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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended June 30, 1998
OR
[x] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File No. 1-52
[LOGO OMITTED]
SUNBEAM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 25-1638266
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1615 SOUTH CONGRESS AVENUE
SUITE 200 33445
DELRAY BEACH, FLORIDA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(561) 243-2100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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 [ ] No [ X ]
On December 4, 1998 there were 100,887,545 shares of the registrant's
Common Stock ($.01 par value) outstanding.
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<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT
ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
(Unaudited) for the three months and six months ended
June 30, 1998 and June 29, 1997................................................. 2
Condensed Consolidated Balance Sheets
as of June 30, 1998 (Unaudited) and December 28, 1997........................... 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1998 and June 29, 1997........................ 4
Notes to Condensed Consolidated Financial Statements (Unaudited)................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders............................. 29
Item 6. Exhibits and Reports on Form 8-K .............................................. 30
SIGNATURE ......................................................................................... 31
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1998 1997 1998 1997
--------- --------- --------- ---------
As restated, As restated,
see Note 8 see Note 8
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales .................................................. $ 578,488 $ 271,391 $ 826,089 $ 523,879
Cost of goods sold ......................................... 630,965 216,055 844,794 410,328
Selling, general and administrative expense ................ 140,801 38,489 211,940 79,648
--------- --------- --------- ---------
Operating (loss) earnings .................................. (193,278) 16,847 (230,645) 33,903
Interest expense ........................................... 42,408 2,973 47,480 4,966
Other expense, net ......................................... 2,085 336 5,251 413
--------- --------- --------- ---------
(Loss) earnings from continuing operations before
income taxes, minority interest and extraordinary charges (237,771) 13,538 (283,376) 28,524
Income taxes (benefit):
Current .................................................. 3,272 (4,655) 3,598 (5,707)
Deferred ................................................. 1,983 9,471 1,534 16,482
--------- --------- --------- ---------
5,255 4,816 5,132 10,775
--------- --------- --------- ---------
Minority interest .......................................... (2,063) -- (2,063) --
--------- --------- --------- ---------
(Loss) earnings from continuing operations before
extraordinary item ....................................... (240,963) 8,722 (286,445) 17,749
Loss from discontinued operations, net of taxes ............ -- -- -- (13,713)
Extraordinary charges from early extinguishment
of debt, net of taxes (Note 3) .......................... (103,091) -- (111,715) --
--------- --------- --------- ---------
Net (loss) earnings ........................................ $(344,054) $ 8,722 $(398,160) $ 4,036
========= ========= ========= =========
(Loss) earnings per share:
(Loss) earnings from continuing operations before
extraordinary charges:
Basic ............................................... $ (2.39) $ 0.10 $ (3.06) $ 0.21
Diluted ............................................. (2.39) 0.10 (3.06) 0.20
Loss from discontinued operations:
Basic ............................................... -- -- -- (0.16)
Diluted ............................................. -- -- -- (0.15)
Extraordinary charge:
Basic ............................................... (1.02) -- (1.20) --
Diluted ............................................. (1.02) -- (1.20) --
--------- --------- --------- ---------
Net (loss) earnings:
Basic ............................................... $ (3.41) $ 0.10 $ (4.26) $ 0.05
========= ========= ========= =========
Diluted ............................................. $ (3.41) $ 0.10 $ (4.26) $ 0.05
========= ========= ========= =========
Weighted average common shares outstanding:
Basic ............................................... 100,804 84,815 93,518 84,501
Diluted ............................................. 100,804 87,212 93,518 86,711
Dividends declared per share of common stock ............... $ 0.01 $ 0.01 $ 0.02 $ 0.02
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 28,
1998 1997
----------- ------------
As restated,
(Unaudited) see Note 8
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 43,151 $ 52,298
Receivables, net ............................................... 523,065 228,460
Inventories .................................................... 645,626 304,900
Prepaid expenses, deferred income taxes and other current assets 66,623 16,584
----------- -----------
Total current assets .................................... 1,278,465 602,242
Restricted investments (Note 3) ................................... 80,294 --
Property, plant and equipment, net ................................ 416,215 249,524
Trademarks, trade names, goodwill and other, net .................. 1,816,147 207,162
----------- -----------
$ 3,591,121 $ 1,058,928
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt (Note 3) . $ 1,412,063 $ 668
Accounts payable ............................................... 210,165 108,374
Other current liabilities ...................................... 239,015 124,085
----------- -----------
Total current liabilities ............................... 1,861,243 233,127
Long-term debt .................................................... 839,399 194,580
Other long-term liabilities ....................................... 216,598 159,142
Minority interest ................................................. 57,089 --
Commitments and contingencies (Notes 10 and 11)
Shareholders' equity:
Preferred stock (2,000,000 shares authorized, none outstanding) -- --
Common stock (100,725,952 and 89,984,425
shares issued and outstanding) ............................... 1,008 900
Additional paid-in capital ..................................... 961,620 479,200
(Accumulated deficit) retained earnings ........................ (310,233) 89,801
Accumulated other comprehensive loss ........................... (34,435) (33,062)
Other shareholders' equity ..................................... (1,168) (1,715)
----------- -----------
616,792 535,124
Treasury stock, at cost (4,454,394 shares in 1997) ............. -- (63,045)
----------- -----------
Total shareholders' equity .............................. 616,792 472,079
----------- -----------
$ 3,591,121 $ 1,058,928
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
JUNE 30, JUNE 29,
1998 1997
----------- ------------
As restated,
see Note 8
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings ............................................ $ (398,160) $ 4,036
Adjustments to reconcile net (loss) earnings to net cash
used in operating activities:
Depreciation and amortization ............................ 51,442 20,029
Deferred income taxes .................................... 1,534 16,482
Minority interest in loss from Coleman ................... (2,063) --
Loss on sale of property, plant and equipment ............ 2,501 --
Provision for fixed assets ............................... 29,587 --
Provision for excess and obsolete inventory .............. 83,986 --
Non-cash compensation charges ............................ 23,514 --
Loss on sale of discontinued operations, net of taxes .... -- 13,713
Restructuring and asset impairment benefit ............... (2,900) --
Extraordinary charge from early extinguishment of debt ... 111,715 --
Changes in working capital and other, net of acquisitions (118,727) (59,095)
----------- -----------
Net cash used in operating activities ................... (217,571) (4,835)
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures ........................................... (21,245) (26,053)
Acquisitions of Coleman, Signature Brands and First Alert,
net of cash acquired ....................................... (379,159) --
Proceeds from sales of divested operations and other assets .... 206 84,718
----------- -----------
Net cash (used in) provided by investing activities ..... (400,198) 58,665
----------- -----------
FINANCING ACTIVITIES:
Issuance of convertible subordinated debentures, net of
financing fees ............................................. 729,622 --
Net borrowings (repayments) under revolving credit facility .... 1,325,151 (15,000)
Payments of debt obligations, including prepayment penalties ... (1,463,829) (11,810)
Proceeds from exercise of stock options ........................ 19,553 20,284
Other, net ..................................................... (1,875) (860)
----------- -----------
Net cash provided by (used in) financing activities .... 608,622 (7,386)
----------- -----------
Net (decrease) increase in cash and cash equivalents ............. (9,147) 46,444
Cash and cash equivalents at beginning of period ................. 52,298 11,526
----------- -----------
Cash and cash equivalents at end of period ....................... $ 43,151 $ 57,970
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OPERATIONS AND BASIS OF PRESENTATION
ORGANIZATION
Sunbeam Corporation ("Sunbeam" or the "Company") is a leading manufacturer
and marketer of branded consumer products. The Sunbeam(R) and Oster(R) brands
have been household names for generations, and the Company is a market share
leader in many of its product categories.
The Company markets its products through virtually every category of
retailer including mass merchandisers, catalog showrooms, warehouse clubs,
department stores, catalogs, television shopping channels, Company-owned outlet
stores, hardware stores, home centers, drug and grocery stores, pet supply
retailers, as well as independent distributors and the military. The Company
also sells its products to commercial end users such as hotels and other
institutions.
As further described in Note 2, 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 The Coleman Company, Inc. ("Coleman").
Coleman is a leading manufacturer and marketer of consumer products for the
worldwide outdoor recreation market. Its products have been sold domestically
under the Coleman(R) brand name since the 1920's.
As further described in Note 2, on April 6, 1998, the Company completed the
cash acquisitions of First Alert, Inc. ("First Alert"), a leading manufacturer
of smoke and carbon monoxide detectors, and Signature Brands USA, Inc.
("Signature Brands"), a leading manufacturer of consumer and professional
products.
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.
Accordingly, quarterly reporting will follow the calendar quarters. The impact
of this change in fiscal periods on net sales for the first quarter and first
half of 1998 was to increase sales by approximately $4 million and the impact on
operating results for the periods was to increase the net loss by approximately
$0.2 million.
BASIS OF PRESENTATION
The Condensed Consolidated Balance Sheet of the Company as of June 30, 1998
and the Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 1998 and June 29, 1997, and the Condensed Consolidated
Statements of Cash Flows for the six months ended June 30, 1998 and June 29,
1997 are unaudited. The unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Form 10-Q and
Rule 10-01 of Regulation S-X. The December 28, 1997 Condensed Consolidated
Balance Sheet was derived from the Company's Annual Report on Form 10-K/A for
the year ended December 28, 1997. The condensed consolidated financial
statements contained herein should be read in conjunction with the consolidated
financial statements and related notes contained in the Company's 1997 Annual
Report on Form 10-K/A. In the opinion of management, the unaudited condensed
consolidated financial statements furnished herein include all adjustments
(consisting of only recurring adjustments) necessary for a fair presentation of
the results of operations for the interim periods presented. These interim
results of operations are not necessarily indicative of results for the entire
year.
RESTATEMENT
On June 30, 1998, the Company announced that the Audit Committee of the
Board of Directors was initiating a review into the accuracy of prior financial
statements. The Audit Committee's review has since been completed and, as a
result of its findings, the Company has restated its previously issued financial
statements for 1996, 1997 and the first quarter of 1998. (See Note 8).
5
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
1. OPERATIONS AND BASIS OF PRESENTATION - (CONTINUED)
BASIC AND DILUTED LOSS PER COMMON SHARE
In 1997, the Company adopted SFAS No. 128, EARNINGS PER SHARE. Basic
earnings per common share calculations are determined by dividing earnings
available to common shareholders by the weighted average number of shares of
common stock outstanding. Diluted earnings per share are determined by dividing
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 and the Zero Coupon
Convertible Senior Subordinated Debentures).
For the second quarter and first half of 1998, respectively, 1,904,281 and
3,436,684 shares related to stock options, 118,829 and 88,166 shares related to
restricted stock and 13,150,000 shares in each period related to the conversion
feature of the Zero Coupon Convertible Senior Subordinated Debentures were not
included in the diluted average common shares outstanding, as the effect would
have been antidilutive. For the second quarter and first half of 1997,
respectively, the dilutive effect of 2,547,108 and 2,394,368 equivalent shares
related to stock options and (149,971) and (184,393) equivalent shares related
to restricted stock were used in determining the dilutive average shares
outstanding. SFAS No. 128 requires the use of dilutive potential common shares
in the determination of diluted earnings per share if an entity reports earnings
from continuing operations. The use of dilutive potential common shares in the
determination of the diluted per share loss from discontinued operations is
antidilutive. (See Note 9.)
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997 and will be presented in the Company's Annual
Report on Form 10-K for the year ending December 31, 1998. Financial statement
disclosures for prior periods are required to be restated. The Company is in the
process of evaluating the disclosure requirements. The adoption of SFAS No. 131
will have no impact on consolidated results of operations, financial position or
cash flow.
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 or results of operations, although actual charges incurred may be
material due to Year 2000 issues.
In April 1998, the AICPA issued Statement of Position 98-5, REPORTING ON
THE COSTS 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 the Statement is not expected to have a material impact on the
Company's consolidated financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES for fiscal years beginning after June 15,
1999. SFAS No. 133 requires the recognition of all derivatives in the
Consolidated Balance Sheet as either assets or liabilities measured at fair
value. The Company will adopt SFAS No. 133 effective for the 2000 calendar year
end. The Company has not yet determined the impact SFAS No. 133 will have on its
consolidated financial position or results of operations when such statement
is adopted.
6
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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 a subsidiary 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 as well as the assumption of $1,016 million in debt. The
value of the common stock issued at the date of acquisition ($524 million) was
derived by using the average ending stock price as reported by the New York
Stock Exchange Composite Tape for the day before and day of the public
announcement of the acquisition, discounted by 15% due to the restrictive nature
of the securities.
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 a subsidiary 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 subsidiary
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. Accordingly, a $70 million non-cash Selling, General &
Administrative ("SG&A") expense will be 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. (See Note 11.)
The Coleman acquisition was accounted for under the purchase method of
accounting; accordingly, the results of operations of Coleman are included in
the accompanying Condensed Consolidated Statement of Operations from the date of
acquisition. The purchase price of Coleman has been allocated to individual
assets acquired and liabilities assumed based on preliminary estimates of fair
market value at the date of acquisition. The preliminary fair value of tangible
assets acquired was approximately $747 million (of which $27 million was cash)
and approximately $1,331 million of liabilities were assumed. The excess of
purchase price over net tangible assets acquired of $1,270 million has been
classified as goodwill and is being amortized on a straight-line basis over 40
years. The allocation of purchase price for the acquisition of Coleman will be
revised when additional information concerning asset and liability valuations is
obtained. Adjustments, which could be significant, will be made during the
allocation period based on detailed reviews of the fair values of assets
acquired and liabilities assumed and could result in a substantial change in
goodwill and other intangible assets.
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 .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 first half of fiscal 1999. The acquisition of
the remaining outstanding shares of Coleman will be accounted for under the
purchase method of accounting on the date of consummation. (See Note 10.)
On April 6, 1998, the Company completed the cash acquisitions of First
Alert and Signature Brands, valued at approximately $178 million and $253
million, respectively, including the assumption of debt. These acquisitions were
accounted for by the purchase method of accounting and the results of operations
of the acquired entities were included in the Company's Consolidated Statements
of Operations from the date of the acquisitions. The preliminary fair value of
tangible assets acquired in the First Alert acquisition was approximately $127
million (of which $4 million was cash) and approximately $79 million of
liabilities were assumed, resulting in an excess of purchase price over net
tangible assets of $89 million. For the Signature Brands acquisition, the
preliminary fair value of tangible assets acquired was approximately $117
million (of which $8 million was cash) and approximately $229 million of
liabilities were assumed, resulting in an excess of purchase price over net
tangible assets of $205 million. The excess of purchase price over net tangible
assets acquired has been classified as goodwill and is being amortized on a
straight-line basis over 40 YEARS. The allocation of purchase price for the
acquisitions will be revised when additional information concerning asset and
liability valuations is obtained. Adjustments, which could be significant, will
be made during the allocation period based on detailed reviews of the fair
values of assets acquired and liabilities assumed and could result in a
substantial change in goodwill and other intangible assets.
7
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
2. ACQUISITIONS - (CONTINUED)
The following unaudited pro forma financial information for the Company
gives effect to the three acquisitions as if they had occurred at the beginning
of the periods presented. 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):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JUNE 30, JUNE 29,
1998 1997
---------- ----------
<S> <C> <C>
Net sales......................................................... $1,134.5 $1,335.7
Loss from continuing operations before
extraordinary charge (a), (b)................................ (316.8) (52.2)
Basic and diluted loss per share from continuing operations
before extraordinary items .................................. (3.15) (0.53)
</TABLE>
(a) Coleman's 1998 results before extraordinary items have been adjusted to
exclude the following one time after tax benefits and charges: (i) a $15.8
million gain from the sale of Coleman Safety and Security Products, Inc.,
(ii) $7.1 million of costs incurred by Coleman associated with the
Company's acquisition of Coleman, (iii) the write off of $2.1 million of
capitalized costs associated with the installation of new software which
will be abandoned as a result of the acquisition by the Company, (iv) $1.3
million of costs to terminate a license agreement with a former affiliate
of Coleman, and (v) the write off of $1.7 million of unrealized deferred
tax assets as a result of the change of control of Coleman.
