Document/Exhibit Description Pages Size
1: 10-K Annual Report 89 648K
2: EX-10.DD Material Contract 9 46K
3: EX-10.EE Material Contract 1 7K
4: EX-10.GG Material Contract 13 50K
5: EX-10.HH Material Contract 12 50K
6: EX-10.II Material Contract 11 46K
7: EX-10.JJ Material Contract 9 44K
8: EX-10.KK Material Contract 17 59K
9: EX-21 Subsidiaries of the Registrant 1 7K
10: EX-23.1 Consent of Experts or Counsel 1 7K
11: EX-23.2 Consent of Experts or Counsel 1 7K
12: EX-27 Financial Data Schedule (Pre-XBRL) 1 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from______to_______.
Commission File Number 0001-000052
[SUNBEAM LOGO]
SUNBEAM CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 25-1638266
(State or other jurisdiction (I.R.S. Employer Identification Number)
incorporation or organization)
2381 Executive Center Drive
Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
(561) 912-4100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class: Name of exchange on which registered:
Common Stock, $0.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of all classes of the registrant's voting
stock held by non-affiliates as of April 30, 1999 was approximately
$372,048,943.
On April 30, 1999, there were 100,887,960 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof. The Exhibit Index
is located at pages 40 to 42.
SUNBEAM CORPORATION AND SUBSIDIARIES
ANNUAL REPORT
ON FORM 10-K
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS 3
General
Products and Operations
Competition
Customers
Backlog
Patents and Trademarks
Research and Development
Employees
Seasonality
Raw Materials/Suppliers
Environmental Matters
Regulatory Matters
Significant 1998 Financial and Business Developments
ITEM 2. PROPERTIES 12
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
EXECUTIVE OFFICERS OF THE REGISTRANT 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS 17
ITEM 6. SELECTED FINANCIAL DATA 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 20
1998 Acquisitions
Fiscal Year
Asset Impairment and Other Charges
Restatements
Year Ended December 31, 1998 Compared to the Year Ended
December 28, 1997
Year Ended December 28, 1997 Compared to the Year Ended
December 29, 1996
Summary of (Loss) Earnings from Continuing Operations
Foreign Operations
Exposure to Market Risk
Seasonality
Liquidity and Capital Resources
New Accounting Standards
Year 2000 Readiness Disclosure
Effects of Inflation
Cautionary Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 38
- 1 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 39
ITEM 11. EXECUTIVE COMPENSATION 39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 40
SIGNATURES 43
2
PART I
ITEM 1. BUSINESS
GENERAL
Sunbeam Corporation ("Sunbeam" or the "Company") is a leading designer,
manufacturer and marketer of branded consumer products. The Company's primary
business is the manufacturing, marketing and distribution of durable household
and outdoor leisure consumer products through mass market and other distribution
channels in the United States and internationally. The Company also sells its
products to professional and commercial end users such as small businesses,
health care providers, hotels and other institutions. The Company's principal
products include household kitchen appliances; health monitoring and care
products for home use; scales for consumer and professional use for weight
management and business uses; electric blankets and throws; clippers and
trimmers for consumer, professional and animal uses; smoke and carbon monoxide
detectors; outdoor barbecue grills; camping equipment such as tents, lanterns,
sleeping bags and stoves; coolers; backpacks and book bags; and portable
generators and compressors.
In 1998, the Company acquired an indirect controlling interest in The
Coleman Company, Inc. ("Coleman") and all the outstanding common stock of
Signature Brands USA, Inc. ("Signature Brands") and First Alert, Inc. ("First
Alert"). (See "Significant 1998 Financial and Business Developments - The 1998
Acquisitions", below.)
PRODUCTS AND OPERATIONS
The Company's operations are managed through four groups: Household,
Outdoor Leisure, International and Corporate. The Household and Outdoor Leisure
operating groups encompass the following products:
/bullet/ The Household group consists of appliances (including mixers, blenders,
food steamers, breadmakers, rice cookers, coffee makers, toasters,
irons and garment steamers), health products (including vaporizers,
humidifiers, air cleaners, massagers, hot and cold packs and blood
pressure monitors), scales, personal care products (including hair
clippers and trimmers and related products for the professional beauty,
barber and veterinarian trade and sales of products to commercial and
institutional channels), blankets (including electric blankets, heated
throws and mattress pads) and First Alert/registered trademark/
products (smoke and carbon monoxide detectors, fire extinguishers and
home safety equipment).
/bullet/ The Outdoor Leisure group includes outdoor recreation products (which
encompass tents, sleeping bags, coolers, camping stoves, lanterns and
outdoor heaters), outdoor cooking products (including gas and charcoal
outdoor grills and grill parts and accessories), Powermate/registered
trademark/ products (including portable power generators and air
compressors), and Eastpak/registered trademark/ products (including
backpacks and bags).
The International group is managed through five regional subdivisions:
Europe, Latin America, Japan, Canada and East Asia. Europe includes the
manufacture, sales and distribution of Campingaz/registered trademark/ products
and sales and distribution in Europe, Africa and the Middle East of other
Company products. The Latin American region includes the manufacture, sales and
distribution throughout Latin America of small appliances, and sales and
distribution of personal care products, professional clippers and related
products, camping products and Powermate products. Japan includes the sales and
distribution of primarily outdoor recreation products. Canada includes sales of
substantially all the Company's products and East Asia encompasses sales and
distribution in all areas of East Asia other than Japan of substantially all the
Company's products.
The Company's Corporate group provides certain management, accounting,
legal, risk management, treasury, human resources, tax and management
information services to all operating groups and also includes the operation of
the Company's retail stores and the conduct of the Company's licensing
activities.
See Note 14 of Notes to Consolidated Financial Statements for financial
data concerning the Company's operating segments. Also, for a discussion of
certain risks affecting the Company's business, see the discussion in Item 7-
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, in particular, the discussion contained therein under the
subheading - "Cautionary Statements."
3
HOUSEHOLD
The Company's Household group includes appliances, health products,
scales, personal care products, blankets and First Alert products. Net sales of
Household group products accounted for approximately 50%, 73% and 74% of the
Company's consolidated net sales in 1998, 1997 and 1996, respectively. Except as
discussed below, there were no household group products or groups of similar
products with sales that accounted for 10% or more of consolidated net sales in
any of the last three fiscal years.
APPLIANCES. Small kitchen appliances include Mixmaster/registered
trademark/ stand mixers, hand mixers, Osterizer/registered trademark/ blenders,
food processors, rice cookers, food steamers, toasters, can openers,
breadmakers, waffle makers, ice cream makers, frying pans, deep fryers and
culinary accessories, which are sold primarily under the Sunbeam/registered
trademark/ and Oster/registered trademark/ brand names. In addition, the Company
sells coffee makers under the Mr. Coffee/registered trademark/, Sunbeam and
Oster brand names and, with respect to coffee and tea products, the Mr. Coffee
brand name. Other brand names or trademarks used in marketing include: Toast
Logic/registered trademark/, Details/registered trademark/ by Mr. Coffee (for
high end coffeemakers sold in department and specialty stores), Mrs.
Tea/trademark/, and Iced Tea Pot/trademark/, Oster Designer/registered
trademark/ and Pause N Serve/registered trademark/. The Company holds the number
one or two market positions in coffee makers, mixers, and breadmakers.
Appliances also encompass garment care appliances consisting of irons and
steamers. The Company manufactures a portion of its appliances in its United
States and Mexico plants and sources the balance of its appliance products from
domestic and foreign manufacturers.
HEALTH. The Company markets many of its health products under the
Sunbeam name and the trademark Health at Home/registered trademark/. These
products include heating pads, bath scales, blood pressure and other
health-monitoring instruments, massagers, vaporizers, humidifiers and dental
care products. The Company assembles and/or manufactures its vaporizers,
humidifiers and heating pads at its United States and Mexico facilities. The
Company's other personal health products are sourced from manufacturers
primarily located in China.
SCALES. The Company also designs, manufactures and markets scales for
consumer, office and professional use. The Company manufactures a complete line
of analog and digital floor scales, waist-high and eye-level scales for use in
weight monitoring by consumers. These consumer scales are sold under the brand
names Health o Meter/registered trademark/, Sunbeam, Counselor/registered
trademark/ and Borg/registered trademark/. Other trademarks used in marketing
the scales are BigFoot/registered trademark/ and Precious Metals/registered
trademark/. The Company also markets professional scales such as traditional
balance beam scales, pediatric scales, wheelchair ramp scales, chair and sling
scales and home healthcare scales using the Pro Series/registered trademark/ and
Pro Plus Series/registered trademark/ trademarks in addition to the Health o
Meter brand. The Company's line of scales also includes letter and parcel scales
for office use, marketed under the Pelouze/registered trademark/ brand name. The
Company has a commanding share of the office scale market with its Pelouze
scales. The Company's Pelouze food scales include analog and digital portion
control scales, thermometers and timers for commercial and non-commercial
applications. The Company manufactures approximately one-half of its scales at a
United States plant and sources the remaining scales from both domestic and
foreign suppliers.
PERSONAL CARE. The Company's personal care products include a broad
line of hair clippers and trimmers for animals and humans which are sold through
retail channels. The Company holds the number one or two position in each of its
clipper and trimmer product lines. The Company also markets a line of
professional barber, beauty and animal grooming products, including electric and
battery clippers, replacement blades and other grooming accessories sold to both
conventional retailers and through professional distributors. These products are
manufactured at the Company's United States and Mexico facilities.
BLANKETS. The Company's blanket products include electric blankets,
Cuddle-Up/registered trademark/ heated throws and heated mattress pads. The
Company holds the number one market position in each of electric blankets,
heated throws and heated mattress pads. These products are manufactured at the
Company's United States and Mexico facilities. In 1996, sales of electric
blankets accounted for approximately 12% of consolidated net sales.
FIRST ALERT. The Company is a leading manufacturer and marketer of a
broad range of residential safety products, including residential use ionization
and photoelectric smoke detectors in which the Company has the leading market
share. Other products include carbon monoxide detectors, fire extinguishers,
rechargeable flashlights and lanterns, electric and electromechanical timers,
night lights, radon gas detectors, fire escape ladders and motion sensing
lighting controls. The Company's smoke detectors are battery operated and carbon
monoxide detectors are available in both plug in and battery-operated units and
in a combination unit. These products are marketed primarily under the First
Alert brand name. The Company also uses the brand names Family Gard/registered
trademark/ and Sure Grip/registered trademark/ for certain of its products. The
Company markets certain of these products under the BRK/registered trademark/
brand for the electrical wholesale markets. The Company manufactures its smoke
and carbon monoxide detectors in its Mexico plant, manufactures fire
extinguishers in its United States plant and sources other
4
products from domestic and foreign suppliers.
In 1996, the Company's furniture business accounted for approximately
23% of consolidated net sales. (See Note 13 of Notes to Consolidated Financial
Statements for information relating to the divestiture of the Company's
furniture business.)
OUTDOOR LEISURE
The Company's Outdoor Leisure group includes products for outdoor
recreation and outdoor cooking as well as the Powermate and Eastpak product
lines. Net sales of the Outdoor Leisure group accounted for approximately 50%,
25% and 26% of the Company's consolidated net sales in 1998, 1997 and 1996,
respectively. Except as discussed below, there were no other outdoor leisure
products or groups of similar products with sales that accounted for 10% or more
of consolidated net sales in any of the last three fiscal years.
OUTDOOR RECREATION. Principal outdoor recreation products include a
comprehensive line of lanterns and stoves for outdoor recreational use,
fuel-related products such as disposable fuel cartridges, a broad range of
coolers and jugs, sleeping bags, backpacks, tents, outdoor folding furniture,
portable electric lights, camping accessories and other products. These products
are used predominantly in outdoor recreation, but many products have
applications in emergency preparedness and some are also used in home
improvement projects. These products are distributed predominantly through mass
merchandisers, home centers and other retail outlets. The Company believes it is
the leading manufacturer of lanterns and stoves for outdoor recreational use in
the world. The Company's liquid fuel appliances include single and dual
fuel-powered lanterns and stoves and a broad range of propane- and butane-fueled
lanterns and stoves. These products are manufactured at the Company's facilities
located in the United States and are marketed under the Coleman/registered
trademark/ and Peak One/registered trademark/ brand names.
The Company manufactures and sells a wide variety of insulated coolers
and jugs and reusable ice substitutes, including personal coolers for camping,
picnics or lunch box use; large coolers; beverage coolers for use at work sites
and recreational and social events; and soft-sided coolers. The Company's cooler
products are manufactured predominantly at the Company's facilities located in
the United States and are marketed under the Coleman brand name worldwide. The
Company designs, manufactures or sources, and markets textile products,
including tents, sleeping bags, backpacks and rucksacks. The Company's tents and
sleeping bags are marketed under the Coleman and Peak One brand names. The
Company manufactures and markets aluminum- and steel-framed, portable, outdoor,
folding furniture under the Coleman and Sierra Trails/registered trademark/
brand names. These products are manufactured predominantly at the Company's
facilities located in the United States. The Company designs and markets
electric lighting products that are manufactured by others and sold under the
Coleman, Powermate and Job-Pro/registered trademark/ brand names. These products
include portable electric lights such as hand held spotlights, flashlights and
fluorescent lanterns and a line of rechargeable lanterns and flashlights. The
Company designs, sources and markets a variety of small accessories for camping
and outdoor use, such as cookware and utensils. These products are manufactured
by third-party vendors to the Company's specifications and are marketed under
the Coleman brand name.
OUTDOOR COOKING. Sunbeam is a leading supplier of outdoor barbecue
grills. Sunbeam has one of the leading market share positions in the gas grill
industry. Outdoor barbecue grills consist of propane, natural gas, electric and
charcoal models which are sold by the Company primarily under the Sunbeam and
Grillmaster/registered trademark/ brand names. The Company's outdoor cooking
products also include smokers and replacement parts for grills and various
accessories such as cooking utensils, grill cleaning products and barbecue
tools. Almost all of the Company's grills are manufactured at the Company's
United States facility. The Company sources practically all of its accessories
and a portion of its replacement parts from various manufacturers, many of which
are in East Asia. A licensee of the Company produces gas barbecue grills under
the Coleman name. In 1997 and 1996, sales of natural gas grills accounted for
approximately 13% and 19%, respectively, of consolidated net sales.
POWERMATE. The Company's principal Powermate products include portable
generators and portable and stationary air compressors. The Company is a leading
manufacturer and distributor of portable generators in the United States.
Generators are used for home improvement projects, small businesses, emergency
preparedness and outdoor recreation. These products are manufactured by the
Company at its United States facilities using engines manufactured by third
parties, are marketed under the Coleman Powermate/registered trademark/ brand
name and are distributed predominantly through mass merchandisers and home
center chains. The Company also produces advanced, light-weight generators
incorporating proprietary technology. The Company's air compressors are
manufactured at its facilities located in the United States, are marketed under
the Coleman Powermate brand name and are distributed predominantly through mass
merchandisers and home center chains.
EASTPAK. The Company designs, manufactures and distributes book bags,
backpacks and related goods throughout the United States under the Eastpak and
Timberland/registered trademark/ brand names. The Company manufactures the
majority of its products in its plants located in Puerto Rico.
5
INTERNATIONAL
The Company markets a variety of products outside the United States.
While the Company sells many of the same products domestically and
internationally, it also sells products designed specifically to appeal to
foreign markets. The Company, through its foreign subsidiaries, has
manufacturing facilities in France, Indonesia, Italy, Mexico, and Venezuela, and
sales administration offices, warehouse and distribution facilities in Canada,
Europe, the Mideast, Asia and Latin America. The Company also sells its products
directly to international customers in certain other markets through Company
sales managers, independent distributors and commissioned sales representatives.
The products sold by the international group are sourced from the Company's
manufacturing operations or from vendors primarily located in Asia.
International sales accounted for approximately 23%, 21% and 19% of the
Company's consolidated net sales in 1998, 1997 and 1996, respectively. The
Company's international operations are managed through the following geographic
areas:
EUROPE. The Company's European operations are managed from Brussels and
the sales are dominated by the product lines acquired by the Company in
connection with the Coleman acquisition, including the Campingaz product lines
and Eastpak products. The Company's European office also manages the sale and
distribution of Company products throughout Africa and the Middle East.
JAPAN. The Company's sales in Japan are almost exclusively sales of
camping equipment such as tents, stoves, lanterns, sleeping bags and
accessories.
LATIN AMERICA. The activities of Sunbeam outside the United States were
primarily focused in Mexico and Latin America prior to the 1998 acquisition of
Coleman. The Company enjoys a strong market position in a number of product
lines in Latin America. The Oster brand has the leading market share in small
appliances in a number of Latin American countries. The Company's sales in Latin
America are derived primarily from household appliances, particularly the Oster
blender and the recently introduced Oster arepa maker.
CANADA. The Company sells substantially all of its products in Canada
through a distribution sales office located in Toronto.
EAST ASIA. During 1998, the Company's sales in East Asia were hampered
by the economic downturn particularly in South Korea where the Company had
developed a strong market for Eastpak bags, and in Indonesia where the company
sells Campingaz products. The Company has established a sales office in
Australia, from which it sells primarily clippers and appliances, and
distributes First Alert products in Australia and New Zealand. Sales offices
have also been established in Manila and Hong Kong.
Sunbeam has sales and facilities in countries where economic growth has
slowed, primarily Japan, Korea and Latin America. The economies of other foreign
countries important to the Company's operations could also suffer instability in
the future. The following are among the factors that could negatively affect
Sunbeam's operations in foreign markets: (1) access to markets; (2) currency
devaluation; (3) new tariffs; (4) changes in monetary policies; (5) inflation,
and (6) governmental instability. See also Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Foreign Operations
and - Cautionary Statements."
CORPORATE
RETAIL. The Company sells many of its products through its retail
outlet stores which are operated under the Sunbeam, Oster and Camp
Coleman/registered trademark/ names. The Company currently has 37 retail outlet
stores in the United States and Canada which primarily carry discontinued,
overstock and refurbished products for retail sale to consumers. Net sales from
retail stores were not significant in any of the last three fiscal years.
LICENSING. The Company licenses the Sunbeam name and the Coleman name
and logo under two types of licensing arrangements: general merchandise licenses
and licenses to purchasers of businesses divested by the Company. The Company's
general merchandise licensing activities involve licensing the Sunbeam and/or
Coleman name and logo, for a royalty fee, to certain companies that manufacture
and sell products that complement the Company's product lines. Revenue from
licensing activities in 1998 in the amount of approximately $4 million was
generated primarily from the license of the Coleman name. In addition, the
Company licenses trade names from third parties for use in connection with the
Company's products. Revenue from licensing activities was not significant in
1997 and 1996.
6
COMPETITION
The markets in which the Company operates 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. The Company believes that no other company
produces and markets the breadth of household appliance, camping and outdoor
recreation products marketed by the Company.
The Company competes with various manufacturers and distributors with
respect to its household appliances. Primary competitors in the kitchen
appliance area have been Black & Decker (which recently sold its appliance
division to Windmere), Hamilton Beach/Procter Silex, West Bend, Melita,
Salton-Maxim, Cuisinart, Regal, Krups, Kitchen Aid, Braun and Rival. The
Company's primary competitor in the consumer scale market is Metro Corporation.
The Company's health care products compete with those of numerous small
manufacturers and distributors, none of which dominates the home health care
market. The Company has no domestic competitors for its electric blankets and
heated throws and enjoys a market share in excess of 90% for these products. The
Company's primary competitors for retail clippers and trimmers are Wahl and
Conair; the primary competitors in the professional products lines are Wahl and
Andis. The Company enjoys a leading market share with respect to its smoke and
carbon monoxide detectors where Ranco, American Sensor, Nighthawk and Siebe are
the primary competitors. The Company competes with Micro General with respect to
its Pelouze scales.
The Company's Outdoor Leisure products compete with numerous products.
Lanterns and stoves compete with, among others, products offered by Century
Primus, American Camper and Dayton Hudson Corporation, while Desa & Schau and
Mr. Heater are the primary competitors for heaters. The primary competitors for
the Company's portable furniture are a variety of import companies. The
Company's insulated cooler and jug products compete with products offered by
Rubbermaid Incorporated, Igloo Products Corp. and The Thermos Company. The
Company's sleeping bags compete with, among others, American Recreation,
Slumberjack, Academy Broadway Corp. and MZH Inc, as well as certain private
label manufacturers. In the tent market, the Company competes with, among
others, Wenzel, Eureka and Mountain Safety Research, as well as certain private
label manufacturers. The Company competes with W.C. Bradley, Meco, Fiesta,
Ducane, Weber and Keanall for sales of outdoor grills. The Company's backpack
products compete with, among others, American Camper, JanSport, Nike, Outdoor
Products, The North Face and Kelty, as well as certain private label
manufacturers. The Company's competition in the electric light business
includes, among others, Eveready and Rayovac Corporation. The Company's camping
accessories compete primarily with Coughlan's. The Company's primary competitors
in the generator business are Generac Corporation, Honda Motor Co., Ltd.,
Kawasaki and Yamaha. Primary competitors in the air compressor business include
DeVilbiss and Campbell Hausfeld. In addition, the Company competes with various
other entities in international markets.
CUSTOMERS
The Company markets its products through virtually every category of
retailer including mass merchandisers, catalog showrooms, warehouse clubs,
department stores, catalogues, Company-owned outlet stores, television shopping
channels, hardware stores, home improvement centers, office products centers,
drug and grocery stores, and pet supply retailers, as well as independent
distributors and military post exchange outlets. In 1998, the Company sold
products to virtually all of the top 100 U.S. retailers, including
Wal-Mart/Sam's Club, Kmart, Price Costco, Target Stores and Home Depot. The
Company's largest customer, Wal-Mart, accounted for approximately 18%, 20%, and
19% of consolidated net sales in 1998, 1997 and 1996, respectively. The Company
has the majority of its U.S. customer sales on electronic data interchange (EDI)
systems.
BACKLOG
The amount of backlog orders at any point in time is not a significant
factor in the Company's business.
PATENTS AND TRADEMARKS
The Company believes that an integral part of its strength is its
ability to capitalize on the Sunbeam/registered trademark/, Coleman/registered
trademark/, Oster/registered trademark/, Eastpak/registered trademark/, Mr.
Coffee/registered trademark/, Health o Meter/registered trademark/, First
Alert/registered trademark/ and Campingaz/registered trademark/ trademarks which
are registered in the United States and in numerous foreign countries. Widely
recognized throughout North America, Latin America and Europe, these registered
trademarks, along with Powermate/registered trademark/, Pelouze/registered
trademark/, Peak One/registered trademark/, Osterizer/registered trademark/,
Mixmaster/registered trademark/, Toast Logic/registered trademark/,
Steammaster/registered trademark/, Oskar/registered trademark/,
Grillmaster/registered trademark/ and "Blanket with a Brain/registered
trademark/" brands are important to the success of the Company's products. Other
important trademarks within Sunbeam include Oster Designer/registered
trademark/, Cuddle-Up/registered trademark/ and A5/registered trademark/. The
loss of any single trademark would not have a material adverse effect on the
Company's business; however, the Sunbeam, Coleman and Mr. Coffee trademarks are
integral to certain of the Company's continuing operations and the Company
aggressively monitors and protects these and other brands.
7
The Company holds numerous design and utility patents covering a wide
variety of products, the loss of any one of which would not have a material
adverse effect on the Company's business taken as a whole.
RESEARCH AND DEVELOPMENT
New products and improvements to existing products are developed based
upon the perceived needs and demands of consumers. Research and development
expenditures are expensed as incurred. The amounts charged to operations for the
fiscal years ended 1998, 1997 and 1996 were $18.7 million, $5.7 million and $6.5
million, respectively.
EMPLOYEES
As of December 31, 1998, the Company had approximately 14,196 full-time
and part-time employees of which 6,848 are employed domestically. The Company is
a party to collective bargaining agreements with its hourly employees located at
the Aurora, Illinois, Glenwillow, Ohio and Bridgeview, Illinois plants. The
Company's Canadian warehouse employees are represented by a union, as are all of
the production employees at the Company's operations in France and Italy. The
Company has had no material labor-related work stoppages and, in the opinion of
management, relations with its employees are generally good.
SEASONALITY
Sunbeam's sales, prior to the acquisitions, have not traditionally
exhibited substantial seasonality; however, sales have been strongest during the
fourth quarter of the calendar year. Additionally, sales of outdoor cooking
products are strongest in the first half of the year, while sales of appliances,
personal care and blanket products are strongest in the second half of the year.
After considering the seasonality of the acquired entities, Sunbeam's
consolidated sales are not expected to exhibit substantial seasonality; however,
sales are expected to be strongest during the second quarter of the calendar
year. Furthermore, sales of a number of products, including warming blankets,
vaporizers, humidifiers, grills, First Alert products, camping and generator
products may be impacted by unseasonable weather conditions.
RAW MATERIALS/SUPPLIERS
The raw materials used in the manufacture of the Company's products are
available from numerous suppliers in quantities sufficient to meet normal
requirements. The Company's primary raw materials include aluminum, steel,
plastic resin, copper, electrical components, various textiles or fabrics and
corrugated cardboard for cartons. The Company also purchases a substantial
number of finished products. The Company is not dependent upon any single
supplier for a material amount of such sourced products.
ENVIRONMENTAL MATTERS
The Company's operations, like those of comparable businesses, are
subject to certain federal, state, local and foreign environmental laws and
regulations in addition to laws and regulations regarding labeling and packaging
of products and the sales of products containing certain environmentally
sensitive materials ("Environmental Laws"). The Company believes it is in
substantial compliance with all Environmental Laws which are applicable to its
operations. Compliance with Environmental Laws involves certain continuing
costs; however, such costs of ongoing compliance have not resulted, and are not
anticipated to result, in a material increase in the Company's capital
expenditures or to have a material adverse effect on the Company's results of
operations, financial condition or competitive position.
In addition to ongoing environmental compliance at its operations, the
Company also is actively engaged in certain environmental remediation activities
many of which relate to divested operations. As of December 31, 1998, the
Company has been identified by the United States Environmental Protection Agency
("EPA") or a state environmental agency as a potentially responsible party
("PRP") in connection with seven sites subject to the federal Superfund Act and
five sites subject to state Superfund laws comparable to the federal law
(collectively the "Environmental Sites"), exclusive of sites at which the
Company has been designated (or expects to be designated) as a de minimis (less
than 1%) participant.
The Superfund Act, and related state environmental remediation laws,
generally authorize governmental authorities to remediate a Superfund site and
to assess the costs against the PRPs or to order the PRPs to remediate the site
at their expense. Liability under the Superfund Act is joint and several and is
imposed on a strict basis, without regard to degree of negligence or
culpability. As a result, the Company recognizes its responsibility to determine
whether other PRPs at a Superfund site are financially capable of paying their
respective shares of the ultimate cost of remediation of the site.
8
Whenever the Company has determined that a particular PRP is not financially
responsible, it has assumed for purposes of establishing reserve amounts that
such PRP will not pay its respective share of the costs of remediation. To
minimize the Company's potential liability with respect to the Environmental
Sites, the Company has actively participated in steering committees and other
groups of PRPs established with respect to such sites. The Company currently is
engaged in active remediation activities at 12 sites, seven of which are among
the Environmental Sites referred to above, and five of which have not been
designated as Superfund sites under federal or state law.
The Company has established reserves to cover the anticipated probable
costs of remediation, based upon periodic reviews of all sites for which the
Company has, or may have, remediation responsibility. The amount of such
reserves was $25.0 million at December 31, 1998 and $24.0 million at December
28, 1997. The Company continues to pursue the recovery of some environmental
remediation costs from certain of its liability insurance carriers; however,
such potential recoveries have not been offset against potential liabilities and
have not been considered in determining the Company's environmental reserves.
The Company is not a party to any other administrative or judicial
proceeding to which a governmental authority is a party and which involves
potential monetary sanctions, exclusive of interest and costs, of $100,000 or
more.
The Company believes, based on existing information for sites where
costs are estimable, that the costs of completing environmental remediation of
all sites for which the Company has a remediation responsibility have been
adequately reserved and that the ultimate resolution of these matters will not
have a material adverse effect upon the Company's financial condition, results
of operations or cash flows.
Due to uncertainty over remedial measures to be adopted at some sites,
the possibility of changes in Environmental Laws and regulations and the fact
that joint and several liability with the right of contribution is possible at
federal and state Superfund sites, the Company's ultimate future liability with
respect to sites at which remediation has not been completed may vary from the
amounts reserved as of December 31, 1998.
REGULATORY MATTERS
The Company is subject to various laws and regulations in connection
with its business operations, including but not limited to laws related to
relations with employees, maintenance of safe manufacturing facilities, truth in
packaging and advertising, regulation of medical products and safety of consumer
products. The Company does not anticipate that its business or operations will
be materially adversely affected by compliance with any of these provisions.
SIGNIFICANT 1998 FINANCIAL AND BUSINESS DEVELOPMENTS
THE 1998 ACQUISITIONS
On March 2, 1998, the Company announced that it had entered into
separate agreements to acquire Coleman, Signature Brands and First Alert.
Coleman is a leading manufacturer and marketer of outdoor recreational products.
It manufactures and distributes widely diversified product lines for camping,
leisure time and hardware markets, under the Coleman, Powermate, Campingaz and
Eastpak brand names. On March 30, 1998, the Company, through a wholly-owned
subsidiary, acquired approximately 81% of the total number of then outstanding
shares of common stock of Coleman, from an affiliate of MacAndrews & Forbes
Holdings, Inc. ("M&F"), in exchange for 14,099,749 shares of the Company's
common stock and approximately $160 million in cash. In addition, the Company
assumed approximately $1,016 million in debt. As a result of the exercise of
employee stock options, Sunbeam's indirect beneficial ownership of Coleman
decreased to approximately 79% of the outstanding shares of Coleman common
stock. The Company's agreement for the acquisition of the remaining publicly
held Coleman shares pursuant to a merger transaction provides that the remaining
Coleman shareholders will receive approximately 6.7 million shares of Sunbeam
common stock (0.5677 share for each outstanding Coleman share) and approximately
$87 million in cash ($6.44 for each outstanding Coleman share and a cash-out of
unexercised Coleman stock options equal to the difference between $27.50 per
share and the exercise price of such options). The Company expects to complete
the Coleman merger during the second half of 1999, although there can be no
assurance that the merger will occur during that time. See "Settlement of
Coleman-Related Claims" below for information regarding the settlement of
certain claims relating to the Coleman acquisition, the terms of which involved
the issuance of warrants to purchase shares of the Company's common stock at
$7.00 per share.
On April 3, 1998, the Company acquired more than a 90% interest in
Signature Brands and First Alert pursuant to cash tender offers for each
company's outstanding shares. The Company completed its acquisitions of the
remaining publicly held shares of each of Signature Brands and First Alert
pursuant to merger transactions consummated on April 6, 1998.
9
Signature Brands is a leading manufacturer of a comprehensive line of consumer
and professional products, including coffee makers marketed under the Mr. Coffee
brand name and consumer health products marketed under the Health o Meter,
Counselor and Borg brand names. First Alert is the worldwide leader in
residential safety equipment including smoke and carbon monoxide detectors
marketed under the First Alert brand name. The consideration for the Signature
Brands and First Alert transactions was approximately $255 million (reflecting
cash paid, including the required retirement or defeasance of debt) and $182
million (including $133 million of cash and $49 million of assumed debt),
respectively.
For additional information, see Notes 2 and 15 of Notes to Consolidated
Financial Statements.
ISSUANCE OF ZERO COUPON CONVERTIBLE DEBENTURES AND CREDIT FACILITY
In order to finance the acquisitions of Coleman, Signature Brands and
First Alert and to repay substantially all of the outstanding indebtedness of
the Company and the three acquired companies, the Company completed an offering
of Zero Coupon Convertible Senior Subordinated Debentures due 2018 (the
"Debentures") at a yield to maturity of 5.0% (or approximately $2,014 million
principal amount at maturity) on March 25, 1998, which netted approximately $730
million of proceeds to the Company, and the Company borrowed approximately
$1,325 million under a new bank credit facility (the "New Credit Facility"). For
information regarding the Debentures and the New Credit Facility, see Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
PRESS RELEASES RELATING TO THE COMPANY'S FIRST QUARTER 1998 RESULTS
On March 19, 1998, the Company issued a press release announcing the
possibility that its net sales for the first quarter of 1998 might be lower than
the range of Wall Street analysts' estimates of $285 million to $295 million,
but were expected to exceed the $253.4 million in net sales previously reported
by the Company for the first quarter of 1997. On April 3, 1998, the Company
issued a press release announcing that the Company expected its net sales for
the first quarter of 1998 to be approximately 5% lower than those reported for
the first quarter of 1997 and that the Company would report a loss for the
quarter. On May 11, 1998, the Company announced results for the first quarter of
1998, including revenues of $244.3 million, a net loss from continuing
operations of $7.8 million and a net loss of $0.52 per share, and stated that it
expected earnings per share in the range of $1.00 for 1998 and $2.00 for 1999.
On June 15, 1998, the Company announced that such forecasts should not be relied
upon. Following each of these press releases, the market price of the Company's
stock fell substantially. On October 20, 1998, Sunbeam issued a press release
restating operating results for fiscal years 1996 and 1997, as well as the first
quarter of fiscal 1998. See "Restatement of Financial Results and Change in
Auditors" below and Item 3 - "Legal Proceedings."
MANAGEMENT AND BOARD CHANGES
On June 15 and 18, 1998, the Company announced the terminations of
Albert J. Dunlap as Chairman and Chief Executive Officer of the Company and
Russell A. Kersh as Vice-Chairman and Chief Financial Officer of the Company,
respectively. On June 15, 1998, the Company also announced that Jerry W. Levin
of M&F had been elected as the Chief Executive Officer and that Peter A.
Langerman of Franklin Mutual Advisers, Inc., the investment adviser to Franklin
Mutual Series Fund, Inc., had been elected non-executive Chairman of the Board
of the Company. Mr. Levin and Howard Gittis of M&F and Lawrence Sondike of
Franklin Mutual Advisers, Inc. were appointed to the Board to fill the vacancies
thereon. Messrs. Dunlap and Kersh resigned from the Board of Directors of the
Company effective August 5, 1998, and William T. Rutter resigned from the Board
of Directors effective July 8, 1998. Faith Whittlesey was elected to fill the
vacancy on the Audit Committee resulting from Mr. Rutter's resignation. In
January 1999, Mr. Sondike resigned from the Sunbeam Board; John H. Klein was
appointed to fill such Board vacancy in March 1999. On March 29, 1999, Mr. Levin
was elected Chairman of the Board, replacing Mr. Langerman, who remains as a
Director. See Item 4 - "Executive Officers of the Registrant."
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
By letter dated June 17, 1998, the staff of the Division of Enforcement
of the Securities and Exchange Commission ("SEC") advised the Company that it
was conducting an informal inquiry into the Company's accounting policies and
procedures and requested that the Company produce certain documents. On July 2,
1998, the SEC issued a Formal Order of Private Investigation, designating
officers to take testimony and pursuant to which a subpoena duces tecum was
served on the Company requiring the production of certain documents. On November
4, 1998, another SEC subpoena duces tecum requiring the production of further
documents was received by the Company. The Company has provided numerous
documents to the SEC staff and continues to cooperate fully with the SEC staff.
The Company cannot predict the term of such investigation or its potential
outcome.
10
RESTATEMENT OF FINANCIAL RESULTS AND CHANGE IN AUDITORS
On June 25, 1998, the Company announced that its then auditor, Arthur
Andersen LLP ("Arthur Andersen"), would not consent to the inclusion of its
opinion on the Company's 1997 financial statements in a registration statement
the Company was planning to file with the SEC. On June 30, 1998, the Company
announced that the Audit Committee of the Board of Directors (the "Audit
Committee") would conduct a review of the Company's prior financial statements
and that therefore, those financial statements should not be relied upon. The
Company also announced that Deloitte & Touche LLP ("Deloitte & Touche") had been
retained to assist the Audit Committee and Arthur Andersen in their review of
the Company's prior financial statements. On August 6, 1998, the Company
announced that the Audit Committee had determined that the Company would be
required to restate its financial statements for 1997, the first quarter of
1998, and possibly 1996, and that the adjustments, while not then quantified,
would be material. On October 20, 1998, the Company announced the restatement of
its financial results for a six-quarter period from the fourth quarter of 1996
through the first quarter of 1998. On November 20, 1998, the Company announced
that the Board of Directors had approved the appointment of Deloitte & Touche to
replace Arthur Andersen as the Company's independent auditors. See Item 9 -
"Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure."
SETTLEMENT OF COLEMAN-RELATED CLAIMS
On August 12, 1998, the Company announced that, following investigation
and negotiation conducted by a Special Committee of the Board, consisting of
four outside directors not affiliated with M&F, the Company had entered into a
settlement agreement with an affiliate of M&F pursuant to which the Company was
released from certain threatened claims of M&F and its affiliates arising from
the Coleman acquisition and M&F agreed to provide certain management personnel
and assistance to the Company in exchange for the issuance to the M&F affiliate
of five-year warrants to purchase up to 23 million shares of the Company's
common stock at an exercise price of $7.00 per share, subject to anti-dilution
provisions.
