-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UC2aX0jPktU/xlqhZfB+dmj9dFzz93t8zdF14V2wSv1LGt8DxLubUbLPKC6IpBzy sSEyvulY6OJUYEAXgoyk1w== 0000950117-98-001064.txt : 19980518 0000950117-98-001064.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950117-98-001064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BRANDS CORP CENTRAL INDEX KEY: 0000797320 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 061171404 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10395 FILM NUMBER: 98622683 BUSINESS ADDRESS: STREET 1: 83 WOOSTER HEIGHTS RD BLDG 301 STREET 2: PO BOX 1911 CITY: DANBURY STATE: CT ZIP: 06813-1911 BUSINESS PHONE: 2037312300 MAIL ADDRESS: STREET 1: P.O. BOX 1911 CITY: DANBURY STATE: CT ZIP: 06813-1911 10-Q 1 FIRST BRANDS CORP. 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NUMBER 1-10395 FIRST BRANDS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-1171404 State of Incorporation (IRS Employer Identification No.) 83 Wooster Heights Rd., Building 301 P.O. Box 1911 Danbury, Connecticut 06813-1911 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 203-731-2300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS Outstanding at May 1, 1998 Common Stock, $.01 par value 39,554,312 shares FIRST BRANDS CORPORATION INDEX TO FORM 10-Q
PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Income - For the Three Month Periods Ended March 31, 1998 and 1997.......................................... 3 Consolidated Condensed Statements of Income - For the Nine Month Periods Ended March 31, 1998 and 1997.......................................... 4 Consolidated Condensed Balance Sheets - March 31, 1998 and June 30, 1997....................................... 5 Consolidated Condensed Statement of Stockholders' Equity - For the Nine Month Period Ended March 31, 1998................................................... 6 Consolidated Condensed Statements of Cash Flows - For the Nine Month Periods Ended March 31, 1998 and 1997.......................................... 7 Notes to Consolidated Condensed Financial Statements............................................................. 8-11 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition....................... 12-14 Independent Auditors' Review Report..................................... 15 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................... 16 Items 2 - 6............................................................. 16 SIGNATURE............................................................... 17
-2- FIRST BRANDS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, MARCH 31, 1998 1997 ---------------- ----------------- (in thousands - except per share amounts) Net sales........................................ $ 296,414 $ 264,886 Cost of goods sold............................... 190,978 168,764 Selling, general and administrative expenses........................ 66,961 61,985 Amortization and other depreciation.............. 3,655 3,266 Interest expense and amortization of debt discount and expense........................... 7,555 3,974 Discount on sale of receivables.................. 1,107 1,212 Other income (expense), net...................... (178) (135) -------- ------- Income before provision for income taxes and extraordinary loss................... 25,980 25,550 Provision for income taxes....................... 9,942 9,496 -------- ------- Income before extraordinary loss................. 16,038 16,054 Extraordinary loss relating to the repurchase of subordinated notes, net of taxes............ -- (633) -------- -------- Net income....................................... $ 16,038 $ 15,421 ======== ======== Basic earnings per common share (Note 7): Income before extraordinary loss.............. $ 0.41 $ 0.40 Extraordinary loss ........................... -- (0.02) ------- ------- Net income.................................... $ 0.41 $ 0.38 ======= ======= Based on the following number of shares.......... 39,556 40,592 ====== ====== Diluted earnings per common share (Note 7): Income before extraordinary loss ............. $ 0.40 $ 0.39 Extraordinary loss............................ -- (0.02) --------- ------- Net income.................................... $ 0.40 $ 0.37 ======= ======= Based on the following number of shares.......... 40,487 41,528 ====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -3- FIRST BRANDS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS NINE MONTHS ENDED ENDED MARCH 31, MARCH 31, 1998 1997 -------------- ------------- (in thousands - except per share amounts) Net sales........................................ $875,176 $800,435 Cost of goods sold............................... 571,167 514,405 Selling, general and administrative expenses........................ 196,278 180,106 Amortization and other depreciation.............. 11,110 9,537 Restructuring expense............................ 2,700 -- Interest expense and amortization of debt discount and expense........................... 22,512 12,849 Discount on sale of receivables.................. 3,403 3,363 Other income (expense), net...................... (207) 823 -------- -------- Income before provision for income taxes, extraordinary loss and cumulative effect of change in accounting principles................ 67,799 80,998 Provision for income taxes....................... 26,281 31,586 -------- -------- Income before extraordinary loss and cumulative effect of change in accounting principle....... 41,518 49,412 Extraordinary loss relating to the repurchase of subordinated notes, net of taxes............ -- (633) Cumulative effect of change in accounting principle, net of taxes........................ (6,922) -- -------- -------- Net income....................................... $ 34,596 $ 48,779 ======== ======== Basic earnings per common share (Note 7): Income before extraordinary loss and cumulative effect of change in accounting principle ... $ 1.04 $ 1.21 Extraordinary loss............................ -- (0.02) Cumulative effect of change in accounting principle................................... (0.17) -- ------- ------- Net income....................................... $ 0.87 $ 1.19 ======= ======= Based on the following number of shares.......... 39,733 40,924 ====== ====== Diluted earnings per common share (Note 7): Income before extraordinary loss and cumulative effect of change in accounting principle.... $ 1.02 $ 1.18 Extraordinary loss............................ -- (0.02) Cumulative effect of change in accounting principle................................... (0.17) -- ------- ------- Net income....................................... $ 0.85 $ 1.16 ======= ======= Based on the following number of shares.......... 40,624 41,865 ====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -4- FIRST BRANDS CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, JUNE 30, (dollars in thousands, except share amounts) 1998 1997 ----------- -------- (UNAUDITED) ASSETS: Cash and cash equivalents........................... $ 9,677 $ 7,465 Accounts and notes receivable - net................. 120,520 137,380 Inventories......................................... 166,244 151,976 Deferred tax assets................................. 20,149 24,702 Prepaid expenses.................................... 7,305 7,551 ----------- ----------- Total current assets.............................. 323,895 329,074 Property, plant and equipment (net of accumulated depreciation of $162,776 and $141,691)............ 411,498 377,128 Patents, trademarks, proprietary technology and other intangibles (net of accumulated amortization of $202,083 and $192,631)............ 291,268 310,095 Deferred charges and other assets (net of accumulated amortization of $52,330 and $52,029).. 36,049 37,311 ----------- ----------- Total assets.............................. $ 1,062,710 $ 1,053,608 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Liabilities Notes payable....................................... $ 15,149 $ 8,432 Current maturities of long-term debt................ 3,512 2,811 Accrued income and other taxes...................... 5,323 7,373 Accounts payable.................................... 39,791 61,877 Accrued liabilities................................. 62,307 104,201 ----------- ---------- Total current liabilities...................... 126,082 184,694 Long-term debt...................................... 446,065 380,467 Deferred taxes payable.............................. 79,081 74,058 Other long-term obligations......................... 21,530 20,473 Stockholders' Equity Preferred stock, $1 par value, 10,000,000 shares authorized; none issued.................... - - Common stock, $0.01 par value, 120,000,000 shares authorized at March 31, 1998 and June 30, 1997; issued 43,527,262 shares at March 31, 1998 and 43,394,044 shares at June 30, 1997 (Note 7)... 435 434 Capital in excess of par value...................... 132,687 130,994 Cumulative foreign currency translation adjustment.. (22,097) (12,455) Common stock in treasury, at cost; 4,190,300 shares at March 31, 1998 and 3,355,000 at June 30, 1997...... (116,320) (96,837) Retained earnings................................... 395,247 371,780 ----------- ----------- Total stockholders' equity..................... 389,952 393,916 ----------- ----------- Total liabilities and stockholders' equity $ 1,062,710 $ 1,053,608 =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -5- FIRST BRANDS CORPORATION CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED)
