<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1998 COMMISSION FILE NUMBER
1-10395
FIRST BRANDS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1171404
State of Incorporation (IRS Employer
Identification No.)
83 Wooster Heights Rd., Building 301
P.O. Box 1911
Danbury, Connecticut 06813-1911
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-731-2300
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at May 1, 1998
Common Stock, $.01 par value 39,554,312 shares
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FIRST BRANDS CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income -
For the Three Month Periods
Ended March 31, 1998 and 1997.......................................... 3
Consolidated Condensed Statements of Income -
For the Nine Month Periods
Ended March 31, 1998 and 1997.......................................... 4
Consolidated Condensed Balance Sheets -
March 31, 1998 and June 30, 1997....................................... 5
Consolidated Condensed Statement of Stockholders'
Equity - For the Nine Month Period
Ended March 31, 1998................................................... 6
Consolidated Condensed Statements of Cash
Flows - For the Nine Month Periods
Ended March 31, 1998 and 1997.......................................... 7
Notes to Consolidated Condensed Financial
Statements............................................................. 8-11
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition....................... 12-14
Independent Auditors' Review Report..................................... 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 16
Items 2 - 6............................................................. 16
SIGNATURE............................................................... 17
</TABLE>
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FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
---------------- -----------------
<S> <C> <C>
(in thousands - except per share amounts)
Net sales........................................ $ 296,414 $ 264,886
Cost of goods sold............................... 190,978 168,764
Selling, general and
administrative expenses........................ 66,961 61,985
Amortization and other depreciation.............. 3,655 3,266
Interest expense and amortization of debt
discount and expense........................... 7,555 3,974
Discount on sale of receivables.................. 1,107 1,212
Other income (expense), net...................... (178) (135)
-------- -------
Income before provision for income
taxes and extraordinary loss................... 25,980 25,550
Provision for income taxes....................... 9,942 9,496
-------- -------
Income before extraordinary loss................. 16,038 16,054
Extraordinary loss relating to the repurchase
of subordinated notes, net of taxes............ -- (633)
-------- --------
Net income....................................... $ 16,038 $ 15,421
======== ========
Basic earnings per common share (Note 7):
Income before extraordinary loss.............. $ 0.41 $ 0.40
Extraordinary loss ........................... -- (0.02)
------- -------
Net income.................................... $ 0.41 $ 0.38
======= =======
Based on the following number of shares.......... 39,556 40,592
====== ======
Diluted earnings per common share (Note 7):
Income before extraordinary loss ............. $ 0.40 $ 0.39
Extraordinary loss............................ -- (0.02)
--------- -------
Net income.................................... $ 0.40 $ 0.37
======= =======
Based on the following number of shares.......... 40,487 41,528
====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1998 1997
-------------- -------------
<S> <C> <C>
(in thousands - except per share amounts)
Net sales........................................ $875,176 $800,435
Cost of goods sold............................... 571,167 514,405
Selling, general and
administrative expenses........................ 196,278 180,106
Amortization and other depreciation.............. 11,110 9,537
Restructuring expense............................ 2,700 --
Interest expense and amortization of debt
discount and expense........................... 22,512 12,849
Discount on sale of receivables.................. 3,403 3,363
Other income (expense), net...................... (207) 823
-------- --------
Income before provision for income taxes,
extraordinary loss and cumulative effect of
change in accounting principles................ 67,799 80,998
Provision for income taxes....................... 26,281 31,586
-------- --------
Income before extraordinary loss and cumulative
effect of change in accounting principle....... 41,518 49,412
Extraordinary loss relating to the repurchase
of subordinated notes, net of taxes............ -- (633)
Cumulative effect of change in accounting
principle, net of taxes........................ (6,922) --
-------- --------
Net income....................................... $ 34,596 $ 48,779
======== ========
Basic earnings per common share (Note 7):
Income before extraordinary loss and cumulative
effect of change in accounting principle ... $ 1.04 $ 1.21
Extraordinary loss............................ -- (0.02)
Cumulative effect of change in accounting
principle................................... (0.17) --
------- -------
Net income....................................... $ 0.87 $ 1.19
======= =======
