Effective November
26, 2001, we sold our underperforming thermoformed plastics operations
consisting of the assets of our former Triangle, TriEnda and Synergy World
divisions.
Customers
We sell primarily to major companies in the healthcare and consumer
products industries. Our leading customers include CIBA Vision, Johnson &
Johnson, Scotts, Whirlpool and Winchester. We also supply plastic products and
parts to both our branded consumables (plastic cutlery and closures) and home
vacuum packaging (plastic containers) segments.
Sales and Marketing
Our internal sales force and marketing department focus their efforts
in those markets that require high levels of precision, quality, and engineering
expertise. There is potential for continued growth in all product lines,
especially in the healthcare market, where our quality, service and "clean room"
molding operations are critical competitive factors.
Manufacturing
We manufacture our plastic consumables products at five owned
facilities and one outsourced plant. The majority of our closure products are
produced at an outsourced plant for which we are the only customer and own all
of the molds used in manufacturing our proprietary products. The
injection-molding process involves converting plastic resin pellets to a fluid
state through elevated temperature and pressure, at which point the resin is
injected into a mold where it is then formed into a finished part. Molded parts
are usually small, intricate components that are produced using multi-cavity
tooling. Post-molding operations employ robotics and automation for assembly and
packaging. The thermoforming process is an operation in which plastic sheet,
which we extrude from plastic resin pellets, is converted into a formed product
using precision molds and the application of heat. After the product is formed,
the process of removing the excess material, or trimming, is generally performed
by automated equipment programmed to execute the appropriate steps to produce
the finished part to the customer's specifications.
Raw Materials
We purchase resin from regular commercial sources of supply and, in
most cases, multiple sources. The supply and demand for plastic resins is
subject to cyclical and other market factors. With the majority of our
manufacturing customers, we have the ability to pass-through price increases
with an increase in our selling price. This pass-through pricing is not
applicable to plastic cutlery, which we supply to our branded consumables
segment.
Competition
The market for plastic parts is highly competitive. We have
differentiated ourselves from our competitors by developing long-lasting
relationships with our customers and suppliers and by possessing strong design
capabilities. We believe that the quality and cleanliness of our facilities
provides another competitive advantage for
9
us. As a result, we believe that we will continue to capture new injection
molding programs as they come to market, as well as benefit from continued
outsourcing trends among original equipment manufacturers.
OTHER
We manufacture a variety of other products, which use zinc ingot as a
raw material. Our other business consists primarily of our zinc strip business,
which is the largest producer of zinc strip and fabricated products in the
United States. We are the sole source supplier of copper plated zinc penny
blanks to both the United States Mint and the Royal Canadian Mint and are
currently exploring opportunities with several other countries. In addition, we
manufacture a line of industrial zinc items used in the plumbing, automotive,
electrical component and European architectural markets, and the Lifejacket(R)
anti-corrosion system. Our anti-corrosion zinc Lifejacket(R) is gaining
recognition as a cost-effective solution to arrest the corrosion of the
reinforcement steel within poured concrete structures.
Sales and Marketing
Our internal sales and marketing staff consists of individuals with
considerable technical background in the field of metallurgy. These individuals
focus on leveraging our core capabilities in zinc metallurgy and
electrochemistry to exploit new market opportunities. The sales and marketing
staff work closely with our engineering and technical services group to deliver
products to the customer. We maintain a website which contains technical
information regarding the advantageous physical properties of zinc versus other
metals.
Manufacturing
In our Greeneville, Tennessee facility, we manufacture alloys of zinc
strip and fabricated zinc products in a number of configurations for our
customers. We have multiple lines used to slit the coils into widths specified
by customers. Many customers require less than the full master coil diameters,
so the large coils are broken down into the requested diameters at the time they
are slit. We also produce coin blanks stamped from slit coils using one of
multiple high-speed presses. The stamped blanks are then rimmed and put into one
of several electroplating lines where the copper or bronze plating is applied.
Raw Materials
We purchase special high-grade zinc ingot and a variety of metals,
including copper, titanium, magnesium, manganese and other alloys, to produce
the zinc alloys we use in our various applications. These alloys have been
developed by our technical staff to meet the specific physical and chemical
characteristics of the finished product applications. We purchase zinc ingot
based on market prices quoted on the London Metals Exchange (month-end average
price) from a variety of suppliers. Certain customers provide their own
purchased zinc thereby reducing the risk to us associated with purchasing raw
materials. We purchase copper for both alloying and plating purposes based on
market prices quoted on the New York Commodities and Metals Exchange. We also
purchase a variety of chemicals for production and waste treatment, primarily
for use in copper plating. Prices for chemicals are negotiated with suppliers
based on market conditions and volume purchase levels.
GOVERNMENT CONTRACTS
We enter into contracts with the United States Government, which
contain termination provisions customary for government contracts. The United
States Government retains the right to terminate such contracts at its
convenience. However, if the contract is terminated, we are entitled to be
reimbursed for allowable costs and profits to the date of termination relating
to authorized work performed to such date. The United States Government
contracts are also subject to reduction or modification in the event of changes
in government requirements or budgetary constraints. Since entering into a
contract with us in 1981, the United States Government has not terminated the
penny blank supply arrangement.
10
ENVIRONMENTAL MATTERS
Our operations are subject to Federal, state and local environmental
and health and safety laws and regulations, including those that impose
workplace standards and regulate the discharge of pollutants into the
environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of materials and substances
including solid and hazardous wastes. We believe that we are in material
compliance with such laws and regulations. Further, the cost of maintaining
compliance has not, and we believe, in the future, will not, have a material
adverse effect on our business, results of operations or financial condition.
Due to the nature of our operations and the frequently changing nature of
environmental compliance standards and technology, we cannot predict with any
certainty that future material capital or operating expenditures will not be
required in order to comply with applicable environmental laws and regulations.
In addition to operational standards, environmental laws also impose
obligations on various entities to clean up contaminated properties or to pay
for the cost of such remediation, often upon parties that did not actually cause
the contamination. We have attempted to limit our exposure to such liabilities
through contractual indemnities and other mechanisms. We do not believe that any
of our existing remediation obligations, including at third-party sites where we
have been named a potentially responsible party, will have a material adverse
effect upon our business, results of operations or financial condition.
EMPLOYEES
We employ approximately 1,500 people. Approximately 400 union workers
are covered by four collective bargaining agreements. One of these agreements
expires at our metals facility (Greeneville, Tennessee) in October 2003, one of
these agreements expires at our branded consumables facility (Muncie, Indiana)
in October 2006 and two of these agreements expire at our kitchen match and
toothpick manufacturing facility (Cloquet, Minnesota) in February 2008.
We have not experienced a work stoppage during the past five years.
Management believes that its relationships with our employees and labor unions
are good.
BACKLOG
As of December 31, 2002, the home vacuum packaging segment had a
backlog of orders of $1.5 million. In its remaining segments, we typically sell
under supply contracts for minimum (generally exceeded) or indeterminate
quantities and, accordingly, are unable to furnish backlog information. There
can be no assurance that orders comprising the backlog will be realized as
revenue.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred in connection
with our internal programs for the development of products and processes and
have not been material in recent years.
RECENT DEVELOPMENTS
On February 7, 2003, we acquired substantially all of the assets of
Diamond Brands, which enhanced our portfolio of branded products with Diamond(R)
and Forster(R) plastic cutlery, kitchen matches, toothpicks and other products.
We acquired these assets and assumed certain liabilities pursuant to the terms
of an asset purchase agreement, as amended, which was approved by the United
States Bankruptcy Court for the District of Delaware. We acquired Diamond Brands
for approximately $86 million in cash paid at closing and a deferred payment in
the amount of $6 million payable in cash or our common stock, at our election,
on or before August 7, 2003.
This acquisition was financed with the combination of our available
cash and borrowings under our credit facility, which we have amended to increase
our available borrowings. The deferred payment is being secured by a $6 million
letter of credit issued under our credit facility, as amended.
11
In addition to the information included in this Item 1, see Item 7
(Management's Discussion and Analysis of Financial Condition and Results of
Operations) and Item 8, Note 1 (Significant Accounting Policies) and Note 5
(Business Segment Information) for financial and other information concerning
our business segments and geographic areas.
Our corporate headquarters is located at 555 Theodore Fremd Avenue,
Rye, NY 10580, and our telephone number is (914) 967-9400. We make available
free of charge through our web site, www.jarden.com, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports, and the proxy statement for our annual meeting of
stockholders, as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and Exchange
Commission.
ITEM 2. PROPERTIES
The Company's properties are well maintained, considered adequate and
being utilized for their intended purposes. Information regarding the
approximate size of principal manufacturing, warehousing and office facilities
is provided below:
Approximate
Location Type of Use Business Segment Square Feet Owned/Leased
- --------- ----------- ---------------- ----------- ------------
Cloquet, Minnesota Manufacturing Branded Consumables 290,000 Owned
Kansas City, Missouri Warehousing Branded Consumables 150,000 Leased
Muncie, Indiana Manufacturing Branded Consumables 173,000 Owned
Wilton, Maine Warehousing Branded Consumables 150,000 Owned
Hayward, California Warehousing Home Vacuum Packaging 49,000 Leased
San Francisco, California Offices Home Vacuum Packaging 49,000 Leased
Greeneville, Tennessee Manufacturing / Warehousing Other 320,000 Owned
E. Wilton, Maine Manufacturing Plastic Consumables 85,000 Owned
Fort Smith, Arkansas Manufacturing / Warehousing Plastic Consumables 140,000 Owned
Fort Smith, Arkansas Warehousing Plastic Consumables 60,000 Leased
Greenville, South Carolina Manufacturing / Warehousing Plastic Consumables 48,000 Owned
Reedsville, Pennsylvania Manufacturing / Warehousing Plastic Consumables 73,000 Owned
Springfield, Missouri Manufacturing / Warehousing Plastic Consumables 43,000 Owned
Rye, New York Corporate offices ------- 4,700 Leased
On October 15, 2001, the Company announced the closing of its
Indianapolis corporate office. Corporate functions are now being performed out
of the Company's new headquarters in Rye, New York and the Company's branded
consumables location in Muncie, Indiana. On August 31, 2003, the Company intends
to terminate its lease for its previous headquarters located in Indianapolis,
Indiana, for which a termination fee of approximately $180,000 will be due.
ITEM 3. LEGAL PROCEEDINGS
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 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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
12
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G(3), the information regarding our
executive officers called for by Item 401(b) of Regulation S-K is hereby
included in Part I of this Annual Report on Form 10-K.
The executive officers of the Company are as follows:
Martin E. Franklin, age 38, is Chairman and Chief Executive Officer of the
Company. Mr. Franklin was appointed to the Board of Directors on June 25, 2001
and became Chairman and Chief Executive Officer effective September 24, 2001.
Mr. Franklin is also a principal and executive officer of a number of private
investment entities. Mr. Franklin was the Chairman of the Board of Directors of
Bolle, Inc. from February 1997 until February 2000. Mr. Franklin has previously
held positions as Chairman and Chief Executive Officer of Lumen Technologies,
Inc. from May 1996 to December 1998, and Benson Eyecare Corporation from October
1992 to May 1996. Since January 1, 2002, Mr. Franklin has served as the
non-executive Chairman of the Board and a director of Find/SVP, Inc., a Nasdaq
OTC Bulletin Board company.
Ian G.H. Ashken, age 42, is Vice Chairman, Chief Financial Officer and
Secretary of the Company. Mr. Ashken was appointed to the Board of Directors on
June 25, 2001 and became Vice Chairman, Chief Financial Officer and Secretary
effective September 24, 2001. Mr. Ashken is also a principal and executive
officer of a number of private investment entities. Mr. Ashken was the Vice
Chairman of the Board of Directors of Bolle, Inc. from December 1998 until
February 2000. From February 1997 until his appointment as Vice Chairman, Mr.
Ashken was the Chief Financial Officer and a director of Bolle. Mr. Ashken
previously held positions as Chief Financial Officer and a director of Lumen
Technologies, Inc. from May 1996 to December 1998 and Benson Eyecare Corporation
from October 1992 to May 1996.
Desiree DeStefano, age 35, serves as the Company's Senior Vice President,
working in the areas of finance, treasury, compliance and acquisitions. Ms.
DeStefano joined the Company as Chief Transition Officer and Vice President in
2001. From 2000 to 2001, Ms. DeStefano served as Chief Financial Officer of
Sports Capital Partners, a private equity investment fund. Ms. DeStefano served
as Vice President of Bolle, Inc. from 1998 to 2000. From 1996 to 1998, Ms.
DeStefano was Vice President of Lumen Technologies, Inc. and prior to that, Ms.
DeStefano held similar positions at Benson Eyecare Corporation. Prior to that,
Ms. DeStefano worked at Price Waterhouse.
J. David Tolbert, age 42, is Vice President, Human Resources and
Administration of the Company. From April 1997 to October 1998, Mr. Tolbert
served as Vice President, Human Resources and Corporate Risk of the Company.
From October 1993 to April 1997, Mr. Tolbert served as Director of Human
Resources of the Company. Since joining Ball Corporation in 1987, Mr. Tolbert
served in various human resource and operating positions of Ball's and the
Company's former Plastic Packaging division.
Michael Whitcomb, age 45, is Vice President of Marketing for the Company
and the Chief Marketing Officer of the Company's consumer products group. Mr.
Whitcomb joined the Company in 2002. From 2001 to 2002, Mr. Whitcomb was a
partner at Crossbow Solutions, a management consulting firm based in Orange
County, California. From 1999 to 2000, Mr. Whitcomb was President of Equative
Inc., a business-to-business internet software company based in Irvine,
California. From 1983 to 1999, Mr. Whitcomb held a succession of marketing and
general management positions at The Quaker Oats Company. These positions
included Managing Director for Australia and New Zealand, and Director of the
Pacific Coast Region for Gatorade.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Jarden Corporation common stock is traded on the New York Stock Exchange
under the symbol "JAH." There were approximately 3,700 common stockholders of
record on February 18, 2003. The Company currently does not and does not intend
to pay cash dividends on its common stock in the foreseeable future, and is
restricted from doing so under the terms of its credit facility. Cash generated
from operations will be used for general corporate purposes, including
acquisitions and supporting organic growth.
13
Information regarding our equity compensation plans required by Item 5,
including both stockholder approved plans and non-stockholder approved plans,
appearing under the caption "Executive Compensation" in our proxy statement for
the 2003 Annual Meeting of Stockholders is incorporated herein by reference. The
proxy statement is expected to be filed with the Commission on or about March
28, 2003.
The table below sets forth the high and low sales prices of our common
stock as reported on the New York Stock Exchange for the periods indicated. All
prices have been adjusted to reflect the 2-for-1 stock split that occurred
during the second quarter of 2002:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------- -------------- ------------- --------------
2002
- ----
High............................................. $ 15.00 $ 19.96 $ 27.46 $ 27.70
Low.............................................. $ 7.57 $ 13.25 $ 18.35 $ 20.00
--------------- -------------- ------------- --------------
2001
- ----
High............................................. $ 7.56 $ 8.07 $ 6.51 $ 8.02
Low.............................................. $ 6.15 $ 5.82 $ 5.35 $ 5.65
--------------- -------------- ------------- --------------
14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected financial data as of and for
the years ended December 31, 2002, 2001, 2000, 1999 and 1998. The selected
financial data set forth below has been derived from our audited consolidated
financial statements and related notes for the respective fiscal years. The
selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
well as our consolidated financial statements and notes thereto. These
historical results are not necessarily indicative of the results to be expected
in the future.
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2002 2001 2000 1999 1998
(a) (b) (c) (d) (e) (f)
------------ ------------ ------------ ------------- -------------
(dollars in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 368,199 $ 304,978 $ 357,356 $358,031 $258,489
Costs and expenses:
Cost of sales.................. 216,629 232,634 274,248 256,201 187,295
Selling, general and
administrative expenses....... 86,461 53,254 57,342 56,429 38,331
Goodwill amortization............ - 5,153 6,404 4,605 1,399
Special charges (credits) and
reorganization expenses (g)... - 4,978 380 2,314 1,260
Loss (gain) on divestiture of
assets and product lines...... - 122,887 - (19,678) -
------------ ------------ ------------ ------------- -------------
Operating income (loss)............. 65,109 (113,928) 18,982 58,160 30,204
Interest expense, net............... 12,611 11,791 11,917 8,395 1,822
Income tax provision (benefit)..... 16,189 (40,443) 2,402 19,458 10,785
Minority interest in gain (loss) of
consolidated subsidiary.......... - 153 (259) - -
------------ ------------ ------------ ------------- -------------
Income (loss) from continuing
operations....................... 36,309 (85,429) 4,922 30,307 17,597
Loss from discontinued operations... - - - (87) (1,870)
Extraordinary loss from early
extinguishment of debt (net of
income taxes).................... - - - (1,028) -
------------ ------------ ------------ ------------- -------------
Net income (loss)................... $ 36,309 $(85,429) $ 4,922 $29,192 $ 15,727
============ ============ ============ ============= =============
Basic earnings (loss) per share (h):
Income (loss) from continuing
operations........................ $ 2.60 $ (6.71) $ 0.39 $ 2.25 $ 1.24
Loss from discontinued operations... - - - (.01) (.13)
Extraordinary loss from early
extinguishment of debt (net of
income taxes).................... - - - (.07) -
------------ ------------ ------------ ------------- -------------
$ 2.60 $ (6.71) $ 0.39 $ 2.17 $ 1.11
============ ============ ============ ============= =============
Diluted earnings (loss) per share (h):
Income (loss) from continuing
operations........................ $ 2.52 $ (6.71) $ 0.39 $ 2.22 $ 1.22
Loss from discontinued operations.... - - - (.01) (.13)
Extraordinary loss from early
extinguishment of debt (net of
income taxes)..................... - - - (.07) -
------------ ------------ ------------ ------------- -------------
$ 2.52 $ (6.71) $ 0.39 $ 2.14 $ 1.09
============ ============ ============ ============= =============
15
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2002 2001 2000 1999 1998
(a) (b) (c) (d) (e) (f)
------------ ------------ ------------ ------------- -------------
(dollars in thousand)
OTHER FINANCIAL DATA:
EBITDA (i)......................... $ 75,110 $ 32,734 $ 40,673 $58,493 $ 42,012
Cash flows from operations......... 69,551 39,857 19,144 22,324 27,388
Depreciation and amortization...... 10,001 18,797 21,311 17,697 10,548
Capital expenditures............... 9,277 9,707 13,637 16,628 11,909
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 56,779 $ 6,376 $ 3,303 $17,394 $ 21,454
Working capital.................... 101,557 8,035 22,975 54,611 46,923
Total assets....................... 366,765 162,234 310,429 340,364 166,974
Total debt......................... 216,955 84,875 137,060 140,761 25,715
Total stockholders's equity........ 76,764 35,129 118,221 123,025 94,893
(a) The results of Tilia are included from April 1, 2002.
