<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUNBEAM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3634 25-1638266
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2381 EXECUTIVE CENTER DRIVE
BOCA RATON, FLORIDA 33431
(561) 912-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JANET G. KELLEY, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
SUNBEAM CORPORATION
2381 EXECUTIVE CENTER DRIVE
BOCA RATON, FLORIDA 33431
(561) 912-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copy to:
GREGORY A. FERNICOLA, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 735-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(3) OFFERING PRICE(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Zero Coupon Convertible Senior Subordinated
Debentures due 2018......................... $2,014,000,000.00(1) $130.00 $261,820,000.00 $72,785.96
Common Stock, par value $.01 per share...... 13,242,050 shares(2) -0-(4) -0-(4) -0-(4)
Total....................................... -- -- $261,800,000.00 $72,785.96
</TABLE>
(1) Represents the aggregate principal amount at maturity. The Zero Coupon
Convertible Senior Subordinated Debentures due 2018 (the "Debentures") of
Sunbeam Corporation ("Sunbeam" or the "Company") were issued at an original
price of $372.43 per $1,000 principal amount at maturity.
(2) Includes the shares of common stock, par value $.01 per share ("Common
Stock"), of Sunbeam, initially issuable upon conversion of the Debentures at
the rate of 6.575 shares of Common Stock per $1,000 principal amount at
maturity of Debentures. Pursuant to Rule 416 under the Securities Act, such
number of shares of Common Stock registered hereby shall also include an
indeterminate number of additional shares of Common Stock that may be issued
from time to time upon conversion of the Debentures by reason of adjustment
of the conversion price in certain circumstances outlined in the prospectus.
See "Description of Debentures--Conversion of Debentures."
(3) Estimated solely for the purpose of calculating the amount of the
registration fee based on $130 per $1,000 principal amount at maturity, the
last reported sale price of the Debentures in the PORTAL market prior to
filing this registration statement.
(4) Pursuant to Rule 457(i) under the Securities Act, there is no filing fee
with respect to the shares of Common Stock issuable upon conversion of the
Debentures, because no additional consideration will be received in
connection with the exercise of the conversion privilege.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1999
PROSPECTUS
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SECURITIES COVERED BY THIS PROSPECTUS MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT, OF WHICH THIS PROSPECTUS FORMS A PART, FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE SUCH AN OFFER OR SALE IS NOT PERMITTED.
SUNBEAM CORPORATION
$2,014,000,000
ZERO COUPON CONVERTIBLE SENIOR SUBORDINATED DEBENTURES DUE 2018
AND
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE DEBENTURES
The selling securityholders described in this prospectus may sell up to
$2,014,000,000 aggregate principal amount at maturity of our Zero Coupon
Convertible Senior Subordinated Debentures (the "Debentures") and up to
13,242,050 shares of our common stock, issuable upon conversion of the
Debentures.
TERMS OF THE DEBENTURES
o Maturity Date. March 25, 2018
o Yield to Maturity. We originally issued the Debentures at a price of $372.43
per $1,000 principal amount at maturity. We will not make any periodic
interest payments on the Debentures. Based on the issue price, the yield to
maturity of the Debentures is 5.0% per annum.
o Conversion. The holders may convert their Debentures any time from now until
maturity into our common stock at a rate of 6.575 shares per $1,000 principal
amount at maturity of the Debentures, subject to anti-dilution adjustments.
o Subordination. The Debentures are unsecured and are subordinated to all of
Sunbeam's existing and future senior indebtedness. The Debentures are
effectively subordinated to all indebtedness and other liabilities of
Sunbeam's subsidiaries.
o Original Issue Discount. We issued the Debentures at an original issue
discount. As a prospective purchaser of the Debentures, you should be aware
that, although there will be no periodic payments of interest on the
Debentures, accrued original issue discount will be included periodically in
your gross income for U.S. federal income tax purposes while you hold the
Debentures.
o Redemption. We may not redeem the Debentures at our option prior to
March 25, 2003. We may redeem some or all of the Debentures at any time on or
after March 25, 2003.
o Fundamental Change. If certain transactions occur which would result in our
common stock being exchanged for consideration other than common stock of a
publicly traded company (defined in the indenture governing the Debentures as
a Fundamental Change), holders may at their option require us to redeem their
Debentures for cash.
o Purchase at Holder's Option. Holders of the Debentures can require us to
repurchase the Debentures on March 25, 2003, March 25, 2008 and March 25,
2013. We have the choice of paying in cash or in shares of our common stock.
THIS INVESTMENT IS VERY RISKY. SEE THE RISK FACTORS SECTION BEGINNING ON
PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where to Find More Information.............................................................................. iii
Prospectus Summary.......................................................................................... 1
Risk Factors................................................................................................ 7
Recent Developments......................................................................................... 16
Price Range of Common Stock and Dividend Policy............................................................. 22
Capitalization.............................................................................................. 23
Ratio of Earnings to Fixed Charges.......................................................................... 24
Use of Proceeds............................................................................................. 24
Unaudited Pro Forma Condensed Statements of Operations...................................................... 25
Selected Historical Financial Information................................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 32
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................ 46
Business.................................................................................................... 47
Management.................................................................................................. 59
Security Ownership of Management............................................................................ 73
Security Ownership of Certain Beneficial Owners............................................................. 74
Description of Debentures................................................................................... 75
Book-Entry; Delivery and Form............................................................................... 89
Registration Rights......................................................................................... 91
Description of Other Indebtedness........................................................................... 92
Description of Capital Stock................................................................................ 94
Certain United States Federal Income Tax Considerations..................................................... 95
Selling Securityholders..................................................................................... 98
Plan of Distribution........................................................................................ 100
Legal Matters............................................................................................... 101
Experts..................................................................................................... 101
Index to Financial Statements............................................................................... F-1
</TABLE>
ii
<PAGE>
WHERE TO FIND MORE INFORMATION
We have filed a registration statement on Form S-1 to register the offered
securities with the Securities and Exchange Commission. This prospectus is a
part of that registration statement. As allowed by SEC rules, this prospectus
does not contain all of the information contained in the registration statement
or the exhibits to the registration statement.
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Accordingly, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. We also furnish to our
stockholders annual reports, which include financial statements audited by our
independent certified public accountants, and other reports which the law
requires us to send to our stockholders. The public may read and copy any
reports, proxy statements, or other information that we file at the SEC's public
reference room at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C.
20549. The public may obtain information on the operation of the public
reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at "http://www.sec.gov."
Our common stock is listed on the New York Stock Exchange. You can inspect
and copy reports, proxy statements and other information about us at their
offices at 20 Broad Street, New York, New York 10005.
------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary contains basic information about this offering. It
likely does not contain all the information that is important to you. For a more
complete understanding of this offering, we encourage you to carefully read this
entire prospectus and the documents we have referred you to.
SUNBEAM CORPORATION
We are a leading designer, manufacturer and marketer of consumer products
sold under the Sunbeam(Registered), Oster(Registered), Coleman(Registered),
First Alert(Registered), Mr. Coffee(Registered) and other brand names. Our
primary business is the manufacture, marketing and distribution of durable
household and outdoor consumer products through mass merchandisers, home centers
and other channels in the United States and internationally. We also sell our
products to commercial end users such as hotels and other institutions. Sunbeam
products enjoy a long-standing reputation for quality, and a majority of our
sales are from products which hold the number one or two market share in their
respective product categories.
Our principal executive offices are located at 2381 Executive Center Drive,
Boca Raton, Florida 33431. Our main phone number is (561) 912-4100.
RECENT DEVELOPMENTS
1998 Acquisitions and Financings. On March 30, 1998, we acquired from an
affiliate of MacAndrews & Forbes Holdings, Inc. ("MacAndrews & Forbes"),
indirect beneficial ownership of approximately 81% (79% after the exercise of
certain stock options immediately after the acquisition) of the then outstanding
common stock of The Coleman Company, Inc. ("Coleman") for 14,099,749 shares of
our common stock and approximately $160 million in cash. In connection with this
acquisition, we assumed approximately $1,016 million of indebtedness, including
indebtedness of Coleman's parent. In addition, we agreed to acquire the rest of
the Coleman common stock in a subsequent merger (the "Coleman Merger") for
approximately 6.7 million shares of our common stock and $87 million in cash.
Although we cannot assure you of this, we anticipate that the Coleman Merger
will occur in the first half of this year. Coleman is a leading manufacturer and
marketer of consumer products for the worldwide outdoor recreation market. Its
products have been sold under the Coleman brand name since the 1920s.
In April 1998, we acquired for cash 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 acquisition was valued at approximately
$178 million, including the assumption of debt, and the Signature Brands
acquisition was valued at approximately $253 million, including the assumption
of debt.
In order to finance the cash needed for the 1998 acquisitions and to repay
substantially all indebtedness of Sunbeam, Coleman, Signature Brands and First
Alert in connection with the acquisitions, we consummated the original offering
of the Debentures which yielded approximately $730 million of net proceeds to
us, and borrowed approximately $1,325 million under a new bank credit facility
(the "New Credit Facility").
Management and Board Changes. On March 19, 1998, our prior management
issued a press release stating that our net sales for the first quarter of 1998
might be lower than the range of Wall Street analysts' estimates of
$285 million to $295 million, but that net sales were expected to exceed 1997
first quarter net sales of $253.4 million.
On April 3, 1998, our prior management issued a press release announcing
that sales for the first quarter of 1998 were expected to be approximately 5%
lower than those achieved in the first quarter of 1997 and, due to the lower
sales and significant one-time charges, a loss was expected for the quarter.
On May 11, 1998, our prior management announced 1998 first quarter results
and made certain forecasts for the remainder of 1998 and beyond. They reported
net sales of $244.3 million for the quarter, as compared to $253.5 million in
the first quarter of 1997. Before one-time charges of $36.8 million for early
retirement of debt and compensation expense relating to new employment
agreements with three former executives, they
1
<PAGE>
reported a net loss from continuing operations of $7.8 million in the first
quarter of 1998 versus net income from continuing operations of $20.6 million in
the first quarter of 1997. After the one-time charges of $0.43 per share, the
loss per share was $0.52 in the 1998 quarter, compared with earnings per share
of $0.08 in the comparable 1997 period.
On June 13, 1998, the Sunbeam Board of Directors terminated Albert J.
Dunlap as Chairman and Chief Executive Officer. Shortly thereafter, our Board
terminated Russell A. Kersh as Sunbeam's Vice Chairman and Chief Financial
Officer. Our Board took these steps because the outside directors had lost
confidence in Mr. Dunlap's leadership. About the same time, our Board elected
Peter A. Langerman as non-executive Chairman of the Board and Jerry W. Levin as
new Chief Executive Officer. Mr. Langerman, an outside director of Sunbeam since
1990, is President and Chief Executive Officer of Franklin Mutual Advisers,
Inc., the investment adviser to Franklin Mutual Series Fund, Inc. ("Franklin
Mutual Series Fund"), our largest stockholder, which owns about 17% of our
common stock. Mr. Levin is an Executive Vice President of MacAndrews & Forbes,
our second largest stockholder, which owns about 14% of our common stock.
Mr. Levin was Chairman and Chief Executive Officer of Coleman at the time
Sunbeam acquired it, and previously was the Chairman and Chief Executive Officer
of Revlon, Inc., an affiliate of MacAndrews & Forbes.
On June 15, 1998, when we announced these management changes, we also
announced that we had continued to incur operating losses in the second quarter
of 1998 and no longer expected to achieve the forecasts made by prior management
on May 11, 1998.
On June 16, 1998, our Board increased the number of its members by three
directors and elected to the Board Mr. Levin, Howard Gittis, a Vice Chairman of
MacAndrews & Forbes, and Lawrence Sondike, a Senior Vice President of Franklin
Mutual Advisers, Inc.
On July 8, 1998 William T. Rutter resigned from our Board of Directors.
Faith Whittlesey, one of our current directors, has since taken Mr. Rutter's
place on the Board's Audit Committee. In January 1999, Lawrence Sondike resigned
from our Board.
Restatement of Financial Results and Change in Auditors. On June 25, 1998,
we announced that our auditor, Arthur Andersen LLP ("Arthur Andersen"), would
not consent to the inclusion of its opinion on our 1997 financial statements in
a registration statement we were then planning to file with the SEC to register
the securities being offered through this prospectus. On June 30, 1998, we
announced that the Audit Committee of our Board would review the accuracy of our
1997 financial statements with assistance from Arthur Andersen LLP and a second
accounting firm, Deloitte & Touche LLP ("Deloitte & Touche"), and that, pending
the completion of this review, our financial statements should not be relied
upon.
On August 6, 1998, we announced that the Audit Committee of our Board of
Directors had determined that we would be required to restate our financial
statements for 1997, the first quarter of 1998, and possibly 1996, and that the
adjustments, while not then quantified, would be material.
On October 20, 1998, we announced the restatement of our financial results
for a six-quarter period from the fourth quarter of 1996 through the first
quarter of 1998. We had to restate these financial results because our
previously issued financial statements generally overstated losses for 1996,
overstated profits for 1997 and understated losses for the first quarter of
1998.
On November 20, 1998, we announced that our Board of Directors had approved
the appointment of Deloitte & Touche to replace Arthur Andersen as our
independent auditors.
Discussions with Bank Creditors. At November 30, 1998, under the New
Credit Facility we had approximately $1,421 million of indebtedness outstanding
and approximately $277 million available for us to borrow. The New Credit
Facility contains covenants with financial tests that we have to meet on a
quarterly basis. At June 30, 1998 we were not in compliance with the financial
tests due to our losses, but our bank creditors under the New Credit Facility
agreed to waive compliance through December 31, 1998. On October 19, 1998 our
bank creditors agreed that we would not have to meet the original financial
tests until April 10, 1999. However, we are required to meet an earnings before
interest, taxes, depreciation and amortization test beginning in February 1999.
2
<PAGE>
We are currently working with our bank creditors with the objective of
further amending the New Credit Facility so that we will not be in default when
the existing amendment expires on April 10, 1999. However, if we are unable to
reach agreement with our bank creditors or have them again waive our compliance
with the covenants by April 10, 1999, they will be able to accelerate the
payment of all the debt we owe them.
Litigation and Other Contingent Liabilities. Beginning in April 1998 many
lawsuits alleging claims arising under Delaware law, Texas law and federal and
state securities laws have been filed against us and certain of our current and
former directors, former officers and Arthur Andersen in various federal and
state courts. Many of these suits relate to our financial performance from the
second quarter of 1997 through the second quarter of 1998. Many plaintiffs are
claiming that certain of our current and former directors and officers breached
their fiduciary duties and that our prior management misrepresented and omitted
material information in our public filings and in their statements concerning
our historical and expected future results of operations for the purpose of
artificially inflating the market price of our common stock. Three of our
insurers have gone to court to have the directors' and officers' liability
policies we have with them declared invalid or canceled. We are unable to
predict the outcome of or our potential exposure to damages from these lawsuits.
However, the outcome could have a material adverse effect on our financial
condition, results of operations and cash flow.
In July 1998 the SEC commenced a formal investigation of us after informing
us in the previous month of an informal investigation. We have cooperated fully
with the SEC and furnished the SEC with documents they requested. We cannot
predict how long the SEC investigation will continue or its outcome.
On August 12, 1998, we announced that we had entered into a settlement
agreement with the MacAndrews & Forbes affiliate which sold us a controlling
interest in Coleman in March 1998. Pursuant to this settlement agreement, the
MacAndrews & Forbes affiliate released us from certain threatened claims arising
from that acquisition, in which the MacAndrews & Forbes affiliate received
14,099,749 shares of our common stock. In addition, MacAndrews & Forbes agreed
to provide certain management personnel and assistance to us. In exchange we
issued to the MacAndrews & Forbes affiliate a five-year warrant to purchase up
to 23 million shares of our common stock at an exercise price of $7 per share,
subject to certain anti-dilution provisions.
On October 21, 1998, we announced a memorandum of understanding to settle,
subject to court approval, certain lawsuits brought by stockholders of Coleman
challenging the proposed Coleman Merger. Under the terms of the proposed
settlement, if approved by the court we will issue to the minority stockholders
of Coleman five-year warrants to purchase 4.98 million shares of our common
stock at an exercise price of $7 per share, subject to certain anti-dilution
adjustments. In addition, as originally contemplated, we will acquire for
approximately 6.7 million shares of our common stock and $87 million in cash,
the remaining outstanding shares of Coleman common stock in the Coleman Merger.
NYSE Listing. On May 22, 1998, the New York Stock Exchange advised us that
we did not meet their continuing listing standards. We have met with NYSE
officials and intend to provide to the NYSE a plan demonstrating our ability to
achieve compliance with the NYSE's listing standards over the years 1999, 2000
and 2001. We anticipate that our common stock will continue to be listed on the
NYSE, but we are not sure what the NYSE's position will be. De-listing would be
very detrimental to Sunbeam and our securityholders.
Delayed Filing of Registration Statement. We agreed with Morgan Stanley &
Co., Incorporated, the initial purchaser of the Debentures, to file a
registration statement relating to the Debentures and related Sunbeam common
stock by June 23, 1998. Arthur Andersen refused to give consent to include their
audit opinion on our 1997 financial statements when we were about to file the
registration statement in June 1998. The review and restatement of certain of
our historical financial statements which followed delayed the filing until
February 4, 1999. The SEC did not declare the registration statement effective
until , 1999. Our agreement with Morgan Stanley required us to pay
liquidated damages to the Debenture holders for our delay in filing and failure
to have the registration statement declared effective by September 21, 1998. We
paid liquidated damages totaling approximately $525,000 on September 25, 1998
and have accrued additional liquidated damages totaling $1,266,000 through
January 21, 1999 due to be paid on March 25, 1999.
3
<PAGE>
DESCRIPTION OF THE OFFERED SECURITIES
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Offered Securities........................ Up to $2,014,000,000 aggregate principal amount at maturity of our
Zero Coupon Convertible Senior Subordinated Debentures due 2018 and
up to 13,242,050 shares of our common stock, plus an indeterminate
number of additional shares of our common stock that may be issued
upon conversion of the Debentures if the conversion price of the
Debentures is adjusted as set forth in the indenture governing the
Debentures. We originally issued the Debentures at a price of $372.43
per $1,000 principal amount at maturity. We will not make any
periodic interest payments on the Debentures.
Yield to Maturity of Debentures........... 5.0% per annum (computed on a semi-annual bond equivalent basis)
calculated from March 25, 1998 based on the original issue price.
Based on the current market price, however, the yield to maturity is
much higher.
Conversion................................ The holders may convert their Debentures any time from now until
maturity into our common stock at a rate of 6.575 shares per $1,000
principal amount at maturity of the Debentures, subject to
anti-dilution adjustments.
Subordination............................. The Debentures are unsecured and are subordinated to all of Sunbeam's
existing and future senior indebtedness and effectively subordinated
to all indebtedness and other liabilities of Sunbeam's subsidiaries.
The Debentures will rank equally with Sunbeam's liabilities owed to
trade creditors.
Original Issue Discount................... We issued the Debentures at an original issue discount. As a
prospective purchaser of the Debentures, you should be aware that,
although there will be no periodic payments of interest on the
Debentures, accrued original issue discount will be included
periodically in your gross income for U.S. federal income tax
purposes while you hold the Debentures.
Sinking Fund.............................. None.
Redemption................................ We may not redeem the Debentures at our option prior to March 25,
2003. On or after March 25, 2003, we may redeem some or all of the
Debentures for cash at any time at the price referred to on page 78
in the section "Description of Debentures" under the heading
"Redemption of the Debentures at the option of the Company."
Fundamental Change........................ If a Fundamental Change, as defined in the indenture governing the
Debentures, occurs, holders may at their option require us to redeem
their Debentures for cash at the price referred to on page 78 in the
section "Description of Debentures" under the heading "Redemption at
Option of the Holder upon a Fundamental Change."
</TABLE>
4
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<TABLE>
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Purchase at the Option of the Holder...... Holders of the Debentures can require us to repurchase the Debentures
on March 25, 2003, March 25, 2008 and March 25, 2013 at the price
referred to on page 80 in the section "Description of Debentures"
under the heading "Purchase of Debentures at the Option of the
Holder." We have the choice of paying the purchase price in cash or
in shares of our common stock.
Use of Proceeds........................... The selling securityholders will receive all of the net proceeds from
the sale of the offered securities sold pursuant to this prospectus.
We will not receive any of the proceeds.
</TABLE>
RISK FACTORS
This investment is very risky. You should carefully consider the matters
set forth in the risk factors section beginning on page 7.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
We derived the following historical financial data from our audited and
unaudited consolidated financial statements. We derived the following pro forma
financial information from our unaudited pro forma condensed statements of
operations, including the notes thereto, appearing elsewhere in this prospectus.
We present the summary unaudited pro forma financial information only to
illustrate and not necessarily indicate the results that would have occurred had
(i) the 1998 acquisitions (excluding the acquisition of First Alert),
(ii) borrowing of approximately $1,325 million (the "Bank Financing") under the
New Credit Facility, (iii) the original offering of the Debentures (the
"Original Offering") and (iv) the use of the net proceeds of the Original
Offering and the Bank Financing, occurred immediately prior to the beginning of
the relevant periods. In addition, the summary unaudited pro forma financial
information is not necessarily indicative of our future operating results. This
summary should be read in conjunction with our audited and unaudited
consolidated financial statements beginning on page F-1, the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section beginning on page 32 and the "Unaudited Pro Forma Condensed Statements
of Operations" section beginning on page 25.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------------------------
DECEMBER
DECEMBER DECEMBER 28, 1997
PRO
JANUARY JANUARY DECEMBER 29, 28,
2, 1994 1, 1995 31, 1995 1996(A)(B) 1997(A) FORMA(C)
------- -------- -------- -------- -------- --------
AS AS
RESTATED RESTATED
(IN MILLIONS, EXCEPT PERCENTAGE, RATIO AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net sales.................... $927.5 $1,044.3 $1,016.9 $ 984.2 $1,073.1 $2,408.9
Operating earnings (loss).... 134.0 151.0 70.3 (244.5) 104.1 109.3
Net earnings (loss).......... 88.8 107.0 50.5 (208.5) 38.3 (52.4)
Diluted earnings (loss) per
share(d)..................... 1.01 1.30 0.61 (2.51) 0.44 (.53)
Weighted average shares
outstanding(d)............... 87.9 82.6 82.8 82.9 87.5 99.0
Other Data:
Gross margin (% net sales)... 27.3% 26.8% 20.4% 8.9% 22.6% 23.6%
Operating margin (% net
sales)..................... 14.4 14.5 6.9 N/A 9.7 4.5
Ratio of earnings to fixed
charges(e)................. 16.2x 14.4x 4.7x -- 7.2x 1.0x
Balance Sheet Data (at period
end):
Cash and cash equivalents.... $ 59.5 $ 26.3 $ 28.3 $ 11.5 $ 52.3
Working capital(g)........... 261.4 294.8 411.7 359.9 369.1
Total assets(f).............. 928.8 1,008.9 1,158.7 1,059.4 1,058.9
Long-term debt(g)............ 133.4 124.0 161.6 201.1 194.6
Shareholders' equity......... 370.0 454.7 601.0 415.0 472.1
<CAPTION>
NINE MONTHS ENDED
-------------------------------
SEPTEMBER
SEPTEMBER 30, 1998
PRO
28, SEPTEMBER
1997(A) 30, 1998 FORMA(C)
-------- --------- ---------
AS
RESTATED
<S> <C> <C> <C>
Statements of Operations
Data:
Net sales.................... $ 810.7 $1,322.1 $ 1,584.0
Operating earnings (loss).... 79.0 (391.7) (396.2)
Net earnings (loss).......... 28.8 (587.1) (503.0)
Diluted earnings (loss) per
share(d)..................... 0.33 (6.12) (5.00)
Weighted average shares
outstanding(d)............... 87.2 95.9 100.6
Other Data:
Gross margin (% net sales)... 23.4% 3.7% 7.4%
Operating margin (% net
sales)..................... 9.7 N/A N/A
Ratio of earnings to fixed
charges(e)................. 8.2x -- --
Balance Sheet Data (at period
end):
Cash and cash equivalents.... $ 22.8 $ 52.1
Working capital(g)........... 428.2 (666.5)
Total assets(f).............. 1,148.7 3,503.7
Long-term debt(g)............ 199.9 778.8
Shareholders' equity......... 478.7 499.6
</TABLE>
- ------------------
(a) The financial data as of and for the fiscal years ended December 28, 1997
and December 29, 1996 and as of and for the nine months ended September 28,
1997 was restated as described in Notes 1 and 13 of our audited consolidated
financial statements and Note 8 of our unaudited condensed consolidated
financial statements included elsewhere in this prospectus.
(b) Includes restructuring, asset impairment and other charges of
$239.2 million before taxes. See Note 8 to our audited consolidated
financial statements included elsewhere in this prospectus.
(c) Gives pro forma effect to (i) the 1998 acquisitions (excluding the
acquisition of First Alert), (ii) the Bank Financing, (iii) the Original
Offering and (iv) the use of net proceeds from the Original Offering and the
Bank Financing (collectively, the "Pro Forma Transactions"), as if they had
occurred just before the first day of the relevant period. As a result, pro
forma net losses are from continuing operations and do not include
extraordinary items.
(d) Reflects the adoption of SFAS No. 128, Earnings Per Share. See Note 1 to our
audited consolidated financial statements included elsewhere in this
prospectus. Represents the diluted average number of shares of common stock
outstanding except when the inclusion of common stock equivalents is
anti-dilutive.
(e) In computing the ratio of earnings to fixed charges: (a) earnings represent
income from continuing operations before income taxes and fixed charges
(exclusive of interest capitalized); and (b) fixed charges consist of
interest expense, capitalized interest and the estimated interest portion of
rental expense. For the fiscal year ended December 29, 1996 and the nine
months ended September 30, 1998, earnings were insufficient to cover fixed
charges by $262.2 million and $476.7 million, respectively. For the nine
months ended September 30, 1998, on a pro forma basis, earnings were
insufficient to cover fixed charges by $506.3 million.
(f) Includes goodwill and other intangible assets of $1,813 million at
September 30, 1998.
(g) A significant portion of our indebtedness has been classified as current as
of September 30, 1998. See Note 3 to our unaudited condensed consolidated
financial statements for an explanation.
6
<PAGE>
RISK FACTORS
This investment is very risky. You should carefully consider the risk
factors set forth below, as well as the other information appearing in this
prospectus, before making any investment in the Debentures or our common stock.
This prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 including, in particular, the statements about our plans,
strategies, and prospects under the headings "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business." Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward looking statements are reasonable, we
can give no assurance that such plans, intentions or expectations will be
achieved. The following important factors and the factors listed under the
heading "Cautionary Statements" in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section beginning on page 44
could cause actual results to differ materially from those expressed or implied
by these forward looking statements.
NEED TO FURTHER AMEND NEW CREDIT FACILITY; POSSIBLE RESTRUCTURING
At November 30, 1998, under our New Credit Facility, we had approximately
$1,421 million of indebtedness outstanding and approximately $277 million
available for borrowing by us. The New Credit Facility contains covenants with
financial tests that we have to meet on a quarterly basis. At June 30, 1998 we
were not in compliance with the financial tests due to our losses, but our bank
creditors under the New Credit Facility agreed to waive the requirement that we
comply with the covenants through December 31, 1998. In an October 19, 1998
amendment to the New Credit Facility our bank creditors agreed that we would not
have to meet the original financial tests until April 10, 1999. However, that
amendment requires us to meet an earnings before interest, taxes, depreciation
and amortization test beginning in February 1999.
We are currently working with our bank creditors with the objective of
further amending the New Credit Facility so that we will not be in default when
the existing amendment expires on April 10, 1999. If we are unable to enter into
a mutually acceptable amendment or have our bank creditors again waive our
compliance with the original financial covenants by April 10, 1999, we will be
in violation of the original covenants at that time. This would allow our bank
creditors to accelerate repayment of all existing borrowings under the New
Credit Facility, making them immediately due and payable. We cannot assure you
that our creditors will agree to a further amendment to the New Credit Facility
or again waive our compliance with the original financial covenants.
Whether or not we are able to effect a further amendment to the New Credit
Facility or again obtain a waiver of compliance, we may have to consider the
possibility of restructuring our indebtedness, which could involve the
Debentures, to reduce our debt.
SUBSTANTIAL LEVERAGE; POSSIBLE INABILITY TO SERVICE INDEBTEDNESS
We are highly leveraged, with indebtedness that is very large when compared
to our shareholders' equity. Much of our indebtedness was incurred to finance
the three acquisitions in 1998. At September 30, 1998, our consolidated
indebtedness was approximately $2,288 million and our shareholders' equity was
approximately $499.6 million, including approximately $1,813 million of goodwill
and other intangible assets. If required, we may incur additional indebtedness
under the New Credit Facility or, subject to restrictions in the New Credit
Facility, through other borrowings. The indenture governing the Debentures does
not limit our ability to incur additional indebtedness. See the audited and
unaudited consolidated financial statements of Sunbeam beginning on page F-1 and
the "Description of Debentures" section beginning on page 75.
Our high leverage has important consequences. For example:
o our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes is and may
continue to be impaired;
7
<PAGE>
o all or a substantial portion of our cash flow from operations must be
dedicated to the payment of principal and interest on our indebtedness;
therefore cash available for our operations and other purposes will be
limited;
o we may be substantially more leveraged than certain of our competitors,
which may place us at a competitive disadvantage;
o we may be less able to adjust rapidly to changing market conditions; and
o our high leverage could adversely affect our results of operations,
particularly in the event of a downturn in general economic conditions or
our business.
ABILITY TO SERVICE DEBT
To meet our debt service requirements, we must be able to successfully
implement our business strategy and integrate into our operations the three
companies we acquired in 1998. In addition, our future financial and operating
performance will affect our ability to repay or to refinance our indebtedness.
Our future financial and operating performance is subject to prevailing economic
and competitive conditions and to financial, business and other factors which
may be beyond our control. In addition, concurrent with the waivers and
amendments of the financial covenants contained in the New Credit Facility
described above, the margin over the London Interbank Offered Rate ("LIBOR") on
our borrowings under the New Credit Facility has been increasing and will
continue to increase until it reaches four percentage points over LIBOR in March
1999. See "--Need to Further Amend New Credit Facility; Possible Restructuring"
on page 7 and the "Description of Other Indebtedness" section beginning on
page 92. This may affect, among other things, our ability to service our debt.
We cannot assure you that our operational cash flow and capital resources
will be sufficient to meet our debt service requirements. If we do not have
enough cash flow and capital resources to meet our debt service obligations, we
may be forced to reduce or delay capital expenditures, sell assets, or seek to
obtain additional equity capital. We might also be forced to refinance or
restructure our debt, including the Debentures.
INTERNAL ACCOUNTING CONTROLS
In October 1998, our auditors at the time, Arthur Andersen, advised us
that in their opinion, the design and effectiveness of our internal accounting
controls were inadequate to detect material misstatements in the preparation of
our 1997 annual and quarterly financial statements. As described further in the
"Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" section on page 46, we restated our financial results for a
six-quarter period from the fourth quarter of 1996 through the first quarter of
1998. As part of its audit of our 1997 consolidated financial statements that
led to the restatement of these financial statements, Arthur Andersen was
required to consider internal controls in determining the scope of its audit
procedures. Arthur Andersen has advised our management of its concerns regarding
our internal controls. We are addressing these concerns and although we have not
yet fully implemented all additional planned controls management believes that
the interim measures we have adopted to prevent material misstatements in our
financial statements will be effective until the remainder of the additional
controls can be implemented. Arthur Andersen has not reviewed the interim
internal control measures and, therefore, expresses no opinion or other
assurances that they may be effective.
RECENT LOSSES
We had a consolidated net loss of approximately $208.5 million in 1996, and
net earnings of $38.3 million in 1997. For the nine months ended September 30,
1998, we had a consolidated net loss of approximately $587.1 million. Operating
losses of approximately $391.7 million and extraordinary charges of
approximately $111.7 million from early retirement of debt were the main causes
of this loss. We cannot assure you that we will be able to restore
profitability. See the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section beginning on page 32 for a further
discussion.
8
<PAGE>
LITIGATION AND OTHER CONTINGENT LIABILITIES
Litigation. Beginning in April 1998 many lawsuits alleging claims arising
under Delaware law, Texas law and federal and state securities laws have been
filed against us and certain of our current and former directors, former
officers and Arthur Andersen in various federal and state courts. See
"Business--Litigation and Other Contingent Liabilities" beginning on page 55 for
details of these various suits. Many of these suits relate to our financial
performance from the second quarter of 1997 through the second quarter of 1998.
Many plaintiffs are claiming that certain of our current and former directors
and former officers breached their fiduciary duties and that our prior
management misrepresented and omitted material information in our public filings
and in their statements concerning our historical and expected future results of
operations for the purpose of artificially inflating the market price of our
common stock. Currently we cannot predict the outcome of these suits, evaluate
the likelihood of our success in any particular case, or evaluate the range of
potential loss. If plaintiffs succeed in certain of these suits, judgments would
likely have a materially adverse impact on our financial position, results of
operations and cash flow.
Three of our insurers, American Insurance Company, Federal Insurance
Company and Executive Risk Indemnity, Inc., have gone to court to have the
directors' and officers' liability policies we have with them declared invalid
or canceled. See "Business--Litigation and Other Contingent Liabilities"
beginning on page 55 for further details of these actions. Failure by us to
obtain insurance recoveries from our liability insurers following an adverse
judgment against us or any persons we are obligated to indemnify in any of the
lawsuits discussed above could have a material adverse impact on our financial
position, results of operations and cash flow.
SEC Investigation. In July 1998 the SEC commenced a formal investigation
of us after informing us in the previous month of an informal investigation. We
have cooperated fully with the SEC and furnished the SEC with documents they
requested. See "Business--Litigation and Other Contingent Liabilities" beginning
on page 55 for more information on this investigation. We cannot predict how
long this investigation will last or its outcome.
Product-Related Liabilities. Because we are a consumer goods manufacturer
and distributor, our results of operations can be negatively impacted by product
liability and related lawsuits, product recall actions and higher than
anticipated rates of warranty returns or other returns of goods. Certain of the
product lines we acquired in the 1998 acquisitions may increase our potential
exposure to litigation.
POSSIBLE LOSS OF NEW YORK STOCK EXCHANGE LISTING
In May 1998 the New York Stock Exchange advised us that we did not meet
their continuing listing standards. We have met with NYSE officials and intend
to provide to the NYSE a plan demonstrating our ability to achieve compliance
with the NYSE's listing standards over the years 1999, 2000 and 2001. We cannot
assure you that the NYSE will continue to list our common stock. A de-listing of
our common stock from the NYSE could have a material adverse impact on the
market value of our common stock, Debentures and other securities. A de-listing
could also have a material adverse impact on our ability to raise additional
funds in the securities markets; to settle the litigation relating to the
Coleman Merger (see "Recent Developments--Proposed Settlement of Coleman
Stockholders' Claims" on page 20); and to restructure our debt if necessary.
HOLDING COMPANY STRUCTURE; SUBORDINATION
Sunbeam is a holding company that conducts substantially all of its
operations through its subsidiaries. Sunbeam is the only company obligated to
pay under the Debentures. Our subsidiaries have no obligations to make payments
on the Debentures. As a holding company, Sunbeam holds no significant tangible
assets other than investments in and advances to our subsidiaries. Sunbeam,
therefore, needs to receive sufficient funds from subsidiaries to meet its own
obligations, including its obligation to make payments on the Debentures. The
ability of Sunbeam's subsidiaries to pay dividends or to make other payments or
advances to Sunbeam will depend on their own operating results and any payment
restrictions they face, including those contained in the New Credit Facility.
9
<PAGE>
The Debentures are unsecured and subordinated in right of payment to all
existing and future senior indebtedness of Sunbeam, including all borrowings
under the New Credit Facility. Because of the subordination of the Debentures,
if bankruptcy, liquidation or reorganization of Sunbeam occurs or certain other
events occur, holders of senior indebtedness, including the New Credit Facility
creditors, could prevent any payments on the Debentures from being made until
after all senior indebtedness had been paid in full. After such payments are
made any remaining assets may not be sufficient to pay amounts due on any or all
of the Debentures then outstanding.
Certain of Sunbeam's wholly-owned U.S. subsidiaries have guaranteed
Sunbeam's obligations under the New Credit Facility. As a result, the Debentures
are structurally subordinated to these subsidiaries' guarantees under the New
Credit Facility, in addition to all other existing and future liabilities and
other commitments of Sunbeam's subsidiaries.
The New Credit Facility restricts our ability to incur or guarantee
additional indebtedness. The indenture governing the Debentures does not
prohibit or limit the incurrence of senior indebtedness by Sunbeam or any
indebtedness or other liabilities by Sunbeam's subsidiaries. Sunbeam therefore
could adversely affect its ability to make payments on the Debentures by
incurring additional senior indebtedness or having its subsidiaries incur
additional indebtedness or other liabilities.
At September 30, 1998, Sunbeam had approximately $1,396.3 million of senior
indebtedness outstanding, and Sunbeam's subsidiaries had approximately
$122.6 million of indebtedness and other liabilities outstanding to which the
Debentures were effectively subordinated. We anticipate that from time to time
Sunbeam and its subsidiaries will incur additional indebtedness and other
liabilities, including senior indebtedness at the Sunbeam level.
The New Credit Facility creditors have liens and other security interests
over the assets of Sunbeam's material subsidiaries (other than Coleman, until
the Coleman Merger is consummated) and Sunbeam's equity interests in its
material subsidiaries. Sunbeam or its subsidiaries may grant future creditors
additional security interests in our assets, including Sunbeam's equity
interests in its subsidiaries. Debenture holders may not benefit from
distributions to Sunbeam from its subsidiaries if Sunbeam is in default on other
debt.
RISKS ASSOCIATED WITH THE 1998 ACQUISITIONS
We face significant risks associated with the 1998 acquisitions of Coleman,
First Alert and Signature Brands. The 1998 acquisitions have resulted in a
substantial increase in the size of our operations. This challenges us to
effectively use our employees and our management, operational and financial
resources to manage our expanded operations. We must, among other things:
o increase the profitability of the acquired companies;
o realize synergies from combining these companies with our current
operations; and
o integrate certain of the products manufactured by these companies into
our existing product lines.
Other potential risks of the 1998 acquisitions include:
o the presence of unknown liabilities; and
o the possibility of the incurrence of significant charges associated with
(1) write-downs of the recorded values of assets acquired or (2)
restructurings of the acquired companies.
Failure to successfully address these issues could have a material adverse
effect on us.
RISKS OF INTERNATIONAL OPERATIONS
We currently have sales in countries where economic growth has slowed,
primarily Japan and Korea; or where economies have been unstable or
hyperinflationary in recent years, primarily Mexico and Venezuela. The economies
of other foreign countries important to Sunbeam's operations, including other
countries in Latin America and Asia, could also suffer instability in the
future.
10
<PAGE>
The following are among the factors that could negatively affect our
operations in foreign markets:
o access to markets;
o currency devaluation;
o new tariffs;
o changes in monetary policies;
o inflation; and
o governmental instability.
RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT
We must develop new and innovative products to regain profitability and
increase revenues. In the past we have experienced difficulties in developing
and introducing quality new products on a timely basis. We may not be able to
meet our schedules for future product development. Failure to develop and
manufacture successful new products could have a material adverse effect on our
future financial performance.
SENSITIVITY TO STRENGTH OF RETAIL ECONOMY
The strength of the retail economy in the United States has a significant
impact on our performance. Weakness in consumer confidence and poor financial
performance by retail outlets (including the financial weakness or bankruptcy of
retail outlets, especially mass merchants) may adversely impact our future
financial results.
COMPETITION
We operate in a highly competitive environment. We have numerous domestic
and foreign competitors, and many of them are financially strong and capable of
competing effectively with us. Such competitors may take actions to match our
new product introductions and other initiatives. Some competitors may be willing
to accept lower profit margins and reduce prices to compete with us. As a result
of this competition we may fail to increase or even maintain market share for
products, fail to achieve anticipated sales increases, or otherwise fail to meet
our anticipated goals. Any of such circumstances could have a material adverse
effect on future financial performance. Our future success will significantly
depend upon our ability to remain competitive in the areas of price, quality,
marketing, product development, manufacturing, distribution, order processing
and customer service. We cannot assure you that we will be able to compete
effectively in all these areas in the future.
DEPENDENCE ON KEY CUSTOMERS
Due to the consolidation of the U.S. retail industry, our customer base has
become relatively concentrated. Wal-Mart Stores, Inc., our largest single
customer, accounted for 20% of our net sales in 1998, and our five largest
customers combined accounted for 40% of our 1998 net sales.
We have no long-term supply contracts with any of our customers. As a
result, we must receive a continuous flow of new orders from our large,
high-volume retailing customers. We have responded to the challenges of our
markets by pursuing strategic relationships with large, high-volume
merchandisers. However, we cannot assure you that we can continue to
successfully meet the needs of our customers. In addition, delays or
cancellations of orders from key customers could have a material adverse effect
on our future financial performance.
RAW MATERIAL COSTS
Raw materials and components constitute a significant portion of the cost
of our goods. Factors which are largely beyond our control, such as movements in
certain commodity prices for the specific materials we require, may affect the
future cost of such raw materials and components. In addition, any unanticipated
change in suppliers could be disruptive and costly to us.
11
<PAGE>
A significant failure by us to contain raw material or component costs
could have a material adverse effect on our future financial performance. In
addition, delays or cancellations by suppliers could adversely affect results.
DEPENDENCE ON THIRD-PARTY SUPPLIERS AND SERVICE PROVIDERS
We currently manufacture most of our products, but we source many of our
parts and products from third parties. Our ability to select reliable vendors
who provide timely deliveries of quality parts and products will impact our
success in meeting customer demand for timely delivery of quality products.
We have entered into various arrangements with third parties for the
provision of back-office administrative services that we used to perform
internally. We now outsource all necessary computer systems servicing, among
other things. If any of these third-party service providers failed to perform
adequately, our normal business operations could be disrupted. Among other
things, this could hurt our sales, collections, customer service, cash flow and
profitability.
GENERAL PRODUCTION-RELATED RISKS
To realize sales and operating profits at anticipated levels we must
manufacture, source and deliver in a timely manner products of high quality.
Among others, the following factors can have a negative effect on our ability
to do these things:
o labor difficulties;
o delays in delivery or pricing of raw materials and/or sourced products;
o scheduling and transportation difficulties;
o management dislocation;
o substandard product quality, which can result in higher warranty costs,
product liability and costs related to product recalls;
o delays in development of quality new products;
o changes in laws and regulations, including changes in tax rates,
accounting standards, environmental laws and occupational health and
safety laws; and
o changes in the availability and relative costs of labor.
RISKS RESULTING FROM PRACTICES OF PRIOR MANAGEMENT
Our prior management substantially reduced the number of our employees and
hired third parties to perform many critical operating tasks for us, including
handling of accounts payable, computer support, customer service and collection
of accounts receivable. We are currently evaluating the effectiveness of
outsourcing these activities and are hiring personnel to begin to perform some
of these tasks in-house once again. We may experience litigation, disruption in
critical services and other difficulties while we implement necessary staff
increases and changes in prior management's outsourcing policy.
Prior management increased sales of products in certain prior periods by
providing retailers with substantial price discounts or attractive payment terms
to induce them to purchase more products than they needed. We believe this
caused many of our customers to build up inventory in our products and hence
reduced our sales and profitability in later periods. Although we believe that
the excess inventory maintained by retailers has been eliminated, we may not
have correctly evaluated the amount of or the impact of such inventory
practices, which may continue to negatively impact our sales and profitability.
ADVERSE WEATHER
Unanticipated weather patterns may negatively impact sales of many of our
products. For instance, we may not sell as many portable generators as
anticipated if there are fewer natural disasters such as hurricanes and ice
storms; mild winter weather may negatively impact sales of electric blankets,
some health products
12
<PAGE>
and smoke detectors; and the late arrival of summer weather may negatively
impact sales of outdoor camping equipment and grills.
YEAR 2000 READINESS
Many existing computer programs were designed and developed without
considering the upcoming change in the century, which could lead to the failure
of computer applications or create erroneous results by or at the year 2000. The
Year 2000 issue is a broad business issue, the impact of which extends beyond
traditional computer hardware and software to possible failure of a wide variety
of automated systems and instrumentation, including equipment that we and our
third party vendors use.
We are in the process of assessing the impact of the Year 2000 on our
operations, including the companies we acquired in 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Readiness Disclosure and Operating System Enhancements" beginning on
page 43 for more details of our Year 2000 assessment and compliance efforts.
We rely on our information technology functions to perform many tasks that
are critical to our operations. Year 2000 noncompliance could impact the
following transactions, among others:
o purchases of materials,
o production management,
o order entry and fulfillment, and
o payroll processing.
Systems and applications that we have to date identified as not currently
Year 2000 compliant and which are critical to our operations include:
o our financial software systems, which process the order entry,
purchasing, production management, general ledger, accounts receivable,
and accounts payable functions, and
o critical applications in our manufacturing and distribution facilities,
such as warehouse management applications.
Management believes that, although there are significant systems that are
being modified or replaced, our information systems environment will be made
Year 2000 compliant prior to January 1, 2000. Failure by us to timely complete
this corrective work could have a material adverse impact on us. We cannot
estimate possible lost profits arising from such a failure.
We have contacted our major vendors and suppliers of products and services
to determine their Year 2000 readiness and plans, and we are continuing to
monitor their status with respect to such plans. The failure of certain of these
third party suppliers to become Year 2000 compliant could have a material
adverse impact on us. We will also contact our customers to determine if they
are prepared for Year 2000 issues. Their failure to evaluate and prepare for
Year 2000 issues could have a material adverse effect on our operations.
Our current assessment of the total costs to address and remedy Year 2000
issues and enhance our operating systems, including costs for the acquired
companies, is $50 million. We expect to finance these expenditures through
operating cash flow or borrowings. Through September 30, 1998, we had spent
approximately $10 million to address Year 2000 issues. As we complete our
assessment of the Year 2000 issues, we may determine that the actual
expenditures we must incur differ materially from our current estimates.
We plan to establish a contingency plan for addressing any effects of the
Year 2000 on our operations, whether due to noncompliance of our systems or
those of third parties. We expect to complete the contingency plan by
September 30, 1999. The impact of Year 2000 non-compliance on our operations
could be material if we cannot develop appropriate contingency plans before
January 1, 2000.
13
<PAGE>
LIMITATIONS ON REPURCHASES AND REDEMPTIONS OF DEBENTURES
On March 25, 2003, March 25, 2008, and March 25, 2013 (each defined in the
indenture governing the Debentures as a "Purchase Date"), we must purchase, at
the option of Debenture holders, outstanding Debentures, subject to certain
conditions. In addition, if certain transactions occur which would result in our
common stock being exchanged for consideration other than the common stock of a
publicly traded company (defined in the indenture governing the Debentures as a
"Fundamental Change"), each holder of the Debentures can require us to redeem
for cash all or a portion of his Debentures. We cannot assure you that we will
have sufficient funds to pay the repurchase price on any Purchase Date. If we do
not have sufficient funds on a Purchase Date, we could be required to issue
shares of our common stock to pay the repurchase price at valuations based on
then prevailing market prices. In addition, we cannot assure you that if a
Fundamental Change occurs we will have sufficient funds to redeem all the
Debentures tendered by holders.
The terms of the New Credit Facility restrict our ability to repurchase or
redeem the Debentures. The terms of future indebtedness that we might incur may
also contain a similar restriction. The New Credit Facility prohibits our
redemption of the Debentures in the event of a Fundamental Change, unless and
until indebtedness under the New Credit Facility is paid in full. In addition,
the New Credit Facility prohibits us from purchasing the Debentures on a
Purchase Date for cash. While, we can make purchases on a Purchase Date with
shares of our common stock, NYSE rules may require us to obtain stockholder
approval to do so, and we cannot assure you that our stockholders would give the
necessary approval. If the terms of the Debentures require us to repurchase or
redeem Debentures when the terms of the New Credit Facility or other
indebtedness restrict us from doing so, we could seek the consent of the
relevant creditors to repurchase or redeem the Debentures or could attempt to
refinance the borrowings that contain the prohibition.
If we did not obtain consent or repay these borrowings, we would remain
prohibited from repurchasing the Debentures for cash or redeeming the
Debentures. Our failure to repurchase or redeem the Debentures when required to
do so would constitute an event of default under the indenture governing the
Debentures and would likely constitute a default under the New Credit Facility.
It may also constitute a default under our other indebtedness outstanding at the
time. In addition, we expect that the occurrence of a Fundamental Change itself
would constitute a default under the New Credit Facility and might constitute a
default under other indebtedness we incur in the future. If defaults under the
New Credit Facility and other senior indebtedness are triggered, the
subordination provisions of the Debentures would likely prevent us from making
payments to the holders of the Debentures.
The term "Fundamental Change" as defined in the indenture governing the
Debentures does not include all events that could adversely affect our financial
condition or operating results. The requirement that we offer to redeem the
Debentures upon a Fundamental Change will not necessarily protect holders of the
Debentures in the event of a highly leveraged transaction, reorganization,
merger or similar transaction involving us. See "Description of
Debentures--Redemption at Option of the Holder Upon a Fundamental Change" on
page 78 for the definition of "Fundamental Change."
CERTAIN TAX CONSEQUENCES TO SUNBEAM
Federal income tax law limits the deductibility of interest paid or
incurred with respect to certain convertible debt incurred to finance the
acquisition of stock of another corporation if such debt constitutes "corporate
acquisition indebtedness." It is possible that the Debentures will be treated as
"corporate acquisition indebtedness." This would limit our ability to deduct all
or a portion of the original issue discount on the Debentures. Although the
issue is not free from doubt, we believe we will be able to deduct the original
issue discount of the Debentures for U.S. federal income tax purposes.
LIMITATIONS ON DIVIDEND PAYMENTS
The New Credit Facility limits our ability to pay dividends on our common
stock, unless certain financial ratios are achieved and certain mandatory
prepayments are made. Delaware law (we are a Delaware corporation) also places
certain limits on our ability to pay dividends on our common stock. See the
"Price Range of Common Stock and Dividend Policy" section on page 22 for details
of the restrictions under Delaware law. Accordingly, we cannot assure you that
we will be able to pay dividends on our common
14
<PAGE>
stock. Moreover, we do not intend to pay dividends on our common stock. We
discontinued paying dividends beginning in the third quarter of 1998.
ABSENCE OF A PUBLIC MARKET FOR THE DEBENTURES
We do not intend to apply for listing or quotation of the Debentures on any
exchange. We cannot assure you of an active trading market for the Debentures,
your ability to sell Debentures or the price at which you may be able to sell
your Debentures.
The market prices for our securities, including the Debentures and our
common stock issuable upon conversion of the Debentures, may be subject to
substantial fluctuations. Factors such as the following may have a significant
effect on the market prices of our securities:
o fluctuations in our operating results;
o events affecting our competitors;
o changes in certain laws and regulations;
o currency and exchange rate fluctuations; and
o general economic conditions.
STOCK PRICE VOLATILITY
The price of our common stock has dropped significantly since March 1998.
We believe this was the result of such factors as:
o our failure to meet Wall Street analysts' expectations regarding revenues
and earnings as established by prior management;
o uncertainty about our ability to reach agreement with or obtain a further
waiver from our bank creditors under the New Credit Facility;
o the restatement of our financial statements, resulting in the substantial
lowering of 1997 and 1998 first quarter net sales and net income;
o the need for changes in our management; and
o our involvement in various lawsuits.
On March 18, 1998, the last trading day prior to previous management's
announcement of lower than expected net sales, the last reported sale price of
our common stock was $50.63 per share. On February 3, 1999, the last reported
sale price of our common stock was $6 11/16 per share. Although the price of our
common stock has increased from its 12-month low of $4.63 reported on
October 15, 1998, we cannot assure you that the market price of our common stock
will not experience further declines and volatility. See the "Price Range of
Common Stock and Dividend Policy" section on page 22 for details of our common
stock's recent trading prices.
15
<PAGE>
RECENT DEVELOPMENTS
THE 1998 ACQUISITIONS
On March 2, 1998, Sunbeam announced that it had entered into separate
agreements to acquire The Coleman Company, Inc., Signature Brands USA, Inc. and
First Alert, Inc.
Coleman, with 1997 revenues of approximately $1,100 million, is a leading
manufacturer and marketer of outdoor recreational products. It manufactures and
distributes widely diversified product lines for camping, leisure time and
hardware markets, under the Coleman(Registered), Powermate(Registered),
Campingaz(Registered) and Eastpak(Registered) brand names. On March 30, 1998,
Sunbeam acquired in a merger (the "Holdings Merger") with CLN Holdings, Inc.
("CLN Holdings") indirect beneficial ownership of 44,067,520 shares of common
stock, par value $.01 per share, of Coleman ("Coleman Common Stock"), which
represented approximately 81% of the then outstanding shares, from Coleman
(Parent) Holdings, Inc. ("Parent Holdings"), a subsidiary of MacAndrews &
Forbes, in exchange for 14,099,749 shares of Sunbeam common stock, par value
$.01 per share of Sunbeam ("Common Stock") and approximately $160 million in
cash. In connection with the Holdings Merger, Sunbeam assumed approximately
$1,016 million in debt, including debt of Coleman's parent. Immediately after
the Holdings Merger, as a result of the exercise of employee stock options,
Sunbeam's indirect beneficial ownership of Coleman decreased to approximately
79% of the outstanding shares of Coleman Common Stock. Sunbeam's agreement (the
"Coleman Merger Agreement") for the acquisition of the remaining shares of
Coleman Common Stock pursuant to a merger transaction (the "Coleman Merger")
provides that the remaining Coleman stockholders will receive approximately
6.7 million shares of Sunbeam Common Stock (0.5677 shares for each outstanding
Coleman share) and $87 million in cash ($6.44 for each outstanding Coleman share
and a cash-out of unexercised options to acquire Coleman Common Stock at a price
per share equal to the difference between $27.50 per share and the exercise
price of such options). Although there can be no assurance, Sunbeam anticipates
that the Coleman Merger will occur in the first half of 1999. See "--Settlement
of Claims of Parent Holdings" for information regarding the settlement of
certain claims relating to the Holdings Merger. See "--Proposed Settlement of
Coleman Stockholders' Claims" for information regarding the proposed settlement
of certain claims relating to the Coleman Merger.
On April 3, 1998, Sunbeam acquired more than 90% of the stock of each of
Signature Brands and First Alert, pursuant to cash tender offers. Sunbeam
completed its acquisitions of the remaining publicly held shares of each of
Signature Brands and First Alert pursuant to merger transactions consummated on
April 6, 1998. Signature Brands, with 1997 revenues of approximately $279
million, is a leading manufacturer of a comprehensive line of consumer and
professional products, including coffee makers marketed under the
Mr. Coffee(Registered) brand name and consumer health products marketed under
the Health o Meter(Registered), Counselor(Registered) and
Borg(Registered) brand names. First Alert, with revenues of approximately
$187 million, is the worldwide leader in residential safety equipment including
smoke and carbon monoxide detectors marketed under the First
Alert(Registered) brand name. The consideration for the Signature Brands and
First Alert transactions was approximately $253 million and $178 million,
respectively, consisting of cash and the assumption of debt.
Sunbeam's acquisitions of Coleman, First Alert and Signature Brands are
collectively referred to herein as the "1998 Acquisitions."
ISSUANCE OF DEBENTURES AND NEW BANK CREDIT FACILITY
In order to finance the 1998 Acquisitions and to repay substantially all of
the outstanding indebtedness of Sunbeam, Coleman, First Alert and Signature
Brands, Sunbeam completed the offering of the Debentures at a yield to maturity
of 5% (or approximately $2,014 million principal amount at maturity) on
March 25, 1998, which netted approximately $730 million of proceeds to Sunbeam.
Sunbeam also borrowed approximately $1,325 million under a new bank credit
facility (the "New Credit Facility").
The New Credit Facility provided for aggregate borrowings of up to
$1,700 million pursuant to (i) a revolving credit facility in an aggregate
principal amount of up to $400 million, (ii) an $800 million term loan maturing
on March 31, 2005, and (iii) a $500 million term loan maturing on September 30,
2006. Borrowings under the New Credit Facility are secured by certain of
Sunbeam's assets, including its stock
16
<PAGE>
interests in Coleman, First Alert, Signature Brands and certain other
subsidiaries of Sunbeam, as well as substantially all of Sunbeam's tangible and
intangible real and personal property.
The New Credit Facility provided that interest accrued, at Sunbeam's
option:
o at LIBOR, or
o at 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 .50%);
plus, in each case, an agreed upon interest margin which varies depending upon
Sunbeam's leverage ratio (as defined in the New Credit Facility), among other
things.
Pursuant to amendments to the New Credit Facility (discussed in
"--Covenants Under New Credit Facility" below), the applicable interest margin
under the New Credit Facility was increased. The applicable interest margin
continues to increase under these amendments monthly through March 1999 to a
maximum of four percentage points over LIBOR.
At September 30, 1998, following the scheduled repayment of a portion of
the term loan, the New Credit Facility was reduced to $1,698 million in total.
As of November 30, 1998, approximately $1,421 million was outstanding and
approximately $277 million was available for borrowing under the New Credit
Facility. In addition, at November 30, 1998, Sunbeam's cash balance available
for debt repayment was approximately $22 million.
COVENANTS UNDER NEW CREDIT FACILITY
The New Credit Facility contains certain covenants, including limitations
on the ability of Sunbeam and its subsidiaries to engage in certain transactions
and a requirement that Sunbeam maintain certain financial covenants and ratios.
As a result of Sunbeam's operating losses for each of the quarters in fiscal
1998, Sunbeam is not currently in compliance with certain of these financial
covenants and ratios. Effective June 30, 1998, Sunbeam and its lenders entered
into an agreement which provided that compliance with such financial covenants
and ratios would be waived through December 31, 1998. Pursuant to a further
amendment dated October 19, 1998, Sunbeam will not be required to comply with
the original financial covenants and ratios under the New Credit Facility until
April 10, 1999. Beginning in February 1999, however, Sunbeam will be required to
comply with an earnings before interest, taxes, depreciation and amortization
covenant.
Sunbeam is working with its bank lenders and hopes to reach agreement with
the bank lenders on a further amendment to the New Credit Facility so that
Sunbeam will not be in default when the existing amendment expires on April 10,
1999. There can be no assurance that such an amendment, or a further waiver of
the existing financial covenants and ratios, 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 a violation of the existing financial covenants and
ratios, thereby permitting the bank lenders to accelerate the maturity of all
outstanding borrowings under the New Credit Facility. An acceleration of the
maturity of such borrowings would have a material adverse effect on Sunbeam's
financial position, results of operations and cash flow.
DELAYED FILING OF REGISTRATION STATEMENT
Pursuant to the terms of a Registration Rights Agreement, dated as of
March 25, 1998, between Sunbeam and Morgan Stanley & Co., Incorporated, which
was entered into in connection with the original issuance of the Debentures,
Sunbeam was required to file a registration statement with the SEC by June 23,
1998 to register the Debentures and the shares of Sunbeam Common Stock issuable
upon conversion of the Debentures. As a result of the review and restatement of
certain of Sunbeam's historical financial statements following the failure of
Sunbeam's independent auditors, Arthur Andersen, to consent to the inclusion in
this registration statement of their opinion on Sunbeam's 1997 financial
statements, this registration statement was not filed until February 4, 1999 and
was not declared effective by the SEC until , 1999.
Although Sunbeam's failure to timely file this registration statement does
not constitute a default under the terms of the Debentures, from June 23, 1998
until the day on which the registration statement was declared effective, cash
liquidated damages owed to the holders of the Debentures have accrued on a
daily
17
<PAGE>
basis at a rate per annum equal to 0.25% during the first 90 days and 0.50%
thereafter multiplied by the sum of the issue price of the Debentures plus the
accrued original issue discount thereon on such day. Liquidated damages totaled
approximately $1,791,000 through January 21, 1999 of which approximately
$525,000 was paid to Debenture holders on September 25, 1998.
PRESS RELEASES RELATING TO SUNBEAM'S FIRST QUARTER 1998 RESULTS
On March 19, 1998, Sunbeam issued a press release announcing the
possibility that its net sales for the first quarter of 1998 might be lower than
the range of Wall Street analysts' estimates of $285 million to $295 million,
but were expected to exceed the $253.4 million in net sales achieved by Sunbeam
for the first quarter of 1997. On April 3, 1998, Sunbeam issued a press release
announcing that Sunbeam then expected its net sales for the first quarter of
1998 would be approximately 5% lower than those achieved in the first quarter of
1997 and that Sunbeam would report a loss for the quarter. On May 11, 1998,
Sunbeam announced results for the first quarter of 1998, including revenues of
$244.3 million, a net loss from continuing operations of $7.8 million and a net
loss of $.52 per share. Sunbeam also stated that it expected earnings per share
in the range of $1.00 for 1998 and $2.00 for 1999. On June 15, 1998, Sunbeam
announced that its previously announced forecasts should not be relied upon.
Following each of these press releases, the market price of Common Stock fell
substantially. On October 20, 1998, Sunbeam issued a press release restating
operating results for fiscal years 1996 and 1997, as well as the first quarter
of fiscal 1998. See "--Restatement of Financial Results," "--Changes in
Sunbeam's Management and Board" and "Risk Factors--Stock Price Volatility."
CHANGES IN SUNBEAM'S MANAGEMENT AND BOARD
On June 13 and 16, 1998, Sunbeam terminated Albert J. Dunlap as Chairman
and Chief Executive Officer and Russell A. Kersh as Vice-Chairman and Chief
Financial Officer, respectively. Messrs. Dunlap and Kersh resigned from
Sunbeam's Board of Directors (the "Sunbeam Board") effective August 5, 1998. The
termination of Messrs. Dunlap and Kersh came as a result of a determination
reached by the outside directors of the Sunbeam Board that there had been a loss
of confidence in Mr. Dunlap's leadership.
On June 15, 1998, Sunbeam announced that Jerry W. Levin of MacAndrews &
Forbes had been elected as Sunbeam's Chief Executive Officer and that Peter A.
Langerman of Franklin Mutual Advisers, Inc., the investment adviser to Franklin
Mutual Series Fund, had been elected non-executive Chairman of the Sunbeam
Board. Mr. Levin and Howard Gittis of MacAndrews & Forbes and Lawrence Sondike
of Franklin Mutual Advisers, Inc. were appointed to the Sunbeam Board to fill
the vacancies thereon. William T. Rutter resigned from the Sunbeam Board
effective July 8, 1998. Faith Whittlesey has been elected to fill the vacancy on
the Audit Committee resulting from Mr. Rutter's resignation. In January 1999,
Mr. Sondike resigned from the Sunbeam Board.
ALTERATION AND POSTPONEMENT OF RESTRUCTURING PLANS
On May 11, 1998, Sunbeam announced its plans to commence a restructuring
intended to result in an integration of the operations of Sunbeam with those of
Coleman, First Alert and Signature Brands, a centralization of the operations of
the four companies, certain plant closings and divestitures and a general
reduction in workforce. Following the changes in Sunbeam's management that were
announced in June 1998, plans for the proposed restructuring were postponed
pending further review of Sunbeam's organizational structure. On August 24,
1998, Sunbeam announced a revised organizational structure which provides for
certain plant closings and reductions in workforce, but eliminates the
previously announced centralization of Sunbeam's operations. Sunbeam management
remains engaged in an overall evaluation of its business and financial
condition.
RESTATEMENT OF FINANCIAL RESULTS
On June 25, 1998, Sunbeam announced that its auditor, Arthur Andersen,
would not consent to the inclusion of its opinion on Sunbeam's 1997 financial
statements in a registration statement relating to the Offered Securities which
Sunbeam was then preparing to file with the SEC. See "--Delayed Filing of
18
<PAGE>
Registration Statement." On June 30, 1998, Sunbeam announced that the Audit
Committee (the "Audit Committee") of Sunbeam's Board of Directors would conduct
a review of Sunbeam's prior financial statements and, therefore, those financial
statements should not be relied upon. Sunbeam also announced that Deloitte &
Touche had been retained to assist the Audit Committee and Arthur Andersen in
the review. On August 6, 1998, Sunbeam announced that the Audit Committee had
determined that Sunbeam would be required to restate its financial statements
for 1997, the first quarter of 1998, and possibly 1996, and that the
adjustments, while not then quantified, would be material.
On October 20, 1998, Sunbeam announced the restatement of its financial
results for a six-quarter period from the fourth quarter of 1996 through the
first quarter of 1998. The restatement was required because Sunbeam's previously
issued financial statements generally overstated losses for 1996, overstated
profits for 1997 and understated losses for the first quarter of 1998. Sunbeam
concluded, based upon its review, that for certain periods revenue was
incorrectly recognized (principally through "bill and hold" and guaranteed sales
transactions), certain costs and allowances were not accrued or were incorrectly
recorded (principally allowances for sales returns, co-op advertising, customer
deductions and reserves for product liability and warranty expense) and certain
costs were incorrectly included in and charged to restructuring, asset
impairment and other costs. See Notes 13, 14 and 15 to Sunbeam's Consolidated
Financial Statements.
LITIGATION INVOLVING SUNBEAM
Since the issuance of the April 3, 1998 press release, numerous class
action and derivative lawsuits have been filed against Sunbeam, certain of
Sunbeam's current and former directors, former officers and Sunbeam's former
independent accountants, Arthur Andersen, alleging violations of the federal
securities laws, as well as breaches of fiduciary duty, common law fraud and
other violations of state law. These lawsuits are currently being defended by
Sunbeam in a number of venues, including the state and federal courts of
Florida, the Court of Chancery of the State of Delaware and the state courts of
Texas.
Sunbeam intends to vigorously defend the lawsuits, but cannot predict
their outcome and is not currently able to evaluate the likelihood of Sunbeam's
success in each case or the range of potential loss. However, if certain of the
foregoing actions were determined adversely against Sunbeam, such judgments
would likely have a material adverse effect on Sunbeam's financial position,
results of operations and cash flow. For a more detailed description of the
various lawsuits, see "Business--Litigation and Other Contingent Liabilities."
Three of Sunbeam's insurers, American Insurance Company, Federal Insurance
Company and Executive Risk Indemnity, Inc., have filed lawsuits seeking to have
the directors' and officers' liability policies Sunbeam has with them declared
invalid or canceled. See "Business--Litigation and Other Contingent
Liabilities." Failure by Sunbeam to obtain insurance recoveries from its
liability insurers following an adverse judgment against it or any persons
Sunbeam is obligated to indemnify in any of the lawsuits discussed above could
have a material adverse impact on Sunbeam's financial position, results of
operations and cash flow.
SEC INVESTIGATION
By letter dated June 17, 1998, the staff of the Division of Enforcement of
the SEC advised Sunbeam that it was conducting an informal inquiry into
Sunbeam's accounting policies and procedures and requested that Sunbeam produce
certain documents. On July 2, 1998, the SEC issued a Formal Order of Private
Investigation, designating SEC officers to take testimony and pursuant to which
a subpoena duces tecum was served on Sunbeam requiring the production of certain
documents. On November 4, 1998, another SEC subpoena duces tecum requiring the
production of further documents was received by Sunbeam. Sunbeam has provided
numerous documents to the SEC staff and continues to cooperate fully with the
SEC staff.
