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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, 2003
( ) 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 JUNE 30, 2003, THE AGGREGATE MARKET VALUE OF VOTING COMMON STOCK
HELD BY NON-AFFILIATES OF THE REGISTRANT WAS $351.8 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 27,031,233 SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK,
PAR VALUE $.01 PER SHARE, AS OF FEBRUARY 13, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN INFORMATION REQUIRED FOR PART III OF THIS REPORT IS INCORPORATED
HEREIN BY REFERENCE TO THE COMPANY'S PROXY STATEMENT FOR THE 2004 ANNUAL MEETING
OF STOCKHOLDERS, WHICH IS ANTICIPATED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO REGULATION 14A NOT LATER THAN 120 DAYS FOLLOWING
THE END OF THE COMPANY'S FISCAL YEAR.
JARDEN CORPORATION
INDEX TO FORM 10-K
PART I PAGE
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Executive Officers of the Company 14
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 34
Item 8. Financial Statements and Supplementary Data 35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 60
Item 9a. Controls and Procedures 61
PART III
Item 10. Directors and Executive Officers of the Registrant 62
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain Beneficial Owners and Management 62
Item 13. Certain Relationships and Related Transactions 63
Item 14. Principal Accountant Fees and Services 63
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 64
Signatures 73
Financial Statement Schedule 74
Index to Exhibits 75
Exhibits 83
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 consumer products used in and around the home,
under well-known brand names including Ball(R), Bernardin(R), Crawford(R),
Diamond(R), FoodSaver(R), Forster(R), Kerr(R), Lehigh(R) and Leslie-Locke(R). In
North America, we are the market leader in several targeted consumer categories,
including plastic cutlery, home canning, home vacuum packaging, kitchen matches,
rope, cord and twine and toothpicks. Many of our products are affordable,
consumable and fundamental household staples. Our acquisitions, highly
recognized brands, innovative products and multi-channel distribution strategy
have resulted in significant growth in revenue and earnings.
We have achieved leading market positions by selling branded products
through a variety of distribution channels, including club, department store,
drug, grocery, mass merchant 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 and Home Depot since their openings in
1962 and 1978, respectively, and are currently category manager at Wal-Mart for
home canning-related products and at Home Depot for cordage. 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 three primary business segments: branded consumables, consumer
solutions and plastic consumables.
Branded Consumables. We manufacture or source, market and distribute a broad
line of branded consumer products that includes clothespins, craft items, food
preparation kits, home canning jars, jar closures, kitchen matches, plastic
cutlery, rope, cord and twine, storage and workshop accessories, toothpicks and
other accessories marketed under the Ball(R), Bernardin(R), Crawford(R),
Diamond(R), Forster(R), Kerr(R), Lehigh(R) and Leslie-Locke(R) brand names.
Consumer Solutions. We source, market and distribute an array of innovative
kitchen products under the market leading FoodSaver(R) brand name, as well as
the VillaWare(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 represents a recurring
revenue source, along with accessories including canisters, jar sealers,
marinators and wine stoppers. Under the VillaWare(R) brand, we provide high-end
kitchen products, such as waffle-makers and panini grills, primarily to the
specialty gourmet market.
Plastic Consumables. We manufacture, market and distribute a wide variety of
consumer and medical plastic products for customers and our other primary
segments. These products include closures, contact lens packaging, plastic
cutlery, refrigerator door liners, shotgun shell casings, surgical devices and
syringes. Many of these products are consumable in nature or represent
components of consumer products.
In addition to the three primary business segments described above, our
other business segment consists primarily of our zinc strip business, which is
the largest producer of zinc strip and fabricated products in the United States,
including low denomination coins.
3
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 a leader in several
targeted consumer categories including retail plastic cutlery, home canning,
home vacuum packaging, kitchen matches, rope, cord and twine 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 created the home vacuum
packaging category at most of our retailers and continue to lead the category by
providing innovation and marketing tools to promote the FoodSaver(R) brand and
home vacuum packaging to consumers. In addition, our branded consumables
business is either the named category manager, sole supplier or one of a select
few vendors to the dominant retailers in many of its product lines.
Strong Brand Name Recognition. We have built a portfolio of leading consumer
brands, which assists us in gaining retail shelf space and introducing new
products. The Ball(R) brand has been in continuous use for over 100 years and is
very well recognized within the home food preservation market. In the United
States, we believe Kerr(R) is also a widely-recognized home canning brand while
Bernardin(R) is the leading home canning brand in Canada. We believe Diamond(R),
Forster(R) and FoodSaver(R) are the leading brands in their principal markets
and are also well recognized by consumers. 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 with a comprehensive
portfolio of niche consumer products across multiple categories, which adds
diversity to our revenues and cash flows. 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. We offer kitchen matches,
plastic cutlery and toothpicks of various counts, sizes and durability.
FoodSaver's(R) 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. In high-end kitchen products,
we have a range of electrics, cookware and kitchen tools. We also offer a
diversified portfolio of consumer products to the home improvement industry,
including cordage (e.g. ropes and twines), home storage and organization
hardware, workshop accessories and metal security screen doors and fencing. We
believe our ability to serve retailers with a broad array of branded products
and continually 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 portfolio
of leading brands, superior customer service and product innovation. We are the
named category manager for various products at key retailers, including
Wal-Mart, Home Depot and Lowe's, and are the leading supplier for other products
for which there is no named category manager. In addition, we have maintained
relationships for more than 10 years with virtually all of our key customers. 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.
Expertise in Successfully Identifying and Executing Complementary Acquisitions.
We believe we have expertise in identifying and acquiring businesses or brands
that complement our existing product portfolio. We utilize a systematic,
disciplined acquisition strategy to identify candidates that can provide
category leading product offerings to be sold through our existing distribution
channels or introducing new distribution channels for our existing products.
This expertise has resulted in several important strategic acquisitions of
complementary businesses, including Tilia, Diamond Brands and Lehigh, which have
helped build our portfolio of niche consumer products used in and around the
home and strengthened our distribution channels. Moreover, we have developed an
operating infrastructure with the proven capability to successfully integrate
acquisitions. We believe that our acquisition expertise uniquely positions us to
take advantage of future opportunities to acquire complementary businesses or
brands.
4
Recurring Revenue Stream. We derive recurring and, we believe, annually stable
sales from many of our leading products due to their affordability and position
as fundamental staples within many households. Our clothespins, jar closures,
kitchen matches, plastic cutlery, rope, cord and twine 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) appliances will constitute an increasing
percentage of total FoodSaver(R) revenues. In each of the last six years the
sales of consumable bags and accessories as a percentage of total net sales of
FoodSaver's(R) products has increased.
Low Cost Manufacturing. 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 automated plastic cutlery manufacturing operations
enable us to produce, count and package plastic cutlery ready for retail
distribution with minimal labor costs.
We also utilize an efficient outsourced manufacturing network of suppliers for
certain of our branded consumables and consumer solutions products. Many of
these relationships are long-term; affording us increased flexibility and
stability in our operations. Appliances, bags and accessories are sourced from
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 and provides us with quick response, special order service
and low-cost/high-volume production capacity. We believe our service levels,
including fill rates, are attractive compared to our competitors.
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 competitive advantage and enabling us to
maintain our market leading positions. We own patents on our FoodSaver(R) home
vacuum packaging systems and on the bags used for vacuum sealing. Our
first-to-market advantage, our patent protection and our well-developed
manufacturing relationships have enabled us to maintain our role as 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 competitors.
Proven and Incentivized 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 and Chief Financial
Officer, both of whom joined Jarden in 2001 and who collectively beneficially
own approximately 6% of our common stock. In 2003, we hired James E. Lillie, our
President and Chief Operating Officer. Mr. Lillie brings 14 years of executive
officer experience to Jarden, principally in the operations and integration
areas. Each of our operating businesses is managed by professionals with an
average of over 20 years of experience. Senior operating managers also
participate in our equity incentive programs, and cash incentive compensation is
primarily based on attaining selected financial performance targets.
GROWTH STRATEGY
Our objective is to increase revenue, cash flow and profitability while
growing our position as a leading manufacturer, marketer and distributor of
niche, branded consumer products used in and around the home. Our strategy for
achieving these objectives includes the following key elements:
Further Penetrate Existing Distribution Channels. We will seek to further
penetrate existing distribution channels to drive organic growth 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
consumables and consumer solutions products and accessories to our extensive
combined customer base. As a result of our cross-selling initiatives,
FoodSaver(R) products are now being sold through the grocery and hardware
channels, where we previously sold primarily branded consumable products.
Similarly, we believe there is potential to introduce our home canning
5
products into leading home improvement retailers as a result of Lehigh's strong
relationships in this category and to introduce our food preservation products
into the specialty gourmet market as a result of VillaWare's(R) strong
reputation in that category. We intend to attract new customers through our
portfolio of leading brands, innovative products and superior customer service.
Introduce New Products. To drive organic growth from our existing businesses, we
intend to continue to leverage our strong brand names, customer relationships
and proven capacity for innovation to develop new products and product
extensions in each of our major product categories. For example, our branded
consumables business has targeted several new product introductions and
extensions, such as its Fresh-N-Fun Ball(R) home canning-related kits that
provide consumers a more convenient and recreational experience, its easy to
deliver cordage dispenser, an improved Shake-A-Pick(R) toothpick dispenser, a
branded multi-purpose work bench and Diamond(R) multi-purpose lighters with
unique features including Long Reach(TM) and Telescopic(TM) that fulfill
specific consumer needs. Also in 2003, we successfully launched our White River
Farms(R) branded cookie mixes-in-a-jar on a popular televised shopping channel.
Pursue Strategic Acquisitions. We anticipate that the fragmented nature of the
niche consumer products 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 with
new distribution channels for our existing products, thereby increasing
marketing and distribution efficiencies. Furthermore, we seek acquisition
candidates with attractive margins, strong cash flow characteristics, category
leading positions and products that generate recurring revenue. Our acquisitions
of Tilia, Diamond Brands and Lehigh are examples of our ability to implement
this acquisition strategy. We anticipate that future acquisitions will be
financed through a combination of cash on hand, operating cash flow, debt and
equity.
Expand Internationally. Historically, we have focused primarily on North
American sales while establishing a limited sales presence internationally. In
2003, sales outside of North America still represented less than 2% of sales,
despite almost doubling in 2003 compared to 2002. 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, we intend to follow the successful strategy we implemented in North
America by initially utilizing direct to consumer sales, including 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
On February 7, 2003, we acquired substantially all of the assets of
Diamond Brands International, Inc. and its subsidiaries ("Diamond Brands"), a
provider of plastic cutlery, clothespins, kitchen matches and toothpicks. On
September 2, 2003, we acquired all of the issued and outstanding stock of Lehigh
Consumer Products Corporation and its subsidiary ("Lehigh"), the largest
supplier of rope, cord and twine for the U.S. consumer marketplace and a leader
in innovative storage and organization products and workshop accessories for the
home and garage as well as products in the security screen door and ornamental
metal fencing market. The discussion below incorporates these acquired
businesses.
We manufacture, market and distribute a broad line of branded products
that includes clothespins, craft items, food preparation kits, home canning
jars, jar closures, kitchen matches, plastic cutlery, rope, cord and twine,
storage and workshop accessories, toothpicks and other accessories.
6
We sell a variety of branded consumable products detailed in the chart
below:
Selected Owned and Licensed Brands Selected Products
- ---------------------------------- -----------------
Ball(R), Bernardin(R)and Kerr(R) Home canning jars in various sizes,
consumable decorative and functional
lids, food preparation kits, home
canning accessories
Diamond(R)and Forster(R) Kitchen matches, plastic cutlery,
toothpicks, clothespins, wood craft
items, fire starters, book matches,
straws
Lehigh(R)and Crawford(R) Ropes in synthetic and natural fiber,
clotheslines and related hardware,
twines, rubber tie downs
Storehorse(R), Crawford(R)
and Leslie-Locke(R) Metal and plastic sawhorses,
multi-purpose workbenches, garage
storage and organization products,
security screen doors and ornamental
metal fencing and related 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, home improvement stores and craft stores. Our principal
branded consumable customers include Albertson's, Dollar General, Home Depot,
Kroger, Lowe's and Wal-Mart, among others.
Sales and Marketing
For our branded consumables sales efforts we utilize an internal sales,
marketing and customer service staff, supported by a network of outside sales
representatives. Regional sales managers are organized by geographic area and
are responsible for customer relations management, pricing and distribution
strategies, and sales generation. Also, responsibility for key accounts and
product lines in our home improvement market is divided amongst managers, who
are primarily responsible for building and maintaining relationships with
leading customers such as Home Depot and Lowe's. Our marketing and sales
departments work closely together to develop pricing and distribution strategies
and to design packaging and develop product line extensions and new products. In
the home improvement market, our sales and marketing staff is supplemented by
independent sales rep organizations, which provide in-store merchandising
services and assist the store personnel with stocking, promotional programs and
shelf set maintenance.
We have employed a two-tier marketing strategy for our line of home
canning and plastic cutlery products. The Ball(R), Kerr(R), Diamond(R) and
Forster(R) brand names are marketed as premium and specialty products. For the
more price-conscious consumer, we have positioned Golden Harvest(R) and Lady
Dianne(R) as our value-priced brands, which have allowed us to minimize the
cannibalization from our family of products by lower-priced, discount store
brands. Also, for our plastic cutlery products we manufacture certain private
label products.
Distribution and Fulfillment
We distribute the majority of our branded consumable products through a
number of in-house distribution centers and 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.
7
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 and craft items at our
Minnesota location. The plant purchases 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
through a secondary manufacturing process to apply the match head and prepare it
for packing and shipping to our customers.
We manufacture products for the home improvement industry utilizing U.S.,
Mexican and Asian-based manufacturing. North American manufacturing is utilized
for shorter runs and special orders. We operate facilities in Macungie,
Pennsylvania; Compton, California; and Merida, Mexico. Our Asian sourcing is
comprised of several long-standing sourcing relationships. We have strategic
alliances with several Chinese contract manufacturers that have proven to be
reliable sources. The combination of flexible, short-run North American
operations and low-cost Asian sourcing has allowed us to provide our customers
with high quality and low-cost products at industry-leading fill rates.
Raw Materials and Sourcing of Product
Most of our glass canning jars are supplied under a multi-year supply
agreement. Such glass materials are also available from other sources at
competitive prices. The tin plate, nylon, metal and resin used in the
manufacture of our branded consumables are supplied by multiple vendors and are
currently available from a variety of sources at competitive prices. Our wood is
also supplied by multiple vendors and is readily available to our wood
manufacturing plants from local suppliers. Our plastic cutlery is sourced from
our plastic consumables segment.
Historically, the raw materials and components that are necessary for the
manufacture of our products have been available in the quantities that we
require.
Intellectual Property
We believe that none of our active trademarks or patents is 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), Crawford(R),
Diamond(R), Forster(R), Kerr(R), Lehigh(R), Leslie-Locke(R) and Storehorse(R)
brand names in connection with the sale of our branded consumables.
Pursuant to the terms of the 1993 distribution agreement with Ball
Corporation ("Ball"), we were granted a perpetual, royalty-free 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, royalty-free and 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
Although, we are a leading provider of retail plastic cutlery, home
canning products, kitchen matches, rope, cord and twine and toothpicks in North
America, we have direct competitors in most of our niche markets. In addition to
direct competitors, in the market for home canning 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.
8
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 our home improvement products are
concentrated in the spring and summer months. Sales of all 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.
CONSUMER SOLUTIONS
On April 24, 2002, we acquired the business of Tilia International, Inc.
and its subsidiaries ("Tilia"). The discussion below incorporates this acquired
business.
We source, market and distribute an array of innovative kitchen products
under the market leading FoodSaver(R) brand name, as well as the VillaWare(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. Under the
VillaWare(R) brand name, we provide high-end kitchen products, such as
waffle-makers and panini grills, primarily to the specialty gourmet market.
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 retail
customers in this segment include Bed Bath and Beyond, Costco, Kohl's, Target,
Wal-Mart and Williams-Sonoma, among others.
Sales and Marketing
Our consumer solutions sales efforts are led by our internal sales force,
which manages house accounts and oversees 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 stores 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 usage rates for bags and accessories.
Distribution and Fulfillment
We utilize a combination of third party and owned warehouses in the United
States and Canada to distribute our consumer solutions products.
Manufacturing
Our research and development department designs and engineers home vacuum
packaging and electric kitchen products in the United States, sets strict
engineering specifications for the third-party manufacturers and ensures our
9
proprietary manufacturing expertise despite outsourced production. We maintain
control over all critical production molds. 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. Products
are currently sourced through multiple key suppliers in China, Taiwan, Korea 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 that cover various aspects of the FoodSaver(R) machine, as
well as the related bags and accessories. We have pending patent applications
for continually advancing bag and vacuum packaging technologies.
Tilia has filed a complaint with the International Trade Commission ("ITC")
against Applica Consumer Products, Inc., Applica, Inc., The Rival Company, The
Holmes Group, Inc. and ZeroPack Co., Ltd., to enjoin the importation into the
U.S. of certain competitive home vacuum packaging products that we believe
infringe our patented technology. Since the filing of that complaint, Tilia has
entered into a confidential settlement agreement with The Rival Company and The
Holmes Group pursuant to which the parties have requested that the ITC terminate
the investigation as it relates to The Rival Company and The Holmes Group. Tilia
is vigorously pursuing its claims against Applica Consumer Products, Inc.,
Applica, Inc. and ZeroPack Co., Ltd., as we believe that if the ITC fails to
enjoin the importation of these products, our consumer solutions business may be
irreparably harmed by (i) being forced to sell products at reduced margins, and
(ii) having the entire market for home vacuum packaging products disrupted by
the introduction of low quality products.
Competition
Our FoodSaver(R) 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. Our electric kitchen products compete with a variety of
manufacturers, small and large, producing products at the high end of the
market.
Seasonality
Sales of our FoodSaver(R) and VillaWare(R) products generally are
strongest in the fourth quarter preceding the holiday season and may be
negatively impacted by unfavorable retail 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, shotgun shell casings, surgical devices and syringes. 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. In 2001,
this segment included the results of our underperforming thermoformed plastics
operations, which was sold effective November 26, 2001.
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
10
products and parts to both our branded consumables (plastic cutlery and
closures) and consumer solutions (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 consumable products at six owned U.S.
facilities and one leased U.K. facility. 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.
OTHER
In addition to the three primary business segments described above, our
other business consists primarily of our zinc strip business, which is the
largest North American producer of niche products fabricated from solid zinc
strip. We are the sole source supplier of copper plated zinc penny blanks to
both the United States Mint and the Royal Canadian Mint as well as a supplier of
low denomination coinage to other international markets. In addition, we
manufacture a line of industrial zinc products marketed globally for use in the
plumbing, automotive, electrical component and architectural markets, and the
Lifejacket(R) Cathodic Protection System.
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.
