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JAH > SEC Filings for JAH > Form 10-Q on 1-Nov-2011All Recent SEC Filings

Show all filings for JARDEN CORP

Form 10-Q for JARDEN CORP


1-Nov-2011

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

From time to time, the Company may make or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products and similar matters. Such statements are necessarily estimates reflecting management's best judgment based on current information. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are usually identified by the use of words or phrases such as "believes", "anticipates", "expects", "estimates", "planned", "outlook" and "goal". Because forward-looking statements involve risks and uncertainties, the Company's actual results could differ materially. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in forward-looking statements. All statements addressing trends, events, developments, operating performance, potential acquisitions or liquidity that the Company anticipates or expects will occur in the future are forward-looking statements.

Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

The Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in the Company's Forms 10-K, 10-Q and 8-K reports to the United States Securities and Exchange Commission ("SEC"). Please see the Company's Annual Report on Form 10-K for the year ended December 31, 2010 for a list of factors which could cause the Company's actual results to differ materially from those projected in the Company's forward-looking statements and certain risks and uncertainties that may affect the operations, performance and results of the Company's businesses. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

The following "Overview" section is a brief summary of the significant items addressed in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"). Investors should read the relevant sections of this MD&A for a complete discussion of the items summarized below.

Overview

The Company is a leading provider of a broad range of consumer products. The Company reports four business segments: Outdoor Solutions, Consumer Solutions, Branded Consumables and Process Solutions. The Company's sales are principally within the United States. The Company's international operations are mainly based in Asia, Canada, Europe and Latin America.

The Company distributes its products globally, primarily through club stores; craft stores; direct-to-consumer channels, primarily infomercials; department stores; drugstores; grocery retailers; home improvement stores; mass merchandisers; on-line; specialty retailers and wholesalers. The markets in which the Company's businesses operate are generally highly competitive, based primarily on product quality, product innovation, price and customer service and support, although the degree and nature of such competition vary by location and product line. Since the Company operates primarily in the consumer products markets, it is generally affected by among other factors, overall economic conditions and the related impact on consumer confidence.

The Outdoor Solutions segment manufactures or sources, markets and distributes global consumer active lifestyle products for outdoor and outdoor-related activities. For general outdoor activities, Coleman® is a leading brand for active lifestyle products, offering an array of products that include camping and outdoor equipment such as air beds, camping stoves, coolers, foldable furniture, gas grills, lanterns and flashlights, propane fuel, sleeping bags, tents and water recreation products such as inflatable boats, kayaks and tow-behinds. The Outdoor Solutions segment is also a leading provider of fishing equipment under brand names such as Abu Garcia®, All Star®, Berkley®, Fenwick®, Gulp! ®, JRC™, Mitchell®, Penn®, Pflueger ®, Sebile®, Sevenstrand®, Shakespeare ®, Spiderwire®, Stren®, Trilene ®, Ugly Stik® and Xtools®. Team sports equipment for baseball, softball, football, basketball, field hockey and lacrosse products are sold under brand names such as deBeer®, Gait®, Miken®, Rawlings ® and Worth®. Alpine and nordic skiing, snowboarding, snowshoeing and in-line skating products are sold under brand names such as Atlas ®, Full Tilt®, K2®, Line ®, Little Bear®, Madshus®, Marker ®, Morrow®, Ride®, Tubbs ®, Völkl® and 5150 Snowboards®. Water sports equipment, personal flotation devices and all-terrain vehicle gear are sold under brand names such as Helium®, Hodgman®, Mad Dog Gear®, Sevylor ®, Sospenders® and Stearns®. The Company also sells high performance technical and outdoor apparel and equipment under brand names such as CAPP3L®, Ex Officio®, K2®, Marker®, Marmot ®, Planet Earth®, Ride®, Völkl ® and Zoot®, and premium air beds under brand names including Aero®, Aerobed® and Aero Sport ®.


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The Consumer Solutions segment manufactures or sources, markets and distributes a diverse line of household products, including kitchen appliances and personal care and wellness products for home use. This segment maintains a strong portfolio of globally recognized brands including Bionaire ®, Crock-Pot®, FoodSaver®, Health o meter®, Holmes®, Mr. Coffee®, Oster ®, Patton®, Rival®, Seal-a-Meal ®, Sunbeam® and Villaware®. The principal products in this segment include clippers and trimmers for professional use in the beauty and barber and animal categories; electric blankets, mattress pads and throws; household kitchen appliances, such as blenders, coffeemakers, irons, mixers, slow cookers, toasters, toaster ovens and vacuum packaging machines; personal care and wellness products, such as air purifiers, fans, heaters and humidifiers, for home use; products for the hospitality industry; and scales for consumer use.

