UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 2, 2003
Jarden Corporation
(Exact name of registrant as specified in its charter)
Delaware 0-21052 35-1828377
- ------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer Identification No.)
of incorporation)
555 Theodore Fremd Avenue, Rye, New York 10580
- ------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 967-9400
(Former name or former address, if changed since last report.)
Item 2 . Acquisition of Assets
On September 2, 2003, we acquired all of the issued and outstanding
stock of Lehigh Consumer Products Corporation ("Lehigh"), the largest supplier
of rope, cord and twine for the U.S. consumer marketplace and a leader in
innovative storage and organization products for the home and garage as well as
products in the security door and fencing market. Its customers include
North America's largest and rapidly growing warehouse, home centers and mass
merchants. We acquired Lehigh pursuant to the terms of a Stock Purchase
Agreement dated as of August 15, 2003, by and among Jarden Corporation, American
Manufacturing Company, Inc. ("AMC"), and Lehigh (the "Stock Purchase
Agreement").
The consideration for this acquisition consisted of the following:
o $155 million in cash paid at closing (excluding
transaction costs); and
o an Earn-Out provision with a potential payment in cash
or our common stock, at our election, of up to $25 million payable in 2006.
If the Earn-Out is paid, we expect to capitalize its cost. If we issue stock in
satisfaction of the Earn-Out, the value of each share will be determined by
taking the average of the closing price of our common stock on the New York
Stock Exchange over a period consisting of the ten consecutive business days
ending on the date that is two days prior to the issuance of such stock. We have
entered into a Registration Rights Agreement, dated as of September 2, 2003,
with AMC (the "Registration Rights Agreement"), pursuant to which we have agreed
to file a registration statement with respect to the resale under the Securities
Act of 1933, as amended, of shares issued in satisfaction of the Earn-Out.
This acquisition was financed at closing with the combination of our
available cash and borrowings under our credit facility, which we have amended
and restated to increase our available borrowings. See "Other Events - Amendment
and Restatement of Existing Credit Facility".
Copies of the Stock Purchase Agreement and the Registration Rights
Agreement are attached to this report as Exhibits 10.1 and 10.2, respectively,
and are incorporated herein by reference as though fully set forth herein. The
foregoing summary description of the Stock Purchase Agreement and the
transactions contemplated thereby is not intended to be complete and is
qualified in its entirety by the complete text of the Stock Purchase Agreement
and the Registration Rights Agreement.
2
Item 5. Other Events
AMENDMENT AND RESTATEMENT OF EXISTING CREDIT FACILITY
On September 2, 2003, we refinanced our existing senior indebtedness by
closing on an amendment and restatement to our existing credit facility (the
"Existing Agreement") pursuant to the Amended and Restated Credit Agreement,
dated as of September 2, 2003, among Jarden Corporation, Bank of America, N.A.,
as Administrative Agent, Swing Line Lender, and L/C Issuer, Canadian Imperial
Bank of Commerce, as Syndication Agent, National City Bank of Indiana and Fleet
National Bank, as Co-Documentation Agents, and the other Lenders party thereto
(the "Amended and Restated Credit Agreement").
Our Amended and Restated Credit Agreement, among other things, provides
for a senior credit facility for up to $280 million of senior secured loans,
consisting of a $70 million five-year revolving credit facility (the "Revolving
Credit Facility"), a $60 million five-year term loan facility (the "Term Loan A
Facility"), and a new $150 million five-year term loan facility (the "Term Loan
B Facility").
The Revolving Credit Facility includes up to an aggregate of $15
million in standby and commercial letters of credit and up to an aggregate of
$10 million in swing line loans. As of September 2, 2003, we have not drawn any
amounts under the Revolving Credit Facility. We have used an amount of
approximately $7.1 million of availability under the Revolving Credit Facility
for the issuance of letters of credit.
As of September 2, 2003, $54.5 million was outstanding under the Term
Loan A Facility. Payments of principal under the Term Loan A Facility are
payable quarterly in accordance with a specified amortization schedule. The
final payment of all amounts outstanding under the Term Loan A Facility is due
on April 24, 2007.
On September 2, 2003, we drew down the full amount of the $150 million
Term Loan B Facility. These funds were used principally to pay the cash
consideration for the Lehigh acquisition under the Stock Purchase Agreement. See
"Acquisition of Assets" set forth above. Payments of principal under the Term
Loan B Facility are payable quarterly in accordance with a specified
amortization schedule. The final payment of all amounts outstanding under the
Term Loan B Facility is due on April 24, 2008.
The Revolving Credit Facility, the Term Loan A Facility and the Term
Loan B Facility bear interest at a rate equal to (i) the Eurodollar Rate (as
determined by the Administrative Agent) pursuant to an agreed formula or (ii) a
Base Rate equal to the higher of (a) the Bank of America prime rate and (b) the
federal funds rate plus 0.50%, plus, (x) for loans under each of the Revolving
Credit Facility and the Term Loan A Facility, an applicable margin ranging from
0.75% to 1.75% for Base Rate loans and from 2.00% to 2.75% for Eurodollar Rate
loans, and (y) for loans made under the Term Loan B Facility, 2.75% per annum
with respect to Eurodollar Rate loans and 1.75% per annum with respect to Base
Rate loans.
Interest under the Revolving Credit Facility, the Term Loan A Facility
and the Term Loan B Facility are payable quarterly if a loan is a Base Rate loan
or on a date which is one, two
3
or three months from the date of disbursement, as selected by us, if the loan is
a Eurodollar Rate loan; provided, that for six-month Eurodollar Rate loans,
interest shall be paid quarterly.
The Amended and Restated Credit Agreement contains certain restrictions
on the conduct of our business, including, among other things, restrictions,
generally, on:
o incurring debt;
o disposing of certain assets;
o making investments;
o exceeding certain agreed capital expenditures;
o creating or suffering liens on our assets;
o completing certain mergers, consolidations, and with permitted
exceptions, acquisitions (other than the Lehigh Acquisition);
o declaring dividends;
o redeeming or prepaying other debt; and
o transactions with affiliates.
The Amended and Restated Credit Agreement also requires us to maintain
the following financial covenants:
o our consolidated net worth may not be at any time less than the
sum of:
o $62,000,000;
o an amount equal to 50% of our consolidated net income earned
in each fiscal quarter ending after June 30, 2003 (with no
deduction for a net loss in any such fiscal quarter); and
o an amount equal to 100% of the aggregate increases in the
stockholders' equity of Jarden and our subsidiaries after
September 2, 2003, by reason of the issuance and sale of our
capital stock (including upon any conversion of our debt
securities into our capital stock);
4
o our total leverage ratio as of the end of any four-quarter period
may not be greater than the ratio set forth below opposite such
four-quarter period:
------------------------------------------------- --------------------------------------------
Four-Quarter Period ending closest to: Maximum Total Leverage Ratio
------------------------------------------------- --------------------------------------------
June 30, 2003;
September 30, 2003;
December 31, 2003; 3.50 to 1.00
March 31, 2004;
June 30, 2004; and
September 30, 2004
------------------------------------------------- --------------------------------------------
December 31, 2004;
March 31, 2005; 3.25 to 1.00
June 30, 2005; and
September 30, 2005
------------------------------------------------- --------------------------------------------
December 31, 2005 and thereafter 3.00 to 1.00
------------------------------------------------- --------------------------------------------
o our senior leverage ratio as of the end of any four-quarter
period may not be greater than the ratio set forth below opposite
such four-quarter period:
------------------------------------------------- --------------------------------------------
Four-Quarter Period ending closest to: Maximum Senior Leverage Ratio
------------------------------------------------- --------------------------------------------
June 30, 2003;
September 30, 2003;
December 31, 2003; 2.25 to 1.00
March 31, 2004;
June 30, 2004; and
September 30, 2004
------------------------------------------------- --------------------------------------------
December 31, 2004;
March 31, 2005; 2.00 to 1.00
June 30, 2005; and
September 30, 2005
------------------------------------------------- --------------------------------------------
5
------------------------------------------------- --------------------------------------------
Four-Quarter Period ending closest to: Maximum Senior Leverage Ratio
------------------------------------------------- --------------------------------------------
December 31, 2005 and thereafter 1.75 to 1.00
------------------------------------------------- --------------------------------------------
; and
o our fixed charge ratio as of the end of any applicable period,
beginning with the period ending closest to June 30, 2003, may
not be less than 1.25 to 1.00.
