________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K405
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995 COMMISSION FILE NUMBER 33-7264
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FIRST BRANDS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 06-1171404
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
83 WOOSTER HEIGHTS ROAD 06813-1911
BUILDING 301, P.O. BOX 1911 (ZIP CODE)
DANBURY, CONNECTICUT
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 731-2300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------------------------- --------------------------------------------------------
Common Stock New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K405 or any amendment to
this Form 10-K405. [x]
At September 1, 1995, the number of shares outstanding of the registrant's
common stock was 20,973,064 (par value $.01), and the aggregate market value of
the voting stock held by non-affiliates was $920,193,183.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrants Proxy Statement for the Annual Stockholders Meeting to be held
October 27, 1995 is incorporated by reference for Part III
________________________________________________________________________________
TABLE OF CONTENTS
PAGE
----
PART I
Item 1: Business....................................................................................... 1
Item 2: Properties..................................................................................... 5
Item 3: Legal Proceedings.............................................................................. 6
Item 4: Submission of Matters to a Vote of Security Holders............................................ 6
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters.......................... 7
Item 6: Selected Financial Data........................................................................ 8
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 9
Item 8: Financial Statements and Supplementary Data.................................................... 13
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 13
PART III
Item 10: Directors and Executive Officers of the Registrant............................................. 14
Item 11: Executive Compensation......................................................................... 16
Item 12: Security Ownership of Certain Beneficial Owners and Management................................. 16
Item 13: Certain Relationships and Related Transactions................................................. 16
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................... 17
Signatures................................................................................................ 39
ITEM 1 -- BUSINESS
First Brands Corporation ('First Brands' or 'the Company'), a Delaware
corporation, was organized in March, 1986 to acquire the worldwide home and
automotive products business (the 'Predecessor Business') of Union Carbide
Corporation ('Union Carbide') in a leveraged buyout which was effective as of
July 1, 1986. The Company is primarily engaged in the development, manufacture,
marketing and sale of branded and private label consumer products for the
household and automotive markets. The Company's products can be found in large
merchandise and chain supermarkets and other retail outlets. The Company
believes that the significant market positions occupied by its products are
attributable to brand name recognition, a comprehensive offering of quality
products, continued product innovation, strong emphasis on vendor support and
aggressive advertising and promotion.
Home products include the most complete line of branded plastic wrap, bags
and drinking straws in the United States and Canada, which are sold under the
GLAD (and related GLAD-LOCK) brands. Plastic bags are also sold in Canada under
the SURTEC brand. Cat litter products are sold under the SCOOP AWAY, EVER CLEAN
and JONNY CAT brands. Automotive performance and appearance products are sold
under the STP brand, and various cleaners, polishes and waxes are sold under the
SIMONIZ brand. Consumers have been purchasing products under the SIMONIZ, STP,
GLAD, JONNY CAT and SCOOP AWAY brand names for over 84, 41, 32, 30 and 6 years,
respectively.
Through its subsidiary, Himolene Incorporated ('Himolene'), the Company is
the leading producer in the United States of high molecular weight, high density
polyethylene plastic trash can liners for the institutional and industrial
markets.
A&M Products, Inc. ('A&M'), a wholly owned subsidiary, manufactures and
markets SCOOP AWAY and EVER CLEAN cat litter, the leading brands of clumping cat
litter in the United States. On July 13, 1994, A&M acquired the cat litter and
absorbent mineral assets of Excel Mineral Inc. and Excel International Inc.
('Excel'). The assets acquired from Excel included the JONNY CAT brand of cat
care products.
Effective May 1, 1995, the Company purchased 79% of the capital stock of
Multifoil Holding (PLC) LTD, a South African manufacturer and marketer of
plastic film products for consumers and the packaging industry. Subsequently, on
July 20, 1995 the Company purchased an additional 3% of the outstanding capital
stock.
First Brands operates in foreign countries through subsidiaries in Canada,
South Africa, England, Spain, Hong Kong, Mexico, Puerto Rico and the
Philippines.
On August 26, 1994, the Company sold its PRESTONE antifreeze/coolant and
car care business ('the Prestone Business') to Prestone Products Corporation, a
company organized and controlled by Vestar Capital Partners, a private
investment firm, for $142,000,000 in cash and a $13,000,000, 7 1/2% subordinated
debenture maturing in 2003, which for financial statement purposes has been
valued at $9,000,000.
The Company was engaged in the automotive service market through the
operation of its service centers which featured the STP, PRESTONE AND SIMONIZ
brand products. After evaluating their performance, the Company decided to phase
out these service centers. During fiscal 1995, the Company sold off all
remaining assets of its automotive service centers.
In general First Brands does not produce against a backlog of firm orders.
Production is geared primarily to the level of incoming orders and to
projections of future demand. Significant inventories of finished products,
work-in-process and raw materials are maintained to meet delivery requirements
of customers and First Brands production schedules.
There is no significant seasonal fluctuation in sales of the Company's
home, cat litter, institutional and industrial products. Sales of
antifreeze/coolant were seasonal with sales concentrated in the first half of
the Company's fiscal year due to increased consumer demand in the fall and
winter months. Historically, sales of antifreeze/coolant during the first half
of the fiscal year have represented more than 70% of the Company's annual
antifreeze/coolant sales. However, antifreeze/coolant was the major part of the
Prestone Business which, as noted above, was sold on August 26, 1994. With the
exception of
1
certain SIMONIZ products, for which sales tend to be higher in the second half
of the Company's fiscal year, sales of the Company's other automotive products
are generally constant throughout the year.
The Company's products are sold directly to retailers and to wholesalers
and can be found in large mass merchandise stores and chain supermarkets as well
as other retail outlets, including automotive supply stores, grocery stores and
price clubs. While the Company's sales are not dependent upon a single customer,
the top 25 customers account for approximately 47% of total sales, and sales to
its largest customer, the Wal-Mart Stores and Sams Wholesale Club stores, are
approximately 12% of total sales.
Sales to food outlets, which account for approximately 69% of domestic
sales of plastic wrap and bags as well as cat litter, are handled through a
network of brokers; sales to mass merchandisers are handled by First Brands'
direct sales force. Sales of automotive products are primarily handled through
First Brands' direct sales force and sold to mass merchandisers. Sales by
Himolene to the institutional and industrial markets are handled by that
subsidiary's direct sales force as well as through distributors. Sales of the
Company's products in Canada are generally handled in the same manner as
domestic sales. Other international sales are handled primarily through
distributors.
The Company believes its manufacturing facilities employ state-of-the-art
technology. The plastic wrap and bag manufacturing process employs advanced
extrusion and conversion technologies. The Company's strategy is to update and
expand its manufacturing facilities with internally developed technologies (some
of which are patented) and state-of-the-art technology acquired from third-party
sources. The Company has improved existing process technologies, acquired
additional equipment used in the production of existing products and added new
product manufacturing capabilities.
The Company currently purchases a substantial portion of its raw materials
pursuant to long-term contracts with Union Carbide Corporation which is the
Company's largest single supplier. These contracts are considered to be material
to the business of the Company. The Company believes that it is also Union
Carbide's largest customer for polyethylene resin, from which it produces
plastic wrap and bags. The Company has a contract with Union Carbide for the
purchase of a substantial portion of its polyethylene resin requirements through
December 31, 1999. The Company had contracts with Union Carbide for the purchase
of a substantial portion of the ethylene glycol requirements associated with the
divested antifreeze business and had other long-term contracts with several
other suppliers for substantially all of the remaining requirements for ethylene
glycol. These ethylene glycol contracts were assigned to the purchasers of the
Prestone Business. The Company also has contracts for the purchase of certain
raw materials, including polyethylene resin, from other suppliers, and makes
purchases on the open market as well. The pricing provisions in the Company's
present supply contracts are designed to be responsive to market conditions and
the cost of relevant raw materials.
Although the Company believes that, based on industry estimates and
projections, raw material costs will, over the long-term, remain relatively
level, it is unable to predict with any certainty its costs of raw materials
which may, because of market conditions, be materially higher or lower than
those experienced in past periods. To the extent raw material costs are higher,
the Company's margins on the relevant products could be adversely affected if it
is unable to increase prices, effect offsetting cost savings, or reduce prices
to meet competition. As a consequence, the Company may be adversely affected by
changes in raw material markets. However, the Company believes that, if there
were an industry wide shortage of raw materials, it might enjoy a competitive
advantage over certain of its competitors as a result of its assured source of
supply for a substantial portion of its raw materials.
Most of the raw materials used by First Brands Home and Automotive
businesses are petrochemical derivatives primarily produced from ethylene which
in turn is largely produced from natural gas in the United States and Canada.
Historically, petrochemical derivatives have been subject to price fluctuations
due to various factors. There can be no assurances that future events will not
precipitate price increases. The factors which will affect the cost of raw
materials to the Company will generally affect competitors' raw material costs
as well. However, because several of the Company's major competitors are units
of vertically integrated enterprises, they may be able to vary internal pricing
arrangements in order to mitigate, in their end-product markets, adverse
movements in raw materials prices and thereby enjoy a competitive advantage.
2
Most other raw materials are generally available in the marketplace and
First Brands believes that it has contracts and commitments, or a readily
available source of supply, to meet its anticipated needs in all major product
areas.
First Brands currently employs approximately 4,200 persons worldwide, of
which about 3,100 are in the United States. International employee headcount
increased during the year, primarily due to the recently acquired South African
subsidiary. The Company's employees are not unionized with the exception of
approximately 550 hourly workers at one plastic wrap and bag plant who are
represented by the United Paperworkers International Union ('UPI Union'), and a
small number of our international employees. The contract with the UPI Union
runs through November, 1999. The Company has not experienced any significant
interruptions or curtailments of operations due to labor disputes, and considers
its labor relations to be satisfactory.
First Brands operates in highly competitive markets where success is
dependent upon brand recognition, product innovation and performance, and price.
In several instances, the competitors are larger, more integrated companies with
greater financial resources than First Brands.
The following table sets forth net sales by class of products for the
fiscal years ended June 30, 1995, 1994 and 1993:
SALES BY CLASS OF PRODUCTS
1995 1994 1993
--------------------- --------------------- ---------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
Plastic wrap and bags and related
products............................. $ 645,674 62% $ 619,675 57% $ 607,274 58%
Pet products........................... 127,160 12 71,169 7 55,450 5
Automotive specialty and appearance
products............................. 231,997 23 204,903 19 187,751 18
Antifreeze/Coolant and other car care
products (sold August 26, 1994)...... 31,684 3 190,573 17 191,382 19
---------- ------- ---------- ------- ---------- -------
$1,036,515 100% $1,086,320 100% $1,041,857 100%
---------- ------- ---------- ------- ---------- -------
---------- ------- ---------- ------- ---------- -------
Financial information relating to international and domestic operations and
export sales are included in Note 14 to the Company's Consolidated Financial
Statements.
Certain of the Company's operations are subject to federal, state and local
environmental laws and regulations which impose limitations on the discharge of
pollutants into the air and water and establish standards for the treatment,
storage and disposal of solid and hazardous wastes. The Company believes that it
is in substantial compliance with all applicable environmental laws and
regulations.
During fiscal 1995, 1994 and 1993, First Brands made expenditures of
approximately $2,950,000, $3,259,000 and $2,110,000, respectively, for
environmental compliance at its facilities, and currently estimates that it will
make expenditures for environmental compliance of approximately $3,000,000 in
fiscal 1996.
The Company's Paulsboro, New Jersey facility is subject to an
administrative consent order with the New Jersey Department of Environmental
Protection and Energy which was entered into in connection with the purchase of
such facility from Union Carbide pursuant to the requirements of the New Jersey
Industrial Site Recovery Act. This order provides for soil and water testing, a
cleanup plan and certain site cleanup; and a financial guarantee of compliance.
The Company assumed these obligations from Union Carbide. Preliminary testing
has been completed and a site clean-up plan has been submitted with the New
Jersey Department of Environmental Protection and Energy. This plan has been
conditionally accepted and is subject to continuing discussions. If this plan is
accepted, it is projected that the compliance costs will be within the Company's
estimates. However, there can be no assurance that the final costs will not
exceed these estimated costs.
As a result of the assumption of liabilities described below, the Company
has a potential liability under Superfund or similar state law for investigation
and cleanup costs at four sites. The United States
3
Environmental Protection Agency ('EPA') has notified over 100 companies at one
site that the EPA considers the companies to be potentially responsible parties
under Superfund. The second site is voluntarily being cleaned up by a group of
companies, including First Brands, with no direct Federal or State environmental
protection agency involvement. The Company, along with over 25 other companies
has been made party to a suit by a landowner for contribution for ground water
clean up costs at a third site. A former subsidiary of the Company has been
named, along with many others, in lawsuits by certain potentially responsible
parties seeking contributions for clean-up costs incurred by them at a fourth
site. Currently, the Company cannot determine accurately its ultimate liability,
if any, for investigation or cleanup costs at these four sites, although the
Company believes that, based on the numerous potentially responsible parties at
each site and the relatively small volume of waste sent to these sites by the
Predecessor Business, its liability, if any, would be small and would not have a
material adverse effect on the Company. Environmental expenditure estimates
discussed above do not include costs resulting from such liabilities.
