________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT
UNDER
SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 33-7264
------------------------
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
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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 DECEMBER 31, 1993
COMMON STOCK, $.01 PAR VALUE 21,941,559 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 December 31, 1993 and
1992............................................................................................... 3
Consolidated Condensed Statements of Income For the Six Month Periods Ended December 31, 1993 and
1992............................................................................................... 4
Consolidated Condensed Balance Sheets December 31, 1993 and June 30, 1993........................... 5
Consolidated Condensed Statement of Stockholders' Equity -- For the Six Month Period Ended December
31, 1993........................................................................................... 6
Consolidated Condensed Statements of Cash Flows -- For the Six Month Periods Ended December 31, 1993
and 1992........................................................................................... 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 Accountants' Report..................................................................... 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 16
Items 2-6................................................................................................ 16-19
SIGNATURE................................................................................................ 20
2
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
Net sales.............................................. $ 270,393 $ 268,018
Cost of goods sold..................................... 166,633 170,759
Selling, general and administrative expenses........... 63,160 61,041
Amortization and other depreciation.................... 6,109 4,499
Interest expense....................................... 5,322 5,711
Discount on sale of receivables........................ 1,019 1,058
Other income (expense), net............................ (267) 195
Income before provision for income taxes............... 27,883 25,145
Provision for income taxes............................. 11,491 10,260
Net income............................................. $ 16,392 $ 14,885
Net income per common share and common equivalent share
(Note 6):............................................ $ 0.74 $ 0.68
Weighted average common and common equivalent shares
outstanding (Note 6)................................. 22,162 21,843
See accompanying notes to consolidated condensed financial statements.
3
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
(UNAUDITED)
Net sales.............................................. $ 550,206 $ 537,015
Cost of goods sold..................................... 339,602 337,682
Selling, general and administrative expenses........... 128,452 124,759
Amortization and other depreciation.................... 11,896 10,034
Interest expense....................................... 10,664 12,183
Discount on sale of receivables........................ 2,024 2,185
Other income (expense), net............................ (288) 204
Income before provision for income taxes............... 57,280 50,376
Provision for income taxes............................. 24,516 20,486
Net income............................................. $ 32,764 $ 29,890
Net income per common share and common equivalent share
(Note 6):............................................ $ 1.48 $ 1.37
Weighted average common and common equivalent shares
outstanding (Note 6)................................. 22,097 21,821
See accompanying notes to consolidated condensed financial statements.
4
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 31, 1993 JUNE 30, 1993
----------------- -------------
(IN THOUSANDS)
(UNAUDITED)
ASSETS
Cash and cash equivalents...................................................... $ 9,718 $ 11,672
Accounts and notes receivable -- net........................................... 96,262 85,257
Inventories.................................................................... 166,685 177,148
Prepaid expenses............................................................... 3,738 5,674
Total current assets................................................. 276,403 279,751
Property, plant and equipment (net of accumulated depreciation of $80,501 and
$69,570)..................................................................... 253,286 252,372
Patents, trademarks, proprietary technology and other intangibles (net of
accumulated amortization of $185,630 and $177,621)........................... 240,898 247,226
Deferred charges and other assets (net of accumulated amortization of $46,215
and $45,078)................................................................. 24,000 27,455
Total assets......................................................... $ 794,587 $ 806,804
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.................................................................. $ 10,162 $ 178
Current maturities of long-term debt........................................... 4,808 5,079
Accrued income and other taxes................................................. 29,490 26,035
Accounts payable............................................................... 25,928 82,298
Accrued liabilities............................................................ 120,871 130,535
Total current liabilities............................................ 191,259 244,125
Long-term debt................................................................. 229,003 226,250
Deferred taxes payable......................................................... 18,750 9,651
Deferred gain on sale of assets................................................ 6,246 7,107
Other long-term obligations.................................................... 12,971 14,218
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value, 10,000,000 shares authorized; none
issued.................................................................. -- --
Common stock, $0.01 par value, 50,000,000 shares authorized; issued 21,941,559
shares at December 31, 1993 and 21,827,878 shares at June 30, 1993........... 219 218
Capital in excess of par value................................................. 114,934 112,535
Cumulative foreign currency translation adjustment............................. (2,880) (1,690)
Retained earnings.............................................................. 224,085 194,390
Total stockholders' equity........................................... 336,358 305,453
Total liabilities and stockholders' equity........................... $ 794,587 $ 806,804
See accompanying notes to consolidated condensed financial statements.