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
11
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 2,400 people. Approximately 400 union workers are
covered by four collective bargaining agreements at three of our U. S.
facilities. These agreements expire at our jar closure facility (Muncie,
Indiana) in October 2006, at our kitchen match and toothpick manufacturing
facility (Cloquet, Minnesota) in February 2006, and at our metals facility
(Greeneville, Tennessee) in October 2007.
We have not experienced a work stoppage during the past five years.
Management believes that its relationships with our employees and collective
bargaining unions are satisfactory.
BACKLOG
As of December 31, 2003, the branded consumables and consumer solutions
segments had a backlog of orders of $6.4 million and $6.2 million, respectively.
In our remaining segments, we typically sell under supply contracts for minimum
(generally exceeded) or indeterminate quantities and, accordingly, we do not
track 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 24, 2004, we executed a securities purchase agreement to
acquire all of the capital stock of Bicycle Holding, Inc. ("BHI"), including its
wholly owned subsidiary United States Playing Card Company ("USPC"), a privately
held leading producer and distributor of premium playing cards, including the
Bee(R), Bicycle(R), Aviator(R) and Hoyle(R) brands, for approximately $232
million. The transaction is expected to close by the third quarter of 2004,
subject to Hart-Scott-Rodino approval, gaming industry related regulatory
approvals, BHI shareholder execution and approval and other conditions. USPC is
the largest manufacturer and distributor of playing cards, children's card
games, collectible tins, puzzles and card accessories for the North American
retail market and through its subsidiaries, including USPC, BHI is the largest
supplier of premium playing cards to casinos worldwide. It is anticipated that
we will purchase not less than 75% of the capital stock of BHI at closing and
that the remainder of the capital stock will be purchased according to the terms
of a put/call agreement within one year of closing. In addition to the purchase
price, the agreement includes an earn-out provision with a total potential
payment in cash or our common stock of up to $10 million based on achieving
future growth targets. If paid, we expect to capitalize the cost of the
earn-out. No assurances can be given that the acquisition of BHI will be
consummated or, if such acquisition is consummated, as to the final terms of
such acquisition. Copies of the purchase agreement and related put/call
agreement are attached to this report as Exhibits 2.7 and 2.8, respectively, and
are incorporated herein by reference as though fully set forth herein. The
foregoing summary description of the purchase agreement, the put/call agreement
and the transactions contemplated thereby are not intended to be complete and
are qualified in their entirety by the complete texts of the purchase agreement
and the put/call agreement.
12
WEB SITE ACCESS DISCLOSURE
Our internet Web site address is http://www.jarden.com. We make available
free of charge through our Web site 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. In addition, information
concerning purchases and sales of our equity securities by our executive
officers and directors is posted on our Web site, by the end of the business day
after filing. All of these materials are located at the "Investor Relations"
tab.
Our Web site also includes the following corporate governance materials, at
the tab "Corporate Governance": our Business Conduct and Ethics Policy; our
Board Governance and Conduct Policy; our Management and Directors; our Committee
Composition; our Inside Transactions; and the charters of our Board committees.
These corporate governance materials are also available in print upon request by
any stockholder to our Investor Relations department at our corporate
headquarters.
Information on our Web site does not constitute part of this filing on Form
10-K.
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.
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
Macungie, Pennsylvania Manufacturing/Warehousing Branded Consumables 270,000 Leased
Muncie, Indiana Manufacturing Branded Consumables 173,000 Owned
Compton, California Manufacturing/Warehousing Branded Consumables 172,000 Leased
Kansas City, Missouri Warehousing Branded Consumables 150,000 Leased
Wilton, Maine Warehousing Branded Consumables 150,000 Owned
Merida, Mexico Manufacturing Branded Consumables 120,000 Owned
Tupper Lake, NY Manufacturing Plastic Consumables 159,000 Owned
Fort Smith, Arkansas Manufacturing/Warehousing Plastic Consumables 140,000 Owned
East Wilton, Maine Manufacturing Plastic Consumables 85,000 Owned
Reedsville, Pennsylvania Manufacturing/Warehousing Plastic Consumables 73,000 Owned
Greenville, South Carolina Manufacturing/Warehousing Plastic Consumables 48,000 Owned
Springfield, Missouri Manufacturing/Warehousing Plastic Consumables 43,000 Owned
Greeneville, Tennessee Manufacturing/Warehousing Other 320,000 Owned
San Francisco, California Offices Consumer Solutions 49,000 Leased
Cleveland, Ohio Office/Warehousing Consumer Solutions 97,000 Leased
Rye, New York Corporate offices ------- 4,700 Leased
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
13
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.
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 39, 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 2002, Mr. Franklin has served as the Chairman of
the Board and a director of Find/SVP, Inc., a Nasdaq OTC Bulletin Board company.
Mr. Franklin also serves as a director of Bally Total Fitness Holding
Corporation, a New York Stock Exchange Company.
Ian G.H. Ashken, age 43, is Vice Chairman and Chief Financial Officer 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.
James E. Lillie, age 42, is President and Chief Operating Officer of the
Company. Mr. Lillie joined the Company in August 2003 as Chief Operating Officer
and assumed the additional title and responsibilities of President, effective
January 2004. From 2000 to 2003, Mr. Lillie served as Executive Vice President
of Operations at Moore Corporation, Limited, a diversified commercial printing
and business communications company. From 1999 to 2000, Mr. Lillie served as
Executive Vice President of Operations at Walter Industries, Inc., a Kohlberg,
Kravis, Roberts & Company (KKR) portfolio company. From 1990 to 1999, Mr. Lillie
held a succession of managerial human resources, manufacturing, finance and
operations positions at World Color, Inc., another KKR portfolio company.
Desiree DeStefano, age 36, 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. prior to that, Ms.
DeStefano held similar positions at Benson Eyecare Corporation and was an audit
senior at Price Waterhouse LLP.
J. David Tolbert, age 43, 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
14
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES
Jarden Corporation ("Jarden") common stock is traded on the New York Stock
Exchange under the symbol "JAH." There were approximately 3,304 common
stockholders of record on February 13, 2004. Jarden 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 and the
indenture governing its senior subordinated notes (See Management's Discussion
and Analysis of Financial Condition and Results of Operations). Cash generated
from operations will be used for general corporate purposes, including
acquisitions and supporting organic growth.
The table below sets forth the high and low sales prices of the Company's
common stock as reported on the New York Stock Exchange for the periods
indicated. All prices have been adjusted to reflect the 3-for-2 stock split that
occurred during the fourth quarter of 2003:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
2003
- ----
High ............... $ 18.83 $ 21.79 $ 26.84 $ 28.79
Low ................ $ 14.57 $ 16.97 $ 17.67 $ 23.38
--------- --------- --------- ---------
2002
- ----
High ............... $ 10.00 $ 13.31 $ 18.31 $ 18.47
Low ................ $ 5.05 $ 8.83 $ 12.23 $ 13.33
--------- --------- --------- ---------
15
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth our selected financial data as of and for
the years ended December 31, 2003, 2002, 2001, 2000 and 1999. The selected
financial data set forth below has been derived from our audited consolidated
financial statements and related notes thereto where applicable 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. The results of Tilia, Diamond Brands and
Lehigh are included from April 1, 2002, February 1, 2003 and September 2, 2003,
respectively.
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
(a) (b) (c) (d) (e) (f) (g)
--------- --------- --------- --------- ---------
(dollars in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales ............................ $ 587,381 $ 367,104 $ 304,276 $ 356,123 $ 356,525
Costs and expenses:
Cost of sales ................... 362,379 216,629 232,634 274,248 256,201
Selling, general and
administrative expenses ...... 131,719 85,366 52,552 56,109 54,923
Restricted stock charge (k) ..... 21,833 -- -- -- --
Goodwill amortization ........... -- -- 5,153 6,404 4,605
Special charges and
reorganization expenses (h) .. -- -- 4,978 380 2,314
Loss (gain) on divestiture of
assets and product lines ..... -- -- 122,887 -- (19,678)
--------- --------- --------- --------- ---------
Operating earnings (loss) ............ 71,450 65,109 (113,928) 18,982 58,160
Interest expense, net ................ 19,184 12,611 11,791 11,917 8,395
Loss from early extinguishment of
debt (i) .......................... -- -- -- -- 1,663
Income tax provision (benefit) ...... 20,488 16,189 (40,443) 2,402 18,823
Minority interest in gain (loss) of
consolidated subsidiary ........... -- -- 153 (259) --
--------- --------- --------- --------- ---------
Income (loss) from continuing
operations ........................... 31,778 36,309 (85,429) 4,922 29,279
Loss from discontinued operations .... -- -- -- -- (87)
--------- --------- --------- --------- ---------
Net income (loss) .................... $ 31,778 $ 36,309 $ (85,429) $ 4,922 $ 29,192
========= ========= ========= ========= =========
Basic earnings (loss) per share (j):
Income (loss) from continuing
operations ........................... $ 1.40 $ 1.73 $ (4.47) $ 0.26 $ 1.45
Loss from discontinued operations .... -- -- -- -- (.01)
--------- --------- --------- --------- ---------
$ 1.40 $ 1.73 $ (4.47) $ 0.26 $ 1.44
========= ========= ========= ========= =========
Diluted earnings (loss) per share (j):
Income (loss) from continuing
operations ........................... $ 1.35 $ 1.68 $ (4.47) $ 0.26 $ 1.43
Loss from discontinued operations .... -- -- -- -- (.01)
--------- --------- --------- --------- ---------
$ 1.35 $ 1.68 $ (4.47) $ 0.26 $ 1.42
========= ========= ========= ========= =========
16
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2003 2002 2001 2000 1999
(a) (b) (c) (d) (e) (f) (g)
---------- ----------- ----------- ----------- ----------
(dollars in thousands)
OTHER FINANCIAL DATA:
EBITDA (k) ................... $ 86,495 $ 75,110 $ (95,284) $ 40,552 $ 74,194
Cash flows from operations (l) 73,798 69,551 39,857 19,144 22,324
Depreciation and amortization 15,045 10,001 18,797 21,311 17,697
Capital expenditures ......... 12,822 9,277 9,707 13,637 16,628
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 125,400 $ 56,779 $ 6,376 $ 3,303 $ 17,394
Working capital .............. 242,039 101,557 8,035 22,975 54,611
Total assets ................. 759,674 366,765 162,234 310,429 340,364
Total debt ................... 387,382 216,955 84,875 137,060 140,761
Total stockholders' equity ... 249,905 76,764 35,129 118,221 123,025
(a) 2003 includes a non-cash restricted stock charge of $21.8 million. Adjusting
for the non-cash restricted stock charge, the Company's diluted earnings per
share for 2003 would have been $1.91. Diluted earnings per share, excluding the
non-cash restricted stock charge is a non-GAAP financial measure and it is
presented in this Form 10-K because it is a basis upon which our management has
assessed its financial performance in 2003. Additionally, the Company's credit
agreement has provided for the non-cash restricted stock charge to be excluded
in calculations used for determining whether the Company is in compliance with
certain credit agreement covenants. This calculation is a measure of the
Company's performance that is not required by, or presented in accordance with,
GAAP. As such it should not be considered as an alternative to diluted earnings
per share in accordance with GAAP. A reconciliation of the calculation of
diluted earnings per share, excluding the non-cash restricted stock charge, is
presented below.
(b) The results of Diamond Brands and Lehigh are included from February 1, 2003
and September 2, 2003, respectively.
(c) The results of Tilia are included from April 1, 2002.
(d) 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 $1.48. Diluted earnings per share,
excluding the net release of the valuation allowance is a non-GAAP financial
measure and it is presented in this Form 10-K because it is a basis upon which
our management has assessed its financial performance in 2002. This calculation
is a measure of the Company's performance that is not required by, or presented
in accordance with, GAAP. As such it should not be considered as an alternative
to diluted earnings per share in accordance with GAAP. A reconciliation of the
calculation of diluted earnings per share, excluding the net release of the
valuation allowance, is presented below.
(e) 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.
(f) 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.
(g) 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.
(h) Special charges and reorganization expenses, net 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.
(i) Pursuant to our adoption of SFAS No. 145, results for the year ended
December 31, 1999 have been restated to give effect to the reclassification of
$1.6 million ($1.0 million, net of taxes) arising from the early extinguishment
of debt previously presented as an extraordinary item.
(j) All earnings per share amounts have been adjusted to give effect to a
3-for-2 split of our outstanding shares of common stock that was effected during
the fourth quarter of 2003.
(k) For the year ended December 31, 2003, EBITDA includes a non-cash restricted
stock charge of $21.8 million. For the year ended December 31, 2001, EBITDA
includes a $122.9 million loss on divestiture of assets and product lines.
EBITDA, a non-GAAP financial measure, is presented in this Form 10-K because the
Company's credit facility and senior subordinated notes contain financial and
other covenants which are based on or refer to the Company's EBITDA.
Additionally, EBITDA is a basis upon which our management assesses financial
performance and we believe it is frequently used by securities analysts,
investors and other interested parties in measuring the operating performance
and creditworthiness of companies with comparable market capitalization to the
Company, many of which present EBITDA when reporting their results. Furthermore,
EBITDA is one of the factors used to determine the total amount of bonuses
available to be awarded to executive officers and other employees. EBITDA is
widely used by the Company to evaluate potential acquisition candidates. 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. Because of these limitations, EBITDA should not be
considered a primary measure of the Company's performance and should be reviewed
in conjunction with, and not as substitute for, financial measurements prepared
in accordance with GAAP that are presented in this Form 10-K. A reconciliation
of the calculation of EBITDA, is presented below.
(l) For the year ended December 31, 2002, cash flows from operations included
$38.6 million of income tax refunds resulting primarily from the 2001 loss on
divestiture of assets.
17
Reconciliations of non-GAAP Measures
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(dollars in thousands, except per share data)
Net income (loss) ................. $ 31,778 $ 36,309 $(85,429) $ 4,922 $ 29,192
Add back: non-cash restricted stock
charge, net of related tax
benefit of $8,559 .............. 13,274 -- -- -- --
Less: net release of tax valuation
allowance ...................... -- (4,395) -- -- --
-------- -------- -------- -------- --------
Net income (loss), excluding
non-cash restricted stock charge
and related tax benefit and net
release of tax valuation
allowance ...................... $ 45,052 $ 31,914 $(85,429) $ 4 ,922 $ 29,192
======== ======== ======== ======== ========
Diluted earnings per share,
excluding non-cash restricted
stock charge and related tax
benefit and net release of tax
valuation allowance............. $ 1.91 $ 1.48 $ (4.47) $ 0.26 $ 1.42
Income (loss) from continuing
operations ..................... $ 31,778 $ 36,309 $(85,429) $ 4,922 $ 29,279
Interest expense, net ............. 19,184 12,611 11,791 11,917 8,395
Income tax provision (benefit) .... 20,488 16,189 (40,443) 2,402 18,823
Depreciation and amortization ..... 15,045 10,001 18,797 21,311 17,697
-------- -------- -------- -------- --------
EBITDA ............................ $ 86,495 $ 75,110 $(95,284) $ 40,552 $ 74,194
======== ======== ======== ======== ========
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following "Overview" section is a brief summary of the significant
issues addressed in Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A"). Investors should read the relevant sections
of this MD&A for a complete discussion of the issues summarized below. The
entire MD&A should be read in conjunction with Item 6. Selected Financial Data
and Item 8. Financial Statements and Supplementary Data appearing elsewhere in
this Form 10-K.
OVERVIEW
We are a leading provider of niche consumer products used in and around the
home, under well-known brand names including Ball(R), Bernardin(R), Crawford(R),
Diamond(R), FoodSaver(R), Forster(R), Kerr(R), Lehigh(R) and Leslie-Locke(R). In
North America, we are the market leader in several consumer categories,
including plastic cutlery, home canning, home vacuum packaging, kitchen matches,
rope, cord and twine and toothpicks. We also manufacture zinc strip and a wide
array of plastic products for third party consumer product and medical companies
as well as our own businesses.
Results of Operations
o Our net sales increased by $220.3 million or 60.0% over 2002;
o Our operating income increased by $6.3 million or 9.7% over 2002. Such
increase was despite a $21.8 million non-cash restricted stock charge in
2003. Excluding this non-cash restricted stock charge our operating
earnings increased by $28.2 million or 43.3% over 2002 (see "Non-GAAP
Measure Reconciliations" below);
o Our net income decreased by $4.5 million or 12.5% compared to 2002 and our
diluted earning per share was $0.33 or 19.6% lower than 2002. Our 2002
results were benefited by a net release of a $4.4 million tax valuation
allowance. Absent the 2003 non-cash restricted stock charge of $21.8
million and related tax benefit and the 2002 tax valuation allowance, net
income in 2003 would have been $45.1 million or 41.2% higher than net
income of $31.9 million in 2002 and diluted earning per share would have
been $1.91 in 2003 compared to $1.48 in 2002 (see "Non-GAAP Measure
Reconciliations" below); and
o The increases to our net sales and our operating income discussed above,
are principally the result of acquisitions we completed in 2003 and 2002,
which are described in "Acquisitions and Dispositions" below. In addition,
on an overall basis we had organic growth in 2003, most notably at our
consumer solutions segment where we grew net revenues over 10% on a
comparable basis to 2002.
Liquidity and Capital Resources
o We ended 2003 with a stronger balance sheet, as measured by net
debt-to-total capitalization, and improved liquidity, as measured by cash
and cash equivalents on hand and availability under our debt facility;
o Primarily through a $112.3 million equity offering, as well as our net
income for the year we increased total stockholders equity from $76.8
million at December 31, 2002 to $249.9 million at December 31, 2003;
o Cash flow generated from operations was approximately $73.8 million in 2003
compared to $69.6 million in December 31, 2002. The 2002 amount included
tax refunds of $38.6 million. Excluding the effect of the 2002 tax refunds,
our cash flow from operations in 2003 was $42.8 million higher than 2002;
and
o As of December 31, 2003, we had $125.4 million of cash and cash equivalents
on hand and $64.9 million of availability under our debt facility. We are
actively seeking acquisition opportunities in 2004 and would use such
amounts plus cash generated from our operations and, if necessary,
additional capital raised through financing activities, to finance any such
acquisitions.
We intend the discussion of our financial condition and results of
operations, including our acquisition and disposition activities, that follows
to provide information that will assist in understanding our financial
statements, the changes in certain key items in those financial statements from
year to year, and the primary factors that accounted for those changes, as well
as how certain accounting principles, policies and estimates affect our
financial statements.
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ACQUISITIONS AND DISPOSITION ACTIVITIES
We have grown through strategic acquisitions of complementary businesses
and expanding sales of our existing brands. Our strategy to achieve future
growth is to acquire new businesses or brands that complement our existing
product portfolio, sustain profitable internal growth and expand our
international business.
On September 2, 2003, we acquired all of the issued and outstanding stock
of Lehigh Consumer Products Corporation and its subsidiary ("Lehigh" and the
"Lehigh Acquisition"). Lehigh is the largest supplier of rope, cord, and twine
in the U.S. consumer marketplace and a leader in innovative storage and
organization products and workshop accessories for the home and garage as well
as in the security screen door and ornamental metal fencing market. The purchase
price of the transaction was approximately $157.6 million, including transaction
expenses. In addition, the Lehigh Acquisition includes an earn-out provision
with a potential payment in cash or our common stock, at our sole discretion, of
up to $25 million payable in 2006, provided that certain earnings performance
targets are met. Lehigh is included in the branded consumables segment from
September 2, 2003.