On October 21, 1998, the Company announced that it had entered into a
Memorandum of Understanding to settle, subject to court approval, certain class
actions brought by shareholders of Coleman challenging the proposed Coleman
merger. Under the terms of the proposed settlement, the Company will issue
warrants to purchase up to approximately 4.98 million shares of the Company's
common stock at $7.00 per share. These warrants will generally have the same
terms as the warrants previously issued to M&F's affiliate and will be issued
when the Coleman merger is consummated, which is expected to be in the second
half of 1999. There can be no assurance that the court will approve the proposed
settlement. See Item 3 - "Legal Proceedings."
NEW YORK STOCK EXCHANGE LISTING
By letter dated May 22, 1998, the Company was advised by the New York
Stock Exchange (the "NYSE") that the Company did not meet the continuing listing
standards of the NYSE because the Company did not have tangible net assets of at
least $12 million and average annual net income of at least $600,000 for 1995,
1996 and 1997. The Company has met with NYSE officials and has been advised by
the NYSE that the Company's stock will continue to be listed on the NYSE at this
time. However, the NYSE has advised the Company that it will continue to monitor
the Company's listing status.
OPTIONS REPRICING
In August 1998, the Company approved a plan to reprice outstanding
options to purchase shares of common stock held by the Company's employees. The
repricing program, which has been completed, provided for outstanding options
with exercise prices in excess of $10.00 per share to be exchanged for new
options on a voluntary basis in an exchange ratio ranging from approximately two
to three old options for one new option, (as determined by reference to a
Black-Scholes option pricing model) with the exercise price of the new options
set at $7.00 per share. These options were repriced at an exercise price
approximating the market value of the Company's common stock at the date of the
repricing, and, consequently, there was no related compensation expense. See
Note 9 of Notes to Consolidated Financial Statements.
CERTAIN UNDERSTANDINGS WITH FORMER MANAGEMENT
In early August 1998, Sunbeam entered into agreements with Messrs.
Dunlap and Kersh pursuant to which all the parties agreed not to assert claims
against each other for a period of at least six months and to exchange certain
information relating to the shareholders' litigation. The Company also agreed to
pay (and has paid) to Messrs. Dunlap and Kersh certain amounts related to
vacation and employment benefits and to advance certain costs subject to the
receipt of an undertaking from each of them to repay all amounts so advanced if
it is determined that they did not meet the applicable standard of conduct for
indemnification under Delaware law. This agreement has expired and Messrs.
Dunlap and Kersh have
11
commenced an arbitration action against the Company for recovery of certain
amounts allegedly payable to them under their respective agreements and have
filed an action in Delaware Chancery Court requesting an order requiring the
Company to advance certain defense costs to each of them. See Item 3 - "Legal
Proceedings."
ITEM 2. PROPERTIES
The Company's principal properties as of December 31, 1998 are as
follows:
[Enlarge/Download Table]
BUILDING OWNED/
LOCATION PRINCIPAL USE SQUARE FOOTAGE LEASED
-------- ------------- -------------- ------
UNITED STATES
-------------
Aurora, IL First Alert offices, manufacture of fire extinguishers....... 236,000 Leased
Boca Raton, FL Corporate headquarters....................................... 100,626 Leased
Bridgeview, IL Offices and manufacture of scales............................ 157,000 Owned
Glenwillow, OH Manufacture of Mr. Coffee products, distribution warehouse
and offices................................................ 458,000 Leased
Hattiesburg, MS Manufacture of molded plastic parts, humidifiers,
vaporizers, warehouse/distribution, and offices............ 725,000 Owned
Haverhill, MA Office and warehouse/distribution............................ 111,750 Leased
Kearney, NE Manufacture/assembly of portable generators; office
and warehouse.............................................. 155,000 Leased(1)
Lake City, SC Manufacture of sleeping bags................................. 168,000 Owned
Maize, KS Manufacture of propane cylinders and machined parts.......... 232,760 Leased
McMinnville, TN Manufacture of clippers, trimmers and blades................. 169,400 Leased
Neosho, MO Manufacture of outdoor barbecue grills....................... 669,700 Owned
New Braunfels, TX Manufacture of insulated coolers and other plastic products.. 338,000 Owned
Pocola, OK Manufacture of outdoor folding furniture and warehouse....... 186,000 Owned
Springfield, MN Manufacture of air compressors............................... 166,000 Owned
Waynesboro, MS Manufacture of electric blankets............................. 853,714 Leased
Wichita, KS Manufacture of lanterns and stoves and insulated coolers
and jugs; research and development and design
operations; office and warehouse........................... 1,197,000 Owned
Morovis and Orocovis, Manufacture of daypacks, sports bags, and related
Puerto Rico products; office and warehouse............................. 110,000 Leased
INTERNATIONAL
-------------
Acuna, Mexico Manufacture of appliances.................................... 110,000 Owned
Barquisimeto, Venezuela Manufacture of appliances.................................... 75,686 Owned
Brussels, Belgium European headquarters........................................ 14,721 Leased
Centenaro di Lonato, Italy Manufacture of butane lanterns, stoves, heaters and
grills; office and warehouse............................... 77,000 Owned
Juarez, Mexico Manufacture of smoke and carbon monoxide detectors........... 109,000 Leased
Matamoros, Mexico Manufacture of controls...................................... 91,542 Owned
Mississauga, Canada Sales and distribution office................................ 19,891 Leased
St. Genis Laval, France Manufacture of lanterns and stoves, filling of gas
cylinders, and assembly of grills; office and warehouse.... 2,070,000 Owned(2)
Tlalnepantla, Mexico Manufacture of appliances.................................... 297,927 Owned
<FN>
(1) The owned facilities at Kearney, Nebraska reside on land leased under three leases that expire in 2007 with options to
extend each for three additional ten-year periods.
(2) The warehouse portion of St. Genis Laval, France is leased for terms that expire in 2004; the remaining facility is owned.
</FN>
The Company also maintains leased sales and administrative offices in
the United States, Europe, Asia and Latin America, among other sites. The
Company leases various warehouse facilities and/or accesses public warehouse
facilities as needed on a short term lease basis. The Company also maintains gas
filling plants in Indonesia, the Philippines and the United Kingdom. The Company
also leases a total of 173,570 square feet for the operation of its retail
outlet stores. Company management considers the Company's facilities to be
suitable for the Company's operations, and believes that the Company's
facilities provide sufficient capacity for its production requirements.
ITEM 3. LEGAL PROCEEDINGS
On April 23, 1998, two class action lawsuits were filed on behalf of
purchasers of the Company's common stock in the U.S. District Court for the
Southern District of Florida against the Company and some of its present and
former directors and former officers alleging violations of the federal
securities laws as discussed below (the "Consolidated Federal Actions"). After
that date, approximately fifteen similar class actions were filed in the same
Court. One of the lawsuits also named as defendant Arthur Andersen, the
Company's independent accountants for the period covered by the lawsuit.
On June 16, 1998, the Court entered an Order consolidating all these
suits and all similar class actions subsequently filed and providing time
periods for the filing of a consolidated amended complaint and defendants'
response thereto. On June 22, 1998, two groups of plaintiffs made motions to be
appointed lead plaintiffs and to have their selection of counsel
12
approved as lead counsel. On July 20, 1998, the Court entered an Order
appointing lead plaintiffs and lead counsel. This Order also stated that it
"shall apply to all subsequently filed actions which are consolidated herewith."
On August 28, 1998, plaintiffs in one of the subsequently filed actions filed an
objection to having their action consolidated pursuant to the June 16, 1998
Order, arguing that the class period in their action differs from the class
periods in the originally filed consolidated actions. On December 9, 1998, the
Court entered an Order overruling plaintiffs' objections and affirming its prior
Order appointing lead plaintiffs and lead counsel.
On January 6, 1999, plaintiffs filed a consolidated amended class
action complaint against the Company, some of its present and former directors
and former officers, and Arthur Andersen. The consolidated amended class action
complaint alleges that, in violation of section 10(b) of the Exchange Act and
SEC Rule 10b-5, defendants made material misrepresentations and omissions
regarding the Company's business operations, future prospects and anticipated
earnings per share, in an effort to artificially inflate the price of the common
stock and call options, and that, in violation of section 20(a) of the Exchange
Act, the individual defendants exercised influence and control over the Company,
causing the Company to make material misrepresentations and omissions. The
consolidated amended complaint seeks an unspecified award of money damages. On
February 5, 1999, plaintiffs moved for an order certifying a class consisting of
all persons and entities who purchased Sunbeam common stock or who purchased
call options or sold put options with respect to Sunbeam common stock during the
period April 23, 1997 through June 30, 1998, excluding the defendants, their
affiliates, and employees of Sunbeam. Defendants' have filed a response to the
motion for class certification. On March 8, 1999, all defendants who had been
served with the consolidated amended class action complaint moved to dismiss it.
Under the Private Securities Litigation Reform Act of 1995, all discovery in the
consolidated action is stayed pending resolution of the motions to dismiss.
On April 7, 1998, a purported derivative action was filed in the
Circuit Court for the Fifteenth Judicial Circuit in and for Palm Beach County,
Florida against the Company and some of its present and former directors and
former officers. The action alleged that the individual defendants breached
their fiduciary duties and wasted corporate assets when the Company granted
stock options at an exercise price of $36.85 to three of its officers and
directors (who were subsequently terminated) on or about February 2, 1998. On
June 25, 1998, all defendants filed a motion to dismiss the complaint for
failure to make a presuit demand on Sunbeam's Board of Directors. On October 22,
1998, the plaintiff amended the complaint against all but one of the defendants
named in the original complaint. On February 19, 1999, plaintiff filed a second
amended derivative complaint nominally on behalf of Sunbeam against some of its
present and former directors and former officers and Arthur Andersen. The second
amended complaint alleges, among other things, that Messrs. Dunlap and Kersh
(the Company's former Chairman and Chief Executive Officer and Chief Financial
Officer, respectively) caused Sunbeam to employ fraudulent accounting procedures
in order to enable them to secure new employment contracts, and seeks an award
of damages and other declaratory and equitable relief. The plaintiff has agreed
that defendants need not respond to the second amended complaint until May 14,
1999. As described below, the Company and the plaintiff have moved the Court
for injunctive relief against Messrs. Dunlap and Kersh with respect to the
arbitration action brought by them.
On June 25, 1998, four purported class actions were filed in the Court
of Chancery of the State of Delaware in New Castle County by minority
shareholders of Coleman against Coleman, the Company and some of the Company's
and Coleman's present and former officers and directors. An additional class
action was filed on August 10, 1998, against the same parties. The complaints in
these class actions allege, in essence, that the existing exchange ratio for the
proposed Coleman merger is no longer fair to Coleman public shareholders as a
result of the decline in the market value of the common stock. On October 21,
1998, the Company announced that it had entered into a Memorandum of
Understanding to settle, subject to court approval, the class actions. Under the
terms of the proposed settlement, if approved by the Court the Company will
issue to the Coleman public shareholders and plaintiff's counsel in this action,
warrants to purchase up to approximately 4.98 million shares of the Company's
common stock at a cash exercise price of $7 per share, subject to certain
antidilution provisions. These warrants will generally have the same terms as
the warrant issued to an affiliate of M&F and will be issued when the Coleman
merger is consummated, which is now expected to occur during the second half of
1999. (See Note 2 of Notes to Consolidated Financial Statements.) Issuance of
these warrants will be accounted for as additional purchase consideration. There
can be no assurance that the Court will approve the settlement as proposed.
During the months of August and October 1998, purported class action
and derivative lawsuits were filed in the Court of Chancery of the State of
Delaware in New Castle County and in the U.S. District Court for the Southern
District of Florida by shareholders of the Company against the Company, M&F and
certain of the Company's present and former directors. These complaints allege
that the defendants breached their fiduciary duties when the Company entered
into a settlement agreement whereby M&F and its affiliates released the Company
from certain claims they may have had arising out of the Company's acquisition
of M&F's interest in Coleman, and M&F agreed to provide management support to
the Company. Under the settlement agreement, M&F was granted a five-year warrant
to purchase up to an additional 23 million shares of common stock at an
exercise price of $7 per share, subject to certain antidilution provisions. The
plaintiffs have requested an injunction against issuance of stock to M&F
pursuant to the exercise of the warrants and
13
unspecified money damages. These complaints also allege that the rights of the
public shareholders have been compromised, as the settlement would normally
require shareholders' approval under the rules and regulations of the NYSE. The
Audit Committee of the Company's Board of Directors determined that obtaining
such shareholders' approval would have seriously jeopardized the financial
viability of the Company, which is an allowable exception to the NYSE
shareholder approval requirements. By Order of the Court of Chancery dated
January 7, 1999, the derivative actions filed in that Court were consolidated
and the Company has moved to dismiss such action. The action filed in the U.S.
District Court for the Southern District of Florida has been dismissed.
On September 16, 1998, an action was filed in the 56th Judicial
District Court of Galveston County, Texas alleging various claims in violation
of the Texas Securities Act and Texas Business & Commercial Code as well as
common law fraud as a result of the Company's alleged misstatements and
omissions regarding the Company's financial condition and prospects during a
period beginning May 1, 1998 and ending June 16, 1998, in which the plaintiffs
engaged in transactions in the Company's common stock. The Company is the only
named defendant in this action. The complaint requests recovery of compensatory
damages, punitive damages and expenses in an unspecified amount. This action was
removed to the U.S. District Court for the Southern District of Texas and,
subsequently has been transferred to the Southern District of Florida, the forum
for the Consolidated Federal Actions.
On October 30, 1998, a class action lawsuit was filed on behalf of
certain purchasers of the Debentures in the U.S. District Court of the Southern
District of Florida against the Company and some of the Company's former
officers and directors, alleging violations of the federal securities laws and
common law fraud. The complaint alleges that the Company's offering memorandum
used for the marketing of the Debentures contained false and misleading
information regarding the Company's financial position and that the defendants
engaged in a plan to inflate the Company's earnings for the purpose of
defrauding the plaintiffs and others. This action has been transferred to the
Southern District of Florida, the forum for the Consolidated Federal Actions,
and the parties have negotiated a proposed coordination plan in order to
coordinate proceedings in this action with those in the Consolidated Federal
Actions.
The Company has been named as a defendant in an action filed in the
District Court of Tarrant County, Texas, 48th Judicial District, on November 20,
1998 which was served on the Company through the Secretary of State of Texas on
January 15, 1999. The plaintiffs in this action are purchasers of the
Debentures. The plaintiffs allege that the Company violated the Texas Securities
Act and the Texas Business & Commercial Code and committed state common law
fraud by materially misstating the financial position of the Company in
connection with the offering and sale of the Debentures. The complaint seeks
rescission, as well as compensatory and exemplary damages in an unspecified
amount. The Company specially appeared to assert an objection to the Texas
Court's exercise of personal jurisdiction over the Company, and a hearing on
this objection was held on April 15, 1999. The Court has issued a letter ruling
advising the parties that it would grant the Company's special appearance and
sustain the challenge to personal jurisdiction. The plaintiffs have moved for
reconsideration of this decision. Plaintiffs had also moved for partial summary
judgment on their Texas Securities Act claims, but, in light of the Court's
decision on the special appearance, the hearing on the summary judgment motion
has been cancelled.
On April 12, 1999, a class action lawsuit was filed in the U.S.
District Court for the Southern District of Florida. The lawsuit was filed on
behalf of persons who purchased Debentures during the period of March 20, 1998
through June 30, 1998, inclusive, but after the initial offering of such
Debentures. The complaint asserts that Sunbeam made material omissions and
misrepresentations that had the effect of inflating the market price of the
Debentures. The complaint names as defendants the Company, its former auditor,
Arthur Andersen and two former Sunbeam officers, Messrs. Dunlap and Kersh. The
plaintiff is an institution which allegedly acquired in excess of $150,000,000
face amount of the Debentures and now seeks unspecified money damages. The
Company was served on April 16, 1999 in connection with this pending lawsuit.
The Company will advise the Court of the pending Consolidated Federal Actions
and request transfer of this action.
On February 9, 1999, Messrs. Dunlap and Kersh filed with the American
Arbitration Association demands for arbitration of claims under their respective
employment agreements with Sunbeam. Messrs. Dunlap and Kersh are requesting a
finding by the arbitrator that they were terminated by the Company without cause
and should be awarded the corresponding benefits set forth in their respective
employment agreements. On March 12, 1999, Sunbeam asked the Circuit Court for
the Fifteenth Judicial Circuit in and for Palm Beach County, Florida to issue an
injunction prohibiting Messrs. Dunlap and Kersh from pursuing their arbitration
proceedings against Sunbeam on the ground that the simultaneous litigation of
the April 7, 1998 action and these arbitration proceedings would subject Sunbeam
to the threat of inconsistent adjudications with respect to certain rights to
compensation asserted by Messrs. Dunlap and Kersh. On March 19, 1999, the
plaintiff in the April 7, 1998 action discussed above moved for a similar
injunction on the ground that the arbitration proceedings threatened irreparable
harm to Sunbeam and its shareholders. On March 26, 1999, Messrs. Dunlap and
Kersh filed a response in
14
opposition to the motions for injunctive relief. A hearing on the motions for
injunctive relief has been held and, as a result of Sunbeam's motion for
preliminary injunction, administration of the arbitrations has been suspended
until May 10, 1999.
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in the
Court of Chancery of the State of Delaware seeking an order directing Sunbeam to
advance attorneys' fees and other expenses incurred in connection with various
state and federal class and derivative actions and an investigation instituted
by the SEC. The complaint alleges that such advancements are required by
Sunbeam's by-laws and by a forbearance agreement entered into between Sunbeam
and Messrs. Dunlap and Kersh in August 1998. The Company filed its answer to the
complaint and the Court of Chancery has scheduled a trial of this summary
proceeding to be held on June 15, 1999.
The Company intends to vigorously defend each of the foregoing lawsuits
other than those as to which a Memorandum of Understanding to settle has been
reached, but cannot predict the outcome and is not currently able to evaluate
the likelihood of the Company's success in each case or the range of potential
loss. However, if the foregoing actions were determined adversely to the
Company, such judgments would likely have a material adverse effect on the
Company's financial position, results of operations and cash flow.
On July 2, 1998, the American Insurance Company ("American") filed suit
against the Company in the U.S. District Court for the Southern District of New
York requesting a declaratory judgment of the Court that the directors' and
officers' liability insurance policy for excess coverage issued by American was
invalid and/or had been properly canceled by American. The Company's motion to
transfer such action to the federal district court in which the Consolidated
Federal Actions are currently pending was recently denied. The case is now in
discovery. On October 20, 1998, an action was filed by Federal Insurance Company
in the U.S. District Court for the Middle District of Florida requesting the
same relief as that requested by American in the previously filed action as to
additional coverage levels under the Company's directors' and officers'
liability insurance policy. This action has been transferred to the U.S.
District Court for the Southern District of Florida and is currently in
discovery. On December 22, 1998, an action was filed by Executive Risk
Indemnity, Inc. in the Circuit Court of the Seventeenth Judicial Circuit in and
for Broward County, Florida requesting the same relief as that requested by
American and Federal in their previously filed actions as to additional coverage
levels under the Company's directors' and officers' liability insurance policy.
On April 15, 1999, the Company filed an action in the U.S. District Court for
the Southern District of Florida against the National Union Fire Insurance
Company of Pittsburgh, PA, Gulf Insurance Company and St. Paul Mercury Insurance
Company requesting, among other things, a declaratory judgment that National
Union is not entitled to rescind its liability insurance policy to the Company
and a declaratory judgment that the Company is entitled to coverage from these
insurance companies for various lawsuits described herein under liability
insurance policies issued by each of the defendants. The Company intends to
pursue recovery from all of its insurers if damages are awarded against the
Company or its indemnified officers and/or directors under any of the foregoing
actions. The Company's failure to obtain such insurance recoveries following an
adverse judgement in any of the foregoing actions could have a material adverse
effect on the Company's financial position, results of operations and cash
flows.
The Company and its subsidiaries are also involved in various lawsuits
arising from time to time which the Company considers to be ordinary routine
litigation incidental to its business. In the opinion of the Company, the
resolution of these routine matters, and of certain matters relating to prior
operations, individually or in the aggregate, will not have a material adverse
effect upon the financial position, results of operations or cash flows of the
Company.
As of December 31, 1998 and December 28, 1997, the Company had
established accruals for litigation matters, including legal fees, of $31.2
million and $9.9 million, respectively. The Company believes, based on existing
information, that anticipated probable costs of litigation matters existing as
of December 31, 1998 have been adequately reserved to the extent determinable.
See Item 1 - "Environmental Matters" and "Significant 1998 Financial
and Business Developments - SEC Investigation" and see Note 15 of Notes to
Consolidated Financial Statements for a description of certain legal proceedings
related to environmental matters.
15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1998, there were no matters
submitted to a vote of the Company's security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
[Enlarge/Download Table]
NAME AGE TITLE
---- --- -----
Jerry W. Levin 55 Chairman of the Board, President, Chief Executive Officer and Director
Paul E. Shapiro 58 Executive Vice President and Chief Administrative Officer
Bobby G. Jenkins 37 Executive Vice President and Chief Financial Officer
Karen K. Clark 38 Senior Vice President, Finance
Janet G. Kelley 46 Senior Vice President & General Counsel
Jack D. Hall 53 President, International
JERRY W. LEVIN was appointed Chief Executive Officer, President and a
Director of Sunbeam in June of 1998 and was elected as Chairman of the Board of
Directors in March 1999. Mr. Levin was also appointed to serve as Chief
Executive Officer and a Director of Coleman and Camper Acquisition Corp.
("CAC"), a wholly-owned subsidiary of Sunbeam, in June 1998. Mr. Levin
previously held the position of Chairman and Chief Executive Officer of Coleman
from February 1997 until its acquisition by Sunbeam in March 1998. Mr. Levin was
also the Chairman of Coleman from 1989 to 1991. Mr. Levin was Chairman of the
Board of Revlon, Inc. from November 1995 until June 1998, Chief Executive
Officer of Revlon, Inc. from 1992 until January 1997, and President of Revlon,
Inc. from 1993 to 1995. Mr. Levin has been Executive Vice President of M&F since
March 1989. For 15 years prior to joining M&F, Mr. Levin held various senior
executive positions with the Pillsbury Company. Mr. Levin is also a member of
the Boards of Directors of Revlon, Inc., Ecolab, Inc., U.S. Bancorp and Meridian
Sports Incorporated. For a description of certain arrangements entered into by
Sunbeam and M&F relating to the appointment of Mr. Levin as an officer of
Sunbeam, see Item 13 - "Certain Relationships and Related Transactions." An
affiliate of M&F currently owns in excess of 5% of the Company's common stock.
PAUL E. SHAPIRO joined Sunbeam as Executive Vice President and Chief
Administrative Officer in June of 1998. Mr. Shapiro was also appointed Executive
Vice President and Chief Administrative Officer and a Director of Coleman in
June 1998. Mr. Shapiro previously held the position of Executive Vice President
and General Counsel of Coleman from July 1997 until its sale in March 1998.
Before joining Coleman, he was Executive Vice President, General Counsel and
Chief Administrative Officer of Marvel Entertainment Group ("Marvel"). Marvel
and several of its subsidiaries filed voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") in 1996.
Mr. Shapiro served as an Executive Officer of Marvel at the time of such filing.
He had previously spent over 25 years in private law practice and as a business
executive, most recently as a shareholder in the law firm of Greenberg Traurig.
Mr. Shapiro is also a member of the Board of Directors of Toll Brothers, Inc.
For a description of certain arrangements entered into by Sunbeam and M&F
relating to the appointment of Mr. Shapiro as an officer of Sunbeam, see Item 13
- "Certain Relationships and Related Transactions."
BOBBY G. JENKINS joined Sunbeam in June 1998. He serves as Executive
Vice President and Chief Financial Officer of Sunbeam Corporation. Mr. Jenkins
also serves as Executive Vice President of Coleman, a position he was appointed
to in August 1998. Mr. Jenkins was Chief Financial Officer of The Coleman
Company's Outdoor Recreation division from September 1997 to May 1998. Mr.
Jenkins was Executive Vice President and Chief Financial Officer of Marvel from
December 1993 through June 1997. Marvel and several of its subsidiaries filed
voluntary petition for reorganization under Chapter 11 in 1996. Mr. Jenkins
served as an Executive Officer of Marvel at the time of such filing. Mr. Jenkins
was Assistant Vice President of Finance at Turner Broadcasting System from
August 1992 to November 1993. Prior to that, Mr. Jenkins was with Price
Waterhouse, last serving as Senior Audit Manager. For a description of certain
arrangements entered into by Sunbeam and M&F relating to the appointment of Mr.
Jenkins as an officer of Sunbeam, see Item 13 - "Certain Relationships and
Related Transactions."
KAREN K. CLARK joined Sunbeam in April of 1998 as Vice President,
Operations Finance and has served as Vice President, Finance since June 1998 and
as Senior Vice President, Finance since April 1999. Ms. Clark also serves as
Vice
16
President, Finance at Coleman, a position she has held since 1997. Ms. Clark was
Corporate Controller for Precision Castparts Corp. from 1994 to 1997 and prior
to that held various positions in public accounting and industry.
JANET G. KELLEY joined Sunbeam in March 1994 and was named General
Counsel in April of 1998 and Senior Vice President, General Counsel and
Secretary in April, 1999. From 1994 to 1998, Ms. Kelley served as Group Counsel
and Associate General Counsel. Ms. Kelley also serves as Vice President, General
Counsel and Secretary of Coleman, a position she was appointed to in August
1998. Prior to joining Sunbeam, she was a partner in the law firm of Wyatt,
Tarrant & Combs in Louisville, Kentucky.
JACK D. HALL joined Sunbeam in October 1998. Prior to joining Sunbeam,
Mr. Hall held various positions with Revlon Inc., most recently serving as
Executive Vice President, Worldwide Sales and Marketing Development. Prior to
joining Revlon, he spent six years with International Playtex Inc. in a variety
of sales positions.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock has been listed for trading on the New York
Stock Exchange under the symbol "SOC" since August 19, 1992. The following table
sets forth the high and low sales prices of the common stock for the quarters
indicated as reported on the NYSE Composite Transactions Tape.
PRICE RANGE
OF COMMON
STOCK DIVIDENDS
-------------------- PER
HIGH LOW COMMON SHARE
------- ------- ------------
Year Ending December 31, 1999
First Quarter........................... $ 7 1/2 $ 5 1/2 $ --
Second Quarter through April 30, 1999... 5 3/4 5 1/8 --
Year Ended December 31, 1998
First Quarter........................... $53 $35 7/16 $ 0.01
Second Quarter.......................... 45 9/16 8 3/16 --
Third Quarter........................... 10 3/8 5 1/8 --
Fourth Quarter.......................... 7 5/16 4 5/8 --
Year Ended December 31, 1997
First Quarter........................... $34 1/2 $24 5/8 $ 0.01
Second Quarter.......................... 40 3/4 30 0.01
Third Quarter........................... 45 3/4 35 3/8 0.01
Fourth Quarter.......................... 50 7/16 37 0.01
As of April 21, 1999, there were approximately 4,569 holders of record
of shares of common stock.
The Company stopped paying dividends on its common stock after the
first quarter of 1998 and has no intention of paying dividends in the
foreseeable future. Moreover, the Company's New Credit Facility, as amended
on April 15, 1999, prohibits the payment of cash dividends.
See Item 1 - "Significant 1998 Financial and Business Developments -
New York Stock Exchange Listing."
RECENT SALES OF UNREGISTERED SECURITIES
Effective February 1, 1998, pursuant to their respective employment
agreements (the "1998 Agreements"), Sunbeam granted certain options (the "1998
Options") to Messrs. Dunlap and Kersh and to David C. Fannin, former officers of
the Company, in consideration for services rendered or to be rendered by these
former executives. The grants were made pursuant to Section 4(2) under the
Securities Act of 1933. The following table specifies the number of shares of
common stock underlying these options.
Albert J. Dunlap................................. 3,750,000
Russell A. Kersh................................. 1,125,000
David C. Fannin.................................. 750,000
17
The 1998 Options had a term of 10 years and an exercise price of $36.85
per share. The 1998 Agreement with Mr. Dunlap provided that one-third of Mr.
Dunlap's 1998 Options would vest immediately, while the remaining two-thirds
would vest in subsequent years. The 1998 Agreement with Mr. Kersh provided that
one-fourth of Mr. Kersh's 1998 Options would vest immediately, while the
remaining three-fourths would vest in subsequent years. All of Mr. Fannin's 1998
Options were cancelled pursuant to his termination agreement.
As of February 1, 1998, Sunbeam also granted to Mr. Dunlap 300,000
shares of unregistered common stock and granted 150,000 and 30,000 shares of
restricted unregistered common stock to Messrs. Kersh and Fannin, respectively.
These shares were granted in consideration for services rendered or to be
rendered by these former executives. The grants were made pursuant to Section
4(2) under the Securities Act of 1933.
The 1998 Agreement with Mr. Dunlap provided for immediate vesting of
the restricted common stock granted to him; whereas the 1998 Agreement with Mr.
Kersh provided for the immediate vesting of 37,500 shares of the 150,000
restricted shares of common stock granted to him. Of Mr. Fannin's 30,000
restricted shares, 7,500 were vested and the remainder were forfeited pursuant
to his termination agreement with the Company.
The Company and Messrs. Dunlap and Kersh are currently engaged in
disputes with respect to the obligations of the Company under their respective
employment agreements, including the status of the foregoing option and stock
grants. See Item 3 - "Legal Proceedings."
On March 25, 1998, the Company sold approximately $2,014 million
aggregate principal amount of Debentures to the sole initial purchaser, Morgan
Stanley & Co. Incorporated, pursuant to Section 4(2) under the Securities Act of
1933. The Debentures were then resold to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and a limited number of
"institutional accredited investors" as defined in Rule 501(A)(1), (2), (3) or
(7) under the Securities Act. Sunbeam sold the Debentures for $750.0 million.
The underwriting discounts and commissions totaled $20.4 million. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
On March 30, 1998, the Company acquired from an affiliate of M&F
indirect beneficial ownership of 44,067,520 shares of common stock of Coleman,
or approximately 81% (79% after the exercise of certain stock options
immediately after the acquisition) of the then outstanding shares of Coleman
common stock, for 14,099,749 shares of Sunbeam common stock, in addition to
approximately $160 million in cash. In addition, the Company assumed
approximately $1,016 million of debt. Sunbeam issued these shares to the M&F
affiliate pursuant to Section 4(2) of the Securities Act. See Item 1 -
"Significant 1998 Financial and Business Developments - The 1998 Acquisitions."
On August 12, 1998, the Company announced that it had entered into a
settlement agreement with an affiliate of M&F, pursuant to which Sunbeam was
released from certain threatened claims of M&F and its affiliates arising from
the acquisition of Coleman and M&F agreed to provide certain management
personnel and assistance to Sunbeam in exchange for the issuance to the M&F
affiliate of a five-year warrant to purchase up to 23 million shares of Sunbeam
common stock at a cash exercise price of $7 per share, subject to antidilution
provisions. The issuance of the warrant was made in accordance with Section 4(2)
of the Securities Act. See Item 1 - "Significant 1998 Financial and Business
Developments - Settlement of Coleman - Related Claims."
18
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain financial information relating to
the Company. The summary should be read in conjunction with the Consolidated
Financial Statements of the Company. All amounts in the table are expressed in
millions, except per share data.
[Enlarge/Download Table]
FISCAL YEARS ENDED
--------------------------------------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29, DECEMBER 31, JANUARY 1,
1998 (1)(2) 1997 (3) 1996 (4) 1995 1995
------------ ------------ ------------ ------------ ----------
STATEMENTS OF OPERATIONS DATA:
Net sales........................... $ 1,836.9 $ 1,073.1 $ 984.2 $ 1,016.9 $ 1,044.3
Cost of goods sold.................. 1,788.8 831.0 896.9 809.1 764.4
Selling, general and administrative
expense........................... 718.1 152.6 221.7 137.5 128.9
Restructuring and asset impairment
(benefit) charges................. -- (14.6) 110.1 -- --
--------- --------- --------- --------- ---------
Operating (loss) earnings........... $ (670.0) $ 104.1 $ (244.5) $ 70.3 $ 151.0
========= ========= ========= ========= =========
(Loss) earnings from continuing
operations before extraordinary
charge............................ $ (775.5) $ 52.3 $ (170.2) $ 37.6 $ 85.3
Earnings from discontinued operations,
net of taxes(5)................... -- -- 0.8 12.9 21.7
Loss on sale of discontinued operations,
net of taxes(5)................... -- (14.0) (39.1) -- --
Extraordinary charge from early
extinguishments of debt........... (122.4) -- -- -- --
--------- --------- --------- --------- ---------
Net (loss) earnings................. $ (897.9) $ 38.3 $ (208.5) $ 50.5 $107.0
========= ========= ========= ========= =========
PER SHARE DATA:
Weighted average common shares
outstanding:
Basic........................... 97.1 84.9 82.9 81.6 82.6
Diluted......................... 97.1 87.5 82.9 82.8 82.6
(Loss) earnings per share from continuing
operations before extraordinary
charge:
Basic........................... $ (7.99) $ 0.62 $ (2.05) $ 0.46 $ 1.03
Diluted......................... (7.99) 0.60 (2.05) 0.45 1.03
Net (loss) earnings per share:
Basic........................... (9.25) 0.45 (2.51) 0.62 1.30
Diluted......................... (9.25) 0.44 (2.51) 0.61 1.30
Cash dividends declared per share... 0.01 0.04 0.04 0.04 0.04
BALANCE SHEET DATA (AT PERIOD END):
Working capital..................... 488.5 369.1 359.9 411.7 294.8
Total assets........................ 3,405.5 1,058.9 1,059.4 1,158.7 1,008.9
Long-term debt...................... 2,142.4 194.6 201.1 161.6 124.0
Shareholders' equity................ 260.4 472.1 415.0 601.0 454.7
<FN>
(1) On March 30, 1998, the Company acquired approximately 81% of the then
outstanding shares of common stock of Coleman. On April 6, 1998, the
Company completed the cash acquisitions of First Alert and Signature
Brands. The acquisitions were accounted for under the purchase method
of accounting and, accordingly, the financial position and results of
operations of each acquired entity is included in the Consolidated
Financial Statements from the respective dates of acquisition.
(2) Includes charges of $70.0 million related to the issuance of warrants,
$62.5 million related to the write-off of goodwill, $122.4 million
related to the early extinguishments of debt, $39.4 million related to
fixed asset impairments, $31.2 million of compensation expense recorded
in connection with new employment agreements with the Company's former
Chairman and Chief Executive Officer and two other former senior
officers and $95.8 million related to excess and obsolete inventory
reserves. See Notes 2, 3, 8, 11 and 17 of Notes to Consolidated
Financial Statements.
(3) Includes the reversal of $28.0 million pre-tax liabilities no longer
required and of $13.3 million tax liabilities no longer required. See
Note 17 of Notes to Consolidated Financial Statements.
(4) Includes special charges of $239.2 million before taxes. See Notes 12
and 13 of Notes to Consolidated Financial Statements.
(5) Represents earnings from the Company's furniture business, net of
taxes, and the estimated loss on disposal. See Note 13 of Notes to
Consolidated Financial Statements.
</FN>
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1998 ACQUISITIONS
On March 30, 1998, the Company, through a wholly-owned subsidiary,
acquired approximately 81% of the total number of then outstanding shares of
common stock of Coleman from an affiliate of M&F, in exchange for 14,099,749
shares of the Company's common stock and approximately $160 million in cash. In
addition, the Company assumed approximately $1,016 million in debt. Immediately
thereafter, as a result of the exercise of employee stock options, Sunbeam's
indirect beneficial ownership of Coleman decreased to approximately 79% of the
total number of the outstanding shares of Coleman common stock. The Company's
agreement for the acquisition of the remaining publicly held Coleman shares
pursuant to a merger transaction provides that the remaining Coleman
shareholders will receive approximately 6.7 million shares of Sunbeam common
stock (0.5677 share for each outstanding Coleman share) and approximately $87
million in cash ($6.44 for each outstanding Coleman share and a cash-out of
unexercised Coleman options equal to the difference between $27.50 per share and
the exercise price of such options. The Company expects to complete the Coleman
merger during the second half of 1999, although there can be no assurance that
the merger will occur during that time. See Notes 2 and 15 of Notes to
Consolidated Financial Statements and Item 1 - "Significant 1998 Financial and
Business Developments - Settlement of Coleman-Related Claims" for information
regarding the settlement of certain claims relating to the Coleman acquisition,
the terms of which involved the issuance of warrants to purchase shares of the
Company's common stock at $7.00 per share.
On April 6, 1998, the Company completed the cash acquisitions of First
Alert, a leading manufacturer of smoke and carbon monoxide detectors, and
Signature Brands, a leading manufacturer of consumer and professional products.
