SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER
33-7264
FIRST BRANDS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1171404
State of Incorporation (IRS Employer
Identification No.)
83 Wooster Heights Rd., Building 301
P.O. Box 1911
Danbury, Connecticut 06813-1911
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-731-2300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at October 31, 1995
----- -------------------------------
Common Stock, $.01 par value 20,850,806 shares
FIRST BRANDS CORPORATION
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income
For the Three Month Periods
Ended September 30, 1995 and 1994 ........................................ 3
Consolidated Condensed Balance Sheets -
September 30, 1995 and June 30, 1995 ..................................... 4
Consolidated Condensed Statement of Stockholders'
Equity - For the Three Month Period
Ended September 30, 1995 ................................................. 5
Consolidated Condensed Statements of Cash
Flows - For the Three Month Periods
Ended September 30, 1995 and 1994 ........................................ 6
Notes to Consolidated Condensed Financial
Statements ............................................................... 7-9
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition .........................10-12
Independent Accountants' Report ........................................... 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 14
Items 2 - 6 ............................................................... 14
SIGNATURE ................................................................. 15
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FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(in thousands - except per share amounts)
Net sales .................................................. $250,789 $264,167
Cost of goods sold ....................................... 166,227 160,826
Selling, general and
administrative expenses ................................. 48,455 67,161
Amortization and other depreciation ...................... 4,198 4,282
Interest expense and amortization of debt discount
and expense ............................................ 4,314 4,967
Discount on sale of receivables .......................... 1,037 1,194
Other income (expense), net .............................. 178 349
-------- --------
Income before provision for income taxes ................... 26,736 26,086
Provision for income taxes ................................. 11,203 11,012
-------- --------
Net income ................................................. $ 15,533 $ 15,074
======== ========
Net income per common share and common
equivalent share (Note 6) ................................ $0.73 $0.68
===== =====
Weighted average common and common
equivalent shares outstanding (Note 6) ................... 21,219 22,053
====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-3-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
(Dollars in thousands, except share amounts) 1995 1995
------------------- --------
(UNAUDITED)
ASSETS:
Cash and cash equivalents ....................................... $ 9,522 $ 5,225
Accounts and notes receivable - net ............................. 98,149 121,763
Inventories ..................................................... 153,568 156,245
Deferred tax assets ............................................. 31,886 34,038
Prepaid expenses ................................................ 3,100 3,561
----------- -----------
Total current assets .......................................... 296,225 320,832
Property, plant and equipment (net of accumulated
depreciation of $95,466 and $88,447) .......................... 302,414 290,960
Patents, trademarks, proprietary technology
and other intangibles (net of accumulated
amortization of $173,478 and $170,584) ........................ 199,946 202,323
Deferred charges and other assets (net of
accumulated amortization of $50,550 and $50,214) .............. 25,841 25,831
----------- -----------
Total assets .......................................... $ 824,426 $ 839,946
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities
Notes payable ................................................... $ 12,810 $ 5,128
Current maturities of long-term debt ............................ 870 912
Accrued income and other taxes .................................. 27,542 27,279
Accounts payable ................................................ 39,599 70,106
Accrued liabilities ............................................. 107,752 144,863
----------- -----------
Total current liabilities .................................. 188,573 248,288
Long-term debt .................................................. 196,958 166,279
Deferred taxes payable .......................................... 57,194 54,524
Deferred gain on sale of assets ................................. 2,300 2,637
Other long-term obligations ..................................... 15,498 16,040
Stockholders' Equity
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued ................................ -- --
Common stock, $0.01 par value,
50,000,000 shares authorized; issued
22,182,806 shares at September 30, 1995
and 22,146,014 shares at June 30, 1995 ........................ 222 221
Capital in excess of par value .................................. 121,954 120,914
Cumulative foreign currency translation adjustment .............. (6,432) (7,173)
Common stock in treasury, at cost; 1,290,000 shares at
September 30, 1995 and 1,210,700 at June 30, 1995 ............. (43,934) (40,433)
Retained earnings ............................................... 292,093 278,649
----------- -----------
Total stockholders' equity ................................. 363,903 352,178
----------- -----------
