First Brands Corporation and Subsidiaries
Consolidated Statements of Income
Years Ended
--------------------------------------------------
June 30, June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $1,203,670 $1,119,898 $1,073,022
Cost of goods sold 775,870 713,203 687,103
Selling, general and administrative expenses 291,156 268,086 241,711
Amortization and other depreciation 14,585 13,411 15,607
Restructuring expense (Note 3) 2,700 19,000 --
Interest expense and amortization of debt discount and expenses 29,604 20,383 17,546
Discount on sale of receivables (Note 5) 4,561 3,992 3,963
Other income (expense), net (500) 1,575 1,827
- ------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes, extraordinary loss and
cumulative effect of change in accounting principle 84,694 83,398 108,919
Provision for income taxes (Note 14) 32,364 32,533 43,819
- ------------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary loss and cumulative effect of change in
accounting principle 52,330 50,865 65,100
Extraordinary loss relating to the repurchase of subordinated
debt, net of taxes (Note 11) -- (633) --
Cumulative effect of change in accounting principle, net of taxes (Note 2) (6,922) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 45,408 $ 50,232 $ 65,100
====================================================================================================================================
Per common share (Note 1):
Basic:
Income before extraordinary loss and cumulative effect of change
in accounting principle $ 1.32 $ 1.25 $ 1.56
Extraordinary loss -- (0.02) --
Cumulative effect of change in accounting principle (0.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.15 $ 1.23 $ 1.56
====================================================================================================================================
Diluted:
Income before extraordinary loss and cumulative effect of change
in accounting principle $ 1.29 $ 1.22 $ 1.53
Extraordinary loss -- (0.02) --
Cumulative effect of change in accounting principle (0.17) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1.12 $ 1.20 $ 1.53
====================================================================================================================================
Weighted average outstanding common shares (Note 1):
Basic 39,615,855 40,771,610 41,661,624
Diluted 40,501,876 41,756,802 42,600,021
====================================================================================================================================
See accompanying notes to the consolidated financial statements
17
First Brands Corporation and Subsidiaries
Consolidated Balance Sheets
Years Ended
---------------------------
June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997
- -----------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 12,029 $ 7,465
Accounts and notes receivable
(net of allowances for doubtful accounts and
discounts of $8,297 and $6,842) (Note 5) 118,326 134,554
Inventories (Note 1) 155,480 151,976
Deferred tax assets (Note 14) 11,827 15,992
Prepaid expenses 10,170 9,434
- ----------------------------------------------------------------------------------------
Total current assets 307,832 319,421
Property, plant and equipment
(net of accumulated depreciation of $160,529 and
$141,691) (Notes 1 and 6) 419,755 377,128
Patents, trademarks, proprietary technology and
other intangibles (net of accumulated amortization
of $204,916 and $192,631) (Notes 1 and 7) 284,849 310,095
Deferred charges and other assets
(net of accumulated amortization of $52,687 and $52,029) 47,765 40,137
- ----------------------------------------------------------------------------------------
Total assets $1,060,201 $1,046,781
========================================================================================
See accompanying notes to the consolidated financial statements.
18
First Brands Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
Years Ended
---------------------------------
June 30, June 30,
(Dollars in thousands, except per share data) 1998 1997
- -------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable $ 4,562 $ 8,432
Current maturities of long-term debt (Note 11) 3,384 2,811
Accrued income and other taxes (Note 14) 8,253 7,373
Accounts payable 71,692 61,877
Accrued liabilities (Note 9) 92,919 106,084
- -------------------------------------------------------------------------------------------------
Total current liabilities 180,810 186,577
Long-term debt (Note 11) 388,054 380,467
Deferred tax liability (Note 14) 78,788 65,348
Other long-term obligations (Note 15) 26,401 20,473
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued -- --
Common stock, $0.01 par value, 120,000,000 shares
authorized; 43,553,846 shares issued at June 30, 1998
and 43,394,044 shares issued at June 30, 1997 435 434
Capital in excess of par value 134,166 130,994
Cumulative foreign currency translation adjustment (27,556) (12,455)
Common stock in treasury, at cost; 4,407,000 shares at
June 30, 1998 and 3,355,000 shares at June 30, 1997 (123,039) (96,837)
Retained earnings 402,142 371,780
- -------------------------------------------------------------------------------------------------
Total stockholders' equity 386,148 393,916
- -------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,060,201 $1,046,781
=================================================================================================
See accompanying notes to the consolidated financial statements.
19
First Brands Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1998, 1997 and 1996
--------------------------------------------------------------------------------------
Cumulative
Common Stock Capital Foreign
---------------------- In Excess Currency
Shares Par of Par Translation Retained Treasury
(Dollars in thousands) Outstanding Value Value Adjustment Earnings Stock Total
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1995 20,935,314 $221 $120,914 $(7,173) $278,649 $(40,433) $352,178
Cash dividends (Note 1) -- -- -- -- (9,903) -- (9,903)
Exercise of stock options 199,196 2 4,470 -- -- -- 4,472
Tax benefit related to the exercise
of employee stock options -- -- 1,256 -- -- -- 1,256
Net income -- -- -- -- 65,100 -- 65,100
Purchase of treasury stock (279,300) -- -- -- -- (12,130) (12,130)
Foreign currency translation
adjustment -- -- -- (2,148) -- -- (2,148)
Two-for-one stock split 20,795,376 208 (208) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1996 41,650,586 $431 $126,432 $(9,321) $333,846 $(52,563) $398,825
Cash dividends (Note 1) -- -- -- -- (12,298) -- (12,298)
Exercise of stock options 253,458 3 3,350 -- -- -- 3,353
Tax benefit related to the exercise
of employee stock options -- -- 1,212 -- -- -- 1,212
Net income -- -- -- -- 50,232 -- 50,232
Purchase of treasury stock (1,865,000) -- -- -- -- (44,274) (44,274)
Foreign currency translation
adjustment -- -- (3,134) -- -- (3,134)
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1997 40,039,044 $434 $130,994 $(12,455) $371,780 $(96,837) $393,916
Cash dividends (Note 1) -- -- -- -- (15,046) -- (15,046)
Exercise of stock options 159,802 1 2,101 -- -- -- 2,102
Tax benefit related to the exercise
of employee stock options -- -- 1,071 -- -- -- 1,071
Net income -- -- -- -- 45,408 -- 45,408
Purchase of treasury stock (1,052,000) -- -- -- -- (26,202) (26,202)
Foreign currency translation
adjustment -- -- -- (15,101) -- -- (15,101)
- -----------------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 39,146,846 $435 $134,166 $(27,556) $402,142 $(123,039) $386,148
====================================================================================================================================
See accompanying notes to the consolidated financial statements.
