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JAH > SEC Filings for JAH > Form 10-K on 3-Mar-2014All Recent SEC Filings

Show all filings for JARDEN CORP

Form 10-K for JARDEN CORP


3-Mar-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of financial condition and results of operations of Jarden Corporation and its subsidiaries (hereinafter referred to as the "Company" or "Jarden") should be read together with the consolidated financial statements and notes to those statements included in Item 8 of Part II of this Annual Report on Form 10-K. Unless otherwise indicated, references in the following discussion to 2013, 2012 and 2011 are to Jarden's fiscal years ended December 31, 2013, 2012 and 2011, respectively.

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 majority of the Company's sales are 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 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 the AeroBed® brand. The Outdoor Solutions Segment also sells a variety of products sold internationally under brand names such as brands such as Campingaz®, Esky®Greys®, Hardy® and Invicta®.

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® and Villaware®. The principal products in this segment include:
household kitchen appliances, such as blenders, coffeemakers, irons, mixers, slow cookers, tea kettles, toasters, toaster ovens and vacuum packaging machines; home environmental products, such as air purifiers, fans, heaters and humidifiers; clippers, trimmers and other hair care products for professional use in the beauty and barber and animal categories; electric blankets, mattress pads and throws; products for the hospitality industry; and scales for consumer use. The Consumer Solutions segment also has rights to sell various small appliance products, primarily in substantially all of Europe under the Breville® brand name.


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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, air fresheners, brooms, brushes, buckets, candles, children's card games, clothespins, collectible tins, condoms, cord, rope and twine, dusters, dust pans, feeding bottles, fencing, fire extinguishing products, firelogs and firestarters, foam coolers, fresh preserving jars and accessories, home décor accessories, home fragrance products, kitchen matches, mops, other craft items, pacifiers, plastic cutlery, playing cards and accessories, rubber gloves and related cleaning products, safes, premium scented candles and accessories, security cameras, security doors, smoke and carbon monoxide alarms, soothers, sponges, storage organizers and workshop accessories, teats, toothpicks, travel sprays, 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®, Lifoam®, Lillo®, Loew-Cornell®, Mapa®, NUK®, Pine Mountain®, ProPak®, Quickie Green Cleaning®, Quickie Home-Pro®, Quickie Microban®, Quickie Original®, Quickie Professional®, Spontex®, Tigex®, Wellington® and Yankee Candle® 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 net 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 (the "2019 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 $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 share of common stock. 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 stock 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,


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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").

• 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 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 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.

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 was included in the Company's results of operations from October 3, 2013.

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.

2011 Activity

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


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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 operating in Venezuela are remeasured, and are reflected in the Company's consolidated financial statements, at the official exchange rate of 6.30 Bolivars per U.S. dollar. During 2013, the Company recorded $29.0 million of devaluation-related charges related to its Venezuela operations, which are almost entirely comprised of a 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").

Through December 31, 2013, the Venezuelan government had established one official exchange rate for qualifying dividends and imported goods and services. Transactions at the official exchange rate are subject to approval by the Venezuelan government's Foreign Exchange Administrative Commission ("CADIVI"). 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 6.30 Bolivars per U.S. dollar, which is the Company's expected settlement rate at December 31, 2013.

In March 2013, CADIVI established a new auction-based exchange rate market program, the Complementary System for Foreign Currency Administration ("SICAD"). Through December 31, 2013, the notional amount of transactions that have been processed through SICAD programs has been limited, which essentially eliminates the Company's ability to access any foreign exchange rate other than the official exchange rate.

On January, 24, 2014, the Venezuelan government announced that, effective immediately, dividends and royalties will be executed under the SICAD program. Dividends and royalties were previously executed at the official exchange rate of 6.30 Bolivars per U.S. dollar. The Company expects to continue to use the official exchange rate for all transactions except dividends and royalties. The Company is evaluating the impact of this announcement to determine the potential charge that could result from remeasuring the Bolivar-denominated net monetary assets of the Company's Venezuela operations, as well as the ongoing operational and financial impact.