(b) 2002 includes a net release of a $4.4 million tax valuation allowance.
Adjusting for the net release of the valuation allowance, the Company's diluted
earnings per share for 2002 would have been $2.22.
(c) 2001 includes a $121.1 million pretax loss on the sale of thermoforming
assets, a $2.3 million pretax charge associated with corporate restructuring, a
$1.4 million pretax loss on the sale of the Company's interest in Microlin, LLC,
$2.6 million of pretax separation costs related to the management
reorganization, $1.4 million of pretax costs to evaluate strategic options, $1.4
million of pretax costs to exit facilities, a $2.4 million pretax charge for
stock option compensation, $4.1 million of pretax income associated with the
discharge of deferred compensation obligations and a $1.0 million pretax gain
related to an insurance recovery.
(d) 2000 includes $1.6 million of pretax income associated with the reduction in
long-term performance-based compensation, $1.4 million in pretax litigation
charges, net of recoveries and $0.6 million of pretax costs to evaluate
strategic options.
(e) 1999 includes a $19.7 million pretax gain on the sale of the plastic
packaging product line and a $2.3 million pretax charge to exit a plastic
thermoforming facility.
(f) 1998 includes a $1.3 million pretax charge to exit a plastic injection
molding facility.
(g) Special charges (credits) and reorganization expenses were comprised of
costs to evaluate strategic options, discharge of deferred compensation
obligations, separation costs for former officers, stock option compensation,
corporate restructuring costs, costs to exit facilities, reduction of long-term
performance based compensation, litigation charges and items related to our
divested thermoforming operations.
(h) All earnings per share amounts have been adjusted to give effect to a
2-for-1 split of our outstanding shares of common stock that was effected during
the second quarter of 2002.
(i) "EBITDA" is calculated as operating income (loss) plus (i) depreciation and
amortization, (ii) special charges (credits) and reorganization expenses and
(iii) loss (gain) on divestiture of assets and product lines. EBITDA is not
intended to represent cash flow from operations as defined by accounting
principles generally accepted in the United States and should not be used as an
alternative to net income as an indicator of operating performance or to cash
flow as a measure of liquidity. EBITDA is included in this Form 10-K because it
is a basis upon which our management assesses financial performance. While
EBITDA is frequently used as a measure of operations and the ability to meet
debt service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Item 6. Selected Financial Data as well as our consolidated financial statements
and notes thereto appearing elsewhere in this Form 10-K.
We are a leading provider of niche, branded consumer products used in the
home, under leading brand names including Ball(R), Bernardin(R), Diamond(R),
FoodSaver(R), Forster(R) and Kerr(R). In North America, we are the market leader
in several targeted categories, including home canning, branded retail plastic
cutlery, kitchen matches, toothpicks and home vacuum packaging.
We have grown by actively acquiring new brands and expanding our existing
brands. Our strategy to achieve future growth is to acquire new brands, sustain
profitable internal growth and expand our international business.
On April 24, 2002, we completed our acquisition of the business of Tilia
International, Inc. and its subsidiaries (collectively "Tilia"), pursuant to an
asset purchase agreement (the "Acquisition"). Based in San Francisco,
California, Tilia was 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 branded consumer products. We acquired the business of Tilia
for approximately $145 million in cash and $15 million in seller debt financing.
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. In conjunction with
the Acquisition, we incurred expenses in the amount of approximately $4.5
million. Due to the Company having effective control of the business of Tilia as
of April 1, 2002, the results of Tilia have been included in the Company's
results from such date.
Effective November 26, 2001, we sold the assets of our Triangle, TriEnda
and Synergy World plastic thermoforming operations ("TPD Assets") to Wilbert,
Inc. for $21.0 million in cash, a non-interest bearing one-year note ("Wilbert
Note") as well as the assumption of certain identified liabilities. The carrying
amount on the Wilbert Note of $1.6 million was repaid on November 25, 2002. In
connection with this sale, we recorded a pre-tax loss of approximately $121.1
million in 2001. The proceeds from the sale were used to pay down the Company's
term debt under its old credit agreement.
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.
We recorded a pretax loss of $1.4 million in 2001 related to the sale.
Pro forma financial information relating to the Acquisition and the sales
of TPD Assets and Microlin has been included in Item 8. Financial Statements and
Supplementary Data.
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. Following this appointment we
undertook a new business and management strategy to concentrate on niche,
branded consumer products, which led to the sale of the TPD Assets and the
Acquisition. During 2002, we revised our business segment information to report
four business segments: branded consumables, home vacuum packaging, plastic
consumables and other. Prior periods have been reclassified to conform to the
current segment definitions.
RESULTS OF OPERATIONS - COMPARING 2002 TO 2001
We reported net sales of $368.2 million in 2002, an increase of 20.7% from
net sales of $305.0 million in 2001. From April 1, 2002 onwards, our home vacuum
packaging segment, which consists of the newly acquired Tilia business,
generated net sales of $145.3 million. Our branded consumables segment reported
net sales of $112.3 million in 2002 compared to $120.6 million in 2001. Net
sales were $8.3 million or 6.9% lower than 2001, principally due to severe
drought weather conditions during summer 2002 in the South, Southeast and West
Central regions of the United States. Our plastic consumables segment reported
net sales of $70.6 million in 2002 compared to $139.9 million in 2001. The
principal cause of the $69.3 million decrease was the divestiture of the TPD
Assets
17
and Microlin, which accounted for $63.3 million of such change (after
adjusting for $1.2 million of intercompany sales to these businesses). The
remaining $6.0 million is principally due to lower tooling sales and a
contractual sales price reduction to a significant customer. In the other
segment, net sales decreased to $41.0 million in 2002 from $45.5 million in
2001, primarily due to reduced sales to the United States Mint in connection
with its inventory reduction program for all coinage.
We reported operating income of $65.1 million for 2002. These results
compare to an operating loss of $113.9 million for 2001, which included special
charges and reorganization expenses of $5.0 million and a loss on divestitures
of assets and product lines of $122.9 million. All of our segments generated
increases in operating income in 2002 from 2001, with the exception of the other
segment, which had a small decrease but still maintained a constant operating
income percentage of net sales in 2002. From April 1, 2002 onwards, our home
vacuum packaging segment, which consists of the newly acquired Tilia business,
generated operating income of $31.7 million. Operating income for our branded
consumables and plastic consumables segments increased by $4.7 million and $14.4
million, respectively, in 2002 compared to 2001.The other factors that
contributed to these favorable operating income results are discussed in the
following two paragraphs.
Gross margin percentages on a consolidated basis increased to 41.2% in
2002 from 23.7% in 2001, reflecting the higher gross margins of the acquired
home vacuum packaging business in 2002, the lower gross margins of the disposed
TPD Assets and Microlin businesses in 2001, a $1.5 million charge for slow
moving inventory in the branded consumables segment in 2001 and cost efficiency
increases in our plastic consumables segment. These increases were partially
offset by lower gross margins in the branded consumables segment caused by the
lower sales volume.
Selling, general and administrative expenses increased to $86.5 million in
2002 from $53.3 million in 2001, or, as a percentage of net sales increased to
23.5% in 2002 from 17.5% in 2001. This increase was principally due to the
acquisition of the home vacuum packaging business, which accounted for an
additional $46.3 million of selling, general and administrative expenses, and
because of company-wide increased performance-based compensation expenses
related to our strong financial performance in 2002. Partially offsetting this
were decreases in selling, general and administrative expenses in our branded
consumables, plastic consumables and other segments. Expenses within the branded
consumables segment decreased due to lower selling expenses associated with the
decrease in net sales discussed above. Expenses within our plastic consumables
segment decreased primarily due to the divestiture of TPD Assets and Microlin,
which accounted for $11.7 million of this decline, and lower expenses in the
remaining business of the segment.
We incurred net special charges (credits) and reorganization expenses of
$5.0 million in 2001, consisting of $0.8 million in costs to exit facilities,
$2.4 million in stock option compensation, $2.3 million in corporate
restructuring costs, $2.6 million in separation costs for former executive
officers and $1.4 million of costs to evaluate strategic options, partially
offset by $4.1 million in pre-tax income related to the discharge of certain
deferred compensation obligations and $0.4 million of income for items related
to the divested TPD Assets.
As a result of the adoption of SFAS No. 142, we did not record goodwill
amortization in 2002. Goodwill amortization of approximately $5.2 million had
been recorded in 2001.
Net interest expense in 2002 was $12.6 million compared to $11.8 million
for 2001, primarily due to the additional indebtedness assumed pursuant to the
Acquisition, partially offset by the write-off in 2001 of $1.5 million of
previously deferred debt issuance costs in November 2001 in conjunction with the
amendment to our credit facility effected in connection with the TPD Assets
sale. During 2002, we had a lower weighted average interest rate than the prior
year, which was more than offset by higher average borrowings outstanding.
Our effective tax rate was 30.8% in 2002 compared to 32.2% in 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
$4.4 million of this valuation allowance was released in 2002 resulting in an
income tax provision of $16.2 million. Our net income for 2002 would have been
$31.9 million or $2.22 diluted earnings per share if this valuation allowance
release was excluded.
18
Excluding the release of this valuation allowance, our effective tax rate was
approximately 39.2% in 2002. The effective tax rate in 2001 was lower than the
statutory federal rate due to the valuation allowance described above.
RESULTS OF OPERATIONS - COMPARING 2001 TO 2000
We reported consolidated net sales of $305.0 million in 2001, a decrease
of 14.7% from net sales of $357.4 million in 2000. Net sales of the branded
consumables segment were $120.6 million in 2001 compared to $120.4 million in
2000. Increased sales in the United States were offset by decreased sales in
Canada due to unfavorable weather conditions and customers carrying higher
levels of inventory over from 2000. Net sales within the plastic consumables
segment were $139.9 million in 2001 compared to $179.3 million in 2000. The
decrease of $39.4 million or 22.0% was due primarily to (i) lower demand for
industrial thermoformed parts (part of the divested TPD Assets) in the heavy
truck and material handling markets, and (ii) the fact that 2001 did not include
December sales for the divested TPD Assets. Net sales of the other segment
decreased to $45.5 million in 2001 from $58.8 million in 2000. This decrease of
$13.3 million or 22.6% resulted from lower demand in all of our zinc product
lines.
Our operating loss for 2001 was $113.9 million, including special charges
and reorganization expenses of $5.0 million and a total loss on divestitures of
assets and product lines of $122.9 million. These results compare to operating
income for 2000 of $19.0 million. The factors that contributed to these results
are discussed in the following two paragraphs.
Gross margin percentages increased to 23.7% in 2001 from 23.3% in 2000.
Gross margin percentages increased for branded consumables due primarily to cost
efficiencies which continued during 2001 as the benefits of the segment's SAP
system implementation continued to be realized. The plastic consumables segment
gross margin percentages declined from 16% in 2000 to 13% in 2001. This decrease
in gross margin percentage was due primarily to (i) lower sales of plastic
thermoformed parts (part of the divested TPD Assets) resulting in diminished
operating efficiencies, and (ii) lower sales volumes causing fixed overhead
costs to be allocated to less sales of injection molded plastic parts. There was
an increase in the other segment's gross margin percentages from 28% in 2000 to
29% in 2001.
Selling, general and administrative expenses decreased 7.1% to $53.3
million in 2001 from $57.3 million in 2000, or, as a percentage of sales
increased to 17.5% in 2001 from 16.0% in 2000. Branded consumables expenses
decreased primarily due to lower expenses associated with sales and marketing,
warehousing and shipping. Expenses within the plastic consumables segment
decreased primarily as a result of the cost savings realized due to a third
quarter 2000 realignment and consolidation of our divested TPD Assets and the
fact that 2001 did not include December expenses for the divested TPD Assets.
Excluding the TPD Assets, selling, general and administrative expenses in the
remainder of the plastic consumables segment and the other segment remained
relatively constant.
Goodwill amortization decreased from $6.4 million in 2000 to $5.2 million
in 2001 due primarily to our November 2001 sale of the TPD Assets included in
the plastic consumables segment.
We incurred net special charges (credits) and reorganization expenses of
$5.0 million in 2001, consisting of $0.8 million in costs to exit facilities,
$2.4 million in stock option compensation, $2.3 million in corporate
restructuring costs, $2.6 million in separation costs for former executive
officers and $1.4 million of costs to evaluate strategic options, partially
offset by $4.1 million in pre-tax income related to the discharge of certain
deferred compensation obligations and $0.4 million of income for items related
to the divested TPD Assets.
Net interest expense in 2001 was $11.8 million compared to $11.9 million
for 2000. The effects of lower average borrowings outstanding and lower interest
rates during 2001 were offset by the write-off of $1.5 million of previously
deferred debt issuance costs in November 2001 in conjunction with the amendment
to our credit facility effected in connection with the sale of TPD Assets. Our
effective interest rate for the year ended December 31, 2001 was 7.7%. As a
result of decreasing interest rates during 2001, our interest rate swaps, which
were at a fixed interest rate of 5.7%, resulted in additional interest expense
to us during the year ended December 31, 2001.
Our effective tax rate was 32.2% for 2001 compared to 34.0% for 2000. The
effective rate for 2001 is lower than the statutory federal rate primarily
because it includes a valuation allowance for tax benefits associated with the
19
loss on the sale of the TPD Assets. The effective rate for 2000 reflects the
recognition of a tax benefit from exiting the Central European home canning test
market.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During 2002, we made the following changes to our capital resources in
connection with the financing of the Acquisition:
o completed 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,
which were later wholly exchanged pursuant to an offering for
9 3/4% senior subordinated notes which are registered under the
Securities Act of 1933, as amended ("New Notes");
o in conjunction with the Notes, 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;
o refinanced our existing indebtedness with a new $100 million
five-year senior secured credit facility, which included a $50
million term loan facility and a $50 million revolving credit
facility ("New Credit Agreement"); and
o entered into $15 million of seller debt financing.
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 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, with
the first payment having occurred on November 1, 2002.
During December 2002, the Company completed an offering to the holders of
the Notes to exchange the Notes for the New Notes. The New Notes are
substantially similar to the Notes except that certain mandatory redemption
provisions and the transfer restrictions applicable to the Notes are not
applicable to the New Notes.
In conjunction with the Notes, on April 24, 2002, we entered into a $75
million interest rate swap ("Initial Swap") to receive a fixed rate of interest
and pay a variable rate of interest based upon LIBOR. The Initial Swap had a
maturity date that was the same as the Notes. Interest was payable semi-annually
in arrears on May 1 and November 1, commencing on November 1, 2002. The initial
effective rate of interest that we established on this swap was 6.05%. This
contract was considered to be an effective hedge against changes in the fair
value of our fixed-rate debt obligation for both tax and accounting purposes.
Effective September 12, 2002, we entered into an agreement, whereby we
unwound the Initial Swap and contemporaneously entered into a new $75 million
interest rate swap ("Replacement Swap"). The Replacement Swap has the same terms
as the Initial Swap, except that we will pay a variable rate of interest based
upon 6 month LIBOR in arrears. The spread on this contract is 470 basis points.
Based upon this contract, we paid an effective interest rate of 6.32% on
November 1, 2002. In return for unwinding the Initial Swap, we received $5.4
million in cash proceeds, of which $1 million related to accrued interest that
was owed to us. The remaining $4.4 million of proceeds will be amortized over
the remaining life of the Notes as a credit to interest expense and is included
in our consolidated balance sheet as an increase to the value of the long-term
debt. Such amortization amount offsets the increased effective rate of interest
that we pay on the Replacement Swap. We have continued to accrue interest on the
Replacement Swap at a 6.32% effective rate for the remainder of 2002.
The Replacement Swap is also considered to be an effective hedge against
changes in the fair value of our fixed-rate debt obligation for both tax and
accounting purposes. The fair market value of the interest rate swap as of
December 31, 2002 was approximately $2.4 million and is included as an asset
within other assets in the consolidated balance sheet, with a corresponding
offset to long-term debt. We are exposed to credit loss in the event
20
of non-performance by the other party to the Replacement Swap, a large financial
institution, however, we do not anticipate non-performance by the other party.