20
First Brands Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended
-----------------------------------------
June 30, June 30, June 30,
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $45,408 $50,232 $65,100
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 44,427 41,448 38,282
Restructuring expense 2,700 19,000 --
Deferred income taxes 19,722 5,808 25,808
Amortization of gain on sale/leaseback -- (909) (1,580)
Cumulative effect of change in accounting principle 6,922 -- --
Loss on repurchase of subordinated notes -- 633 --
Change in non-cash current assets and liabilities, net of effect of
businesses acquired:
(Increase) in accounts receivable (5,712) (25,674) (12,052)
(Increase) decrease in inventories (8,239) 4,405 11,836
(Increase) in prepaid expenses (1,072) (3,942) (1,048)
Increase (decrease) in accrued income and other taxes 5,712 4,306 (7,263)
Increase (decrease) in accounts payable 12,207 (9,808) (10,937)
(Decrease) in accrued liabilities (14,184) (14,700) (36,171)
Other changes (4,053) (1,440) (3,687)
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 58,430 19,127 3,188
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 103,838 69,359 68,288
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (44,480) (41,960) (42,293)
Acquisition of leased assets (44,208) (22,320) (9,797)
Acquisition of businesses, net of cash acquired -- (160,210) (32,255)
Retirements of plant and equipment 8,218 1,109 1,072
Purchase and installation of software (13,514) (10,564) (5,518)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) by investing activities (93,984) (233,945) (88,791)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in revolving credit facilities, net 18,899 135,143 35,000
(Decrease) increase in other borrowings, net (728) 4,149 (3,835)
Increase in securitization of accounts receivable, net 15,000 15,000 10,000
Issuance of 7 1/4% senior subordinated notes, net of underwriting discount -- 149,025 --
Repurchase of 9 1/8% senior subordinated notes -- (100,000) --
Proceeds from settlement of Prestone note receivable -- 13,000 --
Proceeds from exercise of stock options 2,102 3,353 4,472
Purchase of common stock for treasury (26,202) (44,274) (12,130)
Dividends paid (14,361) (11,671) (9,903)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (5,290) 163,725 23,604
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,564 (861) 3,101
Cash and cash equivalents at beginning of year 7,465 8,326 5,225
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 12,029 $ 7,465 $ 8,326
==================================================================================================================================
See accompanying notes to the consolidated financial statements.
21
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant
Accounting Policies
First Brands Corporation and subsidiaries ("First Brands" or the "Company")
engages in the development, manufacture, marketing and sale of consumer products
sold under branded and private labels. Principal branded products include: GLAD
and GLAD-LOCK (plastic wrap and bags); GLADWARE (plastic containers); STP (oil
and fuel additives and other specialty automotive appearance products); SCOOP
AWAY, EVER CLEAN, EVERFRESH and JOHNNY CAT (cat litters); and STARTERLOGG and
HEARTHLOGG (wood fire starters and fire logs).
Basis of Presentation
The accompanying financial statements reflect the consolidated accounts of the
Company for all periods presented. All material intercompany transactions and
balances have been eliminated. To prepare financial statements in conformity
with generally accepted accounting principles, management must make a number of
assumptions and estimates which affect the reported amounts of assets and
liabilities and the disclosure of contingent liabilities at the date of the
financial statement, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. All
information presented is for a fiscal year, unless otherwise noted.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method for substantially all inventories in the
United States. In general, the average cost or FIFO method is used by the
international operations.
Inventories were composed of the following as of June 30, 1998 and 1997:
(In thousands) 1998 1997
- -------------------------------------------------
Raw materials $ 34,160 $ 34,518
Work in process 5,485 5,795
Finished goods 115,835 111,663
- -------------------------------------------------
$155,480 $151,976
=================================================
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Expenditures for replacements
are capitalized and the replaced assets are retired. Depreciation is calculated
on a straight-line basis over the estimated useful lives of the respective
assets for accounting purposes. The Company capitalizes interest on major fixed
asset additions during construction. Interest capitalized totaled $2,297,000,
$1,864,000 and $2,017,000 in 1998, 1997 and 1996, respectively.
Patents, Trademarks, Proprietary Technology and Other Intangibles
Patents, trademarks, proprietary technology and other intangibles are carried at
cost less accumulated amortization which is calculated on a straight-line basis
over the estimated useful lives of the assets, not to exceed 40 years.
Deferred Charges and Other Assets
Deferred charges and other assets include financing costs that are amortized
over the terms of the respective financing agreements, as well as long-term
notes receivable, purchased software, investments and assets relating to the
securitization of accounts receivable.
Research and Development
Research and development expenditures are charged to expense as incurred.
Expenditures were $4,778,000, $5,043,000 and $4,789,000 in 1998, 1997 and 1996,
respectively.
Income and Dividends per Share
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128 replaces primary
and fully diluted earnings per share ("EPS") with basic and diluted EPS, and
requires dual presentation of basic and diluted EPS on the face of the income
statement for all companies with complex capital structures. Basic EPS
represents the earnings available for each common share outstanding during the
period. Diluted EPS reflects earnings available for each common share after the
affect of all potentially dilutive common shares, such as options, warrants and
convertible securities. The number of weighted average shares used to calculate
diluted EPS differs slightly from those shares used to calculate basic EPS due
to the effect of employee stock options.
