<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1999
REGISTRATION NO. 333-71819
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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)
------------------------
PAUL E. SHAPIRO
EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER
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
<TABLE>
<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....................................... -- -- $261,820,000.00 $72,785.96
</TABLE>
(1) Represents the aggregate principal amount at maturity. The Zero Coupon
Convertible Senior Subordinated Debentures due 2018 of Sunbeam Corporation
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, 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 the
initial filing of 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 13, 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 and up to 13,242,050 shares of our
common stock issuable upon conversion of the Debentures.
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. 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 a transaction occurs which results in our common stock
being exchanged for consideration other than all or substantially all of the
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. We cannot assure you that we will have
sufficient funds to redeem the Debentures. In addition, our bank credit
facility prohibits us from redeeming 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.
Our bank credit facility prohibits us from repurchasing Debentures for cash.
A summary description of the terms of the Debentures appears in the
"Summary" section, under the heading "Description of the Offered Securities" on
pages 2 and 3, and a more detailed description of the Debentures appears in the
"Description of Debentures" section beginning on page 88.
------------------
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>
Prospectus Summary.......................................................................................... 1
Risk Factors................................................................................................ 7
Recent Developments......................................................................................... 15
Price Range of Common Stock and Dividend Policy............................................................. 23
Capitalization.............................................................................................. 24
Ratio of Earnings to Fixed Charges.......................................................................... 25
Use of Proceeds............................................................................................. 25
Unaudited Pro Forma Condensed Consolidated Statement of Operations.......................................... 26
Selected Historical Financial Information................................................................... 30
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 32
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................ 56
Business.................................................................................................... 57
Management.................................................................................................. 70
Security Ownership of Management............................................................................ 85
Security Ownership of Certain Beneficial Owners............................................................. 87
Description of Debentures................................................................................... 88
Book-Entry; Delivery and Form............................................................................... 102
Registration Rights......................................................................................... 104
Description of Other Indebtedness........................................................................... 105
Description of Capital Stock................................................................................ 109
Material United States Federal Income Tax Considerations.................................................... 110
Selling Securityholders..................................................................................... 113
Plan of Distribution........................................................................................ 115
Legal Matters............................................................................................... 116
Experts..................................................................................................... 116
Where to Find More Information.............................................................................. 117
Index to Consolidated Financial Statements and Financial Statement Schedule................................. F-1
</TABLE>
------------------------
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.
ii
<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.
We own about 79% of the common stock of The Coleman Company, Inc. We
acquired this stock from an affiliate of MacAndrews & Forbes Holdings, Inc. on
March 30, 1998 for about $160 million in cash, about 14 million shares of our
common stock and the assumption of about $1,016 million of debt. We have agreed
to acquire the remaining Coleman common stock in a merger with Coleman for about
$87 million in cash and 6.7 million shares of our common stock. We need to have
the SEC declare effective our registration statement covering these shares in
order to complete the merger. In August 1998 we settled claims by MacAndrews &
Forbes by issuing a warrant to purchase 23 million of our shares at $7 each, and
we have agreed to settle claims by the remaining Coleman stockholders by issuing
warrants to purchase about 4.98 million of our shares at $7 each when the merger
with Coleman is completed.
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
We have experienced significant changes and events since the beginning of last
year, including:
o acquisition of control of Coleman and acquisitions of Signature
Brands USA, Inc. and First Alert, Inc.;
o substantial borrowings resulting in a large debt burden and high
leverage;
o major changes in our management and board of directors;
o restatement of our 1996, 1997 and first quarter 1998 financial
results;
o large losses and negative cash flow in 1998;
o a change in our auditors;
o amendment of our bank credit facility;
o the filing of several lawsuits against us, including lawsuits
brought under federal and state securities laws, and commencement of
an SEC investigation of us; and
o a review of our continued eligibility for listing on the New York
Stock Exchange.
We urge you to carefully read the "Recent Developments" section beginning
on page 15.
1
<PAGE>
DESCRIPTION OF THE OFFERED SECURITIES
<TABLE>
<S> <C>
Offered Securities........................ o Up to $2,014,000,000 aggregate principal amount at maturity of our
Zero Coupon Convertible Senior Subordinated Debentures due 2018;
o Up to 13,242,050 shares of our common stock that may be issued on
conversion of the Debentures; and
o An indeterminate number of additional shares that may be issued on
conversion of the Debentures if the conversion price is adjusted in
accordance with the indenture governing the Debentures.
The Debentures are "zero coupon," meaning that we will not make any
periodic interest payments on the Debentures.
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 rank equally with Sunbeam's liabilities owed to trade
creditors.
At December 31, 1998, Sunbeam had approximately $1.4 billion of
indebtedness outstanding that ranked senior to the Debentures, and
Sunbeam's subsidiaries had approximately $832 million of liabilities
that effectively ranked senior to the Debentures. Except for
liabilities owed to trade creditors, Sunbeam has no indebtedness that
is junior to or ranks equally with the Debentures and has no current
arrangements to incur this kind of indebtedness.
Original Issue Discount................... We issued the Debentures at an original issue discount. 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 91
in the section "Description of Debentures" under the heading
"Redemption of the Debentures at the option of Sunbeam." However, our
bank credit facility prohibits us from redeeming Debentures for cash.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
Fundamental Change........................ If a "Fundamental Change," as defined on page 92, occurs, holders may
at their option require us to redeem their Debentures for cash at the
price referred to on page 92 in the section "Description of
Debentures" under the heading "Redemption at Option of the Holder
upon a Fundamental Change." We cannot assure you that we will have
sufficient funds to redeem the Debentures. In addition, our bank
credit facility prohibits us from redeeming Debentures for cash.
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 94 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. However, our bank credit facility
prohibits us from repurchasing Debentures for cash.
No Listing................................ We do not intend to apply for listing of the Debentures on any
exchange or for quotation of the Debentures on any automated
quotation system.
Use of Proceeds........................... The selling securityholders will receive all of the net proceeds from
the sale of the offered securities. We will not receive any of the
proceeds.
</TABLE>
3
<PAGE>
RISK FACTORS
This investment is very risky. Among the risks you should consider are the
following:
o we are highly leveraged, which negatively affects our operations and
finances in many ways;
o our bank credit facility contains covenants which we may not be able
to satisfy and default provisions we may not be able to avoid, and
if we cannot, the banks could demand immediate payment of our bank
debt;
o our bank debt could become due on April 10, 2000 if we do not get
another waiver from the banks or refinance our bank debt by then;
o we may not be able to service our large debt burden;
o our outside auditors determined that our 1997 internal accounting
controls were inadequate;
o we had significant losses and our operations consumed significant
amounts of cash in 1998;
o major lawsuits have been brought against us, including lawsuits
under federal and state securities laws, and the SEC is conducting a
formal investigation of us;
o unless our financial results improve, our common stock could lose
its New York Stock Exchange listing;
o the Debentures are subordinate to almost all our debt and
effectively subordinated to all liabilities of our subsidiaries;
o our 1998 acquisitions have increased the size of the operations we
have to manage;
o our international operations expose us to uncertainties and risks
from abroad;
o the nature of our businesses requires us to successfully develop new
and innovative products on a consistent basis;
o our businesses are very sensitive to the strength of the U.S. retail
market;
o we operate in a highly competitive market;
o our sales are highly dependent on purchases from several large
customers;
o raw materials and components are critical inputs for our products
and price hikes or problems with their supply could adversely affect
us;
o our operations are dependent upon third party suppliers and service
providers;
o we are subject to several production-related risks;
o the effects of our prior management's outsourcing of critical
operating tasks and sales policies may continue to cause us
substantial difficulty;
o weather conditions can hurt sales of some of our products;
o we remain vulnerable to Year 2000 compliance problems in our systems
and those of our suppliers and customers;
o we may not be able to meet our repurchase/redemption obligations
under the Debentures;
o the Debentures do not provide you with any protection in the event
of a highly leveraged or other transaction that could adversely
affect Debenture holders;
o we may not be able to deduct the original issue discount of the
Debentures for U.S. federal income tax purposes;
o our debt covenants currently do not allow us to pay cash dividends
on our common stock;
o there is no public market for the Debentures, which may negatively
impact you as a holder of Debentures; and
o negative developments since March 1998 have caused our common stock
price to drop significantly.
For more detail about these and other risks, please carefully read the risk
factors section beginning on page 7.
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
We derived the following summary historical financial information from our
audited consolidated financial statements. We derived the following summary pro
forma financial information from our unaudited pro forma condensed consolidated
statement of operations beginning on page 26. The summary unaudited pro forma
financial information gives effect to the following "Pro Forma Transactions" as
if they had occurred on December 29, 1997:
o the corporate acquisitions we made in 1998, excluding the acquisition of
First Alert, Inc., the effect of which is not significant;
o the original borrowing of approximately $1,325 million (the "Bank
Financing") under our bank credit facility;
o the original offering of the Debentures (the "Original Offering"); and
o the use of most of the net proceeds of the Bank Financing and the
Original Offering to acquire Coleman and Signature Brands and to
refinance indebtedness.
The summary unaudited pro forma financial information is not necessarily
indicative of what our results for 1998 would have been if the Pro Forma
Transactions actually had occurred on December 29, 1997 or of what our future
operating results will be.
This summary financial information should be read in conjunction with our
audited 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
Consolidated Statement of Operations" section beginning on page 26.
While reviewing the historical and pro forma financial information, please
note the following:
o We accounted for the March 30, 1998 acquisition of a controlling interest
in Coleman and the April 6, 1998 acquisitions of First Alert and
Signature Brands under the purchase method of accounting. Accordingly,
our consolidated financial statements include the financial position and
results of operations of each of the acquired companies from the
respective dates of acquisition.
o For the fiscal year ended December 31, 1998 we took an extraordinary
charge of $122.4 million related to the early extinguishments of debt and
took other charges of:
o $70.0 million related to the issuance of warrants;
o $62.5 million related to the write-off of goodwill;
o $39.4 million related to fixed asset impairments;
o $31.2 million related to compensation expense for the new employment
agreements with our former Chairman and Chief Executive Officer and
two other former senior officers; and
o $95.8 million related to write-downs of inventory.
See Notes 2, 3 and 11 to our consolidated financial statements.
o For the fiscal year ended December 28, 1997, we reversed $28.0 million of
pre-tax liabilities no longer required and $13.3 million of tax
liabilities no longer required.
o For the fiscal year ended December 29, 1996, we took restructuring, asset
impairment and other charges of $239.2 million before taxes. See Note 12
to our consolidated financial statements.
o Our pro forma financial data for the fiscal year ended December 31, 1998
gives pro forma effect to the Pro Forma Transactions, as if they had
occurred on December 29, 1997. Also, pro forma net losses are from
continuing operations and do not include extraordinary items.
o 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 fiscal year ended December 31, 1998,
5
<PAGE>
historical earnings were insufficient to cover fixed charges by
$262.2 million and $797.1 million, respectively. For the fiscal year
ended December 31, 1998, on a pro forma basis, earnings were insufficient
to cover fixed charges by $822.9 million.
o At December 31, 1998, we had goodwill and other intangible assets of
$1,859.4 million.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------
JANUARY DECEMBER DECEMBER DECEMBER DECEMBER
1, 1995 31, 1995 29, 1996 28, 1997 31, 1998
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PERCENTAGE, RATIO AND PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales................... $1,044.3 $1,016.9 $ 984.2 $1,073.1 $1,836.9
Operating earnings (loss)... 151.0 70.3 (244.5) 104.1 (670.0)
Net earnings (loss)......... 107.0 50.5 (208.5) 38.3 (897.9)
Diluted earnings (loss) per
share.................... 1.30 0.61 (2.51) 0.44 (9.25)
Weighted average shares
outstanding.............. 82.6 82.8 82.9 87.5 97.1
Other Data:
Ratio of earnings to fixed
charges.................. 14.4x 4.7x -- 7.2x --
Balance Sheet Data (at period
end):
Working capital............. $ 294.8 $ 411.7 $ 359.9 $ 369.1 $ 488.5
Total assets................ 1,008.9 1,158.7 1,059.4 1,058.9 3,405.5
Long-term debt.............. 124.0 161.6 201.1 194.6 2,142.4
Shareholders' equity........ 454.7 601.0 415.0 472.1 260.4
<CAPTION>
DECEMBER
31, 1998
PRO
FORMA
--------
<S> <C>
Statements of Operations Data:
Net sales................... $2,098.7
Operating earnings (loss)... (693.4)
Net earnings (loss)......... (801.1)
Diluted earnings (loss) per
share.................... (7.96)
Weighted average shares
outstanding.............. 100.6
Other Data:
Ratio of earnings to fixed
charges.................. --
Balance Sheet Data (at period
end):
Working capital............. N/A
Total assets................ N/A
Long-term debt.............. N/A
Shareholders' equity........ N/A
</TABLE>
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.
o WE ARE HIGHLY LEVERAGED, WHICH NEGATIVELY AFFECTS OUR OPERATIONS AND
FINANCES IN MANY WAYS
We are highly leveraged, with indebtedness that is very large when compared
to our shareholders' equity. Much of our indebtedness was incurred to finance
three corporate acquisitions in 1998. At December 31, 1998, our consolidated
indebtedness was approximately $2,261.5 million and our shareholders' equity was
approximately $260.4 million, including approximately $1,859.4 million of
goodwill and other intangible assets. If required, we may incur additional
indebtedness under our bank credit facility or, subject to restrictions in our
bank credit facility, through other borrowings. The indenture governing the
Debentures does not limit our ability to incur additional indebtedness. You
should carefully read our audited consolidated financial statements beginning on
page F-1.
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;
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 some 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.
o OUR BANK CREDIT FACILITY CONTAINS COVENANTS WHICH WE MAY NOT BE ABLE TO
SATISFY AND DEFAULT PROVISIONS WE MAY NOT BE ABLE TO AVOID, AND IF WE
CANNOT, THE BANKS COULD DEMAND IMMEDIATE PAYMENT OF OUR BANK DEBT
As of December 31, 1998, we had incurred about $1,360 million in borrowings
and had availability to borrow an additional $260 million under our bank credit
facility. Our bank credit facility contains covenants which require us to meet
financial tests and ratios relating to our future performance which we may not
be able to satisfy. If we cannot satisfy these tests and ratios we would be in
default. The bank credit facility also provides that the occurrence of any of
the following events, which we may not be able to avoid, would be an event of
default:
o if we fail to have the SEC declare effective by October 30, 1999 our
registration statement for the shares of our common stock to be issued to
complete our acquisition of Coleman;
o if we fail to complete our acquisition of Coleman within 25 business days
after the related registration statement is declared effective by the
SEC; or
o if we have to pay more than $87.5 million in cash to complete our
acquisition of Coleman, including any payments on account of the exercise
of any appraisal rights, but excluding related legal, accounting and
other customary fees and expenses.
An event of default would give the banks the right to demand immediate
payment--a demand we might not be able to meet.
o OUR BANK DEBT COULD BECOME DUE ON APRIL 10, 2000 IF WE DO NOT GET ANOTHER
WAIVER FROM THE BANKS OR REFINANCE OUR BANK DEBT BY THEN
In 1998, we were in violation of some of the covenants of our bank credit
facility, but the banks waived these violations first until December 31, 1998,
then until April 10, 1999 and now until April 10, 2000.
7
<PAGE>
However, if we do not get another waiver or refinance our bank debt by
April 10, 2000, the banks would have the right to demand immediate payment--a
demand we might not be able to meet.
o WE MAY NOT BE ABLE TO SERVICE OUR LARGE DEBT BURDEN
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.