(b) In 1998 and 1997, respectively, after tax interest expense was increased
$15.6 million and $27.6 million, and goodwill amortization, after tax, was
increased $6.3 million in 1998 and $13.6 in 1997 to reflect the pro forma
effect of the acquisitions occurring at the beginning of the period. In
addition, the minority shareholder percentage was adjusted to reflect the
change in the portion of Coleman held by minority shareholders following
the transaction. The minority interest in Coleman's losses from continuing
operations was adjusted by $1.2 million in 1998 and $2.7 million in 1997 to
reflect both the change in the proportion of the ownership of Coleman held
by minority shareholders and the effects of the pro forma adjustments.
3. CREDIT FACILITIES, LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
In order to finance the acquisitions described in Note 2 and refinance
substantially all of the indebtedness of the Company and its acquired entities,
the Company consummated: (i) an offering (the "Offering") of Zero Coupon
Convertible Senior Subordinated Debentures due 2018 (the "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, (ii) entered into a revolving and term credit facility ("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 Company was required to file a registration statement with the
Securities and Exchange Commission to register the Debentures by June 23, 1998,
which registration statement has not been filed. From June 23, 1998 until the
registration statement is filed and 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 $525,000 to the Debenture holders on
September 25, 1998. (See Note 11.)
8
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
3. CREDIT FACILITIES, LONG-TERM DEBT AND FINANCIAL INSTRUMENTS - (CONTINUED)
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 31, 2005; (ii) an $800 million term
loan maturing on March 31, 2005, and (iii) a $500 million term loan maturing
September 30, 2006. Interest accrues at a rate selected at the Company's option
of: (i) the London Interbank Offered Rate ("LIBOR") plus an agreed upon interest
margin which varies depending upon the Company's leverage ratio, as defined, and
other items or, (ii) the base rate of the administrative agent (generally the
higher of the prime commercial lending rate of the administrative agent or the
Federal Funds Rate plus 1/2 of 1%), plus an agreed upon interest margin which
varies depending upon the Company's leverage ratio, as defined, and other items.
The New Credit Facility contains certain covenants, including limitations on the
ability of the Company and its subsidiaries to engage in certain transactions
and the requirement to maintain certain financial covenants and ratios.
At June 30, 1998, the Company was not in compliance with the financial
covenants and ratios required under the New Credit Facility. The Company and its
lenders entered into an agreement dated June 30, 1998, which provided that
compliance with the covenants would be waived through December 31, 1998.
Borrowings under the New Credit Facility are secured by the Company's assets,
including its stock interest in Coleman. Pursuant to an amendment dated October
19, 1998, the Company is not required to comply with the original financial
covenants and ratios under the New Credit Facility until April 10, 1999, but
will be required to comply with an earnings before interest, taxes, depreciation
and amortization covenant, the amounts of which are to be determined, beginning
February 1999. Concurrent with each of these amendments, interest margin was
increased. The margin continues to increase monthly through March 1999 to a
maximum of 400 basis points over LIBOR. At the end of November 1998, following
the scheduled repayment of a portion of the term loan, the New Credit Facility
was reduced to $1,698 million in total, of which approximately $1,421 million
was outstanding and approximately $277 million was available. In addition, at
the same time, the Company's cash balance available for debt repayment was
approximately $22 million.
The Company is working closely with its bank lenders in an effort to reach
agreement on a further amendment to the New Credit Facility containing mutually
acceptable revised financial covenants. There can be no assurance that such an
amendment, or a further waiver of the existing financial covenants, will be
entered into with the bank lenders by April 10, 1999. The failure to obtain such
an amendment or further waiver would result in violation of the existing
covenants, which would permit the bank lenders to accelerate the maturity of all
outstanding borrowing under the New Credit Facility. Accordingly, the debt
related to the New Credit Facility and all debt containing cross-default
provisions is classified as current in the Condensed Consolidated Balance Sheet
as of June 30, 1998.
The Company selectively uses derivatives to manage interest rate and
foreign exchange exposures that arise in the normal course of business. No
derivatives are entered into for trading or speculative purposes. Foreign
exchange option and forward contracts are used to hedge a portion of the
Company's underlying exposures denominated in foreign currency. Although the
market value of derivative contracts at any single point in time will vary with
changes in interest and/or foreign exchange rates, the differences between the
carrying value and fair value of such contracts at June 30, 1998 and June 29,
1997 were not considered to be material, either individually or in the
aggregate. The Company enters into derivative contracts with counterparties that
it believes to be creditworthy. The Company does not enter into any leveraged
derivative transactions. At June 30, 1998, the Company held three interest rate
swap agreements, one with a notional value of $25 million and two in a notional
amount of $150 million each. The swap agreements are contracts to exchange
floating rate for fixed interest payments periodically over the life of the
agreements without the exchange of the underlying notional principal amounts.
The swaps expire in January 2003, June 2001 and June 2003 and have strike rates
of 6.115%, 5.75% and 5.58%, respectively. The notional amounts of the agreements
do not represent the amount of exposure to credit loss.
In March 1998, the Company prepaid a $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 $8.6 million in the first quarter of 1998. As a result
of repayment of certain indebtedness assumed in the Coleman acquisition, the
Company recognized an extraordinary charge of $103.1 million, net of income
taxes of $10.7 million, in the second quarter of 1998. 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 $5.6 million for the related prepayment penalty. This cash
was used to purchase Treasury notes. Accordingly, $80.3 million of restricted
investments held by the trustee for the August 1999 liquidation of acquired debt
are reflected as a long-term asset in the balance sheet at June 30, 1998.
9
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
3. CREDIT FACILITIES, LONG-TERM DEBT AND FINANCIAL INSTRUMENTS - (CONTINUED)
In December 1997, the Company entered into a receivables securitization
program under which the Company has received approximately $84.0 million from
the sale of trade accounts receivable in the first half of 1998. Costs of the
program, which primarily consist of the purchaser's financing cost of issuing
commercial paper backed by the receivables, totaled $0.9 million during the
second quarter of 1998 and $1.5 million for the first six months of the year.
The Company, as agent for the purchaser of the receivables, retains collection
and administrative responsibilities for the purchased receivables. This
agreement contains cross-default provisions which 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.
4. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME, effective
January 1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in financial statements. The components
of the Company's comprehensive (loss) income are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net (loss) earnings ................... $(344,054) $ 8,722 $(398,160) $ 4,036
Foreign currency translation adjustment (1,424) 179 (1,241) (7)
Change in minimum pension liability ... (132) -- (132) --
--------- --------- --------- ---------
Comprehensive (loss) income ...... $(345,610) $ 8,901 $(399,533) $ 4,029
========= ========= ========= =========
</TABLE>
5. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Supplementary Balance Sheet data at the end of each period is as follows
(in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 28,
1998 1997
-------- ------------
As restated,
see Note 8
<S> <C> <C>
Receivables:
Trade ................................ $539,679 $250,699
Sundry................................ 18,804 7,794
-------- --------
558,483 258,493
Valuation allowance................... (35,418) (30,033)
-------- --------
$523,065 $228,460
======== ========
Inventories:
Finished goods........................ $454,484 $193,864
Work in process....................... 51,061 25,679
Raw materials and supplies............ 140,081 85,357
-------- --------
$645,626 $304,900
======== ========
</TABLE>
10
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
5. SUPPLEMENTAL FINANCIAL STATEMENT DATA - (CONTINUED)
The Supplementary Statement of Cash Flows data is as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1998 1997 1998 1997
-------- -------- -------- --------
As restated, As restated,
see Note 8 see Note 8
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest .................... $ 20,777 $ 6,173 $ 26,219 $ 7,276
======== ======== ======== ========
Income tax (refunds) payments $ (7,315) $ (32) $ (6,934) $(11,952)
======== ======== ======== ========
</TABLE>
6. RESTRUCTURING AND ASSET IMPAIRMENT, INVENTORY PROVISION AND RELATED
LIABILITIES
In 1997 and the first half of 1998, the Company built inventories in
anticipation of 1998 sales volumes which have not materialized. As a result, it
has been and will continue to be necessary to dispose of some portions of this
excess inventory at amounts less than cost. Accordingly, in the second quarter
of 1998, the Company recorded $46.4 million in charges to properly state this
inventory at lower-of-cost-or-market. Of this charge, a nominal amount related
to an acquired entity. 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 the related products. Additionally, the
Company decided to discontinue certain product lines in the second quarter of
1998 and, accordingly, recorded a charge of $26.6 million to properly state this
inventory at lower-of-cost-or-market.
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 used
in a significantly different manner. Accordingly, a charge of $29.6 million was
recorded to write certain of these assets down to reflect the fair market value
of items held for disposition. Approximately 80% of this charge related to
machinery, equipment and tooling at the Company's Mexico City and Hattiesburg,
Mississippi manufacturing plants. Personnel at the Mexico City facility were
notified in the second quarter of 1998 that the plant is scheduled for closure
at year-end 1998, accordingly, a liability of $1.8 million was recorded in cost
of goods sold primarily for employee severance and other facility closure costs.
The Company is in the process of assessing the impairment of certain other
assets to be retained by the Company which will be used in a significantly
different manner as a result of the decisions to outsource or discontinue
certain products. Additionally, the Company is in the process of assessing the
expected future performance of its business operations. These assessments are
expected to be completed in the fourth quarter and are expected to result in
material adjustments to the valuation of assets used in the business.
At December 28, 1997, the Company, before consideration of the Coleman
acquisition, had $5.2 million in liabilities accrued related to a 1996
restructuring plan. The majority of these liabilities related to facility
closures and related exit costs. In the second quarter of 1998, this liability
was reduced by $0.2 million as a result of cash expenditures. On a year-to-date
basis, this liability has been reduced by $0.7 million.
11
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
6. RESTRUCTURING AND ASSET IMPAIRMENT, INVENTORY PROVISION AND RELATED
LIABILITIES - (CONTINUED)
The restated restructuring reserve details and activity as of and for the
six months ended June 29, 1997 are as follows (in millions):
<TABLE>
<CAPTION>
RESERVE BALANCE ACCRUAL BALANCE
AT DECEMBER 29, CASH NON-CASH AT JUNE 29,
1996 REDUCTIONS REDUCTIONS 1997
--------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Severance and other employee costs .... $ 19.1 $ 8.3 $ -- $ 10.8
------- ------- ------- -------
Closure and consolidation of facilities
and related exit costs ............... 32.6 2.4 10.7 19.5
------- ------- ------- -------
Total ............................. $ 51.7 $ 10.7 $ 10.7 $ 30.3
======= ======= ======= =======
</TABLE>
7. DISCONTINUED OPERATIONS
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 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
$50.0 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 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.
8. RESTATEMENT
Subsequent to the issuance of the Company's condensed consolidated
financial statements for the three months ended March 31, 1998, it was
determined that for the years ended December 29, 1996 and December 28, 1997 and
the three months ended March 31, 1998, certain revenue was improperly recognized
(principally "bill and hold" and guaranteed sales transactions), certain costs
and allowances were not accrued or were improperly recorded (principally
allowances for returns, cooperative advertising, and customer charge-backs as
well as deductions and reserves for product liability and warranty expense) and
certain costs were inappropriately included in, and subsequently charged to,
restructuring, asset impairment and other costs within the Consolidated
Statements of Operations. As a result, the consolidated financial statements as
of December 28, 1997 and December 29, 1996 and for the years then ended were
restated and a Form 10-K/A was filed with the Securities and Exchange Commission
("SEC") on November 12, 1998. The condensed consolidated financial statements as
of March 31, 1998 and March 30, 1997 and for the three months then ended were
restated and a Form 10-Q/A was filed with the SEC on November 25, 1998.
12
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
8. RESTATEMENT - (CONTINUED)
A summary of the effects of the restatement as of and for the three and six
months ended June 29, 1997 follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 29, 1997 JUNE 29, 1997
------------------ ----------------
As Previously As As Previously As
Reported Restated Reported Restated
<S> <C> <C> <C> <C>
Net sales ............................................. $ 287,609 $ 271,391 $ 541,059 $ 523,879
Cost of goods sold .................................... 213,080 216,055 398,779 410,328
Selling, general and administrative expense ........... 31,559 38,489 64,567 79,648
--------- --------- --------- ---------
Operating earnings .................................... 42,970 16,847 77,713 33,903
Interest expense ...................................... 2,973 2,973 4,966 4,966
Other (income) expense, net ........................... (483) 336 (371) 413
--------- --------- --------- ---------
Earnings from continuing operations before income taxes 40,480 13,538 73,118
28,524
Income taxes .......................................... 14,246 4,816 26,323 10,775
--------- --------- --------- ---------
Earnings from continuing operations .................. 26,234 8,722 46,795 17,749
Loss from discontinued operations, net of taxes ....... -- -- (13,713) (13,713)
--------- --------- --------- ---------
Net earnings .......................................... $ 26,234 $ 8,722 $ 33,082 $ 4,036
========= ========= ========= =========
Earnings (loss) per share:
Earnings from continuing operations:
Basic ....................................... $ 0.31 $ 0.10 $ 0.55 $ 0.21
Diluted ..................................... 0.30 0.10 0.54 0.20
Loss from discontinued operations:
Basic ....................................... -- -- (0.16) (0.16)
Diluted ..................................... -- -- (0.16) (0.15)
--------- --------- --------- ---------
Net earnings:
Basic ........................................ $ 0.31 $ 0.10 $ 0.39 $ 0.05
========= ========= ========= =========
Diluted ...................................... $ 0.30 $ 0.10 $ 0.38 $ 0.05
========= ========= ========= =========
</TABLE>
13
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
8. RESTATEMENT - (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
As of
JUNE 29, 1997
------------------------------------
As Previously As
Reported Restated
<S> <C> <C>
ASSETS
Cash and cash equivalents ........................................ $ 57,970 $ 57,970
Receivables, net ................................................. 252,045 233,966
Inventories ...................................................... 208,374 213,645
Prepaid expenses, deferred income taxes and other current assets . 116,459 117,391
----------- -----------
Total current assets ........................................ 634,848 622,972
Property, plant and equipment, net ............................... 229,339 238,540
Trademarks, trade names, goodwill and other, net ................. 225,158 225,158
----------- -----------
Total assets ................................................ $ 1,089,345 $ 1,086,670
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt and current portion of long-term debt............. $ 749 $ 749
Accounts payable ................................................. 136,489 138,809
Other current liabilities ........................................ 120,911 121,897
----------- -----------
Total current liabilities ................................... 258,149 261,455
Long-term debt ................................................... 174,855 174,855
Other long-term liabilities ...................................... 200,632 203,916
Shareholders' equity:
Common stock ................................................... 896 896
Additional paid-in capital ..................................... 474,325 474,325
Retained earnings .............................................. 66,510 57,245
Accumulated other comprehensive loss ........................... (18,281) (18,281)
Other shareholders' equity ..................................... (4,497) (4,497)
Treasury stock ................................................. (63,244) (63,244)
----------- -----------
Total shareholders' equity ................................ 455,709 446,444
----------- -----------
Total liabilities and shareholders' equity ............. $ 1,089,345 $ 1,086,670
=========== ===========
</TABLE>
14
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
9. NEW EMPLOYMENT AGREEMENTS
On February 20, 1998 the Company entered into new three-year employment
agreements with its then Chairman and Chief Executive Officer and two other
senior officers of the Company. These agreements replaced previous employment
agreements entered into in July 1996 that were scheduled to expire in July 1999.