Based on the following number of shares.......... 39,733 40,924
====== ======
Diluted earnings per common share (Note 7):
Income before extraordinary loss and cumulative
effect of change in accounting principle.... $ 1.02 $ 1.18
Extraordinary loss............................ -- (0.02)
Cumulative effect of change in accounting
principle................................... (0.17) --
------- -------
Net income....................................... $ 0.85 $ 1.16
======= =======
Based on the following number of shares.......... 40,624 41,865
====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
(dollars in thousands, except share amounts) 1998 1997
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents........................... $ 9,677 $ 7,465
Accounts and notes receivable - net................. 120,520 137,380
Inventories......................................... 166,244 151,976
Deferred tax assets................................. 20,149 24,702
Prepaid expenses.................................... 7,305 7,551
----------- -----------
Total current assets.............................. 323,895 329,074
Property, plant and equipment (net of accumulated
depreciation of $162,776 and $141,691)............ 411,498 377,128
Patents, trademarks, proprietary technology
and other intangibles (net of accumulated
amortization of $202,083 and $192,631)............ 291,268 310,095
Deferred charges and other assets (net of
accumulated amortization of $52,330 and $52,029).. 36,049 37,311
----------- -----------
Total assets.............................. $ 1,062,710 $ 1,053,608
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities
Notes payable....................................... $ 15,149 $ 8,432
Current maturities of long-term debt................ 3,512 2,811
Accrued income and other taxes...................... 5,323 7,373
Accounts payable.................................... 39,791 61,877
Accrued liabilities................................. 62,307 104,201
----------- ----------
Total current liabilities...................... 126,082 184,694
Long-term debt...................................... 446,065 380,467
Deferred taxes payable.............................. 79,081 74,058
Other long-term obligations......................... 21,530 20,473
Stockholders' Equity
Preferred stock, $1 par value, 10,000,000
shares authorized; none issued.................... - -
Common stock, $0.01 par value, 120,000,000 shares
authorized at March 31, 1998 and June 30, 1997;
issued 43,527,262 shares at March 31, 1998
and 43,394,044 shares at June 30, 1997 (Note 7)... 435 434
Capital in excess of par value...................... 132,687 130,994
Cumulative foreign currency translation adjustment.. (22,097) (12,455)
Common stock in treasury, at cost; 4,190,300 shares at
March 31, 1998 and 3,355,000 at June 30, 1997...... (116,320) (96,837)
Retained earnings................................... 395,247 371,780
----------- -----------
Total stockholders' equity..................... 389,952 393,916
----------- -----------
Total liabilities and stockholders' equity $ 1,062,710 $ 1,053,608
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
Capital Foreign
Common in Excess Currency
Stock of Par Translation Treasury Retained
(in thousands) Par Value Value Adjustment Stock Earnings Total
--------- --------- ----------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance as of
June 30, 1997 ......... $ 434 $ 130,994 $ (12,455) $ (96,837) $ 371,780 $ 393,916
Exercise of
Stock Options.......... 1 1,693 - - - 1,694
Cash Dividends.......... - - - - (11,129) (11,129)
Purchase of
Treasury Stock......... - - - (19,483) - (19,483)
Net Income.............. - - - - 34,596 34,596
Foreign Currency
Translation Adjustment. - - (9,642) - - (9,642)
----- --------- --------- --------- --------- ---------
Balance as of
March 31, 1998......... $ 435 $ 132,687 $ (22,097) $(116,320) $ 395,247 $ 389,952
===== ========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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FIRST BRANDS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
(in thousands) 1998 1997
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 34,596 $ 48,779
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle.................................... 6,922 --
Extraordinary loss.............................. -- 633
Depreciation and amortization................... 33,802 30,409
Deferred income taxes........................... 9,540 4,958
Restructuring expense........................... 2,700 --
Change in certain non-cash current assets and
liabilities:
Decrease in accounts receivable.............. 33,620 20,934
(Increase) in inventories.................... (14,268) (9,088)
Decrease in prepaid expenses................. 246 266
Increase in accrued income and other taxes... 2,462 7,723
(Decrease) in accounts payable............... (22,086) (17,112)
(Decrease) in accrued liabilities............ (44,594) (42,752)
Other changes..................................... 1,570 (4,852)
-------- --------
Total adjustments............................. 9,914 (8,881)
-------- --------
Net cash provided by operating activities........... 44,510 39,898
-------- --------
Cash flows from investing activities:
Capital expenditures............................. (26,050) (24,110)
Acquisition of leased assets..................... (44,208) (22,320)