Although the Company has assumed most environmental liabilities which
relate to conditions existing or actions taken in connection with the
Predecessor Business prior to April 21, 1986, the date of the acquisition
agreement with Union Carbide in connection with the acquisition of the
Predecessor Business, to the extent that the Company incurs such liabilities or
liabilities which relate to compliance with any requirement of an environmental
law or regulation which existed as of the date of the acquisition agreement, the
Company will be entitled to indemnification from Union Carbide for 85% of such
liabilities in excess of $10,000,000 (providing such liabilities are asserted
and written notice of such assertion has been given to Union Carbide within
three years of the effective closing date of July 1, 1986), up to aggregate
expenditures by Union Carbide for such liabilities (and certain other
liabilities specified in the acquisition agreement) of $75,000,000. Accordingly,
the Company will bear the first $10,000,000 of such liabilities, 15% of such
liabilities in excess of $10,000,000 until Union Carbide has expended
$75,000,000 for such environmental liabilities and 100% thereafter. The Company
has provided Union Carbide with written notice asserting certain potential
liabilities within the three-year period. The Company will bear any such
liabilities asserted following the three-year indemnification period. Management
of the Company is not aware of any such liabilities which are material.
Through research and development, management is committed to developing
process technologies and new products which are critical to the Company's
objective of providing high quality, innovative consumer products at costs which
the Company believes are equal to or less than those of its competitors. The
Company spent $4,941,000, $6,287,000 and $8,049,000 during fiscal 1995, 1994 and
1993, respectively, on research and development. Included in these figures were
expenditures relating to the divested Prestone Business of $498,000, $2,142,000
and $3,269,000 for the fiscal years 1995, 1994 and 1993, respectively. In
addition to state-of-the-art equipment and facilities, each of the home products
and automotive businesses has its own Research and Development Director and
research staff to focus on its business opportunities.
Through the use of its high molecular weight, high density polyethylene
technology, First Brands and Himolene produce stronger plastic bags with less
raw material, resulting in a conservation of resources and a reduction of
materials that eventually go into landfills.
To enhance market share and facilitate growth, the Company continually
strives for product innovations and improvements. In the home products business,
the Company emphasizes improved product value, convenience and performance.
During the last fiscal year, the Company increased its selection of GLAD-LOCK
bulk packs, and implemented a national rollout of GLAD Trash Bags with Quick-Tie
Flaps. The newly acquired JONNY CAT product line has been aggressively expanded
during the year, with convenient new packaging, increased consumer value and
expanded distribution. In the automotive business, the Company continues to
offer new innovative products with the introduction of STP Oxygenated Gas
Treatment, SON OF A GUN! Low Gloss Protectant, and SON OF A GUN! All Purpose
Citrus Cleaner.
The Company presently uses recycled plastic trimmings and scrap in its GLAD
and STP manufacturing facilities. Packaging for all GLAD products are made with
paperboard containing reclaimed material.
4
ITEM 2 -- PROPERTIES
First Brands uses various owned or leased plants, technical facilities,
warehouses, distribution centers and offices in the United States, Puerto Rico,
Canada, South Africa, Hong Kong, China, Mexico, England, Spain and the
Philippines. The Company's world headquarters is located in Danbury,
Connecticut.
First Brands believes current facilities, together with planned
expenditures for normal maintenance, capacity and technological improvements,
will provide adequate production capacity to meet expected demand for its
products.
Listed below are the principal manufacturing facilities operated by First
Brands and its consolidated subsidiaries worldwide during fiscal 1995:
LOCATION CITY PRINCIPAL PRODUCTS
- ------------------------------ ---------------- ----------------------------------------
Domestic
Arkansas* Rogers Plastic wrap and bags
California Bell Plastic bags
California Wrens Cat litter
Georgia* Cartersville Plastic wrap and bags
Georgia Taft Cat litter
Illinois West Chicago Plastic bags
Kansas Spring Hill Cat litter
Mississippi Tupelo Plastic bags
New Jersey Paulsboro Auto specialty products
Ohio Painesville Auto specialty products
Vermont Rutland Plastic bags
Virginia* Amherst Plastic wrap and bags
International
Canada Orangeville Plastic wrap and bags
China Conghua Plastic wrap and bags
Hong Kong Kowloon Plastic wrap and bags
Philippines Manila Auto specialty products
South Africa Lansdowne Plastic film products
South Africa Babelegi Plastic film products
South Africa Fort Jackson Plastic film products
- ------------
* The Company has entered into several agreements for the sale and leaseback of
certain production equipment at its domestic plastic wrap and bag facilities.
The Company retained the ownership of the real property and certain personal
property at each site but has leased such real property or granted easements
appurtenant thereto for 10-year terms to the respective facility lessor at the
Arkansas and Georgia plants who, in turn, has agreed to have the Company
operate and maintain such real property and equipment facilities and has
sublet such real property back to the Company during the term of each facility
lease. These transactions were undertaken to reduce the Company's financing
costs. Most Company-owned equipment at the Arkansas and Georgia facilities is
subject to liens pursuant to the Sale/Leaseback Agreements. See Notes 8 and 9
to the Company's Consolidated Financial Statements.
------------------------
The West Chicago, Illinois and the Bell, California plants are leased
facilities, with terms which expire between 1996 and 1999 and average annual
rentals of approximately $160,000 each. The Hong Kong, China, South African and
Philippines facilities are leased from third parties. The Hong Kong lease
expires in 1996 and has an average annual rental of approximately $330,000; the
Philippines lease expires in 1997 and has an average annual rental of
approximately $95,000; the South African leases expire in 1999 and have a
combined average annual rental of approximately $280,000. The Company along with
its joint venture partners are currently constructing a facility, which it
expects to complete in fiscal 1996, in Conghua, China. Currently, production in
China is conducted at a facility which is rented on a monthly basis. All other
production plants are owned by the Company or its wholly-owned subsidiaries.
5
First Brands maintains research and development facilities for its home
products and litter businesses in Willowbrook, Illinois, and for its automotive
products in Danbury, Connecticut; both facilities are under long term leases
expiring in 1998 and 1999, respectively. As part of the sale of the Prestone
Business, the Company will obtain automotive laboratory services from Prestone
at cost for up to two years. In addition, First Brands maintains numerous
domestic and international administrative and sales offices and warehouses. The
majority of these premises are either leased under relatively short-term leases
or owned.
ITEM 3 -- LEGAL PROCEEDINGS
Four actions, Olivo, et al. v. A.F. Technologies, Inc. et al., United
States District Court, District of Massachusetts, Filed November 10, 1994;
Malcolm Hickok, et al. v. A. F. Technologies et al., Hampden Superior Court,
Filed May 17, 1995; Robert J. Gosart and Fluid Recycling Technology Services v.
A. F. Technologies et al., Middlesex Superior Court, Filed March 31, 1995; and
Darren Lamothe and Tri-Clean Recycling, Inc. v. A. F. Technologies et al.,
United States District Court, District of Massachusetts, Filed May 18, 1995,
were commenced by certain franchisees against A.F. Technologies, Inc. (AFT), the
franchisor, First Brands Corporation, First Brands Properties Inc., Prestone
Technology Systems, Inc., and Butler Corporation ('Defendants') for damages
arising out of the AFT mobile recycling franchise business. First Brands
Corporation and its wholly owned subsidiary, Prestone Technology Systems, sold
recycling chemicals to the franchisees, and First Brands Properties licensed the
'Prestone' trademark to the franchisees. First Brands indemnified AFT against
franchisee claims as a result of a prior settlement of claims asserted by First
Brands and AFT against each other. First Brands indemnified Prestone Products
Corporation against franchisee claims in connection with the sale of its
Prestone business. The claims for damages in each of the four litigations are
similar and assert that the Defendants: deliberately or recklessly made false
representations and neglected to state material facts concerning mobile
recycling technology; were negligent in their disclosures as to the
business/technology; breached franchise agreements with the Plaintiffs; breached
an implied covenant of good faith and fair dealing; breached a warranty covering
the recycling equipment and chemicals; and engaged in unfair and deceptive trade
practices, in violation of Massachusetts Law. Plaintiffs were seeking damages
for the loss of Plaintiffs' investments and lost profits; treble damages;
attorneys' fees and costs; and such other and further relief as the court deemed
just.
Although the Company believed that it had meritorious defenses to these
actions and had filed Answers in each of the four actions and has denied all
material allegations, in order to avoid prolonged litigation and accompanying
expenses, costs and attorney fees, potential liability and the threat of treble
damages, on September 19, 1995, the Company agreed to settle these cases for
approximately $15.6 million. The Company believes that the liability involved in
these cases is subject to insurance which is sufficient to cover the amount of
the settlement. However, the various primary and excess carriers have not yet
agreed to accept liability and the Company is proceeding with a suit against its
carriers in Federal District Court in Connecticut.
The Company has also commenced a suit against Butler Corporation claiming
damages for Butler's alleged misrepresentations and negligence in Butler's
disclosures to the Company and for franchisee claims which relate to the mobile
recycling equipment and process technology developed by Butler Corporation.
Butler Corporation has answered and counterclaimed in this suit and filed a
cross claim in one of the franchisee actions for alleged negligence in providing
chemical additives and misrepresentations concerning antifreeze recycling.
In addition to the Mobile Recycling litigation mentioned above, the Company
has been named as defendant in various claims arising as a normal part of its
business. Based upon the facts available to date, management believes the
Company has meritorious defenses to all these actions and that the ultimate
resolution of these actions and claims will not have a material adverse effect
on the Company's financial position or results of operations, after
consideration of the previously mentioned charge.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
6
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York, Philadelphia, Midwest
and Pacific Stock Exchanges under the symbol 'FBR'. The following table sets
forth the high and low sales price per share of the Common Stock during the
fiscal periods indicated as reported by the NYSE and the dividend per share paid
during such fiscal periods. The approximate number of holders of Common Stock of
record as of June 30, 1995 was 517.
HIGH LOW DIVIDEND
------------- ------------- --------
Fiscal 1994
First Quarter..................................................................... 33 28 1/4 .06
Second Quarter.................................................................... 35 1/2 30 1/8 .08
Third Quarter..................................................................... 37 3/8 33 .08
Fourth Quarter.................................................................... 37 1/2 32 3/4 .08
Fiscal 1995
First Quarter..................................................................... 36 3/4 31 1/2 .08
Second Quarter.................................................................... 35 32 .10
Third Quarter..................................................................... 38 1/8 32 3/4 .10
Fourth Quarter.................................................................... 43 5/8 36 3/4 .10
The amount of cash dividends on common stock which may be paid by the
Company is limited by the restrictions under its credit agreement. See Note 8 to
the Company's Consolidated Financial Statements.
7
ITEM 6 -- SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The following table includes selected financial data for the five years
ended June 30, 1995 which are derived from and more fully described in the
Consolidated Financial Statements and Notes.
YEARS ENDED(1)
--------------------------------------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Net sales................................................ $1,036.5 $1,086.3 $1,041.9 $988.5 $1,073.0
Operating expenses(2).................................... 901.2 935.5 904.1 859.2 922.2
Amortization and other depreciation...................... 16.5 20.3 19.1 22.4 27.5
Interest expense and amortization of debt discount and
expense................................................ 18.8 22.4 25.6 39.9 51.5
Discount on sale of receivables(3)....................... 4.0 4.3 4.1 .6 --
Other income (expense), net(4)........................... (21.2) (0.1) 0.1 (0.1) 0.3
Income before extraordinary item(5)...................... 43.2 60.1 52.7 39.2 42.7
Net income............................................... $ 38.7 $ 60.1 $ 52.7 $ 23.5 $ 40.8
-------- -------- -------- -------- --------
Per common and common equivalent share(6)
Income before extraordinary item.................... $ 2.01 $ 2.71 $ 2.41 $ 1.79 $ 1.97
Net income.......................................... $ 1.80 $ 2.71 $ 2.41 $ 1.07 $ 1.88
-------- -------- -------- -------- --------
Cash dividends per common share.......................... $ 0.38 $ 0.30 $ 0.19 $ 0.04 $ 0.04
-------- -------- -------- -------- --------
Total assets............................................. $ 839.9 $ 814.0 $ 830.2 $856.1 $ 834.1
Long-term debt (including current maturities)(7)......... $ 167.2 $ 153.5 $ 231.3 $288.7 $ 318.3
- ------------
(1) On August 26, 1994, the Company sold the Prestone antifreeze/coolant and car
care business ('the Prestone business'), accordingly results for fiscal 1995
include only eight weeks of operations for the Prestone business. Fiscal
1995 results include the operations of the recently acquired JONNY CAT and
Multifoil businesses for twelve and two months, respectively (See Note 15 to
the Company's Consolidated Financial Statements). Financial data for fiscal
years prior to June 30, 1993 have been restated to reflect the effect of
changing the method of accounting for domestic inventories from the LIFO
method to the FIFO method, and for the adoption of SFAS No. 109 'Accounting
for Income Taxes'. Financial data includes the operations of A&M Products
for twelve months for the fiscal years ended June 30, 1995, 1994 and 1993,
and for one month for the fiscal year ended June 30, 1992.
