SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1996 COMMISSION FILE NUMBER
1-10395
FIRST BRANDS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1171404
State of Incorporation (IRS Employer
Identification No.)
83 Wooster Heights Rd., Building 301
P.O. Box 1911
Danbury, Connecticut 06813-1911
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-731-2300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at April 30, 1996
Common Stock, $.01 par value 44,592,441 shares
FIRST BRANDS CORPORATION
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income
For the Three Month Periods
Ended March 31, 1996 and 1995......................................................... 3
Consolidated Condensed Statements of Income
For the Nine Month Periods
Ended March 31, 1996 and 1995......................................................... 4
Consolidated Condensed Balance Sheets -
March 31, 1996 and June 30, 1995...................................................... 5
Consolidated Condensed Statement of Stockholders'
Equity - For the Nine Month Period
Ended March 31, 1996.................................................................. 6
Consolidated Condensed Statements of Cash
Flows - For the Nine Month Periods
Ended March 31, 1996 and 1995........................................................ 7
Notes to Consolidated Condensed Financial
Statements............................................................................ 8-10
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition...................................... 11-13
Independent Accountants' Report........................................................ 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 15
Items 2 - 6............................................................................ 15
SIGNATURE.............................................................................. 16
-2-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
------------- ------------
(in thousands - except per share amounts)
Net sales................................................... $262,207 $247,932
Cost of goods sold.......................................... 165,092 155,553
Selling, general and
administrative expenses................................... 60,263 57,918
Amortization and other depreciation......................... 4,048 4,173
Interest expense and amortization of debt
discount and expense...................................... 4,298 4,453
Discount on sale of receivables............................. 960 1,007
Other income (expense), net................................. 268 (250)
-------- --------
Income before provision for income taxes.................... 27,814 24,578
Provision for income taxes.................................. 11,125 10,324
-------- --------
Net income.................................................. $ 16,689 $ 14,254
======== ========
Net income per common share and common
equivalent share (Note 6).................................. $ 0.39 $ 0.34
======= =======
Weighted average common and common
equivalent shares outstanding (Note 6).................... 42,647 42,350
======= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-3-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
----------- -----------
(in thousands - except per share amounts)
Net sales................................................... $776,080 $745,107
Cost of goods sold.......................................... 504,275 460,160
Selling, general and
administrative expenses.................................... 166,001 184,257
Amortization and other depreciation......................... 11,838 12,291
Interest expense and amortization of debt
discount and expense...................................... 13,184 13,993
Discount on sale of receivables............................. 3,015 2,943
Other income (expense), net................................. 1,954 (492)
-------- -------
Income before provision for income taxes
and extraordinary loss.................................... 79,721 70,971
Provision for income taxes.................................. 32,862 29,801
-------- --------
Income before extraordinary loss............................ 46,859 41,170
Extraordinary loss relating to the repurchase
of subordinated note, net of taxes........................ - (4,493)
-------- --------
Net income.................................................. $ 46,859 $ 36,677
======== ========
Per common share and common equivalent share (Note 6):
Income before extraordinary loss ........................ $ 1.10 $ 0.96
Extraordinary loss....................................... - (.10)
------ ------
Net income............................................... $ 1.10 $ 0.86
====== ======
Weighted average common and common
equivalent shares outstanding (Note 6).................... 42,588 43,108
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-4-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, JUNE 30,
(in thousands, except share amounts) 1996 1995
---------- ---------
(UNAUDITED)
ASSETS:
Cash and cash equivalents....................................... $ 7,877 $ 5,225
Accounts and notes receivable - net............................. 102,658 121,763
Inventories..................................................... 150,247 156,245
Deferred tax assets............................................. 31,946 34,038
Prepaid expenses................................................ 4,051 3,561
-------- --------
Total current assets.......................................... 296,779 320,832
Property, plant and equipment (net of accumulated
depreciation of $106,667 and $88,447)......................... 309,988 290,960
Patents, trademarks, proprietary technology
and other intangibles (net of accumulated
amortization of $178,864 and $170,584)........................ 205,425 202,323
Deferred charges and other assets (net of
accumulated amortization of $51,331 and $50,214).............. 29,612 25,831
-------- --------