Cash dividends declared for fiscal 1998, 1997 and 1996 were $0.38, $0.30 and
$0.24 per share, respectively.
Statement of Cash Flows
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid investments with a maturity of three months or less at the date of
purchase to be cash equivalents.
22
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Supplemental disclosure of cash flow information:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------
Cash paid during the year for:
Interest $32,705 $18,821 $23,674
Income Taxes $16,378 $27,385 $34,380
====================================================================
Interest payments during fiscal 1996 include $6,325,000 paid in settlement of
an IRS audit.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the customer.
Risk Management
The Company periodically enters into various hedging transactions to minimize
the effect of fluctuations in currency exchange rates, raw material pricing and
interest rates. The foreign currency forward contracts limit the Company's
exposure to currency fluctuations associated with certain transactions, while
raw material contracts stabilize a portion of the costs associated with the
Company's resin purchases. Interest rate swaps allow the Company to better
balance its interest rate exposure between fixed and floating interest rates.
The Company does not hold or issue these financial instruments for trading
purposes.
Foreign Currency Translation
The assets and liabilities of the international subsidiaries are translated to
U.S. dollars using the exchange rates in effect at the balance sheet date.
Results of operations are translated at the average monthly exchange rate.
Resulting adjustments are recorded in a separate component of stockholders'
equity as "Cumulative foreign currency translation adjustment."
Reclassification
Certain amounts for fiscal 1997 and 1996 have been reclassified to conform to
the fiscal year 1998 classifications.
2. Accounting Change
During the second quarter of fiscal 1998, the Company changed its accounting
policy for costs associated with the business process re-engineering activities
which relate to the Company's information system upgrade. In accordance with the
Financial Accounting Standards Board ("FASB") Emerging Issues Task Force Issue
No. 97-13, the Company is now expensing these process re-engineering costs.
Prior to fiscal 1998, the Company capitalized these costs, intending to amortize
them over a five to seven year period commencing with the implementation of the
new information system. The cumulative effect of the accounting change principle
resulted in a charge to earnings of $11,434,000 ($6,922,000 after taxes or $0.17
per diluted share). On a pro forma basis, the Company's reported net income for
fiscal 1997 and 1996 would have been reduced by $5,069,000 ($0.12 per diluted
share) and $1,022,000 ($0.02 per diluted share), respectively.
3. Restructuring
In fiscal 1997, the Company recorded a $19,000,000 restructuring charge
($11,590,000 after taxes or $0.28 per diluted share), for initiatives aimed at
streamlining certain operating and administrative functions, reducing costs and
improving operating efficiencies. During fiscal 1998, an additional charge of
$2,700,000 ($1,668,000 after taxes or $0.04 per diluted share), was recorded to
reflect greater than anticipated participation in the early retirement program
along with revisions to earlier estimates, principally costs associated with
employees. The total charge of $21,700,000 was composed of a $10,000,000 charge
for employee related costs, primarily an early retirement window package and
related costs to obtain personnel reductions and $11,700,000 related to asset
write-downs and disposals, mainly of a distribution facility and adjacent office
center in East Hartford, Connecticut. Substantially all restructuring
liabilities have been paid or settled during fiscal 1998.
4. Acquisitions and Divestitures
Acquisitions
During fiscal 1998, the Company's New Zealand subsidiary acquired, for
approximately $750,000, the XLO sponge brand in the New Zealand market. In
fiscal 1997, the Company's South African subsidiary acquired 76% of the
outstanding stock of Sealapac (PVT) LTD., a Zimbabwe manufacturer and marketer
for the consumer products and commercial markets.
On March 14, 1997, the Company purchased, for approximately $160,000,000,
the NationalPak business in Australia and New Zealand from National Foods
Limited. NationalPak manufacturers and markets consumer products such as plastic
wrap and bags, aluminum foil and wiping cloths under the GLAD, CHUX, OSO, MONO
and ROTA brand names. The acquisition was funded by long-term borrowings in the
United States, Canada, Australia and New Zealand (see Note 11). During fiscal
1998, the Company sold to local management a 4.4% interest in the Australian
subsidiary.
On March 19, 1996, the Company purchased, for approximately $32,000,000,
the net assets of Forest Technology Incorporated, the manufacturer and marketer
of the STARTERLOGG and HEARTHLOGG brand of wood fire starters and fire logs.
All of the above business and brand acquisitions have been accounted for by
the purchase method, and accord-
23
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
ingly, the results of operations of NationalPak, Forest Technology, Sealapac and
XLO are included in the Company's Consolidated Statements of Income from the
respective dates of acquisition. The excess of costs over net assets acquired
for the NationalPak and Forest Technology acquisitions were $63,100,000 and
$30,100,000, respectively, and are being amortized over a forty year period on a
straight line basis.
Divestitures
During fiscal 1997, the Company sold its SIMONIZ wax and polish business. The
gain associated with the sale of the SIMONIZ business is reflected in Other
income (expense), net in the fiscal 1997 Consolidated Statement of Income.
Early in fiscal 1995, First Brands sold the Prestone antifreeze/coolant and
car care business to Prestone Products Corporation ("Prestone"). During fiscal
1997, Prestone repaid a $13,000,000 loan (which for financial reporting purposes
was valued at $9,000,000 at the time of the divestiture), resulting in a gain of
approximately $2,700,000 that is reflected in Other income (expense), net, in
the Consolidated Statement of Income.
5. Accounts Receivable
During fiscal 1998, the Company exercised its option to terminate a previous
agreement to sell up to $100,000,000 in eligible trade accounts receivable.
After terminating its previous agreement, the Company entered into a new three
year agreement, with an automatic yearly renewal provision thereafter, for the
sale of $100,000,000 in fractional ownership interest in a defined pool of
eligible receivables. The new program increases the receivable pool which may be
considered eligible, reduces the yearly service fees and provides for a lower
discount rate. As of June 30, 1998 the entire $100,000,000 had been sold,
reflecting a $15,000,000 increase over the prior year-end balance. The amounts
sold are presented as reductions in accounts receivable on the accompanying
Consolidated Balance Sheets. The costs associated with this program are reported
as "Discount on sale of receivables."