On February 7, 2003, we completed our acquisition of the business of
Diamond Brands International, Inc. and its subsidiaries ("Diamond Brands" and
the "Diamond Acquisition"), a manufacturer and distributor of niche household
products, including plastic cutlery, clothespins, kitchen matches and toothpicks
under the Diamond(R) and Forster(R) trademarks. The purchase price of this
transaction was approximately $91.5 million, including transaction expenses. The
acquired plastic manufacturing operation is included in the plastic consumables
segment in 2003 and the acquired wood manufacturing operation and branded
product distribution business is included in the branded consumables segment in
2003.
On April 24, 2002, we completed our acquisition of the business of Tilia
International, Inc. and its subsidiaries ("Tilia" and the "Tilia Acquisition").
We acquired the business of Tilia for approximately $145 million in cash and $15
million in seller debt financing. In addition, the Tilia Acquisition includes an
earn-out provision with a potential payment in cash or our common stock, at our
sole discretion, of up to $25 million payable in 2005, provided that certain
earnings performance targets are met.
Pro forma financial information relating to the Tilia Acquisition, the
Diamond Acquisition and the Lehigh Acquisition has been included in Item 8.
Financial Statements and Supplementary Data.
We also completed two tuck-in acquisitions in 2003. In the fourth quarter
of 2003, we completed our acquisition of the VillaWare Manufacturing Company
("VillaWare"). VillaWare's results are included in the consumer solutions
segment from October 3, 2003. In the second quarter of 2003, we completed our
acquisition of O.W.D., Incorporated and Tupper Lake Plastics, Incorporated
(collectively "OWD"). The branded product distribution operation acquired in the
OWD acquisition is included in the branded consumables segment from April 1,
2003. The plastic manufacturing operation acquired in the OWD acquisition is
included in the plastic consumables segment from April 1, 2003.
The results of VillaWare and OWD did not have a material effect on our
results for the year ended December 31, 2003 and are not included in the pro
forma financial information presented in Item 8. Financial Statements and
Supplementary Data.
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 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 our term debt under a previous
credit agreement.
Effective November 1, 2001, we sold our majority interest in Microlin, LLC
("Microlin"), 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.
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NON-GAAP MEASURES
Net income and diluted earnings per share, excluding a non-cash restricted
stock charge and a net release of our tax valuation allowance, are non-GAAP
financial measures and they are presented in the "Results of Operations"
sections below because these measures form the basis upon which our management
has assessed the Company's financial performance in the years presented.
Additionally, under our credit agreement the non-cash restricted stock charge is
excluded in certain calculations used for determining whether we are in
compliance with certain credit agreement covenants. These calculations are
measures of our performance that are not required by, or presented in accordance
with generally accepted accounting principles in the United States ("GAAP"). As
such, these measures should not be considered as alternatives to net income or
diluted earnings per share in accordance with GAAP. Reconciliations of the
non-GAAP financial measures to the most directly comparable GAAP financial
measures have been presented within the "Results of Operations" sections below.
RESULTS OF OPERATIONS - COMPARING 2003 TO 2002
We reported net sales of $587.4 million in 2003, a 60.0% increase from net
sales of 367.1 million in 2002.
In 2003, our branded consumables segment reported net sales of $257.9
million compared to $111.2 million in 2002. This increase of 131.8% was
principally the result of the Diamond Acquisition, effective February 1, 2003,
and the Lehigh Acquisition, effective September 2, 2003. In addition, the
acquisition of OWD in the second quarter of 2003, contributed to this increase.
Excluding the effect of acquisitions, net sales for our branded consumables
segment in 2003 were comparable to 2002.
Our consumer solutions segment reported net sales of $215.8 million
compared to $145.3 million in net sales in 2002. This increase of 48.5% was
principally the result of this segment being acquired in April 2002 and,
therefore, net sales for 2003 reflect sales for the full year but net sales for
2002 reflect sales for only nine months of the year. Additionally, the
acquisition of VillaWare in the fourth quarter of 2003 contributed to this
increase. Furthermore, the year-on-year increase is a result of organic U.S.
retail and international sales growth of over 10% for this segment in the last
three quarters of 2003 compared to the same period in 2002.
In 2003, our plastic consumables segment reported net sales of $109.1
million compared to $70.6 million in 2002. The principal reason for this
increase of 54.5% was intercompany sales generated by the addition of the
plastic manufacturing business acquired in the Diamond Acquisition. In addition,
the intercompany sales resulting from the OWD acquisition in the second quarter
of 2003 also contributed to this increase. Excluding intercompany sales, net
sales for the plastic consumables segment increased slightly in 2003 due to
higher sales volumes with a number of customers, partially offset by the loss of
sales to one large customer and a contractual sales price reduction with another
large customer.
In 2003, our other segment reported net sales of $42.8 million compared to
$41.0 million in 2002. The principal reason for this increase of 4.3% was an
increase in sales to a major customer as a result of a contractual change
whereby this segment took on the responsibility of purchasing the raw material
inventory for the customer.
We reported operating earnings of $71.5 million in 2003 compared to
operating earnings of $65.1 million in 2002. This increase of $6.4 million, or
9.7%, occurred despite the 2003 operating earnings being negatively impacted, as
a result of a non-cash restricted stock charge of approximately $21.8 million.
Excluding this non-cash restricted stock charge, operating earnings would have
been $93.3 million in 2003 or $28.2 million higher than 2002. The principal
reason for this increase of 43.3%, was that the branded consumables segment's
operating earnings increased by $18.5 million from 2002 to 2003, due to the
addition of the acquired Diamond Brands and Lehigh product lines, as well as an
increase in organic operating earnings due to a favorable home canning sales mix
resulting from increased sales of premium products. Also, the operating earnings
of the consumer solutions segment increased by $10.9 million, principally due to
(i) the acquisition of this business in April 2002; (ii) the acquisition of
VillaWare in the fourth quarter of 2003 and (iii) increased organic net sales of
over 10% in the final three quarters of 2003 relative to the comparable prior
year periods, partially offset by increased litigation costs arising from an
action that we are taking against certain competitors who we believe have
infringed on our intellectual property. Operating earnings in 2003 for our
plastic consumables segment were approximately $0.5 million higher than the same
period
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in the prior year due to the earnings effect from the intercompany sales,
partially offset by lower gross margins resulting from the changes in net sales
discussed above. Operating earnings in 2003 for our other segment were $0.8
million lower compared to the same period in the prior year due to a greater
amount of net sales having lower gross margins principally due to the
contractual change with one major customer as discussed above.
Gross margin percentages on a consolidated basis decreased to 38.3% in
2003 from 41.0% in 2002. The primary reason for these lower gross margins is the
addition of the relatively lower gross margin Diamond Brands and Lehigh product
lines. This effect is partially offset by the benefit of including the higher
gross margins of the acquired consumer solutions business for the full year in
2003 but only nine months of the year in 2002.
Selling, general and administrative expenses increased to $131.7 million
in 2003 from $85.4 million in 2002, or, as a percentage of net sales, decreased
to 22.4% in 2003 from 23.3% in 2002. The increase in dollar terms was
principally the result of the acquisitions completed during 2003 and 2002. Also,
the selling, general and administrative expenses increased, in part, due to
higher marketing expenditures and legal costs. The decrease in percentage terms
was principally due to the addition of the Diamond Brands and Lehigh product
lines, which have relatively lower selling, general and administrative expenses
as a percentage of net sales compared to those of our consumer solutions
segment.
During the fourth quarter of 2003, we recorded a non-cash restricted stock
charge of approximately $21.8 million relating to the lapsing of restrictions
over restricted stock issuances to certain officers. We received a tax deduction
for this non-cash restricted stock charge.
Net interest expense increased to $19.2 million in 2003 compared to $12.6
million in 2002. This increase resulted from higher levels of outstanding debt
in 2003 compared to the same period in 2002, principally due to (i) the
principal on the $150 million of our 9 3/4% senior subordinated notes ("Notes")
issued in connection with the Tilia Acquisition being outstanding for the entire
twelve months of 2003 as compared to only nine months of 2002, (ii) the
additional respective financings in 2003 in connection with the Diamond
Acquisition and the Lehigh Acquisition, and (iii) the issuance of an additional
$30 million principal amount of Notes in 2003. Our weighted average interest
rate in 2003 of 6.2% was lower than our weighted average interest rate of 7.0%
in 2002.
Our effective tax rate in 2003 was 39.2% compared to an effective tax rate
of 30.8% in 2002. 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.
Excluding the release of this valuation allowance our effective tax rate would
also have been approximately 39.2% in 2002.
Net income in 2003 increased 41% to $45.1 million, or $1.91 per diluted
share, excluding the non-cash restricted stock charge and related tax benefit
discussed above, compared to net income in 2002 of $31.9 million, or $1.48 per
diluted share, which excludes the tax benefit resulting from the net release of
the $4.4 million valuation allowance that is also discussed above.
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The reconciliation of these non-GAAP financial measures to the most
directly comparable GAAP financial measures is as follows:
YEAR ENDED DECEMBER 31,
----------------------
(in thousands, except per share amounts): 2003 2002
--------- --------
Net income............................................. $ 31,778 $ 36,309
Add back: non-cash restricted stock charge, net of
related tax benefit of $8,559 ..................... 13,274 --
Less: net release of tax valuation allowance .......... -- (4,395)
--------- --------
Net income, excluding non-cash restricted stock charge
and related tax benefit and net release of tax
valuation allowance ................................ $ 45,052 $ 31,914
========= ========
Diluted earnings per share, excluding non-cash
restricted stock charge and related tax benefit
and net release of tax valuation allowance.......... $ 1.91 $ 1.48
RESULTS OF OPERATIONS - COMPARING 2002 TO 2001
We reported net sales of $367.1 million in 2002, an increase of 20.6% from
net sales of $304.3 million in 2001. From April 1, 2002 until December 31, 2002,
our consumer solutions segment, which consisted of the newly acquired Tilia
business, generated net sales of $145.3 million. Our branded consumables segment
reported net sales of $111.2 million in 2002 compared to $119.9 million in 2001.
Net sales were $8.7 million or 7.3% 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 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 our other
segment, net sales decreased to $41.0 million in 2002 from $45.5 million in
2001, primarily due to a reduction in 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 until December 31,
2002, our consumer solutions segment, which consists of the 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 41.0% in
2002 from 23.5% 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 which were disposed 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 $85.4 million in
2002 from $52.6 million in 2001, or, as a percentage of net sales increased to
23.3% in 2002 from 17.3% 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
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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 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
Tilia 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 $1.47 diluted earnings per share if this valuation allowance
release was excluded as per the reconciliation shown in "Results of Operations -
2003 to 2002" above. 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
2003 Activity
During 2003, the following changes were made to our capital resources:
o we completed a public offering of approximately 4.8 million shares of
our common stock at $24.67 per share (stock-split adjusted), the
proceeds from which, net of underwriting fees and related expenses,
totaled approximately $112.3 million;
o we amended and restated our existing senior credit facility ("Amended
Credit Agreement"), which currently provides for a senior credit
facility of up to $280 million of senior secured loans, consisting of a
$70 million five-year revolving credit facility, a $60 million
five-year term loan facility, and a new $150 million five-year term
loan facility;
o we issued an additional $30 million of Notes at a price of 106.5% of
face value and received gross proceeds of approximately $32.0 million;
o in conjunction with the timing of the issuance of the 9 3/4% senior
subordinated notes, we entered into a $30 million interest rate swap to
receive a fixed rate of interest and pay a variable rate of interest
based upon London Interbank Offered Rate ("LIBOR");
o we issued an aggregate of 569,700 restricted shares of common stock
under our 2003 Stock Incentive Plan;
o approximately $5.2 million in loans to certain officers and accrued
interest thereon were repaid in full by those officers with shares of
our common stock;
o we entered into a $37 million interest rate swap to receive a floating
rate of interest and pay a fixed rate of interest;
o we received $3.2 million of cash proceeds, including $1 million of
accrued interest, for unwinding our $75 million interest rate swap and
contemporaneously replacing it with a new $75 million interest rate
swap; and
o we repaid $10 million of seller debt financing.
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Specifically, on September 30, 2003, we completed a public offering
("Offering") of approximately 4.8 million shares of our common stock at $24.67
per share. Proceeds from the Offering, net of underwriting fees and related
expenses, totaled approximately $112.3 million. We currently intend to use the
net proceeds for general corporate purposes, including, but not limited to,
potential future acquisitions and debt repayment. Our Amended Credit Agreement
does not require us to prepay debt with any of the net proceeds received from
the Offering.
Our Amended Credit Agreement provides for up to $280 million of senior
secured loans, consisting of a $70 million revolving credit facility, a $60
million term loan facility, and a newly issued $150 million term loan facility.
The new term loan facility bears interest at a rate equal to (i) the Eurodollar
Rate (as determined by the Administrative Agent) 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 of 2.75% per annum for Eurodollar loans and 1.75% per annum for Base Rate
loans. The pricing and principal of the revolving credit facility and the
previously existing term loan did not change. The revolving credit facility
continues to have a $15 million letters of credit sublimit and a $10 million
swing line loans sublimit. On September 2, 2003, we drew down the full amount of
the new $150 million term loan facility, which funds were used principally to
pay the majority of the cash consideration for the Lehigh Acquisition. Our
Amended Credit Agreement matures on April 24, 2008.
The Amended Credit Agreement contains certain restrictions on the conduct
of our business, including, among other things restrictions, generally, on:
o incurring debt;
o disposing of certain assets;
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 Amended Credit Agreement also includes financial covenants that
require us to maintain certain leverage and fixed charge ratios and a minimum
net worth.
As of December 31, 2003, we had $199.6 million outstanding under the term
loan facilities and no outstanding amounts under the revolving credit facility
of the Amended Credit Agreement. As of December 31, 2003, our weighted average
interest rate on this outstanding amount was 4.0%. As of December 31, 2003, net
availability under the revolving credit facility was approximately $64.9
million, after deducting $5.1 million of issued letters of credit. We are
required to pay commitment fees on the unused balance of the revolving credit
facility.
On May 8, 2003, we issued an additional $30 million of Notes (bringing to
a total $180 million of Notes issued and outstanding, including the 2002
issuance discussed below). The net proceeds of the offering were used to reduce
the outstanding revolver balances under our senior credit facility. The Notes
were issued at a price of 106.5% of face value and we received approximately
$32.0 million in gross proceeds from the issuance. As a result of an exchange
offer completed on December 2, 2003, all of the Notes are governed by an
indenture, dated as of April 24, 2002, as supplemented ("April 2002 Indenture").
Significant terms of the Notes and the April 2002 Indenture are discussed under
"2002 and 2001 Activity".
On May 6, 2003, we entered into a $30 million interest rate swap ("New
Swap") to receive a fixed rate of interest and pay a variable rate of interest
based upon LIBOR. The New Swap is a swap against our Notes.
We record non-cash compensation expense for our issued and outstanding
restricted stock either when the restrictions lapse or ratably over time, when
the passage of time is the only restriction. During the fourth quarter of
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2003, we recorded a non-cash restricted stock charge of approximately $21.8
million related to the lapsing of restrictions over all the restricted stock
issuances to Messrs. Martin E. Franklin (our Chairman and Chief Executive
Officer), Ian G.H. Ashken (our Vice-Chairman and Chief Financial Officer) and
James E. Lillie (our President and Chief Operating Officer), discussed
immediately below and in "2002 and 2001 Activity" also below. We will receive a
tax deduction for this non-cash restricted stock charge.
During 2003, we issued 375,000, 135,000 and 52,500 shares of restricted
stock to Messrs. Franklin, Ashken and Lillie, respectively. We issued these
shares under our 2003 Stock Incentive Plan and out of our treasury stock
account. During 2003, all of these restricted stock issuances either provided or
were amended to provide that the restrictions lapse upon the earlier of (i) a
change in control; or (ii) the earlier of our common stock achieving a closing
price of $28 (up from $23.33) or us achieving annualized revenues of $800
million. However, if such restrictions were to lapse during a period when
Messrs. Franklin, Ashken and Lillie were subject to additional contractual
limitations on the sale of securities, the restrictions on such shares would
continue until the expiration or waiver of such additional contractual
limitations. As discussed above, during the fourth quarter of 2003, all such
restrictions lapsed which resulted in a restricted stock charge.
During 2003, we also issued 7,200 shares of restricted stock to certain
other employees. The restrictions on these shares will lapse ratably over five
years of employment with us.
In January 2002, Messrs. Franklin and Ashken exercised 900,000 and 450,000
non-qualified stock options, respectively, which had been granted under our 2001
Stock Option Plan. These shares were issued out of our treasury stock account.
The exercises were accomplished via loans from us under our Executive Loan
Program. The principal amounts of the loans were $3.3 million and $1.6 million,
respectively, and bore interest at 4.125% per annum. The loans were due on
January 23, 2007 and were classified within the stockholders' equity section.
The loans could be repaid in cash, shares of our common stock, or a combination
thereof. In February 2003, Mr. Ashken surrendered to us shares of our common
stock to repay $0.3 million of his loan. On April 29, 2003, Messrs. Franklin and
Ashken each surrendered to us shares of our common stock to repay in full all
remaining principal amounts and accrued interest owed under their respective
loans. We will not make any additional loans under the Executive Loan Program.
Effective April 2, 2003, we entered into an interest rate swap that
converted $37 million of floating rate interest payments under our term loan
facility for a fixed obligation that carries an interest rate, including
applicable margin, of 4.25% per annum. The swap has interest payment dates that
are the same as the term loan facility and it matures on September 30, 2004. The
swap is considered to be a cash flow hedge and is also considered to be an
effective hedge against changes in the fair value of our floating-rate debt
obligation for both tax and accounting purposes. Gains and losses related to the
effective portion of the interest rate swap are reported as a component of other
comprehensive income and will be reclassified into earnings in the same period
that the hedged transaction affects earnings.
In March 2003, we unwound a $75 million interest rate swap to receive a
fixed rate of interest and pay a variable rate of interest based upon LIBOR and
contemporaneously entered into a new $75 million interest rate swap ("Second
Replacement Swap"). Like the swap that it replaced, the Second Replacement Swap
is a swap against our Notes. The Second Replacement Swap has a maturity date
that is the same as the Notes. Interest is payable semi-annually in arrears on
May 1 and November 1. We have accrued interest on the swap at an effective rate
of 6.38%.
In return for unwinding the swap, we received $3.2 million of cash
proceeds. Of this amount, approximately $1 million of such proceeds related to
accrued interest that was owed to us at such time. The remaining $2.2 million of
proceeds is being amortized over the remaining life of the Notes as a credit to
interest expense and the unamortized balances are included in our Consolidated
Balance Sheet as an increase to the value of the long-term debt. We are exposed
to credit loss in the event of non-performance by the other party to the Second
Replacement Swap, a large financial institution, however, we do not anticipate
non-performance by the other party. The fair market value of our interest rate
swaps as of December 31, 2003 was against us in an amount of approximately $2.6
million and is included as a non-current liability in our Consolidated Balance
Sheet, with a corresponding offset to long-term debt.