(2) Operating expenses include a portion of depreciation expense.
(3) Relates to a program which began in May, 1992 for the sale of a fractional
interest in accounts receivable (See Note 2 to the Company's Consolidated
Financial Statements).
(4) Other income (expense), net, for the year ended June 30, 1995 includes a
$20.4 million charge relating to the write off of assets and the costs
associated with litigation settlements pertaining to the mobile recycling
business in which the Company participated. Also included is the gain
associated with the sale of the Prestone business and the loss on the
disposal of the Company's automotive service centers (See Notes 1 and 13 to
the Company's Consolidated Financial Statements).
(5) Income before extraordinary item excludes the premium and the write off of
unamortized issuance costs related to the repurchase of subordinated debt,
net of taxes, for the years ended June 30, 1995, 1992 and 1991 (See Note 8
to the Company's Consolidated Financial Statements).
(6) Net income per common share and common equivalent share has been computed
using the weighted average number of common shares and common share
equivalents outstanding for each period.
(7) Long-term debt excludes other long-term obligations and long-term operating
lease commitments (See Notes 8 and 9 to the Company's Consolidated Financial
Statements).
8
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated results of
operations for the fiscal years ended June 30, 1995, 1994 and 1993 and the
financial condition at June 30, 1995 should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of First Brands.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
The following table sets forth the components of income and expense for the
two years ended June 30, 1995, on a dollar and percentage basis.
JUNE 30, 1995 JUNE 30, 1994
------------------------- -------------------------
IN THOUSANDS PERCENT IN THOUSANDS PERCENT
------------ ------- ------------ -------
Net sales......................................... $1,036,515 100.0% $1,086,320 100.0%
Cost of goods sold (including depreciation and
rent expense)................................... 645,886 62.3 666,336 61.3
------------ ------- ------------ -------
Gross profit...................................... 390,629 37.7 419,984 38.7
Selling, general and administrative expenses...... 255,283 24.6 269,181 24.8
Amortization and other depreciation............... 16,499 1.6 20,328 1.9
Interest expense and amortization of debt discount
and expenses.................................... 18,819 1.8 22,390 2.1
Discount on sale of receivables................... 3,979 0.4 4,260 0.4
Other income (expense), net....................... (21,225) (2.1) (90) --
------------ ------- ------------ -------
Income before provision for income taxes and
extraordinary item.............................. 74,824 7.2 103,735 9.5
Provision for income taxes........................ 31,634 3.1 43,569 4.0
------------ ------- ------------ -------
Income before extraordinary item.................. 43,190 4.1 60,166 5.5
Extraordinary loss relating to the repurchase of
subordinated debt,
net of taxes.................................... (4,493) (0.4) -- --
------------ ------- ------------ -------
Net income........................................ $ 38,697 3.7% $ 60,166 5.5%
------------ ------- ------------ -------
Sales for the fiscal year ended June 30, 1995 totalled $1,036,515,000, 95%
of the prior year's sales of $1,086,320,000. On August 26, 1994, the Company
sold the Prestone antifreeze/coolant and car care business (the 'Prestone
business'). Excluding sales of the Prestone business for eight weeks of fiscal
1995 and all of fiscal 1994, 1995's sales were $1,004,831,000, 12% above the
prior year's sales of $895,747,000.
Sales increased due to higher prices and unit volumes (primarily GLAD-LOCK)
in the Company's plastic wrap and bag business. Pet product sales dollars and
quantities were significantly ahead of the prior year, due to continued market
and share growth in the clumping litter market and the newly acquired JONNY CAT
business. Sales of automotive specialty and appearance products, primarily STP
branded products, exceeded the prior year's level due mainly to higher unit
volume and new products. Excluding Canadian sales of PRESTONE products, each of
the Company's international subsidiaries reported sales revenue ahead of prior
year's level primarily due to increases in volume.
Cost of goods sold in fiscal 1995 was $645,886,000, 97% of last year's
$666,336,000. Excluding the Prestone business, cost of goods sold for the year
was $624,718,000, 18% above the prior year's $528,733,000. The increase in costs
reflects higher sales volume as well as the escalation of raw material costs,
primarily resin and packaging materials. Gross profit for the year was
$390,629,000 (38% of sales), 93% of last year's $419,984,000 (39% of sales).
Excluding the Prestone business, gross profit for the year was $380,113,000 (38%
of sales), 104% of the prior year's $367,014,000 (41% of sales). Increased gross
9
profit dollars resulted from higher sales volumes while the lower gross margin
primarily reflects the increased raw material costs.
Selling, general, and administrative expense of $255,283,000 was 95% of
fiscal 1994's $269,181,000. Excluding the Prestone business, these expenses were
$247,443,000, slightly ahead of prior year's $245,001,000, reflecting higher
expenditures in the cat litter business, which were partially offset by reduced
expenditures in the plastic wrap and bag business. Overhead expenditures
increased in the cat litter business as the Company continued to expand its
product line and support the nationwide distribution rollout of the JONNY CAT
brand. Plastic wrap and bag expenditures were reduced to offset the lower gross
margin caused by the higher raw material costs. Expenditures for automotive
specialty products remained stable year to year.
Amortization and other depreciation expense of $16,499,000 was 81% of last
year's $20,328,000. This reduction reflects lower amortization expense for
fiscal 1995, as certain intangible assets were either included in the sale of
the Prestone business or were fully amortized during fiscal 1994. Amortization
expense largely relates to intangibles recorded in 1986 when the Company
acquired its businesses. The after-tax amounts for amortization expense on a per
share basis were $0.41 and $0.55 in fiscal 1995 and 1994, respectively, a
portion of which is not deductible for income tax purposes. Other depreciation
expense for fiscal 1995 is also below the prior year, reflecting the sale of
certain fixed assets of the Prestone business and higher fiscal 1994 expense to
record the write-down of certain assets. Interest expense of $18,819,000 was 84%
of last year's $22,390,000 due to lower debt levels, partially offset by
slightly higher interest rates. Interest expense also includes the amortization
of various financing and legal costs which were incurred in the issuance of
Company debt. 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.
Other income (expense), net primarily reflects a $20,350,000 charge
relating to the write off of assets and the costs associated with litigation
settlements pertaining to the mobile antifreeze recycling business in which the
Company participated. Also included in Other income (expense), is the gain on
the sale of the Prestone business and a loss on the disposal of the Company's
automotive service centers (See Notes 1 and 13).
The Company's effective tax rate was 42% for both fiscal 1995 and 1994. The
provision for income taxes of $31,634,000 was 73% of 1994's $43,569,000
reflecting lower pre-tax earnings in the current year.
The extraordinary loss of $4,493,000 or $0.21 per share resulted from the
premium paid and the write off of unamortized issuance costs related to the
repurchase of $45,000,000 of the Company's 13 1/4% Subordinated Notes (See Note
8).
Inflation was not considered to be a significant factor in the Company's
operations during fiscal 1995.
10
FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1993
The following table sets forth the components of income and expense for the
two years ended June 30, 1994, on a dollar and percentage basis:
JUNE 30, 1994 JUNE 30, 1993
------------------------- -------------------------
IN THOUSANDS PERCENT IN THOUSANDS PERCENT
------------ ------- ------------ -------
Net sales......................................... $1,086,320 100.0% $1,041,857 100.0%
Cost of goods sold (including depreciation and
rent expense)................................... 666,336 61.3 646,298 62.0
------------ ------- ------------ -------
Gross profit...................................... 419,984 38.7 395,559 38.0
Selling, general and administrative expenses...... 269,181 24.8 257,799 24.7
Amortization and other depreciation............... 20,328 1.9 19,079 1.8
Interest expense and amortization of debt discount
and expenses.................................... 22,390 2.1 25,620 2.5
Discount on sale of receivables................... 4,260 0.4 4,101 0.4
Other income (expense), net....................... (90) -- 95 --
------------ ------- ------------ -------
Income before provision for income taxes.......... 103,735 9.5 89,055 8.6
Provision for income taxes........................ 43,569 4.0 36,327 3.5
------------ ------- ------------ -------
Net income........................................ $ 60,166 5.5% $ 52,728 5.1%
------------ ------- ------------ -------
Sales for the fiscal year ended June 30, 1994 were $1,086,320,000, 4% above
fiscal 1993's sales of $1,041,857,000.
Total 1994 sales dollars and quantities in the Company's plastic wrap and
bag business were above the 1993 level primarily due to strong sales of
GLAD-LOCK products. This shift in product mix also had a favorable impact on the
Company's average selling price. The pet products business had significant
growth throughout fiscal 1994, with increases in both volume and dollar sales.
The average selling price during fiscal 1994 declined slightly due to the
introduction of new economy pack litter products and the expansion into
warehouse clubs with larger sizes. Automotive specialty and appearance products,
primarily STP branded products, also recorded increases in sales volumes and
dollars. While volume sales for this business were up during fiscal 1994, this
segment reported slightly lower sales due to reduced selling prices reflecting
the Company's lower price marketing program which was instituted in fiscal 1994.
Excluding the negative impact of the strong U.S. dollar during 1994,
international sales revenues in local currency were ahead of fiscal 1993's
results due to volume increases in all but one of the Company's subsidiaries.
Cost of goods sold in fiscal 1994 was $666,336,000 versus $646,298,000 in
fiscal 1993. The 3% increase in costs primarily reflects the higher sales
volumes during 1994. Gross profit for the year of $419,984,000 (39%) was 106% of
1993's $395,559,000 (38% of sales). The higher gross profit reflects higher
sales levels, along with the favorable impact of slightly lower raw material
costs, a favorable product mix, lower manufacturing costs due to increased
efficiencies, and reduced rental expense resulting from renegotiated rental
agreements.
Selling, general, and administrative expense of $269,181,000 was 4% above
fiscal 1993's $257,799,000, reflecting higher consumer promotion spending in the
plastic wrap and bag, STP and cat litter businesses. Increased spending in these
areas was partially offset by lower expenditures in the antifreeze/coolant
business due to the aforementioned change to a lower price marketing strategy.
Amortization and other depreciation expense of $20,328,000 was 107% of
1993's $19,079,000 reflecting the write-down of certain fixed assets which were
either sold during fiscal 1994 or were expected to be sold during early fiscal
1995. Amortization expense largely relates to intangibles recorded in 1986 when
the Company acquired its businesses. The after-tax amounts for amortization
expense on a per share basis were $0.55 and $0.59 in fiscal 1994 and 1993,
respectively, a portion of which is not deductible for income tax purposes.
During fiscal 1994 interest expense of $22,390,000 was 87% of fiscal 1993's
$25,620,000 due to lower debt levels and reduced rates. Interest expense also
includes the amortization of various financing and legal costs which were
incurred in the issuance of
11
Company debt. Discount on sale of receivables reflects the costs associated with
the sale of a fractional ownership interest, without recourse, in a defined pool
of the Company's eligible trade accounts receivable.
The provision for income taxes of $43,569,000 was 120% of 1993's
$36,327,000 reflecting this year's higher pre-tax income and an increase in the
federal tax rate from 34% to 35%.
Inflation was not considered to be a significant factor in the Company's
operations during fiscal 1994.
FINANCIAL CONDITION
During fiscal 1995, the Company increased its domestic revolving credit
facility from $165,000,000 to $300,000,000. At June 30, 1995 worldwide credit
facilities in place aggregated $337,855,000 of which $268,898,000 was available
but unused. The Company expects to borrow up to an additional $40,000,000 from
these credit facilities over the next twelve months, primarily for seasonal
working capital purposes. The Company also has the option to sell up to
$100,000,000 of fractional ownership interest, without recourse, in a defined
pool of eligible accounts receivable. As of June 30, 1995, $60,000,000 had been
sold (See Note 2). As of June 30, 1995, the Company had long-term debt
outstanding of $166,279,000. Principal payments due on long-term debt (including
current maturities) total $163,321,000 for the five-year period beginning July
1, 1995, and $467,000 for the five-year period thereafter.
In 1995, the Company repurchased at a 15.8% premium, the $45,000,000
13 1/4% Subordinated Notes. The funds to repurchase this debt came from proceeds
from the sale of the Prestone business and operating cash flows.
To balance its interest rate exposure and to limit the impact of foreign
exchange during the year, the Company periodically enters into interest rate
swap and foreign exchange contracts. At June 30, 1995 the Company was party to
an interest swap agreement, with a notional amount of $50,000,000, which will
mature in August, 1997. One of the Company's international subsidiaries entered
into foreign exchange contracts for their U.S. dollar purchase commitments. The
total value of these foreign exchange contracts are $7,200,000, all of which
will mature during the first two quarters of fiscal 1996 (See Note 7).