6. Property, Plant and Equipment
Property, plant and equipment as of June 30, 1998 and 1997 consisted of:
Useful
(In thousands) 1998 1997 Lives
- -------------------------------------------------------------------------
Land and
Improvements $ 14,052 $ 18,713 --
Buildings 70,552 77,847 30-40 years
Machinery and
Equipment 479,060 404,019 13-15 years
Other 16,620 18,240 3-5 years
- -------------------------------------------------------------------------
580,284 518,819
Less: Accumulated
depreciation (160,529) (141,691)
- -------------------------------------------------------------------------
$ 419,755 $ 377,128
=========================================================================
Depreciation expense was $31,009,000, $29,042,000 and $25,149,000 in fiscal
1998, 1997 and 1996, respectively.
7. Patents, Trademarks, Proprietary Technology and Other Intangibles
The Company periodically reviews the carrying value of intangible assets to
determine whether the carrying amount of an asset is recoverable. The primary
indicators of recoverability are current or forecasted profitability of the
related acquired business, measured as profit before interest and amortization
of the related intangible assets compared to their carrying values. For the
three-year periods ended June 30, 1998, 1997 and 1996 there were no material
adjustments to the carrying values of intangible assets resulting from these
evaluations.
Patents, trademarks, proprietary technology and other intangibles as of June 30,
1998 and 1997 consisted of:
Useful
(In thousands) 1998 1997 Lives
- -------------------------------------------------------------------------
Trademarks $ 117,201 $ 116,866 40 years
Patents, proprietary
technology and
other intangibles 163,371 162,658 10-17 years
Excess of cost over
net assets
acquired 209,193 223,202 40 years
- -------------------------------------------------------------------------
489,765 502,726
Less: Accumulated
amortization (204,916) (192,631)
- -------------------------------------------------------------------------
$ 284,849 $ 310,095
=========================================================================
24
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Notes Payable
The Notes payable consisted of international subsidiaries' working capital
borrowings with local banks totaling $4,562,000 and $8,432,000 at June 30, 1998
and 1997, respectively. The international credit facilities, which aggregate
$17,456,000, are generally secured by the assets of the respective international
subsidiary, with approximately $2,024,000 at one international subsidiary
guaranteed by First Brands Corporation (U.S.). The Company also borrows against
an unsecured domestic line of credit and at June 30, 1998 and 1997, the entire
$15,000,000 available under this facility was unused. The average borrowings
outstanding and average interest rates charged during fiscal 1998 and 1997 were
$14,600,000 at 11.3% and $10,750,000 at 10.2%, respectively.
9. Accrued Liabilities
Accrued liabilities as of June 30, 1998 and 1997 consisted of the following:
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Interest $ 5,764 $ 6,494
Employee benefits and wages 9,410 9,295
Marketing and sales programs 44,997 54,384
Raw material purchases 16,220 14,314
Other 16,528 21,597
- --------------------------------------------------------------------------------
$92,919 $106,084
================================================================================
10. Financial Instruments
The Company has entered into various interest rate swap agreements to transform
a portion of its variable rate debt into fixed rate obligations. According to
the provisions of these agreements, the Company will pay between 5.45% and 7.07%
fixed interest for up to five years and will receive floating rate counter
payments (5.64% at June 30, 1998). A majority of the swap agreements provide for
a five year renewal at the counterparties discretion. The difference between
interest paid and received is included as an adjustment to interest expense. The
notional amount of the contracts is approximately $127,000,000. The fair value
of each swap agreement may generate a gain or loss depending on the estimated
amounts that the Company would pay to terminate the agreement based on the
prevailing and anticipated interest rates at the reporting dates.
To limit the impact of exchange rate fluctuations resulting from
anticipated inventory purchases and intercompany transactions, the Company
periodically enters into foreign currency contracts. Outstanding contracts
totaled approximately $24,775,000 and $40,875,000 as of June 30, 1998 and 1997,
respectively. Contracts outstanding as of June 30, 1998 will mature over the
next ten years.
The Company has entered into various contracts to partially stabilize the
cost, at or below the market average over the last four years, of its
polyethylene resin requirements. Fixed price contracts cover about 37% of the
Company's domestic resin requirements and have various maturities through 2006.
There is also a "collar" contract protecting a range of prices covering an
additional 20% of the Company's domestic resin requirements.
The Company considers the risks associated with its interest, currency and
resin contracts to be relatively low because of the Company's policy to only
enter into agreements with strong credit worthy counterparties. Gains and losses
on the currency impact of cross border transactions and the effect of foreign
currency contracts are recorded in Other income (expense), net in the
Consolidated Statement of Income. During fiscal 1998 a net credit of $1,900,000
was recorded from these transactions and during fiscal 1997 the net loss was
immaterial. Gains and losses on resin and interest contracts are recognized into
earnings when the related transactions being hedged are completed. There were no
significant gains or losses associated with these contracts in fiscal 1998 and
1997.
Other financial instruments include cash and cash equivalents, accounts and
notes receivable, notes payable, accounts payable and long-term debt. Because of
the short-term nature of cash and cash equivalents, accounts and notes
receivable, notes payable and accounts payable, their carrying value
approximates fair value. A portion of the Company's long-term debt consists of
variable rate instruments, therefore the carrying value approximates fair value.
The fair value of the Company's long-term fixed rate debt approximates the
carrying value as of June 30, 1998 and 1997.
