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JAH > SEC Filings for JAH > Form 10-Q on 31-Jul-2014All Recent SEC Filings

Show all filings for JARDEN CORP

Form 10-Q for JARDEN CORP


31-Jul-2014

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 filed with 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, 2013 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 reports four business segments: Branded Consumables, Consumer Solutions, Outdoor Solutions 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 and its chief operating decision maker use "segment earnings" to measure segment operating performance.

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, as well as through the Company's Yankee Candle retail stores. 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 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, 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.


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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® 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, in substantially all of Europe under the Breville® brand name.

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 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 Campingaz®, Esky®, Greys®, Hardy® and Invicta®.

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 a leading 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 2014 Activities

• In July 2014, the Company completed the sale of €300 in aggregate principal amount of 3 3/4% senior notes that mature in October 2021, in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to certain persons outside of the U.S. pursuant to Regulation S under the Securities Act.

• During April 2014, the Company redeemed the entire principal amount outstanding for both the U.S. dollar tranche and the Euro dollar tranche of the 7 1/2% Senior Subordinated Notes due 2020 for total consideration, excluding accrued interest, of $523 million (the "Redemption"). As a result of these debt extinguishments, the Company recorded a loss on the extinguishment of debt of approximately $54 million during the three months ended June 30, 2014, primarily comprised of prepayment premiums and a non-cash charge due to the write-off of deferred debt issuance costs.

• In March 2014, the Company completed a private offering for the sale of $690 million aggregate principal amount of 1 1/8% senior subordinated convertible notes due 2034 (the "2034 Convertible Notes") to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and received net proceeds of approximately $673 million, after deducting fees and expenses.

• During the six months ended June 30, 2014, the Company repurchased 3.5 million shares of its common stock valued at $208 million under the Stock Repurchase Program. At June 30, 2014, approximately $292 million remains available under the Stock Repurchase Program.

• In February 2014, the Company's Board of Directors authorized an increase in the then available amount under the Stock Repurchase Program to allow for the repurchase of up to $500 million in the aggregate of the Company's 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 the Company with new distribution


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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.

2014 Activity

During the six months ended June 30, 2014, 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.

2013 Activity

On October 3, 2013, the Company acquired Yankee Candle Investments LLC ("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. Yankee Candle is reported in the Company's Branded Consumables segment and was included in the Company's results of operations from October 3, 2013.

Venezuela Operations

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. Historically, the majority of the Company's purchases have qualified for the official exchange rate and the Company has been able to convert Bolivars at the official exchange rate. 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. As such, 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 CENCOEX exchange rate ("official exchange rate") of 6.30 Bolivars per U.S. dollar, which is currently the Company's expected settlement rate.

In 2013, the Venezuelan government established a new auction-based exchange rate market program, the Complementary System for Foreign Currency Administration ("SICAD"). In 2014, the Venezuelan government mandated that dividends and royalties be executed under the SICAD program and also introduced an additional currency exchange program, commonly referred to as SICAD-II. While the Company currently expects to continue to use the official exchange rate for essentially all transactions except dividends and royalties, it is assessing the impact of changes to the currency exchange programs and recently imposed pricing restrictions. If in the future, the Company's subsidiaries operating in Venezuela are economically or legally required to convert an increasing amount of the Bolivar cash balances into U.S. dollars using the more unfavorable exchange rates available under SICAD or SICAD-II, it could result in currency exchange losses that may be material to the Company's results of operations. As of June 30, 2014, the exchange rates for SICAD and SICAD-II were 10.6 and 50.0 Bolivars per U.S. dollar, respectively. At June 30, 2014, the Company's Bolivar-denominated net assets were approximately $121 million.

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. During six months end June 30, 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").

At June 30, 2014, the Company's subsidiaries operating in Venezuela have approximately $2 million in cash denominated in U.S. dollars and cash denominated in Bolivars that is the equivalent of approximately $85 million when 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.


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Results of Operations-Comparing 2014 to 2013



                                                                 Operating Earnings
                                          Net Sales                    (Loss)
                                     Three months ended          Three months ended
                                          June 30,                    June 30,
       (in millions)                 2014          2013          2014           2013
       Branded Consumables             684.4         488.3          82.2          64.8
       Consumer Solutions              445.6         442.5          45.6          52.6
       Outdoor Solutions               754.9         741.1          79.1          74.9
       Process Solutions               111.8         107.2          15.5          13.9
       Corporate                          -             -          (32.3 )       (27.0 )
       Intercompany eliminations       (21.6 )       (20.3 )          -             -


                                   $ 1,975.1     $ 1,758.8     $   190.1       $ 179.2

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 June 30, 2014 versus the Three Months Ended June 30, 2013

Net sales for the three months ended June 30, 2014 increased $216 million, or 12.3%, to $2.0 billion versus the same prior year period. Excluding the impact of the YCC Acquisition (approximately 10%), net sales on a currency-neutral basis increased approximately 3%, primarily due to increased demand and 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, as well as the impact of inventory management at certain major customers. The impact of foreign currency translation on consolidated net sales for the three months ended June 30, 2014 was not significant.

Net sales in the Branded Consumables segment increased $196 million, or 40.2%. Excluding the impact the YCC Acquisition (approximately 34%), net sales on a currency-neutral basis increased approximately 6%, primarily due to increased sales in certain product categories in the home care, leisure and entertainment and safety and security businesses, including the food preservation category, primarily due to increased point of sale, and certain products in the safety and security category in part due to increased demand at certain mass market retailers.