The new employment agreement for the Company's then Chairman provided for,
among other items, the acceleration of vesting of 200,000 shares of restricted
stock and the forfeiture of the remaining 133,333 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. 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 vest in four equal annual installments beginning 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
the first quarter of 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. Of the approximately $0.9 million
compensation expense recognized in the first quarter of 1998 for unvested
restricted stock grants, $0.8 million was reversed into income in the second
quarter of 1998 and the remainder will be reversed into income in the third
quarter. Other costs related to the resignations and terminations will be
recognized, as appropriate, in the remainder of 1998. 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. The Board of Directors has installed a new Chief Executive Officer
and senior management team.
10. 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, 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.
15
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
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 certain of its present and
former officers and directors alleging violations of the federal securities laws
as discussed below (the "Consolidated Federal Actions"). Since that date,
approximately fifteen similar class actions have been filed in the same Court.
One of the lawsuits also names as defendant Arthur Andersen LLP, the Company's
independent accountants for the period covered by the lawsuit.
The complaints in the Consolidated Federal Actions allege to varying
degrees that the defendants (i) failed to disclose that the Company pre-sold
approximately $50 million of products pursuant to its "early buy" marketing
program in an effort to boost its 1997 sales and net income figures and (ii)
made material misrepresentations regarding the Company's business operations,
future prospects and anticipated earnings per share, in an effort to
artificially inflate the price of the Company stock long enough for the Company
to complete a $2 billion debt financing (supported with stock incentives)
necessary to complete the acquisitions of Coleman, Signature Brands and First
Alert, and for the individual defendants to enter into lucrative long-term
employment agreements with the Company. Each complaint alleges two counts of
securities fraud; one count against all defendants and one count against the
individual defendants.
On June 16, 1998, the Court entered an Order consolidating all such filed
and all such subsequently filed class actions 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 (the "Smith Plaintiffs' Group"). 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 September 29, 1998, the
Smith Plaintiffs' Group filed its memorandum in opposition to this objection. On
December 9, 1998, the Court entered an Order overruling plaintiff's objections
and affirming its prior Order appointing lead plaintiffs and lead counsel.
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 certain of its present and former officers and
directors. The action alleged that the individual defendants breached their
fiduciary duties and wasted corporate assets when the Company granted stock
options to three of its officers and directors on or about February 2, 1998 at
an exercise price of $36.85. On June 25, 1998, all defendants filed a motion to
dismiss the complaint for failure to make a presuit demand on the board of
directors of the Company. On October 22, 1998, the plaintiff amended the
complaint against all but one of the defendants named in the original complaint.
The amended complaint no longer challenges the stock options, but instead
alleges that the individual defendants breached their fiduciary duties by
failing to have in place adequate accounting and sales controls, which failure
caused the inaccurate reporting of financial information to the public, thereby
causing an artificial inflation of the Company's financial statements and stock
price.
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 the Company and certain of the Company's present and former
officers and directors. An additional class action was filed on August 10, 1998,
against the same parties. All of the plaintiffs are represented by the same
Delaware counsel and have agreed to consolidate the class actions. These actions
allege, in essence, that the existing exchange ratio for the proposed merger
between the Company and Coleman is no longer fair to Coleman shareholders as a
result of the recent decline in the market value of the Company stock. 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 to the
Coleman public shareholders five-year warrants to purchase 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 a subsidiary of M&F and
will be issued when the Coleman Merger is consummated, which is now expected to
be in the first 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.
16
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
The Company intends to vigorously defend each of the foregoing lawsuits,
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 flows.
11. SUBSEQUENT EVENTS
LITIGATION
During the months of August and October 1998, purported class and
derivative actions 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 with M&F whereby M&F released the Company from any claims
it may have had arising out of the Company's acquisition of its interest in
Coleman and agreed to provide management support to the Company (the "Settlement
Agreement"). Pursuant to the Settlement Agreement, M&F was granted five-year
warrants to purchase an additional 23 million shares of the Company's common
stock at an exercise price of $7.00 per share. These complaints also allege that
the rights of the public shareholders have been compromised, as the settlement
would normally require shareholder approval under the rules and regulations of
the New York Stock Exchange ("NYSE"). The Audit Committee of the Company's board
determined that obtaining such shareholder approval would have seriously
jeopardized the financial viability of the Company which is an allowable
exception to the NYSE shareholder approval requirements. The Company has moved
to dismiss each of the complaints to which it is a party.
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 and 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 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 has been
removed to the U.S. District Court for the Southern District of Texas and the
Company has filed a motion to transfer this case to the Southern District of
Florida, the forum for the Consolidated Federal Actions. Plaintiffs have moved
to remand the case to Texas state court.
On October 30, 1998, a class action lawsuit was filed on behalf of certain
purchasers of the Company's Debentures in the U.S. District Court of the
Southern District of Florida against the Company and its prior Chief Executive
Officer and Chief Financial Officer, 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. The Company is seeking to consolidate
this lawsuit with the other Consolidated Federal Actions.
The Company has been named as a defendant in an action filed by HBK
Investments, L.P., et al. in the District Court of Tarrant County, Texas, 48th
Judicial District, on November 20, 1998. 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 intends to vigorously defend each of the foregoing lawsuits,
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 flows.
17
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
11. SUBSEQUENT EVENTS - (CONTINUED)
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 cancelled by American. The Company has moved to
transfer such action to the federal district court in which the Consolidated
Federal Actions are currently pending; American is opposing such motion. 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. 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 against the Company in
any of the foregoing actions could have a material adverse impact 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 of the Predecessor, 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying condensed consolidated financial statements as of and for the three
and six months ended June 30, 1998 and June 29, 1997.
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 The Coleman Company, Inc. ("Coleman"), in exchange for 14,099,749 shares of
the Company's common stock and approximately $160 million in cash as well as the
assumption of $1,016 million in debt. 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 approximately 6.7
million shares of common stock and approximately $87 million in cash. Although
there can be no assurance, it is anticipated the Coleman merger will occur in
the first half of fiscal 1999. (See Note 2 to the condensed consolidated
financial statements). Coleman is a leading manufacturer and marketer of
consumer products for the worldwide outdoor recreation market. Its products have
been sold domestically under the Coleman /registered trademark/ brand name since
the 1920's.
On April 6, 1998, the Company completed the cash acquisitions of First
Alert, Inc. ("First Alert"), a leading manufacturer of smoke and carbon monoxide
detectors, and Signature Brands USA, Inc. ("Signature Brands"), a leading
manufacturer of consumer and professional products. The First Alert and the
Signature Brands acquisitions were valued at approximately $178 million and $253
million, respectively, including the assumption of debt.
The acquisitions were recorded under the purchase method of accounting; and
accordingly, the results of operations of each acquired entity are included in
the accompanying Condensed Consolidated Statements of Operations 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 preliminary estimates of fair market values at the dates of acquisition. The
purchase price allocations for the acquisitions will be revised when additional
information concerning asset and liability valuations is obtained. Adjustments,
which could be significant, will be made during the allocation periods based on
detailed reviews of the fair values of assets acquired and liabilities assumed
and could result in a substantial change in goodwill and other intangible
assets.
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 to the condensed consolidated financial statements.)
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 29, 1997
Results of operations for the three months ended June 30, 1998 include the
results of Coleman for the entire period and of Signature Brands and First Alert
from the date of acquisition. The acquired entities generated net sales of
$376.3 million in the quarter with corresponding gross margin of $79.0 million,
or 21.0% of sales. SG&A costs recorded by the acquired entities were $75.9
million in the period, yielding an operating profit of $3.1 million. Included in
cost of sales of the acquired entities for the quarter was approximately $20
million of expense related to purchase accounting adjustments which require
adjusting the values of acquired inventories to fair market value at the date of
acquisition. Accordingly, as these inventories are sold, the purchase accounting
adjustments related to these inventories (in this case, increases in inventory
values) are reflected in cost of sales. A year ago, for the full quarter, these
businesses generated sales approximately $69.0 million higher than in the second
quarter of 1998. The majority of this sales decrease occurred at Coleman where
sales were impacted by fewer product lines resulting from the sale of a portion
of the business, exiting the pressure washer business during 1997, and a program
in 1997 to reduce SKU's. Softness in demand resulting from the domestic retail
channel's efforts to lower inventory levels and adverse economic conditions in
Japan and Southeast Asia also impacted Coleman's sales as compared with the
second quarter of the prior year. Additionally, each acquired business
experienced a general disruption due to the acquisitions and management changes.
As compared with a year ago, Signature Brands sales were adversely affected by
product availability issues. Excluding the impact of the purchase accounting
adjustments described above, gross margin generated by the acquired entities was
$24.3 million lower in 1998 than for the same quarter in 1997. The lower sales
at Coleman and Signature Brands accounted for approximately 80% of this change,
while the remainder was principally due to a change in sales mix of Signature
Brands products and charges related primarily to excess and obsolete inventory.
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In 1997 and the first half of 1998, the Company built inventories in
anticipation of 1998 sales volumes which have not materialized. Inventory on
hand at June 30, 1998, before consideration of allowances and inventories of
acquired entities, was nearly double the amount at the end of the second quarter
of 1997. As a result, it has been and will continue to be necessary to dispose
of some portions of this excess inventory at amounts less than cost.
Accordingly, in the second quarter of 1998, the Company recorded $46.4 million
in charges to properly state this inventory at lower-of-cost-or-market. Of this
charge, a nominal amount related to an acquired entity. 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 the
related products. Additionally, the Company decided to discontinue certain
product lines in the second quarter of 1998 and, accordingly, recorded a charge
of $26.6 million to properly state this inventory at lower-of-cost-or-market.
Approximately 80% of this charge related to the recently developed air and water
filtration products and certain grill products.
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 used
in a significantly different manner. Accordingly, a charge of $29.6 million was
recorded to write certain of these assets down to reflect the fair market value
of items held for disposition. Approximately 80% of this charge related to
machinery, equipment and tooling at the Company's Mexico City and Hattiesburg,
Mississippi manufacturing plants. Personnel at the Mexico City facility were
notified in the second quarter of 1998 that the plant is scheduled for closure
at year-end 1998, accordingly, a liability of $1.8 million was recorded in cost
of goods sold primarily for employee severance and other facility closure costs.
The Company is in the process of assessing the impairment of certain other
assets to be retained by the Company which will be used in a significantly
different manner as a result of the decisions to outsource or discontinue
certain products. Additionally, the Company is in the process of assessing the
expected future performance of its business operations. These assessments are
expected to be completed in the fourth quarter and are expected to result in
material adjustments to the valuation of assets used in the business.
Net sales as reported by Sunbeam 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. Net sales for the three months ended June 30, 1998 were
$578.5 million, an increase of $307.1 million versus the three months ended June
29, 1997. After excluding: (i) $376.3 million from 1998 sales generated by the
acquired entities, as discussed above, and (ii) $8.3 million from 1997 sales for
sales 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 a benefit
from the reduction of cooperative advertising accruals no longer required in
1997, net sales on an adjusted basis ("Adjusted Sales") were $202.2 million in
1998, a 23% decrease from $263.1 million in the second quarter of 1997. Overall,
Adjusted Sales for the second quarter of 1998 were adversely impacted by
increased inventory positions at customers from sales made during 1997 and the
first quarter of 1998. In addition, the historical Sunbeam operations were
adversely impacted by disruption from acquisition activities and management
changes in the period.
Domestic Adjusted Sales declined approximately $46 million from the second
quarter of 1997. The Company believes nearly all of this decline was
attributable to declining retail inventory levels in the quarter as compared
with increasing levels in the same quarter of 1997. Based on the Company's
analyses, inventory positions at customers began increasing in the second
quarter of 1997, with significant growth occurring in the third and fourth
quarters of 1997. In the first quarter of 1998, it is believed retail inventory
levels of the Company's products continued to increase, although not as markedly
as in either of the last two quarters of 1997. Overall, the Company believes
domestic retail inventory positions of the Company's products increased nearly
$120 million from the second quarter of 1997 through the first quarter of 1998.
In the second quarter of 1998, these inventories are believed to have been
reduced by approximately 36%.
International sales, which represented 22% of Adjusted Sales in the second
quarter of 1998, decreased approximately 26% compared with the second quarter of
1997's Adjusted Sales. This sales decline, which arose primarily in Latin
America and Canada, is believed to be due in part to decreasing customer
inventory levels as compared with the prior year. In addition, sales in Latin
America were adversely impacted by lower sales to certain export distributors
and by poor economic conditions. In Canada, sales were adversely impacted by a
loss of certain grill distribution.
Excluding: (i) the gross margin generated from the inclusion of the
acquired entities' operations in the quarter, as discussed above; (ii) the
charges in the second quarter of 1998 related to excess inventory and fixed
assets, as discussed above; (iii) a $4.0 million benefit in 1997 of reducing the
cooperative advertising accrual no longer required, and (iv) a $2.8 million
benefit recorded in the second quarter of 1997 resulting from capitalizing
manufacturing supplies inventories which were previously expensed, gross margin
declined to a loss of $21.7 million for the second quarter of 1998 versus a
profit of $48.5 million for the same period a year ago. The decline in sales
between years contributed to the decline in gross margin dollars generated.
Gross margin was also adversely affected by price discounting, overall lower
market prices on breadmakers and an adverse product sales mix in 1998. The
adverse product sales mix was due in part to the loss of a majority of the grill
parts and accessories products distribution. Parts and accessories generate
significantly better margins than the average margins on sales of grills. During
the second quarter of each year, grill and grill parts and accessories sales are
traditionally a higher portion of overall sales than during other quarters of
the year. Due to the level of Outdoor Cooking products sales in the quarter and
the level of on-hand inventories, the Company began the season-end ramp down of
production at the Neosho Outdoor Cooking products facility earlier than
previously planned. This ramp down in manufacturing, along with costs associated
with a blanket recall, and certain adjustments related to physical inventories
drove the remaining
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increases in cost of goods sold in the quarter. Operating results will be
adversely impacted due to higher inventory carrying costs and unabsorbed fixed
factory overhead during the remainder of the year.
Excluding the effect of: (i) $75.9 million of SG&A expense incurred by the
acquired entities; (ii) approximately $0.8 million of benefit in the second
quarter of 1998 from the reversal of deferred compensation charges recorded in
the first quarter; (iii) a $2.9 million benefit in the second quarter of 1998
and $0.4 million in 1997 from the reversal of reserves no longer required, and
(iv) $5.2 million of restructuring related charges recorded in 1997, SG&A
expenses were $68.6 million in 1998, double the amount for the same period in
1997. Advertising and marketing costs were $11 million higher in 1998 than in
1997, due to a national television advertising campaign for grills, package
redesign costs, market research and the acceleration of advertising spending in
the year as compared with 1997. Higher inventory levels in 1998 and costs
associated with outsourcing small parts fulfillment led to higher distribution
and warehousing costs which were $7 million greater than in the same period of
1997. Corporate administrative costs were $11 million higher between years,
resulting primarily from increases in outside service provider fees, travel and
relocation fees, and other general administrative costs. Higher bad debt charges
as compared with the prior year accounted for the majority of the remaining
increase in SG&A costs between years. These bad debt charges resulted nearly
equally from collection issues with certain customers in the US and in Latin
America.
Operating results for the second quarters of 1998 and 1997, on an adjusted
basis as described above, were a loss of $90.3 million in 1998 and a profit of
$14.8 million in 1997. This change resulted from the factors discussed above.
Interest expense increased from $3.0 million in the second quarter of 1997
to $42.4 million in the second quarter of 1998 primarily related to higher
borrowing levels in 1998 for the acquisitions and funding for increased working
capital and operating losses. (See Note 3 to the condensed consolidated
financial statements.)