25
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Long-term Debt
First Brands had the following long-term debt as of June 30, 1998 and 1997:
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Senior Debt(a):
$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% $190,000 $162,000
$59,354,000 Australian and New Zealand
Credit Facility, 7 year term
expiring March 2004, interest at
local Bill Rate plus .7% 42,745 58,727
$9,575,000 Canadian Credit Facility,
5 year term expiring March 2002,
interest at Canadian prime rate,
LIBOR plus .425% or Canadian
Bankers Acceptance plus .425% 3,424 8,619
Other 5,269 3,932
- --------------------------------------------------------------------------------
241,438 233,278
Less current maturities (3,384) (2,811)
- --------------------------------------------------------------------------------
Senior Debt 238,054 230,467
Subordinated Debt(b):
7 1/4% Senior Notes Due 2007 150,000 150,000
- --------------------------------------------------------------------------------
$388,054 $380,467
================================================================================
(a) The Company's revolving credit facility is unsecured and requires no
compensating balance, however it does have certain restrictive covenants,
the most significant of which relates to the ratio of debt to equity,
dividend payments and stock repurchases.
The seven-year $59,354,000 Australian and New Zealand credit facility is
composed of two parts; one of which was used to acquire the NationalPak
business (see Note 4) and a second part that can be used for working capital
needs. There are fixed periodic payments associated with the acquisition
borrowing and 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 five-year $9,575,000 Canadian credit facility requires fixed periodic
payments. The facility is secured by the accounts receivable, inventory and
fixed assets of the Canadian business.
(b) The $150,000,000, 7 1/4% Senior Notes (the "7 1/4% Notes") which were issued
during fiscal 1997 will become due on March 1, 2007. Proceeds from the sale
of the 7 1/4% Notes were used to redeem all of the Company's previously
issued 9 1/8% Senior Subordinated Notes (the "9 1/8% Notes") and to reduce
bank debt. The write-off of unamortized issuance costs and other expenses
associated with the repurchase of the 9 1/8% Notes was recorded as an
extraordinary charge on the Company's Consolidated Statement of Income.
The 7 1/4% Note Indenture contains certain restrictive covenants and
limitations the most significant of which relates to the Company's right to
incur debt and to engage in certain sale and leaseback transactions.
First Brands was in compliance with all the covenants of the senior and
subordinated debt agreements at June 30, 1998.
Principal payments due on long-term debt (including current maturities)
will require the following future payments: $3,384,000 in fiscal 1999,
$4,223,000 in fiscal 2000, $4,834,000 in fiscal 2001, $199,002,000 in fiscal
2002, $6,309,000 in fiscal 2003 and $173,686,000 thereafter.
12. Leases
During fiscal 1998, the Company acquired all remaining domestic production
equipment which had been previously leased. These assets were associated with
sale and leaseback agreements and were classified as operating leases in
accordance with SFAS No. 13 "Accounting for Leases."
The Company leases various warehousing, production and office facilities
under operating lease agreements. Lease terms generally range from one to
fifteen years with options to renew.
Lease commitments under non-cancelable operating leases extending for one
year or more require the following future payments: $5,955,000 in 1999,
$5,200,000 in 2000, $4,680,000 in 2001, $4,185,000 in 2002, $3,950,000 in 2003
and $13,785,000 thereafter. The total rental expense under operating leases was
$10,338,000, $16,035,000 and $20,856,000 for the years ended June 30, 1998, 1997
and 1996, respectively.
13. Capital Stock
First Brands has four stock option plans ("the plans") three of which are for
certain key employees and one for non-employee directors. The plans' objectives
are to establish a direct link between the financial interest of eligible
employees and the performance of the Company and to attract and retain the most
qualified personnel. Stock options are primarily performance-based and have
terms that are not more than ten years from the date of grant. The exercise
price for
26
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
stock options may not be less than the fair market value of the Common Stock on
the date of grant and such options will vest over a period determined by the
Compensation Committee of the Board of Directors. As of June 30, 1998, the total
number of options available for grant are 2,017,652.
Options granted to certain personnel contain restricted and limited stock
appreciation rights ("LSAR's"). LSAR's may be granted in tandem with a stock
option grant or at any time following the stock option grant and are only
exercisable upon a change of control of the Company. LSAR's will exercise
automatically following certain changes in control of the Company, and upon such
exercise the grantee, in cancellation of the underlying stock options, will
receive cash equal to the excess of the fair market value of each share of
Common Stock subject to the limited stock appreciation right over the exercise
price of the underlying stock option. LSAR's have been granted with respect to
1,288,000 shares.
A summary of the options transactions for the years ended June 30, 1998,
1997 and 1996 follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Options outstanding,
beginning of fiscal
year 3,257,472 2,943,822 2,613,380
Options granted--
per share
$22.53-$28.25 20,000 573,000 669,000
Options exercised--
per share
$9.50-$22.52 (159,802) (253,350) (328,558)
Options canceled--
per share
$16.38-$28.25 (26,500) (6,000) (10,000)
- --------------------------------------------------------------------------------
Options outstanding,
end of fiscal year 3,091,170 3,257,472 2,943,822
- --------------------------------------------------------------------------------
Exercisable at June 30 1,934,670 2,028,472 2,287,822
================================================================================
The following tables set forth information regarding stock options
outstanding and those options which are exercisable as of June 30, 1998:
OPTIONS Weighted Weighted
OUTSTANDING Stock Average Average
Range of Options Exercise Remaining
Exercise Prices Outstanding Price Life
- -----------------------------------------------------------------------------
$9.50-$12.66 699,170 $11.81 2.7
$14.66-$22.60 1,786,000 $18.03 6.2
$26.00-$28.25 606,000 $25.87 8.8
- -----------------------------------------------------------------------------
3,091,170 $18.16 5.9
=============================================================================
OPTIONS Weighted
EXERCISABLE Stock Average
Range of Options Exercise
Exercise Prices Exercisable Price
- -------------------------------------------------------------------------------
$9.50-$12.66 699,170 $11.81
$14.66-$22.60 1,192,500 $15.79
$26.00-$28.25 43,000 $23.84
- -------------------------------------------------------------------------------
1,934,670 $14.53
===============================================================================
The Company adopted the disclosure-only provision of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for its time vested option plans. If the Company had elected to
adopt the recognition provision of SFAS No. 123, income and per share amounts
would be the following:
1998 1997 1996
- --------------------------------------------------------------------------------
Income before
extraordinary loss and
accounting change:
As reported $52,330 $50,865 $65,100
Pro forma 51,744 50,265 64,461
Basic earnings per share:
As reported $ 1.32 $ 1.25 $ 1.56