Total assets.......................................... $841,804 $839,946
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities
Notes payable................................................... $ 7,631 $ 5,128
Current maturities of long-term debt............................ 48 912
Accrued income and other taxes.................................. 7,934 27,279
Accounts payable................................................ 38,305 70,106
Accrued liabilities............................................. 87,108 144,863
-------- --------
Total current liabilities.................................. 141,026 248,288
Long-term debt.................................................. 234,146 166,279
Deferred taxes payable.......................................... 69,244 54,524
Deferred gain on sale of assets................................. 1,395 2,637
Other long-term obligations..................................... 13,021 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
44,582,441 shares at March 31, 1996
and 22,146,014 shares at June 30, 1995 (Note 6)............... 446 221
Capital in excess of par value.................................. 124,952 120,914
Cumulative foreign currency translation adjustment.............. (8,331) (7,173)
Common stock in treasury, at cost; 2,956,000 shares at
March 31, 1996 and 2,421,400 at June 30, 1995.................. (52,304) (40,433)
Retained earnings............................................... 318,209 278,649
-------- --------
Total stockholders' equity................................. 382,972 352,178
-------- --------
Total liabilities and stockholders' equity............ $841,804 $839,946
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-5-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1996
(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............... 2 4,261 - - - 4,263
Two-for-one stock split...... 223 (223) - - - -
Cash Dividends............... - - - - (7,299) (7,299)
Purchase of
Treasury Stock.............. - - - (11,871) - (11,871)
Net Income................... - - - - 46,859 46,859
Foreign Currency
Translation Adjustment...... - - (1,158) - - (1,158)
---- -------- -------- --------- -------- --------
Balance as of
March 31, 1996.............. $446 $124,952 $(8,331) $(52,304) $318,209 $382,972
==== ======== ======== ========= ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-6-
FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
(in thousands) 1996 1995
----------- -----------
Cash flows from operating activities:
Net income................................................... $46,859 $36,677
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.............................. 28,079 26,426
Deferred income taxes...................................... 16,856 5,826
Loss on repurchase of subordinated note.................... - 7,463
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 in accounts receivable......................... 21,872 5,785
Decrease (increase) in inventories...................... 8,142 (32,848)
(Increase) decrease in prepaid expenses................. 437) 1,348
(Decrease) in accrued income and other taxes............ (2,803) (5,859)
(Decrease) in accounts payable.......................... (34,114) (7,202)
(Decrease) in accrued liabilities................... (57,755) (7,304)
Net change in current assets and current liabilities
of businesses sold........................................ - (20,991)
Other changes................................................ (5,378) (4,314)
--------- ---------
Total adjustments........................................ (25,538) (31,322)
--------- ---------
Net cash provided by operating activities...................... 21,321 5,355
--------- ---------
Cash flows from investing activities:
Capital expenditures........................................ (26,309) (26,048)
Acquisition of leased assets................................ (9,797) (13,240)
Proceeds from sale of antifreeze/coolant and car
care business, net of note received....................... - 142,000
Acquisition of business, net of cash acquired............... (32,257) (45,972)
Other....................................................... (4,905) (4,900)
--------- ---------
Net cash (used for) provided by investing activities........... (73,268) 51,840
--------- ---------
Cash flows from financing activities:
Increase in revolving credit borrowings, net............... 70,000 76,300
(Decrease) increase in other borrowings, net............... (494) 8,050
(Decrease) in accounts receivable securitization, net...... - (45,000)
Proceeds from exercise of stock options.................... 4,263 1,395
Purchase of common stock for treasury...................... (11,871) (37,958)
Repurchase of subordinated notes........................... - (52,115)
Dividends paid............................................. (7,299) (5,922)
--------- ---------
Net cash provided by (used for) financing activities........... 54,599 (55,250)
--------- ---------
Net increase in cash and cash equivalents...................... 2,652 1,945
Cash and cash equivalents at beginning of period............... 5,225 13,384
--------- ---------
Cash and cash equivalents at end of period..................... $ 7,877 $15,329
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
-7-
FIRST BRANDS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements include all adjustments (all of which were of a normal
recurring nature) necessary to fairly present the results of operations for the
interim periods. Certain prior year amounts have been reclassified to conform
with the current year's presentation. All material intercompany transactions and
balances have been eliminated. The results of operations for the nine month
period ended March 31, 1996 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); SCOOP AWAY, EVER CLEAN
and JONNY CAT (cat litters) and STARTERLOGG (fire starters) and HEARTHSIDE (fire
logs).