SETTLEMENT OF CLAIMS OF PARENT HOLDINGS
On August 12, 1998, Sunbeam announced it had entered into a settlement
agreement with Parent Holdings, in connection with the Holdings Merger (the
"Parent Holdings Settlement Agreement"). The Parent Holdings Settlement
Agreement: (i) released Sunbeam from certain claims Parent Holdings and its
19
<PAGE>
affiliates, including MacAndrews & Forbes, may have against Sunbeam arising out
of Sunbeam's acquisition of Parent Holdings' interest in Coleman; (ii) enabled
Sunbeam to retain the services of executive personnel affiliated with Parent
Holdings who had been managing Sunbeam since mid-June of 1998, including Jerry
W. Levin, Sunbeam's current Chief Executive Officer, Paul E. Shapiro, Sunbeam's
current Chief Administrative Officer, and Bobby G. Jenkins, the current Chief
Financial Officer; and (iii) arranged for the continued provision of management
support by Parent Holdings and its affiliates to Sunbeam.
Parent Holdings currently owns approximately 14 million shares of Common
Stock, or approximately 14% of Sunbeam's presently outstanding shares, which it
received in the Holdings Merger on March 30, 1998. Pursuant to the Parent
Holdings Settlement Agreement, Parent Holdings received from Sunbeam a five-
year warrant (the "Parent Holdings Warrant") to purchase up to an additional 23
million shares of Common Stock at an exercise price of $7 per share, subject to
certain anti-dilution provisions.
The terms of the Parent Holdings Settlement Agreement, including the terms
of the Parent Holdings Warrant, were negotiated and approved on behalf of
Sunbeam by a Special Committee of four outside directors, none of whom has any
affiliation with Parent Holdings. The members of the Special Committee were
Howard Kristol (Chairman), Charles Elson, Peter Langerman and Faith Whittlesey.
They were assisted by an independent financial advisor, The Blackstone Group,
and independent legal counsel, Weil, Gotshal & Manges.
The settlement with Parent Holdings normally would have required approval
by Sunbeam's stockholders under the rules of the New York Stock Exchange
("NYSE") because of the issuance of the Parent Holdings Warrant in connection
therewith. However, the Audit Committee determined that the delay that would be
necessary to secure stockholder approval prior to the issuance of the Parent
Holdings Warrant (i) would be extensive, particularly in light of the ongoing
investigation by the SEC of Sunbeam's accounting practices and policies and
Sunbeam's previously disclosed intention to restate its historical financial
statements; (ii) would inhibit Sunbeam's ability to reach a settlement with
Parent Holdings and to retain and hire senior management essential to Sunbeam's
business; and (iii) would seriously jeopardize the financial viability of
Sunbeam. Accordingly, pursuant to an exception provided in the NYSE stockholder
approval policy applicable to situations of this kind, the Audit Committee
expressly approved Sunbeam's omission to seek stockholder approval. The NYSE
accepted Sunbeam's application of the exception.
In connection with the Parent Holdings Settlement Agreement, Messrs. Levin,
Shapiro and Jenkins signed three-year employment agreements with Sunbeam. See
"Management."
PROPOSED SETTLEMENT OF COLEMAN STOCKHOLDERS' CLAIMS
Beginning on June 25, 1998, several class action lawsuits were filed in the
Court of Chancery of the State of Delaware by minority stockholders of Coleman
against Coleman, Sunbeam and certain of their current and former officers and
directors. These actions were consolidated into a single class action lawsuit.
The actions allege, among other things, that the consideration payable to the
public stockholders of Coleman in the proposed Coleman Merger is no longer fair
to such stockholders as a result of the decline in the market price of Sunbeam
Common Stock. See "Business--Litigation and Other Contingent Liabilities."
On October 21, 1998, Sunbeam announced that it had entered into a
Memorandum of Understanding to settle, subject to court approval, the
consolidated class action lawsuit. Under the terms of the proposed settlement,
if approved by the court, Sunbeam will issue to the minority stockholders of
Coleman five-year warrants to purchase 4.98 million shares of Common Stock at an
exercise price of $7 per share, subject to certain anti-dilution provisions.
These warrants will generally have the same terms as the Parent Holdings
Warrant and will be issued when the Coleman Merger is consummated. The Company
cannot be certain that the court will approve the settlement as proposed.
20
<PAGE>
OPTIONS REPRICING
In August 1998, Sunbeam approved a plan to re-price outstanding options to
purchase shares of Common Stock held by Sunbeam employees. The repricing program
provides for outstanding options with exercise prices in excess of $10.00 per
share to be exchanged on a voluntary basis in an exchange ratio ranging from
approximately two to three old options for one new option (as determined by
reference to a Black-Scholes model) with the exerise price of the new options
set at $7.00 per share. See Note 15 to Sunbeam's Consolidated Financial
Statements.
NEW YORK STOCK EXCHANGE LISTING
By letter dated May 22, 1998, Sunbeam was advised by the NYSE that Sunbeam
did not meet the continuing listing standards of the NYSE because Sunbeam did
not have tangible net assets of at least $12 million and average annual net
income of at least $600,000 for fiscal years 1995, 1996 and 1997. Sunbeam has
met with NYSE officials and intends to provide to the NYSE a plan demonstrating
Sunbeam's ability to achieve compliance with the NYSE's listing standards over
the years 1999, 2000 and 2001. Sunbeam anticipates that the Common Stock will
continue to be listed on the NYSE but is not sure what the NYSE's position will
be.
CERTAIN UNDERSTANDINGS WITH FORMER MANAGEMENT
In early August 1998, Sunbeam entered into agreements with Messrs. Dunlap
and Kersh pursuant to which all the parties agreed not to assert claims against
each other for a period of at least six months and to exchange certain
information relating to the stockholders' litigation. Pursuant to this agreement
Sunbeam also has paid to Messrs. Dunlap and Kersh certain amounts related to
vacation and employment benefits. Pursuant to Sunbeam's By-Laws, Sunbeam has
agreed to advance the defense costs of Messrs. Dunlap and Kersh for six months
and, due to their status as former officers and directors, may be required to
advance such costs on a continuing basis. Sunbeam's obligation to advance
defense costs is subject to Sunbeam's receipt of an undertaking from each of
Messrs. Dunlap and Kersh that they will repay all amounts so advanced if it is
determined that they did not meet the applicable standard of conduct for
indemnification under Delaware law. Sunbeam has not made any severance payments
to either of Messrs. Dunlap or Kersh.
CHANGE OF AUDITORS
On November 20, 1998, Sunbeam announced that the Audit Committee had
recommended, and the Sunbeam Board had approved, the appointment of Deloitte &
Touche as Sunbeam's independent auditors for fiscal 1998. The new auditors
replace Arthur Andersen, Sunbeam's previous independent auditors, who will
continue to provide certain professional services to Sunbeam. For further
information regarding Sunbeam's independent auditors, see "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure."
21
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock has been listed for trading on the New York Stock Exchange
under the symbol "SOC" since August 19, 1992. The following table sets forth the
high and low sales prices of the Common Stock for the quarters indicated as
reported on the New York Stock Exchange Composite Transactions Tape.
<TABLE>
<CAPTION>
PRICE RANGE
OF DIVIDENDS
COMMON PER
STOCK COMMON SHARE
----------- ------------
HIGH LOW
---- ---
<S> <C> <C> <C>
Year Ended December 31, 1997
First Quarter..................................................................... $34 1/2 $24 5/8 $ 0.01
Second Quarter.................................................................... 40 3/4 30 0.01
Third Quarter..................................................................... 45 3/4 35 3/8 0.01
Fourth Quarter.................................................................... 50 7/16 37 0.01
Year Ended December 31, 1998
First Quarter..................................................................... $53 $35 7/16 $ 0.01
Second Quarter.................................................................... 45 9/16 8 3/16 --
Third Quarter..................................................................... 10 3/8 5 1/8 --
Fourth Quarter.................................................................... 7 5/16 4 5/8 --
</TABLE>
On February 3, 1999, the last reported closing sale price of the Common
Stock was $6 11/16 per share. As of January 13, 1999, there were approximately
4,504 holders of record of shares of Common Stock.
Until 1998, the Company's recent practice had been to pay a dividend at a
quarterly rate of $0.01 per share on the Company's Common Stock. The New Credit
Facility, however, limits payment of dividends on the Common Stock, unless
certain financial ratios are achieved and certain mandatory prepayments are
made. In addition, Sunbeam may in the future incur additional indebtedness
containing similar limitations.
Delaware law (the Company is a Delaware corporation) also places limits on
Sunbeam's ability to pay dividends on the Common Stock. Under Delaware law, to
pay dividends, the Company must have (i) a surplus at the time a dividend is
declared or (ii) profits for the year in which a dividend is declared or for the
immediately preceding fiscal year, in each case, equal to the full amount of the
dividend. The term "surplus" for these purposes means the excess of a company's
total assets over the sum of its total liabilities plus the aggregate par value
or stated capital of its outstanding capital stock.
In determining Sunbeam's ability to pay dividends, Delaware law permits the
Sunbeam Board of Directors to revalue Sunbeam's assets and liabilities from time
to time to their fair market values in order to create surplus. Sunbeam cannot
predict what the value of its assets or what the amount of its liabilities will
be in the future. Accordingly, Sunbeam cannot assure you that it will be able to
pay dividends on the Common Stock.
In any event Sunbeam does not presently intend to pay any dividends on the
Common Stock for the foreseeable future. Beginning in the third quarter of 1998
(with respect to the second quarter 1998 dividend), the Company discontinued
paying dividends.
By letter dated May 22, 1998, Sunbeam was advised by the NYSE that Sunbeam
did not meet their continuing listing standards. See "Recent Developments--New
York Stock Exchange Listing." Although it is not certain, Sunbeam anticipates
that the Common Stock will continue to be listed on the NYSE.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Sunbeam as of
September 30, 1998. This table should be read in conjunction with "Unaudited Pro
Forma Condensed Statements of Operations," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and the notes thereto of Sunbeam and Coleman.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
(IN MILLIONS)
<S> <C>
Cash and cash equivalents.......................................................................... $ 52.1
---------
---------
Short-term debt and current portion of long-term debt(1)........................................... $ 1,509.5
---------
---------
Long-term debt, net of current portion:
Debentures ...................................................................................... $ 769.4
Other............................................................................................ 9.4
---------
Total long-term debt........................................................................ 778.8
---------
Shareholders' equity:
Preferred stock (2,000,000 shares authorized,
none outstanding)............................................................................. --
Common stock (100,708,970 shares issued and outstanding)......................................... 1.0
Additional paid-in capital....................................................................... 1,030.9
Accumulated deficit.............................................................................. (499.1)
Accumulated other comprehensive loss............................................................. (33.2)
---------
Total shareholders' equity.................................................................. 499.6
---------
Total capitalization..................................................................... $ 1,278.4
---------
---------
</TABLE>
- ------------------
(1) The debt related to the New Credit Facility and all debt containing
cross-default provisions was classified as current as of September 30, 1998.
See Note 3 of Sunbeam's Condensed Consolidated Financial Statements.
23
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Sunbeam's ratio of earnings to fixed charges
on a historical basis for each of the five fiscal years ended January 2, 1994
through December 28, 1997, and on a historical and pro forma basis for the year
ended December 28, 1997 and the nine months ended September 30, 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS
------------------------------------------------------------------------ ENDED
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28, SEPTEMBER 30,
1994 1995 1995 1996(1) 1997 1998(1)
---------- ---------- ------------ ------------ ------------ -------------
AS RESTATED AS RESTATED
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(1).................. 16.2x 14.4x 4.7x -- 7.2x --
Pro forma ratio of adjusted
earnings to fixed charges... 1.0x(2) --
</TABLE>
- ------------------
(1) For purposes of determining the ratio of earnings to fixed charges, earnings
represent income from continuing operations before income taxes and fixed
charges (exclusive of interest capitalized) and fixed charges consist of
interest expense, capitalized interest and the estimated interest portion of
rental expense. For the year ended December 29, 1996, earnings were
insufficient to cover fixed charges by $262.2 million. For the nine months
ended September 30, 1998, earnings were insufficient to cover fixed charges
by $476.7 million. For the nine months ended September 30, 1998, on a pro
forma basis, earnings were insufficient to cover fixed charges by
$506.3 million.
(2) Gives pro forma effect to the 1998 Acquisitions (excluding the acquisition
of First Alert), the Bank Financing, the Original Offering and the use of
the net proceeds from the Original Offering and the Bank Financing as
described in the notes to the unaudited pro forma condensed statements of
operations as if they had occurred on December 30, 1996.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale
of the offered securities sold pursuant to this prospectus. Sunbeam will not
receive any of the proceeds.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed statements of operations were
prepared to illustrate the estimated effects of (i) the 1998 Acquisitions
(excluding the First Alert acquisition, which was considered insignificant),
accounted for under the purchase method of accounting, (ii) the borrowing of
approximately $1,325 million (the "Bank Financing") under the New Credit
Facility, (iii) the Original Offering and (iv) the use of the net proceeds from
the Original Offering and the Bank Financing as described in the notes to the
unaudited pro forma condensed statements of operations (collectively, the "Pro
Forma Transactions"). The unaudited pro forma condensed statement of operations
for the nine months ended September 30, 1998, gives effect to the Pro Forma
Transactions as if they had occurred on December 29, 1997. Sunbeam's reported
results from operations for the nine months ended September 30, 1998 includes
Coleman and Signature Brands from the acquisition date. The results from
operations of the acquired entities from the beginning of the period through the
acquisition date has been included as a pro forma adjustment. The unaudited pro
forma condensed statement of operations for the year ended December 28, 1997
gives effect to the Pro Forma Transactions as if they had occurred on December
30, 1996.
The unaudited pro forma condensed statement of operations for the nine
months ended September 30, 1998, has been derived from the unaudited financial
statements of Sunbeam as of and for the nine months ended September 30, 1998,
the unaudited statement of operations of Coleman for the three months ended
March 31, 1998 and the unaudited statement of operations of Signature Brands for
the three months ended March 31, 1998. An unaudited pro forma condensed
consolidated balance sheet is not shown as the Sunbeam condensed consolidated
balance sheet reflects the impact of the 1998 Acquisitions.
Sunbeam's most recently completed fiscal year for which audited financial
statements are available ended on December 28, 1997, the most recently completed
fiscal year of Coleman for which audited statements are available ended on
December 31, 1997, and the most recently completed fiscal year of Signature
Brands for which audited financial statements are available ended on
September 28, 1997. The unaudited pro forma condensed statement of operations
for the year ended December 28, 1997 has been derived from the audited financial
statements of Sunbeam as of and for the fiscal year ended December 28, 1997, the
audited financial statements of Coleman as of and for the fiscal year ended
December 31, 1997, and the unaudited statement of operations of Signature Brands
as of and for the year ended December 31, 1997. The unaudited statement of
operations of Signature Brands for the year ended December 31, 1997 has been
derived from the audited statement of operations of Signature Brands for the
fiscal year ended September 28, 1997, and the unaudited statements of operations
of Signature Brands for the thirteen weeks ended December 31, 1997 and
December 31, 1996, in order to present Signature Brands' operating results on a
basis consistent with Sunbeam's fiscal year.
The unaudited pro forma condensed statements of operations were prepared
utilizing the accounting principles of the respective entities as outlined in
each entity's historical financial statements. Certain reclassifications were
made to sales, cost of sales and selling, general and administrative expense as
reported in the historical financial statements of Coleman and Signature Brands
to conform to the classifications of Sunbeam as follows:
<TABLE>
<CAPTION>
DECREASE IN
--------------------------------------
SELLING,
GENERAL AND
COST OF ADMINISTRATIVE
SALES SALES EXPENSES
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Nine Months Ended September 30, 1998
Coleman........................................................ $(17,115) $(10,954) $ (6,161)
Signature Brands............................................... (6,231) -- (6,231)
Year Ended December 31, 1997
Coleman........................................................ $(84,264) $(53,929) $(30,335)
Signature Brands............................................... (13,110) -- (13,110)
</TABLE>
25
<PAGE>
Included in the historical statement of operations of Coleman for the three
months ended March 31, 1998, are certain pretax charges for costs relating to
the acquisition of Coleman by Sunbeam in the amount of $7.1 million, a
$3.6 million write-off of capitalized costs associated with the installation of
a company-wide computer software system which was abandoned following its
acquisition by Sunbeam and $2.2 million to cancel a licensing agreement with an
affiliate. Additionally, the expense of the early extinguishment of debt of
$1.2 million shown as an extraordinary charge on Coleman's historical statement
of operations for the three months ended March 31, 1998, has been excluded from
the unaudited pro forma condensed statement of operations for the nine months
ended September 30, 1998.
Included in the historical statement of operations of Coleman for the
fiscal year ended December 31, 1997 are cash and non-cash restructuring and
other charges totaling $36.4 million and related tax benefits of $13.9 million.
These costs have been recorded to cost of goods sold and selling, general and
administrative expense in the amounts of $19.7 million and $16.7 million,
respectively. These costs primarily relate to closing and relocating certain
administrative and sales offices, closing several manufacturing facilities,
write-down of inventory and fixed assets, as well as severance costs.
The pro forma adjustments are based upon available information and certain
assumptions that Sunbeam believes are reasonable under the circumstances. For
purposes of developing the unaudited pro forma condensed statements of
operations, the assets and liabilities of Coleman and Signature Brands have been
recorded based on preliminary purchase price allocation. The allocation of
purchase price for the 1998 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.
The unaudited pro forma condensed statements of operations should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the financial statements of each of Sunbeam and
Coleman and the notes thereto, and the other financial information included
elsewhere in this prospectus. These unaudited pro forma condensed statements of
operations are provided for informational purposes only and do not purport to be
indicative of the results of operations which would have been obtained had the
Pro Forma Transactions been completed on the dates indicated or the results of
operations for any future period.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
---------- --------------------------------------------------
SUNBEAM SIGNATURE BRANDS COLEMAN OTHER PRO FORMA
---------- ---------------- -------- ---------------------- ----------
<S> <C> <C> <C> <C> <C>
Net sales........................... $1,322,129 $ 55,482 $244,499 $(23,346)(a) $1,583,964
(14,800)(b)
Cost of goods sold.................. 1,273,424 39,098 175,777 (10,954)(a) 1,466,645
(10,700)(b)
Amortization of goodwill and
intangibles....................... 25,188 1,032 2,934 9,216 (c) 34,756
(3,614)(d)
Selling, general and administrative
expense........................... 415,193 20,392 74,855 (12,392)(a) 478,758
(3,700)(b)
(15,590)(e)
---------- -------- -------- ----------
Operating loss...................... (391,676) (5,040) (9,067) 9,588 (396,195)
Interest expense, net and other..... 84,411 4,481 10,905 9,665 (f) 109,462
Gain on sale of business............ -- -- (26,137) 26,137 (g) --
---------- -------- -------- ----------
Earnings (loss) from continuing
operations before income taxes,
minority interest and
extraordinary items............... (476,087) (9,521) 6,165 (26,214) (505,657)
Income taxes (benefit).............. 2,715 (3,062) 7,518 (5,782)(h) 1,389
Minority interest in loss of
Coleman........................... (3,447) -- 61 (637)(i) (4,023)
---------- -------- -------- ----------
Loss from continuing operations
before extraordinary items........ $ (475,355) $ (6,459) $ (1,414) (19,795) $ (503,023)
---------- -------- -------- ----------
---------- -------- -------- ----------
Loss per share of common stock from
continuing operations:
Basic............................. $ (4.96) $ (5.00)
---------- ----------
---------- ----------
Diluted........................... $ (4.96) $ (5.00)
---------- ----------
---------- ----------
Weighted average common shares
outstanding:
Basic............................. 95,919 100,619 (j)
---------- ----------
---------- ----------
Diluted........................... 95,919 100,619 (j)
---------- ----------
---------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statements of Operations for the Nine
Months Ended September 30, 1998.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT AS PERCENTAGES AND AS NOTED)
<TABLE>
<S> <C>
(a) Represents reclassifications made to net sales, cost of sales and general and administrative expense as
reported in the historical financial statements of Coleman and Signature Brands to conform to the
classifications of Sunbeam.
(b) Represents the elimination of the net sales, cost of sales and general and administrative expenses for two
days ended March 31, 1998 which are included in the Coleman condensed statement of operations for the
quarter ended March 31, 1998 and are reflected in Sunbeam since March 30, 1998.
(c) Represents the increase in goodwill amortization to reflect the pro forma effect of the acquisitions
occurring at the beginning of the period, calculated on a straight line basis over 40 years.
(d) Represents the reduction in amortization expense to reflect the pro forma effect of the acquisitions
occurring at the beginning of the period, resulting from the elimination of historical goodwill and deferred
financing costs.
(e) Represents the elimination of acquisition costs included in the first calendar quarter financial statements of
Coleman and Signature Brands.
(f) Represents the net increase in interest expense to reflect the pro forma effect of new acquisition financing
occurring at the beginning of the period. An assumed aggregate interest rate of 6.49% was used in the calculations.
(g) Represents the elimination of the gain on the sale of Coleman Safety & Security Products, Inc.
(h) Represents the tax effect at 39.6% of the above pro forma adjustments.
(i) Represents the effects of the above pro forma adjustments to the minority interest in Coleman.
(j) Represents basic weighted average shares of Sunbeam Common Stock outstanding as of September 30, 1998,
adjusted for the 14,077,749 shares issued in connection with the acquisition of Coleman as if it had
occurred on December 29, 1997. The shares of Common Stock issuable upon conversion of the Debentures
have not been included, as they would be anti-dilutive.
</TABLE>
28
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------
HISTORICAL SIGNATURE
SUNBEAM BRANDS COLEMAN OTHER
---------- ---------------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales................................................ $1,073,090 $278,937 $1,154,294 $ (97,374)(a)
Cost of goods sold....................................... 830,956 192,394 840,331 (53,929)(a)
30,000 (b)
Amortization of goodwill and intangibles................. 7,829 3,925 11,338 36,864 (c)
(14,852)(d)
Selling, general and administrative expense.............. 130,242 61,742 266,283 (43,445)(a)
---------- -------- ----------
Operating earnings....................................... 104,063 20,876 36,342 (52,012)
Interest expense, net and other.......................... 11,393 18,115 42,719 40,889 (e)
---------- -------- ----------
Earnings (loss) from continuing operations before income
taxes, minority interest and extraordinary items ...... 92,670 2,761 (6,377) (92,901)
Income taxes (benefit)................................... 40,352 1,889 (5,227) 9,858 (f)
Minority interest in loss of Coleman..................... -- -- 1,386 319 (g)
---------- -------- ----------
Earnings (loss) from continuing operations before
extraordinary items.................................... $ 52,318 $ 872 $ (2,536) $(103,078)
---------- -------- ----------
---------- -------- ----------
Earnings (loss) per share of common stock from continuing
operations:
Basic.................................................. $ .62
----------
----------
Diluted................................................ $ .60
----------
----------
Weighted average common shares outstanding:
Basic.................................................. 84,945
----------
----------
Diluted................................................ 87,542
----------
----------
<CAPTION>
PRO FORMA
----------
<S> <C>
Net sales................................................ $2,408,947
Cost of goods sold....................................... 1,839,752
Amortization of goodwill and intangibles................. 45,104
Selling, general and administrative expense.............. 414,822
----------
Operating earnings....................................... 109,269
Interest expense, net and other.......................... 113,116
----------
Earnings (loss) from continuing operations before income
taxes, minority interest and extraordinary items ...... (3,847)
Income taxes (benefit)................................... 46,872
Minority interest in loss of Coleman..................... 1,705
----------
Earnings (loss) from continuing operations before
extraordinary items.................................... $ (52,424)
----------
----------
Earnings (loss) per share of common stock from continuing
operations:
Basic.................................................. $ (.53)
----------
----------
Diluted................................................ $ (.53)
----------
----------
Weighted average common shares outstanding:
Basic.................................................. 99,044(h)
----------
----------
Diluted................................................ 99,044(h)
----------
----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended December 28, 1997.
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1997
(IN THOUSANDS, EXCEPT AS PERCENTAGES AND AS NOTED)
<TABLE>
<S> <C>
(a) Represents reclassifications made to net sales, cost of sales and general and administrative expense as
reported in the historical financial statements of Coleman and Signature Brands to conform to the
classifications of Sunbeam.
(b) Represents the net increase in cost of sales as a result of the revaluation of acquired inventory to
estimated fair market value to reflect the pro forma effect of the acquisition occurring at the beginning of
the period.
(c) Represents the increase in goodwill amortization to reflect the pro forma effect of the acquisitions
occurring at the beginning of the period, calculated on a straight line basis over 40 years.
(d) Represents the reduction in amortization expense to reflect the pro forma effect of the acquisitions
occurring at the beginning of the period, resulting from the elimination of historical goodwill and deferred
financing costs.
(e) Represents the net increase in interest expense to reflect the pro forma effect of new acquisition financing
occurring at the beginning of the period. An assumed aggregate rate of 6.49% was used in the calculations.
(f) Represents the tax effect at 38.6% of the above pro forma adjustments.
(g) Represents the effects of the above pro forma adjustments to the minority interest in Coleman.
(h) Represents basic weighted average shares of Common Stock outstanding of Sunbeam as of December 28, 1997,
adjusted for the 14,077,749 shares of Common Stock issued in connection with the acquisition of Coleman
as if it had occurred on December 30, 1996. The shares of Common Stock issuable upon conversion of the
Debentures have not been included, as they would be anti-dilutive.
</TABLE>
30
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information has been derived
from the Consolidated Financial Statements and Condensed Consolidated Financial
Statements of Sunbeam. This information should be read in conjunction with such
Financial Statements (and related notes), which are included elsewhere in this
prospectus.
All amounts in the table are expressed in millions, except per share data.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1994 1995 1995 1996(2) 1997
---------- ---------- ------------ ---------------- ----------------
AS RESTATED (1) AS RESTATED (1)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................... $927.5 $1,044.3 $1,016.9 $ 984.2 $1,073.1
Cost of goods sold ............ 674.2 764.4 809.1 896.9 831.0
Selling, general and
administrative expense....... 119.3 128.9 137.5 221.7 152.6
Restructuring, and asset
impairment charge (benefit) . -- -- -- 110.1 (14.6)
------ -------- -------- -------- --------
Operating earnings (loss)...... $134.0 $ 151.0 $ 70.3 $ (244.5) $ 104.1
------ -------- -------- -------- --------
------ -------- -------- -------- --------
Earnings (loss) from continuing
operations................... $ 76.9 $ 85.3 $ 37.6 $ (170.2) $ 52.3
Earnings (loss) from
discontinued operations, net
of taxes (3)................. 11.9 21.7 12.9 0.8 --
Loss on sale of discontinued
operations, net of taxes
(3).......................... -- -- -- (39.1) (14.0)
Extraordinary charge........... -- -- -- -- --
------ -------- -------- -------- --------
Net earnings (loss) ........... $ 88.8 $ 107.0 $ 50.5 $ (208.5) $ 38.3
------ -------- -------- -------- --------
------ -------- -------- -------- --------
EARNINGS (LOSS) PER SHARE DATA
(4):
Weighted average shares
outstanding.................. 87.9 82.6 82.8 82.9 87.5
Diluted earnings (loss) per
share from continuing
operations................... $ 0.87 $ 1.03 $ 0.45 $ (2.05) $ 0.60
Diluted earnings (loss) per
share........................ $ 1.01 $ 1.30 $ 0.61 $ (2.51) $ 0.44
Cash dividends declared per
share ....................... $ 0.04 $ 0.04 $ 0.04 $ 0.04 $ 0.04
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents...... $ 59.5 $ 26.3 $ 28.3 $ 11.5 $ 52.3
Working capital(6)............. 261.4 294.8 411.7 359.9 369.1
Total assets(5)................ 928.8 1,008.9 1,158.7 1,059.4 1,058.9
Long-term debt(6).............. 133.4 124.0 161.6 201.1 194.6
Shareholders' equity .......... 370.0 454.7 601.0 415.0 472.1
<CAPTION>
NINE MONTHS ENDED
---------------------------------
SEPTEMBER 28, SEPTEMBER 30,
1997 1998
---------------- -------------
AS RESTATED (1)
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................... $ 810.7 $ 1,322.1
Cost of goods sold ............ 620.6 1,273.4
Selling, general and
administrative expense....... 111.1 440.4
Restructuring, and asset
impairment charge (benefit) . -- --
-------- ---------
Operating earnings (loss)...... $ 79.0 $ (391.7)
-------- ---------
-------- ---------
Earnings (loss) from continuing
operations................... $ 45.2 $ (475.4)
Earnings (loss) from
discontinued operations, net
of taxes (3)................. (16.4) --
Loss on sale of discontinued
operations, net of taxes
(3).......................... -- --
Extraordinary charge........... -- (111.7)
-------- ---------
Net earnings (loss) ........... $ 28.8 $ (587.1)
-------- ---------
-------- ---------
EARNINGS (LOSS) PER SHARE DATA
(4):
Weighted average shares
outstanding.................. 87.2 95.9
Diluted earnings (loss) per
share from continuing
operations................... $ 0.52 $ (4.96)
Diluted earnings (loss) per
share........................ $ 0.33 $ (6.12)
Cash dividends declared per
share ....................... $ 0.03 $ 0.02
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents...... $ 22.8 $ 52.1
Working capital(6)............. 428.2 (666.5)
Total assets(5)................ 1,148.7 3,503.7
Long-term debt(6).............. 199.9 778.8
Shareholders' equity .......... 478.7 499.6
</TABLE>
- ------------------
(1) The financial data as of and for the fiscal years ended December 28, 1997
and December 29, 1996 and as of and for the nine months ended September 28,
1997 was restated as described in Notes 1 and 13 to Sunbeam's Consolidated
Financial Statements and Note 8 to Sunbeam's Condensed Consolidated
Financial Statements included in this prospectus.
(2) Includes restructuring, asset impairment and other charges of
$239.2 million before taxes. See Note 8 to Sunbeam's Consolidated Financial
Statements included in this prospectus.
(3) Represents results from the Company's furniture business, net of taxes and
the estimated loss on disposal. See Note 9 to Sunbeam's Consolidated
Financial Statements included in this prospectus.
(4) Reflects the adoption of SFAS No. 128, Earnings Per Share. See Note 1 to
Sunbeam's Consolidated Financial Statements included in this prospectus.
Represents the diluted average number of shares of common stock outstanding
except when the inclusion of common stock equivalents is anti-dilutive.
(5) Includes goodwill and other intangible assets of $1,813 million at September
30, 1998.
(6) A significant portion of Sunbeam's indebtedness has been classified as
current as of September 30, 1998. See Note 3 to Sunbeam's Condensed
Consolidated Financial Statements included in this prospectus.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Consolidated and Condensed Consolidated Financial Statements (and
related notes), selected historical financial information and unaudited pro
forma condensed statements of operations appearing elsewhere in this prospectus.
RESTATEMENTS
On June 30, 1998, Sunbeam announced that the Audit Committee of the Board
of Directors (the "Audit Committee") was initiating a review into the accuracy
of Sunbeam's prior financial statements. The Audit Committee's review has since
been completed and, as a result of its findings, Sunbeam has restated its
previously issued consolidated financial statements for 1996, 1997 and the first
quarter of 1998. See "Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure" and Notes 1, 13, 14 and 15 to Sunbeam's
Consolidated Financial Statements. The following discussion relies upon the
Company's restated financial statements.
1998 ACQUISITIONS
On March 30, 1998, in the Holdings Merger, Sunbeam, through a wholly-owned
subsidiary, acquired an indirect beneficial interest in approximately 81% of the
total number of then outstanding shares of Coleman Common Stock, in exchange for
14,099,749 shares of Sunbeam's Common Stock and approximately $160 million in
cash as well as the assumption of $1,016 million in debt. Immediately
thereafter, as a result of the exercise of employee stock options, Sunbeam's
indirect beneficial ownership of Coleman decreased to approximately 79% of the
total number of then outstanding shares of Coleman Common Stock. Sunbeam expects
to acquire the remaining equity interest in Coleman pursuant to the Coleman
Merger in which the existing Coleman minority stockholders and option holders
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
Sunbeam's 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) brand name since the 1920s.
On April 6, 1998, Sunbeam completed the cash acquisitions of First Alert, a
leading manufacturer of smoke and carbon monoxide detectors, and Signature
Brands, a leading manufacturer of consumer and professional products. The First
Alert and the Signature Brands acquisitions were valued at approximately
$178 million and $253 million, respectively, including the assumption of debt.
The 1998 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 1998 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 Sunbeam and the acquired entities,
effective with its 1998 fiscal year, Sunbeam has changed its fiscal year end
from the Sunday nearest December 31 to a calendar year. See Note 1 to Sunbeam's
Condensed Consolidated Financial Statements.
RESTRUCTURING, ASSET IMPAIRMENT AND OTHER CHARGES
In November 1996, Sunbeam announced the details of a restructuring plan. By
July 1997, Sunbeam completed the major phases of the restructuring plan. The
plan included the consolidation of administrative functions, a reduction in
manufacturing and warehouse facilities (including a reduction in the number of
production facilities from 26 to 8 and warehouses from 61 to 18), the
elimination of over 6,000 positions (including 3,300 from the divestiture of
certain businesses described below and approximately 2,800 other positions, some
of which were outsourced), the centralization of Sunbeam's procurement function
and the reduction of Sunbeam's product offerings and stock keeping units
("SKU's"). The restructuring plan also included the elimination of certain
businesses and product lines. In fiscal 1997, Sunbeam's core product categories
were Appliances, Health at Home, Personal Care and Comfort, Outdoor Cooking and
Away From
32
<PAGE>
Home. Other product categories and businesses were divested in 1997, including
Sunbeam's furniture business and its time and temperature, decorative bedding
and Counselor(Registered) and Borg(Registered) scale product lines. In addition,
Sunbeam sold its textile mill in Biddeford, Maine in 1997, while entering into a
supply agreement with the mill for future production of blanket shells.
Sunbeam's operating results for 1996 include pre-tax Restructuring and
Asset Impairment Charges of $110.1 million recorded for the restructuring plan
(see Note 8 to Sunbeam's Consolidated Financial Statements). Approximately
$29.3 million of these charges were paid in cash in 1996 and 1997, primarily for
severance and other employee termination benefits, lease obligations and other
exit costs associated with facility closures. Sunbeam estimates that
approximately $5.2 million will be expended in the future, primarily for lease
obligations. The amounts accrued at December 29, 1996, for Restructuring and
Asset Impairment Charges recorded in fiscal 1996, exceeded amounts ultimately
required. Accordingly, the fiscal 1997 Consolidated Statement of Operations
reflects the reversal of accruals no longer required and resulted in a
Restructuring and Asset Impairment Benefit of $14.6 million.
In 1996, in conjunction with the initiation of the restructuring plan,
Sunbeam recorded additional charges totaling $129.1 million, reflected in Cost
of Sales; Selling, General and Administrative Expense ("SG&A"); and Loss on Sale
of Discontinued Operations. These charges related largely to inventory
write-downs as a result of the reduction in SKU's, costs related to outsourcing
and the divestiture of the furniture business. In 1997, Sunbeam incurred
$38.3 million of expenses related to the restructuring effort undertaken in
1996. These expenses were primarily for equipment movement, package redesign,
employee relocation and recruiting, and an additional pre-tax loss on the sale
of discontinued operations due primarily to lower than anticipated sales
proceeds. (See Notes 8 and 9 to Sunbeam's Consolidated Financial Statements.)
The charges and benefit described above are included in the following
categories in the 1997 and 1996 Consolidated Statements of Operations (in
millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Restructuring and impairment (benefit) charge.................................................. $(14.6) $110.1
Cost of goods sold............................................................................. -- 60.8
Selling, general and administrative expenses................................................... 15.8 10.1
Loss on sale of discontinued operations........................................................ 22.5 58.2
------ ------
$ 23.7 $239.2
------ ------
------ ------
These charges and benefit consisted of the following (in millions):
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Write-downs:
Fixed assets held for disposal, not in use................................................... $ -- $ 34.8
Fixed assets held for disposal, used until disposed.......................................... -- 14.8
Inventory on hand............................................................................ -- 60.8
Other assets, principally trademarks and intangible assets................................... -- 19.1
------ ------
-- 129.5
------ ------
Restructuring accruals (including amounts expended in 1996):
Employee severance pay and fringes........................................................... (7.9) 24.7
Lease payments and termination fees.......................................................... (6.7) 12.6
Other exit activity costs, principally facility closure expenses............................. -- 4.1
------ ------
(14.6) 41.4
Other related costs incurred:
Employee relocation; equipment relocation and installation and other......................... 11.8 3.2
Transitional fees related to outsourcing arrangements........................................ -- 4.9
Package redesign............................................................................. 4.0 2.0
------ ------
15.8 10.1
------ ------
Charges included in continuing operations.................................................... 1.2 181.0
Loss on sale of discontinued operations...................................................... 22.5 58.2
------ ------
$ 23.7 $239.2
------ ------
------ ------
</TABLE>
33
<PAGE>
At December 29, 1996, the net carrying value of inventory written-down as
part of the restructuring and Asset Impairment Charges approximated
$37.3 million. During 1997, this inventory, a portion of which was product of
discontinued operations, was sold for an amount substantially equivalent to its
net carrying value.
As further described in Note 12 to Sunbeam's Consolidated Financial
Statements, during the fourth quarter of 1996, Sunbeam charged SG&A for
increases of $9.0 million in environmental reserves and $12.0 million in
litigation reserves. As described in Note 2 to Sunbeam's Consolidated Financial
Statements, Sunbeam also charged $7.7 million to SG&A expenses in 1996 for
compensation costs associated with restricted Common Stock awards and other
costs related to the employment of the Company's former management team.
During the first, second, third and fourth quarters of 1997, approximately
$0.5 million, $4.5 million, $1.5 million and $21.5 million, respectively, of
pre-tax liabilities provided in prior years and determined to be no longer
required were reversed and taken into income. Included in these reserves was
$8.1 million related to the litigation reserve increase in 1996. (See Note 12 to
Sunbeam's Consolidated Financial Statements.)
Additionally, effective in the second quarter of fiscal 1997, Sunbeam began
capitalizing manufacturing supplies inventories, whereas, previously these
inventories were charged to operations when purchased. This change increased
operating earnings in fiscal 1997 by $2.8 million.
A reconciliation of earnings (loss) from continuing operations for 1997 and
1996, on an adjusted basis follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Operating earnings (loss), as reported........................................................ $104.1 $(244.5)
Add (deduct):
Restructuring, asset impairment and other related charges................................... 1.2 181.0
Environmental reserve increase principally related to divested operations................... -- 9.0
Litigation reserve increase relating to divested operation.................................. -- 12.0
Restricted stock and other management compensation.......................................... -- 7.7
Reversals of accruals no longer required.................................................... (28.0) --
Capitalization of manufacturing supplies inventories........................................ (2.8) --
------ -------
Adjusted operating earnings (loss)............................................................ 74.5 (34.8)
Interest expense............................................................................ 11.4 13.6
Other expense, net.......................................................................... -- 3.7
------ -------
Adjusted earnings (loss) from continuing operations before income taxes....................... 63.1 (52.1)
Adjusted income taxes (benefit)............................................................. 56.3 (18.2)
------ -------
Adjusted earnings (loss) from continuing operations......................................... $ 6.8 $ (33.9)
------ -------
------ -------
</TABLE>
After consideration of the adjustments above, 1996 results from continuing
operations reflect a loss and 1997 continuing operations are marginally
profitable. Due to a variety of factors, including sales in 1997 which increased
inventory positions at certain customers, distribution losses during 1997 and
other items, as discussed below, the results for 1997 are not indicative of
future results. As discussed in Liquidity and Capital Resources, below, and in
Note 15 to Sunbeam's Consolidated Financial Statements, the 1998 results are
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 the 1998 Acquisitions, 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.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 28, 1997
Results of operations for the nine months ended September 30, 1998 include
the results of Coleman for March 30 and 31, 1998 and the entire second and third
quarters and of Signature Brands and First Alert from April 6, 1998. The
acquired entities generated net sales of $717.2 million in the period since the
acquisitions with corresponding gross margin of $158.3 million, or 22% of sales.
SG&A costs recorded by the acquired entities were $163.9 million in the period,
yielding an operating loss of $5.6 million. Included in cost of sales of the
acquired entities was approximately $30 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, sales of the acquired entities
were approximately $140 million higher than in the comparable nine months of
1998 due to: a decrease in product lines at Coleman resulting from the sale of a
portion of the business, a
34
<PAGE>
program to reduce SKU's and Coleman's exit from the pressure washer business in
1997; softness in demand resulting from the domestic retail channel's efforts to
lower inventory levels; adverse economic conditions in Japan and Southeast Asia;
product availability issues at Signature Brands; higher sales returns at First
Alert; and general disruption in the acquired entities due to the acquisitions
and management changes. Excluding the impact of the purchase accounting
adjustments described above, gross margins generated by the acquired entities
were $65 million lower in 1998 than for the prior year-to-date period.
Approximately 60% of the change resulted from the lower sales in 1998. An
adverse sales mix at Signature Brands and charges at Coleman and Signature
Brands in 1998 related to inventory reserves, provisions for fixed assets and
environmental remediation accounted for the majority of the remaining decline in
margins as compared with operations in the acquired entities for the first nine
months of 1997.
Net sales for the nine months ended September 30, 1998 were $1,322.1
million, an increase of $511.4 million versus the nine months ended September
28, 1997. After excluding: (i) $717.2 million of sales generated by the acquired
entities, as discussed above; (ii) approximately $6 million of higher sales in
1998 resulting from the change in fiscal year end, as described in Note 1 to
Sunbeam's Condensed Consolidated Financial Statements; (iii) $5.4 million in
1998 and $25.7 million from 1997 sales of excess or discontinued inventory for
which the inventory carrying value was substantially equivalent to the sales
value; (iv) $4.2 million from 1997 sales relating to divested product lines
which are not classified as discontinued operations (time and temperature
products and Counselor(Registered) and Borg(Registered) 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 $594.0 million decreased approximately 24% from $776.8 million in the
first nine months of 1997. Overall, product sales were adversely impacted by
changes in retail inventory levels, price discounting and higher provisions for
estimated returns, costs to ship products to customers, rebates and other
customer allowances.
Domestic Adjusted Sales declined approximately 25% or $149 million from the
first three quarters of 1997. Sunbeam believes more than half of the sales
decline was due to increasing retail inventory levels in 1997 versus decreasing
inventory positions at customers in 1998. Excluding this effect, sales were
still lower than the prior year throughout the business, with the most
significant decline occurring in Outdoor Cooking products sales. During 1997,
Sunbeam 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 price discounting and higher customer allowances. Appliance
Adjusted Sales declined between years as a result of higher provisions for
returns, freight and co-operative advertising allowances in 1998, lost
distribution and price erosion on breadmakers. The sales decline in Personal
Care and Comfort products arose principally in the third quarter and was
primarily due to sales timing issues which are generally expected to be
recovered in the fourth quarter.
International sales, which represented 23% of Adjusted Sales for the first
three quarters of 1998, decreased approximately 20% compared with the Adjusted
Sales for the same period a year ago. Sunbeam believes this sales decline was
primarily attributable to decreasing customer inventory levels as compared with
the prior year. Sales were also adversely impacted by a decision to stop selling
to certain export distributors in Latin America and by poor economic conditions
in that region. In addition, lost distribution in Canada contributed to the
sales decline from the prior year.
Excluding: (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 Sunbeam's Condensed
Consolidated Financial Statements; (iii) $109.8 million in charges recorded in
the second quarter of 1998 related to excess inventory and fixed assets;
(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 certain manufacturing
supplies inventories which were previously expensed, gross margin declined to a
loss of $0.6 million for the first nine months of 1998 versus $183.2 million for
the same period a year ago. Lower sales volume and unfavorable manufacturing
efficiencies from lower production levels associated with the lower sales
volumes and high inventory levels in 1998 accounted for approximately 50% of the
change between years. Approximately 30% 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 accessory products distribution. Accessories generate
significantly better margins than the average margins on sales of grills. During
the first half of each year, grill and grill accessory sales are traditionally a
higher portion of overall sales in the period than during other quarters of the
year. Costs associated with a blanket recall, higher warranty reserves and
certain adjustments related to physical inventories drove the remaining
increases in cost of goods sold.
35
<PAGE>
Excluding the effect of: (i) $163.9 million of SG&A charges in the acquired
entities; (ii) $70 million recorded in the third quarter of 1998 related to the
issuance of the Parent Holdings Warrant; (iii) approximately $2.3 million of
SG&A expense in 1998 from the change in the fiscal period; (iv) a $5.9 million
benefit in the first nine months of 1998 and an $8.2 million benefit in the same
period in 1997 from the reversal of reserves no longer required;
(v) $34.4 million of charges recorded in 1998 related to compensation and
severance for certain former employees; (vi) $16.9 million of costs incurred in
1998 related to the restatement efforts, Year 2000 remediation and the corporate
office relocation, and (vii) $11.9 million of restructuring related charges
recorded in 1997, SG&A expenses were $158.8 million in 1998, 48% higher than the
same period in 1997. This increase is due in part to approximately $8 million in
higher advertising and marketing costs between years due to a national
television advertising campaign for grills, package redesign costs and market
research. Higher inventory levels in 1998 and costs associated with outsourcing
small parts fulfillment led to higher distribution and warehousing costs which
were $10 million greater than a year ago. Corporate administrative costs were
approximately $28 million higher between years, resulting primarily from
increases in outside service provider fees, including telephone charges, travel
and relocation fees, higher legal and environmental reserves and other general
administrative costs. Higher bad debt charges in 1998 accounted for the majority
of the remaining increase in SG&A costs between years. These bad debt charges
resulted nearly equally from collection issues relating to customers in the U.S.
and in Latin America.
Operating results for the first three quarters of 1998 and 1997, on an
adjusted basis as described above, were a loss of $159.4 million in 1998 and a
profit of $75.8 million in 1997. This change resulted from the factors discussed
above.
Interest expense increased from $7.8 million in the first nine months of
1997 to $90.1 million for the same period in 1998. Approximately 80% of the
change related to higher borrowing levels in 1998 for the 1998 Acquisitions,
with the remainder due to increased borrowings to fund working capital and the
operating losses. (See Note 3 to Sunbeam's Condensed Consolidated Financial
Statements.)
Other income, in 1998 net of $5.7 million included approximately $8 million
from the settlement of a lawsuit. Excluding this amount, there was approximately
$2.3 million of net losses from foreign exchange in the period. In 1998, net
foreign exchange gains accounted for the majority of the $0.9 million other
income. The foreign exchange gains and losses in each year are primarily from
results in Mexico.
The minority interest reported in 1998 relates to the minority interest
held in Coleman by public stockholders.
Income taxes in 1998 reflect taxes on earnings of foreign subsidiaries 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.
In 1998, Sunbeam prepaid certain debt assumed in the 1998 Acquisitions and
prepaid an industrial revenue bond related to its Hattiesburg facility. In
connection with the early extinguishment of this debt, Sunbeam recognized an
extraordinary charge of $111.7 million ($1.16 per share).
Sunbeam'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 Sunbeam's furniture
business assets (primarily inventory, property, plant and equipment), Sunbeam
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, Sunbeam recorded an additional loss on disposal of
$22.5 million pre-tax.
YEAR ENDED DECEMBER 28, 1997 COMPARED TO THE YEAR ENDED DECEMBER 29, 1996
Net sales for 1997 were $1,073.1 million, an increase of $88.9 million or
9% over 1996. After excluding: (i) $4.2 million and $30.8 million in 1997 and
1996, respectively, related to divested product lines which are not classified
as discontinued operations (time and temperature products, decorative bedding
and Counselor(Registered) and Borg(Registered) branded scales), (ii) $31.3
million of sales in 1997 of discontinued inventory which resulted primarily from
the reduction of SKU's as part of the 1996 restructuring plan and for which the
inventory carrying value was substantially equivalent to the sales value, and
(iii) a $5.4 million benefit from the reduction of cooperative advertising
accruals no longer required in 1997 (cooperative advertising costs are
36
<PAGE>
recorded as deductions in determining net sales), net sales on an adjusted basis
("Adjusted Sales") increased 8% over the prior year.
Adjusted Sales, on a worldwide basis, increased during 1997 primarily from
new product introductions, expanded distribution (particularly with Sunbeam's
top ten customers), international geographic expansion and increased inventory
positions at certain customers. Adjusted Sales growth was approximately 19% in
the Appliance category and approximately 12% in Outdoor Cooking. In the Health
at Home category, Adjusted Sales increased approximately 5% while Adjusted Sales
in the Personal Care and Comfort category decreased approximately 13% during
1997. As customers reduce inventories to normal levels, 1998 sales are expected
to be adversely impacted.
Sales increases in Appliances were driven by new products, such as
re-designed blenders and mixers, coffeemakers, irons, deep fryers and toasters,
and by increased distribution with large national mass retailers, combined with
higher inventory levels at certain customers. Sales of Outdoor Cooking products
increased in 1997 attributed to increased merchandising and advertising
programs, new distribution and higher inventory levels at certain customers.
During 1997, Sunbeam lost a significant portion of its Outdoor Cooking products
distribution, including the majority of its grill accessory products
distribution. Accessories, which accounted for just over 10% of the Outdoor
Cooking sales volume in 1997, generate significantly better margins than the
average margins on sales of grills. These distribution changes are expected to
adversely impact Outdoor Cooking sales and margins in the future, until such
time as the distribution is regained.
Sales of Personal Care and Comfort products suffered during the fourth
quarter of 1997 as a result of lower than expected retail sell through of
electric blankets in key northern markets in late 1997 coupled with the
inability to service demand for king and queen sized blankets due to shortages
of blanket shells. Sunbeam has shifted to a more level production for blankets
in 1998 in order to more adequately service the seasonal demand for bedding
products. Health at Home category sales increased as a result of new products
and improved distribution in the drug store channels. Both Personal Care and
Comfort and Health at Home sales were impacted by increased inventory positions
at customers in 1997. Away from Home sales increased in 1997 as a result of new
products, including cordless clippers and titanium blades, coupled with
increased distribution of commercially rated appliances. Also contributing to
Sunbeam's sales growth in 1997 were its new retail outlet stores, of which 22
were open by the end of 1997.
International sales, which represented 21% of total revenues in 1997, grew
25% during the year. This sales growth was driven primarily by 54 new 220 volt
product introductions and a general improvement in demand in export operations
and in Mexico. Net sales growth of approximately 35% was achieved in the Latin
American export sales organization. Most of this growth came from increased
business with three exporters. In Mexico and Venezuela, sales grew 30% and 24%,
respectively. Canada accounted for the majority of the remaining international
sales growth.
Excluding the effect of: (i) charges to cost of sales related to the
restructuring plan in 1996, (ii) the benefit of reducing reserves no longer
required in 1997, and (iii) the benefit in 1997 of capitalizing manufacturing
supplies inventories, gross margin as a percent of Adjusted Sales would have
been approximately 22% in 1997, an improvement of approximately 6 percentage
points from 16% in 1996. This increase reflects the results of lower overhead
spending, improved factory utilization and labor cost benefits resulting from
Sunbeam's restructuring plan, coupled with reductions in certain materials
costs. The lower overhead spending resulted from a reduction in the number of
facilities operated by Sunbeam. With fewer facilities used for production
purposes, the capacity of the remaining plants was more fully utilized. The
labor cost benefits were realized principally from shifting production to
Mexico. In addition, a broad based program to obtain lower costs for materials
contributed to the 1997 margin improvement.
Excluding the impact of: (i) the restructuring and asset impairment charges
to SG&A in 1997 and 1996, (ii) the 1996 charges for the environmental accrual,
litigation accrual, and restricted Common Stock grant compensation, and
(iii) the 1997 benefit from the reversal of reserves no longer required, SG&A
improved to 14% of Adjusted Sales in 1997, down 5 percentage points from 19% in
1996. This improvement was partially the result of benefits from the
consolidation of six divisional and regional headquarters into one corporate
headquarters and one administrative operations center, reduced staffing levels,
a reduction in the number of warehouses, and company-wide cost control
initiatives. Higher expenditures in 1996 for market research, new packaging and
other discretionary charges and higher bad debt expenses associated with certain
of Sunbeam's customers also contributed to the decrease in SG&A costs from 1996
to 1997.
Operating results for 1997 and 1996, on a comparable basis as described
above, were earnings of $74.5 million in 1997 and a loss of $34.8 million in
1996. On the same basis, operating margin increased 11
37
<PAGE>
percentage points to 7% of Adjusted Sales in 1997 versus a loss of 4% in 1996.
This improvement resulted from the factors discussed above.
Interest expense decreased from $13.6 million in 1996 to $11.4 million in
1997 primarily as a result of lower average borrowing levels in 1997.
The 1997 effective income tax rate for continuing operations was higher
than the federal statutory income tax rate primarily due to state and local
taxes plus the effect of foreign earnings taxed at other rates and the increase
to the valuation reserve for deferred tax assets, offset in part by the reversal
of tax liabilities no longer required. For 1996, the effective income tax rate
for continuing operations equaled the federal statutory income tax rate. For a
reconciliation of income taxes computed at the federal statutory tax rate to the
amounts provided, see Note 10 to Sunbeam's Consolidated Financial Statements.
Sunbeam's diluted earnings per share from continuing operations was $0.60
per share in 1997 versus a loss per share from continuing operations in 1996 of
$2.05. Sunbeam's share base utilized in the diluted earnings per share
calculation increased approximately 6% during 1997 as a result of an increase in
the number of shares of Common Stock outstanding due to the exercise of stock
options in 1997 and the inclusion of Common Stock equivalents in the 1997
calculation.
Sunbeam's discontinued furniture business, which was sold in March 1997,
had revenues of $51.6 million in the first quarter of 1997 prior to the sale and
nominal earnings. In 1996, the discontinued furniture business had net income of
$0.8 million on revenues of $227.5 million and an estimated loss on disposal of
the business of $39.1 million, net of applicable income tax benefits. The sale
of Sunbeam's furniture business assets (primarily inventory, property, plant and
equipment) was completed in March 1997.
Sunbeam received $69.0 million in cash, retained approximately $50.0
million in accounts receivable and retained certain liabilities related to the
furniture business. The final purchase price for the furniture business was
subject to a post-closing adjustment based on the terms of the Asset Purchase
Agreement and in the first quarter of 1997, after completion of the sale,
Sunbeam recorded an additional loss on disposal of $22.5 million pre-tax. See
discussion of Restructuring and Asset Impairment (Benefit) Charges in Note 8 and
Discontinued Operations and Assets Held For Sale in Note 9 to Sunbeam's
Consolidated Financial Statements for further information regarding sale of the
furniture business.
YEAR ENDED DECEMBER 29, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
As described above, Sunbeam's operating results for 1996 include: (i) a
pre-tax charge of $239.2 million recorded in conjunction with the restructuring
plan (see Notes 8 and 9 to Sunbeam's Consolidated Financial Statements),
(ii) charges related to increases in environmental ($9.0 million) and litigation
($12.0 million) reserves (see Note 12 to Sunbeam's Consolidated Financial
Statements), and (iii) $7.7 million of charges related to restricted Common
Stock grants made to the then new management team (see Note 2 to Sunbeam's
Consolidated Financial Statements).
Net sales in 1996 of $984.2 million represent a decrease of $32.7 million,
or 3%, from 1995. Domestic sales represented approximately 80% of total sales of
Sunbeam in 1996 and decreased $28.5 million or 3% from 1995. This sales decline
was driven by lower sales of outdoor cooking products, which declined 7% and
lower sales of bedding products which declined 9% from 1995, attributed
primarily to lower decorative bedding sales (divested in December 1996).
Domestic sales of appliance products were flat with sales increases from new
products such as vegetable steamers and toaster ovens being offset by reduced
pricing on breadmakers. Sales of other product categories such as health and
personal care products and time and temperature products (divested in March
1997) were either flat or declined slightly from 1995 levels.
Sunbeam's loss from continuing operations was $170.2 million or $2.05 per
share for 1996 versus earnings from continuing operations of $37.6 million or
$0.45 per share (diluted) in 1995 largely as a result of the restructuring
activities discussed above. The net loss for 1996 was $208.5 million, or $2.51
per share, compared to net earnings of $50.5 million, or $0.61 per share
(diluted), for 1995. Excluding the impact in 1996 of the charges discussed
above, operating earnings decreased from $70.2 million in 1995 to a loss of
$34.8 million in 1996.
International sales decreased $4.2 million or 2% from 1995 primarily as a
result of lower sales in Latin America which was attributed to political and/or
economic instability in several countries such as Ecuador, Peru, Columbia and
Venezuela (which suffered a Bolivar devaluation in April 1996), a sales decline
of 11% in Canada as a result of the bankruptcy filing of Sunbeam's then largest
Canadian customer offset by a 55% increase in sales in Mexico as a result of a
more stable economic environment in 1996.
38
<PAGE>
Sunbeam's gross margin percentage, excluding the impact of restructuring
and other charges, was 15% of sales in 1996, down from 20% in 1995, primarily
from higher manufacturing costs and excess manufacturing capacity.
SG&A expenses, excluding the impact of the charges described above, were
19% of sales in 1996 compared with 14% of sales in 1995. The higher 1996
expenses were due in part to higher than normal spending for market research,
advertising and similar programs and higher bad debt charges associated with
certain of Sunbeam's customers.
Operating losses, excluding the restructuring and special charges in 1996,
were $34.8 million in 1996, or 4% of sales, as compared with 1995's operating
earnings of $70.2 million, or 7% of sales. The decrease in operating results
between years is primarily a result of the factors discussed above.
Interest expense increased from $9.4 million in 1995 to $13.6 million in
1996 as a result of increased indebtedness of Sunbeam for working capital
requirements and interest capitalized in 1995 related to the construction of the
Hattiesburg manufacturing and distribution center.
The effective income tax rate for 1996 equaled the federal statutory income
tax rate. In 1995, the effective income tax rate exceeded the federal statutory
income tax rate primarily due to state and local taxes plus the effect of
foreign earning and dividends taxes at other rates. For a reconciliation of
income taxes computed at the federal statutory tax rate to the amounts provided,
see Note 10 in the Notes to Sunbeam's Consolidated Financial Statements.
Sunbeam's discontinued furniture business had revenues of $227.5 million in
1996, up 23% from $185.6 million in 1995. This revenue growth was attributed
primarily to the acquisition of the Samsonite(Registered) furniture business in
November 1995. Excluding the impact of this acquisition, furniture business
sales declined 2%. Earnings from the discontinued furniture business, net of
taxes, declined from $12.9 million in 1995 to $0.8 million in 1996 primarily as
a result of lower gross margins from reduced pricing, under absorption of higher
manufacturing costs and higher raw material costs. In addition, SG&A costs
increased due to the inclusion of the Samsonite(Registered) furniture business,
higher distribution and warehousing costs, particularly with resin furniture
products and higher bad debt expenses. (See Note 9 to Sunbeam's Consolidated
Financial Statements.)
FOREIGN OPERATIONS
While the Company's revenues generated in Asia have traditionally not been
significant, economic instability in this region is expected to have a negative
effect on such 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.
EXPOSURE TO MARKET RISK
Qualitative Information
Sunbeam uses a variety of derivative financial instruments to manage its
foreign currency and interest rate exposures. Sunbeam does not speculate on
interest rates or foreign currency rates. Instead, it uses derivatives when
implementing its risk management strategies to reduce the possible effects of
these exposures.
With respect to foreign currency exposures, Sunbeam is most vulnerable to
changes in United States dollar/Japanese yen, United States dollar/Canadian
dollar, United States dollar/German Deutschmark, United States dollar/Mexican
peso and United States dollar/Venezuelan bolivar exchange rates. Sunbeam
principally uses forward and option contracts to reduce risks arising from firm
commitments, anticipated intercompany sales transactions and intercompany
receivable and payable balances. Sunbeam generally uses interest rate swaps to
fix certain of its variable rate debt. Sunbeam manages credit risk related to
these derivative contracts through credit approvals, exposure limits and
threshold amounts and other monitoring procedures.
39
<PAGE>
Quantitative Information
Set forth below are tabular presentations of certain information related to
Sunbeam's investments in market risk sensitive instruments. All of the
instruments set forth in the following tables have been entered into by Sunbeam
for purposes other than trading purposes.
Interest Rate Sensitivity. The table below provides information about
Sunbeam's derivative financial instruments and other financial instruments that
are sensitive to changes in interest rates, including interest rate swaps and
debt obligations.
For debt obligations, the table presents principal cash flows by expected
maturity date and related (weighted) December 31, 1998 average interest rates.
Included in the debt position are the Debentures, which carry no intervening
cash flows but mature in 2018. For interest rate swaps, the table presents
notional amounts and weighted average interest rates for the contracts at the
current time. Notional amounts are used to calculate the contractual payments to
be exchanged under the contracts.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- -------------------------------------------------------------------------------------------------------------------------
BALANCE EXPECTED MATURITY DATE
AT ----------------------------------------------------------------------------
------- THERE- FAIR
1998 1999 2000 2001 2002 2003 AFTER TOTAL VALUE
------ ------ ------ ------ ------ ------ ------ ------ ------
(US$ EQUIVALENT IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC LIABILITIES
Long Term Debt:
Fixed Rate (US$)--Total....... $ 789 $ 1 $ 1 $ 1 $ 1 $ 1 $2,019 $2,024 $ 251
Debentures.................. 779 -- -- -- -- -- 2,014 2,014 241
Other....................... 10 1 1 1 1 1 5 10 10
Average Interest Rate....... 4.99% -- -- -- -- -- -- -- --
Variable Rate: US$............ $1,357 $1,357(1) -- -- -- -- -- $1,357 $1,357
Average Interest Rate....... 8.61% -- -- -- -- -- --
INTEREST RATE DERIVATIVES
Interest Rate Swaps:
Variable to Fixed (US$)..... $ 325 -- -- $ 150 -- $ 175 -- $ 325 $ (7)
Average Pay Rate............ 5.70% -- -- -- -- -- -- -- --
Average Receive Rate........ 5.21% -- -- -- -- -- -- -- --
</TABLE>
- -----------
(1) Represents all New Credit Facility debt, which has been classified as
current. See "Risk Factors--Need to Further Amend New Credit Facility;
Possible Restructuring" and Note 3 to Sunbeam's Condensed Consolidated
Financial Statements.
Exchange Rate Sensitivity. The table below provides information about
Sunbeam's derivative financial instruments, other financial instruments and
forward exchange agreements by functional currency and presents such information
in U.S. dollar equivalents. The table summarizes information on instruments and
transactions that are sensitive to foreign currency exchange rates, including
foreign currency variable rate credit lines, foreign currency forward exchange
agreements and foreign currency purchased put option contracts. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For foreign currency forward
exchange agreements and foreign currency put option contracts, the table
presents the notional amounts and weighted average exchange rates by expected
40
<PAGE>
(contractual) maturity dates. These notional amounts generally are used to
calculate the contractual payments to be exchanged under the contract.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------------------------
EXPECTED MATURITY DATE
----------------------------
FAIR
1998(1) TOTAL VALUE
------ ----- -----
(US$ EQUIVALENT IN MILLIONS)
<S> <C> <C> <C>
ON BALANCE SHEET FINANCIAL INSTRUMENTS
US$ Functional Currency
Liabilities
Short-Term Debt:
Variable Rate Credit Lines (Europe, Japan and Asia)...................... $ 45.2 $45.2 $45.2
Weighted Average Interest Rate........................................... 3.2%
US$ FUNCTIONAL CURRENCY
Forward Exchange Agreements
(Receive US$/Pay DM)
Contract Amount.......................................................... $ 12.0 $12.0 $12.2
Average Contractual Exchange Rate........................................ 1.62
(Receive US$/Pay JPY)
Contract Amount.......................................................... $ 15.1 $15.1 $14.5
Average Contractual Exchange Rate........................................ 114.32
Purchased Put Option Agreements
(Receive US$/Pay DM)
Contract Amount.......................................................... $ 18.4 $18.4 $ 0.1
Average Strike Price..................................................... 1.80
(Receive US$/Pay JPY)
Contract Amount.......................................................... $ 12.4 $12.4 $ 0.2
Average Strike Price..................................................... 125.0
</TABLE>
- -----------
(1) None of the instruments listed in the table have maturity dates beyond
1998.
SEASONALITY
On a consolidated basis, Sunbeam'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 products are strongest in the second half of the year.
Furthermore, sales of a number of Sunbeam's traditional products, including
warming blankets, vaporizers, humidifiers and grills and Coleman's camping
products may be impacted by unseasonable weather conditions. After considering
the seasonality of the acquired entities, Sunbeam's consolidated sales are not
expected to exhibit substantial seasonality; however, sales are expected to be
strongest during the second quarter of the calendar year.
LIQUIDITY AND CAPITAL RESOURCES
In order to finance the 1998 Acquisitions and to refinance substantially
all of the indebtedness of Sunbeam and the acquired entities, the Company
consummated: (i) the Original Offering in March 1998, which resulted in
approximately $730 million of net proceeds and (ii) entered into the New Credit
Facility.
Sunbeam was required to file a registration statement with the Securities
and Exchange Commission to register the Debentures by June 23, 1998. This
registration statement was not filed until February 4, 1999. From June 23, 1998
until the day on which the registration statement was filed and declared
effective, Sunbeam was 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. Sunbeam made its first payment of approximately $525,000 to the
Debenture holders on September 25, 1998, with the
41
<PAGE>
remaining $ due to be paid to Debentures holders on March 25, 1999. See Note 3
to Sunbeam's Condensed Consolidated Financial Statements.
The New Credit Facility originally 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 accrued at a rate selected at the
Company's option of: (i) 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 one-half 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 beginning in 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 four percentage
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 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. The Company cannot be certain 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 September 30, 1998.
At September 30, 1998, the Company had cash and cash equivalents of $52.1
million. Cash used in operating activities during the first three quarters of
1998 was $224.7 million compared to $59.9 million for the same period in 1997.
This increase is attributable to lower earnings before non-cash charges.
Year-to-date 1998, $75.7 million in cash was generated by reducing receivables
and a similar amount was used as inventories increased. The majority of this
cash generation was from Coleman as that operation reduced receivables balances
generated in its peak second quarter period. The remaining cash usage for
working capital resulted primarily from reducing accounts payable levels.
Cash used in investing activities in the first nine months of 1998 reflects
$379.2 million for the 1998 Acquisitions. In the first three quarters of 1997,
cash provided by investing activities reflected $90.9 million in proceeds from
the sales of divested operations and other assets. Capital spending totaled
$32.8 million in the first nine months of 1998 and was primarily for
manufacturing efficiency initiatives, equipment and tooling for new products,
and management information systems hardware and software licenses. The new
product capital spending principally related to the air and water filtration
products which were discontinued in the second quarter, electric blankets,
grills, clippers and appliances. As Sunbeam 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 $41.0 million and was primarily attributable to manufacturing capacity
expansion, cost reduction initiatives and equipment to manufacture new products.