We cannot assure you that our operating cash flow and capital resources
will be sufficient to meet our debt service requirements. For the year ended
December 31, 1998 our earnings were insufficient to cover our fixed charges by
approximately $797.1 million. 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 also might be forced to refinance or restructure our debt, including
the Debentures. Although we do not have any firm plans or arrangements to
restructure our debt, a restructuring, if we decided to pursue one, could
involve one or more exchange offers, tender offers or consent solicitations
involving the Debentures.
o OUR OUTSIDE AUDITORS DETERMINED THAT OUR 1997 INTERNAL ACCOUNTING
CONTROLS WERE INADEQUATE
In October 1998, our auditors at the time, Arthur Andersen LLP, told us
that 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 56, we have restated our financial results for a six-quarter
period from the fourth quarter of 1996 through the first quarter of 1998. While
we believe we have taken steps to avoid the need for any further restatements,
we cannot assure you that any interim or final corrective measures we have
adopted or will adopt to address the inadequacies in our internal accounting
controls will be effective.
o WE HAD SIGNIFICANT LOSSES AND OUR OPERATIONS CONSUMED SIGNIFICANT
AMOUNTS OF CASH IN 1998
For the year ended December 31, 1998, we had a consolidated net loss of
approximately $897.9 million and net cash used in operations of $190.4 million.
We cannot assure you that we will be able to generate profits or positive cash
flow from operations in the future. See the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section beginning on
page 32 for a further discussion.
o MAJOR LAWSUITS HAVE BEEN BROUGHT AGAINST US, INCLUDING LAWSUITS UNDER
FEDERAL AND STATE SECURITIES LAWS, AND THE SEC IS CONDUCTING A FORMAL
INVESTIGATION OF US
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 some of our former directors and officers, some of our
current directors and our former auditor 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
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 we were to lose these suits, judgments
would likely have a material adverse effect on our financial position, results
of operations and cash flow.
Our insurers are attempting to have the directors' and officers' liability
policies we have with them voided or canceled or have advised us that they do
not intend to provide coverage with respect to these lawsuits. 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 effect on our financial
position, results of operations and cash flow.
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SEC Investigation. In July 1998 the SEC commenced a formal investigation
of us after informing us in the previous month of an informal investigation.
Although we believe that we have cooperated fully with the SEC and furnished the
SEC with documents they requested, we cannot predict how long this investigation
will last or its outcome. In addition, we cannot at this time determine what
actions, if any, the SEC might take against us or what effect any action might
have on us.
Product-Related Liabilities. As a consumer goods manufacturer and
distributor, we face the constant risks of product liability and related
lawsuits involving claims for substantial money damages, product recall actions
and higher than anticipated rates of warranty returns or other returns of goods.
These claims could result in liabilities that could have a material adverse
effect on our financial position and results of operations. Some of the product
lines we acquired in the 1998 acquisitions may increase our potential exposure
to litigation.
See "Business--Litigation and Other Contingent Liabilities" beginning on
page 64 for more information about lawsuits we are involved in, the SEC
investigation and other contingent liabilities.
o UNLESS OUR FINANCIAL RESULTS IMPROVE, OUR COMMON STOCK COULD LOSE ITS NEW
YORK STOCK EXCHANGE LISTING
In May 1998 the New York Stock Exchange advised us that we did not meet
their continuing listing standards. Following discussions and a meeting with
NYSE officials, the NYSE informed us that our common stock will not be de-listed
at this time. The NYSE will, however, continue to carefully monitor our
compliance with its listing standards.
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 and Debentures. A de-listing
could also have a material adverse impact on our ability to raise additional
funds in the securities markets, to complete our acquisition of Coleman and to
restructure our debt if necessary.
o THE DEBENTURES ARE SUBORDINATED TO ALMOST ALL OUR DEBT AND EFFECTIVELY
SUBORDINATED TO ALL LIABILITIES OF OUR SUBSIDIARIES
Sunbeam is a holding company and we conduct substantially all of our
operations through our 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.
The Debentures are unsecured and subordinated in right of payment to all
existing and future senior indebtedness of Sunbeam, including all borrowings
under our bank credit facility. Because of the subordination of the Debentures,
in the event of a bankruptcy, liquidation or reorganization of Sunbeam, holders
of senior indebtedness, including our bank 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.
Some of Sunbeam's wholly-owned domestic subsidiaries have guaranteed
Sunbeam's and its subsidiaries' obligations under our bank credit facility. The
Debentures are effectively subordinated to these guarantees and to all other
existing and future liabilities and other commitments of Sunbeam's subsidiaries.
In addition, substantially all of the assets of Sunbeam and some of its domestic
subsidiaries are pledged to secure the obligations under our bank credit
facility. A more detailed description of our bank credit facility, including
limitations on borrowing availability and security arrangements, appear in the
section titled "Description of Other Indebtedness" beginning on page 105.
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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 December 31, 1998, Sunbeam had approximately $1.4 billion of senior
indebtedness outstanding, and Sunbeam's subsidiaries had approximately
$832 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.
o OUR 1998 ACQUISITIONS HAVE INCREASED THE SIZE OF THE OPERATIONS WE HAVE
TO MANAGE
Our 1998 acquisitions of Coleman, First Alert, and Signature Brands have
resulted in a substantial increase in the size of our operations. As a result we
must effectively use our employees and our management, operational, and
financial resources to manage our expanded operations. A failure on our part to
successfully integrate and effectively manage our expanded operations would
likely cause us to have poor operating results.
o OUR INTERNATIONAL OPERATIONS EXPOSE US TO UNCERTAINTIES AND RISKS FROM
ABROAD
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.
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.
o THE NATURE OF OUR BUSINESSES REQUIRES US TO SUCCESSFULLY DEVELOP NEW AND
INNOVATIVE PRODUCTS ON A CONSISTENT BASIS
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.
o OUR BUSINESSES ARE VERY SENSITIVE TO THE STRENGTH OF THE U.S. RETAIL
MARKET
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.
o WE OPERATE IN A HIGHLY COMPETITIVE MARKET
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 could lose market share and sales and suffer losses,
which could have a material adverse effect on our future financial performance.
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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.
o OUR SALES ARE HIGHLY DEPENDENT ON PURCHASES FROM SEVERAL LARGE 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 18% 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.
o RAW MATERIALS AND COMPONENTS ARE CRITICAL INPUTS FOR OUR PRODUCTS AND
PRICE HIKES OR PROBLEMS WITH THEIR SUPPLY COULD ADVERSELY AFFECT US
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
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.
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.
o OUR OPERATIONS ARE DEPENDENT UPON THIRD PARTY SUPPLIERS AND SERVICE
PROVIDERS
We currently manufacture many 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. Any
unanticipated change in suppliers or pricing of products could be disruptive and
costly to us.
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 some 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.
o WE ARE SUBJECT TO SEVERAL 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 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.
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o THE EFFECTS OF OUR PRIOR MANAGEMENT'S OUTSOURCING OF CRITICAL OPERATING
TASKS AND SALES POLICIES MAY CONTINUE TO CAUSE US SUBSTANTIAL DIFFICULTY
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 perform some of these
tasks in-house once again. We may experience 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 some prior periods by
providing retailers with substantial price discounts or attractive payment terms
to induce them to purchase more products than they needed at the time. 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.
o WEATHER CONDITIONS CAN HURT SALES OF SOME OF OUR PRODUCTS
Weather conditions may negatively impact sales of some 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
and smoke detectors; and the late arrival of summer weather may negatively
impact sales of outdoor camping equipment and grills.
o WE REMAIN VULNERABLE TO YEAR 2000 COMPLIANCE PROBLEMS IN OUR SYSTEMS AND
THOSE OF OUR SUPPLIERS AND CUSTOMERS
We are preparing for the impact of the Year 2000 on our operations. Year
2000 issues could include potential problems in our information technology and
other systems that we use in our operations. Year 2000 system failures could
affect routine but critical operations such as:
o forecasting;
o purchasing;
o production;
o order processing;
o inventory control;
o shipping; and
o billing and collections.
In addition, system failures could affect our security, payroll operations and
employee safety. Third parties who fail to adequately address their own Year
2000 issues could also expose us to potential risks.
Systems and applications that we have identified to date as not currently
Year 2000 ready and which are critical to our operations include:
o financial software systems, which process:
o order entry;
o purchasing;
o production management;
o general ledger;
o accounts receivable; and
o accounts payable functions;
o payroll applications; and
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o critical applications in Sunbeam's manufacturing and distribution
facilities, such as warehouse management applications.
Failure by us to timely complete our Year 2000 compliance work could have a
material adverse impact on us. In addition, the failure of our third party
suppliers and customers to become Year 2000 compliant could have a material
adverse impact on us.
At this time, we believe that the most likely "worst-case" scenario
relating to Year 2000 involves potential disruptions in areas in which our
operations must rely on third parties, such as suppliers, whose systems may not
work properly after January 1, 2000. While these system failures could
significantly affect some of our important operations, currently we cannot
estimate either the likelihood or the potential cost of such failures. If we do
not develop appropriate contingency plans before January 1, 2000, the impact on
our operations could be material.
We currently estimate that the total cost of addressing and remedying Year
2000 issues and enhancing our operating systems is about $60 million. Through
December 31, 1998, we spent about $19 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 may be materially higher than our current
estimates. Our bank credit facility does not permit us to spend more than
$50 million on Year 2000 testing and remediation during 1999.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Readiness Disclosure" beginning on page 51 for
more details of our Year 2000 assessment and compliance efforts.
o WE MAY NOT BE ABLE TO MEET OUR REPURCHASE/REDEMPTION OBLIGATIONS UNDER
THE DEBENTURES
On March 25, 2003, March 25, 2008, and March 25, 2013, the terms of the
Debentures require us to purchase any outstanding Debentures at the option of
the Debenture holders. In addition, if a "Fundamental Change," as defined on
page 92, occurs, you will have the right to require us to redeem your Debentures
for cash. We cannot assure you that we will have sufficient funds to redeem the
Debentures and the terms of our bank credit facility prohibit us from
repurchasing or redeeming Debentures for cash.
With respect to the repurchases at your option on March 25, 2003,
March 25, 2008, and March 25, 2013, described above, we have the option of
paying in shares of our common stock. However, depending on the number of shares
we would have to issue, 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.
Our failure to repurchase or redeem the Debentures when required to do so
would result in our defaulting on the Debentures and would likely constitute a
default under our bank credit facility. It may also constitute a default under
our other indebtedness outstanding at the time. If defaults under our bank
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.
o THE DEBENTURES DO NOT PROVIDE YOU WITH ANY PROTECTION IN THE EVENT OF A
HIGHLY LEVERAGED OR OTHER TRANSACTIONS THAT COULD ADVERSELY AFFECT
DEBENTURE HOLDERS
The term "Fundamental Change" generally refers to a transaction which would
result in our common stock being exchanged for consideration other than all or
substantially all of the common stock of a publicly traded company. However, the
term does not cover all events that could adversely affect our financial
condition or operating results. Neither the Fundamental Change redemption
requirement nor any other indenture provision will necessarily protect holders
of the Debentures in the event of a highly leveraged transaction, or other
transactions that could adversely affect Debenture holders.
o WE MAY NOT BE ABLE TO DEDUCT THE ORIGINAL ISSUE DISCOUNT OF THE
DEBENTURES FOR U.S. FEDERAL INCOME TAX PURPOSES
Federal income tax law limits the deductibility of interest or original
issue discount with respect to some types of 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
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"corporate acquisition indebtedness." This would limit our ability to deduct all
or a portion of the original issue discount on the Debentures.
o OUR DEBT COVENANTS CURRENTLY DO NOT ALLOW US TO PAY CASH DIVIDENDS ON OUR
COMMON STOCK
Our bank credit facility prohibits us from paying cash dividends on our
common stock. Accordingly, we cannot assure you that we will be able to pay
dividends on our common stock. In any event, currently we do not intend to pay
dividends on our common stock. We discontinued paying dividends beginning in the
second quarter of 1998. See the "Price Range of Common Stock and Dividend
Policy" section on page 23 for information concerning the history of our
dividend payments.
o THERE IS NO PUBLIC MARKET FOR THE DEBENTURES; THIS MAY NEGATIVELY IMPACT
YOU AS A HOLDER OF DEBENTURES
We do not intend to apply for listing or quotation of the Debentures on any
exchange or automated quotation system. 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 applicable laws and regulations;
o currency and exchange rate fluctuations; and
o general economic conditions.
o NEGATIVE DEVELOPMENTS SINCE MARCH 1998 HAVE CAUSED OUR COMMON STOCK PRICE
TO DROP SIGNIFICANTLY
The price of our common stock has dropped significantly since March 1998.
We believe this was the result of many of the negative developments described in
the "Recent Developments" section beginning on page 15. On March 18, 1998, the
last trading day prior to former management's announcement of lower than
expected net sales for the first quarter of 1998, the last reported sale price
of our common stock was $50.63 per share. On May 11, 1999, the last reported
sale price of our common stock was $8 5/8 per share. We cannot assure you that
the market price of our common stock will not experience further declines. See
the "Price Range of Common Stock and Dividend Policy" section on page 23 for
details of our common stock's recent trading prices.
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RECENT DEVELOPMENTS
THE 1998 ACQUISITIONS
On March 2, 1998, we announced that we had entered into separate agreements
to acquire Coleman, Signature Brands and First Alert.
Coleman is a leading manufacturer and marketer of outdoor recreational
products. It manufactures and distributes widely diversified product lines for
camping, leisure time and hardware markets, under the Coleman(Registered),
Powermate(Registered), Campingaz(Registered) and Eastpak(Registered) brand
names. On March 30, 1998, we acquired about 81% of the then outstanding shares
of Coleman common stock from an affiliate of MacAndrews & Forbes Holdings, Inc.
In exchange, the MacAndrews & Forbes affiliate received approximately 14% of the
currently outstanding shares of our common stock and approximately $160 million
in cash. We also assumed approximately $1,016 million in debt. Immediately after
the acquisition, as a result of the exercise of employee stock options, our
ownership of Coleman decreased to about 79% of the outstanding shares of Coleman
common stock.
At the same time we agreed to acquire the Coleman shares from the
MacAndrews & Forbes affiliate, we also agreed to acquire the remaining shares of
Coleman common stock in the Coleman Merger and the MacAndrews & Forbes affiliate
voted its shares to approve the Coleman Merger. In the Coleman Merger, the
remaining Coleman stockholders will receive 0.5677 of a share of our common
stock and $6.44 in cash for each share of Coleman common stock they own. In the
aggregate, the remaining Coleman stockholders will receive approximately
6.7 million shares of our common stock and $87 million in cash (including cash
outs of Coleman options). Although there can be no assurance, we anticipate that
the Coleman Merger will occur in the second half of this year.
In August 1998, we settled claims by MacAndrews & Forbes relating to our
acquisition of the controlling interest in Coleman by issuing to its affiliate a
five-year warrant to purchase up to 23 million shares of our common stock at $7
each. In October 1998, we settled, subject to court approval, claims by the
other Coleman stockholders by agreeing to issue warrants to purchase about
4.98 million of our shares at $7 each when the Coleman Merger is completed. See
the headings "Settlement of Claims of MacAndrews & Forbes" on page 20 and
"Proposed Settlement of Coleman Stockholders' Claims" on page 21 for more
information on these settlements.
On April 3, 1998, we acquired more than 90% of the stock of each of
Signature Brands and First Alert in cash tender offers. On April 6, 1998, we
acquired the remaining shares of each of Signature Brands and First Alert in
merger transactions. Signature Brands 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 is the
worldwide leader in residential safety equipment, including smoke and carbon
monoxide detectors marketed under the First Alert(Registered) brand name.
Sunbeam paid about $255 million in cash, including the paying down of debt, to
acquire Signature Brands. Sunbeam paid about $133 million in cash and assumed
about $49 million in debt--a total consideration of about $182 million--to
acquire First Alert.
ISSUANCE OF DEBENTURES AND NEW BANK CREDIT FACILITY
In order to finance the 1998 acquisitions and to refinance substantially
all of the indebtedness of Sunbeam, Coleman, First Alert and Signature Brands,
we completed the original offering of the Debentures on March 25, 1998, for net
proceeds of approximately $730 million, and borrowed about $1,325 million under
a new bank credit facility.
This bank credit facility, as amended, allows us to borrow up to
$1,700 million under:
o a $400 million revolving credit facility maturing on March 30, 2005, of
which $52.5 million may only be used to complete the Coleman Merger if
the Coleman Merger does not occur prior to August 31, 1999;
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o up to $800 million in term loans maturing on March 30, 2005, of which
$35 million may only be used to complete the Coleman Merger; and
o a $500 million term loan maturing on September 30, 2006.
Unless we receive another waiver from our bank lenders or refinance our bank
debt by April 10, 2000, our bank lenders will be able to accelerate the
maturities listed above at any time after April 10, 2000.