On March 19, 1996, the Company purchased, for approximately $32,000,000, the net
assets of Forest Technology Inc., the manufacturer and marketer of the
STARTERLOGG and HEARTHSIDE brand of fire starters and fire logs. The excess of
cost over net assets acquired is being amortized over a forty year period on a
straight line basis.
On February 26, 1996, the Company effected a two-for-one stock split, in the
form of a 100 percent stock dividend, to shareholders of record on February 5,
1996 (see Note 6).
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:
March 31, June 30,
1996 1995
--------- --------
(in thousands)
Raw materials............................................. $ 26,662 $ 28,766
Work-in-process........................................... 5,998 5,531
Finished goods............................................ 117,587 121,948
-------- --------
Total................................................. $150,247 $156,245
======== ========
-8-
2. LONG-TERM DEBT
First Brands had long-term debt outstanding as of March 31, 1996 and June 30,
1995 as follows:
March 31, June 30,
1996 1995
--------- --------
Senior Debt: (in thousands)
$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%............................................. $130,000 $ 60,000
Other..................................................... 4,194 7,191
-------- --------
134,194 67,191
Less: current maturities.................................. (48) (912)
-------- --------
Senior Debt........................................... 134,146 66,279
-------- --------
Subordinated Debt:
9 1/8% Senior Subordinated Notes Due 1999................. 100,000 100,000
-------- --------
Total Long-term debt.............................. $234,146 $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
March 31, 1996.
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
March 31, 1996 totaled $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 March 31, 1996 of $7,631,000 consisted of $5,300,000 utilized
against a $10,000,000 unsecured domestic line of credit and $2,331,000 of the
Company's international subsidiaries' working capital borrowings with local
lenders. The Company's international working capital credit facilities
aggregated $23,875,000, of which $21,544,000 was available at March 31, 1996.
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.).
-9-
5. TAXES
The provision for income tax expense for the three and nine months ended March
31, 1996 and 1995 consists of the following:
Three Months Nine Months
Ended Ended
March 31, March 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
Current:
Federal............................. $ 3,576 $ 6,609 $10,822 $17,638
State............................... 862 1,510 2,372 4,058
Foreign............................. 1,217 594 2,812 2,279
------- ------- ------- -------
Total current................... 5,655 8,713 16,006 23,975
Deferred:
Federal............................. 4,791 1,373 13,723 4,919
State............................... 1,062 292 3,681 1,055
Foreign............................. (383) (54) (548) (148)
------- ------- ------- -------
Total deferred.................. 5,470 1,611 16,856 5,826
------- ------- ------- -------
Total provision............. $11,125 $10,324 $32,862 $29,801
======= ======= ======= =======
6. EARNINGS PER SHARE, STOCK SPLIT AND DIVIDENDS
On January 26, 1996, the Company's Board of Directors authorized a two-for-one
stock split, in the form of a 100 percent stock dividend, payable on February
26, 1996 to shareholders of record on February 5, 1996. The Company's par value
of $0.01 per share remains in effect and accordingly the Company has transferred
$223,000 from capital in excess of par value to common stock. All historical
weighted average share and per share amounts have been restated to reflect the
stock split.
Net income per share has been computed using the weighted average number of
common shares and common share equivalents outstanding for the periods.
The Company has paid its shareholders quarterly cash dividends of $0.05, $0.0625
and $0.0625 cents per share during the first, second and third quarters of
fiscal 1996, respectively .
