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JAH > SEC Filings for JAH > Form 10-Q on 8-Nov-2013All Recent SEC Filings

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Form 10-Q for JARDEN CORP


8-Nov-2013

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 the Company makes on related subjects in its 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 fiscal year ended December 31, 2012 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, 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®. The Outdoor Solutions Segment also sells a variety of products sold internationally under brand names such as Campingaz®, Esky®, Greys®, Hardy® and Invicta®.


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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®, 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 Consumer Solutions segment also has rights to sell various small appliance products in substantially all of Europe under the Breville® brand name.

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®, Hoyle®, Java-Log®, KEM®, Kerr®, Lehigh®, Lifoam®, 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 2013 Activities

• On October 3, 2013, the Company acquired Yankee Candle Investments LLC ("Yankee Candle"), a leading specialty-branded premium scented candle company.

• On October 3, 2013, the Company entered into an amendment to its senior secured credit facility (the "Facility") which resulted in, among other things, the Company borrowing an additional $750 million (see "Capital Resources").

• In September 2013, pursuant to a public offering of its common stock, the Company completed an equity offering of 16.5 million newly-issued shares of common stock at $47.00 per share. The net proceeds to the Company, after the payment of underwriting discounts and other expenses of the offering, were approximately $745 million. The proceeds were used to fund a portion of the acquisition of Yankee Candle.

• In June 2013, the Company completed a private offering for the sale of $265 million aggregate principal amount of 1 1/2% senior subordinated convertible notes due 2019 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 $259 million, after deducting fees and expenses.

• On March 18, 2013, the Company consummated a 3-for-2 stock split in the form of a stock dividend of one additional share of common stock for every two shares of common stock. The Company retained the current par value of $0.01 per share for all common shares. All references to the number of shares outstanding, issued shares, per share amounts and restricted stock and stock option data of the Company's common shares have been restated to reflect the effect of the stock split for all periods presented in the Company's accompanying condensed consolidated financial statements and footnotes thereto. Stockholders' equity reflects the effect of the stock split by reclassifying from additional paid-in capital to common stock, an amount equal to the par value of the additional shares resulting from the stock split.

• In March 2013, the Company commenced a cash tender offer (the "Tender Offer") to purchase any and all of the outstanding principal amount of its 8% Senior Notes due 2016 (the "Notes"). In March 2013, pursuant to the Tender Offer, the Company repurchased approximately $168 million aggregate principal amount of the Notes for total consideration, excluding accrued interest, of $176 million. The remaining $132 million aggregate principal amount of the Notes was repurchased on May 1, 2013 for total consideration, excluding accrued interest, of $137 million (the "Redemption").


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• In March 2013, the Company entered into an amendment to the Facility, which resulted in, among other things, lowering the spread on the term loan A and term loan B facilities and the Company borrowing an additional $250 million under the existing senior secured term loan A portion of the Facility (see "Capital Resources").

• In February 2013, the Company's Board of Directors (the "Board") authorized an increase in the then available amount under the Company's existing stock repurchase program (the "Stock Repurchase Program") to allow for the repurchase of up to $500 million in aggregate of the Company's common stock.

• On February 28, 2013, in conjunction with such increase and pursuant to the Stock Repurchase Program, the Company entered into accelerated stock repurchase agreements (collectively, the "ASR Agreement") to repurchase an aggregate of $250 million of its common stock (see "Capital Resources").

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 the Company 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.

2013 Activity

On October 3, 2013, the Company acquired Yankee Candle, a leading specialty-branded premium scented candle company (the "YCC Acquisition"). The total value of the YCC Acquisition, including debt assumed and/or repaid, was approximately $1.8 billion, subject to adjustment. The YCC Acquisition is expected to extend the Company's portfolio of market-leading, consumer brands in niche, seasonal staple categories, while creating opportunities in cross-selling and broadening the global distribution platform. The YCC Acquisition, which is expected to enhance the Company's overall margin profile, is consistent with the Company's disciplined acquisition criteria of purchasing leading, niche consumer-oriented brands with attractive cash flows and strong management. Yankee Candle will be reported in the Company's Branded Consumables segment and will be included in the Company's results of operations from October 3, 2013.

During 2013, the Company completed one tuck-in acquisition that by nature was complementary to the Company's core businesses and from an accounting standpoint was not significant.