Acquisition of business, net of cash acquired... -- (159,004)
Retirements of plant and equipment............... 6,701 --
Purchase and installation of information system.. (7,839) (7,924)
-------- --------
Net cash (used for) investing activities............ (71,396) (213,358)
-------- --------
Cash flows from financing activities:
Increase in credit facility borrowings, net..... 64,842 46,485
Increase in other borrowings, net............... 8,174 10,864
(Decrease) increase in securitization of
accounts receivable......................... (15,000) 10,000
Proceeds from exercise of stock options......... 1,694 2,848
Issuance of senior notes, net of underwriting
discounts................................... -- 149,292
Purchase of common stock for treasury........... (19,483) (33,653)
Dividends paid.................................. (11,129) (9,068)
-------- --------
Net cash provided by financing activities.......... 29,098 176,768
-------- --------
Net increase (decrease) in cash and cash equivalents 2,212 3,308
Cash and cash equivalents at beginning of period.... 7,465 8,326
-------- --------
Cash and cash equivalents at end of period.......... $ 9,677 $ 11,634
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
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FIRST BRANDS CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated condensed
financial statements include all adjustments (all of which were of a normal
recurring nature) necessary to fairly present the results of operations for the
interim periods. All material intercompany transactions and balances have been
eliminated. The results of operations for the three and nine month periods ended
March 31, 1998 are not necessarily indicative of the results for a full year.
First Brands Corporation ("First Brands" or the "Company") is engaged in the
development, manufacture, marketing and sale of consumer products under branded
and private labels. Principal branded products include: GLAD and GLAD-LOCK
(plastic wrap and bags); STP (oil and fuel additives and other specialty
automotive products); SCOOP AWAY, EVER CLEAN, EVERFRESH and JONNY CAT (cat
litters) and STARTERLOGG (fire starters) and HEARTHLOGG (fire logs).
INVENTORIES
Inventories were comprised of:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Raw materials................................... $ 36,691 $ 34,518
Work-in-process................................. 5,214 5,795
Finished goods.................................. 124,339 111,663
--------- ---------
Total....................................... $ 166,244 $ 151,976
========= =========
</TABLE>
2. RESTRUCTURING
During the second quarter of fiscal 1998, the Company recorded an additional
restructuring charge of $2,700,000, increasing the $19,000,000 restructuring
charge established during the fourth quarter of fiscal 1997. The restructuring
reserve included expenses for employee related costs, primarily an early
retirement package and other costs to obtain personnel reductions, and certain
asset write down and disposal expenses largely related to a distribution
facility and office center in East Hartford, CT. The additional charge was due
to greater than anticipated participation in the early retirement program and
revision of earlier estimates.
-8-
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3. LONG-TERM DEBT
First Brands had long-term debt outstanding as of March 31, 1998 and June 30,
1997 as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------- --------
(in thousands)
<S> <C> <C>
Senior Debt:
$300,000,000 Revolving Credit Facility, 5 year term
expiring February 2002, interest at prime rate,
LIBOR plus .275% or CD rate plus .4%; facility
fee of .15% ............................................................ $ 240,000 $ 162,000
$65,770,000 Australian and New Zealand Credit
Facility, 7 year term expiring March 2004,
interest at local Bill Rate plus .7% .................................. 47,569 58,727
$11,286,000 Canadian Credit Facility, 5 year
term expiring March 2002, interest at Canadian
prime rate, LIBOR plus .425% or Canadian
Bankers Acceptance plus .425% ......................................... 6,619 8,619
Other .................................................................... 5,389 3,932
--------- ---------
299,577 233,278
Less: current maturities ................................................. (3,512) (2,811)
--------- ---------
Senior Debt .......................................................... 296,065 230,467
--------- ---------
Subordinated Debt:
7 1/4% Senior Notes Due 2007 ............................................. 150,000 150,000
--------- ---------
Total Long-term debt ................................................. $ 446,065 $ 380,467
========= =========
</TABLE>
The Company's revolving credit facility is unsecured, however, it does contain
certain restrictive covenants pertaining to the ratio of debt to equity,
dividend payments and stock repurchases.
The Australian and New Zealand credit facility is composed of two parts; one of
which was used to acquire the NationalPak business and a second part which can
be used for working capital needs. There are fixed periodic payments associated
with the acquisition borrowing, the working capital borrowing can be drawn on
and repaid at NationalPak's discretion. The facility is secured by the accounts
receivable, inventory and fixed assets of NationalPak.