Total liabilities and stockholders' equity ............ $ 824,426 $ 839,946
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-4-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1995
(UNAUDITED)
Cumulative
Capital Foreign
Common in Excess Currency
Stock of Par Translation Treasury Retained
(in thousands) Par Value Value Adjustment Stock Earnings Total
--------- --------- ----------- --------- -------- -----
Balance as of
June 30, 1995 ........ $221 $120,914 $(7,173) $(40,433) $278,649 $352,178
Exercise of
Stock Options ........ 1 1,040 -- -- -- 1,041
Cash Dividends ........ -- -- -- -- (2,089) (2,089)
Purchase of
Treasury Stock ....... -- -- -- (3,501) -- (3,501)
Net Income ............ -- -- -- -- 15,533 15,533
Foreign Currency
Translation Adjustment -- -- 741 -- -- 741
---- -------- ------- -------- -------- --------
Balance as of
September 30, 1995 ... $222 $121,954 $(6,432) $(43,934) $292,093 $363,903
==== ======== ======= ======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-5-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
(in thousands) 1995 1994
-------------------- -------------
Cash flows from operating activities:
Net income ................................................................... $ 15,533 $ 15,074
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .............................................. 8,824 8,718
Deferred income taxes ...................................................... 4,745 181
Net loss on disposal of automotive service
centers and sale of the Prestone business ................................ -- 348
Change in certain non-cash current assets and liabilities, net of effect of
businesses sold and acquired:
Decrease (increase) in accounts receivable .............................. 24,208 (7,622)
Decrease in inventories ................................................. 2,677 1,493
Decrease in prepaid expenses ............................................ 461 423
Increase in accrued income and other taxes .............................. 263 7,245
(Decrease) in accounts payable .......................................... (30,507) (19,408)
(Decrease) increase in accrued liabilities .............................. (37,111) 17,148
Net change in current assets and current liabilities
of businesses sold ........................................................ -- (21,024)
Other changes ................................................................ 162 (396)
----------- -----------
Total adjustments ........................................................ (26,278) (12,894)
----------- -----------
Net cash (used for) provided by operating activities ........................... (10,745) 2,180
----------- -----------
Cash flows from investing activities:
Capital expenditures ........................................................ (7,890) (7,119)
Acquisition of leased assets ................................................ (9,797) --
Proceeds from sale of antifreeze/coolant and car
care business, net of note received ....................................... -- 142,000
Acquisition of business ..................................................... -- (45,195)
----------- -----------
Net cash (used for) provided by investing activities ........................... (17,687) 89,686
----------- -----------
Cash flows from financing activities:
Increase (decrease) in revolving credit borrowings, net .................... 30,000 (3,700)
Increase in other borrowings, net .......................................... 8,319 325
(Decrease) in accounts receivable securitization, net ...................... -- (60,000)
Purchase of common stock for treasury ...................................... (3,501) (17,264)
Dividends paid ............................................................. (2,089) (1,762)
----------- -----------
Net cash provided by (used for) financing activities ........................... 32,729 (82,401)
----------- -----------
Net increase in cash and cash equivalents ...................................... 4,297 9,465
Cash and cash equivalents at beginning of period ............................... 5,225 13,384
----------- -----------
Cash and cash equivalents at end of period ..................................... $ 9,522 $ 22,849
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-6-
FIRST BRANDS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements include all adjustments (all of which were of a normal
recurring nature) necessary to fairly present the results of operations for the
interim periods. Certain prior year amounts have been reclassified to conform
with the current year's presentation. All material intercompany transactions and
balances have been eliminated. The results of operations for the three month
period ended September 30, 1995 are not necessarily indicative of the results
for a full year.
First Brands Corporation ('First Brands' or the 'Company') is engaged in the
development, manufacture, marketing and sales of consumer products under branded
and private labels. Principal branded products include: GLAD and GLAD-LOCK
(plastic wrap and bags); STP (oil and fuel additives and other specialty
automotive products); SIMONIZ (car waxes and polishes) and SCOOP AWAY, EVER
CLEAN and JONNY CAT (cat litters).
On August 26, 1994, the Company sold the Prestone antifreeze/coolant and car
care business. The net assets of that business have been removed from the
balance sheet, resulting in a gain during fiscal 1995 which was included in
other income (expense), net, in the Consolidated Condensed Statement of Income.
Sales from the PRESTONE business were $31,684,000 for the period ended August
25, 1994, and together with the operating results of this business, through such
dates, are included in the fiscal 1995 period.