Other expense, net in 1998 of $2.1 million and $0.3 million in 1997
primarily represents foreign exchange losses, principally from Sunbeam's
operations in Mexico, Venezuela and Canada.
The minority interest reported for the second quarter of 1998 relates to
the minority interest held in Coleman by public shareholders.
Income taxes in the second quarter of 1998 reflect foreign taxes and
franchise taxes. A valuation allowance has been provided in 1998 for deferred
tax assets generated by Sunbeam's operations. The 1997 rate was higher than the
federal statutory income tax rate primarily due to state and local taxes plus
the effect of foreign earnings taxed at other rates.
Due to increased inventory positions at certain customers which resulted
from sales in 1997 and the first quarter of 1998, as well as increased inventory
positions at the Company, sales and operating income will be materially affected
during the remainder of 1998 and into 1999. In addition, 1998 results will be
impacted materially by charges related to, among other items, a change in
management, changes in business operations resulting in part from acquisitions
in 1998, interest costs associated with higher debt levels, costs associated
with litigation and asset impairment costs, as well as costs related to Year
2000 issues. (See "Liquidity and Capital Resources", below, and Notes 2, 3, 6,
10 and 11 to the condensed consolidated financial statements.)
In the second quarter of 1998, the Company prepaid certain debt assumed in
the acquisitions. In connection with the early extinguishment of this debt, the
Company recognized an extraordinary charge of $103.1 million ($1.02 per share).
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 29, 1997
Results of operations for the six months ended June 30, 1998 include the
results of Coleman for March 30 and 31, 1998 and the entire second quarter and
of Signature Brands and First Alert from April 6, 1998. The acquired entities
generated net sales of $391.1 million in the period since the acquisitions with
corresponding gross margin of $83.1 million, or 21.2% of sales. SG&A costs
recorded by the acquired entities were $79.6 million in the period, yielding an
operating profit of $3.5 million. Included in cost of sales of the acquired
entities was approximately $20 million of expense related to purchase accounting
adjustments which require adjusting the values of acquired inventories to fair
market value at the date of acquisition. Accordingly, as these inventories are
sold, the purchase accounting adjustments related to these inventories (in this
case, increases in inventory values) are reflected in cost of sales. A year ago,
on a year-to-date basis, these acquired entities generated sales approximately
$122 million higher than for the current year-to-date. The majority of this
decrease occurred at Coleman where sales were impacted by fewer product lines
resulting from the sale of a portion of the business, exiting the pressure
washer business during 1997, and a program in 1997 to reduce SKU's. Softness in
demand resulting from the domestic retail channel's efforts to lower inventory
levels and adverse economic conditions in Japan and Southeast Asia also impacted
Coleman's sales as compared with the first half of the prior year. Additionally,
each acquired business experienced a general disruption due to the acquisitions
and management changes. The remaining sales decline between years was from
Signature Brands where sales were adversely affected by product availability
issues. Excluding the impact of the purchase accounting adjustments, as
described above, gross margins generated by the acquired entities were $50.0
million lower in the first half of 1998 as compared to the same period in the
prior year. The lower sales at Coleman and Signature Brands accounted for
approximately 80% of this change, while the remainder was principally due to a
change in the sales mix of Signature Brands products, increases in product
returns at First Alert and charges related primarily to excess and obsolete
inventory.
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Net sales for the six months ended June 30, 1998 were $826.1 million, an
increase of $302.2 million versus the six months ended June 29, 1997. After
excluding: (i) $391.1 million of sales generated by the acquired entities, as
discussed above; (ii) approximately $4 million of higher sales in 1998 resulting
from the change in fiscal year end, as described in Note 1 to the condensed
consolidated financial statements; (iii) $18.0 million from 1997 sales 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; (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 /
registered trademark/ and Borg /registered trademark/ branded scales), and (v) a
$4.0 million benefit from the reduction of cooperative advertising accruals no
longer required in 1997, net sales on an adjusted basis ("Adjusted Sales") of
$431.4 million were down approximately 13% from $497.6 million in the first half
of 1997. Overall, product sales were adversely impacted by decreasing inventory
positions at customers, price discounting and higher provisions for estimated
returns, costs to ship products to customers, rebates and other customer
allowances.
Domestic Adjusted Sales declined approximately $59 million from the first
half of 1997. Nearly all of this decline was from the Outdoor Cooking and
Appliance categories, with the majority of the change due to Outdoor Cooking.
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 to this lost distribution, to high levels of retail inventory from
sales in the fourth quarter of 1997, to price discounting and higher customer
allowances. The Company believes the decline in sales in the Appliance category
resulted primarily from increasing retail inventory levels for the first six
months of 1997 as compared with decreasing levels in 1998.
International sales, which represented 24% of Adjusted Sales in the first
half of 1998, decreased approximately 6% compared with the first half of 1997's
Adjusted Sales. This sales decline was attributable primarily to changes in
customer inventory levels, lower sales to certain export distributors, grill
distribution losses in Canada, and by poor economic conditions in Latin America.
Excluding: (i) the gross margin generated from the inclusion of the
acquired entities' operations in the period, as discussed above; (ii) the impact
of the change in fiscal year-end as discussed in Note 1 to the condensed
consolidated financial statements; (iii) the charges in the second quarter of
1998 related to excess inventory and fixed assets, as discussed above; (iv) $4.0
million from the benefit in 1997 of reducing the cooperative advertising accrual
no longer required, and (v) a $2.8 million benefit recorded in the second
quarter of 1997 resulting from capitalizing manufacturing supplies inventories
which were previously expensed, gross margin declined to $7.4 million for the
first half of 1998 versus $106.8 million for the same period a year ago.
Approximately half of the decrease is attributable to lower price realization
and higher costs of customer allowances, rebates and similar incentives in 1998,
higher product return reserves and an adverse product sales mix in 1998. The
adverse product sales mix was due in part to the loss of a majority of the grill
parts and accessories products distribution. Parts and accessories generate
significantly better margins than the average margins on sales of grills. During
the first half of each year, grill and grill parts and accessories sales are
traditionally a higher portion of overall sales than during the last half of the
year. Lower sales volume, unfavorable manufacturing efficiencies from lower
production levels, along with costs associated with a blanket recall, and
certain adjustments related to physical inventories drove the majority of the
remaining increases in cost of good sold in the period.
Excluding the effect of: (i) $79.6 million of SG&A charges in the acquired
entities; (ii) approximately $0.8 million of SG&A expense in 1998 from the
change in the fiscal period; (iii) a $5.9 million benefit in the first half of
1998 and a $0.9 million benefit in the same period in 1997 from the reversal of
reserves no longer required; (iv) $30.4 million of charges recorded in 1998
related to compensation for former executives, and (v) $9.3 million of
restructuring related charges recorded in 1997, SG&A expenses were $107.1
million in 1998, 50% higher than the same period in 1997. Nearly all of this
increase between years occurred in the second quarter and is explained in the
comparison of results in the second quarter, above.
Operating results for the first halves of 1998 and 1997, on an adjusted
basis as described above, were a loss of $99.7 million in 1998 and a profit of
$35.5 million in 1997. This change resulted from the factors discussed above.
Interest expense increased from $5.0 million in the first half of 1997 to
$47.5 million in the first half of 1998. Nearly all of the change related to
higher borrowing levels in 1998 for the acquisitions and increased funding for
working capital and the operating losses. (See Note 3 to the condensed
consolidated financial statements.)
Other expense, net in 1998 of $5.3 million and $0.4 million in 1997
primarily represents foreign exchange losses, principally from Sunbeam's
operations in Mexico, Venezuela and Canada.
The minority interest reported in 1998 relates to the minority interest
held in Coleman by public shareholders.
Income taxes in 1998 reflect foreign taxes and franchise taxes. A valuation
allowance has been provided in 1998 for deferred tax assets generated by
Sunbeam's operations. The 1997 rate was higher than the federal statutory income
tax rate primarily due to state and local taxes plus the effect of foreign
earnings taxed at other rates.
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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 the early extinguishment of this debt, the Company recognized an
extraordinary charge of $111.7 million ($1.20 per share).
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
$50.0 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 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.
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, Japan 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
earnings. Mexico is not expected to be considered hyperinflationary as of
January 1, 1999.
While Sunbeam's revenues generated in Asia have traditionally not been
significant, economic instability in this region is expected to have a negative
effect on Coleman's 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.
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 did not have a
material impact on the Company's financial results in 1998 and 1997. (See Note 3
to the condensed consolidated financial statements.)
SEASONALITY
On a consolidated basis, the Company's sales 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
and Personal Care and Comfort products are strongest in the second half of the
year. Furthermore, sales of a number of the Company's traditional products,
including warming blankets, vaporizers, humidifiers and grills may be impacted
by unseasonable weather conditions. After considering the seasonality of the
acquired entities, the Company'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. Additionally, sales of many products sold
by the Company may be impacted by unseasonable weather conditions.
LIQUIDITY AND CAPITAL RESOURCES
In order to finance the acquisitions of Coleman, First Alert and Signature
Brands and to refinance substantially all of the indebtedness of the Company and
the acquired entities, the Company consummated: (i) an offering (the "Offering")
of Zero Coupon Convertible Senior Subordinated Debentures due 2018 (the
"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, (ii) entered into a revolving and term credit
facility ("New Credit Facility").
The Company was required to file a registration statement with the
Securities and Exchange Commission to register the Debentures by June 23, 1998,
which registration statement has not been filed. From June 23, 1998 until the
day on which the registration statement is filed and 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 $525,000 to the
Debenture holders on September 25, 1998. (See Note 3)
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 31, 2005; (ii) an $800 million term
loan maturing on March 31, 2005, and (iii) a $500 million term loan maturing
September 30, 2006. Interest accrues at a rate selected at the Company's option
of: (i) the London Interbank Offered Rate ("LIBOR") plus an agreed upon interest
margin which varies depending upon the Company's leverage ratio, as defined, and
other items or, (ii) the base rate of the administrative agent (generally the
higher of the prime commercial lending rate of the administrative agent or the
Federal Funds Rate plus 1/2 of 1%), plus an agreed upon interest margin which
varies depending upon the Company's leverage ratio, as defined, and other items.
The New Credit Facility contains certain covenants, including limitations on the
ability of the Company and its subsidiaries to engage in certain transactions
and the requirement to maintain certain financial covenants and ratios.
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At June 30, 1998, the Company was not in compliance with the financial
covenants and ratios required under the New Credit Facility. The Company and its
lenders entered into an agreement dated June 30, 1998, which provided that
compliance with the covenants would be waived through December 31, 1998.
Borrowings under the New Credit Facility are secured by the Company's assets,
including its stock interest in Coleman. Pursuant to an amendment dated October
19, 1998, the Company is not required to comply with the original financial
covenants and ratios under the New Credit Facility until April 10, 1999, but
will be required to comply with an earnings before interest, taxes, depreciation
and amortization covenant, the amounts of which are to be determined, beginning
February 1999. Concurrent with each of these amendments, interest margin was
increased. The margin continues to increase monthly through March 1999 to a
maximum of 400 basis points over LIBOR. At the end of November 1998, following
the scheduled repayment of a portion of the term loan, the New Credit Facility
was reduced to $1,698 million in total, of which approximately $1,421 million
was outstanding and approximately $277 million was available. In addition, at
the same time, the Company's cash balance available for debt repayment was
approximately $22 million.
The Company is working closely with its bank lenders in an effort to reach
agreement on a further amendment to the New Credit Facility containing mutually
acceptable revised financial covenants. There can be no assurance that such an
amendment, or a further waiver of the existing financial covenants, will be
entered into with the bank lenders by April 10, 1999. The failure to obtain such
an amendment or further waiver would result in violation of the existing
covenants, which would permit the bank lenders to accelerate the maturity of all
outstanding borrowings under the New Credit Facility. Accordingly, the debt
related to the New Credit Facility and all debt containing cross-default
provisions is classified as current in the Condensed Consolidated Balance Sheet
as of June 30, 1998.
At June 30, 1998, the Company had cash and cash equivalents of
$43.2 million. Cash used in operating activities during the first half of 1998
was $217.6 million compared to $4.8 million in the first half of 1997. This
increase is primarily attributable to lower earnings before non-cash charges and
an increased investment in working capital. The majority of the increase in
working capital is a result of higher inventory levels in 1998. Inventories
increased $424.7 million from December 28, 1997, before consideration of the
$84.0 million inventory reserve taken in the second quarter. This increase
reflects $353.1 million of inventory acquired in the acquisitions, less a $38.1
million decrease in the acquired entities' inventories after acquisition, and
$109.7 million in higher inventory related to Sunbeam's household and grill
products. Cash used in operating activities for the 1998 first half reflects
proceeds of $84.0 million from the Company's revolving trade accounts receivable
securitization program entered into in December 1997. Including the effect of
the receivables securitization program, receivables increased $294.1 million
from year-end 1997, reflecting $283.7 million in acquired receivables, and $10.4
million, net, of increases in receivables from acquired entities partially
offset by decreases in the levels of receivables held by Sunbeam at December 28,
1997. The Company expects to continue to use the securitization program to
finance a portion of its accounts receivable. Also contributing to the increase
in working capital was a decrease of $22.9 million in accounts payable,
excluding acquired payables. The Company anticipates using cash for operating
activities in the remainder of the year, principally for losses incurred in
operations, although this anticipated use of cash is not expected to be as
significant as was incurred in the second quarter.
Cash used in investing activities in the first half of 1998 reflects $379.2
million for the acquisitions. In the first half of 1997, cash provided by
investing activities reflected $84.7 million in proceeds from the sales of
divested operations and other assets. Capital spending totaled $21.2 million in
1998 and was primarily for several 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 products which were discontinued in the second
quarter, grills and appliances, including irons, blenders and standmixers. As
the Company completes its assessment of expected future performance of its
business operations, valuation adjustments may be required for certain of the
assets acquired in 1998. Capital spending in 1997 was $26.1 million and was
primarily attributable to manufacturing capacity expansion and equipment to
manufacture new products. The Company anticipates 1998 capital spending to be
approximately 5% of sales, primarily related to new product introductions and
manufacturing efficiency initiatives including rationalization of certain
facilities.
Cash provided by financing activities totaled $608.6 million in the first
half of 1998 and reflects net proceeds from the 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 and the early extinguishment of the $75.0
million Hattiesburg industrial revenue bond. In addition, cash provided by
financing activities includes $19.6 million of proceeds from the exercise of
stock options. (See Note 3 to the condensed 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 approximately 6.7 million shares of common stock and
approximately $87 million in cash. In addition, as a result of litigation
related to the merger consideration, the Company has entered into a memorandum
of understanding (subject to court approval) pursuant to which the holders of
the remaining equity interest in Coleman will also receive five-year warrants to
purchase 4.98 million shares of Sunbeam common stock at $7.00 per share. There
can be no assurance that the court will approve the settlement as proposed.
Although there can be no assurance, it is anticipated the Coleman merger will
occur in the first half of fiscal 1999. (See Note 10 to the condensed
consolidated financial statements.)
24
<PAGE>
The Company believes its borrowing capacity under the New Credit Agreement,
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 spending, and debt service for the foreseeable future. However, if the
Company is unable to satisfactorily amend the financial covenants and ratio
requirements of the New Credit Facility or obtain a further waiver of the
existing covenants and ratio requirements prior to April 10, 1999, 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.
NEW ACCOUNTING STANDARDS
See Note 1 to the Company's condensed consolidated financial statements for
a discussion of Statement of Financial Accounting Standards ("SFAS") No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, Statement of
Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED
OR OBTAINED FOR INTERNAL USE and SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES, which are required to be adopted for periods beginning after
December 15, 1997. The adoption of these standards is not expected to have a
material effect on the Company's consolidated results of operations, financial
position, or cash flows, although actual charges incurred may be material due to
Year 2000 issues, as discussed below.