Sunbeam
42
<PAGE>
anticipates 1998 capital spending to be approximately 5% of sales, primarily
related to new product introductions, capacity additions and certain facility
rationalization initiatives.
Cash provided by financing activities totaled $636.1 million in the first
nine months 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 1998 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 Sunbeam's Condensed Consolidated
Financial Statements.
Sunbeam expects to acquire the remaining equity interest in Coleman
pursuant to the Coleman Merger in which the existing Coleman minority
stockholders 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 consideration payable in the proposed Coleman Merger, Sunbeam 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 Common Stock at $7
per share, subject to certain anti-dilution provisions. 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 Sunbeam's Condensed Consolidated
Financial Statements.
Sunbeam believes its borrowing capacity under the New Credit Agreement,
cash flow from the combined operations of Sunbeam 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 Sunbeam 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, Sunbeam 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.
The Company may consider restructuring its indebtedness, including the
Debentures, to reduce its debt burden.
NEW ACCOUNTING STANDARDS
See Note 1 to Sunbeam'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, 1998. The adoption of these standards is not
expected to have a material effect on Sunbeam'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 SYSTEM ENHANCEMENTS
Sunbeam is in the process of assessing the impact of the Year 2000 on its
operations, including Coleman, First Alert and Signature Brands which were
acquired by Sunbeam in the spring of 1998. The Company established a Year 2000
Program Management Office in the third quarter of 1998 to centralize the
management of all of the Company's Year 2000 projects, including such
assessment. Three consulting firms are assisting the Company in its Year 2000
management efforts.The Company has completed an inventory of its hardware and
software systems, manufacturing equipment, electronic data interchange,
telecommunications and other technical assets potentially subject to Year 2000
problems, such as security systems and controls for lighting, heating,
ventilation and facility access. The Company is correcting Year 2000 problems in
its major computer systems, and other systems and assets are being evaluated.
Additionally, Sunbeam is assessing the readiness of embedded microprocessors in
its products and is assessing the effects of non-compliance by its vendors,
service providers, customers and financial institutions.
43
<PAGE>
Sunbeam 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 Sunbeam to
date as not currently Year 2000 compliant and which are critical to Sunbeam's
operations include its financial software systems, which process the order
entry, purchasing, production management, general ledger, accounts receivable,
and accounts payable functions, and critical applications in the Company's
manufacturing and distribution facilities, such as warehouse management
applications. Sunbeam plans to complete corrective work with respect to
Sunbeam'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 are
being modified or replaced, Sunbeam's information systems environment will be
made Year 2000 compliant prior to January 1, 2000. Sunbeam'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.
Sunbeam has contacted its major vendors and suppliers of products and
services to determine their Year 2000 readiness and plans and is continuing to
monitor their status with respect to such plans. The failure of certain of these
third party suppliers to become Year 2000 compliant could have a material
adverse impact on Sunbeam. Sunbeam will also contact its customers to determine
if they are prepared for Year 2000 issues. Their failure to evaluate and prepare
for Year 2000 issues could have a material adverse effect on Sunbeam's
operations.
Sunbeam's current assessment of the total costs to address and remedy Year
2000 issues and enhance its operating systems, including costs for the acquired
companies, is $50 million. This estimate includes the costs of software and
hardware modifications and replacements and fees to third party consultants, but
excludes the cost of internal resources. Sunbeam expects these expenditures to
be financed through operating cash flows or borrowings, as applicable. Through
September 30, 1998, Sunbeam had expended approximately $10 million related to
new systems and remediation to address Year 2000 issues of which approximately
half 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
Sunbeam's operating systems in addition to resolving the Year 2000 issues. As
Sunbeam completes its assessment of the Year 2000 issues, the actual
expenditures incurred or to be incurred may differ materially from the amounts
shown above.
Sunbeam plans to establish a contingency plan for addressing any effects of
the Year 2000 on its operations, whether due to noncompliance of Sunbeam's
systems or those of third parties. Sunbeam expects to complete such contingency
plan by September 30, 1999; such contingency plan will 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 Sunbeam's operations could be material if appropriate
contingency plans cannot be developed prior to January 1, 2000.
OTHER MATTERS
See Notes 3, 6, and 10 to Sunbeam's Condensed Consolidated Financial
Statements for information relating to, among other matters, litigation,
financing and potential asset impairment issues.
CAUTIONARY STATEMENTS
Certain statements in this prospectus may constitute "forward looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Litigation Reform Act") and in releases made by the SEC from time to
time. Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance,
or achievements of Sunbeam to be materially different from any future results,
performance, or achievements expressed or implied by such forward looking
statements. When used in this prospectus, the words "estimate," "project,"
"intend," "expect" and similar expressions, when used in connection with
Sunbeam, 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
44
<PAGE>
cause actual results to differ materially from those in the forward looking
statements. These cautionary statements are being made pursuant to the
Litigation Reform Act, with the intention of obtaining the benefits of the "Safe
Harbor" provisions of the Litigation Reform Act. Sunbeam cautions investors that
any forward looking statements made by Sunbeam 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 Sunbeam include, but are not limited to risks associated with:
<TABLE>
<S> <C>
o high leverage,
o 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,
o Sunbeam's ability to integrate the recently acquired Coleman, Signature Brands and First Alert companies
and expenses associated with such integration,
o Sunbeam's sourcing of products from international vendors, including the ability to select reliable
vendors and to avoid delays in shipments,
o Sunbeam's ability to maintain and increase market share for its products at anticipated margins,
o Sunbeam's ability to successfully introduce new products and to provide on-time delivery and a
satisfactory level of customer service,
o changes in laws and regulations, including changes in tax laws, accounting standards, environmental laws,
occupational, health and safety laws,
o access to foreign markets together with foreign economic conditions, including currency fluctuations,
o uncertainty as to the effect of competition in existing and potential future lines of business,
o fluctuations in the cost and availability of raw materials and/or products,
o changes in the availability and relative costs of labor,
o effectiveness of advertising and marketing programs,
o economic uncertainty in Japan, Korea and other Asian countries, as well as in Mexico, Venezuela, and
other Latin American countries,
o product quality, including excess warranty costs, product liability expenses and costs of product
recalls,
o weather conditions which can have an unfavorable impact upon sales of certain of Sunbeam's products,
o numerous lawsuits against Sunbeam and the SEC investigation into Sunbeam's accounting practices and
policies, and uncertainty regarding Sunbeam's available coverage on its directors' and officers'
liability insurance,
o the possibility of a recession in the United States or other countries resulting in a decrease in
consumer demands for Sunbeam's products,
o failure of Sunbeam and/or its customers and suppliers of goods or services to timely complete the
remediation of computer systems to effectively process Year 2000 information, and
o any material error in evaluating historical levels of retail inventories and the related impact on
operations of changes therein.
</TABLE>
Other factors and assumptions not included in the foregoing may cause
Sunbeam's actual results to materially differ from those projected. Sunbeam
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.
45
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On November 20, 1998, the Audit Committee recommended and Sunbeam's Board
approved the appointment of Deloitte & Touche as its independent auditors for
1998, to replace Arthur Andersen, Sunbeam's former auditor. Arthur Andersen is
continuing to provide certain professional services to Sunbeam.
On June 25, 1998, Sunbeam announced that Arthur Andersen would not consent
to the inclusion of its report on Sunbeam's 1997 financial statements in a
registration statement Sunbeam was planning to file with the SEC. On June 30,
1998, Sunbeam announced that the Audit Committee of its Board of Directors would
conduct a review of Sunbeam's prior financial statements and that, therefore,
those financial statements should not be relied upon. Sunbeam also announced
that Deloitte & Touche had been retained to assist the Audit Committee and
Arthur Andersen in their review of Sunbeam's prior financial statements. On
August 6, 1998, Sunbeam announced that the Audit Committee had determined that
Sunbeam would be required to restate its financial statements for 1997, the
first quarter of 1998 and possibly 1996, and that the adjustments, while not
then quantified, would be material. On October 20, 1998 Sunbeam announced the
restatement of its financial results for a six-quarter period from the fourth
quarter of 1996 through the first quarter of 1998. On November 12, 1998, Sunbeam
filed a Form 10-K/A for the year ended December 31, 1997, which contains an
unqualified opinion by Arthur Andersen on Sunbeam's restated consolidated
financial statements as of December 29, 1996 and December 28, 1997 and for each
of the three years in the period ended December 28, 1997.
Arthur Andersen's report on the financial statements for the past two
fiscal years of Sunbeam contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles. In connection with its audits for the two most recent fiscal years
and through November 20, 1998, there were no disagreements with Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Arthur Andersen would have caused Arthur Andersen to make
reference thereto in their report on the financial statements for such years.
Sunbeam has not consulted with Deloitte & Touche on any matter that was either
the subject of a disagreement or a reportable event between Sunbeam and Arthur
Andersen.
However, as a result of the restatements referred to above, in a letter
dated October 16, 1998, Arthur Andersen advised Sunbeam that there existed the
following conditions that Arthur Andersen believed to be material weaknesses in
Sunbeam's internal accounting controls:
"In our opinion, [Sunbeam's] design and effectiveness of its internal
control were inadequate to detect material misstatements in the preparation
of [Sunbeam's] 1997 annual (before audit) and quarterly financial
statements."
As part of its audit of Sunbeam's 1997 consolidated financial statements
that led to the restatement of these financial statements, Arthur Andersen was
required to consider Sunbeam's internal controls in determining the scope of its
audit procedures. Arthur Andersen has advised management of its concerns
regarding Sunbeam's internal controls. Management is addressing these concerns
and although Sunbeam has not yet fully implemented all additional planned
controls, management believes that the interim measures the Company has adopted
to prevent material misstatements in its financial statements will be effective
until the remainder of the additional controls can be implemented. Arthur
Andersen and Deloitte & Touche have not reviewed the interim internal control
measures and, therefore, express no opinion or other assurances that they may be
effective.
46
<PAGE>
BUSINESS
GENERAL
The Company is a leading designer, manufacturer and marketer of branded
consumer products. The Company's primary business is the manufacturing,
marketing and distribution of durable household and outdoor leisure consumer
products through mass market and other distributors in the United States and
internationally. The Company also sells its products to professional and
commercial end users such as small businesses, health care providers, hotels and
other institutions. The Company's principal products include household kitchen
appliances; health monitoring and care products for home use; scales for
consumer and professional use for weight management and business uses; electric
blankets and throws; clippers and trimmers for consumer, professional and animal
uses; smoke and carbon monoxide detectors; outdoor barbecue grills; camping
equipment such as tents, lanterns, sleeping bags and stoves; coolers; backpacks
and book bags; and portable generators and compressors.
The Company was organized in 1989 (as Sunbeam-Oster Company, Inc.) and in
September 1990, Sunbeam acquired the assets and assumed certain liabilities,
through a reorganization, of Allegheny International, Inc., an entity operating
as a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code
since 1988. In August 1992, the Company completed a public offering of
20,000,000 shares of its Common Stock. In May 1995, the Company changed its name
from Sunbeam-Oster Company, Inc. to Sunbeam Corporation.
In 1998 the Company acquired an indirect controlling interest in Coleman
and all the outstanding common stock of Signature Brands and First Alert.
PRODUCTS AND OPERATIONS
The Company's product categories are Household and Outdoor Leisure
products. The Company's operations are managed through four groups: Household,
Outdoor Leisure, International and Corporate.
Within its two main product categories, the Company classifies its products
as follows:
o In the Household group: (1) Appliances (including mixers, blenders, food
steamers, bread makers, rice cookers, coffee makers, toasters, irons and
garment steamers); (2) Health products (including vaporizers,
humidifiers, air cleaners, massagers, hot and cold packs and blood
pressure monitors); (3) Scales; (4) Personal Care (including hair
clippers and trimmers and related products for the professional beauty,
barber and veterinarian trade and sales of products to commercial and
institutional channels); (5) Blankets (including electric blankets,
heated throws and mattress pads); and (6) First Alert (including smoke
and carbon monoxide detectors, fire extinguishers and home safety
equipment).
o In the Outdoor Leisure group: (1) Outdoor Recreation (including tents,
sleeping bags, coolers, camping stoves, lanterns and outdoor heaters);
(2) Outdoor Cooking (including gas and charcoal outdoor grills and grill
parts and accessories); (3) Powermate (including portable power
generators and air compressors); and (4) Eastpak (including backpacks and
bags).
The Company's International group is managed through the following regional
subdivisions: (1) Europe (manufacture, sales and distribution of
Campingaz(Registered) products and sales and distribution in Europe, Africa and
the Middle East of other Company products); (2) Latin America (manufacture,
sales and distribution throughout Latin America of small appliances, and sales
and distribution of personal care products, professional clippers and related
products, camping products and Powermate products); (3) Japan (sales and
distribution of primarily outdoor recreation products); (4) Canada (sales and
distribution of substantially all the Company's products); and (5) East Asia
(sales and distribution in all areas of East Asia other than Japan of
substantially all the Company's products).
The Company's Corporate group provides certain accounting, legal, risk
management, treasury, human resources, tax and management information services
to all operating groups and also includes the operation of the Company's retail
stores and the conduct of the Company's licensing activities.
47
<PAGE>
Household
The Company's Household group includes the Appliances, Health, Personal
Care and First Alert products. Sales of Household group products accounted for
approximately 40% of the Company's domestic net sales in 1998.
Appliances. Small kitchen appliances include Mixmaster(Registered) stand
mixers, hand mixers, Osterizer(Registered) blenders, food processors, rice
cookers, food steamers, toasters, can openers, bread makers, waffle makers, ice
cream makers, frying pans, deep fryers and culinary accessories, which are sold
primarily under the Sunbeam(Registered) and Oster(Registered) brand names. In
addition, the Company sells coffee makers under the Mr. Coffee(Registered),
Sunbeam and Oster brand names and, with respect to coffee and tea products, the
Mr. Coffee brand name. Other brand names or trademarks used in marketing
include: Toast Logic(Registered), Details(Registered) by Mr. Coffee (for high
end coffeemakers sold in department and specialty stores), Mrs. Tea(Trademark),
and Iced Tea Pot(Trademark), Oster Designer(Registered) and Pause N
Serve(Registered). The Company holds the number one or two market positions in
coffee makers, mixers, and bread makers. The Appliance category also encompasses
garment care appliances consisting of irons and steamers. The Company
manufactures a portion of its appliances in its United States and Mexico plants
and sources the balance of its appliance products from domestic and foreign
manufacturers.
Health. The Company markets many of its health products under the
Sunbeam(Registered) name and the trademark Health at Home(Registered). These
products include heating pads, bath scales, blood pressure and other
health-monitoring instruments, massagers, vaporizers, humidifiers and dental
care products. The Company assembles and/or manufactures its vaporizers,
humidifiers and heating pads at its United States and Mexico facilities. The
Company's other personal health products are sourced from manufacturers
primarily located in China.
Scales. The Company also designs, manufactures and markets scales for
consumer, office and professional use. The Company manufactures a complete line
of analog and digital floor scales, waist-high and eye-level scales for use in
weight monitoring by consumers. These consumer scales are sold under the brand
names Health o Meter(Registered), Sunbeam, Counselor(Registered) and
Borg(Registered). Other trademarks used in marketing the scales are
BigFoot(Registered) and Precious Metals(Registered). The Company also markets
professional scales such as traditional balance beam scales, pediatric scales,
wheelchair ramp scales, chair and sling scales and home healthcare scales using
the Pro Series(Registered) and Pro Plus Series(Registered) trademarks in
addition to the Health o Meter(Registered) brand. The Company's line of scales
also include letter and parcel scales for office use, marketed under the
Pelouze(Registered) brand name. The Company has a commanding share of the office
scale market with its Pelouze scales. The Company's Pelouze food scales include
analog and digital portion control scales, thermometers and timers for
commercial and non-commercial applications. The Company manufactures
approximately one-half of its scales at a United States plant and sources other
products from both domestic and foreign suppliers.
Personal Care. The Company's personal care products include a broad line
of hair clippers and trimmers for animals and humans which are sold through
retail channels. The Company holds the number one or two position in its clipper
and trimmer product lines. The Company also markets a line of professional
barber, beauty and animal grooming products, including electric and battery
clippers, replacement blades and other grooming accessories sold to both
conventional retailers and through professional distributors. These products are
manufactured at the Company's United States and Mexico facilities.
Blankets. The Company's blanket products include electric blankets,
Cuddle-Up(Registered) heated throws and heated mattress pads. The Company holds
the number one market position in each of electric blankets, heated throws and
heated mattress pads. These products are manufactured at the Company's United
States and Mexico facilities.
The Company is expanding the marketing of its appliances, scales, coffee
makers and personal care products to institutional and commercial channels.
First Alert. The Company is a leading manufacturer and marketer of a broad
range of residential safety products, including residential use ionization and
photoelectric smoke detectors in which the Company has the leading market share.
Other products include carbon monoxide detectors, fire extinguishers,
rechargeable flashlights and lanterns, electric and electromechanical timers,
night lights, radon gas detectors, fire escape ladders
and motion sensing lighting controls. The Company's smoke detectors are battery
operated and carbon monoxide detectors are available in both plug in and battery
operated units and
48
<PAGE>
in a combination unit. These products are marketed primarily under the First
Alert(Registered) brand name. The Company also uses the brand names Family
Gard(Registered) and Sure Grip(Registered) for certain of its products. The
Company markets certain of these products under the BRK(Registered) brand for
the electrical wholesale markets. The Company manufactures its smoke and carbon
monoxide detectors in its Mexico plant, manufactures fire extinguishers in its
United States plant and sources other products from domestic and foreign
suppliers.
Outdoor Leisure
The Company's Outdoor Leisure group encompasses the Outdoor Recreation,
Outdoor Cooking, Powermate and Eastpak product categories. The Outdoor Leisure
group accounted for approximately 60% of the Company's domestic net sales in
1998.
Outdoor Recreation. Principal Outdoor Recreation products include a
comprehensive line of lanterns and stoves for outdoor recreational use,
fuel-related products such as disposable fuel cartridges, a broad range of
coolers and jugs, sleeping bags, backpacks, tents, outdoor folding furniture,
portable electric lights, camping accessories and other products. These products
are used predominantly in outdoor recreation, but many products have
applications in emergency preparedness and some are also used in home
improvement projects and are distributed predominantly through mass
merchandisers, home centers and other retail outlets. The Company believes it is
the leading manufacturer of lanterns and stoves for outdoor recreational use in
the world. The Company's liquid fuel appliances include single and dual
fuel-powered lanterns and stoves and a broad range of propane- and butane-fueled
lanterns and stoves. These products are manufactured at the Company's facilities
located in the United States and are marketed under the Coleman(Registered) and
Peak One(Registered) brand names.
The Company manufactures and sells a wide variety of insulated coolers and
jugs and reusable ice substitutes, including personal coolers for camping,
picnics or lunch box use; large coolers; beverage coolers for use at work sites
and recreational and social events; and soft-sided coolers. The Company's cooler
products are manufactured predominantly at the Company's facilities located in
the United States and are marketed under the Coleman brand name worldwide. The
Company designs, manufactures or sources, and markets textile products,
including tents, sleeping bags, backpacks and rucksacks. The Company's tents and
sleeping bags are marketed under the Coleman and Peak One brand names. The
Company manufactures and markets aluminum- and steel-framed, portable, outdoor,
folding furniture under the Coleman and Sierra Trails(Registered) brand names.
These products are manufactured predominantly at the Company's facilities
located in the United States. The Company designs and markets electric lighting
products that are manufactured by others and sold under the Coleman,
Powermate(Registered) and Job-Pro(Registered) brand names. These products
include portable electric lights such as hand held spotlights, flashlights and
fluorescent lanterns and a line of rechargeable lanterns and flashlights. The
Company designs, sources and markets a variety of small accessories for camping
and outdoor use, such as cookware and utensils. These products are manufactured
by third-party vendors to Coleman's specifications and are marketed under the
Coleman brand name.
Outdoor Cooking. Sunbeam is a leading supplier of outdoor barbecue grills.
Sunbeam has one of the leading market share positions in the gas grill industry.
Outdoor barbecue grills consist of propane, natural gas, electric and charcoal
models which are sold by the Company primarily under the Sunbeam and
Grillmaster(Registered) brand names. The Company's outdoor cooking products also
include smokers and replacement parts for grills and various accessories such as
cooking utensils, grill cleaning products and barbecue tools. Almost all of the
Company's grills (other than electric grills) are manufactured at the Company's
United States facility. The Company sources practically all of its accessories
and a portion of its replacement parts from various manufacturers, many of which
are in East Asia.
Powermate. The Company's principal Powermate products include portable
generators and portable and stationary air compressors. The Company is a leading
manufacturer and distributor of portable generators in the United States.
Generators are used for home improvement projects, small businesses, emergency
preparedness and outdoor recreation. These products are manufactured by the
Company at its United States facilities, using engines manufactured by third
parties, are marketed under the Coleman Powermate(Registered) brand name and are
distributed predominantly through mass merchandisers and home center chains. The
Company also produces advanced, light-weight generators incorporating
proprietary technology. The Company's air
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compressors are manufactured at its facilities located in the United States, are
marketed under the Coleman Powermate brand name and are distributed
predominantly through mass merchandisers and home center chains.
Eastpak. The Company designs, manufactures and distributes book bags,
backpacks and related goods throughout the United States under the brand name
Eastpak(Registered). The Company manufactures the majority of its products in
its plants located in Puerto Rico.
International
The Company markets a variety of products outside the United States. While
the Company sells many of the same products domestically and internationally, it
also sells products designed specifically to appeal to foreign markets. The
Company, through its foreign subsidiaries, has manufacturing facilities in
France, Italy, Mexico, Indonesia, and Venezuela, and sales offices in France,
Japan, Germany, Canada, the United Kingdom, Hong Kong, Korea, the Philippines,
the Czech Republic, Holland, Portugal, Spain, Switzerland, Dubai, Russia,
Australia, Brazil, Venezuela, Mexico, Italy, Belgium and Indonesia. The products
sold by the international group are sourced from the Company's manufacturing
operations or from vendors primarily located in Asia. International sales
accounted for approximately 10% of the Company's total net sales in 1998. The
Company's international operations are managed through the following geographic
areas.
Europe. The Company's European operations are managed from Brussels and
the sales are dominated by the product lines acquired by the Company in the
Holdings Merger, including the Campingaz product lines and sales of Eastpak
bags. The Company's European office also manages the sale and distribution of
Company products throughout Africa and the Middle East.
Japan. The Company's Japanese sales are almost exclusively sales of
camping equipment such as tents, stoves, lanterns, sleeping bags and
accessories.
Latin America. The activities of Sunbeam outside the United States were
primarily focused in Mexico and Latin America prior to the 1998 Acquisitions.
The Company enjoys a strong market position in a number of product categories in
Latin America. The Oster brand has the leading market share in small appliances
in a number of Latin American countries. The Company's sales in Latin America
are derived primarily from household appliances, particularly the Oster blender
and the recently introduced Oster arepa maker.
Canada. The Company's historical and acquired sales and distribution
operations in Canada are under common management. The Company sells
substantially all of its products in Canada through a distribution sales office
located in Toronto.
East Asia. The Company's sales in East Asia during 1998 were hampered by
the economic downturn there, particularly in South Korea where the Company had
developed a strong market for Eastpak bags, and in Indonesia where the company
sells Campingaz products. The Company has established a sales office in
Australia, from which it sells primarily clippers and appliances, and
distributes First Alert products in Australia and New Zealand. Sales offices
have also been established in Manila and Hong Kong.
RETAIL AND LICENSING
Retail. The Company sells many of its products through its retail outlet
stores which are operated under the Sunbeam, Oster and Camp Coleman(Registered)
names. In addition, the Company currently has 37 stores in the United States and
Canada which primarily carry discontinued, overstock and refurbished products
for retail sale to consumers.
Licensing. The Company licenses the Sunbeam name and the Coleman name and
logo under two types of licensing arrangements: general merchandise licenses and
licenses to purchasers of businesses divested by the Company. The Company's
general merchandise licensing activities involve licensing the Sunbeam and/or
Coleman name and logo, for a royalty fee, to certain companies that manufacture
and sell products that complement the Company's product lines. Revenues from
licensing activities in 1998 in the amount of $4 million were generated
primarily from the license of the Coleman name. In addition, the Company
licenses trade names from third parties for use in connection with the Company's
products.
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SEGMENT INFORMATION
The following table sets forth the sales to unaffiliated customers and
other sales, operating profit for the nine months ended September 30, 1998 and
allocable assets as of September 30, 1998 with respect to the Company's four
operating groups. The Company did not operate in all of such segments prior to
1998.
<TABLE>
<CAPTION>
OUTDOOR
HOUSEHOLD LEISURE INTERNATIONAL CORPORATE
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers..................................... $ 471,108 $ 712,652 $ 137,435 $ 934
Operating profit (loss)............................................. (292,171) (67,124) (31,950) (431)
Allocable assets.................................................... 1,069,130 1,689,543 485,652 259,417
</TABLE>
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The following sets forth information regarding the Company's international
operations in various geographic areas:
<TABLE>
<CAPTION>
Nine Months
Fiscal Years Ended Ended
-------------------------- -----------
December 29, December 28, September 30,
1996 1997 1998
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
United States....................................................... 800,969 843,517 995,307
Europe.............................................................. 18,872 17,415 131,324
Latin America....................................................... 125,072 164,044 97,726
Other............................................................... 39,323 48,113 97,772
OPERATING PROFIT (LOSS)
United States....................................................... (245,668) 60,884 (381,610)
Europe.............................................................. (4,435) (1,954) 4,990
Latin America....................................................... 12,673 39,840 (22,655)
Other............................................................... (7,049) 5,293 7,599
IDENTIFIABLE NET ASSETS
United States....................................................... 215,067 226,581 366,017
Europe.............................................................. 514 361 30,084
Latin America....................................................... 12,381 21,649 7,991
Other............................................................... 1,431 933 2,955
</TABLE>
COMPETITION
The markets in which the Company operates are generally highly competitive,
based primarily on product quality, product innovation, price and customer
service and support although the degree and nature of such competition vary by
location and product line. The Company believes that no other company produces
and markets the breadth of household appliance, camping and outdoor recreation
products marketed by the Company.
The Company competes with various manufacturers and distributors with
respect to its household appliances. Primary competitors in the kitchen
appliance area have been Black & Decker (which recently sold its appliance
division to Windmere), Hamilton Beach/Procter Silex, West Bend, Melita,
Toastmaster, Cuisinart, Regal, Krups, Kitchen Aid, Braun and Rival. The
Company's primary competitor in the consumer scale market is Metro Corporation.
The Company's health care products compete with those of numerous small
manufacturers and distributors, none of which dominates the home health care
market. The Company has no domestic competitors for its electric blankets and
heated throws and enjoys a market share in excess of 90% for these products. The
Company's primary competitors for retail clippers and trimmers are Wahl and
Conair; the primary competitors in the professional products lines are Wahl and
Andis. The Company also enjoys a leading market share with respect to its smoke
and carbon monoxide detectors where Ranco, American Sensor, Nighthawk and Siebe
are the primary competitors. The Company competes with Micro General with
respect to its Pelouze scales.
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The Company's outdoor leisure products are competitive with various
products based upon the product line. Lanterns and stoves compete with, among
others, products offered by Century Primus, American Camper and Dayton Hudson
Corporation, while Desa & Schau and Mr. Heater are the primary competitors for
heaters. The primary competitors for the Company's portable furniture are a
variety of import companies. The Company's insulated cooler and jug products
compete with products offered by Rubbermaid Incorporated, Igloo Products Corp.
and The Thermos Company. The Company's sleeping bags compete with, among others,
American Recreation, Slumberjack, Academy Broadway Corp. and MZH Inc, as well as
certain private label manufacturers. In the tent market, the Company competes
with, among others, Wenzel, Eureka and Mountain Safety Research, as well as
certain private label manufacturers. The Company competes with W.C. Bradley,
Meco, Fiesta, Ducane, Weber and Keanall in the outdoor grill category. The
Company's backpack products compete with, among others, American Camper,
JanSport, Nike, Outdoor Products and Kelty, as well as certain private label
manufacturers. The Company's competition in the electric light business
includes, among others, Eveready and Rayovac Corporation. The Company's camping
accessories compete primarily with Coughlan's. The Company's primary competitors
in the generator business are Generac Corporation, Honda Motor Co., Ltd.,
Kawasaki and Yamaha. Primary competitors in the air compressor business include
DeVilbiss and Campbell Hausfield. In addition, the Company competes with various
other entities in international markets.
CUSTOMERS
The Company markets its products through virtually every category of
retailer including mass merchandisers, catalog showrooms, warehouse clubs,
department stores, catalogues, Company-owned outlet stores, television shopping
channels, hardware stores, home improvement centers, office products centers,
drug and grocery stores, and pet supply retailers, as well as independent
distributors and military post exchange outlets. In 1998, the Company sold
products to virtually all of the top 100 U.S. retailers, including
Wal-Mart/Sam's Club, Kmart, Price Costco, Target Stores and Home Depot. The
Company's largest customer, Wal-Mart Stores, Inc. accounted for approximately
20% of sales in 1998. Currently, the Company has the majority of its U.S.
customer sales on electronic data interchange (EDI) systems.
BACKLOG
The amount of backlog orders at any point in time is not a significant
factor in the Company's business.
PATENTS AND TRADEMARKS
The Company believes that an integral part of its strength is its ability
to capitalize on the Sunbeam(Registered), Coleman(Registered),
Oster(Registered), Eastpak(Registered), Mr. Coffee(Registered), Health o
Meter(Registered), and First Alert(Registered) and Campingaz(Registered)
trademarks which are registered in the United States and in numerous foreign
countries. Widely recognized throughout North America, Latin America and Europe,
these registered trademarks, along with Powermate(Registered),
Pelouze(Registered), Peak One(Registered), Osterizer(Registered),
Mixmaster(Registered), Toast Logic(Registered), Steammaster(Registered),
Oskar(Registered), Grillmaster(Registered) and "Blanket with a
Brain(Registered)" brands are important to the success of the Company's
products. Other important trademarks within Sunbeam include Oster
Designer(Registered) line, Cuddle-Up(Registered) and A5(Registered). The loss of
any single trademark would not have a material adverse effect on the Company's
business; however, the Sunbeam, Coleman and Mr. Coffee trademarks are integral
to certain segments of the Company's continuing operations and the Company
aggressively monitors and protects these and other brands.
The Company holds numerous design and utility patents covering a wide
variety of products, the loss of any one of which would not have a material
adverse effect on the Company's business taken as a whole.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are linked to the process of
marketing its products. New products and improvements to existing products are
developed based upon the perceived needs and demands of consumers. Research and
development expenditures are expensed as incurred. The amounts charged against
operations for the years ended December 31, 1998, 1997 and 1996 were
$20.2 million, $5.7 million and $6.5 million, respectively.
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EMPLOYEES
As of December 31, 1998, the Company had approximately 14,196 full-time and
part-time employees of which 6,848 are employed domestically. The Company is a
party to collective bargaining agreements with its hourly employees located at
the Aurora, Illinois, Glenwillow, Ohio and Bridgeview, Illinois plants. The
Company's Canadian warehouse employees are represented by a union as are all of
the production employees at the Company's operations in France and Italy. The
Company has had no material labor-related work stoppages and, in the opinion of
management, relations with its employees are generally good.
SEASONALITY
On a consolidated basis, Sunbeam'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 products are strongest in the second half of the year.
Furthermore, sales of a number of Sunbeam's traditional products, including
warming blankets, vaporizers, humidifiers and grills and Coleman's camping
products may be impacted by unseasonable weather conditions. After considering
the seasonality of the acquired entities, Sunbeam's consolidated sales are not
expected to exhibit substantial seasonality; however, sales are expected to be
strongest during the second quarter of the calendar year.
RAW MATERIALS/SUPPLIERS
The raw materials used in the manufacture of the Company's products are
available from numerous suppliers in quantities sufficient to meet normal
requirements. The Company's primary raw materials include aluminum, steel,
plastic resin, copper, electrical components, various textiles or fabrics and
corrugated cardboard for cartons. The Company also purchases a substantial
number of finished products. The Company is not dependent upon any single
supplier for a material amount of such sourced products.
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PROPERTIES
The Company's principal properties as of January 11, 1999 are as follows:
<TABLE>
<CAPTION>
BUILDING OWNED/
LOCATION PRINCIPAL USE SQUARE FOOTAGE LEASED
- ----------------------------- ---------------------------------------------------------- -------------- ------
<S> <C> <C> <C>
UNITED STATES
Aurora, IL First Alert offices, manufacture of fire
extinguishers........................................... 236,000 Leased
Boca Raton, FL Corporate Headquarters.................................... 100,626 Leased
Bridgeview, IL Offices and manufacture of scales......................... 157,000 Owned
Glenwillow, OH Manufacture of Mr. Coffee products, distribution warehouse
and offices............................................. 458,000 Leased
Hattiesburg, MS Manufacture of molded plastic parts, humidifiers,
vaporizers, warehouse/distribution, and offices......... 725,000 Owned
Haverhill, MA Office and warehouse/distribution......................... 111,750 Leased
Kearney, NE Manufacture/assembly of portable generators; office and
warehouse............................................... 155,000 Leased(1)
Lake City, SC Manufacture of sleeping bags.............................. 168,000 Owned
Lincoln, NE Warehouse/distribution.................................... 120,000 Leased
Maize, KS Manufacture of propane cylinders 232,760 Owned/
and machined parts........................................ Leased
McMinnville, TN Manufacture of clippers, trimmers and blades.............. 169,400 Leased
Neosho, MO Manufacture of outdoor barbecue grills.................... 669,700 Owned
New Braunfels, TX Manufacture of insulated coolers and other plastic
products................................................ 338,000 Owned
Pocola, OK Manufacture of outdoor folding furniture.................. 123,000 Owned
Springfield, MN Manufacture of air compressors............................ 166,000 Owned
Waynesboro, MS Manufacture of electric blankets.......................... 853,714 Leased
Wichita, KS Manufacture of lanterns and stoves and insulated coolers
and jugs; research and development and design
operations; office and warehouse........................ 1,197,000 Owned
INTERNATIONAL
Acuna, Mexico Manufacture of appliances................................. 110,000 Owned
Barquisimeto, Venezuela Manufacture of appliances................................. 75,686 Owned
Brussels, Belgium European Headquarters..................................... 14,721 Leased
Centenaro di Lonato, Italy Manufacture of butane lanterns, stoves, heaters and
grills; office and warehouse............................ 77,000 Owned
Juarez, Mexico Manufacture of smoke and carbon monoxide detectors........ 109,000 Leased
Matamoros, Mexico Manufacture of controls................................... 91,542 Owned
Mississauga, Canada Sales and distribution office............................. 19,891 Leased
Morovis and Orocovis, Manufacture of daypacks, sports bags, and related
Puerto Rico products; office and warehouse.......................... 110,000 Leased
St. Genis Laval, France Manufacture of lanterns and stoves, filling of gas
cylinders, and assembly of grills; office and
warehouse............................................... 2,070,000 Owned(2)
Tlalnepantla, Mexico Manufacture of appliances................................. 297,927 Owned
</TABLE>
- ------------------
(1) The owned facilities at Kearney, Nebraska reside on land leased under three
leases that expire in 2007 with options to extend each for three additional
ten-year periods.
(2) The warehouse portion of St. Genis Laval, France is leased; the remaining
facility is owned.
The Company also maintains leased sales and administrative offices in the
United States, Japan, Australia, Germany, Venezuela, Hong Kong, Austria, the
Czech Republic, Hungary, the Netherlands, the
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<PAGE>
Philippines, Portugal, Spain and the United Kingdom, among other sites. The
Company leases various warehouse facilities and/or accesses public warehouse
facilities as needed on a short term lease basis. The Company also maintains gas
filling plants in Indonesia, the Philippines and the United Kingdom. The Company
also leases a total of 173,570 square feet for the operation of its retail
outlet stores. Company management considers the Company's facilities to be
suitable for the Company's operations, and believes that the Company's
facilities provide sufficient capacity for its production requirements.
The Company believes that the capacity of its existing facilities will be
adequate to implement its operating plans.
LITIGATION AND OTHER CONTINGENT LIABILITIES
Litigation. On April 23, 1998, two class action lawsuits were filed on
behalf of purchasers of the Common Stock in the U.S. District Court for the
Southern District of Florida against the Company and certain of its present and
former directors and former officers alleging violations of the federal
securities laws as discussed below (the "Consolidated Federal Actions"). After
that date, approximately fifteen similar class actions were filed in the same
Court. One of the lawsuits also named as defendant Arthur Andersen, the
Company's independent accountants for the period covered by the lawsuit.
On June 16, 1998, the Court entered an Order consolidating all 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 December 9, 1998, the
Court entered an Order overruling plaintiff's objections and affirming its prior
Order appointing lead plaintiffs and lead counsel.
On January 6, 1999, plaintiffs filed a consolidated amended class action
complaint against the Company, certain of its present and former directors and
former officers, and Arthur Andersen. The consolidated amended class action
complaint alleges that, in violation of section 10(b) of the Exchange Act and
SEC Rule 10b-5, defendants made material misrepresentations and omissions
regarding the Company's business operations, future prospects and anticipated
earnings per share, in an effort to artificially inflate the price of the Common
Stock and call options, and that, in violation of section 20(a) of the Exchange
Act, the individual defendants exercised influence and control over the Company,
causing the Company to make material misrepresentations and omissions. By
stipulation of the parties and Order of the Court, defendants' response to the
consolidated amended class action complaint will be filed on or before March 8,
1999.
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 directors and former
officers. The action alleged that the individual defendants breached their
fiduciary duties and wasted corporate assets when the Company granted stock
options to three of its officers and directors (who were subsequently terminated
by the Company) 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 Sunbeam's Board of Directors. On
October 22, 1998, the plaintiff amended the complaint against all but one of the
defendants named in the original complaint. 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 earnings and stock price. The plaintiff has advised defendants of his
intention to file a second amended complaint in February 1999, and has agreed
that defendants need not respond to the first amended complaint.
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 stockholders
of Coleman against Coleman, the Company and certain of the Company's and
Coleman's present and former officers and directors. An additional class action
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<PAGE>
was filed on August 10, 1998, against the same parties. The complaints in these
class actions allege, in essence, that the existing exchange ratio for the
proposed Coleman Merger is no longer fair to Coleman stockholders as a result of
the recent decline in the market value of the Common Stock. On October 21, 1998,
the Company announced that it had entered into a Memorandum of Understanding to
settle, subject to court approval, the class actions. Under the terms of the
proposed settlement, if approved by the court the Company will issue to the
Coleman public stockholders five-year warrants to purchase 4.98 million shares
of the Common Stock at $7 per share, subject to certain anti-dilution
provisions. These warrants will generally have the same terms as the Parent
Holdings Warrant 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.
During the months of August and October 1998, purported class action and
derivative lawsuits were filed in the Court of Chancery of the State of Delaware
in New Castle County and in the U. S. District Court for the Southern District
of Florida by stockholders of the Company against the Company, MacAndrews &
Forbes 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 the Parent Holdings Settlement Agreement whereby MacAndrews
& Forbes and its affiliates released the Company from certain claims they may
have had arising out of the Company's acquisition of MacAndrews & Forbes'
interest in Coleman, and MacAndrews & Forbes agreed to provide management
support to the Company. Pursuant to the Parent Holdings Settlement Agreement,
Parent Holdings was granted a five-year warrant to purchase an additional
23 million shares of the Common Stock at an exercise price of $7 per share,
subject to certain anti-dilution provisions. These complaints also allege that
the rights of the public stockholders have been compromised, as the settlement
would normally require stockholder approval under the rules and regulations of
the NYSE. The Audit Committee determined that obtaining such stockholder
approval would have seriously jeopardized the financial viability of the Company
which is an allowable exception to the NYSE stockholder approval requirements.
By Order of the Court of Chancery dated January 7, 1999, the derivative actions
filed in that Court were consolidated. The Company has moved to dismiss each of
the complaints in Delaware to which it is a party, and has moved to stay or
dismiss the related action filed in the U.S. District Court for the Southern
District of Florida.
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 Common Stock. The Company is the only named defendant in
this action. The complaint requests recovery of compensatory damages, punitive
damages and expenses in an unspecified amount. This action 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 Debentures in the U.S. District Court of the Southern District
of Florida against the Company and certain of the Company's former officers and
directors, alleging violations of the federal securities laws and common law
fraud. The complaint alleges that the Company's offering memorandum used for the
marketing of the Debentures contained false and misleading information regarding
the Company's financial position and that the defendants engaged in a plan to
inflate the Company's earnings for the purpose of defrauding the plaintiffs and
others. This action has been transferred to Judge Middlebrooks, and the Company
is seeking consolidation of this action with the 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 although the complaint in this action
has not been served on the Company. 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
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<PAGE>
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
other than those as to which a Memorandum of Understanding to settle has been
reached, but cannot predict the outcome and is not currently able to evaluate
the likelihood of the Company's success in each case or the range of potential
loss. However, if the foregoing actions were determined adversely to the
Company, such judgments would likely have a material adverse effect on the
Company's financial position, results of operations and cash flow.
On July 2, 1998, the American Insurance Company ("American") filed suit
against the Company in the U.S. District Court for the Southern District of New
York requesting a declaratory judgment of the court that the directors' and
officers' liability insurance policy for excess coverage issued by American was
invalid and/or had been properly canceled by American. The Company's motion to
transfer such action to the federal district court in which the Consolidated
Federal Actions are currently pending was recently denied. 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. On
December 22, 1998, an action was filed by Executive Risk Indemnity, Inc. in the
Circuit Court of the Seventeenth Judicial Circuit in and for Broward County,
Florida requesting the same relief as that requested by American and Federal in
their previously filed actions as to additional coverage levels under the
Company's directors' and officers' liability insurance policy. 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 effect on the Company's financial
position, results of operations and cash flows.
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 SEC 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.
Other Matters. The Company and its subsidiaries are also involved in
various lawsuits arising from time to time which the Company considers to be
ordinary routine litigation incidental to its business. In the opinion of the
Company, the resolution of these routine matters, and of certain matters
relating to prior operations, individually or in the aggregate, will not have a
material adverse effect upon the financial position, results of operations or
cash flows of the Company.
ENVIRONMENTAL MATTERS
The Company's operations, like those of comparable businesses, are subject
to certain federal, state, local and foreign environmental laws and regulations
in addition to laws and regulations regarding labeling and packaging of products
and the sales of products containing certain environmentally sensitive materials
("Environmental Laws"). The Company believes it is in substantial compliance
with all Environmental Laws which are applicable to its operations. Compliance
with Environmental Laws involves certain continuing costs; however, such costs
of ongoing compliance have not resulted, and are not anticipated to result, in a
material increase in the Company's capital expenditures or to have a material
adverse effect on the Company's results of operations, financial condition or
competitive position.
In addition to ongoing environmental compliance at its operations, the
Company also is actively engaged in certain environmental remediation activities
many of which related to divested operations. As of December 31, 1998, the
Company has been identified by the United States Environmental Protection Agency
("EPA") or a state environmental agency as a potentially responsible party
("PRP") in connection with six
57
<PAGE>
sites subject to the federal Superfund law and five sites subject to state
Superfund laws comparable to the federal law (collectively the "Environmental
Sites"), exclusive of sites at which the Company has been designated (or expects
to be designated) as a de minimis (less than 1%) participant.
The Superfund Act, and related state environmental remediation laws,
generally authorize governmental authorities to remediate a Superfund site and
to assess the costs against the PRPs or to order the PRPs to remediate the site
at their expense. Liability under the Superfund Law is joint and several and is
imposed on a strict basis, without regard to degree of negligence or
culpability. As a result, the Company recognizes its responsibility to determine
whether other PRPs at a Superfund site are financially capable of paying their
respective shares of the ultimate cost of remediation of the site. Whenever the
Company has determined that a particular PRP is not financially responsible, it
has assumed for purposes of establishing reserve amounts that such PRP will not
pay its respective share of the costs of remediation. To minimize the Company's
potential liability with respect to the Environmental Sites, the Company has
actively participated in steering committees and other groups of PRPs
established with respect to such sites. The Company currently is engaged in
active remediation activities at 12 sites, seven of which are among the
Environmental Sites referred to above, and five of which have not been
designated as Superfund sites under federal or state law.
The Company has established reserves to cover the anticipated probable
costs of remediation, based upon periodic reviews of all sites for which the
Company has, or may have, remediation responsibility. As of December 31, 1997,
the amount of such reserves was less than 5% of the Company's total liabilities
as set forth in its consolidated financial statements. Such environmental
reserves do not anticipate any offsets for potential insurance recoveries from
certain of the Company's liability insurance carriers which the Company
continues to pursue. Due to uncertainty over the remedial measures to be adopted
at some sites, the possibility of changes in the Environmental Laws, and the
fact that joint and several liability with the right of contribution is possible
at federal and state Superfund sites, the Company's ultimate future liability
with respect to sites at which remediation has not been completed may vary from
the amounts reserved at the end of 1998.
The Company is not a party to any other administrative or judicial
proceeding to which a governmental authority is a party and which involves
potential monetary sanctions, exclusive of interest and costs, of $100,000 or
more.
REGULATORY MATTERS
The Company is subject to various laws and regulations in connection with
its business operations, including but not limited to laws related to relations
with employees, maintenance of safe manufacturing facilities, truth in packaging
and advertising, regulation of medical products and safety of consumer products.
The Company does not anticipate that its business or operations will be
materially adversely affected by compliance with any of these provisions.
58
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth certain information regarding the directors
and executive officers of Sunbeam. The name, age, present principal occupation
or employment and five-year employment history of each individual is set forth
in each individual's biography below. The term of office of each of the
directors of Sunbeam will expire at the 1999 annual meeting of Sunbeam
stockholders or at the time each such director's successor is duly elected and
shall have qualified. Unless otherwise indicated in each individual's biography,
the business address of each of the directors and executive officers is: 2381
Executive Center Drive, Boca Raton, Florida 33431. Each of the directors and
executive officers is a citizen of the United States.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Peter A. Langerman............................. 43 Chairman of the Board of Directors and Director
Jerry W. Levin................................. 54 President, Chief Executive Officer and Director
Paul E. Shapiro................................ 57 Executive Vice President and Chief
Administrative Officer
Bobby G. Jenkins............................... 36 Executive Vice President and Chief Financial
Officer
Karen K. Clark................................. 38 Vice President, Finance
Janet G. Kelley................................ 45 Vice President, General Counsel and Secretary
Jack D. Hall................................... 53 President, International
Charles M. Elson............................... 39 Director
Howard Gittis.................................. 64 Director
Howard G. Kristol.............................. 61 Director
Faith Whittlesey............................... 60 Director
</TABLE>
Peter A. Langerman has been a Director of Sunbeam since 1990 and has served
as the Chairman of the Sunbeam Board of Directors since June 13, 1998.
Mr. Langerman also served as the Chairman of the Sunbeam Board of Directors from
May 22, 1996 until July 18, 1996. Mr. Langerman served as a Director of Coleman
from March 30, 1998 until July 1, 1998. Since November 1, 1998 Mr. Langerman has
been President and Chief Executive Officer of Franklin Mutual Advisers, Inc., a
registered investment advisor and a wholly owned subsidiary of Franklin
Resources, Inc., a diversified financial services organization. Previously,
Mr. Langerman had since November 1996 served as Senior Vice President and Chief
Operating Officer of Franklin Mutual Advisers, Inc. Mr. Langerman was a Senior
Vice President of Heine Securities Corporation, an investment advisory service
company, from 1986 to November 1996, and a Vice President of Mutual Series Fund
from 1988 until its acquisition by Franklin Resources, Inc. in 1996. He has been
a Director of Franklin Mutual Series Fund, Inc. (previously Mutual Series Fund
Inc.) since 1988. Mr. Langerman's business address is Franklin Mutual Advisers,
Inc., 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078.
Jerry W. Levin was appointed Chief Executive Officer, President and a
Director of Sunbeam in June of 1998. Mr. Levin was appointed to serve as Chief
Executive Officer and a Director of Coleman and Camper Acquisition Corp.
("CAC"), a wholly-owned subsidiary of Sunbeam, on June 19, 1998. Mr. Levin
previously held the position of Chairman and Chief Executive Officer of Coleman
from February 1997 until its sale in March 1998. Mr. Levin was also the Chairman
of Coleman from 1989 to 1991. Mr. Levin was also Chairman of Revlon, Inc. and
The Cosmetic Center, Inc. He served as Chief Executive Officer of Revlon, Inc.
and Revlon Consumer Products Corporation from 1992 until January 1997. He had
been
59
<PAGE>
President of Revlon from 1991 to 1992. Mr. Levin has been Executive Vice
President of MacAndrews & Forbes since March 1989. For 15 years prior to joining
MacAndrews & Forbes, Mr. Levin held various senior executive positions with the
Pillsbury Company. Mr. Levin is also a member of the Boards of Directors of
Revlon, Inc.; Ecolab, Inc.; U.S. Bancorp and Meridian Sports Incorporated. For a
description of certain arrangements entered into by Sunbeam and MacAndrews &
Forbes relating to the appointment of Mr. Levin as an officer of Sunbeam, see
"--Certain Transactions--Services Provided by MacAndrews & Forbes."
Paul E. Shapiro joined Sunbeam as Executive Vice President and Chief
Administrative Officer in June of 1998. Mr. Shapiro was appointed Executive Vice
President and Chief Administrative Officer and a Director of Coleman on
June 19, 1998. Mr. Shapiro previously held the position of Executive Vice
President and General Counsel of Coleman from July 1997 until its sale in March
1998. Before joining Coleman, he was Executive Vice President, General Counsel
and Chief Administrative Officer of Marvel Entertainment Group, Inc. ("Marvel").
Marvel and several of its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code
("Chapter 11") in 1996; Mr. Shapiro served as an executive officer of Marvel at
the time of such filing. He had previously spent over 25 years in private law
practice and as a business executive, most recently as a shareholder in the law
firm of Greenberg Traurig. Mr. Shapiro is also a member of the Board of
Directors of Toll Brothers, Inc. For a description of certain arrangements
entered into by Sunbeam and MacAndrews & Forbes relating to the appointment of
Mr. Shapiro as an officer of Sunbeam, see "--Certain Transactions--Services
Provided by MacAndrews & Forbes."
Bobby G. Jenkins joined Sunbeam as Executive Vice President and Chief
Financial Officer in June 1998. Mr. Jenkins previously held the position of
Chief Financial Officer of Coleman's Outdoor Recreation division from September
1997 to May 1998. Mr. Jenkins was Executive Vice President and Chief Financial
Officer of Marvel from December 1993 through June 1997. Mr. Jenkins served as an
executive officer of Marvel at the time of the 1996 Chapter 11 filings of Marvel
and several of its subsidiaries. Mr. Jenkins was Assistant Vice President of
Finance at Turner Broadcasting System from August 1992 to November 1993. Prior
to that, Mr. Jenkins was with Price Waterhouse LLP, last serving as Senior Audit
Manager. For a description of certain arrangements entered into by Sunbeam and
MacAndrews & Forbes relating to the appointment of Mr. Jenkins as an officer of
Sunbeam, see "--Certain Transactions--Services Provided by MacAndrews & Forbes."
Karen K. Clark joined Sunbeam in April of 1998 as Vice President,
Operations Finance and has served as Vice President, Finance since June 1998.
Previously, she was Vice President, Finance of Coleman, a position she held
since 1997. She was Corporate Controller for Precision Castparts Corp. from 1994
to 1997 and prior to that held various positions in public accounting and
industry.
Janet G. Kelley joined Sunbeam in March 1994 and was named General Counsel
in April of 1998. From 1994 to 1998, Ms. Kelley served as Group Counsel and
Associate General Counsel. Prior to joining Sunbeam, she was a partner in the
law firm of Wyatt, Tarrant & Combs in Louisville, Kentucky.
Jack D. Hall joined Sunbeam in October 1998 as President, International.
Prior to joining Sunbeam, Mr. Hall held various positions with Revlon, Inc.,
most recently serving as Executive Vice President, Worldwide Sales and Marketing
Development. Prior to joining Revlon, he spent six years with International
Playtex Inc. in a variety of sales positions.
Charles M. Elson has been a Director of Sunbeam since his appointment to
the Sunbeam Board of Directors on September 25, 1996. Mr. Elson was a Director
of Coleman from March 30, 1998 until June 24, 1998. Mr. Elson has been a
Professor of Law at Stetson University College of Law since 1990 and serves as
Of Counsel to the law firm of Holland & Knight (since May 1995). He was a
Visiting Professor at the University of Maryland School of Law from August 1998
to December 1998. Mr. Elson is also a Member of the American Law Institute and
the Advisory Council and Commissions on Director Compensation, Director
Professionalism, CEO Succession and Audit Committees of the National Association
of Corporate Directors. He is Trustee of Talledega College and a Salvatori
Fellow of the Heritage Foundation. Mr. Elson has served as a Director of Nuevo
Energy Company since 1998. Mr. Elson's business address is Stetson University
College of Law, 1401 61st Street South, St. Petersburg, Florida 33707.
60
<PAGE>
Howard Gittis was appointed a Director of Sunbeam on June 16, 1998.
Mr. Gittis has been a Director, Vice Chairman and Chief Administrative Officer
of MacAndrews & Forbes and certain of its affiliates since 1985. Mr. Gittis also
is a director of the following corporations which file reports pursuant to the
Exchange Act: Golden State Bancorp Inc., Golden State Holdings Inc., Jones
Apparel Group, Inc., Loral Space & Communications Ltd., M & F Worldwide Corp.,
Panavision Inc., Revlon Consumer Products Corporation, Revlon, Inc., REV
Holdings Inc. and Rutherford-Moran Oil Corporation.
Howard G. Kristol has been a Director of Sunbeam since his appointment on
August 6, 1996. Mr. Kristol has been a partner in the law firm of Reboul,
MacMurray, Hewitt, Maynard & Kristol since 1976. Mr. Kristol's business address
is Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York,
New York 10111.
Faith Whittlesey has been a Director of Sunbeam since her appointment in
December 1996. Mrs. Whittlesey has served as the Chief Executive Officer of the
American Swiss Foundation, a charitable and educational foundation, since 1991.
She is also a member of the Board of Directors of Valassis Communications, Inc.
(a publishing and printing company). Mrs. Whittlesey's business address is
American Swiss Foundation, Charitable and Educational Foundation, 232 East 66th
Street, New York, New York 10021.
DIRECTORS' COMPENSATION
Pursuant to the Amended and Restated Sunbeam Corporation Stock Option Plan
(the "Option Plan"), each Director of the Company who is not an employee of the
Company or an affiliate or employee of an entity owning 10% or more of the
outstanding Common Stock ("Outside Directors"), is automatically granted 1,500
shares of restricted Common Stock upon his or her initial election or
appointment to the Sunbeam Board and upon each subsequent re-election to the
Sunbeam Board (prorated in case of an election or appointment at any time other
than at an annual meeting of stockholders). Such restricted Common Stock vests
immediately upon the Director's acceptance of his or her election or
appointment.
Directors do not receive any other fees, but are reimbursed for all
ordinary and necessary out-of-pocket expenses incurred by them in attending
meetings of the Sunbeam Board or its Committees. Pursuant to Sunbeam's By-Laws
and Delaware law, the Company is either providing a defense, or reimbursing
certain current and former Directors of Sunbeam for defense costs incurred by
them, in connection with pending litigation against the Company in which certain
of such Directors have been named as defendants. See "Business--Litigation and
Other Contingent Liabilities."
In addition to the foregoing, during 1998, the Chairman of the Special
Committee of the Sunbeam Board of Directors (Mr. Kristol) was paid $50,000 for
his services on the Committee and the other members of the Committee except
Mr. Langerman (Mr. Elson and Ms. Whittlesey) each were paid $35,000 for their
services on the Committee. Sunbeam has also agreed to indemnify the Special
Committee members to the maximum extent permitted by Delaware law against
liabilities and expenses relating to their service on the Special Committee.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth for the years ended December 31, 1998,
December 28, 1997 and December 29, 1996, the compensation for services rendered
to the Company in all capacities of those persons who, during 1998, (i) served
as chief executive officer ("CEO") of the Company, (ii) were the four most
highly compensated executive officers of the Company, other than the CEO, as of
the Company's fiscal year end, and (iii) were executive officers during 1998 who
were among the four most highly compensated officers but did not serve as
executive officers of the Company as of year end (the individuals referred to in
clauses (i), (ii) and (iii) being collectively referred to as the "Named
Executives"). Each of Messrs. Levin, Shapiro and Jenkins and Ms. Clark joined
the Company during 1998. The employment of each of Messrs. Dunlap and Kersh was
terminated by the Company in June 1998; Mr. Fannin's employment terminated in
August 1998.
61
<PAGE>
LONG TERM COMPENSATION
<TABLE>
<CAPTION>
ANNUAL COMPENSATION AWARDS
----------------------------------------------
OTHER ANNUAL RESTRICTED
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK(2)
- ------------------------------------------------------ ---- ---------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT OFFICERS
Jerry W. Levin,
Chief Executive Officer............................. 1998 $ 541,667 $541,667 $ 122,549(5) $ 0
Paul E. Shapiro,
Executive Vice President & Chief Administrative
Officer............................................. 1998 339,298 243,750 -- 0
Bobby G. Jenkins,
Executive Vice President & Chief Financial
Officer............................................. 1998 238,986(6) 118,625 55,540(7) 0
Janet G. Kelley,
Vice President, General Counsel and Secretary....... 1998 218,000 112,500 -- 0
1997 144,500 30,000 -- 0
1996 140,000 19,463 -- 0
Karen K. Clark,
Vice President, Finance............................. 1998 190,157 73,125 133,457(9) 0
FORMER OFFICERS
Albert J. Dunlap,
Former Chairman & Chief Executive Officer........... 1998 12,768,910(11) 0 13,917,409(12) 0
1997 1,115,385(11) 0 282,888(12) 0
1996 507,054(11) 0 63,850(12) 12,500,000
Russell A. Kersh,
Former Vice Chairman & Chief Administrative
Officer............................................. 1998 428,154(14) 0 2,123,267(16) 5,527,500
1997 425,000 0 -- 0
1996 190,384 125,000(15) 240,598(16) 1,812,500
David C. Fannin,
Former Executive Vice President & Chief Legal
Officer............................................. 1998 449,891(17) 0 315,067(18) 1,105,500
1997 313,233 0 -- 0
1996 272,112 0 -- 191,250
<CAPTION>
SECURITIES
UNDERLYING
OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION AWARD(3) COMPENSATION(4)
- ------------------------------------------------------ ------------ ---------------
<S> <C> <C>
CURRENT OFFICERS
Jerry W. Levin,
Chief Executive Officer............................. 2,750,000 $ 0
Paul E. Shapiro,
Executive Vice President & Chief Administrative
Officer............................................. 600,000 0
Bobby G. Jenkins,
Executive Vice President & Chief Financial
Officer............................................. 450,000 18,633(8)
Janet G. Kelley,
Vice President, General Counsel and Secretary....... 146,250 0
5,00 0
42,500 0
Karen K. Clark,
Vice President, Finance............................. 175,000(10) 0
FORMER OFFICERS
Albert J. Dunlap,
Former Chairman & Chief Executive Officer........... 3,750,000 6,669(13)
0 4,750
2,500,000 4,750
Russell A. Kersh,
Former Vice Chairman & Chief Administrative
Officer............................................. 1,125,000 4,313(13)
0 4,750
500,000 2,098
David C. Fannin,
Former Executive Vice President & Chief Legal
Officer............................................. 750,000(19) 1,130,218(21)
0 4,750
75,000(20) 4,750
</TABLE>
- ------------------
(1) Does not include other perquisites or other personal benefits, securities
or property, the aggregate value of which is less than $50,000 or 10% of
the Named Executive's salary and bonus.
(2) Represents the value of the restricted Common Stock holdings of
Messrs. Dunlap, Kersh and Fannin, as follows: The restricted Common Stock
holdings granted in 1996 were valued based on the 1996 grants and the
closing market price of $12 1/2, $18 1/8 and $19 1/8 per share as of the
respective grant dates of July 18, 22 and 29, 1996 for each of
Messrs. Dunlap, Kersh and Fannin. The 1998 restricted Common Stock holdings
were valued based on the market price of $36.85 as of February 1, 1998, the
date of such grants to Messrs. Kersh and Fannin. Mr. Dunlap's 1998
employment agreement provided that he be granted 300,000 shares of
non-restricted Common Stock and that with regard to the 1,000,000 shares of
restricted Common Stock granted to him in 1996, 133,334 were canceled and
the remaining 866,666 were fully vested. Mr. Kersh's 1998 employment
agreement provided that 26,664 shares of the 100,000 shares of restricted
Common Stock granted to him in 1996 were canceled and the remaining 73,336
shares were fully vested. In addition, Mr. Kersh's 1998 employment
agreement provided that he be granted 150,000 shares of restricted Common
Stock of which 37,500 shares were to vest on grant and the remaining shares
were to vest in equal increments on the first, second and third anniversary
of the grant date if he remained employed by the Company through such dates
or upon the occurrence of certain events. As a result of his termination,
all unvested restricted Common Stock awards to Mr. Kersh have been
canceled. Pursuant to Mr. Fannin's agreement with the Company in connection
with his termination, all unvested shares of restricted Common Stock
granted to him in 1998 and held by him were canceled, leaving him with
14,883 shares of vested Common Stock, which were previously restricted.
Dividends were paid on all restricted shares prior to the Company's
discontinuance of the payment of a dividend in the second quarter of 1998.
At December 31, 1998, none of Messrs. Dunlap, Kersh or Fannin held unvested
restricted Common Stock. See "--Employment Agreement with
(Footnotes continued on next page)
62
<PAGE>
(Footnotes continued from previous page)
Mr. Dunlap--Dispute with Mr. Dunlap" and "--Employment Agreements with
Messrs. Kersh and Fannin--Dispute with Mr. Kersh" for information
concerning disputes between the Company and Messrs. Dunlap and Kersh over
certain equity grants.
(3) The option grants to Messrs. Levin, Shapiro and Jenkins were made pursuant
to their respective employment agreements and are subject to stockholder
approval at the Company's 1999 annual meeting of stockholders.
(4) The Company adopted an Executive Benefit Replacement Plan (the "Replacement
Plan") in 1994 to restore the amount of benefits payable to certain highly
compensated employees of the Company who would otherwise be subject to
certain limitations on the amount of benefits payable under the Company's
401(k) Savings and Profit Sharing Plan. The Replacement Plan was terminated
as of December 31, 1998. Amounts of All Other Compensation include $6,669,
$4,313 and $5,218 accrued for Messrs. Dunlap, Kersh and Fannin,
respectively, in 1998 under the Replacement Plan (including the Company's
profit sharing allocation). Each of Messrs. Dunlap, Kersh and Fannin was
paid the amount of their respective accounts in the Replacement Plan in
connection with the termination of their employment with the Company.
(5) Includes $82,616 for reimbursement of country club fees, the value of a
Company provided automobile, relocation expenses of $37,560 and taxes paid
by the Company on the value of such relocation expenses.
(6) Includes Mr. Jenkins's salary from Coleman from the date of the acquisition
of Parent Holdings' interest in Coleman by the Company to his termination
of employment with Coleman as of May 31, 1998; his salary from the Company,
from July 1, 1998, the date of his reemployment by Sunbeam; and $12,327
paid for accrued vacation in 1998 upon Mr. Jenkin's termination from
Coleman's employment.
(7) Includes a car allowance, reimbursement of relocation expenses of $37,692
and taxes paid by the Company on such relocation payments.
(8) Severance payments made to Mr. Jenkins in connection with the termination
of his employment with Coleman.
(9) Includes reimbursement of relocation expenses of $64,506, taxes paid by the
Company on such relocation payments, a car allowance and bonuses paid upon
acceptance of employment with the Company and relocation of $40,467.
(10) Includes both 75,000 options granted to Ms. Clark during 1998 and 50,000
options granted upon exchange and cancellation of such 75,000 options.
(11) For 1998, includes $11,887,500 which represents the value of the 300,000
shares of Common Stock granted to Mr. Dunlap in connection with his 1998
employment agreement, based upon the closing market price on the grant date
of $39 5/8. Also includes $48,077, $115,385 and $51,923 paid in 1998, 1997
and 1996, respectively, in lieu of vacation. See "--Employment Agreement
with Mr. Dunlap--Dispute with Mr. Dunlap" and "--Employment Agreements with
Messrs. Kersh and Fannin--Dispute with Mr. Kersh" for information
concerning disputes between the Company and Messrs. Dunlap and Kersh over
certain equity grants.
(12) For 1998, includes $13,698,561 for taxes paid by the Company on the value
of the vesting of restricted Common Stock granted to Mr. Dunlap and other
Company benefits (including health and dental care premiums, spouse travel
costs and security costs, amounts reimbursed for financial and legal
consulting services and the value of a Company provided automobile). The
1997 and 1996 amounts include $14,355 and $17,250, respectively, for the
value of a Company provided automobile, $115,665 and $27,345, respectively,
as taxes paid by the Company on the value of such automobile and other
Company provided benefits (including financial consulting services, health
and dental care premiums and membership in a country club) and $41,348 as
reimbursement for financial planning services in 1997.
(Footnotes continued on next page)
63
<PAGE>
(Footnotes continued from previous page)
(13) Does not include amounts which the 1998 employment agreements with Messrs.
Dunlap and Kersh provided would be payable to them upon termination other
than for Cause (as defined in their respective employment agreements). The
Company intends to take the position that such amounts are not payable by
the Company.
(14) Includes $61,298 paid in lieu of vacation.
(15) One time bonus paid when Mr. Kersh's employment began.
(16) For 1998, represents taxes paid by the Company on the value of the vesting
of restricted Common Stock granted to Mr. Kersh. For 1996, represents a
discount on the purchase of Common Stock from the Company in the amount of
$239,800 and premiums paid by the Company for health and dental insurance
coverage.
(17) Includes $77,808 paid in lieu of vacation for 1996-1998 in accordance with
Mr. Fannin's termination agreement.
(18) Represents taxes paid by the Company on the value of the vesting of
restricted Common Stock granted to Mr. Fannin.
(19) All of these options have been canceled pursuant to Mr. Fannin's
termination agreement.
(20) Includes options awarded in exchange for the cancellation of certain
outstanding options, a portion of which were granted in 1995. Shares
underlying option grants previously made which were canceled in exchange
for new option awards are also included.
(21) Includes the following amounts payable pursuant to Mr. Fannin's termination
agreement: (a) $825,000 severance payment of which $575,001 was paid in
1998 and the balance of which is payable in monthly installments of
$16,667; (b) consulting payments of $250,000 of which $41,667 was paid in
1998 and the balance of which is payable in monthly installments of
$13,889; and (c) $50,000 payable for the three year extension of
Mr. Fannin's non-compete agreement, of which $8,334 was paid in 1998 and
the balance of which is payable in equal monthly installments of $2,778.
See "--Certain Arrangements with Messrs. Dunlap, Kersh and Fannin."