However, the Amended and Restated Credit Agreement does not make any
significant restrictions on our or our domestic subsidiaries' ability to obtain
funds from their respective subsidiaries by dividend or loan.
The occurrence of certain events or conditions described in the Amended
and Restated Credit Agreement (subject to grace periods in certain cases)
constitutes an event of default. If an event of default occurs, the
Administrative Agent may, at the request or consent of the Lenders, among other
things, declare the entire outstanding balance of principal and interest of all
outstanding loans to be immediately due and payable. The events of default
include, among other things:
o our failure to pay any principal, interest, or other fees on the
loans made under the Amended and Restated Credit Agreement when
due;
o our failure to make payment on other indebtedness or contingent
liabilities when due;
o any material judgment or order entered against us;
o any inaccuracy in the representations and warranties;
o we incur any of certain specified liabilities under the Employee
Retirement Income Security Act of 1974;
o any of the loan documents under the Amended and Restated Credit
Agreement cease to be in full force and effect;
o failure to observe certain covenants under the Amended and
Restated Credit Agreement (including, e.g., the financial
covenants);
o bankruptcy, insolvency or receivership proceedings with respect
to Jarden; and
6
o a change of control of Jarden.
The Amended and Restated Credit Agreement provides that we shall make
required prepayments of the Term Loan A, the Term Loan B and the Revolving Loan,
including, among other things, upon the happening of the following events:
o in the event that our total leverage ratio is greater than 3.00
to 1.00 as of the end of any fiscal year, beginning with the
fiscal year ending December 31, 2004, we must make a prepayment
in an amount equal to fifty percent (50%) of the amount of excess
cash flow, each such prepayment to be made on the date our and
our subsidiaries' financial statements for such fiscal year are
required to be delivered (or if earlier, the date such financial
statements are delivered) pursuant to the Amended and Restated
Credit Agreement;
o we must make, or must cause each applicable subsidiary to make, a
prepayment with respect to each private or public offering of
equity securities of Jarden or any of our subsidiaries (other
than equity securities issued to Jarden or a guarantor) in an
amount equal to fifty percent (50%) of the net proceeds of each
issuance of equity securities of the Jarden or any of our
subsidiaries, each such prepayment to be made within ten (10)
business days of receipt of such proceeds and upon not less than
five (5) business days' prior written notice to the
Administrative Agent; provided, however, subject to certain
exceptions set forth in the Amended and Restated Credit
Agreement, with respect to private or public offerings of equity
securities made on or prior to February 29, 2004, such prepayment
shall be equal to (i) 100 percent of the first $50 million
dollars of net proceeds of such equity issuance after subtracting
(a) the amount of such proceeds used for any permitted
acquisitions (as defined in the Amended and Restated Credit
Agreement) that we have completed within such period and (b) $50
million, and (ii) 50 percent of any remaining net proceeds of
such equity issuance;
o we must make, or must cause each applicable subsidiary to make, a
prepayment in an amount equal to one hundred percent (100%) of
the net proceeds from each Disposition (as defined below) other
than certain Permitted Dispositions (as defined below), each such
prepayment to be made within ten (10) business days of receipt of
the net proceeds thereof and upon not less than five (5) business
days' prior written notice to the Administrative Agent.
Disposition means the sale, transfer, license or other
disposition (including any sale and leaseback transaction) of any
property by any person, including any sale, assignment, transfer
or other disposal, with or without recourse, of any notes or
accounts receivable or any rights and claims associated
therewith. A Disposition shall not include (a "Permitted
Disposition"):
o Dispositions of obsolete or worn out property, whether now
owned or hereafter acquired, in the ordinary course of
business;
o Dispositions of inventory in the ordinary course of
business;
7
o Dispositions by Jarden or any of our subsidiaries of equipment or
real property which is replaced by equipment or real property of
substantially equivalent or greater utility and value within
ninety (90) days of the date of disposition thereof, provided
that if the fair market value of the property so disposed of is
greater than $6,000,000, the Administrative Agent will have
received notice of such disposition from us not less than twenty
(20) days prior to the consummation of such disposition;
o Dispositions of property (i) by any of our subsidiaries to a
guarantor, (ii) by us or any guarantor to any guarantor, and
(iii) by any of our subsidiaries that is not a guarantor to any
other of our subsidiaries that is not a guarantor;
o any of our subsidiaries may merge with or transfer substantially
all its assets (upon voluntary liquidation or otherwise) to any
guarantor, provided that, if a merger, the guarantor must be the
continuing or surviving person, and provided further that if a
transfer of assets in the form of a sale by a subsidiary that is
not a guarantor, the sale shall be at fair market value and the
aggregate amount of all such sales will not exceed $10,000,000;
o any of our subsidiaries substantially all of whose assets consist
of other subsidiaries' securities or other equity securities in
any person may merge with or transfer substantially all its
assets (upon voluntary liquidation or otherwise) to us, provided
that, if a merger, we will be the continuing or surviving person,
and provided further that if a transfer of assets in the form of
a sale by a subsidiary that is not a guarantor, the sale will be
at fair market value and the aggregate amount of all such sales
will not exceed $10,000,000;
o any of our subsidiaries that is not a guarantor may merge with or
sell substantially all its assets (upon voluntary liquidation or
otherwise) to any one or more subsidiaries that is not a
guarantor; and
o Dispositions not otherwise permitted by above, so long as the
aggregate fair market value of all such property so disposed in
any fiscal year of Jarden does not exceed $50,000,000 and the net
proceeds therefrom are applied in accordance with the Amended and
Restated Credit Agreement;
o in the event that the net proceeds received from insurance carried
with respect to the collateral securing our obligations under the
Amended and Restated Credit
8
Agreement and the other loan documents is not completely and
fully utilized for the repair or replacement of such collateral, we
must make, or must cause each applicable subsidiary to make, a
prepayment in an amount equal to one hundred percent (100%) of the
net proceeds received with respect to such insurance that is not
so utilized.
In connection with entering into the Amended and Restated Credit
Agreement, the following domestic subsidiaries have agreed to guarantee our
obligations under the Amended and Restated Credit Agreement: Hearthmark, Inc.,
Alltrista Plastics Corporation, Alltrista Newco Corporation, Alltrista Zinc
Products, L.P., Tilia, Inc. (formerly known as Alltrista Acquisition I, Inc.),
Tilia Direct, Inc. (formerly known as Alltrista Acquisition II, Inc.), Tilia
International, Inc. (formerly known as Alltrista Acquisition III, Inc.) and
Quoin Corporation (the "Guarantors"). In connection with the Lehigh acquisition,
Lehigh has also agreed to guarantee our obligations under the Amended and
Restated Credit Agreement.