5
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1993
CUMULATIVE
CAPITAL FOREIGN
COMMON IN EXCESS CURRENCY
STOCK OF TRANSLATION RETAINED
PAR VALUE PAR VALUE ADJUSTMENT EARNINGS TOTAL
--------- --------- ------------ -------- --------
(IN THOUSANDS)
(UNAUDITED)
Balance as of June 30, 1993........................ $ 218 $ 112,535 $ (1,690) $194,390 $305,453
Exercise of Stock Options.......................... 1 2,399 -- -- 2,400
Common Stock Dividends............................. -- -- -- (3,069) (3,069)
Net Income......................................... -- -- -- 32,764 32,764
Foreign Currency Translation Adjustment............ -- -- (1,190) -- (1,190)
Balance as of December 31, 1993.................... $ 219 $ 114,934 $ (2,880) $224,085 $336,358
See accompanying notes to consolidated condensed financial statements.
6
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
(IN THOUSANDS)
(UNAUDITED)
Cash flows from operating activities:
Net income................................................................ $ 32,764 $ 29,890
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 21,027 18,045
Deferred income taxes................................................ 9,240 3,790
Change in non-cash current assets and liabilities:
(Increase) in accounts receivable.................................... (10,590) (15,516)
Decrease in inventories.............................................. 10,705 8,488
Decrease in prepaid expenses......................................... 2,354 1,956
Increase (Decrease) in accrued income and other taxes................ 3,063 (7,852)
(Decrease) in accounts payable....................................... (56,683) (39,888)
(Decrease) in accrued liabilities.................................... (10,297) (14,975)
Other changes........................................................ (513) (2,221)
Total adjustments............................................... (31,694) (48,173)
Net cash provided (used) for operating activities......................... 1,070 (18,283)
----------------- -----------------
Cash flows from investing activities:
Capital expenditures................................................. (12,298) (17,490)
Patents and other proprietary technology............................. -- (1,950)
Net cash (used) for investing activities............................. (12,298) (19,440)
Cash flows from financing activities:
Increase in revolving credit borrowings, net......................... 5,500 7,400
Increase in other borrowings, net.................................... 9,222 9,872
Repayment of term loan............................................... (2,379) (2,379)
Sale of accounts receivable, net..................................... -- 20,000
Dividends paid....................................................... (3,069) (1,520)
Net cash provided by financing activities................................. 9,274 33,373
Net (Decrease) in cash and cash equivalents............................... (1,954) (4,350)
Cash and cash equivalents at beginning of period.......................... 11,672 12,516
Cash and cash equivalents at end of period................................ $ 9,718 $ 8,166
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. Certain prior year amounts have been reclassified to
conform with the current year's presentation. All material intercompany
transactions and balances have been eliminated. Due to the seasonal nature of
some of its product lines, primarily in the Company's antifreeze/coolant
business, the sales of which are concentrated in the first half of the Company's
fiscal year, the results of operations for the six month period ended December
31, 1993 and the balance sheet at December 31, 1993 are not indicative of the
results for a full year.
First Brands Corporation ('First Brands' or the 'Company') is engaged in
the development, manufacture, marketing and sales of consumer products under
branded and private labels. Principal branded products include: GLAD and
GLAD-LOCK (plastic wrap and bags), PRESTONE (antifreeze/coolant and car care
products), STP (oil and fuel treatment and other specialty automotive products);
SIMONIZ (car waxes and polishes) and SCOOP AWAY and EVER CLEAN (clumping cat
litter products).
ACCOUNTING CHANGES
The Company provides certain medical and life insurance benefits for
retirees and their eligible dependents. 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. Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 -- Employers' Accounting for Postretirement
Benefits Other than Pensions (SFAS No. 106). SFAS No. 106 requires that
companies accrue the projected future cost of providing postretirement benefits
during the period that employees render the services necessary to be eligible
for such benefits. The Company has elected to recognize the cumulative effect of
the change to SFAS No. 106 by amortizing the transition obligation of
$16,767,000 over 20 years. While the adoption of this standard does have an
impact on the Company's reported net income, it does not impact First Brand's
cash flows because the Company intends to continue its current practice of
paying the cost of postretirement benefits as incurred.