26
During 2003, we repaid seller debt financing, incurred in connection with
the Tilia Acquisition, in the principal amount of $10 million. The remaining
seller debt financing consists of a non-interest bearing note in the principal
amount of $5 million, bearing interest at 5%, which is due on April 24, 2004.
In January 2003, we filed a shelf registration statement, which was
declared effective by the Securities and Exchange Commission on January 31,
2003. This shelf registration statement was intended to facilitate our access to
growth capital for future acquisitions and allowed 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. The equity
offering completed in September 2003 and the $30 million of Notes issued in May
2003, were covered by our shelf registration statement and, in the aggregate,
constituted the issuance of approximately $150 million in registered securities.
Accordingly, no further issuances will be made under this registration
statement.
During 2003, we incurred costs in connection with the issuance of the
Notes and the Amended Credit Agreement of approximately $5.9 million.
2002 and 2001 Activity
In April 2002, in connection with the Tilia Acquisition we made an
offering of $150 million of Notes to qualified institutional buyers in a private
placement pursuant to Rule 144A under the Securities Act of 1933. The Notes were
issued at a discount such that we received approximately $147.7 million in net
proceeds. The Notes are scheduled to mature on May 1, 2012, however, on or after
May 1, 2007, we can 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 was payable semi-annually in arrears on May 1 and November 1, with the first
payment having occurred on November 1, 2002. The April 2002 Indenture governing
the Notes also contains certain restrictions on the conduct of our business.
Prior to the new Amended Credit Agreement, we entered into a credit
agreement in connection with the Tilia Acquisition ("Old Credit Agreement"). The
Old Credit Agreement was scheduled to mature on April 24, 2007. The revolving
credit facility and the term loan facility bore 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 Old
Credit Agreement contained restrictions on the conduct of our business similar
to the Amended Credit Agreement. The Old Credit Agreement was replaced by the
Amended Credit Agreement.
Until it was replaced by the Old Credit Agreement on April 24, 2002, our
senior credit facility, as amended 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 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 this
credit agreement.
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%.
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 ("First Replacement Swap"). The First
27
Replacement Swap had the same terms as the Initial Swap, except that we were
required to pay a variable rate of interest based upon 6 month LIBOR in arrears.
The spread on this contract was 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 is being 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 Second Replacement
Swap. The First Replacement Swap was superceded by the Second Replacement Swap,
as discussed above.
All of our swaps have been and, where applicable, are considered to be
effective hedges against changes in the fair value of our fixed-rate debt
obligation for both tax and accounting purposes.
During 2002, we issued 150,000 and 60,000 shares of restricted stock to
Messrs. Franklin and Ashken, respectively, under our 1998 Long-Term Equity
Incentive Plan, as amended and restated, and out of our treasury stock account.
During 2003, the restricted stock issuances were amended to provide that the
restrictions would lapse upon the same terms as the 2003 restricted stock
issuances discussed in "2003 Activity" above. Also, as discussed in "2003
Activity" above, during the fourth quarter of 2003 all such restrictions lapsed
and we recorded a restricted stock charge.
During 2002 and 2001, we also issued 5,250 and 1,500, respectively, of
shares of restricted stock to certain other employees. The restrictions on these
shares will lapse ratably over five years of employment with us.
During 2002, we incurred costs in connection with the issuance of the
Notes and the Old Credit Agreement of approximately $7.4 million.
Working Capital
Working capital (defined as current assets less current liabilities)
increased to approximately $242.0 million at December 31, 2003, from
approximately $101.6 million at December 31, 2002, due primarily to:
o the working capital of our acquired businesses; and
o increased cash on hand amounts caused by the equity offering, our
favorable operating results and the new financing relationships
discussed above, being only partially offset by amounts used to fund
our 2003 acquisitions.
Cash Flows from Operations
Cash flow generated from operations was approximately $73.8 million for
the year ended December 31, 2003 compared to $69.6 million for the year ended
December 31, 2002. The 2002 amount included tax refunds of $38.6 million.
Excluding the effect of the 2002 tax refunds, our cash flow from operations in
2003 was $42.8 million higher than 2002. This increase was principally due to an
increase in net income, excluding the non-cash restricted stock charge, of $17.4
million in 2003 compared to 2002 and lower working capital movements in 2003.
Our statement of cash flows is prepared using the indirect method. Under
this method, net income is reconciled to cash flows from operating activities by
adjusting net income for those items that impact net income but do not result in
actual cash receipts or payments during the period. These reconciling items
include depreciation and amortization, changes in deferred tax items, non-cash
compensation, non-cash interest expense, charges in reserves against accounts
receivable and inventory and changes in the balance sheet for working capital
from the beginning to the end of the period.
Capital Expenditures
Capital expenditures were $12.8 million in 2003 compared to $9.3 million
for 2002 and are largely related to installing a new information system for our
consumer solutions segment, maintaining facilities, tooling projects, improving
manufacturing efficiencies, other new information systems and a portion of the
costs of the installation of
28
new packaging lines for the branded consumables segment. As of December 31,
2003, we had capital expenditure commitments in the aggregate for all our
segments of approximately $2.2 million, of which $0.8 million related to the
completion of the new packaging lines for the branded consumables segment.
Cash and Financing Availability
We believe that our cash and cash equivalents on hand, cash generated from
our operations and our availability under our senior credit facility is 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.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table includes aggregate information about our contractual
obligations as of December 31, 2003 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 AFTER 5
-------
TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS YEARS
------- ------- --------- --------- -------
Long-term debt, including scheduled
interest payments (1) ........... $ 531.2 $ 39.7 $ 75.6 $ 188.8 $ 227.1
Operating leases .................. 21.1 7.7 10.5 2.9 --
Unconditional purchase obligations 2.2 2.2 -- -- --
Other non-current obligations ..... 1.3 1.0 0.3 -- --
------- ------- ------- ------- -------
Total ............................. $ 555.8 $ 50.6 $ 86.4 $ 191.7 $ 227.1
======= ======= ======= ======= =======
(1) The debt amounts are based on the principal payments that will be due
upon their maturity as well as scheduled interest payments. Interest
payments on our variable debt have been calculated based on their
scheduled payment dates and using the weighted average interest rate on
our variable debt as of December 31, 2003. Interest payments on our
fixed rate debt are calculated based on their scheduled payment dates.
The debt amounts exclude approximately $2.6 million of non-debt
balances arising from the interest rate swap transactions described in
Item 8. Note 16. Financial Statements and Supplementary Data.
Commercial commitments are items that we could be obligated to pay in the
future and are not included in the above table:
o As of December 31, 2003, we had $5.1 million in standby and commercial
letters of credit that all expire in 2004;
o In connection with a 2003 acquisition, we may be obligated to make
future contingent payments of up to $3.2 million in 2004, provided that
certain financial targets are met;
o In connection with the Tilia 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;
o In connection with the Lehigh Acquisition, we may be obligated to pay
an earn-out in cash or our common stock of up to $25 million in 2006,
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 2004 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.
29
OFF-BALANCE-SHEET ARRANGEMENTS
As of December 31, 2003, we did not have any significant off-balance-sheet
arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
RECENT DEVELOPMENTS
On February 24, 2004, we executed a securities purchase agreement to
acquire all of the capital stock of Bicycle Holding, Inc. ("BHI"), including its
wholly owned subsidiary United States Playing Card Company ("USPC"), a privately
held leading producer and distributor of premium playing cards, including the
Bee(R), Bicycle(R), Aviator(R) and Hoyle(R) brands, for approximately $232
million. The transaction is expected to close by the third quarter of 2004,
subject to Hart-Scott-Rodino approval, gaming industry related regulatory
approvals, BHI shareholder execution and approval and other conditions. USPC is
the largest manufacturer and distributor of playing cards, children's card
games, collectible tins, puzzles and card accessories for the North American
retail market and through its subsidiaries, including USPC, BHI is the largest
supplier of premium playing cards to casinos worldwide. It is anticipated that
we will purchase not less than 75% of the capital stock of BHI at closing and
that the remainder of the capital stock will be purchased according to the terms
of a put/call agreement within one year of closing. In addition to the purchase
price, the agreement includes an earn-out provision with a total potential
payment in cash or our common stock of up to $10 million based on achieving
future growth targets. If paid, we expect to capitalize the cost of the
earn-out. No assurances can be given that the acquisition of BHI will be
consummated or, if such acquisition is consummated, as to the final terms of
such acquisition. Copies of the purchase agreement and related put/call
agreement are attached to this report as Exhibits 2.7 and 2.8, respectively, and
are incorporated herein by reference as though fully set forth herein. The
foregoing summary description of the purchase agreement, the put/call agreement
and the transactions contemplated thereby are not intended to be complete and
are qualified in their entirety by the complete texts of the purchase agreement
and the put/call 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 Note 1. to Item 8. 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 allowances for 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.
Allowance for 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. That
estimate is based on historical collection experience, current economic and
market conditions, and a review of the current status of each customer's trade
accounts receivable. 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.
30
Allowance for inventory obsolescence
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 (such as
cash flows, terminal values and discount rates). 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 April 2002, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("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 was effective in fiscal 2003 and did not have a
material impact on our consolidated financial statements. We conformed to the
requirements of SFAS No. 145 in our Item 6. Selected Financial Data disclosure
in connection with the 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 were effective for any exit or disposal activities
initiated after December 31, 2002. The adoption of SFAS No. 146 had no impact on
our financial condition or results of operations.
31
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS
No. 149 is generally effective for contracts entered into or modified and for
hedging relationships designed after June 30, 2003. The adoption of SFAS No.149
did not have a material effect on our present financial condition or results of
operations.
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.
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 debt obligations;
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 Claims made against us based on product liability could have a material
adverse effect on our business;
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;
32
o We may experience difficulty in integrating acquired businesses, which may
interrupt our business operations;
o Our business may be adversely affected by certain of our customers seeking
to directly source lower-cost imported products;
o Continuation of the United States penny as a currency denomination;
o Our business could be adversely affected because of risks associated with
international operations;
o Our failure to successfully protect our intellectual property rights could
have a material adverse effect on our business;
o Terrorist acts or acts of war may cause damage or disruption to Jarden, our
suppliers or our customers which could significantly impact our revenue,
costs and expenses and financial condition;
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.
33
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 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 external customers, we have
the ability to pass through price increases with an increase in our selling
price and certain of our external customers purchase the resin used in products
we manufacture for them. This pass-through pricing is not applicable to plastic
cutlery, which we supply to our branded consumables segment. Plastic cutlery is
principally made of polystyrene and for each $0.01 change in the price of
polystyrene the material cost in our plastics consumables segment will change by
approximately $0.5 million per annum. The Company's zinc business has sales
arrangements with a majority of its customers such that sales are priced either
based upon supply contracts that provide for fluctuations in the price of zinc
to be passed on to the customer or are conducted on a tolling basis whereby
customers supply zinc to the Company for processing. Such arrangements as well
as the zinc business utilizing forward buy contracts reduce the exposure of this
business to changes in the price of zinc.
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 certain of its term and revolving debt obligations
and six month LIBOR in arrears on certain of its interest rate swaps. The
spreads on the interest rate swaps range from 523 to 528 basis points.
Settlements on the interest rate swaps are made on May 1 and November 1. The
Company is exposed to credit loss in the event of non-performance by the other
party to its current existing swaps, 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 direction of the
change. Assuming that Eurodollar and LIBOR rates each increased 100 basis points
over period end rates on the outstanding term debt and interest rate swaps, the
Company's interest expense would have increased by approximately $2.0 million,
$0.8 million and $0.5 million for 2003, 2002 and 2001, respectively. The amount
was determined by considering the impact of the hypothetical interest rates on
the Company's borrowing cost, short-term investment rates, interest rate swaps
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.
34
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 (the "Company") as of December 31, 2003 and 2002,
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, 2003. 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, 2003 and 2002, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003 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.
/s/ ERNST & YOUNG LLP
New York, New York
January 30, 2004
35
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-------------------------------------
2003 2002 2001
--------- --------- ---------
Net sales................................ $ 587,381 $ 367,104 $ 304,276
Costs and expenses:
Cost of sales......................... 362,379 216,629 232,634
Selling, general and administrative
expenses........................... 131,719 85,366 52,552
Restricted stock charge............... 21,833 -- --
Goodwill amortization................. -- -- 5,153
Special charges and reorganization
expenses........................... -- -- 4,978
Loss on divestitures of assets and
product lines...................... -- -- 122,887
-------- -------- --------
Operating earnings (loss)................ 71,450 65,109 (113,928)
Interest expense, net.................... 19,184 12,611 11,791
-------- -------- --------
Income (loss) before taxes and minority
interest.............................. 52,266 52,498 (125,719)
Income tax provision (benefit)........... 20,488 16,189 (40,443)
Minority interest in gain of consolidated
subsidiary............................ -- -- 153
-------- -------- --------
Net income (loss)........................ $ 31,778 $ 36,309 $(85,429)
======== ======== ========
Basic earnings (loss) per share:
Net income (loss).................... $ 1.40 $ 1.74 $ (4.48)
Diluted earnings (loss) per share:
Net income (loss).................... $ 1.35 $ 1.68 $ (4.48)
Weighted average shares outstanding:
Basic................................ 22,663 20,910 19,089
Diluted.............................. 23,531 21,588 19,089
The accompanying notes are an integral part of the consolidated financial
statements.
36
JARDEN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
------------------------
2003 2002
---------- ---------
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 125,400 $ 56,779
Accounts receivable, net of allowances of $11,880 and $6,095,
respectively ........................................................... 92,777 40,470
Income taxes receivable ................................................... 913 1,039
Inventories, net .......................................................... 105,573 59,463
Deferred taxes on income .................................................. 14,071 10,312
Prepaid expenses and other current assets ................................. 8,385 4,667
---------- ---------
Total current assets ................................................. 347,119 172,730
---------- ---------
Non-current assets:
Property, plant and equipment, at cost
Land ...................................................................... 2,070 782
Buildings ................................................................. 31,642 25,109
Machinery and equipment ................................................... 155,111 115,637
---------- ---------
188,823 141,528
Accumulated depreciation .................................................. (109,704) (96,291)
---------- ---------
79,119 45,237
---------- ---------
Goodwill ....................................................................... 236,413 75,750
Other intangible assets, net ................................................... 79,413 58,310
Other assets ................................................................... 17,610 14,738
---------- ---------
Total assets ................................................................... $ 759,674 $ 366,765
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt ..................... $ 17,512 $ 16,117
Accounts payable .......................................................... 34,211 18,466
Accrued salaries, wages and employee benefits ............................. 15,879 13,559
Other current liabilities ................................................. 37,478 23,031
---------- ---------
Total current liabilities ............................................ 105,080 71,173
---------- ---------
Non-current liabilities:
Long-term debt ............................................................ 369,870 200,838
Deferred taxes on income .................................................. 17,127 6,377
Other non-current liabilities ............................................. 17,692 11,613
---------- ---------
Total non-current liabilities ........................................ 404,689 218,828
---------- ---------
Commitments and contingencies -- --
Stockholders' equity:
Common stock ($.01 par value, 50,000 shares authorized, 28,720 and 23,890
shares issued and 27,007 and 21,558 shares outstanding at December 31,
2003 and 2002, respectively) ............................................. 287 239
Additional paid-in capital ................................................ 165,056 33,996
Retained earnings ......................................................... 100,811 69,033
Notes receivable for stock purchases ...................................... -- (5,109)
Accumulated other comprehensive loss ...................................... 308 (3,463)
Less: treasury stock (1,713 and 2,332 shares, at cost, at December 31, 2003
and 2002, respectively) ................................................ (16,557) (17,932)
---------- ---------
Total stockholders' equity ............................................ 249,905 76,764
---------- ---------
Total liabilities and stockholders' equity ..................................... $ 759,674 $ 366,765
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
37
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------------
2003 2002 2001
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................................................... $ 31,778 $ 36,309 $ (85,429)
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation ................................................................ 14,188 9,412 13,427
Amortization ................................................................ 857 589 5,370
Loss on divestitures of assets and product lines ............................ -- -- 122,887
Loss on disposal of fixed assets ............................................ -- 498 402
Special charges and reorganization expenses ................................. -- -- 680
Deferred income taxes ....................................................... 6,674 8,039 (27,804)
Deferred employee benefits .................................................. 988 383 378
Non-cash compensation ....................................................... 21,899 587 --
Write-off of debt issuance and amendment costs .............................. -- 198 1,507
Non-cash interest expense ................................................... 996 1,607 465
Other, net .................................................................. 577 2,227 1,443
Changes in working capital components, net of effects from acquisitions and
divestitures:
Accounts receivable ......................................................... (16,944) (12,076) 4,787
Income tax refunds .......................................................... 379 38,578 --
Inventories ................................................................. 4,994 (15,118) 9,338
Accounts payable ............................................................ 6,439 10 794
Accrued salaries, wages and employee benefits ............................... (710) 1,689 2,212
Other current assets and liabilities ........................................ 1,683 (3,381) (10,600)
--------- --------- ---------
Net cash provided by operating activities ............................... 73,798 69,551 39,857
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit borrowings ...................................... 78,000 25,200 41,050
Payments on revolving credit borrowings ........................................ (78,000) (34,600) (47,650)
Proceeds from bond issuance .................................................... 31,950 147,654 --
Payments on long-term debt ..................................................... (7,941) (77,975) (45,585)
Payment on seller note ......................................................... (10,000) -- --
Debt issue and amendment costs ................................................. (5,913) (7,467) (867)
Proceeds from issuance of senior debt .......................................... 160,000 50,000 --
Proceeds from recouponing of interest rate swap ................................ 2,231 4,400 --
Proceeds from issuance of common stock, net of underwriting fees and
related expenses ............................................................ 112,258 -- --
Other .......................................................................... 2,211 4,335 815
--------- --------- ---------
Net cash provided by (used in) financing activities ......................... 284,796 111,547 (52,237)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment ..................................... (12,822) (9,277) (9,707)
Insurance proceeds from property casualty ...................................... -- -- 1,535
Acquisitions of businesses, net of cash acquired of $6,685 and $28,374 in
2003 and 2002, respectively ..................................................... (277,259) (121,065) --
Purchase of intangible assets .................................................. -- (2,000) --
Proceeds from divestitures of assets and product lines ......................... -- 1,600 21,001
Proceeds from the surrender of insurance contracts ............................. -- -- 6,706
Loans to former officers ....................................................... -- -- (4,059)
Other, net ..................................................................... 108 47 (23)
--------- --------- ---------
Net cash (used in) provided by investing activities .......................... (289,973) (130,695) 15,453
--------- --------- ---------
NET INCREASE IN CASH ................................................................ 68,621 50,403 3,073
Cash and cash equivalents, beginning of year ........................................ 56,779 6,376 3,303
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR .............................................. $ 125,400 $ 56,779 $ 6,376
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
38
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Common Stock Treasury Stock Additional
------------ -------------- Paid-in Retained Loans
Shares Amount Shares Amount Capital Earnings Receivable
------ ------ ------ ------ ------- -------- ----------
Balance, December 31, 2000 ... 23,890 $ 40,017 (4,866) $ (38,971) $ -- $ 118,153 $ --
Net loss ..................... -- -- -- -- -- (85,429) --
Stock options exercised and
stock plan purchases ....... 201 929 -- -- -- -- --
Shares reissued from
treasury ................... (201) (1,515) 201 1,515 -- -- --
Shares tendered for stock
options and taxes .......... -- -- (30) (130) -- -- --
Stock option compensation .... -- 2,422 -- -- -- -- --
Restatement of par value of
common stock associated
with the reincorporation
in Delaware ................ -- (41,614) -- -- 41,614 -- --
Cumulative translation
adjustment ................. -- -- -- -- -- -- --
Translation adjustment
recorded to net income due
to liquidation of
investment in foreign
subsidiary ................. -- -- -- -- -- -- --
Interest rate swap unrealized
loss ....................... -- -- -- -- -- -- --
Minimum pension liability .... -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Balance, December 31, 2001 ... 23,890 239 (4,695) (37,586 41,614 32,724 --
Net income ................... -- -- -- -- -- 36,309 --
Stock options exercised and
stock plan purchases ....... 2,324 -- -- -- 9,261 -- --
Shares issued for
non-cash compensation ...... 45 -- -- -- 587 -- --
Shares reissued from
treasury ................... (2,369) -- 2,369 19,742 (19,742) -- --
Shares tendered for stock
options and taxes .......... -- -- (6) (88) -- -- --
Cumulative translation
adjustment ................. -- -- -- -- -- -- --
Tax benefit related to stock
option exercises ........... -- -- -- -- 2,276 -- --
Loans to executive officers
and accrued interest
thereon .................... -- -- -- -- -- -- (5,109)
Interest rate swap
maturity ................... -- -- -- -- -- -- --
Minimum pension liability .... -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Balance, December 31, 2002 ... 23,890 239 (2,332) (17,932) 33,996 69,033 (5,109)
Net income ................... -- -- -- -- -- 31,778 --
Proceeds from issuance of
common stock ............... 4,830 48 -- -- 112,210 -- --
Stock options exercised and
stock plan purchases ....... 623 -- -- -- 2,270 -- --
Shares reissued from
treasury ................... (884) -- 884 6,610 (6,610) -- --
Shares tendered for stock
options and taxes .......... -- -- (4) (60) -- -- --
Non-cash compensation charges -- -- -- -- 21,899 -- --
Cumulative translation
adjustment ................. -- -- -- -- -- -- --
Tax benefit related to stock
option exercises ........... -- -- -- -- 1,291 -- --
Repayment of executive
officers loans and
accrued interest ........... 261 -- (261) (5,175) -- -- 5,109
Interest rate swap unrealized
loss ....................... -- -- -- -- -- -- --
Minimum pension liability .... -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------
Balance, December 31, 2003 ... 28,720 $ 287 (1,713) $(16,557) $165,065 $ 100,811 $ --
===========================================================================================
Accumulated Other
Comprehensive Loss
-------------------------------------
Cumulative Interest Minimum
Translation Rate Pension
Adjustment Swaps Liability
---------- ----- ---------
Balance, December 31, 2000 ... $ (978) $ -- $ --
Net loss ..................... -- -- --
Stock options exercised and
stock plan purchases ....... -- -- --
Shares reissued from
treasury ................... -- -- --
Shares tendered for stock
options and taxes .......... -- -- --
Stock option compensation .... -- -- --
Restatement of par value of
common stock associated
with the reincorporation
in Delaware ................ -- -- --
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 ... (941) (524) (397)
Net income ................... -- -- --
Stock options exercised and
stock plan purchases ....... -- -- --
Shares issued for non-cash
compensation ............... -- -- --
Shares reissued from
treasury ................... -- -- --
Shares tendered for stock
options and taxes .......... -- -- --
Cumulative translation
adjustment ................. 191 -- --
Tax benefit related to stock
option exercises ........... -- -- --
Loans to executive officers
and accrued interest
thereon .................... -- -- --
Interest rate swap
maturity ................... -- 524 --
Minimum pension liability .... -- -- (2,316)
--------------------------------------
Balance, December 31, 2002 ... (750) -- (2,713)
Net income ................... -- -- --
Proceeds from issuance of
common stock ............... -- -- --
Stock options exercised and
stock ...................... -- -- --
plan purchases ............. -- -- --
Shares reissued from
treasury ................... -- -- --
Shares tendered for stock
options and taxes .......... -- -- --
Non-cash compensation charges -- -- --
Cumulative translation
adjustment ................. 4,009 -- --
Tax benefit related to stock
option exercises ........... -- -- --
Repayment of executive
officers loans and
accrued interest ........... -- -- --
Interest rate swap unrealized
loss ....................... -- (57) --
Minimum pension liability .... -- -- (181)
--------------------------------------
Balance, December 31, 2003 ... $ 3,259 $ (57) $ (2,894)
======================================
The accompanying notes are an integral part of the consolidated financial
statements.