The First Alert and the Signature Brands acquisitions were valued at
approximately $182 million (including $133 million of cash and $49 million of
assumed debt) and $255 million (reflecting cash paid, including the required
retirement or defeasance of debt), respectively.
The acquisitions were recorded under the purchase method of accounting
and accordingly, the financial position and results of operations of each
acquired entity are included in the Consolidated Financial Statements from the
respective dates of acquisition. The purchase prices of the acquired entities
have been allocated to individual assets acquired and liabilities assumed based
on estimates of fair values (determined by independent appraisals) at the dates
of acquisition.
FISCAL YEAR
To standardize the fiscal period ends of the Company and the acquired
entities, effective with its 1998 fiscal year, the Company has changed its
fiscal year end from the Sunday nearest December 31 to a calendar year. (See
Note 1 of Notes to Consolidated Financial Statements.)
ASSET IMPAIRMENT AND OTHER CHARGES
GOODWILL
When changes in circumstances indicate that the carrying value of
goodwill may not be recoverable, the Company estimates future cash flows using
the recoverability method (undiscounted future cash flows and including related
interest charges) as a basis for recording any impairment loss. An impairment
loss is then recorded to adjust the carrying value of goodwill to the
recoverable amount. The impairment loss taken is no greater than the amount by
which the carrying value of the net assets of the business exceeds its fair
value. Due to First Alert's financial performance in 1998 and its prospects in
1999 and beyond, the Company determined that the goodwill relating to this
acquisition was impaired. Accordingly, based on its determination of fair value,
the Company has written off the net carrying value of goodwill of $62.5 million
in the fourth quarter of 1998.
FIXED ASSET IMPAIRMENT AND EXCESS AND OBSOLETE INVENTORY RESERVES
In the second quarter of 1998, the Company decided to outsource or
discontinue a substantial number of products previously made by the Company,
resulting in certain facilities and equipment that will either no longer be used
or will be utilized in a significantly different manner. Accordingly, a charge
of $29.6 million was recorded in Cost of Goods Sold to write certain of these
assets down to their estimated fair market market value. Approximately 80% of
this charge related to machinery, equipment and tooling at the Company's Mexico
City and Hattiesburg, Mississippi manufacturing plants, the estimated fair value
for which was derived through an auction process. The remainder of this charge
related to tooling and equipment at various other facilities, which either had a
nominal value or the fair market value of which was derived through
20
an auction process. These assets were taken out of service at the time of the
write-down and consequently were not depreciated further after the write-down.
Personnel at the Mexico City facility were notified in the second
quarter of 1998 that the plant was scheduled for closure at year-end 1998,
accordingly, at that time a liability of $1.8 million was recorded in Cost of
Goods Sold primarily for employee severance. The employee severance related to
approximately 1,200 positions of which approximately 1,100 were terminated as of
December 31, 1998. In the third quarter of 1998, the Company recorded in Cost of
Goods Sold an additional provision for impairment of fixed assets of $3.1
million in an acquired entity relating to assets taken out of service for which
there was no remaining value. The asset impairment resulted from management's
decision to discontinue certain product lines subsequent to the acquisition.
These fixed assets were taken out of service at the time of the write-down and
consequently were not depreciated further after the write-down. In the fourth
quarter of 1998, the Company recorded a $7.1 million charge as a result of
management's decision to outsource the production of certain appliances. This
charge to Cost of Goods Sold primarily consists of a provision for certain
tooling and equipment ($6.7 million) and severance and related benefits ($0.4
million). The tooling and equipment was written down to its estimated fair value
which was derived from comparable market data. This equipment was taken out of
service and depreciation of this equipment was discontinued at the time of the
write-down.
During 1997 and the first half of 1998, the Company built inventories
in anticipation of 1998 sales volumes which did not materialize. As a result, it
has been and will continue to be necessary to dispose of some portions of excess
inventories at amounts less than cost. Accordingly, during 1998, when the facts
and circumstances were known that such sales volume would not materialize, the
Company recorded $58.2 million in charges to properly state this inventory at
the lower-of-cost-or-market. This inventory primarily related to certain
appliances, grills and grill accessories. The Company also recorded a charge of
$11.0 million for excess inventories for raw materials and work in process which
will not be used due to outsourcing the production of irons, breadmakers,
toasters and certain other appliances. In addition, during 1998, the Company
made the decision to exit certain product lines, primarily air and water
filtration products and eliminate certain stock keeping units ("SKU'S") within
existing product lines, primarily relating to appliances, grills and grill
accessories. As a result of this decision, a $26.6 million charge was recorded
to properly state this inventory at the lower-of-cost-or-market. Total charges
for excess inventories recorded at the lower-of-cost-or-market amounted to
approximately $95.8 million at December 31, 1998. (See Note 12 of Notes to
Consolidated Financial Statements for asset impairment and other charges
recorded in conjunction with a 1996 restructuring plan.)
RESTATEMENTS
On June 30, 1998, Sunbeam announced that the Audit Committee was
initiating a review into the accuracy of Sunbeam's prior financial statements.
The Audit Committee's review has since been completed and, as a result of its
findings, Sunbeam has restated its previously issued consolidated financial
statements for 1996 and 1997 and the first quarter of 1998. Based upon the
review, it was determined that certain revenue had been inappropriately
recognized, certain costs and allowances had not been accrued or were improperly
recorded, and certain costs were inappropriately included in, and subsequently
charged to, restructuring, asset impairment and other costs within the
Consolidated Statement of Operations for the years ended December 29, 1996 and
December 28, 1997 and the three months ended March 31, 1998. The financial
statements for the years ended December 28, 1997 and December 29, 1996 were
audited and filed on Form 10-K/A with the SEC on November 9, 1998. The
accompanying Consolidated Financial Statements present the restated results.
In connection with the restatements referred to above, the Company was
advised by Arthur Andersen that there existed conditions that Arthur Andersen
believed to be material weaknesses in the Company's internal control. See Item 9
- "Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure". In order to address these material weaknesses, the Company has
increased the number of senior financial personnel and has implemented
comprehensive review procedures of operating and financial information.
Additionally, as explained in more detail under "Year 2000 Readiness Disclosure"
within Item 7, the Company is in the process of significantly enhancing its
operating systems. The Company anticipates that its systems enhancements will be
completed in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 28, 1997
Results of operations for the year ended December 31, 1998 include the
results of Coleman from March 30, 1998 and of Signature Brands and First Alert
from April 6, 1998, the respective dates of the acquisition. The acquired
entities generated net sales of $1,009.0 million from the acquisition dates
noted above through December 31, 1998, with corresponding gross margin of $205.1
million, or 20% of sales. SG&A costs recorded by the acquired entities were
$329.9 million in the period, yielding an operating loss of $124.8 million.
21
For the acquired entities, net sales from the dates of the acquisitions
through fiscal year-end were approximately $152 million lower than the sales for
the same period in the prior year. This decline was caused by lower net sales at
Coleman ($81.5 million), Signature Brands ($31.2 million) and First Alert ($39.2
million). Excluding the effects of Coleman's sale of its safety and security
business in March 1998 and the discontinuation of its pressure washer business
during 1997, Coleman's 1998 sales would have been approximately $4 million lower
than in 1997. The Company believes that Signature Brands' decline, primarily in
its coffee and tea products, resulted largely from lost distribution and
insufficient attention to the business during part of 1998. The Company believes
that all of the acquired businesses were, to some extent, impacted by the
disruption that arose from the integration with Sunbeam and the related
management changes, both at the acquired companies and at Sunbeam. First Alert's
sales decline related predominately to increased inventory positions in the
domestic channel in 1997 as compared to 1998 with the remaining decrease
primarily related to more favorable weather conditions in the fourth quarter of
1997 as compared to the same period in 1998 which affected consumer shopping
patterns. Excluding the effects from purchase accounting and the write-off of
First Alert's goodwill, as discussed in Note 2 of Notes to Consolidated
Financial Statements, operating profit for these three companies declined by
approximately $45 million since the dates of the acquisitions in 1998 as
compared to the same period in the prior year, resulting primarily from lower
net sales. Although there can be no assurance, management anticipates that
results from the acquired companies will significantly improve during 1999 due
to, among other things, the absence of the factors causing disruption and
insufficient focus at these three companies during 1998.
Consolidated net sales for the year ended December 31, 1998 were
$1,836.9 million, an increase of $763.8 million versus the year ended December
28, 1997. After excluding: (i) $1,009.0 million of sales generated by the
acquired entities, as discussed above; (ii) $5.5 million of sales in 1998
resulting from the change in fiscal year end, as described in Note 1 of Notes to
Consolidated Financial Statements; (iii) $12.7 million in 1998 and $31.3 million
in 1997 from sales of excess or discontinued inventory for which the inventory
carrying value was substantially equivalent to the sales value; (iv) $4.2
million from 1997 sales relating to divested product lines which are not
classified as discontinued operations (time and temperature products and
Counselor and Borg branded scales), and (v) a $5.4 million benefit in 1997 from
the reduction of cooperative advertising accruals no longer required
(cooperative advertising costs are recorded as deductions in determining net
sales), net sales on an adjusted basis ("Adjusted Sales") of $809.7 million
decreased approximately 22% from Adjusted Sales of $1,032.2 million in 1997.
Product sales were adversely impacted by a number of factors, with the largest
being changes in retail inventory levels from channel loading which took place
in 1997. The Company believes the year-to-year effect of such inventory
reductions amounted to over $100 million. Additionally, losses in distribution
of outdoor cooking products estimated at approximately $60 million, the
estimated effect of price discounting on appliance and grill products of
approximately $14 million, and estimated higher provisions for customer returns
and allowances of approximately $30 million contributed to the lower sales in
1998. The remaining sales decline was due in part to exiting certain product
SKU's.
Domestic Adjusted Sales declined approximately 21% or $170 million from
1997. The Company believes more than half of the sales decline was due to
increased retail inventory levels in 1997 versus decreased inventory positions
at customers in 1998. Excluding this effect, sales were still lower than the
prior year throughout the business, with the most significant decline occurring
in outdoor cooking products sales. During 1997, the Company lost a significant
portion of its outdoor cooking products distribution, including the majority of
its grill parts and accessories products distribution. The outdoor cooking
products sales decline was attributable predominately to this lost distribution
and to price discounting. The majority of the remaining sales decline was due to
higher provisions for customer returns and allowances.
International sales, which represented 22% of Adjusted Sales for 1998,
decreased approximately 24% compared with the Adjusted Sales for the same period
a year ago. The Company believes this sales decline was primarily attributable
to decreasing customer inventory levels as compared with the prior year. Sales
were also adversely impacted by a decision to stop selling to certain export
distributors in Latin America and by poor economic conditions in that region. In
addition, lost distribution in Canada contributed to the sales decline from the
prior year.
Excluding the effect of: (i) the gross margin generated from the
inclusion of the acquired entities' operations in the period of $205.1 million,
as discussed above; (ii) $0.8 million from the impact of the change in fiscal
year-end; (iii) $128.4 million in 1998 in charges recorded in the second and
fourth quarters related to excess inventory and fixed assets impairments; (iv)
$15.8 million from the benefit in 1997 from the reversal of reserves no longer
required, including $5.4 million of cooperative advertising accruals and (v) a
$2.8 million benefit recorded in the second quarter of 1997 resulting from
capitalizing certain manufacturing supplies inventories which were previously
expensed, there was a negative gross margin of $29.4 million for 1998 versus a
gross margin of $223.5 million for 1997. Lower sales volume and unfavorable
manufacturing efficiencies from lower production levels associated with the
lower sales volumes and high inventory levels in 1998 accounted for
approximately 55% of the change between years. Approximately 55% of the
remaining decrease is attributable to lower price realization and higher costs
of customer returns and allowances in 1998 and adverse product sales mix in
1998. The adverse product sales mix was due
22
in part to the loss of a majority of the grill accessory products distribution
as accessories generate significantly better margins than the average margins on
sales of most of the Company's other products. Costs associated with a blanket
recall, higher warranty reserves and inventory adjustments due in part to
physical inventories drove the remaining decrease in gross margin.
Excluding the effect of: (i) $329.9 million of SG&A charges in the
acquired entities, including the $62.5 million goodwill write-off related to
First Alert; (ii) $70.0 million recorded in the third quarter of 1998 related to
the issuance of warrants; (iii) $2.3 million of SG&A expense in 1998 from the
change in the fiscal period; (iv) a $5.9 million benefit in 1998 and a $12.1
million benefit in 1997 from the reversal of reserves no longer required; (v)
approximately $31 million of 1998 compensation expense recorded in connection
with new employment agreements with the Company's former Chairman and Chief
Executive Officer and two other former senior officers and approximately $3
million of severance in 1998 for certain former employees; (vi) $20.4 million,
$6.1 million, and $4.0 million of costs recorded in 1998 related to costs
associated with the restatement efforts, Year 2000 compliance efforts and a
corporate office relocation, respectively, and (vii) $15.8 million of
restructuring related charges recorded in 1997, SG&A expenses were approximately
$257 million in 1998, 71% higher than the same period in 1997. This increase of
approximately $108 million is due to several factors. Corporate administrative
costs increased by approximately $47 million, reflecting additional personnel
and related relocation, travel and other costs, as well as increased outside
provider fees, telecommunications expense and insurance. Higher allowances for
accounts receivable in 1998, accounting for approximately $20 million of the
increase, related primarily to collection issues with certain customers in the
U.S. and in Latin America, including several major customers who have filed
and/or threatened bankruptcy. Advertising, marketing and selling expenses
increased by approximately $13 million, reflecting a national television
campaign for grills and increased activity in market research, package design
and sales efforts. Higher inventory levels in 1998 and costs associated with
outsourcing small parts fulfillment led to higher distribution and warehousing
costs of approximately $12 million. Increased environmental reserves for
divested and closed facilities added approximately $5 million while settlement
of a patent infringement action resulted in additional expense of approximately
$4 million.
During 1997, the Company determined that the amounts accrued at
December 29, 1996 for Restructuring and Asset Impairment Charges recorded in
fiscal 1996 exceeded amounts ultimately required. Accordingly, the 1997
Consolidated Statement of Operations reflects the reversal of accruals no longer
required, resulting in a Restructuring and Asset Impairment Benefit of $14.6
million. This reversal was reflected in the third ($5.8 million) and fourth
($8.8 million) quarters of 1997 when it became evident that such accruals were
no longer required.
Operating results for 1998 and 1997, on an adjusted basis as described
above, were a loss of approximately $286 million in 1998 and a profit of
approximately $74 million in 1997. This change resulted from the factors
discussed above.
Interest expense increased from $11.4 million for the twelve months of
1997 to $131.1 million for the same period in 1998. Approximately 70% of the
change related to higher borrowing levels in 1998 for the acquisitions, with the
remainder due to increased borrowings to fund working capital, capital
expenditures and the operating losses.
Other income, net increased in 1998 by $4.8 million due to
approximately $8 million from the settlement of a lawsuit, and approximately $4
million of increased net gains from foreign exchange in the period. The foreign
exchange net gains were primarily from Mexico. Increased losses on sales of
fixed assets of approximately $5 million and increased expenses related to the
New Credit Facility partially offset the above mentioned income. The increased
credit facility expenses largely related to unused facility fees.
The minority interest reported in 1998 relates to the minority interest
held in Coleman by public shareholders.
During 1998, the current tax provision arose largely from taxes on the
earnings of foreign subsidiaries as well as franchise taxes. Deferred tax
benefits were recognized in 1998 principally due to net operating losses
incurred subsequent to the acquisitions. These benefits were realized through
the use of deferred tax credits that were established in connection with the
acquisitions to the extent that such credits are expected to be realized in the
loss carryforward period. During 1998, the Company increased the income tax
valuation allowance on deferred tax assets to $290.5 million. This increase
reflects management's assessment that it is more likely than not that these
deferred tax assets will not be realized through future taxable income. The 1997
effective tax rate was higher than the federal statutory income tax rate
primarily due to state taxes, the effects of foreign earnings and dividends
taxed at other rates and the impact of providing a valuation allowance on
deferred tax assets.
In 1998, the Company prepaid certain debt assumed in the acquisitions
and prepaid an industrial revenue bond related to its Hattiesburg facility. In
connection with these early extinguishments of debt, the Company recognized an
extraordinary charge of $122.4 million, consisting primarily of redemption
premiums.
23
The Company's discontinued furniture business, which was sold in March
1997, had revenues of $51.6 million in the first quarter of 1997 prior to the
sale and nominal earnings for that period. As a result of the sale of the
Company's furniture business assets (primarily inventory, property, plant and
equipment), the Company received $69.0 million in cash, retained approximately
$50 million in accounts receivable and retained certain liabilities. The final
purchase price for the furniture business was subject to a post-closing
adjustment based on the terms of the sale agreement and in the first quarter of
1997, after completion of the sale, the Company recorded an additional loss on
disposal of $14.0 million, net of applicable income tax benefits of $8.5
million.
YEAR ENDED DECEMBER 28, 1997 COMPARED TO THE YEAR ENDED DECEMBER 29, 1996
1996 RESTRUCTURING PLAN AND OTHER CHARGES AND BENEFITS
In November 1996, the Company announced the details of a restructuring
plan. The plan included the consolidation of administrative functions, the
reduction of manufacturing and warehouse facilities, the centralization of the
Company's procurement function and the reduction of the Company's product
offerings and SKU's. The restructuring plan also included the elimination of
certain businesses and product lines.
As part of the restructuring plan, the Company consolidated six
divisional and regional headquarters functions into a single worldwide corporate
headquarters and outsourced certain back office activities resulting in a
reduction in total back-office/administrative headcount. Overall, the
restructuring plan called for a reduction in the number of production facilities
from 26 to 8 and the elimination of over 6,000 positions from the Company's
workforce, including 3,300 from the disposition of certain business operations
and the elimination of approximately 2,800 other positions, some of which were
outsourced. The Company completed the major phases of the restructuring plan by
July 1997.
In conjunction with the implementation of the restructuring plan, the
Company recorded a pre-tax charge of $239.2 million in the fourth quarter of
1996. This amount is recorded as follows in the Consolidated Statements of
Operations: $110.1 million recorded in Restructuring and Asset Impairment
Charges, as further described below; $60.8 million in Cost of Goods Sold related
principally to inventory write-downs as a result of a reduction in SKU's and
costs of inventory liquidation programs; $10.1 million in SG&A expense, for
period costs principally relating to outsourcing and package redesign, and $58.2
million ($39.1 million net of taxes) in Loss on Sale of Discontinued Operations
related to the divestiture of its furniture business. In 1997, upon completion
of the sale of the furniture business, the Company recorded an additional
pre-tax loss of $22.5 million from discontinued operations ($14.0 million net of
taxes) due primarily to lower than anticipated sales proceeds relating to the
post closing adjustment process that was part of the sale agreement.
Amounts included in Restructuring and Asset Impairment Charges in 1996
in the accompanying Consolidated Statements of Operations included anticipated
cash charges such as severance and other employee costs of $24.7 million, lease
obligations of $12.6 million and other exit costs associated with facility
closures and related to the implementation of the restructuring plan of $4.1
million, principally representing costs related to clean-up and restoration of
facilities for either sale or return to the landlord.
Included in Restructuring and Asset Impairment Charges in 1996 was
$68.7 million of non-cash charges principally consisting of: (a) asset
write-downs to net realizable value for disposals of excess facilities and
equipment and certain product lines ($22.5 million); (b) write-offs of redundant
computer systems from the administrative back-office consolidations and
outsourcing initiatives ($12.3 million); (c) write-off of intangibles relating
to discontinued product lines ($10.1 million); (d) write-off of capitalized
product and package design costs and other expenses related to exited product
lines and SKU reductions ($9.0 million), and (e) losses related to the
divestiture of certain non-core products and businesses ($14.8 million). The
asset write-downs of $34.8 million included equipment taken out of service in
1996 (either abandoned in 1996 or sold in 1997) and accordingly, depreciation
was not recorded subsequent to the date of the impairment charge. The losses of
$14.8 million related to the divestiture of non-core products and businesses
resulted from divesting of the time and temperature business (sold in March
1997) and Counselor and Borg scale product lines (sold in May 1997) and the sale
of the textile mill in Biddeford, Maine in May 1997. These charges primarily
represented the estimated non-cash loss to exit these products, including fixed
assets and inventory write-downs and other costs related to exiting these
product lines.
The $24.7 million for severance and other employee costs, including
COBRA and other fringe benefits, related to approximately 3,700 positions that
were planned to be eliminated as a result of the restructuring plan, excluding
approximately 2,400 employees terminated from the furniture business for which
severance was included in Loss on Sale of Discontinued Operations (see Note 13
of Notes to Consolidated Financial Statements). The furniture business was sold
in 1997. In 1996 and 1997, approximately 1,200 employees and 1,800 employees,
respectively, were terminated from continuing operations.
24
Due largely to attrition, the remaining planned terminations were not required.
In 1997, the Company determined that its severance and related employee costs
were less than originally accrued principally due to lower than expected
severance and COBRA costs and, accordingly, reversed accruals of $7.9 million in
the third and fourth quarters. At December 31, 1997, the balance accrued of $1.2
million represented the remaining severance and related employee costs for
certain employees terminated during 1997. During 1998, all amounts were
expended.
The amounts accrued at December 29, 1996 for Restructuring and Asset
Impairment Charges recorded in fiscal 1996, exceeded amounts ultimately required
principally due to reductions in anticipated severance costs of $7.9 million, as
discussed above, and reductions in estimated lease payments of $6.7 million
resulting from better than anticipated rentals received under sub-leases and
favorable negotiation of lease terminations. Accordingly, the fiscal 1997
Consolidated Statement of Operations included $14.6 million of benefit ($5.8
million in the third quarter and $8.8 million in the fourth quarter of 1997)
related to the reversal of accruals no longer required, which were recorded as
these reduced obligations became known.
In 1996, in conjunction with the initiation of the restructuring plan,
the Company recorded additional charges totaling $129.1 million, reflected in
Cost of Goods Sold, SG&A expense, and Loss on Sale of Discontinued Operations.
The charge included in Cost of Goods Sold ($60.8 million) principally
represented inventory write-downs and anticipated losses on the disposition of
the inventory as a result of the significant reduction in SKU's provided for in
the restructuring plan. The write-down included $26.9 million related to raw
materials, work-in process and finished goods for discontinued outdoor cooking
products, principally grills and grill accessories and the balance related to
raw materials, work-in process and finished goods for other discontinued
products including appliances, clippers and blankets. SG&A expense included
period costs in 1997 and 1996 of $15.8 million and $10.1 million, respectively,
relating to employee relocation and recruiting, outsourcing, equipment movement
and package redesign costs expended as a result of the implementation of the
restructuring plan. The 1996 Loss on Sale of Discontinued Operations related to
the divestiture of the Company's furniture business. In 1996, the Company
decided to divest its furniture operations and recorded an estimated pre-tax
loss of $58.2 million related to the sale of assets, primarily fixed assets and
inventory. In 1997, the Company recorded an additional pre-tax loss of $22.5
million due primarily to lower than anticipated sales proceeds resulting from
the post closing adjustment process as provided for in the sales agreement. (See
Notes 12 and 13 of Notes to Consolidated Financial Statements.)
At December 28, 1997, the Company had $5.2 million in liabilities
accrued related to the 1996 restructuring plan, including $1.2 million of
severance related costs and $4.0 million related to facility closures, which
principally represented future lease payments (net of sub-leases) on exited
facilities. During 1998, this liability was reduced by $4.0 million as a result
of cash expenditures. At December 28, 1997, the Company had $3.0 million of
warranty liabilities related to the discontinued furniture operations. During
1998, $2.5 million of this liability was liquidated.
The charges and benefit described above are included in the following
categories in the 1997 and 1996 Consolidated Statements of Operations (in
millions):
1997 1996
------- -------
Restructuring and impairment (benefit) charge...... $ (14.6) $ 110.1
Cost of goods sold................................. - 60.8
Selling, general and administrative expense........ 15.8 10.1
Loss on sale of discontinued operations............ 22.5 58.2
------- -------
$ 23.1 $ 239.2
======= =======
25
These charges and benefit consisted of the following (in millions):
1997 1996
------- -------
Write-downs:
Fixed assets held for disposal, not in use.............. $ - $ 34.8
Fixed assets held for disposal, used until disposed..... - 14.8
Inventory on hand....................................... - 60.8
Other assets, principally trademarks and
intangible assets.................................... - 19.1
------- -------
- 129.5
------- -------
Restructuring accruals (including amounts expended in 1996):
Employee severance pay and fringes...................... (7.9) 24.7
Lease payments and termination fees..................... (6.7) 12.6
Other exit activity costs, principally facility
closure expenses..................................... - 4.1
------- -------
(14.6) 41.4
------- -------
Other related period costs incurred:
Employee relocation; equipment relocation
and installation and other........................... 11.8 3.2
Transitional fees related to outsourcing arrangements... - 4.9
Package redesign........................................ 4.0 2.0
------- -------
15.8 10.1
------- -------
Charges included in continuing operations............ 1.2 181.0
Loss on sale of discontinued operations.............. 22.5 58.2
------- -------
$ 23.7 $ 239.2
======= =======
At December 29, 1996, the net realizable value of the remaining
inventory written-down as part of the restructuring and asset impairment charges
was approximately $37.3 million. During 1997, this inventory, a portion of which
was product of discontinued operations, was sold for amounts substantially
equivalent to its net carrying value.
As further discussed in Note 15 of Notes to Consolidated Financial
Statements, during the fourth quarter of 1996, the Company charged SG&A expense
for increases of $9.0 million in environmental reserves and $12.0 million in
litigation reserves. In the fourth quarter of 1996, the Company performed a
comprehensive review of all environmental exposures in an attempt by the then
new senior management team to accelerate the resolution and settlement of
environmental claims. As a result, upon the conclusion of the review, the
Company recorded additional environmental reserves of $9.0 million in the fourth
quarter of 1996. The litigation charge of $12.0 million was recorded due to an
unfavorable court ruling in January 1997, which held that the Company was liable
for environmental remediation costs related to the operations of a successor
company. As a result of this ruling, the Company provided for this liability in
the fourth quarter of 1996. In 1997, this case was settled and, as a result,
$8.1 million of the charge was reversed into income, primarily in the fourth
quarter of 1997.
As described in Note 8 of Notes to Consolidated Financial Statements,
the Company also charged $7.7 million to SG&A expenses in 1996 for compensation
costs associated with restricted stock awards and other costs related to the
employment of the then new senior management team.
During the first, second, third and fourth quarters of 1997,
approximately $0.5 million, $4.5 million, $1.5 million and $21.5 million,
respectively, of pre-tax liabilities provided in prior years and determined to
be no longer required were reversed and taken into income. These amounts were
primarily related to the litigation reserve ($8.1 million) discussed above,
inventory valuation allowances ($7.0 million), cooperative advertising
allowances ($5.4 million), liabilities for exiting of facilities and plant
consolidations provided for prior to 1996 ($3.5 million) and consulting fee
accruals ($1.3 million). These liabilities were provided for by the Company,
principally in 1996, based upon its best available estimate at the time of the
probable liabilities. When information became available that the amounts
provided were in excess of what was required, the Company appropriately reduced
the applicable reserves and recorded increases in Net Sales ($5.4 million),
reductions in Cost of Goods Sold ($10.5 million) and reductions in SG&A expenses
($12.1 million).
26
Additionally, effective in the second quarter of fiscal 1997, the
Company changed its method of accounting to capitalize manufacturing supplies
inventories, whereas, previously these inventories were charged to operations
when purchased. This change reduced Cost of Goods Sold in fiscal 1997 by $2.8
million.
RESULTS OF OPERATIONS FOR 1997 COMPARED TO 1996
Net sales for 1997 were $1,073.1 million, an increase of $88.9 million
or 9% over 1996. After excluding: (i) $4.2 million and $30.8 million in 1997 and
1996, respectively, related to divested product lines which are not classified
as discontinued operations (time and temperature products, decorative bedding
and Counselor and Borg branded scales), (ii) $31.3 million of sales in 1997 of
discontinued inventory which resulted primarily from the reduction of SKU's as
part of the 1996 restructuring plan and for which the inventory carrying value
was substantially equivalent to the sales value, and (iii) a $5.4 million
benefit from the reduction of cooperative advertising accruals no longer
required in 1997, Adjusted Sales increased 8% over the prior year to $1,032.2
million from $953.4 million in 1996.
Adjusted Sales, on a worldwide basis, increased during 1997 primarily
from new product introductions, expanded distribution (particularly with the
Company's top ten customers), international geographic expansion and increased
inventory positions at certain customers. Adjusted Sales growth was
approximately 19% for appliances and approximately 12% in outdoor cooking.
Adjusted Sales for health products increased approximately 5% while Adjusted
Sales of personal care products and blankets decreased approximately 13% during
1997.
Sales increases in appliances of approximately $69 million, were driven
by new products, such as re-designed blenders and mixers, coffeemakers, irons,
deep fryers and toasters, coupled with increased distribution with large
national mass retailers, combined with higher inventory levels at certain
customers. Sales of outdoor cooking products increased approximately $30 million
in 1997 attributed to increased merchandising and advertising programs, new
distribution and higher inventory levels at certain customers. During 1997, the
Company lost a significant portion of its outdoor cooking products distribution,
including the majority of its grill accessory products distribution.
Accessories, which accounted for just over 10% of the outdoor cooking sales
volume in 1997, generate significantly better margins than the average margins
on sales of grills. These distribution changes are expected to adversely impact
outdoor cooking sales and margins in the future, until such time as the
distribution is regained.
Sales of personal care products and blankets suffered during the fourth
quarter of 1997 as a result of lower than expected retail sell through of
electric blankets in key northern markets in late 1997 coupled with the
inability to service demand for king and queen sized blankets due to shortages
of blanket shells. This resulted in a sales decline of approximately $25 million
as compared with the prior year. The Company shifted to a more level production
for blankets in 1998 in order to more adequately service the seasonal demand for
bedding products. Sales of health products as well as personal care and bedding
products were impacted by increased inventory positions at customers in 1997.
International sales, which represented 21% of total revenues in 1997,
grew 25% during the year. This sales growth was driven primarily by 54 new 220
volt product introductions and a general improvement in demand in export
operations and in Mexico. Net sales growth of approximately 35% was achieved in
the Latin American export sales organization. Most of this growth came from
increased business with three exporters. In Mexico and Venezuela, sales grew 30%
and 24%, respectively. Canada accounted for the majority of the remaining
international sales growth.
Excluding the effect of: (i) charges to Cost of Goods Sold related to
the restructuring plan in 1996 ($60.8 million), (ii) the benefit of reducing
reserves no longer required in 1997 ($15.9 million), and (iii) the benefit in
1997 of capitalizing manufacturing supplies inventories ($2.8 million), gross
margin as a percent of Adjusted Sales would have been approximately 22% in 1997,
an improvement of approximately 6 percentage points from 16% in 1996. This
increase reflects the results of lower overhead spending, improved factory
utilization and labor cost benefits resulting from the Company's restructuring
plan, coupled with reductions in certain materials costs. The lower overhead
spending resulted from a reduction in the number of facilities operated by the
Company. With fewer facilities used for production purposes, the capacity of the
remaining plants was more fully utilized. The labor cost benefits were realized
principally from shifting production to Mexico. In addition, a broad based
program to obtain lower costs for materials contributed to the 1997 margin
improvement.
Excluding the impact of: (i) the restructuring and asset impairment
period costs to SG&A expense in 1997 ($15.8 million) and 1996 ($10.1 million),
(ii) the 1996 charges for the environmental accrual ($9.0 million), litigation
accrual ($12.0 million), and
27
restricted stock grant compensation ($7.7 million), and (iii) the 1997 benefit
from the reversal of reserves no longer required ($12.1 million), SG&A expense
improved to 14% of Adjusted Sales in 1997, down 5 percentage points from 19% in
1996. This improvement was partially the result of benefits from the
consolidation of six divisional and regional headquarters into one corporate
headquarters and one administrative operations center, reduced staffing levels,
a reduction in the number of warehouses, and Company-wide cost control
initiatives. Higher expenditures in 1996 for market research, new packaging and
other discretionary charges and higher bad debt expenses associated with certain
of the Company's customers also contributed to the decrease in SG&A expenses
from 1996 to 1997. The expense for doubtful accounts and cash discounts was
$17.3 million in 1997 as compared to $27.1 million in 1996. The principal factor
in the decrease in bad debt expenses during this period was the acceleration of
the consolidation of the U.S. retail industry and the related competitive
environment, which resulted in a number of troubled retailers and related
bankruptcies during 1996. This resulted in the significant amount of bad debt
write-offs ($19.9 million) in 1996.
Operating results for 1997 and 1996, on a comparable basis as described
above, were earnings of $74.5 million in 1997 and a loss of $34.8 million in
1996. On the same basis, operating margin increased 11 percentage points to 7%
of Adjusted Sales in 1997 versus a loss of 4% in 1996. This improvement resulted
from the factors discussed above.
Interest expense decreased from $13.6 million in 1996 to $11.4 million
in 1997 primarily as a result of lower average borrowing levels in 1997.
The 1997 effective income tax rate for continuing operations was higher
than the federal statutory income tax rate primarily due to state taxes plus the
effect of foreign earnings and dividends taxed at other rates and the increase
to the valuation reserve for deferred tax assets, offset in part by the reversal
of tax liabilities no longer required. In the fourth quarter of 1997, the
Company increased the valuation allowance by $23.2 million reflecting
management's assessment that it was more likely than not that the deferred tax
asset will not be realized through future taxable income. Of this amount, $18.9
million related to deferred tax assets, the majority of which was recognized as
a benefit in the first three quarters of 1997. The remainder related to minimum
pension liabilities and was therefore recorded as an adjustment to shareholders'
equity. This assessment was made as a result of the significant leverage
undertaken by the Company as part of the acquisitions and the significant
decline in net sales and earnings from anticipated levels during the fourth
quarter of 1997 and the first quarter of 1998. For 1996, the effective income
tax rate for continuing operations equaled the federal statutory income tax
rate.
The Company's diluted earnings per share from continuing operations was
$0.60 per share in 1997 versus a loss per share from continuing operations in
1996 of $2.05. The Company's share base utilized in the diluted earnings per
share calculation increased approximately 6% during 1997 as a result of an
increase in the number of shares of common stock outstanding due to the exercise
of stock options in 1997 and the inclusion of common stock equivalents in the
1997 calculation.
The Company's discontinued furniture business, which was sold in March
1997, had revenues of $51.6 million in the first quarter of 1997 prior to the
sale and nominal earnings. In 1996, the discontinued furniture business had net
income of $0.8 million on revenues of $227.5 million and an estimated loss on
disposal of the business of $39.1 million, net of applicable income tax
benefits. The sale of the Company's furniture business assets (primarily
inventory, property, plant and equipment) was completed in March 1997. The
Company received $69.0 million in cash, retained approximately $50.0 million in
accounts receivable and retained certain liabilities related to the furniture
business. The final purchase price for the furniture business was subject to a
post-closing adjustment based on the terms of the asset purchase agreement and
in the first quarter of 1997, after completion of the sale, the Company recorded
an additional loss on disposal of $22.5 million pre-tax. Although the
discontinued furniture business was profitable, net income had declined from
$21.7 million in 1994 to $0.8 million in 1996. This decline, along with the
Company's announcement that it intended to divest this line of business
contributed to the loss on the sale. See discussion of restructuring and asset
impairment (benefit) charges in Note 12 and discontinued operations in Note 13
of Notes to Consolidated Financial Statements for further information regarding
sale of the furniture business.
28
SUMMARY OF (LOSS) EARNINGS FROM CONTINUING OPERATIONS
A reconciliation of operating (loss) earnings to adjusted (loss)
earnings from continuing operations for 1998, 1997 and 1996, on a comparable
basis follows (in millions):
[Enlarge/Download Table]
1998 1997 1996
--------- --------- ---------
Operating (loss) earnings, as reported.......................................... $ (670.0) $ 104.1 $ (244.5)
Add (deduct):
Loss from acquisitions........................................................ 124.8 - -
Issuance of warrants to M&F................................................... 70.0 - -
Restructuring, asset impairment and related charges........................... - 1.2 181.0
Fixed asset and inventory charges............................................. 128.4 - -
Environmental reserve increase principally related to divested operations..... - - 9.0
Litigation reserve increase relating to divested operation.................... - - 12.0
Restricted stock and other management compensation/severance.................. 34.4 - 7.7
Reversals of accruals no longer required...................................... (5.9) (28.0) -
Capitalization of manufacturing supplies inventories.......................... - (2.8) -
Restatement related expenses.................................................. 20.4 - -
Year 2000 and systems initiatives expenses.................................... 6.1 - -
Change in fiscal year-end effect and office relocation expense................ 5.5 - -
--------- --------- ---------
Adjusted operating (loss) earnings from continuing operations before income
taxes, minority interest and extraordinary charge........................ (286.3) 74.5 (34.8)
Interest expense............................................................. 131.1 11.4 13.6
Other (income) expense, net.................................................. (4.8) - 3.7
--------- --------- ---------
Adjusted (loss) earnings from continuing operations before income taxes and
minority interest........................................................ (412.6) 63.1 (52.1)
Adjusted income tax (benefit) expense........................................ (10.1) 56.3 (18.2)
Minority interest............................................................ (10.7) - -
--------- --------- ---------
Adjusted (loss) earnings from continuing operations............................. $ (391.8) $ 6.8 $ (33.9)
========= ========= =========
After consideration of the adjustments above, 1998 and 1996 results
from continuing operations reflect losses and 1997 continuing operations are
marginally profitable. Due to a variety of factors, including increased
inventory positions at certain customers and manufacturing and sourcing
activities during 1997 and the first half of 1998 which increased the Company's
inventory position, the results for each of 1998 and 1997 are not indicative of
future results. Results for 1999 are expected to be impacted by the continuing
effects of the Company's excess inventory position, as well as costs related to
Year 2000 compliance efforts.