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the options to
purchase shares of Common Stock granted to the CEO and other Named Executives
during 1998. All of the option grants set forth below were made pursuant to the
terms of each officer's respective employment agreement with the Company. The
option grants made to Messrs. Dunlap, Kersh and Fannin were approved by the
stockholders of the Company at the Annual Meeting of the Stockholders held on
May 12, 1998 (the "1998 Annual Meeting"). The option grants made to Messrs.
Levin, Shapiro and Jenkins are subject to approval by the stockholders of the
Company at the 1999 annual meeting of stockholders (the "1999 Annual Meeting").
All other option grants were made pursuant to the Option Plan. See "--Employment
Agreement with Mr. Dunlap--Dispute with Mr. Dunlap" and "--Employment Agreements
with Messrs. Kersh and Fannin--Dispute with Mr. Kersh"
64
<PAGE>
for information concerning disputes between the Company and Messrs. Dunlap and
Kersh over certain equity grants.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE MARKET PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) FISCAL YEAR ($/SHARE) ($/SHARE) DATE VALUE(7)
- ------------------------------ ---------- ------------ ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jerry W. Levin................ 1,750,000(2) 12.1% $ 7.00 $ 6.88 8/11/2008 $ 6,457,500
500,000(2) 3.4% 10.50 6.88 8/11/2008 1,470,000
500,000(2) 3.4% 14.00 6.88 8/11/2008 1,205,000
Paul E. Shapiro............... 600,000(2) 4.1% 7.00 6.88 8/11/2008 2,214,000
Bobby G. Jenkins.............. 450,000(2) 3.1% 7.00 6.88 8/11/2008 1,660,500
Janet G. Kelley............... 75,000(3) .5% 38.34 38.34 2/18/2008 1,296,000
11,250(3) .1% 24.03 24.03 5/18/2008 129,375
60,000(2) .4% 7.00 5.94 12/15/2008 161,800
Karen K. Clark................ 75,000(3)(4) .5% 25.08 25.08 5/11/2008 906,750
50,000(2) .3% 7.00 7.50 8/30/2008 208,000
50,000(2) .3% 7.00 7.50 8/30/2008 208,000
Albert J. Dunlap.............. 3,750,000(5) 25.8% 36.85 36.85 2/01/2008 78,600,000
Russell J. Kersh.............. 1,125,000(6) 7.8% 36.85 36.85 2/01/2008 23,580,000
David C. Fannin............... 750,000(6) 5.2% 36.85 36.85 2/01/2008 15,720,000
</TABLE>
- ------------------
(1) All options have a term of ten years from their respective grant dates.
(2) These options become exercisable at a predetermined date as specified in the
employee's respective employment agreements.
(3) These options become exercisable over three years in equal annual increments
commencing on the first anniversary of the grant date.
(4) These options have been canceled in exchange for the grant of 50,000 options
set forth above.
(5) Mr. Dunlap's agreement provided that one-third of these options vested as of
the grant date and that an additional one-third of such options were to vest
on each of the first and second anniversaries of the grant dates. These
unvested options were canceled upon Mr. Dunlap's termination of employment.
(6) The options granted to Messrs. Kersh and Fannin provided for vesting in
equal installments on the grant date and the first, second and third
anniversaries of the grant date. The entire option grant to Mr. Fannin and
the unvested options granted to Mr. Kersh have been canceled.
(7) Grant date values were calculated using the Black-Scholes options pricing
model which has been adjusted to take dividends into account for the period
prior to announced discontinuance. Use of this model should not be viewed in
any way as a forecast of the future performance of the Common Stock. The
estimated present value of each stock option as set forth above is based on
the following inputs:
<TABLE>
<CAPTION>
VALUATION DATES 2/01/98 2/19/98 5/12/98 5/19/98 8/12/98 8/31/98 12/16/98
- ---------------------------------------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Risk Free Interest Rate................. 5.51% 5.57% 5.79% 5.72% 5.37% 4.95% 4.60%
Stock Price Volatility.................. 36.10% 36.00% 40.30% 40.30% 49.60% 49.80% 52.80%
Dividend Yield.......................... 0.10% 0.10% 0.20% 0.20% 0.00% 0.00% 0.00%
</TABLE>
The model assumes: (a) an expected option term of six years; (b) a
risk-free interest rate based on closing six-year U.S. Treasury Strip yield on
the date of valuation; and (c) no forfeitures. Stock price volatility is
calculated using weekly stock prices for a period of five years ended as of the
valuation date and believed to reflect volatility in the absence of unusual
corporate transactions. Notwithstanding the fact that these options are, with
limited exceptions, non-transferable, no discount for lack of marketability was
taken.
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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information with respect to option exercises
occurring during 1998 and the number of options held by the current and previous
CEOs and the other Named Executives at the Company's fiscal year end. The option
grants to Messrs. Dunlap, Kersh and Fannin were approved by the stockholders of
the Company at the 1998 Annual Meeting. The option grants to Messrs. Levin,
Shapiro and Jenkins are subject to approval of the stockholders at the 1999
Annual Meeting. All other option grants were made pursuant to the Option Plan.
The Company and Messrs. Dunlap and Kersh are disputing the amounts and benefits
paid and payable to each of them under their respective employment agreements,
and the Company may contest the validity of certain options granted to them.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
SHARES 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry W. Levin..................... 0 0 0 2,750,000 0 0
Paul E. Shapiro.................... 0 0 0 600,000 0 0
Bobby G. Jenkins................... 0 0 0 450,000 0 0
Janet G. Kelley.................... 0 0 52,766 173,484 0 0
Karen K. Clark..................... 0 0 0 100,000 0 0
Albert J. Dunlap................... 0 0 3,750,000 0 0 0
Russell A. Kersh................... 0 0 531,250 0 0 0
David C. Fannin.................... 0 0 200,000 0 0 0
</TABLE>
- ------------------
(1) The closing price of the Common Stock on December 31, 1998 was $6.875 per
share.
EMPLOYMENT AGREEMENT WITH MR. LEVIN
On August 12, 1998, the Company entered into an employment agreement with
Mr. Levin ("the Levin Agreement") pursuant to which the Company has agreed to
employ Mr. Levin as Chief Executive Officer, and Mr. Levin has agreed to serve
in such capacity, for an initial period of approximately three years ending
June 14, 2001.
Compensation
Under the Levin Agreement, Mr. Levin will be paid a base salary at an
annual rate of not less than $1,000,000. Additionally, Mr. Levin will be paid a
guaranteed bonus for 1998 equal to $541,667 and, thereafter, is eligible to
receive a performance-based annual target bonus equal to 100% of his base
salary. Mr. Levin is eligible to participate immediately in the other benefit
plans available generally to employees or other senior executives of the
Company. The Company also reimburses Mr. Levin for the cost of membership in a
country club.
Equity Grants
Mr. Levin received grants effective as of August 12, 1998 of options to
purchase 1,750,000 shares of Common Stock at a price of $7.00 per share; 500,000
shares of Common Stock at a price of $14.00 per share; and 500,000 shares of
Common Stock at a price of $10.50 per share (the "Levin Options") which grants
are subject to stockholder approval at the 1999 Annual Meeting. The term of the
Levin Options is ten years, and they will vest and become exercisable in full on
June 14, 2001 if Mr. Levin remains employed as of such date. Upon the occurrence
of a Change in Control of the Company (as defined in the Option Plan), the Levin
Options will vest in full.
Termination and Change in Control Provisions
The Company may terminate Mr. Levin's employment under the Levin Agreement
due to his disability, or for Cause. As defined in the Levin Agreement, "Cause"
means (1) gross neglect of his duties, (2) his conviction for a felony or any
lesser crime or offense involving the property of the Company, (3) willful
misconduct in connection with the performance of any material portion of his
duties, (4) willful breach of
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<PAGE>
any material provision of the agreement by Levin, or (5) any conduct on Levin's
part which would make his continued employment materially prejudicial to the
best interests of the Company. In addition, he may terminate his employment
following a Company Breach upon 60 days' written notice to the Company. As
defined in the Levin Agreement, "Company Breach" means (1) any material breach
of the agreement by the Company, or (2) a Change in Control of the Company (as
defined in the Levin Agreement).
The Levin Agreement provides that, if the Company terminates Mr. Levin's
employment for Cause or if he voluntarily terminates his employment, all
obligations (other than accrued obligations) of the Company will cease and all
unvested Levin Options shall be immediately forfeited. If a Company Breach
occurs, and Mr. Levin terminates the agreement, the Company is obligated to
continue to pay Mr. Levin's base salary and target bonus for the balance of the
term and continue his benefits until his reemployment. In addition, all of the
Levin Options vest and are exercisable for three years.
The Levin Agreement provides that, if Mr. Levin's employment is terminated
due to his death, his legal representatives or designated beneficiary will
receive continued payments in an amount equal to 60% of base salary until the
longer of 12 months or the end of the Term in effect at the time of his death.
The Levin Options will become vested and exercisable upon stockholder approval,
and shall remain exercisable for three years thereafter.
EMPLOYMENT AGREEMENTS WITH EXECUTIVES SHAPIRO, JENKINS, KELLEY AND CLARK
The Company entered into employment agreements with Messrs. Shapiro and
Jenkins and Ms. Clark in August 1998 and with Ms. Kelley in December 1998.
Messrs. Shapiro and Jenkins, Ms. Kelley and Ms. Clark are referred to as the
"Executives". The agreements with Messrs. Shapiro and Jenkins are for an initial
period of approximately three years ending on June 14, 2001; the agreement with
Ms. Clark has a term ending on June 14, 2000; and the agreement with Ms. Kelley
has a term ending on December 31, 2000. The Executives' agreements are referred
to individually as an "Executive Agreement" and collectively as the "Executive
Agreements."
Compensation
Under the Executive Agreements, Messrs. Shapiro and Jenkins and Ms. Kelley
and Ms. Clark will be paid a base salary at annual rates not less than $600,000,
$365,000, $275,000 and $270,000 respectively. Additionally, Messrs. Shapiro and
Jenkins and Ms. Kelley and Ms. Clark were paid a guaranteed bonus for 1998 equal
to $243,750, $118,625, $112,500 and $73,125, respectively, and, thereafter, are
eligible to receive a performance-based annual target bonus equal to 75%, 60%,
50% and 50% of their respective annual salary. The Executives will also be
eligible to participate in the other benefit plans available generally to
employees or other senior executives of the Company.
Equity Grants
Pursuant to their respective employment agreements, Messrs. Shapiro and
Jenkins and Ms. Kelley and Ms. Clark also received grants effective as of
June 15, 1998, June 15, 1998, December 16, 1998 and August 31, 1998,
respectively, of options to purchase 600,000 shares, 450,000 shares, 60,000
shares and 50,000 shares, respectively, of Common Stock at a price of $7.00 per
share (the "Executive Options") which grants to Messrs. Shapiro and Jenkins are
subject to stockholder approval. The term of each of the Executive Options is
ten years, and they will vest and become exercisable in full on June 14, 2001,
June 14, 2001, December 31, 2000 and June 14, 2000, respectively, if the
Executive remains employed as of such date. Upon the occurrence of a Change in
Control of the Company (as defined in the Option Plan), the Executive Options
will vest in full. In addition, pursuant to her employment agreement, Ms. Clark
exchanged 75,000 options for 50,000 options with an exercise price of $7.00 per
share, as part of the Company's option exchange program.
Termination and Change in Control Provisions
The Company may terminate an Executive's employment under his or her
Executive Agreement due to disability, or for Cause. As defined in the Executive
Agreements, "Cause" means (1) gross neglect of duties, (2) conviction for a
felony or any lesser crime or offense involving the property of the Company,
(3) willful misconduct in connection with the performance of any material
portion of duties, (4) willful breach of any
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<PAGE>
material provision of the agreement by Executive, or (5) any conduct on
Executive's part which would make continued employment materially prejudicial to
the best interests of the Company. The Executive may terminate his or her
employment under the Executive Agreement at any time. In addition, he or she may
terminate his or her employment for Company Breach upon 60 days' written notice
to the Company. As defined in the Executive Agreements, "Company Breach" means
(1) any material breach of the agreement by the Company, or (2) a Change in
Control of the Company (as defined in the Executive Agreements).
The Executive Agreements provide that, if the Company terminates an
Executive's employment for Cause or if the Executive voluntarily terminates his
or her employment, all obligations (other than accrued obligations) of the
Company will cease and all unvested Executive Options shall be immediately
forfeited. If a Company Breach occurs, and an Executive terminates the
agreement, the Company is obligated to continue to pay the Executive's base
salary and target bonus for the balance of the term and continue his benefits
until his reemployment. In addition, all of the Executive Options vest and are
exercisable for three years.
The Executive Agreements provide that, if an Executive's employment is
terminated due to death, his or her legal representatives or designated
beneficiary will receive continued payments in an amount equal to 60% of base
salary until the longer of 12 months or the end of the Term in effect at the
time of death. The Executive Options will become vested upon such death and
shall remain exercisable for three years thereafter.
EMPLOYMENT AGREEMENT WITH MR. DUNLAP
As of February 1, 1998, the Company entered into an employment agreement
with Mr. Dunlap (the "Dunlap Agreement") pursuant to which the Company agreed to
continue to employ Mr. Dunlap as Chairman of the Board of Directors and Chief
Executive Officer, and Mr. Dunlap agreed to serve in such capacities, for a
period of three years ending January 31, 2001, and for successive one-year
renewal periods unless advance notice of termination was given by either party
by no later than August 1 of the immediately preceding year. The Dunlap
Agreement was not renewable beyond January 31, 2003. The Dunlap Agreement
replaced and superseded Mr. Dunlap's prior employment agreement.
Dispute with Mr. Dunlap. On July 13, 1998, the Board of Directors
terminated Mr. Dunlap as Chairman and Chief Executive Officer. The Company
expects that Mr. Dunlap will assert claims for breach of the Dunlap Agreement,
and the Company intends to vigorously contest such claims and may contest the
validity of grants of restricted Common Stock and options to him. Nothing in the
discussion in this prospectus should be construed to support his claims or to
limit or otherwise affect the Company's claims.
Compensation. Under the Dunlap Agreement, Mr. Dunlap was paid a base
salary at an annual rate of $2,000,000. The Company could increase Mr. Dunlap's
base salary, but could not reduce it after any such increase. Mr. Dunlap was
eligible to participate in the other benefit plans available generally to
employees or other senior executives of the Company. However, he was not
eligible to participate in any incentive plan of the Company. The Company also
provided Mr. Dunlap with various perquisites on a grossed-up basis.
Equity Grants. The Dunlap Agreement provided that all of Mr. Dunlap's then
outstanding options to purchase shares of Common Stock, which were granted under
Mr. Dunlap's prior employment agreement, vested as of February 20, 1998; 40% of
Mr. Dunlap's shares of restricted Common Stock were canceled as of such date;
and all of Mr. Dunlap's remaining shares of restricted Common Stock vested as of
such date. The Dunlap Agreement also provided that the Company reimburse
Mr. Dunlap on a grossed-up basis with respect to any income tax assessed in
connection with the vesting of such shares of restricted Common Stock.
Mr. Dunlap received a grant as of February 1, 1998 of 300,000 shares of
Common Stock. Mr. Dunlap also received a grant effective as of February 1, 1998
of options to purchase 3,750,000 shares of Common Stock at a price of $36.85 per
share (the "Dunlap Options"), which grant was approved by the Company's
stockholders at the 1998 Annual Meeting. The Dunlap Options provide for a term
of ten years, and for vesting with respect to one-third of the shares subject
thereto on the grant date and for an additional one-third to vest on each of the
first and second anniversaries of the grant date if Mr. Dunlap had remained
employed by the Company. Upon the occurrence of a Change in Control of the
Company (as defined below), the Dunlap Options would have vested in full.
Termination and Change in Control Provisions. The Dunlap Agreement
provided that the Company could terminate Mr. Dunlap's employment at any time,
or due to his disability, or for Cause. The Dunlap
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<PAGE>
Agreement defined "Cause" to mean (1) willful failure substantially to perform
Mr. Dunlap's duties under the Dunlap Agreement, except if such failure results
from disability, or (2) his conviction for a felony (or a plea of guilty or nolo
contendere thereto). The Dunlap Agreement provided that Mr. Dunlap had the
option to terminate his employment for Good Reason by notifying the Company
within 90 days after any of the following events occurring without his consent,
unless remedied by the Company within 30 days after receiving such notice:
(1) any change in Mr. Dunlap's title as Chairman of the Sunbeam Board
of Directors and Chief Executive Officer or his removal from, or the
failure to re-elect him to, such positions;
(2) any assignment of duties materially inconsistent with his
positions or any material limitation of his powers as contemplated by the
Dunlap Agreement;
(3) any requirement that Mr. Dunlap be based without his consent
anywhere other than at the Company's principal executive office in Palm
Beach or Broward County, Florida;
(4) any reduction in Mr. Dunlap's base salary;
(5) any failure to continue in effect any fringe benefit plan in
effect at the date of the Dunlap Agreement or to provide Mr. Dunlap
equivalent benefits;
(6) the failure of the Company to maintain Mr. Dunlap's status as a
Director of the Company while he serves as Chief Executive Officer;
(7) the failure of the Company to have three individuals (or their
successors) designated by Mr. Dunlap elected and reelected as Directors of
the Company;
(8) a Change in Control of the Company (as defined in the Dunlap
Agreement); or
(9) any other material breach of the agreement by the Company.
The Dunlap Agreement provided that, if the Company terminated Mr. Dunlap's
employment other than for Cause and not due to his disability, or if he
terminated his employment for Good Reason, (1) he would receive as liquidated
damages a lump sum payment in an amount equal to the base salary that would have
been payable through the period ending January 31, 2001, or any then applicable
renewal period, (2) the Dunlap Options would become fully vested, and he would
be entitled to exercise the Dunlap Options (as well as previously granted
options) for the balance of their original ten-year term, and (3) he would be
entitled to continue participating in the employee benefit plans in which he had
been entitled to participate before termination, for three years after
termination, or to receive substantially equivalent benefits.
The Dunlap Agreement provided that, if the Company terminated Mr. Dunlap's
employment for Cause or if he terminated his employment other than for Good
Reason, all obligations (other than accrued obligations) of the Company would
cease, except that Mr. Dunlap would be able to exercise the Dunlap Options (as
well as previously granted options) which are exercisable on the date of
termination within 90 days, if the termination is for Cause, and within one
year, if it is by Mr. Dunlap without Good Reason.
The Dunlap Agreement provided that, if Mr. Dunlap's employment is
terminated due to his death, his estate or legal representative will be entitled
to exercise within one year after the date of death the Dunlap Options (as well
as previously granted options) which are then exercisable or which would have
become exercisable within one year after the date of death. If his employment
were terminated due to disability, Mr. Dunlap would have been entitled to
exercise within three years all Dunlap Options (as well as previously granted
options) which were then exercisable or which would have become exercisable
within one year after the date of termination.
In addition, the Dunlap Agreement provided that Mr. Dunlap would be
entitled to receive a gross-up with respect to any excise tax applicable under
the Internal Revenue Code of 1986, as amended (the "Code"), to "excess parachute
payments."
EMPLOYMENT AGREEMENTS WITH MESSRS. KERSH AND FANNIN
The Company entered into employment agreements with each of Messrs. Kersh
and Fannin as of February 1, 1998. Messrs. Kersh and Fannin are referred to
herein as the "Prior Executives." The employment agreements with Messrs. Kersh
and Fannin had terms ending on January 31, 2001. The employment agreements with
Messrs. Kersh and Fannin (referred to individually as a "Prior Executive
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<PAGE>
Agreement" and collectively as the "Prior Executive Agreements") replaced and
superseded their respective previous employment agreements with the Company.
Dispute with Mr. Kersh. On July 16, 1998, the Sunbeam Board of Directors
terminated Mr. Kersh as Vice Chairman and Chief Financial Officer. The Company
expects that Mr. Kersh will assert claims for breach of his Prior Executive
Agreement, and the Company intends to vigorously contest such claims and may
contest the validity of grants of restricted Common Stock and options to him.
Nothing in this prospectus should be construed to support his claims or to limit
or otherwise affect the Company's claims.
Compensation. Under their respective Agreements, Messrs. Kersh and Fannin
were each to be paid a base salary at annual rates of $875,000 and $595,000,
respectively. The Prior Executives were also eligible to participate in those
benefit plans available generally to employees or other senior executives of the
Company. However, the Prior Executives were not eligible to participate in any
cash incentive (i.e., bonus) plan of the Company.
Equity Grants. The Prior Executive Agreements provided that all of
Mr. Kersh's then outstanding options to acquire shares of Common Stock, which
were granted under Mr. Kersh's previous employment agreement, and all of
Mr. Fannin's then outstanding options to acquire shares of Common Stock vested
as of February 20, 1998; 40% of each of Mr. Kersh's and Mr. Fannin's shares of
restricted Common Stock were canceled as of such date; and all of Mr. Kersh's
and Mr. Fannin's remaining shares of restricted Common Stock vested as of such
date. The Prior Executive Agreements provide that the Company was to reimburse
Messrs. Kersh and Fannin on a grossed-up basis with respect to any income tax
assessed in connection with the vesting of such shares of restricted Common
Stock.
As of February 1, 1998, Messrs. Kersh and Fannin each received a grant of
150,000 and 30,000 shares of restricted Common Stock (the "Prior Executive
Restricted Shares"), respectively. Such Prior Executive Restricted Shares
provided for vesting in four equal installments on each of February 1, 1998 and
the first, second and third anniversaries of February 1, 1998. Messrs. Kersh and
Fannin also received grants, effective as of February 1, 1998, of options to
purchase 1,125,000 and 750,000 shares of Common Stock, respectively, at a price
of $36.85 per share which were approved by the Company's stockholders at the
1998 Annual Meeting. These options provided for vesting in four equal
installments on the grant date and the first, second and third anniversaries of
February 1, 1998.
Termination and Change in Control Provisions. The Prior Executive
Agreements with Messrs Kersh and Fanin provided that the Company may terminate
either Prior Executive's employment at any time, or due to the Prior Executive's
disability, or for Cause (as defined in the Prior Executive Agreements). The
Prior Executives had the right to terminate employment at any time for Good
Reason by notifying the Company within 90 days after any of the following events
occurring without his consent, unless remedied by the Company within 30 days
after receiving such notice:
(1) any assignment of duties materially inconsistent with his
positions or any material limitation of his powers as contemplated by his
Prior Executive Agreement;
(2) any removal of the Prior Executive from, or any failure to reelect
the Prior Executive to, the executive officer position specified in his
Prior Executive Agreement; or
(3) any other material breach of his Prior Executive Agreement by the
Company.
Each Prior Executive Agreement provided that, if the Company terminates the
Prior Executive's employment other than for Cause and not due to his disability,
or if the Prior Executive terminates his employment for Good Reason or following
a Change in Control (as defined in the Prior Executive Agreements), (1) such
Prior Executive will receive as liquidated damages a lump sum payment in an
amount equal to the base salary that would have been payable to him through the
end of the employment term, (2) the options to acquire shares of Common Stock
(and Executive Restricted Shares) granted to such Prior Executive will become
fully vested, and the Prior Executive will be entitled to exercise his options
(including previously granted options) for the balance of their original
ten-year term, and (3) the Prior Executive will be entitled to continue
participating in the employee benefit plans in which he had been entitled to
participate before termination, through the end of the employment term, or to
receive substantially equivalent benefits.
Each Prior Executive Agreement provided that if the Company terminates the
Prior Executive's employment for Cause or if the Prior Executive terminates his
employment other than for Good Reason or
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<PAGE>
following a Change in Control, all obligations (other than accrued obligations)
of the Company will cease, except that such Prior Executive will be able to
exercise any options (including previously granted options) granted to him which
are exercisable on the date of termination or within 90 days thereof, if the
termination is for Cause, and within one year thereof, if the termination is by
the Executive other than for Good Reason or following a Change in Control.
Each Prior Executive Agreement provided that, if such Executive's
employment is terminated due to his death, his estate or legal representative
will be entitled to exercise within one year after the date of death any options
to acquire shares of Common Stock granted to such Prior Executive which are then
exercisable or which would have become exercisable within one year after the
date of death and, further, the portion of then unvested Executive Restricted
Shares, if any, held by such Prior Executive equal to the total number of such
unvested Executive Restricted Shares multiplied by a fraction, the numerator of
which is 36 minus the number of months remaining in the three years of the Prior
Executive's employment term and the denominator of which is 36, will become
vested as of the date of death. The Prior Executive Agreements further provided
that if a Prior Executive's employment is terminated due to disability, he will
be entitled to exercise within three years all options granted to him (including
previously granted options) which are then exercisable or which would have
become exercisable within one year after the date of termination and a portion
of the Executive Restricted Shares, if any, held by such Executive, determined
in accordance with the procedure described in the immediately preceding
sentence, will become vested as of the Executive's date of termination.
In addition, each Prior Executive Agreement provided that the Prior
Executive would be entitled to receive a gross-up with respect to any excise tax
applicable under the Code to "excess parachute payments."
CERTAIN ARRANGEMENTS WITH MESSRS. DUNLAP, KERSH AND FANNIN
In early August 1998, the Company entered into agreements with Messrs.
Dunlap and Kersh pursuant to which all parties agreed not to assert claims
against each other for a period of at least six months and to exchange certain
information relating to the stockholders' litigation. The Company also agreed to
pay (and has paid) to Messrs. Dunlap and Kersh amounts related to vacation and
employment benefits and, to advance them defense costs for a period of six
months subject to the receipt of an undertaking from each of them to repay all
amounts so advanced if it is determined that they did not meet the applicable
standard of conduct for indemnification under Delaware law.
In connection with Mr. Fannin's resignation, the Company entered into an
agreement with him providing that, pursuant to the terms of his employment
agreement and in consideration of the execution of the agreement, including a
release and covenant not to sue contained therein, he would receive the
following payments, all subject to applicable withholding taxes: (a) $825,000
severance payment of which $575,001 was paid in 1998 and the balance of which is
payable in monthly installments of $16,667; (b) consulting payments of $250,000
of which $41,667 was paid in 1998 and the balance of which is payable in monthly
installments of $13,889; and (c) $50,000 payable for the three year extension of
Mr. Fannin's non-compete agreement, of which $8,334 was paid in 1998 and the
balance of which is payable in equal monthly installments of $2,778. In
addition, Mr. Fannin received the value of his accrued vacation for 1996-1998,
continuation of health, dental and life insurance coverage, on the same basis as
prior to termination of employment for an additional 18 months or until his
earlier employment providing such benefits. The termination agreement with
Mr. Fannin also provided for a three year term for his outstanding vested stock
options, confirmed the amount of his unrestricted Common Stock grants and
provided for the mutually agreed cancellation of all other equity awards.
CERTAIN TRANSACTIONS
Settlement of Claims; Issuance of Parent Holdings Warrant
On August 12, 1998, the Company announced that, following investigation and
negotiation conducted by a Special Committee of the Sunbeam Board, consisting of
four outside directors not affiliated with MacAndrews & Forbes, the Company had
entered into the Parent Holdings Settlement Agreement with Parent Holdings, a
subsidiary of MacAndrews & Forbes, pursuant to which the Company was released
from certain threatened claims of Parent Holdings and its affiliates arising
from the acquisition of Parent Holdings' interest
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<PAGE>
in Coleman and MacAndrews & Forbes agreed to provide certain management
personnel and assistance to the Company in exchange for the issuance to the
Parent Holdings of a five-year warrant to purchase up to 23 million shares of
Common Stock at an exercise price of $7.00 per share, subject to anti-dilution
provisions. MacAndrews & Forbes is the holder of 14% of the outstanding Common
Stock.
Services Provided by MacAndrews & Forbes
Pursuant to the Parent Holdings Settlement Agreement, MacAndrews & Forbes
agreed to provide certain management assistance to Sunbeam with respect to
financings, dealings with financing sources and capital markets, investor and
public relations, acquisitions, divestitures and other extraordinary
transactions, executive benefits and compensation and other personnel matters,
and compliance, litigation, insurance, regulatory and other legal matters. The
Company does not reimburse MacAndrews & Forbes for such services or for expenses
incurred in providing such services to the Company, other than reimbursement of
out-of-pocket expenses paid to third parties. Execution of the Parent Holdings
Settlement Agreement was a condition to Sunbeam's continued employment of
Messrs. Levin, Shapiro and Jenkins as officers of Sunbeam.
Liquidation of Options
Pursuant to the Coleman Merger Agreement, upon the consummation of the
Coleman Merger, the unexercised options under Coleman's stock option plans will
be cashed out at a price per share equal to the difference between $27.50 per
share and the exercise price of such options. Ronald O. Perelman, the sole
stockholder of MacAndrews & Forbes, holds 500,000 options for which he will
receive a net payment of $6,750,000. Mr. Shapiro and Ms. Clark, executive
officers of the Company, hold 77,500 and 25,000 options respectively for which
they will receive net payments of $823,000 and $275,005, respectively.
Arrangements with Coleman
Coleman and an affiliate of MacAndrews & Forbes are parties to a
cross-indemnification agreement pursuant to which Coleman has agreed to
indemnify such affiliate, its officers, directors, employees, control persons,
agents and representatives against all past, present and future liabilities,
including product liability and environmental matters, related to the initial
assets of Coleman, which Coleman acquired from such affiliate in December 1991.
In addition, pursuant to this cross-indemnification agreement, the MacAndrews &
Forbes affiliate has agreed to indemnify Coleman and its officers, directors,
employees, agents and respresentatives against all other liabilities of such
MacAndrews & Forbes affiliate or any of its subsidiaries, including liabilities
relating to the assets it did not transfer to Coleman in December 1991. This
cross-indemnification agreement will survive the Coleman Merger.
Coleman previously was included in the consolidated tax group for the
MacAndrews & Forbes companies and was a party to a tax sharing agreement with a
MacAndrews & Forbes affiliate, pursuant to which Coleman paid to such affiliate
the amount of taxes which would have been paid by Coleman if it were required to
file separate Federal, state or local income tax returns. The tax sharing
agreement was terminated upon the consummation of the Holdings Merger; however,
the Coleman Merger Agreement provides for certain tax indemnities and tax
sharing payments among the Company and the MacAndrews & Forbes affiliates
relating to periods prior to the acquisition.
Lease of Office Space
The Company subleases office space in New York City from a subsidiary of
MacAndrews & Forbes. The expense for such rent during 1998 was approximately
$130,000. The Company believes that the terms of such sublease are comparable to
the market rate for such space.
Employment of Law Firms
The Company employed the law firms of Reboul, MacMurray, Hewitt, Maynard
and Kristol, of which Director Kristol is a partner, and Holland & Knight, of
which Director Elson is Of Counsel, to perform minor legal services for the
Company during 1998. The total fees paid to these firms during 1998 were less
than $20,000. Neither Mr. Kristol nor Mr. Elson was involved in the provision of
legal services to the Company.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership, reported to the
Company as of January 13, 1999, of Common Stock, including shares as to which a
right to acquire ownership exists, of: (1) each Director of the Company;
(2) each of the Named Executives, as defined herein under the caption
"Management--Executive Compensation"; and (3) the Directors and current
executive officers of the Company as a group. In addition, the following table
sets forth, as of January 13, 1999, the beneficial ownership of two former
Directors and a former Named Executive, based on information filed with the
Commission and made available to the public.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
NAME BENEFICIAL OWNERSHIP(1)(2) COMMON STOCK(2)
- -------------------------------------------------------------------- -------------------------- ---------------
<S> <C> <C>
DIRECTORS
Charles M. Elson.................................................. 10,500(3) *
Howard Gittis..................................................... 0 0
Howard G. Kristol................................................. 10,500(3)(5) *
Peter A. Langerman................................................ 0(4) 0
Jerry W. Levin.................................................... 0 0
Faith Whittlesey.................................................. 6,890(3) *
FORMER DIRECTORS
Albert J. Dunlap.................................................. 5,241,564 5.2 %
Russell A. Kersh.................................................. 682,900 *
NAMED EXECUTIVE OFFICERS
Karen K. Clark.................................................... 0 0
Bobby G. Jenkins.................................................. 0 0
Janet G. Kelley................................................... 79,166 *
Paul E. Shapiro................................................... 0 0
FORMER NAMED EXECUTIVE OFFICER
David C. Fannin................................................... 220,433 *
ALL DIRECTORS AND CURRENT EXECUTIVE OFFICERS AS
A GROUP (10 persons).............................................. 97,606(6) *
</TABLE>
- ------------------
* Less than one percent.
(1) All Directors and Named Executive Officers have the sole power to vote and
to dispose of the shares of Common Stock listed above except as follows: (i)
Mr. Dunlap holds 1,491,564 of the listed shares jointly with his wife; (ii)
151,600 shares listed as owned by Mr. Kersh are held by the Russell A. Kersh
Irrevocable Trust as to which Mr. Kersh is the sole beneficiary, and
Mr. Kersh holds 5,000 of the listed shares jointly with his spouse;
(iii) Mr. Fannin holds 20,433 shares of stock jointly with his wife;
(iv) Ms. Kelley holds 100 shares jointly with her spouse.
(2) Includes shares of Common Stock which Directors and Named Executives have
the right to acquire under options which are currently exercisable
(including options which may be exercised within the next sixty days).
Includes 3,750,000, 531,250, 200,000 and 79,066 shares which may be acquired
by Messrs. Dunlap, Kersh, Fannin and Ms. Kelley respectively, upon the
exercise of options which are currently exercisable. Options which are not
currently exercisable and will not become exercisable within sixty days are
not included in the table. See "Management--Employment Agreement with
Mr. Dunlap--Dispute with Mr. Dunlap" and "--Employment Agreements with
Messrs. Kersh and Fannin--Dispute with Mr. Kersh" for information concerning
disputes between the Company and Messrs. Dunlap and Kersh over certain
equity grants.
(3) Includes shares of restricted Common Stock granted to each of Directors
Elson, Kristol, and Whittlesey upon their respective elections, appointments
and subsequent reelections to the Sunbeam Board of Directors, all of which
shares were immediately vested.
(4) Does not include shares of Common Stock owned by the Funds Group as to which
Mr. Langerman disclaims beneficial ownership. See "Security Ownership of
Certain Beneficial Owners."
(5) Does not include shares owned by the Russell A. Kersh Irrevocable Trust as
to which Mr. Kristol disclaims beneficial ownership.
(6) Includes shares of Common Stock which all current executive officers and
directors of the Company have the right to acquire under options which are
currently exercisable (including options which may be exercised within the
next sixty days) and shares which are subject to restrictions.
73
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table set forth information as of January 13, 1999, with
respect to beneficial ownership of the Common Stock by all persons known by the
Company to be the record or beneficial owner of more than 5% of the outstanding
shares of Common Stock. Except as otherwise noted, all beneficial owners listed
below have sole voting and investment power with respect to the shares owned by
them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
OF OF
NAME BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------------------------------------------------------- -------------------- ------------
<S> <C> <C>
Franklin Mutual Series Fund Inc.................................... 17,541,398(1) 17.4%
including:
Mutual Shares Fund............................................... 11,260,174(1) 11.2%
Mutual Qualified Fund............................................ 4,800,554(1) 4.8%
Franklin Mutual Advisers, Inc.................................... 17,541,398(1) 17.4%
Franklin Resources, Inc.......................................... 17,541,398(1) 17.4%
Charles B. Johnson
Rupert H. Johnson, Jr.
Ronald O. Perelman................................................. 14,099,749(2) 14.0%
Invista Capital Management, Inc.................................... 7,486,600(3) 7.4%
Albert J. Dunlap................................................... 5,241,564(4) 5.2%
</TABLE>
- ------------------
(1) Information reflected in this table and the notes thereto with respect to
Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr.,
Franklin Mutual Advisers, Inc., and Franklin Mutual Series Fund Inc., Mutual
Shares Fund and Mutual Qualified Fund (collectively the "Funds Group") is
derived from the Schedule 13D, dated November 1, 1996, filed by them. The
address of the Franklin Mutual Series Fund Inc. and of Franklin Mutual
Advisers, Inc. is 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078.
The address of Franklin Resources, Inc. and each of Charles B. Johnson and
Rupert H. Johnson, Jr. is 777 Mariners Island Blvd., San Mateo, California
94404. Shares of Common Stock beneficially owned by Franklin Mutual Series
Fund Inc. include shares owned by Mutual Shares Fund and Mutual Qualified
Fund, series of portfolios of Franklin Mutual Series Fund Inc. The aggregate
number of shares owned by all of the series of Franklin Mutual Series Fund
Inc. is 17,541,398. These same shares are also listed as being beneficially
owned by (i) Franklin Mutual Advisers, Inc., the investment manager of
Franklin Mutual Series Fund Inc., (ii) Franklin Resources, Inc., the sole
stockholder of Franklin Mutual Advisers, Inc. and (iii) Charles B. Johnson
and Rupert H. Johnson, Jr., the principal stockholders of Franklin
Resources, Inc., each of whom owns in excess of 10% of that corporation's
common stock. Franklin Mutual Advisers, Inc. has sole voting and dispositive
power over the listed shares of Common Stock. Franklin Mutual Advisers,
Inc., Franklin Resources, Inc., Charles B. Johnson and Rupert H. Johnson,
Jr. each disclaim beneficial ownership of these shares.
(2) Represents shares of Common Stock received by Parent Holdings in the
Holdings Merger. The address of Parent Holdings is 35 E. 62nd Street, New
York, New York 10021. Ronald O. Perelman is the indirect beneficial owner of
all of the outstanding capital stock of Parent Holdings. Accordingly,
Mr. Perelman may be deemed to be the beneficial owner of all of the shares
of Common Stock owned by Parent Holdings. Mr. Perelman's address is 35 E.
62nd Street, New York, New York. 10021.
(3) Information reflected in this table and the notes thereto with respect to
Invista Capital Management, Inc. ("Invista") is derived from the Form 13F
filed with the SEC by Invista on November 16, 1998. The address of Invista
is 1800 Hub Tower, 699 Walnut Street, Des Moines, Iowa 50309. Invista
exercises shared investment discretion with respect to all of the shares of
Common Stock it beneficially owns. Invista exercises sole voting authority
with respect 7,478,800 of such shares, but lacks any voting authority with
respect to the remaining 7,800 shares it beneficially owns.
(4) Mr. Dunlap's holdings include shares of Common Stock which may be acquired
upon the exercise of options. See "Security Ownership of Management." See
"Employment Agreement with Mr. Dunlap--Dispute with Mr. Dunlap" for
information concerning disputes between the Company and Mr. Dunlap over
certain equity grants.
74
<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture dated as of March 25, 1998
(the "Indenture"), between the Company and The Bank of New York, as trustee (the
"Trustee"). The Company has filed a copy of the Indenture as an exhibit to the
Registration Statement, of which this prospectus forms a part, and copies are
also available from the Trustee upon request by a registered holder of the
Debentures. The following summary of certain provisions of the Debentures and
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Debentures
and the Indenture including the definitions therein of certain terms that are
not otherwise defined in this prospectus. Wherever particular provisions or
defined terms of the Indenture (or of the form of Debenture which is a part
thereof) are referred to, such provisions or defined terms are incorporated
herein by reference. As used in this "Description of Debentures," the "Company"
refers to Sunbeam Corporation only and does not, unless the context otherwise
indicates, include its subsidiaries.
GENERAL
The Debentures are unsecured general obligations of the Company subordinate
in right of payment to the New Credit Facility and certain other secured
obligations of the Company as described under "--Subordination of Debentures"
and convertible into Common Stock as described under "--Conversion of
Debentures." The Debentures are limited to $2,014,000,000 aggregate principal
amount at maturity and will mature on March 25, 2018.
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of indebtedness, including Senior
Indebtedness, or the issuance or repurchase of securities of the Company. The
Indenture contains no covenants or other provisions to afford protection to
holders of the Debentures in the event of a highly leveraged transaction or a
change in control of the Company except to the extent described under
"--Redemption at Option of the Holder Upon a Fundamental Change."
The Debentures were issued at a substantial discount from their stated
redemption price at maturity. For U.S. federal income tax purposes, the excess
of the stated redemption price at maturity of each Debenture over its issue
price (which is expected to be the Issue Price) constitutes original issue
discount ("Original Issue Discount"). See "Certain United States Federal Income
Tax Considerations." Maturity, conversion, purchase by the Company at the option
of a holder or redemption of a Debenture will cause Original Issue Discount and
interest, if any, to cease to accrue on such Debenture, under the terms and
subject to the conditions of the Indenture. The Company may not reissue a
Debenture that has matured or been converted, purchased by the Company at the
option of a holder, redeemed or otherwise canceled (except for registration of
transfer, exchange or replacement thereof).
The principal amount at maturity of each Debenture will be payable at the
office or agency of the paying agent, initially the Trustee, in the Borough of
Manhattan, The City of New York, or any other office of the paying agent
maintained for such purpose. Debentures may be presented for conversion into
Common Stock at the office of the conversion agent and Debentures in definitive
form may be presented for exchange for other Debentures or registration of
transfer at the office of the registrar, each such agent initially being the
Trustee. The Company will not charge a service charge for any registration of
transfer or exchange of Debentures; however, the Company may require payment by
a holder of a sum sufficient to cover any tax, assessment or other governmental
charge payable in connection therewith.
CONVERSION OF DEBENTURES
A holder of a Debenture may convert it into Common Stock of the Company at
any time through the close of business on March 25, 2018; provided that if a
Debenture is called for redemption, the holder may convert it only until the
close of business on the last trading day prior to the redemption date (the
"Redemption Date") unless the Company defaults in the payment of the Redemption
Price. A Debenture in respect of which a holder has delivered a Purchase Notice
(as defined herein) exercising the option of such holder to require the Company
to purchase such Debenture may be converted only if such notice is withdrawn in
accordance with the terms of the Indenture. Similarly, a Debenture in respect of
which a holder is exercising its option to require redemption upon a Fundamental
Change may be converted only if such
75
<PAGE>
holder withdraws the election to exercise the option in accordance with the
terms of the Indenture. A holder may convert such holder's Debentures in part so
long as such part is $1,000 principal amount at maturity or a whole multiple
thereof.
The initial Conversion Rate is 6.575 shares of Common Stock per $1,000
principal amount at maturity of Debentures, subject to adjustment upon the
occurrence of certain events, as described below. A holder entitled to a
fractional share of Common Stock shall receive cash equal to the then current
market value of such fractional share.
On conversion of a Debenture, a holder will not receive any cash payment
representing accrued Original Issue Discount. The Company's delivery to the
holder of the fixed number of shares of Common Stock into which the Debenture is
convertible (together with the cash payment, if any, in lieu of fractional
Common Stock) will be deemed to satisfy the Company's obligation to pay the
principal amount of the Debenture including the accrued Original Issue Discount
attributable to the period from the Issue Date to the Conversion Date. Thus, the
accrued Original Issue Discount is deemed to be paid in full rather than
canceled, extinguished or forfeited. The Conversion Rate will not be adjusted at
any time during the term of the Debentures for such accrued Original Issue
Discount.
To convert a certificated Debenture into Common Stock, a holder must
o complete and manually sign the conversion notice on the back of the
Debenture (or complete and manually sign a facsimile thereof) and
deliver such notice to the conversion agent,
o surrender the Debenture to the conversion agent,
o if required, furnish appropriate endorsements and transfer documents and
o if required, pay all transfer or similar taxes.
Pursuant to the Indenture, the date on which all of the foregoing requirements
have been satisfied is the Conversion Date.
The Conversion Rate is subject to adjustment under formulae as set forth in
the Indenture in certain events, including:
(1) the issuance of Common Stock of the Company as a dividend or
distribution on the Common Stock;
(2) certain subdivisions and combinations of the Common Stock;
(3) the issuance to all holders of Common Stock of certain rights or
warrants to purchase Common Stock;
(4) the distribution to all holders of Common Stock of capital stock
(other than Common Stock), of evidences of indebtedness of the Company or
of assets (including securities (other than Common Stock), but excluding
those rights and warrants referred to in clause immediately above or paid
in cash);
(5) distributions consisting of cash, excluding any quarterly cash
dividend on the Common Stock to the extent that the aggregate cash dividend
per share of Common Stock in any quarter does not exceed the greater of
(x) the amount per share of Common Stock of the next preceding quarterly
cash dividend on the Common Stock to the extent that such preceding
quarterly dividend did not require an adjustment of the Conversion Rate
pursuant to this clause (as adjusted to reflect subdivisions or
combinations of the Common Stock), and (y) 3.75 percent of the average of
the last reported sales price of the Common Stock during the ten trading
days immediately prior to the date of declaration of such dividend, and
excluding any dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company;
(6) payment in respect of a tender offer or exchange offer by the
Company or any subsidiary of the Company for the Common Stock to the extent
that the cash and value of any other consideration included in such payment
per share of Common Stock exceeds the Current Market Price (as defined
herein) per share of Common Stock on the trading day next succeeding the
last date on which tenders or exchanges may be made pursuant to such tender
or exchange offer; and
76
<PAGE>
(7) payment in respect of a tender offer or exchange offer by a person
other than the Company or any subsidiary of the Company in which, as of the
closing date of the offer, the Company's Board of Directors is not
recommending rejection of the offer. If an adjustment is required to be
made as set forth in the fifth clause above as a result of a distribution
that is a quarterly dividend, such adjustment would be based upon the
amount by which such distribution exceeds the amount of the quarterly cash
dividend permitted to be excluded pursuant to the fifth clause above.
If an adjustment is required to be made as set forth in the fifth clause
above as a result of a distribution that is not a quarterly dividend, such
adjustment would be based upon the full amount of the distribution. The
adjustment referred to in the final clause above will only be made if the tender
offer or exchange offer is for an amount that increases the offeror's ownership
of Common Stock to more than 25% of the total shares of Common Stock
outstanding, and if the cash and value of any other consideration included in
such payment per share of Common Stock exceeds the Current Market Price per
share of Common Stock on the business day next succeeding the last date on which
tenders or exchanges may be made pursuant to such tender or exchange offer. The
adjustment referred to in the last clause above will generally not be made,
however, if as of the closing of such offer, the offering documents with respect
to such offer disclose a plan or an intention to cause the Company to engage in
a consolidation or merger of the Company or a sale of all or substantially all
of the Company's assets.
No adjustment in the Conversion Rate will be required unless such
adjustment would require a change of at least 1% in the rate then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment. Except
as stated above, the Conversion Rate will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common Stock
or carrying the right to purchase any of the foregoing.
In the case of
o any reclassification of the Common Stock or
o a consolidation or merger involving the Company or a sale or conveyance
to another corporation of the property and assets of the Company as an
entirety or substantially as an entirety,
in each case, as a result of which holders of Common Stock shall be entitled to
receive stock, securities, other property or assets (including cash) with
respect to or in exchange for such Common Stock, the holders of the Debentures
then outstanding will be entitled thereafter to convert such Debentures into the
kind and amount of shares of stock, securities or other property or assets
(including cash) which they would have owned or been entitled to receive upon
such reclassification, consolidation, merger, sale or conveyance had such
Debentures been converted immediately prior to such reclassification,
consolidation, merger, sale or conveyance assuming that a holder of Debentures
would not have exercised any rights of election as to the stock, securities or
other property or assets (including cash) receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring an adjustment to the Conversion Rate, the
holders of Debentures may, in certain circumstances, be deemed to have received
a distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain United States Federal
Income Tax Considerations."
The Company from time to time may, to the extent permitted by law, increase
the Conversion Rate by any amount for any period of at least 20 days, in which
case the Company shall give at least 15 days' notice of such increase, if the
Company's Board of Directors has made a determination that such increase would
be in the best interests of the Company, which determination shall be
conclusive. The Company may, at its option, make such increases in the
Conversion Rate, in addition to those set forth above, as the Board of Directors
deems advisable to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. See "Certain
United States Federal Income Tax Considerations."
77
<PAGE>
REDEMPTION OF DEBENTURES AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Debentures. Prior to March 25, 2003,
the Debentures will not be redeemable at the option of the Company. Beginning on
March 25, 2003, the Company may (subject to applicable contractual restrictions,
including under agreements governing Senior Indebtedness) redeem the Debentures
for cash as a whole at any time, or from time to time in part, upon not less
than 30 days' nor more than 60 days' notice of redemption given by mail to
holders of Debentures. The Debentures will be redeemable in whole multiples of
$1,000 principal amount at maturity.
The table below shows Redemption Prices of a Debenture per $1,000 principal
amount at maturity thereof, at March 25, 2003, and at each March 25 thereafter,
prior to maturity and at maturity on March 25, 2018, which prices reflect the
accrued Original Issue Discount calculated to each such date. The Redemption
Price of a Debenture redeemed between such dates would include an additional
amount reflecting the additional Original Issue Discount accrued since the next
preceding date in the table to the actual Redemption Date.
<TABLE>
<CAPTION>
(2)
ACCRUED (3)
(1) ORIGINAL ISSUE REDEMPTION
DEBENTURE DISCOUNT PRICE
REDEMPTION DATE ISSUE PRICE AT 5.0% (1)+(2)
- ------------------------------------------------------------------------- ----------- -------------- ----------
<S> <C> <C> <C>
March 25, 2003........................................................... $372.43 $ 104.32 $ 476.75
March 25, 2004........................................................... 372.43 128.45 500.88
March 25, 2005........................................................... 372.43 153.81 526.24
March 25, 2006........................................................... 372.43 180.45 552.88
March 25, 2007........................................................... 372.43 208.44 580.87
March 25, 2008........................................................... 372.43 237.84 610.27
March 25, 2009........................................................... 372.43 268.74 641.17
March 25, 2010........................................................... 372.43 301.20 673.63
March 25, 2011........................................................... 372.43 335.30 707.73
March 25, 2012........................................................... 372.43 371.13 743.56
March 25, 2013........................................................... 372.43 408.77 781.20
March 25, 2014........................................................... 372.43 448.32 820.75
March 25, 2015........................................................... 372.43 489.87 862.30
March 25, 2016........................................................... 372.43 533.52 905.95
March 25, 2017........................................................... 372.43 579.39 951.82
March 25, 2018........................................................... 372.43 627.57 1,000.00
</TABLE>
If less than all of the outstanding Debentures held in certificated form
are to be redeemed, the Trustee shall select the Debentures held in such form to
be redeemed in principal amounts at maturity of $1,000 or whole multiples
thereof by lot, pro rata or by another method the Trustee considers fair and
appropriate (as long as such method is not prohibited by the rules of any stock
exchange on which the Debentures are then listed, if any). If a portion of a
holder's certificated Debentures is selected for partial redemption and such
holder converts a portion of such certificated Debentures, such converted
portion shall be deemed to be the portion selected for redemption. Debentures
registered in the name of DTC or its nominee will be redeemed pro rata. See
"Book-Entry; Delivery and Form."
REDEMPTION AT OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
If a Fundamental Change occurs at any time prior to March 25, 2018, each
holder of Debentures shall have the right, at the holder's option, to require
the Company to redeem any or all of such holder's Debentures on the date (the
"Repurchase Date") that is 45 days after the date of the Company's notice of
such Fundamental Change. The Debentures will be redeemable in whole multiples of
$1,000 principal amount at maturity at their accreted value on the Repurchase
Date.
The Company shall redeem such Debentures at a price equal to the Issue
Price plus accrued Original Issue Discount to, but excluding, the Repurchase
Date, provided that if the Applicable Price (as defined
78
<PAGE>
herein) in connection with the Fundamental Change is less than the Reference
Market Price (as defined herein), the Company shall redeem such Debentures at a
price equal to the foregoing Redemption Price multiplied by the fraction
obtained by dividing the Applicable Price by the Reference Market Price.
The Company shall mail to all holders of record of the Debentures a notice
of the occurrence of a Fundamental Change and of the redemption right arising as
a result thereof on or before the tenth day after the occurrence of such
Fundamental Change. The Company shall deliver to the Trustee a copy of such
notice. To exercise the redemption right, holders of Debentures must deliver, on
or before the 30th day after the date of the Company's notice of a Fundamental
Change (the "Fundamental Change Expiration Time"), the Debentures to be so
redeemed, duly endorsed for transfer, together with the form entitled "Option to
Elect Redemption Upon a Fundamental Change" on the reverse thereof duly
completed, to the Company (or an agent designated by the Company for such
purpose). Payment for Debentures surrendered for redemption (and not withdrawn)
prior to the Fundamental Change Expiration Time will be made promptly following
the Repurchase Date.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the Common Stock
shall be exchanged for, converted into, acquired for or constitute solely the
right to receive consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock of a company listed (or, upon consummation of or immediately following
such transaction or event, which will be listed) on a United States national
securities exchange or approved for quotation on the Nasdaq National Market or
any similar United States system of automated dissemination of quotations of
securities prices.
The term "Applicable Price" means
o in the event of a Fundamental Change in which the holders of the Common
Stock receive only cash, the amount of cash received by the holder of
one share of Common Stock and
o in the event of any other Fundamental Change, the average of the
reported last sale price for the Common Stock during the ten trading
days prior to the record date for the determination of the holders of
Common Stock entitled to receive cash, securities, property or other
assets in connection with such Fundamental Change, or, if there is no
such record date, the date upon which the holders of the Common Stock
shall have the right to receive such cash, securities, property or other
assets in connection with the Fundamental Change.
The term "Reference Market Price" shall initially mean $30.2083 (which is
equal to 66 2/3% of the last sale price of the Common Stock as reflected on the
cover page of the final offering memorandum dated March 19, 1998, in connection
with the Original Offering) and in the event of any adjustment to the Conversion
Rate pursuant to the provisions of the Indenture, the Reference Market Price
shall also be adjusted so that the Reference Market Price shall be equal to the
initial Reference Market Price multiplied by a fraction the numerator of which
is the Conversion Rate specified in this prospectus (without regard to any
adjustment thereto) and the denominator of which is the Conversion Rate
following such adjustment.
The Company will comply with the provisions of Rule 13e-4 under the
Exchange Act and any other tender offer rules under the Exchange Act which may
then be applicable in connection with the redemption rights of Debenture holders
in the event of a Fundamental Change.
The redemption rights of the holders of Debentures could discourage a
potential acquiror of the Company. The Fundamental Change redemption feature,
however, is not the result of management's knowledge of any specific effort to
obtain control of the Company by means of a merger, tender offer, solicitation
or otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions.
The term "Fundamental Change" is limited to certain specified transactions
and may not include other events that might adversely affect the financial
condition of the Company, nor would the requirement that the Company offer to
repurchase the Debentures upon a Fundamental Change necessarily afford the
holders of the Debentures protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving the
Company.
79
<PAGE>
No Debentures may be redeemed at the option of holders upon a Fundamental
Change if there has occurred and is continuing an Event of Default described
under "--Events of Default; Notice and Waiver" below (other than a default in
the payment of the Fundamental Change Redemption Price with respect to such
Debentures).
In the event of a Fundamental Change and exercise by holders of the
Debentures of their associated rights to require the Company to redeem all or a
portion of their Debentures, there can be no assurance that the Company would
have sufficient funds to pay the redemption price for all the Debentures
tendered by the holders thereof. The New Credit Facility provides, and any
future credit agreements (including an extension of the New Credit Facility) or
other agreements relating to indebtedness (including Senior Indebtedness) to
which the Company becomes a party also may provide, that a Fundamental Change
would constitute an event of default thereunder permitting the lenders
thereunder to accelerate the maturity thereof and thereby cause the
subordination provisions in the Indenture to apply, preventing redemption of the
Debentures until Senior Indebtedness thereunder is paid in full. Any such
provisions could restrict or prohibit the redemption of the Debentures.
If the Company is prohibited from redeeming the Debentures upon the
occurrence of a Fundamental Change, the Company could seek the consent of its
then existing lenders to redeem the Debentures or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company would remain prohibited from
redeeming the Debentures. In such case, the Company's failure to redeem
Debentures required to be redeemed under the terms of the Indenture would
constitute an Event of Default under the Indenture and would likely constitute a
default under the terms of any other indebtedness of the Company outstanding at
such time, including Senior Indebtedness. In such circumstances, or if a
Fundamental Change would in and of itself constitute an event of default under
agreements governing Senior Indebtedness then outstanding, the subordination
provisions in the Indenture would prohibit or restrict payments to the holders
of Debentures.
PURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER
On March 25, 2003, March 25, 2008 and March 25, 2013 (each, a "Purchase
Date"), the Company will become obligated to purchase, at the option of the
holder thereof, any outstanding Debenture for which a written Purchase Notice
has been delivered by the holder to the office of the paying agent (initially
the Trustee) at any time from the opening of business on the date that is 20
Business Days (as defined herein) prior to such Purchase Date until the close of
business on such Purchase Date and for which such Purchase Notice has not been
withdrawn, subject to certain additional conditions.
The Purchase Notice shall state
(1) the certificate numbers of the Debentures to be delivered by the
holder thereof for purchase by the Company;
(2) the portion of the principal amount at maturity of Debentures to
be purchased, which portion must be $1,000 or a whole multiple thereof;
(3) that such Debentures are to be purchased by the Company pursuant
to the applicable provisions of the Debentures; and
(4) in the event the Company elects, pursuant to the Company Notice
(as defined herein), to pay the Purchase Price to be paid as of such
Purchase Date in Common Stock, in whole or in part, but such Purchase Price
is ultimately to be paid to such holder entirely in cash because any of the
conditions to payment of the Purchase Price (or portion thereof) in Common
Stock is not satisfied by the Purchase Date, as described below, whether
such holder elects
(a) to withdraw such Purchase Notice as to some or all of the
Debentures to which it relates (stating the principal amount at
maturity and certificate numbers of the Debentures as to which
such withdrawal shall relate), or
(b) to receive cash in respect of the entire Purchase Price for all
Debentures subject to such Purchase Notice.
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If the holder fails to indicate, in the Purchase Notice and in any written
notice of withdrawal relating to such Purchase Notice, such holder's choice with
respect to the election described above, such holder shall be deemed to have
elected to receive cash in respect of the entire Purchase Price for all
Debentures subject to such Purchase Notice in such circumstances. For a
discussion of the tax treatment of a holder receiving cash or Common Stock
pursuant to its election to tender its Debentures to the Company on a Purchase
Date, see "Certain United States Federal Income Tax Considerations."
Any Purchase Notice may be withdrawn by the holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
Purchase Date. The notice of withdrawal shall state the principal amount at
maturity and the certificate numbers of the Debentures as to which the
withdrawal notice relates and the principal amount at maturity, if any, which
remains subject to the Purchase Notice.
The Purchase Price payable in respect of a Debenture shall be equal to the
Issue Price plus accrued Original Issue Discount to the Purchase Date. The table
below shows the Purchase Prices of a Debenture as of the specified Purchase
Dates. The Company may elect to pay the Purchase Price payable as of any
Purchase Date in cash or Common Stock or any combination thereof.
<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE
- ---------------------------------------------------------------------------------------- --------------
<S> <C>
March 25, 2003.......................................................................... $ 476.75
March 25, 2008.......................................................................... 610.27
March 25, 2013.......................................................................... 781.20
</TABLE>
If the Company elects to pay the Purchase Price, in whole or in part, in
Common Stock, the number of shares to be delivered in respect of the portion of
the Purchase Price to be paid in Common Stock shall be equal to such portion of
the Purchase Price divided by the Market Price (as defined herein) of the Common
Stock. However, no fractional shares of Common Stock will be delivered upon any
purchase by the Company of Debentures through the delivery of Common Stock in
payment, in whole or in part, of the Purchase Price. Instead, the Company will
pay cash based on the Market Price for all fractional shares of Common Stock.
The Company will give notice (the "Company Notice") not less than 20
Business Days prior to the Purchase Date (the "Company Notice Date") to all
holders at their addresses shown in the register of the registrar (and to
beneficial owners as required by applicable law) stating, among other things,
whether the Company will pay the Purchase Price of the Debentures in cash or
Common Stock, or any combination thereof (specifying the percentage of each)
and, if the Company elects to pay in Common Stock, in whole or in part, the
method of calculating the Market Price of the Common Stock.
The "Market Price" means the average of the Sale Prices (as defined herein)
of the Common Stock for the five trading day period ending on the third Business
Day prior to the applicable Purchase Date (if the third Business Day prior to
the applicable Purchase Date is a trading day or, if it is not a trading day,
then on the last trading day prior to such third Business Day), appropriately
adjusted to take into account the occurrence during the period commencing on the
first of such trading days during such five trading day period and ending on
such Purchase Date of certain events that would result in an adjustment of the
Conversion Rate under the Indenture with respect to the Common Stock.
The "Sale Price" of the Common Stock on any date means the closing per
share sale price (or if no closing sale price is reported, the average bid and
ask prices or, if more than one in either case, the average of the average bid
and average ask prices) on such date as reported in the composite transactions
for the principal United States securities exchange on which the Common Stock is
traded or, if the Common Stock is not listed on a United States national or
regional stock exchange, as reported by the National Association of Securities
Dealers Automated Quotation System.
Because the Market Price of the Common Stock is determined prior to the
applicable Purchase Date, holders of Debentures bear the market risk with
respect to the value of the Common Stock to be received from the date of
determination of such Market Price to such Purchase Date. The Company may elect
to pay the Purchase Price in Common Stock only if the information necessary to
calculate the Market Price is reported in a daily newspaper of national
circulation.
Upon determination of the actual number of shares of Common Stock in
accordance with the foregoing provisions, the Company will publish such
determination in a daily newspaper of national circulation.
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The Company's right to purchase Debentures with Common Stock is subject to
the satisfaction of various conditions, including
o the registration of the Common Stock under the Securities Act, if
required; and
o compliance with other applicable federal and state securities laws, if
any.
If such conditions are not satisfied by a Purchase Date, the Company will pay
the Purchase Price of the Debentures to be purchased on such Purchase Date
entirely in cash. See "Certain United States Federal Income Tax Considerations."
The Company will comply with the provisions of Rule 13e-4 and any other tender
offer rules under the Exchange Act which may then be applicable and will file a
Schedule 13E-4 or any other schedule required thereunder in connection with any
offer by the Company to purchase Debentures at the option of holders.
Payment of the Purchase Price for a Debenture for which a Purchase Notice
has been delivered and not withdrawn is conditioned upon book-entry transfer or
delivery of such Debenture (together with necessary endorsements) to the paying
agent at its office in the Borough of Manhattan, The City of New York, or any
other office of the paying agent maintained for such purpose, at any time
(whether prior to, on or after the Purchase Date) after delivery of such
Purchase Notice.
Payment of the Purchase Price for such Debenture will be made promptly
following the later of the Purchase Date or the time of book-entry transfer or
delivery of such Debenture. If the paying agent holds, in accordance with the
terms of the Indenture, money or securities sufficient to pay the Purchase Price
of such Debenture on the Business Day following the Purchase Date, then, on and
after such date, such Debenture will cease to be outstanding and Original Issue
Discount on such Debenture will cease to accrue whether or not book-entry
transfer of such Debenture is made or such Debenture is delivered to the paying
agent, and all other rights of the holder shall terminate (other than the right
to receive the Purchase Price upon delivery of the Debenture).
No Debentures may be purchased at the option of the holder for cash if
there has occurred (prior to, on or after the giving by the holders of such
Debentures of the required Purchase Notice) and is continuing an Event of
Default described under "--Events of Default; Notice and Waiver" below (other
than a default in the payment of the Purchase Price with respect to such
Debentures).
If the Company becomes obligated to purchase any outstanding Debenture on a
Purchase Date, there can be no assurance that the Company would have sufficient
funds to pay the Purchase Price on that Purchase Date (in which case, the
Company could be required to issue shares of Common Stock to pay the Purchase
Price at valuations based on then prevailing market prices) for all the
Debentures tendered by the holders thereof.
The New Credit Facility prohibits the purchase of the Debentures for cash
but will permit the purchase of Debentures with shares of Common Stock on a
Purchase Date. There can be no assurance that any future credit agreements
(including an extension of the New Credit Facility) or other agreements relating
to indebtedness (including Senior Indebtedness) to which the Company becomes a
party will not contain prohibitions on or defaults with respect to the
repurchase of the Debentures or provide that prepayment or redemption would
constitute an event of default.
In the event a Purchase Date occurs at a time when the Company is
prohibited from repurchasing the Debentures, the Company could seek the consent
of its then existing lenders to repurchase the Debentures or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company would remain
prohibited from repurchasing the Debentures. The Company's failure to repurchase
Debentures required to be repurchased under the terms of the Indenture would
constitute an Event of Default under the Indenture and would likely constitute a
default under the terms of any other indebtedness of the Company outstanding at
such time, including Senior Indebtedness. In such circumstances, the
subordination provisions in the Indenture would prohibit or restrict payments to
the holders of Debentures.
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SUBORDINATION OF DEBENTURES
The Indebtedness evidenced by the Debentures is subordinated to the extent
provided in the Indenture to the prior payment in full in cash or other payment
satisfactory to the holders of Senior Indebtedness of all existing and future
Senior Indebtedness. Such subordination will not prevent the occurrence of any
Event of Default under the Indenture.
Upon any distribution of assets of the Company upon any dissolution,
winding up, voluntary or involuntary bankruptcy, insolvency, liquidation,
reorganization, receivership or similar proceeding relating to the Company or
its property, an assignment for the benefit of creditors or any marshaling of
the Company's assets or liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full, in cash or other payment satisfactory to
the holders of Senior Indebtedness, of all obligations due in respect of such
Senior Indebtedness before the holders of Debentures will be entitled to receive
any payment of the principal amount at maturity, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price, Fundamental Change Redemption
Price, interest, if any, Liquidated Damages, if any, or any other payment in
respect of the Debentures (a "Payment on the Debentures").
In addition, until all obligations with respect to Senior Indebtedness are
paid in full in cash or other payment satisfactory to the holders of Senior
Indebtedness, any Payment on the Debentures to which the holders of Debentures
would be entitled shall be made to the holders of Senior Indebtedness.
By reason of the subordination, in the event of the Company's dissolution,
winding up, bankruptcy, insolvency, liquidation, reorganization, receivership or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshaling of the Company's assets or
liabilities, holders of Senior Indebtedness may receive more, ratably, and the
holders of Debentures may receive less, ratably, than the other creditors of the
Company.
In the event that the Debentures are declared due and payable prior to
their stated maturity by reason of the occurrence of an Event of Default, then
the Company is obligated to notify promptly holders of Senior Indebtedness of
such acceleration. The Company may not pay monies owed pursuant to the
Debentures until 120 days have passed after such acceleration occurs and may
thereafter pay the Debentures if the terms of the Indenture otherwise permit
payment at that time.
The Company also may not make any Payment on the Debentures if
o a default in any payment obligations in respect of Senior Indebtedness
occurs and is continuing, without regard to any applicable period of
grace (whether at maturity or at a date fixed for payment or by
declaration or otherwise) (each a "payment default") or
o any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate its maturity
and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the Company or from a representative for any issue of
Designated Senior Indebtedness.
Payments on the Debentures may and shall be resumed
o in case of a payment default, the earlier of the date on which such
default is cured or waived in accordance with the terms of the governing
instrument or ceases to exist and
o in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived in accordance with the terms of
the governing instrument or ceases to exist or 179 days after the date
on which the applicable Payment Blockage Notice is received by the
Trustee if the terms of the Indenture otherwise permit payment at that
time.