Pursuant to a securities pledge agreement entered into in connection
with the Existing Agreement, as amended by the Consolidated Security Instrument
Amendment, dated as of September 2, 2003, among Jarden, the Guarantors, and Bank
of America, as Administrative Agent (the "Consolidated Security Instrument
Amendment") entered into in connection with the Amended and Restated Credit
Agreement, all obligations under the Amended and Restated Credit Agreement are
secured by a security interest in all of the capital stock or other equity
interests of each of our existing or future direct or indirect domestic
subsidiaries (other than Immaterial Subsidiaries), and 65% of the voting capital
stock or other equity interests and 100% of the nonvoting stock or other equity
interests of each of our (or any of our direct or indirect domestic
subsidiaries') existing or future direct foreign subsidiaries. Pursuant to the
terms of a security agreement and an intellectual property security agreement,
each entered into in connection with the Existing Agreement, as each amended by
the Consolidated Security Instrument, the obligations under the Amended and
Restated Credit Agreement are also secured by a security interest in
substantially all of the personal property of us and our domestic subsidiaries
that are not Immaterial Subsidiaries.
A copy of the Amended and Restated Credit Agreement is attached to this
report as Exhibit 10.3 and is incorporated herein by reference as though fully
set forth herein. Other documents entered into by us and our subsidiaries in
connection with the Amended and Restated Credit Agreement are attached to this
report as Exhibits 10.4 through 10.8 and are incorporated herein by reference as
though fully set forth herein. The foregoing summary description of the Amended
and Restated Credit Agreement and the transactions contemplated thereby is not
intended to be complete and is qualified in its entirety by the complete text of
the Amended and Restated Credit Agreement and the other agreements attached to
this report as Exhibits 10.4 through 10.8.
EMPLOYMENT AGREEMENT MATTERS
We employ James E. Lillie as Chief Operating Officer of Jarden pursuant
to an Employment Agreement, dated as of August 4, 2003 (the "Employment
Agreement"). Under the Employment Agreement, Mr. Lillie is employed for an
initial two-year term subject to
9
successive one-year renewal terms, such renewal terms to be automatic unless
either party gives prior written notice of non-renewal. Mr. Lillie receives a
base salary of $375,000 per year, subject to an annual increase at least equal
to the change in the Consumer Price Index, plus a performance-based bonus
package. Mr. Lillie also received 35,000 shares of restricted common stock on
August 4, 2003, as well as 100,000 stock options with the option price being the
closing price of our common stock on such date. Mr. Lillie will receive a
prescribed severance pay amount if he is terminated without cause or suffers a
specified disability. A copy of the Employment Agreement is attached to this
report as Exhibit 10.9 and is incorporated herein by reference as though fully
set forth herein. The foregoing summary description of Employment Agreement and
the employment relationship contemplated thereby is not intended to be complete
and is qualified in its entirety by the complete text of the Employment
Agreement.
Our employment agreements with each of Messrs. Franklin and Ashken are for
a term of two years ending December 31, 2003, subject to certain termination
rights and renewal provisions. The Compensation Committee of our Board of
Directors has engaged an independent compensation consultant to conduct an
evaluation of compensation of executive officers of other comparable public
companies and based on the results of that study will provide to the
Compensation Committee compensation recommendations for each of Messrs. Franklin
and Ashken. The Compensation Committee intends to consider the independent
compensation consultants' recommendations and the respective achievements of
Messrs. Franklin and Ashken in formulating its recommendation to our Board
regarding amendments to their respective employment agreements.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Audited consolidated balance sheet of Lehigh as of December 31, 2002 and
audited consolidated statement of income, stockholder's equity and comprehensive
income and cash flows for the year ended December 31, 2002.
Unaudited consolidated balance sheets of Lehigh as of June 30, 2002 and
2003 and unaudited consolidated statement of income and cash flows for each of
the six-month periods ended June 30, 2002 and 2003.
(b) Pro Forma Financial Information.
Unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 2002 of Jarden Corporation which gives effect to the
acquisition of Lehigh as if it had occurred on January 1, 2002.
Unaudited pro forma condensed consolidated balance sheet as of June 30,
2003 and condensed consolidated statement of operations for the six months ended
June 30, 2003. See "Index to Financial Statements."
(c) Exhibits. The following Exhibits are filed herewith as part of
this report:
Exhibit Description
- ------- -----------
10.1 Stock Purchase Agreement dated as of August 15, 2003, by and among Jarden
10
Exhibit Description
- ------- -----------
Corporation, American Manufacturing Company, Inc., and Lehigh Consumer Products Corporation.
10.2 Registration Rights Agreement, dated as of September 2, 2003, among Jarden Corporation, American
Manufacturing Company, Inc., and the Holders named therein.
10.3 Amended and Restated Credit Agreement, dated as of September 2, 2003, among Jarden Corporation,
Bank of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Canadian
Imperial Bank of Commerce, as Syndication Agent, National City Bank of Indiana and Fleet National
Bank, as Co-Documentation Agents.
10.4 Consolidated Amendment to Guaranty and Security Instruments, dated as of September 2, 2003, among
Jarden Corporation, the Guarantors, and Bank of America, N.A., as Administrative Agent.
10.5 Guaranty Agreement, dated as of April 24, 2002, by the Domestic Subsidiaries and Bank of
America, NA., as Administrative Agent (filed as Exhibit 10.2 to Jarden's Current Report on Form
8-K filed with the Commission on May 9, 2002, and incorporated herein by reference).
10.6 Security Agreement, dated as of April 24, 2002, among Jarden, the Domestic Subsidiaries, and
Bank of America, N.A., as Administrative Agent (filed as Exhibit 10.3 to Jarden's Current
Report on Form 8-K filed with the Commission on May 9, 2002, and incorporated herein by
reference).
10.7 Intellectual Property Security Agreement, dated as of April 24, 2002, among Jarden, the
Domestic Subsidiaries and Bank of America, N.A., as Administrative Agent (filed as Exhibit 10.4
to Jarden's Current Report on Form 8-K filed with the Commission on May 9, 2002, and
incorporated herein by reference).
10.8 Securities Pledge Agreement, dated as of April 24, 2002, among Jarden, Quoin Corporation,
Alltrista Newco Corporation, Caspers Tin Plate Company, and Bank of America, NA., as
Administrative Agent (filed as Exhibit 10.5 to Jarden's Current Report on Form 8-K filed with
the Commission on May 9, 2002, and incorporated herein by reference).
10.9 Employment Agreement, dated as of August 4, 2003, between Jarden Corporation and James E.
Lillie.
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Press Release of Jarden Corporation, dated September 2, 2003.
11
SIGNATURES
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 hereunto duly authorized.
Dated: September 5, 2003
JARDEN CORPORATION
By: /s/ Desiree DeStefano
----------------------------------------------
Name: Desiree DeStefano
Title: Senior Vice President
12
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Lehigh Consumer Products Corporation
Report of Independent Auditors............................................................................ F-2
Consolidated Balance Sheet as of December 31, 2002........................................................ F-3
Consolidated Statement of Income
for the Year Ended December 31, 2002...................................................................... F-4
Consolidated Statement of Stockholder's Equity and Comprehensive Income
for the Year Ended December 31, 2002...................................................................... F-5
Consolidated Statement of Cash Flows
for the Year Ended December 31, 2002...................................................................... F-6
Notes to Consolidated Financial Statements................................................................ F-7
Unaudited Condensed Consolidated Financial Statements of Lehigh Consumer Products Corporation
Condensed Consolidated Statements of Income
for the Six Months Ended June 30, 2002 and 2003........................................................... F-15
Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002........................... F-16
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2002 and 2003.......................................................... F-17
Notes to Unaudited Condensed Consolidated Financial Statements............................................ F-18
Unaudited Pro Forma Condensed Financial Statements........................................................ F-19
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholder of
Lehigh Consumer Products Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholder's equity and comprehensive
income, and of cash flows present fairly, in all material respects, the
financial position of Lehigh Consumer Products Corporation and its subsidiaries
at December 31, 2002, and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which 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, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial presentation. We believe that our audit
provides a reasonable basis for our opinion.