The Branded Consumables segment manufactures or sources, markets and distributes a broad line of branded consumer products, many of which are affordable, consumable and fundamental household staples, including arts and crafts paint brushes, brooms, brushes, buckets, children's card games, clothespins, collectible tins, condoms, cord, rope and twine, dusters, dust pans, feeding bottles, fencing, fire extinguishing products, firelogs and firestarters, home canning jars and accessories, kitchen matches, mops, other craft items, pacifiers, plastic cutlery, playing cards and accessories, rubber gloves and related cleaning products, safes, security cameras, security doors, smoke and carbon monoxide alarms, soothers, sponges, storage organizers and workshop accessories, teats, toothpicks, window guards and other accessories. This segment markets products under the Aviator®, Ball®, Bee®, Bernardin ®, Bicycle®, Billy Boy®, BRK ®, Crawford®, Diamond®, Dicon ®, Fiona®, First Alert®, First Essentials®, Forster®, Hoyle®, Java-Log ®, KEM®, Kerr®, Lehigh ®, Leslie-Locke®, Lillo®, Loew-Cornell ®, Mapa®, NUK®, Pine Mountain ®, Quickie Green Cleaning®, Quickie Home-Pro®, Quickie Microban®, Quickie Original®, Quickie Professional®, Spontex®, Tigex® and Wellington® brand names, among others.

The Process Solutions segment manufactures, markets and distributes a wide variety of plastic products including closures, contact lens packaging, medical disposables, plastic cutlery and rigid packaging. Many of these products are consumable in nature or represent components of consumer products. This segment's materials business produces specialty nylon polymers, conductive fibers and monofilament used in various products, including woven mats used by paper producers and weed trimmer cutting line, as well as fiberglass radio antennas for marine, citizen band and military applications. This segment is also the largest North American producer of niche products fabricated from solid zinc strip and is the sole source supplier of copper plated zinc penny blanks to the United States Mint and a major supplier to the Royal Canadian Mint, as well as a supplier of brass, bronze and nickel plated finishes on steel and zinc for coinage to other international markets. In addition, the Company manufactures a line of industrial zinc products marketed globally for use in the architectural, automotive, construction, electrical component and plumbing markets.

Summary of Significant 2011 Activities

• On March 31, 2011, the Company completed a new $1.275 billion senior secured credit facility (the "Facility"). The proceeds from the Facility and cash on hand were used to extinguish approximately $1.1 billion of debt outstanding, which was primarily comprised of the principal amount outstanding under the Company's prior senior secured credit facility. The weighted average interest rate spread on the Facility decreased by over 60 basis points from the prior senior secured credit facility.

• In August 2011, the Company's Board of Directors (the "Board") authorized a new stock repurchase program for up to $500 million of its common stock.

Acquisitions

Consistent with the Company's historical acquisition strategy, to the extent the Company pursues future acquisitions, the Company intends to focus on businesses with product offerings that provide geographic or product diversification, or expansion into related categories that can be marketed through the Company's existing distribution channels or provide us with new distribution channels for its existing products, thereby increasing marketing and distribution efficiencies. Furthermore, the Company expects that acquisition candidates would demonstrate a combination of attractive margins, strong cash flow characteristics, category leading positions and products that generate recurring revenue. The Company anticipates that the fragmented nature of the consumer products market will continue to provide opportunities for growth through strategic acquisitions of complementary businesses. However, there can be no assurance that the Company will complete an acquisition in any given year or that any such acquisition will be significant or successful. The Company will only pursue a candidate when it is deemed to be fiscally prudent and that meets the Company's acquisition criteria. The Company anticipates that any future acquisitions would be financed through any combination of cash on hand, operating cash flow, availability under its existing credit facilities and new capital market offerings.


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2011 Activity

During 2011, the Company did not complete any significant acquisitions.