Pro forma 1.31 1.23 1.55
Diluted earnings per share:
As reported $ 1.29 $ 1.22 $ 1.53
Pro forma 1.28 1.20 1.51
================================================================================
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model based on the following weighted-average
assumptions:
1998 1997 1996
- -------------------------------------------------------------------------------
Dividend yield 1.5% 1.3% 1.3%
Risk free interest rate 5.5% 5.3% 5.3%
Expected volatility rate 42.6% 25.8% 21.9%
Expected life 7.7 years 7.6 years 7.3 years
===============================================================================
14. Income Taxes
The geographic components of earnings before income taxes, extraordinary loss
and cumulative change in accounting principle are as follows:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
United States $74,951 $75,790 $100,236
International 9,743 7,608 8,683
- --------------------------------------------------------------------------------
$84,694 $83,398 $108,919
================================================================================
27
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Total income taxes for the years ended June 30, 1998, 1997 and 1996 were
allocated as follows:
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Income before
extraordinary loss and
cumulative change in
accounting principle $32,364 $32,533 $43,819
Extraordinary loss -- (415) --
Cumulative change in
accounting principle (4,512) -- --
Stockholders' equity, for
compensation expense
for tax purposes in
excess of amounts
recognized for financial
reporting purposes (1,071) (1,212) (1,256)
- --------------------------------------------------------------------------------
$26,781 $30,906 $42,563
================================================================================
Income tax expense attributable to income before extraordinary loss and
cumulative change in accounting principle for the years ended June 30, 1998,
1997 and 1996 consists of the following:
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Current:
Federal $ 6,765 $20,418 $11,640
State 1,071 3,539 2,566
Foreign 4,806 2,768 3,805
- -------------------------------------------------------------------------------
Total current 12,642 26,725 18,011
- -------------------------------------------------------------------------------
Deferred:
Federal 17,037 4,638 20,916
State 3,355 1,028 5,275
Foreign (670) 142 (383)
- -------------------------------------------------------------------------------
Total deferred 19,722 5,808 25,808
- -------------------------------------------------------------------------------
$32,364 $32,533 $43,819
===============================================================================
The fiscal 1998 increase in deferred income tax expense and decrease in
current income tax expense relate primarily to information system expenditures,
restructuring charges and changes in various accruals.
Income tax expense attributable to income before extraordinary loss differs
from the amounts computed by applying the U.S. federal tax rate of 35 percent to
pre-tax income before extraordinary loss as a result of the following:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Computed "expected"
tax expense $29,643 $29,189 $38,122
Adjustments resulting
from:
Amortization of
goodwill 788 703 440
State income taxes,
net of federal
income tax benefit 2,877 2,919 4,713
Foreign income tax in
excess of statutory
rate 726 238 478
Other, net (1,670) (516) 66
- --------------------------------------------------------------------------------
Actual tax expense $32,364 $32,533 $43,819
================================================================================
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1998 and 1997 are presented below:
(In thousands) 1998 1997
- -------------------------------------------------------------------------------
Current deferred tax assets:
Accounts receivable reserves $ 2,557 $ 2,969
Difference between book and
tax basis of inventories 3,539 3,882
Accrued liabilities, not
deductible until paid 5,731 9,141
- -------------------------------------------------------------------------------
Total current deferred tax assets 11,827 15,992
- -------------------------------------------------------------------------------
Long-term deferred tax assets:
Pensions, other post employment
benefits and deferred
compensation 9,127 6,423
Intangible asset, not
amortized for tax 7,344 7,374
- -------------------------------------------------------------------------------
Total long-term deferred tax assets 16,471 13,797
- -------------------------------------------------------------------------------
Long-term deferred tax liabilities:
Plant and equipment, principally
due to differences in
depreciation (82,472) (73,373)
Deferred charges, principally
purchase accounting and
information systems (11,715) (4,110)
Foreign subsidiaries (1,072) (1,662)
- -------------------------------------------------------------------------------
Total long-term deferred
tax liabilities (95,259) (79,145)
- -------------------------------------------------------------------------------
Long-term deferred tax
liability, net (78,788) (65,348)
- -------------------------------------------------------------------------------
Net deferred tax liability $(66,961) $(49,356)
================================================================================
28
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Management of the Company has determined, based on the Company's history of
operating earnings and its expected income, that operating income will more
likely than not be sufficient to fully utilize these deferred tax assets as they
mature.
The Company has not provided for Federal income taxes on the undistributed
income of its international subsidiaries because it is the Company's intention
to reinvest such undistributed income. Cumulative undistributed earnings for
which no U.S. tax has been provided were $51,403,000, $48,787,000 and
$44,921,000 for the years ended June 30, 1998, 1997 and 1996 respectively.
15. Employee Benefits
Retirement Plans
In the U.S., First Brands maintains a non-contributory defined benefit
retirement plan ("pension plan") for some employees and a defined contribution
pre and post-tax savings plans ("savings plan") for all employees.
The Company contributes to the savings plan account of each eligible
employee. Any regular employee of First Brands or its domestic subsidiaries is
eligible to participate in the amended savings plan. The Company matches 50% of
employee contributions up to the lower of statutory limits or 3% of base pay.
Savings plan expense for the years ended June 30, 1998, 1997 and 1996 totaled
$2,442,000, $2,194,000 and $2,028,000, respectively. The Company also maintains
a noncontributory profit sharing plan, to which it provides a profit sharing
contribution to each eligible employee's account in the savings plan. The
contribution is discretionary and is based on the Company's operating
performance. The Company's profit sharing contributions are in the form of
existing issued and outstanding shares of First Brands Common Stock. The costs
associated with the profit sharing plan were approximately $423,000, $445,000
and $730,000 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
The pension plan for First Brands in the U.S., and certain of its
international subsidiaries provides defined benefits that are based on years of
credited service, highest average compensation (as defined) and the primary
social security benefit. Beginning January 2000, in the U.S. the pension plan
formula changes to a defined benefit plan based on years of credited service and
career average compensation. Pension plan assets primarily consist of corporate
equities, as well as corporate and government fixed income obligations.