The Canadian credit facility requires fixed periodic payments. The facility is
secured by the accounts receivable, inventory and fixed assets of the Canadian
business.
The 7 1/4% Note Indenture contains certain restrictive covenants and limitations
principally relating to the Company's right to incur debt and to engage in
certain sale and leaseback transactions.
First Brands was in compliance with the covenants of all debt agreements at
March 31, 1998.
4. ACCOUNTS RECEIVABLE
The Company is engaged in a program to sell up to $100,000,000 in fractional
ownership interest, without recourse, in a defined pool of eligible trade
accounts receivable. Under the current terms of this agreement, the facility
automatically renews each year. The fractional interest sold as of March 31,
1998 totaled $70,000,000. The amounts sold are reflected as a reduction in
accounts receivable on the accompanying Consolidated Condensed Balance Sheets
and costs associated with this program are recorded on the Consolidated
Condensed Statements of Income as discount on sale of receivables.
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5. NOTES PAYABLE
Notes payable at March 31, 1998 of $15,149,000 consisted of $7,500,000 of a
$15,000,000 unsecured domestic line of credit and $7,649,000 of the Company's
international subsidiaries' working capital borrowings with local lenders. The
Company's international working capital credit facilities aggregated
$20,535,000, of which $12,886,000 was available at March 31, 1998. The
international facilities are generally secured by the assets of the respective
subsidiaries, with approximately $2,000,000 of the availability at one
subsidiary being guaranteed by First Brands Corporation (U.S.).
6. TAXES
The provision for income tax expense for the three and nine-months ended March
31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
---------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
(in thousands)
Current:
Federal...................... $ 4,090 $ 7,196 $ 10,922 $ 21,421
State........................ 1,022 (91) 2,491 3,163
Foreign...................... 1,345 713 3,328 2,044
------- ------- -------- --------
Total current............ 6,457 7,818 16,741 26,628
Deferred:
Federal...................... 3,131 1,398 7,907 4,194
State........................ 673 310 1,392 930
Foreign...................... (319) (30) 241 (166)
------- ------- -------- --------
Total deferred........... 3,485 1,678 9,540 4,958
------- ------- -------- --------
Total provision...... $ 9,942 $ 9,496 $ 26,281 $ 31,586
======= ======= ======== ========
</TABLE>
7. EARNINGS PER SHARE AND DIVIDENDS
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No. 128
establishes standards for computing and presenting both basic and diluted
earnings per share ("EPS"). Basic EPS represents the earnings available to each
common share outstanding during the reporting period. Diluted EPS reflects the
earnings available to each common share after the affect of all potentially
dilutive common shares, such as stock options and convertible securities. SFAS
No. 128 requires a reconciliation between of the basic and diluted EPS numerator
and denominator. For the Company, the numerator is constant for both the basic
and diluted calculation. The denominator used in the diluted EPS calculation was
increased by 931,000 and 891,000 common share equivalents pertaining to stock
options for the three and nine-month periods ended March 31, 1998, respectively,
and 936,000 and 941,000 common share equivalents pertaining to stock options for
the three and nine-month periods ended March 31, 1997, respectively.
The Company has paid its shareholders quarterly cash dividends of $0.08 per
share for the first quarter of fiscal 1998 and $0.10 per share for the second
and third quarters of fiscal 1998, and $0.0625 per share for the first quarter
of fiscal 1997 and $0.08 per share for the second and third quarters of fiscal
1997.
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8. CHANGE IN ACCOUNTING PRINCIPLE
During the second quarter of fiscal 1998 the Company recorded a $11,450,000
pre-tax charge. This charge relates to a change in accounting as required under
a consensus published by the FASB's Emerging Issues Task Force regarding Issue
No. 97-13 (November 1997), that requires immediate expensing of costs related to
certain business process re-engineering activities and information technology
transformations which have been previously capitalized.
9. FINANCIAL INSTRUMENTS
During the second quarter of fiscal 1998 the Company entered into a contract to
fix the price of an additional 17% of its domestic polyethylene resin
requirements for the GLAD plastic wrap and bag business. With this new
agreement, the Company's contracts currently cover approximately 37% of its
domestic resin requirements until December 31, 2000. Starting in 2001, the
counter party has an annual option to extend one of the contracts, which today
covers approximately 20% of the domestic requirements, through 2003. The
contract prices are less than the market average for the last four years.