YEAR 2000 READINESS DISCLOSURE AND OPERATING SYSTEMS ENHANCEMENTS
The Company is in the process of assessing the impact of the Year 2000 on
its operations, including the Coleman, First Alert and Signature Brands
companies which were acquired by the Company in the spring of 1998. The Company
established a Year 2000 Program Management Office in the third quarter of 1998
to conduct such assessment with assistance from three consulting firms. The
Company's assessment encompasses the Company's information technology functions
along with the impact of the effects of noncompliance by its vendors, service
providers, customers, and financial institutions. The assessment of the
Company's information technology functions is substantially complete.
Additionally, the Company is assessing the impact of noncompliance of embedded
microprocessors in its products as well as equipment, such as manufacturing
equipment, security and telephone systems and controls for lighting,
heating/ventilation, and facility access.
The Company relies on its information technology functions to perform many
tasks that are critical to its operations. Significant transactions that could
be impacted by Year 2000 noncompliance include, among others, purchases of
materials, production management, order entry and fulfillment, and payroll
processing. Systems and applications that have been identified by the Company to
date as not currently Year 2000 compliant and which are critical to the
Company's operations include its financial software systems, which process the
order entry, purchasing, production management, general ledger, accounts
receivable, and accounts payable functions, and critical applications in the
Company's manufacturing and distribution facilities, such as the warehouse
management application. The Company plans to complete corrective work with
respect to the Company's systems by the second quarter of 1999 with final
testing and implementation of such systems occurring in the second and third
quarters of 1999. Management believes that, although there are significant
systems that will need to be modified or replaced, the Company's information
systems environment will be made Year 2000 compliant prior to January 1, 2000.
The Company's failure to timely complete such corrective work could have a
material adverse impact on the Company. The Company is not able to estimate
possible lost profits arising from such failure.
The Company is in the process of contacting its vendors and suppliers of
products and services to determine their Year 2000 readiness and plans. This
review includes third party providers to whom the Company has outsourced the
processing of its cash receipt and cash disbursement transactions. The Company
plans to complete this review during the first quarter of 1999. The failure of
certain of these third party suppliers to become Year 2000 compliant could have
a material adverse impact on the Company.
The Company's preliminary assessment of the total costs to address and
remedy Year 2000 issues and enhance its operating systems, including costs for
the acquired companies, is $50 million. This estimate includes the costs of
software and hardware modifications and replacements and fees to third party
consultants, but excludes internal resources. The Company expects these
expenditures to be financed through operating cash flows or borrowings, as
applicable. Through June 30, 1998, the Company had expended approximately $3
million related to new systems and remediation to address Year 2000 issues, of
which the majority was recorded as capital expenditures. Of the total costs, it
is anticipated that approximately 25% to 30% will be incurred by year-end 1998,
with the remainder in 1999. A significant portion of these expenditures will
enhance the Company's operating systems in addition to resolving the Year 2000
issues. As the Company completes its assessment of the Year 2000 issues, the
actual expenditures incurred or to be incurred may differ materially from the
amounts shown above.
After completing the assessment of the Year 2000 on its operations, the
Company plans to establish a contingency plan for addressing any effects of the
Year 2000 on its operations, whether due to noncompliance of the Company's
systems or those of third parties. The Company expects to complete such
contingency plan by September 30, 1999; such contingency plan will
25
<PAGE>
address alternative processes, such as manual procedures to replace those
processed by noncompliant systems, potential alternative service providers, and
plans to address compliance issues as they arise. Subject to the nature of the
systems and applications which are not made Year 2000 compliant, the impact of
such non-compliance on the Company's operations could be material if appropriate
contingency plans cannot be developed prior to January 1, 2000.
OTHER MATTERS
See Notes 3, 6, 10 and 11 of Notes to the condensed consolidated financial
statements for information relating to, among other matters, litigation,
financing and potential asset impairment issues.
RESTATEMENT OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 29, 1997
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1996
The results of operations previously reported for the three months ended
June 29, 1997 as compared with the three months ended June 30, 1996 generally
overstated sales in 1997 and understated the level of expenses incurred in that
year. Gross margin was previously reported to have improved 7.3 percentage
points from the level achieved in the second quarter of 1996. After restatement,
the gross margin improvement was 1.8 percentage points. Operating income was
previously reported to have improved $33.8 million or 369% from 1996's second
quarter to the second quarter of 1997. After reflecting the results of the
restatement, operating earnings were $16.8 million for the second quarter of
1997, an improvement of $7.7 million or 84% from the prior year. On November 12,
1998, the Company filed a Form 10-K/A setting forth the restated financial
statements for December 28, 1997 and December 29. 1996, and the fiscal years
then ended. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the fiscal years 1997 and 1996 as well as 1996 and
1995 are contained therein. (See Note 8 to the condensed consolidated financial
statements.)
RESTATEMENT OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 29, 1997
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
The results of operations previously reported for the six months ended June
29, 1997 as compared with the six months ended June 30, 1996 generally
overstated sales in 1997 and understated the level of expenses incurred in 1997.
Gross margin was previously reported to have improved 6.6 percentage points from
the level achieved in 1996. After restatement, the gross margin improvement was
2.0 percentage points. Operating income for the first half of 1997 was
previously reported to have improved $53.0 million to 14.4% of sales, up 9.3
percentage points from 1996's first half results. After reflecting the results
of the restatement, operating earnings were $33.9 million for the first half of
1997, an improvement of $9.2 million from the prior year. As a percent of sales,
operating earnings, after restatement, were 6.5%, an improvement of 1.4
percentage points versus the first six months of 1996.
CAUTIONARY STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q 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 Securities and Exchange
Commission ("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 Quarterly Report
on Form 10-Q, 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
enter into an amendment to its credit agreement containing financial covenants
which it and its bank lenders find mutually acceptable, 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 ability to integrate the recently
acquired Coleman, Signature Brands and First Alert companies and expenses
associated with such integration, (iv) Sunbeam's sourcing of products from
international vendors, including the ability to select reliable vendors and to
avoid delays in shipments, (v) Sunbeam's ability to maintain and increase market
share for its products at anticipated margins, (vi) Sunbeam's ability to
successfully introduce new products and to provide on-time delivery and a
satisfactory level of customer service, (vii) changes in laws and regulations,
including changes in tax laws, accounting standards, environmental laws,
occupational, health and safety laws, (viii) access to foreign markets together
with foreign economic conditions, including currency fluctuations, (ix)
uncertainty as to the effect of competition in existing and potential future
lines of business, (x) fluctuations in the cost and availability of raw
materials and/or products, (xi) changes in the availability and relative costs
of labor, (xii) effectiveness of advertising and marketing programs, (xiii)
economic uncertainty in Japan, Korea and other Asian countries, as well as in
Mexico, Venezuela,
26
<PAGE>
and other Latin American countries, (xiv) product quality, including excess
warranty costs, product liability expenses and costs of product recalls, (xv)
weather conditions which can have an unfavorable impact upon sales of Sunbeam's
products, (xvi) 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, (xvii) the possibility of a recession in the
United States or other countries resulting in a decrease in consumer demands for
the Company's products, (xviii) 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 (xix) 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.
27
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in an action filed by HBK
Investments, L.P., et al. in the District Court of Tarrant County, Texas, 48th
Judicial District, on November 20, 1998. 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 intends to vigorously defend the foregoing lawsuit, but cannot
predict the outcome and is not currently able to evaluate the likelihood of the
Company's success in this case or the range of potential loss. However, if the
foregoing action was determined adversely to the Company, such judgment would
likely have a material adverse effect on the Company's financial position,
results of operations and cash flows.
28
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Company was held on May 12,
1998, for the purpose of considering and voting on the following proposals, all
as fully described in the Company's Proxy Statement for the Annual Meeting. The
vote on each matter is set forth below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
PROPOSAL NO. 1
- --------------
To Elect the Following Nominees as
Directors of the Company: FOR WITHHELD
---------- -------
<S> <C> <C>
Albert J. Dunlap 92,189,104 333,616
Charles M. Elson 92,216,623 306,097
Russell A. Kersh 92,213,813 308,907
Howard G. Kristol 90,590,513 1,932,207
Peter A. Langerman 92,186,546 336,174
William T. Rutter 92,193,780 328,940
Faith Whittlesey 92,194,758 327,962
</TABLE>
<TABLE>
<CAPTION>
BROKER
PROPOSAL NO. 2 FOR AGAINST ABSTAIN NON-VOTES
- -------------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C>
Approval of Stock Option Grant to
Albert J. Dunlap, previous Chairman & CEO 75,464,281 7,071,429 425,892 9,561,118
PROPOSAL NO. 3
- --------------
Approval of Stock Option Grant to
Russell A. Kersh, previous Vice Chairman & CFO 75,650,785 6,884,688 466,671 9,560,579
PROPOSAL NO. 4
- --------------
Approval of Stock Option Grant to
David C. Fannin, previous EVP & General Counsel 75,825,436 6,710,252 426,454 9,560,578
PROPOSAL NO. 5
- --------------
Amendment to the Company's Restated
Certificate of Incorporation
Increasing the Number of Authorized
Shares of Common Stock 67,190,458 24,438,345 313,654 580,263
PROPOSAL NO. 6
- --------------
Amendments to the Amended and Restated
Sunbeam Corporation Stock Option Plan 51,873,984 30,732,961 355,198 9,560,577
</TABLE>
29
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.a Amended and Restated Sunbeam Corporation Stock Option Plan, dated as
of November 19, 1998
27 Financial Data Schedule
99.a Press Release dated November 12, 1998 regarding the Company's filing
of an amended 10-K for 1997
99.b Press Release dated December 16, 1998 regarding the Company's second
and third quarter 1998 results
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on April 13, 1998, as amended by Form
8-K/A filed on May 11, 1998.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNBEAM CORPORATION
By: /s/ BOBBY G. JENKINS
---------------------
Bobby G. Jenkins
Executive Vice President, and
Chief Financial Officer
(Principal Financial Officer)
Dated: December 22, 1998
31
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.a Amended and Restated Sunbeam Corporation Stock Option Plan, dated as
of November 19, 1998
27 Financial Data Schedule
99.a Press Release dated November 12, 1998 regarding the Company's filing
of an amended 10-K for 1997
99.b Press Release dated December 16, 1998 regarding the Company's second
and third quarter 1998 results
EXHIBIT 10.a
AMENDED AND RESTATED
SUNBEAM CORPORATION
STOCK OPTION PLAN
(Amended as of November 19, 1998)
1. PURPOSE.
The purpose of the Sunbeam Corporation Stock Option Plan is to provide
incentives for selected executives, key employees, Outside Directors and
Designated Others to promote the financial success and progress of Sunbeam
Corporation. Capitalized terms used throughout this Plan shall have the
meanings ascribed to them in Section 16 hereof.
2. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of this Section and Section 9, the maximum
number of shares of Stock that may be issued under the Plan is
16,500,000 shares, to be allocated as follows:
(i) 16,300,000 shares may be issued in connection with the grant of
Options pursuant to Section 3; and
(ii) 200,000 shares may be issued in connection with the grant of
Restricted Stock Awards pursuant to Section 3.
Such shares may be either authorized but unissued shares or
treasury shares.
(b) The number of shares subject to an Option or a Restricted Stock Award
that has been granted under the Plan shall no longer be charged against
the limitation provided in Section 2(a), and may again be made subject
to Options or Restricted Stock Awards, as the case may be, to the
extent that Options expire unexercised or are terminated, surrendered
or canceled before exercise or Restricted Stock Awards are forfeited,
terminated, surrendered or canceled due to a Participant's termination
of employment or service as an Outside Director or for any other
reason.
3. GRANTS OF OPTIONS AND RESTRICTED STOCK AWARDS.
(a) Subject to the provisions of the Plan, the Committee may at any time,
or from time to time, grant Options to officers, key employees, Outside
Directors of the Company (or its subsidiaries) and Designated Others.
(b) Subject to the provisions of the Plan, the Committee may at any time,
or from time to time, grant shares of Stock which are subject to the
Restrictions set forth in Section 4(b) ("Restricted Stock") to
officers, key employees and Outside Directors of the Company (or its
subsidiaries) and Designated Others.
(c) The Committee shall cause shares of Restricted Stock to be issued to
each Outside Director immediately and automatically upon his or her
election, re-election or appointment as a Director of the Company. If
such Outside Director is elected at an Annual Meeting of the
Shareholders of the Company (the "Annual Meeting"), the number of
shares of Restricted Stock to be issued shall be 1,500. The number of
shares of Restricted Stock to be issued to an Outside Director who is
elected
1
<PAGE>
or appointed at any time other than at an Annual Meeting shall be 1,500
multiplied by a fraction, the numerator of which shall be the number of
days after the date of such election to and including the date of the
next Annual Meeting (which for such purpose shall be assumed to be the
next May 15) and the denominator of which shall be 365; provided,
however, (i) that in the case of an Outside Director elected to the
Board for the first time during the period beginning August 1, 1996 and
ending December 31, 1996, the number of such shares shall not be
prorated, and each such Outside Director shall receive 1,500 shares for
the period of his service between the date of his election and the date
of the next Annual Meeting (assumed to be May 15, 1997); and (ii) that
each incumbent Outside Director, elected prior to August 1, 1996, shall
receive that number of shares of Restricted Stock which results from
applying to 1,500 such shares the proration formula provided above,
using for such calculation the period from August 6, 1996 until and
including the date of the next Annual Meeting (assumed to be May 15,
1997).
(d) Deleted.
(e) Each Option shall be evidenced by a Stock Option Agreement, and each
Restricted Stock Award shall be evidenced by a Restricted Stock Award
Agreement, each in a form approved by the Committee or by a Company
officer designated by the Committee.
(f) Notwithstanding any other provision of the Plan, no person shall be
granted Options for more than 250,000 shares of Stock or Restricted
Stock Awards for more than 25,000 shares of Stock in any single fiscal
year of the Company.
4. TERMS AND CONDITIONS.
(a) OPTIONS.
(i) An Option shall entitle the Participant who holds it to exercise
the Option on and subject to the terms, conditions and
restrictions of the Plan (as the Plan may be amended from time to
time) and such additional terms, conditions and restrictions as
may be imposed by the Committee at the time of grant.
(ii) Unless otherwise specified by the Committee, the term of each
Option granted prior to May 15, 1996 (herein the "1996 Amendment
Date") and which is In-the-Money as of the 1996 Amendment Date
shall commence on the date of grant of the Option and shall
expire at the close of business on the earlier of (A) the tenth
anniversary of the date of grant or (B) the 45th day following
the termination of the Participant's employment with, or service
as director of, the Company (or a subsidiary). Unless otherwise
specified by the Committee, the term of each Option granted on or
after the 1996 Amendment Date and the term of each Option granted
prior to the 1996 Amendment Date which is Out-of-the-Money as of
the 1996 Amendment Date, shall commence on the Grant Date of the
Option and shall expire at the close of business on the earliest
of (A) the tenth anniversary of the Grant Date; or (B) the third
anniversary of the date of termination of the Participant's
employment with the Company (or a subsidiary) due to termination
without Cause, resignation by mutual agreement of the Company (or
a subsidiary) and the Participant, or death, disability or
retirement of a Participant or the termination of service as a
director for whatsoever reason; or (C) 90 days after the date of
termination of a Participant's employment in the case of
resignation or termination by the Company with
2
<PAGE>
Cause; or (D) in the case of a Designated Other, the date
specified in the Stock Option Agreement.