As discussed in Note 3, the Company adopted Statement of Financial Accounting
Standard No. 142, "Goodwill and Other Intangible Assets" effective January 1,
2002.
PricewaterhouseCoopers LLP
Philadelphia, PA
April 17, 2003, except as to Note 11, for which the date
is September 2, 2003
F-2
LEHIGH CONSUMER PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents $ 6,513
Accounts receivable, net of allowance for doubtful accounts of $423 18,293
Inventory 16,745
Prepaid expenses and other assets 994
--------
Total current assets 42,545
--------
Property, plant and equipment
Land and buildings 10,201
Machinery and equipment 17,863
--------
28,064
Accumulated depreciation (14,053)
--------
Total property, plant and equipment 14,011
--------
Other assets
Goodwill 38,365
Intangible assets, net 1,357
Other 1,839
--------
Total other assets 41,561
--------
Total assets $ 98,117
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt $ 3,557
Accounts payable - trade 4,492
Due to related parties, net 1,758
Deferred compensation 6,928
Reserve for customer rebates 3,713
Accrued compensation 1,522
Accrued liabilities 2,472
--------
Total current liabilities 24,442
--------
Noncurrent liabilities
Long-term debt 18,629
Derivative instruments 1,457
--------
Total noncurrent liabilities 20,086
--------
Total liabilities 44,528
--------
Commitments and contingencies
Stockholder's equity
Common stock, par value $1 per share; authorized 10 shares;
1 share outstanding 1
Additional paid-in capital 29,979
Retained earnings 24,923
Accumulated other comprehensive income (1,314)
--------
Total stockholder's equity 53,589
--------
Total liabilities and stockholder's equity $ 98,117
========
The accompanying notes are an integral part of these financial statements.
F-3
LEHIGH CONSUMER PRODUCTS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Net sales $ 128,128
Cost of sales 89,704
---------
Gross profit from sales 38,424
---------
Operating expenses
Selling and administrative 13,905
Other operating expense 5,627
---------
Total operating expenses 19,532
---------
Operating profit 18,892
---------
Other income (expense)
Interest and dividend income 11
Interest expense (1,885)
Other, net (380)
---------
Total other expense (2,254)
---------
Income before income taxes 16,638
Income tax expense -
---------
Net income $ 16,638
=========
The accompanying notes are an integral part of these financial statements.
F-4
LEHIGH CONSUMER PRODUCTS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TOTAL
STOCK CAPITAL EARNINGS INCOME EQUITY
BALANCE AT DECEMBER 31, 2001 $ 1 $29,979 $ 15,124 $ (354) $ 44,750
---- ------- -------- ------- --------
Comprehensive income:
Net income 16,638 16,638
Derivative instruments (869) (869)
Minimum pension liability adjustment (91) (91)
Distributions (6,839) (6,839)
---- ------- -------- ------- --------
BALANCE AT DECEMBER 31, 2002 $ 1 $29,979 $ 24,923 $(1,314) $ 53,589
==== ======= ======== ======= =======
The accompanying notes are an integral part of these financial statements.
F-5
LEHIGH CONSUMER PRODUCTS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $16,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,877
Amortization 287
Provision for doubtful accounts 155
Loss on disposal of property and equipment 2
Unrealized loss on derivatives (869)
Minimum pension liability adjustment (91)
Change in
Assets
Accounts receivable (5,717)
Inventories (1,592)
Due from related parties 68
Prepaid expenses and other 357
Other noncurrent assets 394
Liabilities
Accounts payable 1,189
Accrued liabilities 6,456
Due to related parties 1,758
Derivative instruments 890
-------
Net cash provided by operating activities 21,802
-------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (454)
-------
Net cash used in investing activities (454)
-------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on line-of-credit, net (5,500)
Payments on note payable (2,857)
Payments on mortgage (700)
Distributions (6,839)
-------
Net cash used in financing activities (15,896)
-------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,452
Cash and cash equivalents, beginning of year 1,061
-------
Cash and cash equivalents, end of year $ 6,513
=======
The accompanying notes are an integral part of these financial statements.
F-6
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Lehigh
Consumer Products Corporation ("the Company") and its consolidated
subsidiaries, whose operations primarily consist of the manufacture and
distribution of cordage, security doors and window guards, and home storage
organizer and hardware products. Principal markets include home centers and
mass merchandisers. All intercompany transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
REVENUE RECOGNITION
Revenue from product sales is recognized when title and risk of loss
transfer to the customer. Provisions for discounts and rebates to
customers, returns, and other adjustments are provided in the same period
that the related sales are recorded.
SHIPPING AND HANDLING COSTS
Shipping and handling fees related to sales transactions are billed to
customers and recorded as revenue. Shipping and handling costs incurred are
recorded in cost of sales.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with
maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of allowances for doubtful accounts of
$423 at December 31, 2002. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of
specific customers, historical trends and other information.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets, generally by the declining
balance method for machinery and equipment and by the straight-line, and
declining-balance methods for buildings. Useful lives are seven years for
machinery and equipment, and range from ten to forty years for buildings.
Depreciation expense was $1,877 for 2002.
Major renewals and improvements are capitalized and minor replacements,
maintenance and repairs are charged to operations as incurred. Upon
retirement or disposal of assets, the cost and related accumulated
depreciation are removed from the consolidated balance sheets and any gain
or loss is reflected in the consolidated statements of operations.
F-7
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
INCOME TAXES
The Company's tax status with the Internal Revenue Service is an "S"
Corporation subsidiary. As an S Corporation subsidiary, the Company is
considered a "flow-through entity." Taxable income generated after the
election is passed directly to the shareholders and the Company is not
required to pay income tax on total income generated. All states in which
it operates recognize this status.
DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 133, Accounting for Derivative Instruments
and Hedging Activities. SFAS 133 requires that all derivatives be
recognized in the balance sheet at their fair value. Derivatives that are
not hedges must be recorded at fair value through earnings. If a derivative
is a hedge, depending on the nature of the hedge, changes in the fair value
of the derivatives are either offset against the change in fair value of
the underlying assets or liabilities through earnings or recognized in
other comprehensive income until the underlying hedged item is recognized
in earnings. Derivatives used by the Company are highly effective as all
critical terms of the instruments match the hedged items.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including goodwill, and
identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable based
on undiscounted cash flows. In determining the amount of an impairment
loss, the Company compares an asset's carrying value to its fair market
value as measured by market price or future discounted cash flows. When the
carrying amount of the asset exceeds the fair value, the Company recognizes
an impairment loss in an amount equal to the excess. After an impairment
loss is recognized, the adjusted carrying amount of the asset becomes its
new accounting basis.
ACCRUED PRODUCT WARRANTY COSTS
The Company offers a wide variety of warranty terms for its products. All
warranty obligations anticipated to be fulfilled beyond one year are
classified as noncurrent liabilities.
CONCENTRATIONS OF CREDIT RISKS
Financial instruments which expose the Company to concentrations of credit
risk, as defined by Statement of Financial Accounting Standards No. 105,
Disclosure of Information About Financial Instruments with Off-Balance
Sheet Risk and Concentrations of Credit Risk, consist primarily of cash and
cash equivalents and accounts receivable. At times, such cash balances may
be in excess of the FDIC insurance limits. Sales to one customer during
2002 were 62 percent of the Company's total. Trade receivables from this
customer were 63 percent of total accounts receivable at December 31, 2002.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Total advertising expense for
2002 was $368.