The New Credit Agreement matures on April 24, 2007. 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 us to maintain certain financial
covenants.
During 2002, we incurred costs in connection with the issuance of the
Notes, the New Notes and the New Credit Agreement of approximately $7.4 million.
The seller debt financing for the Acquisition consists of a non-interest
bearing note in the principal amount of $10 million that is due on March 31,
2003 and a note in the principal amount of $5 million, bearing interest at 5%,
which is due on April 24, 2004. For accounting purposes, we have imputed an
interest rate of 5% on the $10 million non-interest bearing note.
Until it was replaced by the New Credit Agreement on April 24, 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. 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. During the first
quarter of 2002, approximately $38 million of tax refunds we received were used
to repay a portion of the outstanding amounts under the Old Credit Agreement.
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.
As of December 31, 2002, we had $47.5 million outstanding under the term
loan facility of the New Credit Agreement, with a weighted average interest rate
of 4.3%. As of December 31, 2002, we had not drawn down any of the $50 million
available under the revolving credit facility of the New Credit Agreement,
although we have used approximately $4.2 million of availability for the
issuance of letters of credit. See "Recent Developments" below, for a discussion
of the recent amendment to our New Credit Agreement.
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
21
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.
Working capital (defined as current assets less current liabilities)
increased to approximately $101.6 million at December 31, 2002 from
approximately $8.0 million at December 31, 2001 due primarily to:
o the working capital of the acquired home vacuum packaging
business;
o a lower amount of current portion of debt and increased cash on
hand amounts caused by our favorable operating results and the
new financing relationships discussed above; and
o the receipt of $22.3 million of tax refunds which had not been
included in working capital in 2001.
Cash flow generated from operations, excluding net income tax refunds was
approximately $31.0 million for the year ended December 31, 2002.
Capital expenditures were $9.3 million in 2002 compared to $9.7 million
for 2001 and are largely related to maintaining facilities, tooling projects,
improving manufacturing efficiencies and a portion of the costs of the
installation of new packaging lines for the branded consumables segment. As of
December 31, 2002, we have capital expenditure commitments in the aggregate for
all our segments of approximately $3.9 million, of which $2.5 million relates to
the completion of the new packaging lines for the branded consumables segment.
As of December 31, 2002, our home vacuum packaging segment had committed to
purchase $18.5 million of inventory from various vendors in the year 2003.
Additionally, as of December 31, 2002, our other segment had forward buy
contracts for 2003 to purchase zinc ingots in the aggregate amount of
approximately $2.5 million, which are expected to be used in operations in 2003.
We believe that cash generated from our operations and our availability
under our senior credit 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.
The following table includes aggregate information about our contractual
obligations as of December 31, 2002 and the periods in which payments are due.
Certain of these amounts are not required to be included in our consolidated
balance sheet:
- ------------------------------
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD (MILLIONS OF DOLLARS)
- ------------------------------ -------------------------------------------------------------
LESS THAN 1
TOTAL YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
----- ---- --------- --------- -------------
Debt (1) $ 212.5 $ 16.3 $ 25.0 $ 21.2 $ 150.0
Operating Leases 16.1 5.6 8.4 2.1 -
Unconditional Purchase
Obligations 24.9 24.9 - - -
Other Non-current Obligations 2.8 1.8 1.0 - -
---------------------------------------------------------------------------
Total Contractual Cash
Obligations $ 256.3 $ 48.6 $ 34.4 $ 23.3 $ 150.0
===========================================================================
(1) The debt amounts are based on the principal payments that will be due
upon their maturity and exclude approximately $6.6 million of non-debt
balances arising from the interest rate swap transactions described in
Item 8. Note 16. Financial Statements and Supplementary Data.
22
Commercial commitments are items that we could be obligated to pay in the
future:
o As of December 31, 2002, we had $4.2 million in standby and commercial
letters of credit that all expire in 2003;
o In connection with the Acquisition, we may be obligated to pay an
earn-out in cash or our common stock of up to $25 million in 2005,
provided that certain earnings performance targets are met; and
o In connection with a contract we have entered into to acquire
additional intellectual property, we may be obligated to pay up to $7.5
million between 2003 and 2009, providing certain contractual
obligations, including the issuance of patents amongst other things,
are satisfied.
These amounts are not required to be included in our consolidated balance
sheet.
RECENT DEVELOPMENTS
In January 2003, we filed a shelf registration statement, which was
declared effective by the Securities and Exchange Commission (the "Commission")
on January 31, 2003. This shelf registration statement is intended to facilitate
our access to growth capital for future acquisitions and allows us to sell over
time up to $150 million of common stock, preferred stock, warrants, debt
securities, or any combination of these securities in one or more separate
offerings in amounts, at prices and on terms to be determined at the time of the
sale.
On February 7, 2003, we completed our acquisition of the business of
Diamond Brands, Incorporated, and its subsidiaries ("Diamond Brands"), a
manufacturer and distributor of kitchen matches, toothpicks and retail plastic
cutlery under the Diamond(R) and Forster(R) trademarks, pursuant to an asset
purchase agreement. The purchase price of this transaction was approximately $86
million in cash, net of cash on hand at Diamond Brands, paid at closing and a
deferred payment in the amount of $6 million payable in cash or our common
stock, at our election, on or before August 7, 2003. In connection with this
acquisition, we amended our New Credit Agreement, increasing our term loan
facility by $10 million and our revolving loan facility by $20 million. We used
cash on hand and draw downs under our debt facilities to finance the
transaction. As of December 31, 2002, approximately $1.5 million for an escrow
deposit and expenses related to the Diamond Brands acquisition had been
capitalized and included in our balance sheet. Following this acquisition and
the effectiveness of our amendment, we had outstanding $57.5 million under our
term loan facility and $14 million under our revolving credit facility. After
taking account of the outstanding amount and issued letters of credit, we had
approximately $45.8 million of availability remaining under the revolving credit
agreement.
CRITICAL ACCOUNTING POLICIES
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require us to make
judgments, estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The following list of critical
accounting policies is not intended to be a comprehensive list of all our
accounting policies. Our significant accounting policies are more fully
described in Item 8. Note 1. Financial Statements and Supplementary Data. The
following represents a summary of our critical accounting policies, defined as
those policies that we believe are the most important to the portrayal of our
financial condition and results of operations, and/or require management's
significant judgments and estimates:
Revenue recognition and product returns
We recognize revenue when title transfers. In most cases, title transfers
at the time product is shipped to customers. We allow customers to return
defective or damaged products as well as certain other products for credit,
replacement, or exchange. Our revenue is recognized as the net amount to be
received after deducting estimated amounts for product returns, discounts, and
allowances. We estimate future product returns based upon historical return
rates and our judgment. If these estimates do not properly reflect future
returns, they could be revised.
23
Accounts receivable
We maintain an allowance for doubtful accounts for estimated losses that
may result from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate or our judgment
regarding their financial condition was to change negatively, additional
allowances may be required resulting in a charge to income in the period such
determination was made. Conversely, if the financial condition of our customers
were to improve or our judgment regarding their financial condition was to
change positively, a reduction in the allowances may be required resulting in an
increase in income in the period such determination was made.
Inventory
We write down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of the inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by us, additional inventory write-downs may be required resulting in a charge to
income in the period such determination was made. Conversely, if actual market
conditions are more favorable than those projected by us, a reduction in the
write down may be required resulting in an increase in income in the period such
determination was made.
Deferred tax assets
We record a valuation allowance to reduce our deferred tax assets to the
amount that we believe is more likely than not to be realized. While we have
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event we
were to determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to the deferred tax assets
would be charged to income in the period such determination was made. Likewise,
should we determine that we would be able to realize our deferred tax assets in
the future in excess of our net recorded amount, an adjustment to the deferred
tax assets would increase income in the period such determination was made.
Intangible assets
We have significant intangible assets on our balance sheet that include
goodwill, trademarks and other intangibles fair valued in conjunction with
acquisitions. The valuation and classification of these assets and the
assignment of amortizable lives involves significant judgments and the use of
estimates. The testing of these intangibles under established guidelines for
impairment also requires significant use of judgment and assumptions. Our assets
are tested and reviewed for impairment on an ongoing basis under the established
accounting guidelines. Changes in business conditions could potentially require
adjustments to these asset valuations.
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.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 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 are no longer amortized,
but are subject to annual impairment tests in accordance with the statements.
Other intangible assets continue to be amortized over their useful lives. We
applied the new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. We have performed the required tests of
goodwill and indefinite lived intangible assets and, based on the results, have
not recorded any charges related to the adoption of and subsequent conformity
with SFAS No. 142. In 2001 and 2000, we recorded
24
goodwill amortization of $5.2 million and $6.4 million, respectively. The
adoption of SFAS No. 141 did not have a material impact on our results of
operations or financial position.
In August 2001, the FASB issued SFAS No. 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
No. 144 was effective for our business beginning with the first quarter of 2002
and its adoption did not have a material impact on our results of operations or
financial position.
In April 2002, the FASB issued SFAS No. 145, Recision of SFAS Nos. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2000.
SFAS No. 145 revises the criteria for classifying the extinguishment of debt as
extraordinary and the accounting treatment of certain lease modifications. SFAS
No. 145 is effective in fiscal 2003 and we do not expect it to have a material
impact on our consolidated financial statements. In 2003, we will conform with
the requirements of SFAS No. 145 in our Item 6. Selected Financial Data
disclosure in connection with our early extinguishment of debt that occurred in
1999.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance on
the timing of the recognition of costs associated with exit or disposal
activities. The new guidance requires costs associated with exit or disposal
activities to be recognized when incurred. Previous guidance required
recognition of costs at the date of commitment to an exit or disposal plan. The
provisions of the statement are to be adopted prospectively for exit activities
after December 31, 2002. Although SFAS No. 146 may impact the accounting for
costs related to exit or disposal activities that we may enter into in the
future, particularly the timing of recognition of these costs, the adoption of
the statement will not have an impact on our present financial condition or
results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based methods of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require more prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The additional disclosure requirements of SFAS No. 148 are effective
for fiscal years ending after December 15, 2002. As provided for in SFAS No.
148, we have elected to continue to follow the intrinsic value method of
accounting as prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, to account for stock options.
FORWARD-LOOKING STATEMENTS
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 phrases 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.
25
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 New 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 financial health of the U.S. retail
industry;
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, sustain 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 number 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 We may have difficulty in integrating acquired businesses, which may
interrupt our business operations;
o Continuation of the United States penny as a currency denomination;
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;
o We may be adversely affected by problems that may arise between certain of
our vendors, customers, and transportation services that we rely on and
their respective labor unions that represent certain of their employees;
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
Commission 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.
26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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's plastic consumables business
purchases resin from regular commercial sources of supply and, in most cases,
multiple sources. The supply and demand for plastic resins is subject to
cyclical and other market factors. With many of our customers, we have the
ability to pass through price increases with an increase in our selling price
and certain of our customers purchase the resin used in products we manufacture
for them.
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 6 month LIBOR in arrears on its
interest rate swap. The spread on the interest rate swap is 470 basis points.
Settlements on the interest rate swap are made on May 1 and November 1, with the
first one having been made on November 1, 2002. The Company is exposed to credit
loss in the event of non-performance by the other party to the swap, a large
financial institution, however, the Company does not anticipate non-performance
by the other 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 $0.8 million and $0.5 million for 2002 and 2001, respectively. The
amounts were 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.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Jarden Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Jarden
Corporation and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2002. Our audits also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jarden Corporation
and subsidiaries at December 31, 2002 and 2001, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, on January 1,
2002, the Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets".
/s/ ERNST & YOUNG LLP
New York, New York
January 30, 2003
28
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
----------- ----------- -------------
Net sales................................ $ 368,199 $ 304,978 $ 357,356
Costs and expenses:
Cost of sales......................... 216,629 232,634 274,248
Selling, general and administrative
expenses............................ 86,461 53,254 57,342
Goodwill amortization................. - 5,153 6,404
Special charges (credits) and
reorganization expenses............. - 4,978 380
Loss on divestitures of assets and
product lines....................... - 122,887 -
----------- ----------- -------------
Operating income (loss).................. 65,109 (113,928) 18,982
Interest expense, net.................... 12,611 11,791 11,917
----------- ----------- -------------
Income (loss) before taxes and minority
interest............................... 52,498 (125,719) 7,065
Income tax provision (benefit)........... 16,189 (40,443) 2,402
Minority interest in gain (loss) of
consolidated subsidiary................ - 153 (259)
----------- ----------- -------------
Net income (loss)........................ $ 36,309 $(85,429) $ 4,922
=========== =========== =============
Basic earnings (loss) per share:
Net income (loss)...................... $ 2.60 $ (6.71) $ 0.39
Diluted earnings (loss) per share:
Net income (loss)...................... $ 2.52 $ (6.71) $ 0.39
Weighted average shares outstanding:
Basic.................................. 13,940 12,726 12,676
Diluted................................ 14,392 12,726 12,766
The accompanying notes are an integral part of the consolidated
financial statements.
29
JARDEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
--------------------------
2002 2001
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 56,779 $ 6,376
Accounts receivable, net of allowances of $6,095 and $778......... 40,470 14,917
Income taxes receivable........................................... 1,039 16,252
Inventories, net.................................................. 59,463 26,994
Deferred taxes on income.......................................... 10,312 4,832
Prepaid expenses and other current assets......................... 4,667 3,134
------------ -----------
Total current assets......................................... 172,730 72,505
------------ -----------
Non-current assets:
Property, plant and equipment, at cost
Land.............................................................. 782 782
Buildings......................................................... 25,109 24,356
Machinery and equipment........................................... 115,637 106,106
------------ ----------
141,528 131,244
Accumulated depreciation.......................................... (96,291) (87,701)
------------ ----------
45,237 43,543
------------- ----------
Intangibles, net....................................................... 134,060 15,487
Deferred taxes on income............................................... - 25,417
Other assets........................................................... 14,738 5,282
------------- -----------
Total assets........................................................... $ 366,765 $ 162,234
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt............. $ 16,117 $ 28,500
Accounts payable.................................................. 18,466 14,197
Accrued salaries, wages and employee benefits..................... 13,559 9,252
Other current liabilities......................................... 23,031 12,521
------------- -----------
Total current liabilities.................................... 71,173 64,470
------------- -----------
Non-current liabilities:
Long-term debt.................................................... 200,838 56,375
Deferred taxes on income.......................................... 6,377 -
Other non-current liabilities..................................... 11,613 6,260
------------- -----------
Total non-current liabilities................................ 218,828 62,635
------------- -----------
Commitments and contingencies (Notes 13 & 14) - -
Stockholders' equity:
Common stock ($.01 par value), 50,000 shares authorized, 15,926
and 15,926 shares issued and 14,371 and 12,796 shares outstanding
at December 31, 2002 and 2001, respectively....................... 159 159
Additional paid-in capital......................................... 34,076 41,694
Retained earnings.................................................. 69,033 32,724
Notes receivable for stock purchases............................... (5,109) -
Accumulated other comprehensive loss............................... (3,463) (1,862)
Less: treasury stock (1,555 and 3,130 shares, at cost, at
December 31, 2002 and 2001, respectively)......................... (17,932) (37,586)
------------- -----------
Total stockholders' equity..................................... 76,764 35,129
------------- -----------
Total liabilities and stockholders' equity.............................. $ 366,765 $ 162,234
============= ============
The accompanying notes are an integral part of the consolidated
financial statements.
30
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................................ $ 36,309 $ (85,429) $ 4,922
Reconciliation of net income (loss) to net cash provided by operating
activities:
Depreciation......................................................... 9,412 13,427 14,533
Amortization......................................................... 589 5,370 6,778
Loss on divestitures of assets and product lines..................... - 122,887 -
Loss on disposal of fixed assets..................................... 498 402 338
Special charges (credits) and reorganization expenses................ - 680 (1,600)
Deferred income taxes................................................ 8,039 (27,804) 3,892
Deferred employee benefits........................................... 383 378 (40)
Write-off of debt issuance and amendment costs....................... 198 1,507 -
Non-cash interest expense............................................ 1,607 465 377
Other, net........................................................... 2,814 1,443 424
Changes in working capital components, net of effects from acquisitions
and divestitures:
Accounts receivable.................................................. (12,076) 4,787 6,216
Income tax refunds................................................... 38,578 - -
Inventories.......................................................... (15,118) 9,338 5,804
Accounts payable..................................................... 10 794 (12,613)
Accrued salaries, wages and employee benefits........................ 1,689 2,212 (2,589)
Other current assets and liabilities................................. (3,381) (10,600) (7,298)
----------- ----------- ------------
Net cash provided by operating activities.......................... 69,551 39,857 19,144
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit borrowings............................... 25,200 41,050 57,332
Payments on revolving credit borrowings................................. (34,600) (47,650) (41,940)
Proceeds from issuance of long-term debt................................ 147,654 - -
Payments on long-term debt.............................................. (77,975) (45,585) (19,094)
Debt issue and amendment costs.......................................... (7,467) (867) -
Proceeds from issuance of senior debt................................... 50,000 - -
Proceeds from recouponing of interest rate swap......................... 4,400 - -
Purchase of treasury stock.............................................. - - (10,485)
Other................................................................... 4,335 815 1,219
----------- ----------- ------------
Net cash provided by (used in) financing activities.................. 111,547 (52,237) (12,968)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, and equipment............................. (9,277) (9,707) (13,637)
Insurance proceeds from property casualty............................... - 1,535 -
Acquisitions of businesses, net of cash acquired of $28,374 in 2002..... (121,065) - (6,930)
Purchase of intangible assets........................................... (2,000) - -
Proceeds from divestitures of assets and product lines.................. 1,600 21,001 220
Proceeds from the surrender of insurance contracts...................... - 6,706 -
Loans to former officers................................................ - (4,059) -
Other, net.............................................................. 47 (23) 80
----------- ----------- ------------
Net cash (used in) provided by investing activities................... (130,695) 15,453 (20,267)
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH.............................................. 50,403 3,073 (14,091)
Cash and cash equivalents, beginning of year................................. 6,376 3,303 17,394
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR....................................... $ 56,779 $ 6,376 $ 3,303
=========== =========== =============
The accompanying notes are an integral part of the consolidated
financial statements.