Capital expenditures, including capitalized interest, were $47,029,000
during fiscal 1995, and $39,753,000 in fiscal 1994. Expenditures were primarily
related to increased capacity of the GLAD-LOCK zipper plastic storage bag,
introduction of GLAD Trash Bags with Quick-Tie Flaps, a new cat litter facility
and additional production equipment, as well as cost reductions and technology
improvements. During fiscal 1995, the Company also acquired previously leased
equipment totaling $13,240,000. Subsequent to year end the Company acquired an
additional $9,797,000 of previously leased equipment.
The Company's fiscal 1996 plan reflects capital expenditures of
approximately $36,500,000 and fixed payments (interest, principal, receivable
financing costs and lease payments) of approximately $42,400,000.
The Company's debt agreements have restrictions on the Company's ability to
incur certain indebtedness; however, based on its working capital requirements,
the current availability under its credit facilities, and its ability to
generate funds from operations, the Company does not believe that such
limitations will have a material effect on the Company's long-term liquidity.
The Company believes that it will have the funds necessary to meet all of its
above described financing requirements and all other fixed obligations. Should
the Company undertake strategic acquisitions requiring funds in excess of its
internally generated cash flow, it might be required to incur additional debt.
Certain of the Company's operations are subject to federal, state and local
environmental laws and regulations which impose limitations on the discharge of
pollutants into the air and water and establish standards for the treatment,
storage and disposal of solid and hazardous wastes. The Company believes that it
is in substantial compliance with all applicable environmental laws and
regulations. Pursuant to the acquisition agreement, the Company assumed certain
liabilities of Union Carbide including most environmental liabilities connected
with the home and automotive businesses. See Note 13 to the
12
Consolidated Financial Statements for a discussion of indemnifications. The
Company's Paulsboro, New Jersey facility is subject to an administrative consent
order with the New Jersey Department of Environmental Protection and Energy. The
Company also has a potential liability under Superfund or similar state law for
investigation and cleanup costs at four sites. The Company believes that it has
made adequate provision for such compliance costs, but there can be no assurance
that the final costs will not exceed the Company's estimated costs of
compliance.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related documents of the Company and the
financial statement schedule of the Company and related documents are included
in Part IV, Item 14, of this Report.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The principal executive officers and directors of the Company are as
follows:
NAME AGE POSITION HELD WITH THE CORPORATION
- ------------------------------------------- --- -----------------------------------------------
Alfred E. Dudley(5,6)...................... 67 Chairman and Director
William V. Stephenson(5,6)................. 54 President, Chief Executive Officer and Director
Thomas H. Rowland.......................... 50 Executive Vice-President, President Home
Products
Donald A. DeSantis......................... 45 Senior Vice-President, Chief Financial Officer
and Treasurer
Ronald F. Dainton.......................... 56 Vice-President, Human Resources
Joseph B. Furey............................ 49 Vice-President, Controller and Secretary
J. Bruce Ipe............................... 57 Vice-President, General Counsel and Assistant
Secretary
Thomas J. Nathanson........................ 43 Vice-President Operations and Technology
A. R. (Bud) McClellan(1)................... 41 Assistant Controller
Richard J. Mosback(1)...................... 42 Assistant Treasurer
Alan C. Egler(4,5)......................... 67 Director
Gary E. Gardner(3)......................... 41 Director
James R. Maher(2).......................... 45 Director
James R. McManus(2,6)...................... 61 Director
Dwight C. Minton(3,4)...................... 60 Director
Denis Newman(4,5).......................... 65 Director
Ervin R. Shames(2,6)....................... 55 Director
Robert G. Tobin(3)......................... 57 Director
- ------------
(1) Elected by the Board of Directors on January 20, 1995.
(2) Member, Compensation Committee
(3) Member, Pension Committee
(4) Member, Audit Committee
(5) Member, Executive Committee
(6) Member, Nominating Committee
------------------------
The Certificate of Incorporation provides for the classification of the
Board of Directors into three classes of membership with terms expiring on
different Annual Meeting dates. Approximately one-third of the members of the
Board of Directors are nominated each year to serve as directors for a term of
three years. Directors are elected at the Annual Meeting of Stockholders for the
terms specified and continue in office until their respective successors have
been elected and have qualified. The terms of office of Messrs. Gardner, Newman
and Shames expire at the next Annual Meeting of Stockholders on October 27,
1995; the terms of office of Messrs. Dudley, Egler and McManus expire at the
Annual Meeting of Stockholders in November, 1996; and the terms of office of
Messrs. Maher, Minton, Stephenson and Tobin expire at the Annual Meeting of
Stockholders in October, 1997. Executive officers and key employees are elected
annually by, and serve at the pleasure of, the First Brands' Board of Directors.
There are no family relationships between any directors, executive officers or
key employees of First Brands.
Mr. Dudley was elected Chairman on June 19, 1986. He relinquished the title
of Chief Executive Officer effective September 1, 1994. He is also a director of
Hampshire Chemical Corporation.
Mr. Stephenson was appointed Vice-President and Director of Sales, Home
Products Division in March 1987 and Senior Vice-President and General Manager,
Home Products Division in December 1989. He was elected Executive Vice-President
of the Company on September 6, 1991 and
14
simultaneously was appointed President of the Home Products Division. He was
elected President and Chief Operating Officer and a Director of the Company on
August 11, 1992, and was elected Chief Executive Officer effective September 1,
1994.
Mr. Rowland was elected President of Himolene Incorporated, a wholly owned
subsidiary of the Company on June 1, 1989, and served in that position to 1992;
prior to that he elected Vice President and Chief Financial Officer of Himolene
Incorporated on September 1, 1988. He was elected Executive Vice-President of
the Company on August 11, 1992, and simultaneously was appointed President of
the Home Products Division.
Mr. DeSantis was elected Chief Financial Officer and Treasurer of the
Company on June 19, 1986. He relinquished the title of Treasurer on November 17,
1987 and was elected Vice-President on May 26, 1988 and Senior Vice-President on
November 5, 1993. He assumed the title of Treasurer on August 9, 1994.
Mr. Dainton was Director of Employee Relations at First Brands from 1986 to
1989; he was elected Vice-President, Human Resources of the Company on May 24,
1989.
Mr. Furey was elected Controller and Assistant Secretary of the Company on
June 19, 1986, and Vice-President on November 5, 1993. He resigned as Assistant
Secretary and was elected Secretary on January 20, 1995.
Mr. Ipe was elected General Counsel and Assistant Secretary of the Company
on June 19, 1986 and Vice-President on May 26, 1988.
Mr. Nathanson was elected Vice President Operations and Technology on May
25, 1993; prior to that he served as Director of Research and Development,
Automotive Products Division from 1989 to 1993. From 1987 to 1989, he served as
Plant Manager at one of the Company's plastic wrap and bag facilities.
Mr. McClellan was elected Assistant Controller on January 20, 1995; prior
to that he served as Director of Accounting from 1992 to 1995. From 1986 to
1992, he served in various positions as a Financial Manager.
Mr. Mosback was elected Assistant Treasurer on January 20, 1995; prior to
that he served as Director of Finance and Internal Audit from 1993 to 1995. From
1986 to 1992, he served as the Manager of Internal Audit.
Mr. Egler was Vice-Chairman and consultant to the Company from 1986 through
1991. He was elected a director of the Company on June 19, 1986.
Mr. Gardner has been President of Soft Sheen Products Inc. since March,
1993. He also serves on the Board of Amethyst Investment Group Inc. and William
Wrigley Jr. Company. He was elected a director of the Company on January 21,
1994.
Mr. Maher has been President and Chief Executive Officer of MAFCO
Consolidated Group, Inc., a diversified manufacturer, since July, 1995. He has
been Chairman of Laboratory Corporation of America, a health services company,
since April, 1995, and was previously President and Chief Executive Officer from
December, 1992 to April, 1995. Mr. Maher was Vice-Chairman of The First Boston
Corporation, a financial services company, from September, 1990 until June,
1992. He was a Managing Director of The First Boston Corporation since prior to
1986. He was elected a director of the Company on May 26, 1988.
Mr. McManus has been Chairman, Chief Executive Officer and founder of the
Marketing Corporation of America, a marketing services firm, since prior to
1986. He also serves on the Board of Au Bon Pain, Inc. He was elected a director
of the Company on November 18, 1986.
Mr. Minton has been Chairman and Chief Executive Officer of Church & Dwight
Co., Inc., which manufactures ARM & HAMMER brand consumer and specialty products
since prior to 1986. He is also a director of Crane Co. and Medusa Corporation.
He was elected a director of the Company on November 7, 1991.
Mr. Newman has been a Managing Director of MidMark Management, Inc., a
private investment firm since December, 1989. From April, 1988 until December,
1989, Mr. Newman was President and a
15
director of The Dunmore Group, Inc., a merchant banking firm. He also serves as
a director of GMIS, Inc. He was elected a director of the Company on May 30,
1986.
Mr. Shames is a private investor and consultant. He was President and Chief
Executive Officer of Borden, Inc., a consumer and specialty products
manufacturer, from December, 1993 to January, 1995. He was President and Chief
Operating Officer of Borden, Inc. from July, 1993 until December, 1993. Mr
Shames was Chairman of the Stride Rite Corporation, a footwear manufacturer,
from June, 1992 to July, 1993 and President and Chief Executive Officer of the
Stride Rite Corporation from June, 1990 to June, 1992. He was elected a director
of the Company on May 28, 1987.
Mr. Tobin has been Chairman of The Stop & Shop Supermarket Companies, Inc.
and The Stop & Shop Supermarket Company, a retail food company, since January,
1995. He was President and Chief Executive Officer of The Stop & Shop Company
since May, 1994. He was President and Chief Operating Officer of The Stop & Shop
Companies Inc. and The Stop & Shop Supermarket Company, a wholly owned
subsidiary, since March 1993 and November 1989, respectively. He was elected a
director of the Company on September 6, 1991.
ITEM 11 -- EXECUTIVE COMPENSATION
Incorporated by reference to the section entitled 'Executive Compensation'
in the Company's Proxy Statement, dated September 27, 1995, for its 1995 Annual
Meeting of Stockholders.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the section entitled 'Security Ownership of
Certain Beneficial Owners and Management' in the Company's Proxy Statement,
dated September 27, 1995, for its 1995 Annual Meeting of Stockholders.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
16
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements and related notes of the Company as
set forth below are filed with this Report on Form 10-K405:
PAGE
----
Report of Management................................................................... 18
Independent Auditors' Report........................................................... 19
Consolidated Statements of Income -- For the Years Ended June 30, 1995, 1994 and
1993................................................................................. 20
Consolidated Balance Sheets -- June 30, 1995 and 1994.................................. 21
Consolidated Statements of Stockholders' Equity -- For the Years Ended June 30, 1995,
1994 and 1993........................................................................ 22
Consolidated Statements of Cash Flows -- For the Years Ended June 30, 1995, 1994 and
1993................................................................................. 23
Notes to Consolidated Financial Statements............................................. 24
(a) (2) Financial Statement Schedules
Independent Auditors' Report On Schedule............................................... 37
The following financial statement schedule of the Company as set forth
below is filed with this Report on Form 10-K405:
Valuation and Qualifying Accounts (Schedule II) For the Years Ended June 30, 1995, 1994
and 1993............................................................................. 38
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or related Notes.
(a) (3) Exhibits -- See Exhibit Index on Pages 40-42 for exhibits filed
with this Annual Report on Form 10-K405.
(b) Reports on Form 8-K
None.
17
REPORT OF MANAGEMENT
The management of First Brands Corporation is responsible for the financial
and operating information contained in the Annual Report including the financial
statements covered by the independent auditors' report. These statements were
prepared in conformity with United States generally accepted accounting
principles and include, where necessary, informed estimates and judgements.
The Company maintains systems of accounting and internal control designed
to provide reasonable assurance that assets are safeguarded against loss, and
that transactions are executed and recorded properly so as to ensure that the
financial records are reliable for preparing financial statements.
Elements of these control systems are the establishment and communication
of accounting and administrative policies and procedures, the selection and
training of qualified personnel, and continuous programs of internal audits.
The Company's financial statements are reviewed by its Audit Committee,
which is composed entirely of non-employee Directors. This Committee meets
periodically with the independent auditors, management, and the corporate
internal auditor to review the scope and results of the annual audit, interim
reviews, internal controls, internal auditing, and financial reporting matters.
The independent auditors and the corporate internal auditor have direct access
to the Audit Committee.