2012 Activity

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

Venezuela Operations

On February 8, 2013, the Venezuelan government announced its intention to further devalue the Bolivar relative to the U.S. dollar. As a result of the devaluation, the official exchange rate changed to 6.30 Bolivars per U.S. dollar for imported goods. As such, beginning in February 2013, the financial statements of the Company's subsidiaries in Venezuela will be remeasured, and will be reflected in the Company's consolidated financial statements, at the official exchange rate of 6.30 Bolivars per U.S. dollar. The higher official exchange rate will negatively impact the ongoing revenue and operating profit for the Company's Venezuela operations. During the nine months ended September 30, 2013, the Company recorded $29.0 million of devaluation-related charges related to its Venezuela operations, which are almost entirely comprised of a non-cash charge related to the write-down of monetary assets due to the change in the official exchange rate. These charges are included in selling, general and administrative expenses ("SG&A").

Translating the results of operations for the Venezuela subsidiaries in 2012 using the 6.30 Bolivars per U.S. dollar official exchange rate versus the actual official exchange rate in effect during 2012 of 4.30 Bolivars per U.S. dollar, would have reduced the Company's 2012 consolidated net sales by less than 1%. At September 30, 2013, the Company's subsidiaries operating in Venezuela have approximately $15 million in cash denominated in U.S. dollars and cash of approximately $59 million held in Bolivars converted at the official exchange rate. There are currency exchange controls in Venezuela which limit the ability of the Company's subsidiaries in Venezuelan to distribute or transfer U.S. dollars outside Venezuela.


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Results of Operations-Comparing 2013 to 2012



                                                                  Operating Earnings
                                         Net Sales                      (Loss)
                                     Three months ended           Three months ended
                                       September 30,                 September 30,
      (in millions)                 2013           2012           2013           2012
      Outdoor Solutions           $   670.6      $   657.6      $    66.9       $  66.4
      Consumer Solutions              537.4          509.6           71.2          64.0
      Branded Consumables             511.1          459.0           74.9          60.1
      Process Solutions               102.4           97.6            8.7           9.9
      Corporate                          -              -           (27.4 )       (31.6 )
      Intercompany eliminations       (20.7 )        (17.9 )           -             -

                                  $ 1,800.8      $ 1,705.9      $   194.3       $ 168.8

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, 2013 versus the Three Months Ended September 30, 2012

Net sales for the three months ended September 30, 2013 increased $94.9 million, or 5.6%, to $1.8 billion versus the same period in the prior year. Excluding the impact of acquisitions (approximately 2%), net sales on a currency-neutral basis increased approximately 6%, primarily due to increased sell-through in certain product categories, expanded product offerings and increased demand internationally in certain product categories, partially offset by weakness in certain product categories. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%.

Net sales in the Outdoor Solutions segment increased $13.0 million, or 2.0%. Net sales on a currency-neutral basis increased approximately 4%, primarily due to increased sales in the camping and outdoor, fishing and team sports businesses, which provided an increase in net sales of approximately 6%, largely related to expanded product offerings, increased point of sale and distribution for certain products, increased demand internationally in certain product categories, primarily in Europe and Latin America and increased inventory reorders at certain mass market retailers, partially offset by decreased sales in certain other businesses, primarily the winter sports business, largely due to lower seasonal demand. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%.

Net sales in the Consumer Solutions segment increased $27.8 million, or 5.5%. Excluding the impact of acquisitions (approximately 1%), net sales on a currency-neutral basis increased approximately 7%. The increase is primarily due to 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, improved product distribution and successful pricing strategies and an increase of approximately 2% in domestic net sales, primarily due to an increase in sales in certain personal care and wellness categories. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 3%.

Net sales in the Branded Consumables segment increased $52.1 million, or 11.4%. Excluding the impact of acquisitions (approximately 5%), net sales on a currency-neutral basis increased approximately 6%, primarily due to increased sales in the baby care, home care, leisure and entertainment and safety and security businesses, largely related to increased sales in the food preservation category, primarily due to increased point of sale, as well as increased sales in certain products in the safety and security category in part due to increased demand at certain mass market retailers.

Net sales in the Process Solutions segment increased 4.9% on a period-over-period basis, primarily due to increased coinage sales.