Cumulative Capital Foreign Common in Excess Currency Stock of Par Translation Treasury Retained (in thousands) Par Value Value Adjustment Stock Earnings Total --------- --------- ----------- -------- -------- ----- Balance as of June 30, 1997 ......... $ 434 $ 130,994 $ (12,455) $ (96,837) $ 371,780 $ 393,916 Exercise of Stock Options.......... 1 1,693 - - - 1,694 Cash Dividends.......... - - - - (11,129) (11,129) Purchase of Treasury Stock......... - - - (19,483) - (19,483) Net Income.............. - - - - 34,596 34,596 Foreign Currency Translation Adjustment. - - (9,642) - - (9,642) ----- --------- --------- --------- --------- --------- Balance as of March 31, 1998......... $ 435 $ 132,687 $ (22,097) $(116,320) $ 395,247 $ 389,952 ===== ========= ========= ========= ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -6- FIRST BRANDS CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS NINE MONTHS ENDED ENDED MARCH 31, MARCH 31, (in thousands) 1998 1997 ------------- ----------- Cash flows from operating activities: Net income........................................ $ 34,596 $ 48,779 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle.................................... 6,922 -- Extraordinary loss.............................. -- 633 Depreciation and amortization................... 33,802 30,409 Deferred income taxes........................... 9,540 4,958 Restructuring expense........................... 2,700 -- Change in certain non-cash current assets and liabilities: Decrease in accounts receivable.............. 33,620 20,934 (Increase) in inventories.................... (14,268) (9,088) Decrease in prepaid expenses................. 246 266 Increase in accrued income and other taxes... 2,462 7,723 (Decrease) in accounts payable............... (22,086) (17,112) (Decrease) in accrued liabilities............ (44,594) (42,752) Other changes..................................... 1,570 (4,852) -------- -------- Total adjustments............................. 9,914 (8,881) -------- -------- Net cash provided by operating activities........... 44,510 39,898 -------- -------- Cash flows from investing activities: Capital expenditures............................. (26,050) (24,110) Acquisition of leased assets..................... (44,208) (22,320) Acquisition of business, net of cash acquired... -- (159,004) Retirements of plant and equipment............... 6,701 -- Purchase and installation of information system.. (7,839) (7,924) -------- -------- Net cash (used for) investing activities............ (71,396) (213,358) -------- -------- Cash flows from financing activities: Increase in credit facility borrowings, net..... 64,842 46,485 Increase in other borrowings, net............... 8,174 10,864 (Decrease) increase in securitization of accounts receivable......................... (15,000) 10,000 Proceeds from exercise of stock options......... 1,694 2,848 Issuance of senior notes, net of underwriting discounts................................... -- 149,292 Purchase of common stock for treasury........... (19,483) (33,653) Dividends paid.................................. (11,129) (9,068) -------- -------- Net cash provided by financing activities.......... 29,098 176,768 -------- -------- Net increase (decrease) in cash and cash equivalents 2,212 3,308 Cash and cash equivalents at beginning of period.... 7,465 8,326 -------- -------- Cash and cash equivalents at end of period.......... $ 9,677 $ 11,634 ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. -7- FIRST BRANDS CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated condensed financial statements include all adjustments (all of which were of a normal recurring nature) necessary to fairly present the results of operations for the interim periods. All material intercompany transactions and balances have been eliminated. The results of operations for the three and nine month periods ended March 31, 1998 are not necessarily indicative of the results for a full year. First Brands Corporation ("First Brands" or the "Company") is engaged in the development, manufacture, marketing and sale of consumer products under branded and private labels. Principal branded products include: GLAD and GLAD-LOCK (plastic wrap and bags); STP (oil and fuel additives and other specialty automotive products); SCOOP AWAY, EVER CLEAN, EVERFRESH and JONNY CAT (cat litters) and STARTERLOGG (fire starters) and HEARTHLOGG (fire logs). INVENTORIES Inventories were comprised of:
March 31, June 30, 1998 1997 ---------- ---------- (in thousands) Raw materials................................... $ 36,691 $ 34,518 Work-in-process................................. 5,214 5,795 Finished goods.................................. 124,339 111,663 --------- --------- Total....................................... $ 166,244 $ 151,976 ========= =========
2. RESTRUCTURING During the second quarter of fiscal 1998, the Company recorded an additional restructuring charge of $2,700,000, increasing the $19,000,000 restructuring charge established during the fourth quarter of fiscal 1997. The restructuring reserve included expenses for employee related costs, primarily an early retirement package and other costs to obtain personnel reductions, and certain asset write down and disposal expenses largely related to a distribution facility and office center in East Hartford, CT. The additional charge was due to greater than anticipated participation in the early retirement program and revision of earlier estimates. -8- 3. LONG-TERM DEBT First Brands had long-term debt outstanding as of March 31, 1998 and June 30, 1997 as follows:
March 31, June 30, 1998 1997 --------- -------- (in thousands) Senior Debt: $300,000,000 Revolving Credit Facility, 5 year term expiring February 2002, interest at prime rate, LIBOR plus .275% or CD rate plus .4%; facility fee of .15% ............................................................ $ 240,000 $ 162,000 $65,770,000 Australian and New Zealand Credit Facility, 7 year term expiring March 2004, interest at local Bill Rate plus .7% .................................. 47,569 58,727 $11,286,000 Canadian Credit Facility, 5 year term expiring March 2002, interest at Canadian prime rate, LIBOR plus .425% or Canadian Bankers Acceptance plus .425% ......................................... 6,619 8,619 Other .................................................................... 5,389 3,932 --------- --------- 299,577 233,278 Less: current maturities ................................................. (3,512) (2,811) --------- --------- Senior Debt .......................................................... 296,065 230,467 --------- --------- Subordinated Debt: 7 1/4% Senior Notes Due 2007 ............................................. 150,000 150,000 --------- --------- Total Long-term debt ................................................. $ 446,065 $ 380,467 ========= =========
The Company's revolving credit facility is unsecured, however, it does contain certain restrictive covenants pertaining to the ratio of debt to equity, dividend payments and stock repurchases. The Australian and New Zealand credit facility is composed of two parts; one of which was used to acquire the NationalPak business and a second part which can be used for working capital needs. There are fixed periodic payments associated with the acquisition borrowing, the working capital borrowing can be drawn on and repaid at NationalPak's discretion. The facility is secured by the accounts receivable, inventory and fixed assets of NationalPak. The Canadian credit facility requires fixed periodic payments. The facility is secured by the accounts receivable, inventory and fixed assets of the Canadian business. The 7 1/4% Note Indenture contains certain restrictive covenants and limitations principally relating to the Company's right to incur debt and to engage in certain sale and leaseback transactions. First Brands was in compliance with the covenants of all debt agreements at March 31, 1998. 4. ACCOUNTS RECEIVABLE The Company is engaged in a program to sell up to $100,000,000 in fractional ownership interest, without recourse, in a defined pool of eligible trade accounts receivable. Under the current terms of this agreement, the facility automatically renews each year. The fractional interest sold as of March 31, 1998 totaled $70,000,000. The amounts sold are reflected as a reduction in accounts receivable on the accompanying Consolidated Condensed Balance Sheets and costs associated with this program are recorded on the Consolidated Condensed Statements of Income as discount on sale of receivables. -9- 5. NOTES PAYABLE Notes payable at March 31, 1998 of $15,149,000 consisted of $7,500,000 of a $15,000,000 unsecured domestic line of credit and $7,649,000 of the Company's international subsidiaries' working capital borrowings with local lenders. The Company's international working capital credit facilities aggregated $20,535,000, of which $12,886,000 was available at March 31, 1998. The international facilities are generally secured by the assets of the respective subsidiaries, with approximately $2,000,000 of the availability at one subsidiary being guaranteed by First Brands Corporation (U.S.). 6. TAXES The provision for income tax expense for the three and nine-months ended March 31, 1998 and 1997 consists of the following:
Three Months Nine Months Ended Ended March 31, March 31, ---------------- --------------- 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Current: Federal...................... $ 4,090 $ 7,196 $ 10,922 $ 21,421 State........................ 1,022 (91) 2,491 3,163 Foreign...................... 1,345 713 3,328 2,044 ------- ------- -------- -------- Total current............ 6,457 7,818 16,741 26,628 Deferred: Federal...................... 3,131 1,398 7,907 4,194 State........................ 673 310 1,392 930 Foreign...................... (319) (30) 241 (166) ------- ------- -------- -------- Total deferred........... 3,485 1,678 9,540 4,958 ------- ------- -------- -------- Total provision...... $ 9,942 $ 9,496 $ 26,281 $ 31,586 ======= ======= ======== ========
7. EARNINGS PER SHARE AND DIVIDENDS Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No. 128 establishes standards for computing and presenting both basic and diluted earnings per share ("EPS"). Basic EPS represents the earnings available to each common share outstanding during the reporting period. Diluted EPS reflects the earnings available to each common share after the affect of all potentially dilutive common shares, such as stock options and convertible securities. SFAS No. 128 requires a reconciliation between of the basic and diluted EPS numerator and denominator. For the Company, the numerator is constant for both the basic and diluted calculation. The denominator used in the diluted EPS calculation was increased by 931,000 and 891,000 common share equivalents pertaining to stock options for the three and nine-month periods ended March 31, 1998, respectively, and 936,000 and 941,000 common share equivalents pertaining to stock options for the three and nine-month periods ended March 31, 1997, respectively. The Company has paid its shareholders quarterly cash dividends of $0.08 per share for the first quarter of fiscal 1998 and $0.10 per share for the second and third quarters of fiscal 1998, and $0.0625 per share for the first quarter of fiscal 1997 and $0.08 per share for the second and third quarters of fiscal 1997. -10- 8. CHANGE IN ACCOUNTING PRINCIPLE During the second quarter of fiscal 1998 the Company recorded a $11,450,000 pre-tax charge. This charge relates to a change in accounting as required under a consensus published by the FASB's Emerging Issues Task Force regarding Issue No. 97-13 (November 1997), that requires immediate expensing of costs related to certain business process re-engineering activities and information technology transformations which have been previously capitalized. 9. FINANCIAL INSTRUMENTS During the second quarter of fiscal 1998 the Company entered into a contract to fix the price of an additional 17% of its domestic polyethylene resin requirements for the GLAD plastic wrap and bag business. With this new agreement, the Company's contracts currently cover approximately 37% of its domestic resin requirements until December 31, 2000. Starting in 2001, the counter party has an annual option to extend one of the contracts, which today covers approximately 20% of the domestic requirements, through 2003. The contract prices are less than the market average for the last four years. -11- FIRST BRANDS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion and analysis of the consolidated results of operations for the three and nine month periods ended March 31, 1998 should be read in conjunction with the accompanying unaudited Consolidated Condensed Financial Statements and related Notes. The Company is primarily engaged in the development, manufacture, marketing and sale of leading consumer products. The Company's products which include "GLAD", "GLAD-LOCK", "STP", "SCOOP AWAY", "EVERFRESH", "EVER CLEAN", "JONNY CAT", "STARTERLOGG" and "HEARTHLOGG" can be found in large mass merchandise stores, chain supermarkets and other retail outlets. The Company believes that the significant market positions occupied by its products are attributable to brand name recognition, comprehensive product offerings, continued product innovation, strong emphasis on vendor support and aggressive advertising and promotion. RESULTS OF OPERATIONS The following table sets forth the percentages of net sales of the Company represented by the components of income and expense for the three and nine month periods ended March 31, 1998 and 1997:
Three Months Nine Months Ended Ended March 31, March 31, ---------------- --------------- 1998 1997 1998 1997 ------ ------ ----- ----- Net sales.................................. 100.0% 100.0% 100.0% 100.0% Cost of goods sold......................... 64.4 63.7 65.3 64.3 ----- ----- ----- ----- Gross profit............................... 35.6 36.3 34.7 35.7 Selling, general, and administrative expenses.................. 22.6 23.4 22.4 22.5 Amortization and other depreciation........ 1.2 1.2 1.3 1.2 Restructuring expense...................... -- -- 0.3 -- Interest expense and amortization of debt discount and expense..................... 2.6 1.5 2.6 1.6 Discount on sale of receivables............ 0.4 0.4 0.4 0.4 Other income (expense), net................ 0.0 0.0 0.0 0.1 ----- ----- ----- ----- Income before provision for income taxes, extraordinary loss and cumulative effect of change in accounting principle.......... 8.8 9.6 7.7 10.1 Provision for income taxes.................. 3.4 3.6 3.0 3.9 ----- ----- ----- ----- Income before extraordinary loss and cumulative effect of change in accounting principle... 5.4 6.0 4.7 6.2 Extraordinary loss relating to repurchase of subordinated notes, net of taxes.......... -- (0.2) -- (0.1) Cumulative effect of change in accounting principle, net of taxes........ -- -- (0.8) -- ----- ----- ----- ----- Net income.................................. 5.4% 5.8% 3.9% 6.1% ===== ===== ===== =====
-12- QUARTER AND NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE QUARTER AND NINE MONTHS ENDED MARCH 31, 1997 Sales for the three month period ended March 31, 1998 were $296,414,000, 12% ahead of last year's $264,886,000. For the nine month period, sales were $875,176,000, 9% above the prior year's $800,435,000. Household product sales for the quarter increased 18%, reflecting strong domestic sales within the GLAD and GLADLOCK product lines and sales from recent acquisitions. Plastic wrap and bag sales, excluding acquisitions, were up 8% primarily due to the move of a major GLAD promotion to the third fiscal quarter of fiscal 1998. Excluding the NationalPak acquisition, year-to-date household product sales are slightly ahead of the prior year. Automotive product sales were down 4% for the quarter. The domestic sales increase of 3% was offset by a 25% shortfall in the international and export business (primarily due to the Asian economic and currency situation). Year-to-date automotive sales are down 7% due to the residual effects of inventory reductions by a major customer and reduced sales in the international and export markets. Quarterly and year-to-date sales of pet product grew 8% and 11%, respectively, over the prior year due to continued market growth and new products. Cost of goods sold for the quarter was $190,978,000, 113% of last year's $168,764,000. Year-to-date, cost of goods sold was $571,167,000, 111% of the prior year's $514,405,000. Increased costs for the quarter were primarily due to higher sales, while the year-to-date increase in cost of goods sold was due to higher sales as well as higher polyethylene resin costs. Gross profit for the quarter of $105,436,000 (35.6% of sales) was 110% of last year's $96,122,000 (36.3% of sales). Year-to-date, gross profit of $304,009,000 (34.7% of sales) was 106% of last year's $286,030,000 (35.7% of sales). Selling, general and administrative expenses during the quarter of $66,961,000 (22.6% of sales), were 108% of last year's $61,985,000 (23.4% of sales). Year-to-date, expenses of $196,278,000 (22.4% of sales), were 109% of last year's $180,106,000 (22.5% of sales). The increase over last year reflects expenses associated with the NationalPak business as well as new product marketing costs. Amortization and other depreciation expense for the quarter was $3,655,000, 112% of the prior year's $3,266,000, and for the nine months was $11,110,000, 116% of the prior year's $9,537,000. The higher cost reflects amortization expense associated with the NationalPak acquisition. Interest expense for