No new period of payment blockage may be commenced pursuant to a Payment
Blockage Notice unless and until 365 days have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or shall be made, the basis for a
subsequent Payment Blockage
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Notice unless such default shall have been cured or waived for a period of not
less than 90 days. For these purposes, each of the following shall constitute a
new event of default:
o any action of the Company or any of its subsidiaries occurring
subsequent to delivery of a Payment Blockage Notice that would give rise
to any event of default pursuant to any provision of Senior Indebtedness
under which an event of default previously existed (or was continuing at
the time of delivery of such Payment Blockage Notice) and
o any breach of a financial covenant giving rise to a nonpayment default
for a period ending subsequent to the date of delivery of the respective
Payment Blockage Notice.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to, or which would accrue
but for, the commencement of any bankruptcy or similar proceeding, whether or
not a claim for post-petition interest is allowable as a claim in any such
proceeding), original issue discount, rent and end of term payments payable on
or in connection with, and, to the extent not included in the foregoing, all
amounts payable as fees, costs, expenses, liquidated damages, indemnities,
repurchase and other put obligations and other amounts to the extent accrued or
due on or in connection with, Secured Indebtedness (as defined) of the Company,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing). Notwithstanding the foregoing,
the term Senior Indebtedness shall not include (i) Indebtedness (as defined
herein) of the Company to any subsidiary of the Company, a majority of the
voting stock of which is owned, directly or indirectly, by the Company,
(ii) accounts payable or other indebtedness to trade creditors created or
assumed by the Company in the ordinary course of business and (iii) any
particular Indebtedness in which the instrument creating or evidencing the same
or the assumption or guarantee thereof expressly provides that such Indebtedness
shall not be senior in right of payment to, or is pari passu with, or is
subordinated or junior to, the Debentures.
The term "Indebtedness" means, with respect to any Person (as defined
herein) and without duplication:
(1) all indebtedness, obligations and other liabilities (contingent or
otherwise) of such Person for borrowed money (including obligations of the
Company in respect of overdrafts, foreign exchange contracts, currency
exchange agreements, interest rate protection agreements, and any loans or
advances, whether or not evidenced by notes or similar instruments) or
evidenced by bonds, debentures, notes or similar instruments (whether or
not the recourse of the lender is to the whole of the assets of such Person
or to only a portion thereof);
(2) all reimbursement obligations and other liabilities (contingent or
otherwise) of such Person with respect to letters of credit, bank
guarantees, bankers' acceptances or similar facilities;
(3) all obligations and liabilities (contingent or otherwise) in
respect of leases of such Person
(a) required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations
on the balance sheet of such Person, or
(b) required, in conformity with generally accepted accounting
principles, to be accounted for as an operating lease, provided
either (A) such operating lease requires, at the end of the term
thereof, that such Person make any payment other than accrued
periodic rent in the event that such Person does not acquire the
leased real property and related fixtures subject to such lease or
(B) such Person has an option to acquire the leased real property
and related fixtures, whether such option is exercisable at any
time or under specified circumstances;
(4) all obligations of such Person (contingent or otherwise) with
respect to an interest rate swap, cap or collar agreement or other similar
instrument or agreement or foreign currency hedge or exchange agreement or
other similar instrument or agreement;
(5) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or
otherwise) of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness, obligations or
liabilities of another Person of the kind described in clauses (1)-(4)
above;
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(6) any indebtedness or other obligations described in
clauses (1)-(4) above secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby
shall have been assumed by such Person; and
(7) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation
or liability of the kind described in clauses (1)-(6) above.
The term "Designated Senior Indebtedness" means
o Senior Indebtedness incurred under the New Credit Facility or
o any other particular Senior Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee thereof
(or related agreements or documents to which the Company is a party)
expressly provides that such Senior Indebtedness shall be "Designated
Senior Indebtedness" for purposes of the Indenture; provided that such
instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the
rights of Designated Senior Indebtedness.
The term "Secured Indebtedness" means, with respect to any Person,
Indebtedness of such Person secured by any mortgage, pledge, lien or other
encumbrance existing on property or assets which is owned or held by such
Person.
The Debentures are obligations exclusively of the Company. Since the
operations of the Company are conducted through subsidiaries, the cash flow and
the consequent ability to service debt, including the Debentures, are dependent
upon the earnings of its subsidiaries and the distribution of those earnings to,
or upon loans or other payments of funds by those subsidiaries to, the Company.
The subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amount pursuant to the
Debentures or to make any funds available therefor, whether by dividends, loans
or other payments. In addition, the payment of dividends and making of loans and
advances to the Company by its subsidiaries are subject to statutory or
contractual restrictions, including those under the New Credit Facility, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Debentures to participate in those assets) will be effectively subordinated
to the claims of that subsidiary's creditors (including trade creditors), except
to the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by the Company.
At September 30, 1998, the Company had approximately $1,396.3 million of
Senior Indebtedness outstanding and the Company's subsidiaries had approximately
$122.6 million of indebtedness and other liabilities outstanding (excluding
intercompany liabilities and liabilities of a type not required to be reflected
on a balance sheet in accordance with generally accepted accounting principles)
to which the Debentures would have been effectively subordinated. The Debentures
rank pari passu with all outstanding indebtedness and other liabilities of the
Company, including trade payables. The Indenture does not limit the amount of
additional indebtedness, including Senior Indebtedness, which the Company can
create, incur, assume or guarantee, nor does the Indenture limit the amount of
indebtedness which any subsidiary can create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of the Debentures receives any payment or distribution of assets of the Company
of any kind in contravention of any of the subordination provisions of the
Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Debentures before
all Senior Indebtedness is paid in full in cash or other payment satisfactory to
the holders of Senior Indebtedness, then such payment or distribution will be
held by the recipient in trust for the benefit of holders of Senior Indebtedness
or their representatives to the extent necessary to make payment in full in cash
or other payment satisfactory to the holders of Senior Indebtedness of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
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The Company is obligated to pay reasonable compensation to the Trustee and
to indemnify the Trustee against certain losses, liabilities or expenses
incurred by it in connection with its duties relating to the Debentures. The
Trustee's claims for such payments will generally be senior to those of holders
of the Debentures in respect of all funds collected or held by the Trustee.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein shall
have occurred and be continuing, either the Trustee or the holders of not less
than 25% in aggregate principal amount at maturity of the Debentures then
outstanding may declare the Issue Price of the Debentures plus the Original
Issue Discount on the Debentures and any liquidated damages under the
Registration Rights Agreement accrued to the date of such declaration to be
immediately due and payable. However, if the Company shall cure all defaults
(except the nonpayment of Issue Price and accrued Original Issue Discount which
shall have become due by acceleration) and certain other conditions are met,
such declaration may be annulled and past defaults may be waived by the holders
of a majority in principal amount at maturity of the Debentures then
outstanding. In the case of certain events of bankruptcy or insolvency, the
Issue Price of the Debentures plus the Original Issue Discount accrued thereon
to the occurrence of such event shall automatically become and be immediately
due and payable. Under certain circumstances, the holders of a majority in
aggregate principal amount at maturity of the outstanding Debentures may rescind
any such acceleration with respect to the Debentures and its consequences.
Interest shall accrue at the rate of 5.0% per annum and be payable on
demand upon a default in the payment of the Issue Price, accrued Original Issue
Discount, accrued liquidated damages, if any, or any Redemption Price, Purchase
Price or Fundamental Change Redemption Price to the extent that payment of such
interest shall be legally enforceable.
Under the Indenture, "Events of Default" are defined as:
(1) default in payment of the principal amount at maturity, Issue
Price, accrued Original Issue Discount, accrued Liquidated Damages, if any,
Redemption Price, Purchase Price or Fundamental Change Redemption Price
with respect to any Debenture when such becomes due and payable (whether or
not payment is prohibited by the subordination provisions of the
Indenture), provided that in the case of any failure to pay Liquidated
Damages, such failure continues for a period of 30 days;
(2) failure by the Company to comply with any of its other agreements
in the Debentures or the Indenture upon the receipt by the Company of
notice of such default by the Trustee or by holders of not less than 25% in
aggregate principal amount at maturity of the Debentures then outstanding
and the Company's failure to cure such default within 60 days after receipt
by the Company of such notice; or
(3) certain events of bankruptcy or insolvency.
The Trustee shall give notice to holders of the Debentures of any
continuing default known to the Trustee within 90 days after the occurrence
thereof, provided that the Trustee may withhold such notice if it determines in
good faith that withholding the notice is in the interests of the holders.
The holders of a majority in aggregate principal amount at maturity of the
outstanding Debentures may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other limitations.
Before proceeding to exercise any right or power under the Indenture at the
direction of such holders, the Trustee shall be entitled to receive from such
holders reasonable security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction.
No holder of any Debenture will have any right to pursue any remedy with
respect to the Indenture or the Debentures, unless
(1) such holder shall have previously given the Trustee written notice
of a continuing Event of Default;
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(2) the holders of at least 25% in aggregate principal amount at
maturity of the outstanding Debentures shall have made a written request to
the Trustee to pursue such remedy;
(3) such holder or holders have offered to the Trustee reasonable
indemnity satisfactory to the Trustee;
(4) the holders of a majority in aggregate principal amount at
maturity of the outstanding Debentures have not given the Trustee a
direction inconsistent with such request within 60 days after receipt of
such request; and
(5) the Trustee shall have failed to comply with the request within
such 60-day period.
In the event that the Debentures are declared due and payable prior to
their stated maturity by reason of the occurrence of an Event of Default, then
the Company is obligated to notify promptly holders of Senior Indebtedness of
such acceleration. The Company may not pay monies owed pursuant to the
Debentures until 120 days have passed after such acceleration occurs and may
thereafter pay the Debentures if the terms of the Indenture otherwise permit
payment at that time.
However, the right of any holder
o to receive payment of the principal amount at maturity, Issue Price,
accrued Original Issue Discount, Redemption Price, Purchase Price,
Fundamental Change Redemption Price and any interest in respect of a
default in the payment of any such amounts on a Debenture, on or after
the due date expressed in such Debenture,
o to institute suit for the enforcement of any such payments or conversion
or
o to convert Debentures
shall not be impaired or adversely affected without such holder's consent.
The holders of at least a majority in aggregate principal amount at
maturity of the outstanding Debentures may waive an existing default and its
consequences, other than
o any default in any payment on the Debentures,
o any default with respect to the conversion rights of the Debentures or
o any default in respect of certain covenants or provisions in the
Indenture which may not be modified without the consent of the holder of
each Debenture as described in "--Modification" below.
The Company will be required to furnish to the Trustee annually a statement
as to any default by the Company in the performance and observance of its
obligations under the Indenture.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other person or
convey, transfer or lease its properties and assets substantially as an entirety
to another person, unless, among other things
o the resulting, surviving or transferee person (if other than the
Company) is organized and existing under the laws of the United States,
any state thereof or the District of Columbia,
o such successor person assumes all obligations of the Company under the
Debentures and the Indenture and
o the Company or such successor person shall not immediately thereafter be
in default under the Indenture.
Upon the assumption of the Company's obligations by such person in such
circumstances, subject to certain exceptions, the Company shall be discharged
from all obligations under the Debentures and the Indenture. Certain such
transactions which would constitute a Fundamental Change would permit each
holder to require the Company to redeem the Debentures of such holder as
described under "--Redemption at Option of the Holder Upon a Fundamental
Change."
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MODIFICATION
Modification and amendment of the Indenture or the Debentures may be
effected by the Company and the Trustee with the consent of the holders of not
less than a majority in aggregate principal amount at maturity of the Debentures
then outstanding. Notwithstanding the foregoing, no such amendment may, without
the consent of each holder affected thereby:
(1) reduce the principal amount at maturity, Issue Price, Purchase
Price, Fundamental Change Redemption Price or Redemption Price, or extend
the stated maturity of any Debenture or alter the manner or rate of accrual
of Original Issue Discount or interest, or make any Debenture payable in
money or securities other than that stated in the Debenture;
(2) make any change to the principal amount at maturity of Debentures
whose holders must consent to an amendment or any waiver under the
Indenture or modify the Indenture provisions relating to such amendments or
waivers;
(3) make any change that adversely affects the right to convert any
Debenture or the right to require the Company to purchase a Debenture or
the right to require the Company to redeem a Debenture upon a Fundamental
Change;
(4) modify the provisions of the Indenture relating to the
subordination of the Debentures in a manner adverse to the holders of the
Debentures in any material respect; or
(5) impair the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the Debentures.
The Indenture also provides for certain modifications of its terms without
the consent of the holders. No amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder of
Senior Indebtedness then outstanding, unless the holders of such Senior
Indebtedness (as required pursuant to the terms of such Senior Indebtedness)
consent to such change.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of the Company, the
claim of the holder of a Debenture is, under Title 11 of the United States Code,
limited to the Issue Price of the Debenture plus that portion of the Original
Issue Discount that has accrued from the date of issue to the commencement of
the proceeding. In addition, the Debentures will be subordinated in right of
payment to Senior Indebtedness to the extent set forth in the Indenture and
effectively subordinated to the indebtedness and other obligations of the
Company's subsidiaries. See "--Subordination of Debentures" above.
TAXATION OF DEBENTURES
See "Certain United States Federal Income Tax Considerations" for a
discussion of certain tax considerations relevant to a holder of Debentures.
INFORMATION CONCERNING THE TRUSTEE
The Bank of New York, as Trustee under the Indenture, has been appointed by
the Company as paying agent, conversion agent, registrar and custodian with
regard to the Debentures. The Indenture provides that, except during the
continuance of an Event of Default, the Trustee thereunder will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as amended
("TIA"), incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of certain claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Trustee is permitted to engage in other transactions; provided, however, that if
it acquires any conflicting interest (within the meaning of the TIA) it must
eliminate such conflicting interest or resign.
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BOOK-ENTRY; DELIVERY AND FORM
The description of book-entry procedures in this prospectus includes
summaries of certain rules and operating procedures of the Depositary that
affect transfers of interest in the global certificate or certificates issued in
connection with sales of Debentures made pursuant to this prospectus.
The Debentures sold pursuant to this prospectus will be represented by one
or more fully registered global notes (each, a "Global Note") as well as
Debentures in definitive form and will be deposited upon issuance with, or on
behalf of, the Depositary and registered in the name of the Depositary or its
nominee (the "Global Note Registered Owner") or will remain in the custody of
the Trustee pursuant to a FAST Balance Certificate Agreement between the
Depositary and the Trustee. Except as set forth below, the Global Note may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code as is in effect in the State
of New York and a "clearing agency" registered pursuant to provisions of
Section 17A of the Exchange Act. The Depositary was created to hold securities
for its participants' organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in these securities
between Participants through electronic computerized book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of securities certificates. The Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. The Depositary is owned by a number of its Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the Depositary's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Participants of the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of the Depositary
are recorded on the records of the Participants and Indirect Participants.
Purchase of Debentures within the Depositary system must be made by or
through Participants. Pursuant to procedures established by the Depositary,
(i) upon deposit of the Global Note, the Depositary will credit the accounts of
Participants with portions of the principal amount of the Global Note and
(ii) ownership of such interests in the Global Note will be shown on, and the
transfers of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the Participants) or by the Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the Global Note). The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer Debentures will be limited to that extent.
The Depositary has no knowledge of the actual beneficial owners of the
Debentures; the Depositary's records reflect only the identity of the
Participants to whose accounts such Debentures are credited, which may or may
not be the beneficial owners. The Participants and Indirect Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Except as described below, owners of interests in the Global Note will not
have Debentures registered in their names, will not receive physical delivery of
Debentures in definitive form and will not be considered the registered owners
thereof under the Indenture for any purpose.
None of the Company, the Trustee, nor any agent of the Company, or the
Trustee will have any responsibility or liability for (i) any aspect of the
Depositary's records or any Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Note, or for
maintaining, supervising or reviewing any of the Depositary's records or any
Participant's records relating to the beneficial ownership interests in the
Global Note or (ii) any other matter relating to the actions and practices of
the Depositary or any of its Participants.
Payments in respect of the principal of any Debentures registered in the
name of the Global Note Registered Owner on any relevant record date will be
payable by the Trustee to the Global Note Registered
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Owner in its capacity as the registered holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee will treat the person in
whose names the Debentures, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither the Company, the Trustees, nor
any agent of the Company or the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of the Debentures
or for any other matter relating to actions or practices of the Depositary or
any of its Participants. The Company understands that the Depositary's current
practices, upon receipt of any payment in respect of securities such as the
Debentures, is to credit and accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security as
shown on the records of the Depositary (unless the Depositary has reason to
believe it will not receive payment on such payment date). Payments by the
Participants and the Indirect Participants to the beneficial owners of
Debentures will be governed by standing instructions and customary practices and
will be the responsibility of Participants or the Indirect Participants, and the
beneficial owners and not the responsibility of the Depositary, the Trustee or
the Company. Neither the Company nor the Trustee will be liable for any delay by
the Depositary or any of its Participants in identifying the beneficial owners
of the Debentures, and the Company and the Trustee may conclusively rely on and
will be protected in relying on instructions from the Global Note Registered
owner for all purposes.
So long as the Depositary, or its nominee, is the registered owner or
holder of a Global Note, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Debentures represented by
such Global Note for all purposes under the Indenture and the Debentures. No
beneficial owner of an interest in a Global Note will be able to transfer the
interest except in accordance with the Depositary's applicable procedures, in
addition to those provided for under the Indenture.
Transfers between Participants in the Depositary will be effected in the
ordinary way in accordance with the Depositary rules. If a holder requires
physical delivery of a certificated note for any reason, including to sell
Debentures to persons in jurisdictions which require such delivery of such
Debentures or to pledge such Debentures, such holder must transfer its interest
in a Global Note in accordance with the normal procedures of the Depositary and
the procedures set forth in the Indenture.
The Company excepts that the Depositary will take any action permitted to
be taken by a holder of Debentures (including the presentation of Debentures for
exchange as described below) only at the direction of one or more Participants
to whose account the Depositary interests in a Global Note is credited and only
in respect of such portion of the aggregate principal amount at maturity of the
Debentures as to which such Participant or Participants has or have given such
direction.
Although the Company expects that the Depositary will agree to the
foregoing procedures in order to facilitate transfers of interests in a Global
Note among participants of the Depositary, it is under no obligation to perform
or continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by Depositary or its participants or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
If the Depositary is at any time unwilling or unable to continue as a
depository for a Global Note and a successor depository is not appointed by the
Company within 90 days, the Company will issue definitive certificated
Debentures in exchange for a Global Note.
Such definitive certificated Debentures shall be registered in names of the
owners of the beneficial interests in the Global Note as provided by the
Participants. Debentures issued in definitive certificated form will be fully
registered, without coupons, in minimum denominations of $1,000 and integral
multiples of $1,000 above that amount. Upon issuance of Debentures in definitive
certificated form, the Trustee is required to register the Debentures in the
name of, and cause the Debentures to be delivered to, the person or persons (or
the nominees thereof) identified as the beneficial owner as the Depositary shall
direct.
Debentures in definitive form will be issued upon the resale, pledge or
other transfer of Debentures to any person or entity that does not participate
in the Depositary.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
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REGISTRATION RIGHTS
The following summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, which is the Registration Statement of which this prospectus forms a
part.
The Company entered into a Registration Rights Agreement pursuant to which
the Company agreed, at its expense, for the benefit of the holders of the
offered securities (the "Offered Securities") to file with the Commission by
June 23, 1998 a registration statement (the "Registration Statement") covering
resale of the Offered Securities. The Company agreed to use its best efforts to
cause the Registration Statement to become effective as promptly as is
practicable, but in any event by September 21, 1998, and to keep the
Registration Statement effective until the earlier of
o the sale pursuant to the Registration Statement of all the Offered
Securities registered thereunder and
o the expiration of the holding period applicable to such Offered
Securities held by persons that are not affiliates of the Company under
Rule 144(k) under the Securities Act, or any successor provision, subject
to certain permitted exceptions.
The Company will be permitted to suspend the use of this prospectus under
certain circumstances relating to pending corporate developments, public filings
with the Commission and similar events for a period not to exceed 30 days in any
three-month period or not to exceed an aggregate of 90 days in any 12-month
period; provided, however, that the Company will be permitted to suspend the use
of this prospectus for a period not to exceed 60 days in any three-month period
or 90 days in any 12-month period under certain circumstances relating to
probable acquisitions, acquisitions, financings or similar transactions.
The Company has agreed to pay predetermined liquidated damages as described
herein ("Liquidated Damages") to holders of Offered Securities if the
Registration Statement is not timely filed or made effective or if this
prospectus is unavailable for periods in excess of those permitted above. Such
Liquidated Damages accrue until such failure to file or become effective or
unavailability is cured,
o in respect of any Debenture, at a rate per annum equal to 0.25% for the
first 90 day period after the occurrence of such event and 0.5%
thereafter on an amount equal to the sum of the Issue Price of the
Debenture plus accrued Original Issue Discount thereon and
o in respect of each share of Common Stock, at a rate per annum equal to
0.25% for the first 90 day period and 0.5% thereafter on the then
applicable conversion price for a share of Common Stock which equals the
Issue Price of $1,000 principal amount at maturity of Debentures plus
accrued Original Issue Discount thereon divided by the Conversion Rate in
effect.
The Company has agreed to pay Liquidated Damages in the amount set forth
above to holders of Offered Securities if the Company fails to make such filing
in the time required or, if such filing is a post-effective amendment to the
Registration Statement required to be declared effective under the Securities
Act, if such amendment is not declared effective within 45 days of the filing
thereof.
The Company did not file the Registration Statement until February 4, 1999,
225 days after the deadline set forth in the Registration Rights Agreement. The
SEC did not declare the Registration Statement effective until ,
1999, days after the deadline set forth in the Registration Rights Agreement.
From June 23, 1998 until the Registration Statement was declared effective, the
Company was required to pay to the Debenture holders cash liquidated damages.
Liquidated damages payments totaling approximately $ accrued during this
period, of which approximately $525,000 was paid on September 25, 1998.
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DESCRIPTION OF OTHER INDEBTEDNESS
NEW BANK CREDIT FACILITY
The New Credit Facility provides for aggregate borrowings of up to
$1.7 billion pursuant to (A) a revolving credit facility in an aggregate
principal amount of up to $400 million maturing on March 31, 2005, (B) a Tranche
A $800 million term loan maturing on March 31, 2005, and (C) a Tranche B
$500 million term loan maturing on September 30, 2006.
Pursuant to the New Credit Facility, interest accrues, at Sunbeam's option:
(A) at the London Interbank Offered Rate ("LIBOR") or (B) at 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 .50%) plus
an agreed upon interest margin which varies depending upon Sunbeam's leverage
ratio, as defined, and other items.
Securities and Guarantees. Borrowings under the New Credit Facility are
secured by a pledge of the stock of certain of Sunbeam's subsidiaries, including
Coleman and, by a security interest in substantially all of the assets of
Sunbeam and its material subsidiaries. In addition, borrowings under the New
Credit Facility are guaranteed by certain of Sunbeam's wholly owned material
United States subsidiaries and such subsidiary guarantees are secured as
described above. To the extent borrowings are made by any subsidiaries of the
Company, the obligations of such subsidiaries are guaranteed by the Company.
Repayment and Refinancing. The Company has made no decision with respect
to the repayment or refinancing of indebtedness incurred or to be incurred under
the New Credit Facility and may repay such indebtedness out of its internally
generated funds or from proceeds of a subsequent financing. Any decisions with
respect to such repayment or refinancing will be made based on a review from
time to time of the advisability of particular transactions, as well as on
prevailing interest rates and financial and economic conditions.
Covenants. The New Credit Facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of Sunbeam
and its subsidiaries, including Coleman, to, among other things, (i) declare
dividends or repurchase stock, (ii) prepay, redeem or repurchase debt, incur
liens and engage in sale-leaseback transactions, (iii) make loans and
investments, (iv) incur additional debt, (v) amend or otherwise alter material
agreements, (vi) make capital expenditures, (vii) engage in mergers,
acquisitions and asset sales, (viii) engage in certain transactions with
affiliates and (ix) alter the businesses they conduct. Sunbeam is also required
to comply with certain financial covenants and ratios.
As a result of Sunbeam's operating losses for each of the quarters in
fiscal 1998, Sunbeam is not currently in compliance with certain of these
covenants. Effective June 30, 1998, Sunbeam and its lenders entered into an
agreement which provided that compliance with such covenants would be waived
through December 31, 1998. Pursuant to a further amendment dated October 19,
1998, Sunbeam will not be 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 beginning in February 1999. Concurrent with each of
these amendments, the applicable interest margin under the New Credit Facility
was increased. The margin continues to increase under these amendments monthly
through March 1999 to a maximum of four percentage points over LIBOR. At
September 30, 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 $1,453 million was outstanding and approximately $245 million was
available. In addition, Sunbeam's cash balance at September 30, 1998 was
approximately $43 million. As of November 30, 1998, approximately
$1,421 million was outstanding and approximately $277 was available for
borrowing under the New Credit Facility.
Sunbeam is working closely with its bank lenders and hopes to reach
agreement with the bank lenders on a further amendment to the New Credit
Facility containing revised financial covenants which the bank lenders and
Sunbeam find mutually acceptable. 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 a violation of the existing
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covenants, which would permit the bank lenders to accelerate the maturity of all
outstanding borrowings under the New Credit Facility.
Defaults. The New Credit Facility provides for events of default customary
for transactions of this type, including nonpayment, misrepresentation, breach
of covenant, cross-defaults, bankruptcy, ERISA, judgments and change of
ownership and control (including for this purpose a Fundamental Change).
OTHER DEBT
See the Financial Statements and related notes beginning on page F-1 for
information concerning outstanding indebtedness of Sunbeam and Coleman.
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DESCRIPTION OF CAPITAL STOCK
The following statements are brief summaries of certain provisions of
Sunbeam's capital stock. The summaries do not purport to be complete and such
statements are qualified in their entirety by reference to the full text of
Sunbeam's Restated Certificate of Incorporation (the "Sunbeam Charter") and
By-Laws (the "Sunbeam By-Laws"), copies of which are filed as exhibits to the
Registration Statement.
Sunbeam's authorized capital stock currently consists of 500,000,000 shares
of Common Stock, par value $.01 per share, and 2,000,000 shares of preferred
stock, par value $.01 per share.
COMMON STOCK
As of January 13, 1999, there were 100,887,545 shares of Common Stock
outstanding. Each share of Common Stock has one vote on all matters upon which
stockholders are entitled or permitted to vote, including the election of
directors. There are no cumulative voting rights. Shares of Common Stock would
participate ratably in any distribution of assets in a liquidation, dissolution
or winding up of Sunbeam, subject to prior distribution rights of any shares of
preferred stock then outstanding. The Common Stock has no preemptive rights or
conversion rights nor are there any redemption or sinking fund provisions
applicable to the Common Stock. Holders of Common Stock are entitled to
participate in dividends as and when declared by the Sunbeam Board out of funds
legally available therefor. Sunbeam's ability to pay cash dividends is subject
to certain restrictions. The New Credit Facility contains limitations on the
ability of Sunbeam to pay dividends.
The transfer agent and registrar for the Common Stock is The Bank of New
York.
PREFERRED STOCK
There are no shares of Sunbeam preferred stock currently outstanding. The
Sunbeam Charter provides that the Sunbeam Board may authorize the issuance of
one or more series of preferred stock having such rights, including voting,
conversion and redemption rights, and such preferences, including dividend and
liquidation preferences, as the Sunbeam Board may determine without any further
action by the stockholders of Sunbeam.
DELAWARE GENERAL CORPORATION LAW SECTION 203
Section 203 of the Delaware General Corporation Law (the "DGCL") prohibits
certain transactions between a Delaware corporation and an "interested
stockholder," which is defined as a person who, together with any affiliate
and/or associates of such person, beneficially owns, directly or indirectly, 15%
or more of the outstanding voting shares of a Delaware corporation. This
provision prohibits certain business combinations (defined broadly to include
mergers, consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10% of the consolidated assets of the corporation
or the aggregate value of all of the outstanding capital stock of the
corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock, unless (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder acquired shares, (ii) the interested stockholder
acquired at least 85% of the voting stock of the corporation in the transaction
in which it became an interested stockholder or (iii) the business combination
is approved by a majority of the board of directors and by the affirmative vote
of two-thirds of the votes entitled to be cast by disinterested stockholders at
an annual or special meeting. Any future election to opt out of Section 203 can
be effected only by an amendment to the Certificate of Incorporation or the
By-Laws. Any such election would not be effective until 12 months after the
adoption of such amendment and would not apply to a business combination with
any interested stockholder who became such on or prior to the date of adoption.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the
Debentures and Common Stock to a holder of a Debenture or Common Stock that is,
for U.S. federal income tax purposes, (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof,
(iii) an estate, the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust, the administration of which
is subject to the primary supervision of a court within the United States and
which has one or more United States persons with authority to control all
substantial decisions. This summary is based on laws regulations, rulings and
decisions now in effect, all of which are subject to change, possibly with
retroactive effect. There can be no assurance that the Internal Revenue Service
(the "IRS") will not challenge one or more of the tax consequences described
herein, and the Company has not obtained, nor does it intend to obtain, a ruling
from the IRS or an opinion of counsel as to any U.S. federal income tax
consequences relating to the Debentures.
This summary deals only with holders of Debentures who hold the Debentures
and any Common Stock into which the Debentures are converted as capital assets.
This summary does not address tax considerations applicable to investors that
may be subject to special tax rules (including, without limitation, banks,
insurance companies, tax-exempt entities, regulated investment companies, common
trust funds, dealers in securities, or persons who hold Debentures or Common
Stock as part of a hedge conversion or constructive sale transaction, straddle
or other risk reduction transaction). This discussion also does not address the
tax consequences arising under the laws of any foreign, state or local
jurisdiction.
INVESTORS CONSIDERING THE PURCHASE OF A DEBENTURE SHOULD CONSULT THEIR OWN
TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF ACQUIRING,
HOLDING, CONVERTING OR OTHERWISE DISPOSING OF THE DEBENTURES AND COMMON STOCK,
INCLUDING THE EFFECT AND THE APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS.
ORIGINAL ISSUE DISCOUNT ON THE DEBENTURES
The Debentures were issued at a substantial discount from their stated
redemption price at maturity. For U.S. federal income tax purposes, the excess
of the stated redemption price at maturity of each Debenture over its issue
price (which is expected to be the Issue Price) constitutes Original Issue
Discount ("Original Issue Discount"). The issue price of the Debentures will
equal the initial price at which a substantial amount of the Debentures is sold
for cash (other than to bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers), and
the stated redemption price at maturity of a Debenture will be the sum of all
payments due under the Debenture (which is expected to be the principal amount
at maturity).
For U.S. federal income tax purposes, each holder of a Debenture must
include in gross income a portion of the Original Issue Discount in each taxable
year during which the Debenture is held in an amount equal to the Original Issue
Discount that accrues on the Debenture during such period, determined by using a
constant yield to maturity method. The Original Issue Discount included in
income for each year will be calculated under a compounding formula that will
result in the allocation of less Original Issue Discount to the earlier years of
the term of the Debenture and more Original Issue Discount to later years. For
the approximate cumulative total amount of Original Issue Discount accrued
annually, see the chart under "Description of Debentures--Redemption of
Debentures at the Option of the Company." Any amount included in income as
Original Issue Discount will increase a holder's tax basis in the Debenture.
MARKET DISCOUNT ON DEBENTURES
If a holder purchases a Debenture for an amount that is less than the
Debenture's "revised issue price" (i.e., the Debenture's issue price, increased
by the amount of accrued Original Issue Discount), the Debenture will be
considered to have "market discount." Any gain recognized by the holder on the
disposition of a Debenture having market discount generally will be treated as
ordinary income to the extent of the market discount that accrued on the
Debenture while held by such holder. Alternatively, the holder may elect to
include market discount in income currently over the life of the Debenture. Such
an election will apply to
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market discount Debentures acquired by the holder on or after the first day of
the first taxable year to which such election applies and is revocable only with
the consent of the IRS. Market discount will accrue on a straight-line basis
unless the holder elects to accrue the market discount on a constant-yield
method. Such an election will apply to Debentures to which it is made and is
irrevocable. Unless the holder elects to include market discount in income on a
current basis, as described above, the holder could be required to defer the
deduction of a portion of the interest paid on any indebtedness incurred or
maintained to purchase or carry Debentures.
DEBENTURES PURCHASED AT A PREMIUM
A holder that purchases a Debenture for an amount in excess of the
remaining redemption amount will be considered to have purchased the Debenture
at a premium. Such holder may elect to amortize such premium (as an offset to
interest income), using a constant-yield method, over the remaining term of the
Debentures. Such election, once made, generally applies to all debt instruments
held or subsequently acquired by the holder on or after the first taxable year
to which the election applies and may be revoked only with the consent of the
IRS. A holder that elects to amortize such premium must reduce its tax basis in
a Debenture by an amount of the premium amortized during its holding period.
With respect to a holder that does not elect to amortize bond premium, the
amount of such premium will be included in the holder's tax basis when the
Debenture matures or is disposed of by the holder.
SALE, EXCHANGE OR RETIREMENT OF THE DEBENTURES
A holder's tax basis for determining gain or loss on the sale or other
disposition of a Debenture will generally equal the holder's cost of the
Debenture increased by any accrued Original Issue Discount includible in such
holder's gross income and reduced by payments, if any. Except as described in
the next paragraph, upon the sale, exchange or retirement of a Debenture, a
holder will recognize gain or loss equal to the difference between the amount
realized on the sale or other disposition of the Debenture and the holder's tax
basis in such Debenture. Gain or loss realized on the sale, exchange or
retirement of a Debenture will generally be capital gain or loss and will be
long-term capital gain or loss if the Debenture is held for more than one year.
If a holder elects to exercise its option to cause the Company to purchase
its Debentures on a Purchase Date and the Company issues Common Stock in
satisfaction of all of the Purchase Price, the exchange of the Debentures for
Common Stock should generally not be a taxable event (except with respect to
cash received in lieu of a fractional share). A holder's tax basis in the Common
Stock received in such exchange of a Debenture should be the same as the
holder's tax basis in the Debenture at the time of the conversion (except for
any tax basis allocable to a fractional share) and the holding period for the
Common Stock received in such exchange should include the holding period of the
Debenture exchanged. If the Purchase Price is paid with a combination of Common
Stock and cash, gain (but not loss) realized by the holder should be recognized,
but only to the extent of the cash received (including cash received in lieu of
a fractional share). A holder's tax basis in the Common Stock received should be
the same as such holder's tax basis in the Debenture at the time of the
conversion (except for any portion allocable to a fractional share of Common
Stock), increased by the amount of gain recognized (other than with respect to a
fractional share) and decreased by the amount of any cash received (except cash
received in lieu of a fractional share). The holding period for Common Stock
received in the exchange should include the holding period of the Debenture
tendered to the Company in exchange therefor. The receipt of cash in lieu of a
fractional share of Common Stock should generally result in capital gain or
loss, measured by the difference between the amount of cash received for the
fractional share and the holder's tax basis in the fractional share interest.
CONVERSION OF DEBENTURES
A holder's conversion of a Debenture into Common Stock will generally not
be a taxable event (except with respect to cash received in lieu of a fractional
share). A tax basis in the Common Stock received on conversion of a Debenture
will be the same as the holder's tax basis in the Debenture at the time of
conversion (except for any tax basis allocable to a fractional share) and the
holding period for the Common Stock received on conversion will include the
holding period of the Debenture converted, except that it is possible that the
Internal Revenue Service may argue that the holding period of the Common Stock
allocable
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to Original Issue Discount will commence on the date of the conversion and a
holder would be required to hold such Common Stock for more than twelve months
before long-term capital gain (or loss) treatment could be obtained upon a sale
of such Common Stock. The receipt of cash in lieu of a fractional share of
Common Stock should generally result in capital gain or loss, measured by the
difference between the cash received for the fractional share interest and the
holder's tax basis in the fractional share interest.
DIVIDENDS; ADJUSTMENT OF CONVERSION PRICE
Dividends, if any, paid on the Common Stock generally will be includible in
the income of a holder as ordinary income to the extent of the Company's current
or accumulated earnings and profits.
If at any time the Company makes a distribution of property to stockholders
that would be taxable to such stockholders as a dividend for federal income tax
purposes (for example, distributions of evidences of indebtedness or assets of
the Company, but generally not stock dividends or rights to subscribe for Common
Stock) and, pursuant to the anti-dilution provisions of the Indenture, the
Conversion Rate of the Debentures is increased, such increase may be deemed to
be the payment of a taxable dividend to holders of Debentures. If the Conversion
Rate is increased at the discretion of the Company or in certain other
circumstances, such increase may also be deemed to be the payment of a taxable
dividend to holders of Debentures. Moreover, in certain other circumstances, the
absence of such an adjustment to the Conversion Rate of the Debentures may
result in a taxable dividend to holders of the Common Stock.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, holders generally will recognize
capital gain or capital loss equal to the difference between the amount realized
on such sale or exchange and the holder's adjusted tax basis in such shares.
LIQUIDATED DAMAGES
A holder will generally be required to include a payment of liquidated
damages in income as ordinary income when such payment is received.
97
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth, as of January 29, 1999, the respective
principal amount at maturity of Debentures beneficially owned and offered hereby
by each selling securityholder, the Common Stock owned by each selling
securityholder and the Common Stock issuable upon conversion of such Debentures,
which may be sold from time to time by such selling securityholder pursuant to
this prospectus. The following information has been obtained from the selling
securityholders.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT AT
MATURITY OF DEBENTURES COMMON STOCK
BENEFICIALLY OWNED AND PERCENT OF TOTAL OWNED PRIOR TO COMMON STOCK TO BE
SELLING SECURITYHOLDERS OFFERED HEREBY OUTSTANDING DEBENTURES ORIGINAL OFFERING REGISTERED HEREBY (1)
- ---------------------------------- ---------------------- ---------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Century National Insurance
Company......................... $ 2,100,000 * -- 13,808
CFW-C, L.P........................ 30,000,000 1.5 -- 197,250
Chrysler Insurance Company-Total
Return.......................... 100,000 * -- 658
Deutsche Bank A.G................. 284,607,000 14.1 -- 1,871,291
Deutsche Bank Securities, Inc..... 3,500,000 * --(2) 23,013
Fidelity Devonshire Trust:
Fidelity Equity-Income
Fund (3)........................ 128,730,000 6.4 -- 846,400
Fidelity Financial Trust: Fidelity
Convertible Securities
Fund (3)........................ 22,000,000 1.1 -- 144,650
Fidelity Management Trust Company
on behalf of accounts managed by
it (4).......................... 16,782,000 * -- 110,342
Fort Dearborn Life Insurance
Company......................... 500,000 * -- 3,288
Global Series Fund II--Prudential
Inconvertible Fund I............ 8,000,000 * -- 52,600
Hamilton Global Investors
Limited......................... 10,000,000 * -- 65,750
Mesirow Event Strategies
Fund, L.P....................... 1,960,000 * -- 12,887
NationsBanc Montgomery
Securities...................... 144,825,000 7.2 -- 952,224
R2 Investments, LDC............... 1,650,000 * -- 10,849
Societe Generale Securities
Corporation..................... 4,500,000 * -- 29,588
Soundshore Partners L.P........... 22,500,000 1.1 -- 147,938
The Varde Fund, L.P............... 598,000 * -- 3,932
The Varde Fund (Cayman), Ltd. .... 8,486,000 * -- 55,795
The Varde Fund II-A, L.P.......... 1,591,000 * -- 10,461
The Varde Fund II-B, L.P.......... 783,000 * -- 5,148
The Varde Fund III-A, L.P......... 2,356,000 * -- 15,491
The Varde Fund III-B, L.P......... 933,000 * -- 6,134
The Varde Fund IV-A, L.P.......... 13,083,000 * -- 86,021
Varde Select Fund, L.P............ 4,210,000 * -- 27,681
Variable Insurance Products Fund:
Equity-Income
Portfolio (3)................... 60,290,000 3.0 -- 396,407
Zazove Convertible Fund, L.P. .... 7,000,000 * -- 46,025
</TABLE>
- ------------------
* Less than 1.0%
(1) The shares of Common Stock to be registered hereby are calculated on an "as
converted" basis using the conversion rate described on the front cover page
of this prospectus.
(2) Deutsche Bank Securities, Inc. and its affiliated companies and/or
individuals may, from time to time, own, have positions in, or options in
Sunbeam stock and may also provide advisory services and/or lending or other
credit relationships with Sunbeam.
(3) The entity is either an investment company or a portfolio of an investment
company registered under Section 8 of the Investment Company Act of 1940, as
amended, or a private investment account advised by Fidelity Management &
Research Company ("FMR Co."). FMR Co. is a Massachusetts corporation and an
investment advisor registered under Section 203 of the Investment Advisers
Act of 1940, as amended, and provides investment advisory services to each
of such Fidelity entities identified above, and to other registered
investment companies and to certain other funds which are generally offered
to a limited group of investors. FMR Co. is a wholly-owned subsidiary of FMR
Corp. ("FMR"), a Massachusetts corporation.
(4) Shares indicated as owned by such entity are owned directly by various
private investment accounts, primarily employee benefit plans for which
Fidelity Management Trust Company ("FMTC") serves as trustee or managing
agent. FMTC is a wholly-owned subsidiary of FMR and a bank as defined under
Section 3(a)(6) of the Exchange Act.
98
<PAGE>
Except as described in this prospectus of the selling securityholders
listed above has, or within the past three years has had, any position, office
or other material relationship with the Company or any of its predecessors or
affiliates. Because the selling securityholders may offer all or some portion of
the above referenced securities pursuant to this prospectus or otherwise, no
estimate can be given as to the amount or percentage of such securities that
will be held by the selling securityholders upon termination of any such sale.
In addition, the selling securityholders identified above may have sold,
transferred or otherwise disposed of all or a portion of such securities since
, 1999 in transactions exempt from the registration requirements of
the Securities Act. The selling securityholders may sell all, part or none of
the securities listed above.
Generally, only selling securityholders identified in the foregoing table
who beneficially own the Offered Securities set forth opposite their respective
names may sell such Offered Securities pursuant to the Registration Statement,
of which this prospectus forms a part. The Company may from time to time include
additional selling securityholders in supplements to this prospectus.
99
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Offered Securities to permit public
secondary trading of such securities by the holders thereof from time to time
after the date of this prospectus. The Company will not receive any of the
proceeds from the sale by the selling securityholders of the Offered Securities.
The Company will bear all fees and expenses incident to its obligation to
register the Offered Securities.
The selling securityholders may sell all or a portion of the Offered
Securities beneficially owned by them and offered hereby from time to time
directly or through one or more underwriters, broker-dealers or agents. If the
Offered Securities are sold through underwriters or broker-dealers, the selling
securityholder will be responsible for underwriting discounts or commissions or
agent's commissions. Such Offered Securities may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale, or at negotiated prices. Such
sales may be effected in transactions (which may involve crosses or block
transactions) (i) on any national securities exchange or quotation service on
which the Offered Securities may be listed or quoted at the time of sale
(including the New York Stock Exchange for the Common Stock), (ii) in the
over-the-counter market, or (iii) through the writing of options (whether such
options are listed on an options exchange or otherwise). In connection with
sales of the Offered Securities or otherwise, the selling securityholder may
enter into hedging transactions with broker-dealers, which may in turn engage in
short sales of the Offered Securities in the course of hedging in positions they
assume. The selling securityholder may also sell Offered Securities short and
deliver Offered Securities to close out short positions, or loan or pledge
Offered Securities to broker-dealers that in turn may sell such Offered
Securities. If the selling securityholders effect such transactions by selling
Offered Securities to or through underwriters, brokers-dealers or agents, such
underwriters, brokers, dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling securityholders or
commissions from purchasers of Offered Securities for whom they may act as agent
or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, brokers-dealers or agents may be in
excess of those customary in the types of transactions involved).
The outstanding Common Stock is listed for trading on the NYSE under the
symbol "SOC." The Company does not intend to apply for listing of the Debentures
on any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. Accordingly, no assurance can be
given as to the development of liquidity or any trading market for the
Debentures. See "Risk Factors--Absence of Public Market."
The selling securityholders and any broker-dealer participating in the
distribution of the Offered Securities may be deemed to be "underwriters" within
the meaning of the Securities Act, and any commissions paid, or any discounts or
concessions allowed to any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act.
Under the securities laws of certain states, the Offered Securities may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Offered Securities may not be sold unless the
Offered Securities have been registered or qualified for sale in such state or
an exemption from registration or qualification is available and is complied
with.
There can be no assurance that any selling securityholder will sell any or
all of the Debentures or Offered Securities registered pursuant to the shelf
registration statement, of which this prospectus forms a part. In addition, any
securities covered by this prospectus that qualify for sale pursuant to
Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or
Rule 144A rather than pursuant to this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M under Exchange Act, which may limit the timing of purchases and sales of any
of the Offered Securities by the selling securityholders and any other such
person. Furthermore, Regulation M may restrict the ability of any person engaged
in the distribution of the Offered Securities to engage in market-making
activities with respect to the particular Offered Securities being distributed.
All of the foregoing may affect the marketability of the Offered Securities and
the ability of any person or entity to engage in market-making activities with
respect to the Offered Securities.
100
<PAGE>
All expenses of the registration of the Debentures and Common Stock
pursuant to the Registration Rights Agreement will be paid by Sunbeam,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws; provided, however, that the selling
securityholders will pay all underwriting discounts and selling commissions, if
any. The selling securityholders will be indemnified by Sunbeam against certain
civil liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith. The Company will be
indemnified by the selling securityholders against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
Upon sale pursuant to the Registration Statement, of which this prospectus
forms a part, the Offered Securities will be freely tradable in the hands of
persons other than affiliates of the Company.
LEGAL MATTERS
The validity of the Debentures and the shares of Common Stock offered
hereby will be passed upon for the Company by Janet G. Kelley, Vice President,
General Counsel and Secretary of the Company. As of January 13, 1999,
Ms. Kelley beneficially owned 226,350 shares of Common Stock (all but 100 of
which are issuable upon the exercise of stock options held by her).
EXPERTS
The audited Consolidated Financial Statements and schedule of Sunbeam
Corporation included in this prospectus and in the Registration Statement have
been audited by Arthur Andersen LLP, independent certified public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The consolidated financial statements of The Coleman Company, Inc. at
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, appearing in this prospectus and in the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
101
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUNBEAM CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants......................................................... F-2
Consolidated Statements of Operations
for the Fiscal Years Ended December 28, 1997, December 29, 1996 and December 31, 1995.................... F-3
Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996.................................. F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended December 28, 1997, December 29,
1996 and December 31, 1995............................................................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 28, 1997, December 29, 1996 and
December 31, 1995........................................................................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
FINANCIAL STATEMENT SCHEDULE*:
II. Valuation and Qualifying Accounts...................................................................... F-37
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Operations (Unaudited) for the three months and nine months ended
September 30, 1998 and September 28, 1997................................................................ F-38
Condensed Consolidated Balance Sheets as of September 30, 1998 (Unaudited) and December 28, 1997........... F-39
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 1998
and September 28, 1997................................................................................... F-40
Notes to Condensed Consolidated Financial Statements (Unaudited)........................................... F-41
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
THE COLEMAN COMPANY, INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors............................................................................. F-55
Consolidated Balance Sheets as of December 31, 1997 and 1996............................................... F-56
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995..................................................... F-57
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995..................................................... F-58
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995..................................................... F-59
Notes to Consolidated Financial Statements................................................................. F-60
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997............................................................... F-83
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997..................................................................... F-84
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997............................................................... F-85
Notes to Condensed Consolidated Financial Statements....................................................... F-86
</TABLE>
- ------------------
* All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore not included
herein.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Sunbeam Corporation:
We have audited the accompanying consolidated balance sheets of Sunbeam
Corporation (a Delaware corporation) and subsidiaries as of December 29, 1996
and December 28, 1997 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 28, 1997 (1997 and 1996 restated--see Notes 1 and 13).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunbeam Corporation and
subsidiaries as of December 29, 1996 and December 28, 1997, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 28, 1997 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule (1997 and 1996 restated)
listed in the Index to Financial Statements and Financial Statement Schedule is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
Schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
October 16, 1998, except with respect
to the matters discussed in Further Actions in Note 15,
as to which the date is October 30, 1998.
F-2
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
AS RESTATED, AS RESTATED,
SEE NOTE 13 SEE NOTE 13
<S> <C> <C> <C>
Net sales............................................................. $1,073,090 $ 984,236 $1,016,883
Cost of goods sold.................................................... 830,956 896,938 809,130
Selling, general and administrative expense........................... 152,653 221,655 137,508
Restructuring and asset impairment (benefit) charges.................. (14,582) 110,122 --
---------- ---------- ----------
Operating earnings (loss)............................................. 104,063 (244,479) 70,245
Interest expense...................................................... 11,381 13,588 9,437
Other expense, net.................................................... 12 3,738 173
---------- ---------- ----------
Earnings (loss) from continuing operations before income taxes ....... 92,670 (261,805) 60,635
Income taxes (benefit):
Current............................................................. 1,528 (22,419) (2,105)
Deferred............................................................ 38,824 (69,206) 25,146
---------- ---------- ----------
40,352 (91,625) 23,041
---------- ---------- ----------
Earnings (loss) from continuing operations............................ 52,318 (170,180) 37,594
Earnings from discontinued operations, net of taxes................... -- 839 12,917
Loss on sale of discontinued operations, net of taxes................. (14,017) (39,140) --
---------- ---------- ----------
Net earnings (loss)................................................... $ 38,301 $ (208,481) $ 50,511
---------- ---------- ----------
---------- ---------- ----------
Earnings (loss) per share of common stock from continuing operations:
Basic............................................................ $ 0.62 $ (2.05) $ 0.46
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... 0.60 (2.05) 0.45
---------- ---------- ----------
---------- ---------- ----------
(Loss) earnings from discontinued operations:
Basic............................................................ $ (0.17) $ (0.46) $ 0.16
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... (0.16) (0.46) 0.16
---------- ---------- ----------
---------- ---------- ----------
Net earnings (loss) per share of common stock:
Basic............................................................ $ 0.45 $ (2.51) $ 0.62
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... 0.44 (2.51) 0.61
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding:
Basic............................................................ 84,945 82,925 81,626
---------- ---------- ----------
---------- ---------- ----------
Diluted.......................................................... 87,542 82,925 82,819
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
---------------- ----------------
AS RESTATED, AS RESTATED,
SEE NOTE 13 SEE NOTE 13
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 52,298 $ 11,526
Receivables, net.............................................................. 228,460 209,754
Inventories................................................................... 304,900 164,345
Net assets of discontinued operations and other assets held for sale.......... -- 92,524
Deferred income taxes......................................................... -- 85,067
Prepaid expenses and other current assets..................................... 16,584 38,381
---------- ----------
Total current assets....................................................... 602,242 601,597
Property, plant and equipment, net.............................................. 249,524 229,393
Trademarks, trade names, goodwill and other, net................................ 207,162 228,458
---------- ----------
$1,058,928 $1,059,448
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................. $ 668 $ 921
Accounts payable.............................................................. 108,374 104,113
Restructuring accrual......................................................... 5,186 51,725
Other current liabilities..................................................... 118,899 84,986
---------- ----------
Total current liabilities.................................................. 233,127 241,745
Long-term debt.................................................................. 194,580 201,115
Other long-term liabilities..................................................... 154,300 149,247
Deferred income taxes........................................................... 4,842 52,308
Commitments and contingencies (Notes 5, 12 and 15)
Shareholders' equity:
Preferred stock (2,000,000 shares authorized, none outstanding)............... -- --
Common stock (issued 89,984,425 and 88,441,479 shares)........................ 900 884
Paid-in capital............................................................... 479,200 447,948
Retained earnings............................................................. 89,801 54,899
Other......................................................................... (34,777) (25,310)
---------- ----------
535,124 478,421
Treasury stock, at cost (4,454,394 and 4,478,814 shares)...................... (63,045) (63,388)
---------- ----------
Total shareholders' equity................................................. 472,079 415,033
---------- ----------
$1,058,928 $1,059,448
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED OTHER TREASURY
STOCK CAPITAL EARNINGS (NOTE 2) STOCK
------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995............................ $932 $461,876 $285,990 $(20,118) $(174,070)
Net earnings........................................ -- -- 50,511 -- --
Common dividends ($0.04 per share).................. -- -- (3,268) -- --
Exercise of stock options........................... 20 17,013 -- -- --
Amortization of unearned compensation............... -- -- -- 582 --
Retirement of treasury shares....................... (74) (37,103) (66,535) -- 103,712
Purchase of common stock for treasury............... -- -- -- -- (13,091)
Minimum pension liability........................... -- -- -- (199) --
Translation adjustments............................. -- -- -- (5,145) --
---- -------- -------- -------- ---------
Balance at December 31, 1995.......................... 878 441,786 266,698 (24,880) (83,449)
---- -------- -------- -------- ---------
Net loss (as restated, see Note 13)................. -- -- (208,481) -- --
Common dividends ($0.04 per share).................. -- -- (3,318) -- --
Exercise of stock options........................... 6 7,313 -- -- --
Grant of restricted stock........................... -- (1,120) -- (14,346) 15,466
Amortization of unearned compensation............... -- -- -- 7,707 --
Minimum pension liability........................... -- -- -- 4,963 --
Retirement and sale of treasury shares.............. -- (31) -- -- 4,595
Translation adjustments............................. -- -- -- 1,246 --
---- -------- -------- -------- ---------
Balance at December 29, 1996 (as restated,
see Note 13)........................................ 884 447,948 54,899 (25,310) (63,388)
---- -------- -------- -------- ---------
Net earnings (as restated, see Note 13)............. -- -- 38,301 -- --
Common dividends ($0.04 per share).................. -- -- (3,399) -- --
Exercise of stock options........................... 16 30,496 -- -- --
Amortization of unearned compensation............... -- -- -- 5,322 --
Minimum pension liability........................... -- -- -- (14,050) --
Other stock issuances............................... -- 756 -- -- 343
Translation adjustments............................. -- -- -- (739) --
---- -------- -------- -------- ---------
Balance at December 28, 1997 (as restated,
see Note 13)........................................ $900 $479,200 $ 89,801 $(34,777) $ (63,045)
---- -------- -------- -------- ---------
---- -------- -------- -------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
AS RESTATED, AS RESTATED,
SEE NOTE 13 SEE NOTE 13
------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss)................................................. $ 38,301 $ (208,481) $ 50,511
Adjustments to reconcile net earnings (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization.................................... 39,757 47,429 44,174
Restructuring and asset impairment (benefit) charges............. (14,582) 110,122 --
Other non-cash special charges................................... -- 70,847 --
Loss on sale of discontinued operations, net of taxes............ 14,017 39,140 --
Deferred income taxes............................................ 38,824 (69,206) 25,146
Increase (decrease) in cash from changes in operating assets and
liabilities from continuing operations:
Receivables, net................................................. (57,843) (845) (4,499)
Proceeds from accounts receivable securitization................. 58,887 -- --
Inventories...................................................... (140,555) 11,289 (4,874)
Account payable.................................................. 4,261 11,029 9,245
Restructuring accrual............................................ (31,957) -- --
Prepaid expenses and other current assets and liabilities........ (16,092) 39,657 (8,821)
Income taxes payable............................................. 52,052 (21,942) (18,452)
Payment of other long-term and non-operating liabilities............ (1,401) (27,089) (21,719)
Other, net.......................................................... 10,288 12,213 10,805
---------- ---------- ----------
Net cash (used in) provided by operating activities......... (6,043) 14,163 81,516
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures................................................ (60,544) (75,336) (140,053)
Decrease in investments restricted for plant construction........... -- -- 45,755
Proceeds from sale of divested operations and other assets.......... 90,982 -- --
Purchase of businesses.............................................. -- -- (13,053)
Other, net.......................................................... -- (860) --
---------- ---------- ----------
Net cash provided by (used in) investing activities......... 30,438 (76,196) (107,351)
---------- ---------- ----------
FINANCING ACTIVITIES:
Net borrowings under revolving credit facility...................... 5,000 30,000 40,000
Issuance of long-term debt.......................................... -- 11,500 --
Payments of debt obligations........................................ (12,157) (1,794) (5,417)
Proceeds from exercise of stock options............................. 26,613 4,684 9,818
Purchase of common stock for treasury............................... -- -- (13,091)
Sale of treasury stock.............................................. -- 4,578 --
Payments of dividends on common stock............................... (3,399) (3,318) (3,268)
Other financing activities.......................................... 320 (364) (264)
---------- ---------- ----------
Net cash provided by financing activities................... 16,377 45,286 27,778
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........ 40,772 (16,747) 1,943
Cash and cash equivalents at beginning of year...................... 11,526 28,273 26,330
---------- ---------- ----------
Cash and cash equivalents at end of year............................ $ 52,298 $ 11,526 $ 28,273
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Sunbeam Corporation ("Sunbeam" or the "Company") is a leading manufacturer
and marketer of branded consumer products. The Sunbeam(Registered) and
Oster(Registered) 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.
Approximately 80% of total Company sales are generated in the United
States. The remaining sales are generated primarily in Latin America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries that it controls. All material intercompany
balances and transactions have been eliminated.
Presentation of Fiscal Periods
The Company's fiscal year ends on the Sunday nearest December 31. Fiscal
years 1997, 1996 and 1995 ended on December 28, 1997, December 29, 1996, and
December 31, 1995 respectively, which encompassed 52-week periods (see
Note 15).
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
Consolidated Financial Statements for 1996 and 1997. (See Notes 13, 14 and 15.)
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Significant accounting estimates include the establishment of the
allowance for doubtful accounts, reserves for sales returns and allowances,
product warranty, product liability, excess and obsolete inventory, litigation
and environmental exposures.
Cash and Cash Equivalents
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk
Substantially all of the Company's trade receivables are due from retailers
and distributors located throughout the United States, Latin America and Canada.
Approximately 35% of the Company's sales in 1997 were to its five largest
customers. The Company establishes its credit policies based on an ongoing
evaluation of its customers' creditworthiness and competitive market conditions
and establishes its allowance for doubtful
F-7
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
accounts based on an assessment of exposures to credit losses at each balance
sheet date. The Company believes its allowance for doubtful accounts is
sufficient based on the credit exposures outstanding at December 28, 1997.
However, certain retailers filed for bankruptcy protection in the last several
years and it is possible that additional credit losses could be incurred if the
trends of retail consolidation continue.
Inventories
Inventories are stated at the lower of cost or market with cost being
determined principally by the first-in, first-out method.
In certain instances, the Company receives rebates from vendors based on
the volume of merchandise purchased. Vendor rebates are recorded as reductions
in the price of the purchased merchandise and are recognized in operations as
the related inventories are sold.
Effective in fiscal 1997, the Company began capitalizing manufacturing
supplies inventories, whereas previously these inventories were charged to
operations when purchased. This change increased pre-tax operating earnings in
fiscal 1997 by $2.8 million.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. The Company provides for
depreciation using primarily the straight-line method in amounts that allocate
the cost of property, plant and equipment over the following useful lives:
<TABLE>
<S> <C>
20 to
Buildings and improvements................................................... 40 years
Machinery, equipment and tooling............................................. 3 to 15 years
Furniture and fixtures....................................................... 3 to 10 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of its estimated useful life or the term of the lease.
Long-lived Assets
The Company accounts for long-lived assets pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The Company
continually evaluates factors, events and circumstances which include, but are
not limited to, the historical and projected operating performance of the
business operations, specific industry trends and general economic conditions to
assess whether the remaining estimated useful lives of long-lived assets may
warrant revision or whether the remaining asset values are recoverable through
future operations. When such factors, events or circumstances indicate that
long-lived assets should be evaluated for possible impairment, the Company uses
an estimate of undiscounted cash flows over the remaining lives of the assets to
measure the recoverability. See Note 8 for a discussion of asset impairment
charges in 1996 and Note 15 for a discussion of asset impairment charges
anticipated in 1998.
Capitalized Interest
Interest costs for the construction of certain long-term assets are
capitalized and amortized over the related assets' estimated useful lives. Total
interest costs during 1997 and 1996 amounted to $12.3 million and $14.0 million
respectively, of which $0.9 million and $0.4 million respectively, was
capitalized into the construction cost of the long-term assets.
F-8
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Amortization Periods
Trademarks, trade names and goodwill are being amortized on a straight-line
basis over 20 to 40 years.
Revenue Recognition
The Company recognizes sales and related cost of goods sold from product
sales when title passes to the customers which is generally at the time of
shipment. Net sales is comprised of gross sales less provisions for estimated
customer returns, discounts, promotional allowances, cooperative advertising
allowances and costs incurred by the Company to ship product to customers.
Reserves for estimated returns are established by the Company concurrently with
the recognition of revenue. Reserves are established based on a variety of
factors, including historical return rates, estimates of customer inventory
levels, the market for the product and projected economic conditions. The
Company monitors these reserves and makes adjustment to them when management
believes that actual returns or costs to be incurred differ from amounts
recorded. In some situations, the Company has shipped product with the right of
return where the Company is unable to reasonably estimate the level of returns
and/or the sale is contingent upon the resale of the product. In these
situations, the Company does not recognize revenue upon product shipment, but
rather when it is reasonably expected the product will not be returned.
Warranty Costs
The Company provides for warranty costs in amounts it estimates will be
needed to cover future warranty obligations for products sold during the year.
Estimates of warranty costs are periodically reviewed and adjusted, when
necessary, to consider actual experience.
Product Liability
The Company provides for product liability costs it estimates will be
needed to cover future product liability costs for product sold during the year.
Estimates of product liability costs are periodically reviewed and adjusted,
when necessary, to consider actual experience, changes in product design,
warranty rates and other relevant factors.
Income Taxes
The Company accounts for income taxes under the liability method in
accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. The provision for
income taxes includes deferred income taxes resulting from items reported in
different periods for income tax and financial statement purposes. Deferred tax
assets and liabilities represent the expected future tax consequences of the
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The effects of changes in tax
rates on deferred tax assets and liabilities are recognized in the period that
includes the enactment date. No provision has been made for U.S. income taxes on
approximately $45.6 million of cumulative undistributed earnings of foreign
subsidiaries at December 28, 1997 since it is the present intention of
management to reinvest the undistributed earnings indefinitely in foreign
operations.
Advertising Costs
Media advertising costs included in Selling, General and Administrative
Expense ("SG&A") are expensed as incurred. Allowances provided to customers for
cooperative advertising are charged to operations, as earned, based on revenues
and are included as a deduction from gross sales in determining net sales.
F-9
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Currency Translation
The assets and liabilities of subsidiaries, other than those operating in
highly inflationary economies, are translated into U.S. dollars at year-end
exchange rates, with resulting translation gains and losses accumulated in a
separate component of shareholders' equity. Income and expense items are
converted into U.S. dollars at average rates of exchange prevailing during the
year.
For subsidiaries operating in highly inflationary economies (Venezuela and
Mexico), inventories and property, plant and equipment are translated at the
rate of exchange on the date the assets were acquired, while other assets and
liabilities are translated at year-end exchange rates. Translation adjustments
for those operations are included in "Other Expense, net" in the accompanying
Consolidated Statements of Operations.
Stock-Based Compensation Plans
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION allows either
adoption of a fair value method for accounting for stock-based compensation
plans or continuation of accounting under Accounting Principles Board ("APB")
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations with supplemental disclosures.
The Company has chosen to account for its stock options using the intrinsic
value based method prescribed in APB Opinion No. 25 and, accordingly, does not
recognize compensation expense for stock option grants made at an exercise price
equal to or in excess of the fair market value of the stock at the date of
grant. Pro forma net income and earnings per share amounts as if the fair value
method had been adopted are presented in Note 5. SFAS No. 123 does not impact
the Company's results of operations, financial position or cash flows.
Earnings (Loss) Per Share Of Common Stock
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 and restricted stock discussed in Note 5).
The Company's reported primary earnings per share for 1995 has been restated to
comply with the requirements of SFAS No. 128. SFAS No. 128 had no impact on the
Company's reported loss per share for 1996 and no impact on the diluted earnings
per share reported in 1995. The effect of this accounting change on previously
reported earnings per share (EPS) for 1995 was as follows:
<TABLE>
<S> <C>
Earnings per share from continuing operations
Primary EPS as reported............................................................. $0.45
Effect of SFAS No. 128.............................................................. 0.01
Basic EPS as restated............................................................... 0.46
Earnings per share
Primary EPS as reported............................................................. $0.61
Effect of SFAS No. 128.............................................................. 0.01
Basic EPS as restated............................................................... 0.62
</TABLE>
F-10
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The following reconciles the weighted average common basic and diluted
shares outstanding at the fiscal period ends (in thousands of shares):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Basic average common shares outstanding.............................................. 84,945 82,925 81,626
Dilutive effect of stock options..................................................... 2,718 -- 737
Dilutive effect of stock warrants.................................................... -- -- 456
Effect of restricted stock........................................................... (121) -- --
------ ------ ------
Diluted average common shares outstanding............................................ 87,542 82,925 82,819
------ ------ ------
------ ------ ------
</TABLE>
For the year ended December 29, 1996, 1,552,684 shares related to stock
options and 78,654 shares related to restricted stock were not included in the
diluted average common shares outstanding, as the effect would have been
antidilutive.
Reclassification
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The adoption of SFAS No. 130 will
have no impact on the Company's consolidated results of operations, financial
position or cash flows.
In June 1997, the FASB issued 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. 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.
See Note 15 for new accounting standards issued subsequent to December 28,
1997.
2. SHAREHOLDERS' EQUITY
At December 28, 1997, the Company had 200,000,000 shares of $.01 par value
common stock authorized and there were 9,404,068 shares of common stock reserved
for issuance upon the exercise of outstanding stock options.
In June 1995, the Company retired 7,376,395 shares of common stock held in
treasury, and such shares were returned to the status of authorized but unissued
shares. As a result, $103.7 million assigned to treasury stock has been
eliminated with a corresponding decrease to common stock, paid-in capital and
retained earnings. In 1995, the Company repurchased 905,600 shares of its common
stock at a total cost of $13.1 million.
In July 1996, the Company sold 321,786 shares of common stock for total
proceeds of approximately $4.6 million, and granted 1,100,000 shares of
restricted stock in connection with the employment of a new
F-11
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SHAREHOLDERS' EQUITY--(CONTINUED)
Chairman and Chief Executive Officer and certain other officers of the Company.
Compensation expense attributable to the restricted stock awards is being
amortized to expense beginning in 1996 over the periods in which the
restrictions lapse (which in the case of 333,333 shares, was immediately upon
the date of grant, in the case of 666,667 shares, is equally over two years from
the date of grant and in the case of the remaining restricted shares, is equally
over three years from the dates of grant). The restricted stock award resulted
in a $7.7 million charge to SG&A in 1996.
On February 20, 1998 the Company entered into new three-year employment
agreements with its then Chairman and Chief Executive Officer and two other
senior officers of the Company. These agreements replaced previous employment
agreements entered into in July 1996 that were scheduled to expire in July 1999.
Refer to Note 15 for additional information regarding the new employment
contracts, including the acceleration of vesting of the 1996 restricted stock
grants discussed above.
