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JAH > SEC Filings for JAH > Form 10-Q on 5-Nov-2012All Recent SEC Filings

Show all filings for JARDEN CORP

Form 10-Q for JARDEN CORP


5-Nov-2012

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 anticipated, estimated or projected results. 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 the Company makes 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, 2011 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 consisting of 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, 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 home environment products. This segment maintains a strong portfolio of globally-recognized brands including Bionaire®, Breville®, Crock-Pot ®, FoodSaver®, Health o meter®, Holmes®, Mr. Coffee®, Oster®, Patton ®, Rival®, Seal-a-Meal®, Sunbeam ®, skybar® 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; home environment products, such as air purifiers, fans, heaters and humidifiers; 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 our products under the Aviator®, Ball®, Bee®, Bernardin ®, Bicycle®, Billy Boy®, BRK ®, Crawford®, Diamond®, Dicon ®, Fiona®, First Alert®, First Essentials®, Hoyle®, Java-Log®, KEM ®, Kerr®, Lehigh®, 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 2012 Activities

• In February 2012, the Company entered into an amendment to and borrowed $300 million under its senior secured credit facility (the "Facility"), which is comprised of $150 million under its existing senior secured term loan A facility and $150 million under its existing senior secured term loan B facility.

• In February 2012, the Company entered into an amendment to its securitization facility that, in part, increased maximum borrowings from $300 million to $400 million and extended the maturity date from May 2014 until February 2015.

• In March 2012, the Company repurchased approximately 12.1 million shares of its common stock for a total purchase price of approximately $435 million under its accelerated stock repurchase program (see "Capital Resources").

• In September 2012, the Company completed a private offering for the sale of $500 million aggregate principal amount of 1 7/8% senior subordinated convertible notes due 2018 (the "Convertible Notes") to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") and received net proceeds of approximately $487 million, after deducting fees and expenses.

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 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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2012 Activity

During 2012, the Company completed two tuck-in acquisitions that by nature were complementary to the Company's core businesses and from an accounting standpoint were not significant.

2011 Activity

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

Venezuela Operations

The Company's subsidiaries operating in Venezuela are considered under generally accepted accounting principles in the United States of America ("GAAP") to be operating in a highly inflationary economy. As such, the Company's financial statements of its subsidiaries operating in Venezuela are remeasured as if their functional currency were the U.S. dollar and gains and losses resulting from the remeasurement of monetary assets and liabilities are reflected in current earnings. 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 Bolivars per U.S. dollar, which is the Company's expected settlement rate.

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 government-regulated markets at exchange rates that are more unfavorable than the official exchange rate of 4.30 Bolivars per U.S. dollar. The current foreign currency exchange system is the 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 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 exchange 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, 2012, the Company's subsidiaries operating in Venezuela have approximately $15 million in cash denominated in U.S. dollars and cash of approximately $57 million denominated in Bolivars converted at the official exchange rate.

Results of Operations-Comparing 2012 to 2011



                                                                  Operating Earnings
                                         Net Sales                      (Loss)
                                     Three months ended           Three months ended
                                       September 30,                 September 30,
      (in millions)                 2012           2011           2012           2011
      Outdoor Solutions           $   657.6      $   707.3      $    66.4       $  83.7
      Consumer Solutions              509.6          522.4           64.0          66.6
      Branded Consumables             459.0          477.8           60.1          58.2
      Process Solutions                97.6           92.4            9.9           4.6
      Corporate                          -              -           (31.6 )       (28.3 )
      Intercompany eliminations       (17.9 )        (15.2 )           -             -

                                  $ 1,705.9      $ 1,784.7      $   168.8       $ 184.8

Note: Changes in net sales on a currency-neutral basis that are presented hereafter are provided to enhance visibility of the underlying operations by excluding the impact of foreign currency translation.

Three Months Ended September 30, 2012 versus the Three Months Ended September 30, 2011

Net sales for three months ended September 30, 2012 decreased $78.8 million, or 4.4%, to $1.7 billion versus the same period in the prior year. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 3%. Excluding the impact of certain exited product categories and acquisitions, net sales on a currency-neutral basis decreased 1.8%, primarily due to weakness in certain product categories, the timing of seasonal sales in certain categories and decreased demand in Europe due to unfavorable economic conditions, partially offset by increased demand internationally in certain categories, primarily in Latin America.