Inventories
Inventories were comprised of:
September 30, June 30,
1995 1995
------------ --------
(in thousands)
Raw materials ................ $ 27,374 $ 28,766
Work-in-process .............. 5,844 5,531
Finished goods ............... 120,350 121,948
--------- ---------
Total .................... $ 153,568 $ 156,245
========= =========
-7-
2. Long-term Debt
First Brands had long-term debt outstanding as of September 30, 1995 and June
30, 1995 as follows:
September 30, June 30,
1995 1995
------------- --------
(in thousands)
Senior Debt:
$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%............................................. $ 90,000 $ 60,000
Other..................................................... 7,828 7,191
---------- ----------
97,828 67,191
Less: current maturities.................................. (870) (912)
----------- -----------
Senior Debt........................................... 96,958 66,279
---------- ----------
Subordinated Debt:
9 1/8% Senior Subordinated Notes Due 1999................. 100,000 100,000
--------- ---------
Total Long-term debt.............................. $ 196,958 $ 166,279
========= =========
The Company's revolving credit facility has no compensating balance
requirements, however, it does contain certain restrictive covenants pertaining
to the ratio of subordinated debt to equity, dividend payments and capital stock
repurchases.
The 9 1/8% Senior Subordinated 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.
First Brands was in compliance with all the covenants of all debt agreements at
September 30, 1995.
3. Accounts Receivable
During the first quarter of fiscal 1996, the Company renegotiated its agreement
to sell a $100,000,000 fractional ownership interest, without recourse, in a
defined pool of eligible trade accounts receivable. Under the terms of the
renegotiated agreement, this facility will automatically renew each year and the
facility servicing fees have been reduced. The fractional interest sold as of
September 30, 1995 totalled $60,000,000. The amounts sold are reflected as a
reduction in accounts receivable on the accompanying balance sheets and costs
associated with this program are recorded on the Consolidated Condensed
Statements of Income as discount on sale of receivables.
4. Notes Payable
Notes payable at September 30, 1995 of $12,810,000 consisted of $9,800,000
outstanding of a $10,000,000 unsecured domestic line of credit and international
subsidiaries' working capital borrowings with local lenders. The Company's
international working capital credit facilities aggregated $27,931,000, of which
$24,921,000 was available at September 30, 1995. The international facilities
are generally secured by the assets of the respective subsidiaries, with
approximately $1,474,000 of the availability at one subsidiary being guaranteed
by First Brands Corporation (U.S.).
-8-
5. Taxes
The provision for income tax expense for the three months ended September 30,
1995 and 1994 consists of the following:
Three Months
Ended
September 30,
-----------------------
1995 1994
---- ----
(in thousands)
Current:
Federal............................. $ 4,752 $ 7,953
State............................... 1,014 1,925
Foreign............................. 692 953
------ -------
Total current................... 6,458 10,831
Deferred:
Federal............................. 3,915 192
State............................... 868 30
Foreign............................. (38) (41)
------- -------
Total deferred.................. 4,745 181
------ -------
Total provision............. $ 11,203 $ 11,012
====== ======
6. Earnings Per Share
Net income per share has been computed using the weighted average number of
common shares and common share equivalents outstanding for the periods.
During the first quarter of fiscal 1996 the Company paid to its shareholders
cash dividends of $ 0.10 cents per share.
-9-
FIRST BRANDS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of the consolidated results of operations
for the three month periods ended September 30, 1995 should be read in
conjunction with the accompanying unaudited Consolidated Condensed Financial
Statements and related Notes. The Company is primarily engaged in the
development, manufacture, marketing and sale of branded and private label
consumer products for the home and automotive markets. The Company's products
which include 'GLAD', 'GLAD-LOCK' 'STP', 'SIMONIZ', 'SCOOP AWAY', 'EVER CLEAN'
and 'JONNY CAT' can be found in large mass merchandise stores, chain
supermarkets and other retail outlets. The Company believes that the significant
market positions occupied by its products are attributable to brand name
recognition, comprehensive product offerings, continued product innovation,
strong emphasis on vendor support and aggressive advertising and promotion.
The Prestone antifreeze/coolant and car care business was sold on August 26,
1994. Financial data below includes the operating information related to this
business while it was still a part of the Company. Therefore, comparison of
results of operations between the two time periods should take the effect of the
divested business into consideration.
Results of Operations
The following table sets forth the percentages of net sales of the Company
represented by the components of income and expense for the three month periods
ended September 30, 1995 and 1994.