FOREIGN OPERATIONS
Approximately 80% of the Company's business is conducted in U.S.
dollars (including both domestic sales, U.S. dollar denominated export sales,
primarily to certain Latin American markets, Asian sales and the majority of
European sales). The Company's non-U.S. dollar denominated sales are made
principally by subsidiaries in Europe, Canada, Japan, Latin America and Mexico.
Mexico reverted to a hyperinflationary status for accounting purposes in 1997;
therefore, translation adjustments related to Mexican net monetary assets are
included as a component of net (loss) earnings. Mexico is not considered
hyperinflationary as of January 1, 1999. This change in Mexico's
hyperinflationary status is not expected to have a material effect on the
Company's financial results. Translation adjustments resulting from the
Company's non-U.S. denominated subsidiaries have not had a material impact on
the Company's financial condition, results of operations or cash flows.
While revenues generated in Asia have traditionally not been
significant, economic instability in this region is expected to have a negative
effect on earnings. Economic instability and the political environment in Latin
America have also affected sales in that region. It is anticipated that sales in
and exports to these regions will continue to decline so long as the economic
environments in those regions remain unsettled.
29
On a limited basis, the Company selectively uses derivatives (foreign
exchange option and forward contracts) to manage foreign exchange exposures that
arise in the normal course of business. No derivative contracts are entered into
for trading or speculative purposes. The use of derivatives has not had a
material impact on the Company's financial results. (See Note 4 of Notes to
Consolidated Financial Statements).
EXPOSURE TO MARKET RISK
QUALITATIVE INFORMATION
The Company uses a variety of derivative financial instruments to
manage its foreign currency and interest rate exposures. The Company does not
speculate on interest rates or foreign currency rates. Instead, it uses
derivatives when implementing its risk management strategies to reduce the
possible effects of these exposures.
With respect to foreign currency exposures, the Company is most
vulnerable to changes in rates between the United States dollar/Japanese yen,
Canadian dollar, German deutschmark, Mexican peso and Venezuelan bolivar
exchange rates. The Company principally uses forward and option contracts to
reduce risks arising from firm commitments, intercompany sales transactions and
intercompany receivable and payable balances. The Company generally uses
interest rate swaps to fix certain of its variable rate debt. The Company
manages credit risk related to these derivative contracts through credit
approvals, exposure limits and threshold amounts and other monitoring
procedures.
QUANTITATIVE INFORMATION
Set forth below are tabular presentations of certain information
related to Sunbeam's investments in market risk sensitive instruments. All of
the instruments set forth in the following tables have been entered into by the
Company for purposes other than trading purposes.
INTEREST RATE SENSITIVITY
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows by
expected maturity date and related (weighted) December 31, 1998 average interest
rates. Included in the debt position are the Debentures, which carry no
intervening cash flows but mature in 2018. For interest rate swaps, the table
presents notional amounts and weighted average interest rates for the contracts
at the current time. Notional amounts are used to calculate the contractual
payments to be exchanged under the contracts.
[Enlarge/Download Table]
EXPECTED MATURITY DATE
----------------------
DECEMBER 31, THERE- FAIR
1998 1999 2000 2001 2002 2003 AFTER TOTAL VALUE(1)
---- ---- ---- ---- ---- ---- ----- ----- --------
(US$ Equivalent in Millions)
Domestic Liabilities:
Debentures(2)................ $ 779 $-- $ -- $ -- $-- $ -- $2,014 $2,014 $ 240
Other........................ 80 71 1 1 1 1 5 80 79
------ --- ------ ---- --- ---- ------ ------ ------
Total fixed rate debt (US$).. 859 71 1 1 1 1 2,019 2,094 319
Average interest rate...... 5.64%
Variable rate debt (US$)..... $1,357 $ 3 $1,354(3) $ -- $-- $ -- $ -- $1,357 $1,357
Average interest rate...... 8.47%
Interest rate derivatives:
Interest rate swaps:
Variable to fixed (US$).... $ 325 $-- $ -- $150 $-- $175 $ -- $ 325 $ (7)
Average pay rate........... 5.70%
Average receive rate....... 5.21%
<FN>
(1) The fair value of fixed rate debt is estimated using either reported transaction values or discounted cash flow analysis.
The carrying value of variable rate debt is assumed to approximate market value based on the periodic adjustments of the
interest rates to the current market rates in accordance with the terms of the agreements. The fair value of the interest
rate swaps is based on estimates of the cost of terminating the swaps.
(2) The total amount of Debentures maturing in future periods exceeds the balance as of December 31, 1998 due to the accretion
of the Debentures. See Note 3 of Notes to Consolidated Financial Statements.
(3) Represents New Credit Facility debt. See Item 7 - "Liquidity and Capital Resources" and Note 3 of Notes to Consolidated
Financial Statements.
</FN>
30
EXCHANGE RATE SENSITIVITY
The table below provides information about Sunbeam's derivative
financial instruments, other financial instruments and forward exchange
agreements by functional currency and presents such information in U.S. dollar
equivalents. The table summarizes information on instruments and transactions
that are sensitive to foreign currency exchange rates, including foreign
currency variable rate credit lines, foreign currency forward exchange
agreements and foreign currency purchased put option contracts. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For foreign currency forward
exchange agreements and foreign currency put option contracts, the table
presents the notional amounts and weighted average exchange rates by expected
(contractual) maturity dates. These notional amounts generally are used to
calculate the contractual payments to be exchanged under the contract.
[Enlarge/Download Table]
DECEMBER 31, FAIR
1998(1) VALUE
------------ -----
(US$ Equivalent in Millions)
On Balance Sheet Financial Instruments
US$ Functional Currency
Short-term debt:
Variable rate credit lines (Europe, Japan and Asia)....... $45.8 $45.8
Weighted average interest rate............................ 2.8%
US$ Functional Currency
Forward Exchange Agreements
(Receive US$/pay DM)
Contract amount........................................... $12.0 $12.2
Average contractual exchange rate......................... 1.62
(Receive US$/pay JPY)
Contract amount........................................... $14.9 $14.2
Average contractual exchange rate......................... 116.11
(Receive US$/pay GBP)
Contract amount........................................... $ 4.0 $ 4.1
Average contractual exchange rate......................... 1.68
Purchased Put Option Agreements
(Receive US$/pay DM)
Contract amount........................................... $18.4 $ 0.1
Average strike price...................................... 1.80
(Receive US$/pay JPY)
Contract amount........................................... $12.4 $ 0.2
Average strike price...................................... 125.0
(Receive US$/pay GBP)
Contract amount........................................... $ 1.5 $ --
Average strike price...................................... 1.62
(1) None of the instruments listed in the table have maturity dates beyond 1999.
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "Euro"). The transition period for the
introduction of the Euro is between January 1, 1999 and January 1, 2002. The
Company has been preparing for the introduction of the Euro and continues to
evaluate and address the many issues involved, including the conversion of
information technology systems, recalculating currency risk, strategies
concerning continuity of contracts, and impacts on the processes for preparing
taxation and accounting records. Based on the work to date, the Company believes
the Euro conversion will not have a material impact on its results of
operations.
SEASONALITY
Sunbeam's sales, prior to the acquisitions, have not traditionally
exhibited substantial seasonality; however, sales have been strongest during the
fourth quarter of the calendar year. Additionally, sales of outdoor cooking
products are strongest in the first half of the year, while sales of appliances,
personal care and blanket products are strongest in the second half of the year.
After considering the seasonality of the acquired entities, Sunbeam's
consolidated sales are not expected to exhibit substantial seasonality; however,
sales are expected to be strongest during the second quarter of the calendar
year. Furthermore, sales of a number of products, including warming blankets,
vaporizers, humidifiers, grills, First Alert products, camping and generator
products may be impacted by unseasonable weather conditions.
31
LIQUIDITY AND CAPITAL RESOURCES
In order to finance the acquisition of Coleman, First Alert and
Signature Brands and to refinance substantially all of the indebtedness of the
Company and the three acquired entities, the Company consummated an offering of
Debentures at a yield to maturity of 5% (approximately $2,014 million principal
amount at maturity) in March 1998, which resulted in approximately $730 million
of net proceeds and entered into the New Credit Facility.
The Debentures are exchangeable for shares of the Company's common
stock at an initial conversion rate of 6.575 shares for each $1,000 principal
amount at maturity of the Debentures, subject to adjustment upon occurrence of
certain events. The Debentures are subordinated in right of payment to all
existing and future senior indebtedness of the Company. The Debentures are not
redeemable by the Company prior to March 25, 2003. On or after such date, the
Debentures are redeemable for cash with at least 30 days notice, at the option
of the Company. The Company is required to purchase Debentures at the option of
the holder as of March 25, 2003, March 25, 2008 and March 25, 2013, at purchase
prices equal to the issue price plus accrued original discount to such dates.
The Company may, at its option, elect to pay any such purchase price in cash or
common stock or any combination thereof. The Company was required to file a
registration statement with the SEC to register the Debentures by June 23, 1998.
This registration statement was filed on February 4, 1999 and the SEC has not
declared the registration statement effective. Sunbeam's failure to file the
registration statement by June 23, 1998 did not constitute default under the
terms of the Debentures. As part of the normal review process by the SEC, a
number of comments have been made by the staff of the division of Corporation
Finance relating to the registration statement and the restated 1996 and 1997
financial statements included therein. The Company expects to resolve these
comments when it files an amendment to the registration statement. From June 23,
1998 until the registration statement is declared effective, the Company is
required to pay to the Debenture holders cash liquidated damages accruing, for
each day during such period, at a rate per annum equal to 0.25% during the first
90 days and 0.50% thereafter multiplied by the total of the issue price of the
Debentures plus the original issue discount thereon on such day. The Company
made its first payment of approximately $0.5 million to the Debenture holders on
September 25, 1998 and an additional $2.0 million was paid on March 25, 1999.
Concurrent with the acquisitions, the Company replaced its $250 million
syndicated unsecured five-year revolving credit facility with the New Credit
Facility. The New Credit Facility provided for aggregate borrowings of up to
$1.7 billion. As a result of operating losses incurred in fiscal 1998, among
other things, the Company was not in compliance with certain covenants set forth
in the New Credit Facility. The Company and its lenders entered into agreements
as of June 30, 1998, October 19, 1998 and April 10, 1999, in each case providing
for waivers of compliance with such covenants under the New Credit Facility.
Effective April 15, 1999, Sunbeam and its lenders entered into an agreement
which waived compliance with such covenants through April 10, 2000 and provided
for new financial covenants. The following description of the New Credit
Facility reflects the terms of the New Credit Facility as amended through April
15, 1999.
The New Credit Facility provided for aggregate borrowings of up to $1.7
billion pursuant to: (i) a revolving credit facility in an aggregate principal
amount of up to $400.0 million maturing March 30, 2005 ($52.5 million of which
may only be used to complete the Coleman merger if the Coleman merger is not
completed prior to August 31, 1999); (ii) $800.0 million in term loans maturing
on March 30, 2005 (of which $35.0 million may only be used to complete the
Coleman merger) and (iii) a $500.0 million term loan maturing September 30,
2006. As of December 31, 1998, approximately $1.4 billion was outstanding and
approximately $0.3 billion was available for borrowing under the New Credit
Facility.
Pursuant to the New Credit Facility, interest accrues, at the Company's
option: (i) at the London Interbank Offered Rate ("LIBOR") or (ii) at the base
rate of the administrative agent which is generally the higher of the prime
commercial lending rate of the administrative agent or the Federal Funds Rate
plus 0.50%, in each case plus an agreed upon interest margin which is currently
3.75% for LIBOR borrowings and 2.50% for base rate borrowings. The applicable
interest margin is subject to downward adjustment upon the occurrence of certain
events. Borrowings under the New Credit Facility are secured by a pledge of the
stock of the Company's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its material
domestic subsidiaries, other than Coleman and its material subsidiaries except
as described below. Currently, Coleman's inventory and related assets are
pledged to secure its obligations for letters of credit issued for its account
under the New Credit Facility. Additionally, as security for Coleman's note
payable to the Company, Coleman pledged substantially all of its domestic
assets, other than real property, including 66% of the stock of its direct
foreign subsidiaries and domestic holding companies for its foreign
subsidiaries, and all of the stock of its other direct domestic subsidiaries
(but not the assets of Coleman's subsidiaries). The pledge runs in favor of
Sunbeam's lending banks, to which the Coleman note has been pledged as security
for Sunbeam's obligations to them. Upon completion of the Coleman merger,
substantially all of Coleman's assets and the assets of Coleman's domestic
subsidiaries will be pledged to secure the obligations under the New Credit
Facility. In addition, borrowings under the New Credit Facility are guaranteed
by a number of the Company's wholly owned material domestic subsidiaries and
these subsidiary
32
guarantees are secured as described above. Upon completion of the Coleman
merger, Coleman and each of its United States subsidiaries will become
guarantors of the obligations under the New Credit Facility. To the extent
borrowings are made by any subsidiaries of the Company, the obligations of such
subsidiaries are guaranteed by the Company.
The New Credit Facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of Sunbeam
and its subsidiaries, including Coleman, to, among other things, (i) declare
dividends or repurchase stock, (ii) prepay, redeem or repurchase debt, incur
liens and engage in sale-leaseback transactions, (iii) make loans and
investments, (iv) incur additional debt, (v) amend or otherwise alter material
agreements or enter into restrictive agreements, (vi) make capital and year 2000
compliance expenditures, (vii) engage in mergers, acquisitions and asset sales,
(viii) engage in certain transactions with affiliates, (ix) settle certain
litigation, (x) alter its cash management system and (xi) alter the businesses
they conduct. Sunbeam is also required to comply with specified financial
covenants and ratios. The New Credit Facility provides for events of default
customary for transactions of this type, including nonpayment,
misrepresentation, breach of covenant, cross-defaults, bankruptcy, material
adverse change arising from compliance with ERISA, material adverse judgments,
entering into guarantees and change of ownership and control. It is also an
event of default under the New Credit Facility if Sunbeam's registration
statement in connection with the Coleman merger is not declared effective by the
SEC on or before October 30, 1999 or if the merger does not occur within 25
business days of the effectiveness of the registration statement or if the cash
consideration (including any payments on account of the exercise of any
appraisal rights, but excluding related legal, accounting and other customary
fees and expenses) to consummate the Coleman merger exceeds $87.5 million.
Although there can be no assurance, the Company anticipates that it will satisfy
these conditions. Unless waived by the bank lenders, the failure to satisfy
these requirements (as with the occurrence of any other event of default) would
permit the bank lenders to accelerate the maturity of all outstanding borrowings
under the New Credit Facility. The New Credit Facility also includes provisions
for the deferral of the 1999 scheduled term loan payments of $69.3 million,
subject to delivery of certain collateral documents and the filing of an
amendment to the Company's registration statement on Form S-4 relating to the
Coleman merger. If these conditions are met, and there are no events of default,
the scheduled loan payments will be extended until April 10, 2000. The Company
anticipates that it will satisfy these conditions and, accordingly, has
classified these amounts as long-term in the Consolidated Balance Sheet.
As of December 31, 1998, the Company had cash and cash equivalents of
$61.4 million, working capital excluding cash and cash equivalents of $427.1
million and total debt of $2.3 billion. Cash used in operating activities during
1998 was $190.4 million compared to $6.0 million used in operating activities in
1997. This change is primarily attributable to lower earnings after giving
effect to non-cash charges partially offset by improvements in working capital.
During 1998, $184.2 million in cash was generated by reducing receivables,
including the effects of the securitization program described below, and
reducing inventories, which was partially offset by a $68.2 million reduction in
accounts payable levels. In the fourth quarter of 1998, cash provided by
operating activities totaled $34.3 million, principally due to cash generated by
reducing receivables and inventories of $181.9 million, partially offset by the
previously discussed reduction in earnings. The decrease in cash provided by
operations from 1996 to 1997 is primarily attributable to increased inventory
levels in 1997 and spending in 1997 related to the restructuring initiatives
accrued for in 1996, largely offset by an increase in cash generated by earnings
in 1997 and an income tax refund (net of payments) in 1997. Cash used in
operating activities reflects proceeds of $200.0 million in 1998 and $58.9
million in 1997 from the Company's revolving trade accounts receivable
securitization program, as more fully described below.
Cash used in investing activities in 1998 reflects $522.4 million for
the acquisitions. In 1997, cash provided by investing activities reflected $91.0
million in proceeds from the sales of divested operations and other assets.
Capital spending totaled $53.7 million in 1998 and was primarily for
manufacturing efficiency initiatives, equipment and tooling for new products,
and management information systems hardware and software licenses. The new
product capital spending principally related to the air and water filtration
products which were discontinued in the second quarter of 1998, electric
blankets, grills, clippers and appliances. Capital spending in 1997 was $60.5
million and was primarily attributable to manufacturing capacity expansion, cost
reduction initiatives and equipment to manufacture new products. The new product
capital spending in 1997 principally related to appliances and included costs
related to blenders, toasters, stand mixers, slow cookers and a soft serve ice
cream product. Capital spending in 1996 was $75.3 million (including $14.5
million related to the discontinued furniture business) and was primarily
attributable to equipment for new product development and cost reduction
initiatives. The Company anticipates 1999 capital spending to be approximately
3% of net sales, primarily related to new product introductions, capacity
additions, certain facility rationalization initiatives and systems hardware and
software. As discussed above, the Company's capital and Year 2000 compliance
expenditures are limited under the terms of the New Credit Facility.
Cash provided by financing activities totaled $766.2 million in 1998
and reflects the net proceeds from the sale of Debentures of $729.6 million, the
cancellation and repayment of all outstanding balances under the Company's $250
million September 1996 revolving credit facility, the repayment of certain debt
acquired with the acquisitions, the early extinguishment of the $75.0 million
Hattiesburg industrial revenue bond and net borrowings under the New Credit
Facility. In addition, cash provided by financing activities during 1998
includes $19.6 million of proceeds from the exercise of stock
33
options. During 1997, cash provided by financing activities of $16.4 million
reflects net borrowings of $5.0 million under the Company's September 1996
revolving credit facility, $12.2 million of debt repayments related to the
divested furniture business and other assets sold and $26.6 million in cash
proceeds from the exercise of stock options. In 1996, cash provided by financing
activities of $45.3 million was primarily from increased revolving credit
facility borrowings of $30.0 million to support working capital and capital
spending requirements, $11.5 million in new issuances of long-term debt and $4.6
million in proceeds from the sale of treasury shares to certain executives of
the Company.
In December 1997, the Company entered into a revolving trade accounts
receivable securitization program, which as amended expires in March 2000, to
sell without recourse, through a wholly-owned subsidiary, certain trade accounts
receivable, up to a maximum of $70 million. The Company, as agent for the
purchaser of the receivables, retains collection and administrative
responsibilities for the purchased receivables. For the year ended December 31,
1998, the Company had sold approximately $200 million of accounts receivable
under this program. At December 31, 1998, the Company had reduced accounts
receivable by $20.0 million for receivables sold under this program. The Company
expects to continue the securitization program to finance a portion of its
accounts receivable. See Note 5 of Notes to Consolidated Financial Statements.
At December 31, 1998, standby and commercial letters of credit
aggregated $82.3 million and were predominately for insurance, pension,
environmental, workers' compensation, and international trade activities. In
addition, as of December 31, 1998, surety bonds with a contract value of $26.5
million were outstanding largely as a result of litigation judgements that are
currently under appeal.
For additional information relating to the Debentures, the New Credit
Facility and the repayment of certain debt, see Note 3 of Notes to Consolidated
Financial Statements.
The Company expects to acquire the remaining equity interest in Coleman
pursuant to a merger transaction in which the existing Coleman minority
shareholders will receive 0.5677 share of the Company's common stock and $6.44
in cash for each share of Coleman common stock outstanding. In addition,
unexercised options under Coleman's stock option plans will be cashed out at a
price per share equal to the difference between $27.50 and the exercise price of
such options. The Company expects to issue approximately 6.7 million shares of
common stock and expend approximately $87 million in cash, including cash paid
to option holders, to complete the Coleman transaction. (See Notes 2 and 15 of
Notes to Consolidated Financial Statements.) Although there can be no assurance,
it is anticipated that the Coleman merger will occur in the second half of
fiscal 1999.
The Company is a party to various environmental proceedings,
substantially all related to previously divested operations and to Coleman
sites. In management's opinion, the ultimate resolution of these environmental
matters will not have a material adverse effect upon the Company's financial
condition, results of operations or cash flows. See Note 15 of Notes to
Consolidated Financial Statements.
The Company believes its borrowing capacity under the New Credit
Facility, cash flow from the combined operations of the Company and its acquired
companies, existing cash and cash equivalent balances, and its receivable
securitization program will be sufficient to support working capital needs,
capital and Year 2000 compliance spending, and debt service through April 10,
2000. However, if the Company is unable to obtain a further waiver of the
covenant and ratio requirements prior to April 10, 2000, the Company expects it
would, at that time, be in default of the requirements under the New Credit
Facility and, as noted above, the lenders could then require the repayment of
all amounts then outstanding under the New Credit Facility.
By letter dated June 17, 1998, the staff of the Division of Enforcement
of the SEC advised the Company that it was conducting an informal inquiry into
the Company's accounting policies and procedures and requested that the Company
produce certain documents. On July 2, 1998, the SEC issued a Formal Order of
Private Investigation, designating officers to take testimony and pursuant to
which a subpoena duces tecum was served on the Company requiring the production
of certain documents. On November 4, 1998, the Company received another SEC
subpoena duces tecum requiring the production of further documents. The Company
has provided numerous documents to the SEC staff and continues to cooperate
fully with the SEC staff. The Company cannot predict the term of such
investigation or its potential outcome.
34
The Company is involved in significant litigation, including class and
derivative actions, relating to events which led to the restatement of its
consolidated financial statements, the issuance of the M&F warrants, the sale of
the Debentures and the employment agreements, attorney fees and expenses of
Messrs. Dunlap and Kersh. The Company intends to vigorously defend each of the
actions, but cannot predict the outcome and is not currently able to evaluate
the likelihood of the Company's success in each case or the range of potential
loss. However, if these actions were determined adversely to the Company, such
judgements would have a material adverse effect on the Company's financial
position, results of operations and cash flows. Additionally, the Company's
insurance carriers have filed various suits requesting a declaratory judgement
that the directors' and officers' liability insurance policies for excess
coverage was invalid and/or had been properly cancelled by the carriers or have
advised the Company of their intent to deny coverage under such policies. The
Company intends to pursue recovery from all of its insurers if damages are
rewarded against the Company or its indemnified officers and/or directors under
any of the foregoing actions. The Company's failure to obtain such insurance
recoveries following an adverse judgement against the Company on any of the
foregoing actions could have a material adverse effect on the Company's
financial position, results of operations and cash flows.
The Company and its subsidiaries are also involved in various lawsuits
from time to time that the Company considers to be ordinary routine litigation
incidental to its business. In the opinion of the Company, the resolution of
these routine matters, and of certain matters relating to prior operations,
individually or in the aggregate, will not have a material adverse effect on the
financial position, results of operations or cash flows of the Company.
For additional information relating to litigation, see also Item 3 -
"Legal Proceedings."
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 on January 1, 1999. Adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
position, results of operations, or cash flows. Actual charges incurred due to
systems projects may be material.
In April 1998, the AICPA issued Statement of Position 98-5, REPORTING
ON THE COST OF START-UP ACTIVITIES ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
Adoption of this statement is not expected to have a material impact on the
Company's consolidated financial position, results of operations, or cash flows.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the Consolidated Balance Sheets as either assets or liabilities
measured at fair value. The Company will adopt SFAS No. 133 for the 2000 fiscal
year. The Company has not yet determined the impact SFAS No. 133 will have on
its consolidated financial position, results of operations or cash flows.
YEAR 2000 READINESS DISCLOSURE
The Company is preparing for the impact of the Year 2000 on its
operations. Year 2000 issues could include potential problems in the information
technology ("IT") and non-IT systems that the Company uses in its operations and
problems in the Company's products. Year 2000 system failures could affect
routine but critical operations such as forecasting, purchasing, production,
order processing, inventory control, shipping, billing and collection. In
addition, system failures could affect the Company's security, payroll
operations, or employee safety. The Company may also be exposed to potential
risks from third parties with whom the Company interacts who fail to adequately
address their own Year 2000 issues.
SUNBEAM'S APPROACH TO YEAR 2000 ISSUES
While the Company's Year 2000 readiness planning has been underway for
over one year, during the third quarter of 1998 the Company established a
cross-functional project team consisting of senior managers, assisted by three
external consulting firms which were retained to provide consulting services and
to assist the Company in implementing its Year 2000 strategy. This team is
sponsored by the Company's Chief Financial Officer who reports directly to the
Company's Chief Executive Officer on this issue. The Audit Committee of the
Board of Directors is advised periodically on the status of the Company's Year
2000 readiness program.
35
The Year 2000 project team has developed a phased approach to identify
and resolve Year 2000 issues with many of these activities conducted in
parallel. The Company's approach and the anticipated timing of each phase are
described below.
PHASE 1 - INVENTORY AND ASSESSMENT: During the first phase of Sunbeam's
Year 2000 readiness program, the Company established a Year 2000 Program
Management Office ("PMO") to centralize the management of all of the Company's
Year 2000 projects. Through this office, the Company developed a corporate-wide,
uniform strategy for assessing and addressing the Year 2000 issues.
The Company has completed an inventory of its hardware and software
systems, manufacturing equipment, electronic data interchange,
telecommunications and other technical assets potentially subject to Year 2000
problems, such as security systems and controls for lighting, air conditioning,
ventilation and facility access. This inventory was then entered into the
Company's Year 2000 database along with a determination of the item's level of
criticality to operations. For those inventory items anticipated to have a
significant effect on the business if not corrected, the Company's Year 2000
program envisions repair or replacement and testing of such items. All
information relative to each item is being tracked in the Company's Year 2000
database. The Company completed most of this phase during the third and fourth
quarters of 1998. The Company has completed a review of the readiness of
embedded microprocessors in its products and determined that none of the
Company's products have Year 2000 date sensitive systems.
PHASE 2 - CORRECTION AND TESTING: The second phase of Sunbeam's Year
2000 readiness program is structured to replace, upgrade or remediate (as
necessary) those items identified during Phase 1 as requiring corrective action.
Sunbeam relies on its IT functions to perform many tasks that are
critical to its operations. Significant transactions that could be impacted by
not being ready for any Year 2000 issues include, among others, purchases of
materials, production management, order entry and fulfillment, and payroll
processing. Systems and applications that have been identified by Sunbeam to
date as not currently Year 2000 ready and which are critical to Sunbeam's
operations include its financial software systems, which process the order
entry, purchasing, production management, general ledger, accounts receivable,
and accounts payable functions, payroll applications, and critical applications
in the Company's manufacturing and distribution facilities, such as warehouse
management applications. In 1997, the Company began implementing a uniform
international business and accounting information system to improve internal
reporting processes. Based upon representations from the manufacturer that the
current version of this uniform information system is Year 2000 ready, the
Company has been actively upgrading its business sites that currently utilize
this uniform system to the Year 2000 ready version. A small number of other
Company business locations are replacing their current non-Year 2000 ready
systems with this new uniform system.
The Company is also actively replacing and/or upgrading legacy business
systems that are not Year 2000 ready, including those that use localized
business system packages which were not candidates to be replaced by the uniform
business and accounting information system. With respect to the Company's non-IT
systems (for example, time and attendance, security, and in-line manufacturing
hardware) the Company is actively analyzing these items to assess any Year 2000
issues. To date, no material issues have been discovered, and the Company will
continue to review, test and correct, if necessary, such items.
Sunbeam plans to complete the corrective work described above with
respect to its systems by the second quarter of 1999 with final testing and
implementation of such systems occurring in the second and third quarters of
1999.
PHASE 3 - CUSTOMERS, SUPPLIERS AND BUSINESS PARTNERS: The third phase
of Sunbeam's Year 2000 readiness program which was initiated during the third
and fourth quarters of 1998 is designed to assess and interact with the
Company's customers, suppliers, and business partners. As part of this effort,
the Company surveyed 1,100 vendors and suppliers determined to be critical to
the Company. Based on the survey, the Company believes that there is only a low
to medium risk of Year 2000 issues for approximately one-third of its vendors;
however, a small number of vendors have been identified as high risk (less than
3%) and almost two-thirds of the vendors did not respond fully to the survey.
The Company will continue its vendor evaluation and assessment process through
1999, including direct contact with high and medium risk vendors and vendors who
have not responded fully to the Company's survey. The Company has not
independently verified the responses of vendors and does not anticipate
undertaking such independent verification process.
Beginning in the second quarter of 1999, Sunbeam will also contact its
major customers to confirm their preparations for Year 2000 issues. The Company
has already responded to numerous customer inquiries and believes that all of
the Company's major customers have established programs to deal with Year 2000
issues. In order to improve the Company's
36
communication with its customers, suppliers and business partners, the Company
has set up a Sunbeam Year 2000 telephone number and is in the process of
providing Year 2000 information on a Company web site.
PHASE 4 - CONTINGENCY PLANNING: This phase will involve contingency
planning for unresolved Year 2000 issues, particularly any issues arising with
third party suppliers. The Company's Year 2000 readiness program is ongoing and
its ultimate scope, as well as the consideration of contingency plans, will
continue to be evaluated as new information becomes available. As a
precautionary measure, Sunbeam plans to establish a contingency plan for
addressing any effects of the Year 2000 on its operations, whether due to
Sunbeam's systems or those of third parties not being ready for any Year 2000
issues. Sunbeam expects to complete such contingency plan by September 30, 1999;
such contingency plan will address alternative processes, such as manual
procedures, electronic spreadsheets, potential alternative service providers,
and plans to address Year 2000 readiness issues as they arise.
THE RISKS OF SUNBEAM'S YEAR 2000 APPROACH
The independent consultants assisting the Company in its Year 2000
readiness program have reviewed and concurred with the Company's approach, have
assisted in developing cost estimates and have monitored costs for the largest
single component (upgrade or installation of the Company's uniform system) of
the Company's Year 2000 program. As a result, although the Company did not
engage an independent third party to verify the program's overall approach or
total cost, the Company believes that the Company's exposure in this regard is
mitigated. In addition, through the use of external third-party diagnostic tools
which helped to identify potential Year 2000 issues in one significant business
operation, the Company believes that it has also mitigated its risk by
validating and verifying key program components.
Management believes that, although there are significant systems that
are being modified or replaced, Sunbeam's information systems environment will
be made Year 2000 ready prior to January 1, 2000. Sunbeam's failure to timely
complete such corrective work could have a material adverse impact on the
Company.
With respect to customers, suppliers and business partners, the failure
of certain of these third parties to become Year 2000 ready could also have a
material adverse impact on Sunbeam. For example, the failure of certain of the
Company's principal suppliers to have Year 2000 ready internal systems could
impact the Company's ability to manufacture and/or ship its products or to
maintain adequate inventory levels for production.
At this time, the Company believes that the most likely "worst-case"
scenario relating to Year 2000 involves potential disruptions in areas in which
the Company's operations must rely on third parties, such as suppliers, whose
systems may not work properly after January 1, 2000. While such system failures
could either directly or indirectly affect important operations of the Company
and its subsidiaries in a significant manner, the Company cannot at present
estimate either the likelihood or the potential cost of such failures. Subject
to the nature of the goods or services provided to the Company by third parties
whose operations are not made ready for Year 2000 issues, the impact on
Sunbeam's operations could be material if appropriate contingency plans cannot
be developed prior to January 1, 2000.
The nature and focus of the Company's efforts to address the Year 2000
problem may be revised periodically as interim goals are achieved or new issues
are identified. In addition, it is important to note that the description of the
Company's efforts and assessments necessarily involves estimates and projections
with respect to activities required in the future. These estimates and
projections are subject to change as work continues, and such changes may be
substantial.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
Through December 31, 1998, Sunbeam had expended approximately $19
million to address Year 2000 issues of which approximately half was recorded as
capital expenditures and the remainder as SG&A expense. Sunbeam's current
assessment of the total costs to address and remedy Year 2000 issues and enhance
its operating systems, including costs for the acquired companies, is
approximately $60 million. The amount to be incurred for Year 2000 issues during
1999 of approximately $41 million represents over 50% of the Company's total
1999 budget for information systems and related support, including Year 2000
costs. A large majority of these costs are expected to be incremental
expenditures that will not recur in the Year 2000 or thereafter. Fees and
expenses related to third party consultants, who are involved in the PMO as well
as the modification and replacement of software, represent approximately 75% of
the total estimated cost. The balance of the total estimated cost relates
primarily to software license fees and new hardware, but excludes the costs
associated with Company employees. Sunbeam expects these expenditures to be
financed through operating cash flows or borrowings, as applicable. A
significant portion of these expenditures will enhance Sunbeam's operating
systems in addition to resolving the Year 2000 issues. As Sunbeam completes its
assessment of the Year 2000 issues, the actual expenditures incurred or to be
incurred may differ materially from the amounts shown above.
37
Because Year 2000 readiness is critical to the business, Sunbeam has
redeployed some resources from non-critical system enhancements to address Year
2000 issues. In addition, due to the importance of IT systems to the Company's
business, management has deferred non-critical systems enhancements as much as
possible. The Company does not expect these redeployments and deferrals to have
a material impact on the Company's financial condition, results of operations or
cash flows.
EFFECTS OF INFLATION
For each of the three years in the period ended December 31, 1998, the
Company's cost of raw materials and other product remained relatively stable. To
the extent possible, the Company's objective is to offset the impact of
inflation through productivity enhancements, cost reductions and price
increases.
CAUTIONARY STATEMENTS
Certain statements in this Annual Report on Form 10-K may constitute
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as the same may be amended from time to time
(herein the "Act") and in releases made by the SEC from time to time. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance, or achievements
of the Company to be materially different from any future results, performance,
or achievements expressed or implied by such forward-looking statements. When
used in this Annual Report on Form 10-K, the words "estimate," "project,"
"intend," "expect" and similar expressions, when used in connection with the
Company, including its management, are intended to identify forward-looking
statements. These forward-looking statements were based on various factors and
were derived utilizing numerous important assumptions and other important
factors that could cause actual results to differ materially from those in the
forward-looking statements. These Cautionary Statements are being made pursuant
to the Act, with the intention of obtaining the benefits of the "Safe Harbor"
provisions of the Act. The Company cautions investors that any forward-looking
statements made by the Company are not guarantees of future performance.
Important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements with
respect to the Company include, but are not limited to, risks associated with
(i) high leverage, (ii) Sunbeam's ability to comply with the terms of its credit
agreement, including financial covenants and covenants related to the completion
of the Coleman merger, or to continue to obtain waivers from its bank lenders
with respect to its compliance with the existing covenants contained in such
agreement, and to continue to have access to its revolving credit facility,
(iii) Sunbeam's sourcing of products from international vendors, including the
ability to select reliable vendors and to avoid delays in shipments, (iv)
Sunbeam's ability to maintain and increase market share for its products at
anticipated margins, (v) Sunbeam's ability to successfully introduce new
products and to provide on-time delivery and a satisfactory level of customer
service, (vi) changes in laws and regulations, including changes in tax laws,
accounting standards, environmental laws, occupational, health and safety laws,
(vii) access to foreign markets together with foreign economic conditions,
including currency fluctuations, (viii) uncertainty as to the effect of
competition in existing and potential future lines of business, (ix)
fluctuations in the cost and availability of raw materials and/or products, (x)
changes in the availability and relative costs of labor, (xi) effectiveness of
advertising and marketing programs, (xii) economic uncertainty in Japan, Korea
and other Asian countries, as well as in Mexico, Venezuela, and other Latin
American countries, (xiii) product quality, including excess warranty costs,
product liability expenses and costs of product recalls, (xiv) weather
conditions which can have an unfavorable impact upon sales of Sunbeam's
products, (xv) the numerous lawsuits against the Company and the SEC
investigation into the Company's accounting practices and policies, and
uncertainty regarding the Company's available coverage on its directors' and
officers' liability insurance, (xvi) the possibility of a recession in the
United States or other countries resulting in a decrease in consumer demands for
the Company's products, (xvii) failure of the Company and/or its suppliers of
goods or services to timely complete the remediation of computer systems to
effectively process Year 2000 information and (xviii) any material error in
evaluating historical levels of retail inventories and the related impact on
operations of changes therein. Other factors and assumptions not included in the
foregoing may cause the Company's actual results to materially differ from those
projected. The Company assumes no obligation to update any forward-looking
statements or these Cautionary Statements to reflect actual results or changes
in other factors affecting such forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item appears in Item 14(a) of this report.