The Company's accumulated postretirement benefit obligation (the transition
obligation) at July 1, 1993 is comprised of the following components (in
thousands):
Accumulated postretirement benefit obligations:
Retirees.............................................................................. $ (8,656)
Fully eligible active plan participants............................................... (2,506)
Active plan participants not fully eligible................................................ (5,605)
Total............................................................................ (16,767)
Unrecognized transition obligation......................................................... 16,767
Net amount recognized in balance sheet..................................................... $ 0
The components of the Company's net periodic postretirement benefit cost
for the three and six months ended December 31, 1993 were as follows (in
thousands):
1
FIRST BRANDS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, 1993 DECEMBER 31, 1993
----------------- -----------------
Service cost -- benefits earned................................. $ 95 $ 190
Interest cost on accumulated postretirement benefit
obligation.................................................... 327 654
Amortization of transition obligation........................... 210 420
Net periodic postretirement benefit cost................... $ 632 $ 1,264
The discount rate used in determining the accumulated postretirement
benefit obligation was 8%. The assumed health care cost trend rate used to
measure the accumulated postretirement benefit obligation was 13%, trending down
1% per year after fiscal year 1995 to an ultimate rate of 7% in fiscal year
2001. A one-percentage-point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of July 1, 1993 by approximately $750,000 and would have increased the
postretirement benefit expense for the six month period by approximately
$60,000.
CHANGE IN ACCOUNTING ESTIMATE
As a result of the trend of declining long-term interest rates, the Company
remeasured its pension obligation during October of 1993. The requirement of
Financial Accounting Standards Board Statement No. 87 -- Employers' Accounting
for Pensions (SFAS No. 87) to adjust the discount rate in line with current and
expected to be available interest rates on high quality fixed-income bonds has
resulted in a decision by the Company to reduce its assumed discount rate from
9.0%, which was used at June 30, 1993, to a rate of 8.0%. In addition, the
Company has also reduced its expected long-term rate of return on plan assets
from 10.0% to 9.5% and its expected rate of increase in future compensation
levels from 4.75% to 4.5%. Based upon these revised assumptions, the Company's
projected benefit obligation increased by $8,400,000, and the Company's annual
pension cost increased by $800,000.
INVENTORIES
Inventories were comprised of:
DECEMBER 31, JUNE 30,
1993 1993
------------ --------
(IN THOUSANDS)
Raw materials................................................................ $ 25,243 $ 28,344
Work-in-process.............................................................. 6,144 5,272
Finished goods............................................................... 135,298 143,532
Total.............................................................. $166,685 $177,148
2
FIRST BRANDS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. LONG-TERM DEBT
First Brands had long-term debt outstanding as of December 31, 1993 and
June 30, 1993 as follows:
DECEMBER 31, JUNE 30,
1993 1993
------------ ---------
(IN THOUSANDS)
Senior Debt:
$165,000,000 Revolving Credit Facility, 4 year term expiring June, 1995, interest at
prime rate, LIBOR plus 3/4% or CD rate plus 7/8%; commitment fee of .35% on unused
portion............................................................................. $ 51,000 $ 45,500
10 year Term Loan, expiring November, 2001, interest at 90 day LIBOR plus 2%.......... 33,312 35,692
Other................................................................................. 4,499 5,137
Subtotal............................................................................ 88,811 86,329
Less: current maturities......................................................... (4,808) (5,079)
Senior Debt...................................................................... 84,003 81,250
Subordinated Debt:
9 1/8% Senior Subordinated Notes Due 1999........................................ 100,000 100,000
13 1/4% Subordinated Notes Due 2001.............................................. 45,000 45,000
Subordinated Debt........................................................... 145,000 145,000
Total Long Term Debt................................................... $229,003 $ 226,250
The Revolving Credit Facility has no compensating balance requirements,
however it does have restrictive covenants, the most significant of which
include the maintenance of certain minimum levels for the ratio of current
assets to current liabilities, interest coverage and the ratio of total
liabilities to equity.