Net sales in the Outdoor Solutions segment decreased $49.7 million, or 7.0%. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 3%. Excluding the impact of certain exited product categories and acquisitions, net sales on a currency-neutral basis decreased approximately 3%, largely due to decreased sales on a currency-neutral basis in the winter sports and outdoor businesses of approximately 5%, primarily due to decreased sales in the winter sports business following the mild winter from 2011/2012, decreased demand in Europe due to unfavorable economic conditions and domestically lower reorders of seasonal items, partially offset by an approximate 2% increase in net sales on a currency-neutral basis in the team sports and technical apparel businesses, largely related to expanded product offerings and increased point of sale.


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Net sales in the Consumer Solutions segment decreased $12.8 million, or 2.5%. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 1%. Excluding the net favorable impact of certain exited product categories and acquisitions (approximately 2%), net sales on a currency-neutral basis decreased by approximately 4%. The decrease is primarily due to a decrease in domestic net sales of approximately 8%, primarily as a result of reduced inventory reorders in the mass channel at retail; partially offset by increased demand internationally, primarily in Latin America which contributed to an increase in net sales of approximately 5%, primarily due to increased point of sale, expanded distribution and new product offerings.

Net sales in the Branded Consumables segment decreased $18.8 million, or 3.9%. Unfavorable foreign currency translation accounted for a decrease of approximately 4% in net sales. Net sales on a currency-neutral basis were essentially flat on a period-over-period basis as increased sales in the baby care and home care businesses, which provided an increase in net sales of approximately 1% were offset by a decline in the safety and security business due to higher regulatory sales in 2011.

Net sales in the Process Solutions segment increased 5.6% on a period-over-period basis, primarily due to an increase in coinage and monofilament sales.

Cost of Sales

Cost of sales decreased $62.8 million, or 5.0%, to $1.2 billion for the three months ended September 30, 2012 versus the same prior year period. The decrease is primarily due to foreign currency translation (approximately $30 million) and approximately $30 million related to the net impact on cost of sales of lower sales, partially offset by improved margins, primarily driven by manufacturing improvement projects, stable commodity prices and new products and product mix. Cost of sales as a percentage of net sales for the three months ended September 30, 2012 and 2011 was 70.6% and 71.0%, respectively.

Selling, General and Administrative Costs

Selling, general and administrative costs ("SG&A") decreased $3.1 million, or 1.0%, to $323 million for the three months ended September 30, 2012 versus the same prior year period. The change is primarily due to favorable foreign currency translation (approximately $10 million), partially offset by approximately $9 million in acquisition-related and other costs.

Reorganization Costs

For the three and nine months ended September 30, 2012, reorganization costs were $9.3 million and relate to a plan initiated in the Outdoor Solutions segment to reorganize certain manufacturing facilities in the Far East within the winter sport business. For the three and nine months ended September 30, 2011, reorganization costs were $6.2 million, primarily related to reorganization plans initiated in the Outdoor Solutions and Branded Consumables segments. Reorganization costs of $3.8 million were recorded in the Outdoor Solutions segment related to a plan to consolidate certain international manufacturing processes and a plan to rationalize the overall cost structure of this segment through headcount reductions. Reorganization costs of $2.4 million were recorded in the Branded Consumables segment related to a plan to consolidate certain distribution and manufacturing processes though headcount reduction and facility consolidation and a plan to rationalize the overall cost structure of this segment through headcount reduction.

Operating Earnings

Operating earnings for the three months ended September 30, 2012 in the Outdoor Solutions segment decreased $17.3 million, or 20.7%, versus the same prior year period, primarily due to a gross profit decrease (approximately $28 million), primarily due to the gross margin impact of lower sales and the impact of the fair market value adjustments to inventory related to the tuck-in acquisitions; and an increase in reorganization costs (approximately $6 million), partially offset by a decrease in SG&A (approximately $16 million). Operating earnings for the three months ended September 30, 2012 in the Consumer Solutions segment decreased $2.6 million, or 3.9%, versus the same prior year period, primarily due to an increase in SG&A (approximately $6 million), partially offset by a gross profit increase (approximately $3 million). Operating earnings for the three months ended September 30, 2012 in the Branded Consumables segment increased $1.9 million, or 3.3%, versus the same prior year period, primarily due to a slight decrease in net operating expenses. Operating earnings in the Process Solutions segment for the three months ended September 30, 2012 increased $5.3 million, or 115%, versus the same prior year period, primarily due to an increase in gross profit (approximately $7 million), primarily due to improved margins.