Until March 31, 2000, we have agreed to limit the total amount of revolving
loans at the end of each month as provided in the bank credit facility.
Borrowings under the bank credit facility are secured by, among other things,
substantially all of our assets, including a pledge of our stock in Coleman,
First Alert, Signature Brands and our other material subsidiaries.
This credit facility accrues interest, at Sunbeam's option:
o at LIBOR; or
o at the base rate of the administrative agent which is generally the
higher of the prime commercial lending rate of the administrative agent
or the Federal Funds Rate plus 0.50%;
in each case, plus an interest rate margin which varies depending on the
occurrence of specified events. The interest rate margin is currently 3.75% for
LIBOR loans and 2.50% for base rate loans, but can increase or decrease in the
future. See the heading "Covenants Under Bank Credit Facility" below.
Under an April 15, 1999 amendment to the bank credit facility, we agreed to
pay the bank lenders a fee which varies from 0.25% to 1.00% of the commitments
under the bank credit facility. The percentage used to calculate the fee will be
determined by reference to the bank lenders' aggregate commitments and loan
exposure under the bank credit facility on September 30, 2000. The fee is
payable on the earlier of September 30, 2000 and the date the commitments are
terminated and the loans and other amount payable under the bank credit facility
are repaid.
At December 31, 1998, we owed approximately $1,360 million under our bank
credit facility and had approximately $260 million available for borrowing.
COVENANTS UNDER BANK CREDIT FACILITY
Our bank credit facility contains a number of covenants, including
covenants requiring us to meet financial tests and ratios. As a result of our
operating losses, at June 30, 1998 we were not in compliance with these
financial covenants and other terms of our bank credit facility. As of June 30,
1998, we entered into an agreement with our bank lenders which waived our
compliance through December 31, 1998. On October 19, 1998 our bank lenders
agreed to extend this waiver through April 10, 1999. In April 1999, the waiver
was extended to April 10, 2000 and the bank credit facility was amended to:
o require us to meet new financial tests and ratios;
o decrease the interest rates to the levels described above;
o reduce the interest rate margin by 0.50% and postpone until April 10,
2000 principal payments of $69,250,000 otherwise due September 30, 1999
and principal payments of $69,250,000 otherwise due March 31, 2000, as
soon as (1) Coleman and its domestic subsidiaries execute and deliver
guarantees and security documents which will become effective upon the
completion of the Coleman Merger so long as they are executed and
delivered by May 25, 1999 and (2) we file with the SEC an amendment to
our registration statement for the shares of our common stock to be
issued to complete the Coleman Merger;
o provide that the following events relating to the Coleman Merger will be
events of default under the bank credit facility:
o if we fail to have the SEC declare effective by October 30, 1999 our
registration statement for the shares of our common stock to be
issued to complete the Coleman Merger;
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o if we fail to complete the Coleman Merger within 25 business days
after the related registration statement is declared effective by
the SEC; or
o if we have to pay more than $87.5 million in cash (excluding
expenses) to complete the Coleman Merger;
o require us and Coleman to amend Coleman's note payable to us and to have
Coleman secure the note, which is pledged by us to secure the obligations
under our bank credit facility, with substantially all of Coleman's
domestic assets, other than real property;
o impose restrictions on the total amount of revolving loans permitted to
be outstanding at the end of each month under our bank credit facility;
o require us to maintain a concentration cash management system and to
repay to the banks (subject to reborrowing) revolving loans to the extent
that cash on hand in our concentration account on any business day
exceeds $15 million;
o require us to prepay term loans under the bank credit facility on each of
September 30, 1999 and December 31, 1999 to the extent that cash on hand
in our concentration account plus the total amount of unused revolving
loan commitments on these dates exceeds $115 million and $125 million,
respectively, but we are not required to prepay more than $69.3 million
in total as a result of this provision;
o require us to reserve $52.5 million of availability under the revolving
credit facility, if the Coleman Merger does not occur on or before
August 31, 1999, for use solely to pay the required cash portion of the
Coleman Merger consideration;
o limit the amount that we may spend on Year 2000 compatibility testing and
remediation to $50 million in total during the fiscal year ending
December 31, 1999;
o require us to obtain bank lenders' consent to any litigation settlement
concerning the restatement of our 1996, 1997 and first quarter 1998
financial statements if such settlements require the payment of money,
not paid by insurance carriers or other third parties, of more than
$1 million in total;
o impose new informational reporting requirements; and
o provide us with a $40 million foreign currency revolving loan
subfacility.
DELAYED FILING OF REGISTRATION STATEMENT
On March 25, 1998, we entered into a registration rights agreement with
Morgan Stanley & Co., Incorporated relating to the original issuance of the
Debentures. The registration rights agreement required us to file a registration
statement with the SEC by June 23, 1998 to register the Debentures and the
shares of our common stock issuable upon conversion of the Debentures. However,
we did not file this registration statement until February 4, 1999 and the SEC
did not declare this registration statement effective until , 1999.
The delay resulted from our need to review and restate our historical financial
statements following the refusal of our former independent auditors, Arthur
Andersen, to consent to the inclusion in this registration statement of their
opinion on our 1997 financial statements.
Our failure to file this registration statement by June 23, 1998 did not
constitute a default under the Debentures. However, from June 23, 1998 until the
day on which this registration statement was declared effective, cash liquidated
damages payable to the holders of the Debentures have accrued:
o on a daily basis at a rate per annum equal to 0.25% during the first
90 days, and
o on a daily basis at a rate per annum equal to 0.50% thereafter,
multiplied, in each case, by the sum of the issue price of the Debentures
plus the accrued original issue discount on the Debentures on each day
for which damages are calculated.
We paid liquidated damages of about $500,000 on September 25, 1998 and about
$2 million on March 25, 1999.
17
<PAGE>
PRESS RELEASES RELATING TO SUNBEAM'S FIRST QUARTER 1998 RESULTS
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 our
net sales for the quarter 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 net sales for the first quarter of 1998 were expected to be
about 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 our 1998 first quarter
results and made forecasts for the remainder of 1998 and beyond. They reported
net sales of $244.3 million for the quarter, as compared to $253.4 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 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 one-time charges of $0.43 per share, we lost $0.52 per share in the 1998
quarter, compared with earnings per share of $0.08 in the comparable 1997
period. Our prior management 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, our new
management announced that these previously announced forecasts should not be
relied upon.
Following each of these press releases, the market price of our common
stock fell substantially. On October 20, 1998, we 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; Change of
Auditors" in this section on page 19, "Changes in Sunbeam's Management and
Board" in this section on page 18 and the risk factor titled "Negative
developments since March 1998 have caused our common stock price to drop
significantly" on page 14.
CHANGES IN SUNBEAM'S MANAGEMENT AND BOARD
On June 15, 1998, our board of directors terminated Albert J. Dunlap as
Sunbeam's Chairman and Chief Executive Officer. Three days later, our board of
directors terminated Russell A. Kersh as Sunbeam's Vice Chairman and Chief
Financial Officer. On June 15, 1998, our board elected Peter A. Langerman as our
non-executive Chairman of the board and Jerry W. Levin as our 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., which owns about 16% of
our common stock. Mr. Levin is an Executive Vice President of MacAndrews &
Forbes, an affiliate of which owns about 14% of our common stock and a warrant
which, if exercised in full, would increase its ownership to about 29% of our
common stock. Mr. Levin was Chairman and Chief Executive Officer of Coleman at
the time we acquired our controlling interest in Coleman, and previously was the
Chairman and Chief Executive Officer of Revlon, Inc., an affiliate of MacAndrews
& Forbes.
In June 1998 Mr. Levin, Howard Gittis of MacAndrews & Forbes, and Lawrence
Sondike of Franklin Mutual Advisers, Inc. were elected to our board. William T.
Rutter resigned from our board effective July 8, 1998, and Faith Whittlesey was
elected to fill the vacancy on the audit committee resulting from Mr. Rutter's
resignation. Messrs. Dunlap and Kersh resigned from the board effective
August 5, 1998. In January 1999, Mr. Sondike resigned from our board, and in
February 1999, John H. Klein of BioLogix, Inc. was elected a director.
In March 1999, Mr. Levin became Chairman of the board of directors,
succeeding Mr. Langerman, who remains a director.
Philip E. Beekman, President of Owl Hollow Enterprises, Inc., has been
nominated for election to the board at our annual shareholders' meeting
scheduled for June 29, 1999.
18
<PAGE>
RESTATEMENT OF FINANCIAL RESULTS; CHANGE OF AUDITORS
On June 25, 1998, we announced that our former independent auditors, Arthur
Andersen, would not consent to the inclusion of their opinion on our 1997
financial statements in a registration statement we were then planning to file
with the SEC. On June 30, 1998, we announced that the audit committee of our
board of directors would review the accuracy of our prior financial statements
and, therefore, those financial statements should not be relied upon. We also
announced that Deloitte & Touche LLP had been retained to assist the audit
committee and Arthur Andersen in this review. On August 6, 1998, we announced
that the audit committee 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. The audit committee concluded that we had incorrectly recognized revenue
during these periods from "bill and hold" and guaranteed sales transactions. The
audit committee also concluded that some costs and allowances for sales returns,
co-op advertising, customer deductions and reserves for product liability and
warranty expense were not accrued or were incorrectly recorded. Finally, the
audit committee concluded that various costs were incorrectly included in and
charged to restructuring, asset impairment and other costs.
On November 20, 1998, we announced that our audit committee had
recommended, and our board of directors had approved, the appointment of
Deloitte & Touche to replace Arthur Andersen as our independent auditors for
fiscal year 1998. Arthur Andersen will continue to provide us with limited
professional services. For further information regarding our independent
auditors, see the section "Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure" on page 56.
REPORTING OF 1998 RESULTS
On April 21, 1999, we reported that for the year ended December 31, 1998 we
had net sales of $1.8 billion and a net loss of $898 million, or a loss of $9.25
per diluted share. Excluding sales of Coleman, First Alert and Signature Brands,
comparable sales declined 23% to $828 million in 1998 from about $1.1 billion in
1997. We also announced net cash provided by operations of about $30 million for
the fourth quarter of 1998, compared with net cash used in operations of about
$220 million for the first three quarters of 1998.
LITIGATION INVOLVING SUNBEAM
Since the issuance of the April 3, 1998 press release concerning our 1998
first quarter results, many lawsuits involving legal claims arising under
federal and state securities and other laws have been filed against us, some of
our former directors and officers, some of our current directors and Arthur
Andersen. We are currently defending these lawsuits in a number of courts. Many
of these suits relate to Sunbeam's financial performance from the second quarter
of 1997 through the second quarter of 1998. Many plaintiffs are claiming that
our prior management misrepresented and omitted material information in our
public filings and in their statements concerning Sunbeam's historical and
expected future results of operations. The plaintiffs claim that the alleged
actions were intended to artificially inflate the market price of our common
stock. Our insurers have also attempted to have our directors' and officers'
liability policies voided or canceled or have advised us that they do not intend
to provide coverage with respect to these lawsuits. We are unable to predict the
outcome of these lawsuits or our potential exposure to damages. However, if we
were to lose these lawsuits, judgments would likely have a material adverse
effect on Sunbeam's financial condition, results of operations and cash flow.
For a more detailed description of the various lawsuits, see
"Business--Litigation and Other Contingent Liabilities" beginning on page 64.
19
<PAGE>
SEC INVESTIGATION
The staff of the Division of Enforcement of the SEC advised us in a letter
dated June 17, 1998 that it was conducting an informal inquiry into our
accounting policies and procedures. On July 2, 1998, the SEC informed us that
they were commencing a formal investigation of us. At that time, the SEC also
subpoenaed various documents from us. On November 4, 1998, we received another
SEC subpoena requiring the production of additional documents. We have
cooperated fully with the SEC and have furnished the SEC with documents they
requested. We cannot predict how long the SEC investigation will continue or its
outcome.
SETTLEMENT OF CLAIMS OF MACANDREWS & FORBES
On August 12, 1998, we announced that we had entered into an agreement to
settle threatened claims of the MacAndrews & Forbes affiliate that sold us a
controlling interest in Coleman in March 1998, in exchange for consideration
which included 14 million shares of our common stock. These shares had a market
value of about $580 million when the MacAndrews & Forbes affiliate agreed to the
Coleman Merger, but their market value was less than $100 million at the time of
the settlement. The settlement:
o released us from threatened claims arising out of our acquisition of the
MacAndrews & Forbes affiliate's controlling interest in Coleman;
o enabled us to retain the services of executive personnel affiliated with
MacAndrews & Forbes who had been managing Sunbeam since mid-June of 1998,
including Jerry W. Levin, our Chief Executive Officer, Paul E. Shapiro,
our Chief Administrative Officer, and Bobby G. Jenkins, our Chief
Financial Officer; and
o provided for continuing management assistance and other support by
MacAndrews & Forbes to us.
In exchange, we issued to the MacAndrews & Forbes affiliate a five-year warrant
to purchase 23 million shares of our common stock at an exercise price of $7 per
share, subject to anti-dilution adjustments. We have agreed that the MacAndrews
& Forbes affiliate can require us to register under the federal and applicable
state securities laws the warrant and shares of our common stock issuable upon
exercise of the warrant.
The terms of the settlement and warrant were negotiated and approved on our
behalf by a special committee of four of our outside directors, none of whom has
any affiliation with MacAndrews & Forbes. The members of the special committee
were Howard Kristol (Chairman), Charles Elson, Peter Langerman and Faith
Whittlesey. They were assisted by independent financial advisors and legal
counsel.
For the services rendered as members of the special committee in connection
with the settlement, Mr. Kristol received additional compensation of $50,000 and
Messrs. Elson and Langerman and Mrs. Whittlesey each received additional
compensation of $35,000. We also agreed to indemnify each of them to the fullest
extent allowed by applicable law and our certificate of incorporation and
by-laws for any liabilities arising out of their services on the special
committee.
The settlement normally would have required approval by our stockholders
under the rules of the New York Stock Exchange because of the issuance of the
warrant as part of the settlement. However, our audit committee determined that
the delay that would be necessary to secure stockholder approval prior to
issuing the warrant would:
o be lengthy due to the SEC's ongoing investigation of our accounting
practices and policies and the need to complete the restatement of our
historical financial statements;
o inhibit our ability to reach a settlement and to retain and hire
essential senior management personnel; and
o seriously jeopardize our financial viability.
20
<PAGE>
Based on these determinations, our audit committee, relying on an exception
provided in the NYSE stockholder approval policy applicable, expressly approved
Sunbeam's omission to seek stockholder approval. The NYSE accepted our
application of the exception.
In connection with the settlement agreement, Messrs. Levin, Shapiro and
Jenkins each signed three-year employment agreements with Sunbeam. See the
"Management" section beginning on page 70.
PROPOSED SETTLEMENT OF COLEMAN STOCKHOLDERS' CLAIMS
Beginning on June 25, 1998, several lawsuits were filed in the Court of
Chancery of the State of Delaware by minority stockholders of Coleman against
Coleman, Sunbeam and several of Coleman's current and former officers and
directors. These actions were later consolidated into a single lawsuit. The
lawsuit alleges, among other things, that the consideration to be paid to the
minority stockholders of Coleman in the proposed Coleman Merger is no longer
fair as a result of the decline in the market price of our common stock. See
"Business--Litigation and Other Contingent Liabilities" beginning on page 64.
On October 21, 1998, we announced that we had entered into a memorandum of
understanding to settle, subject to court approval, this lawsuit. Under the
terms of the proposed settlement, if approved by the court, we will issue to the
Coleman minority stockholders and plaintiffs' counsel warrants to purchase about
4.98 million shares of our common stock at an exercise price of $7 per share,
subject to anti-dilution adjustments. These warrants will generally have the
same terms as the warrant issued to the MacAndrews & Forbes affiliate and will
be issued when the Coleman Merger is completed. There can be no assurance,
however, that the court will approve the settlement as proposed. In addition, as
originally contemplated, we will acquire the remaining outstanding shares of
Coleman common stock in the Coleman Merger for approximately 6.7 million shares
of our common stock and $87 million in cash.