Cost of Sales

Cost of sales increased $72.7 million, or 6.0%, to $1.3 billion for three months ended September 30, 2013 versus the same prior year period. The increase is primarily due to the cost of sales impact of higher net sales (approximately $87 million), partially offset by foreign currency translation (approximately $19 million). Cost of sales as a percentage of net sales for the three months ended September 30, 2013 and 2012 was 70.9% and 70.6%, respectively.

Selling, General And Administrative Costs

SG&A increased $3.0 million, or 0.9%, to $326 million for the three months ended September 30, 2013 versus the same prior year period. The impact of an increase in marketing and product development costs (approximately $10 million) related to the Company's investment in brand equity and the impact of acquisitions (approximately $8 million) was mostly offset by other items, including favorable foreign currency translation of approximately $5 million.


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Operating Earnings

Operating earnings for the three months ended September 30, 2013 in the Outdoor Solutions segment increased $0.5 million, or 0.8%, versus the same prior year period, primarily due to a decrease in reorganization costs (approximately $8 million), partially offset by an increase in SG&A (approximately $3 million) and a decrease in gross margin (approximately $4 million), primarily due to slightly lower gross margins, net of the gross margin impact of higher sales. Operating earnings for the three months ended September 30, 2013 in the Consumer Solutions segment increased $7.2 million, or 11.3%, versus the same prior year period, primarily due to a gross profit increase (approximately $10 million), driven by the gross margin impact of higher sales, partially offset by an increase in reorganization costs (approximately $2 million). Operating earnings for the three months ended September 30, 2013 in the Branded Consumables segment increased $14.8 million, or 24.6%, versus the same prior year period, primarily due to an increase in gross profit (approximately $18 million), mostly due to the gross margin impact of higher sales, partially offset by an increase in SG&A (approximately $3 million). Operating earnings in the Process Solutions segment for the three months ended September 30, 2013 decreased $1.2 million, or 12.1%, versus the same prior year period, primarily due to a decrease in gross profit, in part due to slightly lower gross margins.

Interest Expense

Net interest increased $1.4 million to $47.5 million for the three months ended September 30, 2013 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 2013 to 4.3% from 5.1% in 2012.

Income Taxes

The Company's reported tax rate for the three months ended September 30, 2013 and 2012 was 35.4% and 37.3%, respectively. The difference from the statutory tax rate to the reported tax rate for the three months ended September 30, 2013 results principally from U.S. tax expense recognized on transaction-related costs ($1.3 million). 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.

Net Income

Net income for the three months ended September 30, 2013 increased $18.0 million to $94.9 million versus the same prior year period. For the three months ended September 30, 2013 and 2012, earnings per diluted share were $0.85 and $0.66, respectively. The increase in net income was primarily due to the gross margin impact of higher sales and a decrease in reorganization costs ($6.3 million).

Nine Months Ended September 30, 2013 versus the Nine Months Ended September 30, 2012

                                                                  Operating Earnings
                                         Net Sales                      (Loss)
                                     Nine months ended             Nine months ended
                                       September 30,                 September 30,
      (in millions)                 2013           2012            2013          2012
      Outdoor Solutions           $ 2,106.6      $ 2,075.0      $    198.0      $ 209.5
      Consumer Solutions            1,343.2        1,260.5           161.3        145.3
      Branded Consumables           1,443.1        1,300.7           179.5        157.8
      Process Solutions               307.2          292.7            34.7         29.6
      Corporate                          -              -           (143.1 )      (95.5 )
      Intercompany eliminations       (59.8 )        (52.0 )            -            -

                                  $ 5,140.3      $ 4,876.9      $    430.4      $ 446.7

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, 2013 increased $263 million, or 5.4%, to $5.1 billion versus the same period in the prior year. Excluding the impact of acquisitions (approximately 2%), net sales on a currency-neutral basis increased approximately 5%, primarily due to increased sell-through in certain product categories, expanded product offerings and increased demand internationally in certain product categories, partially offset by weakness in certain product categories and decreased demand in Europe due to unfavorable economic conditions. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%.


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Net sales in the Outdoor Solutions segment increased $31.6 million, or 1.5%. Net sales on a currency-neutral basis increased approximately 3%, primarily due to . . .

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