2010 Activity

On April 1, 2010, the Company acquired the Mapa Spontex Baby Care and Home Care businesses ("Mapa Spontex") of Total S.A. ("Total"), through the acquisition of certain of Total's subsidiaries for a Euro purchase price of approximately €200 million (approximately $275 million), subject to certain adjustments (the "Acquisition"). The total value of the transaction, including debt assumed and/or repaid, was approximately €305 million (approximately $415 million). Mapa Spontex is a global manufacturer and distributor of primarily baby care and home care products with leading market positions in Argentina, Brazil and Europe in the core categories it serves. Its baby care portfolio includes feeding bottles, soothers, teats and other infant accessories sold primarily under the Fiona ®, First Essentials®, Lillo®, NUK ® and Tigex® brands; and health care products, including condoms sold under the Billy Boy® brand. Its home care portfolio includes sponges, rubber gloves and related cleaning products for industrial, professional and retail uses sold primarily under the Mapa® and Spontex® brands. Mapa Spontex is reported in the Company's Branded Consumables segment and is included in the Company's results of operations from April 1, 2010 (the "Acquisition Date").

In addition, the Company completed three tuck-in acquisitions during 2010, including the acquisition of Aero Products International, Inc. ("Aero") on October 1, 2010 and the acquisition of Quickie Manufacturing Corporation ("Quickie") on December 17, 2010. Aero is a leading provider of premium, air-filled mattresses under brand names including Aero®, Aerobed® and Aero Sport®. The acquisition of Aero is expected to expand distribution channels, as well as expand the Company's current Coleman product offerings of indoor and outdoor air beds and accessories. Aero is reported in the Company's Outdoor Solutions segment and is included in the Company's results of operations from October 1, 2010. Quickie is a leading supplier and distributor of innovative cleaning tools and supplies. Quickie designs, manufactures and distributes cleaning products including mops, brooms, dusters, dust pans, brushes, buckets and other supplies for traditional in-home use, as well as commercial and contractor-grade applications, sold primarily under the leading brands Quickie Original®, Quickie Home-Pro ®, Quickie Professional®, Quickie Microban® and Quickie Green Cleaning®. Quickie is reported in the Company's Branded Consumables segment and is included in the Company's results of operations from December 17, 2010.

Additionally, during 2010, the Company completed another tuck-in acquisition. All three tuck-in acquisitions were complementary to the Company's core businesses and from an accounting standpoint were not significant.

As discussed hereinafter, the Company's results of operations for the three and nine months ended September 30, 2011 and 2010 have been affected in varying degrees by the inclusion of Mapa Spontex, Aero and Quickie from their respective acquisition dates of April 1, 2010, October 1, 2010 and December 17, 2010, respectively. Furthermore, during the second quarter of 2011, the integration of Aero into the operating results of the Company's existing Coleman business was to a large extent completed.

Venezuela Operations

In January 2010, the Venezuelan government announced its intention to devalue its currency (Bolivar) relative to the U.S. dollar. The official exchange rate for imported goods classified as essential, such as food and medicine, changed from 2.15 to 2.60 Bolivars per U.S. dollar, while payments for other non-essential goods moved to an official exchange rate of 4.30 Bolivars per U.S. dollar. As such, beginning in 2010, the financial statements of the Company's subsidiaries operating in Venezuela are remeasured at and are reflected in the Company's consolidated financial statements at the official exchange rate of 4.30, which is the Company's expected settlement rate.

As a result of the change in the official exchange rate, the results of operations for the nine months ended September 30, 2010 include a non-cash charge of $21.5 million, primarily reflecting the write-down of monetary assets as of January 1, 2010. This charge is classified in selling, general and administrative costs ("SG&A").

In March 2010, the SEC provided guidance on certain exchange rate issues specific to Venezuela. This SEC guidance, in part, requires that any differences between the amounts reported for financial reporting purposes and actual U.S. dollar-denominated balances that may have existed prior to the application of the highly inflationary accounting requirements (effective January 1, 2010 for the Company) should be recognized in the statement of operations. As a result of applying this SEC guidance, the results of operations for the nine months ended September 30, 2010 include a non-cash charge of $56.6 million related to remeasuring U.S. dollar-denominated assets at the parallel exchange rate and subsequently translating at the official exchange rate. This charge is classified in SG&A.