GOODWILL
Goodwill, representing the excess of the cost over the net tangible and
identifiable assets acquired in business combinations, is stated at cost.
Goodwill and intangibles with indefinite lives are not amortized, but
tested for impairment no less frequently than annually. Impairment is
measured by comparing the carrying value to fair value using quoted market
prices, a discounted cash flow model, or a combination of both.
F-8
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
OTHER INTANGIBLE ASSETS
Other intangible assets are amortized on a straight-line basis over the
useful life of the asset, which is the period the asset is expected to
contribute directly or indirectly to the future cash flows. The Company
uses a range of five to eleven years for amortization of specific
intangibles, the largest of which relates to non-compete covenants.
Intangible assets were presented net of accumulated amortization of $698 at
December 31, 2002. Amortization expense related to intangible assets was
$287 in 2002. Amortization expense is anticipated to be $287 in 2003, $287
in 2004, $287 in 2005, $287 in 2006, and $208 in 2007.
2. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
on the last-in, first-out ("LIFO") basis. Inventories at December 31, 2002
consisted of the following:
Finished goods $12,038
Work in process 298
Raw materials 4,409
-------
16,745
Less allowance to reduce carrying value to LIFO basis -
-------
Total inventory $16,745
=======
3. GOODWILL
Goodwill represents the excess of the cost over the net tangible and
identifiable assets acquired in business combinations, is stated at cost.
Prior to the adoption of Statement of Financial Accounting Standard No.
142, Goodwill and Other Intangible Assets ("FAS No. 142") in 2002, goodwill
was being amortized over 15 years. Goodwill was presented net of
accumulated amortization of $11,360 at December 31, 2002. Amortization
expense related to goodwill was $0 in 2002.
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 requires goodwill be tested for impairment on an
annual basis and between annual tests in certain circumstances, and written
down when impaired, rather than being amortized as previous accounting
standards required. In accordance with SFAS No. 142, the Company ceased
amortizing goodwill totaling $38,365 as of January 1, 2002. Based upon
impairment tests performed at the transition date of January 1, 2002 and
the testing date of December 31, 2002, there was no impairment of goodwill
in 2002.
The following is a reconciliation of previously reported financial
information to adjusted amounts excluding goodwill amortization for the
year ended December 31, 2002:
Net income related to common shareholders $16,659
Addback: Goodwill amortization -
-------
Adjusted net income related to common shareholders $16,659
=======
F-9
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
4. PENSION PLANS
The Company participates in a non-contributory pension plan with American
Manufacturing Corporation. The plan covering salaried, office hourly, plant
hourly and management employees provides pension benefits that are based on
length of service and a percentage of average qualifying compensation for
the highest five consecutive years of employment. The funding policy is to
contribute the requirements set forth in the Employee Retirement Income
Security Act ("ERISA") plus such additional amounts as the Company may
determine to be appropriate. Total plan assets exceed projected benefit
obligations at December 31, 2002. As of December 31, 2002, the Company had
prepaid pension assets of $408, and had pension income of $284 for 2002.
The Company has a qualified 401(k) defined contribution plan, which covers
substantially all its domestic non-union full-time employees. Eligible
employees may elect to defer up to 15 percent of their salary. The Company
will match 50 percent of the employees' contribution up to 6 percent of
their salary. Eligible employees are vested in the Company's contributions
and related investment income after five years of service. Expenses for the
plans were charged to continuing operations in the amounts of $179 in 2002.
The Company participates in a qualified deferred compensation plan for
certain key executives. The participant's right to receive an award-granted
vests over five years subject to certain redemption provisions. There were
no awards granted in 2002. At December 31, 2002, the Company had an accrued
liability of $6,928, and the Company had an expense of $3,337 for the year
ended December 31, 2002, related to this plan.
5. DEBT
Debt at December 31, 2002 consisted of the following:
Line-of-credit of $27,000, variable rate plus 1.50% (2.88% at
December 31, 2002) through December 2005. $ -
Note payable to a bank, variable rate plus 1.50% (2.92% at
December 31, 2002) and due in monthly installments of $238
plus interest beginning on February 1, 2001 and ending
January 1, 2008. 14,286
Bonds payable:
Private placement demand bonds, variable rate (6.65%
at December 31, 2002) due July 1, 2012. 6,900
Industrial revenue bonds, variable rate (5.10% at
December 31, 2002) due July 1, 2012. 1,000
-------
22,186
Current portion (3,557)
-------
Long-term portion $18,629
=======
F-10
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
On December 27, 2000, the Company entered into a credit facility with a
bank. Under the agreement, the bank has made available to the Company
$34,000 of committed 360-day revolving credit, through December 2005. The
Company lowered this availability to $27,000 on December 17, 2001. Interest
rate is defined as the Prime Rate, LIBOR, or Euro Rate plus between 1.5
percent and 2.25 percent based on set criteria, with the method selected at
the option of the Company. In addition, the Company has a $20,000 note
payable to the bank due in monthly installments of $238 plus interest
beginning on February 1, 2001 and ending January 1, 2008. Interest rate is
defined as the LIBOR or Euro Rate plus 1.50 percent with the method
selected at the option of the Company. The credit facility is
collateralized by the assets of the Company. The amount outstanding on the
$20,000 note payable at December 31, 2002 was $14,286.
The Company has outstanding $6,900 in privately placed demand bonds, and
$1,000 in industrial revenue bonds through a bank to finance the
construction of a new facility for one of its subsidiaries. The debt is
collateralized by this facility. The interest rate on these instruments is
determined on a weekly basis, and varies with the prevailing market rate
for similar instruments, such that the Company's bonds will always trade at
face value, without premium or discount. While, at the discretion of the
Company, the interest rate determination method is in the weekly mode, the
bonds are callable on any interest payment date at the option of the
Company without penalty. Interest is payable monthly.
Interest paid on all debt was $1,864 in 2002.
The following schedule outlines principal payments due on the above
long-term debt and bonds over the next 5 years:
2003 $ 3,557
2004 3,557
2005 3,557
2006 3,557
2007 3,557
2008 and thereafter 4,401
-------
$22,186
=======
The long-term debt and bond agreements include restrictive covenants, the
most significant of which requires that the Company maintain minimum
capitalization and certain financial ratios. The Company was compliant with
all covenants during 2002.
6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company maintains an interest rate risk management strategy by using
interest rate swaps to minimize economic exposure to fluctuating interest
rates. The Company's interest rate swap agreements ("swaps"), which mature
in 2006 and 2012, are designated as a cash flow hedge. Therefore, all
unrealized gains and losses are recorded in other comprehensive income. As
the underlying transaction occurs, any unrealized gains or losses on the
hedges are reclassified from other comprehensive income to the statement of
operations (interest expense), offsetting the income effects of the
transactions for which they relate.
F-11
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
The Company entered into a swap for the notional amount of $19,286 in order
to hedge the variable interest rate associated with a note payable. The
Company pays a fixed rate of 4.95 percent on the notional amount and
receives from the counterparty, LIBOR, with the rate determined monthly on
the first day of the month. At December 31, 2002, the notional amount was
$14,286. The net amount paid to the Company under the agreements was $290
for 2002. The swap expires April 3, 2006. Additionally, the Company entered
into two swaps with a counterparty for the notional values of $1,000 and
$8,000 in order to hedge the variable interest rate associated with its
bonds. The Company pays fixed rates of 3.45 percent and 4.59 percent on the
notional amounts and receives from the counterparty, variable rates equal
to LIBOR, with the rate determined monthly on the first day of the month.
At December 31, 2002, the notional amounts were $6,900 and $1,000. The net
amount paid to the Company under the agreements was $223 for 2002. The
swaps expiration coincide with the maturity date on its bonds.