Contributions to the plan are based upon the projected unit credit actuarial
cost funding method and are limited to amounts that are currently deductible for
tax purposes. Prior service costs are amortized on a straight-line basis over
the average remaining service period for active plan participants.
The Company's U.S. early retirement program (see Note 3) resulted in a
special actuarial termination charge of $1,400,000 for fiscal 1997. This charge
was increased by an additional $28,000 during fiscal 1998 to reflect actual
participation in the early retirement program. The Company's Canadian subsidiary
terminated its defined pension plan and transferred all eligible employees to a
new group registered retirement savings plan ("RRSP") which provides essentially
the same benefits as the former plan. As a result of the plan termination, the
Company recognized a $530,000 curtailment gain during fiscal 1997. Costs
associated with the Canadian RRSP were approximately $250,000 for fiscal 1998.
The following table sets forth the combined domestic and international
plans' net pension cost, funded status and amounts recognized in the Company's
Consolidated Financial Statements at June 30, 1998, 1997 and 1996:
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Net pension cost
included the following
components:
Service cost--
benefits earned
during the period $ 3,229 $ 3,275 $ 3,455
Interest cost on
projected benefit
obligations 6,307 6,177 4,984
Actual return on plan
assets (6,724) (6,898) (6,838)
Net amortization and
deferral (797) (816) (81)
Cost of Special
termination benefit 28 1,400 --
Curtailment (gain) -- (530) --
- --------------------------------------------------------------------------------
$ 2,043 $ 2,608 $ 1,520
================================================================================
29
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Reconciliation of funded status:
Vested accumulated benefit
obligation $ 74,250 $ 57,755
Non-vested accumulated benefit
obligation 8,104 6,753
- --------------------------------------------------------------------------------
Accumulated benefit obligation 82,354 64,508
Additional liability based on
projected compensation 14,793 18,251
- --------------------------------------------------------------------------------
Projected benefit obligation 97,147 82,759
Fair value of plan assets 89,489 80,375
- --------------------------------------------------------------------------------
Plan assets less than projected
benefit obligation 7,658 2,384
Unrecognized prior service
benefit 6,940 7,577
Unrecognized net (loss) (3,499) (407)
- --------------------------------------------------------------------------------
Net pension liability recognized in
the consolidated balance sheet 11,099 9,554
================================================================================
To calculate the expense and liability associated with its pension plans,
the Company utilizes the following assumptions:
1998 1997 1996
- -----------------------------------------------------------------------------
DOMESTIC
Discount rate 7.0% 8.0% 8.0%
Compensation
increase rate 4.0% 4.5% 4.5%
Expected long-term
return on plan assets 9.5% 9.5% 9.5%
INTERNATIONAL
Discount rate 5.5% 6.0%-8.5% 8.5%
Compensation
increase rate 4.0% 4.0%-5.0% 5.0%
Expected long-term
return on plan assets 7.0% 7.5%-8.5% 8.5%
- -----------------------------------------------------------------------------
In the U.S. federal law restricts the amount of benefits that can be paid
from a qualified plan. First Brands maintains an unfunded non-qualified plan,
the effect of which is to award retirement benefits to all employees on a
uniform basis. Expenses associated with this plan were $485,000, $564,000,
$297,000 during 1998, 1997 and 1996, respectively.
Postretirement Benefits
The Company provides certain medical and life insurance benefits for retirees
and their dependents in the United States. Employees who have reached the age of
55, and have met the Company's minimum service requirements, become eligible for
these benefits. The medical and life insurance benefits available are partially
contributory in nature, and it is the Company's practice to fund these benefits
as incurred. Retirees outside the United States are generally covered by locally
sponsored government programs.
Following is an analysis of postretirement benefit costs for fiscal 1998,
1997 and 1996:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Service cost $ 274 $ 370 $ 297
Interest cost 1,371 1,129 1,112
Unrecognized net (gain) -- (36) --
Amortization of prior
service cost 92 92 --
Amortization of
transition obligation 583 583 583
- --------------------------------------------------------------------------------
Net postretirement
benefit cost 2,320 2,138 1,992
Cost of special
termination benefit 183 1,600 --
- --------------------------------------------------------------------------------
$ 2,503 $ 3,738 $ 1,992
================================================================================
During fiscal 1997, the Company announced an early retirement program (see
Note 3) for which it recorded a special actuarial termination charge of
$1,600,000. This charge was increased by an additional $183,000 during fiscal
1998 to reflect actual participation in the early retirement program.
The Company's accumulated postretirement benefit obligation (the transition
obligation) at June 30, 1998 and 1997 is composed of the following components:
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
Retirees $ 13,551 $ 7,926
Fully eligible active plan
participants 1,033 3,011
Active plan participants not
fully eligible 5,157 5,770
- --------------------------------------------------------------------------------
Total 19,741 16,707
Unrecognized transition obligation (8,798) (9,381)
Unrecognized prior service cost (1,140) (1,232)
Unrecognized gain (loss) (115) 2,202
- --------------------------------------------------------------------------------
Accrued unfunded postretirement
benefit cost $ 9,688 $ 8,296
================================================================================
The discount rate used in determining the accumulated postretirement
benefit obligation was 7% and 8% for fiscal 1998 and 1997, respectively. The
assumed health care cost trend rate used to measure the accumulated
postretirement benefit obligation was 9.5% in 1998 and is expected to gradually
decline .5% per year to an ultimate rate of 5% in fiscal year 2007. A 1%
increase in the assumed health care cost trend rate for each year would increase
the accumulated
30
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
postretirement benefit obligation as of June 30, 1998 by $670,000 and increase
the service and interest cost for 1998 by $62,000.