Translating the results of operations for the Companies subsidiaries operating in Venezuela 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 December 31, 2013, the Company's subsidiaries operating in Venezuela have approximately $15 million in cash denominated in U.S. dollars and cash of approximately $99 million held in Bolivars converted at the official exchange rate. The bolivar-denominated cash in Venezuela comprises substantially all of the net monetary assets of the Company's Venezuela operations. 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.

Consolidated Results of Operations

                                                               Years Ended December 31,
(in millions)                                             2013           2012           2011
Net sales                                               $ 7,355.9      $ 6,696.1      $ 6,679.9
Cost of sales                                             5,241.2        4,771.7        4,821.9

Gross profit                                              2,114.7        1,924.4        1,858.0
Selling, general and administrative expenses              1,519.8        1,320.5        1,259.2
Reorganization costs, net                                    22.0           27.1           23.4
Impairment of goodwill, intangibles and other assets           -              -            52.5

Operating earnings                                          572.9          576.8          522.9
Interest expense, net                                       195.4          185.3          179.7
Loss on early extinguishment of debt                         25.9             -            12.8

Income before taxes                                         351.6          391.5          330.4
Income tax provision                                        147.7          147.6          125.7

Net income                                              $   203.9      $   243.9      $   204.7


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Results of Operations - Comparing 2013 to 2012



                                                                  Operating Earnings
                                         Net Sales                      (Loss)
                                                Years Ended December 31,
      (in millions)                 2013           2012           2013           2012
      Outdoor Solutions           $ 2,724.4      $ 2,692.9      $   196.1      $  250.7
      Consumer Solutions            2,040.0        1,940.9          270.0         232.3
      Branded Consumables           2,266.6        1,753.1          253.5         209.0
      Process Solutions               403.6          377.1           40.4          33.6
      Corporate                          -              -          (187.1 )      (148.8 )
      Intercompany eliminations       (78.7 )        (67.9 )           -             -

                                  $ 7,355.9      $ 6,696.1      $   572.9      $  576.8

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 on period-over-period changes.

Net Sales

Net sales for 2013 increased $660 million, or 9.9%, to $7.4 billion versus the prior year. Excluding the impact of acquisitions (approximately 7%), net sales on a currency-neutral basis increased approximately 4%, primarily due to increased sell-through in certain product categories, expanded product offerings and increased demand internationally, primarily in Asia and Latin America, 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 $31.5 million, or 1.2%. Net sales on a currency-neutral basis increased approximately 3%, primarily due to increased sales in the camping and outdoor, fishing, technical apparel and winter sports businesses, which provided an increase in net sales of approximately 3%, largely related to new and expanded product offerings, increased point of sale and distribution for certain products and increase sales in certain international markets, primarily in Asia. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 2%.

Net sales in the Consumer Solutions segment increased $99.1 million, or 5.1%. Excluding the impact of acquisitions (approximately 2%), net sales on a currency-neutral basis increased approximately 6%. The increase is primarily due to increased demand internationally, primarily in Latin America, which contributed to an increase in net sales of approximately 6%, primarily due to increased point of sale, improved product distribution and successful pricing strategies. Net sales domestically increased slightly on a year-over-year basis, as an increase in sales in certain home environment categories was partially offset by a decline in sales in certain small appliance categories. Unfavorable foreign currency translation accounted for a decrease of approximately 3% in net sales.

Net sales in the Branded Consumables segment increased $514 million, or 29.3%. Excluding the impact of acquisitions (approximately 25%), net sales on a currency-neutral basis increased approximately 4%, primarily due to increased sales in the baby care, home care and leisure and entertainment businesses, largely related to increased sales in certain product categories, including the food preservation category, primarily due to favorable weather conditions and increased point of sale; certain products in the safety and security category in part due to increased demand at certain mass market retailers; and the firelog category, primarily due to more favorable weather conditions in 2013 versus the prior year.

Net sales in the Process Solutions segment increased 7% on a period-over-period basis, primarily due to increased sales within each of its business units.