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FIRST BRANDS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of the consolidated results of operations
for the three and nine month periods ended March 31, 1998 should be read in
conjunction with the accompanying unaudited Consolidated Condensed Financial
Statements and related Notes. The Company is primarily engaged in the
development, manufacture, marketing and sale of leading consumer products. The
Company's products which include "GLAD", "GLAD-LOCK", "STP", "SCOOP AWAY",
"EVERFRESH", "EVER CLEAN", "JONNY CAT", "STARTERLOGG" and "HEARTHLOGG" can be
found in large mass merchandise stores, chain supermarkets and other retail
outlets. The Company believes that the significant market positions occupied by
its products are attributable to brand name recognition, comprehensive product
offerings, continued product innovation, strong emphasis on vendor support and
aggressive advertising and promotion.
RESULTS OF OPERATIONS
The following table sets forth the percentages of net sales of the Company
represented by the components of income and expense for the three and nine month
periods ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
---------------- ---------------
1998 1997 1998 1997
------ ------ ----- -----
<S> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 64.4 63.7 65.3 64.3
----- ----- ----- -----
Gross profit............................... 35.6 36.3 34.7 35.7
Selling, general, and
administrative expenses.................. 22.6 23.4 22.4 22.5
Amortization and other depreciation........ 1.2 1.2 1.3 1.2
Restructuring expense...................... -- -- 0.3 --
Interest expense and amortization of debt
discount and expense..................... 2.6 1.5 2.6 1.6
Discount on sale of receivables............ 0.4 0.4 0.4 0.4
Other income (expense), net................ 0.0 0.0 0.0 0.1
----- ----- ----- -----
Income before provision for income taxes,
extraordinary loss and cumulative effect
of change in accounting principle.......... 8.8 9.6 7.7 10.1
Provision for income taxes.................. 3.4 3.6 3.0 3.9
----- ----- ----- -----
Income before extraordinary loss and cumulative
effect of change in accounting principle... 5.4 6.0 4.7 6.2
Extraordinary loss relating to repurchase of
subordinated notes, net of taxes.......... -- (0.2) -- (0.1)
Cumulative effect of change in
accounting principle, net of taxes........ -- -- (0.8) --
----- ----- ----- -----
Net income.................................. 5.4% 5.8% 3.9% 6.1%
===== ===== ===== =====
</TABLE>
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<PAGE>
QUARTER AND NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE QUARTER AND
NINE MONTHS ENDED MARCH 31, 1997
Sales for the three month period ended March 31, 1998 were $296,414,000, 12%
ahead of last year's $264,886,000. For the nine month period, sales were
$875,176,000, 9% above the prior year's $800,435,000. Household product sales
for the quarter increased 18%, reflecting strong domestic sales within the GLAD
and GLADLOCK product lines and sales from recent acquisitions. Plastic wrap and
bag sales, excluding acquisitions, were up 8% primarily due to the move of a
major GLAD promotion to the third fiscal quarter of fiscal 1998. Excluding the
NationalPak acquisition, year-to-date household product sales are slightly ahead
of the prior year. Automotive product sales were down 4% for the quarter. The
domestic sales increase of 3% was offset by a 25% shortfall in the international
and export business (primarily due to the Asian economic and currency
situation). Year-to-date automotive sales are down 7% due to the residual
effects of inventory reductions by a major customer and reduced sales in the
international and export markets. Quarterly and year-to-date sales of pet
product grew 8% and 11%, respectively, over the prior year due to continued
market growth and new products.
Cost of goods sold for the quarter was $190,978,000, 113% of last year's
$168,764,000. Year-to-date, cost of goods sold was $571,167,000, 111% of the
prior year's $514,405,000. Increased costs for the quarter were primarily due to
higher sales, while the year-to-date increase in cost of goods sold was due to
higher sales as well as higher polyethylene resin costs.
Gross profit for the quarter of $105,436,000 (35.6% of sales) was 110% of last
year's $96,122,000 (36.3% of sales). Year-to-date, gross profit of $304,009,000
(34.7% of sales) was 106% of last year's $286,030,000 (35.7% of sales).
Selling, general and administrative expenses during the quarter of $66,961,000
(22.6% of sales), were 108% of last year's $61,985,000 (23.4% of sales).
Year-to-date, expenses of $196,278,000 (22.4% of sales), were 109% of last
year's $180,106,000 (22.5% of sales). The increase over last year reflects
expenses associated with the NationalPak business as well as new product
marketing costs.