W. V. STEPHENSON D.A. DESANTIS
President and Chief Executive Officer Senior Vice President and Chief Financial Officer
September 19, 1995
18
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FIRST BRANDS CORPORATION:
We have audited the accompanying consolidated balance sheets of First
Brands Corporation and subsidiaries as of June 30, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three year period ended June 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First Brands
Corporation and subsidiaries at June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three year period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 12 to the consolidated financial statements, in
1993 First Brands Corporation changed its method of accounting for
postretirement benefits other than pensions by adopting Statement of Financial
Accounting Standards No. 106, 'Employers' Accounting for Postretirement Benefits
Other than Pensions'.
KPMG PEAT MARWICK LLP
New York, New York
September 19, 1995
19
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net sales........................................................ $1,036,515 $1,086,320 $1,041,857
Cost of goods sold (including depreciation and rent expense of
$38,447, $39,331 and $35,909).................................. 645,886 666,336 646,298
Selling, general and administrative expenses..................... 255,283 269,181 257,799
Amortization and other depreciation.............................. 16,499 20,328 19,079
Interest expense and amortization of debt discount and expense... 18,819 22,390 25,620
Discount on sale of receivables.................................. 3,979 4,260 4,101
Other income (expense), net...................................... (21,225) (90) 95
---------- ---------- ----------
Income before provision for income taxes and extraordinary
item........................................................... 74,824 103,735 89,055
Provision for income taxes (Note 11)............................. 31,634 43,569 36,327
---------- ---------- ----------
Income before extraordinary item................................. 43,190 60,166 52,728
Extraordinary loss relating to the repurchase of subordinated
debt, net of taxes (Note 8).................................... (4,493) -- --
---------- ---------- ----------
Net income....................................................... $ 38,697 $ 60,166 $ 52,728
---------- ---------- ----------
---------- ---------- ----------
Net income per common share and common equivalent share (Note 1):
Income before extraordinary item............................ $ 2.01 $ 2.71 $ 2.41
Extraordinary item.......................................... (.21) -- --
---------- ---------- ----------
Net income.................................................. $ 1.80 $ 2.71 $ 2.41
---------- ---------- ----------
---------- ---------- ----------
Weighted average common and common equivalent shares outstanding
(Note 1)....................................................... 21,457,599 22,168,955 21,893,624
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to the consolidated financial statements.
20
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
1995 1994
-------- --------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 5,225 $ 13,384
Accounts and notes receivable (net of allowances for doubtful accounts and discounts
of $6,154 and $5,269) (Note 2)...................................................... 121,763 89,769
Inventories (Note 1)................................................................. 156,245 155,737
Deferred tax assets.................................................................. 34,038 26,239
Prepaid expenses..................................................................... 3,561 5,756
-------- --------
Total current assets............................................................ 320,832 290,885
Property, plant and equipment (net of accumulated depreciation of $88,447 and $87,584)
(Notes 1, 3 and 9)...................................................................... 290,960 266,357
Patents, trademarks, proprietary technology and other intangibles (net of accumulated
amortization of $170,584 and $193,429) (Notes 1 and 4).................................. 202,323 232,666
Deferred charges and other assets (net of accumulated amortization of $50,214 and
$48,479)................................................................................ 25,831 24,077
-------- --------
Total assets............................................................... $839,946 $813,985
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 5)............................................................... $ 5,128 $ 156
Current maturities of long-term debt (Note 8)........................................ 912 48
Accrued income and other taxes (Note 11)............................................. 27,279 35,640
Accounts payable..................................................................... 70,106 60,510
Accrued liabilities (Note 6)......................................................... 144,863 141,753
-------- --------
Total current liabilities....................................................... 248,288 238,107
Long-term debt (Note 8)................................................................... 166,279 153,430
Deferred income taxes (Note 11)........................................................... 54,524 44,177
Other long-term obligations (Note 12)..................................................... 16,040 12,148
Deferred gain on sale of assets (Note 9).................................................. 2,637 5,393
Commitments and contingencies (Notes 9 and 13).
Stockholders' equity (Note 10):
Preferred stock, $1 par value, 10,000,000 shares authorized; none issued............. -- --
Common stock, $0.01 par value, 50,000,000 shares authorized; issued 22,146,014 shares
at June 30, 1995 and 22,005,656 shares at June 30, 1994............................. 221 220
Capital in excess of par value....................................................... 120,914 117,085
Cumulative foreign currency translation adjustment................................... (7,173) (4,542)
Common stock in treasury, at cost; 1,210,700 shares.................................. (40,433) --
Retained earnings.................................................................... 278,649 247,967
-------- --------
Total stockholders' equity...................................................... 352,178 360,730
-------- --------
Total liabilities and stockholders' equity................................. $839,946 $813,985
-------- --------
-------- --------
See accompanying notes to the consolidated financial statements.
21
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
CUMULATIVE
COMMON STOCK FOREIGN
-------------------- CAPITAL IN CURRENCY
SHARES PAR EXCESS OF TRANSLATION RETAINED TREASURY
OUTSTANDING VALUE PAR VALUE ADJUSTMENT EARNINGS STOCK TOTAL
----------- ------ ----------- ----------- -------- ---------- --------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance as of June 30, 1992................... 21,683,985 $217 $ 109,451 $ 1,258 $145,799 $ 0 $256,725
Common stock dividends
($0.19 per share)........................... -- -- -- -- (4,137) -- (4,137)
Exercise of stock options..................... 143,893 1 2,993 -- -- 2,994
Tax benefit related to employee stock sale.... -- -- 91 -- -- -- 91
Net income.................................... -- -- -- -- 52,728 -- 52,728
Foreign currency translation adjustment....... -- -- -- (2,948) -- -- (2,948)
----------- ------ ----------- ----------- -------- ---------- --------
Balance as of June 30, 1993................... 21,827,878 $218 $ 112,535 $(1,690) $194,390 $ 0 $305,453
Common stock dividends
($0.30 per share)........................... -- -- -- -- (6,589) -- (6,589)
Exercise of stock options..................... 177,778 2 3,778 -- -- -- 3,780
Tax benefit related to employee stock sale.... -- -- 772 -- -- -- 772
Net income.................................... -- -- -- -- 60,166 -- 60,166
Foreign currency translation adjustment....... -- -- -- (2,852) -- -- (2,852)
----------- ------ ----------- ----------- -------- ---------- --------
Balance as of June 30, 1994................... 22,005,656 $220 $ 117,085 $(4,542) $247,967 $ 0 $360,730
Common stock dividends
($0.38 per share)........................... -- -- -- -- (8,015) -- (8,015)
Exercise of stock options..................... 140,358 1 3,400 -- -- -- 3,401
Tax benefit related to employee stock sale.... -- -- 429 -- -- -- 429
Net income.................................... -- -- -- -- 38,697 -- 38,697
Purchase of treasury stock.................... (1,210,700) -- -- -- -- (40,433) (40,433)
Foreign currency translation adjustment....... -- -- -- (2,631) -- -- (2,631)
----------- ------ ----------- ----------- -------- ---------- --------
Balance as of June 30, 1995................... 20,935,314 $221 $ 120,914 $(7,173) $278,649 $ (40,433) $352,178
----------- ------ ----------- ----------- -------- ---------- --------
----------- ------ ----------- ----------- -------- ---------- --------
See accompanying notes to the consolidated financial statements.
22
FIRST BRANDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income.............................................................. $ 38,697 $ 60,166 $ 52,728
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 36,467 41,687 37,576
Deferred income taxes.............................................. 1,585 8,573 12,245
Amortization of gain on sale/leaseback............................. (1,551) (1,714) (1,676)
Net loss on disposal of automotive service centers and sale of the
Prestone business................................................ 792 -- --
Loss on repurchase of subordinated notes........................... 7,463 -- --
Change in non-cash current assets and liabilities, net of effect of
businesses sold and acquired:
(Increase) in accounts receivable............................. (27,831) (3,488) (14,205)
(Increase) decrease in inventories............................ (23,009) 21,653 312
Decrease (increase) in prepaid expenses....................... 2,252 336 (993)
(Decrease) increase in accrued income and other taxes......... (8,451) 9,213 (7,588)
Increase (decrease) in accounts payable....................... 17,160 (22,101) (3,504)
Increase (decrease) in accrued liabilities.................... 19,292 10,585 (5,666)
Net change in current assets and current liabilities of
businesses sold............................................. (20,718) -- --
Other changes...................................................... (2,775) (2,951) (3,393)
-------- -------- --------
Total adjustments........................................ 676 61,793 13,108
-------- -------- --------
Net cash provided by operating activities.................................... 39,373 121,959 65,836
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of antifreeze and car care business, net of note
received.............................................................. 142,000 -- --
Acquisition of businesses, net of cash acquired......................... (52,568) -- --
Capital expenditures.................................................... (47,029) (39,753) (39,105)
Acquisition of leased assets............................................ (13,240) -- (3,015)
Proceeds from sale of automotive service centers........................ 5,326 -- --
Retirements of plant and equipment...................................... 1,494 4,091 2,987
Patents and other proprietary technology................................ -- -- (1,950)
Proceeds from sale and leaseback of assets.............................. -- -- 13,984
-------- -------- --------
Net cash provided (used) for investing activities............................ 35,983 (35,662) (27,099)
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) in revolving credit facilities, net................. 56,300 (41,800) (50,000)
Increase (decrease) in other borrowings, net............................ 748 (504) (685)
(Decrease) increase in securitization of accounts receivable, net....... (40,000) -- 20,000
Repurchase of subordinated notes........................................ (52,115) -- --
Purchase of common stock for treasury................................... (40,433) -- --
Repayment of term loan.................................................. -- (35,692) (4,759)
Dividends paid.......................................................... (8,015) (6,589) (4,137)
-------- -------- --------
Net cash (used) for financing activities..................................... (83,515) (84,585) (39,581)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents......................... (8,159) 1,712 (844)
Cash and cash equivalents at beginning of year............................... 13,384 11,672 12,516
-------- -------- --------
Cash and cash equivalents at end of year..................................... $ 5,225 $ 13,384 $ 11,672
-------- -------- --------
-------- -------- --------
See accompanying notes to the consolidated financial statements.
23
FIRST BRANDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
First Brands Corporation and subsidiaries ('First Brands' or the 'Company'). All
material intercompany transactions and balances have been eliminated. First
Brands 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); STP (oil and fuel additives
and other specialty automotive products); SIMONIZ (waxes and polishes) and SCOOP
AWAY, EVER CLEAN and JONNY CAT (cat litters).
On August 26, 1994, First Brands sold the Prestone antifreeze/coolant and
car care business (the 'Prestone business') to Prestone Products Corporation, a
company organized and controlled by Vestar Capital Partners, a private
investment firm, for $142,000,000 in cash and a $13,000,000 7 1/2% subordinated
debenture maturing in 2003, which for financial statement purposes has been
valued at $9,000,000. Pursuant to the acquisition agreement, First Brands and
the Prestone Products Corporation entered into several contracts including the
bridging of certain administrative services, research and development sharing,
purchase of certain PRESTONE car care products, and international distributor
agreements. The sale of the Prestone business resulted in a gain of $4,508,000
which is reflected in Other income (expense), net, in the fiscal 1995
Consolidated Statement of Income.
The Company has been named as a defendant in lawsuits brought by
franchisees of the mobile antifreeze recycling business in which the Company
participated. The Company has recorded a charge of $20,350,000 for the write off
of assets and the costs associated with litigation proceedings and settlements.
This cost is included in Other income (expense), net, in the fiscal 1995
Consolidated Statement of Income.
In addition to the sale of the Prestone business, the Company sold all
remaining assets associated with its automotive service centers. The loss
associated with the disposal of this business was $5,300,000 and is reflected in
Other income (expense), net, in the fiscal 1995 Consolidated Statement of
Income.
ACCOUNTING CHANGES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106 'Employers' Accounting for Postretirement
Benefits Other than Pensions'. 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.
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 flow because the
Company intends to continue its current practice of paying the cost of
postretirement benefits as incurred. The Company has elected to recognize the
cumulative effect of the change to SFAS No. 106 by amortizing the transition
obligation over 20 years (see Note 12).
Effective July 1, 1994, the Company adopted SFAS No. 112 'Employers'
Accounting for Postemployment Benefits'. SFAS No. 112 concerns those benefits
provided by an employer to former or inactive employees after employment but
before retirement. SFAS No. 112 requires that the expense associated with these
benefits be recognized on an accrual basis. The expense resulting from adoption
of SFAS No. 112 had no material impact on the results of the Company.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
for financial reporting purposes 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.
24
Inventories were comprised of the following as of June 30, 1995 and 1994:
1995 1994
-------- --------
(IN THOUSANDS)
Raw materials................................................................... $ 28,766 $ 24,666
Work in process................................................................. 5,531 5,844
Finished goods.................................................................. 121,948 125,227
-------- --------
Total...................................................................... $156,245 $155,737
-------- --------
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost. Expenditures for
replacements are capitalized and the replaced assets are retired. Gains and
losses from the sale and/or disposal of property are included in 'Amortization
and other depreciation'. 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 totalled $849,000 in 1995, $1,120,000 in 1994
and $1,078,000 in 1993.