OPTIONS REPRICING
In August 1998, we approved a plan to re-price outstanding options held by
our employees to purchase shares of our common stock. The repricing program,
which has been completed, provided for the outstanding options with exercise
prices in excess of $10.00 per share to be valued by reference to the generally
accepted Black-Scholes option pricing model, and permitted our employees to
exchange old options for new options having an exercise price of $7 per share
and a value equivalent to the value of the old options. See Note 9 to our
consolidated financial statements.
NEW YORK STOCK EXCHANGE LISTING
On May 22, 1998, the NYSE advised us that we did not meet their continuing
listing standards because we did not have tangible net assets of at least
$12 million and average annual net income of at least $600,000 for 1995, 1996
and 1997. We met with NYSE officials, and on March 23, 1999, the NYSE informed
us that our common stock will not be de-listed at this time. The NYSE will,
however, continue to carefully monitor our compliance with its listing
standards.
MATTERS INVOLVING FORMER MANAGEMENT
In early August 1998, we entered into a six-month agreement with
Messrs. Dunlap and Kersh in which we agreed not to assert claims against each
other and to exchange information relating to the pending stockholder lawsuits.
We also agreed to pay a portion of the accrued vacation and employment benefits
of Messrs. Dunlap and Kersh.
After the agreement expired, by letters dated February 9, 1999,
Messrs. Dunlap and Kersh submitted demands for arbitration to the American
Arbitration Association alleging that we terminated their employment without
cause. Messrs. Dunlap and Kersh are seeking lump sum payments of about
$5,250,000 and $2,296,875, respectively. Messrs. Dunlap and Kersh also are
seeking:
o amounts for accrued but unused vacation;
o amounts in respect of certain benefit plans;
21
<PAGE>
o confirmation that their options to acquire shares of our common stock are
fully vested and that they will receive the economic equivalent of their
participation in our program for repricing of options;
o indemnification and expense reimbursement in connection with the
stockholder litigation and the SEC investigation referred to above; and
o in the case of Mr. Kersh, more than $3 million, including tax gross-ups,
with respect to his restricted stock.
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in Delaware
state court seeking an order directing us to advance attorneys' fees and other
expenses incurred in connection with the defense of the stockholder lawsuits and
the SEC investigation. The complaint filed by Messrs. Dunlap and Kersh alleges
that such advancements are required by our by-laws and the agreements we entered
into with them in August 1998. A trial of this summary proceeding is scheduled
for June 15, 1999. Messrs. Dunlap and Kersh have agreed to repay us all amounts
advanced if it is determined that they did not meet the applicable standard of
conduct for indemnification under Delaware law.
We are vigorously contesting the claims of Messrs. Dunlap and Kersh. As a
result of a motion for preliminary injunction filed by us in an action pending
in state court in Florida, the arbitrations were suspended until May 10, 1999.
To date, we have not made any severance payments to either of Messrs. Dunlap or
Kersh.
22
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Sunbeam's common stock has been listed for trading on the New York Stock
Exchange under the symbol "SOC" since August 19, 1992. The following table
provides the high and low sales prices of the common stock for the quarters
indicated as reported on the NYSE Composite Transactions Tape.
<TABLE>
<CAPTION>
PRICE RANGE
OF
COMMON
STOCK DIVIDENDS
----------- PER
HIGH LOW COMMON SHARE
---- --- ------------
<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 --
Year Ending December 31, 1999
First Quarter..................................................................... $ 7 1/2 $5 1/2 --
Second Quarter through April 30, 1999............................................. 5 3/4 5 1/8 --
</TABLE>
On May 11, 1999, the last reported closing sale price of the common stock
was $8 5/8 per share. As of April 21, 1999, there were approximately 4,569
holders of record of shares of common stock.
Sunbeam stopped paying dividends on its common stock after the first
quarter of 1998 and has no intention of paying dividends for the foreseeable
future. Moreover, Sunbeam's bank credit facility, as amended in April 1999,
prohibits the payment of cash dividends.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Sunbeam as of
December 31, 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.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
------------
(IN
MILLIONS)
<S> <C>
Cash and cash equivalents........................................................................... $ 61.4
--------
--------
Short-term debt and current portion of long-term debt............................................... $ 119.1
--------
--------
Long-term debt, net of current portion:
Debentures........................................................................................ $ 779.2
Other............................................................................................. 1,363.2
--------
Total long-term debt......................................................................... 2,142.4
--------
Shareholders' equity:
Preferred stock (2,000,000 shares authorized,
none outstanding).............................................................................. --
Common stock (100,739,053 shares issued and outstanding).......................................... 1.0
Additional paid-in capital........................................................................ 1,123.4
Accumulated deficit............................................................................... (810.0)
Accumulated other comprehensive loss.............................................................. (54.0)
--------
Total shareholders' equity................................................................... 260.4
--------
Total capitalization...................................................................... $2,521.9
--------
--------
</TABLE>
24
<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 1, 1995
through December 31, 1998, and on a pro forma basis for the year ended December
31, 1998.
For purposes of determining the ratio of earnings to fixed charges,
earnings represent income or loss 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 year ended December 31, 1998, earnings
were insufficient to cover fixed charges by $797.1 million. For the year ended
December 31, 1998, on a pro forma basis, earnings were insufficient to cover
fixed charges by $822.9 million.
The calculation of the pro forma ratio of earnings to fixed charges gives
effect to (1) Sunbeam's 1998 corporate acquisitions, excluding the acquisition
of First Alert, the effect of which is not significant, (2) the Bank Financing,
(3) the Original Offering and (4) 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 consolidated statement of operations, in each case as if they
had occurred on December 29, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 31,
1995 1995 1996 1997 1998
---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges.................. 14.4x 4.7x -- 7.2x --
</TABLE>
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.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma condensed consolidated statement of
operations was prepared to give effect to the following "Pro Forma Transactions"
as if they had occurred on December 29, 1997, the beginning of Sunbeam's 1998
fiscal year:
o Sunbeam's acquisition on March 30, 1998 of about 81% of the then
outstanding shares of Coleman in exchange for 14,099,749 shares of
Sunbeam's common stock and approximately $160 million in cash;
o Sunbeam's acquisition on April 6, 1998 of all of the outstanding stock of
Signature Brands in exchange for approximately $255 million in cash;
o the initial borrowing of approximately $1,325 million under Sunbeam's
bank credit facility;
o the original offering in March 1998 of $2,014 million aggregate principal
amount at maturity of the Debentures for net proceeds of approximately
$727.6 million; and
o the use of most of the net proceeds from the Bank Financing and the
Original Offering as described in the notes to the unaudited pro forma
condensed consolidated statement of operations.
The unaudited pro forma condensed consolidated statement of operations does
not include pro forma adjustments relating to the acquisition of First Alert
because the effects of that acquisition are not significant.
Sunbeam's consolidated historical results of operations for the year ended
December 31, 1998 includes Coleman and Signature Brands from the respective
acquisition dates and has been derived from the audited financial statements of
Sunbeam as of and for the year ended December 31, 1998. The results of
operations of the acquired entities from the beginning of the period through the
respective acquisition dates have been derived from the unaudited statements of
operations of the acquired entities for the three months ended March 31, 1998.
The acquisitions have been accounted for under the purchase method of
accounting.
Reclassifications were made to the net sales, cost of goods sold and
selling, general and administrative expense as reported in the historical
financial statements of Coleman and Signature Brands. These reclassifications
were made to conform to the classifications of Sunbeam and consist of
promotional allowances and cooperative advertising expenses. Sunbeam classifies
these amounts as a deduction to arrive at net sales.
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 consolidated statement of operations for the
year ended December 31, 1998.
The pro forma adjustments are based upon available information and certain
assumptions that Sunbeam believes are reasonable under the circumstances.
The unaudited pro forma condensed consolidated statement of operations
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements of
Sunbeam and the notes thereto, and the other financial information included
elsewhere in this prospectus. This unaudited pro forma condensed consolidated
statement of operations is provided for informational purposes only and does not
purport to be indicative of the results of operations which would have been
obtained had the Pro Forma Transactions been completed on December 29, 1997 or
the results of operations for any future period.
26
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL SIGNATURE PRO FORMA
SUNBEAM BRANDS (A) COLEMAN (A) ADJUSTMENTS PRO FORMA
---------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................. $1,836,871 $55,482 $244,499 $ (23,346)(b) $2,098,706
(14,800)(c)
Cost of goods sold........................ 1,788,819 39,098 175,777 (10,954)(b) 1,983,594
(10,700)(c)
1,554 (d)
43,830 1,032 2,934 7,165 (d) 54,961
Amortization of goodwill and identifiable
intangibles.............................
Selling, general and administrative 674,247 20,392 74,855 (12,392)(b) 753,575
expense................................. (3,700)(c)
173 (d)
---------- ------- -------- --------- ----------
Operating loss............................ (670,025) (5,040) (9,067) (9,292) (693,424)
Interest expense, net and other........... 126,323 4,481 10,905 12,437 (e) 154,847
701 (f)
Gain on sale of business.................. 26,137 26,137
---------- ------- -------- --------- ----------
(Loss) earnings from continuing operations
before income taxes, minority interest
and extraordinary charge................ (796,348) (9,521) 6,165 (22,430) (822,134)
Income taxes (benefit).................... (10,130) (3,062) 7,518 (4,400)(g) (10,074)
Minority interest in loss of Coleman...... (10,681) 61 (297)(h) (10,917)
---------- ------- -------- --------- ----------
$ (775,537) $(6,459) $ (1,414) $ (17,733) $ (801,143)
Loss from continuing operations before
extraordinary charge....................
---------- ------- -------- --------- ----------
---------- ------- -------- --------- ----------
Basic loss per share of common stock from
continuing operations................... $ (7.99) $ (7.96)
---------- ----------
---------- ----------
Weighted average common shares
outstanding............................. 97,121 3,525 (i) 100,646
---------- --------- ----------
---------- --------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PERCENTAGES, SHARE DATA AND AS NOTED)
(a) Represents the historical statements of operations of Coleman and Signature
Brands for the three months ended March 31, 1998.
(b) Represents the reclassifications made to net sales, cost of goods sold and
selling, general and administrative expense as reported in the historical
financial statements of Coleman and Signature Brands. These
reclassifications were made to conform to the classifications of Sunbeam
and consist of promotional allowances and cooperative advertising. Sunbeam
classifies these amounts as a deduction to arrive at net sales, as follows:
<TABLE>
<CAPTION>
DECREASE IN
-----------------------------------------
SELLING,
GENERAL AND
COST OF ADMINISTRATIVE
NET SALES GOODS SOLD EXPENSE
--------- ---------- --------------
<S> <C> <C> <C>
Coleman......................................................... $ (17,115) $(10,954) $ (6,161)
Signature Brands................................................ (6,231) (6,231)
--------- -------- --------
$ (23,346) $(10,954) $(12,392)
--------- -------- --------
--------- -------- --------
</TABLE>
(c) Represents the elimination of Coleman's net sales, cost of goods sold and
selling, general and administrative expense for the two days ended
March 31, 1998. These amounts are included in the Coleman historical
statement of operations for the three months ended March 31, 1998 and are
also reflected in the Sunbeam historical statement of operations since
March 30, 1998.
(d) Represents the increase in depreciation and amortization to reflect the pro
forma effect of the acquisitions occurring at the beginning of the period.
In each acquisition, the purchase price paid has been allocated to the fair
value, as determined by independent appraisals, of tangible and identified
intangible assets acquired and liabilities assumed as follows (in
millions):
<TABLE>
<CAPTION>
SIGNATURE
COLEMAN BRANDS
------- ---------
<S> <C> <C>
Value of common stock issued....................................................... $ 607
Cash paid including expenses and mandatory redemption of debt, net of cash
acquired......................................................................... 160 $ 255
Cash received from sale of Coleman Spas, Inc....................................... (17)
Cash received from stock option proceeds........................................... (9)
------- -----
Net cash paid and equity issued.................................................... 741 255
Fair value of liabilities assumed.................................................. 1,455 83
------- -----
2,196 338
Fair value of assets acquired...................................................... 1,113 191
------- -----
Excess of purchase price over fair value of net assets acquired.................... $1,083 $ 147
------- -----
------- -----
</TABLE>
The pro forma amounts are derived as follows:
<TABLE>
<CAPTION>
QUARTERLY
SIGNATURE DEPRECIATION/
COLEMAN BRANDS AMORTIZATION
------- --------- -------------
<S> <C> <C> <C>
Increase in property, plant and equipment to reflect fair value.... $50,560 $ 3,871 $ 1,727
-------
-------
Amount attributable to:
Cost of goods sold............................................... $ 1,554
-------
-------
Selling, general and administrative expense...................... $ 173
-------
-------
</TABLE>
28
<PAGE>
Amortization of goodwill and identifiable intangibles:
<TABLE>
<CAPTION>
QUARTERLY
SIGNATURE DEPRECIATION/
COLEMAN BRANDS LIFE AMORTIZATION
---------- --------- -------- -------------
<S> <C> <C> <C> <C>
Goodwill............................................ $1,083,259 $ 147,151 40 years $ 7,690
Trademarks.......................................... 279,920 53,900 40 years 2,086
Assembled workforce................................. 12,880 3,000 8 years 496
Patents............................................. 5,600 1,800 8 years 231
-------
10,503
Less: historical amortization....................... (3,338)
-------
$ 7,165
-------
-------
</TABLE>
(e) Represents the net increase in interest expense to reflect the pro forma
effect of the acquisition and refinancing borrowings as if such
transactions occurred at the beginning of the period. Amounts are derived
as follows:
<TABLE>
<CAPTION>
QUARTERLY LESS:
INTEREST ON QUARTERLY
ACQUISITION ACQUISITION AND INTEREST ON INCREASE IN
AND REFINANCING EFFECTIVE REFINANCING PRE-ACQUISITION INTEREST
ACQUISITION BORROWINGS RATE BORROWINGS BORROWINGS EXPENSE
- ------------------------------ --------------- --------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Coleman....................... $ 1,188,000 7.47% $22,186 $ 9,850 $12,336
Signature Brands.............. 254,600 7.47% 4,755 4,654 101
-------
$12,437
-------
-------
</TABLE>
The assumed effective interest rate was derived using the 1998 effective
rates, including amortization of deferred financing costs, of 9.05% for the
term loan borrowings, which represent approximately 59% of the Company's
acquisition and refinancing borrowings, and 5.20% for the Debentures, which
represent approximately 41% of the Company's acquisition and refinancing
borrowings. The effect on operations of a 1/8% variance in interest rates on
the acquisition and refinancing borrowings would be approximately
$1.1 million per year and $0.3 million per quarter.
(f) Represents the net increase in interest expense to reflect the pro forma
effect of higher interest rates on the new financing compared with the
historical financing. The amount is derived as follows:
<TABLE>
<CAPTION>
QUARTERLY QUARTERLY
AVERAGE INTEREST AT INTEREST AT INCREASE IN
PRE-REFINANCING EFFECTIVE REFINANCING PRE-REFINANCING INTEREST
BORROWINGS RATE BORROWINGS RATE BORROWINGS RATE EXPENSE
--------------- --------- --------------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Historical Sunbeam........... $ 242,500 7.47% $ 4,529 $ 3,828 $ 701
</TABLE>
(g) Represents the domestic income tax provision accrued by Coleman of
$4.4 million for the three months ended March 31, 1998. On a pro forma
basis this accrual would not have been required as a consequence of the net
operating losses generated by Sunbeam for the year ended December 31, 1998.
No adjustment is required to the Signature Brands tax benefit since the
Signature Brands loss in the first quarter of 1998 was available for
carryback. No tax benefit is provided on the pro forma adjustments since
the adjustments for depreciation and amortization are not deductible for
income tax purposes and the deferred tax asset resulting from the remaining
pro forma adjustments results in an additional valuation allowance since it
is more likely than not that such deferred tax assets will not be realized
from future taxable income.
(h) Represents approximately 21% of the loss from continuing operations before
extraordinary item of Coleman for the three months ended March 31, 1998.