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 20, 1998, the Audit Committee recommended and Sunbeam's
Board approved the appointment of Deloitte & Touche as its independent auditors
for 1998, to replace Arthur Andersen, Sunbeam's former auditor. Arthur Andersen
is continuing to provide certain professional services to Sunbeam.
On June 25, 1998, Sunbeam announced that Arthur Andersen would not
consent to the inclusion of its opinion on Sunbeam's 1997 financial statements
in a registration statement Sunbeam was planning to file with the SEC. On June
30, 1998, Sunbeam announced that the Audit Committee of its Board of Directors
would conduct a review of Sunbeam's prior financial statements and that,
therefore, those financial statements should not be relied upon. Sunbeam also
announced that Deloitte & Touche had been retained to assist the Audit Committee
and Arthur Andersen in their review of Sunbeam's prior financial statements. On
August 6, 1998, Sunbeam announced that the Audit Committee had determined that
Sunbeam would be required to restate its financial statements for 1997, the
first quarter of 1998 and possibly 1996, and that the adjustments, while not
then quantified, would be material. On October 20, 1998 Sunbeam announced the
restatement of its financial results for a six-quarter period from the fourth
quarter of 1996 through the first quarter of 1998. On November 12, 1998, Sunbeam
filed a Form 10-K/A for the year ended December 31, 1997, which contains an
unqualified opinion by Arthur Andersen on Sunbeam's restated consolidated
financial statements as of December 29, 1996 and December 28, 1997 and for each
of the three years in the period ended December 28, 1997.
Arthur Andersen's report on the financial statements for the past two
fiscal years of Sunbeam ended December 28, 1997 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audits for those
periods and through November 20, 1998, there were no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Arthur Andersen would have caused Arthur
Andersen to make reference thereto in their report on the financial statements
for such years. Sunbeam has not consulted with Deloitte & Touche on any matter
that was either the subject of a disagreement or a reportable event between
Sunbeam and Arthur Andersen.
In connection with the restatements referred to above, in a letter
dated October 16, 1998, Arthur Andersen advised Sunbeam that there existed the
following conditions that Arthur Andersen believed to be material weaknesses in
Sunbeam's internal control:
"In our opinion, [Sunbeam's] design and effectiveness of its
internal control were inadequate to detect material misstatements
in the preparation of [Sunbeam's] 1997 annual (before audit) and
quarterly financial statements."
As part of its audit of Sunbeam's 1997 consolidated financial
statements that led to the restatement of these financial statements, Arthur
Andersen was required to consider Sunbeam's internal controls in determining the
scope of its audit procedures. Arthur Andersen has advised management of its
concerns regarding Sunbeam's internal controls. Management is addressing these
concerns and although Sunbeam has not yet fully implemented all additional
planned controls, management believes that the interim measures the Company has
adopted to prevent material misstatements in its financial statements will be
effective until the remainder of the additional controls can be implemented.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information regarding the Company's directors is incorporated by
reference to the information set forth under "Proposal 1 - To Elect the
Following Eight Directors of the Company for a Term of One Year" in the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders (the
"Proxy Statement"), which Proxy Statement has been filed with the SEC pursuant
to Regulation 14A. Information regarding executive officers of the Registrant is
included under a separate caption in Part I hereof. Information regarding
compliance with Section 16(a) of the Exchange Act is incorporated by references
to the information included under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding this item is incorporated by reference to the
information included under the captions "Executive Compensation" and "Directors'
Compensation" in the Company's Proxy Statement.
39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding this item is incorporated by reference to the
information included under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" in the Company's Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding this item is incorporated by reference to the
information included under the caption "Certain Relationships and Related
Transactions" in the Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The consolidated financial statements, related notes thereto and
the reports of independent auditors required by Item 8 are listed on
page F-1 herein.
2. The listing of the financial statement schedule appears on page F-1
herein.
3. The exhibits listed in the accompanying index to exhibits are filed
as part of this report and include the management contracts or
compensatory plans or arrangements required pursuant to Item 601,
which are designated as Exhibits 10.a to 10.g, 10.w to 10.z, 10.dd
and 10.ee and 10.gg to 10.jj.
[Enlarge/Download Table]
EXHIBIT
NO. DESCRIPTION
-------- --------------------------------------------------------------
3.a Amended and Restated Certificate of Incorporation of Sunbeam (3)
3.b By-laws of Sunbeam, as amended (11)
4.a Indenture dated as of March 25, 1998, by and among the Company and Bank of New York Trust, with respect
to the Zero Coupon Convertible Senior Subordinated Debentures due 2018 (8)
4.b Registration Rights Agreement dated March 25, 1998, by and among the Company and Morgan Stanley & Co.,
Inc., with respect to the Zero Coupon Convertible Senior Subordinated Debentures due 2018 (8)
4.c Registration Rights Agreement, dated as of March 29, 1998, between the Company and Coleman (Parent)
Holdings, Inc. (9)
4.d Settlement Agreement, dated as of August 12, 1998, by and between the Company and Coleman (Parent)
Holdings, Inc. (10)
4.e Amendment to Registration Rights Agreement, dated as of August 12, 1998, between the Company and Coleman
(Parent) Holdings, Inc. (11)
10.a Employment Agreement dated as of February 20, 1998, by and between Sunbeam and Albert J. Dunlap (7)
10.b Employment Agreement dated as of February 20, 1998, by and between Sunbeam and Russell A. Kersh (7)
10.c Employment Agreement dated as of February 20, 1998, by and between Sunbeam and David C. Fannin (7)
10.d Employment Agreement dated as of January 1, 1997, by and between Sunbeam and Donald Uzzi (5)
10.e Sunbeam Executive Benefit Replacement Plan (7)
10.f Amended and Restated Sunbeam Corporation Stock Option Plan (12)
10.g Performance Based Compensation Plan (7)
10.h Tax Sharing Agreement dated as of October 31, 1990, by and among Sunbeam, SAIL, SOHO, Montey and the
subsidiaries of Sunbeam listed therein (1)
10.i Receivables Sale and Contribution Agreement dated as of December 4, 1997, between Sunbeam Products, Inc.
and Sunbeam Asset Diversification, Inc. (7)
10.j Receivables Purchase and Servicing Agreement dated as of December 4, 1997, between Sunbeam Products,
Inc., Llama Retail, L.P., Capital USA, LLC and Sunbeam Asset Diversification, Inc. (7)
10.k Agreement and Plan of Merger among Sunbeam Corporation, Laser Acquisition Corp., CLN Holdings, Inc., and
Coleman (Parent) Holdings, Inc. dated as of February 27, 1998 (7)
40
10.l Agreement and Plan of Merger among Sunbeam Corporation, Camper Acquisition Corp., and The Coleman
Company, Inc. dated as of February 27, 1998 (7)
10.m Agreement and Plan of Merger between Sunbeam Corporation, Java Acquisition Corp., and Signature Brands
USA, Inc. dated as of February 28, 1998 (7)
10.n Stock Purchase Agreement among Java Acquisition Corp. and the Sellers named therein dated as of February
28, 1998 (7)
10.o Agreement and Plan of Merger by and among Sunbeam Corporation, Sentinel Acquisition Corp., and First
Alert, Inc. dated as of February 28, 1998 (7)
10.p Stock Sale Agreement among Sunbeam Corporation and the Shareholders named therein dated as of February
28, 1998 (7)
10.q Credit Agreement dated as of March 30, 1998, among Sunbeam Corporation, the Borrowers referred to therein,
the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank of America National Trust and Savings
Association and First Union National Bank (8)
10.r First Amendment to Credit Agreement dated as of May 8, 1998, among Sunbeam Corporation, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (8)
10.s Second Amendment to Credit Agreement dated as of June 30, 1998, among the Company, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (11)
10.t Third Amendment to Credit Agreement dated as of October 19, 1998, among the Company, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (11)
10.u Fourth Amendment to Credit Agreement dated as of April 10, 1999, among the Company, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (13)
10.v Fifth Amendment to Credit Agreement, Third Waiver and Agreement dated as of April 15, 1999; among the
Company, the Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Funding.
Bank America National Trust and Savings Association and First Union National Bank (13)
10.w Employment Agreement between the Company and Jerry W. Levin dated June 15, 1998 (11)
10.x Employment Agreement between the Company and Paul Shapiro dated June 15, 1998 (11)
10.y Employment Agreement between the Company and Bobby Jenkins dated June 15, 1998 (11)
10.z Agreement between the Company and David Fannin dated August 20, 1998 (11)
10.aa First Amendment to Receivables Sale and Contribution Agreement dated April 2, 1998, between Sunbeam
Products, Inc. and Sunbeam Asset Diversification, Inc. (11)
10.bb First Amendment to Receivables Purchase and Servicing Agreement dated April 2, 1998, between Llama Retail
Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset Diversification, Inc. (11)
10.cc Second Amendment to Receivables Purchase and Servicing Agreement dated July 29,1998, between Llama Retail
Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset Diversification, Inc. (11)
10.dd Sunbeam Corporation Management Incentive Compensation Plan *
10.ee Stock Option Replacement Program *
10.ff Amendment No. 1 to Agreement and Plan of Merger, dated as of March 29, 1998, among the Company, Laser
Acquisition Corp., Coleman (Parent) Holdings, Inc., and CLN Holdings, Inc. (13)
10.gg Employment Agreement dated as of August 31, 1998 between the Company and Karen K. Clark *
10.hh Employment Agreement dated as of October 1, 1998 between the Company and Jack Hall *
10.ii Employment Agreement dated as of December 16, 1998 between the Company and Janet G. Kelley *
10.jj Compensation and Indemnification Agreement entered into as of June 29, 1998, between the Company and each
of Howard G. Kristol, Charles M. Elson, Peter A. Langerman and Faith Whittlesey *
10.kk Agreement between Sunbeam Asset Diversification, Inc. and Capital USA, LLC amending the Receivables
Purchase Agreement among Llama Retail Funding, L.P., Sunbeam Asset Diversification, Inc. Capital USA,
LLC and Sunbeam Products, Inc. *
21. Subsidiaries of the Registrant *
23.1 Independent Auditors' Consent - Deloitte & Touche LLP
23.2 Consent of Independent Certified Public Accountants - Arthur Andersen LLP
27. Financial Data Schedule, submitted electronically to the Securities and Exchange Commission for information
only and not filed.
<FN>
----------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990.
41
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended July 3, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1997.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
(9) Incorporated by reference to the Company's Report on Form 8-K filed April 13, 1998.
(10) Incorporated by reference to the Company's Report on Form 8-K filed August 14, 1998.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K/A filed November 12, 1998.
(12) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(13) Incorporated by reference to the Annual Report on Form 10-K filed by The Coleman Company, Inc. on April 15, 1999.
*Filed with this Report.
</FN>
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SUNBEAM CORPORATION
BY: /s/ BOBBY G. JENKINS
--------------------------------------
BOBBY G. JENKINS
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Dated: May 11, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
[Enlarge/Download Table]
NAME AND SIGNATURE TITLE DATE
------------------------------ ------------------------------- -------------
/s/ JERRY W. LEVIN Chairman of the Board, President, May 11, 1999
------------------------------ Chief Executive Officer and Director
Jerry W. Levin (Principal Executive Officer)
/s/ CHARLES M. ELSON Director May 11, 1999
-----------------------------
Charles M. Elson
/s/ HOWARD GITTIS Director May 11, 1999
-----------------------------
Howard Gittis
/s/ JOHN H. KLEIN Director May 11, 1999
-----------------------------
John H. Klein
/s/ HOWARD G. KRISTOL Director May 11, 1999
-----------------------------
Howard G. Kristol
/s/ PETER A. LANGERMAN Director May 11, 1999
---------------------------------
Peter A. Langerman
/s/ FAITH WHITTLESEY Director May 11, 1999
-----------------------------
Faith Whittlesey
/s/ KAREN CLARK Senior Vice President, Finance May 11, 1999
----------------------------- (Principal Accounting Officer)
Karen Clark
43
SUNBEAM CORPORATION AND SUBSIDIARIES
[Enlarge/Download Table]
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Reports................................................................. F-2
Consolidated Statements of Operations for the Fiscal Years Ended December 31, 1998,
December 28, 1997 and December 29, 1996................................................. F-5
Consolidated Balance Sheets as of December 31, 1998 and December 28, 1997.................... F-6
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended
December 31, 1998, December 28, 1997 and December 29, 1996.............................. F-7
Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 31, 1998, December 28, 1997 and December 29, 1996.............................. F-8
Notes to Consolidated Financial Statements................................................... F-9
FINANCIAL STATEMENT SCHEDULE*
II. Valuation and Qualifying Accounts........................................................ F-42
* All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore not included
herein.
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sunbeam Corporation and subsidiaries:
We have audited the accompanying consolidated balance sheet of Sunbeam
Corporation and subsidiaries (the "Company") as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. Our audit also included the financial statement
schedule as of and for the year ended December 31, 1998, listed in the Index at
Item 14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audit. We did not audit the consolidated financial statements of The Coleman
Company, Inc. and subsidiaries (consolidated subsidiaries), which statements
reflect total assets constituting 27% of consolidated total assets as of
December 31, 1998, and total revenues constituting 40% of consolidated total
revenues for the year then ended. Those consolidated financial statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for The Coleman Company,
Inc. and subsidiaries, is based solely on the report of such other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Sunbeam Corporation and subsidiaries as of December 31,
1998, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles. Also, in our
opinion, based on our audit and (as to the amounts included for The Coleman
Company, Inc. and subsidiaries) the report of other auditors, such financial
statement schedule as of and for the year ended December 31, 1998, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 16, 1999
F-2
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
The Coleman Company, Inc.
We have audited the consolidated balance sheets of The Coleman Company,
Inc. and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998 (not presented
separately herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Coleman Company, Inc. and subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Wichita, Kansas
April 15, 1999
F-3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Sunbeam Corporation:
We have audited the accompanying consolidated balance sheet of Sunbeam
Corporation (a Delaware corporation) and subsidiaries as of December 28, 1997
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the two fiscal years in the period ended December 28,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sunbeam Corporation
and subsidiaries as of December 28, 1997, and the results of their operations
and their cash flows for each of the two fiscal years in the period ended
December 28, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II for each of the two years in
the period ended December 28, 1997 is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This Schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
October 16, 1998
F-4
[Enlarge/Download Table]
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
Net sales............................................................ $ 1,836,871 $ 1,073,090 $ 984,236
Cost of goods sold................................................... 1,788,819 830,956 896,938
Selling, general and administrative expense.......................... 718,077 152,653 221,655
Restructuring and asset impairment (benefit) charges................. -- (14,582) 110,122
------------ ------------ ------------
Operating (loss) earnings............................................ (670,025) 104,063 (244,479)
Interest expense..................................................... 131,091 11,381 13,588
Other (income) expense, net.......................................... (4,768) 12 3,738
------------ ------------ ------------
(Loss) earnings from continuing operations before
income taxes, minority interest and extraordinary charge.......... (796,348) 92,670 (261,805)
Income taxes (benefit):
Current........................................................... 8,667 1,528 (22,419)
Deferred.......................................................... (18,797) 38,824 (69,206)
------------ ------------ ------------
(10,130) 40,352 (91,625)
------------ ------------ ------------
Minority interest.................................................... (10,681) -- --
------------ ------------ ------------
(Loss) earnings from continuing operations before extraordinary charge (775,537) 52,318 (170,180)
Earnings from discontinued operations, net of taxes.................. -- -- 839
Loss on sale of discontinued operations, net of taxes................ -- (14,017) (39,140)
Extraordinary charge from early extinguishments of debt.............. (122,386) -- --
------------ ------------ ------------
Net (loss) earnings.................................................. $ (897,923) $ 38,301 $ (208,481)
============ ============ ============
(Loss) earnings per share:
(Loss) earnings from continuing operations before extraordinary charge:
Basic........................................................... $ (7.99) $ 0.62 $ (2.05)
============ ============ ============
Diluted......................................................... (7.99) 0.60 (2.05)
============ ============ ============
(Loss) from sale of discontinued operations:
Basic........................................................... $ -- $ (0.17) $ (0.46)
============ ============ ============
Diluted......................................................... -- (0.16) (0.46)
============ ============ ============
Extraordinary charge:
Basic........................................................... $ (1.26) $ -- $ --
============ ============ ============
Diluted......................................................... (1.26) -- --
============ ============ ============
Net (loss) earnings:
Basic........................................................... $ (9.25) $ 0.45 $ (2.51)
============ ============ ============
Diluted......................................................... (9.25) 0.44 (2.51)
============ ============ ============
Weighted average common shares outstanding:
Basic........................................................... 97,121 84,945 82,925
Diluted......................................................... 97,121 87,542 82,925
See Notes to Consolidated Financial Statements.
F-5
[Enlarge/Download Table]
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
DECEMBER 31, DECEMBER 28,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 61,432 $ 52,298
Restricted investments ........................................ 74,386 --
Receivables, net .............................................. 361,774 228,460
Inventories ................................................... 519,189 304,900
Prepaid expenses and other current assets ..................... 74,187 16,584
----------- -----------
Total current assets ........................................ 1,090,968 602,242
Property, plant and equipment, net ............................... 455,172 249,524
Trademarks, tradenames, goodwill and other, net .................. 1,859,377 207,162
----------- -----------
$ 3,405,517 $ 1,058,928
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt ......... $ 119,103 $ 668
Accounts payable .............................................. 162,173 108,374
Other current liabilities ..................................... 321,185 124,085
----------- -----------
Total current liabilities ................................... 602,461 233,127
Long-term debt, less current portion ............................. 2,142,362 194,580
Other long-term liabilities ...................................... 248,459 154,300
Deferred income taxes ............................................ 100,473 4,842
Minority interest ................................................ 51,325 --
Commitments and contingencies (Notes 3 and 15)
Shareholders' equity:
Preferred stock (2,000,000 shares authorized, none outstanding) -- --
Common stock (100,739,053 and 89,984,425 shares issued) ....... 1,007 900
Additional paid-in capital .................................... 1,123,457 479,200
(Accumulated deficit) retained earnings ....................... (809,997) 89,801
Accumulated other comprehensive loss .......................... (54,030) (33,063)
Other shareholders' equity .................................... -- (1,714)
----------- -----------
260,437 535,124
Treasury stock, at cost (4,454,394 shares in 1997) .............. -- (63,045)
----------- -----------
Total shareholders' equity .................................. 260,437 472,079
----------- -----------
$ 3,405,517 $ 1,058,928
=========== ===========
See Notes to Consolidated Financial Statements.
F-6
[Enlarge/Download Table]
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(ACCUMULATED ACCUMULATED
ADDITIONAL DEFICIT) OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS (LOSS) INCOME COMPENSATION STOCK EQUITY
------ ---------- ------------ ------------- ------------ -------- -------------
Balance at January 1, 1996............ $ 878 $ 441,786 $ 266,698 $(24,483) $ (397) $(83,449) $ 601,033
Comprehensive loss:
Net loss............................ -- -- (208,481) -- -- -- (208,481)
Minimum pension liability
(net of tax of $2,672)............ -- -- -- 4,963 -- -- 4,963
Translation adjustments............. -- -- -- 1,246 -- -- 1,246
---------
Comprehensive loss................ (202,272)
Common dividends ($0.04 per share).... -- -- (3,318) -- -- -- (3,318)
Exercise of stock options............. 6 7,313 -- -- -- -- 7,319
Grant of restricted stock............. -- (1,120) -- -- (14,346) 15,466 --
Amortization of unearned compensation. -- -- -- -- 7,707 -- 7,707
Retirement and sale of treasury shares -- (31) -- -- -- 4,595 4,564
------ ---------- --------- -------- --------- -------- ---------
Balance at December 29, 1996.......... 884 447,948 54,899 (18,274) (7,036) (63,388) 415,033
Comprehensive income:
Net earnings ....................... -- -- 38,301 -- -- -- 38,301
Minimum pension liability........... -- -- -- (14,050) -- -- (14,050)
Translation adjustments............. -- -- -- (739) -- -- (739)
---------
Comprehensive income.............. 23,512
Common dividends ($0.04 per share).... -- -- (3,399) -- -- -- (3,399)
Exercise of stock options............. 16 30,496 -- -- -- -- 30,512
Amortization of unearned compensation. -- -- -- -- 5,322 -- 5,322
Other stock issuances................. -- 756 -- -- -- 343 1,099
------ ---------- --------- -------- --------- -------- ---------
Balance at December 28, 1997.......... 900 479,200 89,801 (33,063) (1,714) (63,045) 472,079
Comprehensive loss:
Net loss............................ -- -- (897,923) -- -- -- (897,923)
Minimum pension liability........... -- -- -- (21,795) -- -- (21,795)
Translation adjustments............. -- -- -- 828 -- -- 828
---------
Comprehensive loss................ (918,890)
Common dividends ($0.02 per share).... -- -- (1,875) -- -- -- (1,875)
Exercise of stock options............. 9 18,383 -- -- -- -- 18,392
Grant of restricted stock............ 4 18,880 -- -- (32,500) -- (13,616)
Cancellation of restricted stock..... (1) (5,228) -- -- 10,182 (2,250) 2,703
Amortization of unearned compensation. -- -- -- -- 24,032 -- 24,032
Acquisition of Coleman................ 95 541,428 -- -- -- 65,200 606,723
Warrants issued....................... -- 70,000 -- -- -- -- 70,000
Other stock issuances................. -- 794 -- -- -- 95 889
------ ---------- --------- -------- --------- -------- ---------
Balance at December 31, 1998.......... $1,007 $1,123,457 $(809,997) $(54,030) $ -- $ -- $ 260,437
====== ========== ========= ======== ========= ======== =========
See Notes to Consolidated Financial Statements.
F-7
[Enlarge/Download Table]
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
OPERATING ACTIVITIES:
Net (loss) earnings ........................................ $ (897,923) $ 38,301 $ (208,481)
Adjustments to reconcile net (loss)
earnings to net cash (used in)
provided by operating activities:
Depreciation and amortization ........................... 107,865 39,757 47,429
Non-cash interest charges ............................... 32,531 -- --
Restructuring and asset impairment (benefit) charges .... -- (14,582) 110,122
Other non-cash special charges .......................... -- -- 10,047
Loss on sale of discontinued operations, net of taxes ... -- 14,017 39,140
Deferred income taxes ................................... (18,797) 38,824 (69,206)
Minority interest ....................................... (10,681) -- --
Loss on sale of property, plant and equipment ........... 3,260 -- --
Provision for fixed assets .............................. 39,404 -- --
Provision for excess and obsolete inventory ............. 95,830 -- 60,800
Goodwill impairment ..................................... 62,490 -- --
Issuance of warrants .................................... 70,000 -- --
Non-cash compensation charge ............................ 13,118 -- --
Extraordinary charge from early extinguishments of debt . 122,386 -- --
Changes in operating assets and liabilities,
exclusive of impact of divestitures and acquisitions:
Receivables, net ........................................ 147,045 1,044 (845)
Inventories ............................................. 37,112 (140,555) 11,289
Accounts payable ........................................ (68,187) 4,261 11,029
Restructuring accrual ................................... (3,894) (31,957) --
Prepaid expenses and other current assets and liabilities 50,622 (16,092) 39,657
Income taxes payable .................................... 15,758 52,052 (21,942)
Change in other long-term and non-operating liabilities . 13,994 (1,401) (27,089)
Other, net .............................................. (2,347) 10,288 12,213
----------- ----------- -----------
Net cash (used in) provided by operating activities ...... (190,414) (6,043) 14,163
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures ....................................... (53,686) (60,544) (75,336)
Proceeds from sale of divested operations and other assets . 9,575 90,982 --
Purchases of businesses, net of cash acquired .............. (522,412) -- --
Other, net ................................................. (139) -- (860)
----------- ----------- -----------
Net cash (used in) provided by investing activities ...... (566,662) 30,438 (76,196)
----------- ----------- -----------
FINANCING ACTIVITIES:
Issuance of convertible senior subordinated debentures, net
of financing fees ........................................ 729,622 -- --
Net borrowings under revolving credit facility ............. 1,205,675 5,000 30,000
Issuance of long-term debt ................................. -- -- 11,500
Payments of debt obligations, including prepayment penalties (1,186,796) (12,157) (1,794)
Proceeds from exercise of stock options .................... 19,553 26,613 4,684
Sale of treasury stock ..................................... -- -- 4,578
Payments of dividends on common stock ...................... (1,875) (3,399) (3,318)
Other, net ................................................. 31 320 (364)
----------- ----------- -----------
Net cash provided by financing activities ................ 766,210 16,377 45,286
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents .......... 9,134 40,772 (16,747)
Cash and cash equivalents at beginning of year ................ 52,298 11,526 28,273
----------- ----------- -----------
Cash and cash equivalents at end of year ...................... $ 61,432 $ 52,298 $ 11,526
=========== =========== ===========
See Notes to Consolidated Financial Statements
F-8
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sunbeam Corporation ("Sunbeam" or the "Company") is a leading designer,
manufacturer and marketer of branded consumer products. The Company's primary
business is the manufacturing, marketing and distribution of durable household
and outdoor leisure consumer products through mass market and other distribution
channels in the United States and internationally. The Company also sells its
products to professional and commercial end users such as small businesses,
health care providers, hotels and other institutions. The Company's principal
products include household kitchen appliances; health monitoring and care
products for home use; scales for consumer and professional use for weight
management and business uses; electric blankets and throws; clippers and
trimmers for consumer, professional and animal uses; smoke and carbon monoxide
detectors; outdoor barbecue grills; camping equipment such as tents, lanterns,
sleeping bags and stoves; coolers; backpacks and book bags; and portable
generators and compressors.
In 1998 the Company acquired an indirect controlling interest in The
Coleman Company, Inc. ("Coleman") and all the outstanding common stock of
Signature Brands USA, Inc. ("Signature Brands") and First Alert, Inc. ("First
Alert").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries that it controls. All material
intercompany balances and transactions have been eliminated.
PRESENTATION OF FISCAL PERIODS
To standardize the fiscal period ends of the Company and its acquired
entities, effective with its 1998 fiscal year, the Company has changed its
fiscal year end from the Sunday nearest December 31 to a calendar year. The
impact of this change in fiscal period on net sales for 1998 was to increase
sales by approximately $5.5 million, and the impact on operating results for the
period was to increase the net loss by approximately $1.5 million.
Fiscal years 1997 and 1996 ended on December 28, 1997 and December 29,
1996, respectively, which encompassed 52-week periods.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Significant accounting estimates include the establishment of
the allowance for doubtful accounts, tax valuation allowances, reserves for
sales returns and allowances, product warranty, product liability, excess and
obsolete inventory, litigation and environmental exposures.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-9
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Substantially all of the Company's trade receivables are due from
retailers and distributors located throughout the United States, Europe, Latin
America, Canada, and Japan. Approximately 38% of the Company's sales in 1998
were to its five largest customers. The Company establishes its credit policies
based on an ongoing evaluation of its customers' creditworthiness and
competitive market conditions and establishes its allowance for doubtful
accounts based on an assessment of exposures to credit losses at each balance
sheet date. The Company believes its allowance for doubtful accounts is
sufficient based on the credit exposures outstanding at December 31, 1998.
However, certain retailers filed for bankruptcy protection in the last several
years and it is possible that additional credit losses could be incurred if
other retailers seek bankruptcy protection or if the trends of retail
consolidation continue.
INVENTORIES
Inventories are stated at the lower-of-cost-or-market with cost being
determined principally by the first-in, first-out method.
In certain instances, the Company receives rebates from vendors based
on the volume of merchandise purchased. Vendor rebates are recorded as
reductions in the price of the purchased merchandise and are recognized in
operations as the related inventories are sold.
Effective in fiscal 1997, the Company began capitalizing manufacturing
supplies inventories, whereas previously these inventories were charged to
operations when purchased. This change increased pre-tax operating earnings in
fiscal 1997 by $2.8 million.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides
for depreciation using primarily the straight-line method in amounts that
allocate the cost of property, plant and equipment over the following useful
lives:
[Download Table]
Buildings and improvements....................... 5 to 45 years
Machinery, equipment and tooling................. 3 to 15 years
Furniture and fixtures........................... 3 to 10 years
Leasehold improvements are amortized on a straight-line basis over the
shorter of its estimated useful life or the term of the lease.
LONG-LIVED ASSETS
The Company accounts for long-lived assets pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The Company
periodically evaluates factors, events and circumstances which include, but are
not limited to, the historical and projected operating performance of the
business operations, specific industry trends and general economic conditions to
assess whether the remaining estimated useful lives of long-lived assets may
warrant revision or whether the remaining asset values are recoverable through
future operations. When such factors, events or circumstances indicate that
long-lived assets should be evaluated for possible impairment, the Company uses
an estimate of cash flows (undiscounted and without interest charges) over the
remaining lives of the assets to measure recoverability. If the estimated cash
flows are less than the carrying value of the asset, the loss is measured as the
amount by which the carrying value of the asset exceeds fair value.
F-10
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
With respect to enterprise level goodwill, the Company reviews
impairment when changes in circumstances, similar to those described above for
long-lived assets, indicate that the carrying value may not be recoverable.
Under these circumstances, the Company estimates future cash flows using the
recoverability method (undiscounted and including related interest charges), as
a basis for recording any impairment loss. An impairment loss is then recorded
to adjust the carrying value of goodwill to the recoverable amount. The
impairment loss taken is no greater than the amount by which the carrying value
of the net assets of the business exceeds its fair value.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements and foreign
exchange rate contracts as part of the management of its interest rate and
foreign currency exchange rate exposures. The Company has no derivative
financial instruments held for trading purposes and none of the instruments is
leveraged. All financial instruments are put into place to hedge specific
exposures. Amounts to be paid or received under swap agreements are recognized
over the terms of the agreements as adjustments to interest expense. Amounts
receivable or payable under the agreements are included in receivables or other
current liabilities in the Consolidated Balance Sheets. Gains and losses on
foreign currency forward contracts offset gains and losses resulting from the
underlying transactions. Gains and losses on contracts that hedge specific
foreign currency commitments are deferred and recorded in operations in the
period in which the underlying transaction is recorded.
CAPITALIZED INTEREST
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. Total
interest costs during 1998, 1997 and 1996 amounted to $131.9 million, $12.3
million and $14.0 million, respectively, of which $0.8 million, $0.9 million and
$0.4 million, respectively, was capitalized as a cost of the related long-term
assets.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining financing are deferred and
amortized as a charge to interest expense over the terms of the related
borrowings using the interest method.
AMORTIZATION PERIODS
Trademarks, tradenames and goodwill are being amortized on a
straight-line basis over 20 to 40 years.
REVENUE RECOGNITION
The Company recognizes sales and related cost of goods sold from
product sales at the latter of the time of shipment or when title passes to the
customers. In some situations, the Company has shipped product with the right of
return where the Company is unable to reasonably estimate the level of returns
and/or the sale is contingent upon the resale of the product. In these
situations, the Company does not recognize revenue upon product shipment, but
rather when the buyer of the product informs the Company that the product has
been sold. Net sales is comprised of gross sales less provisions for estimated
customer returns, discounts, promotional allowances, cooperative advertising
allowances and costs incurred by the Company to ship product to customers.
Reserves for estimated returns are established by the Company concurrently with
the recognition of revenue. Reserves are established based on a variety of
factors, including historical return rates, estimates of customer inventory
levels, the market for the product and projected economic conditions. The
Company monitors these reserves and makes adjustments to them when management
believes that actual returns or costs to be incurred differ from amounts
recorded.
F-11
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
WARRANTY COSTS
The Company provides for warranty costs in amounts it estimates will be
needed to cover future warranty obligations for products sold during the year.
Estimates of warranty costs are periodically reviewed and adjusted, when
necessary, to consider actual experience.
PRODUCT LIABILITY
The Company provides for product liability costs it estimates will be
needed to cover future product liability costs for product sold during the year.
Estimates of product liability costs are periodically reviewed and adjusted,
when necessary, to consider actual experience, and other relevant factors.
LEGAL COSTS
The Company records charges for the costs it anticipates incurring in
connection with litigation and claims against the Company when management can
reasonably estimate these costs.
INCOME TAXES
The Company accounts for income taxes under the liability method in
accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. The provision for
income taxes includes deferred income taxes resulting from items reported in
different periods for income tax and financial statement purposes. Deferred tax
assets and liabilities represent the expected future tax consequences of the
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The effects of changes in tax
rates on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
ADVERTISING COSTS
Media advertising costs included in Selling, General and Administrative
Expense ("SG&A") are expensed as incurred. Allowances provided to customers for
cooperative advertising are charged to operations, as earned, based on revenues
and are included as a deduction from gross sales in determining net sales. The
amounts charged to operations for media and cooperative advertising during 1998,
1997 and 1996 were $124.5 million, $55.7 million and $78.7 million,
respectively.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed in the period
incurred. The amounts charged against operations during 1998, 1997 and 1996 were
$18.7 million, $5.7 million and $6.5 million, respectively.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of subsidiaries, other than those operating
in highly inflationary economies, are translated into U.S. dollars with
resulting translation gains and losses accumulated in a separate component of
shareholders' equity. Income and expense items are converted into U.S. dollars
at average rates of exchange prevailing during the year.
For subsidiaries operating in highly inflationary economies (Venezuela
and Mexico), inventories and property, plant and equipment are translated at the
rate of exchange on the date the assets were acquired, while other assets and
liabilities are translated at year-end exchange rates. Translation adjustments
for those operations are included in Other (Income) Expense, Net in the
accompanying Consolidated Statements of Operations. Effective January 1, 1999,
Mexico will no longer be considered highly inflationary.
F-12
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
STOCK-BASED COMPENSATION PLANS
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION allows either
adoption of a fair value method for accounting for stock-based compensation
plans or continuation of accounting under Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations with supplemental disclosures.
The Company has chosen to account for its stock options using the
intrinsic value based method prescribed in APB Opinion No. 25 and, accordingly,
does not recognize compensation expense for stock option grants made at an
exercise price equal to or in excess of the fair market value of the stock at
the date of grant. Pro forma net income and earnings per share amounts as if the
fair value method had been adopted are presented in Note 9. SFAS No. 123 does
not impact the Company's results of operations, financial position or cash
flows.
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE OF COMMON STOCK
Basic (loss) earnings per common share calculations are determined by
dividing (loss) earnings available to common shareholders by the weighted
average number of shares of common stock outstanding. Diluted (loss) earnings
per share are determined by dividing (loss) earnings available to common
shareholders by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding (all related to outstanding stock
options, restricted stock, warrants and the Zero Coupon Convertible Senior
Subordinated Debentures).
For the years ended December 31, 1998 and December 29, 1996,
respectively, 1,902,177 and 1,552,684 shares related to stock options, were not
included in diluted average common shares outstanding because their effect would
be antidilutive. Diluted average common shares outstanding as of December 29,
1996 also excluded (78,654) shares related to restricted stock. Diluted average
common shares outstanding as of December 31, 1998 also excluded 13,242,050
shares related to the conversion feature of the Zero Coupon Convertible Senior
Subordinated Debentures (see Note 3) and 23,000,000 shares issuable on the
exercise of warrants, due to antidilution. For the year ended December 28, 1997,
the dilutive effect of 2,718,649 equivalent shares related to stock options and
(120,923) equivalent shares of restricted stock were used in determining the
dilutive average shares outstanding.
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 on January 1, 1999. Adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
position, results of operations, or cash flows. Actual charges incurred due to
systems projects may be material.
In April 1998, the AICPA issued Statement of Position 98-5, REPORTING
ON THE COST OF START-UP ACTIVITIES ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
Adoption of this statement is not expected to have a material impact on the
Company's consolidated financial position, results of operations, or cash flows.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the Consolidated Balance Sheets as either assets or liabilities
measured at fair value. The Company will adopt SFAS No. 133 for the 2000 fiscal
year. The Company has not yet determined the impact SFAS No. 133 will have on
its consolidated financial position, results of operations or cash flows.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
1998 presentation.
F-13
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ACQUISITIONS
On March 30, 1998, the Company, through a wholly-owned subsidiary,
acquired approximately 81% of the total number of then outstanding shares of
common stock of Coleman from an affiliate of MacAndrews & Forbes Holdings, Inc.
("M&F"), in exchange for 14,099,749 shares of the Company's common stock and
approximately $160 million in cash. In addition, the Company assumed
approximately $1,016 million in debt. The value of the common stock issued at
the date of acquisition was derived by using the average closing stock price as
reported on the New York Stock Exchange Composite Tape for the day before and
day of the public announcement of the acquisition. Immediately thereafter, as a
result of the exercise of employee stock options, Sunbeam's indirect beneficial
ownership of Coleman decreased to approximately 79% of the total number of the
outstanding shares of Coleman common stock.