Amortization and other depreciation expense for the quarter was $3,655,000, 112%
of the prior year's $3,266,000, and for the nine months was $11,110,000, 116% of
the prior year's $9,537,000. The higher cost reflects amortization expense
associated with the NationalPak acquisition. Interest expense for the quarter
and nine months is above the prior year primarily due to borrowing costs
associated with the NationalPak acquisition. Discount on sale of receivables
reflects the costs associated with the sale of a fractional ownership interest,
without recourse, in a defined pool of the Company's eligible trade accounts
receivable.
The Company's effective tax rate was 38.3% and 38.8% for the quarter and
year-to-date, respectively, compared to the prior years' quarter and
year-to-date rates of 37.2% and 39.0%, respectively. The current years'
quarterly tax rate is below the year-to-date rate due to adjustments necessary
to approximate the annual tax rate. The prior years' quarterly tax rate
reflected an adjustment for favorable permanent tax differences.
FINANCIAL CONDITION
Worldwide credit facilities in place at March 31, 1998 aggregated $413,359,000
of which $101,365,000 was available, but unused. Excluding costs associated with
acquisitions and stock repurchases, the Company expects to repay up to
$60,000,000 on these credit facilities over the next twelve months by utilizing
the positive cash flow generated by its businesses. For the three and nine
months ending March 31, 1998, the Company repurchased common shares valued at
$6,932,000 and $19,483,000, respectively. During the first half of fiscal 1998,
the Company also acquired previously leased equipment totaling $44,208,000.
-13-
<PAGE>
<PAGE>
The Company's current forecast for the 1998 fiscal year reflects capital
expenditures of approximately $42,500,000, and fixed payments (interest,
principal, discount on sale of receivables and lease payments) of approximately
$47,000,000.
Based on the Company's ability to generate funds from operations and the
availability of credit under its financing facilities, management believes it
will have the funds necessary to meet all of its described financing
requirements and all other financial obligations.
CAUTIONARY STATEMENT AND "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 are contained within this report, reflecting
management's current estimate of future events. These forward-looking statements
are based on many assumptions, primarily related to the Company's expected
operating performance, and contain a number of risks and uncertainties including
changes in consumer demand, changes in prices of raw materials, changes in
distribution channels and competitive conditions, consumer acceptance of new
product lines, the Company's ability to control internal costs, the successful
development of new technologies, the implementation of strategic initiatives and
general economic conditions. Accordingly, such forward-looking statements should
not be relied upon as a prediction of actual results.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
First Brands' independent certified public accountants have performed a limited
review of the financial information furnished herein in accordance with
standards established by the American Institute of Certified Public Accountants.
The Independent Auditors' Review Report is presented on Page 15 of this report.
-14-
<PAGE>
<PAGE>
Independent Auditors' Review Report
The Board of Directors
First Brands Corporation:
We have reviewed the consolidated condensed balance sheet of First Brands
Corporation and subsidiaries as of March 31, 1998, and the related consolidated
condensed statements of income for the three and nine month periods ended March
31, 1998 and 1997, the consolidated condensed statements of cash flows for the
nine month periods ended March 31, 1998 and 1997, and the consolidated condensed
statement of stockholders' equity for the nine month period ended March 31,
1998. These consolidated condensed financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
As discussed in note 8, the Company changed its method of accounting for
business process reengineering costs effective October 1, 1997.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of First Brands Corporation and
subsidiaries as of June 30, 1997, and the related consolidated statement of
income, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated August 1, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of June 30, 1997, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
New York, New York
May 5, 1998
-15-
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit Index:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
11* -- Computation of Net Income Per Common Share
15* -- Accountants' Acknowledgment
27* -- EDGAR Financial Data Schedule
</TABLE>
- ------------
* Filed herewith
B. Reports on Form 8-K
None.