39
JARDEN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
--------------------------------------
2003 2002 2001
-------- -------- ----------
Net income (loss) .............................................. $ 31,778 $ 36,309 $(85,429)
Foreign currency translation:
Translation adjustment during period ...................... 4,009 191 (424)
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 ...................................... (57) -- (569)
Maturity of interest rate swap ............................ -- 524 --
Minimum pension liability ...................................... (181) (2,316) (397)
-------- -------- --------
Comprehensive income (loss) .................................... $ 35,549 $ 34,708 $(86,313)
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
40
JARDEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company is a leading provider of niche consumer products used in and
around the home, under well-known brand names including Ball(R), Bernardin(R),
Crawford(R), Diamond(R), FoodSaver(R), Forster(R), Kerr(R), Lehigh(R) and
Leslie-Locke(R). The Company's products include, amongst others, clothespins,
home canning, home vacuum packaging, kitchen matches, plastic cutlery, rope,
cord and twine and toothpicks. The Company also manufactures zinc strip and 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).
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 ("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 Note 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 3-for-2 split of the Company's common
stock that was effected in the fourth quarter of 2003.
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 estimates future product returns based
upon historical return rates and its judgment.
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 amounts of $25.9 million,
$17.8 million and $1.0 million for the years 2003, 2002 and 2001, respectively.
Amounts of $0.5 million and $0.4 million were included in the Company's Prepaid
Expenses and Other Current Assets in the Consolidated Balance Sheet as of
December 31, 2003 and 2002, respectively.
Cash and Cash Equivalents
Cash equivalents include financial investments with a maturity of three
months or less when purchased.
41
Accounts Receivable
The Company provides credit, in the normal course of business, to its
customers. The Company maintains an allowance for doubtful customer accounts for
estimated losses that may result from the inability of the Company's customers
to make required payments. That estimate is based on historical collection
experience, current economic and market conditions, and a review of the current
status of each customer's trade accounts receivable. The Company charges actual
losses when incurred to this allowance.
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. The Company's
goodwill and intangible assets that are deemed to have indefinite lives are no
longer amortized under current accounting guidance 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
remained as of December 31, 2003 and 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
In December 2002, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("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
42
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. As allowed for by both
SFAS No. 148 and SFAS No. 123, 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).
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
adjusted to the pro forma amounts indicated:
YEAR ENDED DECEMBER 31,
----------------------------------------
(thousands of dollars, except per share amounts) 2003 2002 2001
---------- ---------- ----------
Net income (loss), as reported ..................................... $ 31,778 $ 36,309 $ (85,429)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects ..................................... 2,032 1,037 295
---------- ---------- ----------
Pro forma net income (loss) ........................................ $ 29,746 $ 35,272 $ (85,724)
========== ========== ==========
Basic earnings (loss) per share:
As reported .................................................. $ 1.40 $ 1.74 $ (4.48)
Pro forma .................................................... 1.31 1.69 (4.49)
Diluted earnings (loss) per share:
As reported .................................................. $ 1.35 $ 1.68 $ (4.48)
Pro forma .................................................... 1.26 1.63 (4.49)
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 2003, 2002 and 2001, respectively: no dividend
yield for all years, expected volatility of 37, 44 and 37 percent, risk-free
interest rates of 1.6, 2.0 and 4.8 percent and expected lives of 7.6, 7.5 and
7.5 years. The average fair value of each option granted in 2003, 2002 and 2001
was $9.11, $6.19 and $1.93, respectively.
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
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 was effective for the Company beginning in fiscal 2003. The adoption of
SFAS No. 145 did not 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 were effective for any exit or disposal activities
initiated after December 31, 2002. The adoption of SFAS 146 did not have an
impact on the Company's financial condition or results of operations.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS
No. 149 is generally effective for contracts entered into or modified and for
hedging relationships designed after June 30, 2003. The adoption of SFAS No.149
did not have a material effect on the Company's present financial condition or
results of operations.
43
3. ACQUISITIONS AND DIVESTITURES
On September 2, 2003, the Company acquired all of the issued and
outstanding stock of Lehigh Consumer Products Corporation and its subsidiary
("Lehigh" and the "Lehigh Acquisition"). Lehigh is the largest supplier of rope,
cord and twine for the U.S. consumer marketplace and a leader in innovative
storage and organization products and workshop accessories for the home and
garage as well as in the security screen door and ornamental metal fencing
market. The purchase price of the transaction was approximately $157.6 million,
including transaction expenses, and was principally funded by a draw down under
the Company's amended and restated senior credit facility ("Amended Credit
Agreement") (see Note 9). In addition, the Lehigh Acquisition includes an
earn-out provision with a potential payment in cash or Company common stock, at
the Company's sole discretion, of up to $25 million payable in 2006, provided
that certain earnings performance targets are met. If paid, the Company expects
to capitalize the cost of the earn-out. Lehigh is included in the branded
consumables segment from September 2, 2003 (see Note 5).
On February 7, 2003, the Company completed its acquisition of the business
of Diamond Brands International, Inc. and its subsidiaries ("Diamond Brands" and
the "Diamond Acquisition'), a manufacturer and distributor of niche household
products, including clothespins, kitchen matches, plastic cutlery and toothpicks
under the Diamond(R) and Forster(R) trademarks. The purchase price of this
transaction was approximately $91.5 million, including transaction expenses. The
Company used cash on hand and draw downs under its debt facilities to finance
the transaction. The acquired plastic manufacturing operation is included in the
plastic consumables segment in 2003 and the acquired wood manufacturing
operation and branded product distribution business is included in the branded
consumables segment in 2003 (see Note 5).
On April 24, 2002, the Company completed its acquisition of the business
of Tilia International, Inc. and its subsidiaries ("Tilia" and the "Tilia
Acquisition"). Pursuant to the Tilia Acquisition, the Company acquired Tilia for
approximately $145 million in cash and $15 million in seller debt financing. In
addition, the Tilia Acquisition includes an earn-out provision with a potential
payment in cash or Company common stock, at the Company's sole discretion, of up
to $25 million payable in 2005, provided that certain earnings performance
targets are met. If paid, the Company expects to capitalize the cost of the
earn-out.
The Lehigh Acquisition, the Diamond Acquisition and the Tilia Acquisition
were all entered into as part of the Company's strategy of acquiring branded
consumer products businesses with leading market positions in niche markets for
products used in and around the home, attractive operating margins and strong
management. The results of Lehigh, Diamond Brands, and Tilia have been included
in the Company's results from September 2, 2003, February 1, 2003 and April 1,
2002, respectively.
The following table summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the effective dates of acquisition:
DIAMOND
TILIA BRANDS LEHIGH
(millions of dollars) (APRIL 1, 2002) (FEB. 1, 2003) (SEPT. 2, 2003) TOTAL
--------------- -------------- --------------- ----------
Current assets ................ $ 65.1 $ 24.7 $ 47.1 $ 136.9
Property, plant and equipment . 2.4 20.5 8.7 31.6
Trademark ..................... 50.9 13.8 3.4 68.1
Other intangibles ............. 5.5 -- -- 5.5
-------- ------- -------- --------
Total assets acquired ..... 123.9 59.0 59.2 242.1
-------- ------- -------- --------
Current liabilities ........... (19.3) (9.2) (9.8) (38.3)
Long-term liabilities ......... (0.7) (0.9) -- (1.6)
-------- ------- -------- --------
Total liabilities assumed (20.0) (10.1) (9.8) (39.9)
-------- ------- -------- --------
Net assets acquired 103.9 48.9 49.4 202.2
-------- ------- -------- --------
Purchase price ................ 163.3 91.5 157.6 412.4
-------- ------- -------- --------
Goodwill recorded ............. $ 59.4 $ 42.6 $ 108.2 $ 210.2
======== ======= ======== ========
Certain working capital balances recorded in connection with the Diamond
Acquisition and the Lehigh Acquisition are preliminary and when finalized within
one year of the respective dates of acquisition may result in changes to the
intangible balances shown above.
In the fourth quarter of 2003, the Company completed its acquisition of the
VillaWare Manufacturing Company ("VillaWare"). VillaWare's results are included
in the consumer solutions segment from October 3, 2003. In the second
44
quarter of 2003, the Company completed its acquisition of O.W.D., Incorporated
and Tupper Lake Plastics, Incorporated (collectively "OWD"). The branded product
distribution operation acquired in the OWD acquisition is included in the
branded consumables segment from April 1, 2003. The plastic manufacturing
operation acquired in the OWD acquisition is included in the plastic consumables
segment from April 1, 2003.
The results of VillaWare and OWD did not have a material effect on the
Company's results for the year ended December 31, 2003 and are therefore not
included in the proforma financial information presented herein. The aggregate
amount of goodwill acquired in connection with the acquisitions of VillaWare and
OWD was $12.3 million.
The goodwill and other intangibles amounts recorded in connection with the
Company's acquisitions 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 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 a former
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 Tilia Acquisition, the Diamond Acquisition and the Lehigh
Acquisition (as described in Note 3 above) with the related financings as if
they had been consummated as of the beginning of the earliest period presented.
The unaudited pro forma financial information presented does not exclude the
$21.8 million non-cash restricted stock charge and related tax benefit recorded
in 2003 or the net $4.4 million income tax valuation allowance released in 2002:
YEAR ENDED DECEMBER 31,
-----------------------
(thousands of dollars, except per share data) 2003 2002
--------- ---------
Net sales ................ $ 684,876 $ 635,361
Operating income ......... 86,696 104,777
Net income ............... 37,898 52,085
Diluted earnings per share $ 1.61 $ 2.41
5. BUSINESS SEGMENT INFORMATION
The Company reports four business segments: branded consumables, consumer
solutions, plastic consumables and other.
In the branded consumables segment, the Company markets, distributes and in
certain cases manufactures a broad line of branded products that includes
clothespins, craft items, food preparation kits, home canning jars, jar
closures, kitchen matches, plastic cutlery, rope, cord and twine, storage and
workshop accessories, toothpicks and other accessories marketed under the
Ball(R), Bernardin(R), Crawford(R), Diamond(R), Forster(R), Kerr(R), Lehigh(R)
and Leslie-Locke(R) brand names. As discussed in Note 3, the Diamond Brands wood
manufacturing operation and branded product distribution business and the Lehigh
home improvement business have been included in the branded consumables segment
effective February 1, 2003 and September 2, 2003, respectively. In the consumer
solutions segment, which was created upon the acquisition of Tilia in April
2002, the Company sources, markets and distributes an array of innovative
kitchen products under the market leading FoodSaver(R) brand name, as well as
the VillaWare(R) brand name. The plastic consumables segment manufactures,
markets and distributes a wide variety of consumer and medical plastic products,
including products used by the Company's branded consumables segment (plastic
cutlery) and consumer solutions segment (containers). As discussed in Note 3,
the Diamond Brands plastic manufacturing operation is included in the plastic
consumables segment effective February 1, 2003. The other segment is primarily a
producer of zinc strip.
45
Net sales, operating earnings (loss), capital expenditures, depreciation
and amortization, and assets employed in operations by segment are summarized as
follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
(thousands of dollars) 2003 2002 2001
--------- --------- ---------
Net sales:
Branded consumables (1) .................. $ 257,869 $ 111,240 $ 119,942
Consumer solutions (2) ................... 215,847 145,316 --
Plastic consumables (3), (4) ............. 109,056 70,578 139,912
Other .................................... 42,802 41,034 45,525
Intercompany (7) ......................... (38,193) (1,064) (1,103)
--------- --------- ---------
Total net sales .................. $ 587,381 $ 367,104 $ 304,276
========= ========= =========
Operating earnings (loss):
Branded consumables (1) .................. $ 36,521 $ 17,984 $ 13,291
Consumer solutions (2) ................... 42,550 31,672 --
Plastic consumables (3), (4) ............. 9,551 9,088 (5,274)
Other .................................... 5,531 6,366 7,075
Intercompany ............................. (870) (1) 13
Unallocated corporate expenses (5) ....... (21,833) -- (6,146)
Loss on divestitures of assets ........... -- -- (122,887)
--------- --------- ---------
Total operating income (loss) .... 71,450 65,109 (113,928)
Interest expense, net ....................... 19,184 12,611 11,791
--------- --------- ---------
Income (loss) before taxes and minority
interest ................................. $ 52,266 $ 52,498 $(125,719)
========= ========= =========
Capital expenditures:
Branded consumables (1) .................. $ 4,074 $ 3,547 $ 633
Consumer solutions (2) ................... 4,598 1,008 --
Plastic consumables (3), (4) ............. 2,484 3,392 8,537
Other .................................... 924 585 530
Corporate (6) ............................ 742 745 7
--------- --------- ---------
Total capital expenditures ........ $ 12,822 $ 9,277 $ 9,707
========= ========= =========
Depreciation and amortization:
Branded consumables (1) .................. $ 3,673 $ 1,878 $ 3,202
Consumer solutions (2) ................... 2,278 1,382 --
Plastic consumables (3), (4) ............. 6,859 4,435 12,947
Other .................................... 2,133 2,222 2,448
Corporate (6) ............................ 102 84 200
--------- --------- ---------
Total depreciation and amortization $ 15,045 $ 10,001 $ 18,797
========= ========= =========
AS OF DECEMBER 31,
-----------------------
2003 2002
-------- --------
Assets employed in operations:
Branded consumables (1) .................. $310,451 $ 61,093
Consumer solutions (2) ................... 216,289 184,180
Plastic consumables (3), (4) ............. 62,623 39,551
Other .................................... 13,867 14,573
Corporate (6) ............................ 156,444 67,368
-------- --------
Total assets ...................... $759,674 $366,765
======== ========
(1) The Lehigh business and the Diamond Brands wood manufacturing operation and
branded product distribution business are included in the branded consumables
segment effective September 2, 2003 and February 1, 2003, respectively.