On August 12, 1998, the Company announced that, following investigation
and negotiation conducted by a Special Committee of the Board consisting of four
outside directors not affiliated with M&F, the Company had entered into a
settlement agreement with an affiliate of M&F pursuant to which the Company was
released from certain threatened claims of M&F and its affiliates arising from
the Coleman acquisition and M&F agreed to provide certain management personnel
and assistance to the Company in exchange for the issuance to the M&F affiliate
of a five-year warrant to purchase up to 23 million shares of the Company's
common stock at a cash exercise price of $7.00 per share, subject to
antidilution adjustments. Accordingly, a $70.0 million non-cash SG&A expense was
recorded in the third quarter of 1998, based on a valuation performed as of
August 1998 using facts existing at that time. The valuation was conducted by an
independent consultant engaged by the Special Committee of the Board of
Directors.
The Company expects to acquire the remaining equity interest in Coleman
pursuant to a merger transaction in which the existing Coleman minority
shareholders will receive 0.5677 shares of the Company's common stock and $6.44
in cash for each share of Coleman common stock outstanding. In addition,
unexercised options under Coleman's stock option plans will be cashed out at a
price per share equal to the difference between $27.50 and the exercise price of
such options. The Company expects to issue approximately 6.7 million shares of
common stock and expend approximately $87 million in cash to complete the
Coleman acquisition. Although there can be no assurance, it is anticipated the
Coleman merger will occur in the second half of 1999. The acquisition of the
remaining outstanding shares of Coleman common stock will be accounted for under
the purchase method of accounting on the date of consummation of the Coleman
merger. (Also see Note 15 for information regarding the proposed issuance of
warrants related to this transaction.)
On April 6, 1998, the Company completed the acquisitions of First
Alert, valued at approximately $182 million (including $133 million of cash and
$49 million of assumed debt) and Signature Brands valued at $255 million,
(reflecting cash paid, including the required retirement or defeasance of debt).
All of these acquisitions were accounted for by the purchase method of
accounting. Accordingly, the results of operations of the acquired entities are
included in the accompanying Consolidated Statements of Operations from their
respective dates of acquisition.
In each acquisition, the purchase price paid has been allocated to the
fair value (determined by independent appraisals) of tangible and identified
intangible assets acquired and liabilities assumed as follows (in millions):
[Enlarge/Download Table]
SIGNATURE FIRST
COLEMAN BRANDS ALERT TOTAL
--------- --------- --------- --------
Value of common stock issued......................... $ 607 $ -- $ -- $ 607
Cash paid including expenses and mandatory
redemption of debt, net of cash acquired......... 160 255 133 548
Cash received from sale of Coleman Spas, Inc......... (17) -- -- (17)
Cash received from stock option proceeds............. (9) -- -- (9)
--------- -------- --------- --------
Net cash paid and equity issued...................... 741 255 133 1,129
Fair value of liabilities assumed.................... 1,455 83 103 1,641
--------- -------- --------- --------
2,196 338 236 2,770
Fair value of assets acquired........................ 1,113 191 172 1,476
--------- -------- --------- --------
Excess of purchase price over fair value
of net assets acquired............................ $ 1,083 $ 147 $ 64 $ 1,294
========= ======== ========= ========
The excess of purchase price over the fair value of net assets acquired
has been classified as goodwill. Goodwill related to the Coleman and Signature
Brands acquisitions is being amortized on a straight-line basis over 40 years.
During the fourth quarter of 1998, as a result of the significant loss incurred
by First Alert, as well as its future prospects, the Company determined that the
goodwill relating to this acquisition was impaired and, based on the
determination of fair value, has
F-14
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ACQUISITIONS - (CONTINUED)
written-off the net carrying value of goodwill approximating $62.5 million. This
one-time charge is reflected in SG&A expense in the Consolidated Statements of
Operations.
The following unaudited pro forma financial information for the Company
gives effect to the Coleman and Signature Brands acquisitions as if they had
occurred at the beginning of the periods presented. No pro forma adjustments
have been made for the First Alert acquisition as its effects are not
significant. These pro forma results have been prepared for informational
purposes only and do not purport to be indicative of the results of operations
which actually would have occurred had the acquisitions been consummated on the
dates indicated, or which may result in the future. The unaudited pro forma
results follow (in millions, except per share data):
[Enlarge/Download Table]
FISCAL YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 28,
1998 1997
-------------------- -------------------
Net sales......................................................... $ 2,098.7 $ 2,408.9
Net loss from continuing operations before extraordinary charge... (801.1) (23.6)
Basic and diluted loss per share from continuing operations
before extraordinary charge.................................. (7.96) (0.24)
3. DEBT
Debt at the end of each fiscal year consists of the following (in
thousands):
[Download Table]
1998 1997
---------- --------
Term loans, due in installments through 2006,
average interest rate of 8.47% for 1998............ $1,262,500 $ --
Revolving credit facility, average interest rate
of 8.55% for 1998 and 5.99% for 1997............... 94,000 110,000
Zero coupon convertible senior subordinated
debentures, net of unamortized discount of
$1,234,845, due 2018............................... 779,155 --
Senior subordinated notes, bearing interest at
13.0%, payable semiannually, due August 1999....... 70,000 --
Hattiesburg industrial revenue bond due 2009,
fixed interest rate of 7.85%....................... -- 75,000
Other lines of credit, including foreign facilities.. 45,803 --
Other long-term borrowings, due through 2012,
weighted average interest rate of 3.89% and
3.92%, at December 31, 1998 and December 28,
1997, respectively................................. 10,007 10,248
---------- --------
2,261,465 195,248
Less short-term debt and current portion of
long-term debt................................... 119,103 668
---------- --------
Long-term debt................................... $2,142,362 $194,580
========== ========
Concurrent with the acquisitions, the Company replaced its $250 million
syndicated unsecured five-year revolving credit facility with a revolving and
term credit facility (the "New Credit Facility"). The New Credit Facility
provided for aggregate borrowings of up to $1.7 billion. As a result of its
operating losses incurred in fiscal 1998, among other things, the Company was
not in compliance with certain covenants set forth in the New Credit Facility.
The Company and its lenders entered into agreements as of June 30, 1998, October
19, 1998 and April 10, 1999, in each case providing for waivers of compliance
with such covenants under the New Credit Facility. Effective April 15, 1999,
Sunbeam and its lenders entered into an agreement which waived compliance with
such covenants through April 10, 2000 and provided for new financial covenants.
The following description of the New Credit Facility reflects the terms of the
New Credit Facility as amended through April 15, 1999.
The New Credit Facility provided for aggregate borrowings of up to $1.7
billion pursuant to: (i) a revolving credit facility in an aggregate principal
amount of up to $400 million maturing March 30, 2005 ($52.5 million of which may
only be used to complete the Coleman merger if the Coleman merger is not
completed prior to August 31, 1999); (ii) $800 million in term loans maturing on
March 30, 2005 (of which $35.0 million may only be used to complete the Coleman
merger) and (iii) a $500 million term loan maturing September 30, 2006. As of
December 31, 1998, $1.4 billion was outstanding and $0.3 billion was available
for borrowing under the New Credit Facility.
F-15
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. DEBT - (CONTINUED)
Pursuant to the New Credit Facility, interest accrues, at the Company's
option: (i) at the London Interbank Offered Rate ("LIBOR"), or (ii) at the base
rate of the administrative agent which is generally the higher of the prime
commercial lending rate of the administrative agent or the Federal Funds Rate
plus 0.50%, in each case plus an agreed upon interest margin which is currently
3.75% for LIBOR borrowings and 2.50% for base rate borrowings. The applicable
interest margin is subject to downward adjustment upon the occurrence of certain
events. Borrowings under the New Credit Facility are secured by a pledge of the
stock of the Company's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its material
domestic subsidiaries, other than Coleman and its material subsidiaries except
as described below. Currently, Coleman's inventory and related assets are
pledged to secure its obligations for letters of credit issued for its account
under the New Credit Facility. Additionally, as security for Coleman's note
payable to the Company, Coleman pledged substantially all of its domestic
assets, other than real property, including 66% of the stock of its direct
foreign subsidiaries and domestic holding companies for its foreign
subsidiaries, and all of the stock of its other direct domestic subsidiaries
(but not the assets of Coleman's subsidiaries). The pledge runs in favor of
Sunbeam's lending banks, to which the Coleman note has been pledged as security
for Sunbeam's obligations to them. Upon completion of the Coleman merger,
substantially all of Coleman's assets and the assets of Coleman's domestic
subsidiaries will be pledged to secure the obligations under the New Credit
Facility. In addition, borrowings under the New Credit Facility are guaranteed
by a number of the Company's wholly owned material domestic subsidiaries and
these subsidiary guarantees are secured as described above. Upon completion of
the Coleman merger, Coleman and each of its United States subsidiaries will
become guarantors of the obligations under the New Credit Facility. To the
extent borrowings are made by any subsidiaries of the Company, the obligations
of such subsidiaries are guaranteed by the Company.
The New Credit Facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of Sunbeam
and its subsidiaries, including Coleman, to, among other things, (i) declare
dividends or repurchase stock, (ii) prepay, redeem or repurchase debt, incur
liens and engage in sale-leaseback transactions, (iii) make loans and
investments, (iv) incur additional debt, (v) amend or otherwise alter material
agreements or enter into restrictive agreements, (vi) make capital and year 2000
compliance expenditures, (vii) engage in mergers, acquisitions and asset sales,
(viii) engage in certain transactions with affiliates, (ix) settle certain
litigation, (x) alter its cash management system and (xi) alter the businesses
they conduct. Sunbeam is also required to comply with specified financial
covenants and ratios. The New Credit Facility provides for events of default
customary for transactions of this type, including nonpayment,
misrepresentation, breach of covenant, cross-defaults, bankruptcy, material
adverse change arising from compliance with ERISA, material adverse judgments,
entering into guarantees and change of ownership and control. It is also an
event of default under the New Credit Facility if Sunbeam's registration
statement in connection with the Coleman merger is not declared effective by the
Securities and Exchange Commission ("SEC") on or before October 30, 1999 or if
the merger does not occur within 25 business days of the effectiveness of the
registration statement or if the cash consideration (including any payments on
account of the exercise of any appraisal rights, but excluding related legal,
accounting and other customary fees and expenses) to consummate the Coleman
merger exceeds $87.5 million. Although there can be no assurance, the Company
anticipates that it will satisfy these conditions. Unless waived by the bank
lenders, the failure to satisfy these requirements (as with the occurrence of
any other event of default) would permit the bank lenders to accelerate the
maturity of all outstanding borrowings under the New Credit Facility. The New
Credit Facility also includes provisions for the deferral of the 1999 scheduled
term loan payments of $69.3 million, subject to delivery of certain collateral
documents and the filing of an amendment to the Company's registration statement
on Form S-4 relating to the Coleman merger. If these conditions are met, and
there are no events of default, the scheduled loan payments will be extended
until April 10, 2000. The Company anticipates that it will satisfy these
conditions and, accordingly, has classified these amounts as long-term in the
Consolidated Balance Sheet.
In March 1998, the Company completed an offering of Zero Coupon
Convertible Senior Subordinated Debentures due 2018 (the "Debentures") at a
yield to maturity of 5.0% (approximately $2,014 million principal amount at
maturity) which resulted in approximately $730 million of net proceeds. The
Debentures are exchangeable for shares of the Company's common stock at an
initial conversion rate of 6.575 shares for each $1,000 principal amount at
maturity of the Debentures, subject to adjustment upon occurrence of certain
events. The Debentures are subordinated in right of payment to all existing and
future senior indebtedness of the Company. The Debentures are not redeemable by
the Company prior to March 25, 2003. On or after such date, the Debentures are
redeemable for cash with at least 30 days notice, at the option of the Company.
The Company is required to purchase Debentures at the option of the holder as of
March 25, 2003, March 25, 2008 and March 25, 2013, at purchase prices equal to
the issue price plus accrued original discount to such dates. The Company may,
at its option, elect to pay any such purchase price in cash or common stock, or
any combination thereof. The Company was required to file a registration
statement with the SEC to register the Debentures by June 23, 1998. This
registration statement was filed February 4, 1999 and the SEC has not declared
the registration statement effective. Sunbeam's failure to file the registration
statement by June 23, 1998 did not constitute a default under the terms of the
Debentures. As part of the normal review process by the SEC, a number of
comments have
F-16
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. DEBT - (CONTINUED)
been made by the staff of the division of Corporation Finance relating to the
registration statement and the restated 1996 and 1997 financial statements
included therein. The Company expects to resolve these comments when it files an
amendment to the registration statement. From June 23, 1998 until the
registration statement is declared effective, the Company is required to pay to
the Debenture holders cash liquidated damages accruing, for each day during such
period, at a rate per annum equal to 0.25% during the first 90 days and 0.50%
thereafter multiplied by the total of the issue price of the Debentures plus the
original issue discount thereon on such day. The Company made its first payment
of approximately $0.5 million to the Debenture holders on September 25, 1998. As
of December 31, 1998 the Company had accrued additional payments totaling $1.0
million. The Company made a payment to Debenture holders in March 1999 of
approximately $2.0 million. This amount included liquidated damages that accrued
during the first quarter of 1999.
In connection with the acquisition of Signature Brands, the Company was
required to defease $70.0 million of acquired debt. Cash was placed with a
trustee to provide for the defeasance, including the related prepayment penalty.
This cash was used to purchase Treasury Notes. Accordingly, $74.4 million of
restricted investments held by the trustee for the August 1999 liquidation of
this acquired debt are reflected as an asset and $70.0 million is reflected as
short-term debt in the Consolidated Balance Sheet at December 31, 1998. The
prepayment penalty is reflected as part of the acquisition price of Signature
Brands.
In March 1998, the Company prepaid the $75.0 million 7.85% industrial
revenue bond related to its Hattiesburg facility originally due in 2009. In
connection with the early extinguishment of this debt, the Company recognized
an extraordinary charge of $7.5 million. As a result of repayment of certain
indebtedness assumed in the Coleman acquisition, the Company also recognized an
extraordinary charge of $114.9 million. These extraordinary charges consisted
primarily of redemption premiums.
During 1997, the Company repaid $12.2 million of long-term borrowings
related to the divested furniture operations and other assets sold.
At December 31, 1998, the aggregate annual maturities on short-term and
long-term debt in each of the years 1999-2003, and thereafter, were $119
million, $1,355 million, $1 million, $1 million, $1 million, and $5 million,
respectively. In addition, the fully accreted Debenture amount of $2,014 million
matures in 2018. The total of annual debt maturities for all years presented
does not agree to the balance of debt outstanding at December 31, 1998 as a
result of the accretion of discount on the Debentures. The outstanding balances
relating to the New Credit Facility are included in the maturity schedule in
2000, consistent with the expiration of the covenant waiver. Sunbeam has made no
decision with respect to the repayment or refinancing of indebtedness incurred
or to be incurred under the New Credit Facility and may repay such indebtedness
out of its internally generated funds or from proceeds of a subsequent
financing. Any decisions with respect to such repayment or refinancing will be
made based on a review from time to time of the advisability of particular
transactions, as well as on prevailing interest rates and financial and economic
conditions.
4. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments as of December
31, 1998 and December 28, 1997 was estimated based upon the following methods
and assumptions:
CASH AND CASH EQUIVALENTS--The carrying amount of cash and cash
equivalents is assumed to approximate fair value as cash equivalents include all
highly liquid, short-term investments with original maturities of three months
or less.
SHORT AND LONG TERM DEBT--The fair value of the Company's fixed rate
debt is estimated using either reported transaction values or discounted cash
flow analysis. The fair value of the Company's fixed rate debt was $319 million
as of December 31, 1998 as compared to the carrying value of $859 million. The
carrying value of the Company's variable rate debt is assumed to approximate
market based upon periodic adjustments of the interest rate to the current
market rate in accordance with the terms of the debt agreements. The carrying
value of the Company's various debt outstanding as of December 28, 1997
approximated market.
LETTERS OF CREDIT AND SURETY BONDS--The Company utilizes stand-by
letters of credit to back certain financing instruments and insurance policies
and commercial letters of credit guaranteeing various international trade
activities. In addition, the Company also entered into surety bonds largely as a
result of litigation judgements that are currently under appeal. The
F-17
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. FINANCIAL INSTRUMENTS - (CONTINUED)
contract amounts of the letters of credit and surety bonds approximate their
fair values. The contract value of letters of credit were $82.3 million and
$29.0 million as of December 31, 1998 and December 28, 1997, respectively.
Contract values for surety bonds as of December 31, 1998 were approximately
$26.5 million and were not significant at December 28, 1997.
DERIVATIVE FINANCIAL INSTRUMENTS--The Company utilizes interest rate
swap agreements to reduce the impact on interest expense of fluctuating interest
rates on its floating rate debt. The use of derivatives did not have a material
impact on the Company's operations in 1998, 1997 and 1996. At December 31, 1998,
the Company held three floating to fixed interest rate swap agreements, one with
a notional value of $25 million and two with notional amounts of $150 million
each. The swap agreements are contracts to exchange floating rate for fixed
interest payments periodically over the lives of the agreements without the
exchange of the underlying notional principal amounts. The swaps expire in
January 2003, June 2001 and June 2003, respectively. Under these agreements, the
Company received an average floating rate of 5.64%, 5.59% and 5.59%,
respectively, and paid an average fixed rate of 6.12%, 5.75% and 5.58%,
respectively, during 1998. The Company estimates that it would have to pay $7.3
million to terminate the 1998 swaps. The Company had no swap agreements
outstanding at December 28, 1997.
In order to mitigate the transaction exposures that may arise from
changes in foreign exchange rates, the Company purchases foreign currency option
and forward contracts to hedge specific transactions, principally the purchases
of inventories. The option contracts typically expire within one year. The
options are accounted for as hedges pursuant to SFAS No. 52, FOREIGN CURRENCY
TRANSLATION, accordingly gains and losses thereon are deferred and recorded in
operations in the period in which the underlying transaction is recorded. At
December 31, 1998, the Company held purchased option contracts with a notional
value of $32.3 million and forward contracts with a notional value of $30.9
million. These contracts had gross unrealized gains of $0.3 million and gross
unrealized losses of $0.7 million at December 31, 1998. The Company did not hold
any such contracts at December 28, 1997.
Exposure to market risk on interest rate and foreign currency financial
instruments results from fluctuations in interest and currency rates,
respectively, during the periods in which the contracts are outstanding. The
counterparties to the Company's interest rate swap agreements and currency
exchange contracts consist of a diversified group of major financial
institutions, each of which is rated investment grade A or better. The Company
is exposed to credit risk to the extent of potential nonperformance by
counterparties on financial instruments. The Company believes the risk of
incurred losses due to credit risk is remote.
5. ACCOUNTS RECEIVABLE SECURITIZATION
In December 1997, the Company entered into a receivable securitization
program, that expires March 2000, to sell without recourse, through a wholly
owned subsidiary, certain trade accounts receivable, up to a maximum of $70.0
million. During 1998, the Company has received approximately $200.0 million
under this arrangement. At December 31, 1998, the Company had reduced accounts
receivable by $20.0 million for receivables sold under this program. At December
28, 1997, the Company had received $58.9 million under this arrangement, of
which $39.1 million related to sales recorded in fiscal 1997 and the balance
related to sales to be recognized in the first quarter of 1998. Accordingly, at
December 28, 1997, the accompanying Consolidated Balance Sheet reflects a
reduction in accounts receivable of $39.1 million and an increase in other
current liabilities of $19.8 million. Proceeds from the sales of receivables
were used to reduce borrowings under the Company's revolving credit facility or
to provide cash flow for working capital purposes, thereby reducing the need to
borrow under the credit facility. Costs of the program, which primarily consist
of the purchaser's financing cost of issuing commercial paper backed by the
receivables, totaled $2.3 million and $0.2 million during 1998 and 1997,
respectively, and have been classified as interest expense in the accompanying
Consolidated Statements of Operations. The Company, through a wholly-owned
subsidiary, retains collection and administrative responsibilities for the
purchased receivables. This agreement contains cross-default provisions that
provide the purchaser of the receivables an option to cease purchasing
receivables from the Company if the Company is in default under the New Credit
Facility.
6. INCOME TAXES
(Loss) earnings from continuing operations before income taxes,
minority interest and extraordinary charge for each fiscal year is summarized as
follows (in thousands):
[Download Table]
1998 1997 1996
------------ ------- ---------
Domestic............................ $(723,179) $80,946 $(244,255)
Foreign............................. (73,169) 11,724 (17,550)
--------- ------- ---------
$(796,348) $92,670 $(261,805)
========= ======= =========
F-18
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES - (CONTINUED)
Income tax provisions include current and deferred taxes (tax benefits)
for each fiscal year as follows (in thousands):
[Download Table]
1998 1997 1996
-------- -------- --------
Current:
Federal... $ 1,203 $ (3,421) $(22,924)
State..... 275 3,266 (202)
Foreign... 7,189 1,683 707
-------- -------- --------
8,667 1,528 (22,419)
-------- -------- --------
Deferred:
Federal... (6,343) 30,554 (57,211)
State..... (1,316) 3,962 (11,050)
Foreign... (11,138) 4,308 (945)
-------- -------- --------
(18,797) 38,824 (69,206)
-------- -------- --------
$(10,130) $ 40,352 $(91,625)
======== ======== ========
The effective tax rate on earnings (loss) before income taxes, minority
interest and extraordinary charges varies from the current statutory federal
income tax rate as follows:
[Download Table]
1998 1997 1996
----- ---- -----
(Benefit) provision at statutory rate.... (35.0)% 35.0% (35.0)%
State taxes, net......................... -- 5.1 (2.8)
Amortization of intangible assets
and goodwill........................... 4.3 -- --
Warrants issued in settlement of claim... 3.1 -- --
Foreign earnings and dividends taxed
at other rates......................... 2.7 2.0 2.3
Valuation allowance...................... 23.6 20.4 --
Reversal of tax liabilities
no longer required..................... -- (14.4) --
Other, net............................... -- (4.6) 0.5
----- ---- -----
Effective tax rate (benefit) provision... (1.3)% 43.5% (35.0)%
===== ==== =====
F-19
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES - (CONTINUED)
Significant components of the Company's deferred tax liabilities and
assets are as follows:
[Download Table]
DECEMBER 31, DECEMBER 28,
1998 1997
------------ ------------
Deferred tax assets:
Receivables .................................. $ 19,180 $ 10,516
Postretirement benefits other than pensions .. 22,714 11,430
Reserves for self-insurance and warranty costs 40,765 33,426
Pension liabilities .......................... 16,334 2,811
Inventories .................................. 27,822 14,437
Net operating loss carryforwards ............. 322,273 --
Tax credits .................................. 13,510 12,955
Other, net ................................... 89,577 33,388
--------- ---------
Total deferred tax assets ............. 552,175 118,963
Valuation allowance .......................... 290,520 23,215
--------- ---------
Net deferred tax assets ............... 261,655 95,748
--------- ---------
Deferred tax liabilities:
Depreciation ................................. 43,377 22,532
Acquired intangible assets ................... 244,378 68,311
Other, net ................................... 19,850 9,747
--------- ---------
Total deferred tax liabilities ........ 307,605 100,590
--------- ---------
Net deferred tax liabilities .......... $ (45,950) $ (4,842)
========= =========
The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109. The Company continually reviews the adequacy of the
valuation allowances and recognizes tax benefits when it is more likely than not
that the benefits will be realized. In the fourth quarter of 1997, the Company
increased the valuation allowance by $23.2 million, reflecting management's
assessment that it was more likely than not that the deferred tax assets would
not be realized through future taxable income. Of this amount, approximately
$18.9 million related to deferred tax assets, the majority of which was
recognized as a benefit in the first three quarters of 1997. The remainder
related to minimum pension liabilities and was therefore recorded as an
adjustment in shareholders' equity. This assessment was made as a result of the
significant leverage undertaken by the Company as part of the acquisitions (see
Note 2) and the significant decline in net sales and earnings from anticipated
levels during the fourth quarter of 1997 and the first quarter of 1998.
During 1998, the Company increased the valuation allowance to $291
million, which increase reflects management's assessment that it is more likely
than not that the deferred tax asset will not be realized through future taxable
income. At December 31, 1998, the Company had net operating loss carryforwards
("NOL's") of approximately $725 million for domestic income tax purposes and
$169 million for foreign income tax purposes. The domestic NOL's begin expiring
in 2018. Of the foreign tax NOL's, $3 million, $4 million, $19 million, $18
million and $16 million expire in the years ending December 31, 1999 through
2003, respectively, and $91 million of such NOL's have an unlimited life.
The Company has not provided U.S. income taxes on undistributed foreign
earnings of approximately $32 million at December 31, 1998, as the Company
intends to permanently reinvest these earnings in the future growth of the
business. Determination of the amount of unrecognized deferred U.S. income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation.
F-20
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors several defined benefit pension plans covering
eligible U.S. salaried and hourly employees. Benefit accruals under such plans
covering all U.S. salaried employees were frozen, effective December 31, 1990.
Accordingly, no credit in the pension formula is given for service or
compensation after that date. However, these employees continue to earn service
toward vesting in their interest in the frozen plans as of December 31, 1990.
The Company also provides health care and life insurance benefits to certain
former employees who retired from the Company prior to March 31, 1991. The
Company has consistently followed a policy of funding the cost of postretirement
health care and life insurance benefits on a pay-as-you-go basis.
As a result of the Company's acquisitions of Coleman and First Alert
(see Note 2), the liabilities for their respective defined benefit pension plans
(the "Plans") were assumed and have been accounted for in accordance with
Accounting Principles Board Opinion No.16 ("APB 16"), ACCOUNTING FOR BUSINESS
COMBINATIONS. Effective January 1, 1999, the Coleman and First Alert salaried
pension plans were amended to change the pension benefit formula to a cash
balance formula from the existing benefit calculation. The benefits accrued
under these plans as of December 31, 1998 were frozen and converted to the new
cash balance plan using a 7.0% interest rate assumption. The effect of the
amendment of the Plans is reflected in the projected benefit obligation as of
the date of acquisition as required by APB 16. Under the cash balance plan, the
Company will credit certain participants' accounts annually. At the date of
acquisition the pension benefit obligation and the fair value of the plan assets
attributable to these Plans were $43.4 million and $27.7 million, respectively,
and are reflected in the table below.
In addition, Coleman provided certain unfunded postretirement health
and life insurance benefits for certain retired employees. At the date of
acquisition the postretirement benefit obligation associated with this plan was
$19.5 million as reflected in the table below, and has been accounted for in
accordance with APB 16.
The Company funds all pension plans in amounts consistent with
applicable laws and regulations. Pension plan assets include corporate and U.S.
government bonds, corporate stocks, mutual funds, fixed income securities, and
cash equivalents.
Employees of non-U.S. subsidiaries generally receive retirement
benefits from Company sponsored plans or from statutory plans administered by
governmental agencies in their countries. The assets, liabilities and pension
costs of the Company's non-U.S. defined benefit retirement plans are not
material to the consolidated financial statements.
F-21
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. EMPLOYEE BENEFIT PLANS - (CONTINUED)
On January 1, 1998, the Company adopted SFAS No. 132, EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS ("SFAS No. 132").
This statement revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 132 does not change the method of
accounting for such plans. The following table includes disclosures of the
funded status and amounts recognized in the Company's Consolidated Balance
Sheets at the end of each fiscal year as required by SFAS No. 132 (in
thousands):
[Enlarge/Download Table]
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Change in Benefit Obligation:
Benefit obligation at beginning of year . $ 127,229 $ 122,754 $ 14,220 $ 14,555
Acquisitions ............................ 43,404 -- 19,477 --
Service cost ............................ 1,551 157 689 --
Interest cost ........................... 10,875 8,970 2,088 996
Amendments .............................. -- 84 -- --
Actuarial loss .......................... 20,456 10,630 4,069 --
Settlement .............................. -- (1,732) -- --
Benefits paid ........................... (15,018) (13,634) (1,677) (1,331)
--------- --------- --------- ---------
Benefit obligation at end of year ....... $ 188,497 $ 127,229 $ 38,866 $ 14,220
========= ========= ========= =========
Change in Plan Assets:
Fair value of plan assets at beginning
of year .............................. $ 116,485 $ 116,522 $ -- $ --
Acquisitions ............................ 27,657 -- -- --
Actual return on plan assets ............ 6,424 12,511 -- --
Employer contributions .................. 8,889 2,818 1,677 1,331
Settlement .............................. -- (1,732) -- --
Benefits paid ........................... (15,018) (13,634) (1,677) (1,331)
--------- --------- --------- ---------
Fair value of plan assets at end of year $ 144,437 $ 116,485 $ -- $ --
========= ========= ========= =========
Reconciliation of Funded Status:
Funded status ........................... $ (44,060) $ (10,744) $ (38,866) $ (14,220)
Unrecognized net actuarial loss/(gain) .. 48,616 25,192 3,829 (240)
Unrecognized prior service cost ......... -- -- (12,991) (15,934)
--------- --------- --------- ---------
Net amount recognized ................... $ 4,556 $ 14,448 $ (48,028) $ (30,394)
========= ========= ========= =========
Amount Recognized in the Consolidated
Balance Sheets Consist of:
Accrued benefit liability ............... $ (42,431) $ (10,744) $ (48,028) $ (30,394)
Accumulated other comprehensive
income ............................... 46,987 25,192 -- --
--------- --------- --------- ---------
Net amount recognized ................... $ 4,556 $ 14,448 $ (48,028) $ (30,394)
========= ========= ========= =========
In determining the actuarial present value of the benefit obligation,
the weighted average discount rate was 6.75% and 7.25% as of December 31, 1998
and December 28, 1997, respectively; the expected return on plan assets ranged
from 6.75% to 9.00% for 1998 and was 7.25% for 1997. The expected increase in
future compensation levels was 4.00% for Coleman for 1998.
The assumed health care cost trend rates used in measuring the
accumulated postretirement benefit obligation were 7.0% to 8.0% for the plans
for 1999 and were assumed to decrease gradually to 5.0% by 2003 and remain at
that level thereafter.
F-22
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
[Download Table]
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
Effect on total of service and interest
cost components............................ $ 508 $ (424)
Effect on the postretirement benefit
obligation................................. $6,035 $(5,144)
Net pension expense and periodic postretirement benefit include the
following components (in thousands):
[Enlarge/Download Table]
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------ -----------------------------
1998 1997 1996 1998 1997 1996
-------- -------- ------ ------- ------- -------
Components of net periodic pension benefit cost:
Service cost................................... $ 1,551 $ 157 $ 411 $ 689 $ -- $ --
Interest cost.................................. 10,875 8,970 9,071 2,088 996 1,041
Expected return of market value of assets...... (10,127) (8,586) (816) -- -- --
Amortization of unrecognized prior service cost -- -- -- (2,943) (2,942) (2,942)
Recognized net actuarial loss (gain)........... 735 414 (7,518) -- -- --
-------- -------- ------- ------- ------- ------
Net periodic benefit cost (benefit)............ 3,034 955 1,148 (166) (1,946) (1,901)
Settlement charge.............................. -- 615 -- -- -- --
Curtailment charge............................. -- 106 -- -- -- --
-------- -------- ------ ------- ------- ------
Total expense (benefit)........................ $ 3,034 $ 1,676 $1,148 $ (166) $(1,946) $(1,901)
======== ======== ====== ======= ======= =======
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the plans with accumulated benefit obligations in
excess of plan assets were $186.4 million, $161.6 million and $125.5 million at
December 31, 1998 and $127.2 million, $127.2 million and $116.5 million at
December 28, 1997, respectively.
DEFINED CONTRIBUTION PLANS
As a result of the Company's acquisitions of Coleman, First Alert and
Signature Brands, the Company amended its Savings & Investment and Profit
Sharing Plan ("Savings Plan") to assume the assets of the respective savings
plans at each of the acquired companies and establish parity with the benefits
provided by Sunbeam. Effective January 1, 1999, all eligible employees could
participate in the Savings Plan. Company contributions to these plans include
employer matching contributions as well as discretionary contributions depending
on the performance of the Company, in an amount up to 10% of eligible
compensation. The Company provided $1.9 million in 1998, $1.8 million in 1997
and $1.7 million in 1996 for its defined contribution plans.
8. SHAREHOLDERS' EQUITY
COMMON STOCK
At December 31, 1998, the Company had 500,000,000 shares of $0.01 par
value common stock authorized and there were 14,094,158 shares of common stock
reserved for issuance upon the exercise of outstanding stock options.
COMPENSATORY STOCK GRANTS
In July 1996, the Company granted 1,100,000 shares of restricted stock
in connection with the employment of a then new Chairman and Chief Executive
Officer and two other senior officers of the Company. Compensation expense
attributable to the restricted stock awards was amortized to expense beginning
in 1996 over the periods in which the restrictions lapse (which in the case of
333,333 shares, was immediately upon the date of grant, in the case of 666,667
shares, was to be amortized equally over two years from the date of grant and in
the case of the remaining 100,000 shares, was equally over three years from the
date of grant). These restricted stock awards resulted in a $7.7 million charge
to SG&A expense in 1996.
On February 20, 1998, the Company entered into new three-year
employment agreements with its then Chairman and Chief Executive Officer and two
other then senior officers of the Company. These agreements replaced previous
employment agreements entered into in July 1996 that were scheduled to expire in
July 1999.
F-23
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. SHAREHOLDERS' EQUITY - (CONTINUED)
The new employment agreement for the Company's then Chairman and Chief
Executive Officer provided for, among other items, the acceleration of vesting
of 200,000 shares of restricted stock and the forfeiture of the remaining
133,334 shares of unvested restricted stock granted under the July 1996
agreement, a new equity grant of 300,000 shares of unrestricted stock, a new
grant of a ten-year option to purchase 3,750,000 shares of the Company's common
stock with an exercise price equal to the fair market value of the stock at the
date of grant and exercisable in three equal annual installments beginning on
the date of grant and the acceleration of vesting of 833,333 outstanding stock
options granted under the July 1996 agreement, as further described in Note 9.
In addition, the new employment agreement with the then Chairman and Chief
Executive Officer provided for income tax gross-ups with respect to any tax
assessed on the equity grant and acceleration of vesting of restricted stock.
The new employment agreements with the two other then senior officers
provided for, among other items, the grant of a total of 180,000 shares of
restricted stock that were to vest in four equal annual installments beginning
on the date of grant, the acceleration of vesting of 44,000 shares of restricted
stock and the forfeiture of the remaining 29,332 shares of unvested restricted
stock granted under the July 1996 agreements, new grants of ten-year options to
purchase a total of 1,875,000 shares of the Company's common stock with an
exercise price equal to the fair market value of the stock at the date of grant
and exercisable in four equal annual installments beginning on the date of grant
and the acceleration of vesting of 383,334 outstanding stock options granted
under the July 1996 agreements. In addition, the new employment agreements
provided for income tax gross-ups with respect to any tax assessed on the
restricted stock grants and acceleration of vesting of restricted stock.
Compensation expense attributed to the equity grant, the acceleration
of vesting of restricted stock and the related income tax gross-ups was
recognized in the first quarter of 1998 and compensation expense related to the
new restricted stock grants and related tax gross-ups was amortized to expense
beginning in the first quarter of 1998 with amortization to continue over the
period in which the restrictions lapse. Total compensation expense recognized in
1998 related to these items was approximately $31 million.
On June 15, 1998, the Company's Board of Directors announced the
removal of the then Chairman and Chief Executive Officer and subsequently
announced the removal or resignation of other senior officers, including the
Company's then Chief Financial Officer. In connection with the removal or
resignation of the senior officers and the termination of their restricted stock
grants, the unamortized portion of the deferred compensation expense
attributable to the restricted stock grants was reversed. The Company and
certain of its former officers are in disagreement as to the Company's
obligations to these individuals under prior employment agreements and arising
from their terminations. (See Note 15.)
ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss consist of the
following (in thousands):
[Download Table]
CURRENCY MINIMUM
TRANSLATION PENSION
ADJUSTMENTS LIABILITY TOTAL
----------- ---------- -----------
Balance at December 29, 1996................ $ (12,111) $ (6,163) $ (18,274)
Balance at December 28, 1997................ (12,850) (20,213) (33,063)
Balance at December 31, 1998................ (12,022) (42,008) (54,030)
F-24
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS
The Company has one stock-based compensation plan, the Amended and
Restated Sunbeam Corporation Stock Option Plan (the "Plan"). Under the Plan, all
employees are eligible for grants of options to purchase up to an aggregate of
16,300,000 shares of the Company's common stock at an exercise price equal to or
in excess of the fair market value of the stock on the date of grant. The term
of each option commences on the date of grant and expires on the tenth
anniversary of the date of grant subject to earlier cancellation. Options
generally become exercisable over a three to five year period.
The Plan also provides for the grant of restricted stock awards of up
to 200,000 shares, in the aggregate, to employees and non-employee directors.
See Note 8 for a discussion of restricted stock awards made outside the Plan.