Information regarding other changes in shareholders' equity is summarized
below (in thousands):
<TABLE>
<CAPTION>
CURRENCY MINIMUM
TRANSLATION PENSION UNEARNED
ADJSUTMENTS LIABILITY COMPENSATION TOTAL
----------- -------- ------------ --------
<S> <C> <C> <C> <C>
Balance at January 1, 1995......................... $ (8,212) $(10,927) $ (979) $(20,118)
Amortization of unearned compensation............ -- -- 582 582
Increase in minimum pension liability (net of tax
of $127)...................................... -- (199) -- (199)
Translation adjustments.......................... (5,145) -- -- (5,145)
--------- -------- -------- --------
Balance at December 31, 1995....................... (13,357) (11,126) (397) (24,880)
Grant of restricted stock........................ -- -- (14,346) (14,346)
Amortization of unearned compensation............ -- -- 7,707 7,707
Decrease in minimum pension liability (net of tax
of $2,672).................................... -- 4,963 -- 4,963
Translation adjustments.......................... 1,246 -- -- 1,246
--------- -------- -------- --------
Balance at December 29, 1996....................... (12,111) (6,163) (7,036) (25,310)
Amortization of unearned compensation............ -- -- 5,322 5,322
Increase in minimum pension liability (net of tax
of $0. See Note 10)........................... -- (14,050) -- (14,050)
Translation adjustments.......................... (739) -- -- (739)
--------- -------- -------- --------
Balance at December 28, 1997....................... $ (12,850) $(20,213) $ (1,714) $(34,777)
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
3. CREDIT FACILITIES AND LONG-TERM DEBT
In 1994, the Mississippi Business Finance Corporation ("MBFC") issued $75
million of 7.85% Industrial Development Revenue Notes (the "Notes") maturing
serially in eleven equal annual installments beginning June 1999 to certain
institutional investors through a private placement. The MBFC loaned the
proceeds of the Notes to a subsidiary of the Company under a loan agreement (the
"Hattiesburg Loan") restricting the use of such funds to the acquisition,
design, construction and equipping of the Hattiesburg, Mississippi manufacturing
and distribution center. The Notes are guaranteed by the Company and the
Hattiesburg Loan is secured by the Hattiesburg facility. The Notes were repaid
in March 1998. (See Note 15.)
In September 1996 (as subsequently amended), the Company entered into a
$500 million syndicated unsecured five year revolving credit facility (the
"Credit Agreement") which replaced a previous credit facility of $500 million.
In July 1997, the Company reduced the amount of available borrowings under the
facility to $250 million. Under the Credit Agreement, the Company can borrow
under a competitive bid option, or at a spread above LIBOR (.5% at December 28,
1997) or at a bank base rate. In addition, the Company pays an
F-12
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. CREDIT FACILITIES AND LONG-TERM DEBT--(CONTINUED)
annual facility fee (.25% at December 28, 1997). The Credit Agreement contains
certain financial covenants. In 1998, the Credit Agreement was refinanced and
additional debt was incurred as discussed in Note 15, Subsequent Events.
During 1997, the Company repaid $12.2 million of long-term borrowings
related to the divested furniture operations and other assets sold.
At December 28, 1997, the aggregate annual principal payments on long-term
debt, excluding amounts outstanding under the Credit Agreement, due in each of
the years 1998-2002, were $0.7 million, $7.5 million, $7.6 million,
$7.6 million and $7.7 million, respectively.
Long-term debt at the end of each fiscal year consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revolving credit facility, weighted average interest rate of 5.99% and
5.60% for 1997, and for 1996, respectively........................... $110,000 $105,000
Hattiesburg industrial revenue bond due 2009, fixed interest rate of
7.85%................................................................ 75,000 75,000
Other long-term borrowings, due through 2012, weighted average
interest rate of 3.92% and 4.95%, at December 28, 1997 and
December 29, 1996, respectively...................................... 10,248 22,036
-------- --------
195,248 202,036
Less current portion of long-term debt................................. 668 921
-------- --------
Long-term debt......................................................... $194,580 $201,115
</TABLE>
In December 1997, the Company entered into a revolving trade accounts
receivable securitization program, which expired December, 1998 to sell without
recourse, through a wholly-owned subsidiary, certain trade accounts receivable,
up to a maximum of $70.0 million. At December 28, 1997, the Company had received
approximately $58.9 million from the sale of trade accounts receivable, of which
$39.1 million related to sales recorded in fiscal 1997 and the balance related
to sales to be recognized in the first quarter of 1998. Accordingly, at December
28, 1997, the accompanying Consolidated Balance Sheet reflects a reduction in
accounts receivable of $39.1 million and an increase in other current
liabilities of $19.8 million. The proceeds from the sale were used to reduce
borrowings under the Company's revolving credit facility. Costs of the program,
which primarily consist of the purchaser's financing cost of issuing commercial
paper backed by the receivables, totaled $0.2 million during 1997, and have been
classified as interest expense in the accompanying Consolidated Statements of
Operations. The Company, as agent for the purchaser of the receivables, retains
collection and administrative responsibilities for the purchased receivables.
4. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments as of December
28, 1997 approximate market values based upon the following methods and
assumptions:
Cash and Cash Equivalents--The carrying amount of cash and cash equivalents
is assumed to approximate fair value as cash equivalents include all highly
liquid, short-term investments with original maturities of three months or less.
Short and Long Term Debt--The carrying value of the Company's various debt
outstanding as of December 28, 1997 approximates market. The fair value of the
Company's fixed rate debt is estimated using discounted cash flow analysis,
based upon the market yield of public debt securities of comparable credit
quality
F-13
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. FINANCIAL INSTRUMENTS--(CONTINUED)
and maturity. The carrying value of the Company's variable rate debt is assumed
to approximate market based upon periodic adjustments of the interest rate to
the current market rate in accordance with the terms of the debt agreements.
Letters of Credit--The Company utilizes stand-by letters of credit to back
certain financing instruments and insurance policies and commercial letters of
credit guaranteeing various international trade activities. The contract amounts
of the letters of credit approximate their fair value.
Derivative Financial Instruments
The Company selectively uses derivatives to manage interest rate and
foreign exchange exposures that arise in the normal course of business. The use
of derivatives did not have a material impact on the Company's results of
operations in 1997, 1996 and 1995. 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
difference between the carrying value and fair value of such contracts at
December 29, 1996 and December 31, 1995 is not considered to be material, either
individually or in the aggregate. The Company had no derivative financial
instruments outstanding at December 28, 1997. The Company enters into derivative
contracts with counterparties that it believes to be creditworthy. The Company
does not enter into any leveraged derivative transactions.
As of December 29, 1996, $10.0 million of the Company's outstanding
floating rate debt was subject to interest rate swap agreements which expired in
1997.
In order to mitigate the transaction exposures that may arise from changes
in foreign exchange rates, the Company purchases foreign currency option
contracts to hedge anticipated transactions. The option contracts typically
expire within one year. Any realized gains on options are not deferred but are
recognized in income in the period when the hedged exposure is recognized. The
Company purchased options with a notional value of $16.6 million in 1997,
$18.2 million in 1996 and $11.7 million in 1995. Options with notional value of
$17.9 million, $25.4 million and $3.2 million expired in 1997, 1996 and 1995,
respectively. The Company held purchased option contracts with a notional value
of $1.4 million at December 29, 1996.
5. EMPLOYEE STOCK OPTIONS AND AWARDS
The Company has one stock-based compensation plan, the Amended and Restated
Sunbeam Corporation Stock Option Plan (the "Plan"). Under the Plan, all
employees are eligible for grants of options to purchase up to an aggregate of
11,300,000 shares of the Company's common stock at an exercise price equal to or
in excess of the fair market value of the stock on the date of grant. The term
of each option commences on the date of grant and expires on the tenth
anniversary of the date of grant subject to earlier cancellation. Options
generally become exercisable over a three to five year period.
The Plan also provides for the grant of restricted stock awards of up to
200,000 shares, in the aggregate, to employees and non-employee directors. See
Note 2 for a discussion of restricted stock awards made outside the Plan.
In July 1996, options to purchase an aggregate of 3,000,000 shares (of
which 2,750,000 options were outstanding at December 28, 1997) were granted
outside of the Plan at exercise prices equal to the fair market value of the
Company's common stock on the dates of grant in connection with the employment
of a then new Chairman and Chief Executive Officer and certain other executive
officers of the Company. These outstanding options have terms of ten years and,
with respect to options for 2,500,000 shares, are exercisable in three annual
installments beginning July 17, 1996. Options for the remaining 250,000 shares
still outstanding are exercisable in three annual installments beginning on the
first anniversary of the July 22, 1996 grant date. On February 20, 1998 the
vesting provisions of the options granted outside the Plan were accelerated.
Additional restricted stock
F-14
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. EMPLOYEE STOCK OPTIONS AND AWARDS--(CONTINUED)
grants were made in February 1998, with a portion thereof subsequently
terminated. See further description in Note 15.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for outstanding stock options. Had compensation cost for the
Company's outstanding stock options been determined based on the fair value at
the grant dates for those options consistent with SFAS No. 123, the Company's
net earnings (loss) and diluted earnings (loss) per share would have been
reduced to the pro forma amounts indicated below (in thousands except per share
amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- -------
<S> <C> <C> <C>
Net earnings/(loss)
As reported....................................................... $ 38,301 $(208,481) $50,511
Pro forma......................................................... $ 14,524 $(218,405) $49,731
Diluted earnings/(loss) per share
As reported....................................................... $ 0.44 $ (2.51) $ 0.61
Pro forma......................................................... $ 0.16 $ (2.63) $ 0.60
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Expected volatility...................................................... 34.19% 36.78% 36.78%
Risk-free interest rate.................................................. 6.36% 6.34% 6.34%
Dividend yield........................................................... .1% .1% .1%
Expected life............................................................ 6 years 5 years 5 years
</TABLE>
A summary of the status of the Company's outstanding stock options as of
December 28, 1997, December 29, 1996 and December 31, 1995, and changes during
the years ending on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Plan Options
Outstanding at beginning of year.. 6,271,837 $19.43 4,610,387 $16.67 5,230,221 $14.85
Granted........................... 3,105,263 32.40 4,061,450 20.39 1,928,500 18.61
Exercised......................... (1,549,196) 17.20 (622,994) 7.51 (1,142,348) 6.32
Canceled.......................... (1,173,836) 21.10 (1,777,006) 18.64 (1,405,986) 21.06
----------- ----------- -----------
Outstanding at end of year........ 6,654,068 25.61 6,271,837 19.43 4,610,387 16.67
----------- ----------- -----------
----------- ----------- -----------
Options exercisable at year-end... 1,547,198 $19.13 1,655,450 $16.13 1,539,836 $11.47
Weighted-average fair value of
options granted during the
year............................ $ 15.46 $ 14.76 $ 8.28
Options Outside Plan
Outstanding at beginning of year.. 2,750,000 $12.43 692,500 $16.70 750,000 $16.70
Granted........................... -- -- 3,000,000 12.65 -- --
Exercised......................... -- -- -- -- (57,500) 16.70
Canceled.......................... -- -- (942,500) 16.27 -- --
----------- ----------- -----------
Outstanding at end of year........ 2,750,000 12.43 2,750,000 12.43 692,500 16.70
----------- ----------- -----------
----------- ----------- -----------
Options exercisable at year-end... 1,750,000 $12.35 833,333 $12.25 505,000 $16.70
Weighted-average fair value of
options granted during the
year............................ $ N/A $ 5.99 $ N/A
</TABLE>
F-15
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. EMPLOYEE STOCK OPTIONS AND AWARDS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 28, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/28/97 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE
- ----------------------------------------------- ----------- ------------------------ ----------------
<S> <C> <C> <C>
$ 5.00 to $14.99............................... 3,514,556 8.2 $12.50
$15.00 to $19.99............................... 485,240 7.4 16.30
$20.00 to $24.99............................... 2,090,187 8.2 22.39
$25.00 to $29.99............................... 1,786,007 9.0 25.99
$30.00 to $34.99............................... 448,468 9.3 32.01
$35.00 to $39.99............................... 336,820 9.5 38.77
$40.00 to $44.99............................... 680,290 9.7 42.99
$45.00 and over................................ 62,500 9.7 46.22
--------- ---- ------
$ 5.00 to $49.71............................... 9,404,068 8.5 $21.76
--------- ---- ------
--------- ---- ------
<CAPTION>
OPTIONS EXERCISABLE
-------------------------------
NUMBER
RANGE OF EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/28/97 EXERCISE PRICE
- ------------------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
$ 5.00 to $14.99......................................................... 2,108,255 $12.08
$15.00 to $19.99......................................................... 219,466 16.50
$20.00 to $24.99......................................................... 842,601 22.27
$25.00 and over.......................................................... 126,876 26.41
--------- ------
$ 5.00 to $27.36......................................................... 3,297,198 $15.54
--------- ------
--------- ------
</TABLE>
See Note 15 for certain items related to employee stock options and awards
occurring subsequent to December 28, 1997.
6. EMPLOYEE BENEFIT PLANS
Retirement Plans
The Company sponsors several defined benefit pension plans covering
eligible U.S. salaried and hourly employees. Benefit accruals under such plans
covering all U.S. salaried employees were frozen, effective December 31, 1990.
Therefore no credit in the pension formula is given for service or compensation
after that date. However, employees continue to earn service toward vesting in
their interest in the frozen plans as of December 31, 1990. Employees of
non-U.S. subsidiaries generally receive retirement benefits from Company
sponsored plans or from statutory plans administered by governmental agencies in
their countries.
F-16
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The funded status of the Company's U.S. defined benefit pension plans at
the end of each fiscal year follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested........................................................................ $ 126,941 $ 122,379
Non-vested.................................................................... 288 375
---------- ----------
Accumulated benefit obligations................................................. 127,229 122,754
Plan assets at fair value....................................................... 116,485 116,522
---------- ----------
Accumulated benefit obligations in excess of plan assets........................ 10,744 6,232
Unrecognized net loss........................................................... (25,192) (19,537)
Additional minimum liability.................................................... 25,192 10,255
---------- ----------
Pension liability (prepaid) recognized on the balance sheet..................... $ 10,744 $ (3,050)
---------- ----------
---------- ----------
</TABLE>
Net periodic pension cost for the Company's U.S. defined benefit pension
plans for each fiscal year include the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Service cost-benefits earned during the period..................... $ 157 $ 411 $ 331
Interest cost-accumulated benefit obligations...................... 8,970 9,071 10,620
Actual return on plan assets....................................... (12,511) (816) (20,985)
Net amortization and deferral...................................... 4,338 (7,518) 11,332
--------- ---------- ----------
Net periodic pension cost.......................................... $ 954 $ 1,148 $ 1,298
--------- ---------- ----------
--------- ---------- ----------
Assumptions:
Discount rate.................................................... 7.25% 7.75% 7.25%
Long-term rate of return on assets............................... 7.25% 7.75% 9.50%
</TABLE>
The Company funds its pension plans in amounts consistent with applicable
laws and regulations. Pension plan assets include corporate and U.S. government
bonds and cash equivalents.
The assets, liabilities and pension costs of the Company's non-U.S. defined
benefit retirement plans are not material to the consolidated financial
statements.
Other Postretirement Benefits
The Company provides health care and life insurance benefits to certain
former employees who retired from the Company prior to March 31, 1991. The
Company has consistently followed a policy of funding the cost of postretirement
health care and life insurance benefits on a pay-as-you-go basis.
Effective July 1993, various amendments to the Company's postretirement
benefits program were adopted. The amendments included increases in retiree
contribution levels for certain retiree groups and the discontinuation of
medical and/or life insurance coverage for certain retirees who qualify for
Medicare. These amendments resulted in an unrecognized reduction in prior
service cost which is being amortized over future years.
F-17
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The following table presents the funded status reconciled with the amounts
recognized in the Company's consolidated balance sheet at the end of each fiscal
year (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation..................................... $ 14,220 $ 14,555
Plan assets....................................................................... -- --
--------- ---------
Accumulated postretirement benefit obligation in excess
of plan assets.................................................................. 14,220 14,555
Unrecognized reduction in prior service cost...................................... 15,934 18,877
Unrecognized net gain............................................................. 240 95
--------- ---------
Accrued postretirement benefit obligation recognized
on the balance sheet............................................................ $ 30,394 $ 33,527
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit cost for each fiscal year includes the
following components (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Interest cost...................................................................... $ 983 $ 1,042
Amortization of reduction in prior service cost.................................... (2,943) (2,943)
--------- ---------
Net periodic postretirement benefit credit......................................... $ (1,960) $ (1,901)
--------- ---------
--------- ---------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation is 8.8% for 1998 and is assumed to decrease
gradually to 6% by 2003 and remain at that level thereafter. A one percentage
point increase in the assumed health care cost trend rate for each year would
increase the accumulated postretirement benefit obligation as of December 28,
1997 and the net periodic postretirement benefit cost for 1997 by approximately
8%. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 28, 1997 and
December 29, 1996.
Defined Contribution Plans
The Company sponsors defined contribution profit sharing plans covering
eligible employees. Company contributions to these plans include employer
matching contributions as well as discretionary profit sharing contributions
depending on the performance of the Company, in an amount up to 10% of eligible
compensation. The Company provided $1.8 million in 1997, $1.7 million in 1996
and $4.1 million in 1995 for its defined contribution plans.
F-18
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SUPPLEMENTARY FINANCIAL STATEMENT DATA
Supplementary Balance Sheet data at the end of each fiscal year is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Receivables:
Trade......................................................................... $ 250,699 $ 227,043
Sundry........................................................................ 7,794 2,412
---------- ----------
258,493 229,455
Valuation allowance............................................................. (30,033) (19,701)
---------- ----------
$ 228,460 $ 209,754
---------- ----------
---------- ----------
Inventories:
Finished goods................................................................ $ 193,864 $ 86,681
Work in process............................................................... 25,679 25,392
Raw materials and supplies.................................................... 85,357 52,272
---------- ----------
$ 304,900 $ 164,345
---------- ----------
---------- ----------
Property, plant and equipment:
Land.......................................................................... $ 1,793 $ 2,524
Buildings and improvements.................................................... 98,054 95,619
Machinery and equipment....................................................... 248,138 259,460
---------- ----------
Furniture and fixtures.......................................................... 7,327 8,044
---------- ----------
355,312 365,647
---------- ----------
Accumulated depreciation and amortization....................................... (105,788) (136,254)
---------- ----------
$ 249,524 $ 229,393
---------- ----------
---------- ----------
Trademarks, trade names, goodwill and other:
Trademarks and trade names.................................................... $ 237,095 $ 245,307
Goodwill...................................................................... 24,687 38,823
Accumulated amortization...................................................... (56,880) (57,261)
---------- ----------
204,902 226,869
Other assets.................................................................... $ 2,260 $ 1,589
$ 207,162 $ 228,458
---------- ----------
---------- ----------
</TABLE>
Inventory and property, plant and equipment in 1996 exclude assets of
discontinued operations and other assets held for sale.
(See Note 15 regarding asset valuation/impairment in 1998.)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Other current liabilities:
Payrolls, commissions and employee benefits................................... $ 12,227 $ 16,779
Advertising and sales promotion............................................... 34,749 23,815
Product warranty.............................................................. 21,498 23,883
Accounts receivable securitization liability.................................. 19,750 --
Sales returns................................................................. 7,846 6,058
Other......................................................................... 22,829 14,451
---------- ----------
$ 118,899 $ 84,986
---------- ----------
---------- ----------
</TABLE>
F-19
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SUPPLEMENTARY FINANCIAL STATEMENT DATA--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Other long-term liabilities:
Accrued postretirement benefit obligation..................................... $ 30,394 $ 33,527
Accrued pension............................................................... 10,744 --
Product liability and workers compensation.................................... 41,901 34,870
Other......................................................................... 71,261 80,850
---------- ----------
$ 154,300 $ 149,247
---------- ----------
---------- ----------
</TABLE>
Supplementary Statements of Operations and Cash Flows data for each fiscal
year are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Other expense, net:
Interest income.................................................... $ (2,561) $ (1,255) $ (3,657)
Other, net......................................................... 2,573 4,993 3,830
---------- ---------
$ 12 $ 3,738 $ 173
---------- --------- ---------
---------- --------- ---------
Advertising and sales promotion...................................... $ 71,151 $ 72,313 $ 57,274
---------- --------- ---------
---------- --------- ---------
Cash paid (received) during the period for:
Interest (net of capitalization)................................... $ 13,058 $ 13,397 $ 12,555
---------- --------- ---------
---------- --------- ---------
Income taxes (net of refunds)...................................... $ (44,508) $ (540) $ 13,936
---------- --------- ---------
---------- --------- ---------
</TABLE>
Non-Cash Transactions
In connection with a warehouse expansion related to the electric blanket
business, the Company entered into a $5 million capital lease obligation in
1996.
8. RESTRUCTURING AND ASSET IMPAIRMENT (BENEFIT) CHARGES
In November 1996, the Company announced the details of a restructuring
plan. The plan included the consolidation of administrative functions within the
Company, the reduction of manufacturing and warehouse facilities, the
centralization of the Company's procurement function, and reduction of the
Company's product offerings and stock keeping units ("SKU's"). The Company also
announced plans to divest several lines of business (see Note 9).
As part of the restructuring plan, the Company consolidated six divisional
and regional headquarters functions into a single worldwide corporate
headquarters in Delray Beach, Florida and outsourced certain back office
activities resulting in a reduction in total back-office/administrative
headcount. Overall, the restructuring plan called for a reduction in the number
of production facilities from 26 to 8 and the elimination of over 6,000
positions from the Company's workforce, including 3,300 from the disposition of
certain business operations and the elimination of approximately 2,800 other
positions. The Company completed the major phases of the restructuring plan by
July 1997.
In conjunction with the implementation of the restructuring plan, the
Company recorded a pre-tax charge of approximately $239.2 million in the fourth
quarter of 1996. This amount is recorded as follows in the accompanying
Consolidated Statement of Operations: $110.1 million in Restructuring and Asset
Impairment Charges, as further described below; $60.8 million in Cost of Goods
Sold related principally to inventory write-downs as a result of a reduction in
SKU's and costs of inventory liquidation programs; $10.1 million in Selling,
General and Administrative Expense, principally for costs relating to
outsourcing and package redesign, and
F-20
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. RESTRUCTURING AND ASSET IMPAIRMENT (BENEFIT) CHARGES--(CONTINUED)
$58.2 million ($39.1 million net of taxes) in Loss on Sale of Discontinued
Operations related to the divestiture of its furniture business. In 1997, upon
completion of the sale of the furniture business, the Company recorded an
additional pre-tax loss of $22.5 million from discontinued operations
($14.0 million net of taxes) due primarily to lower than anticipated sales
proceeds. (See Note 9.)
The amounts accrued at December 29, 1996, relating to Restructuring and
Asset Impairment Charges recorded in fiscal 1996, exceeded amounts ultimately
required. Accordingly, the fiscal 1997 Consolidated Statement of Operations
includes $14.6 million of benefit related to the reversal of accruals no longer
required. Of the total benefit, $5.8 million was recorded in the third quarter
and $8.8 million in the fourth quarter of 1997.
Amounts included in Restructuring and Asset Impairment Charges in 1996 in
the accompanying Consolidated Statement of Operations include cash items such as
severance and other employee costs of $24.7 million, lease obligations and other
exit costs associated with facility closures of $16.7 million, and other costs
related to the implementation of the restructuring plan. Non-cash Restructuring
and Asset Impairment Charges in 1996 included $68.7 million related to asset
write-downs to net realizable value for disposals of excess facilities and
equipment and certain product lines, write-offs of redundant computer systems
from the administrative back-office consolidations and outsourcing initiatives
and intangible, packaging and other asset write-downs related to exited product
lines and SKU reductions. The following table sets forth the details and the
cumulative activity in the restructuring accrual as of December 28, 1997 (in
millions):
<TABLE>
<CAPTION>
ACCRUAL BALANCE ACCRUAL BALANCE
AT DECEMBER 29, CASH NON-CASH AT DECEMBER 28,
1996 REDUCTIONS REDUCTIONS REVERSALS 1997
--------------- ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Severance and other
employee costs.................. $19.1 $ 10.0 $ -- $ 7.9 $ 1.2
Closure and consolidation of
facilities and related exit
costs........................... 32.6 11.2 10.7 6.7 4.0
----- ------ ------ -----
Total............................. $51.7 $ 21.2 $ 10.7 $14.6 $ 5.2
----- ------ ------ ----- -----
----- ------ ------ ----- -----
</TABLE>
During 1997, the Company recorded SG&A charges of $15.8 million for
equipment relocation, severance, package redesign and other items related to the
1996 restructuring plan.
9. DISCONTINUED OPERATIONS AND OTHER ASSETS HELD FOR SALE
As part of the restructuring plan, the Company also announced the
divestiture of the furniture business, by a sale of assets. In February 1997,
the Company entered into an agreement to sell the business to U.S. Industries,
Inc. which was completed on March 17, 1997. In connection with the sale of these
assets (primarily inventory, property, plant and equipment), the Company
received $69 million in cash. The Company retained accounts receivable related
to the furniture business of approximately $50.0 million as of the closing date
and retained certain liabilities.
In connection with the furniture divestiture, the Company recorded a
provision for estimated losses to be incurred on the sale of $39.1 million in
1996, net of applicable income tax benefits of $19.9 million and an additional
loss of $14.0 million, net of applicable income tax benefits of $8.5 million in
the first quarter of 1997 predominately as a result of lower than anticipated
sales proceeds. Although the discontinued furniture operations were profitable,
net income had declined from $21.7 million in 1994 to $0.8 million in 1996. This
decline, along with the Company's announcement that it intended to divest this
line of business contributed to the loss on sale. Results of operations from the
discontinued furniture business were $0.8 million in 1996 and $12.9 million in
1995, net of applicable income taxes of $0.5 million and $7.9 million,
respectively. Earnings from the discontinued furniture business in 1997 were not
material. Revenues for the discontinued furniture business were
F-21
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DISCONTINUED OPERATIONS AND OTHER ASSETS HELD FOR SALE--(CONTINUED)
$51.6 million in 1997, $227.5 million in 1996 and $185.6 million in 1995.
Revenues and expenses related to the furniture business are excluded from
results from continuing operations and are presented as a single line item,
Earnings from Discontinued Operations, net of taxes, in the Consolidated
Statements of Operations.
At December 29, 1996, the Net Assets of Discontinued Operations and Other
Assets Held for Sale as presented in the accompanying Consolidated Balance Sheet
were (in thousands):
<TABLE>
<S> <C>
Current assets.............................................................................. $ 40,435
Property, plant and equipment............................................................... 62,412
----------
Total assets.............................................................................. 102,847
Current liabilities......................................................................... 10,323
----------
Total liabilities......................................................................... 10,323
----------
Net Assets of Discontinued Operations
and Other Assets Held for Sale............................................................ $ 92,524
----------
----------
</TABLE>
In addition to the furniture business divestiture, the Company also
completed the sale of other product lines and assets in 1997 as part of its
restructuring plan, including time and temperature products,
Counselor(Registered) and Borg(Registered) scales and a textile facility. Losses
incurred on the disposal of these assets, which consist primarily of write-downs
of assets to net realizable value, are included in Restructuring and Asset
Impairment Charges in 1996 in the Consolidated Statements of Operations as
described in Note 8.
10. INCOME TAXES
Earnings (loss) from continuing operations before income taxes for each
fiscal year is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ---------- -------
<S> <C> <C> <C>
Domestic............................................................ $80,946 $ (244,255) $54,646
Foreign............................................................. 11,724 (17,550) 5,989
------- ---------- -------
$92,670 $ (261,805) $60,635
------- ---------- -------
------- ---------- -------
</TABLE>
Income tax provisions include current and deferred taxes (tax benefits) for
each fiscal year as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- --------- -------
<S> <C> <C> <C>
Current:
Federal............................................................ $(3,421) $ (22,924) $(1,329)
State.............................................................. 3,266 (202) (1,402)
Foreign............................................................ 1,683 707 626
------- --------- -------
1,528 (22,419) (2,105)
------- --------- -------
Deferred:
Federal............................................................ 30,554 (57,211) 23,127
State.............................................................. 3,962 (11,050) 1,962
Foreign............................................................ 4,308 (945) 57
------- --------- -------
38,824 (69,206) 25,146
------- --------- -------
$40,352 $ (91,625) $23,041
------- --------- -------
------- --------- -------
</TABLE>
F-22
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES--(CONTINUED)
A reconciliation of income tax expense (benefit) with the expected income
tax computed by applying the federal statutory income tax rate to earnings
(loss) from continuing operations before income taxes for each fiscal year is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------
<S> <C> <C> <C>
Income tax computed at the federal statutory
tax rate.......................................................... $ 32,435 $ (91,631) $21,222
State and local taxes (net of federal benefit)...................... 4,698 (7,313) 364
Foreign earnings and dividends taxed at other rates................. 1,888 5,967 419
Valuation allowance................................................. 18,900 -- --
Reversal of tax liabilities no longer required...................... (13,333) -- --
Other, net.......................................................... (4,236) 1,352 1,036
--------- --------- -------
$ 40,352 $ (91,625) $23,041
--------- --------- -------
--------- --------- -------
</TABLE>
The major components of the Company's net current deferred tax asset and
net long-term deferred tax liability at the end of each fiscal year are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSET LIABILITY ASSET LIABILITY
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating reserves and accruals............... $ 16,701 $ 33,514 $ 51,685 $ 28,447
Book/tax basis difference in
intangible assets........................... -- (70,881) -- (72,587)
Book/tax basis difference in
other assets................................ 10,047 (24,842) 19,276 (13,406)
Reserves and accruals for
divested operations......................... 3,872 20,832 8,905 24,043
Valuation allowances.......................... (39,772) 16,561 -- --
Other......................................... 9,152 19,974 5,201 (18,805)
-------- -------- -------- --------
$ -- $ (4,842) $ 85,067 $(52,308)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The Company establishes valuation allowances in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES. The Company continually reviews the adequacy of the valuation
allowances and recognizes tax benefits when it is more likely than not that the
benefits will be realized. In the fourth quarter of 1997, the Company increased
the valuation allowance by $23.2 million reflecting management's assessment that
it is more likely than not that the net deferred tax asset will not be realized
through future taxable income. Of this amount, approximately $18.9 million
related to deferred tax assets, the majority of which was recognized as a
benefit in the first three quarters of 1997. The remainder, or $4.3 million,
related to minimum pension liabilities and was therefore recorded as an
adjustment in shareholders' equity.
11. CUSTOMER AND GEOGRAPHIC DATA
Classes of products which contributed more than 10% to consolidated net
sales were outdoor home use durable products and indoor home use durable
products. Sales of outdoor home use durable products amounted to $292.1 million
in 1997, $256.9 million in 1996 and $269.0 million in 1995. Sales of indoor home
use durable products were $781.0 million in 1997, $680.7 million in 1996 and
$688.3 million in 1995.
The Company's largest customer accounted for approximately 20% of
consolidated net sales in 1997 and 19% in 1996 and 1995.
F-23
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CUSTOMER AND GEOGRAPHIC DATA--(CONTINUED)
The Company's operations are conducted in the United States and
international markets, principally in Latin America. Information about the
Company's domestic and international operations for each fiscal year is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Domestic.................................................... $ 843,518 $ 800,969 $ 829,423
International (includes U.S. export sales).................. 229,572 183,267 187,460
---------- ---------- ----------
$1,073,090 $ 984,236 $1,016,883
---------- ---------- ----------
---------- ---------- ----------
Operating earnings (loss):
Domestic.................................................... $ 91,108 $ (207,765) $ 70,423
International (includes U.S. export sales).................. 43,011 (3,078) 24,301
---------- ---------- ----------
134,119 (210,843) 94,724
Unallocated expenses and eliminations......................... (30,056) (33,636) (24,479)
---------- ---------- ----------
$ 104,063 $ (244,479) $ 70,245
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Domestic.................................................... $ 862,399 $ 768,282 $1,040,591
International............................................... 129,883 73,675 67,563
---------- ---------- ----------
992,282 841,957 1,108,154
Corporate assets.............................................. 66,646 217,491 50,530
---------- ---------- ----------
$1,058,928 $1,059,448 $1,158,684
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Unallocated expenses and eliminations include corporate administrative
expenses, intangible amortization, certain pension and postretirement benefit
costs or credits, and eliminations of intercompany income and expense.
Identifiable assets are those used directly in the operations, and exclude
non-operating corporate and deferred tax assets. Sales between geographic areas
are not material and are made primarily at cost plus a markup.
12. COMMITMENTS AND CONTINGENCIES
Environmental Matters
The Company's operations, like those of comparable businesses, are subject
to certain federal, state, local and foreign environmental laws and regulations.
As of December 28, 1997, the Company had been identified as a potentially
responsible party ("PRP") in connection with seven sites subject to the federal
Superfund law and two sites subject to state Superfund laws comparable to the
federal law (collectively the "Environmental Sites"), exclusive of sites at
which the Company has been designated (or expects to be designated) as a de
minimis (less than 1%) participant. Substantially all of these sites relate to
divested operations of the Company.
The Company currently is engaged in active remediation activities at nine
sites, four of which are among the Environmental Sites referred to above, and
five of which have not been designated as Superfund sites under federal or state
law. In addition, the Company is engaged in environmental remediation activities
at a site in Newburgh Heights, Ohio, where a subsidiary formerly conducted
operations. The Company has been actively cooperating with the United States
Nuclear Regulatory Commission and state regulatory authorities in developing a
plan for remediation of this site; which remediation is expected to be
substantially completed during 1998.
The Company has established reserves, in accordance with SFAS No. 5,
Accounting for Contingencies, to cover the anticipated probable costs of
remediation, based upon periodic reviews of all sites for which the Company has,
or may have, remediation responsibility. As of December 28, 1997, and
December 29, 1996, the
F-24
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
amount of such reserves was less than 5% of the Company's total liabilities as
set forth in the consolidated financial statements. Liability under the
Superfund law is joint and several and is imposed on a strict basis, without
regard to degree of negligence or culpability. As a result, the Company
recognizes its responsibility to determine whether other PRPs at a Superfund
site are financially capable of paying their respective shares of the ultimate
cost of remediation of the site. Whenever the Company has determined that a
particular PRP is not financially responsible, it has assumed for purposes of
establishing reserve amounts that such PRP will not pay its respective share of
the costs of remediation. To minimize the Company's potential liability with
respect to the Environmental Sites, the Company has actively participated in
steering committees and other groups of PRPs established with respect to such
sites. The Company continues to pursue the recovery of some environmental
remediation costs from certain of its liability insurance carriers; however,
such potential recoveries have not been offset against potential liabilities and
have not been considered in determining the Company's environmental reserves.
Due to uncertainty over remedial measures to be adopted at some sites, the
possibility of changes in environmental laws and regulations and the fact that
joint and several liability with the right of contribution is possible at
federal and state Superfund sites, the Company's ultimate future liability with
respect to sites at which remediation has not been completed may vary from the
amounts reserved as of December 28, 1997. In the fourth quarter of 1996 a
comprehensive review of all environmental exposures was performed, and the
Company accelerated its strategy for the resolution and settlement of certain
environmental claims. As a result, the Company recorded additional environmental
reserves of approximately $9.0 million in the fourth quarter of 1996. The
Company believes, based on existing information, that the costs of completing
environmental remediation of all sites for which the Company has a remediation
responsibility have been adequately reserved, and that the ultimate resolution
of these matters will not have a material adverse effect upon the Company's
financial condition, results of operations or cash flows.
Leases
The Company rents certain facilities, equipment and retail stores under
operating leases. Rental expense for operating leases amounted to $7.4 million
in 1997, $8.0 million for 1996 and $8.6 million for 1995. The minimum future
rentals due under noncancelable operating leases as of December 28, 1997
aggregated $30.9 million. The amounts payable in each of the years 1998-2002 and
thereafter are $4.8 million, $4.6 million, $4.2 million, $3.9 million, $3.4
million and $10.0 million, respectively.
Letters Of Credit
At December 28, 1997, standby letters of credit aggregating $29 million
were outstanding, primarily for insurance, environmental and workers'
compensation issues.
Certain Debt Obligations
Responsibility for servicing certain debt obligations of the Company's
predecessor were assumed by third parties in connection with the acquisition of
former businesses, although the Company's predecessor remained the primary
obligor in accordance with the respective loan documents. Such obligations,
which amounted to approximately $19.0 million at December 28, 1997, and the
corresponding receivables from the third parties, are not included in the
consolidated balance sheets since these transactions occurred prior to the
issuance of SFAS No. 76, Extinguishment of Debt. Management believes that the
third parties will continue to meet their obligations pursuant to the assumption
agreements.
F-25
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Litigation
The Company is involved in various lawsuits arising from time to time in
the ordinary course of business and/or related to divested operations of the
Company. The Company has established reserves, in accordance with SFAS No. 5,
Accounting for Contingencies, to cover the anticipated probable costs of
litigation matters, based upon periodic reviews of all cases.
In the fourth quarter of 1996, the Company recorded a $12.0 million charge
related to a case for which an adverse development arose near year-end. In 1997,
this case was favorably resolved and, as a result, $8.1 million of the charge
established in 1996 was reversed into income primarily in the fourth quarter of
1997.
The Company believes, based on existing information, that anticipated
probable costs of litigation matters existing as of December 31, 1997 have been
adequately reserved, and that the ultimate resolution of these matters will not
have a material adverse effect upon the Company's financial condition, results
of operations or cash flows. See Note 15 for additional information regarding
litigation.
Product Liability Matters
The Company is party to various personal injury and property damage
lawsuits relating to its products and incidental to its business. Annually, the
Company sets its product liability insurance program based on the Company's
current and historical claims experience and the availability and cost of
insurance. The Company's program for 1997 was comprised of a self-insurance
retention of $1 million per occurrence.
Cumulative amounts estimated to be payable by the Company with respect to
pending and potential claims for all years in which the Company is liable under
its self-insurance retention have been accrued as liabilities. Such accrued
liabilities are necessarily based on estimates (which include actuarial
determinations made by independent actuarial consultants as to liability
exposure, taking into account prior experience, numbers of claims and other
relevant factors); thus, the Company's ultimate liability may exceed or be less
than the amounts accrued. The methods of making such estimates and establishing
the resulting liability are reviewed continually and any adjustments resulting
therefrom are reflected in current operating results.
Historically, product liability awards have rarely exceeded the Company's
individual per occurrence self-insured retention. There can be no assurance,
however, that the Company's future product liability experience will be
consistent with its past experience. Based on existing information, the Company
believes that the ultimate conclusion of the various pending product liability
claims and lawsuits of the Company, individually or in the aggregate, will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
Purchase Commitment
In conjunction with the sale of the Biddeford, Maine textile mill in 1997,
the Company entered into a five-year agreement to purchase blanket shells from
the mill. The agreement provides for a minimum purchase commitment each year of
the contract. As of December 28, 1997, the Company had remaining minimum
commitments under the contract of approximately $107 million.
F-26
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RESTATEMENT
Subsequent to the issuance of the Company's Consolidated Financial
Statements for the fiscal years ended December 28, 1997 and December 29, 1996,
it was determined that the reported results generally inflated 1997 results at
the expense of 1996 results. Upon examination, it was determined 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 Statement of Operations. As a result, the accompanying
Consolidated Financial Statements as of December 28, 1997 and December 29, 1996,
and for the years then ended, present the restated results.
A summary of the effects of the restatement follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED
---------------------------------------------------------
DECEMBER 28, DECEMBER 29,
1997 1996
-------------------------- -------------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales...................................... $1,168,182 $1,073,090 $ 984,236 $ 984,236
Cost of goods sold............................. 837,683 830,956 900,573 896,938
Selling, general and administrative expense.... 131,056 152,653 214,029 221,655
Restructuring and asset impairment (benefit)
charges...................................... -- (14,582) 154,869 110,122
---------- ---------- ---------- ---------
Operating earnings (loss)...................... 199,443 104,063 (285,235) (244,479)
Interest expense............................... 11,381 11,381 13,588 13,588
Other (income) expense, net.................... (1,218) 12 3,738 3,738
---------- ---------- ---------- ---------
Earnings (loss) from continuing operations
before income taxes.......................... 189,280 92,670 (302,561) (261,805)
Income taxes (benefit)......................... 66,152 40,352 (105,890) (91,625)
---------- ---------- ---------- ---------
Earnings (loss) from continuing operations..... 123,128 52,318 (196,671) (170,180)
Loss from discontinued operations, net......... (13,713) (14,017) (31,591) (38,301)
---------- ---------- ---------- ---------
Net earnings (loss)............................ $ 109,415 $ 38,301 $ (228,262) $(208,481)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Earnings (loss) per share of common stock from
continuing operations:
Basic........................................ $ 1.45 $ 0.62 $ (2.37) $ (2.05)
Diluted...................................... $ 1.41 $ 0.60 $ (2.37) $ (2.05)
Loss from discontinued operations:
Basic........................................ $ (0.16) $ (0.17) $ (0.38) $ (0.46)
Diluted...................................... $ (0.16) $ (0.16) $ (0.38) $ (0.46)
Net earnings (loss) per share of common stock:
Basic........................................ $ 1.29 $ 0.45 $ (2.75) $ (2.51)
Diluted...................................... $ 1.25 $ 0.44 $ (2.75) $ (2.51)
</TABLE>
F-27
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RESTATEMENT--(CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------
AS OF DECEMBER 28, AS OF DECEMBER 29,
1997 1996
-------------------------- --------------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................. $ 52,378 $ 52,298 $ 11,526 $ 11,526
Receivables, net........................... 295,550 228,460 213,438 209,754
Inventories................................ 256,180 304,900 162,252 164,345
Net assets of discontinued operations and
other assets held for sale.............. -- -- 102,847 92,524
Deferred income taxes...................... 36,706 -- 93,689 85,067
Prepaid expenses and other current
assets.................................. 17,191 16,584 40,411 38,381
---------- ---------- ---------- ----------
Total current assets.................... 658,005 602,242 624,163 601,597
Property, plant and equipment, net......... 240,897 249,524 220,088 229,393
Trademarks, trade names, goodwill and other
net..................................... 221,382 207,162 228,458 228,458
---------- ---------- ---------- ----------
Total assets............................ $1,120,284 $1,058,928 $1,072,709 $1,059,448
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt.......... $ 668 $ 668 $ 921 $ 921
Accounts payable........................... 105,580 108,374 107,319 104,113
Restructuring accrual...................... 10,938 5,186 63,834 51,725
Other current liabilities.................. 80,913 118,899 99,509 84,986
---------- ---------- ---------- ----------
Total current liabilities............... 198,099 233,127 271,583 241,745
Long-term debt............................. 194,580 194,580 201,115 201,115
Other long-term liabilities................ 141,109 154,300 152,451 149,247
Deferred income taxes...................... 54,559 4,842 52,308 52,308
Preferred stock............................ -- -- -- --
Common stock............................... 900 900 884 884
Paid-in capital............................ 483,384 479,200 447,948 447,948
Retained earnings.......................... 141,134 89,801 35,118 54,899
Other...................................... (30,436) (34,777) (25,310) (25,310)
Treasury stock............................. (63,045) (63,045) (63,388) (63,388)
---------- ---------- ---------- ----------
Total shareholders' equity.............. 531,937 472,079 395,252 415,033
---------- ---------- ---------- ----------
Total liabilities and shareholders'
equity................................ $1,120,284 $1,058,928 $1,072,709 $1,059,448
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-28
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL 1997(A)
----------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------------------- ---------------------- ---------------------- ----------
AS AS AS AS
PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED REPORTED
---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN MILLIONS, EXEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 253.5 $ 252.5 $ 287.6 $ 271.4 $ 289.0 $ 286.8 $ 338.1
Gross profit..................... 67.7 58.3 74.5 55.3 88.8 76.5 99.5
Operating earnings............... 34.7 17.1 43.0 16.8 54.9 45.1 66.8
Earnings from continuing
operations..................... 20.6 9.0 26.2 8.7 34.6 27.5 41.7
Basic earnings per share from
continuing operations(c)....... $ 0.24 $ 0.11 $ 0.31 $ 0.10 $ 0.41 $ 0.32 $ 0.49
Diluted earnings per share from
continuing operations(c)....... 0.24 0.11 0.30 0.10 0.39 0.31 0.47
Earnings from discontinued
operations, net of taxes....... -- -- -- -- -- -- --
(Loss) benefit on sale of
discontinued operations, net of
taxes.......................... (13.7) (13.7) -- -- -- (2.7) --
Net earnings (loss).............. 6.8 (4.7) 26.2 8.7 34.6 24.8 41.8
Basic earnings (loss) benefit per
share(c)....................... 0.08 (0.06) 0.31 0.10 0.41 0.29 0.49
Diluted earnings (loss) per
share(c)....................... 0.08 (0.06) 0.30 0.10 0.39 0.28 0.47
<CAPTION>
AS
RESTATED
--------
<S> <C>
Net sales........................ $ 262.4
Gross profit..................... 52.1
Operating earnings............... 25.1
Earnings from continuing
operations..................... 7.1
Basic earnings per share from
continuing operations(c)....... $ 0.08
Diluted earnings per share from
continuing operations(c)....... 0.08
Earnings from discontinued
operations, net of taxes....... --
(Loss) benefit on sale of
discontinued operations, net of
taxes.......................... 2.4
Net earnings (loss).............. 9.5
Basic earnings (loss) benefit per
share(c)....................... 0.11
Diluted earnings (loss) per
share(c)....................... 0.11
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996(A)
------------------------------------------------
FIRST SECOND
QUARTER QUARTER
---------------------- ----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................................. $229.7 $229.7 $253.9 $253.9
Gross profit (loss)................................................... 48.1 48.1 47.2 47.2
Operating earnings (loss)(b).......................................... 15.5 15.5 9.2 9.2
Earnings (loss) from continuing operations............................ 6.7 6.7 2.8 2.8
Basic earnings (loss) per share from continuing operations(c)......... $ 0.08 $ 0.08 $ 0.03 $ 0.03
Diluted earnings (loss) per share from continuing operations(c)....... 0.08 0.08 0.03 0.03
Earnings (loss) from discontinued operations, net of taxes............ 10.7 10.7 4.4 4.4
Loss on sale of discontinued operations, net of taxes................. -- -- -- --
Net earnings (loss)................................................... 17.4 17.4 7.2 7.2
Basic earnings (loss) per shares(c)................................... 0.21 0.21 0.09 0.09
Diluted earnings (loss) per share(c).................................. 0.21 0.21 0.09 0.09
</TABLE>
F-29
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. UNAUDITED QUARTERLY FINANCIAL DATA--(CONTINUED)
<TABLE>
<CAPTION>
FISCAL 1996(A)
------------------------------------------------
THIRD FOURTH
QUARTER QUARTER
---------------------- ----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
---------- -------- ---------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................................. $231.8 $231.8 $268.8 $268.8
Gross profit (loss)................................................... 28.8 28.8 (40.5) (36.8)
Operating earnings (loss)(b).......................................... (20.7) (20.7) (289.2)(b) (248.4)
Earnings (loss) from continuing operations............................ (15.8) (15.8) (190.4) (163.9)
Basic earnings (loss) per share from continuing operations(c)......... $(0.19) $(0.19) $(2.29) $(1.97)
Diluted earnings (loss) per share from continuing operations(c)....... (0.19) (0.19) (2.29) (1.97)
Earnings (loss) from discontinued operations, net of taxes............ (2.3) (2.3) (12.0) (12.0)
Loss on sale of discontinued operations, net of taxes................. -- -- (32.4) (39.1)
Net earnings (loss)................................................... (18.1) (18.1) (234.8) (215.0)
Basic earnings (loss) per shares(c)................................... (0.22) (0.22) (2.83) (2.59)
Diluted earnings (loss) per share(c).................................. (0.22) (0.22) (2.83) (2.59)
</TABLE>
- ------------------
(a) Each quarter consists of a 13-week period.
(b) Refer to Notes 8 and 9 regarding the Company's 1996 restructuring plan.
(c) Reflects the adoption of SFAS No. 128, EARNINGS PER SHARE.
During the first, second, third and fourth quarters of fiscal 1997,
approximately $0.5 million, $4.5 million, $1.5 million and $21.5 million,
respectively, of pre-tax liabilities no longer required were reversed and taken
into income. Included in these reserves is the $8.1 million litigation reserve
reversal discussed in Note 12. Additionally, during the fourth quarter of fiscal
1997, approximately $13.3 million of tax liabilities no longer required were
reversed and taken into income.
15. SUBSEQUENT EVENTS (UNAUDITED)
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 as further described in Note 2, a
new equity grant of 300,000 shares of unrestricted stock, a new grant of a
ten-year option to purchase 3,750,000 shares of the Company's common stock with
an exercise price equal to the fair market value of the stock at the date of
grant and exercisable in three equal annual installments beginning on the date
of grant and the acceleration of vesting of 833,333 outstanding stock options
granted under the July 1996 agreement as further described in Note 5. 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
F-30
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
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 will be
recognized in the first quarter of 1998 and compensation expense related to the
new restricted stock grants and related tax gross-ups will be amortized to
expense beginning in the first quarter of 1998 over the period in which the
restrictions lapse. Total compensation expense to be recognized in the first
quarter of 1998 related to these items is expected to be 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 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, will be reversed and compensation expense of approximately
$0.9 million recognized in the first quarter for unvested restricted stock
grants will be reversed into income in the second and third quarters of 1998.
Other costs related to the resignations and terminations will be recognized, as
appropriate, in 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.
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"), 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. 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) brand name
since the 1920's.
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. The financial statement impact of the settlement, which will be
material in amount, will be recorded in the third quarter of 1998.
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. (See Litigation and Further Actions below.)
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
F-31
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
Brands"), a leading manufacturer of a comprehensive line 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 above acquisitions will be accounted for by the purchase method of
accounting and the results of operations of the acquired entities will be
included in the Company's Consolidated Statement of Operations from the
respective acquisition dates.
Debentures and New Credit Facility
In order to finance the above acquisitions, and refinance substantially all
of the indebtedness of the Company, Coleman, First Alert, and Signature Brands,
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") in April 1998.
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
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.
The New Credit Facility provided for an 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.
At June 30, 1998, the Company was not in compliance with the financial covenants
and ratios required. 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 certain of the Company's assets, including its stock interest in Coleman and
certain other subsidiaries and certain of the Company's tangible and intangible
personal property. 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. 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 September 30, 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 $1,453 million was outstanding and approximately $245
million was available. In addition, the Company's cash balance at September 30,
1998 was approximately $43 million.
F-32
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
The Company is working closely with its bank lenders and hopes to reach
agreement with the bank lenders on a further amendment to the New Credit
Facility containing revised financial covenants which the bank lenders and the
Company find mutually acceptable. 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 a violation of the existing
covenants, which would permit the bank lenders to accelerate the maturity of all
outstanding borrowings under the New Credit Facility.
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 will record a
charge of $8.6 million in the first quarter of 1998. Also, as a result of
repayment of certain indebtedness assumed in the Coleman acquisition, the
Company will recognize an extraordinary charge of approximately $104 million in
the second quarter of 1998.
At September 30, 1998, the standby letters of credit aggregated
$56 million, including $5 million related to an acquired company, and were
predominately for insurance, pension, environmental and workers' compensation
issues.
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. The Company has provided numerous documents to the SEC
staff and continues to cooperate fully with the SEC staff. The Company cannot
predict the term of such investigation or its potential outcome.
Litigation
On April 23, 1998, two class action lawsuits were filed on behalf of
purchasers of the Company's common stock in the U. S. District Court for the
Southern District of Florida against the Company and 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, at
least 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.
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
F-33
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
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 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. (See Further Actions, below.)
On June 25, 1998, four purported class actions were filed in the Court of
Chancery of the State of Delaware in New Castle County by minority shareholders
of Coleman against Coleman, certain of the Company's present and former officers
and directors and, as a nominal party, the Company. 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. (See Further Actions, below.)
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, a subsidiary of M&F was
granted five-year warrants to purchase up to 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.
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 for consolidation of this case with the Consolidated
Federal Actions. Plaintiffs have moved to remand the case to Texas state court.
The Company intends to vigorously defend each of the foregoing lawsuits, as
well as the Debentures purchasers' lawsuit reflected under Further Actions,
below, 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
F-34
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
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.
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. (See
Further Actions, below). The Company intends to pursue recovery from all of its
insurers if damages are awarded against the Company or its indemnified officers
and/or directors under any of the foregoing actions. The Company's failure to
obtain such insurance recoveries following an adverse judgement in any of the
foregoing shareholder lawsuits or the Debentures purchasers' lawsuit referred to
under Further Actions, below, could have a material adverse impact on the
Company's financial position, results of operations and cash flow.
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 or results of operations of
the Company.
Further Actions
On October 22, 1998, the plaintiff in the case filed April 7, 1998, 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 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 quarter of 1999. There can be no assurance that the
Court will approve the settlement as proposed.
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.
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 has not yet been served
with this complaint.
F-35
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
Restructuring and Asset Impairment
In 1998, as a result of decisions to outsource 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, certain assets recorded at December 28, 1997 will be written down
in 1998 to reflect the fair market value of items held for disposition or to
reflect impairment for items where the future utility is altered by the sourcing
change. Personnel at the Mexico City manufacturing plant were notified in the
second quarter of 1998 that the plant is scheduled for closure at year-end 1998.
Accordingly, a liability related to plant closure will be recorded in the second
quarter of 1998.
Annual Meeting Actions
At the Company's annual meeting held May 12, 1998, the shareholders
approved the following actions: (i) to amend the Company's Certificate of
Incorporation increasing the authorized common stock to 500 million shares;
(ii) to amend the Company's stock option plan to increase the number of
available shares to 16.5 million; and (iii) to grant stock options to certain of
the Company's now former officers. (See New Employment Agreements, above.)
Options Repricing
In August, 1998 the Company approved a plan to reprice outstanding common
stock options held by the Company's employees. The repricing program provides
for outstanding options with exercise prices in excess of $10.00 per share to be
exchanged on a voluntary basis in an exchange ratio ranging from approximately 2
to 3 old options for one new option, (as determined by reference to a
Black-Scholes model) with the exercise price of the new options set at $7.00 per
share.
Change in Fiscal Year End
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.
New Accounting Standards
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 prospectively beginning 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, 1998.
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
financial position or results of operations when such statement is adopted.
F-36
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and cash discounts:
$ (2,000)(a)
8,948 (b)
Fiscal year ended December 28, 1997 (as restated)........... $ 19,701 $ 17,297 17 (c) $ 30,033
-------- -------- -------- --------
-------- -------- -------- --------
$ (233)(a)
19,911 (b)
Fiscal year ended December 29, 1996 (as restated)........... $ 12,326 $ 27,053 -- (c) $ 19,701
-------- -------- -------- --------
-------- -------- -------- --------
$ 715 (a)
6,988 (b)
Fiscal year ended December 31, 1995......................... $ 9,416 $ 10,651 38 (c) $ 12,326
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------
Notes:
(a) Reclassified to/from accrued liabilities for customer deductions.
(b) Accounts written off as uncollectible.
(c) Foreign currency translation adjustment.
<TABLE>
<CAPTION>
ADDITIONS ENDING
BEGINNING CHARGED CASH NON-CASH ACCRUAL
DESCRIPTION ACCRUAL TO INCOME REDUCTIONS REDUCTIONS REVERSALS BALANCE
- --------------------------------------------- --------- --------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Restructuring accrual:
1997....................................... $51.7 $ -- $ 21.2 $ 10.7 $14.6 $ 5.2
1996....................................... 13.8 110.1 8.1 64.1 -- 51.7
1995....................................... 16.2 -- 2.4 -- -- 13.8
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS ENDING
BEGINNING CHARGED CASH NON-CASH ACCRUAL
DESCRIPTION ACCRUAL TO INCOME REDUCTIONS REDUCTIONS BALANCE
- -------------------------------------------------------- --------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowances and Reserves for Loss on Discontinued
Operations:
1997.................................................. $58.2 $ 22.5 $ 6.1 $ 71.6 $ 3.0
1996.................................................. -- 58.2 -- -- 58.2
1995.................................................. -- -- -- -- --
</TABLE>
F-37
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
AS RESTATED AS RESTATED
SEE NOTE 8 SEE NOTE 8
(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 (Note 3)........................ -- -- (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>
See Notes to Condensed Consolidated Financial Statements.
F-38
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 28,
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 52,081 $ 52,298
Restricted investments (Note 3)................................................... 83,681 --
Receivables, net.................................................................. 435,081 228,460
Inventories....................................................................... 647,335 304,900
Prepaid expenses, deferred income taxes and other current assets.................. 65,579 16,584
----------- -----------
Total current assets...................................................... 1,283,757 602,242
Property, plant and equipment, net.................................................. 407,047 249,524
Trademarks, trade names, goodwill and other, net.................................... 1,812,938 207,162
----------- -----------
$ 3,503,742 $ 1,058,928
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt (Note 3).................... $ 1,509,545 $ 668
Accounts payable.................................................................. 158,859 108,374
Other current liabilities......................................................... 281,867 124,085
----------- -----------
Total current liabilities................................................. 1,950,271 233,127
Long-term debt...................................................................... 778,791 194,580
Other long-term liabilities......................................................... 217,085 159,142
Minority interest................................................................... 58,043 --
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock (2,000,000 shares authorized, none outstanding)................ -- --
Common stock (100,708,970 and 89,984,425 shares issued and outstanding)........ 1,007 900
Additional paid-in capital..................................................... 1,030,862 479,200
(Accumulated deficit) retained earnings........................................ (499,143) 89,801
Accumulated other comprehensive loss........................................... (33,174) (33,062)
Other shareholders' equity..................................................... -- (1,715)
----------- -----------
499,552 535,124
Treasury stock, at cost (4,454,394 shares in 1997)............................. -- (63,045)
----------- -----------
Total shareholders' equity................................................ 499,552 472,079
----------- -----------
$ 3,503,742 $ 1,058,928
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-39
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 28,
1998 1997
------------- -------------
AS RESTATED
SEE NOTE 8
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings............................................................... $ (587,070) $ 28,804
Adjustments to reconcile net (loss) earnings to net cash
used in operating activities:
Depreciation and amortization.................................................. 89,510 31,107
Deferred income taxes.......................................................... (1,280) 14,006
Minority interest in loss from Coleman......................................... (3,447) --
Loss on sale of property, plant and equipment.................................. 2,406 --
Provision for fixed assets..................................................... 32,642 --
Provision for excess and obsolete inventory.................................... 86,167 --
Warrants charged to expense (see Note 2)....................................... 70,000 --
Non-cash compensation charges.................................................. 23,359 --
Loss on sale of discontinued operations, net of taxes.......................... -- 16,396
Restructuring and asset impairment benefit..................................... (2,900) (5,749)
Extraordinary charge from early extinguishment of debt......................... 111,715 --
Changes in working capital and other, net of acquisitions...................... (45,797) (144,464)
----------- ---------
Net cash used in operating activities..................................... (224,695) (59,900)
----------- ---------
INVESTING ACTIVITIES:
Capital expenditures.............................................................. (32,766) (40,996)
Acquisitions of Coleman, Signature Brands and First Alert,
net of cash acquired........................................................... (379,159) --
Proceeds from sales of divested operations and other assets....................... 307 90,922
----------- ---------
Net cash (used in) provided by investing activities....................... (411,618) 49,926
----------- ---------
FINANCING ACTIVITIES:
Issuance of convertible subordinated debentures, net of financing fees............ 729,622 --
Net borrowings under revolving credit facility.................................... 1,353,041 10,000
Payments of debt obligations, including prepayment penalties...................... (1,464,245) (11,882)
Proceeds from exercise of stock options........................................... 19,553 25,453
Other, net........................................................................ (1,875) (2,312)
----------- ---------
Net cash provided by financing activities................................. 636,096 21,259
----------- ---------
Net (decrease) increase in cash and cash equivalents................................ (217) 11,285
Cash and cash equivalents at beginning of period.................................... 52,298 11,526
----------- ---------
Cash and cash equivalents at end of period.......................................... $ 52,081 $ 22,811
----------- ---------
----------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-40
<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/registered trademark/ and
Oster/registered trademark/ 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/registered trademark/ 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 third
quarters of 1998 was to increase sales by approximately $4 million and
$2 million, respectively, and the impact on operating results for the periods
was to increase the net loss by approximately $0.2 million in the first quarter
and by $1.3 million in the third quarter.
Basis of Presentation
The Condensed Consolidated Balance Sheet of the Company as of
September 30, 1998 and the Condensed Consolidated Statements of Operations for
the three and nine months ended September 30, 1998 and September 28, 1997, and
the Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and September 28, 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.
F-41
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
1. OPERATIONS AND BASIS OF PRESENTATION--(CONTINUED)
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).
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 third quarter and first nine months of 1998, respectively, 39,090
and 3,017,516 shares related to stock options, 12,717 and 63,016 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 third quarter and first nine months
of 1997, respectively, the dilutive effect of 2,886,577 and 2,602,749 equivalent
shares related to stock options and (94,224) and (148,360) 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
F-42
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
1. OPERATIONS AND BASIS OF PRESENTATION--(CONTINUED)
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.
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 and
Administrative ("SG&A") expense was recorded in the third quarter of 1998, based
on a valuation performed as of August 1998 using facts existing at that time.
The valuation was conducted by an independent consultant engaged by the Special
Committee of the Board of Directors. (See Note 10.)
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
F-43
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. ACQUISITIONS--(CONTINUED)
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.
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>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 1,630.6 $ 1,964.6
Loss from continuing operations before extraordinary charge (a), (b)................ (505.8) (54.0)
Basic and diluted loss per share from continuing operations before
extraordinary items............................................................... (5.03) (0.55)
</TABLE>
- ------------------
(a) Coleman's loss 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 $42.2 million, and goodwill amortization, after tax, was
increased $6.3 million in 1998 and $19.9 million in 1997 to reflect the pro
forma effect of the acquisition 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 $4.2 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.
F-44
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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 10.)
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 September 30, 1998.
F-45
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. CREDIT FACILITIES, LONG-TERM DEBT AND FINANCIAL INSTRUMENTS--(CONTINUED)
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 September 30, 1998 and
September 28, 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 September 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, $83.7 million of
restricted investments held by the trustee for the August 1999 liquidation of
acquired debt are reflected as an asset in the balance sheet at September 30,
1998.
In December 1997, the Company entered into a receivables securitization
program under which the Company has received approximately $130.6 million from
the sale of trade accounts receivable through the third quarter of 1998. Costs
of the program, which primarily consist of the purchaser's financing cost of
issuing commercial paper backed by the receivables, totaled $0.4 million during
the third quarter of 1998 and $1.9 million for the year-to-date. 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 NINE MONTHS ENDED
---------------------- ----------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net (loss) earnings........................................... $(188,911) $ 24,768 $(587,070) $ 28,804
Foreign currency translation adjustment....................... 1,395 (272) 154 (279)
Change in minimum pension liability........................... (134) -- (266) --
--------- --------- --------- ---------
Comprehensive (loss) income.............................. $(187,650) $ 24,496 $(587,182) $ 28,525
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-46
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
5. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Supplementary Balance Sheet data at the end of each period is as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 28,
1998 1997
------------- -------------
<S> <C> <C>
Receivables:
Trade................................................................... $ 467,313 $ 250,699
Sundry.................................................................. 6,997 7,794
--------- ---------
474,310 258,493
Valuation allowance..................................................... (39,229) (30,033)
--------- ---------
$ 435,081 $ 228,460
--------- ---------
--------- ---------
Inventories:
Finished goods.......................................................... $ 465,998 $ 193,864
Work in process......................................................... 36,073 25,679
Raw materials and supplies.............................................. 145,264 85,357
--------- ---------
$ 647,335 $ 304,900
--------- ---------
--------- ---------
</TABLE>
The Supplementary Statement of Cash Flows data is as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- --------------------
SEPT. 30, SEPT. 28, SEPT. 30, SEPT. 28,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest.............................................. $ 11,577 $ 1,109 $ 37,796 $ 8,385
-------- -------- -------- --------
-------- -------- -------- --------
Income tax (refunds) payments......................... $ (6,143) $(32,643) $(13,077) $(44,595)
-------- -------- -------- --------
-------- -------- -------- --------
</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 third quarter, the Company recorded
an additional charge of $2.2 million in an acquired entity.
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.
In the third quarter, the Company recorded an additional provision for fixed
assets of $3.1 million in an acquired entity. 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
F-47
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. RESTRUCTURING AND ASSET IMPAIRMENT, INVENTORY PROVISION AND RELATED
LIABILITIES--(CONTINUED)
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. During the first three quarters of 1998 this
liability was reduced by $0.7 million as a result of cash expenditures.
The restated restructuring reserve details and activity as of and for the
nine months ended September 28, 1997 are as follows (in millions):
<TABLE>
<CAPTION>
RESERVE BALANCE ACCRUAL BALANCE
AT AT
DECEMBER 29, CASH NON-CASH SEPT. 28,
1996 REDUCTIONS REDUCTIONS REDUCTIONS 1997
--------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Severance and other employee
costs......................... $19.1 $ 8.3 $ -- $ 1.9 $ 8.9
Closure and consolidation of
facilities and related exit
costs......................... 32.6 5.7 10.7 3.9 12.3
----- ------ ------ ------
Total.................... $51.7 $ 14.0 $ 10.7 $ 5.8 $21.2
----- ------ ------ ------
</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.
F-48
<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
nine months ended September 28, 1997 follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 28, 1997 SEPTEMBER 28, 1997
------------------------- -------------------------
AS PREVIOUSLY AS AS PREVIOUSLY AS
REPORTED RESTATED REPORTED RESTATED
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Net sales......................................... $ 289,033 $286,819 $ 830,092 $810,698
Cost of goods sold................................ 200,242 210,359 599,021 620,646
Selling, general and administrative expense....... 33,863 31,362 98,430 111,051
--------- -------- --------- --------
Operating earnings................................ 54,928 45,098 132,641 79,001
Interest expense.................................. 2,850 2,850 7,816 7,816
Other (income) expense, net....................... (1,347) (1,307) (1,718) (894)
--------- -------- --------- --------
Earnings from continuing operations before income
taxes........................................... 53,425 43,555 126,543 72,079
Income taxes...................................... 18,853 16,104 45,176 26,879
--------- -------- --------- --------
Earnings from continuing operations............... 34,572 27,451 81,367 45,200
Loss from discontinued operations, net of taxes... -- (2,683) (13,713) (16,396)
--------- -------- --------- --------
Net earnings...................................... $ 34,572 $ 24,768 $ 67,654 $ 28,804
--------- -------- --------- --------
--------- -------- --------- --------
Earnings (loss) per share:
Earnings from continuing operations:
Basic................................... $ 0.39 $ 0.32 $ 0.96 $ 0.53
Diluted................................. 0.39 0.31 0.93 0.52
Loss from discontinued operations:
Basic................................... -- (0.03) (0.16) (0.19)
Diluted................................. -- (0.03) (0.16) (0.19)
--------- -------- --------- --------
Net earnings:
Basic................................... $ 0.39 $ 0.29 $ 0.80 $ 0.34
--------- -------- --------- --------
--------- -------- --------- --------
Diluted................................. $ 0.39 $ 0.28 $ 0.77 $ 0.33
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
F-49
<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
SEPTEMBER 28, 1997
---------------------------
AS PREVIOUSLY AS
REPORTED RESTATED
------------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................................. $ 22,811 $ 22,811
Receivables, net........................................................... 309,095 300,025
Inventories................................................................ 290,876 291,727
Prepaid expenses, deferred income taxes and other current assets........... 69,770 72,541
----------- ----------
Total current assets............................................. 692,552 687,104
Property, plant and equipment, net......................................... 229,152 238,271
Trademarks, trade names, goodwill and other, net........................... 223,367 223,367
----------- ----------
Total assets..................................................... $ 1,145,071 $1,148,742
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt and current portion of long-term debt...................... $ 668 $ 668
Accounts payable........................................................... 132,686 135,006
Other current liabilities.................................................. 112,643 123,241
----------- ----------
Total current liabilities........................................ 245,997 258,915
Long-term debt............................................................. 199,855 199,855
Other long-term liabilities................................................ 201,403 211,226
Shareholders' equity:
Common stock.......................................................... 899 899
Additional paid-in capital............................................ 481,679 481,679
Retained earnings..................................................... 100,229 81,159
Accumulated other comprehensive loss.................................. (18,553) (18,553)
Other shareholders' equity............................................ (3,307) (3,307)
Treasury stock........................................................ (63,131) (63,131)
----------- ----------
Total shareholders' equity....................................... 497,816 478,746
----------- ----------
Total liabilities and shareholders' equity....................... $ 1,145,071 $1,148,742
----------- ----------
----------- ----------
</TABLE>
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.