(2) The consumer solutions segment was created upon the purchase of Tilia,
effective April 1, 2002.
(3) The Diamond Brands plastic manufacturing operation is included in the
plastic consumables segment effective February 1, 2003.
46
(4) Effective November 26, 2001 and November 1, 2001, the Company sold the TPD
Assets and Microlin, respectively.
(5) Unallocated corporate expenses in 2003 is comprised of a $21.8 million
non-cash restricted stock charge and in 2001 are comprised primarily of special
charges and reorganization expenses.
(6) Corporate assets primarily include cash and cash equivalents, amounts
relating to benefit plans, deferred tax assets and corporate facilities and
equipment.
(7) Intersegment sales are recorded at cost plus an agreed upon intercompany
profit on intersegment sales.
Within the branded consumables segment are three product lines: kitchen
products, home improvement products, and other specialty products. Kitchen
products include home canning and accessories, plastic cutlery, straws,
toothpicks, food preparation kits and kitchen matches. Net sales of kitchen
products were $194.4 million, $109.1 million and $116.6 million for 2003, 2002
and 2001, respectively. Home improvement products include rope, cord and twine,
storage and organizational products for the home and garage and security door
and fencing products. Net sales of home improvement products were $41.0 million
for 2003. There were no home improvement product sales in 2002 or 2001. Other
specialty products include institutional plastic cutlery and sticks, book and
advertising matches, craft items, laundry care products, lighters and fire
starters and other commercial products. Net sales of other specialty products
were $22.5 million, $2.1 million and $3.4 million for 2003, 2002 and 2001,
respectively.
One of the Company's customers accounted for 19.7% and 18.7% of its 2003
and 2002 net revenues, respectively.
The Company's major customers are located within North America. Net sales
of the Company's products in Canada and Mexico were $26.9 million, $29.2 million
and $29.7 million in 2003, 2002 and 2001, respectively. Net sales and long-lived
assets located outside North America are not material.
6. SPECIAL CHARGES AND REORGANIZATION EXPENSES
The Company incurred net special charges and reorganization expenses of
$5.0 million for 2001. No charges were incurred in 2003 or 2002. This amount is
comprised of the following (in millions):
YEAR ENDED
DECEMBER 31,
(millions of dollars) 2001
------------
Costs to evaluate strategic options .............. $ 1.4
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
Items related to divested thermoforming operations (0.4)
------
$ 5.0
======
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
47
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 and $0.6 million remained unpaid as of December 31, 2003 and
2002, respectively.
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.
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.
7. INVENTORIES
Inventories were comprised of the following:
AS OF DECEMBER 31,
----------------------------
(thousands of dollars) 2003 2002
-------- --------
Raw materials and supplies $ 15,254 $ 6,562
Work in process ........... 6,653 7,300
Finished goods ............ 83,666 45,601
-------- --------
Total inventories $105,573 $ 59,463
======== ========
8. INTANGIBLES
As of December 31, 2003 and 2002, the Company had recorded the following
amounts for intangible assets:
BRANDED CONSUMER
(millions of dollars) CONSUMABLES SOLUTIONS TOTAL
----------- --------- ---------
2003
- ----
Intangible assets not subject to amortization:
Goodwill ....................................... $ 167.3 $ 69.1 $ 236.4
Trademarks ..................................... 18.9 55.9 74.8
-------- -------- --------
Intangible assets not subject to amortization 186.2 125.0 311.2
-------- -------- --------
Intangible assets subject to amortization:
Manufacturing processes and expertise .......... -- 6.0 6.0
Accumulated amortization ...................... -- (1.4) (1.4)
-------- -------- --------
Net amount of intangible assets subject to
amortization ............................ -- 4.6 4.6
-------- -------- --------
Total goodwill and other intangible assets ... $ 186.2 $ 129.6 $ 315.8
======== ======== ========
48
BRANDED CONSUMER
(millions of dollars) CONSUMABLES SOLUTIONS TOTAL
----------- --------- ---------
2002
- ----
Intangible assets not subject to amortization:
Goodwill ....................................... $ 15.5 $ 60.3 $ 75.8
Trademarks ..................................... -- 52.9 52.9
--------- --------- ---------
Intangible assets not subject to amortization 15.5 113.2 128.7
--------- --------- ---------
Intangible assets subject to amortization:
Manufacturing processes and expertise .......... -- 6.0 6.0
Accumulated amortization ...................... -- (0.6) (0.6)
--------- --------- ---------
Net amount of intangible assets subject to
amortization ............................ -- 5.4 5.4
--------- --------- ---------
Total goodwill and other intangible assets ... $ 15.5 $ 118.6 $ 134.1
========= ========= =========
The only intangible assets which have a definitive life and are currently
subject to amortization are the manufacturing processes and expertise, which are
being amortized over a period of 7-8 years. Amortization for the manufacturing
processes and expertise in the aggregate amounts of $0.8 million and $0.6
million were recorded in 2003 and 2002, respectively, and are included in
Selling, General and Administrative expenses in the Consolidated Statements of
Operations.
The estimated intangible assets amortization expense, including estimated
amortization on future contracted intangible asset purchases not included in the
table above, for each of the five succeeding fiscal years is as follows: $1.0
million in 2004; $1.1 million in 2005; $1.2 million in 2006; $1.2 million in
2007 and $1.3 million in 2008.
A portion of the Company's goodwill relating to the Tilia Acquisition is
recorded on a Canadian subsidiary's books. Due to the effect of foreign currency
translations the amount of goodwill recorded increased by approximately $3.1
million and $0.2 million in 2003 and 2002, respectively.
The goodwill and other intangible assets recorded by the Company are fully
deductible for income tax purposes.
As a result of the adoption of SFAS No. 142 in 2002, the Company did not
record goodwill amortization. No impairment losses were required in 2003 or
2002. The Company recorded goodwill amortization of approximately $5.2 million
in 2001. In 2001 goodwill amortization of $4.0 million 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 period related to the
branded consumables segment.
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) 2003 2002 2001
-------- ---------- --------
Reported net income (loss) ........................... $ 31,778 $ 36,309 $(85,429)
Add back: goodwill amortization (net of tax expense of
$0, $0 and $2,020, respectively) ............... -- -- 3,133
-------- ---------- --------
Adjusted net income (loss) ........................... $ 31,778 $ 36,309 $(82,296)
======== ========== ========
Basic earnings (loss) per share:
Reported net income (loss) ............................ $ 1.40 $ 1.74 $ (4.48)
Goodwill amortization ................................. -- -- 0.16
-------- ---------- --------
Adjusted net income (loss) ............................ $ 1.40 $ 1.74 $ (4.32)
======== ========== ========
Diluted earnings (loss) per share:
Reported net income (loss) ............................ $ 1.35 $ 1.68 $ (4.48)
Goodwill amortization ................................. -- -- 0.16
-------- ---------- --------
Adjusted net income (loss) ............................ $ 1.35 $ 1.68 $ (4.32)
======== ========== ========
49
9. DEBT AND INTEREST
Debt was comprised of the following:
AS OF DECEMBER 31,
-------------------------
(thousands of dollars) 2003 2002
--------- ---------
9 3/4% senior subordinated notes ......................... $ 179,853 $ 147,813
Term loan A .............................................. 49,934 47,500
Term loan B .............................................. 149,625 --
Seller notes ............................................. 5,420 15,036
Non-debt balances arising from interest rate swap activity 2,550 6,606
--------- ---------
387,382 216,955
Less current portion ..................................... (17,512) (16,117)
--------- ---------
Total long-term debt ........................... $ 369,870 $ 200,838
========= =========
2003 Activity
In connection with the Lehigh Acquisition (see Note 3), the Company
amended and restated its existing senior credit facility ("Amended Credit
Agreement"). The Company's Amended Credit Agreement provides for up to $280
million of senior secured loans, consisting of a $70 million revolving credit
facility, a $60 million term loan facility ("Term loan A"), and a newly issued
$150 million term loan facility ("Tern loan B"). The new term loan facility
bears interest at a rate equal to (i) the Eurodollar Rate (as determined by the
Administrative Agent) 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 of 2.75% per annum for
Eurodollar loans and 1.75% per annum for Base Rate loans. The pricing and
principal of the revolving credit facility and the previously existing term loan
did not change. The revolving credit facility continues to have a $15 million
letter of credit sub-limit and a $10 million swing line loans sub-limit. On
September 2, 2003, the Company drew down the full cash amount of the new $150
million term loan facility, which funds were used principally to pay the
majority of the cash consideration for the Lehigh Acquisition. The Company's
Amended Credit Agreement matures on April 24, 2008.
The Amended Credit Agreement contains certain restrictions on the conduct
of the Company's business, including, among other things restrictions,
generally, on: incurring debt; disposing of certain assets; 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 Amended Credit
Agreement also includes financial covenants that require the Company to maintain
certain leverage and fixed charge ratios and a minimum net worth.
On May 8, 2003, the Company issued an additional $30 million of Notes
(bringing to a total $180 million of Notes issued and outstanding, including the
2002 issuance discussed below). The net proceeds of the offering were used to
reduce the outstanding revolver balances under the Company's senior credit
facility. The Notes were issued at a price of 106.5% of face value and the
Company received approximately $32.0 million in gross proceeds from the
issuance. As a result of an exchange offer completed on December 2, 2003, all of
the Notes are governed by an indenture, dated as of April 24, 2002, as
supplemented ("April 2002 Indenture"). Significant terms of the Notes and the
indenture are discussed under "2002 and 2001 Activity".
During 2003, a seller note in the principal amount of $10 million was
repaid. For accounting purposes, the Company imputed an interest rate of 5% on
the $10 million non-interest bearing note. The remaining seller debt financing
consists of a non-interest bearing note in the principal amount of $5 million,
bearing interest at 5%, which is due on April 24, 2004.
2002 and 2001 Activity
In April 2002, in connection with the Tilia Acquisition, the Company made
an offering of $150 million of Notes to qualified institutional buyers in a
private placement pursuant to Rule 144A under the Securities Act of 1933.
The Notes were issued at a discount such that the Company received
approximately $147.7 million in net proceeds. The Notes are scheduled to mature
on May 1, 2012, however, on or after May 1, 2007, the Company can 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
50
and unpaid interest and liquidated damages, if any. Prior to May 1, 2005, the
Company can 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 occurring on November 1, 2002. The April 2002 Indenture
governing the Notes also contains certain restrictions on the conduct of the
Company's business.
Prior to the Amended Credit Agreement, the Company's former credit
agreement ("Old Credit Agreement") was due to mature on April 24, 2007. The
revolving credit facility and the term loan facility bore 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 Old Credit Agreement contained restrictions on the conduct of
the Company's business similar to the restrictions under the Amended Credit
Agreement. The Old Credit Agreement was replaced by the Amended Credit
Agreement.
Until it was replaced by the Old Credit Agreement on April 24, 2002, our
senior credit facility, as amended, 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 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
this credit facility.
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.
Debt disclosures
As of December 31, 2003, the Notes traded at a premium, resulting in an
estimated fair value, based upon quoted market prices, of approximately $198.5
million.
As of December 31, 2003, the Company had $199.6 million outstanding under
the term loan facilities and no outstanding amounts under the revolving credit
facility of the Amended Credit Agreement. The Company's weighted average
interest rate on this outstanding amount at December 31, 2003 was 4.0%. Net
availability under the revolving credit agreement was approximately $64.9
million as of December 31, 2003, after deducting $5.1 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, 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 Old 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.
As of December 31, 2003, maturities on the Company's Long-term Debt, net
of unamortized debt discounts/premiums, over the next five years, were $17.5
million in 2004, $15.1 million in 2005, $18.1 million in 2006, $81.8 million in
2007, $72.4 million in 2008 and $182.4 million thereafter.
As of December 31, 2003 and 2002, the Company's Long-term Debt included
approximately $2.6 million and $6.6 million, respectively, of non-debt balances
arising from the interest rate swap transactions described in Note 16. The 2003
non-debt balance is in the "thereafter" balance above.
Because the interest rates applicable to the senior debt under the Amended
Credit Agreement and the Old 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, 2003 and 2002 approximated its carrying value.
During 2003 and 2002, the Company incurred costs in connection with the
issuance of the Notes, Amended Credit Agreement and Old Credit Agreement of
approximately $5.9 million and $7.4 million, respectively. Such amounts are
included in Other Assets on the Consolidated Balance Sheet and are being
amortized over the respective terms of the debt.
51
Interest paid on the Company's borrowings during the years ended December
31, 2003, 2002 and 2001 was $17.2 million, $10.5 million and $9.5 million,
respectively.
10. TAXES ON INCOME
The components of the provision (benefit) for income taxes attributable to
continuing operations were as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------
(thousands of dollars) 2003 2002 2001
-------- -------- --------
Current income tax expense (benefit):
U.S. federal ...................... $ 9,842 $ 13,513 $(13,978)
Foreign ........................... 676 692 1,163
State and local ................... 2,466 2,813 (500)
-------- -------- --------
Total ........................... 12,984 17,018 (13,315)
-------- -------- --------
Deferred income tax expense (benefit):
U.S. federal ...................... 6,485 (340) (33,707)
State, local and other ............ 602 (489) (4,962)
Foreign .............................. 417 -- --
-------- -------- --------
Total ........................... 7,504 (829) (38,669)
-------- -------- --------
Income tax benefit applied to goodwill -- -- 11,541
-------- -------- --------
Total income tax provision (benefit) . $ 20,488 $ 16,189 $(40,443)
======== ======== ========
Foreign pre-tax income was $3.2 million, $1.8 million, and $0.9 million in
2003, 2002, and 2001, respectively.
Deferred tax liabilities (assets) are comprised of the following:
AS OF DECEMBER 31,
------------------------
(thousands of dollars) 2003 2002
-------- --------
Property, equipment and intangibles ... $(14,682) $ (2,741)
Other .............................. (2,445) (7,459)
-------- --------
Gross deferred tax liabilities .. (17,127) (10,200)
-------- --------
Net operating loss .................... 2,726 2,726
Accounts receivable allowances ........ 1,342 310
Inventory valuation ................... 3,097 2,095
Compensation and benefits ............. 3,961 7,671
Other ................................. 3,945 2,333
-------- --------
Gross deferred tax assets .......... 15,071 15,135
-------- --------
Valuation allowance ................... (1,000) (1,000)
-------- --------
Net deferred tax asset ................ $ (3,056) $ 3,935
======== ========
Approximately $2.7 million of state net operating loss carryforwards remain
at December 31, 2003 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, 2003, 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.
52
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 is reconciled as follows:
YEAR ENDED DECEMBER 31,
------------------------------
2003 2002 2001
------ ------ ------
Federal statutory tax rate ................. 35.0% 35.0% (35.0)%
Increase (decrease) in rates resulting from:
State and local taxes, net .............. 3.8 3.3 (3.3)
Foreign ................................. (0.1) -- 0.9
Valuation allowance ..................... -- (8.4) 4.3
Other ................................... 0.5 0.9 0.9
------ ------ ------
Effective income tax rate .................. 39.2% 30.8% (32.2)%
====== ====== ======
Total income tax payments made by the Company during the years ended
December 31, 2003, 2002 and 2001 were $11.2 million, $9.3 million, and $1.0
million, respectively.
11. RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
The Company has certain defined contribution retirement plans that qualify
under section 401(k) of the Internal Revenue Code. The Company's contributions
to these retirement plans were $2.3 million, $1.6 million and $1.5 million,
respectively, in the years ended December 31, 2003, 2002, and 2001.
The Company also maintains a defined benefit pension plan for certain of
its hourly employees and provides certain postretirement medical and life
insurance benefits for a portion of its employees. Additionally, in connection
with the Diamond Acquisition, the Company acquired both the plan assets and the
remaining benefit obligation on two additional deferred benefit pension plans
which are both frozen.
Our funding policy for our defined benefit pension plans is based on
actuarial calculations and the applicable requirements of federal law. Benefits
under the Company's pension plans are primarily related to years of service. The
Company also provides certain postretirement medical and life insurance benefits
for a portion of its employees. We use September 30 as the measurement date for
all of our defined pension plans and postretirement plans.
The components of net periodic pension and postretirement benefit expense
for the years ended December 31, 2003, 2002 and 2001 are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------------ ---------------------------------------
(thousands of dollars) 2003 2002 2001 2003 2002 2001
------------------------------------ ---------------------------------------
Components of net periodic benefit cost:
Service cost ........................... $ 304 $ 334 $ 273 $ 75 $ 72 $ 62
Interest cost .......................... 1,419 973 907 194 119 112
Investment (gain) loss on plan assets .. (1,959) 937 1,793 -- -- --
Net amortization and deferral .......... 1,066 (1,798) (2,942) 2 (7) (15)
------- ------- ------- ------- ------- -------
Net periodic benefit cost .............. $ 830 $ 446 $ 31 $ 271 $ 184 $ 159
======= ======= ======= ======= ======= =======
53
The following table is a reconciliation of the projected benefit obligation
and the fair value of the deferred benefit pension plan assets and the status of
the Company's unfunded postretirement benefit obligation as of December 31:
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------ ------------------------
(thousands of dollars) 2003 2002 2003 2002
--------- -------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year ... $ 14,168 $ 13,217 $ 1,766 $ 1,775
Service cost .............................. 304 334 75 72
Interest cost ............................. 1,419 973 194 119
Amendments ................................ 442 -- -- --
Actuarial loss (gain) ..................... 1,233 88 1,461 (124)
Acquisition ............................... 5,177 --
Benefits paid ............................. (871) (444) (196) (76)
-------- -------- -------- --------
Benefit obligation at end of year ......... 21,872 14,168 3,300 1,766
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 9,704 11,082 -- --
Company contributions ..................... 307 143 -- --
Actual return on plan assets .............. 1,959 (937) -- --
Acquisition ............................... 4,268 -- -- --
Benefits paid ............................. (955) (584) -- --
-------- -------- -------- --------
Fair value of plan assets at end of year .. 15,283 9,704 -- --
-------- -------- -------- --------
Funded status ............................. (6,589) (4,464) (3,300) (1,766)
Unrecognized prior service cost (benefit) . 1,096 768 27 30
Unrecognized net loss (gain) ............... 3,390 3,026 (240) (242)
Additional minimum liability .............. (3,990) (3,481) -- --
-------- -------- -------- --------
Accrued benefit cost ...................... $ (6,093) $ (4,151) $ (3,513) $ (1,978)
======== ======== ======== ========
Amounts recognized in the Company's Consolidated Balance Sheet consist of:
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------------- -----------------------
(thousands of dollars) 2003 2002 2003 2002
------- ------- ------- -------
Accrued benefit cost ................. $(6,093) $(4,151) $(3,513) $(1,978)
Intangible assets .................... 1,096 768 -- --
Accumulated other comprehensive income 2,894 2,713 -- --
------- ------- ------- -------
Net amount recognized ................ $(2,103) $ (670) $(3,513) $(1,978)
======= ======= ======= =======
The accumulated benefit obligation for the Company's defined benefit
pension plans were approximately $21.2 million and $13.9 million as of December
31, 2003 and 2002, respectively.