(i) Represents the increase in the weighted average shares of Sunbeam common
stock outstanding as of December 31, 1998, adjusted for the 14,099,749
shares issued in connection with the acquisition of Coleman as if it had
occurred at the beginning of the period. Since the Coleman acquisition
occurred at the end of the first quarter, the weighted average shares
outstanding would have increased on a pro forma basis by one quarter of the
14,099,749 shares issued, or 3,524,937 shares. The shares of common stock
issuable upon conversion of the Debentures have not been included, as they
would be anti-dilutive.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical financial information has been derived
from the Consolidated Financial Statements of Sunbeam. This information should
be read in conjunction with the Consolidated Financial Statements and related
notes, which are included elsewhere in this prospectus.
While reviewing the following selected historical financial information, please
note the following:
o All amounts in the table are expressed in millions, except per share and
ratio data.
o On March 30, 1998, Sunbeam acquired approximately 81% of the then
outstanding shares of common stock of Coleman. On April 6, 1998, Sunbeam
completed the cash acquisitions of First Alert and Signature Brands. The
acquisitions were accounted for under the purchase method of accounting
and, accordingly, the financial position and results of operations of
each acquired entity are included in the Consolidated Financial
Statements from the respective dates of acquisition.
o For the fiscal year ended December 31, 1998 Sunbeam took an extraordinary
charge of $122.4 million related to the early extinguishments of debt and
took other charges of:
o $70.0 million related to the issuance of warrants;
o $62.5 million related to the write-off of goodwill;
o $39.4 million related to fixed asset impairments;
o $31.2 million related to compensation expense for the new employment
agreements with Sunbeam's former Chairman and Chief Executive Officer
and two other former senior officers; and
o $95.8 million related to write-downs of inventory.
See Notes 2, 3 and 11 to Sunbeam's Consolidated Financial Statements.
o For the fiscal year ended December 28, 1997, Sunbeam reversed $28.0
million of pre-tax liabilities no longer required and $13.3 million of
tax liabilities no longer required.
o For the fiscal year ended December 29, 1996, Sunbeam took restructuring,
asset impairment and other charges of $239.2 million before taxes. See
Notes 12 and 13 to Sunbeam's Consolidated Financial Statements included
in this prospectus.
o The "earnings (loss) from discontinued operations, net of taxes" and
"loss on sale of discontinued operations, net of taxes" represent results
from Sunbeam's furniture business, net of taxes and the estimated loss on
disposal. See Note 13 to Sunbeam's Consolidated Financial Statements
included in this prospectus.
o In computing the ratio of earnings to fixed charges: (a) earnings
represent income (loss) from continuing operations before income taxes
and fixed charges (exclusive of capitalized interest); 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 fiscal year ended December 31, 1998, historical
earnings were insufficient to cover fixed charges by $262.2 million and
$797.1 million, respectively. For the fiscal year ended December 31,
1998, on a pro forma basis, earnings were insufficient to cover fixed
charges by $822.9 million.
o At December 31, 1998, total assets include goodwill and other intangible
assets of $1,859.4 million.
30
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1995 1996 1997
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................................................... $1,044.3 $1,016.9 $ 984.2 $1,073.1
Cost of goods sold ............................................ 764.4 809.1 896.9 831.0
Selling, general and administrative expense.................... 128.9 137.5 221.7 152.6
Restructuring, and asset impairment charge (benefit) .......... -- -- 110.1 (14.6)
-------- -------- -------- --------
Operating earnings (loss)...................................... $ 151.0 $ 70.3 $ (244.5) $ 104.1
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) from continuing operations before extraordinary
charge....................................................... $ 85.3 $ 37.6 $ (170.2) $ 52.3
Earnings (loss) from discontinued operations, net of taxes..... 21.7 12.9 0.8 --
Loss on sale of discontinued operations, net of taxes.......... -- -- (39.1) (14.0)
Extraordinary charge........................................... -- -- -- --
-------- -------- -------- --------
Net earnings (loss) ........................................... $ 107.0 $ 50.5 $ (208.5) $ 38.3
-------- -------- -------- --------
-------- -------- -------- --------
Ratio of earnings to fixed charges............................. 14.4x 4.7x -- 7.2x
EARNINGS (LOSS) PER SHARE DATA:
Basic weighted average shares outstanding...................... 82.6 81.6 82.9 84.9
Diluted weighted average shares outstanding.................... 82.6 82.8 82.9 87.5
Basic earnings (loss) per share from continuing operations
before extraordinary charge.................................. $ 1.03 $ 0.46 $ (2.05) $ 0.62
Diluted earnings (loss) per share from continuing operations
before extraordinary charge.................................. 1.03 0.45 (2.05) 0.60
Basic earnings (loss) per share................................ 1.30 0.62 (2.51) 0.45
Diluted earnings (loss) per share.............................. 1.30 0.61 (2.51) 0.44
Cash dividends declared per share ............................. 0.04 0.04 0.04 0.04
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................ $ 294.8 $ 411.7 $ 359.9 $ 369.1
Total assets................................................... 1,008.9 1,158.7 1,059.4 1,058.9
Long-term debt................................................. 124.0 161.6 201.1 194.6
Shareholders' equity .......................................... 454.7 601.0 415.0 472.1
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................................................... $1,836.9
Cost of goods sold ............................................ 1,788.8
Selling, general and administrative expense.................... 718.1
Restructuring, and asset impairment charge (benefit) .......... --
--------
Operating earnings (loss)...................................... $ (670.0)
--------
--------
Earnings (loss) from continuing operations before extraordinary
charge....................................................... $ (775.5)
Earnings (loss) from discontinued operations, net of taxes..... --
Loss on sale of discontinued operations, net of taxes.......... --
Extraordinary charge........................................... (122.4)
--------
Net earnings (loss) ........................................... $ (897.9)
--------
--------
Ratio of earnings to fixed charges............................. --
EARNINGS (LOSS) PER SHARE DATA:
Basic weighted average shares outstanding...................... 97.1
Diluted weighted average shares outstanding.................... 97.1
Basic earnings (loss) per share from continuing operations
before extraordinary charge.................................. $ (7.99)
Diluted earnings (loss) per share from continuing operations
before extraordinary charge.................................. (7.99)
Basic earnings (loss) per share................................ (9.25)
Diluted earnings (loss) per share.............................. (9.25)
Cash dividends declared per share ............................. 0.01
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................................ $ 488.5
Total assets................................................... 3,405.5
Long-term debt................................................. 2,142.4
Shareholders' equity .......................................... 260.4
</TABLE>
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 Financial Statements (and related notes), selected
historical financial information and unaudited pro forma consolidated condensed
statement of operations appearing elsewhere in this prospectus.
On March 30, 1998, Sunbeam, through a wholly-owned subsidiary, acquired
approximately 81% of the total number of then outstanding shares of common stock
of Coleman, from an affiliate of MacAndrews & Forbes, in exchange for 14,099,749
shares of Sunbeam's common stock and approximately $160 million in cash. In
addition, Sunbeam assumed approximately $1,016 million in debt. Immediately
afterwards, 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 outstanding shares of Coleman common stock. Sunbeam's agreement
for the acquisition of the remaining publicly held Coleman shares in a merger
transaction provides that the remaining Coleman shareholders will receive:
o approximately 6.7 million shares of Sunbeam common stock--0.5677 share
for each outstanding Coleman share; and
o approximately $87 million in cash--$6.44 for each outstanding Coleman
share and cash outs of unexercised Coleman options equal to the
difference between $27.50 per share and the exercise price of the
options.
Sunbeam expects to complete the Coleman Merger during the second half of 1999,
although there can be no assurance that the merger will occur during that time.
See Notes 2 and 15 to Sunbeam's Consolidated Financial Statements and "Recent
Developments--Proposed Settlement of Coleman Stockholders' Claims" for
information regarding the settlement of claims relating to the Coleman
acquisition, the terms of which involved the issuance of warrants to purchase
shares of Sunbeam's common stock at $7 per share.
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
$182 million, including $133 million of cash and $49 million of assumed debt,
and $255 million, reflecting cash paid, including the required retirement or
defeasance of debt, respectively.
The acquisitions were recorded under the purchase method of accounting and
accordingly, the financial position and results of operations of each acquired
entity are included in the Consolidated Financial Statements from the respective
dates of acquisition. The purchase prices of the acquired entities have been
allocated to individual assets acquired and liabilities assumed based on
estimates of fair values determined by independent appraisals at the dates of
acquisition.
FISCAL YEAR
To standardize the fiscal period ends of 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
Consolidated Financial Statements.
ASSET IMPAIRMENT AND OTHER CHARGES
Goodwill
When changes in circumstances indicate that the carrying value of goodwill
may not be recoverable, Sunbeam estimates future cash flows using the
recoverability method--undiscounted future cash flows and including related
interest charges--as a basis for recording any impairment loss. An impairment
loss is then recorded to adjust the carrying value of goodwill to the
recoverable amount. The impairment loss taken is no greater than the amount by
which the carrying value of the net assets of the business exceeds its fair
value. Due to First Alert's financial performance in 1998 and its prospects for
1999 and beyond, Sunbeam determined that the goodwill relating to this
acquisition was impaired. Accordingly, based on its determination of
32
<PAGE>
fair value, Sunbeam has written off the net carrying value of goodwill of
$62.5 million in the fourth quarter of 1998.
Fixed Asset Impairment and Excess and Obsolete Inventory Reserves
In the second quarter of 1998, Sunbeam decided to outsource or discontinue
a substantial number of products previously made by Sunbeam, resulting in some
facilities and equipment that will either no longer be used or will be utilized
in a significantly different manner. Accordingly, a charge of $29.6 million was
recorded in Cost of Goods Sold to write some of these assets down to their
estimated fair market value. Approximately 80% of this charge related to
machinery, equipment and tooling at Sunbeam's Mexico City and Hattiesburg,
Mississippi manufacturing plants, the estimated fair value for which was derived
through an auction process. The remainder of this charge related to tooling and
equipment at various other facilities, which either had a nominal value or the
fair market value of which was derived through an auction process. These assets
were taken out of service at the time of the write-down and consequently were
not depreciated further after the write-down.
Personnel at the Mexico City facility were notified in the second quarter
of 1998 that the plant was scheduled for closure at year-end 1998; accordingly,
at that time a liability of $1.8 million was recorded in Cost of Goods Sold
primarily for employee severance. The employee severance related to
approximately 1,200 positions of which approximately 1,100 were terminated as of
December 31, 1998. In the third quarter of 1998, Sunbeam recorded in Cost of
Goods Sold an additional provision for impairment of fixed assets of $3.1
million in an acquired entity relating to assets taken out of service for which
there was no remaining value. The asset impairment resulted from management's
decision to discontinue some product lines following the acquisition. These
fixed assets were taken out of service at the time of the write-down and
consequently were not depreciated further after the write-down. In the fourth
quarter of 1998, Sunbeam recorded a $7.1 million charge as a result of
management's decision to outsource the production of some appliances. This
charge to Cost of Goods Sold primarily consists of a provision for tooling and
equipment ($6.7 million) and severance and related benefits ($0.4 million). The
tooling and equipment was written down to estimated fair value, which was
derived from comparable market data. This equipment was taken out of service and
depreciation of this equipment was discontinued at the time of the write-down.
During 1997 and the first half of 1998, Sunbeam built inventories in
anticipation of 1998 sales volumes which did not materialize. As a result, it
has been and will continue to be necessary to dispose of some portions of excess
inventories at amounts less than cost. Accordingly, during 1998, when it became
evident that the anticipated sales volumes would not materialize, Sunbeam
recorded $58.2 million in charges to properly state this inventory at the
lower-of-cost-or-market. This inventory primarily related to some appliances,
grills and grill accessories. Sunbeam also recorded a charge of $11.0 million
for excess inventories for raw materials and work in process which will not be
used due to outsourcing the production of irons, breadmakers, toasters and some
other appliances. In addition, during 1998, Sunbeam made the decision to exit
some product lines, primarily air and water filtration products, and to
eliminate some stock keeping units ("SKUs") within existing product lines,
primarily relating to appliances, grills and grill accessories. As a result of
this decision, a $26.6 million charge was recorded to properly state this
inventory at the lower-of-cost-or-market. Total charges for excess inventories
recorded at the lower-of-cost-or-market amounted to approximately $95.8 million
at December 31, 1998. See Note 12 to Sunbeam's Consolidated Financial Statements
for asset impairment and other charges recorded in conjunction with a 1996
restructuring plan.
RESTATEMENTS
On June 30, 1998, Sunbeam announced that the audit committee of its board
of directors was initiating a review into the accuracy of Sunbeam's prior
financial statements. The audit committee's review has since been completed and,
as a result of its findings, Sunbeam has restated its previously issued
consolidated financial statements for 1996 and 1997 and the first quarter of
1998. Based upon the review, it was determined that some revenue had been
inappropriately recognized, some costs and allowances had not been accrued or
were improperly recorded, and some costs were inappropriately included in, and
subsequently charged to, restructuring, asset impairment and other costs within
the Consolidated Statement of Operations for the years
33
<PAGE>
ended December 29, 1996 and December 28, 1997 and the three months ended
March 31, 1998. The financial statements for the years ended December 28, 1997
and December 29, 1996 were restated, audited and filed on Form 10-K/A with the
SEC on November 9, 1998. The accompanying Consolidated Financial Statements of
Sunbeam present the restated results.
In connection with the restatements referred to above, Arthur Andersen
advised Sunbeam that it believed there were material weaknesses in Sunbeam's
internal control. In order to address these material weaknesses, Sunbeam has
increased the number of senior financial personnel and has implemented
comprehensive review procedures of operating and financial information.
Additionally, as explained in more detail under "--Year 2000 Readiness
Disclosure" below, Sunbeam is in the process of significantly enhancing its
operating systems. Sunbeam anticipates that its systems enhancements will be
completed in 1999. See "Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure."
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 28, 1997
Results of operations for the year ended December 31, 1998 include the
results of Coleman from March 30, 1998 and of Signature Brands and First Alert
from April 6, 1998, the respective dates of the acquisitions. The acquired
entities generated net sales of $1,009.0 million from the acquisition dates
noted above through December 31, 1998, with corresponding gross margin of $205.1
million, or 20% of sales. SG&A costs recorded by the acquired entities were
$329.9 million in the period, yielding an operating loss of $124.8 million.
For the acquired entities, net sales from the dates of the acquisitions
through fiscal year-end were approximately $152 million lower than the same
period in the prior year. This decline was caused by lower net sales at Coleman
($81.5 million), Signature Brands ($31.2 million) and First Alert
($39.2 million). Excluding the effects of Coleman's sale of its safety and
security business in March 1998 and the discontinuation of its pressure washer
business during 1997, Coleman's 1998 sales would have been approximately
$4 million lower than in 1997. Sunbeam believes that Signature Brands' decline,
primarily in its coffee and tea products, resulted largely from lost
distribution and insufficient attention to the business during part of 1998.
Sunbeam believes that all of the acquired businesses were, to some extent,
impacted by the disruption that arose from the integration with Sunbeam and the
related management changes, both at the acquired companies and at Sunbeam. First
Alert's sales decline related predominantly to increased inventory positions in
the domestic channel in 1997 as compared to 1998 with the remaining decrease
primarily related to more favorable weather conditions in the fourth quarter of
1997 as compared to the same period in 1998 which affected consumer shopping
patterns. Excluding the effects from purchase accounting and the write-off of
First Alert's goodwill, as discussed in Note 2 to the Consolidated Financial
Statements, operating profit for these three companies declined by approximately
$45 million since the acquisitions in 1998 as compared to the same period in the
prior year, resulting primarily from lower net sales. Although there can be no
assurance, management anticipates that results from the acquired companies will
significantly improve during 1999 due to, among other things, the absence of the
factors causing disruption and insufficient focus at these three companies
during 1998.
Consolidated net sales for the year ended December 31, 1998 were
$1,836.9 million, an increase of $763.8 million versus the year ended December
28, 1997. After excluding:
o $1,009.0 million of sales generated by the acquired entities, as
discussed above;
o $5.5 million of sales in 1998 resulting from the change in fiscal year
end, as described in Note 1 to the Consolidated Financial Statements;
o $12.7 million in 1998 and $31.3 million in 1997 from sales of excess or
discontinued inventory for which the inventory carrying value was
substantially equivalent to the sales value;
o $4.2 million from 1997 sales relating to divested product lines which are
not classified as discontinued operations--time and temperature products
and Counselor and Borg branded scales; and
o a $5.4 million benefit in 1997 from the reduction of cooperative
advertising accruals no longer required (cooperative advertising costs
are recorded as deductions in determining net sales);
34
<PAGE>
net sales on an adjusted basis ("Adjusted Sales") of $809.7 million decreased
approximately 22% from Adjusted Sales of $1,032.2 million in 1997. Product sales
were adversely impacted by a number of factors, with the largest being changes
in retail inventory levels from channel loading which took place in 1997.