31
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Accumulated Other
Comprehensive Loss
------------------
Common Stock Treasury Stock Additional Cumulative Interest Minimum
------------ -------------- Paid-in Retained Loans Translation Rate Pension
Shares Amount Shares Amount Capital Earnings Receivable Adjustment Swap Liability
------ ------ ------ ------ ------- -------- ---------- ---------- ---- ---------
Balance, December 31, 1999.. 15,930 $ 39,952 (2,458) $(29,739) $ - $113,231 $ - $ (419) $ - $ -
Net income.................. - - - - - 4,922 - - - -
Stock options exercised and
stock plan purchases...... 126 1,449 - - - - - - - -
Shares reissued from
treasury.................. (130) (1,384) 130 1,384 - - - - - -
Shares tendered for stock
options and taxes......... - - (12) (131) - - - - - -
Cumulative translation
adjustment................ - - - - - - - (559) - -
Purchase of common stock.... - - (904) (10,485) - - - - - -
--------------------------------------------------------------------------------------------------
Balance, December 31, 2000.. 15,926 40,017 (3,244) (38,971) - 118,153 - (978) - -
Net loss.................... - - - - - (85,429) - - - -
Stock options exercised and
stock plan purchases...... 134 929 - - - - - - - -
Shares reissued from
treasury.................. (134) (1,515) 134 1,515 - - - - - -
Shares tendered for stock
options and taxes......... - - (20) (130) - - - - - -
Stock option compensation... - 2,422 - - - - - - - -
Restatement of par value of
common stock associated
with the reincorporation
in Delaware............... - (41,694) - - 41,694 - - - - -
Cumulative translation
adjustment................ - - - - - - - (424) - -
Translation adjustment
recorded to
Net income due to
liquidation of
investment in foreign
subsidiary.............. - - - - - - - 461 - -
Interest rate swap unrealized
loss...................... - - - - - - - - (524) -
Minimum pension liability... - - - - - - - - - (397)
----------------------------------------------------------------------------------------------------
Balance, December 31, 2001.. 15,926 159 (3,130) (37,586) 41,694 32,724 - (941) (524) (397)
Net income.................. - - - - - 36,309 - - - -
Stock options exercised and
stock plan purchases...... 1,549 - - - 9,261 - - - - -
Shares issued for
non-cash compensation..... 30 - - - 587 - - - - -
Shares reissued from
treasury.................. (1,579) - 1,579 19,742 (19,742) - - - - -
Shares tendered for stock
options and taxes......... - - (4) (88) - - - - - -
Cumulative translation
adjustment................ - - - - - - - 191 - -
Tax benefit related to stock
option exercises.......... - - - - 2,276 - - - - -
Loans to executive officers. - - - - - - (5,109) - - -
Interest rate swap
maturity.................. - - - - - - - - 524 -
Minimum pension liability... - - - - - - - - - (2,316)
----------------------------------------------------------------------------------------------------
Balance, December 31, 2002.. 15,926 $ 159 (1,555) $(17,932) $ 34,076 $69,033 $(5,109) $(750) $ - $(2,713)
====================================================================================================
The accompanying notes are an integral part of the consolidated
financial statements.
32
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
-------------------------------------------
2002 2001 2000
------------- ------------- -----------
Net income (loss)............................................. $ 36,309 $ (85,429) $ 4,922
Foreign currency translation:
Translation adjustment during period..................... 191 (424) (559)
Translation adjustment recorded to net income (loss) due to
liquidation of investment in foreign subsidiary.... - 461 -
Interest rate swap unrealized gain (loss):
Transition adjustment.................................... - 45 -
Change during period..................................... - (569) -
Maturity of interest rate swap........................... 524 - -
Minimum pension liability..................................... (2,316) (397) -
------------- ------------- -----------
Comprehensive income (loss)................................... $ 34,708 $ (86,313) $ 4,363
============= ============= ===========
The accompanying notes are an integral part of the consolidated
financial statements.
33
JARDEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company is a leading provider of niche, branded consumer products used
in the home, including home canning and home vacuum packaging. The Company also
manufactures a wide array of plastic products for third party consumer product
and medical companies, as well as its own businesses. See Business Segment
Information (Note 5). On February 7, 2003, as a result of its acquisition of the
business of Diamond Brands, Incorporated and its subsidiaries ("Diamond Brands")
(see Note 19), the Company is a leading provider of branded retail plastic
cutlery, kitchen matches and toothpicks.
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
consolidated financial statements include the accounts of Jarden Corporation and
its subsidiaries (the "Company"). All significant intercompany transactions and
balances have been eliminated upon consolidation.
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 Notes 3 and 9, 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.
All earnings per share amounts and number of shares outstanding have been
retroactively adjusted to give effect to a 2-for-1 split of the Company's 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 (loss).
Use of Estimates
Preparation of the consolidated financial statements requires estimates
and assumptions that affect amounts reported and disclosed in the financial
statements and related notes. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue when title transfers. In most cases, title
transfers at the time product is shipped to customers. The Company allows
customers to return defective or damaged products as well as certain other
products for credit, replacement, or exchange. Revenue is recognized as the net
amount to be received after deducting estimated amounts for product returns,
discounts, and allowances. The Company provides credit, in the normal course of
business, to its customers. The Company also maintains an allowance for doubtful
customer accounts and charges actual losses when incurred to this allowance.
Freight Costs
Freight costs on goods shipped to customers are included in Cost of Sales
in the Consolidated Statements of Operations.
Prepaid Media and Advertising Costs
Direct advertising costs (primarily media expenses) related to infomercial
sales are recorded as prepaid assets when paid in advance. The expense is
recognized when the infomercial is aired. All production expenses related to the
infomercials are expensed upon first showing of the infomercial. The Company's
other advertising costs, consisting primarily of ad demo and cooperative
advertising, media placement and promotions are expensed as incurred. The
Company incurred advertising costs in the approximate amount of $17.8 million,
$1.0 million and $1.0 million for the years 2002, 2001 and 2000, respectively.
An amount of $0.4 million was included in the Company's Prepaid Expenses and
Other Current Assets in the Consolidated Balance Sheet as of December 31, 2002.
There was no amount included in the Company's Consolidated Balance Sheet as of
December 31, 2001.
Cash and Cash Equivalents
Cash equivalents include financial investments with a maturity of three
months or less when purchased.
34
Inventories
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Maintenance and repair
costs are charged to expense as incurred, and expenditures that extend the
useful lives of the assets are capitalized. The Company reviews property, plant
and equipment for impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable through future undiscounted cash flows,
excluding interest cost.
Depreciation
Depreciation is calculated on the straight-line basis in amounts
sufficient to amortize the cost of the assets over their estimated useful lives
(buildings - 30 to 50 years; machinery and equipment - 3 to 20 years).
Intangible Assets
Intangible assets consist principally of goodwill and intangible assets
recorded in connection with brand names and manufacturing processes expertise.
Goodwill represents the excess of the purchase prices of acquired businesses
over the estimated fair values of the net assets acquired. In conjunction with
new accounting guidance (see Note 2) the Company's goodwill and intangible
assets that are deemed to have indefinite lives are no longer amortized but are
subject to annual impairment tests. Other intangible assets are amortized over
their useful lives and are evaluated for impairment whenever events or
circumstances indicate that carrying amounts may not be recoverable through
future undiscounted cash flows, excluding interest costs. If facts or
circumstances suggest that the Company's intangible assets are impaired, the
Company assesses the fair value of the intangible assets and reduces them to an
amount that results in book value approximating fair value.
Taxes on Income
Deferred taxes are provided for differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates. The
Company established a valuation allowance against a portion of the net tax
benefit associated with all carryforwards and temporary differences at December
31, 2001, as it was more likely than not that these would not be fully utilized
in the available carryforward period. A portion of this valuation allowance
remains as of December 31, 2002 (see Note 10).
Fair Value and Credit Risk of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
notes payable, accounts payable and accrued liabilities approximate their fair
market values due to the short-term maturities of these instruments. The fair
market value of the Company's senior subordinated notes was determined based on
quoted market prices (see Note 9). The fair market value of the Company's other
long-term debt was estimated using rates currently available to the Company for
debt with similar terms and maturities (see Note 9).
The Company enters into interest rate swaps to manage interest rate
exposures. The Company designates the interest rate swaps as hedges of
underlying debt. Interest expense is adjusted to include the payment made or
received under the swap agreements. The fair market value of the swap agreements
was estimated based on the current market value of similar instruments (see Note
16).
Financial instruments that potentially subject the Company to credit risk
consist primarily of trade receivables and interest-bearing investments. Trade
receivable credit risk is limited due to the diversity of the Company's
customers and the Company's ongoing credit review procedures. Collateral for
trade receivables is generally not required. The Company places its
interest-bearing cash equivalents with major financial institutions.
Stock Options
The Company accounts for the issuance of stock options using the intrinsic
value method in accordance with Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Generally
for the Company's stock option plans, no compensation cost is recognized in the
Consolidated Statements of Operations because the exercise price of the
Company's stock options equals the market price of the underlying stock on the
date of grant. Under the Company's 2001 Stock Option Plan, however, the Company
did recognize a one-time charge of compensation cost in 2001 because stockholder
approval of the plan was required subsequent to the grant date (see Note 12).
35
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates for awards under those plans, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated:
Year Ended December 31,
--------------------------------------------------
(thousands of dollars, except per share amounts) 2002 2001 2000
---------------- ----------------- ---------------
Net income (loss), as reported...................................... $ 36,309 $ (85,429) $ 4,922
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects....................................... 1,037 295 298
--------------- ----------------- ---------------
Pro forma net income (loss)......................................... $ 35,272 $ (85,724) $ 4,624
=============== ================= ===============
Basic earnings (loss) per share:
As reported........................................................ $ 2.60 $ (6.71) $ 0.39
Pro forma.......................................................... 2.53 (6.74) 0.36
Diluted earnings (loss) per share:
As reported.............................................................. $ 2.52 $ (6.71) $ 0.39
Pro forma................................................................ 2.45 (6.74) 0.36
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2002, 2001 and 2000, respectively: no dividend
yield for all years, expected volatility of 44, 37 and 36 percent, risk-free
interest rates of 2.0, 4.8 and 5.1 percent and expected lives of 7.5 years for
all periods. The average fair value of each option granted in 2002, 2001 and
2000 was $9.28, $2.89 and $4.13, respectively.
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 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 are no longer amortized,
but are subject to annual impairment tests in accordance with the statements.
Other intangible assets 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
required tests of goodwill and indefinite lived intangible assets and, based on
the results, has not recorded any charges related to the adoption of and
subsequent conformity with SFAS No. 142 (see Note 8). The adoption of SFAS No.
141 did not have a material impact on the Company's results of operations or
financial position.
In August 2001, the FASB issued SFAS No. 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
No. 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.
In April 2002, the FASB issued SFAS No. 145, Recision of SFAS Nos. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2000.
SFAS No. 145 revises the criteria for classifying the extinguishment of debt as
extraordinary and the accounting treatment of certain lease modifications. SFAS
No. 145 is effective in fiscal 2003 and is not expected to have a material
impact on the Company's consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance on
the timing of the recognition of costs associated with exit or disposal
activities. The new guidance requires costs associated with exit or disposal
activities to be recognized when incurred. Previous guidance required
recognition of costs at the date of commitment to an exit or disposal plan. The
provisions of the statement are to be adopted prospectively for exit activities
after December 31, 2002. Although SFAS No. 146 may impact the accounting for
costs related to exit or disposal activities the Company may enter into in the
future, particularly the timing
36
of recognition of these costs, the adoption of the statement will not have
an impact on the Company's present financial condition or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based methods of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require more prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The additional disclosure requirements of SFAS No. 148 are effective
for fiscal years ending after December 15, 2002. As provided for in SFAS No.
148, we have elected to continue to follow the intrinsic value method of
accounting as prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees, to account for stock options.
3. ACQUISITIONS AND DIVESTITURES
On April 24, 2002, the Company completed its acquisition of the business of
Tilia International, Inc. and its subsidiaries (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 the Company's
plan to pursue growth in food preservation and branded consumer products.
Pursuant to the Acquisition, the Company acquired Tilia for approximately
$145 million in cash and $15 million in seller debt financing. 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. If these earnings performance targets are
met, the Company will capitalize the cost of the earn-out provision. As of
December 31, 2002, the Company had incurred transaction fees in conjunction with
the Acquisition in the amount of approximately $4.5 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. See Note 9 for a description of the
financing of the Acquisition.
Due to the Company having effective control of the business of Tilia as of
April 1, 2002, the results of Tilia have been included in the Company's results
from such date. During 2002, the Company recorded $0.6 million of imputed
interest expense 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 following table summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the effective date of acquisition:
AT APRIL 1,
(millions of dollars) 2002
-----------------
Current assets................................................. $ 64.3
Property, plant and equipment.................................. 2.4
Trademark...................................................... 50.9
Other intangibles.............................................. 5.5
-----------------
Total assets acquired...................................... 123.1
-----------------
Current liabilities............................................ (19.4)
Long-term liabilities.......................................... (.7)
-----------------
Total liabilities assumed................................. (20.1)
-----------------
Net assets acquired................................ 103.0
-----------------
Purchase price................................................. 163.3
-----------------
Goodwill recorded.............................................. $ 60.3
=================
The goodwill and other intangibles amounts recorded in connection with the
Acquisition are discussed in detail in Note 8.
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 million in cash, a $1.9 million noninterest bearing
one-year note ("Wilbert Note") as well as the assumption of certain identified
liabilities. The Company recorded charges
37
of $0.1 million and $0.2 million in 2002 and 2001, respectively, to reduce the
carrying amount of the Wilbert Note based upon purchase adjustments. The
residual carrying amount on the Wilbert Note of $1.6 million was repaid on
November 25, 2002. In connection with this sale, the Company recorded a pre-tax
loss of $121.1 million in 2001. The amount of goodwill included in the loss on
the sale was $82.0 million. The proceeds from the sale were used to pay down the
Company's term debt under its old credit agreement (see Note 9).
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. The Company recorded a pretax loss of $1.4 million
in 2001 related to the sale.
4. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives pro forma
effect to the sale of the assets of TPD Assets and Microlin (as described in
Note 3 above) with the related tax refunds (see Note 10) and the acquisition of
Tilia (as described in Note 3 above) with the related financials as if they had
been consummated as of the beginning of each period presented. The unaudited pro
forma financial information presented does not exclude special charges (credits)
and reorganization expenses for the year ended December 31, 2001 or the net $4.4
million income tax valuation allowance released in 2002:
Year Ended December 31,
-------------------------------
(thousands of dollars, except per share data) 2002 2001
---------------- --------------
Net sales...................................................... $ 406,724 $ 425,504
Operating income............................................... 70,651 51,166
Net income..................................................... 37,681 20,262
Diluted earnings per share..................................... $ 2.62 $ 1.59
5. BUSINESS SEGMENT INFORMATION
During 2002, the Company revised its business segment information to report
four business segments: branded consumables, home vacuum packaging, plastic
consumables and other. Prior periods have been reclassified to conform to the
current segment definitions.
In the branded consumables segment, the Company markets a line of home food
preservation products under the Ball(R), Kerr(R) and Bernardin(R) brands,
including home canning jars, metal closures, and accessories, which are
distributed through a wide variety of retail outlets. In the home vacuum
packaging segment, which was acquired in April 2002, the Company 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. The plastic consumables
segment manufactures plastic parts and components primarily used in consumer and
healthcare products. For the years ended December 31, 2001 and 2000, the plastic
consumables segment also included the businesses that comprised the TPD Assets
and Microlin. The other segment is primarily a producer of zinc strip.