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 note receivables, 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 $4,941,000, $6,287,000 and $8,049,000 in 1995, 1994 and 1993,
respectively. Included in these figures were expenditures relating to the
Prestone business of $498,000, $2,142,000 and $3,269,000 for the fiscal years
1995, 1994 and 1993, respectively.
PENSION PLANS
The annual cost of pension benefits is funded currently and prior service
costs are amortized on a straight-line basis over the average service lives of
the plan participants.
NET INCOME PER SHARE
Net income per common share and common equivalent share for the years ended
June 30, 1995, 1994 and 1993 has been computed using the weighted average number
of shares of common stock and common stock equivalents outstanding for each
year.
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.
25
Supplemental disclosure of cash flow information:
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Cash paid during the year for:
Interest.......................................................... $18,947 $19,810 $23,451
Income taxes...................................................... $35,363 $25,527 $32,510
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 1994 and 1993 have been reclassified to conform
to the fiscal year 1995 classifications.
2. ACCOUNTS RECEIVABLE
The Company entered into an agreement to sell, without recourse, up to
$100,000,000 in fractional ownership interest in a defined pool of eligible
trade accounts receivable. This agreement was signed in May 1992, and had an
initial term of three years. During May 1995, the Company exercised its right to
extend this agreement while it renegotiates certain provisions with the
purchaser. As of June 30, 1995 $60,000,000 had been sold, reflecting a
$40,000,000 repurchase during fiscal 1995. The amount sold is presented as a
reduction in accounts receivable on the accompanying balance sheet. The costs
associated with this program are reported as 'Discount on sale of receivables'.
The purchasers' level of investment is subject to change based on the level of
eligible accounts receivable.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of June 30, 1995 and 1994 consisted of:
USEFUL
1995 1994 LIVES
-------- -------- ------------
(IN THOUSANDS)
Land and improvements........................................... $ 13,481 $ 21,148 --
Buildings....................................................... 69,881 78,507 30-40 years
Machinery and equipment......................................... 282,857 242,684 13-15 years
Other........................................................... 13,188 11,602 3-5 years
-------- --------
379,407 353,941
Less: Accumulated depreciation.................................. (88,447) (87,584)
-------- --------
$290,960 $266,357
-------- --------
-------- --------
4. PATENTS, TRADEMARKS, PROPRIETARY TECHNOLOGY AND OTHER INTANGIBLES
The recoverability of carrying values of intangible assets is evaluated on
a recurring basis. The primary indicators of recoverability are current or
forecasted profitability of the related acquired business, measured as profit
before interest, but after amortization of the intangible assets compared to
their carrying values. For the three-year period ended June 30, 1995, 1994 and
1993 there were no adjustments to the carrying values of intangible assets
resulting from these evaluations.
26
Patents, trademarks, proprietary technology and other intangibles as of
June 30, 1995 and 1994 consisted of:
USEFUL
1995 1994 LIVES
-------- -------- ------------
(IN THOUSANDS)
Trademarks...................................................... $ 66,252 $ 96,227 40 years
Patents, proprietary technology and other intangibles........... 162,033 210,062 13-17 years
Excess of cost over net assets acquired......................... 144,622 119,806 40 years
-------- --------
372,907 426,095
Less: Accumulated amortization.................................. (170,584) (193,429)
-------- --------
$202,323 $232,666
-------- --------
-------- --------
5. NOTES PAYABLE
Notes payable consisted of international subsidiaries' working capital
borrowings (revolving credit loans) with local banks totaling $5,128,000 at June
30, 1995 and $156,000 at June 30, 1994. The international credit facilities
which aggregate $24,026,000 are generally secured by the assets of the
respective international subsidiary, with approximately $1,473,000 at one
international subsidiary guaranteed by First Brands Corporation (U.S.).
Domestically, the Company has available a $10,000,000 unsecured line of credit
which was unused at year end. The average interest rates charged in 1995 and
1994 were 7.0% and 3.7%, respectively. The average borrowings outstanding during
fiscal 1995 and 1994 were $6,635,000 and $7,465,000, respectively.
6. ACCRUED LIABILITIES
Accrued liabilities as of June 30, 1995 and 1994 consisted of the
following:
1995 1994
-------- --------
(IN THOUSANDS)
Interest........................................................................ $ 10,211 $ 10,929
Equipment rent.................................................................. 6,715 7,519
Employee benefits and wages..................................................... 8,627 8,495
Marketing and sales programs.................................................... 70,522 80,862
Raw material purchases.......................................................... 11,956 15,954
Other........................................................................... 36,832 17,994
-------- --------
$144,863 $141,753
-------- --------
-------- --------
7. FINANCIAL INSTRUMENTS
During fiscal 1995, one of the Company's international subsidiaries entered
into foreign exchange contracts to limit the impact of exchange rate
fluctuations on their U.S. dollar purchase commitments. All gains and losses
associated with these transactions are included in the basis of the related
hedge transaction. At June 30, 1995, the Company had $7,200,000 in foreign
exchange contracts outstanding, all of which will mature during the first two
quarters of fiscal 1996.
In February 1994, the Company entered into an interest rate swap to
transform a portion of long term fixed rate debt into current variable
obligations. According to the provisions of this agreement, the Company has paid
the variable six month LIBOR interest rate, which has averaged approximately
5.33% over the term of this agreement, and has received fixed interest payments
at a rate of 5.03%. The difference between interest paid and received is
included as an adjustment to interest expense. The notional amount of the
contract is $50,000,000 and will mature in 1997. This transaction allows the
Company to better balance its interest rate exposure. The fair value of the swap
agreement reflects the estimated amounts that the Company would pay to terminate
the agreement based on the prevailing and anticipated interest rates at the
reporting dates. The unrealized loss relating to the swap agreement
27
was not material as of June 30, 1995 and 1994. The Company has no present plans
to terminate the agreement.
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 receivable, notes
payable and accounts payable, the carrying value approximates fair value. The
note receivable resulting from the sale of the Prestone business has a fair
value which approximates its book value. A portion of the Company's long-term
debt consists of variable rate instruments, hence the carrying value
approximates fair value. Fair value of fixed rate debt is estimated using market
rates. The fair value of the Company's long-term fixed rate debt exceeds the
carrying value by approximately $3,450,000 and $9,000,000 as of June 30, 1995
and 1994, respectively. The Company has no present plans to repurchase its fixed
rate debt.
8. LONG-TERM DEBT
First Brands had the following long-term debt as of June 30, 1995 and 1994:
1995 1994
-------- --------
(IN THOUSANDS)
Senior Debt(a):
$300,000,000 Revolving Credit Facility, 5 Year term expiring December, 1999, interest
at prime rate, LIBOR plus .30% or CD rate plus .425%; facility fee of .20%.......... $ 60,000 $ 3,700
Other..................................................................................... 7,191 4,778
-------- --------
67,191 8,478
Less current maturities................................................................... (912) (48)
-------- --------
Senior Debt.......................................................................... 66,279 8,430
Subordinated Debt (b):
9 1/8% Senior Subordinated Notes due 1999............................................ 100,000 100,000
13 1/4% Subordinated Notes due 2001.................................................. -- 45,000
-------- --------
Subordinated Debt......................................................................... 100,000 145,000
-------- --------
Total Long Term Debt...................................................................... $166,279 $153,430
-------- --------
-------- --------
(a) On February 3, 1995, the Company entered into a new Revolving Credit
Facility, increasing its line of credit to $300,000,000. This new facility has
no compensating balance requirements, however it does have certain restrictive
covenants, the most significant of which pertain to the ratio of debt to equity,
dividend payments and capital stock repurchases. These covenants are no more
restrictive than covenants associated with the Company's previous credit
facility.
(b) During fiscal 1995, the Company repurchased, at a 15.8% premium, the
$45,000,000 13 1/4% Subordinated Notes. The premium and unamortized issuance
costs, net of taxes, relating to the repurchased debt are reflected as an
extraordinary loss on the Company's Consolidated Statement of Income.
The 9 1/8% Senior Subordinated Notes (the '9 1/8% Notes') are redeemable at
the option of the Company on or after April 1, 1997 at par and become due in
1999. The 9 1/8% Notes contain limitations of the Company's right to incur debt.
Additionally, the 9 1/8% Notes Indenture has 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. The amount of unrestricted Retained
Earnings available to pay dividends was $155,402,000 at June 30, 1995.
First Brands was in compliance with all the covenants of the senior and
subordinated debt agreements at June 30, 1995.
Principal payments due on long-term debt (including current maturities)
will require the following future payments: $912,000 in fiscal 1996, $854,000 in
fiscal 1997, $729,000 in fiscal 1998, $100,451,000 in fiscal 1999, $60,375,000
in fiscal 2000 and $3,870,000 thereafter.
28
9. LEASES
The Company has entered into several agreements for the sale and leaseback
of certain production equipment at its domestic plastic wrap and bag plants. The
Company has purchase and lease renewal options at projected future fair market
values under the agreements. The leases are classified as operating leases in
accordance with the FASB Statement No. 13 -- Accounting for Leases.
As of June 30, 1995, equipment with book values totalling $117,067,000 has
been removed from the balance sheet, and the gains realized on the sale
transactions totalling $5,075,000 have been deferred and are being credited to
income as rent expense adjustments over the lease terms. The average yearly
rental for all equipment leases is $18,990,000.
There are covenants under the lease agreements which the Company is in
compliance with at June 30, 1995.
The Company and its subsidiaries also maintain operating leases for various
warehouses, office facilities and equipment generally over periods ranging from
one to five years with options to renew.
Lease commitments under noncancelable operating leases extending for one
year or more will require the following future payments: $23,813,000 in 1996,
$19,982,000 in 1997, $10,276,000 in 1998, $3,862,000 in 1999, $2,183,000 in 2000
and $74,000 thereafter. The total rental expense under operating leases was
$24,345,000, $25,895,000 and $28,033,000, respectively, for the years ended June
30, 1995, 1994 and 1993.
10. CAPITAL STOCK
During 1989, the Company established the 1989 Long-Term Incentive Plan (the
'1989 Plan') under which awards of incentive stock options, nonqualified stock
options, restricted and limited stock appreciation rights may be granted to
certain key employees of the Company. The maximum number of shares of Common
Stock which could be granted under the 1989 Plan is 1,405,000. All options
associated with the 1989 Plan have been granted and are fully vested. During
1994, the Company established the 1994 Performance Stock Option and Incentive
Plan (the '1994 Plan'), which also awards key employees incentive and
nonqualified stock options as well as restricted and limited stock appreciation
rights. The maximum number of shares of Common Stock which could be granted
under the 1994 Plan is 1,090,000. Stock options granted under either the 1989 or
1994 Plan will have a term not in excess of ten years. The exercise price for
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.
A summary of the options transactions for the years ended June 30, 1995,
1994 and 1993 follows:
1995 1994 1993
---------- ---------- ----------
Options outstanding, beginning of fiscal year.......................... 1,005,257 1,193,402 1,011,961
Options granted (per share $29.3125)................................... -- -- 25,000
Options granted (per share $29.4375)................................... -- -- 341,000
Options granted (per share $32.75)..................................... 441,000 -- --
Options exercised (per share $19.00 to $25.3125)....................... (140,358) (177,778) (143,893)
Options cancelled (per share $19.00 to $32.75)......................... (5,750) (10,367) (40,666)
Options outstanding, end of fiscal year................................ 1,300,149 1,005,257 1,193,402
Exercise price range per share......................................... $19.00 to $19.00 to $19.00 to
$32.75 $29.4375 $29.4375
Exercisable at June 30................................................. 869,940 645,298 486,818
Available for grant at June 30......................................... 665,076 10,326 0
Limited stock appreciation rights 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. A limited stock
appreciation right 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
29
subject to the limited stock appreciation right over the exercise price of the
underlying stock option. Limited stock appreciation rights have been granted
with respect to 597,000 shares.