The transfers of funds out of Venezuela are subject to restrictions, and historically payments for certain imported goods and services have been required to be transacted by exchanging Bolivars for U.S. dollars through securities transactions in the more unfavorable parallel market rather than at the more favorable official exchange rate. During the third quarter of 2010, the parallel market was


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discontinued and replaced with the newly created and government regulated System of Transactions in Foreign Currency Denominated Securities ("SITME") market. Historically, the majority of the Company's purchases have qualified for the official exchange rate. As such, the Company has been able to convert Bolivars at the official exchange rate and, based upon this ability, the Company does not expect further changes in the SITME market to have a material impact on the consolidated financial position, results of operations or cash flows of the Company. While the timing of government approval for settlement of payables at the official rate varies, the Company believes these payables will ultimately be approved and settled at the official exchange rate based on past experience. However, if in the future, further restrictions require the Company's subsidiaries operating in Venezuela to convert an increasing amount of the Bolivar cash balances into U.S. dollars using the more unfavorable exchange rate, it could result in currency exchange losses that may be material to the Company's results of operations. At September 30, 2011, the Company's subsidiaries operating in Venezuela have approximately $14 million in cash denominated in U.S. dollars and cash of approximately $40 million held in Bolivars converted at the official exchange rate.

Results of Operations-Comparing 2011 to 2010

Three Months Ended September 30, 2011 versus the Three Months Ended
September 30, 2010



                                                                  Operating Earnings
                                        Net Sales                       (Loss)
                                    Three months ended           Three months  ended
                                      September 30,                 September 30,
     (in millions)                 2011           2010            2011           2010
     Outdoor Solutions           $   707.3      $   604.7      $     83.7       $  68.6
     Consumer Solutions              522.4          534.0            66.6          67.2
     Branded Consumables             477.8          393.0            58.2          50.8
     Process Solutions                92.4           83.5             4.6           4.9
     Corporate                          -              -            (28.3 )       (15.4 )
     Intercompany eliminations       (15.2 )        (13.3 )            -             -

                                 $ 1,784.7      $ 1,601.9      $    184.8       $ 176.1

Net sales for the three months ended September 30, 2011 increased $183 million, or 11.4%, to $1.8 billion versus the same prior year period. The overall increase in net sales was primarily due to the impact of acquisitions (approximately $62 million), increased point of sale in certain product categories, expanded product offerings and favorable foreign currency translation of approximately $45 million, partially offset by weakness in certain product categories. Net sales in the Outdoor Solutions segment increased $103 million, or 17.0%, primarily as the result of increased sales in the Coleman business due to expanded air bed product offerings; increased sales in the apparel, fishing, team sports and winter sports businesses, which is primarily due to increased point of sale; and favorable foreign currency translation of approximately $25 million. Net sales in the Consumer Solutions segment decreased $11.6 million, or 2.2%, primarily due to declines in certain personal care and wellness categories, partially offset by increased demand internationally, primarily in Latin America, which is primarily due to gains in distribution. Net sales in the Branded Consumables segment increased $84.8 million, or 21.6%, which is mainly due to the contribution from acquisitions (approximately $41 million), increases in certain categories in the baby care and safety and security businesses and favorable foreign currency translation of approximately $16 million. Net sales in the Process Solutions segment increased 10.7% on a year-over-year basis, primarily due to increases in the zinc and plastics business, partially offset by decreases in military and marine antenna businesses.

Cost of sales increased $124 million, or 10.8%, to $1.3 billion for the three months ended September 30, 2011 versus the same prior year period. The increase is primarily due to the impact of acquisitions, increased sales and foreign currency translation of approximately $28 million. Cost of sales as a percentage of net sales for the three months ended September 30, 2011 and 2010 was 71.0% and 71.4%, respectively.

SG&A increased $44.9 million, or 16.0%, to $326 million for the three months ended September 30, 2011 versus the same prior year period. The increase is primarily due to the impact of acquisitions and foreign currency translation of approximately $10 million.

Operating earnings for the three months ended September 30, 2011 in the Outdoor Solutions segment increased $15.1 million, or 22.0%, versus the same prior year period primarily due to the gross margin impact of higher sales (approximately $46 million), partially offset by a $27.2 million increase in SG&A. Operating earnings for the three months ended September 30, 2011 in the Consumer Solutions segment decreased $0.6 million, or 0.9%, versus the same prior year period primarily due to the gross margin impact of lower sales ($2.3 million), partially offset by a decrease in SG&A. Operating earnings for the three months ended September 30, 2011 in the Branded Consumables segment increased $7.4 million, or 14.6%, versus the same prior year period primarily due to the impact of acquisitions. Operating earnings in the Process Solutions segment for the three months ended September 30, 2011 decreased $0.3 million, or 6.1%, versus the same prior year period as the negative gross margin impact of lower sales was mostly offset by a decrease in SG&A.