Also, the Company entered into an option agreement ("swaption") with the
counterparty that gives the counterparty the right, but not the obligation
to either terminate one of the Company's existing swap agreements before
its maturity date without penalty or extend the life of an existing swap
for two years beyond the exercise date of April 30, 2004. The counterparty
may only exercise the option on April 30, 2004. The option agreement is
marked to market and recorded in the Consolidated Statement of Income. The
fair value of the swaption at December 31, 2002 was $21.
At the adoption date, the Company recorded a transition adjustment of $370.
At December 31, 2002, the fair value of the swaps was a liability of
$1,457. The net unrealized loss on the swaps are included in accumulated
other comprehensive income at December 31, 2002.
7. LEASE COMMITMENTS
Total rental expense under operating leases for the years ended December
31, 2002 aggregated $849 in 2002. As of December 31, 2002, future minimum
payments under non-cancelable operating leases are as follows:
2003 $ 855
2004 845
2005 832
2006 598
2007 429
2008 and thereafter -
-------
$ 3,559
=======
8. RELATED PARTIES
Amounts due from (to) related parties at December 31, 2002 consisted of the
following:
American Manufacturing Corporation of Pennsylvania $(1,851)
American Group 93
-------
Total amounts due to related parties $(1,758)
=======
F-12
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
The entities listed above are considered related parties in that they,
along with the Company, are controlled by American Manufacturing
Corporation of Pennsylvania. The Company believes that the costs of the
related party services are a reasonable reflection of the utilization of
services provided or the benefits received. However, the financial
information included herein may not reflect the consolidated financial
position, operating results and cash flows of the Company if the services
or transactions had occurred with an unrelated third party. The amounts due
to American Manufacturing Corporation of Pennsylvania relate to a declared
distribution of $1,851. The amounts due from American Group primarily
relate to receivables from product sales of $1,441 for 2002. A management
fee of $500 was paid to American Manufacturing Corporation of Pennsylvania
for 2002.
9. CONTINGENT LIABILITIES
The Company has been named a defendant in several lawsuits relative to
product liability in which damages of substantial amounts are being sought.
While it is not feasible to predict the outcome of all pending suits and
claims, management does not anticipate that the ultimate resolution of
these matters will have a material adverse effect upon the consolidated
financial position of the Company, although the resolution of any of the
matters during a specific period could have a material effect on the annual
operating results for that period. All product liability lawsuits are
covered by the Company's insurance policy and are subject to a $50 to $500
deductible.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses
accounting and reporting obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company must adopt SFAS 143 in 2003. Management believes that adopting this
pronouncement will not have a material impact on the Company's results of
operations, financial position or cash flows.
Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections as of April 2002 ("SFAS No. 145"), among other
things, rescinds various pronouncements regarding early extinguishment of
debt. It allows extraordinary accounting treatment for early extinguishment
of debt only when the provisions of Accounting Principles Board Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions are met. SFAS No. 145 provisions
regarding early extinguishment of debt are generally effective for fiscal
years beginning after May 15, 2002. The Company adopted this statement
effective January 1, 2003. Management believes that adopting SFAS No. 145
will not have a material impact on the Company's financial position,
results of operations or cash flows.
F-13
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
(IN THOUSANDS)
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS No. 146"), addresses
financial accounting and reporting for costs associated with exit and
disposal activities and supercedes Emerging Issues Task Force Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) ("EITF 94-3"). SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF 94-3, a liability for an exit cost was
recognized at the date of commitment to an exit or disposal plan. SFAS No.
146 also establishes that fair value is to be used for initial measurement
of the liability. The Company must adopt SFAS No. 146 for all exit or
disposal activities that are initiated after December 31, 2002. Management
does not believe that adopting this pronouncement will have a material
impact on the Company's results of operations, financial position or cash
flows.
Financial Accounting Standards Board Interpretation No. 45, FIN 45
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others ("FIN 45"), details
the disclosures to be made by a guarantor about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. The
Company has issued no guarantees, and therefore, the adoption of FIN 45 has
not had a material impact on the Company's financial position, results of
operations or cash flows.
Financial Accounting Standards Board Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"). FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, Consolidated Financial Statements,
to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. Management
has determined that the Company does not have any variable interests in any
variable interest entities. Therefore, no disclosures are required and the
adoption of the provisions of FIN 46 is not expected to impact on the
Company's financial position, results of operations or cash flows.
11. SUBSEQUENT EVENTS
On September 2, 2003, the Company was acquired by the Jarden Corporation
for $155 million. In addition, the acquisition agreement includes an
earn-out provision for additional cash or common stock of Jarden
Corporation provided that certain growth targets are met.
F-14
LEHIGH CONSUMER PRODUCTS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
Six months ended
June 30,
2003 2002
-------------- -------------
Net sales $67,655 $65,349
Costs and expenses
Cost of sales 47,462 47,024
Selling, general and administrative expenses 9,025 8,819
-------------- -------------
Operating earnings 11,168 9,506
Interest expense, net 734 1,048
-------------- -------------
Income before taxes 10,434 8,458
Income tax (benefit) expense (129) (29)
-------------- -------------
Net income $ 10,563 $ 8,487
============== =============
See accompanying notes to unaudited condensed consolidated financial statements.
F-15
LEHIGH CONSUMER PRODUCTS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(dollars in thousands)
June 30, December 31,
2003 2002
------------------- ------------------
ASSETS
Current assets
Cash and cash equivalents $ 130 $ 6,513
Accounts receivable, net 30,570 18,293
Inventories, net 14,494 16,745
Other current assets 1,058 994
------------------- ------------------
Total current assets 46,252 42,545
------------------- ------------------
Property, plant and equipment, net $ 13,439 $ 14,011
Intangibles, net 39,580 39,722
Other assets 402 1,839
------------------- ------------------
Total assets $ 99,673 $ 98,117
=================== ==================
LIABILITIES AND EQUITY
Current liabilities
Short-term and current portion of long-term debt 3,557 3,557
Accounts payable - trade 3,395 4,492
Accrued salaries and wages 1,034 1,522
Deferred Compensation 8,128 6,928
Other current liabilities 5,816 7,943
------------------- ------------------
Total current liabilities 21,930 24,442
------------------- ------------------
Noncurrent Liabilities
Long-term debt 17,138 18,629
Derivative Instruments 1,457 1,457
------------------- ------------------
Total noncurrent liabilities 18,595 20,086
------------------- ------------------
Equity 59,148 53,589
------------------- ------------------
Total liabilities and equity $ 99,673 $ 98,117
=================== ==================
See accompanying notes to unaudited condensed consolidated financial statements.
F-16
LEHIGH CONSUMER PRODUCTS CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Six months ended
June 30,
2003 2002
-------------- -------------
Cash flows from operating activities
Net income $ 10,563 $ 8,487
Reconciliation of net income to net cash provided by
Operating activities:
Depreciation and amortization 975 1,203
Changes in working capital components (11,126) (8,718)
-------------- -------------
Net cash provided by operating activities 412 972
-------------- -------------
Cash flows from financing activities
Payments on debt (3,990) (4,090)
Proceeds from debt 2,500 5,100
Dividends Paid (5,094) -
-------------- -------------
Net cash used in financing activities (6,584) 1,010
-------------- -------------
Cash flows from investing activities
Additions to property, plant and equipment (211) (231)
-------------- -------------
Net cash used in investing activities (211) (231)
-------------- -------------
Net (decrease) increase in cash $ (6,383) $ 1,751
Cash and cash equivalents, beginning of period 6,513 1,062
-------------- -------------
Cash and cash equivalents, end of period $ 130 $ 2,813
============== =============
See accompanying notes to unaudited condensed consolidated financial statements.