In July 1996, options to purchase an aggregate of 3,000,000 shares (of
which 2,750,000 options were outstanding at December 28, 1997) were granted
outside of the Plan at exercise prices equal to the fair market value of the
Company's common stock on the dates of grant in connection with the employment
of a then new Chairman and Chief Executive Officer and two other senior officers
of the Company. These outstanding options have terms of ten years and, with
respect to options for 2,500,000 shares, were exercisable in three annual
installments beginning July 17, 1996. Options for the remaining 250,000 shares
still outstanding were exercisable in three annual installments beginning on the
first anniversary of the July 22, 1996 grant date. On February 20, 1998 the
vesting provisions of the options granted outside the Plan were accelerated.
Additional stock option grants outside the Plan were made in February 1998, with
a portion thereof subsequently terminated in connection with the removal of the
then Chairman and Chief Executive Officer. The then Chairman and Chief Executive
Officer and another senior officer are disputing termination of their stock
option grants. (See Notes 8 and 15.)
In the third and fourth quarters of 1998, options to purchase an
aggregate of 4,200,000 shares were granted outside of the Plan in connection
with the employment of the new Chief Executive Officer and certain members of
the new senior management team. The options were granted to certain senior
executives at exercise prices equal to or greater than the fair market value of
the Company's common stock on the dates of the grant. The senior officers were
granted options to purchase 3,200,000 shares of common stock at a price of $7.00
per share; 500,000 shares of common stock at a price of $10.50 per share and
500,000 shares at a price of $14.00 per share. All of these outstanding options
have terms of ten years and become fully exercisable at the end of two to three
year periods if the executive remains employed by the Company as of such date.
These grants are subject the shareholder approval at the 1999 Annual Meeting. A
measurement date pursuant to APB Opinion No. 25 will be established for these
grants upon shareholder approval.
In August 1998, the Company approved a plan to reprice outstanding
common stock options held by the Company's employees. The repricing program,
which has been completed, provided for outstanding options with exercise prices
in excess of $10.00 per share to be exchanged for new options on a voluntary
basis in an exchange ratio ranging from approximately two to three old options
for one new option, (as determined by reference to a Black-Scholes option
pricing model) with the exercise price of the new options set at $7.00 per
share. These options were repriced at an exercise price approximating the market
value of the Company's common stock at the date of the repricing and,
consequently, there was no related compensation expense.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for outstanding stock options. Had compensation cost for the
Company's outstanding stock options been determined based on the fair value at
the grant dates for those options consistent with SFAS No. 123, the Company's
net (loss) earnings and diluted (loss) earnings per share would have differed as
reflected by the pro forma amounts indicated below (in thousands except per
share amounts):
[Enlarge/Download Table]
1998 1997 1996
----------- --------- ----------
Net (loss) earnings:
As reported......................................... $ (897,923) $ 38,301 $ (208,481)
Pro forma........................................... (955,685) 14,524 (218,405)
Diluted (loss) earnings per share:
As reported......................................... (9.25) 0.44 (2.51)
Pro forma........................................... (9.84) 0.17 (2.63)
F-25
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS - (CONTINUED)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
[Download Table]
1998 1997 1996
------- ------- -------
Expected volatility................................... 52.80% 34.19% 36.78%
Risk-free interest rate............................... 4.68% 6.36% 6.34%
Dividend yield........................................ 0.0% 0.1% 0.1%
Expected life......................................... 6 years 6 years 5 years
A summary of the status of the Company's outstanding stock options as
of December 31, 1998, December 28, 1997 and December 29, 1996, and changes
during the years ended on those dates is presented below:
[Enlarge/Download Table]
1998 1997 1996
--------------------- ----------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
PLAN OPTIONS
Outstanding at beginning
of year.................. 6,654,068 $25.61 6,271,837 $19.43 4,610,387 $16.67
Granted.................... 6,663,998 17.13 3,105,263 32.40 4,061,450 20.39
Exercised.................. (879,088) 22.25 (1,549,196) 17.20 (622,994) 7.51
Canceled................... (6,826,070) 27.75 (1,173,836) 21.10 (1,777,006) 18.64
---------- ---------- ----------
Outstanding at end of year. 5,612,908 $13.32 6,654,068 $25.61 6,271,837 $19.43
========== ========== ==========
Options exercisable
at year-end.............. 1,717,545 $20.91 1,547,198 $19.13 1,655,450 $16.13
Weighted-average fair
value of options granted
during the year.......... $10.47 $15.46 $14.76
OPTIONS OUTSIDE PLAN
Outstanding at beginning
of year.................. 2,750,000 $12.43 2,750,000 $12.43 692,500 $16.70
Granted.................... 9,825,000 24.64 -- -- 3,000,000 12.65
Canceled................... (4,093,750) 36.85 -- -- (942,500) 16.27
---------- ---------- ----------
Outstanding at end of year. 8,481,250 $14.77 2,750,000 $12.43 2,750,000 $12.43
========== ========== ==========
Options exercisable at
year-end................. 4,281,250 $21.17 1,750,000 $12.35 833,333 $12.25
Weighted-average fair value
of options granted during
the year................. $19.31 $ N/A $ 5.99
Included in the outstanding and exercisable options, as presented above, are
options vested by the former Chairman and Chief Executive Officer and a former
senior officer. The Company and these individuals are in a dispute regarding the
status of these options.
The following table summarizes information about stock options
outstanding at December 31, 1998:
[Enlarge/Download Table]
OPTIONS OUTSTANDING
-------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE
--------------- ----------- ------------------------ ----------------
$5.00 to 7.00..................... 6,076,805 9.2 $ 6.91
$7.01 to $14.00................... 4,048,200 8.3 11.80
$14.01 to $15.00.................. 642,124 7.6 14.43
$15.01 to $23.15.................. 697,697 7.2 19.47
$23.16 to $26.71.................. 733,714 8.3 25.07
$26.72 to $36.85.................. 1,607,840 9.1 36.57
$36.86 and over................... 287,778 8.9 40.32
----------
$5.00 to $50.77................... 14,094,158 8.7 14.19
==========
F-26
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS - (CONTINUED)
[Download Table]
OPTIONS EXERCISABLE
-------------------------------------
NUMBER
RANGE OF EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 EXERCISE PRICE
--------------- ----------- -----------------
$5.00 to $7.00........................... 95,895 $ 5.01
$7.01 to $14.00.......................... 2,500,000 12.25
$14.01 to $15.00......................... 571,290 14.41
$15.01 to $23.15......................... 627,488 19.30
$23.16 to $26.71......................... 540,055 25.10
$26.72 to $36.85......................... 1,563,211 36.74
$36.86 and over.......................... 100,856 40.60
---------
$5.00 to $50.77.......................... 5,998,795 21.09
=========
10. SUPPLEMENTARY FINANCIAL STATEMENT DATA
Supplementary Balance Sheet data at the end of each fiscal year is as
follows (in thousands):
[Download Table]
1998 1997
----------- -----------
Receivables:
Trade ................................... $ 407,452 $ 250,699
Sundry .................................. 7,347 7,794
----------- -----------
414,799 258,493
Valuation allowance ....................... (53,025) (30,033)
----------- -----------
$ 361,774 $ 228,460
=========== ===========
Inventories:
Finished goods .......................... $ 370,622 $ 193,864
Work in process ......................... 39,143 25,679
Raw materials and supplies .............. 109,424 85,357
----------- -----------
$ 519,189 $ 304,900
=========== ===========
Prepaid expenses and other current assets:
Deferred income taxes ................... $ 40,756 $ --
Prepaid expenses and other .............. 33,431 16,584
----------- -----------
$ 74,187 $ 16,584
=========== ===========
Property, plant and equipment:
Land .................................... $ 10,664 $ 1,793
Buildings and improvements .............. 168,685 98,054
Machinery and equipment ................. 395,763 248,138
Furniture and fixtures .................. 18,208 7,327
----------- -----------
593,320 355,312
Accumulated depreciation and amortization (138,148) (105,788)
----------- -----------
$ 455,172 $ 249,524
=========== ===========
Trademarks, tradenames, goodwill and other:
Trademarks and tradenames ............... $ 597,515 $ 237,095
Goodwill ................................ 1,254,880 24,687
Deferred financing costs ................ 47,325 983
Other intangible assets ................. 28,012 424
----------- -----------
1,927,732 263,189
Accumulated amortization ................ (101,783) (56,880)
----------- -----------
1,825,949 206,309
Other assets .............................. 33,428 853
----------- -----------
$ 1,859,377 $ 207,162
=========== ===========
F-27
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. SUPPLEMENTARY FINANCIAL STATEMENT DATA - (CONTINUED)
[Download Table]
1998 1997
-------- --------
Other current liabilities:
Payrolls, commissions and employee benefits $ 61,294 $ 12,227
Advertising and sales promotion ............ 56,288 34,749
Product warranty ........................... 50,287 21,498
Accounts receivable securitization liability -- 19,750
Sales returns .............................. 16,972 7,846
Interest ................................... 26,202 941
Other ...................................... 110,142 27,074
-------- --------
$321,185 $124,085
======== ========
Other long-term liabilities:
Accrued postretirement benefit obligation .. $ 48,028 $ 30,394
Accrued pension ............................ 42,431 10,744
Product liability and workers compensation . 71,868 41,901
Other ...................................... 86,132 71,261
-------- --------
$248,459 $154,300
======== ========
Supplementary Statements of Operations and Cash Flows data for each
fiscal year are summarized as follows (in thousands):
[Download Table]
1998 1997 1996
-------- -------- --------
Other (income) expense, net:
Interest income ........................ $ (2,897) $ (2,561) $ (1,255)
Other, net ............................. (1,871) 2,573 4,993
-------- -------- --------
$ (4,768) $ 12 $ 3,738
======== ======== ========
Cash paid (received) during the period for:
Interest ............................... $ 81,291 $ 13,058 $ 13,397
======== ======== ========
Income taxes (net of refunds) .......... $(17,358) $(44,508) $ (540)
======== ======== ========
11. ASSET IMPAIRMENT AND OTHER CHARGES
In the fourth quarter of 1998, the Company recorded a $62.5 million
charge for the write-off of the carrying value of First Alert's goodwill (see
Note 2).
In the second quarter of 1998, as a result of decisions to outsource or
discontinue a substantial number of products previously made by the Company,
certain facilities and equipment will either no longer be used or will be
utilized in a significantly different manner. Accordingly, a charge of $29.6
million was recorded in Cost of Goods Sold to write certain of these assets down
to their estimated fair market value. Approximately 80% of this charge related
to machinery, equipment and tooling at the Company's Mexico City and
Hattiesburg, Mississippi manufacturing plants, the estimated fair value for
which was derived through an auction process. The remainder of this charge
related to tooling and equipment at various other facilities, which either had a
nominal value or the fair market value of which was derived through an auction
process. These assets were taken out of service at the time of the write-down
and consequently were not depreciated further after the write-down.
F-28
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. ASSET IMPAIRMENT AND OTHER CHARGES - (CONTINUED)
Personnel at the Mexico City facility were notified in the second
quarter of 1998 that the plant was scheduled for closure at year-end 1998,
accordingly, at that time, a liability of $1.8 million was recorded in Cost of
Goods Sold primarily for employee severance. The employee severance related to
approximately 1,200 positions of which approximately 1,100 were terminated as of
December 31, 1998. In the third quarter of 1998, the Company recorded as Cost of
Goods Sold, an additional provision for impairment of fixed assets of $3.1
million in an acquired entity, relating to assets taken out of service for which
there was no remaining value. The asset impairment resulted from management's
decision to discontinue certain product lines subsequent to the acquisition.
These fixed assets were taken out of service at the time of the write-down and
consequently were not depreciated further after the write-down. In the fourth
quarter of 1998, the Company recorded a $7.1 million charge as a result of
management's decision to outsource the production of certain appliances. This
charge to Cost of Goods Sold primarily consists of a provision for certain
tooling and equipment ($6.7 million) and severance and related benefits ($0.4
million). The tooling and equipment was recorded at their estimated fair values
which were derived from comparable market data. Depreciation of this equipment
was discontinued at the time of the write-down.
During 1997 and the first half of 1998, the Company built inventories
in anticipation of 1998 sales volumes which did not materialize. As a result, it
has been and will continue to be necessary to dispose of some portions of excess
inventories at amounts less than cost. Accordingly, during 1998, when the facts
and circumstances were known that such sales volume would not materialize, the
Company recorded $58.2 million in charges to properly state this inventory at
the lower-of-cost-or-market. This inventory primarily related to certain
appliances, grills and grill accessories. The Company also recorded a charge of
$11.0 million for excess inventories for raw materials and work in process that
will not be used due to outsourcing the production of irons, breadmakers,
toasters and certain other appliances. In addition, during 1998, the Company
made the decision to exit certain product lines, primarily air and water
filtration products and eliminate certain stock keeping units within existing
product lines, primarily relating to appliances, grills and grill accessories.
As a result of this decision, a $26.6 million charge was recorded to properly
state this inventory at the lower-of-cost-or-market. Total charges for excess
inventories recorded at the lower-of-cost-or-market amounted to approximately
$95.8 million at December 31, 1998. (See Note 12 for asset impairment and other
charges recorded in conjunction with a 1996 restructuring plan.)
12. RESTRUCTURING
In November 1996, the Company announced the details of a restructuring
plan. The plan included the consolidation of administrative functions within the
Company, the reduction of manufacturing and warehouse facilities, the
centralization of the Company's procurement function, and reduction of the
Company's product offerings and stock keeping units ("SKU's"). The Company also
announced plans to divest several lines of business (see Note 13).
As part of the restructuring plan, the Company consolidated six
divisional and regional headquarter's functions into a single worldwide
corporate headquarters and outsourced certain back office activities resulting
in a reduction in total back-office/administrative headcount. Overall, the
restructuring plan called for a reduction in the number of production facilities
from 26 to 8 and the elimination of over 6,000 positions from the Company's
workforce, including 3,300 from the disposition of certain business operations
and the elimination of approximately 2,800 other positions, some of which were
outsourced. The Company completed the major phases of the restructuring plan by
July 1997.
In conjunction with the implementation of the restructuring plan, the
Company recorded a pre-tax charge of $239.2 million in the fourth quarter of
1996. This amount is recorded as follows in the accompanying Consolidated
Statements of Operations: $110.1 million in Restructuring and Asset Impairment
Charges, as further described below; $60.8 million in Cost of Goods Sold related
principally to inventory write-downs as a result of a reduction in SKU's and
costs of inventory liquidation programs; $10.1 million in SG&A expense, for
period costs principally relating to outsourcing and package redesign, and $58.2
million ($39.1 million net of taxes) in Loss on Sale of Discontinued Operations
related to the divestiture of its furniture business. In 1997, upon completion
of the sale of the furniture business, the Company recorded an additional
pre-tax loss of $22.5 million from discontinued operations ($14.0 million net of
taxes) due primarily to lower than anticipated sales proceeds relating to the
post closing adjustment process that was part of the sale agreement.
Amounts included in Restructuring and Asset Impairment Charges in 1996
in the accompanying Consolidated Statements of Operations included cash items
such as severance and other employee costs of $24.7 million, lease obligations
of $12.6 million and other exit costs associated with facility closures and
related to the implementation of the restructuring plan of $4.1 million,
principally representing costs related to clean-up and restoration of facilities
for either sale or return to the landlord.
F-29
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. RESTRUCTURING - (CONTINUED)
Included in Restructuring and Asset Impairment Charges in 1996 was
$68.7 million of non-cash charges principally consisting of: (a) asset
write-downs to net realizable value for disposals of excess facilities and
equipment and certain product lines ($22.5 million); (b) write-offs of redundant
computer systems from the administrative back-office consolidations and
outsourcing initiatives ($12.3 million); (c) write-off of intangibles relating
to discontinued product lines ($10.1 million); (d) write-off of capitalized
product and package design costs and other expenses related to exited product
lines and SKU reductions ($9.0 million), and (e) losses related to the
divestiture of certain non-core products and businesses ($14.8 million). The
asset write-downs of $34.8 million included equipment taken out of service in
1996 (either abandoned in 1996 or sold in 1997) and accordingly, depreciation
was not recorded subsequent to the date of the impairment charge. The losses of
$14.8 million related to the divestiture of non-core products and businesses
resulted from divesting of the time and temperature business (sold in March
1997) and Counselor/registered trademark/ and Borg/registered trademark/ scale
product lines (sold in May 1997) and the sale of the textile mill in Biddeford,
Maine in May 1997. These charges primarily represented the estimated non-cash
loss to exit these products including fixed assets and inventory write-downs and
other costs related to exiting these product lines.
The $24.7 million for severance and other employee costs, including
COBRA and other fringe benefits, related to approximately 3,700 positions that
were planned to be eliminated as a result of the restructuring plan, excluding
approximately 2,400 employees terminated from the furniture business for which
severance was included in Loss on Sale of Discontinued Operations (see Note 13).
The furniture business was sold in 1997. In 1996 and 1997, approximately 1,200
employees and 1,800 employees, respectively, were terminated from continuing
operations. Due largely to attrition, the remaining planned terminations were
not required. In 1997, the Company determined that its severance and related
employee costs were less than originally accrued principally due to lower than
expected severance and COBRA costs, and accordingly reversed accruals of $7.9
million in the third and fourth quarters. At December 31, 1997, the balance
accrued of $1.2 million represented the remaining severance and related employee
costs for certain employees terminated during 1997. During 1998, all amounts
were expended.
The amounts accrued at December 29, 1996, for Restructuring and Asset
Impairment Charges recorded in fiscal 1996, exceeded amounts ultimately required
principally due to reductions in anticipated severance costs of $7.9 million, as
discussed above, and reductions in estimated lease payments of $6.7 million
resulting from better than anticipated rentals received under sub-leases and
favorable negotiation of lease terminations. Accordingly, the fiscal 1997
Consolidated Statement of Operations included $14.6 million of benefit ($5.8
million in the third quarter and $8.8 million in the fourth quarter of 1997)
related to the reversal of accruals no longer required, which were recorded as
these reduced obligations became known.
In 1996, in conjunction with the initiation of the restructuring plan,
the Company recorded additional charges totaling $129.1 million, reflected in
Cost of Goods Sold; SG&A expense and Loss on Sale of Discontinued Operations.
The charge included in Cost of Goods Sold ($60.8 million) principally
represented inventory write-downs and anticipated losses on the disposition of
the inventory as a result of the significant reduction in SKU's provided for in
the restructuring plan. The write-down included $26.9 million related to raw
materials, work-in process and finished goods for discontinued outdoor cooking
products, principally grills and grills accessories and the balance related to
raw materials, work-in-process and finished goods for other discontinued
products including appliances, clippers and blankets. SG&A expense included
period costs in 1997 and 1996 of $15.8 million and $10.1 million, respectively,
relating to employee relocation and recruiting, outsourcing, equipment movement
and package redesign costs expended as a result of the implementation of the
restructuring plan. The Loss on Sale of Discontinued Operations of $58.2 million
is discussed further in Note 13.
At December 28, 1997, the Company had $5.2 million in liabilities
accrued related to the 1996 restructuring plan, including $1.2 million of
severance related costs and $4.0 million related to facility closures, which
principally represented future lease payments (net of sub-leases) on exited
facilities. During 1998, this liability was reduced by $4.0 million as a result
of cash expenditures. At December 28, 1997, the Company had $3.0 million of
warranty liabilities related to the discontinued furniture operations. During
1998, $2.5 million of this liability was liquidated.
F-30
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. RESTRUCTURING - (CONTINUED)
The following table sets forth the details and the activity from the
charges (in millions):
[Enlarge/Download Table]
ACCRUAL
ACCRUAL ADDITIONS BALANCE
BALANCE CHARGED TO CASH NON-CASH DECEMBER 29,
JANUARY 1, 1996 INCOME REDUCTIONS REDUCTIONS 1996
--------------- ---------- ---------- ---------- ------------
Write-downs:
Fixed assets, held for disposal, not in use $ -- $ 34.8 $ -- $ 34.8 $ --
Fixed assets, held for disposal, used until disposed 11.3 14.8 -- 11.3 14.8
Inventory on hand -- 60.8 -- 60.8 --
Other assets, principally trademarks and
intangible assets -- 19.1 -- 18.0 1.1
----- ------ ----- ------ ------
11.3 129.5 -- 124.9 15.9
----- ------ ----- ------ ------
Restructuring accruals:
Employee severance pay and fringes -- 24.7 5.6 -- 19.1
Lease payments and termination fees 2.5 12.6 2.5 -- 12.6
Other exit activity costs, principally
facility closure expenses -- 4.1 -- -- 4.1
----- ------ ----- ------ ------
2.5 41.4 8.1 -- 35.8
----- ------ ----- ------ ------
Total restructuring and asset impairment accrual 13.8 170.9 8.1 124.9 51.7
----- ------ ----- ------ ------
Other related period costs incurred:
Employee relocation; equipment relocation and
installation and other -- 3.2 3.2 -- --
Transitional fees related to outsourcing arrangements -- 4.9 4.9 -- --
Package redesign -- 2.0 2.0 -- --
----- ------ ----- ------ ------
-- 10.1 10.1 -- --
----- ------ ----- ------ ------
Total included in continuing operations 13.8 181.0 18.2 124.9 51.7
Total included in discontinued operations -- 58.2 -- -- 58.2
----- ------ ----- ------ ------
$13.8 $239.2 $18.2 $124.9 $109.9
===== ====== ===== ====== ======
[Enlarge/Download Table]
ACCRUAL ACCRUAL
BALANCE ADDITIONS BALANCE
DECEMBER 30, CHARGED TO CASH NON-CASH DECEMBER 28,
1996 INCOME REDUCTIONS REDUCTIONS REVERSALS 1997
------------ ---------- ---------- ---------- --------- -----------
Write-downs:
Fixed assets, held for
disposal, used
until disposed $ 14.8 $ -- $ -- $14.8 $ -- $ --
Other assets,
principally trademarks
and intangible assets 1.1 -- -- 1.1 -- --
------ ----- ----- ----- ----- -----
15.9 -- -- 15.9 -- --
------ ----- ----- ----- ----- -----
Restructuring accruals:
Employee severance pay
and fringes 19.1 -- 10.0 -- 7.9 1.2
Lease payments and
termination fees 12.6 -- 2.6 -- 6.7 3.3
Other exit activity costs,
principally facility
closure expenses 4.1 -- 3.4 -- -- 0.7
------ ----- ----- ----- ----- -----
35.8 -- 16.0 -- 14.6 5.2
------ ----- ----- ----- ----- -----
Total restructuring and
asset impairment
accrual 51.7 -- 16.0 15.9 14.6 5.2
Discontinued operations 58.2 22.5 6.1 71.6 -- 3.0
------ ----- ----- ----- ----- -----
$109.9 $22.5 $22.1 $87.5 $14.6 $ 8.2
------ ----- ----- ----- ----- -----
[Download Table]
ACCRUAL ACCRUAL
BALANCE BALANCE
DECEMBER 29, CASH DECEMBER 31,
1997 REDUCTIONS 1998
------------ ---------- ------------
Restructuring accruals:
Employees severance pay
and fringes $1.2 $1.2 $ --
Leases payments and
termination fees 3.3 2.1 1.2
Other exit activity costs,
principally facility
closure expenses 0.7 0.7 --
---- ---- ----
Total restructuring accrual 5.2 4.0 1.2
---- ---- ----
Discontinued operations 3.0 2.5 0.5
---- ---- ----
$8.2 $6.5 $1.7
==== ==== ====
F-31
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. DISCONTINUED OPERATIONS
As part of the 1996 restructuring plan, the Company also announced the
divestiture of the furniture business, by a sale of assets. In February 1997,
the Company entered into an agreement to sell the business to U.S. Industries,
Inc. in a transaction that was completed on March 17, 1997. In connection with
the furniture divestiture, the Company recorded a provision for estimated losses
to be incurred on the sale of $39.1 million in 1996, net of applicable income
tax benefits of $19.9 million. Although the discontinued furniture operations
were profitable, net income had declined from $21.7 million in 1994 to $0.8
million in 1996. This decline, along with the Company's announcement that it
intended to divest this line of business contributed to the loss on sale.
Revenues for the discontinued furniture business were $51.6 million in the first
quarter of 1997, $227.5 million in 1996 and $185.6 million in 1995. Results of
operations were nominal in 1997 and 1996, down from $12.9 million (net of $7.9
million in taxes) in 1995. In connection with the sale of these assets
(primarily inventory, property, plant and equipment), the Company received $69.0
million in cash. The Company retained accounts receivable related to the
furniture business of approximately $50 million as of the closing date and
retained certain liabilities. The final purchase price for the furniture
business was subject to a post-closing adjustment based on the terms of the
asset purchase agreement and in the first quarter of 1997, after completion of
the sale, the Company recorded an additional loss of $14.0 million, net of
applicable income tax benefits of $8.5 million.
In addition to the furniture business divestiture, the Company also
completed the sale of other product lines and assets in 1997 as part of its
restructuring plan, including time and temperature products,
Counselor/registered trademark/ and Borg/registered trademark/ scales and a
textile facility. Losses incurred on the disposal of these assets, which consist
primarily of write-downs of assets to net realizable value, are included in
Restructuring and Asset Impairment Charges in 1996 in the Consolidated
Statements of Operations.
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA
Throughout 1998 Sunbeam's operations were managed through four
reportable segments: Household, Outdoor Leisure, International and Corporate.
Reportable segments are identified by the Company based upon the distinct
products manufactured (Household and Outdoor Leisure) or based upon the
geographic region in which its products are distributed (International). The
Company's reportable segments are all separately managed.
The Household group consists of appliances (including mixers, blenders,
food steamers, bread makers, rice cookers, coffee makers, toasters, irons and
garment steamers), health products (including vaporizers, humidifiers, air
cleaners, massagers, hot and cold packs and blood pressure monitors), scales,
personal care products (including hair clippers and trimmers and related
products for the professional beauty, barber and veterinarian trade and sales of
products to commercial and institutional channels), blankets (including electric
blankets, heated throws and mattress pads) and First Alert/registered trademark/
products (smoke and carbon monoxide detectors, fire extinguishers and home
safety equipment).
The Outdoor Leisure group includes outdoor recreation products (which
encompass tents, sleeping bags, coolers, camping stoves, lanterns and outdoor
heaters), outdoor cooking products (including gas and charcoal outdoor grills
and grill parts and accessories), Powermate/registered trademark/ products
(including portable power generators and air compressors), and
Eastpak/registered trademark/ products (including backpacks and bags).
The International group is managed through five regional subdivisions:
Europe, Latin America, Japan, Canada and East Asia. Europe includes the
manufacture, sales and distribution of Campingaz/registered trademark/ products
and sales and distribution in Europe, Africa and the Middle East of other
Company products. The Latin American region includes the manufacture, sales and
distribution throughout Latin America of small appliances, and sales and
distribution of personal care products, professional clippers and related
products, camping products and Powermate products. Japan includes the sales and
distribution of primarily outdoor recreation products. Canada includes sales of
substantially all the Company's products and East Asia encompasses sales and
distribution in all areas of East Asia other than Japan of substantially all the
Company's products.
The Company's Corporate group provides certain management, accounting,
legal, risk management, treasury, human resources, tax and management
information services to all operating groups and also includes the operation of
the Company's retail stores and the conduct of the Company's licensing
activities.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (see Note 1) except
that certain bad debt expense is recorded at a consolidated level and included
in the Corporate group. Sunbeam evaluates performance and allocates resources
based upon profit or loss from operations before amortization, income taxes,
minority interest, interest expense, non-recurring gains and losses and foreign
exchange gains and losses. Intersegment sales and transfers are primarily
recorded at cost.
F-32
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA - (CONTINUED)
The following tables include selected financial information with respect
to Sunbeam's four operating segments. Business segment information for prior
years has been reclassified to conform to the current year presentation.
[Enlarge/Download Table]
OUTDOOR
HOUSEHOLD LEISURE INTERNATIONAL CORPORATE TOTAL
--------- ------- ------------- --------- -----
YEAR ENDED DECEMBER 31, 1998
Net sales to unaffiliated customers $ 714,568 $ 677,526 $ 413,864 $ 30,913 $ 1,836,871
Intersegment net sales ............ 62,971 111,583 98,120 -- 272,674
Segment operating loss ............ (69,276) (71,612) (29,941) (151,868) (322,697)
Segment assets .................... 864,745 1,782,994 413,755 344,023 3,405,517
Segment depreciation expense ...... 24,086 32,759 2,448 4,742 64,035
YEAR ENDED DECEMBER 28, 1997
Net sales to unaffiliated customers $ 568,921 $ 258,484 $ 229,572 $ 16,113 $ 1,073,090
Intersegment net sales ............ 100,355 3,520 64,549 -- 168,424
Segment operating earnings (loss) . 73,210 8,205 43,793 (42,915) 82,293
Segment assets .................... 510,183 141,332 167,591 239,822 1,058,928
Segment depreciation expense ...... 15,358 9,494 3,204 3,872 31,928
YEAR ENDED DECEMBER 29, 1996
Net sales to unaffiliated customers $ 555,215 $ 245,600 $ 183,267 $ 154 $ 984,236
Intersegment net sales ............ 48,961 8,940 30,012 -- 87,913
Segment operating (loss) earnings . (37,598) 39,970 5,567 (62,355) (54,416)
Segment assets .................... 352,253 215,757 89,360 402,078 1,059,448
Segment depreciation expense ...... 25,950 9,180 2,464 741 38,335
Reconciliation of selected segment information to Sunbeam's consolidated totals
for the years ended:
[Enlarge/Download Table]
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
Net sales:
Net sales for reportable segments ................. $ 2,109,545 $ 1,241,514 $ 1,072,149
Elimination of intersegment net sales ............. (272,674) (168,424) (87,913)
----------- ----------- -----------
Consolidated net sales ....................... $ 1,836,871 $ 1,073,090 $ 984,236
=========== =========== ===========
Segment (loss) earnings:
Total (loss) earnings for reportable segments ..... $ (322,697) $ 82,293 $ (54,416)
Unallocated amounts:
Interest expense .............................. (131,091) (11,381) (13,588)
Other (income) expense, net ................... 4,768 (12) (3,738)
Amortization of intangible assets ............. (43,830) (7,829) (9,094)
Provision for inventory (Notes 11 and 12) ..... (95,830) -- (60,800)
Asset impairment (Notes 2 and 11) ............. (101,894) -- --
Issuance of warrants (Note 2) ................. (70,000) -- --
Former employees deferred
compensation and severance (Note 8) ...... (31,200) -- --
Restructuring benefit (charges) (Note 12)...... -- 14,582 (110,122)
Restructuring related charges (Note 12) ....... -- (15,800) (10,047)
Reversals of reserves no longer required ...... -- 27,963 --
Other (charges) benefit........................ (4,574) 2,854 --
----------- ----------- -----------
(473,651) 10,377 (207,389)
----------- ----------- -----------
Consolidated (loss) earnings from
continuing operations before income taxes,
minority interest and extraordinary charge $ (796,348) $ 92,670 $ (261,805)
=========== =========== ===========
F-33
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA - (CONTINUED)
ENTERPRISE-WIDE DISCLOSURES
Net sales from the Company's Household products represented 50%, 73%
and 74% of consolidated net sales in 1998, 1997 and 1996, respectively. Net
sales from the Company's Outdoor Leisure products represented 50%, 25% and 26%
of consolidated net sales in 1998, 1997 and 1996, respectively.
[Download Table]
FISCAL YEARS ENDED
Geographic Area Data 1998 1997 1996
---------- ---------- ----------
Net sales to unaffiliated customers:
United States ................. $1,423,007 $ 843,518 $ 800,969
Europe ........................ 170,910 17,415 18,872
Latin America ................. 158,670 164,044 125,072
Other ......................... 84,284 48,113 39,323
---------- ---------- ----------
Total net sales .................... $1,836,871 $1,073,090 $ 984,236
========== ========== ==========
Identifiable assets:
United States ................. $2,991,762 $ 891,337 $ 970,088
Europe ........................ 244,670 9,703 15,476
Latin America ................. 80,943 127,036 54,921
Other ......................... 88,142 30,852 18,963
---------- ---------- ----------
Total identifiable assets .......... $3,405,517 $1,058,928 $1,059,448
========== ========== ==========
Revenue from one customer in Sunbeam's Household and Outdoor Leisure
segments accounted for approximately 18%, 20% and 19% of consolidated net sales
in 1998, 1997 and 1996, respectively.
15. COMMITMENTS AND CONTINGENCIES
SEC INVESTIGATION
By letter dated June 17, 1998, the staff of the Division of Enforcement
of the SEC advised the Company that it was conducting an informal inquiry into
the Company's accounting policies and procedures and requested that the Company
produce certain documents. On July 2, 1998, the SEC issued a Formal Order of
Private Investigation, designating officers to take testimony and pursuant to
which a subpoena duces tecum was served on the Company requiring the production
of certain documents. On November 4, 1998, the Company received another SEC
subpoena duces tecum requiring the production of further documents. The Company
has provided numerous documents to the SEC staff and continues to cooperate
fully with the SEC staff. The Company cannot predict the term of such
investigation or its potential outcome.
LITIGATION
On April 23, 1998, two class action lawsuits were filed on behalf of
purchasers of the Company's common stock in the U.S. District Court for the
Southern District of Florida against the Company and some of its present and
former directors and former officers alleging violations of the federal
securities laws as discussed below (the "Consolidated Federal Actions"). After
that date, approximately fifteen similar class actions were filed in the same
Court. One of the lawsuits also named as defendant Arthur Andersen LLP, the
Company's independent accountants for the period covered by the lawsuit.
On June 16, 1998, the Court entered an Order consolidating all these
suits and all similar class actions subsequently filed and providing time
periods for the filing of a consolidated amended complaint and defendants'
response thereto. On June 22, 1998, two groups of plaintiffs made motions to be
appointed lead plaintiffs and to have their selection of counsel approved as
lead counsel. On July 20, 1998, the Court entered an Order appointing lead
plaintiffs and lead counsel. This Order also stated that it "shall apply to all
subsequently filed actions which are consolidated herewith." On August 28, 1998,
plaintiffs in one of the subsequently filed actions filed an objection to having
their action consolidated pursuant to the June 16, 1998 Order, arguing that the
class period in their action differs from the class periods in the originally
filed consolidated actions. On December 9, 1998, the Court entered an Order
overruling plaintiffs' objections and affirming its prior Order appointing lead
plaintiffs and lead counsel.
F-34
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
On January 6, 1999, plaintiffs filed a consolidated amended class
action complaint against the Company, some of its present and former directors
and former officers, and Arthur Andersen LLP. The consolidated amended class
action complaint alleges that, in violation of section 10(b) of the Exchange Act
and SEC Rule 10b-5, defendants made material misrepresentations and omissions
regarding the Company's business operations, future prospects and anticipated
earnings per share, in an effort to artificially inflate the price of the common
stock and call options, and that, in violation of section 20(a) of the Exchange
Act, the individual defendants exercised influence and control over the Company,
causing the Company to make material misrepresentations and omissions. The
consolidated amended complaint seeks an unspecified award of money damages. On
February 5, 1999, plaintiffs moved for an order certifying a class consisting of
all persons and entities who purchased Sunbeam common stock or who purchased
call options or sold put options with respect to Sunbeam common stock during the
period April 23, 1997 through June 30, 1998, excluding the defendants, their
affiliates, and employees of Sunbeam. Defendants have filed a response to the
motion for class certification. On March 8, 1999, all defendants who had been
served with the consolidated amended class action complaint moved to dismiss it.
Under the Private Securities Litigation Reform Act of 1995, all discovery in the
consolidated action is stayed pending resolution of the motions to dismiss.
On April 7, 1998, a purported derivative action was filed in the
Circuit Court for the Fifteenth Judicial Circuit in and for Palm Beach County,
Florida against the Company and some of its present and former directors and
former officers. The action alleged that the individual defendants breached
their fiduciary duties and wasted corporate assets when the Company granted
stock options at an exercise price of $36.85 to three of its officers and
directors (who were subsequently terminated) on or about February 2, 1998. On
June 25, 1998, all defendants filed a motion to dismiss the complaint for
failure to make a presuit demand on Sunbeam's Board of Directors. On October 22,
1998, the plaintiff amended the complaint against all but one of the defendants
named in the original complaint. On February 19, 1999, plaintiff filed a second
amended derivative complaint nominally on behalf of Sunbeam against some of its
present and former directors and former officers and Arthur Andersen LLP. The
second amended complaint alleges, among other things, that Messrs. Dunlap and
Kersh (the Company's former Chairman and Chief Executive Officer and Chief
Financial Officer, respectively) caused Sunbeam to employ fraudulent accounting
procedures in order to enable them to secure new employment contracts, and seeks
an award of damages and other declaratory and equitable relief. The plaintiff
has agreed that defendants need not respond to the second amended complaint
until May 14, 1999. As described below, the Company and the plaintiff have
moved the Court for injunctive relief against Messrs. Dunlap and Kersh with
respect to the arbitration action brought by them.