38
Net sales, operating income (loss), capital expenditures, depreciation and
amortization, and assets employed in operations by segment are summarized as
follows:
YEAR ENDED DECEMBER 31,
------------------------------------------------
(thousands of dollars) 2002 2001 2000
------------ ------------ -------------
Net sales:
Home vacuum packaging (1)........................ $ 145,316 $ - $ -
Branded consumables.............................. 112,335 120,644 120,381
Plastic consumables (2).......................... 70,578 139,912 179,274
Other............................................ 41,034 45,525 58,773
Intercompany.................................... (1,064) (1,103) (1,072)
------------ ------------ -------------
Total net sales.......................... $ 368,199 $ 304,978 $ 357,356
------------ ------------ -------------
Operating income (loss):
Home vacuum packaging (1)........................ $ 31,672 $ - $ -
Branded consumables.............................. 17,984 13,291 10,362
Plastic consumables (2).......................... 9,088 (5,274) (1,708)
Other............................................ 6,366 7,075 11,636
Intercompany..................................... (1) 13 39
Unallocated corporate expenses (3)............... - (6,146) (1,347)
Loss on divestitures of assets................... - (122,887) -
------------ ------------ -------------
Total operating income (loss)............ 65,109 (113,928) 18,982
Interest expense, net............................... 12,611 11,791 11,917
------------ ------------ -------------
Income (loss) before taxes and minority interest... $ 52,498 $ (125,719) $ 7,065
============ =========== =============
Capital expenditures:
Home vacuum packaging (1)....................... $ 1,008 $ - $ -
Branded consumables............................. 3,547 633 1,314
Plastic consumables (2)......................... 3,392 8,537 9,841
Other........................................... 585 530 2,195
Corporate (4)................................... 745 7 287
------------ ------------ -------------
Total capital expenditures............... $ 9,277 $ 9,707 $ 13,637
============ ============ =============
Depreciation and amortization:
Home vacuum packaging (1)....................... $ 1,382 $ - $ -
Branded consumables............................. 1,878 3,202 3,264
Plastic consumables (2)......................... 4,435 12,947 15,367
Other........................................... 2,222 2,448 2,446
Corporate (4)................................... 84 200 234
------------ ------------ -------------
Total depreciation and amortization...... $ 10,001 $ 18,797 $ 21,311
============ ============ =============
AS OF DECEMBER 31,
----------------------------------
2002 2001
--------------- ----------------
Assets employed in operations:
Home vacuum packaging (1)........................ $ 184,180 $ -
Branded consumables.............................. 61,093 50,943
Plastic consumables (2).......................... 39,551 41,345
Other............................................ 14,573 15,096
Corporate (3).................................... 67,368 54,850
--------------- ----------------
Total assets.............................. $ 366,765 $ 162,234
=============== ================
(1) The home vacuum packaging segment was purchased effective April 1, 2002.
(2) Effective November 26, 2001 and November 1, 2001, the Company sold the TPD
Assets and Microlin, respectively.
(3) Unallocated corporate expenses in 2001 and 2000 are comprised primarily of
special charges (credits) and reorganization expenses.
(4) Corporate assets primarily include cash and cash equivalents, amounts
relating to benefit plans, deferred tax assets and corporate facilities and
equipment.
39
One customer of both the Company's home vacuum packaging and branded
consumables segments on a combined basis accounted for 18.7% of the Company's
2002 net revenues.
The Company's major customers are located within the United States and
Canada. Net sales of the Company's products in Canada, including home food
preservation products, vacuum packaging systems, coinage and plastic parts were
$28.0 million, $26.8 million and $35.3 million in 2002, 2001 and 2000,
respectively. Net sales and long-lived assets located outside of the United
States are not material.
6. SPECIAL CHARGES (CREDITS) AND REORGANIZATION EXPENSES
The Company incurred net special charges (credits) and reorganization
expenses of $5.0 million and $0.4 million for 2001 and 2000, respectively. No
charges were incurred in 2002. These amounts are comprised of the following (in
millions):
Year Ended December 31,
----------------------------------
(millions of dollars) 2001 2000
--------------- ----------------
Costs to evaluate strategic options.................................. $ 1.4 $ 0.6
Discharge of deferred compensation obligations....................... (4.1) -
Separation costs for former officers................................. 2.6 -
Stock option compensation............................................ 2.4 -
Corporate restructuring costs........................................ 2.3 -
Costs to exit facilities............................................. 0.8 -
Reduction of long-term performance-based compensation................ - (1.6)
Litigation charges................................................... - 1.4
Items related to divested thermoforming operations................... (0.4) -
--------------- ----------------
$ 5.0 $ 0.4
=============== ================
During 2001, certain former officers and 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 are payable upon the death of the
participant and their spouse. The Company recognized $4.1 million of pre-tax
income during 2001 related to the discharge of the deferred compensation
obligations.
On September 25, 2001, the Company announced the departure from the Company
of Thomas B. Clark, Chairman, President and Chief Executive Officer, and Kevin
D. Bower, Senior Vice President and Chief Financial Officer. The Board announced
the appointment of Martin E. Franklin as Chairman and Chief Executive Officer
and Ian G.H. Ashken as Vice Chairman, Chief Financial Officer and Secretary.
Separation costs associated with this management reorganization were
approximately $2.6 million.
During September 2001, options were granted to participants under the
Company's 2001 Stock Option Plan. Because the options granted under this new
plan were still subject to stockholder approval at the time of grant, the
options resulted in a one-time charge of $2.4 million which was recorded in the
fourth quarter of 2001 (see Note 12) following stockholder approval of the 2001
Stock Option Plan on December 18, 2001.
During the fourth quarter of 2001, the Company incurred corporate
restructuring costs in the amount of $2.3 million. These include costs related
to the transitioning of the corporate office function from Indianapolis, Indiana
to Rye, New York and Muncie, Indiana, costs to reincorporate in Delaware and to
hold a special meeting of stockholders, and other costs including professional
fees. Of this amount, $0.6 million remained unpaid as of December 31, 2002.
In August 2001, the Company announced that it would be consolidating its
home canning metal closure production from its Bernardin Ltd. Toronto, Ontario
facility into its Muncie, Indiana manufacturing operation. The total cost to
exit the Toronto facility was $0.8 million and included a $0.3 million loss on
the sale and disposal of equipment, and $0.5 million of employee severance
costs, of which $0.4 million was paid in 2001. The remaining $0.1 million was
paid in 2002. The Company continues to distribute its home canning products in
Canada through Bernardin, Ltd.
40
During 2001, items recognized related to the divested TPD Assets included a
pre-tax gain of $1.0 million in connection with an insurance recovery associated
with a property casualty. Also in August 2001, the Company announced that it had
vacated its former TPD Assets facility in Independence, Iowa and integrated
personnel and capabilities into its other operating and distribution facilities
in the area. The total cost to exit this Iowa facility was $0.6 million and
included $0.4 million in future lease obligations and an additional $0.2 million
of costs related to the leased facility.
During 2000, the Company recorded a pre-tax gain of $1.6 million related to
a reduction in long-term performance-based compensation. Also during 2000, the
Company reached settlements in legal disputes incurring $1.4 million in net
settlement and legal expenses.
7. INVENTORIES
Inventories were comprised of the following at December 31:
(thousands of dollars) 2002 2001
--------------- -----------------
Raw materials and supplies.......................................... $ 6,562 $ 5,563
Work in process..................................................... 7,300 4,746
Finished goods...................................................... 45,601 16,685
--------------- -----------------
Total inventories......................................... $ 59,463 $ 26,994
=============== =================
8. INTANGIBLES
In connection with the Acquisition discussed in Note 3, the Company
recorded the following intangible assets: $60.3 million of goodwill, $50.9
million for the FoodSaver(R) brand and $5.5 million for Tilia's manufacturing
process expertise (see Note 3). In addition, in connection with the costs
incurred to date of acquiring additional intellectual property, the Company
recorded a further $2.5 million of intangible assets in 2002. Certain working
capital and deferred tax balances are preliminary and will be finalized by the
Company during the first quarter of 2003. The intangible assets recorded are
fully deductible for income tax purposes. The only intangible asset currently
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. The
intellectual property will not be amortized until it is placed in use.
As a result of the adoption of SFAS No. 142, the Company did not record
goodwill amortization and no impairment losses were recognized for 2002.
Amortization of the intangible asset for the Tilia manufacturing processes in
the amount of $0.6 million was recorded in 2002, and was included in Selling,
General and Administrative expenses in the Consolidated Statements of
Operations. The Company recorded goodwill amortization of approximately $5.2
million and $6.4 million in 2001 and 2000, respectively.
As of December 31, 2002, $15.5 million of the Company's intangible assets
are included in the assets of the branded consumables segment and $118.6 million
are included in the home vacuum packaging segment. In 2001 and 2000, goodwill
amortization of $4.0 million and $5.3 million, respectively, related to entities
that were disposed of in 2001, which had been included in the plastic
consumables segment. The remaining goodwill amortization for the 2001 and 2000
periods related to the branded consumables segment.
41
Net income (loss) and earnings (loss) per share amounts on an adjusted basis to
reflect the add back of goodwill amortization would be as follows:
Year Ended December 31,
-----------------------------------------------
(in thousands, except per share amounts) 2002 2001 2000
------------- ------------- -------------
Reported net income (loss)................................... $ 36,309 $(85,429) $ 4,922
Add back: goodwill amortization (net of tax expense of
$0, $2,020 and $2,510, respectively)................... - 3,133 3,894
------------- ------------- -------------
Adjusted net income (loss)................................... $ 36,309 $(82,296) $ 8,816
============= ============= =============
Basic earnings (loss) per share:
Reported net income (loss).................................... $ 2.60 $ (6.71) $ 0.39
Goodwill amortization......................................... - 0.24 0.31
------------- ------------- -------------
Adjusted net income (loss).................................... $ 2.60 $ (6.47) $ 0.70
============= ============= =============
Diluted earnings (loss) per share:
Reported net income (loss).................................... $ 2.52 $ (6.71) $ 0.39
Goodwill amortization......................................... - 0.24 0.30
------------- ------------- -------------
Adjusted net income (loss).................................... $ 2.52 $ (6.47) $ 0.69
============= ============= =============
9. DEBT AND INTEREST
The Acquisition (see Note 3) 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, which were later wholly exchanged pursuant to an offering for 9 3/4%
senior subordinated notes which are registered under the Securities Act of 1933,
as amended ("New Notes"), (ii) a refinancing of the Company's existing
indebtedness with a new $100 million five-year senior secured credit facility,
which included a $50 million term loan facility and a $50 million revolving
credit facility ("New Credit Agreement"), (iii) seller debt financing and (iv)
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, with the first payment having occurred on
November 1, 2002.
During December 2002, the Company completed an offering to the holders of
the Notes to exchange the Notes for the New Notes. The New Notes are
substantially similar to the Notes except that certain mandatory redemption
provisions and the transfer restrictions applicable to the Notes are not
applicable to the New Notes. As of December 31, 2002, the New Notes trade at a
premium, resulting in an estimated fair value, based upon quoted market prices,
of approximately $154.5 million.
The New Credit Agreement matures on April 24, 2007. 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.
The seller debt financing consists of a non-interest bearing note in the
principal amount of $10 million that is due on March 31, 2003 and a note in the
principal amount of $5 million, bearing interest at 5%, which is due on April
24, 2004. For accounting purposes, the Company has imputed an interest rate of
5% on the $10 million non-interest bearing note.
42
Until it was replaced by the New Credit Agreement on April 24, 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. 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. During the first
quarter 2002, approximately $38 million of tax refunds the Company received were
used to repay a portion of the outstanding amounts under the Old Credit
Agreement.
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.
As of December 31, 2002, the Company had $47.5 million outstanding under
the term loan facility and zero outstanding under the $50 million revolving
credit facility of the New Credit Agreement. The Company's weighted average
interest rate on this outstanding amount at December 31, 2002 was 4.3%. Net
availability under the revolving credit agreement was approximately $45.8
million as of December 31, 2002, after deducting $4.2 million of issued letters
of credit. The Company is required to pay commitment fees on the unused balance
of the revolving credit facility.
As of December 31, 2001, the Company had outstanding amounts of $75.5
million and $9.4 million under the term loan and revolving credit facilities,
respectively, of its Old Credit Agreement. The weighted average interest rate of
the term loan facility was 4.3% exclusive of the effects of the interest rate
swap see above. The weighted average interest rate of the revolving credit
facility was 4.7%.
As of December 31, 2002, maturities on Long-term Debt, net of unamortized
debt discounts, over the next five years, were $16.1 million in 2003, $13.9
million in 2004, $11.3 million in 2005, $13.7 million in 2006, $7.5 million in
2007 and $154.4 million thereafter.
The Company's Long-term Debt includes approximately $6.6 million of
non-debt balances (included in the "thereafter" balance above) arising from the
interest rate swap transactions described in Note 16.
Because the interest rates applicable to the senior debt under the New
Credit Agreement are based on floating rates identified by reference to market
rates, the fair market value of the senior debt as of December 31, 2002
approximates its carrying value. Also, because the interest rates applicable to
the senior debt under the Old Credit Agreement were based on floating rates
identified by reference to market rates, the fair market value of the senior
debt as of December 31, 2001 approximated its carrying value.
As of December 31, 2002, the Company had incurred costs in connection with
the issuance of the Notes, New Notes and the New Credit Agreement of
approximately $7.4 million, which are included in Other Assets on the
Consolidated Balance Sheet and amortized over the respective terms of the debt.
Interest paid on the Company's borrowings during the years ended December
31, 2002, 2001 and 2000 was $10.5 million, $9.5 million and $11.4 million,
respectively.
43
10. TAXES ON INCOME
The components of the provision (benefit) for income taxes attributable to
continuing operations were as follows for the years ended December 31:
(thousands of dollars) 2002 2001 2000
-------------- -------------- ---------------
Current income tax expense (benefit):
U.S. federal............................................... $ 13,513 $ (13,978) $ (166)
Foreign.................................................... 692 1,163 462
State and local............................................ 2,813 (500) (59)
-------------- -------------- ---------------
Total.................................................... 17,018 (13,315) 237
-------------- -------------- ---------------
Deferred income tax expense (benefit):
U.S. federal............................................... (340) (33,707) 1,135
State, local and other..................................... (489) (4,962) 187
-------------- -------------- ---------------
Total.................................................... (829) (38,669) 1,322
-------------- -------------- ---------------
Income tax benefit applied to goodwill....................... - 11,541 843
-------------- -------------- ---------------
Total income tax provision (benefit)......................... $ 16,189 $ (40,443) $ 2,402
============== ============== ===============
Foreign pre-tax income (all arising in Canada) was $1.8 million, $0.9
million, and $2.5 million in 2002, 2001, and 2000, respectively.
Deferred tax liabilities (assets) are comprised of the following at
December 31:
(thousands of dollars) 2002 2001
--------------- ---------------
Property, equipment and intangibles......................................... $ (2,741) $ (9,430)
Other....................................................................... (7,459) (2,314)
--------------- ---------------
Gross deferred tax liabilities............................................ (10,200) (11,744)
--------------- ---------------
Net operating loss.......................................................... 2,726 39,909
Accounts receivable allowances.............................................. 310 388
Inventory valuation......................................................... 2,095 1,730
Compensation and benefits................................................... 7,671 4,010
Other....................................................................... 2,333 1,351
--------------- ---------------
Gross deferred tax assets................................................. 15,135 47,388
--------------- ---------------
Valuation allowance......................................................... (1,000) (5,395)
--------------- ---------------
Net deferred tax asset...................................................... $ 3,935 $30,249
=============== ===============
Approximately $2.7 million of state net operating loss carryforwards remain
at December 31, 2002 before the valuation allowance. Their use is limited to
future taxable income of the Company. The carryforwards expire in 2021. The
Company maintained a valuation allowance against a portion of the net tax
benefit associated with all carryforwards and temporary differences at December
31, 2002, as it is more likely than not that these will not be fully utilized in
the available carryforward period.
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.
44
The difference between the federal statutory income tax rate and the
Company's effective income tax rate as a percentage of income from continuing
operations for the years ended December 31, 2002, 2001 and 2000 is reconciled as
follows:
2002 2001 2000
-------------- ------------- -----------
Federal statutory tax rate............................................. 35.0% (35.0)% 35.0%
Increase (decrease) in rates resulting from:
State and local taxes, net.......................................... 3.3 (3.3) 1.0
Foreign............................................................. - 0.9 (2.2)
Valuation allowance................................................. (8.4) 4.3 -
Other............................................................... 0.9 0.9 0.2
-------------- ------------- -----------
Effective income tax rate.............................................. 30.8% (32.2)% 34.0%
============== ============= ===========
Total income tax payments made by the Company during the years ended
December 31, 2002, 2001 and 2000 were $9.3 million, $1.0 million, and $1.7
million, respectively.
11. RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
The Company has multiple defined contribution retirement plans that qualify
under section 401(k) of the Internal Revenue Code. The Company's contributions
to these retirement plans were $1.6 million, $1.5 million and $1.5 million,
respectively, in the years ended December 31, 2002, 2001, and 2000.