F-50
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
9. NEW EMPLOYMENT AGREEMENTS--(CONTINUED)
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 was reversed into income in the third quarter.
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.
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"
F-51
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
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
F-52
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
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
F-53
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
F-54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
The Coleman Company, Inc.
We have audited the accompanying consolidated balance sheets of The Coleman
Company, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Coleman Company, Inc. and subsidiaries at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Wichita, Kansas
February 18, 1998
F-55
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 13,031 $ 17,299
Accounts receivable, less allowance of $8,930 in 1997 and $11,512 in 1996........... 154,279 182,418
Notes receivable.................................................................... 25,477 27,524
Inventories......................................................................... 236,327 287,502
Income tax refunds receivable--affiliate............................................ 14,860 21,661
Deferred tax assets................................................................. 26,378 40,466
Prepaid assets and other............................................................ 21,344 15,769
---------- ----------
Total current assets........................................................ 491,696 592,639
Property, plant and equipment, net.................................................. 175,494 199,182
Intangible assets related to businesses acquired, net............................... 332,468 341,715
Deferred tax assets and other....................................................... 42,106 26,550
---------- ----------
$1,041,764 $1,160,086
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................... $ 523 $ 747
Short-term borrowings............................................................... 64,207 33,935
Accounts payable.................................................................... 91,846 98,628
Accounts payable--affiliates........................................................ 2,825 278
Accrued expenses.................................................................... 93,796 112,906
---------- ----------
Total current liabilities................................................... 253,197 246,494
Long-term debt........................................................................ 477,276 582,866
Other liabilities..................................................................... 69,586 76,173
Minority interest..................................................................... 1,236 1,608
Commitments and contingencies.........................................................
Stockholders' equity:
Preferred stock, par value $.01 per share; 20,000,000 shares authorized, no shares
issued or outstanding............................................................ -- --
Common stock, par value $.01 per share; 80,000,000 shares authorized; 53,433,414
shares issued and outstanding in 1997; and 53,222,420 shares issued and
outstanding in 1996.............................................................. 534 532
Additional paid-in capital.......................................................... 172,072 166,690
Retained earnings................................................................... 80,296 82,832
Currency translation adjustment..................................................... (11,510) 3,176
Minimum pension liability adjustment................................................ (923) (285)
---------- ----------
Total stockholders' equity.................................................. 240,469 252,945
---------- ----------
$1,041,764 $1,160,086
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-56
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Net revenues.............................................................. $1,154,294 $1,220,216 $933,574
Cost of sales............................................................. 840,331 928,497 649,427
---------- ---------- --------
Gross profit.............................................................. 313,963 291,719 284,147
Selling, general and administrative expenses.............................. 266,283 291,669 174,688
Asset impairment charge................................................... -- -- 12,289
Interest expense, net..................................................... 40,852 38,727 24,545
Amortization of goodwill and deferred charges............................. 11,338 10,473 7,745
Other expense, net........................................................ 1,867 1,151 334
---------- ---------- --------
(Loss) earnings before income taxes, minority interest and extraordinary
item.................................................................... (6,377) (50,301) 64,546
Income tax (benefit) expense.............................................. (5,227) (10,927) 24,479
Minority interest......................................................... 1,386 1,872 --
---------- ---------- --------
(Loss) earnings before extraordinary item................................. (2,536) (41,246) 40,067
Extraordinary loss on early extinguishment of debt, net of
income tax benefit of $431 in 1996, and $503 in 1995.................... -- (647) (787)
---------- ---------- --------
Net (loss) earnings....................................................... $ (2,536) $ (41,893) $ 39,280
---------- ---------- --------
---------- ---------- --------
Basic (loss) earnings per share:
(Loss) earnings before extraordinary item............................... $ (.05) $ (0.78) $ 0.75
Extraordinary item........................................................ -- (0.01) (0.01)
---------- ---------- --------
Net (loss) earnings....................................................... $ (.05) $ (0.79) $ 0.74
---------- ---------- --------
---------- ---------- --------
Diluted (loss) earning per share:
(Loss) earnings before extraordinary item............................... $ (.05) $ (0.78) $ 0.75
Extraordinary item........................................................ -- (0.01) (0.01)
---------- ---------- --------
Net (loss) earnings....................................................... $ (.05) $ (0.79) $ 0.74
---------- ---------- --------
---------- ---------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F-57
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL CURRENCY MINIMUM
NUMBER PAID-IN RETAINED TRANSLATION PENSION
OF SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT LIABILITY
---------- ------ ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994............ 53,071,532 $531 $162,873 $ 89,059 $ 900 $ --
Purchases of common stock.......... (220,000) (2) (1,924) (2,160) -- --
Stock issued under stock option
plans............................ 325,748 3 3,935 -- -- --
Stock option tax benefits.......... -- -- 582 -- -- --
Net earnings....................... -- -- -- 39,280 -- --
Currency translation adjustment.... -- -- -- -- (735) --
---------- ---- -------- -------- --------- -----
Balance at December 31, 1995............ 53,177,280 532 165,466 126,179 165 --
Purchases of common stock.......... (100,000) (1) (874) (1,454) -- --
Stock split issuance costs......... -- -- (93) -- -- --
Stock issued under stock option
plans............................ 145,140 1 1,737 -- -- --
Stock option tax benefits.......... -- -- 454 -- -- --
Net loss........................... -- -- -- (41,893) -- --
Currency translation adjustment.... -- -- -- -- 3,011 --
Minimum pension liability
adjustment, net of tax........... -- -- -- -- -- (285)
---------- ---- -------- -------- --------- -----
Balance at December 31, 1996............ 53,222,420 532 166,690 82,832 3,176 (285)
Stock issued under stock option
plans............................ 210,994 2 2,358 -- -- --
Stock option tax benefits.......... -- -- 225 -- -- --
Contribution to capital by parent.. -- -- 2,799 -- -- --
Net loss........................... -- -- -- (2,536) -- --
Currency translation adjustment.... -- -- -- -- (14,686) --
Minimum pension liability
adjustment, net of tax........... -- -- -- -- -- (638)
---------- ---- -------- -------- --------- -----
Balance at December 31, 1997............ 53,433,414 $534 $172,072 $ 80,296 $ (11,510) $(923)
---------- ---- -------- -------- --------- -----
---------- ---- -------- -------- --------- -----
</TABLE>
See Notes to Consolidated Financial Statements.
F-58
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) earnings......................................................... $ (2,536) $(41,893) $ 39,280
-------- -------- --------
Adjustments to reconcile net (loss) earnings to net cash flows from
operating activities:
Depreciation and amortization............................................ 37,977 36,358 26,523
Non-cash restructuring and other charges................................. 17,325 48,269 12,289
Extraordinary loss on early extinguishment of debt....................... -- 1,078 1,290
Minority interest........................................................ 1,386 1,872 --
Change in assets and liabilities:
Decrease (increase) in receivables..................................... 23,296 976 (37,833)
Decrease (increase) in inventories..................................... 35,250 (42,402) (49,396)
Increase (decrease) in accounts payable................................ 1,226 (12,308) 13,825
Other, net............................................................. (22,683) (1,279) (3,780)
-------- -------- --------
93,777 32,564 (37,091)
-------- -------- --------
Net cash provided (used) by operating activities.................... 91,241 (9,329) 2,189
-------- -------- --------
Cash flows from investing activities:
Capital expenditures........................................................ (26,973) (41,334) (29,053)
Purchases of businesses, net of cash acquired............................... (14,300) (161,875) (33,385)
Proceeds from sale of fixed assets.......................................... 5,728 2,924 928
-------- -------- --------
Net cash used by investing activities............................... (35,545) (200,285) (61,510)
-------- -------- --------
Cash flows from financing activities:
Net change in short-term borrowings......................................... 37,071 (11,043) 3,106
Net payments of revolving credit agreement borrowings....................... (91,498) (2,779) (61,289)
Proceeds from issuance of long-term debt.................................... -- 235,000 200,000
Repayment of long-term debt................................................. (2,867) (6,648) (73,884)
Debt issuance and refinancing costs......................................... (766) (3,902) (3,569)
Purchases of Company common stock........................................... -- (2,329) (4,086)
Proceeds from stock options exercised including tax benefits................ 2,585 2,192 4,520
-------- -------- --------
Net cash (used) provided by financing activities.................... (55,475) 210,491 64,798
-------- -------- --------
Effect of exchange rate changes on cash....................................... (4,489) 4,357 (1,731)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents.......................... (4,268) 5,234 3,746
Cash and cash equivalents at beginning of the year............................ 17,299 12,065 8,319
-------- -------- --------
Cash and cash equivalents at end of the year.................................. $ 13,031 $ 17,299 $ 12,065
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F-59
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
The Coleman Company, Inc. ("Coleman" or the "Company") is a global
manufacturer and marketer of consumer products for outdoor recreation and home
hardware use.
Coleman is a subsidiary of Coleman Worldwide Corporation ("Coleman
Worldwide"). Coleman Worldwide is a subsidiary of CLN Holdings Inc. ("CLN
Holdings"), an indirect wholly-owned subsidiary of New Coleman Holdings Inc.
("Holdings"), an indirect wholly-owned subsidiary of MacAndrews & Forbes
Holdings Inc. ("MacAndrews Holdings"), a corporation wholly owned through Mafco
Holdings Inc. ("Mafco" and, together with MacAndrews Holdings, "MacAndrews &
Forbes") by Ronald O. Perelman. Coleman Worldwide owns 44,067,520 shares of the
common stock of Coleman which represent approximately 82% of the outstanding
Coleman common stock as of December 31, 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all material intercompany accounts and
transactions.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents. The Company's cash
equivalents consist primarily of investments in money market funds and
commercial paper. The Company's cash equivalents are generally held until
maturity and are carried at cost, which approximates fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of such assets as follows:
land improvements, 5 to 25 years; buildings and building improvements, 7 to 45
years; and machinery and equipment, 3 to 15 years. Leasehold improvements are
amortized over their estimated useful lives or the terms of the leases,
whichever is shorter. Repairs and maintenance are charged to operations as
incurred, and significant expenditures for additions and improvements are
capitalized.
Intangible Assets
Intangible assets primarily represent goodwill which is being amortized on
a straight-line basis over periods not in excess of 40 years. The carrying
amount of goodwill is reviewed if facts and circumstances suggest it may be
impaired. If this review indicates goodwill will not be recoverable over the
remaining amortization period, as determined based on the estimated undiscounted
cash flows of the entity acquired, the carrying amount of the goodwill is
reduced to estimated fair value based on market value or discounted cash flows,
as appropriate. Accumulated amortization aggregated $47,250 and $38,851 at
December 31, 1997 and 1996, respectively.
F-60
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Revenue Recognition
The Company recognizes revenues at the time title passes to the customer.
Net revenues comprise gross revenues less provisions for estimated customer
returns and allowances.
Research and Development
Research and development expenditures are expensed as incurred. The amounts
charged against operations for the years ended December 31, 1997, 1996 and 1995
were $11,871, $11,082, and $6,548, respectively.
Advertising and Promotion Expense
Production costs of future media advertising are deferred until the
advertising occurs. All other advertising and promotion costs are expensed when
incurred. The amounts charged against operations for the years ended December
31, 1997, 1996 and 1995 were $53,408, $58,823, and $37,544, respectively.
Insurance Programs
The Company obtains insurance coverage for catastrophic exposures as well
as those risks required to be insured by law or contract. It is the policy of
the Company to retain a significant portion of certain losses related primarily
to workers' compensation, employee health benefits, physical loss and property,
and product and vehicle liability. Provisions for losses expected under these
programs are recorded based upon the Company's estimates of the aggregate
liability for claims incurred.
Foreign Currency Translation
Assets and liabilities of foreign operations are generally translated into
United States dollars at the rates of exchange in effect at the balance sheet
date. Income and expense items are generally translated at the weighted average
exchange rates prevailing during each period presented. Gains and losses
resulting from foreign currency transactions are included in the results of
operations. Gains and losses resulting from translation of financial statements
of foreign subsidiaries and branches operating in non-highly inflationary
economies are recorded as a component of stockholder's equity. Foreign
subsidiaries and branches operating in highly inflationary economies translate
nonmonetary assets and liabilities at historical rates and include translation
adjustments in the results of operations.
Derivative Financial Instruments
The Company uses derivative financial instruments to reduce interest rate
and foreign exchange exposures. The Company maintains a control environment
which includes policies and procedures for risk assessment and for the approval,
reporting and monitoring of derivative financial instrument activities. The
Company does not hold or issue derivative financial instruments for trading
purposes.
Amounts to be received or paid under interest rate swap and cap contracts
designated as hedges are recognized over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate swap and cap contracts designated as hedges are deferred and amortized as
adjustments to interest expense over the remaining life of the terminated
contracts. Unrealized gains and losses on outstanding interest rate contracts
designated as hedges are not recognized.
Foreign currency forward contracts are marked to market and gains and
losses on foreign currency forward contracts to hedge firm foreign currency
commitments are deferred and accounted for as part of the related foreign
currency transaction. Gains and losses on all other forward contracts to hedge
third-party and intercompany transactions are recorded in operations as foreign
exchange gains and losses. Gains and losses on
F-61
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
purchased foreign currency option contracts are deferred and recognized as
adjustments to cost of sales upon the sale of the related inventory to the
third-party customers.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables and
derivative financial instruments. Credit risk on trade receivables is minimized
as a result of the large and diversified nature of the Company's worldwide
customer base. Although the Company has one significant customer (See Note 15),
there have been no credit losses related to this customer. With respect to its
derivative contracts, the Company is also subject to credit risk of
non-performance by counterparties and its maximum potential loss may exceed the
amount recognized in the financial statements. The Company controls its exposure
to credit risk through credit approvals, credit limits and monitoring
procedures. Collateral is generally not required for the Company's financial
instruments.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long- and short-term debt: The carrying amounts of the Company's
borrowings under its foreign bank lines of credit, revolving credit
agreement and other variable rate debt approximate their fair value. The
fair value of the Company's senior notes issues (see Note 9) are estimated
using discounted cash flow analysis based on the Company's estimated
current borrowing rate for similar types of borrowing arrangements.
Foreign currency exchange contracts: The fair values of the Company's
foreign currency contracts are estimated based on quoted market prices of
comparable contracts, adjusted through interpolation where necessary for
maturity differences.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
OF ASSET/ OF ASSET/ OF ASSET/ OF ASSET/
(LIABILITY) (LIABILITY) (LIABILITY) (LIABILITY)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 13,031 $ 13,031 $ 17,299 $ 17,299
Short-term debt..................................... (64,207) (64,207) (33,935) (33,935)
Long-term debt excluding capital leases............. (477,499) (445,792) (583,019) (578,921)
Foreign currency exchange contracts................. 128 128 940 1,629
</TABLE>
Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation", encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to account for stock-based compensation plans
using the intrinsic value method prescribed in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of Coleman's stock at the date of
the grant over the amount an employee must pay to acquire the stock.
F-62
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(Loss) Earnings per Share
In 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 128, "Earnings per Share". SFAS No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to SFAS No. 128
requirements. In 1997 and 1996, diluted loss per share does not include any
incremental shares that would have been outstanding assuming the exercise of any
stock options because the effect of these shares would have been antidilutive.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
EARNINGS PER SHARE
(LOSS) SHARES AMOUNT
-------- ---------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1995
Basic earnings before extraordinary item......................... $ 40,067 53,225,746 $ 0.75
-------
-------
Effect of dilutive securities stock options...................... -- 361,269
-------- ----------
Diluted earnings................................................. $ 40,067 53,587,015 $ 0.75
-------- ---------- -------
-------- ---------- -------
Year Ended December 31, 1996
Basic loss before extraordinary item............................. $(41,246) 53,196,979 $ (0.78)
-------
-------
Effect of dilutive securities stock options...................... -- --
-------- ----------
Diluted loss..................................................... $(41,246) 53,196,979 $ (0.78)
-------- ---------- -------
-------- ---------- -------
Year Ended December 31, 1997
Basic loss before extraordinary item............................. $ (2,536) 53,343,680 $ (.05)
-------
-------
Effect of dilutive securities stock options...................... -- --
-------- ----------
Diluted loss..................................................... $ (2,536) 53,343,680 $ (.05)
-------- ---------- -------
-------- ---------- -------
</TABLE>
Reclassifications
Certain prior year amounts in the financial statements have been
reclassified to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises report selected
information
F-63
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
about operating segments in interim financial reports. 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. Financial statement disclosures
for prior periods are required to be restated.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". SFAS No. 132 revises
employers' disclosures about pension and other postretirement benefits to the
extent practicable. It also requires additional information on changes in the
benefit obligations and fair value of plan assets and eliminates certain other
disclosures. SFAS No. 132 is effective for financial statements for fiscal years
beginning after December 15, 1997. Financial statement disclosures for prior
periods are required to be restated.
The Company has not yet determined the impact of adoption of these
standards; however, the adoption of these standards will have no impact on
Coleman's consolidated results of operations, financial position or cash flows.
2. ACQUISITIONS AND DIVESTITURES
On November 2, 1994, the Company purchased substantially all the assets of
Eastpak, Inc. and all the capital stock of M.G. Industries, Inc. (collectively,
"Eastpak"), a leading designer, manufacturer and distributor of branded
daypacks, sports bags and related products. The Company also entered into an
agreement with the predecessor owner of Eastpak to make additional payments
based upon the achievement of certain annual sales levels of Eastpak products
and other products substantially similar to the Eastpak products during the
years ended December 31, 1995, 1996, and 1997. A total of $23,000 was earned by
the predecessor owner of Eastpak under the terms of this agreement. This amount
has been recorded as additional goodwill.
During 1995, the Company purchased all of the outstanding shares of capital
stock of Sierra Corporation of Fort Smith, Inc., a manufacturer of portable
outdoor and recreational folding furniture and accessories, and substantially
all of the assets of Active Technologies, Inc. ("ATI"), a manufacturer of
technologically advanced lightweight generators and battery charging equipment.
The aggregate purchase price for these acquisitions was $19,516 including fees
and expenses. These acquisitions were accounted for using the purchase method of
accounting. The purchase price and expenses associated with these acquisitions
exceeded the fair value of net assets acquired by $11,186 and the excess has
been assigned to goodwill and is being amortized over 20 to 30 years on the
straight-line method. In connection with the ATI purchase, the Company may also
be required to make payments to the predecessor owner of ATI of up to $18,750
based on the Company's sales of ATI related products and royalties received by
the Company for licensing arrangements related to ATI patents. As of December
31, 1997, the amounts recorded, as additional goodwill, under the terms of this
agreement have been immaterial. The results of operations of these companies on
a pro forma basis as if their acquisitions had occurred at the beginning of 1995
individually and in the aggregate were not significant to the Company.
On January 2, 1996, the Company purchased substantially all the assets and
assumed certain liabilities of Seatt Corporation ("Seatt"), a leading designer,
manufacturer and distributor of safety and security related electronic products
for residential and commercial applications. The Seatt acquisition, which was
accounted for under the purchase method, was completed for approximately $65,300
including fees and expenses. The results of operations of Seatt have been
included in the consolidated financial statements from the date of acquisition.
In connection with the purchase price allocation of the Seatt acquisition, the
Company recorded goodwill of approximately $38,800. The Company is amortizing
this amount over 40 years on the straight-line method.
On February 18, 1998, the Company announced an agreement was signed for the
sale of Coleman Safety & Security Products, Inc., the successor to Seatt, to
Ranco Incorporated of Delaware, a U.S. subsidiary of Siebe plc, a United Kingdom
diversified engineering group. The sale price is approximately $105,000 and is
subject to
F-64
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. ACQUISITIONS AND DIVESTITURES--(CONTINUED)
adjustment upon closing which is expected to occur by the end of March 1998. Net
assets of Coleman Safety & Security Products, Inc. at December 31, 1997 were
approximately $73,000.
On February 28, 1996, the Company purchased approximately 70% of the
outstanding shares of Application des Gaz, S.A. ("ADG" or "Camping Gaz"), a
leading manufacturer and distributor of camping appliances in Europe. The
Company completed the necessary steps to acquire the remaining 30% of the
outstanding shares during the second quarter of 1996. The cost of acquiring all
the shares of ADG was approximately $100,000 including fees and expenses.
The acquisition of Camping Gaz was accounted for under the purchase method.
In connection with the final allocation of purchase price to the fair values of
assets acquired and liabilities assumed, the Company recorded goodwill of
approximately $78,900, which is being amortized over 40 years on the
straight-line method. At acquisition, the Company recognized liabilities in the
amount of $21,898 representing severance and other termination benefits for
certain production and administrative employees of Camping Gaz. As of December
31, 1997, the Company had paid termination costs of approximately $13,350 and
anticipates all remaining termination costs will be paid during 1998.
The Company has included the results of operations of Camping Gaz in the
consolidated financial statements from March 1, 1996, the date on which the
Company obtained control of Camping Gaz, and has recognized minority interest
related to the remaining shares for the period March 1, 1996 through June 30,
1996.
The following summarized, unaudited pro forma results of operations for the
years ended December 31, 1996 and 1995 assume the acquisition of Seatt and the
acquisition of all the outstanding shares of Camping Gaz occurred as of the
beginning of the respective periods. The pro forma results include certain
adjustments, primarily reflecting increased amortization and interest expense
and a lower income tax provision, and are not necessarily indicative of what the
results of operations would have been had the Seatt and Camping Gaz acquisitions
occurred at the beginning of the respective periods. Moreover, the pro forma
information is not intended to be indicative of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net revenues...................................................... $1,246,370 $1,193,295
(Loss) earnings before extraordinary item......................... (41,407) 39,153
Net (loss) earnings............................................... (42,054) 38,366
Basic (loss) earnings per common share:
(Loss) earnings before extraordinary item....................... $ (0.78) $ 0.73
Net (loss) earnings............................................. (0.79) 0.72
</TABLE>
3. RESTRUCTURING AND OTHER CHARGES
During 1997, the Company recorded restructuring charges of $32,791 and
certain other charges of $3,628, (collectively, the "1997 Restructuring
Charges") and related tax benefits of $13,918. The Company reflected $19,673 of
the 1997 Restructuring Charges in cost of sales and reflected $16,746 in
selling, general and administrative ("SG&A") expenses. The 1997 Restructuring
Charges of $36,419 consisted of (i) $15,735 to exit various low margin products,
including pressure washers, (ii) $14,943 to close and relocate certain
administrative and sales offices, and (iii) $5,741 to close several
manufacturing facilities. Most of these activities were substantially complete
as of December 31, 1997, and remaining actions are expected to be completed in
1998.
During 1996, the Company recorded restructuring charges of $66,202 and
certain other charges of $7,998 (collectively, the "1996 Restructuring Charges")
and related net tax benefits of $21,684. The Company reflected
F-65
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. RESTRUCTURING AND OTHER CHARGES--(CONTINUED)
$44,005 of the 1996 Restructuring Charges in cost of sales and $30,195 in SG&A.
The pre-tax restructuring charges of $66,202 consisted of (i) $29,067 to
integrate Camping Gaz and Coleman operations into a global recreation products
business, (ii) $19,000 to exit the low end electric pressure washer business,
(iii) $14,135 to exit a portion of the Company's battery powered light business
and (iv) $4,000 to settle certain litigation with respect to the battery-powered
light business. The charges to integrate the Camping Gaz and Coleman operations
reflect primarily the cost to dispose of duplicate manufacturing, distribution
and administrative facilities and the related severance costs, which actions
were substantially completed in 1997 and are expected to be fully completed in
1998. The low end pressure washer and battery powered light businesses were
exited by discontinuing the manufacturing and distribution of these products in
1997. The other pre-tax charges of $7,998 related primarily to certain asset
write-offs. These charges were incurred in the Company's normal course of
business, although the amounts involved were higher than similar charges the
Company had recorded in prior years. The provision for income taxes included
$21,684 of tax benefits resulting from these restructuring and other charges,
net of an increase in the valuation reserve related to certain foreign deferred
tax assets and other foreign tax charges totaling $5,595.
The components of the combined 1997 Restructuring Charges and 1996
Restructuring Charges and an analysis of the amounts charged against the reserve
are outlined in the following table:
<TABLE>
<CAPTION>
1996 CHARGES DURING 1997 CHARGES DURING
ORIGINAL YEAR ENDED BALANCE AT ADDITIONAL YEAR ENDED BALANCE AT
RESERVE 12/31/96 12/31/96 RESERVES 12/31/97 12/31/97
-------- -------------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Impairment of fixed assets...................... $ 10,012 $ (1,789) $ 8,223 $ 6,449 $ (6,530) $ 8,142
Inventory and other asset impairments........... 38,257 (25,875) 12,382 10,961 (14,966) 8,377
Termination costs............................... 2,018 (1,633) 385 12,146 (9,729) 2,802
Idle facilities, relocation and other exit
costs......................................... 23,913 (12,429) 11,484 6,863 (9,656) 8,691
-------- ---------- -------- -------- ---------- --------
$ 74,200 $ (41,726) $ 32,474 $ 36,419 $ (40,881) $ 28,012
-------- ---------- -------- -------- ---------- --------
-------- ---------- -------- -------- ---------- --------
</TABLE>
The termination costs recognized in 1996 related to approximately 200
employees and the 1997 termination costs related to approximately 525 employees.
As of December 31, 1997, $11,362 of termination costs were paid on behalf of the
approximately 700 employees who were terminated as of that date.
During 1995, the Company recognized an asset impairment charge of $12,289
related to its Brazilian operations. The Brazilian operations had not performed
to the Company's expectations since acquisition of this business in April of
1994, and in the fourth quarter of 1995, the Company initiated actions to reduce
the operating losses in Brazil. These actions included replacing management,
increasing prices, downsizing the manufacturing operations and reducing SG&A and
other expenses. Because of these actions, the Company performed an impairment
review and concluded recognition of an asset impairment charge was appropriate.
The basis of the fair values used in the computation of the charge were
appraisals for property and equipment and estimated discounted cash flows for
goodwill. The charge has been included in the statement of operations under the
caption "Asset Impairment Charge".
F-66
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Raw material and supplies............................................. $ 59,406 $ 82,399
Work-in-process....................................................... 7,813 12,878
Finished goods........................................................ 169,108 192,225
-------- --------
$236,327 $287,502
-------- --------
-------- --------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Land and land improvements............................................ $ 7,700 $ 8,772
Buildings and building improvements................................... 79,101 78,760
Machinery and equipment............................................... 192,650 194,714
Construction-in-progress.............................................. 10,076 15,519
-------- --------
289,527 297,765
Accumulated depreciation.............................................. (114,033) (98,583)
-------- --------
$175,494 $199,182
-------- --------
-------- --------
</TABLE>
Depreciation expense was $26,956, $25,770, and $19,142 for the years ended
December 31, 1997, 1996 and 1995, respectively.
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Compensation and related benefits....................................... $20,385 $29,331
Other................................................................... 73,411 83,575
------- -------
$93,796 $112,906
------- -------
------- -------
</TABLE>
7. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Pensions and other postretirement benefits.............................. $49,121 $52,229
Other................................................................... 20,465 23,944
------- -------
$69,586 $76,173
------- -------
------- -------
</TABLE>
F-67
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
8. SHORT-TERM BORROWINGS
The Company maintained short-term bank lines of credit at December 31, 1997
and 1996 aggregating approximately $115,249, and $119,101, respectively, of
which approximately $64,207 and $33,935 were outstanding at December 31, 1997
and 1996, respectively. The weighted average interest rate on amounts borrowed
under these short-term lines was approximately 2.7% and 2.4% at December 31,
1997 and 1996, respectively.
Outstanding letters of credit aggregated approximately $37,208 and $32,897
at December 31, 1997 and 1996, respectively.
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
7.26% Senior Notes due 2007(a)........................................ $200,000 $200,000
7.10% Senior Notes due 2006(b)........................................ 85,000 85,000
7.25% Senior Notes due 2008(c)........................................ 75,000 75,000
Revolving credit facility(d).......................................... 52,127 146,350
Term loan(d).......................................................... 64,894 73,478
Other................................................................. 778 3,785
-------- --------
477,799 583,613
Less current portion.................................................. 523 747
-------- --------
$477,276 $582,866
-------- --------
-------- --------
</TABLE>
- ------------------
(a) On August 8, 1995, the Company completed a private placement issuance and
sale of $200,000 aggregate principal amount of 7.26% Senior Notes due 2007
(the "2007 Notes"). Interest on the 2007 Notes is payable semiannually, and
the principal is payable in annual installments of $40,000 each commencing
August 8, 2003, with a final installment payment of $40,000 due on
August 8, 2007. If there is a default, the interest rate will be the greater
of (i) 9.26% or (ii) 2.0% above the prime interest rate.
The 2007 Notes are unsecured and are subject to various restrictive covenants
including, without limitation, requirements for the maintenance of specified
financial ratios and levels of consolidated net worth and certain other
provisions limiting the incurrence of additional debt and sale and leaseback
transactions under the terms of the note purchase agreement.
(b) On June 13, 1996, the Company completed a private placement issuance and
sale of $85,000 aggregate principal amount of 7.10% Senior Notes due 2006
(the "2006 Notes"). Interest on the 2006 Notes is payable semiannually, and
the principal is payable in annual installments of $12,143 each commencing
June 13, 2000, with a final installment payment of $12,143 due on June 13,
2006. If there is a default, the interest rate will be the greater of
(i) 9.10% or (ii) 2.0% above the prime interest rate.
The 2006 Notes are unsecured and are subject to various restrictive covenants
including, without limitation, requirements for the maintenance of specified
financial ratios and levels of consolidated net worth and certain other
provisions limiting the incurrence of additional debt and sale and leaseback
transactions under the terms of the note purchase agreement.
F-68
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
9. LONG-TERM DEBT--(CONTINUED)
(c) On June 13, 1996, the Company completed a private placement issuance and
sale of $75,000 aggregate principal amount of 7.25% Senior Notes due 2008
(the "2008 Notes"). Interest on the 2008 Notes is payable semiannually, and
the principal is payable in annual installments of $15,000 each commencing
June 13, 2004, with a final installment payment of $15,000 due on June 13,
2008. If there is a default, the interest rate will be the greater of
(i) 9.25% or (ii) 2.0% above the prime interest rate.
The 2008 Notes are unsecured and are subject to various restrictive covenants
including, without limitation, requirements for the maintenance of specified
financial ratios and levels of consolidated net worth and certain other
provisions limiting the incurrence of additional debt and sale and leaseback
transactions under the terms of the note purchase agreement.
(d) In April 1996, the Company amended its credit agreement to: a) provide a
term loan of French Franc 385,125 ($64,894 at December 31, 1997 exchange
rates) (the "Term Loan"), b) provide a $275,000 unsecured revolving credit
facility line (the "Credit Facility"), c) allow for the Camping Gaz
acquisition and d) extend the maturity of the credit agreement (as amended,
the "Company Credit Agreement"). In connection with the Company recording
the restructuring and other charges as discussed in Note 3 and lower than
expected operating results, the Company further amended the Company Credit
Agreement in October 1996 and again in March 1997.
The Company Credit Agreement is available to the Company until April 30,
2001. The outstanding loans under the Company Credit Agreement bear interest
at either of the following rates, as selected by the Company from time to
time: (i) the higher of the agent's base lending rate or the federal funds
rate plus .50% or (ii) the London Inter-Bank Offered Rate ("LIBOR") plus a
margin ranging from .25% to 2.125% based on the Company's financial
performance. If there is a default, the interest rate otherwise in effect
will be increased by 2% per annum. The Company Credit Agreement also bears an
overall facility fee ranging from .15% to .375% based on the Company's
financial performance.
In addition, the Company Credit Agreement provides, subject to certain
exceptions, for the net cash proceeds from disposition of assets other than
in the ordinary course of business, to be used to prepay any outstanding Term
Loan balances with any remaining excess net cash proceeds to be applied to
outstanding borrowings under the Credit Facility with a corresponding
reduction in the overall amount of the Credit Facility line.
The Company Credit Agreement contains various restrictive covenants
including, without limitation, requirements for the maintenance of specified
financial ratios, levels of consolidated net worth and profits, and certain
other provisions limiting the incurrence of additional debt, purchase or
redemption of the Company's common stock, issuance of preferred stock of the
Company, and also prohibits the Company from paying any dividends until on or
after January 1, 1999 and limits the amount of dividends the Company may pay
thereafter. The Company Credit Agreement also contains an event of default
upon a change of control of the Company (as defined in the Company Credit
Agreement) and other customary events of default. In addition, substantially
all of the shares of the Company's common stock owned by Coleman Worldwide
are pledged to secure indebtedness of Coleman Worldwide and of its parent,
CLN Holdings Inc. The indentures governing this indebtedness contain various
covenants including a covenant placing certain limitations on the Company's
indebtedness.
The aggregate scheduled amounts of long-term debt maturities in the years
1998 through 2002 are $523, $78, $12,207, $129,204 and $12,159, respectively.
F-69
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company periodically enters into a variety of foreign currency exchange
contracts to reduce its foreign currency exposure resulting primarily from firm
commitments, intercompany foreign sales transactions expected to occur within
the next twelve months, and intercompany accounts receivable and payable.
At December 31, 1997 and December 31, 1996, the Company did not have any
outstanding foreign currency exchange contracts related to firm commitments.
During the fourth quarter of 1995, the Company elected to adopt the
provisions of the Emerging Issues Task Force Issue No. 95-2, "Determination of
What Constitutes a Firm Commitment for Foreign Currency Transactions Not
Involving a Third Party" ("EITF 95-2") which narrowed the scope of intercompany
foreign currency commitments eligible to be hedged for financial reporting
purposes. As a result of this change, the Company increased net income by $3,796
in the fourth quarter of 1995. Prior to the adoption of EITF 95-2, the gains and
losses associated with these contracts were accounted for under the deferral
method. At December 31, 1997, the Company did not have any outstanding foreign
currency forward contracts related to intercompany foreign sales transactions.
At December 31, 1996, the Company had forward exchange contracts to sell $8,500
in Canadian dollars maturing on February 28, 1997, for which the Company has
recognized a net gain of $40 as a component of cost of sales.
At December 31, 1997, the Company did not have any outstanding option
contracts. At December 31, 1996, the Company had outstanding option contracts
for the sale of Japanese yen at fixed exchange rates totaling $20,038 for
specified periods of time which expired during 1997. Net unrealized gains
deferred at December 31, 1996 were $653.
With respect to intercompany accounts receivable and payable, at
December 31, 1997, the Company had foreign currency forward contracts to sell
$1,580 in foreign currencies, which contracts matured in February 1998, and had
deferred a net gain of $128. At December 31, 1996, the Company had foreign
currency forward contracts to sell $26,623 and to buy $3,898 in foreign
currencies, which contracts matured at various dates in 1997, and had deferred a
net gain of $185.
At December 31, 1997, $25,000 of the Company's outstanding long-term debt
was subject to an interest rate swap agreement and $25,000 of the Company's
outstanding long-term debt was subject to an interest rate cap. Under the
interest rate swap agreement, the Company pays the counterparty interest at a
fixed rate of 6.115%, and the counterparty pays the Company interest at a
variable rate equal to the three month LIBOR for a seven-year period commencing
January 2, 1996. The agreement is with a major financial institution which is
expected to fully perform under the terms of the agreement, thereby mitigating
the credit risk from the transaction. The interest rate cap agreement entitles
the Company to receive from a major financial institution the amount, if any, by
which the Company's interest payments on $25,000 of its variable rate debt
exceed 7.35%. The $509 premium paid for this interest rate cap agreement is
included in other assets and was amortized to interest expense over the
three-year term of the cap, which commenced January 3, 1995.
11. INCOME TAXES
The Company is included in the consolidated federal income tax return of
Mafco and certain state tax returns of Mafco or its affiliates. For all periods
presented, federal and state income taxes are provided as if the Company filed
its own income tax returns. The accompanying consolidated balance sheet includes
approximately $14,860 and $21,661 of federal and state income taxes receivable
from affiliates at December 31, 1997 and 1996, respectively.
F-70
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. INCOME TAXES--(CONTINUED)
For financial reporting purposes, (loss) earnings before income taxes,
minority interest and extraordinary item include the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996
----------------------- -----------------------
<S> <C> <C>
(Loss) earnings before income taxes, minority interest and extraordinary
item:
Domestic............................................................... $ (14,129) $ (29,532)
Foreign................................................................ 7,752 (20,769)
--------- ---------
$ (6,377) $ (50,301)
--------- ---------
--------- ---------
<CAPTION>
1995
-----------------------
<S> <C>
(Loss) earnings before income taxes, minority interest and extraordinary
item:
Domestic............................................................... $ 78,980
Foreign................................................................ (14,434)
---------
$ 64,546
---------
---------
</TABLE>
Significant components of the provision for income tax (benefit) expense
were as follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996
Current: ----------------------- -----------------------
<S> <C> <C>
Federal................................................................ $ (11,045) $ (709)
State.................................................................. -- (334)
Foreign................................................................ 1,485 3,454
--------- ---------
Total current....................................................... (9,560) 2,411
--------- ---------
Deferred:
Federal................................................................ 7,851 (10,686)
State.................................................................. (1,493) (2,178)
Foreign................................................................ (2,025) (474)
--------- ---------
Total deferred...................................................... 4,333 (13,338)
--------- ---------
$ (5,227) $ (10,927)
--------- ---------
--------- ---------
<CAPTION>
1995
-----------------------
<S> <C>
Federal................................................................ $ 18,415
State.................................................................. 3,825
Foreign................................................................ 3,853
---------
Total current....................................................... 26,093
---------
Deferred:
Federal................................................................ (3,104)
State.................................................................. (725)
Foreign................................................................ 2,215
---------
Total deferred...................................................... (1,614)
---------
$ 24,479
---------
---------
</TABLE>
The effective tax rate on (loss) earnings before income taxes, minority
interest and extraordinary item varies from the current statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
----------- ------------ --------------
<S> <C> <C> <C>
(Benefit) provision at statutory rate.............. (35.0)% (35.0)% 35.0%
State taxes, net................................... (15.2) (4.6) 2.5
Nondeductible amortization......................... 37.1 5.0 2.9
Foreign operations................................. (66.4) 4.3 (0.1)
Change in tax rates................................ (20.8) -- --
Valuation allowance................................ 37.0 7.0 --
Puerto Rico operations............................. (12.9) 0.4 (2.6)
Other, net......................................... (5.8) 1.2 0.2
--------- --------- ---------
Effective tax rate (benefit) provision............. (82.0)% (21.7)% 37.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-71
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. INCOME TAXES--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996
----------------------- -----------------------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions.................................. $12,964 $12,370
Reserves for self-insurance and warranty costs............................... 4,898 6,678
Pension liabilities.......................................................... 7,377 8,828
Inventory.................................................................... 6,626 8,245
Net operating loss carryforwards............................................. 56,739 47,013
Other, net................................................................... 12,728 24,026
------- -------
Total deferred tax assets................................................. 101,332 107,160
Valuation allowance.......................................................... (39,990) (39,639)
------- -------
Net deferred tax assets................................................. 61,342 67,521
------- -------
Deferred tax liabilities:
Depreciation................................................................. 19,872 18,248
Other, net................................................................... 10,676 7,675
------- -------
Total deferred tax liabilities............................................ 30,548 25,923
------- -------
Net deferred tax assets................................................. $30,794 $41,598
------- -------
------- -------
</TABLE>
The deferred tax account balance at December 31, 1997 differs from the
account balance at December 31, 1996 due primarily to the 1997 deferred tax
provision, the tax effects of the foreign exchange gain recorded as a component
of stockholder's equity, the tax effects of adjustments related to the
finalization of the purchase accounting related to the acquisition of Camping
Gaz, and the deferred tax asset recorded related to the acquisition in 1997 of
inactive companies which were recorded as a capital contribution (see Note 12).
During 1997, the Company increased the valuation allowance related to
certain foreign deferred tax assets due to uncertainties over realization. At
December 31, 1997, the Company had net operating loss carryforwards ("NOL's") of
approximately $107,229 for certain foreign income tax purposes. These NOL's
expire beginning in 1998.
The Company has not provided for taxes on undistributed foreign earnings of
approximately $20,860 at December 31, 1997, as the Company intends to
permanently reinvest these earnings in the future growth of the business.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its hypothetical
calculation.
12. RELATED PARTY TRANSACTIONS
Capital Contributions
As of March 31, 1997, the Company purchased an inactive subsidiary from an
affiliate for net cash consideration of $1,031, including transaction costs. The
Company expects to realize certain foreign tax benefits from this transaction in
future years. Under certain circumstances, a portion of these tax benefits will
be payable to the affiliate to the extent such tax benefits are realized by the
Company. During the fourth quarter of 1997, the Company purchased an inactive
subsidiary from an affiliate in a transaction in which the Company expects to
realize certain foreign tax benefits in future years and for which the Company
agreed to pay 50% of those realized benefits to the affiliate. The Company has
recorded a liability to the affiliate in the amount of $219 which represents 50%
of the estimated amount of future tax benefits. The Company has accounted for
these
F-72
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
12. RELATED PARTY TRANSACTIONS--(CONTINUED)
transactions in a manner similar to a pooling-of-interests due to the Mafco
Holdings Inc. common control over each of the parties involved in the
transactions. The $2,799 excess value of estimated realizable tax benefits
acquired over the total acquisition costs have been accounted for as a capital
contribution.
Insurance Programs
The Company participates in certain of Holdings' insurance programs,
including health and life insurance, workers compensation, and liability
insurance. The Company's expense represents its expected costs for self-insured
retentions and premiums for excess coverage insurance. The expense was $13,339,
$13,923 and $9,875 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Services Agreement
From time to time, Coleman purchases, at negotiated rates, specialized
accounting and other services provided by an affiliate. Coleman also provides,
at negotiated rates, services to an affiliate. The net expense for such services
was $394 during 1997 and was immaterial in prior years.
Management Agreement
The Company provided management services to certain affiliates pursuant to
a management agreement through June 30, 1995. The consolidated financial
statements reflect the management fees as a reduction in selling, general and
administration expenses. For the year ended December 31, 1995, management fees
earned by the Company were $2,400.
Licensing Agreement:
During 1997, the Company engaged an affiliate of MacAndrews & Forbes to
provide licensing services. The Company recorded expenses of $650 related to
these services in 1997.
Other
In 1996, the Company entered into an agreement with an affiliate in which
the Company realized approximately $1,800 of net tax benefits associated with
certain foreign tax net operating loss carryforwards that had not previously
been recognized.
The Company purchases and sells products from and to certain affiliates.
These amounts are not, in the aggregate, material.
The Company subleases six thousand square feet of office space in New York
City from an affiliate pursuant to a month-to-month occupancy memorandum (the
"Lease") entered into during 1997. The rent paid by the Company during the year
ended December 31, 1997 pursuant to the Lease was $158.
During 1997, Coleman used an airplane owned by a corporation of which a
director of Coleman is a stockholder, for which Coleman paid approximately $158.
13. EMPLOYEE BENEFIT PLANS
Pension Plans
Holdings maintains pension and other retirement plans in various forms
covering employees of the Company who meet eligibility requirements. The U.S.
salaried retirement plan is a non-contributory defined benefit plan and provides
benefits based on a formula of each participant's final average pay and years of
service. The U.S. hourly pension plan is a non-contributory defined benefit plan
and contains a flat benefit formula. The salaried and hourly plans provide
reduced benefits for early retirement and the salaried plan takes into account
offsets for Social Security benefits. The Company's policy is to contribute
annually the minimum amount
F-73
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. EMPLOYEE BENEFIT PLANS--(CONTINUED)
required pursuant to the Employee Retirement Income Security Act, as amended.
Under certain circumstances, the Company may make additional contributions to
the pension plans up to the maximum deductible amounts for income tax purposes.
Holdings also has an unfunded excess benefit plan covering certain of the
Company's U.S. employees whose benefits under the plans described above are
limited by provisions of the Internal Revenue Code. The following table
reconciles the funded status of the pension plans with the amount recognized in
the Company's consolidated balance sheets as of the dates indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996
----------------------- -----------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits of $24,296 and
$18,686...................................................................... $ (27,843) $ (21,933)
--------- ---------
--------- ---------
Projected benefit obligation for service rendered to date...................... $ (43,246) $ (37,092)
Plan assets at fair value...................................................... 23,102 16,197
--------- ---------
Projected benefit obligation in excess of plan assets.......................... (20,144) (20,895)
Unrecognized prior service cost................................................ 130 50
Unrecognized net loss.......................................................... 6,259 7,999
--------- ---------
Accrued pension cost........................................................... (13,755) (12,846)
Amount reflected as an intangible asset........................................ (143) (288)
Amount reflected as minimum pension liability adjustment....................... (1,526) (470)
--------- ---------
Amount reflected as pension liability.......................................... $ (15,424) $ (13,604)
--------- ---------
--------- ---------
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% as of December 31,
1997 and 1996. The rate of increase in future compensation levels reflected in
such determination was 5% as of December 31, 1997 and 1996. The expected
long-term rate of return on assets was 9% as of December 31, 1997, 1996 and
1995. Plan assets consist primarily of common stock, mutual funds and fixed
income securities stated at fair market value, and cash equivalents stated at
cost, which approximates fair market value. Unrecognized items are being
recognized over the estimated remaining service lives of active employees.
Net pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Service cost-benefits attributed to service during the year..... $ 3,081 $ 3,098 $ 2,125
Interest cost on projected benefit obligation................... 2,813 2,442 2,004
Curtailment loss................................................ 972 -- --
Actual return on plan assets.................................... (2,908) (1,490) (1,347)
Net amortization and deferrals.................................. 1,537 844 834
-------- -------- -------
Net pension expense........................................... $ 5,495 $ 4,894 $ 3,616
-------- -------- -------
-------- -------- -------
</TABLE>
Net pension expense for the year ended December 31, 1997 includes $972 of
curtailment loss associated with certain executive officer changes during the
year.
F-74
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Savings Plan
Holdings maintains an employee savings plan under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all of the Company's
full-time U.S. employees and allows employees to contribute up to 10% of their
salary to the plan. The Company matches, at a 34% rate, employee contributions
of up to 6% of their salary. Amounts charged to expense for matching
contributions were $1,401, $1,314, and $1,165 for the years ended December 31,
1997, 1996 and 1995, respectively.
Retiree Health Care and Life Insurance
The Company, through Holdings, provides certain unfunded health and life
insurance benefits for certain retired employees. Approximately 55% of the
Company's U.S. employees may become eligible for these benefits if they reach
retirement age while working for the Company.
The following table reconciles the funded status of the Company's allocable
portion of Holdings' postretirement benefit plans with the amount recognized in
the Company's consolidated balance sheets as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................................... $ (6,852) $ (6,682)
Fully eligible active plan participants....................................... (3,308) (3,015)
Other active plan participants................................................ (10,322) (10,664)
-------- --------
Total accumulated postretirement benefit obligation............................. (20,482) (20,361)
Unrecognized transition benefit................................................. (3,707) (3,973)
Unrecognized prior service cost................................................. (404) (492)
Unrecognized net gain........................................................... (2,415) (976)
-------- --------
Net postretirement benefit liability............................................ $(27,008) $(25,802)
-------- --------
-------- --------
</TABLE>
Net periodic postretirement benefit expense includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Service cost-benefits attributed to service during the year..... $ 927 $ 1,044 $ 756
Interest cost on accumulated postretirement
benefit obligation............................................ 1,453 1,454 1,352
Amortization of transition benefit and other net gains.......... (358) (354) (455)
-------- -------- -------
Net periodic postretirement benefit expense..................... $ 2,022 $ 2,144 $ 1,653
-------- -------- -------
-------- -------- -------
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation ("APBO") was 7.5% as of December 31, 1997 and 1996. At
December 31, 1997, the assumed health care cost trend rate used in measuring the
APBO was 7.5% starting in 1998 then gradually decreasing to 5% by the year 2003
and remaining at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amount of the obligation and periodic
benefit expense reported. An increase in the assumed health care cost trend
rates by 1% in each year would increase the APBO as of December 31, 1997 by
approximately 19% and the service and interest cost components of net periodic
postretirement benefit expense by approximately 22%.
F-75
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Stock Option Plans
The Company adopted The Coleman Company, Inc. 1992 Stock Option Plan (the
"1992 Stock Option Plan") in 1992. During 1993, the shareholders approved the
1993 Stock Option Plan (the "1993 Stock Option Plan") and during 1996, the
shareholders approved The Coleman Company, Inc. 1996 Stock Option Plan (the
"1996 Stock Option Plan"). Under the terms of the 1992 Stock Option Plan, the
1993 Stock Option Plan and the 1996 Stock Option Plan (collectively the "Stock
Option Plans"), incentive stock options ("ISOs"), non-qualified stock options
("NQSOs") and stock appreciation rights may be granted to key employees of the
Company and any of its affiliates from time to time. Stock options have been
granted under the Stock Option Plans with vesting terms and maximum terms of
approximately five years and ten years, respectively. The aggregate number of
shares of common stock as to which options and rights may be granted under the
Stock Option Plans may not exceed 4,700,000.
The following table summarizes the stock option transactions under the
Stock Option Plans:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--January 1,................ 3,017,630 $ 15.84 2,572,930 $ 15.25 2,310,888 $ 14.03
Granted:
at market price................... 2,081,000 14.77 294,000 19.73 637,000 17.89
above market price................ 75,000 15.00 381,000 15.00 -- --
Exercised............................ (220,750) 11.42 (154,890) 12.17 (325,748) 12.09
Forfeited............................ (1,605,330) 16.49 (75,410) 14.19 (49,210) 13.14
---------- --------- ---------
Outstanding--December 31,.............. 3,347,550 15.14 3,017,630 15.84 2,572,930 15.25
---------- --------- ---------
---------- --------- ---------
Exercisable--December 31,.............. 927,000 14.02 513,440 13.25 413,526 12.84
---------- --------- ---------
---------- --------- ---------
Weighted-average fair value of options
granted during the year:
at market price................... $ 7.43 $ 6.62 $ 7.13
---------- --------- ---------
---------- --------- ---------
above market price................ $ 5.28 $ 3.21 $ --
---------- --------- ---------
---------- --------- ---------
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------- ---------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$12.25-$13.82 543,030 5.26 years $ 12.96 425,230 $ 12.79
$13.83-$14.00 878,500 9.29 14.00 181,250 14.00
$14.01-$16.12 806,520 6.66 15.38 226,020 15.24
$16.13-$20.38 1,119,500 9.20 16.92 94,500 16.67
--------- -------
$12.25-$20.38 3,347,550 7.97 15.14 927,000 14.02
--------- -------
--------- -------
</TABLE>
As described in Note 1, the Company follows APB Opinion No. 25 in
accounting for stock compensation arrangements. Pro forma financial information
regarding net income and earnings per share has been determined as if the
Company had accounted for its employee stock options under the fair value method
of SFAS No. 123.
F-76
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The fair value of ISOs and NQSOs granted during 1997, 1996 and 1995 were
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rates of 6.53%,
6.11% and 5.91 % for 1997, 1996 and 1995, respectively, dividend yield of 0.0%,
volatility of the expected market price of the Company's common stock of 31.3%,
20.2% and 30.8% for 1997, 1996 and 1995, respectively, and a weighted-average
expected life of the option of 7.7, 5.5 and 5.5 years for 1997, 1996 and 1995,
respectively.
SFAS No. 123 requires the use of option valuation models, one of which is
the Black-Scholes model, that were not developed for use valuing ISOs or NQSOs.
Further, these option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. In management's
opinion, based on the above, the existing models do not necessarily provide a
reliable single measure of the fair value of its ISOs or NQSOs.
The following summarized, unaudited pro forma results of operations assume
the estimated fair value of the ISOs and NQSOs granted during the years ended
December 31, 1997, 1996 and 1995 is amortized to expense over the ISOs' and
NQSOs' vesting period. SFAS No. 123 does not require disclosure of the effect of
any grants of stock based compensation prior to 1995 and, therefore, the pro
forma effect of SFAS No. 123 on net earnings is not representative of the pro
forma effect on net earnings in future years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Pro forma net (loss) earnings........................................ $ (6,069) $(42,760) $39,009
Pro forma basic net (loss) earnings per common share................. (0.11) (0.80) 0.73
Pro forma diluted net (loss) earnings per common share............... (0.11) (0.80) 0.73
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases manufacturing, administrative and sales facilities and
various types of equipment under operating lease agreements expiring through
2007. Rental expense was $15,620, $14,164, and $11,526 for the years ended
December 31, 1997, 1996 and 1995, respectively. Minimum rental commitments under
all noncancellable operating leases with remaining lease terms in excess of one
year from December 31, 1997, aggregated $31,506; such commitments for each of
the five years subsequent to December 31, 1997 are $7,571, $6,683, $4,622,
$2,848, and $3,560, respectively, and $6,222 thereafter.
The Company leases its former corporate office building in Denver, Colorado
under agreements which give the Company the right, subject to certain
qualifications, to renew or terminate the lease, or purchase the property. Upon
termination, the Company has guaranteed the lessor certain residual values.
Environmental Matters
Gilbert and Mosley Site. As a result of investigations undertaken in 1986,
the Kansas Department of Health and Environment ("KDHE") discovered that
groundwater in the downtown Wichita area (the "Gilbert and Mosley Site") was
contaminated with volatile organic chemicals ("VOCs"). Coleman occupied a
facility within the boundaries of the Gilbert and Mosley Site. Subsequent
investigations in the area, including investigations in November 1988 by
Coleman, indicated the groundwater beneath the Coleman property is contaminated
with VOCs. Coleman is in the process of remediating the contamination on its
property.
The City of Wichita has entered into a voluntary agreement with KDHE in
which the City agreed to investigate and then remediate contamination in the ert
and Mosley Site. Coleman has entered into an agreement with KDHE in which
Coleman agreed to perform a similar study for the Coleman property and to
implement remedial activities at its property. In addition, Coleman entered into
an agreement with the City of Wichita in
F-77
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
which Coleman agreed to fund its proportionate share of the City's study and
remediation of the Gilbert and Mosley site.
Maize Site. Coleman has undertaken a soil and groundwater investigation at
its facility in Maize, Kansas (the "Maize Site"). Results indicate that limited
VOC contamination is present in the groundwater under and to the southeast of
the facility. The data has been reported to the KDHE, and Coleman has entered
into an agreement with KDHE to implement appropriate remedial actions. The
remediation system has been installed, and Coleman is in the process of
remediating the contaminated groundwater.
Northeast Site. In 1990, Coleman undertook a soil and groundwater
investigation of its facility in northeast Wichita (the "Northeast Site").
Results indicated the presence of VOCs in the groundwater and soils. Although
some of the contamination may be a result of Coleman's operations at the
facility, the data also indicated that contamination was migrating onto the
Coleman property from up gradient sources. Coleman reported the initial results
of its study to KDHE. Coleman has also provided copies of all data to the United
States Environmental Protection Agency (the "EPA"), at its request. The EPA has
not initiated any actions against the Company with respect to the Northeast
Site. An agreement has been entered into with KDHE to undertake additional
investigatory activities, and an interim remediation system has been installed.
The Company has not been named as a potentially responsible party ("PRP")
by the EPA nor does it have joint and several liability with any other PRP for
remediation at any of the above sites.
The Company has adopted an environmental policy designed to ensure the
Company operates in full compliance with applicable environmental regulations
and, where appropriate, the Company's own internal standards. Coleman has also
undertaken an environmental compliance audit program. The Company makes
expenditures it believes are necessary to comply with environmental management
practices. Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate and were not significant in 1997 and are
not expected to be significant in the foreseeable future. The Company accrues
for losses associated with environmental remediation obligations when such
losses are probable and reasonably estimable. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study. Such accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value. Recoveries of environmental remediation costs from other
parties are recognized as assets when their receipt is deemed probable.
While it is possible the Company reserves may change in the near term, the
Company believes the reserves established for environmental matters are
adequate. This belief is based on results of environmental investigations of the
groundwater and soils at the manufacturing facilities operated by Coleman
conducted by independent consultants specializing in environmental
investigations and remediation and estimates provided by such independent
consultants, together with estimates provided by Coleman's environmental
engineering staff.
Other
The Company and Holdings are involved in various claims and legal actions
arising in the ordinary course of business. The Company believes the ultimate
disposition of these matters is not expected to have a material adverse effect
on the Company's consolidated financial condition or results of operations. The
Company has entered into a cross-indemnification agreement with Holdings
pursuant to which it will indemnify Holdings against all liabilities related to
businesses transferred to the Company by Holdings, and Holdings will indemnify
the Company against all liabilities of Holdings other than liabilities related
to the businesses transferred to the Company.
F-78
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company is party to a license agreement which requires payments of
minimum guaranteed royalties aggregating to $11,778 at December 31, 1997; such
commitments for each of the five years remaining under the agreement subsequent
to December 31, 1997 are $1,040, $1,745, $2,434, $3,010, and $3,549,
respectively.
15. SIGNIFICANT CUSTOMERS
The Company's U.S. and Canadian operations have one significant customer
which accounted for approximately 13%, 15%, and 19% of net revenues in the years
ended December 31, 1997, 1996 and 1995, respectively.
16. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from operating
activities. Interest paid was $42,217, $37,608, and $23,976 and net income taxes
(refunded) paid were $(16,138), $7,041, and $12,246 for the years ended December
31, 1997, 1996 and 1995, respectively. Certain non-cash transactions relating to
acquisitions and the issuance of long-term debt have been reported in Notes 2
and 9.
17. PREFERRED STOCK
The Company has authorized 20,000,000 shares of preferred stock, par value
$0.01 per share. The Company's Certificate of Incorporation authorizes the Board
of Directors to provide for the issuance of a series of preferred stock, to
establish the number of shares of each such series and to fix the designation,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof.
18. GEOGRAPHIC SEGMENTS
The Company designs, manufactures and markets a wide variety of multiuse
products and accessories, which are primarily marketed through independent
retail markets, for the outdoor recreation and hardware consumers. The Company
is a leading manufacturer and marketer of brand name consumer products for the
camping and related outdoor recreation markets in the United States, Canada,
Europe, and Japan.
Operating profit, as indicated below, represents net revenues less
operating expenses and amortization of goodwill. Generally, sales between
geographic areas are made at cost plus a share of operating profit. Identifiable
assets are those used by each geographic segment. Corporate assets are
principally cash, certain property and equipment, income tax refunds receivable
- -affiliate, and deferred charges.
F-79
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
18. GEOGRAPHIC SEGMENTS--(CONTINUED)
Information related to the Company's geographic segments is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Net revenues:
Domestic--U.S........................................................... $ 855,365 $ 916,260 $716,018
--Export....................................................... 78,120 91,125 90,434
Europe.................................................................. 217,863 168,780 52,233
Other foreign........................................................... 167,119 219,350 169,836
Eliminations............................................................ (164,173) (175,299) (94,947)
---------- ---------- --------
$1,154,294 $1,220,216 $933,574
---------- ---------- --------
---------- ---------- --------
Operating profit:
Domestic (a)............................................................ $ 34,754 $ 19,915 $120,915
Europe (b).............................................................. 1,299 (17,505) (3,241)
Other foreign (c)....................................................... 26,384 4,027 (10,540)
---------- ---------- --------
62,437 6,437 107,134
Corporate expenses (d).................................................. (27,962) (18,011) (18,043)
Interest expense........................................................ (40,852) (38,727) (24,545)
---------- ---------- --------
(Loss) earnings before income taxes, minority interest and extraordinary
item.................................................................... $ (6,377) $ (50,301) $ 64,546
---------- ---------- --------
---------- ---------- --------
Identifiable assets:
Domestic................................................................ $ 681,325 $ 782,373 $696,681
Europe.................................................................. 216,816 247,412 70,478
Other foreign........................................................... 91,192 83,033 59,107
Corporate............................................................... 52,431 47,268 18,221
---------- ---------- --------
$1,041,764 $1,160,086 $844,487
---------- ---------- --------
---------- ---------- --------
</TABLE>
- ------------------
(a) Includes restructuring and other charges of $21,025 in 1997 and $49,257 in
1996.
(b) Includes restructuring and other charges of $114 in 1997 and $20,002 in
1996.
(c) Includes restructuring and other charges of $4,151 in 1997 and $4,941 in
1996; and $12,289 of asset impairment charges in 1995.
(d) Includes restructuring and other charges of $11,129 in 1997.
F-80
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
19. QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 are as follow:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1997
Net revenues....................................... $ 295,464 $383,514 $ 252,434 $222,882
Gross profit (a)................................... 81,042 101,913 69,867 61,141
Net earnings (loss) (a)............................ 699 10,119 (8,077) (5,277)
Basic earnings (loss) per share.................... $ 0.01 $ 0.19 $ (0.15) $ (0.10)
1996
Net revenues....................................... $ 273,560 $452,654 $ 269,607 $224,395
Gross profit (a)................................... 80,966 137,538 39,894 33,321
Earnings (loss) before extraordinary item (a)...... 15,039 28,046 (48,458) (35,873)
Net earnings (loss) (a)............................ 15,039 27,399 (48,458) (35,873)
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item........ $ 0.28 $ 0.53 $ (0.91) $ (0.67)
Net earnings (loss).............................. 0.28 0.52 (0.91) (0.67)
</TABLE>
- ------------------
(a) Includes restructuring and other charges (credits) as follows:
<TABLE>
<S> <C> <C> <C> <C>
1997
Gross profit....................................... $ (425) $ 11,402 $ 9,010 $ (314)
Net earnings....................................... 2,435 11,547 9,433 (914)
1996
Gross profit....................................... -- -- 33,567 10,438
Earnings before extraordinary item................. -- -- 44,495 8,021
Net earnings....................................... -- -- 44,495 8,021
</TABLE>
20. SUBSEQUENT EVENT (UNAUDITED)
On February 27, 1998, CLN Holdings and Coleman (Parent) Holdings Inc., the
parent company of CLN Holdings, entered into an Agreement and Plan of Merger
(the "CLN Holdings Merger Agreement") with Sunbeam Corporation ("Sunbeam") and a
wholly-owned subsidiary of Sunbeam ("Laser Merger Sub"). The CLN Holdings Merger
Agreement provides that, among other things, Laser Merger Sub will be merged
(the "CLN Holdings Merger") with CLN Holdings. Pursuant to the CLN Holdings
Merger Agreement, the shares of CLN Holdings' common stock issued and
outstanding immediately prior to the effective time of the CLN Holdings Merger
will be converted into the right to receive in the aggregate 14,099,749 shares
of Sunbeam's common stock and $159,957 in cash, without interest. In addition,
the outstanding debt of CLN Holdings will remain an obligation of CLN Holdings
following the CLN Holdings Merger.
Coincident with the execution of the CLN Holdings Merger Agreement, the
Company, Sunbeam and a wholly-owned subsidiary of Sunbeam ("Merger Sub"),
entered into an Agreement and Plan of Merger (the "Coleman Merger Agreement" and
with the CLN Holdings Merger Agreement, collectively the "Merger Agreements"),
providing that, among other things, Merger Sub will be merged (the "Coleman
Merger") with the Company. Pursuant to the Coleman Merger Agreement, each share
of the Company's common stock issued and outstanding immediately prior to the
effective time of the Coleman Merger (other than shares held by Coleman
Worldwide and dissenting shares, if any) will be converted into the right to
receive (a) 0.5677 of a share of Sunbeam common stock, with cash paid in lieu of
fractional shares, and (b) $6.44 in cash, without interest.
F-81
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
20. SUBSEQUENT EVENT (UNAUDITED)--(CONTINUED)
Following consummation of the CLN Holdings Merger, CLN Holdings will be a
direct wholly-owned subsidiary of Sunbeam. Following consummation of the Coleman
Merger, the Company will be an indirect wholly-owned subsidiary of Sunbeam.
The CLN Holdings Merger is subject to the expiration of antitrust waiting
periods and certain other customary conditions. The Coleman Merger Agreement is
subject to consummation of the CLN Holdings Merger. These transactions will
constitute a change in control as defined in the Company Credit Agreement. Per
the terms of the Merger Agreements, certain arrangements with related parties
may be altered or terminated. In addition, outstanding, unvested Company stock
options immediately vest upon consummation of the CLN Holdings Merger.
F-82
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net revenues.......................................................................... $ 244,499 $ 295,464
Cost of sales......................................................................... 175,777 214,422
---------- ----------
Gross profit.......................................................................... 68,722 81,042
Selling, general and administrative expenses.......................................... 74,855 65,873
Interest expense, net................................................................. 9,044 10,712
Amortization of goodwill and deferred charges......................................... 2,934 2,865
Gain on sale of business.............................................................. (26,137) --
Other expense, net.................................................................... 1,861 271
---------- ----------
Earnings before income taxes, minority interest and extraordinary item................ 6,165 1,321
Income tax expense.................................................................... 7,518 510
Minority interest..................................................................... 61 112
---------- ----------
(Loss) earnings before extraordinary item............................................. (1,414) 699
Extraordinary loss on early extinguishment of debt, net of income tax benefit......... (1,232) --
---------- ----------
Net (loss) earnings................................................................... $ (2,646) $ 699
---------- ----------
---------- ----------
Basic and diluted (loss) earnings per share:
(Loss) earnings before extraordinary item........................................... $ (0.03) $ 0.01
Extraordinary item.................................................................. (0.02) --
---------- ----------
Net (loss) earnings................................................................... $ (0.05) $ 0.01
---------- ----------
---------- ----------
Weighted average common shares outstanding:
Basic............................................................................... 53,731,639 53,231,433
---------- ----------
---------- ----------
Dilutive............................................................................ 53,731,639 53,283,832
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-83
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 21,498 $ 13,031
Accounts and notes receivable, less allowance of $8,051 in 1998
and $8,930 in 1997.............................................................. 215,098 194,616
Inventories........................................................................ 246,343 236,327
Deferred tax assets................................................................ 26,196 26,378
Prepaid assets and other........................................................... 22,210 21,344
---------- ----------
Total current assets.......................................................... 531,345 491,696
Property, plant and equipment, net................................................... 161,138 175,494
Intangible assets related to businesses acquired, net................................ 291,860 332,468
Deferred tax assets and other........................................................ 37,636 42,106
---------- ----------
$1,021,979 $1,041,764
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable......................................................... $ 151,315 $ 158,878
Affiliate debt..................................................................... 90,711 --
Other current liabilities.......................................................... 86,360 94,319
---------- ----------
Total current liabilities..................................................... 328,386 253,197
Long-term debt....................................................................... 360,231 477,276
Other liabilities.................................................................... 65,096 69,586
Minority interest.................................................................... 1,224 1,236
Contingencies........................................................................