Net sales in the Consumer Solutions segment increased $3.1 million, or 0.7%. Net sales on a currency-neutral basis increased approximately 2%. The increase is due to an increase in domestic net sales of approximately 1%, largely due to increased demand in certain small appliance and home environment product categories at certain mass market retailers; as well as an increase in international sales of approximately 1%, primarily in certain Latin American countries, largely due to increased point of sale, expanded distribution and new product offerings. The increase in international sales was partially offset by the negative impact of the economic conditions and market restrictions in Venezuela. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 1%.

Net sales in the Outdoor Solutions segment increased $13.8 million, or 1.9%. Net sales on a currency-neutral basis increased approximately 2% mostly due to increased net sales in the camping and outdoor and fishing businesses. This increase is primarily due to increased demand internationally, primarily in Asia and Europe, due in part to improved point of sale, new product offerings and improved economic conditions in certain regions. Net sales in the other businesses were essentially flat on a period over period basis. Additionally, domestic sales were negatively affected by inventory management at certain major customers across various product categories.

Net sales in the Process Solutions segment increased 4.3% on a period-over-period basis, due in part to increased coinage sales.

Cost of Sales

Cost of sales for three months ended June 30, 2014 increased $128 million, or 10.3%, to $1.4 billion versus the same prior year period. The increase was primarily due to the YCC Acquisition and increased sales (approximately $38 million). Cost of sales as a percentage of net sales for the three months ended June 30, 2014 and 2013 was 69.5% and 70.8%, respectively. The improvement is in part due to product mix, which is largely due to the impact of the YCC Acquisition.


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Selling, General And Administrative Costs

SG&A for the three months ended June 30, 2014 increased $76.7 million, or 23.0%, to $410 million versus the same prior year period. The change is primarily due to the impact of the YCC acquisition.

Operating Earnings

Operating earnings for the three months ended June 30, 2014 in the Branded Consumables segment increased $17.4 million, or 26.9%, versus the same prior year period, primarily due to the YCC Acquisition, an increase in gross profit (approximately $5 million), mostly due to the gross margin impact of higher sales, partially offset by an increase in SG&A (approximately $2 million). Operating earnings for the three months ended June 30, 2014 in the Consumer Solutions segment decreased $7.0 million, or 13.3%, versus the same prior year period, primarily due to a decrease in gross profit (approximately $11 million), driven by slightly lower gross margins, partially offset by a decrease in SG&A (approximately $3 million). Operating earnings for the three months ended June 30, 2014 in the Outdoor Solutions segment increased $4.2 million, or 5.6%, versus the same prior year period, primarily due to an increase in gross profit (approximately $2 million), primarily due to the gross profit impact of higher sales and a decrease in SG&A (approximately $4 million), partially offset by an increase in restructuring costs (approximately $2 million). Operating earnings for the three months ended June 30, 2014 in the Process Solutions segment increased $1.6 million, or 11.5%, versus the same prior year period, primarily due to an increase in gross profit, primarily due to the gross profit impact of higher sales and a decrease in SG&A.

Interest Expense

Net interest expense increased $6.7 million to $52.9 million for the three months ended June 30, 2014 versus the same prior year period, primarily due to higher average debt levels.

Income Taxes

The Company's reported tax rate for the three months ended June 30, 2014 and 2013 was 37.1% and 38.5%, respectively. The difference from the statutory tax rate to the reported tax rate for the three months ended June 30, 2014 results principally from the U.S. tax expense related to the taxation of foreign income. The difference from the statutory tax rate to the reported tax rate for the three months ended June 30, 2013 results principally from an addition to the tax contingency reserve related to a foreign tax audit (approximately $3 million).

Net Income

Net income for the three months ended June 30, 2014 decreased $24.3 million to $52.1 million versus the same prior year period. For the three months ended June 30, 2014 and 2013, earnings per diluted share were $0.42 and $0.71, respectively. The decrease in net income was primarily due to the period over period increase in the loss on the extinguishment of debt (approximately $46 million).

Six Months Ended June 30, 2014 versus the Six Months Ended June 30, 2013

                                                                 Operating Earnings
                                          Net Sales                    (Loss)
                                      Six months ended            Six months ended
                                          June 30,                    June 30,
       (in millions)                 2014          2013          2014           2013
       Branded Consumables         $ 1,306.2     $   932.0     $   132.2      $  104.6
       Consumer Solutions              789.6         805.8          71.1          90.1
       Outdoor Solutions             1,439.0       1,436.0         115.4         131.1
       Process Solutions               214.1         204.8          25.0          26.0
       Corporate                          -             -          (90.4 )      (115.7 )
       Intercompany eliminations       (42.0 )       (39.1 )          -             -


                                   $ 3,706.9     $ 3,339.5     $   253.3      $  236.1

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 six months ended June 30, 2014 increased $367 million, or 11.0%, to $3.7 billion versus the same prior year period. Excluding the impact of the YCC Acquisition (approximately 10%), net sales on a currency-neutral basis increased approximately 2%, primarily due to increased demand and sell-through in certain product categories, favorable weather conditions for certain product categories, expanded product offerings and increased demand internationally in certain product categories, partially offset by weakness in certain product categories, as well as the impact of inventory management at certain major customers. Unfavorable foreign currency translation accounted for a decrease in net sales of approximately 1%.


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Net sales in the Branded Consumables segment increased $374 million, or 40.2%. Excluding the impact the YCC Acquisition (approximately 36%), net sales on a currency-neutral basis increased approximately 5%, primarily due to increased sales in certain product categories in the home care, leisure and entertainment and safety and security businesses, including the food preservation category, primarily due to increased point of sale and product demand; the firebuilding category whose sales were positively affected by favorable weather conditions during the first quarter of 2014, as well as increased sales in certain products in the safety and security category in part due to increased demand at certain . . .

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