11. TAXES
The components of earnings before income taxes and extraordinary items are
as follows:
1995 1994 1993
------- -------- -------
(IN THOUSANDS)
United States......................................................... $68,222 $ 96,171 $80,398
International......................................................... 6,602 7,564 8,657
------- -------- -------
Income before taxes and extraordinary items........................... $74,824 $103,735 $89,055
------- -------- -------
------- -------- -------
Total income taxes for the years ended June 30, 1995, 1994 and 1993 were
allocated as follows:
1995 1994 1993
------- -------- -------
(IN THOUSANDS)
Income taxes before extraordinary loss................................ $31,634 $43,569 $36,327
Extraordinary loss.................................................... (2,970) -- --
Stockholders' equity, for compensation expense for tax purposes in
excess of amounts recognized for financial reporting purposes....... (429) (772 ) (91)
------- -------- -------
Total income taxes.................................................... $28,235 $42,797 $36,236
------- -------- -------
------- -------- -------
Income tax expense attributable to income before extraordinary loss for the
years ended June 30, 1995, 1994 and 1993 consists of the following:
1995 1994 1993
------- -------- -------
(IN THOUSANDS)
Current:
Federal.......................................................... $22,718 $26,026 $16,238
State............................................................ 4,995 5,760 3,807
Foreign.......................................................... 2,336 3,210 4,037
------- -------- -------
Total current............................................... 30,049 34,996 24,082
------- -------- -------
Deferred:
Federal.......................................................... 1,442 7,504 10,687
State............................................................ 320 1,197 1,850
Foreign.......................................................... (177) (128 ) (292)
------- -------- -------
Total deferred.............................................. 1,585 8,573 12,245
------- -------- -------
Total provision............................................. $31,634 $43,569 $36,327
------- -------- -------
------- -------- -------
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 in
1995 and 1994 and 34 percent in 1993 to pre-tax income before extraordinary loss
as a result of the following:
1995 1994 1993
------- -------- -------
(IN THOUSANDS)
Computed 'expected' tax expense....................................... $26,188 $36,307 $30,279
Increase (reduction) in income taxes resulting from:
Amortization of goodwill......................................... 1,701 1,057 960
State income taxes net of Federal income tax benefit............. 3,455 4,522 3,734
Foreign income tax in excess of statutory rate................... 42 582 801
Retroactive effect of tax rate change............................ -- 851 --
Other, net....................................................... 248 250 553
------- -------- -------
Actual tax expense.................................................... $31,634 $43,569 $36,327
------- -------- -------
------- -------- -------
30
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1995 and 1994 are presented below:
1995 1994
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Intangible asset, not amortized for tax purposes..................................... $ 5,931 $ 7,650
Accounts receivable reserves......................................................... 2,291 1,849
Pension liability, past service cost................................................. 4,455 4,860
Difference between book and tax basis of inventories................................. 4,412 4,440
Deferred gain on sale of assets...................................................... 1,047 2,140
Accrued liabilities, not deductible until paid....................................... 27,335 19,950
-------- --------
Total deferred tax assets....................................................... 45,471 40,889
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation.................. (57,060) (48,675)
Purchase accounting and other, net................................................... (4,682) (6,723)
Foreign subsidiaries................................................................. (4,215) (3,429)
-------- --------
Total deferred tax liabilities.................................................. (65,957) (58,827)
-------- --------
Net deferred tax (liabilities) assets................................................ $(20,486) $(17,938)
-------- --------
-------- --------
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 $40,002,000, $34,834,000 and
$33,599,000 for the years ended June 30, 1995, 1994 and 1993 respectively.
12. EMPLOYEE BENEFITS
RETIREMENT PLANS
First Brands maintains both a non-contributory defined benefit retirement
plan ('pension plan') and defined contribution pre and post-tax savings plans
('savings plan'). During fiscal 1995, the Board of Directors approved amendments
to the Company's U.S. pension and savings plans. These amendments did not result
in any significant change to overall costs.
The Company contributes to the savings plan account of each eligible
employee who chooses to participate. Effective January 1, 1995, the Company
increased its match so that its maximum contribution is now up to 3% of employee
base pay versus up to 2.25% previously. Any regular employee of First Brands or
its domestic subsidiaries is eligible to participate in the amended savings
plan. Savings plan expense for the years ending June 30, 1995, 1994 and 1993
totalled $1,375,000, $1,042,000 and $1,189,000, respectively. Beginning fiscal
1996, the Company will provide a profit sharing contribution to each employee's
savings plan. The contribution is discretionary and is intended to be based on
the Company's operating performance. Profit sharing contributions will be in
existing issued shares of First Brands common stock.
The pension plan for First Brands and several of its subsidiaries provide
defined benefits that are based on years of credited service, highest average
compensation (as defined) and the primary social security benefit. The U.S.
pension plan amendment changes this formula, effective January 2000, to a
defined benefit based on years of credited service and career average
compensation. Pension plan assets are primarily comprised 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.
The operations restructuring program which the Company implemented in
fiscal 1992 resulted in a decrease in the number of participants in First
Brands' pension program. As a result of this reduction,
31
the Company recognized a pension curtailment gain of $1,361,000 during fiscal
1993. The sale of the Prestone business resulted in a settlement loss of $54,000
during fiscal 1995.
The following table sets forth the combined U.S. and Canadian plans' net
pension cost, funded status and amounts recognized in the Company's consolidated
balance sheet at June 30, 1995, 1994 and 1993:
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Net pension cost included the following components:
Service cost -- benefits earned during the period.................. $ 3,734 $ 4,274 $ 4,246
Interest cost on projected benefit obligations..................... 4,910 5,346 4,679
Actual return on plan assets....................................... (7,435) (2,205) (5,297)
Net amortization and deferral...................................... 1,469 (3,050) 930
Settlement loss.................................................... 54 0 0
Curtailment (gain)................................................. 0 0 (1,361)
------- ------- -------
Net pension cost........................................................ $ 2,732 $ 4,365 $ 3,197
------- ------- -------
------- ------- -------
Reconciliation of funded status:
Vested accumulated benefit obligation.............................. 44,626 40,601
Non-vested accumulated benefit obligation.......................... 7,906 7,350
------- -------
Accumulated benefit obligation..................................... 52,532 47,951
Additional liability based on projected compensation............... 10,562 26,062
------- -------
Projected benefit obligation....................................... 63,094 74,013
Fair value of assets............................................... 63,614 59,299
------- -------
Projected benefit obligation (less than) in excess of plan
assets........................................................... (520) 14,714
Unrecognized prior service benefits and (costs).................... 8,849 (1,192)
Unrecognized net gain (loss)....................................... 2,880 (1,850)
Projected benefit obligation in excess of plan assets (recorded at
acquisition date)................................................ (12,485) (12,485)
Prepaid cost....................................................... 1,658 1,177
------- -------
Accrued pension cost included in accrued liabilities............... $ 382 $ 364
------- -------
------- -------
The weighted average discount rate and the rate of increase in compensation
used in determining the actuarial present value of the accumulated benefit
obligation was 8.0% in 1995 and 1994 and 9.0% in 1993; and 4.5% in 1995 and 1994
and 4.75% in 1993, respectively, for the U.S. For the Canadian plan, the
weighted average discount rate and the rate of increase for 1995, 1994 and 1993
was 8.5% and 5%, respectively. The related rate of expected return on plan
assets in the U.S. was 9.5% in 1995 and 1994 and 10.0% in 1993; and in Canada
was 8.5% in 1995, 1994 and 1993.
Federal law restricts the amount of benefits that can be paid from a
qualified plan. Effective January 1, 1993, First Brands established a
nonqualified plan ('Executive Retirement Plan') the effect of which is to award
retirement benefits to all employees on a uniform basis. The Executive
Retirement Plan is unfunded. Prior to January 1, 1993, First Brands maintained a
nonqualified excess benefit plan to continue the calculation of benefits after
retirement for employees who are restricted due to IRS regulations, and a
nonqualified retirement plan which provided retirement income based on amounts
earned through the annual incentive plan for certain corporate and division
officers. During 1995, 1994 and 1993, expense of $189,000, $225,000 and
$307,000, respectively, has been reflected for these plans. Funding of the
nonqualified excess benefit and retirement plans for 1993 was $342,000.
POSTRETIREMENT BENEFITS
In addition to providing pension 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
32
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 1995
and 1994:
1995 1994
------ ------
(IN THOUSANDS)
Service cost......................................................................... $ 386 $ 381
Interest cost........................................................................ 1,378 1,307
Amortization of transition obligation................................................ 770 840
------ ------
Net postretirement benefit cost...................................................... 2,534 2,528
Curtailment loss..................................................................... 1,050 --
------ ------
Total postretirement benefit cost............................................... $3,584 $2,528
------ ------
------ ------
As a result of the Prestone business sale, during fiscal 1995 the Company
recognized a one-time postretirement curtailment loss of $1,050,000. Prior to
the fiscal 1994 adoption of SFAS No. 106, postretirement benefits were expensed
as claims were paid and amounted to $646,000 for 1993.
The Company's accumulated postretirement benefit obligation (the transition
obligation) at June 30, 1995 and 1994 is comprised of the following components:
1995 1994
-------- --------
(IN THOUSANDS)
Accumulated postretirement benefit obligations:
Retirees................................................................... $ 9,635 $ 8,465
Fully eligible active plan participants.................................... 1,818 2,706
Active plan participants not fully eligible................................ 3,697 6,434
-------- --------
Total................................................................. 15,150 17,605
Unrecognized transition obligation.............................................. (10,547) (15,927)
Unrecognized (loss) gain........................................................ (82) 239
-------- --------
Accrued unfunded postretirement benefit cost.................................... $ 4,521 $ 1,917
-------- --------
-------- --------
The discount rate used in determining the accumulated postretirement
benefit obligation was 8% for fiscal 1995 and 1994. The assumed health care cost
trend rate used to measure the accumulated postretirement benefit obligation was
13%, gradually declining 1% per year after fiscal year 1995 to an ultimate rate
of 7% in fiscal year 2001. A 1% increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement benefit
obligation as of June 30, 1995 by $633,000 and increase the service and interest
cost for 1995 by $84,000.
13. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
Four actions were commenced in the United States District Court, District
of Massachusetts by certain franchisees against A.F. Technologies, Inc. (AFT),
the franchisor, First Brands Corporation, First Brands Properties Inc., Prestone
Technology Systems, Inc., and Butler Corporation ('Defendants') for damages
arising out of the AFT mobile recycling franchise business. First Brands
Corporation and its wholly owned subsidiary, Prestone Technology Systems, sold
recycling chemicals to the franchisees, and First Brands Properties licensed the
'Prestone' trademark to the franchisees. First Brands indemnified AFT against
franchisee claims as a result of a prior settlement of claims asserted by First
Brands and AFT against each other. First Brands indemnified Prestone Products
Corporation against franchisee claims in connection with the sale of its
Prestone business. Plaintiffs were seeking damages for the loss of Plaintiffs'
investments and lost profits; treble damages; attorneys' fees and costs; and
such other and further relief as the court deemed just.
Although the Company believed that it had meritorious defenses to these
actions and had filed Answers in each of the four actions and has denied all
material allegations, in order to avoid prolonged litigation and accompanying
expenses, costs and attorney fees, potential liability and the threat of treble
33
damages, on September 19, 1995, the Company agreed to settle these cases for
approximately $15.6 million. The Company believes that the alleged liability
involved in these cases is subject to insurance which is sufficient to cover the
amount of the settlement. The various primary and excess carriers have not yet
agreed to accept liability.
The Company has also commenced a suit against Butler Corporation claiming
damages for Butler's alleged misrepresentations and negligence in Butler's
disclosures to the Company and for franchisee claims which relate to the mobile
recycling equipment and process technology developed by Butler Corporation.
Butler Corporation has answered and counterclaimed in this suit and filed a
cross claim in one of the franchisee actions for alleged negligence in providing
chemical additives and misrepresentations concerning antifreeze recycling.
The charge discussed in Note 1 which has been recorded to provide for costs
associated with the above litigation has not been reduced by the expected
insurance proceeds.
In addition to the mobile recycling litigation mentioned above, the Company
has been named as defendant in various claims arising as a normal part of its
business. Based upon the facts available to date, management believes the
Company has meritorious defenses to all these actions and that the ultimate
resolution of these actions and claims will not have a material adverse effect
on the Company's financial position or results of operations, after
consideration of the previously mentioned charge.
OTHER
Pursuant to the 1986 acquisition agreement, the Company assumed certain
liabilities of Union Carbide, including most environmental liabilities connected
with the acquisition of the worldwide home and automotive businesses of Union
Carbide at the inception of the Company. To the extent that the Company incurs
environmental liabilities which relate to conditions existing or actions taken
prior to the closing date or which relate to compliance with any requirement of
an environmental law or regulation which existed as of the date of the
acquisition agreement, the Company will be entitled to indemnification from
Union Carbide for 85% of such liabilities in excess of $10,000,000 (providing
such liabilities are asserted and written notice of such assertion is given to
Union Carbide within three years of the closing date), up to aggregate
expenditures by Union Carbide for such liabilities (and certain other
liabilities specified in the acquisition agreement) of $75,000,000. Based upon
the facts available to date, while the Company does not believe that its
liability will exceed the liability established at the acquisition date, it has
notified Union Carbide that the amount may exceed the $10,000,000 liability,
thereby triggering Union Carbide's indemnification.
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.