Three Months
Ended
September 30,
-------------------
1995 1994
---- ----
Net sales........................................... 100.0% 100.0%
Cost of goods sold.................................. 66.3 60.9
------ -----
Gross profit........................................ 33.7 39.1
Selling, general, and
administrative expenses........................... 19.3 25.4
Amortization and other depreciation................. 1.7 1.6
Interest expense and amortization of debt
discount and expense.............................. 1.7 1.9
Discount on sale of receivables..................... 0.4 0.4
Other income (expense), net......................... 0.1 0.1
----- ----
Income before provision for income taxes............. 10.7 9.9
Provision for income taxes........................... 4.5 4.2
----- ----
Net income........................................... 6.2% 5.7%
==== ====
-10-
Quarter ended September, 30 1995 Compared to the Quarter ended
September 30, 1994
Sales for the first quarter of fiscal 1996 were $250,789,000, 95% of the prior
year's first quarter sales of $264,167,000 which included sales of $31,684,000,
for the Prestone antifreeze/coolant and car care business ('the divested
business') . On a proforma basis (excluding sales from the divested business,
which was sold on August 26, 1994) fiscal 1996 first quarter sales were 8% above
the prior year's comparable sales of $232,483,000. During the quarter, plastic
wrap and bag product sales increased 6%, due primarily to higher domestic
disposer bag and food category sales, along with the continued growth in the
Company's international business. Automotive sales were up 5% due to strong
international and export performance, partially offset by soft domestic sales
reflecting an overall sluggish retail market. Cat litter sales were 28% above
last year due to continued market growth and share gains of the SCOOP AWAY and
EVERCLEAN brands, along with distribution and market share gains made by the
JONNY CAT brand.
Cost of goods sold for the quarter was $166,227,000, 103% of last year's
$160,826,000. Excluding the divested business, cost of goods sold for the
quarter was 19% above the prior year's $139,658,000, with the higher costs due
to increased volumes and higher polyethylene raw material costs.
Gross profit for the quarter of $84,562,000 (33.7% of sales) was 82% of last
year's $103,341,000 (39.1% of sales). Excluding the divested business, the gross
profit for the quarter was 91% of the prior year's $92,825,000 (39.9% of sales).
Proforma gross profit for the quarter was below the prior year's level due to
the aforementioned higher raw material costs and a less favorable sales mix
during the current year.
Selling, general and administrative expenses during the quarter of $48,455,000
(19.3% of sales), were 72% of last year's first quarter expenditures of
$67,161,000. Excluding the divested business, expenses for the quarter were 82%
of the prior year's $59,321,000 (25.5% of sales). Lower selling expense during
the quarter reflects corporate reductions in response to the higher raw material
costs as well as a shift in the timing of certain automotive promotional
spending.
Amortization and other depreciation expense of $4,198,000 was 98% of the prior
year's $4,282,000. Interest expense of $4,314,000 for the quarter was 87% of the
prior year, reflecting last year's higher average debt level, particularly
before the August, 1994 sale of the Prestone business, and the repurchase of
high yield 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 Company's effective tax rate for the first quarter of both fiscal 1996 and
1995 was approximately 42%. The provision for income taxes for the first quarter
of fiscal 1996 was $11,203,000, 102% of the prior year, reflecting increased
pre-tax income.
Financial Condition
Worldwide credit facilities in place at September 30, 1995 aggregated
$338,944,000 of which $231,649,000 was available, but unused. The Company
expects to borrow or repay up to $20,000,000 from these credit facilities over
the next twelve months, primarily for working capital purposes.
The Company's current forecast for the 1996 fiscal year reflects capital
expenditures of approximately $38,000,000, and fixed payments (interest,
principal, discount on sale of receivables and lease payments) of approximately
$42,000,000.
-11-
Based on the Company's ability to generate funds from operations and the
availability of credit under its financing facilities, management believes it
will have the funds necessary to meet all of its described financing
requirements and all other financial obligations.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
First Brands' independent certified public accountants have performed a limited
review of the financial information furnished herein in accordance with
standards established by the American Institute of Certified Public Accountants.
The Independent Accountants' Report is presented on Page 13 of this report.
-12-
Independent Accountants' Report
The Board of Directors
First Brands Corporation:
We have reviewed the consolidated condensed balance sheet of First Brands
Corporation and subsidiaries as of September 30, 1995, and the related
consolidated condensed statements of income and cash flows for the three-month
periods ended September 30, 1995 and 1994, and the consolidated condensed
statement of stockholders' equity for the three-month period ended September 30,
1995. These consolidated condensed financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of First Brands Corporation and
subsidiaries as of June 30, 1995, and the related consolidated statement of
income, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated September 19, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of June 30, 1995, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
November 1, 1995
-13-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit Index:
Exhibit
Number Description of Exhibit
- ------ ----------------------
11* -- Computation of Net Income Per Common Share.
15* -- Accountants' Acknowledgment
27* -- EDGAR Financial Data Schedule.
- ------------
* Filed herewith
B. Reports on Form 8-K
None.
-14-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BRANDS CORPORATION
(Registrant)
Date: November 8th, 1995 By:/s/ Donald A. DeSantis
------------------ ----------------------
Donald A. DeSantis
Senior Vice President,
Chief Financial Officer
and Treasurer
(Principal Accounting
and Duly Authorized
Officer)
-15-