The Company also maintains a defined benefit pension plan for certain of
its hourly employees. The components of net periodic pension expense for the
years ended December 31, 2002, 2001 and 2000 are as follows:
(thousands of dollars) 2002 2001 2000
------------- ------------ -------------
Service cost on benefit earned during the period..................... $ 334 $ 273 $ 280
Interest cost on projected benefit obligation........................ 973 907 853
Investment loss (gain) on plan assets................................ 937 1,793 (1,648)
Net amortization and deferral........................................ (1,798) (2,942) 630
------------- ------------ -------------
Net periodic pension expense......................................... $ 446 $ 31 $ 115
============= ============ =============
The following table is a reconciliation of the benefit obligation and the
fair value of plan assets as of December 31:
(thousands of dollars) 2002 2001
------------- --------------
Change in benefit obligation:
Benefit obligation at beginning of year............................. $ 13,217 $ 12,304
Service cost........................................................ 334 273
Interest cost....................................................... 973 907
Amendments.......................................................... - 232
Actuarial loss (gain)............................................... 88 (113)
Benefits paid....................................................... (444) (386)
------------- --------------
Benefit obligation at end of year................................... 14,168 13,217
------------- --------------
Change in plan assets:
Fair value of plan assets at beginning of year....................... 11,082 13,320
Company contributions............................................... 143 -
Actual return on plan assets........................................ (937) (1,793)
Benefits paid....................................................... (584) (445)
------------- --------------
Fair value of plan assets at end of year............................ 9,704 11,082
------------- --------------
Funded status....................................................... (4,464) (2,135)
Unrecognized prior service cost..................................... 768 882
Unrecognized net loss............................................... 3,026 884
Additional minimum liability........................................ (3,481) (1,279)
------------- --------------
Accrued benefit cost................................................ $ (4,151) $ (1,648)
============= ==============
45
The actuarial assumptions used to compute the funded status of the plan
include a discount rate of 7.25% and 7.50% for 2002 and 2001, respectively, and
an expected long-term rate of return on assets of 9.0% in both years.
In accordance with the provisions of SFAS 87, Employer's Accounting for
Pensions, the Company recorded an additional minimum liability of $3.5 million
at December 31, 2002, representing the excess of the unfunded accumulated
benefit obligation over the accrued pension cost. The additional minimum
liability has been offset by an intangible asset to the extent of previously
unrecognized prior service cost, with the remainder of $2.3 million recorded as
a component of accumulated other comprehensive loss.
The Company also provides certain postretirement medical and life insurance
benefits for a portion of its employees.
The components of net periodic postretirement benefit expense for the years
ended December 31, 2002, 2001 and 2000 are as follows:
(thousands of dollars) 2002 2001 2000
------------- ------------ ------------
Service cost of benefits earned................................... $ 72 $ 62 $ 60
Interest cost on liability........................................ 119 112 105
Net amortization and deferral..................................... (7) (15) (14)
------------- ------------ ------------
Net postretirement benefit cost........................ $ 184 $ 159 $ 151
============= ============ ============
The status of the Company's unfunded postretirement benefit obligation at
December 31, 2002 and 2001 was as follows:
(thousands of dollars) 2002 2001
------------- ------------
Change in benefit obligation:
Benefit obligation at beginning of year........................................ $ 1,775 $ 1,553
Service cost................................................................... 72 62
Interest cost.................................................................. 119 112
Actuarial (gain) loss.......................................................... (124) 109
Benefits paid.................................................................. (76) (61)
------------- ------------
Benefit obligation at end of year.............................................. 1,766 1,775
Unrecognized prior service cost................................................ (30) (46)
Unrecognized net gain.......................................................... 242 339
------------- ------------
Accrued benefit cost........................................................... $ 1,978 $ 2,068
============= ============
The assumed discount rate used to measure the benefit obligation was 6.75%
and 7.00% as of December 31, 2002 and 2001, respectively. Increases in health
care costs would not materially impact the benefit obligation or the annual
service and interest costs recognized as benefits under the medical plan consist
of a defined dollar monthly subsidy toward the retiree's purchase of medical
insurance for the majority of employees covered.
Through December 31, 2001, the Company had a deferred compensation plan
that permitted eligible employees to defer a specified portion of their
compensation. The deferred compensation earned rates of return as specified in
the plan. Effective January 1, 2002, the deferred compensation plan was
terminated. Participants had the option to elect to keep their existing balances
in the plan. Those balances that remained in the plan in 2002, earned a rate of
return equal to the average federal funds overnight repurchase rate. As of
December 31, 2002 and 2001, the Company had accrued $0.7 million and $2.9
million, respectively, for its obligations under this plan. Interest expense on
this obligation was $0.2 million and $0.3 million in 2001 and 2000,
respectively. In 2002, the interest expense on this obligation was less than
$0.1 million. The residual deferred compensation balance at December 31, 2002
was paid in its entirety to participants in January 2003.
Prior to the termination of the deferred compensation plan, in order to
effectively fund the deferred compensation obligation, the Company had purchased
variable rate life insurance contracts. These insurance contracts were
surrendered in June 2001 and therefore the obligation at December 31, 2002 was
unfunded.
During 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 are
payable
46
upon the death of the participant and their spouse. The Company recognized
$4.1 million of pre-tax income during 2001 related to the discharge of the
deferred compensation obligations. These amounts are included in Special Charges
(Credits) and Reorganization Expenses on the Consolidated Statement of
Operations.
12. STOCK PLANS
The Company maintains the 1998 Long-Term Equity Incentive Plan, as amended
and restated, that allows for grants of stock options, restricted stock, stock
equivalent units, stock appreciation rights and other stock-related forms of
incentive compensation. As of December 31, 2002, there were 32,513 shares
available for grant under this long-term equity incentive plan.
Effective September 24, 2001, the Company established the 2001 Stock Option
Plan, as amended, primarily for the purpose of granting options for the purchase
of common shares to the Company's executive officers and independent directors.
During September 2001, 1,140,000 options were granted to participants under this
new plan. These options vested to, and were exercisable by, participants on the
earlier of 1) the date the Company's closing stock price equaled or exceeded
$8.50 per share or 2) the seventh anniversary of the grant date. Because the
options granted under this new plan were still subject to stockholder approval
at the time of grant, the options resulted in a one-time charge of $2.4 million,
which was recorded in the fourth quarter of 2001. The charge represents the
difference between the exercise price of the options of $5.48 (the fair value at
the date of grant) and the fair value of the Company's common stock at the time
of stockholder approval on December 18, 2001, which was $7.60. This charge is
included in Special Charges (Credits) and Reorganization Expenses on the
Consolidated Statement of Operations. During 2002, the Company also granted
stock options to independent directors under the 2001 Stock Option Plan, as
amended. As of December 31, 2002, there were no shares available for grant under
the 2001 Stock Option Plan, as amended.
During 2002 and prior years, the Company also granted stock options to key
employees and non-employee directors under the 1993 Stock Option Plan and the
1993 and 1996 Stock Option Plans for Non-employee Directors. These plans were
discontinued in 2002. The remaining shares available for grant under these two
stock option plans were subsequently canceled at the time the plans were
discontinued.
A summary of stock option activity for the years ended December 31, 2002,
2001 and 2000 is as follows:
Weighted Avg.
Shares Option Price Price Range
----------------- -------------------- --------------------
Outstanding as of December 31, 1999.................. 552,220 $ 9.41 $ 5.44-$13.97
New options granted.................................. 161,500 8.27 6.25-11.88
Exercised............................................ (41,780) 6.19 5.44-9.82
Canceled............................................. (59,600) 11.77 9.82-13.97
----------------- -------------------- --------------------
Outstanding as of December 31, 2000.................. 612,340 9.14 5.44-13.97
New options granted.................................. 1,332,000 5.53 5.48-7.55
Exercised............................................ (30,710) 5.44 5.44-5.44
Canceled............................................. (67,686) 9.81 6.50-13.97
----------------- -------------------- --------------------
Outstanding as of December 31, 2001.................. 1,845,944 6.57 5.48-13.97
New options granted.................................. 1,174,500 18.76 9.38-27.15
Exercised............................................ (1,371,749) 6.38 5.48-17.27
Canceled............................................. (34,700) 15.17 5.48-17.27
----------------- -------------------- --------------------
Outstanding as of December 31, 2002.................. 1,613,995 $ 15.55 $ 5.48-$27.15
================= ==================== ====================
Exercisable as of December 31, 2000................... 427,300 $ 9.35 $ 5.45-$13.97
Exercisable as of December 31, 2001................... 485,086 9.19 6.25-13.97
Exercisable as of December 31, 2002................... 328,873 7.54 5.48-13.97
47
Significant option groups outstanding at December 31, 2002 and related
weighted average price and life information follows:
Options outstanding Options exercisable
------------------- -------------------
Number Weighted average Weighted average Number Weighted average
Exercise Price outstanding Exercise price remaining life (years) exercisable exercise price
- ------------------- -------------- --------------------- -------------------------- --------------- ----------------------
$5.48-$7.55...... 327,174 $ 5.72 8.07 218,049 $ 5.73
9.38-10.75....... 109,473 10.13 5.67 72,474 10.45
11.13-13.97...... 92,848 11.88 6.95 38,350 12.25
15.15-18.60...... 94,000 17.34 9.34 - -
19.35............ 957,500 19.35 9.50 - -
20.08-27.15...... 33,000 26.14 9.76 - -
-------------- ---------------
1,613,995 328,873
============== ===============
The Company also grants restricted stock to key employees. During 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 five years of employment with the
Company. In addition, the Company granted 1,000 and 6,500 restricted shares in
2001 and 2000, respectively.
During 2002, shares of common stock in the aggregate amount of 30,006 were
issued to certain employees of the Company under its 1998 Performance Share
Plan. In connection with these stock issuances, the Company recorded a non-cash
compensation expense charge of approximately $0.6 million.
The Company also maintains an employee stock purchase plan whereby the
Company matches 20% of each participating employee's monthly payroll deduction,
up to $500. The Company thereby contributed $0.1 million to the plan in each of
2002, 2001 and 2000.
13. LEASE COMMITMENTS
The Company has commitments under operating leases, certain of which extend
through 2007. These commitments total $5.6 million in 2003, $4.8 million in
2004, $3.6 million in 2005, $2.0 million in 2006, and $0.1 million in 2007.
Total lease expense was $5.1 million, $4.8 million and $4.1 million in 2002,
2001 and 2000, respectively.
14. 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 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.
15. 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 of
the Consolidated Balance Sheet. The loans may be repaid in cash, shares of the
Company's common stock, or a combination thereof.
48
16. 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.
In conjunction with the Notes (see Notes 3 and 9), on April 24, 2002, the
Company entered into a $75 million interest rate swap ("Initial Swap") to
receive a fixed rate of interest and pay a variable rate of interest based upon
LIBOR. The Initial Swap had a maturity date that was the same as the Notes.
Interest was payable semi-annually in arrears on May 1 and November 1,
commencing on November 1, 2002. The Company established an initial effective
rate of interest on this swap of 6.05%, which was due to be paid on November 1,
2002. This contract was considered to be an effective hedge against changes in
the fair value of the Company's fixed-rate debt obligation for both tax and
accounting purposes.
Effective September 12, 2002, the Company entered into an agreement,
whereby it unwound the Initial Swap and contemporaneously entered into a new $75
million interest rate swap ("Replacement Swap"). The Replacement Swap has the
same terms as the Initial Swap, except that the Company will pay a variable rate
of interest based upon 6 month LIBOR in arrears. The spread on this contract is
470 basis points. Based upon this contract, the Company paid an effective
interest rate of 6.32% on November 1, 2002. In return for unwinding the Initial
Swap, the Company received $5.4 million in cash proceeds, of which $1 million
related to accrued interest that was owed to the Company. The remaining $4.4
million of proceeds will be amortized over the remaining life of the Notes as a
credit to Interest Expense and is included in the Company's Consolidated Balance
Sheet as an increase to the value of the Long-term Debt. Such amortization
offsets the increased effective rate of interest that the Company pays on the
Replacement Swap. The Company has continued to accrue interest on the
Replacement Swap at a 6.32% effective rate for the remainder of 2002.
The Replacement Swap is also considered to be an effective hedge against
changes in the fair value of the Company's fixed-rate debt obligation for both
tax and accounting purposes. 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
December 31, 2002 was approximately $2.4 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 the Company's
Consolidated Statements of Operations. 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 other party to the Replacement Swap, a large financial institution, however,
the Company does not anticipate non-performance by the other party.
Under its Old Credit Agreement (see Note 9), 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.
17. RELATED PARTY TRANSACTIONS
On May 7, 2001, the Company entered into a letter of intent (the "Letter")
with Marlin Partners II, LP ("Marlin"), Catterton Partners, L.P. and Alpha
Private Equity Group (collectively, the "Other Investors") for the acquisition
by Marlin and the Other Investors of all of the issued and outstanding common
stock of the Company. At the time, Marlin was a related party due to its
ownership of approximately 10 percent of the issued and outstanding common stock
of the Company. Mr. Martin Franklin, the Company's current Chairman and Chief
Executive Officer, and Mr. Ian Ashken, the Company's Vice Chairman and Chief
Financial Officer, respectively, were the managing partners of Marlin. The
Company and Marlin terminated the letter of intent, except for certain expense
reimbursement provisions, in which Marlin was reimbursed approximately $480,000
of expenses related to the contemplated transaction. On June 24, 2001, Messrs.
Franklin and Ashken became Directors of the Company and on September 24, 2001,
Messrs. Franklin and Ashken became executive officers of the Company.
49
On November 6, 2002, one of the Company's wholly owned subsidiaries
entered into an arms length agreement with NewRoads, Inc. ("NewRoads"), a third
party provider of pick, pack and ship services, order fulfillment, warehousing,
and other services to the retail industry. Pursuant to the agreement, NewRoads
agreed to provide such services to the Company's home vacuum packaging segment.
The agreement expires in three years unless earlier terminated pursuant to the
terms of the agreement and the Company's subsidiary has the right to renew the
agreement for additional terms of one year. Mr. Franklin's brother-in-law is the
executive chairman of the board of NewRoads. Mr. Franklin has an indirect
ownership interest of less than 1/2% in NewRoads.
18. EARNINGS PER SHARE
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. Due to the net loss for 2001, the
effect of the potential exercise of stock options was not considered in the
diluted earnings per share calculation for that year since it would be
antidilutive.
A computation of earnings per share is as follows for the years ended
December 31:
(thousands, except per share amounts) 2002 2001 2000
--------------- ------------- -------------
Net income (loss).................................................. $ 36,309 $(85,429) $ 4,922
=============== ============= =============
Weighted average shares outstanding................................ 13,940 12,726 12,676
Additional shares assuming conversion of stock options and
restricted stock.............................................. 452 - 90
--------------- ------------- -------------
Weighted average shares outstanding assuming conversion............ 14,392 12,726 12,766
=============== ===========================
Basic earnings (loss) per share.................................... $ 2.60 $ (6.71) $ 0.39
Diluted earnings (loss) per share.................................. $ 2.52 $ (6.71) $ 0.39
19. SUBSEQUENT EVENT (UNAUDITED)
On February 7, 2003, the Company completed its acquisition of the business
of Diamond Brands, a manufacturer and distributor of kitchen matches, toothpicks
and retail plastic cutlery under the Diamond(R) and Forster(R) trademarks,
pursuant to an asset purchase agreement. The purchase price of this transaction
was approximately $86 million in cash, net of cash on hand at Diamond Brands,
paid at closing and a deferred payment in the amount of $6 million payable in
cash or our common stock, at the Company's election, on or before August 7,
2003. In connection with this acquisition, the Company amended its New Credit
Agreement, increasing its term loan facility by $10 million and its revolving
loan facility by $20 million. The Company used cash on hand and draw downs under
its debt facilities to finance the transaction. As of December 31, 2002,
approximately $1.5 million for an escrow deposit and expenses related to the
Diamond Brands acquisition were capitalized and included in Prepaid Expenses and
Other Current Assets in the Consolidated Balance Sheet. The Diamond Brands
plastic manufacturing business will be included in the plastic consumables
segment in 2003 and Diamond Brands' wood manufacturing business and branded
product sales will be included in the branded consumables segment in 2003.
50
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly results of operations for 2002, 2001 and 2000 were as
follows:
(thousands of dollars, except per share FIRST SECOND THIRD FOURTH
amounts) QUARTER QUARTER QUARTER QUARTER TOTAL
------------- -------------- --------------- ------------- -------------
2002
- ----
Net sales................................. $47,565 $ 105,113 $110,398 $ 105,123 $ 368,199
Gross profit (10)......................... 12,706 42,452 48,684 47,728 151,570
Net income (1)............................ 7,192 8,087 11,732 9,298 36,309
Basic earnings per share (9).............. 0.54 0.58 0.83 0.66 2.60
Diluted earnings per share (9)............ 0.53 0.56 0.80 0.63 2.52
2001
- ----
Net sales................................. $69,027 $ 90,598 $ 90,477 $ 54,876 $ 304,978
Gross profit (10)......................... 15,169 24,880 22,592 9,703 72,344
Net income (loss) (2), (3), (4), (5)...... (238) 5,111 (83,032) (7,270) (85,429)
Basic earnings (loss) per share (9)....... (0.02) 0.40 (6.52) (0.57) (6.71)
Diluted earnings (loss) per share (9)..... (0.02) 0.40 (6.52) (0.57) (6.71)
2000
- ----
Net sales................................. $ 84,455 $ 114,998 $ 97,096 $ 60,807 $ 357,356
Gross profit (10)......................... 19,160 31,226 23,443 9,279 83,108
Net income (loss) (6), (7), (8)........... 444 6,210 1,641 (3,373) 4,922
Basic earnings (loss) per share (9)....... 0.03 0.49 0.13 (0.27) 0.39
Diluted earnings (loss) per share (9)..... 0.03 0.49 0.13 (0.27) 0.39
(1) First quarter of 2002, includes a tax benefit of $5.4 million arising from
the release of a valuation reserve. The second and fourth quarters of 2002, each
include $0.5 million of tax expense resulting from reversals of a portion of the
release of the valuation allowance recorded in the first quarter.
(2) First quarter of 2001, includes $1.3 million of income (net of tax) related
to the discharge of deferred compensation obligations.