(iii) All Restrictions shall lapse with respect to the Restricted Stock
subject to a Restricted Stock Award made to an Outside Director
pursuant to Section 3(c) hereof immediately and automatically
upon the Director's acceptance of election or appointment as a
Director of the Company, as evidenced in such manner as may be
established by the Committee. Unless otherwise specified by the
Committee (which is empowered to provide different vesting
schedules with respect to any grant of Options or Restricted
Stock), all other Options granted under the Plan (from and after
July 18, 1996) shall become exercisable with respect to one-third
of the shares subject to the Option beginning on the first
anniversary of the Grant Date and as to an additional one-third
on each of the second and third anniversaries of the Grant Date
(each twelve month period ending on an anniversary of a Grant
Date being referred to herein as an "Option Year"), provided in
each case that the Participant shall have remained an employee or
a director of the Company (or a subsidiary), or in the case of a
Designated Other, shall have remained in the position set forth
in the Stock Option Agreement, continuously since the Grant Date.
Notwithstanding the foregoing, during the remaining term of any
Options (if not already so exercisable): (A) if a Participant's
employment or service as a director, or in the case of a
Designated Other, the period of service as defined in the Stock
Option Agreement, terminates due to death, all Options held by
the Participant at death shall become immediately exercisable in
full; (B) upon a Change in Control, all Options held by such
Participant who is then an employee or director of the Company
(or a subsidiary) shall become immediately exercisable in full;
and (C) in the event that the exercisability of an Option
accelerates due to a Change in Control, Participants who are
subject to Section 16(b) of the Exchange Act may not sell the
shares acquired upon such accelerated exercise within six months
of the Grant Date of such Option.
(iv) Except to the extent permitted by Rule 16b-3 or its successor,
Options shall not be sold, assigned, transferred, pledged,
hypothecated, or otherwise disposed of, except by will or the
laws of descent and distribution, pursuant to a qualified
domestic relations order ("QDRO") as defined in the Code or ERISA
(or the rules thereunder) or as otherwise set forth in this
Section 4(a)(iv). Each Option shall be exercisable during the
lifetime of a Participant only by the Participant to whom it was
granted, and after the Participant's death only by the
Participant's estate or legal representative. To the extent
exercisable, an Option may be exercised in whole at any time, or
in part from time to time, during the term of the Option.
(v) Any Option may be converted, modified, forfeited or canceled,
prospectively or retroactively, in whole or in part, by the
Committee in its sole discretion; provided, however, that no such
action shall adversely affect the rights of any Participant under
any Option granted prior to such action without his consent.
Except as may be otherwise provided in an Agreement, the
Committee may, in its sole discretion, in whole or in part, waive
any restrictions or conditions applicable to, or accelerate the
vesting of, any Option.
(b) STOCK AWARDS.
(i) Upon the grant of a Restricted Stock Award, a stock certificate
representing a number of shares of Stock equal to the number of
shares of Restricted Stock granted to a Participant
3
<PAGE>
shall be registered in the Participant's name but shall be held
in custody by the Company for the Participant's account. The
Participant shall generally have the rights and privileges of a
stockholder as to such Restricted Stock, including the right to
vote such Restricted Stock, except that the following
restrictions (the "Restrictions") shall apply: (A) the
Participant shall not be entitled to delivery of the certificate
until the Restricted Period (set forth in paragraph (iii) below)
applicable to such Restricted Stock has expired or terminated and
until any other conditions prescribed by the Committee are
satisfied; (B) none of the Restricted Stock may be sold,
transferred, assigned, pledged, or otherwise encumbered or
disposed of during the Restricted Period applicable to such
Restricted Stock and prior to the satisfaction of any other
conditions prescribed by the Committee; and (C) shares of
Restricted Stock shall be forfeited and all rights of the
Participant to such Restricted Stock shall terminate without
further obligation on the part of the Company unless the
Participant has (1) remained an employee or a director of the
Company (or a subsidiary) until the expiration or termination of
the Restricted Period applicable to such Restricted Stock (or in
the case of a Designated Other, the duration specified in the
Restricted Stock Award Agreement) and (2) satisfied any other
conditions prescribed by the Committee applicable to such
Restricted Stock. At the discretion of the Committee, cash and
stock dividends with respect to the Restricted Stock may be
either currently paid or withheld by the Company for the
Participant's account. Cash dividends so withheld by the
Committee shall not be subject to forfeiture. Upon the forfeiture
of any shares of Restricted Stock, such forfeited Restricted
Stock shall be transferred to the Company without further action
by the Participant. The Participant shall have the same rights
and privileges, and be subject to the Restrictions, with respect
to any shares or other property received pursuant to Section 9.
(ii) Upon the expiration or termination of the Restricted Period with
respect to shares of Restricted Stock and the satisfaction of any
other conditions prescribed by the Committee, the Restrictions
applicable to such Restricted Stock shall lapse and a stock
certificate for the number of shares of Stock with respect to
which the Restricted Period has lapsed shall be delivered, free
of all restrictions, except any that may be imposed by law, to
the Participant or the Participant's beneficiary or estate, as
the case may be. The Company shall not be required to deliver any
fractional share of Stock but will pay, in lieu thereof, the Fair
Market Value (determined as of the date the Restricted Period
expires or terminates) of such fractional share to the
Participant or the Participant's beneficiary or estate, as the
case may be. No payment will be required from the Participant
upon the issuance or delivery of any shares of Stock under this
paragraph, except that any amount necessary to satisfy applicable
federal, state or local tax requirements shall be withheld or
paid promptly upon notification of the amount due and prior to or
concurrently with the issuance or delivery of a certificate
representing such shares.
(iii) Unless otherwise specified by the Committee at the time of the
award and included in the Restricted Stock Award Agreement, the
Restrictions shall also lapse with respect to one-third of the
Restricted Stock subject to all other Restricted Stock Awards on
each of the first through the third anniversaries of the Grant
Date, provided in each case that the Participant shall have
remained an employee or a director of the Company (or a
subsidiary) continuously since the date of grant (or in the case
of a Designated Other, shall have complied with the terms and
conditions of the Restricted Stock Award Agreement).
Notwithstanding the foregoing: (A) if a Participant's employment
or service as a director, or in the case of a Designated Other,
the period defined in the Restricted Stock Award
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<PAGE>
Agreement, terminates due to death, the Restrictions shall lapse
with respect to all Restricted Stock Awards held by the
Participant at death (if not already so lapsed); (B) upon a
Change in Control, the Restrictions shall lapse with respect to
all Restricted Stock Awards held by such Participant who is an
employee or director of the Company (or a subsidiary) (if not
already so lapsed); and (C) in the event of an accelerated lapse
of Restrictions due to a Change in Control, Participants who are
subject to Section 16(b) of the Exchange Act may not sell the
shares of Stock whose Restrictions have so lapsed within six
months of the Grant Date of the Restricted Stock Award pursuant
to which such Stock was received. The "Restricted Period" as to
any shares constituting part of a Restricted Stock Award shall be
the period of time commencing with the Grant Date of a Restricted
Stock Award and ending with the date on which the Restrictions
lapse with respect to any such shares, or any portion thereof.
(c) In the event that the acceleration of (i) the exercisability of an
Option or (ii) the lapse of Restrictions relating to Restricted Stock
upon a Change in Control and a Change in Status results in excise tax
pursuant to Section 4999 of the Code, or any successor or similar
provision thereto, or comparable state or local tax laws, the Company
shall pay to the Participant such additional compensation as is
necessary (after taking into account all Federal, state and local
income and excise taxes payable by the Participant as a result of the
receipt of such compensation ) to place the Participant in the same
after-tax position he would have been in had no such excise tax (or any
interest or penalties thereon) been paid or incurred. The amount of
such payment shall be determined by the independent accounting firm
serving as the Company's outside auditor immediately prior to the
Change in Control.
5. EXERCISE OF OPTIONS.
(a) The Exercise Price of the shares purchasable under an Option shall be
the Fair Market Value per share on the Grant Date of such Option,
subject to subsequent adjustment pursuant to the provisions of Section
9.
(b) Options shall be considered exercised (herein the "Exercise Date") on
the date written notice, in such form as the Committee may prescribe,
is received by the Option Plan Administrator of the Company, advising
of the exercise of an Option and either transmitting payment of the
total Exercise Price for the number of shares of Stock involved or
electing one of the alternative payment procedures set forth in Section
5(c) below.
(c) The Exercise Price shall be paid in cash (including cash obtained
through a margin loan on the shares as to which the Option is being
exercised) or (and provided (x) the use of the following procedure by a
Participant would comply with safeguards established by the Committee
designed to avoid "short-swing" profits to the Participant under
Section 16(b) of the Exchange Act, and (y) does not otherwise violate
any applicable laws) through (i) a broker-assisted cashless exercise
program established by the Committee, based on the actual proceeds from
the sale of share of Stock; or (ii) in shares of Stock, valued on the
basis of the closing market price of the Stock on the Exercise Date.
(d) Subject to the provisions of Section 6 and the other provisions of the
Plan, the Stock Option Agreement and the Option, the Company shall
issue shares of Stock in the Participant's name as soon as practicable
(but in no event later than 30 days) after the Exercise Date. The
Participant shall not be deemed to be a holder of any shares pursuant
to an Option, and shall not have any
5
<PAGE>
rights as a stockholder in connection with such shares, until the date
of transfer of shares of Stock to the Participant. The Company shall
have no liability of any nature whatsoever to any Participant by reason
of any change in the market price of the Stock during the period of
time between the Exercise Date and the date on which any shares of
Stock resulting from the exercise are issued or sold.
6. RESTRICTIONS.
(a) Notwithstanding any other provision of the Plan, an Option or
Restricted Stock Award to the contrary, no Option shall be exercised,
and the Company shall not be obligated to issue or transfer shares of
Stock under any Option or Restricted Stock Award, until the Company
shall have received such assurances as the Company may reasonably
request from its counsel that the exercise of the Option and the
issuance and transfer of shares pursuant to the Option or Restricted
Stock Award will not violate the Securities Act of 1933, as amended, or
any other applicable Federal or state laws. In connection with any such
issuance or transfer, the Participant shall, if requested by the
Company, give assurances satisfactory to counsel to the Company, in
respect of the Participant's investment intent or such other matters as
counsel to the Company may deem necessary or desirable to assure
compliance with all applicable legal requirements.
(b) No provisions of the Plan or any Option or Restricted Stock Award shall
be interpreted or construed to obligate the Company to register any
Stock under Federal or state law.
(c) The Company and the Committee reserve the right to investigate at any
time the circumstances surrounding any exercise of Options, including
any investigation regarding whether a Participant is in compliance with
the provisions of Section 13 hereof (or has threatened or is reasonably
believed to intend to violate the provisions of Section 13 hereof), and
the Company and the Committee shall have no liability or responsibility
to any Participant for any alleged damage sustained by the Participant
by reason of any delay in the implementation of an Option exercise
during the pendency of any such investigation, whether by reason of any
change in the market price of the Stock or otherwise.
(d) Notwithstanding any other provision hereof, the Committee shall have
the right at any time to deny or delay a Participant's exercise of
Options if such Participant is reasonably believed by the Committee (i)
to be engaged in material conduct adversely affecting the Company or
(ii) to be contemplating such conduct, unless and until the Committee
shall have received reasonable assurance that the Participant is not
engaged in, and is not contemplating, such material conduct adverse to
the interests of the Company.
(e) Participants are and at all times shall remain subject to the trading
window policies adopted by the Company from time to time throughout the
period of time during which they may exercise Options or sell
Restricted Stock granted pursuant to the Plan. Participants may request
at any time a copy of any calendar of scheduled open windows by
contacting the Option Plan Administrator.
7. FAIR MARKET VALUE.
(a) During any period that the Company's Stock is Actively Traded, Fair
Market Value shall be equal to the average selling price of a share of
Stock on the exchange or national market system on which the Stock is
traded, on the date of grant of an option to acquire Stock pursuant to
the Plan, or pursuant to such other method as the Committee may
reasonably specify for determining the
6
<PAGE>
Stock's Fair Market Value.
(b) During any period during which the Company's Stock is not Actively
Traded, Fair Market Value shall be determined by the Committee.
8. TERM.
This Amended and Restated Plan shall be effective as of the date set forth on
the first page hereof. No Option or Restricted Stock Award shall be granted
under the Plan after February 12, 2006, but the Plan shall continue in effect
thereafter with respect to any previously granted Options and Restricted
Stock Awards that remain outstanding and the duration of any such grant or
award shall not be affected by the expiration of the Plan.
9. ADJUSTMENTS.
In the event that any recapitalization, or reclassification, split-up or
consolidation of shares of Stock shall be effected, or the outstanding shares
of Stock shall, in connection with a merger or consolidation of the Company
or a transaction or series of related transactions that results in the sale
of all or substantially all of the Company's assets, be exchanged for a
different number or class of shares of stock or other securities or property
of the Company or any other Person, or a record date or dates for
determination of holders of Stock entitled to receive a dividend payable in
stock or a liquidating dividend (or series of dividends) shall occur,
equitable and proportional adjustments aimed at preventing the inequitable
enlargement or dilution of any rights hereunder shall be made to (i) the
number and class of shares or other securities or property that may be issued
or transferred pursuant to the Plan and any outstanding Options and
Restricted Stock Awards and (ii) the Exercise Price to be paid per share
under any outstanding Options; PROVIDED, HOWEVER, that in the event of a
merger or consolidation of the Company, or similar transaction pursuant to
which the outstanding Stock is exchanged for cash or other property, the
unexercised Options shall thereafter be exercisable for, and the Restricted
Stock Awards shall entitle the Participant to receive, the cash or other
property which an Option or Restricted Stock Award holder, as the case may
be, would have been entitled to receive had the Options been exercised, or
the Restrictions relating to the Restricted Stock Award lapsed, immediately
prior to the record date for such merger, consolidation or similar
transaction except to the extent that provision is made in writing in
connection with such transaction for (1) the assumption of the Options by, or
the substitution for the Options of new options covering the stock of, a
successor acquiring corporation, in each case providing terms no less
favorable to the holder of such Options than would an assumption or
substitution described in Treasury Regulation '1.425-1(a) that would not
constitute a "modification" for purposes of Code '424(a), and (2) the
substitution for Restricted Stock Awards of stock of a successor or acquiring
corporation having terms no less favorable to the holder thereof than the
terms of the Restricted Stock Award in effect before such transaction.
10. ADMINISTRATION.
(a) The Plan shall be administered by the Committee. The Committee shall,
subject to the provisions of the Plan, have full power and authority to
administer the Plan, to select the Participants in the Plan, and,
except for grants and awards which are automatically made to Outside
Directors as provided pursuant to Section 3 of the Plan, to determine
the number of shares to be made subject to each Option and Restricted
Stock Award and all terms and conditions of each Option and Restricted
Stock Award. The Committee shall have the power to interpret the Plan
and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret,
amend or revoke any such rules. All actions taken and all
interpretations and
7
<PAGE>
determinations made by the Committee shall be final and binding upon
all Participants, the Company and all other interested persons, absent
a determination by a court of competent jurisdiction that the Committee
has acted in bad faith or has engaged in reckless or willful
misconduct.
(b) Members of the Committee and the Board and officers administering this
Plan shall be fully protected in taking actions under the Plan or in
relying upon the advice of counsel and shall incur no liability except
for bad faith, recklessness or willful misconduct in the performance of
their duties.
(c) Except as required by Rule 16b-3 with respect to grants of Options to
individuals who are subject to Section 16 of the Exchange Act, or as
otherwise required for compliance with Rule 16b-3 or other applicable
law, the Committee may delegate all or any part of its authority under
the Plan to an employee, employees or committee of employees.
(d) To the extent the Committee deems it necessary, appropriate or
desirable to comply with foreign law or practices and to further the
purpose of the Plan, the Committee may, without amending this Plan,
establish special rules applicable to Options granted to Participants
who are foreign nationals, are employed outside the United States, or
both, including rules that differ from those set forth in the Plan, and
grant Options to such Participants in accordance with those rules.