Interest Expense

Net interest increased by $2.4 million to $46.1 million for the three months ended September 30, 2012 versus the same prior year period primarily due to higher average debt levels, partially offset by a decrease in the weighted average interest rate for 2012 to 5.1% from 5.4% in 2011.


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Income Taxes

The Company's reported tax rate for the three months ended September 30, 2012 and 2011 was 37.3 % and 35.6%, respectively. The increase from the statutory tax rate to the reported tax rate for the three months ended September 30, 2012 results principally from tax expense related to certain foreign tax audit adjustments. The reported tax rate for the three months ended September 30, 2011 approximates the Company's statutory rate as the U.S. tax expense 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.

Net Income

Net income for the three months ended September 30, 2012 decreased $13.8 million to $76.9 million versus the same prior year period. For the three months ended September 30, 2012 and 2011, earnings per diluted share were $1.00 and $1.03, respectively. The decrease in net income was primarily due to a gross profit decrease (approximately $16 million), primarily due to lower sales, partially offset by increased margins. On a period-over-period basis, the diluted weighted average shares outstanding decreased approximately 12%, primarily due to the Company's accelerated stock repurchase program (see "Capital Resources").

Nine months Ended September 30, 2012 versus the Nine months Ended September 30, 2011

                                                                  Operating Earnings
                                          Net Sales                     (Loss)
                                      Nine months ended            Nine months ended
                                        September 30,                September 30,
       (in millions)                 2012           2011          2012           2011
       Outdoor Solutions           $ 2,075.0      $ 2,157.6     $   209.5       $ 237.3
       Consumer Solutions            1,260.5        1,258.4         145.3         149.5
       Branded Consumables           1,300.7        1,297.9         157.8         130.7
       Process Solutions               292.7          273.7          29.6          18.0
       Corporate                          -              -          (95.5 )       (97.1 )
       Intercompany eliminations       (52.0 )        (45.7 )          -             -

                                   $ 4,876.9      $ 4,941.9     $   446.7       $ 438.4

Note: Changes in net sales on a currency-neutral basis that are presented hereafter are provided to enhance visibility of the underlying operations by excluding the impact of foreign currency translation.

Net sales for the nine months ended September 30, 2012 decreased $65.0 million, or 1.3%, to $4.9 billion versus the same period in the prior year. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%. Excluding the impact of certain exited product categories and acquisitions, net sales on a currency-neutral basis increased 1.5%, primarily due to increased sell-through in certain categories and expanded product offerings, partially offset by weakness in certain product categories and the timing of seasonal sales in certain categories.

Net sales in the Outdoor Solutions segment decreased $82.6 million, or 3.8%. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%. Excluding the net unfavorable impact of certain exited product categories and acquisitions (approximately 2%), net sales on a currency-neutral basis were essentially flat on a period-over-period basis as increased sales on a currency-neutral basis in the fishing and technical apparel businesses, which provided an increase in net sales of approximately 2%, largely related to expanded product offerings, increased point of sale and favorable weather conditions in North America were offset by a decrease in net sales on a currency-neutral basis in the camping and outdoor, team sports and winter sports businesses, primarily due to weakness in certain product categories, decreased demand in Europe due to unfavorable economic conditions and the absence of higher tsunami-related sales recorded in the second quarter of 2011, combined with softness in the winter sports business, which was negatively affected by unfavorable winter weather conditions.

Net sales in the Consumer Solutions segment increased $2.1 million, or 0.2%. On a currency-neutral basis, net sales increased by approximately 1%. The increase is primarily due to increased demand internationally, primarily in Latin America, which accounted for an increase in net sales of approximately 4%, primarily due to increased point of sale, expanded distribution and new product offerings; partially offset by a decrease in domestic net sales, which accounted for a decrease in net sales of approximately 3%, due to weakness in certain product categories and reduced inventory reorders in the mass channel at retail.


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Net sales in the Branded Consumables segment increased $2.8 million, or 0.2%. . . .

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