(3) Second quarter of 2001, includes $1.5 million of income (net of tax) related
to the discharge of deferred compensation obligations, a $0.7 million gain (net
of tax) related to an insurance recovery associated with a property casualty and
$0.9 million of costs (net of tax) associated with the Company's evaluation of
its strategic options.
(4) Third quarter of 2001, includes an $81.2 million loss (net of tax) related
to the sale of the thermoforming assets, $1.8 million of separation costs (net
of tax) related to the management reorganization and $0.9 million of costs (net
of tax) associated with the exit of facilities.
(5) Fourth quarter of 2001, includes $1.5 million of costs (net of tax)
associated with corporate restructuring, a $1.6 million charge (net of tax) for
stock option compensation, $1.0 million of costs (net of tax) associated with
the write-off of debt issuance and amendment costs, an additional $0.9 million
loss (net of tax) related to the sale of thermoforming assets and a $0.9 million
loss (net of tax) related to the sale of the Company's interest in Microlin,
LLC.
(6) Second quarter of 2000, includes $1.1 million of income (net of tax)
associated with the reduction in long-term performance-based compensation.
(7) Third quarter of 2000, includes $1.5 million of costs (net of tax) related
to litigation.
(8) Fourth quarter of 2000, includes $0.6 million of income (net of tax) related
to litigation.
(9) Earnings per share calculations for each quarter are based on the weighted
average number of shares outstanding for each period, and the sum of the
quarterly amounts may not necessarily equal the annual earnings per share
amounts. All earnings per share amounts have been adjusted to give effect to a
2-for-1 stock split of our outstanding shares of common stock that was effected
during the second quarter of 2002.
(10) Certain reclassifications have been made in the Company's previously
reported gross profit amounts to conform to the presentation in the fourth
quarter of 2002. These reclassifications have no impact on previously reported
net income.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
51
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers is included in Part I of this Form
10-K as permitted by General Instruction G(3).
Other information required by Item 10, including information regarding
directors, appearing under the captions "Election of Directors" and "Other
Matters" of the Company's proxy statement for the 2003 Annual Meeting of
Stockholders is incorporated herein by reference. The proxy statement is
expected to be filed with the Commission on or about March 28, 2003.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 appearing under the caption "Executive
Compensation" of the Company's proxy statement for the 2003 Annual Meeting of
Stockholders is incorporated herein by reference. The proxy statement is
expected to be filed with the Commission on or about March 28, 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 appearing under the captions "Executive
Compensation" and "Security Ownership of Certain Beneficial Owners and
Management" of the Company's proxy statement for the 2003 Annual Meeting of
Stockholders is incorporated herein by reference. The proxy statement is
expected to be filed with the Commission on or about March 28, 2003.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 appearing under the caption "Certain
Relationships and Related Transactions" of the Company's proxy statement for the
2003 Annual Meeting of Stockholders is incorporated herein by reference. The
proxy statement is expected to be filed with the Commission on or about March
28, 2003.
PART IV
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the filing of this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the 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 that evaluation, the Company's management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation.
52
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Location
In 10-K
--------------------
Report of independent auditors Item 8
Consolidated statements of operations - Years ended December 31, 2002,
2001 and 2000 Item 8
Consolidated balance sheets - December 31, 2002 and 2001 Item 8
Consolidated statements of cash flows - Years ended December 31, 2002
2001 and 2000 Item 8
Consolidated statements of changes in stockholders' equity - Years ended
December 31, 2002, 2001 and 2000 Item 8
Consolidated statements of comprehensive income - Years ended December
31, 2002, 2001 and 2000 Item 8
Notes to consolidated financial statements Item 8
(2) Financial Statement Schedule:
See Schedule II of this Form 10-K.
(3) Exhibits:
Copies of exhibits incorporated by reference can be obtained from the
Commission and are located in Commission File No. 0-12052.
Exhibit
Number Description of Exhibit
- ------------------------------------------------------------------------------------
2.1 Asset Purchase Agreement by and between Alltrista Plastics
Corporation, TriEnda Corporation, Quoin Corporation, the Company
and Wilbert, Inc., dated October 15, 2001 (filed as Exhibit 10.7 to
the Company's Report on Form 10-Q, filed with the Commission on
November 14, 2001 and incorporated herein by reference).
2.2 Amendment to Asset Purchase Agreement by and between Alltrista
Plastics Corporation, TriEnda Corporation, Quoin Corporation, the
Company and Wilbert, Inc., dated November 29, 2001 (filed as
Exhibit 10-2 to the Company's Report on Form 8-K, filed with the
Commission on December 14, 2001 and incorporated herein by
reference).
2.3 Agreement and Plan of Merger between the Company and Alltrista
Reincorporation MergerSub, Inc. (filed as Exhibit A to the
Company's Definitive Proxy Statement, filed with the Commission on
November 26, 2001 and incorporated herein by reference).
2.4 Asset Purchase Agreement, dated as of March 27, 2002, among
the Company, Tilia International, Inc., Tilia, Inc., Tilia Canada,
Inc., and Andrew Schilling (filed as Exhibit 10.6 to the Company's
Current Report on Form 8-K, filed with the Commission on May 9,
2002 and incorporated herein by reference).
53
2.5 Amendment No. 1 to the Asset Purchase Agreement, dated as of April
24, 2002, among the Company, Tilia International, Inc., Tilia,
Inc., Tilia Canada, Inc., and Andrew Schilling (filed as Exhibit
10.7 to the Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002 and incorporated herein by reference).
2.6 Asset Purchase Agreement, dated as of November 27, 2002, by and
among the Company, Diamond Brands, Incorporated, Diamond Brands
Operating Corp., Forster, Inc. and Diamond Brands Kansas, Inc.
(filed as Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed with the Commission on February 14, 2003 and incorporated
herein by reference).
2.7 Section entitled "Technical Modification to Joint Plan of
Reorganization" from the Findings of Fact, Conclusions of Law and
Order Confirming Joint Plan of Reorganization of Diamond Brands
Operating Corp. and its Debtor Affiliates Proposed by the Debtors
and the Company by the Honorable Randall J. Newsome on January 29,
2003, in connection with case No. 01-1825 (RJN), a Chapter 11 case
captioned "In re: Diamond Brands Operating Corp., et al., Debtors"
filed in the United States Bankruptcy Court for the District of
Delaware (filed as Exhibit 99.1 to the Company's Current Report on
Form 8-K, filed with the Commission on February 14, 2003 and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company'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 the Company (filed as Exhibit 3.2 to the Company's Current
Report on Form 8-K, filed with the Commission on June 4, 2002 and
incorporated herein by reference).
3.3 Bylaws of the Company (filed as Exhibit C to the Company's
Definitive Proxy Statement, filed with the Commission on November
26, 2001 and incorporated herein by reference).
4.1 Form of Rights Agreement (filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q, filed with the Commission on May 12,
1999 and incorporated herein by reference).
4.2 Amendment to Rights Agreement, dated as of July 19, 2001, between
the Company and EquiServe Trust Company, N.A. as successor in
interest to The First Chicago Trust Company of New York as Rights
Agent (filed as Exhibit 4.1 to the Company's Form 8-K, filed with
the Commission on August 21, 2001 and incorporated herein by
reference).
4.3 Amendment to Rights Agreement, dated as of December 14, 2001,
between the Company and EquiServe Trust Company, N.A. as successor
in interest to the First Chicago Trust Company of New York as
Rights Agent (filed as Exhibit 1 to the Company's Form 8-A/A, filed
with the Commission on January 9, 2002 and incorporated herein by
reference).
4.4 Amendment to Rights Agreement, dated as of March 4, 2002, between
the Company and National City Bank as successor in interest to
EquiServe Trust Company, N.A. and the First Chicago Trust Company
of New York as Rights Agent (filed as Exhibit 4.4 to the Company's
Form 8-A/A, filed with the Commission on May 1, 2002 and
incorporated herein by reference).
4.5 Indenture, dated as of April 24, 2002, among the Company, 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, Unimark Plastics, Inc., and The Bank of New York, as
trustee, and form of note attached as Exhibit A thereto (filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with
the Commission on May 9, 2002 and incorporated herein by
reference).
54
4.6 Registration Rights Agreement, dated as of April 24, 2002, among
the Company, 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, Unimark Plastics, Inc., and Banc of
America Securities LLC, CIBC World Markets Corp., and NatCity
Investments, Inc., as representatives of the several initial
purchasers (filed as Exhibit 10.13 to the Company's Current Report
on Form 8-K, filed with the Commission on May 9, 2002 and
incorporated herein by reference).
+10.1 Form of Change of Control Agreement (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K, filed with the Commission on
March 29, 1999 and incorporated herein by reference).
+10.2 Form of Amendment to Change of Control Agreement, effective June
21, 2001 (filed as Exhibit 10.16 to the Company's Report on Form
10-Q, filed with the Commission on August 10, 2001 and incorporated
herein by reference).
10.3 List of the Company's officers party to Exhibit 10.1 and Exhibit
10.2 (filed as Exhibit 10.7 to the Company's Annual Report on Form
10-K/A, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
10.4 Form of Distribution Agreement between Ball Corporation and the
Company (filed as Exhibit 10.7 to the Company's Registration
Statement on Form 10/A, filed with the Commission on March 17, 1993
and incorporated herein by reference).
10.5 Form of Tax Sharing and Indemnification Agreement between Ball
Corporation and the Company (filed as Exhibit 10.10 to the
Company's Registration Statement on Form 10/A, filed with the
Commission on March 17, 1993 and incorporated herein by reference).
+10.6 Form of Indemnification Agreement (filed as Exhibit 10.13 to the
Company's Registration Statement on Form 10/A, filed with the
Commission on March 17, 1993 and incorporated herein by reference).
10.7 List of Directors and Executive Officers party to Exhibit 10.6
(filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K,
filed with the Commission on March 31, 1996 and incorporated herein
by reference).
+10.8 Alltrista Corporation 1998 Long-Term Equity Incentive Plan, as
amended and restated (filed as Exhibit 10.13 to the Company's
Quarterly Report on Form 10-Q/A for the period ended June 30, 2002,
filed with the Commission on October 17, 2002 and incorporated
herein by reference).
+10.9 Alltrista Corporation 2001 Stock Option Plan (filed as Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q, filed with the
Commission on November 14, 2001 and incorporated herein by
reference).
+10.10 Amendment No. 1 to the Alltrista Corporation 2001 Stock Option Plan
(filed as Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q/A for the period ended June 30, 2002, filed with the
Commission on October 17, 2002 and incorporated herein by
reference).
+10.11 Employment Agreement between the Company and Martin E. Franklin,
effective January 1, 2002 (filed as Exhibit 10.34 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.12 Amendment No. 1 to Employment Agreement, dated April 24, 2002,
between the Company and Martin E. Franklin (filed as Exhibit 10.16
to the Company's Quarterly Report on Form 10-Q/A for the period
ended June 30, 2002, filed with the Commission on October 17, 2002
and incorporated herein by reference).
55
+10.13 Employment Agreement between the Company and Ian G.H. Ashken,
effective January 1, 2002 (filed as Exhibit 10.35 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.14 Amendment No. 1 to Employment Agreement, dated April 24, 2002,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.17 to
the Company's Quarterly Report on Form 10-Q/A for the period ended
June 30, 2002, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
+10.15 Employment Agreement between the Company and J. David Tolbert,
effective January 1, 2002 (filed as Exhibit 10.36 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.16 Restricted Stock Award Agreement, dated January 2, 2002, between
the Company and Martin E. Franklin (filed as Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q/A for the period ended June
30, 2002, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
+10.17 Amendment No. 1 to Restricted Stock Award Agreement, dated February
7, 2002, between the Company and Martin E. Franklin (filed as
Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q/A for
the period ended June 30, 2002, filed with the Commission on
October 17, 2002 and incorporated herein by reference).
+10.18 Amendment No. 2 to Restricted Stock Award Agreement, dated April
15, 2002, between the Company and Martin E. Franklin (filed as
Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q/A for
the period ended June 30, 2002, filed with the Commission on
October 17, 2002 and incorporated herein by reference).
+10.19 Amendment No. 3 to Restricted Stock Award Agreement dated July 25,
2002 between the Company and Martin E. Franklin (filed as Exhibit
10.21 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.20 Restricted Stock Award Agreement, dated January 2, 2002, between
the Company and Ian G.H. Ashken (filed as Exhibit 10.22 to the
Company's Quarterly Report on Form 10-Q/A for the period ended June
30, 2002, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
+10.21 Amendment No. 1 to Restricted Stock Award Agreement, dated February
7, 2002, between the Company and Ian G.H. Ashken (filed as Exhibit
10.23 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.22 Amendment No. 2 to Restricted Stock Award Agreement, dated April
15, 2002, between the Company and Ian G.H. Ashken (filed as Exhibit
10.24 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.23 Amendment No. 3 to Restricted Stock Award Agreement dated July 25,
2002 between the Company and Ian G.H. Ashken (filed as Exhibit
10.25 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.24 Promissory Note, dated January 24, 2002, by Martin E. Franklin in
favor of the Company (filed as Exhibit 10.37 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.25 Promissory Note, dated January 24, 2002, by Ian G.H. Ashken in
favor of the Company (filed as Exhibit 10.38 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
56
+10.26 Alltrista Corporation 2002 Executive Loan Program (filed as Exhibit
10.39 to the Company's Annual Report on Form 10-K/A, filed with the
Commission on October 17, 2002 and incorporated herein by
reference).
10.27 Purchase Agreement, dated as of April 10, 2002, the Company,
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, Unimark Plastics, Inc., 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 the Company's Current Report
on Form 8-K, filed with the Commission on May 9, 2002 and
incorporated herein by reference).
10.28 Credit Agreement, dated as of April 24, 2002, among the Company,
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 the Company's Current Report on Form 8-K, filed
with the Commission on May 9, 2002 and incorporated herein by
reference).
10.29 Consent, Waiver and Amendment No. 1 to Credit Agreement, dated as
of September 18, 2002, among the Company, the Guarantors, Bank of
America, N.A., as Administrative Agent and Lender, and the other
lenders party thereto (filed as Exhibit 10.7 to the Company's
Current Report on Form 8-K, filed with the Commission on February
14, 2003 and incorporated herein by reference).
10.30 Amendment No. 2 to Credit Agreement and Amendment No. 1 to Security
Agreement, dated as of September 27, 2002, among the Company, the
Guarantors, Bank of America, N.A., as Administrative Agent and
Lender, and the other lenders party thereto (filed as Exhibit 10.8
to the Company's Current Report on Form 8-K, filed with the
Commission on February 14, 2003 and incorporated herein by
reference).
10.31 Amendment No. 3 to Credit Agreement and Waiver, dated as of January
31, 2003, among the Company, the Guarantors, Bank of America, N.A.,
as Administrative Agent and Lender, and the other lenders party
thereto (filed as Exhibit 10.9 to the Company's Current Report on
Form 8-K, filed with the Commission on February 14, 2003 and
incorporated herein by reference).
10.32 Guaranty Agreement, dated as of April 24, 2002, by 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. to Bank of America, NA., as
administrative agent (filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K, filed with the Commission on May 9,
2002 and incorporated herein by reference).
10.33 Security Agreement, dated as of April 24, 2002, among the Company,
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, Unimark Plastics, Inc., and Bank of
America, N.A., as administrative agent (filed as Exhibit 10.3 to
the Company's Current Report on Form 8-K, filed with the Commission
on May 9, 2002 and incorporated herein by reference).
57
10.34 Intellectual Property Security Agreement, dated as of April 24,
2002, among the Company, 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, Unimark Plastics,
Inc., and Bank of America, N.A., as administrative agent (filed as
Exhibit 10.4 to the Company's Current Report on Form 8-K, filed
with the Commission on May 9, 2002 and incorporated herein by
reference).
10.35 Securities Pledge Agreement, dated as of April 24, 2002, among the
Company, Quoin Corporation, Alltrista Newco Corporation, Caspers
Tin Plate Company, and Bank of America, NA., as administrative
agent (filed as Exhibit 10.5 to the Company's Current Report on
Form 8-K, filed with the Commission on May 9, 2002 and incorporated
herein by reference).
10.36 Unsecured Subordinated Note, dated as of April 24, 2002, by the
Company 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).
10.37 Unsecured Subordinated Note, dated as of April 24, 2002, by the
Company 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).
10.38 Escrow Agreement, dated as of April 24, 2002, among the Company,
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).
10.39 Long Term Escrow Agreement, dated as of April 24, 2002, among the
Company, 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).
*10.40 Form of the new 9 3/4% Senior Subordinated Notes Due 2012 (the "New
Note").
*+10.41 Employment Agreement, dated as of September 24, 2002, between
Tilia, Inc. and Michael Whitcomb.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Independent Auditors.
*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 Exhibit represents a management contract or a compensatory plan.
58
(b) Reports on Form 8-K
In a Form 8-K filed on October 24, 2002, the Company filed a press
release announcing that it would release third quarter earnings on Monday,
October 28, 2002 and inviting investors to listen to a broadcast of the
Company's conference call to discuss the results.
In a Form 8-K filed on October 29, 2002, the Company filed a press
release announcing its third quarter earnings.
In a Form 8-K filed on November 1, 2002, the Company filed a press
release announcing that Martin E. Franklin, our Chairman and Chief Executive
Officer, and Ian G.H. Ashken, our Vice Chairman and Chief Financial Officer,
adopted stock trading plans in accordance with guidelines specified by the
Commission's Rule 10b5-1 under the Securities Exchange Act of 1934, as amended.