the quarter and nine months is above the prior year primarily due to borrowing costs associated with the NationalPak acquisition. Discount on sale of receivables reflects the costs associated with the sale of a fractional ownership interest, without recourse, in a defined pool of the Company's eligible trade accounts receivable. The Company's effective tax rate was 38.3% and 38.8% for the quarter and year-to-date, respectively, compared to the prior years' quarter and year-to-date rates of 37.2% and 39.0%, respectively. The current years' quarterly tax rate is below the year-to-date rate due to adjustments necessary to approximate the annual tax rate. The prior years' quarterly tax rate reflected an adjustment for favorable permanent tax differences. FINANCIAL CONDITION Worldwide credit facilities in place at March 31, 1998 aggregated $413,359,000 of which $101,365,000 was available, but unused. Excluding costs associated with acquisitions and stock repurchases, the Company expects to repay up to $60,000,000 on these credit facilities over the next twelve months by utilizing the positive cash flow generated by its businesses. For the three and nine months ending March 31, 1998, the Company repurchased common shares valued at $6,932,000 and $19,483,000, respectively. During the first half of fiscal 1998, the Company also acquired previously leased equipment totaling $44,208,000. -13- The Company's current forecast for the 1998 fiscal year reflects capital expenditures of approximately $42,500,000, and fixed payments (interest, principal, discount on sale of receivables and lease payments) of approximately $47,000,000. Based on the Company's ability to generate funds from operations and the availability of credit under its financing facilities, management believes it will have the funds necessary to meet all of its described financing requirements and all other financial obligations. CAUTIONARY STATEMENT AND "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 are contained within this report, reflecting management's current estimate of future events. These forward-looking statements are based on many assumptions, primarily related to the Company's expected operating performance, and contain a number of risks and uncertainties including changes in consumer demand, changes in prices of raw materials, changes in distribution channels and competitive conditions, consumer acceptance of new product lines, the Company's ability to control internal costs, the successful development of new technologies, the implementation of strategic initiatives and general economic conditions. Accordingly, such forward-looking statements should not be relied upon as a prediction of actual results. REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS First Brands' independent certified public accountants have performed a limited review of the financial information furnished herein in accordance with standards established by the American Institute of Certified Public Accountants. The Independent Auditors' Review Report is presented on Page 15 of this report. -14- Independent Auditors' Review Report The Board of Directors First Brands Corporation: We have reviewed the consolidated condensed balance sheet of First Brands Corporation and subsidiaries as of March 31, 1998, and the related consolidated condensed statements of income for the three and nine month periods ended March 31, 1998 and 1997, the consolidated condensed statements of cash flows for the nine month periods ended March 31, 1998 and 1997, and the consolidated condensed statement of stockholders' equity for the nine month period ended March 31, 1998. These consolidated condensed financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. As discussed in note 8, the Company changed its method of accounting for business process reengineering costs effective October 1, 1997. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of First Brands Corporation and subsidiaries as of June 30, 1997, and the related consolidated statement of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated August 1, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of June 30, 1997, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG Peat Marwick LLP New York, New York May 5, 1998 -15- PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K A. Exhibit Index:
Exhibit Number Description of Exhibit - ------ ---------------------- 11* -- Computation of Net Income Per Common Share 15* -- Accountants' Acknowledgment 27* -- EDGAR Financial Data Schedule