34
14. GEOGRAPHIC SEGMENT DATA
The following is a summary of net sales, operating profit, and identifiable
assets in the United States and internationally in 1995, 1994 and 1993:
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Revenues:
United States............................................ $ 926,166 $ 986,367 $ 946,061
International............................................ 110,349 99,953 95,796
---------- ---------- ----------
Total............................................... $1,036,515 $1,086,320 $1,041,857
---------- ---------- ----------
---------- ---------- ----------
Operating profit:
United States............................................ $ 129,069 $ 141,361 $ 127,242
International............................................ 9,181 9,389 10,528
Less corporate expense................................... (19,403) (20,275) (19,089)
---------- ---------- ----------
Total............................................... $ 118,847 $ 130,475 $ 118,681
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
United States............................................ $ 754,220 $ 744,769 $ 767,907
International............................................ 85,726 69,216 62,310
---------- ---------- ----------
Total............................................... $ 839,946 $ 813,985 $ 830,217
---------- ---------- ----------
---------- ---------- ----------
Included in U.S. revenues are export sales totaling $37,201,000,
$31,096,000 and $34,021,000 during the years ended June 30, 1995, 1994 and 1993,
respectively. The Company does not believe that it is dependent on any single
customer, however, sales to its largest customer in the year ended June 30,
1995, amounted to approximately 12% of total sales.
15. ACQUISITIONS
On July 13, 1994, the Company purchased the cat litter and absorbent
mineral assets of Excel Mineral Inc. and Excel International Inc. ('Excel'), for
approximately $45,000,000. The assets include the JONNY CAT brand of premium cat
care products.
Effective May 1, 1995, the Company purchased, for approximately $8,700,000,
79% of the capital stock of Multifoil Holding (PTY) LTD ('Multifoil'). Multifoil
is a South African manufacturer and marketer of plastic film products for
consumers and the packaging industry.
Both of the above acquisitions have been accounted for by the purchase
method, and accordingly, the results of operations of Excel and Multifoil are
included in the Company's Consolidated Statement of Income from the dates of
acquisition. The excess of cost over net assets acquired is being amortized over
a forty year period on a straight line basis.
35
16. INTERIM REPORTING (UNAUDITED)
YEAR ENDED JUNE 30, 1995
------------------------------------------------------
QUARTERS ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
------------- ------------ --------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net sales................................................. $ 264,167 $233,008 $ 247,932 $291,408
Gross profit.............................................. 103,341 89,227 92,379 105,682
Income before extraordinary item.......................... 15,074 11,842 14,254 2,020
Net income................................................ 15,074 7,349 14,254 2,020
Per common share:
Income before extraordinary item..................... $ 0.68 $ 0.55 $ 0.67 $ 0.10
Net income........................................... $ 0.68 $ 0.34 $ 0.67 $ 0.10
YEAR ENDED JUNE 30, 1994
------------------------------------------------------
QUARTERS ENDED
------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1993 1993 1994 1994
------------- ------------ --------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net sales................................................. $ 279,813 $270,393 $ 244,364 $291,750
Gross profit.............................................. 106,844 103,671 91,380 118,089
Net income................................................ 16,372 16,392 11,387 16,015
Net income per common share............................... $ 0.74 $ 0.74 $ 0.51 $ 0.72
36
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
FIRST BRANDS CORPORATION:
The audits referred to in our report dated September 19, 1995, included the
related financial statement schedule for each of the years in the three-year
period ended June 30, 1995, as listed in the index to Item 14 of this Annual
Report on Form 10-K405. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Our report refers to the Company's change in its method of accounting for
postretirement benefits other than pensions as described in Notes 1 and 12 to
the consolidated financial statements.
KPMG PEAT MARWICK LLP
New York, New York
September 19, 1995
37
SCHEDULE II
FIRST BRANDS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END
OF PERIOD EXPENSES DEDUCTIONS(a) OF PERIOD
---------- ---------- ------------- ---------
(IN THOUSANDS)
FOR THE YEAR ENDED JUNE 30, 1995
---------------------------------------------------------
Allowance for doubtful accounts and discounts............. $5,269 $ 35,648 $ (34,763) $ 6,154
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
FOR THE YEAR ENDED JUNE 30, 1994
---------------------------------------------------------
Allowance for doubtful accounts and discounts............. $5,529 $ 32,900 $ (33,160) $ 5,269
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
FOR THE YEAR ENDED JUNE 30, 1993
---------------------------------------------------------
Allowance for doubtful accounts and discounts............. $5,694 $ 28,316 $ (28,481) $ 5,529
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
- ------------
(a) Deductions represent write-offs and discounts net of recoveries of amounts
previously written off.
38
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BRANDS CORPORATION
By /s/ JOSEPH B. FUREY
..................................
JOSEPH B. FUREY
VICE PRESIDENT AND CONTROLLER
September 8, 1995
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has also been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
/S/ ALFRED E. DUDLEY Chairman and Director September 8, 1995
.........................................
(ALFRED E. DUDLEY)
/S/ WILLIAM V. STEPHENSON President, Chief Executive Officer and September 8, 1995
......................................... Director
(WILLIAM V. STEPHENSON)
/S/ DONALD A. DESANTIS Senior Vice President and Chief Financial September 8, 1995
......................................... Officer
(DONALD A. DESANTIS)
/S/ ALAN C. EGLER Director September 8, 1995
.........................................
(ALAN C. EGLER)
Director September , 1995
.........................................
(GARY E. GARDNER)
/S/ JAMES R. MAHER Director September 8, 1995
.........................................
(JAMES R. MAHER)
/S/ JAMES R. MCMANUS Director September 8, 1995
.........................................
(JAMES R. MCMANUS)
/S/ DWIGHT C. MINTON Director September 8, 1995
.........................................
(DWIGHT C. MINTON)
/S/ DENIS NEWMAN Director September 8, 1995
.........................................
(DENIS NEWMAN)
/S/ ERVIN R. SHAMES Director September 8, 1995
.........................................
(ERVIN R. SHAMES)
/S/ ROBERT G. TOBIN Director September 8, 1995
.........................................
(ROBERT G. TOBIN)
39
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
3.1 --Restated Certificate of Incorporation of the Company, as amended by consent of the stockholders of the
Company as of April 11, 1991. Incorporated by reference to Exhibit 3.1 to Form 10-K filed by the
registrant on September 25, 1992.
3.2* --By-Laws of the Company, as amended by consent of the stockholders of the Company as of April 11, 1991,
and as further amended by the Board of Directors on January 20, 1995, pursuant to Article Fifth,
Section 3G of the Restated Certificate of Incorporation.
4.1 --Indenture between the Company and United States Trust Company of New York, dated as of March 1, 1992,
relating to the 9 1/8% Senior Subordinated Notes due 1999. Incorporated by reference to Exhibit 4.1 to
Form 10-K filed by the Registrant on September 25, 1992.
4.2 --Specimen 9 1/8% Senior Subordinated Note. Incorporated by reference to Exhibit 4.2 to Form 10-K filed
by the Registrant on September 25, 1992.
10.1 --Credit Agreement, dated as of February 3, 1995, among the Company, Chemical Bank, as Agent, and The
Several Lenders Parties thereto. Incorporated by reference to Exhibit 10.1 to Form 10-Q for Quarter
ended March 31, 1995, filed by the Registrant on May 11, 1995.
10.2 (a) --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. Incorporated by
reference to Exhibit 10.2 to Form 10-Q for Quarter ended December 31, 1993, filed by the Registrant on
February 14, 1994.
(b) --Rider No. 1 thereto, dated as of December 1, 1993. Incorporated by reference to Exhibit 10.2(b) to
Form 10-K filed by the Registrant on September 12, 1994.
(c) --Rider No. 2 thereto, dated as of May 11, 1994. Incorporated by reference to Exhibit 10.2(c) to Form
10-K filed by the Registrant on September 12, 1994.
10.3 --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. Incorporated by reference to
Exhibit 10.6 to Form 10-Q for Quarter ended December 31, 1993, filed by the Registrant on February 14,
1994.
10.4 (a) --Agreement dated December 23, 1994 between the Company and Pitney Bowes Credit Corporation ('Pitney
Bowes') to the exercise by the Company of an Early Purchase Option with regard to certain equipment at
the Company's GLAD Plastic Wrap and Bag facility at Rogers, Arkansas. (This equipment was subject to
the Equipment Lease Agreement dated as of December 23, 1991 between Pitney Bowes and the Company; the
Equipment Lease Agreement was previously filed as and incorporated by reference to Exhibit 10.9 to Form
S-1 filed by the Registrant on February 7, 1992.) Incorporated by reference to Exhibit 10.5(a) to Form
10-Q for Quarter ended December 31, 1994, filed by the Registrant on February 14, 1995.
(b) --Bill of Sale by Pitney Bowes dated December 23, 1994 for certain equipment repurchased by the Company
pursuant to the Company's exercise of the Early Purchase Option provided for in the Equipment Lease
Agreement. Incorporated by reference to Exhibit 10.5(b) to Form 10-Q for Quarter ended December 31,
1994, filed by the Registrant on February 14, 1995.
10.5* --Letters dated May 4, 1995 and June 23, 1995 of the Company and NationaBanc Leasing Corporation
('NationsBanc' -- successor in interest to NationsBanc Leasing Corporation of Georgia), respectively,
relating to the exercise by the Company of an Early Purchase Option with regard to certain equipment at
the Company's GLAD plastic wrap and bag facility in Amherst, Virginia. (This equipment was subject to
the Equipment Lease Agreement dated as of June 25, 1992, between NationsBanc and the Company; the
Equipment Lease Agreement was previously filed as and incorporated by reference to Exhibit 10.14 to
Form 10-K filed by the Registrant on September 25, 1992.)
10.6 --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
the Registrant on September 28, 1993.
10.7 --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
the Registrant on September 29, 1993.
40
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
10.8 (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 the 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 the
Registrant on June 12, 1991.
10.9 --Agreement between the Company and Metropolitan dated December 29, 1994, for the purchase of the 13.25%
Subordinated Note due 2001 (the 'Note'), outstanding in the principle amount of $45,000,000, by the
Company on January 4, 1995. (The Note was issued pursuant to the Note Purchase Agreement ('Purchase
Agreement') dated as of July 1, 1986, between the Company and Metropolitan Life Insurance Company and
the Subordinated Notes Registration Rights Agreement ('Rights Agreement') dated as of July 1, 1986; the
Purchase Agreement was previously filed as and incorporated by reference to Exhibit 4(ii) to Form S-1
filed by the Registrant on July 15, 1986; the Rights Agreement was previously filed as and incorporated
by reference to Exhibit 10(xii) to Form S-1 filed by the Registrant on July 15, 1986.) Incorporated by
reference to Exhibit 10.11(b) to Form 10-Q for Quarter ended December 31, 1994, filed by the Registrant
on February 14, 1995.
10.10 --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 the Registrant on March 5, 1991.
10.11 --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 the Registrant on March 5,
1991.
10.12 --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 the Registrant on September 25, 1992.
10.13 (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 the
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 the Registrant on September 25, 1992.
(c) --Amendment No. 1 thereto, dated as of December 22, 1993. Incorporated by reference to Exhibit 10.18(c)
to Form 10-Q for Quarter ended December 31, 1993, filed by the Registrant on February 14, 1994.
10.14 --Asset Purchase and Sale Agreement, dated as of May 21, 1992, between the Company and First Brands
Funding Inc, relating to First Brands Funding Master Trust trade receivables-backed financing.
Incorporated by reference to Exhibit 10.21 to Form 10-K filed by the Registrant on September 25, 1992.
10.15 --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 the Registrant on September 25, 1992.
10.16 --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
Reimbrusement Agreement, dated as of May 21, 1992, relating to First Brands Funding Master Trust trade
receivables-backed financing. Incorporated by reference to Exhibit 10.21 to Form 10-Q for Quarter ended
December 31, 1993, filed by the Registrant on February 14, 1994.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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10.17 --Amended Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.34 to Form 10-K filed by the
Registrant on September 12, 1990.
10.18 --First Brands Corporation 1994 Performance Stock Option and Incentive Plan. Incorporated by reference
to Exhibit A to the Definitive Proxy Statement for Annual Meeting of Stockholders, filed by the
Registrant on September 28, 1993.
10.19 (a) --Purchase and Sale Agreement, dated as of June 30, 1994, between the Registrant and Vestar/Freeze
Holdings Corporation and Vestar Equity Partners, L.P., relating to the sale by the Registrant of its
businesses of developing, manufacturing, marketing, selling and/or distributing automotive antifreeze,
cooling system tools, cooling system chemicals for cleaning and sealing leaks in automotive cooling
systems, ice fighting products, PRESTONE brake fluid products, PRESTONE power steering fluid products,
and PRESTONE transmission stop-leak fluid products, and antifreeze recycling business. Incorporated by
reference to Exhibit 2.1 to Form 8-K filed by the Registrant on September 12, 1994.
(b) --Amendment No. 1 thereto, dated as of August 25, 1994. Incorporated by reference to Exhibit 2.2 to Form
8-K filed by the Registrant on September 12, 1994.
11* -- Computation of Net Income Per Common Share.
21* -- Subsidiaries of Registrant.
23* -- Consent of KPMG Peat Marwick LLP.
27* -- EDGAR Financial Data Schedule.
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* Filed herewith
42