The 13 1/4% Subordinated Note Purchase Agreement (the 'Note Purchase
Agreement') requires the principal amount to be paid in annual installments,
subject to reduction for prior repurchases, of $9,000,000 on July 1, 1997 and on
each July 1 thereafter through the year 2001. The 9 1/8% Notes contain
limitations on the Company's right to incur additional debt. Both the 9 1/8%
Notes Indenture and the Note Purchase Agreement have restrictive covenants or
limitations on the payment of dividends, the distribution of capital stock or
the redeeming of capital stock, as well as limitations on Company and subsidiary
debt and limitations on the sale of assets.
First Brands was in compliance with all the covenants of all debt
agreements at December 31, 1993.
3. ACCOUNTS RECEIVABLE
In May 1992, the Company entered into a $100,000,000 extendable three year
agreement to sell fractional ownership interest, without recourse, in a defined
pool of eligible trade accounts receivable. As of December 31, 1993 the entire
$100,000,000 had been sold. The amounts sold are reflected as a reduction in
accounts receivable on the accompanying balance sheet. The costs associated with
this program are recorded on the Consolidated Condensed Statement of Income as
'Discount on sale of receivables'.
4. NOTES PAYABLE
Notes payable at December 31, 1993 of $10,162,000 consisted of a
$10,000,000 unsecured domestic line of credit and international subsidiaries'
working capital borrowings with local lenders. The Company's international
working capital credit facilities aggregated $20,295,000 at December 31, 1993
and are generally secured by the assets of the respective international
subsidiary, with approximately $1,476,000 of the availability at one subsidiary
being guaranteed by First Brands Corporation (U.S.).
3
FIRST BRANDS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
5. TAXES
The provision for income taxes for the three and six months ended December
31, 1993 and 1992 consists of the following:
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------------ ------------------
1993 1992 1993 1992
------- ------- ------- -------
(IN THOUSANDS)
Current:
Federal................................................ $ 4,632 $ 6,000 $10,937 $11,822
State.................................................. 1,067 1,428 2,477 2,813
Foreign................................................ 718 933 1,862 2,062
Total current..................................... 6,417 8,361 15,276 16,697
Deferred:
Federal................................................ 4,196 1,614 7,778 3,171
State.................................................. 963 385 1,632 756
Foreign................................................ (85) (100) (170) (138)
Total deferred.................................... 5,074 1,899 9,240 3,789
Total Provision.............................. $11,491 $10,260 $24,516 $20,486
In August 1993, the U.S. Congress enacted legislation which increased the
corporate federal income tax rate from 34% to 35%, retroactive to January 1,
1993. As a result of the increased rate, tax expense for the first quarter was
increased by $980,000 reflecting the net impact of remeasuring the Company's
June 30, 1993 deferred tax assets and liabilities, and current taxes payable.
6. EARNINGS PER SHARE
Net income per share has been computed using the weighted average number of
common shares and common share equivalents outstanding for the periods.
4
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 six month periods ended December 31, 1993 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 branded and private label
consumer products for the home and automotive markets. The Company's products
which include 'GLAD', 'GLAD-LOCK' 'PRESTONE', 'STP', 'SIMONIZ', 'SCOOP AWAY' and
'EVER CLEAN' 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.
Because of the seasonality in some of its product lines, primarily in the
Company's antifreeze/coolant business, the sales of which are concentrated in
the first half of the Company's fiscal year, the results of operations for any
interim period and the balance sheet as of the end of any interim period are not
indicative of a full year's operations nor the financial condition of First
Brands at the end of any subsequent period.
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 six month
periods ended December 31, 1993 and 1992.