- ------------ * Filed herewith B. Reports on Form 8-K None. -16- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST BRANDS CORPORATION (Registrant) Date: May 14, 1998 By: /s/ Donald A. DeSantis ------------------------------------- Donald A. DeSantis Senior Vice President and Chief Financial Officer (Principal Accounting and Duly Authorized Officer) -17- EX-11 2 EXHIBIT 11 Exhibit 11 (Page 1 of 2) COMPUTATION OF NET INCOME PER COMMON SHARE (in thousands - except per share amounts)
Three months Nine months ended March 31, ended March 31, 1998 1997 1998 1997 ------ ------ ------ ------- COMPONENTS OF BASIC NET INCOME PER COMMON SHARE: Income before extraordinary loss and cumulative effect of change in accounting principle ............. 16,038 16,054 41,518 49,412 Extraordinary loss on repurchase of subordinated notes, net of taxes .. -- (633) -- (633) Cumulative effect of change in accounting principle ........... -- -- (6,922) -- -------- -------- -------- -------- Net income ......................... $ 16,038 $ 15,421 $ 34,596 $ 48,779 ======== ======== ======== ======== Average common shares outstanding during the period ................. 43,512 43,324 43,464 43,238 Average treasury shares held during the period ................. (3,956) (2,732) (3,731) (2,314) ------ ------ ------ ------ Average common shares outstanding .. 39,556 40,592 39,733 40,924 ====== ====== ====== ====== Basic earnings per share: Income before extraordinary loss and cumulative effect of change in accounting principle ........... $ 0.41 $ 0.40 $ 1.04 $ 1.21 Extraordinary loss on repurchase of subordinated notes, net of taxes ... -- (0.02) -- (0.02) Cumulative effect of change in accounting principle ........... -- -- (0.17) -- -------- -------- -------- -------- Net income ......................... $ 0.41 $ 0.38 $ 0.87 $ 1.19 ======== ======== ======== ========
Exhibit 11 (Page 2 of 2) COMPUTATION OF NET INCOME PER COMMON SHARE (in thousands - except per share amounts)
Three months Nine months ended March 31, ended March 31, 1998 1997 1998 1997 ---- ---- ---- ---- COMPONENTS OF DILUTED NET INCOME PER COMMON SHARE: Income before extraordinary loss and cumulative effect of change in accounting principle.................... 16,038 16,054 41,518 49,412 Extraordinary loss on repurchase of subordinated notes, net of taxes........ -- (633) -- (633) Cumulative effect of change in accounting principle................. -- -- (6,922) -- ------- ------- ------- ------- Net income................................ $16,038 $15,421 $34,596 $48,779 ======= ======= ======= ======= Average common shares outstanding during the period........................ 43,512 43,324 43,464 43,238 Average treasury shares held during the period....................... (3,956) (2,732) (3,731) (2,314) Common shares issuable with respect to common equivalents for stock options....................... 931 936 891 941 ------ ------ ------ ------ Average common shares outstanding......... 40,487 41,528 40,624 41,865 ====== ====== ====== ====== Diluted earnings per share: Income before extraordinary loss and cumulative effect of change in accounting principle.................... $ 0.40 $ 0.39 $ 1.02 $ 1.18 Extraordinary loss on repurchase of subordinated notes, net of taxes........ -- (0.02) -- (0.02) Cumulative effect of change in accounting principle................. -- -- (0.17) -- ------- ------- ------- ------- Net income................................ $ 0.40 $ 0.37 $ 0.85 $ 1.16 ======= ======= ======= =======
EX-15 3 EXHIBIT 15 Exhibit 15 Accountants' Acknowledgment First Brands Corporation 83 Wooster Heights Road Danbury, CT 06813-1911 Gentlemen: RE: FORM S-8 REGISTRATION STATEMENTS NO. 33-35770, NO. 33-56992, NO. 33-56503, NO. 333-56503 AND NO. 333-45379 With respect to the subject registration statements, we acknowledge our awareness of the use therein of our reports dated October 30, 1997, January 29, 1998 and May 5, 1998 related to our reviews of interim financial information. Pursuant to Rule 436 (C) under the Securities Act of 1933, such reports are not considered part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of sections 7 and 11 of the Act. Very truly yours, /s/ KPMG Peat Marwick LLP New York, New York May 5, 1998 EX-27 4 EXHIBIT 27
5 1000 3-MOS JUN-30-1998 JAN-01-1998 MAR-31-1998 9,677 0 122,061 1,541 166,244 323,895 574,274 162,776 1,062,710 126,082 446,065 435 0 0 389,952 1,062,710 296,414 296,414 190,978 190,978 0 0 7,555 25,980 9,942 16,038 0 0 0 16,038 0.41 0.40
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