(e) Determinations by the Committee under the Plan relating to the form,
amount and terms and conditions of grants and awards need not be
uniform, and may be made selectively among persons who receive or are
eligible to receive grants and awards under the Plan, whether or not
such persons are similarly situated.
11. GENERAL PROVISIONS.
(a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any Person any right to continue in the employment or
other service of the Company (or any subsidiary), or shall affect the
right of the Company (or any subsidiary) to terminate the employment or
other service of any person at any time with or without Cause.
(b) The Company may make appropriate provisions for the withholding of any
taxes which the Company determines it is required to withhold in
connection with any Option or Restricted Stock Award including, at the
request of a Participant and provided that it does not violate any
applicable laws, the payment of such withholding taxes through a
broker-assisted sale of a sufficient number of shares underlying the
Option or subject to the Restricted Stock Award or by delivery to the
Company of shares of Stock previously owned by the Participant, in
either case having an actual sale price equal to the amount of such
taxes. Notwithstanding the foregoing, a Participant whose transactions
in Stock are subject to Section 16(b) of the Exchange Act may make a
share withholding election only if it complies with safeguards
established by the Committee designed to avoid "short swing" profits to
the Participant under Section 16(b) of the Exchange Act. The
certificates evidencing a Restricted Stock Award made to an Outside
Director pursuant to Section 3(c) hereof shall be automatically reduced
by 28% to provide for the estimated Federal income tax payment
obligation of the Outside Director, or by such other higher percentage
as may be required by law to be withheld, with the Company remitting to
the appropriate tax authorities the fair market value of the Restricted
Stock Award for which the certificates are not so delivered.
8
<PAGE>
(c) By accepting any benefits under the Plan, each Participant, and each
Person claiming under or through the Participant, shall be conclusively
deemed to have indicated acceptance and ratification of, and consent
to, all provisions of the Plan. Each Participant hereby further agrees
that amendments and modifications to the Plan, which may be adopted
from time to time by the Committee and/or the Board of the Corporation
(as set forth in Section 12 hereof), shall be binding upon such
Participant and upon all Options or Restricted Stock which the
Participant may hold, including (with retroactive effect) Options or
Restricted Stock previously granted to the Participant, except to the
extent set forth in Section 12 hereof.
(d) With respect to Participants subject to Section 16 of the Exchange Act,
transactions under the Plan are intended to comply with all applicable
provisions of Rule 16b-3 or its successor. To the extent any provision
the Plan or action by the Plan administrators fails to so comply, it
shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.
(e) A Participant shall have no rights as a stockholder of the Company with
respect to any Shares to be issued upon exercise of an Option until
such Participant has exercised such Option and becomes a holder of such
Shares.
12. AMENDMENTS; MODIFICATION AND TERMINATION.
This Plan may be amended or modified by the Committee, with ratification by
the Board, or terminated by the Board, at any time and in any respect,
except that no amendment shall be made without the approval of the
shareholders of the Company if shareholder approval would be required by
Rule 16b-3 under the Exchange Act or any other law or rule of any
governmental authority, stock exchange or other self-regulatory organization
to which the Company is subject. No such amendment, modification or
termination shall have effect to reduce the number of shares as to which any
Option or Restricted Stock Award previously has been granted to a
Participant; to extend the vesting schedule with respect to any Option or
Restricted Stock Award or to extend the period of non-competition or
confidentiality as set forth in Section 13 hereof. In the event of the
passage of any law, rule or regulation or a determination by any regulatory
agency or court, requiring an adverse change in the Company's accounting or
tax treatment relating to the Plan, the Committee shall have the right to
modify the terms of outstanding Options and Restricted Stock Awards to the
extent necessary to avoid the adverse consequences of such change.
13. CONFIDENTIALITY AND NON-COMPETITION; CONDUCT NOT IN THE INTEREST OF THE
CORPORATION.
By accepting Options or Restricted Stock Awards under the Plan and as a
condition to the exercise of Options and the enjoyment of any of the
benefits of the Plan, each Participant agrees as follows:
(a) CONFIDENTIALITY -- During the period of each Participant's employment
or service as a director with the Company (or the Participant's
engaging in any other activity with or for the Company) and for a two
year period thereafter, each Participant shall treat and safeguard as
confidential and secret all Confidential Information received by such
Participant at any time. Without the prior written consent of the
Company, except as required by law, such Participant will not disclose
or reveal any Confidential Information to any third party whatsoever or
use the same in any manner except in connection with the businesses of
the Company and its subsidiaries. In the event that a Participant is
requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand or other
process) to disclose (i) any Confidential Information
9
<PAGE>
or (ii) any information relating to his opinion, judgment or
recommendations concerning the Company or its subsidiaries as developed
from the Confidential Information, Participant will provide the Company
with prompt written notice of any such request or requirement so that
the Company may seek an appropriate protective order or waive
compliance with the provisions contained herein. If, failing the entry
of a protective order or the receipt of a waiver hereunder, Participant
is, in the reasonable opinion of his counsel, compelled to disclose
Confidential Information, Participant shall disclose only that portion
of the Confidential Information which his counsel advises that he is
compelled to disclose and will exercise best efforts to obtain
assurances that confidential treatment will be accorded such
Confidential Information.
(b) NON-COMPETITION -- During the period of employment with the Company or
its subsidiaries and, for a two-year period thereafter (the
"Non-Compete Period"), each Participant shall not, without prior
written consent of the Committee, do, directly or indirectly, any of
the following:
(1) own, manage, control or participate in the ownership, management,
or control of, or be employed or engaged by or otherwise
affiliated or associated with, any other corporation,
partnership, proprietorship, firm, association or other business
entity, or otherwise engage in any business which competes with
the business of the Company or any of its subsidiaries (as such
business is conducted during the term of such Participant's
employment with the Company or its subsidiaries) in the
geographical regions in which such business is conducted;
PROVIDED, HOWEVER, that the ownership of a maximum of one percent
of the outstanding stock of any publicly traded corporation shall
not violate this covenant; or
(2) employ, solicit for employment or assist in employing or
soliciting for employment any present, former or future employee,
officer or agent of the Company or any of its subsidiaries.
In the event any court of competent jurisdiction should determine that
the foregoing covenant of non-competition is not enforceable because of
the extent of the geographical area or the duration thereof, then the
Company and the affected Participant hereby petition such court to
modify the foregoing covenant to the extent, but only to the extent,
necessary to create a covenant which is enforceable in the opinion of
such court, with the intention of the parties that the Company shall be
afforded the maximum enforceable covenant of non-competition which may
be available under the circumstances and applicable law.
(c) Each Participant acknowledges that remedies at law for any breach by
him of this section 13 may be inadequate and that the damages resulting
from any such breach are not readily susceptible to being measured in
monetary terms. Accordingly, each Participant acknowledges that upon
his violation of any provision of this Section 13, the Company will be
entitled to immediate injunctive relief and may obtain an order
restraining any threatened or future breach. Each Participant further
agrees, subject to the proviso at the end of this sentence, that if he
violates any provision of this Section 13, he shall immediately forfeit
any rights and benefits under this Plan and shall return to the Company
any unexercised Options and forfeit the rights under any Restricted
Stock Awards and shall return any shares of Stock held by such
Participant received upon exercise of any Option or the lapse of the
Restrictions relating to Restricted Stock Awards granted hereunder,
together with any proceeds from sales of any shares of Stock received
upon exercise of such Options or the lapse of Restrictions of such
Restricted Stock Awards; PROVIDED, HOWEVER, that upon violation of
10
<PAGE>
subsection (b) of this Section, the forfeiture and return provisions
contained in this sentence shall apply only to Options which have
become exercisable, and Restricted Stock, the Restrictions with respect
to which have lapsed, and in any such case the proceeds of sales
therefrom, during the two year period immediately prior to termination
of the Participant's employment. Nothing in this Section 13 will be
deemed to limit, in any way, the remedies at law or in equity of the
Company, for a breach by Participant of any of the provisions of this
Section 13.
(d) Each Participant agrees to provide written notice of the provisions of
this Section 13 to any future employer of Participant, and the Company
expressly reserves the right to provide such notice to the
Participant's future employer(s).
(e) If any provision or part of any provision of this Section 13 is held
for any reason to be unenforceable, (i) the remainder of this Section
13 shall nevertheless remain in full force and effect and (ii) such
provision or part shall be deemed to be amended in such manner as to
render such provision enforceable.
14. GOVERNING LAW.
The validity, construction and effect of the Plan and any rules relating to
the Plan shall be determined in accordance with the laws of the State of
Delaware and applicable Federal law.
15. ARBITRATION.
The Company and each Participant hereby agree that in the event of any
dispute or controversy arising with respect to the Plan, any Stock Option
Agreement, the exercise of any Option (or the disallowance of any exercise
at any time, for any reason) or any other matter relating to Options or
Restricted Stock Awards, then such dispute or controversy shall be submitted
by the parties to mandatory and binding arbitration before a panel of
arbitrators appointed by the American Arbitration Association ("AAA"), each
of whom shall be knowledgeable in matters of securities in general and, if
possible, the administration of stock option programs similar to the Plan.
The arbitration proceedings shall be conducted in whichever of the following
cities is closest to the work location of the affected Participant: Delray
Beach, Florida; New York, New York; Kansas City, Missouri; Jackson,
Mississippi; or Atlanta, Georgia. The decision of the Company as to which
city is closest to the work location of the Participant shall be conclusive
and binding, except for manifest error. The decision of the arbitrators
shall be rendered in writing, shall be promptly rendered after a hearing on
the matter and shall be final, conclusive and binding and may be
incorporated in a final judgment rendered by any court of competent
jurisdiction.
Notwithstanding the foregoing, nothing contained herein shall preclude the
Company from seeking injunctive or other relief from any court of competent
jurisdiction to enforce the provisions of Section 13 hereof.
16. DEFINITIONS.
The following terms, when used in the Plan, shall have the meanings set
forth below:
ACTIVELY TRADED: Trading of Company Stock on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market
System in an average weekly volume that equals at least 0.20% of the
then outstanding Company Stock for each of at least four weeks in a
row.
BENEFICIAL OWNER: With respect to any securities of the Company, any
Person who is a beneficial
11
<PAGE>
owner of such securities as defined in rule 13d-3 under the Exchange
Act. The Committee may from time to time adopt interpretations or
pronouncements as to who shall be deemed to be Beneficial Owners of the
Company's outstanding voting securities as of a given date, which
interpretation shall be final and binding on all Participants, the
Company and all other interested Persons.
BOARD: The Board of Directors of the Company.
CAUSE: Any cause stated in an employment agreement between the Company
and the Participant and/or material violations of employment agreements
or the terms of this Plan, acts of dishonesty with respect to the
Company, insubordination, divulging confidential information about the
Company, interference with the relationship between the Company and any
supplier, client, customer, similar person, or performance of any act
or omission which the Committee, in its sole discretion, deems to be
sufficiently injurious to the interest of the Company to constitute
cause.
CHANGE IN CONTROL: The occurrence of any of the following: (i) a merger
or consolidation to which the Company is a party if the individuals and
entities who were stockholders of the Company immediately prior to the
effective date of such merger or consolidation are Beneficial Owners of
less than 50% of the total combined voting power for election of
directors of the surviving corporation following the effective date of
such merger or consolidation; or (ii) any Person becomes the Beneficial
Owner in the aggregate of securities of the Company representing 50% or
more of the total combined voting power of the Company's then issued
and outstanding securities unless such Person (or a Person owned
directly or indirectly by such Person) was the Beneficial Owner,
directly or indirectly, as of the Grant Date applicable to the affected
Participant, of more than 50% of the Company's voting securities
outstanding as of such Grant Date; or (iii) the sale of all or
substantially all of the assets of the Company to any person or entity
that is not a wholly-owned subsidiary of the Company; or (iv) the
stockholders of the Company approve any plan or proposal for the
liquidation of the Company.
CODE: Internal Revenue Code of 1986, as amended.
COMMITTEE: A committee designated by the Board consisting of not less
than two members of the Board who are "non-employee directors" as
defined in Rule 16b-3 under the Exchange Act, to administer the Plan.
COMPANY: Sunbeam Corporation (formerly known as Sunbeam-Oster Company,
Inc.)
CONFIDENTIAL INFORMATION: Any information not generally known to the
public, including, without limiting the generality of the foregoing,
any customer lists, supplier lists, trade secrets, invention, formulas,
methods or processes, whether or not patented or patentable, channels
of distribution, business plans, pricing policies and records,
financial information of any sort and inventory records of the Company
or any affiliate (and such other information normally understood to be
confidential or otherwise designated as such in writing by the Company
or its subsidiaries). It is not necessary, however, that any
information be formally designated as "confidential" if it falls within
any of the foregoing categories and is not generally known to the
public.
DESIGNATED OTHER: Any consultant, advisor, contractor or agent of the
Company or its subsidiaries, who is not an employee, officer or Outside
Director of the Company and who is granted Options or a Restricted
Stock Award pursuant to this Plan.
12
<PAGE>
EFFECTIVE DATE: January 1, 1991; Amended and Restated as of May 15,
1996.
ERISA: Titles I and IV of the Employee Retirement Income Security Act
of 1974, as amended.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXERCISE PRICE: The Exercise Price of shares purchasable upon exercise
of an Option, as determined pursuant to the terms of Section 5(a).
FAIR MARKET VALUE: The fair market value of a share of Stock, as
determined pursuant to the terms of Section 7.
GRANT DATE: The date as of which the Committee (or such other committee
of the Board of Directors of the Company as shall be empowered to grant
Options or to make awards of Restricted Stock) shall grant Options or
Restricted Stock, as the case may be, to a Participant under the Plan,
as so designated by such Committee.
IN-THE-MONEY: Options to acquire Stock are considered to be
"in-the-money" if the exercise price of the Option is less than the
current market price of the Stock.
NEXT OPTION INCREMENT: This term shall have the meaning ascribed to it
in Section 4(a)(iii).
OPTION: An option, granted under the Plan, to purchase shares of Stock
at the Exercise Price. Options granted under the Plan shall not be
incentive stock options pursuant to Section 422 of the Code.
OPTION YEAR: This term shall have the meaning ascribed to it in Section
4(a)(iii).
OUT-OF-THE-MONEY: Options to acquire Stock are considered to be
"out-of-the-money" if the exercise price is equal to or greater than
the current market price of the Stock.
OUTSIDE DIRECTOR: A director of the Company who is not either: (i) an
officer or employee of the Company, or (ii) a Beneficial Owner of, or
an officer or employee of any Person which is a direct or indirect
Beneficial Owner of, more than 10% of the outstanding Stock.
PARTICIPANT: An officer, employee, Outside Director of the Company (or
a subsidiary of the Company) or Designated Other who is granted an
Option or a Restricted Stock Award under the Plan by the Committee.
Upon the death of a Participant, the "Participant" shall be deemed to
mean the Participant's estate or legal representative.
PERSON: Any individual, corporation, partnership, association, company,
trust, joint venture or other organization or entity or group of
associated persons or entities acting in concert. As used herein,
references to the male gender shall include the female gender or the
neuter, as applicable.
PLAN: The Sunbeam Corporation Stock Option Plan herein set forth, as it
may be amended from time to time.
RESTRICTED PERIOD: This term shall have the meaning ascribed to it in
Section 4(b)(iii).
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<PAGE>
RESTRICTED STOCK: Shares of Stock granted pursuant to Section 3(b) or
(c) of the Plan.
RESTRICTED STOCK AWARD: The grant of Shares of Restricted Stock to a
Participant pursuant to Section 3(b) or 3(c) of the Plan.
RESTRICTED STOCK AWARD AGREEMENT: The agreement described in Section
3(e).
RESTRICTIONS: The restrictions described in Section 4(b) relating to
Restricted Stock.