THREE MONTHS SIX MONTS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
--------------- ---------------
1993 1992 1993 1992
----- ----- ----- -----
Net sales.................................................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................................................... 61.6 63.7 61.7 62.9
Gross profit............................................................... 38.4 36.3 38.3 37.1
Selling, general, and administrative expenses.............................. 23.4 22.8 23.3 23.2
Amortization and other depreciation........................................ 2.2 1.7 2.2 1.9
Interest expense........................................................... 2.0 2.1 1.9 2.3
Discount on sale of receivables............................................ 0.4 0.4 0.4 0.4
Other income (expense), net................................................ (0.1) 0.1 (0.1) 0.1
Income before provision for income taxes................................... 10.3 9.4 10.4 9.4
Provision for income taxes................................................. 4.2 3.8 4.4 3.8
Net income................................................................. 6.1% 5.6% 6.0% 5.6%
QUARTER AND SIX MONTHS ENDED DECEMBER 31, 1993 COMPARED TO
THE QUARTER AND SIX MONTHS ENDED DECEMBER 31, 1992
First Brands' consolidated sales for the three month period ended December
31, 1993 were $270,393,000, 101% of last year's $268,018,000, bringing six month
revenues to $550,206,000, 102% of last year's $537,015,000. Total sales for the
quarter and six months were above last year, due to higher sales of GLAD-LOCK
zipper bags, cat litter and other automotive products. The comparative
performance of overall plastic wrap and bag sales, was affected by the impact
last year of the introduction of line extensions and advanced buying in the
prior year before a price increase took effect in the third quarter of fiscal
1993. Higher volume sales in the antifreeze/coolant business were offset by
reduced selling prices reflecting the Company's new marketing program.
Cost of goods sold for the three and six month periods, respectively, were
$166,633,000, 98% of last year's and $339,602,000, 101% of last year. The
increased costs for the three and six month periods resulted from the higher
sales volumes, which were offset by lower manufacturing and polyethylene resin
costs and a reduction in the Company's rent expense, due to renegotiated rental
agreements.
Gross profit for the quarter of $103,760,000 (38.4% of sales) was 107% of
last year's $97,259,000 (36.3% of sales). For the six month period, gross profit
of $210,604,000 (38.3% of sales) was 106% of last year's $199,333,000 (37.1% of
sales). The higher gross profit dollars and margin, for the quarter and six
months, are due to the increase in sales, enhanced productions efficiencies, a
favorable sales mix of plastic wrap and bag products, and the benefit from the
aforementioned reduction in resin cost and rent expense.
Selling, general and administrative expenses were $63,160,000 and
$128,452,000 for the three and six months, respectively, 103% of the comparable
periods last year. The increase in both periods reflects higher advertising
expenditures, as well as increased consumer promotion spending in the plastic
wrap and bag business, which was partially offset by the elimination of certain
consumer rebate programs in the automotive area.
Amortization and other depreciation expense of $6,109,000, was 136% of last
year's three month period, and $11,896,000 119% of last year's six month period.
The increase for the quarter and year to date, principally reflects the
write-down of certain fixed assets expected to be sold this year. Interest
expense of $5,322,000 and $10,664,000 for the three and six month periods,
respectively, was 93% and 88% of prior year levels due to lower debt levels and
reduced rates. 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.
In August 1993, the U.S. Congress enacted legislation which increased the
corporate federal income tax rate from 34% to 35%, retroactive to January 1,
1993. The Company's provision for income taxes for the second quarter was
$11,491,000, 112% of last year's $10,260,000. Year-to-date, the provision for
income taxes was $24,516,000, 120% of last year's $20,486,000. The increased tax
expense reflects higher pre-tax income, along with the higher effective tax
rate. Year-to-date, tax expense reflects the net impact that the new tax rate
had on the Company's June 30, 1993 deferred tax assets and liabilities, and
current taxes payable.
FINANCIAL CONDITION
Worldwide credit facilities in place at December 31, 1993 aggregated
$195,902,000 of which $134,272,000 was available, but unused. The Company does
not expect to borrow significantly beyond its current debt level over the next
twelve months.
The Company's current forecast for the 1994 fiscal year reflects capital
expenditures of approximately $40,000,000 and fixed payments (interest,
principal, discount on sale of receivables and lease payments) of approximately
$56,000,000.
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.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
First Brands' independent certified public accountants have made a limited
review of the financial information furnished herein in accordance with
standards established by the American Institute of Certified Public Accountants.
The Independent Accountants' Report is presented on Page 15 of this report.
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
First Brands Corporation:
We have reviewed the consolidated condensed balance sheet of First Brands
Corporation and subsidiaries as of December 31, 1993, and the related
consolidated condensed statements of income for the three and six-month periods
ended December 31, 1993 and 1992 and the consolidated condensed statements of
cash flows for the six-month periods ended December 31, 1993 and 1992, and the
consolidated condensed statement of stockholders' equity for the six month
period ended December 31, 1993. These financial statements are the
responsibility of the company's management.