Sunbeam believes the year-to-year effect of these inventory reductions amounted
to over $100 million. Additionally, losses in distribution of outdoor cooking
products estimated at approximately $60 million, the estimated effect of price
discounting on appliance and grill products of approximately $14 million, and
estimated higher provisions for customer returns and allowances of $30 million
contributed to the lower sales in 1998. The remaining sales decline was due in
part to exiting some product SKUs.
Domestic Adjusted Sales declined approximately 21% or $170 million from
1997. Sunbeam believes more than half of the sales decline was due to increased
retail inventory levels in 1997 versus decreased inventory positions at
customers in 1998. Excluding this effect, sales were still lower than the prior
year throughout the business, with the most significant decline occurring in
outdoor cooking products sales. During 1997, 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 predominantly to this lost distribution and to
price discounting. The majority of the remaining sales decline was due to higher
provisions for customer returns and allowances.
International sales, which represented 22% of Adjusted Sales for 1998,
decreased approximately 24% compared with the Adjusted Sales for the same period
a year ago. 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 some export
distributors in Latin America and by poor economic conditions in that region. In
addition, lost distribution in Canada contributed to the sales decline from the
prior year.
Excluding the effects of:
o the gross margin generated from the inclusion of the acquired entities'
operations in the period of $205.1 million, as discussed above;
o $0.8 million from the impact of the change in fiscal year-end;
o $128.4 million in 1998 in charges recorded in the second and fourth
quarters related to excess inventory and fixed assets impairments;
o $15.8 million from the benefit in 1997 from the reversal of reserves no
longer required, including $5.4 million of cooperative advertising
accruals; and
o a $2.8 million benefit recorded in the second quarter of 1997 resulting
from capitalizing some manufacturing supplies inventories which were
previously expensed;
there was a negative gross margin of $29.4 million for 1998 versus a gross
margin of $223.5 million for 1997. Lower sales volume and unfavorable
manufacturing efficiencies from lower production levels associated with the
lower sales volumes and high inventory levels in 1998 accounted for
approximately 55% of the change between years. Approximately 55% of the
remaining decrease is attributable to lower price realization and higher costs
of customer returns and allowances in 1998 and adverse product sales mix in
1998. The adverse product sales mix was due in part to the loss of a majority of
the grill accessory products distribution as accessories generate significantly
better margins than the average margins on sales of most of Sunbeam's other
products. Costs associated with a blanket recall, higher warranty reserves and
inventory adjustments due in part to physical inventories drove the remaining
decrease in gross margin.
Excluding the effects of the following, SG&A expenses were approximately
$257 million in 1998, 71% higher than the same period in 1997:
o $329.9 million of SG&A charges in the acquired entities, including the
$62.5 million goodwill write-off related to First Alert;
o $70.0 million recorded in the third quarter of 1998 related to the
issuance of a warrant;
o $2.3 million of SG&A expense in 1998 from the change in the fiscal
period;
35
<PAGE>
o a $5.9 million benefit in 1998 and a $12.1 million benefit in 1997 from
the reversal of reserves no longer required;
o approximately $31 million of 1998 compensation expense recorded in
connection with new employment agreements with Sunbeam's former Chairman
and Chief Executive Officer and two other former senior officers and
approximately $3 million of severance in 1998 for some former employees;
o $20.4 million, $6.1 million, and $4.0 million of costs recorded in 1998
related to costs associated with the restatement efforts, Year 2000
compliance efforts and a corporate office relocation, respectively; and
o $15.8 million of restructuring related charges recorded in 1997.
This increase of approximately $108 million is due to several factors:
o Corporate administrative costs increased by approximately $47 million,
reflecting additional personnel and related relocation, travel and other
costs, as well as increased outside provider fees, telecommunications
expense and insurance.
o Higher allowances for accounts receivable in 1998, accounting for
approximately $20 million of the increase, related primarily to
collection issues with customers in the United States and in Latin
America, including several major customers who have filed and/or
threatened bankruptcy.
o Advertising, marketing and selling expenses increased by approximately
$13 million, reflecting a national television campaign for grills and
increased activity in market research, package design and sales efforts.
Higher inventory levels in 1998 and costs associated with outsourcing
small parts fulfillment led to higher distribution and warehousing costs
of approximately $12 million.
o Increased environmental reserves for divested and closed facilities added
$5 million, while settlement of a patent infringement action resulted in
additional expense of approximately $4 million.
During 1997, Sunbeam determined that the amounts accrued at December 29,
1996 for Restructuring and Asset Impairment Charges recorded in fiscal 1996
exceeded amounts ultimately required. Accordingly, the 1997 Consolidated
Statement of Operations reflects the reversal of accruals no longer required,
resulting in a Restructuring and Asset Impairment Benefit of $14.6 million. This
reversal was reflected in the third ($5.8 million) and fourth ($8.8 million)
quarters of 1997 when it became evident that such accruals were no longer
required.
Operating results for 1998 and 1997, on an adjusted basis as described
above, were a loss of approximately $286 million in 1998 and a profit of
approximately $74 million in 1997. This change resulted from the factors
discussed above.
Interest expense increased from $11.4 million for the twelve months of 1997
to $131.1 million for the same period in 1998. Approximately 70% of the change
related to higher borrowing levels in 1998 for the acquisitions, with the
remainder due to increased borrowings to fund working capital, capital
expenditures and the operating losses.
Other income, net increased in 1998 by $4.8 million due to approximately
$8 million from the settlement of a lawsuit, and approximately $4 million of
increased net gains from foreign exchange in the period. The foreign exchange
net gains were primarily from Mexico. Increased losses on sales of fixed assets
of approximately $5 million and increased expenses related to the bank credit
facility partially offset the above mentioned income. The increased credit
facility expenses largely related to unused facility fees.
The minority interest reported in 1998 relates to the minority interest
held in Coleman by public shareholders.
During 1998, the current tax provision arose largely from taxes on the
earnings of foreign subsidiaries as well as franchise taxes. Deferred tax
benefits were recognized in 1998 principally due to net operating losses
incurred subsequent to the acquisitions. These benefits were realized through
the use of deferred tax credits that were established in connection with the
acquisitions to the extent that such credits are expected to be realized in the
loss carryforward period. During 1998, Sunbeam increased the income tax
valuation allowance
36
<PAGE>
on deferred tax assets to $290.5 million. This increase reflects management's
assessment that it is more likely than not that these deferred tax assets will
not be realized through future taxable income. The 1997 effective tax rate was
higher than the federal statutory income tax rate primarily due to state taxes,
the effects of foreign earnings and dividends taxed at other rates and the
impact of providing a valuation allowance on deferred tax assets.
In 1998, Sunbeam prepaid debt assumed in the acquisitions and prepaid an
industrial revenue bond related to its Hattiesburg facility. In connection with
these early extinguishments of debt, Sunbeam recognized an extraordinary charge
of $122.4 million, consisting primarily of redemption premiums.
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 million in accounts
receivable and retained some liabilities. The final purchase price for the
furniture business was subject to a post-closing adjustment based on the terms
of the sale agreement and in the first quarter of 1997, after completion of the
sale, Sunbeam recorded an additional loss on disposal of $14.0 million net of
applicable income tax benefits of $8.5 million.
YEAR ENDED DECEMBER 28, 1997 COMPARED TO YEAR ENDED DECEMBER 29, 1996
1996 Restructuring Plan and Other Charges and Benefits
In November 1996, Sunbeam announced the details of a restructuring plan.
The plan included:
o the consolidation of administrative functions;
o the reduction of manufacturing and warehouse facilities;
o the centralization of Sunbeam's procurement function;
o the reduction of Sunbeam's product offerings and SKUs; and
o the elimination of some businesses and product lines.
As part of the restructuring plan, Sunbeam consolidated six divisional and
regional headquarters functions into a single worldwide corporate headquarters
and outsourced some 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 Sunbeam's workforce, including 3,300
from the disposition of some business operations and the elimination of
approximately 2,800 other positions, some of which were outsourced. Sunbeam
completed the major phases of the restructuring plan by July 1997.
In conjunction with the implementation of the restructuring plan, Sunbeam
recorded a pre-tax charge of $239.2 million in the fourth quarter of 1996. This
amount is recorded as follows in the Consolidated Statements of Operations:
o $110.1 million recorded in Restructuring and Asset Impairment Charges, as
further described below;
o $60.8 million in Cost of Goods Sold related principally to inventory
write-downs as a result of a reduction in SKUs and costs of inventory
liquidation programs;
o $10.1 million in SG&A expense, for period costs principally relating to
outsourcing and package redesign; and
o $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, Sunbeam recorded
an additional pre-tax loss of $22.5 million from discontinued operations ($14.0
million net of taxes) due primarily to lower than anticipated sales proceeds
relating to the post closing adjustment that was part of the sale agreement.
37
<PAGE>
Amounts included in Restructuring and Asset Impairment Charges in 1996 in
the accompanying Consolidated Statements of Operations included anticipated cash
charges such as severance and other employee costs of $24.7 million, lease
obligations of $12.6 million and other exit costs associated with facility
closures and related to the implementation of the restructuring plan of $4.1
million, principally representing costs related to clean-up and restoration of
facilities for either sale or return to the landlord.
Included in Restructuring and Asset Impairment Charges in 1996 was
$68.7 million of non-cash charges principally consisting of:
o asset write-downs to net realizable value of $22.5 million for disposals
of excess facilities and equipment and product lines;
o write-offs of redundant computer systems of $12.3 million from the
administrative back-office consolidations and outsourcing initiatives;
o write-off of intangibles of $10.1 million relating to discontinued
product lines;
o write-off of capitalized product and package design costs and other
expenses of $9.0 million related to exited product lines and SKU
reductions; and
o losses of $14.8 million related to the divestiture of some non-core
products and businesses.
The asset write-downs of $34.8 million included equipment taken out of service
in 1996 (either abandoned in 1996 or sold in 1997) and, accordingly,
depreciation was not recorded subsequent to the date of the impairment charge.
The losses of $14.8 million related to the divestiture of non-core products and
businesses resulted from divesting the time and temperature business in March
1997 and Counselor and Borg scale product lines in May 1997 and the sale of the
textile mill in Biddeford, Maine in May 1997. These charges primarily
represented the estimated non-cash loss to exit these products, including fixed
assets and inventory write-downs and other costs related to exiting these
product lines.
The $24.7 million for severance and other employee costs, including COBRA
and other fringe benefits, related to approximately 3,700 positions that were
planned to be eliminated as a result of the restructuring plan, excluding
approximately 2,400 employees terminated from the furniture business for which
severance was included in Loss on Sale of Discontinued Operations. See Note 13
to Sunbeam's Consolidated Financial Statements. The furniture business was sold
in 1997. In 1996 and 1997, approximately 1,200 employees and 1,800 employees,
respectively, were terminated from continuing operations. Due largely to
attrition, the remaining planned terminations were not required. In 1997,
Sunbeam determined that its severance and related employee costs were less than
originally accrued principally due to lower than expected severance and COBRA
costs and, accordingly, reversed accruals of $7.9 million in the third and
fourth quarters. At December 31, 1997, the balance accrued of $1.2 million
represented the remaining severance and related employee costs for some
employees terminated during 1997. During 1998, all amounts were expended.
The amounts accrued at December 29, 1996 for Restructuring and Asset
Impairment Charges recorded in fiscal 1996, exceeded amounts ultimately required
principally due to reductions in anticipated severance costs of $7.9 million, as
discussed above, and reductions in estimated lease payments of $6.7 million
resulting from better than anticipated rentals received under sub-leases and
favorable negotiation of lease terminations. Accordingly, the fiscal 1997
Consolidated Statement of Operations included $14.6 million of benefit ($5.8
million in the third quarter and $8.8 million in the fourth quarter of 1997)
related to the reversal of accruals no longer required, which were recorded as
these reduced obligations became known.
In 1996, in conjunction with the initiation of the restructuring plan,
Sunbeam recorded additional charges totaling $129.1 million, reflected in Cost
of Goods Sold, SG&A expense, and Loss on Sale of Discontinued Operations. The
charge included in Cost of Goods Sold of $60.8 million principally represented
inventory write-downs and anticipated losses on the disposition of the inventory
as a result of the significant reduction in SKUs provided for in the
restructuring plan. The write-down included $26.9 million related to raw
materials, work-in process and finished goods for discontinued outdoor cooking
products, principally grills and grill accessories and the balance related to
raw materials, work-in process and finished goods for other discontinued
products including appliances, clippers and blankets. SG&A expense included
period costs in 1997 and
38
<PAGE>
1996 of $15.8 million and $10.1 million, respectively, relating to employee
relocation and recruiting, outsourcing, equipment movement and package redesign
costs expended as a result of the implementation of the restructuring plan. The
1996 Loss on Sale of Discontinued Operations related to the divestiture of
Sunbeam's furniture business. In 1996, Sunbeam decided to divest its furniture
operations and recorded an estimated pre-tax loss of $58.2 million related to
the sale of assets, primarily fixed assets and inventory. In 1997, Sunbeam
recorded an additional pre-tax loss of $22.5 million due primarily to lower than
anticipated sales proceeds resulting from the post closing adjustment as
provided for in the sale agreement. See Notes 12 and 13 to Sunbeam's
Consolidated Financial Statements.
At December 28, 1997, Sunbeam had $5.2 million in liabilities accrued
related to the 1996 restructuring plan, including $1.2 million of severance
related costs and $4.0 million related to facility closures, which principally
represented future lease payments, net of sub-leases, on exited facilities.
During 1998, this liability was reduced by $4.0 million as a result of cash
expenditures. At December 28, 1997, Sunbeam had $3.0 million of warranty
liabilities related to the discontinued furniture operations. During 1998, $2.5
million of this liability was liquidated.
The charges and benefit described above are included in the following
categories in the 1997 and 1996 Consolidated Statements of Operations (in
millions):
<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 expense.................................................... 15.8 10.1
Loss on sale of discontinued operations........................................................ 22.5 58.2
------ ------
$ 23.7 $239.2
------ ------
------ ------
</TABLE>
These charges and benefit consisted of the following (in millions):
<TABLE>
<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 period costs incurred:
Employee relocation; equipment relocation and installation and other......................... 11.8 3.2
Transitional fees related to outsourcing arrangements........................................ -- 4.9
Package redesign............................................................................. 4.0 2.0
------ ------
15.8 10.1
------ ------
Charges included in continuing operations.................................................... 1.2 181.0
Loss on sale of discontinued operations...................................................... 22.5 58.2
------ ------
$ 23.7 $239.2
------ ------
------ ------
</TABLE>
At December 29, 1996, the net realizable value of the remaining inventory
written-down as part of the restructuring and asset impairment charges was
approximately $37.3 million. During 1997, this inventory, a portion of which was
product of discontinued operations, was sold for amounts substantially
equivalent to its net carrying value.
39
<PAGE>
As further discussed in Note 15 to the 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.
In the fourth quarter of 1996, Sunbeam performed a comprehensive review of all
environmental exposures in an attempt by the then new senior management team to
accelerate the resolution and settlement of environmental claims. As a result,
upon the conclusion of the review, Sunbeam recorded additional environmental
reserves of $9.0 million in the fourth quarter of 1996. The litigation charge of
$12.0 million was recorded due to an unfavorable court ruling in January 1997,
which held that Sunbeam was liable for environmental remediation costs related
to the operations of a successor company. As a result of this ruling, Sunbeam
provided for this liability in the fourth quarter of 1996. In 1997, this case
was settled and, as a result, $8.1 million of the charge was reversed into
income, primarily in the fourth quarter of 1997.
As described in Note 8 to the Consolidated Financial Statements, Sunbeam
also charged $7.7 million to SG&A expenses in 1996 for compensation costs
associated with restricted stock awards and other costs related to the
employment of the then new senior management team.