-16-
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST BRANDS CORPORATION
(Registrant)
Date: May 14, 1998 By: /s/ Donald A. DeSantis
-------------------------------------
Donald A. DeSantis
Senior Vice President and
Chief Financial Officer
(Principal Accounting
and Duly Authorized
Officer)
-17-
<PAGE>
<PAGE>
Exhibit 11
(Page 1 of 2)
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands - except per share amounts)
<TABLE>
<CAPTION>
Three months Nine months
ended March 31, ended March 31,
1998 1997 1998 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
COMPONENTS OF BASIC NET INCOME
PER COMMON SHARE:
Income before extraordinary loss and
cumulative effect of change in
accounting principle ............. 16,038 16,054 41,518 49,412
Extraordinary loss on repurchase of
subordinated notes, net of taxes .. -- (633) -- (633)
Cumulative effect of change
in accounting principle ........... -- -- (6,922) --
-------- -------- -------- --------
Net income ......................... $ 16,038 $ 15,421 $ 34,596 $ 48,779
======== ======== ======== ========
Average common shares outstanding
during the period ................. 43,512 43,324 43,464 43,238
Average treasury shares held
during the period ................. (3,956) (2,732) (3,731) (2,314)
------ ------ ------ ------
Average common shares outstanding .. 39,556 40,592 39,733 40,924
====== ====== ====== ======
Basic earnings per share:
Income before extraordinary loss and
cumulative effect of change
in accounting principle ........... $ 0.41 $ 0.40 $ 1.04 $ 1.21
Extraordinary loss on repurchase of
subordinated notes, net of taxes ... -- (0.02) -- (0.02)
Cumulative effect of change
in accounting principle ........... -- -- (0.17) --
-------- -------- -------- --------
Net income ......................... $ 0.41 $ 0.38 $ 0.87 $ 1.19
======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
Exhibit 11
(Page 2 of 2)
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands - except per share amounts)
<TABLE>
<CAPTION>
Three months Nine months
ended March 31, ended March 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMPONENTS OF DILUTED NET INCOME
PER COMMON SHARE:
Income before extraordinary loss and
cumulative effect of change in
accounting principle.................... 16,038 16,054 41,518 49,412
Extraordinary loss on repurchase of
subordinated notes, net of taxes........ -- (633) -- (633)
Cumulative effect of change
in accounting principle................. -- -- (6,922) --
------- ------- ------- -------
Net income................................ $16,038 $15,421 $34,596 $48,779
======= ======= ======= =======
Average common shares outstanding
during the period........................ 43,512 43,324 43,464 43,238
Average treasury shares held
during the period....................... (3,956) (2,732) (3,731) (2,314)
Common shares issuable with
respect to common equivalents
for stock options....................... 931 936 891 941
------ ------ ------ ------
Average common shares outstanding......... 40,487 41,528 40,624 41,865
====== ====== ====== ======
Diluted earnings per share:
Income before extraordinary loss and
cumulative effect of change in
accounting principle.................... $ 0.40 $ 0.39 $ 1.02 $ 1.18
Extraordinary loss on repurchase of
subordinated notes, net of taxes........ -- (0.02) -- (0.02)
Cumulative effect of change
in accounting principle................. -- -- (0.17) --
------- ------- ------- -------
Net income................................ $ 0.40 $ 0.37 $ 0.85 $ 1.16
======= ======= ======= =======
</TABLE>
<PAGE>
<PAGE>
Exhibit 15
Accountants' Acknowledgment
First Brands Corporation
83 Wooster Heights Road
Danbury, CT 06813-1911
Gentlemen:
RE: FORM S-8 REGISTRATION STATEMENTS NO. 33-35770, NO. 33-56992, NO. 33-56503,
NO. 333-56503 AND NO. 333-45379
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our reports dated October 30, 1997, January 29,
1998 and May 5, 1998 related to our reviews of interim financial information.
Pursuant to Rule 436 (C) under the Securities Act of 1933, such reports are
not considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG Peat Marwick LLP
New York, New York
May 5, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,677
<SECURITIES> 0
<RECEIVABLES> 122,061
<ALLOWANCES> 1,541
<INVENTORY> 166,244
<CURRENT-ASSETS> 323,895
<PP&E> 574,274
<DEPRECIATION> 162,776
<TOTAL-ASSETS> 1,062,710
<CURRENT-LIABILITIES> 126,082
<BONDS> 446,065
<COMMON> 435
0
0
<OTHER-SE> 389,952
<TOTAL-LIABILITY-AND-EQUITY> 1,062,710
<SALES> 296,414
<TOTAL-REVENUES> 296,414
<CGS> 190,978
<TOTAL-COSTS> 190,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,555
<INCOME-PRETAX> 25,980
<INCOME-TAX> 9,942
<INCOME-CONTINUING> 16,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,038
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
</TABLE>