We conduct 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.
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, 1993, 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 11, 1993, 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, 1993, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG PEAT MARWICK
KPMG Peat Marwick
New York, New York
February 1, 1994
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
Submitted at the Annual Meeting of Stockholders, November 5, 1993.
1) Election of three Directors, each to serve for a three-year term
expiring on the date of the Annual Meeting of Stockholders in 1996 and until a
successor is elected and qualified:
ABSTENTIONS AND
NAME FOR WITHHELD BROKER NON-VOTES
- ---------------------------------------------------------- ---------- --------- ----------------
Alfred E. Dudley.......................................... 19,214,122 36,221 0
Alan C. Egler............................................. 19,213,822 36,521 0
James R. McManus.......................................... 19,213,952 36,391 0
2) Ratification of selection by the Board of Directors of KPMG Peat Marwick
as independent auditors:
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
---------- --------- ----------------
19,198,277 26,128 25,938
3) Authorization of The 1994 Long Term Incentive Plan (the 'Plan') for
certain key employees of the Company:
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
---------- --------- ----------------
17,605,009 1,404,315 241,019
The Plan authorizes the issuance of up to 1,090,000 shares of Common Stock
thereunder; awards of incentive stock options ('ISOs'), as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the 'Code'), non-qualified
stock options ('NQSOs'), i.e., stock options that do not qualify as ISOs,
restricted shares of Common Stock ('Restricted Stock') and Limited Stock
Appreciation Rights ('LSARs') may be granted to eligible employees of the
Company. The Plan is administered by the Compensation Committee of the Board of
Directors, which determines the employees to whom awards are granted, the number
of shares of Common Stock covered by such awards and the terms of such awards.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBIT INDEX:
1
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ -------------------------------------------------------------------------------------------------------
10.1 (a) -- Amended and Restated Credit Agreement, dated as of September 20, 1991, among the Company,
Manufacturers Hanover Trust Company, as Agent, and Several Lenders parties thereto. Incorporated by
reference to Exhibit 10.1 to Form S-1 filed by Registrant on February 7, 1992.
(b) -- Commitment Transfer Supplement thereto, dated as of October 28, 1991. Incorporated by reference to
Exhibit 10.1(b) to form 10-K filed by Registrant on September 25, 1992.
(c) -- Amendment and Consent thereto, dated as of February 25, 1992. Incorporated by reference to Exhibit
10.1(c) to form 10-K filed by Registrant on September 25, 1992.
(d) -- Second Amendment and Consent thereto, dated as of May 18, 1992. Incorporated by reference to Exhibit
10.1(d) to form 10-K filed by Registrant on September 25, 1992.
(e) -- Third Amendment thereto, dated as of November 5, 1992. Incorporated by reference to Exhibit 10.1(e)
to form 10-K filed by Registrant on September 28, 1993.
(f) -- Commitment Transfer Supplement thereto, dated as of May 26, 1993. Incorporated by reference to
Exhibit 10.1(f) to form 10-K filed by Registrant on September 28, 1993.
10.2* -- Leasing Agreement between the Company and Citicorp North America, Inc., relating to its Glad Plastic
Bag and Wrap facility in Cartersville, Georgia, dated as of November 16, 1993.
10.3 (a) -- Loan and Security Agreement between the Company and The CIT Group/Equipment Financing, Inc.,
relating to certain equipment now located primarily at the Company's GLAD Plastic Bag and Wrap
facility in Amherst, Virginia, dated as of November 18, 1991. Incorporated by reference to Exhibit
10.4(a) to Form S-1 filed by Registrant on February 7, 1992.
(b) -- Supplement thereto, dated as of November 18, 1991. Incorporated by reference to Exhibit 10.4(b) to
Form S-1 filed by Registrant on February 7, 1992.
(c) -- Amendment and Consent thereto, dated as of May 18, 1992. Incorporated by reference to Exhibit
10.4(c) to form 10-K filed by Registrant on September 25, 1992.