During the first, second, third and fourth quarters of 1997, approximately
$0.5 million, $4.5 million, $1.5 million and $21.5 million, respectively, of
pre-tax liabilities provided in prior years and determined to be no longer
required were reversed and taken into income. These amounts were primarily
related to:
o the litigation reserve of $8.1 million discussed above;
o inventory valuation allowances of $7.0 million;
o cooperative advertising allowances of $5.4 million;
o liabilities for exiting of facilities and plant consolidations provided
for prior to 1996 of $3.5 million; and
o consulting fee accruals of $1.3 million.
These liabilities were provided for by Sunbeam, principally in 1996, based upon
its best available estimate at the time of the probable liabilities. When
information became available that the amounts provided were in excess of what
was required, Sunbeam reduced the applicable reserves and recorded increases in
Net Sales of $5.4 million, reductions in Cost of Goods Sold of $10.5 million and
reductions in SG&A expenses of $12.1 million.
Additionally, effective in the second quarter of fiscal 1997, Sunbeam
changed its method of accounting to capitalize manufacturing supplies
inventories, whereas, previously these inventories were charged to operations
when purchased. This change reduced Cost of Goods Sold in fiscal 1997 by $2.8
million.
Results of Operations for 1997 Compared to 1996
Net sales for 1997 were $1,073.1 million, an increase of $88.9 million or
9% over 1996. After excluding the following, Adjusted Sales increased 8% over
the prior year to $1,032.2 million from $953.4 million in 1996:
o $4.2 million and $30.8 million in 1997 and 1996, respectively, related to
divested product lines which were not classified as discontinued
operations (time and temperature products, decorative bedding and
Counselor and Borg branded scales);
o $31.3 million of sales in 1997 of discontinued inventory which resulted
primarily from the reduction of SKUs as part of the 1996 restructuring
plan and for which the inventory carrying value was substantially
equivalent to the sales value; and
o a $5.4 million benefit from the reduction of cooperative advertising
accruals no longer required in 1997.
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
40
<PAGE>
increased inventory positions at some customers. Adjusted Sales growth was
approximately 19% for appliances and approximately 12% in outdoor cooking.
Adjusted Sales for health products increased approximately 5% while Adjusted
Sales of personal care products and blankets decreased approximately 13% during
1997.
Sales increases in appliances of approximately $69 million were driven by
new products, such as redesigned blenders and mixers, coffeemakers, irons, deep
fryers and toasters, and by increased distribution with large national mass
retailers, combined with higher inventory levels at some customers. Sales of
outdoor cooking products increased approximately $30 million in 1997 attributed
to increased merchandising and advertising programs, new distribution and higher
inventory levels at some 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 products and blankets suffered during the fourth
quarter of 1997 as a result of lower than expected retail sell through of
electric blankets in key northern markets in late 1997 coupled with the
inability to service demand for king and queen sized blankets due to shortages
of blanket shells. Sunbeam shifted to a more level production for blankets in
1998 in order to more adequately service the seasonal demand for bedding
products. Sales of health products as well as personal care and bedding products
were impacted by increased inventory positions at customers in 1997.
International sales, which represented 21% of total revenues in 1997, grew
25% during the year. This sales growth was driven primarily by 54 new 220 volt
product introductions and a general improvement in demand in export operations
and in Mexico. Net sales growth of approximately 35% was achieved in the Latin
American export sales organization. Most of this growth came from increased
business with three exporters. In Mexico and Venezuela, sales grew 30% and 24%,
respectively. Canada accounted for the majority of the remaining international
sales growth.
Excluding the effects of:
o charges of $60.8 million to Cost of Goods Sold related to the
restructuring plan in 1996;
o the $15.9 million benefit of reducing reserves no longer required in
1997; and
o the $2.8 million 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 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:
o the restructuring and asset impairment period costs to SG&A expense of
$15.8 million in 1997 and $10.1 million in 1996;
o the 1996 charges for the environmental accrual of $9.0 million,
litigation accrual of $12.0 million and restricted stock grant
compensation of $7.7 million; and
o the 1997 benefit from the reversal of reserves no longer required of
$12.1 million;
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
41
<PAGE>
1996 for market research, new packaging and other discretionary charges and
higher bad debt expenses associated with some of Sunbeam's customers also
contributed to the decrease in SG&A expense from 1996 to 1997. The expense for
doubtful accounts and cash discounts was $17.3 million in 1997 as compared to
$27.1 million in 1996. The principal factor in the decrease in bad debt expenses
during this period was the acceleration of the consolidation of the U.S. retail
industry and the related competitive environment, which resulted in a number of
troubled retailers and related bankruptcies during 1996. This resulted in the
significant amount of bad debt write-offs--$19.9 million--in 1996.
Operating results for 1997 and 1996, on a comparable basis as described
above, were earnings of $74.5 million in 1997 and a loss of $34.8 million in
1996. On the same basis, operating margin increased 11 percentage points to 7%
of Adjusted Sales in 1997 versus a loss of 4% in 1996. This improvement resulted
from the factors discussed above.
Interest expense decreased from $13.6 million in 1996 to $11.4 million in
1997 primarily as a result of lower average borrowing levels in 1997.
The 1997 effective income tax rate for continuing operations was higher
than the federal statutory income tax rate primarily due to state taxes plus the
effect of foreign earnings and dividends taxed at other rates and the increase
to the valuation reserve for deferred tax assets, offset in part by the reversal
of tax liabilities no longer required. In the fourth quarter of 1997, Sunbeam
increased the valuation allowance by $23.2 million reflecting management's
assessment that it was more likely than not that the deferred tax asset will not
be realized through future taxable income. Of this amount, $18.9 million related
to deferred tax assets, the majority of which was recognized as a benefit in the
first three quarters of 1997. The remainder related to minimum pension
liabilities and was therefore recorded as an adjustment to shareholders' equity.
This assessment was made as a result of the significant leverage incurred by
Sunbeam to finance the acquisitions and the significant decline in net sales and
earnings from anticipated levels during the fourth quarter of 1997 and the first
quarter of 1998. For 1996, the effective income tax rate for continuing
operations equaled the federal statutory income tax rate.
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 some
liabilities related to the furniture business. The final purchase price for the
furniture business was subject to a post-closing adjustment under the terms of
the sale agreement, and in the first quarter of 1997, after completion of the
sale, Sunbeam recorded an additional pre-tax loss on disposal of $22.5 million.
Although the discontinued furniture business was profitable, net income had
declined from $21.7 million in 1994 to $0.8 million in 1996. This decline, along
with Sunbeam's announcement that it intended to divest this line of business
contributed to the loss on the sale. See discussion of restructuring and asset
impairment (benefit) charges in Note 12 and discontinued operations in Note 13
to the Consolidated Financial Statements for further information regarding sale
of the furniture business.
42
<PAGE>
SUMMARY OF (LOSS) EARNINGS FROM CONTINUING OPERATIONS
A reconciliation of operating (loss) earnings to adjusted (loss) earnings
from continuing operations for 1998, 1997 and 1996, on a comparable basis
follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Operating (loss) earnings, as reported............................................ $(670.0) $ 104.1 $(244.5)
Add (deduct):
Loss from acquisitions.......................................................... 124.8 -- --
Issuance of warrants to M&F..................................................... 70.0 -- --
Restructuring, asset impairment and related charges............................. -- 1.2 181.0
Fixed asset and inventory charges............................................... 128.4 -- --
Environmental reserve increase principally related to divested operations....... -- -- 9.0
Litigation reserve increase relating to divested operation...................... -- -- 12.0
Restricted stock and other management compensation/severance.................... 34.4 -- 7.7
Reversals of accruals no longer required........................................ (5.9) (28.0) --
Capitalization of manufacturing supplies inventories............................ -- (2.8) --
Restatement related expenses.................................................... 20.4 -- --
Year 2000 and systems initiatives expenses...................................... 6.1 -- --
Change in fiscal year-end effect and office relocation expense.................. 5.5 -- --
------- ------- -------
Adjusted operating (loss) earnings from continuing operations before income
taxes, minority interest and extraordinary charge............................. (286.3) 74.50 (34.80)
Interest expense................................................................ 131.1 11.4 13.6
Other (income) expense, net..................................................... (4.8) -- 3.7
------- ------- -------
Adjusted (loss) earnings from continuing operations before income taxes and
minority interest............................................................. (412.6) 63.1 (52.1)
Adjusted income tax (benefit) expense........................................... (10.1) 56.3 (18.2)
Minority interest............................................................... (10.7) -- --
------- ------- -------
Adjusted (loss) earnings from continuing operations............................. $(391.8) $ 6.8 $ (33.9)
------- ------- -------
------- ------- -------
</TABLE>
After consideration of the adjustments above, 1998 and 1996 results from
continuing operations reflect losses and 1997 continuing operations are
marginally profitable. Due to a variety of factors, including increased
inventory positions at some customers and manufacturing and sourcing activities
during 1997 and the first half of 1998 which increased Sunbeam's inventory
position, the results for each of 1998 and 1997 are not indicative of future
results. Results for 1999 are expected to be impacted by the continuing effects
of Sunbeam's excess inventory position, as well as costs related to Year 2000
compliance efforts.
FOREIGN OPERATIONS
Approximately 80% of Sunbeam's business is conducted in U.S. dollars,
including domestic sales, U.S. dollar denominated export sales, primarily to
Latin American markets, Asian sales and the majority of European sales.
Sunbeam's non-U.S. dollar denominated sales are made principally by subsidiaries
in Europe, Canada, Japan, Latin America and Mexico. Mexico reverted to a
hyperinflationary status for accounting purposes in 1997; therefore, translation
adjustments related to Mexican net monetary assets are included as a component
of net (loss) earnings. Mexico is no longer considered hyperinflationary as of
January 1, 1999. This change in Mexico's hyperinflationary status is not
expected to have a material effect on Sunbeam's financial results. Translation
adjustments resulting from Sunbeam's non-U.S. denominated subsidiaries have not
had a material impact on Sunbeam's financial condition, results of operations or
cash flows.
While revenues generated in Asia have traditionally not been significant,
economic instability in this region is expected to have a negative effect on
earnings. Economic instability and the political environment in Latin America
have also affected sales in that region. It is anticipated that sales in and
exports to these regions will continue to decline so long as the economic
environments in those regions remain unsettled.
On a limited basis, Sunbeam selectively uses derivatives--foreign exchange
option and forward contracts--to manage foreign exchange exposures that arise in
the normal course of business. No derivative
43
<PAGE>
contracts are entered into for trading or speculative purposes. The use of
derivatives has not had a material impact on Sunbeam's financial results. See
Note 4 to the Consolidated Financial Statements.
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 rates between the United States dollar/Japanese yen, Canadian dollar,
German deutschmark, Mexican peso and Venezuelan bolivar exchange rates. Sunbeam
principally uses forward and option contracts to reduce risks arising from firm
commitments, intercompany sales transactions and intercompany receivable and
payable balances. Sunbeam generally uses interest rate swaps to fix some 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.
Quantitative Information
Below are tables of information related to Sunbeam's investments in market
risk sensitive instruments. All of the instruments 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>
EXPECTED MATURITY DATE
---------------------------------------------------------------------
DECEMBER 31, FAIR
1998 1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE(1)
------------ ---- ------ ---- ---- ---- ---------- ------ --------
(US$ EQUIVALENT IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DOMESTIC LIABILITIES
Debentures(2)................ $ 779 $ -- $ -- $ -- $ -- $ -- $2,014 $2,014 $ 240
Other........................ 80 71 1 1 1 1 5 80 79
------ ---- ------ ---- ---- ---- ------ ------ ------
Total fixed rate debt (US$).. 859 71 1 1 1 1 2,019 2,094 319
Average interest rate........ 5.64%
Variable rate debt (US$)..... $1,357 $ 3 $1,354(3) $ -- $ -- $ -- $ -- $1,357 $1,357
Average interest rate........ 8.47%
INTEREST RATE DERIVATIVES
Interest rate swaps:
Variable to fixed (US$)... $ 325 $ -- $ -- $150 $ -- $175 $ -- $ 325 $ (7)
Average pay rate.......... 5.70%
Average receive rate...... 5.21%
</TABLE>
44
<PAGE>
- ------------------
(1) The fair value of fixed rate debt is estimated using either reported
transaction values or discounted cash flow analysis. The carrying value of
variable rate debt is assumed to approximate market value based on the
periodic adjustments of the interest rates to the current market rates in
accordance with the terms of the agreements. The fair value of the interest
rate swaps is based on estimates of the cost of terminating the swaps.
(2) The total amount of Debentures maturing in future periods exceeds the
balance as of December 31, 1998 due to the accretion of the Debentures. See
Note 3 to Sunbeam's Consolidated Financial Statements.
(3) Represents bank credit facility debt. See "--Liquidity and Capital
Resources" and Note 3 to the 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
(contractual) maturity dates. These notional amounts generally are used to
calculate the contractual payments to be exchanged under the contract. None of
the instruments listed in the table have maturity dates beyond 1999.
<TABLE>
<CAPTION>
DECEMBER 31,
1998 FAIR VALUE
------------ ----------
(US$ EQUIVALENT IN
MILLIONS)
<S> <C> <C>
ON BALANCE SHEET FINANCIAL INSTRUMENTS
US$ Functional Currency
Short-term debt:
Variable rate credit lines (Europe, Japan and Asia)............................... $ 45.8 $ 45.8
Weighted average interest rate.................................................... 2.8%
US$ FUNCTIONAL CURRENCY
Forward Exchange Agreements
(Receive US$/pay DM)
Contract amount................................................................... $ 12.0 $ 12.2
Average contractual exchange rate................................................. 1.62
(Receive US$/pay JPY)
Contract amount................................................................... $ 14.9 $ 14.2
Average contractual exchange rate................................................. 116.11
(Receive US$/pay GBP)
Contract amount................................................................... $ 4.0 $ 4.1
Average contractual exchange rate................................................. 1.68
Purchased Put Option Agreements
(Receive US$/pay DM)
Contract amount................................................................... $ 18.4 $ 0.1
Average strike price.............................................................. 1.80
(Receive US$/pay JPY)
Contract amount................................................................... $ 12.4 $ 0.2
Average strike price.............................................................. 125.0
(Receive US$/pay GBP)
Contract amount................................................................... $ 1.5 --
Average strike price.............................................................. 1.62
</TABLE>
45
<PAGE>
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "Euro"). The transition period for the
introduction of the Euro is between January 1, 1999 and January 1, 2002. Sunbeam
has been preparing for the introduction of the Euro and continues to evaluate
and address the many issues involved, including the conversion of information
technology systems, recalculating currency risk, strategies concerning
continuity of contracts, and impacts on the processes for preparing taxation and
accounting records. Based on the work to date, Sunbeam believes the Euro
conversion will not have a material impact on its results of operations.
SEASONALITY
Sunbeam's sales, prior to the acquisitions, did not exhibit substantial
seasonality; however, sales have been strongest during the fourth quarter of the
calendar year. Additionally, sales of outdoor cooking products are strongest in
the first half of the year, while sales of appliances, personal care and blanket
products are strongest in the second half of the year. After considering the
seasonality of the acquired businesses, Sunbeam's consolidated sales are not
expected to exhibit substantial seasonality; however, sales are expected to be
strongest during the second quarter of the calendar year. Furthermore, sales of
a number of products, including warming blankets, vaporizers, humidifiers,
grills, First Alert products, camping and generator products may be impacted by
unseasonable weather conditions.
LIQUIDITY AND CAPITAL RESOURCES
In order to finance the acquisition of Coleman, First Alert and Signature
Brands and to refinance substantially all of the indebtedness of Sunbeam and the
three acquired entities, Sunbeam consummated an offering of Debentures at a
yield to maturity of 5%--approximately $2,014 million principal amount at
maturity--in March 1998, which resulted in approximately $730 million of net
proceeds and entered into its new bank credit facility.
The Debentures are exchangeable for shares of Sunbeam'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 adjustments upon occurrence of specified
events. The Debentures are subordinated in right of payment to all existing and
future senior indebtedness of Sunbeam. The Debentures are not redeemable by
Sunbeam prior to March 25, 2003. On or after such date, the Debentures are
redeemable for cash with at least 30 days notice, at the option of Sunbeam.