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------ -----------------------
2003 2002 2003 2002
------ ------- -------- ----------
Weighted-average assumptions as of December 31:
Discount rate ................................. 6.50% 7.25% 6.50% 6.75%
Expected return on plan assets ................ 9.00% 9.00% -- --
The return on plan assets reflects the weighted-average of the long-term
rates of return for the broad categories of investments held in the Company's
defined benefit pension plans. The expected long-term rate of return is adjusted
when there are fundamental changes in expected returns on the Company's defined
benefit pension plan's investments.
The Company's investment strategy for its defined benefit pension plans is
to maximize the long-term rate of return on plans assets within an acceptable
level of risk in order to minimize the cost of providing pension benefits. The
Company's target asset range for 2004 as a percentage of market value is as
follows: equities - 50%-70% (and within equities: foreign stocks - 0%-20% and
small capitalized common stocks - 0%-40%); bonds - 30%-50% and cash and
54
money funds - 0%-10%. This target range was the same in 2003. As of the
Company's 2003 and 2002 measurement dates, the percentage of fair value of total
assets by asset category was as follows:
2003 2002
------ ------
Asset category:
Equity securities and funds 58.4% 45.9%
Debt securities and funds . 33.9 17.1
Government securities ..... 4.8 34.0
Cash and money market funds 2.9 3.0
----- -----
Total ..................... 100.0% 100.0%
===== =====
The Company's pension contributions for 2004 are estimated to be
approximately $0.6 million, reflecting quarterly contributions to certain plans
as required by the IRS Code Section 412 and certain voluntary contributions.
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, the Company had accrued $0.7 million for its obligations
under this plan. Interest expense on this obligation was $0.2 million. 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.
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 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 and Reorganization Expenses on the Consolidated Statement of Operations.
Effective December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (Medicare Prescription Drug Act) was signed into law.
This act provides for a prescription drug benefit under Medicare (Part D) as
well as a federal subsidy to sponsors of retiree health care benefits plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D.
Our defined benefit postretirement health care plan provides a prescription drug
benefit.
The FASB issued FSP 106-1 on January 12, 2004, which allowed companies to
elect a one-time deferral of the recognition of the effects of the Medicare
Prescription Drug Act in accounting for its plan under SFAS No. 106 and in
providing disclosures related to the plan required by SFAS No. 132 (revises
2003). The FASB allowed the one-time deferral due to the accounting issues
raised by the Medicare Prescription Drug Act--in particular, the accounting for
federal subsidy that is not explicitly addressed in SFAS No. 106--and due to the
fact the uncertainties exist as to the direct effects on the Medicare
Prescription Drug Act and its ancillary effects on plan participants.
For companies electing the one-time deferral remains in effect until
authoritative guidance on the accounting for federal subsidy is issued, or until
certain other events, such as a plan amendment, settlement or curtailment occur.
Currently we are evaluating the effects of the Medicare Prescription Drug Act on
our other postretirement benefit plan and its participants, and we have elected
the one-time deferral. Our accumulated postretirement obligation or net periodic
postretirement benefit cost for 2003 does not reflect the effects of the
Medicare Prescription Drug Act on our defined postretirement health care and
life insurance plans. Additionally, once the specific authoritative guidance on
the accounting for the federal subsidy, such guidance could require us to update
previously reported information.
55
12. EQUITY AND STOCK PLANS
On September 30, 2003, the Company completed a public offering ("Offering")
of approximately 4.8 million of its common stock at $24.67 per share. Proceeds
from the Offering, net of underwriting fees and related expenses, totaled
approximately $112.3 million. The Company currently intends to use the net
proceeds for working capital and general corporate purposes, including, but not
limited to, potential future acquisitions and debt repayment. The Company's
Amended Credit Agreement does not require the Company to prepay debt with any of
the net proceeds received from the Offering.
The Company maintains the 2003 Stock Incentive Plan, which allows for
grants of stock options, restricted stock and stock bonuses. As of December 31,
2003, there were approximately 1.9 million 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, approximately 1.7 million 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 $5.67 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
$3.65 (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
$5.07. This charge is included in Special Charges 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, 2003, 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 1998 Long-Term Equity Incentive
Plan, the 1993 Stock Option Plan and the 1993 and 1996 Stock Option Plans for
Non-employee Directors. There are no remaining shares available for grant under
any of these plans.
A summary of the Company's stock option activity for the years ended
December 31, 2003, 2002 and 2001 is as follows:
Weighted Avg.
Shares Option Price Price Range
----------- -------------- -------------
Outstanding as of December 31, 2000 918,510 $ 6.09 $ 3.63-$9.31
New options granted ............... 1,998,000 3.69 3.65-5.03
Exercised ......................... (46,065) 3.63 3.63-3.63
Canceled .......................... (101,529) 6.54 4.33-9.31
---------- --------- -------------
Outstanding as of December 31, 2001 2,768,916 4.38 3.65-9.31
New options granted ............... 1,761,750 12.51 6.25-18.10
Exercised ......................... (2,057,624) 4.25 3.65-11.51
Canceled .......................... (52,050) 10.11 3.65-11.51
---------- --------- -------------
Outstanding as of December 31, 2002 2,420,993 10.37 3.65-18.10
New options granted ............... 535,500 21.00 15.97-25.82
Exercised ......................... (280,143) 6.01 3.65-17.43
Canceled .......................... (53,886) 12.38 4.33-19.20
---------- --------- -------------
Outstanding as of December 31, 2003 2,622,464 $ 12.97 $ 3.65-$25.82
========== ========= =============
Exercisable as of December 31, 2001 727,629 $ 6.13 $ 4.17-$9.31
Exercisable as of December 31, 2002 493,310 5.03 3.65-9.31
Exercisable as of December 31, 2003 743,912 9.60 3.65-18.10
56
Significant option groups outstanding at December 31, 2003 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
- ------------------- -------------- ----------------------------------------------------------------- --------------------
$3.65-$7.42...... 439,552 $ 4.64 6.89 294,808 $ 4.72
7.67-12.40....... 220,912 10.22 7.96 78,789 10.88
12.90............ 1,413,750 12.90 8.50 336,565 12.90
15.97-19.71...... 379,500 18.87 9.47 33,750 16.21
21.45-25.82...... 168,750 25.50 9.91 -- --
-------------- -----------
2,622,464 743,912
============== ===========
The Company records non-cash compensation expense for its issued and
outstanding restricted stock either when the restrictions lapse or ratably over
time, when the passage of time is the only restriction. During the fourth
quarter of 2003, the Company recorded a non-cash restricted stock charge of
approximately $21.8 million related to the lapsing of restrictions over all the
restricted stock issuances to Messrs. Franklin, Ashken and Lillie discussed
below. The Company will receive a tax deduction for this non-cash restricted
stock charge.
During 2003, the Company issued 375,000, 135,000 and 52,500 shares of
restricted stock to Messrs. Franklin, Ashken and James E. Lillie, (the Company's
President and Chief Operating Officer), respectively. The Company issued these
shares under its 2003 Stock Incentive Plan and out its treasury stock account.
During 2003, all of these restricted stock issuances either provided or were
amended to provide that the restrictions lapse upon the earlier of (i) a change
in control of the Company; or (ii) the earlier of the Company's common stock
achieving a closing price of $28 (up from $23.33) or the Company achieving
annualized revenues of $800 million. However, if such restrictions were to lapse
during a period when Messrs. Franklin, Ashken and Lillie were subject to
additional contractual limitations on the sale of securities, the restrictions
on such shares would continue until the expiration or waiver of such additional
contractual limitations. As discussed above, during the fourth quarter of 2003,
all such restrictions lapsed and the Company recorded a restricted stock charge.
During 2002, the Company issued 150,000 and 60,000 shares of restricted
stock to Messrs. Franklin and Ashken, respectively, under its 1998 Long-Term
Equity Incentive Plan, as amended and restated, and out of its treasury stock
account. During 2003, the restricted stock issuances were amended to provide
that the restrictions would lapse upon the same terms as the 2003 restricted
stock issuances discussed above. Also as discussed above, during the fourth
quarter of 2003, all such restrictions lapsed and the Company recorded a
restricted stock charge.
During 2003, 2002 and 2001, the Company also issued 7,200, 5,250 and
1,500, respectively, of shares of restricted stock to certain other employees.
The restrictions on these shares will lapse ratably over five years of
employment with the Company.
During 2002, shares of common stock in the aggregate amount of 45,009 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.
In February 2003, the Company adopted the 2003 Employee Stock Purchase Plan
whereby stock of the Company can be acquired at a 15% discount and no
compensation charge is recorded by the Company. Prior to this, the Company
maintained another employee stock purchase plan whereby the Company matched 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 and 2001.
As of December 31, 2003, there were approximately 0.4 million shares available
for grant under the 2003 Employee Stock Purchase Plan.
13. LEASE COMMITMENTS
The Company has commitments under operating leases, certain of which extend
through 2007. These commitments total $7.7 million in 2004, $6.2 million in
2005, $4.3 million in 2006, $1.9 million in 2007 and $1.0 million in 2008. Total
lease expense was $7.4 million, $5.1 million and $4.8 million in 2003, 2002 and
2001, respectively.
57
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, Messrs. Franklin and Ashken exercised 900,000 and
450,000 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
were $3.3 million and $1.6 million, respectively, and bore interest at 4.125%
per annum. The loans were due on January 23, 2007 and were classified within the
stockholders' equity section. The loans could be repaid in cash, shares of the
Company's common stock, or a combination thereof. In February 2003, Mr. Ashken
surrendered to the Company shares of the Company's stock to repay $0.3 million
of his loan. On April 29, 2003, Messrs. Franklin and Ashken each surrendered to
the Company shares of the Company's common stock to repay in full all remaining
principal amounts and accrued interest owed under their respective loans. The
Company will not make any additional loans under the Executive Loan Program.
16. DERIVATIVE FINANCIAL INSTRUMENTS
The Company actively manages its fixed and floating rate debt mix using
interest rate swaps. The Company will enter into fixed and floating rate swaps
to alter its exposure to the impact of changing interest rates on its
consolidated results of operations and future cash outflows for interest.
Floating rate swaps are used to convert the fixed rates of long-term debt into
short-term variable rates to take advantage of current market conditions. Fixed
rate swaps are used to reduce the Company's risk of the possibility of increased
interest costs. Interest rate swap contracts are therefore used by the Company
to separate interest rate risk management from the debt funding decision. At
December 31, 2003, the interest rate on approximately 30% of the Company's debt
obligation, excluding the $2.6 million of non-debt balances discussed in Note 9,
was fixed by either the nature of the obligation or through interest rate
contracts.
Fair Value Hedges
On May 6, 2003, the Company entered into a $30 million interest rate swap
("New Swap") to receive a fixed rate of interest and pay a variable rate of
interest based upon 6 month LIBOR in arrears, plus a spread of 523 basis points.
The New Swap is a swap against the Notes.
In March 2003, the Company unwound a $75 million interest rate swap ("First
Replacement Swap") to receive a fixed rate of interest and pay a variable rate
of interest and contemporaneously entered into a new $75 million interest rate
swap ("Second Replacement Swap"). Like the swap that it replaced, the Second
Replacement Swap is a swap against the Notes. The variable rate of interest is
based on 6 month LIBOR in arrears, plus a spread of 528 basis points. In return
for unwinding the swap, the Company received $3.2 million of cash proceeds. Of
this amount, approximately $1 million of proceeds related to accrued interest
that was owed to the Company at such time. The remaining $2.2 million of
proceeds is being amortized over the remaining life of the Notes as a credit to
interest expense and the unamortized balances are included in the Company's
Consolidated Balance Sheet as an increase to the value of the long-term debt.
Effective September 12, 2002, the Company entered into an agreement,
whereby it unwound a $75 million interest rate swap ("Initial Swap") and
contemporaneously entered into the First Replacement Swap. The First Replacement
Swap had the same terms as the Initial Swap, except that the Company was
required to pay a variable rate of interest based upon 6 month LIBOR in arrears.
The spread on this contract was 470 basis points. 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 is being 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 Second Replacement
Swap.
58
In conjunction with the Notes, on April 24, 2002, we entered into the
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%.
All of our swaps have been and, where applicable, are considered to be
effective hedges against changes in the fair value of our fixed-rate debt
obligation for both tax and accounting purposes. Accordingly, the interest rate
swap contracts are reflected at fair value in the Company's Consolidated Balance
Sheet and the related portion of fixed-rate debt being hedged is 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 swaps as of
December 31, 2003 was against the Company in an amount of approximately $2.6
million and is included as a liability 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 the interest rate swaps, 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 its current existing swap, a large
financial institution. However, the Company does not anticipate non-performance
by the other party.
Cash Flow Hedge
Effective April 2, 2003, the Company entered into an interest rate swap
such that converted $37 million of floating rate interest payments under its
term loan facility for a fixed obligation that carries an interest rate,
including applicable margin, of 4.25% per annum. The swap has interest payment
dates that are the same as the term loan facility and it matures on September
30, 2004. The swap is considered to be a cash flow hedge and is also considered
to be an effective hedge against changes in the fair value of the Company's
floating-rate debt obligation for both tax and accounting purposes. Gains and
losses related to the effective portion of the interest rate swap are reported
as a component of other comprehensive income and will be reclassified into
earnings in the same period that the hedged transaction affects earnings.
The Company's derivative activities do not create additional risk because
gains and losses on derivative contracts offset gains and losses 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.
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. Messrs. Franklin and Ashken 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.
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 consumer solutions segment. The
agreement was due to expire in three years unless it was terminated earlier
pursuant to the terms of the agreement and the Company's subsidiary had the
right to renew the agreement for additional terms of one year thereafter. Mr.
Franklin's brother-in-law was the executive chairman of the board of NewRoads at
the time of the agreement being consummated. Mr. Franklin has an indirect
ownership interest of less than 1/2% in NewRoads.
59
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:
YEARS ENDED DECEMBER 31,
-------------------------------------------
(thousands, except per share amounts) 2003 2002 2001
-------- -------- --------
Net income (loss) ........................................ $ 31,778 $ 36,309 $(85,429)
======== ======== ========
Weighted average shares outstanding ...................... 22,663 20,910 19,085
Additional shares assuming conversion of stock options and
restricted stock .................................... 868 678 --
-------- -------- --------
Weighted average shares outstanding assuming conversion .. 23,531 21,588 19,085
======== ======== ========
Basic earnings (loss) per share .......................... $ 1.40 $ 1.74 $ (4.48)
Diluted earnings (loss) per share ........................ $ 1.35 $ 1.68 $ (4.48)
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly results of operations for 2003 and 2002 were as
follows (see Note 3 for a discussion of the Company's acquisitions that occurred
during this period):
FIRST SECOND THIRD FOURTH
(thousands of dollars, except per share amounts) QUARTER QUARTER QUARTER QUARTER TOTAL
------------- -------------- --------------- ------------- -------------
2003
- ----
Net sales ..................................... $ 97,396 $130,718 $167,874 $191,393 $587,381
Gross profit .................................. 38,370 49,480 65,884 71,268 225,002
Net income (1) ................................ 4,231 9,951 15,246 2,350 31,778
Basic earnings per share (2) .................. 0.20 0.47 0.71 0.09 1.40
Diluted earnings per share (2)................. 0.19 0.45 0.69 0.09 1.35
2002
- ----
Net sales ..................................... $ 47,384 $104,793 $110,015 $104,912 $367,104
Gross profit (3) .............................. 12,525 42,132 48,301 47,517 150,475
Net income (4) ................................ 7,192 8,087 11,732 9,298 36,309
Basic earnings per share (2) .................. 0.36 0.38 0.55 0.44 1.74
Diluted earnings per share (2)................. 0.35 0.38 0.53 0.42 1.68
(1) Fourth quarter of 2003, includes a non-cash restricted stock charge of $21.8
million and related tax benefit.
(2) 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
3-for-2 stock split of our outstanding shares of common stock that was effected
during the fourth quarter of 2003.
(3) Certain reclassifications have been made in the Company's previously
reported net sales and gross profit amounts in 2002 to conform to the
presentation in 2003. These reclassifications have no impact on previously
reported net income.
(4) 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
60
ITEM 9A. CONTROLS AND PROCEDURES
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 as of the end of the period
covered by this report. 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 and were
reasonably designed to ensure that all material information relating to the
Company required to be included in the Company's reports filed or submitted
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission.
.
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.
61
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).
Jarden Corporation has adopted a "Business Conduct and Ethics Policy"
("Code") for all its employees, including its principal executive officer,
principal financial officer and principal accounting officer. The Code is
available on our Internet Web site at http://www.jarden.com, at the tab
"Corporate Governance" in the "Investor Relations" section.
Other information required by Item 10, including information regarding
directors, membership and function of the audit committee, including the
financial expertise of its members, and Section 16(a) compliance, appearing
under the captions "Election of Directors", "Committees of the Board" and "Other
Matters" of the Company's Proxy Statement for the 2004 Annual Meeting of
Stockholders is incorporated herein by reference. The Proxy Statement is
expected to be filed with the Commission on or about April 15, 2004.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 appearing under the caption "Executive
Compensation" of the Company's Proxy Statement for the 2004 Annual Meeting of
Stockholders is incorporated herein by reference. The Proxy Statement is
expected to be filed with the Commission on or about April 15, 2004.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information regarding compensation plans under
which equity securities of the Company are authorized for issuance as of
December 31, 2003:
NUMBER OF SECURITIES TO NUMBER OF
BE ISSUED UPON EXERCISE SECURITIES
OF OUTSTANDING OPTIONS, WEIGHTED-AVERAGE AVAILABLE FOR
PLAN CATEGORY WARRANTS, AND RIGHTS EXERCISE PRICE FUTURE ISSUANCE
- ---------------------------------------- -------------------------- --------------------- ---------------------
Equity compensation plans approved by
security holders:
2003 Stock Incentive Plan 530,250 $ 21.02 1,900,050
2003 Employee Stock Purchase Plan Not Applicable Not Applicable 430,954
2001 Stock Option Plan, as amended 382,500 9.39 0
1998 Long-Term Equity Incentive Plan,
as amended and restated 1,040,966 10.61 0
1993 Stock Option Plan 650,598 12.41 0
1996 Non-employee Director Plan 15,000 7.87 0
1993 Non-employee Director Plan 3,150 7.40 0
Equity compensation plans not approved
by security holders:
None Not Applicable Not Applicable Not Applicable
-------------------------- --------------------- ---------------------
Total 2,622,464 $ 12.97 2,331,004
========================== ===================== =====================
For a description of the equity compensation plans above, see Note 12. of
Item 8. Financial Statements and Supplementary Data appearing elsewhere in this
Form 10-K.
Additional 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 2004 Annual Meeting of
Stockholders is incorporated herein by reference. The Proxy Statement is
expected to be filed with the Commission on or about April 15, 2004.
62
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
2004 Annual Meeting of Stockholders is incorporated herein by reference. The
Proxy Statement is expected to be filed with the Commission on or about April
15, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 appearing under the caption
"Ratification of the Appointment of Independent Certified Public Accountants" of
the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders is
incorporated by reference. The Proxy Statement is expected to be filed with the
Commission on or about April 15, 2004.