(d) -- Second Amendment Agreement thereto, dated as of June 19, 1992. Incorporated by reference to Exhibit
10.4(d) to form 10-K filed by Registrant on September 25, 1992.
(e) -- Third Amendment Agreement thereto, dated as of October 8, 1992. Incorporated by reference to Exhibit
10.4(e) to form 10-K filed by Registrant on September 28, 1993.
(f) -- Fourth Amendment Agreement thereto, dated as of October 16, 1992. Incorporated by reference to
Exhibit 10.4(f) to form 10-K filed by Registrant on September 28, 1993.
10.4 -- Consent by The CIT Group/Equipment Financing, Inc. to the redemption of $100,000,000 of Company's 12
1/2% Senior Subordinated Debentures due September 1, 1998 and issuance of $100,000,000 of Senior
Subordinated Notes due April 1, 1999, dated February 21, 1992. Incorporated by reference to Exhibit
10.5 to form 10-K filed by Registrant on September 25, 1992.
10.5 -- Contract to Buy and Sell Property among The Connecticut National Bank as Owner Trustee, First Brands
Corporation, The CIT Group/Equipment Financing, Inc. and The CIT Group/Sales Financing, Inc.,
relating to equipment now located primarily at the Company's Plastic Bag and Wrap facility in
Amherst, Virginia, dated November 18, 1991. Incorporated by reference to Exhibit 10.5 to Form S-1
filed by Registrant on February 7, 1992.
10.6* -- Equipment Lease Agreement between the Company and PNC Leasing Corp, relating to its Glad Plastic Bag
and Wrap facility in Rogers, Arkansas, dated as of October 15, 1993.
10.7 -- Purchase Agreement, dated as of December 23, 1991, between the Company and Pitney Bowes Credit
Corporation, relating to the sale and leaseback of equipment at the Company's GLAD Plastic Wrap and
Bag facility in Rogers, Arkansas. Incorporated by reference to Exhibit 10.8 to Form S-1 filed by
Registrant on February 7, 1992.
10.8 -- Equipment Lease Agreement, dated as of December 23, 1991, between Pitney Bowes Credit Corporation
and Company, relating to the sale and leaseback of equipment at the Company's GLAD Plastic Wrap and
Bag facility in Rogers, Arkansas. Incorporated by reference to Exhibit 10.9 to Form S-1 filed by
Registrant on February 7, 1992.
10.9 -- Purchase Agreement, dated as of June 25, 1992, between the Company and NationsBanc Leasing
Corporation of Georgia, relating to the sale and leaseback of certain equipment at the Company's GLAD
plastic wrap and bag facility in Amherst, Virginia. Incorporated by reference to Exhibit 10.13 to
form 10-K filed by Registrant on September 25, 1992.
2
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ -------------------------------------------------------------------------------------------------------
10.10 (a) -- Equipment Lease Agreement, dated as of June 25, 1992, between the Company and NationsBanc Leasing
Corporation of Georgia, relating to the sale and leaseback of certain equipment at the Company's GLAD
plastic wrap and bag facility in Amherst, Virginia. Incorporated by reference to Exhibit 10.14 to
form 10-K filed by Registrant on September 25, 1992.
(b) -- First Amendment thereto, dated as of March 30, 1993. Incorporated by reference to Exhibit 10.15(b)
to form 10-K filed by Registrant on September 28, 1993.
10.11 -- Purchase Agreement, dated as of June 25, 1993, between the Company and NationsBanc Leasing
Corporation, relating to the sale and leaseback of certain equipment at the Company's GLAD plastic
wrap and bag facility in Amherst, Virginia. Incorporated by reference to Exhibit 10.16 to form 10-K
filed by Registrant on September 28, 1993.
10.12 -- Equipment Lease Agreement, dated as of June 25, 1993, between the Company and NationsBanc Leasing
Corporation, relating to the sale and leaseback of certain equipment at the Company's GLAD plastic
wrap and bag facility in Amherst, Virginia. Incorporated by reference to Exhibit 10.17 to form 10-K
filed by Registrant on September 28, 1993.