F-17
LEHIGH CONSUMER PRODUCTS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Certain information and footnote disclosures, including
significant accounting policies normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States, have been condensed or
omitted. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments
necessary for a fair presentation of the results for the interim
periods presented. Results of operations for the periods shown are
not necessarily indicative of results for the year. The
accompanying unaudited consolidated financial statements should be
read in conjunction with the Consolidated Financial Statements and
Notes to Consolidated Financial Statements of Lehigh Consumer
Products Corporation, incorporated by reference hereto.
2. Subsequent events
On September 2, 2003, Lehigh Consumer Products Corporation and its
subsidiaries (collectively "Lehigh"), was acquired by Jarden
Corporation pursuant to a stock purchase agreement (the
"Acquisition"). Pursuant to the Acquisition, Lehigh was acquired
for approximately $155 million in cash. In addition, the
Acquisition includes an earn-out provision with a potential
payment in cash or Company common stock of up to $25 million,
provided that certain earnings performance targets are met.
F-18
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial information as of and for the year
ended December 31, 2002 has been derived from our audited consolidated
financial statements as of and for such period. The following unaudited pro
forma financial information as of and for the six months ended June 30, 2003
has been derived from our unaudited interim consolidated financial statements
as of and for such period. The unaudited pro forma condensed consolidated
financial statements give effect to (collectively, the "Transactions"):
i. the April 2002 acquisition (the "Tilia Acquisition") of substantially all
of the assets of Tilia International, Inc. and its subsidiaries ("Tilia")
including the related refinancing of our senior credit facility and the
offering of 9(3/4)% senior subordinated notes;
ii. the February 2003 acquisition (the "Diamond Acquisition") of substantially
all of the assets of Diamond Brands International, Inc. and its
subsidiaries ("Diamond") including the related financing; and
iii. the September 2003 acquisition (the "Lehigh Acquisition") of Lehigh
Consumer Products Corporation and its subsidiary ("Lehigh") including the
related amendment and restatement of our senior credit facility and
issuance of an additional $150 million of term debt thereunder.
The unaudited pro forma financial information is not necessarily indicative of
our results of operations or financial position had the events reflected herein
actually been consummated at the assumed dates, nor is it necessarily
indicative of our results of operations or financial position for any future
period. The unaudited pro forma financial information should be read in
conjunction with the Jarden consolidated financial statements with the related
notes incorporated by reference herein and the Lehigh and Diamond consolidated
financial statements with the related notes incorporated by reference herein.
The pro forma adjustments related to the purchase price allocation of the
Lehigh and Diamond Acquisitions are preliminary and are subject to revision as
additional information becomes available. Revisions to the preliminary purchase
price allocation of the Lehigh and Diamond Acquisitions may have a significant
impact on the unaudited pro forma information.
F-19
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2003
LEHIGH
ACQUISITION
JARDEN PRO FORMA PRO FORMA
AS REPORTED LEHIGH ADJUSTMENTS COMBINED
------------- ---------- ------------- ----------
(dollars in thousands)
ASSETS
Current assets
Cash and cash equivalents ................. $ 4,704 $ 130 $ 4,834
Accounts receivable, net .................. 56,136 30,570 $ (246)A 86,460
Inventories, net .......................... 82,666 14,494 97,160
Deferred taxes on income .................. 11,055 11,055
Other current assets ...................... 6,009 1,058 7,067
-------- ------- -------- --------
Total current assets .................... 160,570 46,252 (246) 206,576
Property, plant and equipment, net ......... 71,353 13,439 (6,702)B 84,090
6,000 C
Intangibles, net ........................... 192,962 39,580 68,020 D 300,562
Other assets ............................... 15,861 402 3,500 E 19,763
-------- ------- -------- --------
Total assets ............................... $440,746 $99,673 $ 70,572 $610,991
======== ======= ======== ========
LIABILITIES AND EQUITY
Current liabilities
Short-term debt and current portion of
long-term debt .......................... $ 20,673 $ 3,557 $ (3,557)F $ 32,173
10,000 G
1,500 G
Accounts payable .......................... 26,119 3,395 29,514
Other current liabilities ................. 42,296 14,978 (8,128)H 49,146
-------- ------- -------- --------
Total current liabilities ............... 89,088 21,930 (185) 110,833
-------- ------- -------- --------
Noncurrent liabilities .....................
Long-term debt ............................ 233,613 17,138 (17,138)F 382,113
148,500 G
Deferred taxes on income .................. 7,617 7,617
Other noncurrent liabilities .............. 14,044 1,457 (1,457)I 14,044
-------- ------- -------- --------
Total noncurrent liabilities ............ 255,274 18,595 129,905 403,774
Equity ..................................... 96,384 59,148 (59,148)J 96,384
-------- ------- -------- --------
Total liabilities and equity ............... $440,746 $99,673 $ 70,572 $610,991
======== ======= ======== ========
F-20
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
DIAMOND LEHIGH
ACQUISITION SUBTOTAL ACQUISITION
JARDEN PRO FORMA PRO FORMA PRO FORMA PRO FORMA
AS REPORTED DIAMOND(1) ADJUSTMENTS COMBINED LEHIGH ADJUSTMENTS COMBINED
------------- ------------ ------------- ------------- ---------- ------------ -------------
(dollars in thousands, except per share data)
Net sales ............... $228,114 $ 6,814 $234,928 $67,655 $302,583
Costs and expenses: .....
Cost of sales ........... 140,264 4,649 $ 119 K 145,032 47,462 $ 429 P 192,923
Selling, general and
administrative
expenses ............... 56,306 884 57,190 9,025 489 Q 65,158
(96)R
(250)S
(1,200)T
Reorganization
costs (2) .............. 1,536 1,536 -- 1,536
-------- ------- ---- -------- ------- ------- --------
Operating income
(loss) ................. 31,544 (255) (119) 31,170 11,168 628 42,966
Interest expense
(income), net .......... 8,219 921 (921)L 8,423 734 3,395 U 12,168
155 M (734)V
49 N 350 W
-------- ------- ------ -------- ------- -------- --------
Income (loss) before
taxes .................. 23,325 (1,176) 598 22,747 10,434 (2,383) 30,798
Income tax provision
(benefit) .............. 9,144 (227)O 8,917 (129) 3,285 O 12,073
-------- ------- ------ -------- ------- -------- --------
Net income (loss) ....... $ 14,181 $(1,176) $ 825 $ 13,830 $10,563 $(5,668) 18,725
======== ======= ====== ======== ======= ======= ========
Basic earnings per
share .................. $ 1.00 $ 0.97 $ 1.31
Diluted earnings per
share .................. $ 0.96 $ 0.94 $ 1.27
Weighted average
shares outstanding:
Basic ................... 14,242 14,242 14,242
Diluted ................. 14,727 14,727 14,727
Other data:
Depreciation and
amortization ........... 7,230 83 119 K 7,432 975 429 P 8,740
(96)R
- ----------
(1) The results for Diamond represent Diamond's unaudited actual results for
the month ended January 31, 2003, which are not included in Jarden's
results.
(2) On May 22, 2001, Diamond filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code. Accordingly, its
expenses related to the bankruptcy are included in "Reorganization
Costs."
F-21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
DIAMOND LEHIGH
ACQUISITION SUBTOTAL ACQUISITION
JARDEN PRO FORMA PRO FORMA PRO FORMA PRO FORMA
AS REPORTED TILIA (1) DIAMOND(1) ADJUSTMENTS COMBINED LEHIGH ADJUSTMENTS COMBINED
------------ ---------- ----------- ------------- ----------- --------- ----------- -----------
(dollars in thousands, except per share data)
Net sales ..................... $367,104 $38,525 $101,604 $507,233 $128,128 $635,361
Costs and expenses: ...........