-10-
FIRST BRANDS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of the consolidated results of operations
for the three and nine month periods ended March 31, 1996 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",
"JONNY CAT", "STARTERLOGG" and "HEARTHSIDE" 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 nine month 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 and nine month
periods ended March 31, 1996 and 1995:
Three Months Nine Months
Ended Ended
March 31, March 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales........................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................................. 63.0 62.7 65.0 61.8
------ ------ ------ -----
Gross profit........................................ 37.0 37.3 35.0 38.2
Selling, general, and
administrative expenses........................... 23.0 23.4 21.4 24.7
Amortization and other depreciation................. 1.5 1.7 1.5 1.6
Interest expense and amortization of debt
discount and expense.............................. 1.6 1.8 1.7 1.9
Discount on sale of receivables..................... 0.4 0.4 0.4 0.4
Other income (expense), net......................... 0.1 (0.1) 0.2 (0.1)
----- ------ ----- ------
Income before provision for income taxes
and extraordinary loss............................. 10.6 9.9 10.2 9.5
Provision for income taxes........................... 4.2 4.2 4.2 4.0
----- ----- ----- ----
Income before extraordinary loss..................... 6.4 5.7 6.0 5.5
Extraordinary loss relating to the repurchase
of subordinated notes, net of taxes................ -- -- -- (0.6)
------ ------- ------ ------
Net income........................................... 6.4% 5.7% 6.0% 4.9%
==== ==== ==== ====
-11-
QUARTER AND NINE MONTHS ENDED MARCH, 31 1996 COMPARED TO THE
QUARTER AND
NINE MONTHS ENDED MARCH 31, 1995
Sales for the three month period ended March 31, 1996 were $262,207,000, 6%
ahead of last year's $247,932,000. For the nine month period, sales were
$776,080,000, 104% of the prior year's $745,107,000. On a proforma basis
(excluding sales of $31,684,000 from the divested Prestone antifreeze/coolant
and car care business which was sold on August 26, 1994) fiscal 1996 nine month
sales were 9% above the prior year's comparable sales of $713,423,000. Plastic
wrap and bag sales increased 5% during the quarter primarily due to sales from
the Company's new South African business and a 2% growth in units. Year-to-date
sales of plastic wrap and bag products are 110% of the prior year's level.
Automotive sales for the quarter and year-to-date were 98% and 100% of the prior
year's level, respectively. The decrease in quarterly sales reflects reduced
revenues from the Company's contract packaging business which the Company will
be phasing out during the first quarter of fiscal 1997. Excluding these sales
and fiscal 1995 sales from the Company's previously operated automotive service
stations, automotive sales for the quarter and year-to-date are 102% and 100% of
the prior year, respectively. Continued market and share growth of the SCOOP
AWAY and EVER CLEAN brands, along with distribution and market share gains made
by the JONNY CAT brand, increased cat litter sales by 20% over the prior year's
three and nine month periods.
Cost of goods sold for the quarter was $165,092,000, 106% of last year's
$155,553,000. For the nine month period, cost of goods sold was $504,275,000,
110% of the prior year's $460,160,000. Excluding costs associated with the
divested business, cost of goods sold year-to-date are 115% of last year's
proforma cost of $438,992,000. For the quarter, higher volumes are the primary
cause for the increased costs while the year-to-date figure reflects both
increased volumes and higher polyethylene raw material costs.
Gross profit for the quarter of $97,115,000 (37.0% of sales) was 105% of last
year's $92,379,000 (37.3% of sales). Year-to-date, gross profit was $271,805,000
(35.0% of sales), 95% of last year's $284,947,000 (38.2% of sales). Excluding
the divested business, the nine month gross profit was 99% of the prior year's
proforma gross profit of $274,431,000 (38.5% of sales).
Selling, general and administrative expenses during the quarter of $60,263,000
(23.0% of sales), were 104% of last year's $57,918,000 (23.4% of sales).