10.13 (a) -- Sales Agreement, dated as of January 1, 1989 between Union Carbide Chemicals & Plastics Company,
Inc. (formerly Union Carbide Corporation) and the Company, (confidential treatment has been granted
with respect to certain portions of the Sales Agreement; such portions were omitted and filed
separately with the Securities and Exchange Commission). Incorporated by reference to Exhibit
10.22(b) to Form 10-K filed by Registrant on September 19, 1989.
(b) -- Sales Agreement, dated March 1, 1991, between Union Carbide Chemicals and Plastics Company Inc. and
the Company, (confidential treatment has been granted with respect to certain portions of the Sales
Agreement, such portions were omitted and filed separately with the Securities and Exchange
Commission). Incorporated by reference to Post-Effective Amendment No. 1 to Form S-1 filed by
Registrant on June 12, 1991.
10.14 -- Subordinated Notes Registration Rights Agreement, dated as of July 1, 1986, between the Company and
Metropolitan Life Insurance Company, the current note holders. Incorporated by reference to Exhibit
10(xii) to form S-1 filed by Registrant on July 15, 1986.
10.15 -- Underwriting Agreement among the Company, certain stockholders and The First Boston Corporation and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner and Smith Incorporated as representatives of the
Several Underwriters, relating to 8,400,000 shares of Common Stock of the Company. Incorporated by
reference to Exhibit 1.1 to Form S-1 filed by Registrant on March 5, 1991.
10.16 -- Subscription Agreement among the Company, certain stockholders and Credit Suisse First Boston
Limited and Merrill Lynch International Limited as Managers, relating to 2,110,000 shares of Common
Stock of the Company. Incorporated by reference to Exhibit 1.2 to Form S-1 filed by Registrant on
March 5, 1991.
10.17 -- Underwriting Agreement, dated as of February 26, 1992, between the Company and The First Boston
Corporation, relating to $100,000,000 in 9 1/8% Senior Subordinated Notes due 1999. Incorporated by
reference to Exhibit 10.19 to form 10-K filed by Registrant on September 25, 1992.
10.18 (a) -- Pooling and Servicing Agreement, dated as of May 21, 1992, between the Company, First Brands Funding
Inc and Chemical Bank, as Trustee, relating to First Brands Funding Master Trust trade
receivables-backed financing. Incorporated by reference to Exhibit 10.20 (a) to form 10-K filed by
Registrant on September 25, 1992.
(b) -- Variable Funding Supplement thereto, dated as of May 21, 1992. Incorporated by reference to Exhibit
10.20(b) to form 10-K filed by Registrant on September 25, 1992.
(c)* -- Amendment No. 1 thereto, dated as of December 22, 1993.
10.19 -- Asset Purchase and Sale Agreement, dated as of May 21, 1992, between the Company, First Brands
Funding Inc and Chemical Bank, as Trustee, relating to First Brands Funding Master Trust trade
receivables-backed financing. Incorporated by reference to Exhibit 10.21 to form 10-K filed by
Registrant on September 25, 1992.
10.20 -- Asset Purchase and Sale Agreement, dated as of May 21, 1992, between the Company and Himolene
Incorporated, relating to First Brands Funding Master Trust trade receivables-backed financing.
Incorporated by reference to Exhibit 10.22 to form 10-K filed by Registrant on September 25, 1992.
3
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ -------------------------------------------------------------------------------------------------------
10.21* -- Amended and Restated Letter of Credit Reimbursement Agreement, dated as of December 2, 1993, between
the Company, First Brands Funding Inc, Westdeutsche Landesbank Girozentrale, The Long-Term Credit
Bank of Japan, Limited, and First Brands Funding Master Trust, amending and restating the Letter of
Credit Reimbursement Agreement, dated as of May 21, 1992, relating to First Brands Funding Master
Trust trade receivables-backed financing.
10.22 -- Amended Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.34 to Form 10-K filed by
Registrant on September 12, 1990.
15* -- Accountants' Acknowledgement.
24 -- Consent of KPMG Peat Marwick. Incorporated by reference to Exhibit 23 to form 10-K filed by
Registrant on September 28, 1993.
-----------------
* Filed herewith
B. REPORTS ON FORM 8-K
None.
4
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)
By: /S/ DONALD A. DESANTIS
...................................
DONALD A. DESANTIS
CHIEF FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING
AND DULY AUTHORIZED OFFICER)
Date: February 10th, 1994
5