"SHARES" or "STOCK": The Common Stock, $0.01 par value per share, of
the Company, or such other class of securities as may be applicable
pursuant to the provisions of Section 9.
STOCK OPTION AGREEMENT: The agreement described in Section 3(e).
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SUNBEAM
CORPORATION FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 1998 AND JUNE
29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-28-1997
<PERIOD-START> DEC-29-1997 DEC-30-1996
<PERIOD-END> JUN-30-1998 JUN-29-1997
<CASH> 43,151 57,970
<SECURITIES> 0 0
<RECEIVABLES> 558,483 260,143
<ALLOWANCES> 35,418 26,177
<INVENTORY> 645,626 213,645
<CURRENT-ASSETS> 1,278,465 622,972
<PP&E> 532,586 436,622
<DEPRECIATION> 116,371 198,082
<TOTAL-ASSETS> 3,591,121 1,086,670
<CURRENT-LIABILITIES> 1,861,243 261,455
<BONDS> 769,399 174,855
0 0
0 0
<COMMON> 1,008 896
<OTHER-SE> 615,784 445,548
<TOTAL-LIABILITY-AND-EQUITY> 3,591,121 1,086,670
<SALES> 826,089 523,879
<TOTAL-REVENUES> 826,089 523,879
<CGS> 844,794 410,328
<TOTAL-COSTS> 844,794 410,328
<OTHER-EXPENSES> 5,251 413
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 47,480 4,966
<INCOME-PRETAX> (283,376) 28,524
<INCOME-TAX> 5,132 10,775
<INCOME-CONTINUING> (286,445) 17,749
<DISCONTINUED> 0 (13,713)
<EXTRAORDINARY> (111,715) 0
<CHANGES> 0 0
<NET-INCOME> (398,160) 4,036
<EPS-PRIMARY> (4.26) 0.05
<EPS-DILUTED> (4.26) 0.05
</TABLE>
EXHIBIT 99.a
[SUNBEAM LOGO]
Contacts: INVESTMENT COMMUNITY MEDIA
Marc R. Shiffman George Sard/Maureen Bailey
Sunbeam Corporation Sard Verbinnen & Co.
(561) 243-2142 (212) 687-8080
SUNBEAM FILES AMENDED FORM 10-K FOR 1997
DELRAY BEACH, FL, NOVEMBER 12, 1998--Sunbeam Corporation (NYSE: SOC)
announced today that it has filed with the SEC an amended Form 10-K for 1997,
which contains restated financial statements for 1996 and 1997.
The restated financial results contained in the filing are identical to
those that were set forth in the press release issued by Sunbeam on October 20,
1998. As a result of subsequent analysis in connection with the completion of
the amended Form 10-K, Sunbeam has adjusted two items included in the text of
the press release (but not in the tables). As set forth in the amended Form
10-K, 1996 after-tax results from continuing operations excluding restructuring,
restructuring-related and other one-time charges now reflect a loss of $33.9
million, as compared to a previously reported profit of $10.8 million.
Similarly, 1997 after-tax results from continuing operations excluding the
non-recurring benefit primarily from the reversal of restructuring and certain
operating and tax accruals and excluding restructuring-related charges now
reflect a profit of $6.8 million as compared to a previously reported loss of
$6.4 million. The primary reasons for these changes were the identification of
additional charges unlikely to occur on a regular basis and the adjustment to
the tax effect on previously reported pro forma items.
The Company also stated in the filing that results for 1998 are
currently expected to be impacted materially by charges related to, among other
items, a provision for excess inventory, a change in management, changes in
business operations resulting in part from acquisitions made in 1998, higher
interest costs related to higher debt levels, costs associated with litigation
and restructuring and asset impairment costs, as well as costs related to Year
2000 issues.
In the next several weeks, the Company expects to file with the SEC its
amended Form 10-Q for the first quarter of 1998 and Forms 10-Q for the second
and third quarters of 1998.
<PAGE>
Sunbeam Corporation is a leading consumer products company that
designs, manufactures and markets, nationally and internationally, a diverse
portfolio of consumer products under such world-class brands as
Sunbeam/registered trademark/, Oster/registered trademark/,
Grillmaster/registered trademark/, Coleman/registered trademark/, Mr.
Coffee/registered trademark/, First Alert/registered trademark/,
Powermate/registered trademark/, Health o meter/registered trademark/,
Eastpak/registered trademark/ and Campingaz/registered trademark/.
###
EXHIBIT 99.b
[GRAPHIC OMITTED]
Contacts: INVESTMENT COMMUNITY MEDIA
Marc R. Shiffman George Sard/Maureen Bailey
Sunbeam Corporation Sard Verbinnen & Co.
(561) 243-2142 (212) 687-8080
SUNBEAM REPORTS SECOND AND THIRD QUARTER 1998 RESULTS
RESULTS INCLUDE $302 MILLION OF LARGELY NON-CASH NET CHARGES;
COMPANY REPORTS IMPROVEMENT IN CASH FLOW, PROGRESS IN WORKING DOWN INVENTORIES
- --------------------------------------------------------------------------------
DELRAY BEACH, FL, DECEMBER 16, 1998--Sunbeam Corporation (NYSE: SOC) today
announced results for the second and third quarters of 1998.
In the second quarter, Sunbeam reported net sales of $578.5 million and a
net loss of $344.1 million (including $213 million in primarily non-recurring
items), or a loss of $3.41 per diluted share.
In the third quarter, Sunbeam reported net sales of $496.0 million and a net
loss of $188.9 million (including $89 million in primarily non-recurring items),
or a loss of $1.88 per diluted share.
Jerry W. Levin, President and Chief Executive Officer of Sunbeam, said:
"These losses provide a clear indication of the measures necessary to stabilize
Sunbeam's businesses and get the Company back on track. Second and third quarter
results reflect $302 million in largely non-cash non-recurring net charges, as
well as substantial operating losses largely due to the effects of excessive
inventories that had been built up, both in the trade and at the Company, during
prior periods. These losses should not detract from the significant progress we
have made in a number of important areas. We have assembled an outstanding
management team, which is now in place and focused on our dual objectives of
growth and profitability. We believe we have worked down retail trade
inventories by more than $80 million and expect them to be in balance by
year-end. We have also made progress on our own surplus inventories. Excluding
grills, POS sell-through continues to be positive and Sunbeam's brands are
strong. We have improved cash flow and our cash requirements for operating
activities in the third quarter totaled less than $10 million. The fourth
quarter is tracking at about the same rate. This represents a significant
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<PAGE>
improvement from the nearly $220 million Sunbeam used in the first six months of
1998. Our liquidity remains ample, with $300 million in cash and borrowing
capacity. While our fourth quarter will continue to be burdened by certain
non-recurring charges and the working down of remaining excess inventories, the
quarter should begin to show improving performance. We expect this improvement
to gain momentum in 1999."
In accordance with generally accepted accounting principles, Sunbeam has
classified $1.4 billion in debt as short term, reflecting the previously
announced modification of its covenant requirements through April 10, 1999.
NINE MONTHS RESULTS
For the nine months ended September 30, 1998, Sunbeam reported net sales of
$1.3 billion, compared with $810.7 million the prior year. The 1998 results
reflect the acquisition of an 81% interest in The Coleman Company, Inc., which
closed March 30, as well as the acquisitions of First Alert and Signature
Brands, which closed April 6. Excluding the $717.2 million of sales generated by
the acquired entities and the effects of a change in fiscal year, sales of
discontinued inventory, divested product lines and a benefit in 1997 from the
reduction of cooperative advertising accruals, comparable sales were $594.0
million, a decrease of 24% from $776.8 million in the first nine months of 1997.
Product sales were adversely affected by changes in retail inventory levels,
price discounting and higher provisions for estimated returns, shipping costs,
rebates and other customer allowances.
For the nine months, Sunbeam reported a net loss of $587.1 million, or $6.12
per basic and diluted share, compared with earnings of $28.8 million, or $0.34
per basic share and $0.33 per diluted share in the prior year.
The 1998 period includes $339 million in charges, of which $37 million was
taken in the first quarter, $213 million in the second quarter, and $89 million
in the third quarter. Charges related to excess inventory and impaired fixed
assets, taken principally in the second quarter, totaled $119 million.
Additionally, 1998 results include $112 million related to the early
extinguishment of debt, $34 million of severance and compensation expense
(including $31 million of executive compensation expense recorded in the first
quarter), and a $70 million charge related to issuance of warrants. Also
reflected in the 1998 results are $18 million of fees related primarily to the
restatement of the Company's historical financial statements and related
-more-
<PAGE>
litigation, and Year 2000 remediation as well as $14 million of non-recurring
benefits comprised of a litigation settlement and the reversal of reserves no
longer required.
Interest expense for the nine months rose to $90.1 million from $7.8
million the prior year, primarily related to higher borrowing levels in 1998 for
the acquisitions and for increased working capital.
SECOND QUARTER RESULTS
Second quarter net sales were $578.5 million, compared with $271.4 million
in the prior year. Excluding $376.3 million in 1998 sales generated by the
acquired entities and $8.3 million in 1997 sales of discontinued inventory and
sales reserve reversals, comparable net sales were $202.2 million in 1998, a 23%
decrease from $263.1 million in the second quarter of 1997.
The second quarter net loss was $344.1 million, or $3.41 per basic and
diluted share, compared with net income of $8.7 million, or $0.10 per basic and
diluted share for the prior year.
THIRD QUARTER RESULTS
Third quarter net sales were $496.0 million, compared with $286.8 million in
the prior year. Excluding $326.1 million in sales generated by the acquired
entities, $1.9 million for a change in fiscal period related to the
acquisitions, and discontinued inventory sales of $5.4 million in 1998 and $7.6
million in 1997, comparable net sales were $162.6 million, a 42% decrease from
$279.2 million in the third quarter of 1997.
The third quarter net loss was $188.9 million, or $1.88 per basic and
diluted share, compared with net income in the 1997 period of $24.8 million, or
$0.29 per basic share and $0.28 per diluted share.
Sunbeam Corporation is a leading consumer products company that designs,
manufactures and markets, nationally and internationally, a diverse portfolio
of consumer products under such world-class brands as Sunbeam/registered
trademark/, Oster/registered trademark/, Grillmaster/registered trademark/,
Coleman/registered trademark/, Mr. Coffee/registered trademark/ , First
Alert/registered trademark/, Powermate/registered trademark/, Health o
meter/registered trademark/, Eastpak/registered trademark/ and
Campingaz/registered trademark/.
CAUTIONARY STATEMENTS
CERTAIN STATEMENTS IN THIS PRESS RELEASE CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS
OF SUNBEAM TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS DUE
TO VARIOUS FACTORS, INCLUDING THOSE SET FORTH UNDER THE CAPTIONS "CAUTIONARY
STATEMENTS" IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
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<PAGE>
<TABLE>
<CAPTION>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 29, JUNE 30, JUNE 29,
1998 1997 1998 1997
-------- -------- -------- --------
AS RESTATED AS RESTATED
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales .................................... $ 578,488 $271,391 $826,089 $523,879
Cost of goods sold............................ 630,965 216,055 844,794 410,328
Selling, general and administrative expense... 140,801 38,489 211,940 79,648
--------- -------- -------- --------
Operating (loss) earnings..................... (193,278) 16,847 (230,645) 33,903
Interest expense.............................. 42,408 2,973 47,480 4,966
Other expense, net............................ 2,085 336 5,251 413
--------- -------- -------- --------
(Loss) earnings from continuing operations
before income taxes, minority interest
and extraordinary charges.................. (237,771) 13,538 (283,376) 28,524
Income taxes (benefit):
Current..................................... 3,272 (4,655) 3,598 (5,707)
Deferred.................................... 1,983 9,471 1,534 16,482
--------- -------- --------- --------
5,255 4,816 5,132 10,775
--------- -------- --------- --------
Minority interest............................. (2,063) - (2,063) -
--------- -------- --------- --------
(Loss) earnings from continuing operations
before extraordinary item................... (240,963) 8,722 (286,445) 17,749
Loss from discontinued operations, net of taxes - - - (13,713)
Extraordinary charges from early extinguishment
of debt, net of taxes ...................... (103,091) - (111,715) -
--------- -------- --------- --------
Net (loss) earnings............................ $(344,054) $ 8,722 $(398,160) $ 4,036
========= ======== ========= ========
(Loss) earnings per share:
(Loss) earnings from continuing operations
before extraordinary charges:
Basic.................................. $ (2.39) $ 0.10 $ (3.06) $ 0.21
Diluted................................ (2.39) 0.10 (3.06) 0.20
Loss from discontinued operations:
Basic................................... - - - (0.16)
Diluted................................. - - - (0.15)
Extraordinary charge:
Basic................................... (1.02) - (1.20) -
Diluted................................. (1.02) - (1.20) -
--------- -------- --------- --------
Net (loss) earnings:
Basic................................... $ (3.41) $ 0.10 $ (4.26) $ 0.05
========= ======== ========= ========
Diluted................................. $ (3.41) $ 0.10 $ (4.26) $ 0.05
========= ======== ========= ========
Weighted average common shares outstanding:
Basic................................... 100,804 84,815 93,518 84,501
Diluted................................. 100,804 87,212 93,518 86,711
Dividends declared per share of common stock... $ 0.01 $ 0.01 $ 0.02 $ 0.02
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28,
1998 1997 1998 1997
---------- ---------- -------- ----------
AS RESTATED AS RESTATED
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ...................................... $ 496,039 $286,819 $1,322,129 $810,698
Cost of goods sold.............................. 428,629 210,359 1,273,424 620,646
Selling, general and administrative expense..... 228,441 31,362 440,381 111,051
--------- -------- ---------- --------
Operating (loss) earnings....................... (161,031) 45,098 (391,676) 79,001
Interest expense................................ 42,669 2,850 90,149 7,816
Other income, net............................... (10,987) (1,307) (5,738) (894)
--------- -------- ---------- --------
(Loss) earnings from continuing operations
before income taxes, minority interest
and extraordinary charges.................... (192,713) 43,555 (476,087) 72,079
Income taxes (benefit):
Current....................................... 396 18,580 3,995 12,873
Deferred...................................... (2,814) (2,476) (1,280) 14,006
--------- -------- ---------- --------
(2,418) 16,104 2,715 26,879
--------- -------- ---------- --------
Minority interest............................... (1,384) - (3,447) -
--------- -------- ---------- --------
(Loss) earnings from continuing operations
before extraordinary item..................... (188,911) 27,451 (475,355) 45,200
Loss from discontinued operations, net of taxes. - (2,683) - (16,396)
Extraordinary charges from early extinguishment
of debt, net of taxes ....................... - - (111,715) -
--------- -------- ---------- --------
Net (loss) earnings............................. $(188,911) $ 24,768 $ (587,070) $ 28,804
========= ======== ========== ========
(Loss) earnings per share:
(Loss) earnings from continuing operations
before extraordinary charges:
Basic.................................... $ (1.88) $ 0.32 $ (4.96) $ 0.53
Diluted.................................. (1.88) 0.31 (4.96) 0.52
Loss from discontinued operations:
Basic.................................... - (0.03) - (0.19)
Diluted.................................. - (0.03) - (0.19)
Extraordinary charge:
Basic.................................... - - (1.16) -
Diluted.................................. - - (1.16) -
--------- -------- ---------- --------
Net (loss) earnings:
Basic.................................... $ (1.88) $ 0.29 $ (6.12) $ 0.34
========= ======== ========== ========
Diluted.................................. $ (1.88) $ 0.28 $ (6.12) $ 0.33
========= ======== ========== ========
Weighted average common shares outstanding:
Basic.................................... 100,722 85,283 95,919 84,762
Diluted.................................. 100,722 88,075 95,919 87,216
Dividends declared per share of common stock.... $ 0.00 $ 0.01 $ 0.02 $ 0.03
</TABLE>