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Cost of Sales

Cost of sales for 2013 increased $470 million, or 9.8%, to $5.2 billion versus the prior year. The increase was primarily due to the impact of acquisitions (approximately $240 million), increased sales (approximately $210 million) and the inclusion of a $89.8 million charge recorded in 2013, related to a purchase accounting adjustment, primarily due to the YCC Acquisition, for the elimination of manufacturer's profit in inventory, partially offset by foreign currency translation (approximately $80 million). Cost of sales as a percentage of net sales for 2013 and 2012 was 71.3% and 71.3%, respectively (70.0% for 2013 excluding the charge for the elimination of manufacturer's profit in inventory).

Selling, General And Administrative Costs

SG&A for 2013 increased $199 million, or 15.1%, to $1.5 billion versus the prior year. The change is primarily due to the impact of acquisitions (approximately $128 million), an increase in stock-based compensation (approximately $29 million) and an increase in marketing and product development costs (approximately $20 million) related to the Company's investment in brand equity. The Venezuela devaluation-related charges (approximately $29 million) were mostly offset by a net gain on the sale of certain assets (approximately $21 million). Favorable foreign currency translation (approximately $25 million) was essentially offset by other items.

Operating Earnings

Operating earnings for 2013 in the Outdoor Solutions segment decreased $54.6 million, or 21.8%, versus the prior year, primarily due to an increase in SG&A (approximately $34 million) and a decrease in gross profit (approximately $21 million), primarily due to slightly lower gross margins, net of the gross margin impact of higher sales. Operating earnings for 2013 in the Consumer Solutions segment increased $37.7 million, or 16.2%, versus the same prior year period, primarily due to a gross profit increase (approximately $41 million), primarily due to the gross margin impact of higher sales and improved gross margins and a decrease in reorganization costs (approximately $11 million), partially offset by an increase in SG&A ($14 million). Operating earnings for 2013 in the Branded Consumables segment increased $44.5 million, or 21.2%, versus the same prior year period, primarily due to the YCC Acquisition; and an increase in gross profit (approximately $39 million), in part due to the gross margin impact of higher sales; partially offset by the purchase accounting adjustment for the elimination of manufacturer's profit in inventory (approximately $82 million), primarily due to the YCC Acquisition; an increase in reorganization costs (approximately $7 million) and an increase in SG&A (approximately $16 million) excluding the impact of the YCC Acquisition. Operating earnings in the Process Solutions segment for 2013 increased $6.8 million, or 20.2%, versus the same prior year period, primarily due to an increase in gross profit, due to higher sales and improved gross margins.

Reorganization Costs and Impairment Charges

Reorganization costs for 2013 decreased $5.1 million to $22.0 million versus the prior year, primarily related to reorganization plans initiated in the Outdoor Solutions, Consumer Solutions and Branded Consumables segments to rationalize certain international operating processes, primarily through headcount reductions. Reorganization costs of $11.7 million, $3.3 million and $7.0 million were recorded in the Outdoor Solutions, Consumer Solutions and Branded Consumables segments, respectively.

Interest Expense

Net interest for 2013 increased $10.1 million to $195 million versus the prior year, primarily due to higher average debt levels, partially offset by a decrease in the weighted average interest rate for 2013 to 4.4% from 5.2% in 2012.


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Income Taxes

The Company's reported tax rate for the 2013 and 2012 was 42.1% and 37.7%, respectively. The difference from the statutory tax rate to the reported tax rate for 2013 results principally due to the currency devaluation in Venezuela and from the translation of U.S. dollar denominated net assets in Venezuela and the tax effects of non-deductible compensation expense. The increase from the statutory tax rate to the reported tax rate for 2012 results principally from U.S. tax expense related to the taxation of foreign income and tax expense related to foreign tax audit adjustments.

Net Income

Net income for 2013 decreased $40.0 million to $203.9 million versus the prior year. For 2013 and 2012, earnings per diluted share were $1.77 and $2.06, respectively. The decrease in net income was primarily due to the Venezuela devaluation-related charges ($29.0 million), the loss on the extinguishment of debt related to the Tender Offer and the Facility amendment in March 2013 ($25.9 million) and the purchase accounting adjustment for the elimination of manufacturer's profit in inventory ($89.8 million), partially offset by the gross margin impact of higher sales and incremental earnings from the YCC Acquisition. . . .

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