In a Form 8-K filed on January 7, 2003, the Company filed a press
release announcing that the Company planned to release its fourth quarter and
full year earnings on February 10, 2003 and that it filed a shelf registration
statement with the Commission on January 7, 2003, that would allow the Company
to sell over time up to $150 million of common stock, preferred stock, warrants,
debt securities, or any combination of these securities in one or more separate
offerings in amounts, at prices and on terms to be determined at the time of the
sale.
In a Form 8-K filed on February 14, 2003, the Company disclosed that it
acquired substantially all of the business assets and assumed certain
liabilities of Diamond Brands, Incorporated, and its subsidiaries on February 7,
2003 and closed on an amendment to the Company's senior credit facility on
February 11, 2003. The report also filed several documents relating to the
foregoing. For more information, see Item 1 under the caption "Recent
Developments" and Item 8, Note 19 (Subsequent Event).
59
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, thereunto duly authorized.
JARDEN CORPORATION
(Registrant)
By: /s/ Martin E. Franklin
-----------------------------------------
Martin E. Franklin
Chairman and Chief Executive Officer
February 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated below.
(1) Principal Executive Officer:
/s/ Martin E. Franklin Chairman and Chief Executive Officer
--------------------------------------------------- February 28, 2003
Martin E. Franklin
(2) Principal Financial Officer and Principal
Accounting Officer:
Vice Chairman, Chief Financial Officer and
/s/ Ian G.H. Ashken Company Secretary
--------------------------------------------------- February 28, 2003
Ian G.H. Ashken
(3) Board of Directors:
/s/ Martin E. Franklin Chairman, President and Chief Executive Officer
--------------------------------------------------- February 28, 2003
Martin E. Franklin
Vice Chairman, Chief Financial Officer and
/s/ Ian G.H. Ashken Company Secretary
--------------------------------------------------- February 28, 2003
Ian G.H. Ashken
/s/ Rene-Pierre Azria Director
--------------------------------------------------- February 28, 2003
Rene-Pierre Azria
/s/ Douglas W. Huemme Director
--------------------------------------------------- February 28, 2003
Douglas W. Huemme
/s/ Richard L. Molen Director
--------------------------------------------------- February 28, 2003
Richard L. Molen
/s/ Lynda Watkins Popwell Director
--------------------------------------------------- February 28, 2003
Lynda Watkins Popwell
/s/ Irwin D. Simon Director
--------------------------------------------------- February 28, 2003
Irwin D. Simon
/s/ Robert L. Wood Director
--------------------------------------------------- February 28, 2003
Robert L. Wood
60
CERTIFICATION
I, Martin E. Franklin, certify that:
1. I have reviewed this annual report on Form 10-K of Jarden
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors:
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: February 28, 2003
/s/ Martin E. Franklin
----------------------
Martin E. Franklin
Chief Executive Officer
61
CERTIFICATION
I, Ian G.H. Ashken, certify that:
1. I have reviewed this annual report on Form 10-K of Jarden
Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors:
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: February 28, 2003
/s/ Ian G.H. Ashken
-------------------
Ian G.H. Ashken
Chief Financial Officer
62
SCHEDULE II
JARDEN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(THOUSANDS OF DOLLARS)
Balance at Charges to
beginning of costs and Deductions Balance at end
period expense from reserves Other (1) of period
-------------- -------------- -------------- -------------- ----------------
Reserves against
accounts receivable:
2002................... $ (778) $(18,274) $12,957 $ - $ (6,095)
2001................... (1,517) (1,589) 1,933 395 (778)
2000................... (1,735) (746) 964 - (1,517)
Reserves against
deferred taxes:
2002................... $ (5,395) $ (1,000) $ 5,395 $ - $(1,000)
2001................... - (5,395) - - (5,395)
2000................... - - - - -
(1) Principally consisting of divestitures.
63
JARDEN CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002
Copies of exhibits incorporated by reference can be obtained from the
Commission and are located in Commission File No. 0-12052.
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
2.1 Asset Purchase Agreement by and between Alltrista Plastics
Corporation, TriEnda Corporation, Quoin Corporation, the Company
and Wilbert, Inc., dated October 15, 2001 (filed as Exhibit 10.7 to
the Company's Report on Form 10-Q, filed with the Commission on
November 14, 2001 and incorporated herein by reference).
2.2 Amendment to Asset Purchase Agreement by and between Alltrista
Plastics Corporation, TriEnda Corporation, Quoin Corporation, the
Company and Wilbert, Inc., dated November 29, 2001 (filed as
Exhibit 10-2 to the Company's Report on Form 8-K, filed with the
Commission on December 14, 2001 and incorporated herein by
reference).
2.3 Agreement and Plan of Merger between the Company and Alltrista
Reincorporation MergerSub, Inc. (filed as Exhibit A to the
Company's Definitive Proxy Statement, filed with the Commission on
November 26, 2001 and incorporated herein by reference).
2.4 Asset Purchase Agreement, dated as of March 27, 2002, among
the Company, Tilia International, Inc., Tilia, Inc., Tilia Canada,
Inc., and Andrew Schilling (filed as Exhibit 10.6 to the Company's
Current Report on Form 8-K, filed with the Commission on May 9,
2002 and incorporated herein by reference).
2.5 Amendment No. 1 to the Asset Purchase Agreement, dated as of April
24, 2002, among the Company, Tilia International, Inc., Tilia,
Inc., Tilia Canada, Inc., and Andrew Schilling (filed as Exhibit
10.7 to the Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002 and incorporated herein by reference).
2.6 Asset Purchase Agreement, dated as of November 27, 2002, by and
among the Company, Diamond Brands, Incorporated, Diamond Brands
Operating Corp., Forster, Inc. and Diamond Brands Kansas, Inc.
(filed as Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed with the Commission on February 14, 2003 and incorporated
herein by reference).
2.7 Section entitled "Technical Modification to Joint Plan of
Reorganization" from the Findings of Fact, Conclusions of Law and
Order Confirming Joint Plan of Reorganization of Diamond Brands
Operating Corp. and its Debtor Affiliates Proposed by the Debtors
and the Company by the Honorable Randall J. Newsome on January 29,
2003, in connection with case No. 01-1825 (RJN), a Chapter 11 case
captioned "In re: Diamond Brands Operating Corp., et al., Debtors"
filed in the United States Bankruptcy Court for the District of
Delaware (filed as Exhibit 99.1 to the Company's Current Report on
Form 8-K, filed with the Commission on February 14, 2003 and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company'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 the Company (filed as Exhibit 3.2 to the Company's Current
Report on Form 8-K, filed with the Commission on June 4, 2002 and
incorporated herein by reference).
3.3 Bylaws of the Company (filed as Exhibit C to the Company's
Definitive Proxy Statement, filed with the Commission on November
26, 2001 and incorporated herein by reference).
64
4.1 Form of Rights Agreement (filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q, filed with the Commission on May 12,
1999 and incorporated herein by reference).
4.2 Amendment to Rights Agreement, dated as of July 19, 2001, between
the Company and EquiServe Trust Company, N.A. as successor in
interest to The First Chicago Trust Company of New York as Rights
Agent (filed as Exhibit 4.1 to the Company's Form 8-K, filed with
the Commission on August 21, 2001 and incorporated herein by
reference).
4.3 Amendment to Rights Agreement, dated as of December 14, 2001,
between the Company and EquiServe Trust Company, N.A. as successor
in interest to the First Chicago Trust Company of New York as
Rights Agent (filed as Exhibit 1 to the Company's Form 8-A/A, filed
with the Commission on January 9, 2002 and incorporated herein by
reference).
4.4 Amendment to Rights Agreement, dated as of March 4, 2002, between
the Company and National City Bank as successor in interest to
EquiServe Trust Company, N.A. and the First Chicago Trust Company
of New York as Rights Agent (filed as Exhibit 4.4 to the Company's
Form 8-A/A, filed with the Commission on May 1, 2002 and
incorporated herein by reference).
4.5 Indenture, dated as of April 24, 2002, among the Company, 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, Unimark Plastics, Inc., and The Bank of New York, as
trustee, and form of note attached as Exhibit A thereto (filed as
Exhibit 4.1 to the Company's Current Report on Form 8-K, filed with
the Commission on May 9, 2002 and incorporated herein by
reference).
4.6 Registration Rights Agreement, dated as of April 24, 2002, among
the Company, 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, Unimark Plastics, Inc., and Banc of
America Securities LLC, CIBC World Markets Corp., and NatCity
Investments, Inc., as representatives of the several initial
purchasers (filed as Exhibit 10.13 to the Company's Current Report
on Form 8-K, filed with the Commission on May 9, 2002 and
incorporated herein by reference).
+10.1 Form of Change of Control Agreement (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K, filed with the Commission on
March 29, 1999 and incorporated herein by reference).
+10.2 Form of Amendment to Change of Control Agreement, effective June
21, 2001 (filed as Exhibit 10.16 to the Company's Report on Form
10-Q, filed with the Commission on August 10, 2001 and incorporated
herein by reference).
10.3 List of the Company's officers party to Exhibit 10.1 and Exhibit
10.2 (filed as Exhibit 10.7 to the Company's Annual Report on Form
10-K/A, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
10.4 Form of Distribution Agreement between Ball Corporation and the
Company (filed as Exhibit 10.7 to the Company's Registration
Statement on Form 10/A, filed with the Commission on March 17, 1993
and incorporated herein by reference).
10.5 Form of Tax Sharing and Indemnification Agreement between Ball
Corporation and the Company (filed as Exhibit 10.10 to the
Company's Registration Statement on Form 10/A, filed with the
Commission on March 17, 1993 and incorporated herein by reference).
65
+10.6 Form of Indemnification Agreement (filed as Exhibit 10.13 to the
Company's Registration Statement on Form 10/A, filed with the
Commission on March 17, 1993 and incorporated herein by reference).
10.7 List of Directors and Executive Officers party to Exhibit 10.6
(filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K,
filed with the Commission on March 31, 1996 and incorporated herein
by reference).
+10.8 Alltrista Corporation 1998 Long-Term Equity Incentive Plan, as
amended and restated (filed as Exhibit 10.13 to the Company's
Quarterly Report on Form 10-Q/A for the period ended June 30, 2002,
filed with the Commission on October 17, 2002 and incorporated
herein by reference).
+10.9 Alltrista Corporation 2001 Stock Option Plan (filed as Exhibit 10.6
to the Company's Quarterly Report on Form 10-Q, filed with the
Commission on November 14, 2001 and incorporated herein by
reference).
+10.10 Amendment No. 1 to the Alltrista Corporation 2001 Stock Option Plan
(filed as Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q/A for the period ended June 30, 2002, filed with the
Commission on October 17, 2002 and incorporated herein by
reference).
+10.11 Employment Agreement between the Company and Martin E. Franklin,
effective January 1, 2002 (filed as Exhibit 10.34 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.12 Amendment No. 1 to Employment Agreement, dated April 24, 2002,
between the Company and Martin E. Franklin (filed as Exhibit 10.16
to the Company's Quarterly Report on Form 10-Q/A for the period
ended June 30, 2002, filed with the Commission on October 17, 2002
and incorporated herein by reference).
+10.13 Employment Agreement between the Company and Ian G.H. Ashken,
effective January 1, 2002 (filed as Exhibit 10.35 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.14 Amendment No. 1 to Employment Agreement, dated April 24, 2002,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.17 to
the Company's Quarterly Report on Form 10-Q/A for the period ended
June 30, 2002, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
+10.15 Employment Agreement between the Company and J. David Tolbert,
effective January 1, 2002 (filed as Exhibit 10.36 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.16 Restricted Stock Award Agreement, dated January 2, 2002, between
the Company and Martin E. Franklin (filed as Exhibit 10.18 to the
Company's Quarterly Report on Form 10-Q/A for the period ended June
30, 2002, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
+10.17 Amendment No. 1 to Restricted Stock Award Agreement, dated February
7, 2002, between the Company and Martin E. Franklin (filed as
Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q/A for
the period ended June 30, 2002, filed with the Commission on
October 17, 2002 and incorporated herein by reference).
+10.18 Amendment No. 2 to Restricted Stock Award Agreement, dated April
15, 2002, between the Company and Martin E. Franklin (filed as
Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q/A for
the period ended June 30, 2002, filed with the Commission on
October 17, 2002 and incorporated herein by reference).
66
+10.19 Amendment No. 3 to Restricted Stock Award Agreement dated July 25,
2002 between the Company and Martin E. Franklin (filed as Exhibit
10.21 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.20 Restricted Stock Award Agreement, dated January 2, 2002, between
the Company and Ian G.H. Ashken (filed as Exhibit 10.22 to the
Company's Quarterly Report on Form 10-Q/A for the period ended June
30, 2002, filed with the Commission on October 17, 2002 and
incorporated herein by reference).
+10.21 Amendment No. 1 to Restricted Stock Award Agreement, dated February
7, 2002, between the Company and Ian G.H. Ashken (filed as Exhibit
10.23 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.22 Amendment No. 2 to Restricted Stock Award Agreement, dated April
15, 2002, between the Company and Ian G.H. Ashken (filed as Exhibit
10.24 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.23 Amendment No. 3 to Restricted Stock Award Agreement dated July 25,
2002 between the Company and Ian G.H. Ashken (filed as Exhibit
10.25 to the Company's Quarterly Report on Form 10-Q/A for the
period ended June 30, 2002, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.24 Promissory Note, dated January 24, 2002, by Martin E. Franklin in
favor of the Company (filed as Exhibit 10.37 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.25 Promissory Note, dated January 24, 2002, by Ian G.H. Ashken in
favor of the Company (filed as Exhibit 10.38 to the Company's
Annual Report on Form 10-K/A, filed with the Commission on October
17, 2002 and incorporated herein by reference).
+10.26 Alltrista Corporation 2002 Executive Loan Program (filed as Exhibit
10.39 to the Company's Annual Report on Form 10-K/A, filed with the
Commission on October 17, 2002 and incorporated herein by
reference).
10.27 Purchase Agreement, dated as of April 10, 2002, the Company,
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, Unimark Plastics, Inc., 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 the Company's Current Report
on Form 8-K, filed with the Commission on May 9, 2002 and
incorporated herein by reference).
10.28 Credit Agreement, dated as of April 24, 2002, among the Company,
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 the Company's Current Report on Form 8-K, filed
with the Commission on May 9, 2002 and incorporated herein by
reference).
10.29 Consent, Waiver and Amendment No. 1 to Credit Agreement, dated as
of September 18, 2002, among the Company, the Guarantors, Bank of
America, N.A., as Administrative Agent and Lender, and the other
lenders party thereto (filed as Exhibit 10.7 to the Company's
Current Report on Form 8-K, filed with the Commission on February
14, 2003 and incorporated herein by reference).
67
10.30 Amendment No. 2 to Credit Agreement and Amendment No. 1 to Security
Agreement, dated as of September 27, 2002, among the Company, the
Guarantors, Bank of America, N.A., as Administrative Agent and
Lender, and the other lenders party thereto (filed as Exhibit 10.8
to the Company's Current Report on Form 8-K, filed with the
Commission on February 14, 2003 and incorporated herein by
reference).
10.31 Amendment No. 3 to Credit Agreement and Waiver, dated as of January
31, 2003, among the Company, the Guarantors, Bank of America, N.A.,
as Administrative Agent and Lender, and the other lenders party
thereto (filed as Exhibit 10.9 to the Company's Current Report on
Form 8-K, filed with the Commission on February 14, 2003 and
incorporated herein by reference).
10.32 Guaranty Agreement, dated as of April 24, 2002, by 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. to Bank of America, NA., as
administrative agent (filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K, filed with the Commission on May 9,
2002 and incorporated herein by reference).
10.33 Security Agreement, dated as of April 24, 2002, among the Company,
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, Unimark Plastics, Inc., and Bank of
America, N.A., as administrative agent (filed as Exhibit 10.3 to
the Company's Current Report on Form 8-K, filed with the Commission
on May 9, 2002 and incorporated herein by reference).
10.34 Intellectual Property Security Agreement, dated as of April 24,
2002, among the Company, 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, Unimark Plastics,
Inc., and Bank of America, N.A., as administrative agent (filed as
Exhibit 10.4 to the Company's Current Report on Form 8-K, filed
with the Commission on May 9, 2002 and incorporated herein by
reference).
10.35 Securities Pledge Agreement, dated as of April 24, 2002, among the
Company, Quoin Corporation, Alltrista Newco Corporation, Caspers
Tin Plate Company, and Bank of America, NA., as administrative
agent (filed as Exhibit 10.5 to the Company's Current Report on
Form 8-K, filed with the Commission on May 9, 2002 and incorporated
herein by reference).
10.36 Unsecured Subordinated Note, dated as of April 24, 2002, by the
Company 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).
10.37 Unsecured Subordinated Note, dated as of April 24, 2002, by the
Company 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).
10.38 Escrow Agreement, dated as of April 24, 2002, among the Company,
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).
10.39 Long Term Escrow Agreement, dated as of April 24, 2002, among the
Company, 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).
68
*10.40 Form of the new 9 3/4% Senior Subordinated Notes Due 2012 (the
"New Note").
*+10.41 Employment Agreement, dated as of September 24, 2002, between
Tilia, Inc. and Michael Whitcomb.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Independent Auditors.
*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 Exhibit represents a management contract or a compensatory plan.
69