On June 25, 1998, four purported class actions were filed in the Court
of Chancery of the State of Delaware in New Castle County by minority
shareholders of Coleman against Coleman, the Company and some of the Company's
and Coleman's present and former officers and directors. An additional class
action was filed on August 10, 1998, against the same parties. The complaints in
these class actions allege, in essence, that the existing exchange ratio for the
proposed Coleman merger is no longer fair to Coleman's public shareholders as a
result of the decline in the market value of the common stock. On October 21,
1998, the Company announced that it had entered into a Memorandum of
Understanding to settle, subject to court approval, the class actions. Under the
terms of the proposed settlement, if approved by the Court the Company will
issue to the Coleman public shareholders, and plaintiff's counsel in this
action, warrants to purchase up to approximately 4.98 million shares of the
Company's common stock at a cash exercise price of $7 per share, subject to
certain anti-dilution provisions. These warrants will generally have the same
terms as the warrants issued to an affiliate of M&F (see Note 2) and will be
issued when the Coleman merger is consummated, which is now expected to be
during the second half of 1999. Issuance of these warrants will be accounted for
as additional purchase consideration. There can be no assurance that the Court
will approve the settlement as proposed.
During the months of August and October 1998, purported class action
and derivative lawsuits were filed in the Court of Chancery of the State of
Delaware in New Castle County and in the U.S. District Court for the Southern
District of Florida by shareholders of the Company against the Company, M&F and
certain of the Company's present and former directors. These complaints allege
that the defendants breached their fiduciary duties when the Company entered
into a settlement agreement whereby M&F and its affiliates released the Company
from certain claims they may have had arising out of the Company's acquisition
of M&F's interest in Coleman, and M&F agreed to provide management support to
the Company. Under the settlement agreement, M&F was granted a five-year warrant
to purchase up to an additional 23 million shares of Sunbeam's common stock at
an exercise price of $7 per share, subject to certain anti-dilution provisions.
The plaintiffs have requested an injunction against issuance of stock to M&F
pursuant to exercise of the warrants and unspecified money damages. These
complaints also allege that the rights of the public shareholders have been
compromised, as the settlement would normally require shareholders' approval
under the rules and regulations of the New York Stock Exchange ("NYSE"). The
Audit Committee of the Company's Board of Directors determined that obtaining
such shareholders' approval would have seriously jeopardized the financial
viability of the Company, which is an allowable exception to the NYSE
F-35
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
shareholders' approval requirements. By Order of the Court of Chancery dated
January 7, 1999, the derivative actions filed in that Court were consolidated
and the Company has moved to dismiss such action. The action filed in the U.S.
District Court for the Southern District of Florida has been dismissed.
On September 16, 1998, an action was filed in the 56th Judicial
District Court of Galveston County, Texas alleging various claims in violation
of the Texas Securities Act and Texas Business & Commercial Code as well as
common law fraud as a result of the Company's alleged misstatements and
omissions regarding the Company's financial condition and prospects during a
period beginning May 1, 1998 and ending June 16, 1998, in which the plaintiffs
engaged in transactions in the Company's common stock. The Company is the only
named defendant in this action. The complaint requests recovery of compensatory
damages, punitive damages and expenses in an unspecified amount. This action was
removed to the U.S. District Court for the Southern District of Texas and
subsequently has been transferred to the Southern District of Florida, the forum
for the Consolidated Federal Actions.
On October 30, 1998, a class action lawsuit was filed on behalf of
certain purchasers of the Debentures in the U.S. District Court of the Southern
District of Florida against the Company and some of the Company's former
officers and directors, alleging violations of the federal securities laws and
common law fraud. The complaint alleges that the Company's offering memorandum
used for the marketing of the Debentures contained false and misleading
information regarding the Company's financial position and that the defendants
engaged in a plan to inflate the Company's earnings for the purpose of
defrauding the plaintiffs and others. This action has been transferred to the
Southern District of Florida, the forum for the Consolidated Federal Actions,
and the parties have negotiated a proposed coordination plan in order to
coordinate proceedings in this action with those in the Consolidated Federal
Actions.
The Company has been named as a defendant in an action filed in the
District Court of Tarrant County, Texas, 48th Judicial District, on November 20,
1998, which was served on the Company through the Secretary of State of Texas on
January 15, 1999. The plaintiffs in this action are purchasers of the
Debentures. The plaintiffs allege that the Company violated the Texas Securities
Act and the Texas Business & Commercial Code and committed state common law
fraud by materially misstating the financial position of the Company in
connection with the offering and sale of the Debentures. The complaint seeks
rescission, as well as compensatory and exemplary damages in an unspecified
amount. The Company specially appeared to assert an objection to the Texas
Court's exercise of personal jurisdiction over the Company, and a hearing on
this objection was held on April 15, 1999. The Court has issued a letter ruling
advising the parties that it would grant the Company's special appearance and
sustain the challenge to personal jurisdiction. The plaintiffs have moved for
reconsideration of this decision. Plaintiffs had also moved for partial summary
judgment on their Texas Securities Act claims, but, in light of the Court's
decision on the special appearance, the hearing on the summary judgment motion
has been cancelled.
On April 12, 1999, a class action lawsuit was filed in the U.S.
District Court for the Southern District of Florida. The lawsuit was filed on
behalf of persons who purchased the Debentures during the period of March 20,
1998 through June 30, 1998, inclusive, but after the initial offering of such
Debentures. The complaint asserts that Sunbeam made material omissions and
misrepresentations that had the effect of inflating the market price of the
Debentures. The complaint names as defendants the Company, its former auditor,
Arthur Andersen LLP and two former Sunbeam officers, Messrs. Dunlap and Kersh.
The plaintiff is an institution which allegedly acquired in excess of
$150,000,000 face amount of the Debentures and now seeks unspecified money
damages. The Company was served on April 16, 1999 in connection with this
pending lawsuit. The Company will advise the Court of the pending Consolidated
Federal Actions and request transfer of the action.
On February 9, 1999, Messrs. Dunlap and Kersh filed with the American
Arbitration Association demands for arbitration of claims under their respective
employment agreements with Sunbeam. Messrs. Dunlap and Kersh are requesting a
finding by the arbitrator that they were terminated by the Company without cause
and should be awarded the corresponding benefits set forth in their respective
employment agreements. On March 12, 1999, Sunbeam asked the Circuit Court for
the Fifteenth Judicial Circuit in and for Palm Beach County, Florida to issue an
injunction prohibiting Messrs. Dunlap and Kersh from pursuing their arbitration
proceedings against Sunbeam on the ground that the simultaneous litigation of
the April 7, 1998 action and these arbitration proceedings would subject Sunbeam
to the threat of inconsistent adjudications with respect to certain rights to
compensation asserted by Messrs. Dunlap and Kersh. On March 19, 1999, the
plaintiff in the April 7, 1998 action discussed above moved for a similar
injunction on the ground that the arbitration proceedings threatened irreparable
harm to Sunbeam and its shareholders. On March 26, 1999, Messrs. Dunlap and
Kersh filed a response in opposition to the motions for injunctive relief. A
hearing on the motions for injunctive relief has been held and, as a result of
Sunbeam's motion for preliminary injunction, administration of the arbitrations
has been suspended until May 10, 1999.
F-36
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in the
Court of Chancery of the State of Delaware seeking an order directing Sunbeam to
advance attorneys' fees and other expenses incurred in connection with various
state and federal class and derivative actions and an investigation instituted
by the SEC. The complaint alleges that such advancements are required by
Sunbeam's by-laws and by a forebearance agreement entered into between Sunbeam
and Messrs. Dunlap and Kersh in August 1998. The Company has filed its answer to
the complaint and the Court of Chancery has scheduled a trial of this summary
proceeding to be held on June 15, 1999.
The Company intends to vigorously defend each of the foregoing lawsuits
other than those as to which a Memorandum of Understanding to settle has been
reached, but cannot predict the outcome and is not currently able to evaluate
the likelihood of the Company's success in each case or the range of potential
loss. However, if the foregoing actions were determined adversely to the
Company, such judgements would likely have a material adverse effect on the
Company's financial position, results of operations and cash flows.
On July 2, 1998, the American Insurance Company ("American") filed suit
against the Company in the U.S. District Court for the Southern District of New
York requesting a declaratory judgment of the Court that the directors' and
officers' liability insurance policy for excess coverage issued by American was
invalid and/or had been properly canceled by American. The Company's motion to
transfer such action to the federal district court in which the Consolidated
Federal Actions are currently pending was recently denied. The case is now in
discovery. On October 20, 1998, an action was filed by Federal Insurance Company
in the U.S. District Court for the Middle District of Florida requesting the
same relief as that requested by American in the previously filed action as to
additional coverage levels under the Company's directors' and officers'
liability insurance policy. This action has been transferred to the U.S.
District Court for the Southern District of Florida and is currently in
discovery. On December 22, 1998, an action was filed by Executive Risk
Indemnity, Inc. in the Circuit Court of the Seventeenth Judicial Circuit in and
for Broward County, Florida requesting the same relief as that requested by
American and Federal in their previously filed actions as to additional coverage
levels under the Company's directors' and officers' liability insurance policy.
On April 15, 1999, the Company filed an action in the U.S. District Court for
the Southern District of Florida against the National Union Fire Insurance
Company of Pittsburgh, PA, Gulf Insurance Company and St. Paul Mercury Insurance
Company requesting, among other things, a declaratory judgment that National
Union is not entitled to rescind its liability insurance policy to the Company
and a declaratory judgment that the Company is entitled to coverage from these
insurance companies for various lawsuits described herein under liability
insurance policies issued by each of the defendants. The Company intends to
pursue recovery from all of its insurers if damages are awarded against the
Company or its indemnified officers and/or directors under any of the foregoing
actions. The Company's failure to obtain such insurance recoveries following an
adverse judgement in any of the foregoing actions could have a material adverse
effect on the Company's financial position, results of operations and cash
flows.
The Company and its subsidiaries are also involved in various lawsuits
arising from time to time that the Company considers to be ordinary routine
litigation incidental to its business. In the opinion of the Company, the
resolution of these routine matters, and of certain matters relating to prior
operations, individually or in the aggregate, will not have a material adverse
effect upon the financial position, results of operations, or cash flows of the
Company.
In the fourth quarter of 1996, the Company recorded a $12.0 million
charge related to a case for which an adverse development arose near year-end.
In 1997, this case was favorably resolved and, as a result, $8.1 million of the
charge established in 1996 was reversed into income primarily in the fourth
quarter of 1997.
As of December 31, 1998 and December 28, 1997, the Company had
established accruals for litigation matters, including legal fees, of $31.2
million and $9.9 million, respectively. The Company believes, based on existing
information, that anticipated probable costs of litigation matters existing as
of December 31, 1998 have been adequately reserved to the extent determinable.
F-37
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
ENVIRONMENTAL MATTERS
The Company's operations, like those of comparable businesses, are
subject to certain federal, state, local and foreign environmental laws and
regulations in addition to laws and regulations regarding labeling and packaging
of products and the sales of products containing certain environmentally
sensitive materials ("Environmental Laws"). The Company believes it is in
substantial compliance with all Environmental Laws which are applicable to its
operations. Compliance with Environmental Laws involves certain continuing
costs; however, such costs of ongoing compliance have not resulted, and are not
anticipated to result, in a material increase in the Company's capital
expenditures or to have a material adverse effect on the Company's results of
operations, financial condition or competitive position.
In addition to ongoing environmental compliance at its operations, the
Company also is actively engaged in certain environmental remediation activities
many of which relate to divested operations. As of December 31, 1998, the
Company has been identified by the United States Environmental Protection Agency
("EPA") or a state environmental agency as a potentially responsible party
("PRP") in connection with seven sites subject to the federal Superfund Act and
five sites subject to state Superfund laws comparable to the federal law
(collectively the "Environmental Sites"), exclusive of sites at which the
Company has been designated (or expects to be designated) as a de minimis (less
than 1%) participant.
The Superfund Act, and related state environmental remediation laws,
generally authorize governmental authorities to remediate a Superfund site and
to assess the costs against the PRPs or to order the PRPs to remediate the site
at their expense. Liability under the Superfund Act is joint and several and is
imposed on a strict basis, without regard to degree of negligence or
culpability. As a result, the Company recognizes its responsibility to determine
whether other PRPs at a Superfund site are financially capable of paying their
respective shares of the ultimate cost of remediation of the site. Whenever the
Company has determined that a particular PRP is not financially responsible, it
has assumed for purposes of establishing reserve amounts that such PRP will not
pay its respective share of the costs of remediation. To minimize the Company's
potential liability with respect to the Environmental Sites, the Company has
actively participated in steering committees and other groups of PRPs
established with respect to such sites. The Company currently is engaged in
active remediation activities at 12 sites, seven of which are among the
Environmental Sites referred to above, and five of which have not been
designated as Superfund sites under federal or state law.
The Company has established reserves, in accordance with SFAS No. 5,
ACCOUNTING FOR CONTINGENCIES, to cover the anticipated probable costs of
remediation, based upon periodic reviews of all sites for which the Company has,
or may have remediation responsibility. The amount of such reserves was $25.0
million at December 31, 1998 and $24.0 million at December 28, 1997. The Company
continues to pursue the recovery of some environmental remediation costs from
certain of its liability insurance carriers; however, such potential recoveries
have not been offset against potential liabilities and have not been considered
in determining the Company's environmental reserves. Due to uncertainty over
remedial measures to be adopted at some sites, the possibility of changes in
Environmental Laws and regulations and the fact that joint and several liability
with the right of contribution is possible at federal and state Superfund sites,
the Company's ultimate future liability with respect to sites at which
remediation has not been completed may vary from the amounts reserved as of
December 31, 1998.
In the fourth quarter of 1996, a comprehensive review of all
environmental exposures was performed, and the Company accelerated its strategy
for the resolution and settlement of certain environmental claims. As a result,
the Company recorded additional environmental reserves of approximately $9.0
million in the fourth quarter of 1996. The Company believes, based on existing
information, that the costs of completing environmental remediation of all sites
for which the Company has a remediation responsibility have been adequately
reserved, and that the ultimate resolution of these matters will not have a
material adverse effect upon the Company's financial condition, results of
operations or cash flows.
F-38
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
PRODUCT LIABILITY MATTERS
The Company is party to various personal injury and property damage
lawsuits relating to its products and incidental to its business. Annually, the
Company sets its product liability insurance program based on the Company's
current and historical claims experience and the availability and cost of
insurance. The Company's program for 1998 was comprised of a self-insurance
retention of $2.5 million per occurrence.
Cumulative amounts estimated to be payable by the Company with respect
to pending and potential claims for all years in which the Company is liable
under its self-insurance retention have been accrued as liabilities. Such
accrued liabilities are necessarily based on estimates taking into account prior
experience, numbers of claims and other relevant factors; thus, the Company's
ultimate liability may exceed or be less than the amounts accrued. The methods
of making such estimates and establishing the resulting liability are reviewed
periodically and any adjustments resulting therefrom are reflected in current
operating results.
Historically, product liability awards have rarely exceeded the
Company's individual per occurrence self-insured retention. There can be no
assurance, however, that the Company's future product liability experience will
be consistent with its past experience. Based on existing information, the
Company believes that the ultimate conclusion of the various pending product
liability claims and lawsuits of the Company, individually or in the aggregate,
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
LEASES
The Company rents certain facilities, equipment and retail stores under
operating leases. Rental expense for operating leases amounted to $28.1 million
in 1998, $7.4 million for 1997 and $8.0 million for 1996. The minimum future
rentals due under noncancelable operating leases as of December 31, 1998
aggregated to $167.6 million. The amounts payable in each of the years 1999-2003
and thereafter are $34.6 million, $33.7 million, $17.1 million, $13.5 million,
$9.7 million and $59.0 million, respectively.
In connection with a warehouse expansion related to the electric
blanket business, the Company entered into a $5 million capital lease obligation
in 1996.
CERTAIN DEBT OBLIGATIONS
Responsibility for servicing certain debt obligations of the Company's
predecessor were assumed by third parties in connection with the acquisition of
former businesses, although the Company's predecessor remained the primary
obligor in accordance with the respective loan documents. Such obligations,
which amounted to approximately $17.3 million at December 31, 1998, and the
corresponding receivables from the third parties, are not included in the
Consolidated Balance Sheets since these transactions occurred prior to the
issuance of SFAS No. 76, EXTINGUISHMENT OF DEBT. Management believes that the
third parties will continue to meet their obligations pursuant to the assumption
agreements.
PURCHASE AND OTHER COMMITMENTS
In conjunction with the sale of the Biddeford, Maine textile mill in
1997, the Company entered into a five-year agreement to purchase blanket shells
from the mill. The agreement provides for a minimum purchase commitment each
year of the contract. As of December 31, 1998, the Company had remaining minimum
commitments under the contract of approximately $104 million.
In connection with Coleman's 1995 purchase of substantially all of the
assets of Active Technologies, Inc. ("ATI"), the Company may be required to
make payments to the predecessor owner of ATI of up to $18.8 million based on
the Company's sales of ATI related products and royalties received by the
Company for licensing arrangements related to ATI patents. As of December 31,
1998, the amounts paid under the terms of this agreement have been immaterial.
16. RELATED PARTY TRANSACTIONS
SERVICES PROVIDED BY M&F
Pursuant to the settlement agreement with M&F, M&F agreed to make
certain executive management personnel available to the Company and to provide
certain management assistance to Sunbeam. The Company does not reimburse M&F for
such services, other than reimbursement of out-of-pocket expenses paid to third
parties. (See Note 2.)
F-39
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. RELATED PARTY TRANSACTIONS -(CONTINUED)
LIQUIDATION OF OPTIONS
The Company expects to acquire the remaining approximately 20% equity
interest in Coleman in the second half of 1999. Upon the consummation of the
merger transaction, the unexercised options under Coleman's stock option plans
will be cashed out at a price per share equal to the difference between $27.50
per share and the exercise price of such options. Ronald O. Perelman, the sole
stockholder of M&F, holds 500,000 options for which he will receive a net
payment of $6,750,000. Mr. Shapiro and Ms. Clark, executive officers of the
Company, hold 77,500 and 25,000 options, respectively, for which they will
receive net payments of $823,000 and $275,005, respectively.
ARRANGEMENTS BETWEEN COLEMAN AND M&F
Coleman and an affiliate of M&F are parties to a cross-indemnification
agreement pursuant to which Coleman has agreed to indemnify such affiliate, its
officers, directors, employees, control persons, agents and representatives
against all past, present and future liabilities, including product liability
and environmental matters, related to the initial assets of Coleman, which
Coleman acquired from such affiliate in December 1991. In addition, pursuant to
this cross-indemnification agreement, the M&F affiliate has agreed to indemnify
Coleman and its officers, directors, employees, agents and representatives
against all other liabilities of such M&F affiliate or any of its subsidiaries,
including liabilities relating to the assets it did not transfer to Coleman in
December 1991. This cross-indemnification agreement will survive the Coleman
merger.
Coleman previously was included in the consolidated tax group for the
M&F companies and was a party to a tax sharing agreement with a M&F affiliate,
pursuant to which Coleman paid to such affiliate the amount of taxes which would
have been paid by Coleman if it were required to file separate federal, state or
local income tax returns. The tax sharing agreement was terminated upon the
acquisition of Coleman; however, the acquisition agreement provides for certain
tax indemnities and tax sharing payments among the Company and the M&F
affiliates relating to periods prior to the acquisition.
LEASE OF OFFICE SPACE
During 1998, the Company sublet office space in New York City from an
affiliate of M&F. The expense for such rent during 1998 was approximately
$130,000. The lease was terminated in 1999.
F-40
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. UNAUDITED QUARTERLY FINANCIAL DATA
[Enlarge/Download Table]
FISCAL 1998 (a)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales ................................ $ 247.6 $ 578.5 $ 496.0 $ 514.8
Gross profit (loss) ...................... 33.8 (52.5) 67.4 (0.6)
Operating loss............................ (37.4) (193.3) (161.0) (278.3)
Loss from continuing operations before
extraordinary charge................. (45.6) (241.0) (188.9) (300.0)
Basic and diluted loss per share from
continuing operations before
extraordinary charge................. (0.53) (2.39) (1.88) (2.98)
Extraordinary charge ..................... (8.6) (103.1) -- (10.7)
Net loss ................................. (54.1) (344.1) (188.9) (310.8)
Basic and diluted loss per share ......... (0.63) (3.41) (1.88) (3.09)
FISCAL 1997 (a)(b)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales ................................ $ 252.5 $ 271.4 $ 286.8 $ 262.4
Gross profit ............................. 58.3 55.3 76.5 52.1
Operating earnings ....................... 17.1 16.8 45.1 25.1
Earnings from continuing
operations .......................... 9.0 8.7 27.5 7.1
Basic earnings per share
from continuing operations .......... 0.11 0.10 0.32 0.08
Diluted earnings per share
from continuing operations .......... 0.11 0.10 0.31 0.08
(Loss) on sale of discontinued operations,
net of taxes ........................ (13.7) -- (2.7) 2.4
Net (loss) earnings ...................... (4.7) 8.7 24.8 9.5
Basic (loss) earnings per share .......... (0.06) 0.10 0.29 0.11
Diluted (loss) earnings per share ........ (0.06) 0.10 0.28 0.11
(a) Due to the net loss incurred, earnings per share calculations exclude
common stock equivalents for all four quarters and for the year in 1998 and
for the first and third quarters in 1997. Earnings (loss) per share are
computed independently for each of the quarters presented. Therefore, the
sum of the quarterly earnings (loss) per share in 1998 and 1997 does not
equal the total computed for the year.
(b) Each quarter consists of a 13-week period.
During 1998, significant unusual charges affected the respective
quarters as follows:
[Enlarge/Download Table]
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
Compensation agreements with former
senior officers (Note 8).............. $ 31.2 $ -- $ -- $ --
Excess and obsolete inventory reserves
(Note 11)............................. -- 84.0 2.2 9.6
Facilities impairment charges (Note 11)... -- 29.6 3.1 6.7
Warrants issued to M&F (Note 2)........... -- -- 70.0 --
Costs associated with financial statement
restatement........................... -- -- 10.8 9.6
Goodwill impairment (Note 2).............. -- -- -- 62.5
------ ------- ------ ------
Total..................................... $ 31.2 $ 113.6 $ 86.1 $ 88.4
====== ======= ====== ======
During the first, second, third and fourth quarters of fiscal 1997,
approximately $0.5 million, $4.5 million, $1.5 million and $21.5 million,
respectively, of pre-tax liabilities no longer required were reversed and taken
into income. Included in these reserves is the $8.1 million litigation reserve
reversal discussed in Note 15. Also, during the third and fourth quarters of
fiscal 1997, approximately $5.8 million and $8.8 million, respectively, of
restructuring reserves no longer required were reversed and taken into income,
as discussed in Note 12. Additionally, during the fourth quarter of fiscal 1997,
approximately $13.3 million of tax liabilities no longer required were reversed
and taken into income.
F-41
[Enlarge/Download Table]
SUNBEAM CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO RESERVES BALANCE AT
BEGINNING COSTS AND FROM END OF
DESCRIPTION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
----------- ---------- ----------- ------------ ---------- ----------
Allowance for doubtful accounts
and cash discounts:
Fiscal year ended $25,050 (b)
December 31, 1998................ $30,033 $32,919 $15,216 93 (c) $53,025
======= ======= ======= ======= =======
$(2,000)(a)
Fiscal year ended 8,948 (b)
December 28, 1997.................. $19,701 $17,297 $ -- 17 (c) $30,033
======= ======= ======= ======= =======
$ (233)(a)
Fiscal year ended 19,911 (b)
December 29, 1996.................. $12,326 $27,053 $ -- -- (c) $19,701
======= ======= ======= ======= =======
Notes: (a) Reclassified to/from accrued liabilities for customer deductions.
(b) Accounts written off as uncollectible.
(c) Foreign currency translation adjustment.
(d) Reserve balances of acquired companies at acquisition date.
F-42
EXHIBIT INDEX
[Enlarge/Download Table]
EXHIBIT
NO. DESCRIPTION
-------- --------------------------------------------------------------
3.a Amended and Restated Certificate of Incorporation of Sunbeam (3)
3.b By-laws of Sunbeam, as amended (11)
4.a Indenture dated as of March 25, 1998, by and among the Company and Bank of New York Trust, with respect
to the Zero Coupon Convertible Senior Subordinated Debentures due 2018 (8)
4.b Registration Rights Agreement dated March 25, 1998, by and among the Company and Morgan Stanley & Co.,
Inc., with respect to the Zero Coupon Convertible Senior Subordinated Debentures due 2018 (8)
4.c Registration Rights Agreement, dated as of March 29, 1998, between the Company and Coleman (Parent)
Holdings, Inc. (9)
4.d Settlement Agreement, dated as of August 12, 1998, by and between the Company and Coleman (Parent)
Holdings, Inc. (10)
4.e Amendment to Registration Rights Agreement, dated as of August 12, 1998, between the Company and Coleman
(Parent) Holdings, Inc. (11)
10.a Employment Agreement dated as of February 20, 1998, by and between Sunbeam and Albert J. Dunlap (7)
10.b Employment Agreement dated as of February 20, 1998, by and between Sunbeam and Russell A. Kersh (7)
10.c Employment Agreement dated as of February 20, 1998, by and between Sunbeam and David C. Fannin (7)
10.d Employment Agreement dated as of January 1, 1997, by and between Sunbeam and Donald Uzzi (5)
10.e Sunbeam Executive Benefit Replacement Plan (7)
10.f Amended and Restated Sunbeam Corporation Stock Option Plan (12)
10.g Performance Based Compensation Plan (7)
10.h Tax Sharing Agreement dated as of October 31, 1990, by and among Sunbeam, SAIL, SOHO, Montey and the
subsidiaries of Sunbeam listed therein (1)
10.i Receivables Sale and Contribution Agreement dated as of December 4, 1997, between Sunbeam Products, Inc.
and Sunbeam Asset Diversification, Inc. (7)
10.j Receivables Purchase and Servicing Agreement dated as of December 4, 1997, between Sunbeam Products,
Inc., Llama Retail, L.P., Capital USA, LLC and Sunbeam Asset Diversification, Inc. (7)
10.k Agreement and Plan of Merger among Sunbeam Corporation, Laser Acquisition Corp., CLN Holdings, Inc., and
Coleman (Parent) Holdings, Inc. dated as of February 27, 1998 (7)
10.l Agreement and Plan of Merger among Sunbeam Corporation, Camper Acquisition Corp., and The Coleman
Company, Inc. dated as of February 27, 1998 (7)
10.m Agreement and Plan of Merger between Sunbeam Corporation, Java Acquisition Corp., and Signature Brands
USA, Inc. dated as of February 28, 1998 (7)
10.n Stock Purchase Agreement among Java Acquisition Corp. and the Sellers named therein dated as of February
28, 1998 (7)
10.o Agreement and Plan of Merger by and among Sunbeam Corporation, Sentinel Acquisition Corp., and First
Alert, Inc. dated as of February 28, 1998 (7)
10.p Stock Sale Agreement among Sunbeam Corporation and the Shareholders named therein dated as of February
28, 1998 (7)
10.q Credit Agreement dated as of March 30, 1998, among Sunbeam Corporation, the Borrowers referred to therein,
the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank of America National Trust and Savings
Association and First Union National Bank (8)
10.r First Amendment to Credit Agreement dated as of May 8, 1998, among Sunbeam Corporation, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (8)
10.s Second Amendment to Credit Agreement dated as of June 30, 1998, among the Company, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (11)
10.t Third Amendment to Credit Agreement dated as of October 19, 1998, among the Company, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (11)
10.u Fourth Amendment to Credit Agreement dated as of April 10, 1999, among the Company, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First Union National Bank (13)
10.v Fifth Amendment to Credit Agreement, Third Waiver and Agreement dated as of April 15, 1999; among the
Company, the Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Funding.
Bank America National Trust and Savings Association and First Union National Bank (13)
10.w Employment Agreement between the Company and Jerry W. Levin dated June 15, 1998 (11)
10.x Employment Agreement between the Company and Paul Shapiro dated June 15, 1998 (11)
10.y Employment Agreement between the Company and Bobby Jenkins dated June 15, 1998 (11)
10.z Agreement between the Company and David Fannin dated August 20, 1998 (11)
10.aa First Amendment to Receivables Sale and Contribution Agreement dated April 2, 1998, between Sunbeam
Products, Inc. and Sunbeam Asset Diversification, Inc. (11)
10.bb First Amendment to Receivables Purchase and Servicing Agreement dated April 2, 1998, between Llama Retail
Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset Diversification, Inc. (11)
10.cc Second Amendment to Receivables Purchase and Servicing Agreement dated July 29,1998, between Llama Retail
Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset Diversification, Inc. (11)
10.dd Sunbeam Corporation Management Incentive Compensation Plan *
10.ee Stock Option Replacement Program *
10.ff Amendment No. 1 to Agreement and Plan of Merger, dated as of March 29, 1998, among the Company, Laser
Acquisition Corp., Coleman (Parent) Holdings, Inc., and CLN Holdings, Inc. (13)
10.gg Employment Agreement dated as of August 31, 1998 between the Company and Karen K. Clark *
10.hh Employment Agreement dated as of October 1, 1998 between the Company and Jack Hall *
10.ii Employment Agreement dated as of December 16, 1998 between the Company and Janet G. Kelley *
10.jj Compensation and Indemnification Agreement entered into as of June 29, 1998, between the Company and each
of Howard G. Kristol, Charles M. Elson, Peter A. Langerman and Faith Whittlesey *
10.kk Agreement between Sunbeam Asset Diversification, Inc. and Capital USA, LLC amending the Receivables
Purchase Agreement among Llama Retail Funding, L.P., Sunbeam Asset Diversification, Inc. Capital USA,
LLC and Sunbeam Products, Inc. *
21. Subsidiaries of the Registrant *
23.1 Independent Auditors' Consent - Deloitte & Touche LLP
23.2 Consent of Independent Certified Public Accountants - Arthur Andersen LLP
27. Financial Data Schedule, submitted electronically to the Securities and Exchange Commission for information
only and not filed.
<FN>
----------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1990.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended July 3, 1994.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1996.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1997.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
(9) Incorporated by reference to the Company's Report on Form 8-K filed April 13, 1998.
(10) Incorporated by reference to the Company's Report on Form 8-K filed August 14, 1998.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K/A filed November 12, 1998.
(12) Incorporated by reference to the Company's Quarterly Reports on Form 10-Q for the quarter ended June 30, 1998.
(13) Incorporated by reference to the Annual Report on Form 10-K filed by The Coleman Company, Inc. on April 15, 1999.
*Filed with this Report.
</FN>
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10-K’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 3/25/13 | | 33 | | 60 |
| | 3/25/08 | | 33 | | 60 |
| | 9/30/06 | | 33 | | 59 |
| | 3/30/05 | | 33 | | 59 |
| | 3/25/03 | | 33 | | 60 |
| | 1/1/02 | | 32 |
| | 4/10/00 | | 33 | | 60 |
| | 1/1/00 | | 38 |
| | 12/31/99 | | 18 | | 64 | | | 10-K, 10-K/A, 11-K, NT 10-K |
| | 10/30/99 | | 34 | | 60 |
| | 9/30/99 | | 38 | | | | | 10-Q, NT 10-Q |
| | 8/31/99 | | 33 | | 59 |
| | 6/15/99 | | 16 | | 81 |
| | 5/14/99 | | 14 | | 79 | | | S-4/A, SC 13E3/A |
| Filed on: | | 5/11/99 | | 44 | | | | | DEFR14A |
| | 5/10/99 | | 16 | | 80 |
| | 4/30/99 | | 1 | | 18 | | | DEF 14A |
| | 4/21/99 | | 18 |
| | 4/16/99 | | 15 | | 80 |
| | 4/15/99 | | 15 | | 89 |
| | 4/12/99 | | 15 | | 80 |
| | 4/10/99 | | 33 | | 88 |
| | 3/29/99 | | 11 |
| | 3/26/99 | | 15 | | 80 |
| | 3/25/99 | | 33 |
| | 3/23/99 | | 16 | | 81 |
| | 3/19/99 | | 15 | | 80 |
| | 3/12/99 | | 15 | | 80 |
| | 3/8/99 | | 14 | | 79 |
| | 2/19/99 | | 14 | | 79 |
| | 2/9/99 | | 15 | | 80 |
| | 2/5/99 | | 14 | | 79 |
| | 2/4/99 | | 33 | | 60 | | | S-1 |
| | 1/15/99 | | 15 | | 80 |
| | 1/7/99 | | 15 | | 80 | | | SC 13G/A |
| | 1/6/99 | | 14 | | 79 |
| | 1/1/99 | | 30 | | 67 |
| For Period End: | | 12/31/98 | | 1 | | 86 | | | 10-K/A, 11-K, NT 10-K |
| | 12/22/98 | | 16 | | 81 | | | 10-Q |
| | 12/16/98 | | 42 | | 88 |
| | 12/9/98 | | 14 | | 78 |
| | 11/20/98 | | 12 | | 80 | | | 8-K |
| | 11/12/98 | | 40 | | 89 | | | 10-K/A |
| | 11/9/98 | | 22 |
| | 11/4/98 | | 11 | | 78 |
| | 10/30/98 | | 15 | | 80 |
| | 10/22/98 | | 14 | | 79 |
| | 10/21/98 | | 12 | | 79 |
| | 10/20/98 | | 11 | | 81 |
| | 10/19/98 | | 33 | | 88 |
| | 10/16/98 | | 40 | | 48 |
| | 10/1/98 | | 42 | | 88 |
| | 9/25/98 | | 33 | | 61 |
| | 9/16/98 | | 15 | | 80 |
| | 8/31/98 | | 42 | | 88 |
| | 8/28/98 | | 14 | | 78 |
| | 8/20/98 | | 42 | | 88 |
| | 8/14/98 | | 43 | | 89 | | | 8-K, SC 13D/A |
| | 8/12/98 | | 12 | | 87 | | | 8-K |
| | 8/10/98 | | 14 | | 79 |
| | 8/6/98 | | 12 | | 40 |
| | 8/5/98 | | 11 |
| | 7/20/98 | | 14 | | 78 |
| | 7/8/98 | | 11 |
| | 7/2/98 | | 11 | | 81 |
| | 6/30/98 | | 12 | | 89 | | | 10-Q, 11-K, NT 10-Q, NT 11-K |
| | 6/29/98 | | 42 | | 88 |
| | 6/25/98 | | 12 | | 79 |
| | 6/23/98 | | 33 | | 61 |
| | 6/22/98 | | 13 | | 78 |
| | 6/17/98 | | 11 | | 78 | | | SC 13D/A |
| | 6/16/98 | | 13 | | 80 | | | SC 13D |
| | 6/15/98 | | 11 | | 88 |
| | 5/22/98 | | 12 |
| | 5/11/98 | | 11 | | | | | 8-K/A, S-4, SC 13E3 |
| | 5/8/98 | | 42 | | 87 |
| | 5/1/98 | | 15 | | 80 |
| | 4/23/98 | | 13 | | 78 |
| | 4/13/98 | | 43 | | 89 | | | 8-K |
| | 4/7/98 | | 14 | | 80 |
| | 4/6/98 | | 10 | | 58 | | | DEF 14A, SC 13D/A, SC 14D1/A |
| | 4/3/98 | | 10 | | 11 | | | 3, SC 13D/A |
| | 4/2/98 | | 42 | | 88 |
| | 3/31/98 | | 22 | | 89 | | | 10-Q, 10-Q/A |
| | 3/30/98 | | 10 | | 87 | | | 8-K, 8-K/A |
| | 3/29/98 | | 41 | | 88 |
| | 3/25/98 | | 11 | | 87 |
| | 3/20/98 | | 15 | | 80 |
| | 3/19/98 | | 11 |
| | 3/2/98 | | 10 |
| | 2/28/98 | | 42 | | 87 |
| | 2/27/98 | | 41 | | 87 |
| | 2/20/98 | | 41 | | 87 |
| | 2/2/98 | | 14 | | 79 |
| | 2/1/98 | | 18 | | 19 |
| | 1/1/98 | | 20 | | 66 |
| | 12/31/97 | | 18 | | 75 | | | 11-K, NT 11-K |
| | 12/28/97 | | 2 | | 89 | | | 10-K/A, 10-K405 |
| | 12/4/97 | | 41 | | 87 |
| | 4/23/97 | | 14 | | 79 |
| | 3/30/97 | | 43 | | 89 | | | 10-Q, 10-Q/A |
| | 3/17/97 | | 76 |
| | 1/1/97 | | 41 | | 87 |
| | 12/29/96 | | 2 | | 89 | | | 10-K |
| | 12/28/96 | | 75 |
| | 9/29/96 | | 43 | | 89 | | | 10-Q |
| | 7/22/96 | | 69 |
| | 7/17/96 | | 69 |
| | 6/30/96 | | 43 | | 89 | | | 10-Q |
| | 1/1/96 | | 51 | | 75 |
| | 7/3/94 | | 43 | | 89 |
| | 8/19/92 | | 18 |
| List all Filings |
↑Top
Filing Submission 0000950170-99-000775 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Thu., Apr. 25, 1:20:19.2am ET 