Stockholders' equity:
Common stock....................................................................... 552 534
Additional paid-in capital......................................................... 203,860 172,072
Retained earnings.................................................................. 77,649 80,296
Accumulated comprehensive loss..................................................... (15,019) (12,433)
---------- ----------
Total stockholders' equity.................................................... 267,042 240,469
---------- ----------
$1,021,979 $1,041,764
---------- ----------
---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-84
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) earnings........................................................................ $ (2,646) $ 699
-------- --------
Adjustments to reconcile net (loss) earnings to net cash flows from operating activities:
Depreciation and amortization............................................................ 9,508 9,590
Gain on sale of business................................................................. (26,137) --
Extraordinary loss on early extinguishment of debt....................................... 2,038 --
Minority interest in earnings of Camping Gaz............................................. 61 112
Change in assets and liabilities:
Increase in receivables............................................................... (34,531) (60,454)
Increase in inventories............................................................... (31,043) (5,258)
Increase in accounts payable.......................................................... 4,177 18,655
Other, net............................................................................ (5,036) (4,383)
-------- --------
(80,963) (41,738)
-------- --------
Net cash used by operating activities...................................................... (83,609) (41,039)
-------- --------
Cash Flows From Investing Activities:
Capital expenditures....................................................................... (9,698) (6,313)
Net proceeds from sale of business and fixed assets........................................ 98,264 2,126
-------- --------
Net cash provided (used) by investing activities........................................... 88,566 (4,187)
-------- --------
Cash Flows From Financing Activities:
Net payments of revolving credit agreement borrowings...................................... (52,578) (8,959)
Net change in short-term borrowings........................................................ (3,352) 48,996
Repayment of long-term debt................................................................ (63,416) (64)
Increase in borrowings from affiliate...................................................... 90,711 --
Debt refinancing costs..................................................................... -- (718)
Proceeds from stock options exercised including tax benefits............................... 31,805 197
-------- --------
Net cash provided by financing activities.................................................. 3,170 39,452
-------- --------
Effect of exchange rate changes on cash.................................................... 340 1,341
-------- --------
Net increase (decrease) in cash and cash equivalents....................................... 8,467 (4,433)
Cash and cash equivalents at beginning of the period....................................... 13,031 17,299
-------- --------
Cash and cash equivalents at end of the period............................................. $ 21,498 $ 12,866
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
F-85
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1. BACKGROUND
The Coleman Company, Inc. ("Coleman" or the "Company") is a leading
manufacturer and marketer of consumer products for outdoor recreation and home
hardware use on a global basis.
Coleman is a subsidiary of Coleman Worldwide Corporation ("Coleman
Worldwide"). Coleman Worldwide is a subsidiary of Laser Acquisition Corp.
("Laser"), a wholly-owned subsidiary of Sunbeam Corporation ("Sunbeam"). Coleman
Worldwide owns 44,067,520 shares of the common stock of Coleman which represent
approximately 80% of the outstanding Coleman common stock as of March 31, 1998.
On February 27, 1998, CLN Holdings Inc. ("CLN Holdings") and Coleman
(Parent) Holdings Inc. ("Parent Holdings"), the parent company of CLN Holdings,
entered into an Agreement and Plan of Merger (as amended, the "Holdings Merger
Agreement") with Sunbeam and Laser. On March 30, 1998, pursuant to the Holdings
Merger Agreement, CLN Holdings was merged with and into Laser, with Laser
continuing as the surviving corporation and as a wholly owned subsidiary of
Sunbeam (the "Holdings Merger"). In the Holdings Merger, Parent Holdings
received 14,099,749 shares of Sunbeam Common Stock and $159,957 in cash in
exchange for all of the outstanding shares of CLN Holdings. As a result of the
Holdings Merger, Sunbeam became the indirect owner of the 44,067,520 shares of
Coleman common stock held by Coleman Worldwide (the "Sunbeam Acquisition").
Coincident with the execution of the Holdings Merger Agreement, the
Company, Sunbeam and Camper Acquisition Corp. ("CAC"), a wholly-owned subsidiary
of Sunbeam, entered into an Agreement and Plan of Merger (the "Coleman Merger
Agreement" and with the Holdings Merger Agreement, collectively, the "Merger
Agreements"), providing that, among other things, CAC will be merged with and
into Coleman, with Coleman continuing as the surviving corporation (the "Coleman
Merger"). Pursuant to the Coleman Merger Agreement, each share of the Company's
common stock issued and outstanding immediately prior to the effective time of
the Coleman Merger (other than shares held indirectly by Sunbeam and dissenting
shares, if any) will be converted into the right to receive (a) 0.5677 of a
share of Sunbeam common stock, with cash paid in lieu of fractional shares, and
(b) $6.44 in cash, without interest.
Upon consummation of the Coleman Merger, Coleman will become an indirect
wholly-owned subsidiary of Sunbeam. Per the terms of the Merger Agreements,
certain arrangements with Parent Holdings and its affiliates have been or may be
altered or terminated. In addition, outstanding, unvested stock options of
Coleman immediately vested upon consummation of the Holdings Merger and will be
cashed out at a price per share equal to the difference between $27.50 and the
exercise price of such option.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Coleman include the accounts of the Company and its subsidiaries after
elimination of all material intercompany accounts and transactions, and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals and one-time adjustments related to the
acquisition of Coleman by Sunbeam) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. The balance sheet at December 31, 1997 has been derived
from the audited financial statements for that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
F-86
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
3. INVENTORIES
The components of inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw material and supplies.................................................. $ 54,369 $ 59,406
Work-in-process............................................................ 9,207 7,813
Finished goods............................................................. 182,767 169,108
--------- --------
$ 246,343 $236,327
--------- --------
--------- --------
</TABLE>
4. LONG-TERM DEBT
In March 1998, as a result of the Sunbeam Acquisition, the Company repaid
all outstanding indebtedness under the Company's credit agreement and the credit
agreement was terminated. In connection with the termination of this agreement,
the Company recorded an extraordinary loss of $2,038 ($1,232 after tax, or $0.02
per share) which represents a write-off of the related unamortized financing
costs associated with the credit agreement.
In addition, the Company's various senior notes, aggregating $360,000 at
March 31, 1998, were redeemed on April 21, 1998 at a cost of $383,395. The
$23,395 of redemption costs in excess of carrying value will be reflected as
additional extraordinary loss on early extinguishment of debt in the second
quarter of 1998 along with the write-off of the related unamortized financing
costs associated with these senior note issuances in the amount of $2,694.
The Company relies upon loans from Sunbeam for the Company's liquidity
needs. Amounts advanced from Sunbeam are due on demand and bear interest at the
rate of 6% per annum as of March 31, 1998 and are reflected as affiliate debt in
the condensed consolidated balance sheet.
5. SALE OF BUSINESS
On March 24, 1998, the Company sold Coleman Safety & Security Products,
Inc. ("CSS"), a wholly-owned subsidiary of the Company which manufactured and
sold safety and security products, to Ranco Incorporated of Delaware ("Ranco")
and Siebe plc, the parent of Ranco, for approximately $97,937, net of fees and
expenses. In connection with the sale of CSS, the Company recorded a pre-tax
gain of $26,137.
The net proceeds from the sale of CSS are subject to post-closing
adjustments and could result in an adjustment to the gain.
6. OTHER CHARGES
During the three months ended March 31, 1998, the Company recorded certain
pre-tax charges totaling $12,931 which included (i) $7,128 of costs associated
with the acquisition of Coleman by Sunbeam, (ii) the write-off of $3,578 of
capitalized costs associated with the installation of a company-wide enterprise
resource computer software system which was abandoned following the Sunbeam
Acquisition, and (iii) $2,225 of costs to terminate a licensing services
agreement with an affiliate of Parent Holdings. During the three months ended
March 31, 1997, the Company recorded certain other pre-tax charges totaling
$3,928, primarily related to severance costs associated with certain executive
changes.
F-87
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
7. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no impact
on the Company's net income or shareholders' equity. SFAS No. 130 requires
foreign currency translation adjustments and minimum pension liability
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. The Company's
comprehensive loss was $5,232 and $5,773 for the three months ended March 31,
1998 and 1997, respectively.
8. BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which establishes new standards for
computing and presenting basic and diluted earnings per share. As required by
SFAS No. 128, the Company adopted the provisions of the new standard with
retroactive effect beginning in 1997. Accordingly, all net earnings (loss) per
common share amounts for all prior periods have been restated to comply with
SFAS No. 128.
The basic earnings (loss) per common share has been computed based upon the
weighted average shares of outstanding common stock. Diluted earnings (loss) per
common share has been computed based upon the sum of the weighted average shares
of outstanding common stock and the weighted average incremental shares that
would have been outstanding assuming dilutive potential common stock had been
issued. The Company's outstanding common stock options represent the only
dilutive potential common stock. The amounts of earnings (loss) used in the
calculations of basic and diluted earnings (loss) per common share were the same
for all periods presented. The number of shares used in the calculation of
diluted earnings per common share included 52,399 incremental shares for the
three month period ended March 31, 1997 to recognize the effect of dilutive
stock options. The number of shares used in the calculation of diluted loss per
common share for the three month period ended March 31, 1998 does not include
any incremental shares that would have been outstanding assuming the exercise of
any stock options because the effect of these shares would have been
antidilutive.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company will apply the provisions of SFAS No. 131 beginning January 1, 1998;
however, financial statement disclosures for interim periods in 1998 are not
required to be presented in interim financial statements issued in 1998.
10. SUBSEQUENT EVENT
On May 11, 1998, Sunbeam announced a comprehensive growth and restructuring
plan that includes certain initiatives involving Coleman's operations. The
restructuring initiatives related to Coleman include, among other things,
(i) combining the Company's headquarters with Sunbeam's headquarters in Florida,
(ii) the consolidation of factories, warehouses, and sales offices, and
(iii) the divestiture of the Eastpak related businesses and the compressor and
spa businesses.
F-88
<PAGE>
[LOGO]
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by Sunbeam Corporation
("Sunbeam") in connection with the offering of the securities being registered
hereby. The selling securityholders (the "Selling Securityholders") will not
share any portion of these expenses. Commission expenses and brokerage fees are
payable individually by the Selling Securityholders. All amounts are estimated
except the Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................................... $72,785.96
Printing Expenses......................................................................... *
Legal Fees and Expenses................................................................... *
Accounting Fees and Expenses.............................................................. *
Miscellaneous............................................................................. *
----------
Total................................................................................ $ *
----------
----------
</TABLE>
- ------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") permits a
Delaware corporation to indemnify officers, directors, employees and agents for
actions taken in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation, and with respect to
any criminal action, which they had no reasonable cause to believe was unlawful.
The DGCL provides that a corporation may pay expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action (upon receipt of a written undertaking to
reimburse the corporation if indemnification is not appropriate), and must
reimburse a successful defendant for expenses, including attorneys' fees,
actually and reasonably incurred, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that indemnification may be made for any claim, issue or matter as to which a
person has been adjudged by a court of competent jurisdiction, after exhaustion
of all appeals therefrom, to be liable to the corporation, unless and only to
the extent a court determines that the person is entitled to indemnity for such
expenses as the court deems proper.
Sunbeam's By-Laws provide that every person will be indemnified against any
and all judgments, fines, amounts paid in settling or otherwise disposing of
threatened, pending or completed actions, suits or proceedings, whether by fact
that he is or was a director or officer of Sunbeam or is or was serving at the
request of Sunbeam as a director or officer of another corporation. Expenses so
incurred by any such person defending or investigating a threatened or pending
civil or criminal action or proceeding shall at his request be paid by Sunbeam
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that such person is not entitled to be
indemnified by Sunbeam.
The DGCL permits a Delaware corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for a
breach of the director's fiduciary duty as a director, except for liability
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions or (iv) for any transaction from which the director derived an
improper personal benefit. The Sunbeam charter contains provisions limiting the
liability of Sunbeam's directors to the fullest extent currently permitted by
the DGCL for monetary damages for breach of their fiduciary duty as directors.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate
II-1
<PAGE>
such duty. Accordingly, these provisions will have no effect on the availability
of equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
The Selling Securityholders and Sunbeam each have agreed to indemnify the
other and their respective officers, directors and other controlling persons
against certain liabilities in connection with this registration, including
liabilities under the Securities Act. The obligation of the Selling
Securityholders is limited to an amount equal to the proceeds such Selling
Securityholder receives from the sale of the securities sold pursuant to this
registration statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) Debentures. On March 25, 1998 Sunbeam sold $2,014,000,000 aggregate
principal amount of its Zero Coupon Convertible Senior Subordinated Debentures
Due 2018 (the "Debentures"). The Debentures were sold to the sole initial
purchaser, Morgan Stanley & Co. Incorporated, pursuant to Section 4(2) under the
Securities Act of 1933. The Debentures were then resold to qualified
institutional buyers in reliance on Rule 144A under the Securities Act and a
limited number of "institutional accredited investors" as defined in
Rule 501(A)(1), (2), (3) or (7) under the Securities Act. The aggregate offering
price of the Debentures to investors was $750,074,020, or 37.243% of aggregate
principal amount at maturity. Underwriting discounts and commissions totaled
$22,502,422.
(2) Parent Holdings Warrant. On August 12, 1998, Sunbeam entered into a
settlement agreement with Coleman (Parent) Holdings, Inc., an affiliate of
MacAndrews & Forbes Holdings, Inc., pursuant to which Sunbeam was released from
certain threatened claims of MacAndrews & Forbes Holdings, Inc. and its
affiliates arising from the acquisition of Coleman. MacAndrews & Forbes also
agreed to provide certain management personnel and assistance to Sunbeam. In
exchange for MacAndrews & Forbes releasing Sunbeam from such claims and in
accordance with Section 4(2) of the Securities Act, Sunbeam issued in a private
sale to Parent Holdings Warrant No. W-1 (the "Warrant") which entitles Parent
Holdings to purchase up to 23 million shares of common stock, par value $.01 per
share, of Sunbeam ("Common Stock") at an exercise price of $7.00 per share,
subject to anti-dilution provisions, at any time prior to the fifth anniversary
of the issuance of the Warrant.
(3) Unregistered Securities Paid to Messrs. Dunlap, Kersh and
Fannin. Effective February 1, 1998 the Company granted certain options (the
"1998 Options") to Messrs. Dunlap and Kersh and David C. Fannin, former
Executive Vice President and Chief Legal Officer of Sunbeam. These grants were
made in consideration for services rendered or to be rendered by these former
executives. The grants were made pursuant to Section 4(2) under the Securities
Act of 1933. The following table specifies the number of shares of Common Stock
underlying these options.
Albert J. Dunlap....................................... 3,750,000
Russell A. Kersh....................................... 1,125,000
David C. Fannin........................................ 750,000
The 1998 Options have a term of 10 years and an exercise price $36.85 of
per share. One-third of Mr. Dunlap's 1998 Options have vested, while the
remaining two-thirds, which were to vest in subsequent years, have been
forfeited to the Company as a result of his termination. One-fourth of
Mr. Kersh's 1998 Options have vested, while the remaining three-fourths, which
were to vest in subsequent years, have been cancelled as a result of their
terminations. All of Mr. Fannin's 1998 Options were cancelled pursuant to his
termination agreement.
As of February 1, 1998, the Company also granted to Mr. Dunlap 300,000
shares of unregistered Common Stock and to Messrs. Kersh and Fannin, 150,000 and
30,000 shares of restricted unregistered Common Stock, respectively. These
shares were granted in consideration for services rendered or to be rendered by
these former executives. The grants were made pursuant to Section 4(2) under the
Securities Act of 1933.
II-2
<PAGE>
Of Mr. Kersh's 150,000 shares, 37,500 have vested, while the remainder has
been forfeited to the Company as a result of his termination. Of Mr. Fannin's
30,000 shares, 14,883 have vested while the remainder has been forfeited to the
Company pursuant to his termination agreement.
For more information on these securities grants, see the "Management"
section of the prospectus which forms a part of this registration statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a list of Exhibits, which are filed
herewith or incorporated herein by reference:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of Sunbeam(3)
3.2 -- By-laws of Sunbeam, as amended(11)
4.1 -- Indenture, dated as of March 25, 1998, by and among the Company and Bank of New York, Trust, with
respect to the Zero Coupon Convertible Senior Subordinated Debentures due 2018(8)
4.2 -- Registration Rights Agreement, dated March 25, 1998, by and among the Company and Morgan Stanley &
Co., Inc., with respect to the Zero Coupon Convertible Senior Subordinated Debentures due 2018(8)
4.3 -- Registration Rights Agreement, dated as of March 29, 1998, between the Company and Coleman
(Parent) Holdings, Inc.(9)
4.4 -- Settlement Agreement, dated as of August 12, 1998, by and between the Company and Coleman (Parent)
Holdings, Inc.(10)
4.5 -- Amendment to Registration Rights Agreement, dated as of August 12, 1998, between the Company and
Coleman (Parent) Holding, Inc.(11)
5.1 -- Opinion of Janet G. Kelley, Vice President, General Counsel and Secretary of the Company*
10.1 -- Employment Agreement, dated as of February 20, 1998, by and between Sunbeam and Albert J.
Dunlap(7)
10.2 -- Employment Agreement, dated as of February 20, 1998, by and between Sunbeam and Russell A.
Kersh(7)
10.3 -- Employment Agreement, dated as of February 20, 1998, by and between Sunbeam and David C. Fannin(7)
10.4 -- Employment Agreement, dated as of January 1, 1997, by and between Sunbeam and Donald Uzzi(5)
10.5 -- Sunbeam Executive Benefit Replacement Plan(7)
10.6 -- Amended and Restated Sunbeam Corporation Stock Option Plan(11)
10.7 -- Performance Based Compensation Plan(7)
10.8 -- Tax Sharing Agreement, dated as of October 31, 1990, by and among Sunbeam, SAIL, SOHO, Montey and
the subsidiaries of Sunbeam listed therein(1)
10.9 -- Guarantee Agreement, dated as of June 1, 1994, between Sunbeam and Continental Bank, N.A., as
Trustee(2)
10.10 -- Trust Indenture, dated as of June 1, 1994, between Mississippi Business Finance Corporation
("MBFC"), and Continental Bank, N.A., as Trustee(2)
10.11 -- Loan Agreement, dated as of June 1, 1994, between MBFC and Sunbeam(2)
10.12 -- $75 million Sunbeam promissory note, dated as of June 21, 1994, payable to MBFC(2)
10.13 -- Leasehold Deed of Trust and Security Agreement, dated as of June 1, 1994, among Sunbeam, Jim B.
Tohill, as Trustee, and MBFC(2)
10.14 -- Credit Agreement, dated as of September 16, 1996, among the Company, The Chase Manhattan Bank and
the Lenders named therein(4)
10.15 -- First Amendment, dated as of November 21, 1996 to the Credit Agreement dated as of September 16,
1996, among the Company, The Chase Manhattan Bank and the Lenders named therein(5)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.16 -- Second Amendment, dated as of January 31, 1997 to the Credit Agreement dated as of September 16,
1996, among the Company, The Chase Manhattan Bank and the Lenders named therein(5)
10.17 -- Third Amendment, dated as of November 6, 1997, to the Credit Agreement dated as of September 16,
1996, among the Company, The Chase Manhattan Bank and the Lenders named therein(7)
10.18 -- Receivables Sale and Contribution Agreement, dated as of December 4, 1997, between Sunbeam
Products, Inc. and Sunbeam Asset Diversification, Inc.(7)
10.19 -- Receivables Purchase and Servicing Agreement, dated as of December 4, 1997, between Sunbeam
Products, Inc., Llama Retail, L.P., Capital USA, LLC and Sunbeam Asset Diversification, Inc.(7)
10.20 -- Agreement and Plan of Merger among Sunbeam Corporation, Laser Acquisition Corp., CLN Holdings,
Inc., and Coleman (Parent) Holdings, Inc., dated as of February 27, 1998(7)
10.21 -- Agreement and Plan of Merger among Sunbeam Corporation, Camper Acquisition Corp., and The Coleman
Company, Inc., dated as of February 27, 1998(7)
10.22 -- Agreement and Plan of Merger between Sunbeam Corporation, Java Acquisition Corp., and Signature
Brands USA, Inc., dated as of February 28, 1998(7)
10.23 -- Stock Purchase Agreement among Java Acquisition Corp. and the Sellers named therein, dated as of
February 28, 1998(7)
10.24 -- Agreement and Plan of Merger by and among Sunbeam Corporation, Sentinel Acquisition Corp., and
First Alert, Inc., dated as of February 28, 1998(7)
10.25 -- Stock Sale Agreement among Sunbeam Corporation and the Stockholders named therein, dated as of
February 28, 1998(7)
10.26 -- Credit Agreement, dated as of March 30, 1998, among Sunbeam Corporation, the Borrowers referred to
therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank of America National
Trust and Savings Association and First Union National Bank(8)
10.27 -- First Amendment to Credit Agreement, dated as of May 8, 1998, among Sunbeam Corporation, the
Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior
Funding, Inc., Bank America National Trust and Savings Association and First Union National
Bank(8)
10.28 -- Second Amendment to Credit Agreement, dated as of March 30, 1998, among the Company, the
Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior
Funding, Inc., Bank America National Trust and Savings Association and First Union National
Bank(11)
10.29 -- Third Amendment to Credit Agreement, dated as of October 19, 1998, among the Company, the
Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior
Funding, Inc., Bank America National Trust and Savings Association and First Union National
Bank(11)
10.30 -- Employment Agreement between the Company and Jerry W. Levin, dated as of August 12, 1998(11)
10.31 -- Employment Agreement between the Company and Paul Shapiro, dated as of August 12, 1998(11)
10.32 -- Employment Agreement between the Company and Bobby Jenkins, dated as of August 12, 1998(11)
10.33 -- Agreement between the Company and David Fannin, dated August 20, 1998(11) 10.34 First Amendment to
Receivables Sale and Contribution Agreement, dated April 2, 1998, between Sunbeam Products, Inc.
and Sunbeam Assets Diversification, Inc.(11)
10.35 -- First Amendment to Receivables Purchase and Servicing Agreement, dated April 2, 1998, between
Llama Retail Funding, L.P., Capital USA, L.L.C., Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.36 -- Second Amendment to Receivables Purchase and Servicing Agreement, dated July 29, 1998, between
Llama Retail Funding, L.P., Capital USA, L.L.C., Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.37 -- Employment Agreement between the Company and Janet G. Kelley, dated as of December 16, 1998
10.38 -- Employment Agreement between the Company and Karen K. Clark, dated as of August 31, 1998
12.1 -- Computation of Ratio of Earnings to Fixed Charges
16.1 -- Letter re Change in Certifying Accountant(12)
21.1 -- Subsidiaries of the Registrant*
23.1 -- Consent of Janet G. Kelley, Vice President, General Counsel and Secretary of the Company (included
in Exhibit 5.1)*
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Ernst & Young LLP
24 -- Power of Attorney**
25 -- Statement of Eligibility of Trustee under the Trust Indenture Act of 1939 on Form T-1*
99.1 -- Press Release, dated January 28, 1997 regarding Sunbeam's 1997 earnings(7)
99.2 -- Press Release, dated March 2, 1998 regarding Sunbeam's acquisitions of the Coleman Company, Inc.,
Signature Brands USA, Inc. and First Alert, Inc.(7)
99.3 -- Press Release, dated August 12, 1998 regarding issuance of warrants to MacAndrews & Forbes
Holding, Inc.(11)
99.4 -- Press Release, dated August 24, 1998 regarding the Company's new strategy and senior manage ment
team(11)
99.5 -- Press Release, dated October 20, 1998 regarding the Company's restatement of its financial
results(11)
</TABLE>
- ------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1990.
(2) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended July 3, 1994.
(3) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended June 30, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended September 29, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the fiscal year ended December 29, 1996.
(6) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended March 30, 1997.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1997.
(8) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended March 30, 1998.
(9) Incorporated by reference to the Company's Report on Form 8-K filed
April 13, 1998.
(10) Incorporated by reference to the Company's Report on Form 8-K filed
August 14, 1998.
(11) Incorporated by reference to the Company's Report on Form 10-K/A for the
fiscal year ended December 28, 1997.
(12) Incorporated by reference to the Company's Report on Form 8-K filed
November 30, 1998.
* To be filed by amendment.
** Contained on signature pages hereto.
II-5
<PAGE>
(b) Financial Statement Schedules.
II. Valuation and Qualifying Accounts (included on page F-37 of the prospectus
which forms a part of this registration statement).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities Exchange Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person in connection with the securities being
registered, the opinion of counsel the matter has been settled by controlling of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Sunbeam has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Delray Beach,
State of Florida, on this 4th day of February, 1999.
SUNBEAM CORPORATION
By: /s/ JANET G. KELLEY
---------------------------------
Janet G. Kelley
Vice President General Counsel and
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul Shapiro and Janet G. Kelley, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and all
capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Registration Statement on Form S-1 and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully as to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of the said
attorneys-in-fact and agents, or his substitute, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- -----------------
<S> <C> <C>
/s/ PETER A. LANGERMAN President of the Board February 4, 1999
- ------------------------------------------
Peter A. Langerman
/s/ JERRY W. LEVIN President, Chief Executive Officer February 4, 1999
- ------------------------------------------
Jerry W. Levin
/s/ CHARLES M. ELSON Director February 4, 1999
- ------------------------------------------
Charles M. Elson
/s/ HOWARD GITTIS Director February 4, 1999
- ------------------------------------------
Howard Gittis
/s/ HOWARD G. KRISTOL Director February 4, 1999
- ------------------------------------------
Howard G. Kristol
/s/ FAITH WHITTLESEY Director February 4, 1999
- ------------------------------------------
Faith Whittlesey
/s/ BOBBY JENKINS Executive Vice President and Chief February 4, 1999
- ------------------------------------------ Financial Officer
Bobby Jenkins (Principal Financial Officer)
/s/ KAREN K. CLARK Vice President, Finance February 4, 1999
- ------------------------------------------ (Principal Accounting Officer)
Karen K. Clark
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
The following is a list of Exhibits, which are filed herewith or incorporated
herein by reference:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of Sunbeam(3)
3.2 -- By-laws of Sunbeam, as amended(11)
4.1 -- Indenture, dated as of March 25, 1998, by and among the Company and Bank of New York, Trust, with
respect to the Zero Coupon Convertible Senior Subordinated Debentures due 2018(8)
4.2 -- Registration Rights Agreement, dated March 25, 1998, by and among the Company and Morgan Stanley &
Co., Inc., with respect to the Zero Coupon Convertible Senior Subordinated Debentures due
2018(8)
4.3 -- Registration Rights Agreement, dated as of March 29, 1998, between the Company and Coleman
(Parent) Holdings, Inc.(9)
4.4 -- Settlement Agreement, dated as of August 12, 1998, by and between the Company and Coleman (Parent)
Holdings, Inc.(10)
4.5 -- Amendment to Registration Rights Agreement, dated as of August 12, 1998, between the Company and
Coleman (Parent) Holding, Inc.(11)
5.1 -- Opinion of Janet G. Kelley, Vice President, General Counsel and Secretary of the Company*
10.1 -- Employment Agreement, dated as of February 20, 1998, by and between Sunbeam and Albert J.
Dunlap(7)
10.2 -- Employment Agreement, dated as of February 20, 1998, by and between Sunbeam and Russell A.
Kersh(7)
10.3 -- Employment Agreement, dated as of February 20, 1998, by and between Sunbeam and David C. Fannin(7)
10.4 -- Employment Agreement, dated as of January 1, 1997, by and between Sunbeam and Donald Uzzi(5)
10.5 -- Sunbeam Executive Benefit Replacement Plan(7)
10.6 -- Amended and Restated Sunbeam Corporation Stock Option Plan(11)
10.7 -- Performance Based Compensation Plan(7)
10.8 -- Tax Sharing Agreement, dated as of October 31, 1990, by and among Sunbeam, SAIL, SOHO, Montey and
the subsidiaries of Sunbeam listed therein(1)
10.9 -- Guarantee Agreement, dated as of June 1, 1994, between Sunbeam and Continental Bank, N.A., as
Trustee(2)
10.10 -- Trust Indenture, dated as of June 1, 1994, between Mississippi Business Finance Corporation
("MBFC"), and Continental Bank, N.A., as Trustee(2)
10.11 -- Loan Agreement, dated as of June 1, 1994, between MBFC and Sunbeam(2)
10.12 -- $75 million Sunbeam promissory note, dated as of June 21, 1994, payable to MBFC(2)
10.13 -- Leasehold Deed of Trust and Security Agreement, dated as of June 1, 1994, among Sunbeam, Jim B.
Tohill, as Trustee, and MBFC(2)
10.14 -- Credit Agreement, dated as of September 16, 1996, among the Company, The Chase Manhattan Bank and
the Lenders named therein(4)
10.15 -- First Amendment, dated as of November 21, 1996 to the Credit Agreement dated as of September 16,
1996, among the Company, The Chase Manhattan Bank and the Lenders named therein(5)
10.16 -- Second Amendment, dated as of January 31, 1997 to the Credit Agreement dated as of September 16,
1996, among the Company, The Chase Manhattan Bank and the Lenders named therein(5)
10.17 -- Third Amendment, dated as of November 6, 1997, to the Credit Agreement dated as of September 16,
1996, among the Company, The Chase Manhattan Bank and the Lenders named therein(7)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.18 -- Receivables Sale and Contribution Agreement, dated as of December 4, 1997, between Sunbeam
Products, Inc. and Sunbeam Asset Diversification, Inc.(7)
10.19 -- Receivables Purchase and Servicing Agreement, dated as of December 4, 1997, between Sunbeam
Products, Inc., Llama Retail, L.P., Capital USA, LLC and Sunbeam Asset Diversification, Inc.(7)
10.20 -- Agreement and Plan of Merger among Sunbeam Corporation, Laser Acquisition Corp., CLN Holdings,
Inc., and Coleman (Parent) Holdings, Inc., dated as of February 27, 1998(7)
10.21 -- Agreement and Plan of Merger among Sunbeam Corporation, Camper Acquisition Corp., and The Coleman
Company, Inc., dated as of February 27, 1998(7)
10.22 -- Agreement and Plan of Merger between Sunbeam Corporation, Java Acquisition Corp., and Signature
Brands USA, Inc., dated as of February 28, 1998(7)
10.23 -- Stock Purchase Agreement among Java Acquisition Corp. and the Sellers named therein, dated as of
February 28, 1998(7)
10.24 -- Agreement and Plan of Merger by and among Sunbeam Corporation, Sentinel Acquisition Corp., and
First Alert, Inc., dated as of February 28, 1998(7)
10.25 -- Stock Sale Agreement among Sunbeam Corporation and the Stockholders named therein, dated as of
February 28, 1998(7)
10.26 -- Credit Agreement, dated as of March 30, 1998, among Sunbeam Corporation, the Borrowers referred to
therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank of America
National Trust and Savings Association and First Union National Bank(8)
10.27 -- First Amendment to Credit Agreement, dated as of May 8, 1998, among Sunbeam Corporation, the
Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior
Funding, Inc., Bank America National Trust and Savings Association and First Union National
Bank(8)
10.28 -- Second Amendment to Credit Agreement, dated as of March 30, 1998, among the Company, the
Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior
Funding, Inc., Bank America National Trust and Savings Association and First Union National
Bank(11)
10.29 -- Third Amendment to Credit Agreement, dated as of October 19, 1998, among the Company, the
Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior
Funding, Inc., Bank America National Trust and Savings Association and First Union National
Bank(11)
10.30 -- Employment Agreement between the Company and Jerry W. Levin, dated as of August 12, 1998(11)
10.31 -- Employment Agreement between the Company and Paul Shapiro, dated as of August 12, 1998(11)
10.32 -- Employment Agreement between the Company and Bobby Jenkins, dated as of August 12, 1998(11)
10.33 -- Agreement between the Company and David Fannin, dated August 20, 1998(11)
10.34 -- First Amendment to Receivables Sale and Contribution Agreement, dated April 2, 1998, between
Sunbeam Products, Inc. and Sunbeam Assets Diversification, Inc.(11)
10.35 -- First Amendment to Receivables Purchase and Servicing Agreement, dated April 2, 1998, between
Llama Retail Funding, L.P., Capital USA, L.L.C., Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.36 -- Second Amendment to Receivables Purchase and Servicing Agreement, dated July 29, 1998, between
Llama Retail Funding, L.P., Capital USA, L.L.C., Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.37 -- Employment Agreement between the Company and Janet G. Kelley, dated as of December 16, 1998
10.38 -- Employment Agreement between the Company and Karen K. Clark, dated as of August 31, 1998
12.1 -- Computation of Ratio of Earnings to Fixed Charges
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
16.1 -- Letter re Change in Certifying Accountant(12)
21.1 -- Subsidiaries of the Registrant*
23.1 -- Consent of Janet G. Kelley, Vice President, General Counsel and Secretary of the Company (included
in Exhibit 5.1)*
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Ernst & Young LLP
24 -- Power of Attorney**
25 -- Statement of Eligibility of Trustee under the Trust Indenture Act of 1939 on Form T-1*
99.1 -- Press Release, dated January 28, 1997 regarding Sunbeam's 1997 earnings(7)
99.2 -- Press Release, dated March 2, 1998 regarding Sunbeam's acquisitions of the Coleman Company, Inc.,
Signature Brands USA, Inc. and First Alert, Inc.(7)
99.3 -- Press Release, dated August 12, 1998 regarding issuance of warrants to MacAndrews & Forbes
Holding, Inc.(11)
99.4 -- Press Release, dated August 24, 1998 regarding the Company's new strategy and senior management
team(11)
99.5 -- Press Release, dated October 20, 1998 regarding the Company's restatement of its financial
results(11)
</TABLE>
- ------------------
(1) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1990.
(2) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended July 3, 1994.
(3) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended June 30, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended September 29, 1996.
(5) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the fiscal year ended December 29, 1996.
(6) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended March 30, 1997.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1997.
(8) Incorporated by reference to the Company's Annual Report on Form 10-Q for
the quarter ended March 30, 1998.
(9) Incorporated by reference to the Company's Report on Form 8-K filed
April 13, 1998.
(10) Incorporated by reference to the Company's Report on Form 8-K filed
August 14, 1998.
(11) Incorporated by reference to the Company's Report on Form 10-K/A for the
fiscal year ended December 28, 1997.
(12) Incorporated by reference to the Company's Report on Form 8-K filed
November 30, 1998.
* To be filed by amendment.
** Contained on signature pages hereto.
<PAGE>
EXHIBIT 10.37
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 16, 1998 between
Sunbeam Corporation, a Delaware corporation (the "Company") and Janet G. Kelley
(the "Executive").
The Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in this
Agreement.
Accordingly, the Company and the Executive hereby agree as
follows:
1 Employment, Duties and Acceptance.
---------------------------------
1.1 Employment, Duties. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render exclusive and
full-time services to the Company as Vice President , General Counsel and
Corporate Secretary or in such other executive position as may be mutually
agreed upon by the Company and the Executive, and to perform such other duties
consistent with such position as may be assigned to the Executive by the Board
of Directors of the Company (the "Board").
1.2 Acceptance. The Executive hereby accepts such employment
and agrees to render the services described above. During the Term, the
Executive agrees to serve the Company faithfully and to the best of the
Executive's ability, to devote the Executive's entire business time, energy and
skill to such employment, and to use the Executive's best efforts, skill and
ability to promote the Company's interests. The Executive further agrees to
accept election, and to serve during all or any part of the Term, as an officer
or director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be. The
Executive hereby represents and warrants that the Executive is not subject to
any other agreement, including without limitation any agreement not to compete
or confidentiality agreement, which would be violated by the Executive's
performance of services hereunder.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in Palm
Beach County, Florida, subject to reasonable travel requirements on behalf of
the Company.
2 Term of Employment; Certain Post-Term Benefits.
----------------------------------------------
2.1 The Term. The term of the Executive's employment under
this Agreement
<PAGE>
(the "Term") shall commence on January 1, 1999 and shall end on December 31,
2000.
2.2 Special Curtailment. The Term shall end earlier than the
original termination date provided in Section 2.1, if sooner terminated pursuant
to Section 4.
3 Compensation; Benefits.
----------------------
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $275,000 (the "Base Salary"), less such deductions or amounts to be
withheld as required by applicable law and regulations. In the event that the
Company, in its sole discretion, from time to time determines to increase the
Base Salary, such increased amount shall, from and after the effective date of
the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Annual Bonus. In addition to the amounts to be paid to the
Executive pur suant to Section 3.1, the Executive will be eligible to receive a
performance-based bonus with respect to each year of the Term commencing in
1999, based upon a target bonus opportunity of 50% of Base Salary, payable
within 90 days following the end of the Company's fiscal year. Performance goals
for such bonuses shall be determined by the Compensation Committee of the Board
of Directors.
3.3 Guaranteed Bonus. For 1998, the Executive shall receive a
guaranteed bonus equal to $112,500 (the "1998 Bonus"), payable on or before
January 15, 1999.
3.4 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the Executive
during the Term in the performance of the Executive's services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers
provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Chairman or Vice Chairman of the Board
of Directors or the Board of Directors.
3.5 Vacation. During the Term, the Executive shall be entitled
to a vacation period or periods of four weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a year shall be forfeited.
3.6 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its employees generally, together
with executive medical benefits for the Executive, the Executive's spouse and
the Executive's children as from time to time in effect for officers of the
Company generally. The Executive shall be entitled to participate in the
Company's relocation program in connection with entering into this Agreement and
shall be entitled to a car allowance in the
2
<PAGE>
amount of $1,000/month.
3.7 Stock Options. The Company shall grant to the Executive on
the date hereof, subject to the receipt of shareholder approval to the extent
required under (1) Section 162(m) of the Internal Revenue Code of 1986, as
amended, (2) the terms of the Amended and Restated Sunbeam Corporation Stock
Option Plan (the "Option Plan"), if the grant is to be made under such plan, or
(3) the shareholder approval policy of the New York Stock Exchange, which
shareholder approval shall be requested by the Company when it next solicits
proxies from its shareholders, non-qualified stock options (the "Options") with
a scheduled 10-year term to purchase shares of the common stock of the Company,
par value $.01 per share. The Options shall be granted in an amount and at the
exercise price as set forth on Appendix I to this Agreement. The Options shall
vest and become exercisable in full on December 31, 2000 (if the Executive
remains employed pursuant to this Agreement as of such date) or, to the extent
the Option is outstanding, upon a "Change in Control" of the Company. The
Options shall be subject to earlier vesting or forfeiture as set forth in
Section 4. The Options shall be subject to all other terms and conditions as set
forth in an Option Agreement between the Company and the Executive. For purposes
of this Agreement, Change in Control shall have the meaning set forth in the
Option Plan as in effect as of the date of this Agreement.
3.8 Additional Benefits. During the Term, the Executive shall
be entitled to such additional benefits generally provided to other senior
executives of the Company.
4 Termination.
-----------
4.1 Death. If the Executive shall die during the Term, the
Term shall terminate and no further amounts or benefits shall be payable
hereunder, except that the Executive's legal representatives shall be entitled
to receive continued payments in an amount equal to 60% of the Base Salary, in
the manner specified in Section 3.1, until the longer of 12 months or the end of
the Term (as in effect immediately prior to the Executive's death). The Options
shall become vested and exercisable as of the Executive's death during the Term
(provided, that, to the extent shareholder approval continues to be required
under Section 3.7, such accelerated vesting and exercisability shall occur upon
such approval), and shall remain exercisable for three years following the later
of such death during the Term or the receipt of any required shareholder
approval with respect to such Options, by the beneficiary designated by the
Executive on a form prescribed for such purpose by the Company, or in the
absence of such designation by the Executive's legal representative.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's services hereunder for (i) a
period of six consecutive months or (ii) for shorter periods aggregating six
months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equalled an aggregate of six months, by
written notice to the Executive (but before the Executive has recovered from
such disability), terminate the Term and
3
<PAGE>
no further amounts or benefits shall be payable hereunder, except that the
Executive shall be entitled to receive continued payments in an amount equal to
60% of the Base Salary, in the manner specified in Section 3.1, until the longer
of 12 months or the end of the Term (as in effect immediately prior to such
termination). Upon the Executive's termination for disability, the Options
shall, subject to the receipt of any required shareholder approval under Section
3.7, continue to vest and become exercisable pursuant to their original vesting
schedule, and shall remain exercisable for three years following vesting. If the
Executive shall die before receiving all payments to be made by the Company in
accordance with this Section 4.2, such payments shall be made to the beneficiary
designated by the Executive on a form prescribed for such purpose by the
Company, or in the absence of such designation to the Executive's legal
representative.
4.3 Cause/Voluntary Termination. In the event of gross neglect
by the Executive of the Executive's duties hereunder, conviction of the
Executive of any felony, conviction of the Executive of any lesser crime or
offense involving the property of the Company or any of its subsidiaries or
affiliates, willful misconduct by the Executive in connection with the
performance of any material portion of the Executive's duties hereunder, a
willful breach by the Executive of Sections 5, 6 or 7 or any other material
provision of this Agreement or any other conduct on the part of the Executive
which would make the Executive's continued employment by the Company materially
prejudicial to the best interests of the Company, the Company may at any time by
written notice to the Executive terminate the Term and, upon such termination,
this Agreement shall terminate and the Executive shall be entitled to receive no
further amounts or benefits hereunder, except any as shall have been earned to
the date of such termination and owed to the Executive. In the event the
Executive voluntarily terminates employment (other than pursuant to Section 4.4
as a result of a breach of this Agreement by the Company), this Agreement shall
terminate and the Executive shall be entitled to receive no further amounts or
benefits hereunder, except any as shall have been earned by and owed to the
Executive as of the date of such termination. Upon a termination of the
Executive's employment under this Section 4.3, all unvested Options shall be
immediately forfeited.
4.4 Company Breach. In the event of the breach of any
material provision of this Agreement by the Company, the Executive shall be
entitled to terminate the Term upon 60 days' prior written notice to the
Company. Upon such termination, or in the event the Company terminates the Term
or this Agreement other than pursuant to the provisions of Sections 4.2 or 4.3,
the Company shall continue to provide the Executive (i) payments of Base Salary,
in the manner and amount specified in Section 3.1, (ii) an amount equal to the
Executive's target bonus opportunity percentage as in effect as of the date of
termination for any year in which bonuses are paid to other members of the
Senior Corporate Management to the extent such bonuses are paid, multiplied by
the Executive's Base Salary as of the date of termination, payable with respect
to each remaining bonus period which would otherwise have ended during the Term
(the "Full Bonus Periods"), and (iii) medical, dental, life and long-term
disability insurance benefits in the manner and amounts specified in Sections
3.6 (provided that the Executive shall continue to bear the cost of such
benefits required to be paid by employees) or, for a period of twelve months
after the last day of the month in which termination described in this Section
4.4
4
<PAGE>
occurred, whichever is longer (the "Damage Period"); provided, however, that if
the Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employee-provided plan,
the medical and other welfare benefits described herein shall be secondary to
those provided under such other plan during such applicable period of
eligibility. In addition, upon such termination of employment, each of the
Options shall immediately vest and become exercisable in an amount equal to (a)
the number of shares subject to such Option, multiplied by (b) (i) the number of
full and partial months during the Term prior to the Executive's termination of
employment, divided by (ii) twenty-four. The vested portion of the Options shall
remain exercisable for three years following the later of the Executive's
termination of employment or the receipt of any required shareholder approval
with respect to such Options, and the remaining portion of the Options shall be
forfeited upon the Executive's termination of employment. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced (except as
provided in this Section 4.4) whether or not the Executive obtains other
employment.
4.5 Litigation Expenses. Except as provided for in Section
5.7, if the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or proceeding is rendered
in favor of the Executive with respect to a material portion of such action,
suit or proceeding, the Company shall reimburse the Executive for all expenses
(including reasonable attorneys' fees) reasonably incurred by the Executive in
connection with such action, suit or proceeding.
5 Protection of Confidential Information; Non-Competition.
-------------------------------------------------------
5.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, other business affairs of
the Company, and any information whatsoever concerning any director, officer,
employee or agent of the Company or their respective family members learned by
the Executive heretofore or hereafter, and not to disclose them to anyone
outside of the Company, either during or after the Executive's employment with
the Company, except in the course of performing the Executive's duties hereunder
or with the Company's express written consent. The foregoing prohibitions shall
include, without limitation, directly or indirectly publishing (or causing,
participating in, assisting or providing any statement, opinion or information
in connection with the publication of) any diary, memoir, letter, story,
photograph, interview, article, essay, account or description (whether
fictionalized or not) concerning any of the foregoing, publication being deemed
to include any presentation or reproduction of any written, verbal or visual
material in any communication medium, including any book, magazine,
5
<PAGE>
newspaper, theatrical production or movie, or television or radio programming or
commercial; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 During the Term, the Executive shall not, directly or
indirectly, on his own behalf or behalf of any other person or entity, enter the
employ of, or render any services to, any person, firm or corporation engaged in
any business competitive with the business of the Company or of any of its
subsidiaries or affiliates; the Executive shall not engage in such business on
the Executive's own account; and the Executive shall not become interested in
any such business, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, trustee, consultant,
or in any other relationship or capacity provided, however, that nothing
contained in this Section 5.2 shall be deemed to prohibit the Executive from
acquiring, solely as an investment, up to five percent (5%) of the outstanding
shares of capital stock of any public corporation.
5.3 If the Executive willfully commits a breach, or threatens
to commit a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the
Company shall have the right to terminate the Executive's employment (with the
consequences set forth in Section 4.3 above), and the following additional
rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of Sections 5.1 or 5.2, and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
6
<PAGE>
5.5 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties agree that the court
making such determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 upon the
courts of any state within the geographical scope of such covenants. In the
event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding in
law or in equity is brought to enforce the covenants contained in Sections 5.1
and 5.2 or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
6 Inventions and Patents.
----------------------
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the Company,
provided that such Inventions grew out of the Executive's work with the Company
or any of its subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Company or any of its subsidiaries
or affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials. The Executive shall further: (a) promptly
disclose such Inventions to the Company; (b) assign to the Company, without
additional compensation, all patent and other rights to such Inventions for the
United States and foreign countries; (c) sign all papers necessary to carry out
the foregoing; and (d) give testimony in support of the Executive's
inventorship.
6.2 If any Invention is described in a patent application or
is disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company, it
is to be presumed that the Invention was conceived
7
<PAGE>
or made during the Term.
6.3 The Executive agrees that the Executive will not assert
any rights to any Invention as having been made or acquired by the Executive
prior to the date of this Agreement, except for Inventions, if any, disclosed to
the Company in writing prior to the date hereof.
7 Intellectual Property.
---------------------
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend its right,
title or interest in or to any such properties.
8 Indemnification.
---------------
The Company will indemnify the Executive, to the maximum
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the Executive
being an officer, director or employee of the Company or of any subsidiary or
affiliate of the Company.
9 Notices.
-------
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified mail
(notices mailed shall be deemed to have been given on the date mailed), as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
If to the Company, to:
Sunbeam Corporation
1615 South Congress Avenue
Suite 200
Delray Beach, Florida 33445
8
<PAGE>
If to the Executive, to:
Janet G. Kelley
326 Sandpiper Lane
Delray Beach, Florida 33484
General.
9.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely in Delaware.
9.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
9.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation,
promise or inducement not so set forth.
9.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
9.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
10 Subsidiaries and Affiliates.
---------------------------
10.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate" shall
mean and include any corporation or other business entity
9
<PAGE>
directly or indirectly controlling, controlled by or under common control with
the corporation or other business entity in question.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SUNBEAM CORPORATION
By:
-------------------------------------
----------------------------------------
Janet G. Kelley
11
<PAGE>
APPENDIX I
----------
Stock Options.
- -------------
The Executive's Options shall be granted for 60,000 shares of
Common Stock, at an exercise price of $7.00 per share. In addition, the
Executive shall have the opportunity to exchange all options presently held by
the Executive under the Company's recently announced Option Exchange Program,
provided, that, all of the terms of such Options obtained in such exchange shall
be consistent with the provisions of Sections 3.4 and 4.4 of this Agreement.
1
<PAGE>
EXHIBIT 10.38
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 31, 1998 between
Sunbeam Corporation, a Delaware corporation (the "Company") and Karen K. Clark
(the "Executive").
The Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in this
Agreement.
Accordingly, the Company and the Executive hereby agree as
follows:
1 Employment, Duties and Acceptance.
---------------------------------
1.1 Employment, Duties. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render exclusive and
full-time services to the Company as Vice President - Finance or in such other
executive position as may be mutually agreed upon by the Company and the
Executive, and to perform such other duties consistent with such position as may
be assigned to the Executive by the Board of Directors of the Company (the
"Board").
1.2 Acceptance. The Executive hereby accepts such employment
and agrees to render the services described above. During the Term, the
Executive agrees to serve the Company faithfully and to the best of the
Executive's ability, to devote the Executive's entire business time, energy and
skill to such employment, and to use the Executive's best efforts, skill and
ability to promote the Company's interests. The Executive further agrees to
accept election, and to serve during all or any part of the Term, as an officer
or director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be. The
Executive hereby represents and warrants that the Executive is not subject to
any other agreement, including without limitation any agreement not to compete
or confidentiality agreement, which would be violated by the Executive's
performance of services hereunder.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in Palm
Beach County, Florida, subject to reasonable travel requirements on behalf of
the Company.
2 Term of Employment; Certain Post-Term Benefits.
----------------------------------------------
2.1 The Term. The term of the Executive's employment under
this Agreement (the "Term") shall commence on June 15, 1998 and shall end on
June 14, 2000.
<PAGE>
2.2 Special Curtailment. The Term shall end earlier than the
original termination date provided in Section 2.1, if sooner terminated pursuant
to Section 4.
3 Compensation; Benefits.
----------------------
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $270,000 (the "Base Salary"), less such deductions or amounts to be
withheld as required by applicable law and regulations. In the event that the
Company, in its sole discretion, from time to time determines to increase the
Base Salary, such increased amount shall, from and after the effective date of
the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Annual Bonus. In addition to the amounts to be paid to the
Executive pur suant to Section 3.1, the Executive will be eligible to receive a
performance-based bonus with respect to each year of the Term commencing in
1999, based upon a target bonus opportunity of 50% of Base Salary, payable
within 90 days following the end of the Company's fiscal year. Performance goals
for such bonuses shall be determined by the Compensation Committee of the Board
of Directors. Upon expiration of the Term without renewal, the Executive shall
be eligible to receive a pro rata performance-based bonus for the final bonus
period commencing during the Term based upon performance through June 30, 2000,
and payable within 90 days following such expiration of the Term.
3.3 Guaranteed Bonus. For 1998, the Executive shall receive a
guaranteed bonus equal to $73,125 (the "1998 Bonus"), payable on or before
January 15, 1999.
3.4 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the Executive
during the Term in the performance of the Executive's services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers
provided, however, that the maximum amount available for such expenses during
any period may be fixed in advance by the Chairman or Vice Chairman of the Board
of Directors or the Board of Directors.
3.5 Vacation. During the Term, the Executive shall be entitled
to a vacation period or periods of four weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a year shall be forfeited.
3.6 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its employees generally, together
with executive medical benefits for the Executive, the Executive's spouse and
the Executive's children as from time to time in effect for officers of the
Company generally. The Executive shall be entitled to participate in the
Company's relocation program in
2
<PAGE>
connection with entering into this Agreement, and in the case of the sale of
Executive's present home in Wichita, Kansas, the provisions of Appendix II shall
apply.
3.7 Stock Options. The Company shall grant to the Executive on
the date hereof, subject to the receipt of shareholder approval to the extent
required under (1) Section 162(m) of the Internal Revenue Code of 1986, as
amended, (2) the terms of the Amended and Restated Sunbeam Corporation Stock
Option Plan (the "Option Plan"), if the grant is to be made under such plan, or
(3) the shareholder approval policy of the New York Stock Exchange, which
shareholder approval shall be requested by the Company when it next solicits
proxies from its shareholders, non-qualified stock options (the "Options") with
a scheduled 10-year term to purchase shares of the common stock of the Company,
par value $.01 per share. The Options shall be granted in an amount and at the
exercise price as set forth on Appendix I to this Agreement. The Options shall
vest and become exercisable in full on June 14, 2000 (if the Executive remains
employed pursuant to this Agreement as of such date) or, to the extent the
Option is outstanding, upon a "Change in Control" of the Company. The Options
shall be subject to earlier vesting or forfeiture as set forth in Section 4. The
Options shall be subject to all other terms and conditions as set forth in an
Option Agreement between the Company and the Executive. For purposes of this
Agreement, Change in Control shall have the meaning set forth in the Option Plan
as in effect as of the date of this Agreement.
3.8 Additional Benefits. During the Term, the Executive shall
be entitled to such additional benefits generally provided to other senior
executives of the Company.
4 Termination.
-----------
4.1 Death. If the Executive shall die during the Term, the
Term shall terminate and no further amounts or benefits shall be payable
hereunder, except that the Executive's legal representatives shall be entitled
to receive continued payments in an amount equal to 60% of the Base Salary, in
the manner specified in Section 3.1, until the longer of 12 months or the end of
the Term (as in effect immediately prior to the Executive's death). The Options
shall become vested and exercisable as of the Executive's death during the Term
(provided, that, to the extent shareholder approval continues to be required
under Section 3.7, such accelerated vesting and exercisability shall occur upon
such approval), and shall remain exercisable for three years following the later
of such death during the Term or the receipt of any required shareholder
approval with respect to such Options, by the beneficiary designated by the
Executive on a form prescribed for such purpose by the Company, or in the
absence of such designation by the Executive's legal representative.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's services hereunder for (i) a
period of six consecutive months or (ii) for shorter periods aggregating six
months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equalled an aggregate of six months, by
written notice to the
3
<PAGE>
Executive (but before the Executive has recovered from such disability),
terminate the Term and no further amounts or benefits shall be payable
hereunder, except that the Executive shall be entitled to receive continued
payments in an amount equal to 60% of the Base Salary, in the manner specified
in Section 3.1, until the longer of 12 months or the end of the Term (as in
effect immediately prior to such termination). Upon the Executive's termination
for disability, the Options shall, subject to the receipt of any required
shareholder approval under Section 3.7, continue to vest and become exercisable
pursuant to their original vesting schedule, and shall remain exercisable for
three years following vesting. If the Executive shall die before receiving all
payments to be made by the Company in accordance with this Section 4.2, such
payments shall be made to the beneficiary designated by the Executive on a form
prescribed for such purpose by the Company, or in the absence of such
designation to the Executive's legal representative.
4.3 Cause/Voluntary Termination. In the event of gross neglect
by the Executive of the Executive's duties hereunder, conviction of the
Executive of any felony, conviction of the Executive of any lesser crime or
offense involving the property of the Company or any of its subsidiaries or
affiliates, willful misconduct by the Executive in connection with the
performance of any material portion of the Executive's duties hereunder, a
willful breach by the Executive of Sections 5, 6 or 7 or any other material
provision of this Agreement or any other conduct on the part of the Executive
which would make the Executive's continued employment by the Company materially
prejudicial to the best interests of the Company, the Company may at any time by
written notice to the Executive terminate the Term and, upon such termination,
this Agreement shall terminate and the Executive shall be entitled to receive no
further amounts or benefits hereunder, except any as shall have been earned to
the date of such termination and owed to the Executive. In the event the
Executive voluntarily terminates employment (other than pursuant to Section 4.4
as a result of a breach of this Agreement by the Company), this Agreement shall
terminate and the Executive shall be entitled to receive no further amounts or
benefits hereunder, except any as shall have been earned by and owned to the
Executive as of the date of such termination. Upon a termination of the
Executive's employment under this Section 4.3, all unvested Options shall be
immediately forfeited.
4.4 Company Breach. In the event of the breach of any material
provision of this Agreement by the Company (including without limitation the
failure to obtain shareholder approval of the stock option grant described under
Section 3.7 to the extent such approval is required under such Section 3.7, at
or prior to the Company's first annual meeting of shareholders following the
date of this Agreement), the Executive shall be entitled to terminate the Term
upon 60 days' prior written notice to the Company. Upon such termination, or in
the event the Company terminates the Term or this Agreement other than pursuant
to the provisions of Sections 4.2 or 4.3, the Company shall continue to provide
the Executive (i) payments of Base Salary, in the manner and amount specified in
Section 3.1, (ii) at the time such bonus payments would have otherwise been
paid, the sum of (A) in the event of the Executive's termination prior to
payment of the 1998 Bonus, the 1998 Bonus and (B) an amount equal to the
Executive's target bonus opportunity percentage as in effect as of the date of
termination, multiplied by the Executive's Base Salary as of the date of
termination, payable with respect to each remaining
4
<PAGE>
bonus period which would otherwise have ended during the Term (the "Full Bonus
Periods"), and payable on a pro rata basis for the final bonus period which
would have otherwise commenced during the scheduled Term following the last Full
Bonus Period (based upon the portion of such bonus period which would have been
completed as of the end of the scheduled Term), and (iii) medical, dental, life
and long-term disability insurance benefits in the manner and amounts specified
in Sections 3.6 (provided that the Executive shall continue to bear the cost of
such benefits required to be paid by employees) or, for a period of twelve
months after the last day of the month in which termination described in this
Section 4.4 occurred, whichever is longer (the "Damage Period"); provided,
however, that if the Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under another
employee-provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. In addition, upon such termination of
employment, each of the Options shall immediately vest and become exercisable
(provided, that, to the extent shareholder approval continues to be required
under Section 3.7, such accelerated vesting and exercisability shall occur upon
receipt of such approval) in an amount equal to (a) the number of shares subject
to such Option, multiplied by (b) (i) the number of full and partial months
during the Term prior to the Executive's termination of employment, divided by
(ii) twenty-four. The vested portion of the Options shall remain exercisable for
three years following the later of the Executive's termination of employment or
the receipt of any required shareholder approval with respect to such Options,
and the remaining portion of the Options shall be forfeited upon the Executive's
termination of employment. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced (except as provided in this Section 4.4) whether or
not the Executive obtains other employment.
4.5 Litigation Expenses. Except as provided for in Section
5.7, if the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or proceeding is rendered
in favor of the Executive with respect to a material portion of such action,
suit or proceeding, the Company shall reimburse the Executive for all expenses
(including reasonable attorneys' fees) reasonably incurred by the Executive in
connection with such action, suit or proceeding.
5 Protection of Confidential Information; Non-Competition.
-------------------------------------------------------
5.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, and plans for future
developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, other business affairs of
the Company, and any information whatsoever concerning any director,
5
<PAGE>
officer, employee or agent of the Company or their respective family members
learned by the Executive heretofore or hereafter, and not to disclose them to
anyone outside of the Company, either during or after the Executive's employment
with the Company, except in the course of performing the Executive's duties
hereunder or with the Company's express written consent. The foregoing
prohibitions shall include, without limitation, directly or indirectly
publishing (or causing, participating in, assisting or providing any statement,
opinion or information in connection with the publication of) any diary, memoir,
letter, story, photograph, interview, article, essay, account or description
(whether fictionalized or not) concerning any of the foregoing, publication
being deemed to include any presentation or reproduction of any written, verbal
or visual material in any communication medium, including any book, magazine,
newspaper, theatrical production or movie, or television or radio programming or
commercial; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 During the Term, the Executive shall not, directly or
indirectly, on his own behalf or behalf of any other person or entity, enter the
employ of, or render any services to, any person, firm or corporation engaged in
any business competitive with the business of the Company or of any of its
subsidiaries or affiliates; the Executive shall not engage in such business on
the Executive's own account; and the Executive shall not become interested in
any such business, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, trustee, consultant,
or in any other relationship or capacity provided, however, that nothing
contained in this Section 5.2 shall be deemed to prohibit the Executive from
acquiring, solely as an investment, up to five percent (5%) of the outstanding
shares of capital stock of any public corporation.
5.3 If the Executive willfully commits a breach, or threatens
to commit a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the
Company shall have the right to terminate the Executive's employment (with the
consequences set forth in Section 4.3 above), and the following additional
rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of Sections 5.1 or 5.2, and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
6
<PAGE>
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties agree that the court
making such determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 upon the
courts of any state within the geographical scope of such covenants. In the
event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding in
law or in equity is brought to enforce the covenants contained in Sections 5.1
and 5.2 or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
6 Inventions and Patents.
----------------------
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the Company,
provided that such Inventions grew out of the Executive's work with the Company
or any of its subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Company or any of its subsidiaries
or affiliates or are
7
<PAGE>
conceived or made on the Company's time or with the use of the Company's
facilities or materials. The Executive shall further: (a) promptly disclose such
Inventions to the Company; (b) assign to the Company, without additional
compensation, all patent and other rights to such Inventions for the United
States and foreign countries; (c) sign all papers necessary to carry out the
foregoing; and (d) give testimony in support of the Executive's inventorship.
6.2 If any Invention is described in a patent application or
is disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company, it
is to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert
any rights to any Invention as having been made or acquired by the Executive
prior to the date of this Agreement, except for Inventions, if any, disclosed to
the Company in writing prior to the date hereof.
7 Intellectual Property.
---------------------
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend its right,
title or interest in or to any such properties.
8 Indemnification.
---------------
The Company will indemnify the Executive, to the maximum
extent permitted by applicable law, against all costs, charges and expenses
incurred or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the Executive
being an officer, director or employee of the Company or of any subsidiary or
affiliate of the Company.
9 Notices.
------
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified mail
(notices mailed shall be deemed to have been given on the date mailed), as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
8
<PAGE>
If to the Company, to:
Sunbeam Corporation
1615 South Congress Avenue
Suite 200
Delray Beach, Florida 33445
If to the Executive, to:
Karen K. Clark
20244 Ocean Key Drive
Boca Raton, FL 33492
General.
9.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely in Delaware.
9.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
9.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation,
promise or inducement not so set forth.
9.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
9.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any
9
<PAGE>
other term or covenant contained in this Agreement.
10 Subsidiaries and Affiliates.
---------------------------
10.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate" shall
mean and include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the corporation or other
business entity in question.
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SUNBEAM CORPORATION
By:
--------------------------------
-----------------------------------
Karen K. Clark
11
<PAGE>
APPENDIX I
----------
Stock Options.
- -------------
The Executive's Options shall be granted for 50,000 shares of
Common Stock, at an exercise price of $7.00 per share. In addition, the
Executive shall have the opportunity to exchange the 75,000 options presently
held by the Executive for 50,000 Options, under the Company's recently announced
Option Exchange Program, provided, that, all of the terms of such Options
obtained in such exchange shall be consistent with the provisions of Sections
3.7 and 4.4 of this Agreement.
1
<PAGE>
<TABLE>
<CAPTION>
(in thousands of dollars, except ratios)
Historical
Fiscal Years Ended
--------------------------------------------------------
Restated Restated
1/2/94 1/1/95 12/31/95 12/31/96 12/28/97
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Pretax income from continuing operations 134,000.0 144,794.0 60,635.0 (261,805.0) 92,670.0
Add: Fixed charges, below 8,807.7 10,774.3 15,571.7 16,654.7 14,747.7
Less: Interest capitalized 0.0 (867.0) (3,268.0) (400.0) (900.0)
--------------------------------------------------------
142,807.7 154,701.3 72,938.7 (245,550.3) 106,517.7
========================================================
Fixed Charges 6,310.0 6,974.0 9,437.0 13,588.0 11,381.0
Interest expense 0.0 867.0 3,268.0 400.0 900.0
Capitalized interest 0.0 0.0 0.0 0.0 0.0
Preferred stock dividends 2,497.7 2,933.3 2,866.7 2,666.7 2,466.7
--------------------------------------------------------
1/3 rent expense 8,807.7 10,774.3 15,571.7 16,654.7 14,747.7
========================================================
Ratio of earnings to fixed charges 16.2 14.4 4.7 (14.7) 7.2
========================================================
Rent expense 7,493.1 8,799.9 8,600.1 8,000.1 7,400.1
+ Annualized
Amount by which earnings do not
meet fixed charges 262,205.0
<CAPTION>
(in thousands of dollars, except ratios)
Historical Pro Forma
Nine Months Ended
------------------- ----------------------
Restated For year Nine Months
9/30/97 9/30/98 12/28/97 9/30/98
------------------- ----------------------
<S> <C> <C> <C> <C>
Earnings
Pretax income from continuing operations 72,079.0 (476,087.0) (3,847.0) (505,658.0)
Add: Fixed charges, below 9,898.3 94,423.3 114,944.7 119,201.3
Less: Interest capitalized (559.0) (646.0) (900.0) (646.0)
--------------------- -----------------------
81,418.3 (382,309.7) 110,197.7 (387,102.7)
===================== =======================
Fixed Charges
Interest expense 7,816.0 90,149.0 111,578.0 114,927.0
Capitalized interest 559.0 646.0 900.0 646.0
Preferred stock dividends 0.0 0.0 0.0 0.0
1/3 rent expense 1,523.3 3,628.3 2,466.7 3,628.3
--------------------- -----------------------
9,898.3 94,423.3 114,944.7 119,201.3
===================== =======================
Ratio of earnings to fixed charges 8.2 (4.0) 1.0 (3.2)
Rent expense 4,570.0 10,885.0
+ Annualized 6,093.3 14,513.3
Amount by which earnings do not
meet fixed charges 476,733.0 506,304.0
</TABLE>
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
As independent certified public accountants, we hereby consent to the inclusion
in this registration statement of our report dated October 16, 1998, except with
respect to the matters discussed in Further Actions in Note 15, as to which the
date is October 30, 1998, included in Sunbeam Corporation's Form 10-K/A for the
year ended December 28, 1997 (1997 and 1996 restated), and to all references to
our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
January 29, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-1 dated on or about February 3, 1999) and related
Prospectus of Sunbeam Corporation for the registration of $2,014,000,000 Zero
Coupon Convertible Senior Subordinated Debentures due 2018 (Debentures) and up
to 13,242,050 shares of common stock issuable upon conversion of the Debentures
and to the inclusion therein of our report dated February 18, 1998, with respect
to the consolidated financial statements of The Coleman Company, Inc. included
in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed
with the Securities and Exchange Commission.
Ernst & Young LLP
Wichita, Kansas
February 3, 1999