Cost of sales ................. 216,629 19,343 72,163 $1,429 K 309,564 89,704 $ 857 P 400,125
Selling, general and
administrative expenses....... 85,366 13,468 10,033 172 Y 109,039 19,532 978 Q 125,894
(500)S
(198)R
(3,337)T
380 U
Reorganization costs (2) ...... 4,565 4,565 4,565
-------- ------- -------- ------- -------- -------- ------- --------
Operating income
(loss) ....................... 65,109 5,714 14,843 (1,601) 84,065 18,892 1,820 104,777
Other expense ................. 380 (380)U
Interest expense, net ......... 12,611 (52) 9,182 (1,232)Z 17,895 1,874 7,738 V 26,333
(9,182)L
4,344 AA (1,874)W
1,525 M
474 N
225 BB 700 X
-------- ------- -------- ------- -------- -------- ------- --------
Income (loss) before taxes..... 52,498 5,766 5,661 2,245 66,170 16,638 (4,364) 78,444
Income tax provision (3) ...... 16,189 1,801 3,558 O 21,548 4,811 O 26,359
-------- ------- -------- ------- -------- -------- ------- --------
Net income (loss) ............. $ 36,309 $ 3,965 $ 5,661 $(1,313) $ 44,622 $ 16,638 $(9,175) 52,085
======== ======= ======== ======= ======== ======== ======= ========
Basic earnings per share ...... $ 2.60 $ 3.20 $ 3.74
Diluted earnings
per share .................... $ 2.52 $ 3.10 $ 3.62
Weighted average shares
outstanding:
Basic ......................... 13,940 13,940 13,940
Diluted ....................... 14,392 14,392 14,392
Other data:
Depreciation and
amortization ................. 10,001 471 2,321 172 Y 14,394 2,164 857 P 17,217
1,429 K (198)R
- ----------
(1) Amounts in the Tilia column represent Tilia's actual results for the
three months ended March 31, 2002, which are not included in Jarden's
reported results.
(2) On May 22, 2001, Diamond filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code. Accordingly, its
expenses related to the bankruptcy are included in "Reorganization
Costs."
(3) The income tax provision of Jarden for the year ended December 31, 2002
includes a net release of a $4.4 million tax valuation allowance. The
actual effective tax rate for the year (excluding the net release) was
39.2%.
F-22
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Balance sheet adjustments:
(a) Adjustment to reflect the elimination of a receivable from Lehigh's
parent company not purchased in the Lehigh Acquisition.
(b) Adjustment to reflect the elimination of the net book value of Lehigh's
Macungie, Pennsylvania land and building not purchased in the Lehigh
Acquisition. Pursuant to the terms of the Lehigh Acquisition, Lehigh
entered into a ten (10) year lease with the Seller for the property.
See Note (q).
(c) Adjustment to reflect the estimated step-up in fair value of Lehigh's
manufacturing related machinery and equipment.
(d) Adjustment to reflect the estimated step-up in fair value of intangible
assets (trademarks and goodwill) to be recorded with the Lehigh
acquisition.
(e) Adjustment to capitalize the debt issuance costs associated with the
new senior term debt issued to fund the cash purchase price of the
Lehigh Acquisition. The costs will be amortized over the term of the
debt (5 years).
(f) Adjustment to reflect the elimination of debt which Jarden is not
assuming in the Lehigh Acquisition.
(g) Adjustment to reflect borrowings on Jarden's senior credit facility
used to fund the Lehigh Acquisition ($10,000 of Revolving Credit
Facility, $1,500 of short-term portion of Term Loan B and $148,500 of
long-term portion of Term Loan B).
(h) Adjustment to reflect the elimination of the stockholder appreciation
rights plan liability which Jarden is not assuming in the Lehigh
Acquisition.
(i) Adjustment to reflect the elimination of the interest rate swap
liability which Jarden is not assuming in the Lehigh Acquisition.
(j) Adjustment to reflect the elimination of the existing stockholders'
equity of Lehigh.
Statements of operations adjustments:
(k) Adjustment to reflect depreciation expense on the estimated step up in
valuation of Diamond's manufacturing related machinery and equipment
amortized over an estimated useful life of seven (7) years.
(l) Adjustment to reflect the elimination of Diamond's historical interest
expense.
(m) Adjustment to reflect interest expense on the drawdown of Jarden's
revolving credit facility and the issuance of term debt in order to
fund a portion of the cash purchase price of the Diamond Acquisition
based upon Jarden's effective borrowing rate on its senior credit
facility. The effect of a 1/8% change in interest rates would be $35
per year.
(n) Adjustment to reflect the elimination of Jarden's interest income
related to cash on hand used to fund a portion of the cash purchase
price of the Diamond Acquisition.
(o) Adjustment to reflect an effective tax rate of 39.2% on the pre-tax
results of the acquired business and related adjustments based on
Jarden's effective tax rate for the period.
(p) Adjustment to reflect the depreciation expense on the estimated step up
in valuation of Lehigh's manufacturing related machinery and equipment
amortized over an estimated useful life of seven (7) years. See note
(c).
F-23
(q) Adjustment to reflect rental expense for the Macungie, Pennsylvania
property not purchased with the Lehigh acquisition, but leased from the
seller by Jarden in conjunction with the Lehigh Acquisition. See note
(b).
(r) Adjustment to reflect the elimination of historical depreciation of the
building not purchased in the Lehigh Acquisition. See note (b).
(s) Adjustment to reflect the elimination of Lehigh's historical management
fee expense charged from its former parent. The management fee contract
was terminated in conjunction with the Lehigh Acquisition.
(t) Adjustment to reflect the elimination of the historical stockholders'
appreciation rights plan expense. See note (h).
(u) Adjustment to reflect the reclassification of Lehigh's other expense to
selling, general and administrative expenses to conform to Jarden's
presentation.
(v) Adjustment to reflect pro forma interest expense relating to:
i. the $10 million borrowing under Jarden's revolving credit
facility to partially fund the purchase price of the Lehigh
acquisition, based upon Jarden's effective borrowing rate for
its senior credit facility.
ii. the $150 million term loan issued to fund the purchase price
of the Lehigh Acquisition, based upon Jarden's effective
borrowing rate for its senior credit facility. The effect of
a 1/8% change in interest rates would be $200 per year
(w) Adjustment to reflect the elimination of Lehigh's historical interest
expense.
(x) Adjustment to reflect amortization of debt issue costs for new senior
term loan issued in conjunction with the Lehigh Acquisition.
(y) Adjustment to reflect amortization of identifiable intangible assets
recorded with the Tilia acquisition.
(z) Adjustment to reflect the elimination of Jarden's historical interest
expense prior to the Tilia acquisition for the first quarter of 2002.
(aa) Adjustment to reflect pro forma interest expense relating to:
i. the new senior credit facility issued in conjunction with the
Tilia Acquisition at 5%, based upon Jarden's effective
borrowing rate on its senior credit facilities for first
quarter 2002;
ii. the interest bearing subordinated seller note issued in
conjunction with the Tilia Acquisition at 5% based upon
Jarden's effective borrowing rate on its senior credit
facilities for first quarter 2002; and
iii. the 9(3/4)% Senior Subordinated Notes due 2012 issued in
conjunction with the Tilia Acquisition.
(bb) Adjustment to reflect the amortization of debt issue costs for both the
new senior credit facility and the Senior Subordinated Notes due 2012
issued in conjunction with the Tilia Acquisition.
F-24