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Net interest expense decreased by $2.5 million to $43.7 million for the three months ended September 30, 2011 versus the same prior year period primarily due to a decrease in the weighted average interest rate for 2011 to 5.4% from 6.0% in 2010, partially offset by higher average debt levels.

The Company's reported tax rate for the three months ended September 30, 2011 and 2010 was approximately 35.6% and 37.9%, respectively. The reported tax rate for the three months ended September 30, 2011 approximates the Company's statutory rate as U.S tax expense ($1.8 million) related to the taxation of foreign income was mostly offset by a decrease in tax expense related to the release of a foreign valuation allowance and other items. The increase from the statutory tax rate to the reported tax rate for the three months ended September 30, 2010 results principally from the tax expense ($0.8 million) due to non-deductible charges primarily related to the currency devaluation in Venezuela (see "Venezuela Operations").

Net income for the three months ended September 30, 2011 increased $10.1 million to $90.7 million versus the same prior year period. For the three months ended September 30, 2011 and 2010, earnings per diluted share were $1.03 and $0.90, respectively. The increase in net income was primarily due to incremental earnings from acquisitions and the gross margin impact of higher sales.

Nine Months Ended September 30, 2011 versus the Nine Months Ended September 30, 2010

                                                                  Operating Earnings
                                         Net Sales                      (Loss)
                                     Nine months ended             Nine months ended
                                       September 30,                 September 30,
      (in millions)                 2011           2010           2011           2010
      Outdoor Solutions           $ 2,157.6      $ 1,914.7      $   237.3      $  206.2
      Consumer Solutions            1,258.4        1,252.5          149.5         143.1
      Branded Consumables           1,297.9          946.9          130.7          65.0
      Process Solutions               273.7          265.2           18.0          19.5
      Corporate                          -              -           (97.1 )      (167.0 )
      Intercompany eliminations       (45.7 )        (40.8 )           -             -

                                  $ 4,941.9      $ 4,338.5      $   438.4      $  266.8

Net sales for the nine months ended September 30, 2011 increased $603 million, or 13.9%, to $4.9 billion versus the same prior year period. The overall increase in net sales was primarily due to the impact of acquisitions (approximately $373 million), increased point of sale in certain product categories, expanded product offerings and favorable foreign currency translation of approximately $111 million, partially offset by weakness in certain product categories, primarily related to unfavorable weather conditions. Net sales in the Outdoor Solutions segment increased $243 million, or 12.7%, primarily as the result of increased sales in the Coleman business due to expanded air bed product offerings, increased point of sale and earthquake-related sales; increased sales in the apparel, team sports and winter sports businesses, which is primarily due to increased point of sale; and favorable foreign currency translation of approximately $62 million. Net sales in the Consumer Solutions segment increased $5.9 million, or 0.5%, primarily as the result of increased demand internationally, primarily in Latin America, which is primarily due to gains in distribution, partially offset by declines in certain appliance and personal care and wellness categories. Net sales in the Branded Consumables segment increased $351 million, or 37.1%, which is mainly due to the contribution from acquisitions (approximately $304 million), increases in certain categories in the baby care and safety and security businesses and favorable foreign currency translation of approximately $35 million, partially offset by softness in firelog and playing card sales, as well as softness in food preservation sales, which were negatively affected by unfavorable weather conditions. Net sales in the Process Solutions segment increased 3.2% on a year-over-year basis primarily due to an increase in coinage sales.

Cost of sales increased $386 million, or 12.2%, to $3.6 billion for the nine months ended September 30, 2011 versus the same prior year period. The increase is primarily due to the impact of acquisitions (approximately $265 million), foreign currency translation (approximately $73 million) and increased sales, partially offset by an $18.4 million period-over-period decrease in the charge recorded for the purchase accounting adjustment for the elimination of manufacturer's profit in inventory. Cost of sales as a percentage of net sales for the nine months ended September 30, 2011 and 2010 was 71.7% and 72.8%, respectively (71.6% and 72.3% for the nine months ended September 30, 2011 and . . .

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