63
PART IV
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 Form 10-K
--------------
Report of independent auditors Item 8
Consolidated statements of operations - Years ended December 31, 2003,
2002 and 2001 Item 8
Consolidated balance sheets - December 31, 2003 and 2002 Item 8
Consolidated statements of cash flows - Years ended December 31, 2003,
2002 and 2001 Item 8
Consolidated statements of changes in stockholders' equity - Years ended
December 31, 2003, 2002 and 2001 Item 8
Consolidated statements of comprehensive income - Years ended December
31, 2003, 2002 and 2001 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 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).
2.2 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).
2.3 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).
2.4 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).
64
2.5 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).
2.6 Stock Purchase Agreement, dated as of August 15, 2003, by and
among the Company, American Manufacturing Company, Inc., and
Lehigh Consumer Products Corporation (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
*2.7 Securities Purchase Agreement, dated as of February 24, 2004,
by and among Bicycle Holding, Inc., the Sellers identified
therein, Dudley S. Taft, as the Seller Representative, and the
Company.
*2.8 Put and Call Agreement, dated as of February 24, 2004, by and
among the shareholders of Bicycle Holding, Inc. that are
signatories thereto and the Company.
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 Indenture, dated as of April 24, 2002 (the "April 2002
Indenture"), 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 Old 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).
4.2 First Supplemental Indenture to the April 2002 Indenture,
dated as of May 7, 2003, among the Company, the guarantors
named therein 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 September 26, 2003, and incorporated herein by
reference).
4.3 Second Supplemental Indenture to the April 2002 Indenture,
dated as of May 28, 2003, among the Company, the guarantors
named therein and The Bank of New York, as trustee (filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K, filed
with the Commission on September 26, 2003, and incorporated
herein by reference).
4.4 Third Supplemental Indenture to the April 2002 Indenture,
dated as of September 25, 2003, among the Company, the
guarantors named therein and The Bank of New York, as trustee
(filed as Exhibit 4.3 to the Company's Current Report on Form
8-K, filed with the Commission on September 26, 2003, and
incorporated herein by reference).
65
4.5 Registration Rights Agreement, dated as of September 2, 2003,
among the Company, American Manufacturing Company, Inc., and
the Holders named therein (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
4.6 Form of Subsidiary Guarantee in connection with the exchange
of notes under the April 2002 Indenture (filed as Exhibit 4.12
to the Company's Form S-4 Registration Statement filed with
the Commission on October 1, 2003, 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 officer's 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, 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, 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, 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 10.10 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 Amended and Restated Employment Agreement, dated as of October
1, 2003, between the Company and Martin E. Franklin (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed with the Commission on October 27, 2003, and
incorporated herein by reference).
66
+#10.12 Amended and Restated Employment Agreement, dated as of October
1, 2003, between the Company and Ian G.H. Ashken (filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K,
filed with the Commission on October 27, 2003, and
incorporated herein by reference).
+#10.13 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).
+#10.14 Employment Agreement, dated as of August 4, 2003, between the
Company and James E. Lillie (filed as Exhibit 10.9 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
+#10.15 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).
+#10.16 Amendment No. 1, dated as of February 7, 2002, to Restricted
Stock Award Agreement, dated January 2, 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).
+#10.17 Amendment No. 2, dated as of April 15, 2002, to Restricted
Stock Award Agreement, dated January 2, 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).
+#10.18 Amendment No. 3, dated as of July 15, 2002, to Restricted
Stock Award Agreement dated January 2, 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).
+#10.19 Amendment No. 4, dated as of September 4, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Martin E. Franklin (filed as Exhibit 10.7 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.20 Amendment No. 5, dated as of October 2, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Martin E. Franklin (filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
+#10.21 Amendment No. 6, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated January 2, 2002,
between the Company and Martin E. Franklin (filed as Exhibit
10.13 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.22 Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K, filed with
the Commission on September 26, 2003, and incorporated herein
by reference).
67
+#10.23 Amendment No. 1, dated as of September 4, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin. (filed as Exhibit
10.2 to the Company's Current Report on Form 8-K, filed with
the Commission on September 26, 2003, and incorporated herein
by reference).
+#10.24 Amendment No. 2, dated as of October 2, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin (filed as Exhibit
10.5 to the Company's Current Report on Form 8-K, filed with
the Commission on October 27, 2003, and incorporated herein by
reference).
+#10.25 Amendment No. 3, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin (filed as Exhibit
10.15 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.26 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).
+#10.27 Amendment No. 1, dated as of February 7, 2003, to Restricted
Stock Award Agreement, dated January 2, 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).
+#10.28 Amendment No. 2, dated as of April 15, 2002, to Restricted
Stock Award Agreement, dated January 2, 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).
+#10.29 Amendment No. 3, dated as of July 25, 2002, to Restricted
Stock Award Agreement dated January 2, 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).
+#10.30 Amendment No. 4, dated as of September 4, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Ian G.H. Ashken (filed as Exhibit 10.8 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.31 Amendment No. 5, dated as of October 2, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Ian G.H. Ashken (filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
+#10.32 Amendment No. 6, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated January 2, 2002,
between the Company and Ian G.H. Ashken (filed as Exhibit
10.14 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.33 Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.3
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
68
+#10.34 Amendment No. 1, dated as of September 4, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.4
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.35 Amendment No. 2, dated as of October 2, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.6
to the Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
+#10.36 Amendment No. 3, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit
10.16 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.37 Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit 10.5
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.38 Amendment No. 1, dated as of September 4, 2003, to the
Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit 10.6
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.39 Amendment No. 2, dated as of October 2, 2003, to the
Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit 10.7
to the Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
+#10.40 Amendment No. 3, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.41 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).
+#10.42 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).
+10.43 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).
#10.44 Jarden Corporation 2003 Stock Incentive Plan (incorporated by
reference from Annex B to the Company's 2003 Definitive Proxy
Statement with respect to the Company's 2003 Annual Meeting of
Stockholders, as filed with the Commission on March 28, 2003).
#10.45 Jarden Corporation 2003 Stock Employee Stock Purchase Plan
(incorporated by reference from Annex C to the Company's 2003
Definitive Proxy Statement with respect to the Company's 2003
Annual Meeting of Stockholders, as filed with the Commission
on March 28, 2003).
69
10.46 Amended and Restated Credit Agreement, dated as of September
2, 2003, 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 and Fleet National Bank, as
Co-Documentation Agents. (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
10.47 Amendment No. 1, dated as of September 25, 2003, to the
Amended and Restated Credit Agreement by and among the
Company, Bank of America, N.A., as Administrative Agent, the
Lenders signatory thereto and each of the Subsidiary
Guarantors (filed as Exhibit 10.9 to the Company's Current
Report on Form 8-K, filed with the Commission on September 26,
2003, and incorporated herein by reference).
*10.48 Amendment No. 2, dated as December 3, 2003, to the Amended and
Restated Credit Agreement by and among the Company, Bank of
America, N.A., as Administrative Agent, the Lenders signatory
thereto and each of the Subsidiary Guarantors.
10.49 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).
10.50 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).
10.51 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).
10.52 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).
10.53 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).
70
10.54 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).
10.55 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).
10.56 Consolidated Amendment to Guaranty and Security Instruments,
dated as of September 2, 2003, among the Company, the
Guarantors, 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 September 5, 2003, and
incorporated herein by reference).
10.57 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 the
Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002, and incorporated herein by
reference).
10.58 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 the
Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002, and incorporated herein by
reference).
10.59 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 the Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002, and incorporated herein by
reference).
10.60 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 the Company's Current Report
on Form 8-K, filed with the Commission on May 9, 2002, and
incorporated herein by reference).
10.61 Form of the new 9 3/4% Senior Subordinated Notes Due 2012 (the
"New Note") (filed as Exhibit 10.40 to Company's Annual Report
on Form 10-K, filed with the Commission on February 28, 2003
and incorporated herein by reference).
*21.1 Subsidiaries of the Company.
*23.1 Consent of Independent Auditors.
*31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
71
*32.1 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.
# This Exhibit represents a compensatory plan.
(b) Reports on Form 8-K
In a Form 8-K filed on October 27, 2003, the Company (i) filed a press
release announcing its third quarter 2003 earnings; (ii) disclosed that on
October 1, 2003, it had entered into an Amended and Restated Employment
Agreement with each of Martin E. Franklin, as Chairman and Chief Executive
Officer of the Company, and Ian G.H. Ashken, as Vice Chairman, Chief Financial
Officer and Secretary of the Company; and (iii) disclosed that on October 2,
2003, the Company entered into amendments to several Restricted Stock Award
Agreements between the Company and each of Martin E. Franklin, Ian G.H. Ashken
and James E. Lillie. Several documents relating to the foregoing were filed with
the Form 8-K.
72
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
March 12, 2004
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.
Chairman and Chief Executive Officer
/s/ Martin E. Franklin (Principal Executive Officer)
- ------------------------------
Martin E. Franklin March 12, 2004
Vice Chairman, Chief Financial Officer
and Company Secretary (Principal Financial
/s/ Ian G.H. Ashken Officer and Principal Accounting Officer)
- ------------------------------
Ian G.H. Ashken March 12, 2004
/s/ Rene-Pierre Azria Director
- ------------------------------
Rene-Pierre Azria March 12, 2004
/s/ Douglas W. Huemme Director
- ------------------------------
Douglas W. Huemme March 12, 2004
/s/ Richard L. Molen Director
- ------------------------------
Richard L. Molen March 12, 2004
/s/ Lynda W. Popwell Director
- ------------------------------
Lynda W. Popwell March 12, 2004
/s/ Irwin D. Simon Director
- ------------------------------
Irwin D. Simon March 12, 2004
/s/ Robert L. Wood Director
- ------------------------------
Robert L. Wood March 12, 2004
73
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:
2003 ........... $(6,095) $(38,246) $ 37,194 $ (4,733) $(11,880)
2002 ........... (778) (15,176) 12,957 (3,098) (6,095)
2001 ........... (1,517) (1,589) 1,933 395 (778)
Reserves against
deferred taxes:
2003 ........... $(1,000) $ -- $ -- $ -- $ (1,000)
2002 ........... (5,395) (1,000) 5,395 -- (1,000)
2001 ........... -- (5,395) -- -- (5,395)
(1) Principally consisting of acquisitions and divestitures.
74
JARDEN CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003
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 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).
2.2 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).
2.3 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).
2.4 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).
2.5 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).
2.6 Stock Purchase Agreement, dated as of August 15, 2003, by and
among the Company, American Manufacturing Company, Inc., and
Lehigh Consumer Products Corporation (filed as Exhibit 10.1 to
the Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
*2.7 Securities Purchase Agreement, dated as of February 24, 2004,
by and among Bicycle Holding, Inc., the Sellers identified
therein, Dudley S. Taft, as the Seller Representative, and the
Company.
*2.8 Put and Call Agreement, dated as of February 24, 2004, by and
among the shareholders of Bicycle Holding, Inc. that are
signatories thereto and the Company.
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).
75
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 Indenture, dated as of April 24, 2002 (the "April 2002
Indenture"), 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 Old 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).
4.2 First Supplemental Indenture to the April 2002 Indenture,
dated as of May 7, 2003, among the Company, the guarantors
named therein 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 September 26, 2003, and incorporated herein by
reference).
4.3 Second Supplemental Indenture to the April 2002 Indenture,
dated as of May 28, 2003, among the Company, the guarantors
named therein and The Bank of New York, as trustee (filed as
Exhibit 4.2 to the Company's Current Report on Form 8-K, filed
with the Commission on September 26, 2003, and incorporated
herein by reference).
4.4 Third Supplemental Indenture to the April 2002 Indenture,
dated as of September 25, 2003, among the Company, the
guarantors named therein and The Bank of New York, as trustee
(filed as Exhibit 4.3 to the Company's Current Report on Form
8-K, filed with the Commission on September 26, 2003, and
incorporated herein by reference).
4.5 Registration Rights Agreement, dated as of September 2, 2003,
among the Company, American Manufacturing Company, Inc., and
the Holders named therein (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
4.6 Form of Subsidiary Guarantee in connection with the exchange
of notes under the April 2002 Indenture (filed as Exhibit 4.12
to the Company's Form S-4 Registration Statement filed with
the with the Commission on October 1, 2003, 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 officer's 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, 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, filed with the
Commission on March 17, 1993, and incorporated herein by
reference).
76
10.6 Form of Indemnification Agreement (filed as Exhibit 10.13 to
the Company's Registration Statement on Form 10, 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 10.10 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 Amended and Restated Employment Agreement, dated as of October
1, 2003, between the Company and Martin E. Franklin (filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed with the Commission on October 27, 2003, and
incorporated herein by reference).
+#10.12 Amended and Restated Employment Agreement, dated as of October
1, 2003, between the Company and Ian G.H. Ashken (filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K,
filed with the Commission on October 27, 2003, and
incorporated herein by reference).
+#10.13 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).
+#10.14 Employment Agreement, dated as of August 4, 2003, between the
Company and James E. Lillie (filed as Exhibit 10.9 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
+#10.15 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).
+#10.16 Amendment No. 1, dated as of February 7, 2002, to Restricted
Stock Award Agreement, dated January 2, 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).
+#10.17 Amendment No. 2, dated as of April 15, 2002, to Restricted
Stock Award Agreement, dated January 2, 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).
77
+#10.18 Amendment No. 3, dated as of July 15, 2002, to Restricted
Stock Award Agreement dated January 2, 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).
+#10.19 Amendment No. 4, dated as of September 4, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Martin E. Franklin (filed as Exhibit 10.7 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.20 Amendment No. 5, dated as of October 2, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Martin E. Franklin (filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
+#10.21 Amendment No. 6, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated January 2, 2002,
between the Company and Martin E. Franklin (filed as Exhibit
10.13 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.22 Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K, filed with
the Commission on September 26, 2003, and incorporated herein
by reference).
+#10.23 Amendment No. 1, dated as of September 4, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin. (filed as Exhibit
10.2 to the Company's Current Report on Form 8-K, filed with
the Commission on September 26, 2003, and incorporated herein
by reference).
+#10.24 Amendment No. 2, dated as of October 2, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin (filed as Exhibit
10.5 to the Company's Current Report on Form 8-K, filed with
the Commission on October 27, 2003, and incorporated herein by
reference).
+#10.25 Amendment No. 3, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Martin E. Franklin (filed as Exhibit
10.15 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.26 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).
+#10.27 Amendment No. 1, dated as of February 7, 2003, to Restricted
Stock Award Agreement, dated January 2, 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).
+#10.28 Amendment No. 2, dated as of April 15, 2002, to Restricted
Stock Award Agreement, dated January 2, 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).
78
+#10.29 Amendment No. 3, dated as of July 25, 2002, to Restricted
Stock Award Agreement dated January 2, 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).
+#10.30 Amendment No. 4, dated as of September 4, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Ian G.H. Ashken (filed as Exhibit 10.8 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.31 Amendment No. 5, dated as of October 2, 2003, to Restricted
Stock Award Agreement dated January 2, 2002 between the
Company and Ian G.H. Ashken (filed as Exhibit 10.4 to the
Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
+#10.32 Amendment No. 6, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated January 2, 2002,
between the Company and Ian G.H. Ashken (filed as Exhibit
10.14 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.33 Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.3
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.34 Amendment No. 1, dated as of September 4, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.4
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.35 Amendment No. 2, dated as of October 2, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit 10.6
to the Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
+#10.36 Amendment No. 3, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated as of May 8, 2003,
between the Company and Ian G.H. Ashken (filed as Exhibit
10.16 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.37 Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit 10.5
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.38 Amendment No. 1, dated as of September 4, 2003, to the
Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit 10.6
to the Company's Current Report on Form 8-K, filed with the
Commission on September 26, 2003, and incorporated herein by
reference).
+#10.39 Amendment No. 2, dated as of October 2, 2003, to the
Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit 10.7
to the Company's Current Report on Form 8-K, filed with the
Commission on October 27, 2003, and incorporated herein by
reference).
79
+#10.40 Amendment No. 3, dated as of October 31, 2003, to the
Restricted Stock Award Agreement, dated as of August 4, 2003,
between the Company and James E. Lillie (filed as Exhibit
10.17 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2003, filed with the Commission on
November 14, 2003, and incorporated herein by reference).
+#10.41 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).
+#10.42 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).
+10.43 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).
#10.44 Jarden Corporation 2003 Stock Incentive Plan (incorporated by
reference from Annex B to the Company's 2003 Definitive Proxy
Statement with respect to the Company's 2003 Annual Meeting of
Stockholders, as filed with the Commission on March 28, 2003).
#10.45 Jarden Corporation 2003 Stock Employee Stock Purchase Plan
(incorporated by reference from Annex C to the Company's 2003
Definitive Proxy Statement with respect to the Company's 2003
Annual Meeting of Stockholders, as filed with the Commission
on March 28, 2003).
10.46 Amended and Restated Credit Agreement, dated as of September
2, 2003, 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 and Fleet National Bank, as
Co-Documentation Agents. (filed as Exhibit 10.3 to the
Company's Current Report on Form 8-K, filed with the
Commission on September 5, 2003, and incorporated herein by
reference).
10.47 Amendment No. 1, dated as of September 25, 2003, to the
Amended and Restated Credit Agreement by and among the
Company, Bank of America, N.A., as Administrative Agent, the
Lenders signatory thereto and each of the Subsidiary
Guarantors (filed as Exhibit 10.9 to the Company's Current
Report on Form 8-K, filed with the Commission on September 26,
2003, and incorporated herein by reference).
*10.48 Amendment No. 2, dated as December 3, 2003, to the Amended and
Restated Credit Agreement by and among the Company, Bank of
America, N.A., as Administrative Agent, the Lenders signatory
thereto and each of the Subsidiary Guarantors.
10.49 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).
10.50 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).
80
10.51 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).
10.52 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).
10.53 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).
10.54 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).
10.55 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).
10.56 Consolidated Amendment to Guaranty and Security Instruments,
dated as of September 2, 2003, among the Company, the
Guarantors, 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 September 5, 2003, and
incorporated herein by reference).
10.57 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 the
Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002, and incorporated herein by
reference).
10.58 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 the
Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002, and incorporated herein by
reference).
10.59 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 the Company's Current Report on Form 8-K, filed with the
Commission on May 9, 2002, and incorporated herein by
reference).
81
10.60 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 the Company's Current Report
on Form 8-K, filed with the Commission on May 9, 2002, and
incorporated herein by reference).
10.61 Form of the new 9 3/4% Senior Subordinated Notes Due 2012 (the
"New Note") (filed as Exhibit 10.40 to Company's Annual Report
on Form 10-K, filed with the Commission on February 28, 2003
and incorporated herein by reference).
*21.1 Subsidiaries of the Company.
*23.1 Consent of Independent Auditors.
*31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
*32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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* Filed herewith
+ This Exhibit represents a management contract.
# This Exhibit represents a compensatory plan.
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