Year-to-date expenses were $166,001,000 (21.4% of sales), 90% of last year's
$184,257,000 (24.7% of sales) Excluding the divested business, nine month
expenses were 94% of the prior year's proforma expense of $176,417,000 (24.7% of
sales). The higher expense during the quarter reflects increased advertising to
support the sales growth of the Company's new products and the costs associated
with the Company's new South African business. Year-to-date, reduced
expenditures reflect reductions in selected marketing programs to offset the
higher raw material costs.
Amortization and other depreciation expense for the quarter was $4,048,000, 97%
of the prior year's $4,173,000 and for the nine month period it was $11,838,000,
96% of the prior year's $12,291,000. Interest expense for the quarter was
$4,298,000, 97% of the prior year. Year-to-date, interest expense of $13,184,000
is 94% of last year. 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.
Year-to-date, other income (expense), net largely reflects the reversal of
accrued interest payable as a result of a tax audit settlement.
The Company's effective tax rate for the third quarter of fiscal 1996 was 40%
compared to a quarterly rate of 42% for fiscal 1995. The reduced rate reflects
an increase in favorable permanent tax differences. Year-to-date, the fiscal
1996 rate is 41% versus a prior year rate of 42%.
-12-
The prior year's extraordinary loss of $4,493,000 or $0.10 per share for the
nine months ended March 31, 1995, resulted from the premium paid and the
write-off of unamortized debt issuance costs related to the repurchase of
$45,000,000 of the Company's Subordinated Notes.
FINANCIAL CONDITION
Worldwide credit facilities in place at March 31, 1996 aggregated $334,847,000
of which $196,244,000 was available, but unused. Over the next twelve months the
Company expects to repay up to $50,000,000 on these credit facilities, by
utilizing the positive cash flow generated by the business.
The Company's current forecast for the 1996 fiscal year reflects capital
expenditures of approximately $40,000,000, and fixed payments (interest,
principal, discount on sale of receivables and lease payments) of approximately
$42,000,000.
Based on the Company's ability to generate funds from operations and the
availability of credit under its financing facilities, management believes it
will have the funds necessary to meet all of its described financing
requirements and all other financial obligations.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
First Brands' independent certified public accountants have 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 14 of this
report.
-13-
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 March 31, 1996, and the related consolidated
condensed statements of income for the three and nine-month periods ended March
31, 1996 and 1995, the consolidated condensed statements of cash flows for the
nine month periods ended March 31, 1996 and 1995, and the consolidated condensed
statement of stockholders' equity for the nine-month period ended March 31,
1996. 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
May 1, 1996
-14-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
IQ Products Company and CSA, Limited, Inc. v. First
Brands Corporation, filed in Federal District Court in
Houston, Texas, arises out of IQ's contract with the
Corporation to supply it with various aerosol
automotive products, including STP Flat Tire Repair. IQ
sought compensatory damages of $10.3 million (including
approximately $800,000 withheld by the Corporation in
connection with its recall of STP Flat Tire Repair)
plus interest for alleged breach of the Corporation's
obligations to buy products. The Corporation denied
IQ's claims and counterclaimed for compensatory damages
of $4.5 million (less the approximately $800,000
withheld by it) plus interest for damages from IQ's
alleged breach of contract and warranty and
misrepresentations concerning the products that it
supplied. After trial, the jury returned a verdict
awarding $3,555,000 to IQ and denying the Corporation's
$4.5 million counterclaim. Legal counsel believes that
the jury's verdict in favor of IQ and denying the
Corporation's counterclaim is against the weight of
evidence. The Corporation has filed motions with the
trial judge for a new trial and for judgement for the
Corporation on certain issues notwithstanding the
verdict. The Corporation will consider appealing the
judgement to the Court of Appeals, if the pending
motions are denied.
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
A Form 8-K items 5 and 7 dated March 22, 1996 was filed reporting
the Company's adoption of a Preferred Stock Rights Plan
-15-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BRANDS CORPORATION
(Registrant)
Date: May 8th, 1996 By: /s/ Donald A. DeSantis
------------- -----------------------
Donald A. DeSantis
Senior Vice President,
Chief Financial Officer
and Treasurer
(Principal Accounting
and Duly Authorized
Officer)
-16-