16. Commitments, Contingencies and Related Parties
Litigation
The Company is subject to various claims and contingencies related to lawsuits,
taxes, environmental and other matters arising out of the normal course of
business. Management believes that the ultimate liability, if any, arising from
these claims and contingencies is not likely to have a material adverse effect
on the Company's annual results of operations or financial condition.
Related Parties
Beginning in January, 1997, Alfred E. Dudley, a Director and former Chairman of
the Company, was retained as a consultant. For these services, he was paid a
yearly consulting fee of $100,000 in fiscal 1998 and 1997.
The Company has utilized the services of Lee Hill Incorporated, a marketing
services company, of which James R. McManus, a Director of First Brands, was the
owner. For fiscal 1998 the total fees paid to Lee Hill Incorporated were
$118,000. During September 1997, Mr. McManus sold his interest in Lee Hill.
The Company believes that each of the related party transactions described
above were on terms as fair to the Company as could have been obtained from
unaffiliated third parties.
Other
The Company is a party to a contract with Union Carbide that provides for the
purchase of a substantial portion of the Company's primary raw material
requirements for plastic wrap and bags through December 31, 1999. The pricing
provisions in the Company's present supply contracts are designed to be
responsive to market conditions of the relevant raw materials.
17. Geographic Segment Data
The following is a summary of net sales, operating profit, and identifiable
assets in the United States and internationally in 1998, 1997 and 1996:
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Revenues:
United States $ 972,638 $ 954,411 $ 932,183
International 231,032 165,487 140,839
- -------------------------------------------------------------------------------
$ 1,203,670 $ 1,119,898 $ 1,073,022
===============================================================================
Operating profit:
United States $ 118,663 $ 130,032 $ 135,500
International 23,493 15,355 12,513
Less Corporate
Expense (20,097) (20,189) (19,412)
Restructuring
Expense (2,700) (19,000) --
- --------------------------------------------------------------------------------
$ 119,359 $ 106,198 $ 128,601
================================================================================
Identifiable assets:
United States $ 876,092 $ 835,821 $ 775,447
International 184,109 210,960 85,433
- --------------------------------------------------------------------------------
$ 1,060,201 $ 1,046,781 $ 860,880
================================================================================
Operating profit reflects net sales less cost of goods sold, selling,
general and administrative expenses, amortization and other depreciation and
restructuring expenses.
Included in U.S. revenues are export sales totaling $36,780,000,
$42,076,000 and $37,055,000 during the years ended June 30, 1998, 1997 and 1996,
respectively. The Company does not believe that it is dependent on any single
customer, however, net sales to its largest customer accounted for approximately
12% of total sales for the years ended June 30, 1998, 1997 and 1996.
18. Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of prior year financial statements is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which expands annual financial statement
disclosures about operating segments and establishes disclosure requirements
concerning a company's products, customers and geographic areas. Selected
information about operating segments is also required for interim financial
reports issued to shareholders. Financial statement disclosures for prior
periods are required to be restated.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which amends the disclosure
requirements previously established by SFAS No. 87, 88 and 106. The new
disclosure requirements are intended to
31
First Brands Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
standardize the reporting of pensions and other postretirement benefits. While
SFAS No. 132 does not change the measurement or recognition requirements of
those plans, it does require some new information from plan sponsors and allows
for the elimination of other information which is no longer considered useful.
Restatement of disclosure for earlier periods is required, unless such
information is not readily available.
The Company plans to adopt each of the above pronouncements in its fiscal
year beginning July 1, 1998. While the adoption of SFAS No. 130, 131 and 132
will have no impact on First Brands results of operations, cash flows or
financial position, the Company is currently evaluating the appropriate format
of disclosure for each pronouncement.
19. Subsequent Event
On July 2, 1998, the Company entered into an agreement to acquire, for
approximately $53,000,000, the HANDI WIPES and WASH 'N DRI brands from the
Colgate-Palmolive Company. The acquisition, which will be accounted for as a
purchase, is expected to be completed during the first quarter of fiscal 1999
and will be financed through borrowings from the Company's revolving credit
facility.
20. Quarterly Financial Data (Unaudited)
Year Ended June 30, 1998
Quarters Ended
--------------------------------------------------------
(In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30,
per share amounts) 1997 1997 1998 1998
- --------------------------------------------------------------------------------
Net sales $269,480 $309,282 $296,414 $328,494
Gross profit 86,285 112,288 105,436 123,791
Income before
cumulative
change(a) 12,173 13,307 16,038 10,812
Net income 12,173 6,385 16,038 10,812
Per common
share:
Basic
Income
before
cumulative
change(a) $0.30 $0.33 $0.41 $0.28
Net income $0.30 $0.16 $0.41 $0.28
- --------------------------------------------------------------------------------
Diluted
Income
before
cumulative
change(a) $0.30 $0.33 $0.40 $0.27
Net income $0.30 $0.16 $0.40 $0.27
================================================================================
Year Ended June 30, 1997
Quarters Ended
--------------------------------------------------------
(In thousands, except Sept. 30, Dec. 31, Mar. 31, June 30,
per share amounts) 1996 1996 1997 1997
- --------------------------------------------------------------------------------
Net sales $255,597 $279,952 $264,886 $319,463
Gross profit 88,189 101,719 96,122 120,182
Income before
extraordinary
loss(a) 18,007 15,351 16,054 1,453
Net income 18,007 15,351 15,421 1,453
Per common
share:
Basic
Income
before
extraordinary
loss(a) $0.44 $0.38 $0.40 $0.04
Net income $0.44 $0.38 $0.38 $0.04
- --------------------------------------------------------------------------------
Diluted
Income
before
extraordinary
loss(a) $0.43 $0.37 $0.39 $0.04
Net income $0.43 $0.37 $0.37 $0.04
================================================================================
(a) The fourth quarter of fiscal 1997 and the second quarter of fiscal 1998,
include a $19,000 and $2,700 charge for restructuring expenses,
respectively.
32