Sunbeam is required to purchase Debentures at the option of the holder as of
March 25, 2003, March 25, 2008 and March 25, 2013, at purchase prices equal to
the issue price plus accrued original discount to such dates. Sunbeam may, at
its option, elect to pay any such purchase price in cash or common stock or any
combination thereof. However, the bank credit facility prohibits Sunbeam from
redeeming or repurchasing Debentures for cash. Sunbeam was required to file a
registration statement with the SEC to register the Debentures by June 23, 1998.
This registration statement was filed on February 4, 1999 and the SEC has not
declared the registration statement effective. Sunbeam's failure to file the
registration statement by June 23, 1998 did not constitute default under the
terms of the Debentures. As part of the normal review process by the SEC, a
number of comments have been made by the staff of the division of Corporation
Finance relating to the registration statement and the restated 1996 and 1997
financial statements included therein. Sunbeam expects to resolve these comments
with the SEC. From June 23, 1998 until the registration statement is declared
effective, Sunbeam 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. Sunbeam made its first payment of approximately $500,000 to the
Debenture holders on September 25, 1998 and an additional $2 million was paid on
March 25, 1999.
Concurrent with the acquisitions, Sunbeam replaced its $250 million
syndicated unsecured five-year revolving credit facility with the bank credit
facility. The bank credit facility provided for aggregate borrowings of up to
$1.7 billion. As a result of operating losses incurred in fiscal 1998, among
other things, Sunbeam was not in compliance with some covenants set forth in the
bank credit facility. Sunbeam and its
46
<PAGE>
lenders entered into agreements as of June 30, 1998, October 19, 1998 and
April 10, 1999, in each case providing for waivers of compliance with such
covenants under the bank credit facility. Effective April 15, 1999, Sunbeam and
its lenders entered into an agreement which waived compliance with such
covenants through April 10, 2000 and provided for new financial covenants. The
following description of the bank credit facility reflects the terms of the bank
credit facility as amended through April 15, 1999.
The bank credit facility provided for aggregate borrowings of up to
$1.7 billion through:
o a revolving credit facility in an aggregate principal amount of up to
$400.0 million maturing March 30, 2005, $52.5 million of which may only
be used to complete the Coleman Merger if the Coleman Merger is not
completed prior to August 31, 1999;
o $800.0 million in term loans maturing on March 30, 2005, of which
$35.0 million may only be used to complete the Coleman Merger; and
o a $500.0 million term loan maturing September 30, 2006.
As of December 31, 1998, approximately $1,360 million was outstanding and
approximately $260 million was available for borrowing under the bank credit
facility.
Under the bank credit facility, interest accrues, at Sunbeam's option:
o at the London Interbank Offered Rate ("LIBOR"); or
o at the base rate of the administrative agent which is generally the
higher of the prime commercial lending rate of the administrative agent
or the Federal Funds Rate plus 0.50%;
in each case plus an agreed upon interest margin which is currently 3.75% for
LIBOR borrowings and 2.50% for base rate borrowings. The applicable interest
margin is subject to downward adjustment upon the occurrence of specified
events.
Borrowings under the bank credit facility are secured by a pledge of the
stock of Sunbeam's material subsidiaries, including Coleman, and by a security
interest in substantially all of the assets of Sunbeam and its material domestic
subsidiaries, other than Coleman and its material subsidiaries except as
described below. Currently, Coleman's inventory and related assets are pledged
to secure its obligations for letters of credit issued for its account under the
bank credit facility. Additionally, as security for Coleman's note payable to
Sunbeam, Coleman pledged substantially all of its domestic assets, other than
real property, including 66% of the stock of its direct foreign subsidiaries and
domestic holding companies for its foreign subsidiaries, and all of the stock of
its other direct domestic subsidiaries, but not the assets of Coleman's
subsidiaries. The pledge runs in favor of Sunbeam's lending banks, to which the
Coleman note has been pledged as security for Sunbeam's obligations to them.
Upon completion of the Coleman Merger, substantially all of Coleman's assets and
the assets of Coleman's domestic subsidiaries will be pledged to secure the
obligations under the bank credit facility.
In addition, borrowings under the bank credit facility are guaranteed by a
number of Sunbeam's wholly owned material domestic subsidiaries and these
subsidiary guarantees are secured as described above. Upon completion of the
Coleman Merger, Coleman and each of its United States subsidiaries will become
guarantors of the obligations under the bank credit facility. To the extent
borrowings are made by any subsidiaries of Sunbeam, the obligations of such
subsidiaries are guaranteed by Sunbeam.
The bank 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:
o declare dividends or repurchase stock;
o prepay, redeem or repurchase debt, incur liens and engage in
sale-leaseback transactions;
o make loans and investments;
o incur additional debt;
o amend or otherwise alter material agreements or enter into restrictive
agreements;
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<PAGE>
o make capital and Year 2000 compliance expenditures;
o engage in mergers, acquisitions and asset sales;
o engage in transactions with specified affiliates;
o settle specified litigation;
o alter its cash management system; and
o alter the businesses they conduct.
Sunbeam is also required to comply with specified financial covenants and
ratios.
The bank credit facility provides for events of default customary for
transactions of this type, including nonpayment, misrepresentation, breach of
covenant, cross-defaults, bankruptcy, material adverse change arising from
compliance with ERISA, material adverse judgments, entering into guarantees and
change of ownership and control. It is also an event of default under the bank
credit facility if Sunbeam's registration statement in connection with the
Coleman Merger is not declared effective by the SEC on or before October 30,
1999 or if the merger does not occur within 25 business days of the
effectiveness of the registration statement or if the cash
consideration--including any payments on account of the exercise of any
appraisal rights, but excluding related legal, accounting and other customary
fees and expenses--to consummate the Coleman Merger exceeds $87.5 million.
Although there can be no assurance, Sunbeam anticipates that it will satisfy
these conditions. Unless waived by the bank lenders, the failure to satisfy
these requirements, as with the occurrence of any other event of default, would
permit the bank lenders to accelerate the maturity of all outstanding borrowings
under the bank credit facility.
The bank credit facility also includes provisions for the deferral of the
1999 scheduled term loan payments of $69.3 million, subject to delivery of
collateral documents and the filing of an amendment to Sunbeam's registration
statement relating to the Coleman Merger. If these conditions are met, and there
are no events of default, the scheduled loan payments will be extended until
April 10, 2000. Sunbeam anticipates that it will satisfy these conditions and,
accordingly, has classified these amounts as long-term in the Consolidated
Balance Sheet.
As of December 31, 1998, Sunbeam had cash and cash equivalents of
$61.4 million, working capital excluding cash and cash equivalents of
$427.1 million and total debt of $2.3 billion. Cash used in operating activities
during 1998 was $190.4 million compared to $6.0 million used in operating
activities in 1997. This change is primarily attributable to lower earnings
after giving effect to non-cash charges partially offset by improvements in
working capital. During 1998, $184.2 million in cash was generated by reducing
receivables, including through the revolving trade accounts receivable
securitization program described below, and reducing inventories, which was
partially offset by a $68.2 million reduction in accounts payable levels. In the
fourth quarter of 1998, cash provided by operating activities totaled
$34.3 million, principally due to cash generated by reducing receivables and
inventories of $181.9 million. The decrease in cash provided by operations from
1996 to 1997 is primarily attributable to increased inventory levels in 1997 and
spending in 1997 related to the restructuring initiatives accrued for in 1996,
largely offset by an increase in cash generated by earnings in 1997 and an
income tax refund (net of payments) in 1997. Cash used in operating activities
reflects proceeds of $200.0 million in 1998 and $58.9 million in 1997 from
Sunbeam's revolving trade accounts receivable securitization program, described
below.
Cash used in investing activities in 1998 reflects $522.4 million for the
acquisitions. In 1997, cash provided by investing activities reflected $91.0
million in proceeds from the sales of divested operations and other assets.
Capital spending totaled $53.7 million in 1998 and was primarily for
manufacturing efficiency initiatives, equipment and tooling for new products,
and management information systems hardware and software licenses. The new
product capital spending principally related to the air and water filtration
products which were discontinued in the second quarter of 1998, electric
blankets, grills, clippers and appliances. Capital spending in 1997 was $60.5
million and was primarily attributable to manufacturing capacity expansion, cost
reduction initiatives and equipment to manufacture new products. The new product
capital spending in 1997 principally related to appliances and included costs
related to blenders, toasters, stand mixers, slow cookers and a soft serve ice
cream product. Capital spending in 1996 was $75.3 million,
48
<PAGE>
including $14.5 million related to the discontinued furniture business, and was
primarily attributable to equipment for new product development and cost
reduction initiatives. Sunbeam anticipates 1999 capital spending to be
approximately 3% of net sales, primarily related to new product introductions,
capacity additions, some facility rationalization initiatives and systems
hardware and software. As discussed above, Sunbeam's capital and Year 2000
compliance expenditures are limited under the terms of the bank credit facility.
Cash provided by financing activities totaled $766.2 million in 1998 and
reflects:
o the net proceeds from the sale of Debentures of $729.6 million;
o the cancellation and repayment of all outstanding balances under
Sunbeam's $250 million September 1996 revolving credit facility;
o the repayment of debt in connection with the acquisitions;
o the early extinguishment of the $75.0 million Hattiesburg industrial
revenue bond; and
o net borrowings under the bank credit facility.
In addition, cash provided by financing activities during 1998 includes
$19.6 million of proceeds from the exercise of stock options:
During 1997, cash provided by financing activities of $16.4 million
reflected
o net borrowings of $5.0 million under Sunbeam's September 1996 revolving
credit facility;
o $12.2 million of debt repayments related to the divested furniture
business and other assets sold; and
o $26.6 million in cash proceeds from the exercise of stock options.
In 1996, cash provided by financing activities of $45.3 million was
primarily from increased revolving credit facility borrowings of $30.0 million
to support working capital and capital spending requirements, $11.5 million in
new issuances of long-term debt and $4.6 million in proceeds from the sale of
treasury shares to some executives of Sunbeam.
In December 1997, Sunbeam entered into a revolving trade accounts
receivable securitization program, which as amended expires in March 2000, to
sell without recourse, through a wholly-owned subsidiary, up to a maximum of $70
million in trade accounts receivable. Sunbeam, as agent for the purchaser of the
receivables, retains collection and administrative responsibilities for the
purchased receivables. For the year ended December 31, 1998, Sunbeam sold
approximately $200 million of accounts receivable under this program. At
December 31, 1998, Sunbeam had reduced accounts receivable by $20.0 million for
receivables sold under this program. Sunbeam expects to continue to utilize the
securitization program to finance a portion of its accounts receivable. See
Note 5 to the Consolidated Financial Statements.
At December 31, 1998, standby and commercial letters of credit aggregated
$82.3 million and were predominately for insurance, pension, environmental,
workers' compensation, and international trade activities. In addition, as of
December 31, 1998, surety bonds with a contract value of $26.5 million were
outstanding largely as a result of litigation judgments that are currently under
appeal.
For additional information relating to the Debentures, the bank credit
facility and the repayment of debt, see Note 3 to the Consolidated Financial
Statements.
Sunbeam expects to acquire the remaining equity interest in Coleman in a
merger transaction in which the existing Coleman minority shareholders will
receive 0.5677 share of Sunbeam'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. Sunbeam
expects to issue approximately 6.7 million shares of common stock and expend
approximately $87 million in cash, including cash paid to option holders, to
complete the Coleman transaction. See Notes 2 and 15 to the Consolidated
Financial Statements. Although there can be no assurance, it is anticipated that
the Coleman Merger will occur in the second half of fiscal 1999.
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<PAGE>
Sunbeam is a party to various environmental proceedings, substantially all
related to previously divested operations and to Coleman sites. In management's
opinion, the ultimate resolution of these environmental matters will not have a
material adverse effect upon Sunbeam's financial condition, results of
operations or cash flows. See Note 15 to the Consolidated Financial Statements.
Sunbeam believes its borrowing capacity under the bank credit facility,
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 expenditure
and Year 2000 compliance spending, and debt service through April 10, 2000.
However, if Sunbeam is unable to obtain a further waiver of the covenant and
ratio requirements prior to April 10, 2000, Sunbeam expects it would, at that
time, be in default of the requirements under the bank credit facility and, as
noted above, the lenders could then require the repayment of all amounts then
outstanding under the bank credit facility.
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
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 was served on Sunbeam requiring the production of documents. On
November 4, 1998, Sunbeam received another SEC subpoena requiring the production
of additional documents. Sunbeam has provided numerous documents to the SEC
staff and continues to cooperate fully with the SEC staff. Sunbeam cannot
predict the term of such investigation or its potential outcome.
Sunbeam is involved in significant litigation, including class and
derivative actions, relating to events which led to the restatement of its
consolidated financial statements, the issuance of the MacAndrews & Forbes
warrants, the sale of the Debentures and the employment agreements, attorneys'
fees and expenses of Messrs. Dunlap and Kersh. Sunbeam intends to vigorously
defend each of the actions, but cannot predict the 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 Sunbeam were to lose these suits, judgments would
likely have a material adverse effect on Sunbeam's financial position, results
of operations and cash flows. Additionally, Sunbeam's insurance carriers have
filed various suits requesting a declaratory judgment that the directors' and
officers' liability insurance policies for excess coverage was invalid and/or
had been properly canceled by the carriers or have advised Sunbeam of their
intent to deny coverage under such policies. Sunbeam intends to pursue recovery
from all of its insurers if damages are rewarded against Sunbeam or its
indemnified officers and/or directors under any of the foregoing actions.
Sunbeam's failure to obtain such insurance recoveries following an adverse
judgment against Sunbeam on any of the foregoing actions could have a material
adverse effect on Sunbeam's financial position, results of operations and cash
flows.
Sunbeam and its subsidiaries are also involved in various lawsuits from
time to time that Sunbeam considers to be ordinary routine litigation incidental
to its business. In the opinion of Sunbeam, the resolution of these routine
matters, and of matters relating to prior operations, individually or in the
aggregate, will not have a material adverse effect on the financial position,
results of operations or cash flows of Sunbeam.
For additional information relating to litigation, see
"Business--Litigation and Other Contingent Liabilities."
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. Sunbeam has
adopted SOP 98-1 effective January 1, 1999. Adoption of this statement is not
expected to have a material impact on Sunbeam's consolidated financial position,
results of operations, or cash flows. Actual charges incurred due to systems
projects may be material.
In April 1998, the AICPA issued Statement of Position 98-5, Reporting on
the Cost of Start-up Activities ("SOP 98-5"). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization
50
<PAGE>
activities to be expensed as incurred. Sunbeam has adopted SOP 98-5 beginning
January 1, 1999. Adoption of this statement is not expected to have a material
impact on Sunbeam's consolidated financial position, results of operations, or
cash flows.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the Consolidated Balance Sheets as either assets or liabilities
measured at fair value. Sunbeam will adopt SFAS No. 133 for the 2000 fiscal
year. Sunbeam has not yet determined the impact SFAS No. 133 will have on its
consolidated financial position, results of operations or cash flows.
YEAR 2000 READINESS DISCLOSURE
Sunbeam is preparing for the impact of the Year 2000 on its operations.
Year 2000 issues could include potential problems in the information technology
("IT") and non-IT systems that Sunbeam uses in its operations and problems in
Sunbeam's products. Year 2000 system failures could affect routine but critical
operations such as forecasting, purchasing, production, order processing,
inventory control, shipping, billing and collection. In addition, system
failures could affect Sunbeam's security, payroll operations, or employee
safety. Sunbeam may also be exposed to potential risks from third parties with
whom Sunbeam interacts who fail to adequately address their own Year 2000
issues.
Sunbeam's Approach to Year 2000 Issues
While Sunbeam's Year 2000 readiness planning has been underway for over one
year, during the third quarter of 1998 Sunbeam established a cross-functional
project team consisting of senior managers, assisted by three external
consulting firms which were retained to provide consulting services and to
assist Sunbeam in implementing its Year 2000 strategy. This team is headed by
Sunbeam's Chief Financial Officer who reports directly to Sunbeam's Chief
Executive Officer on this issue. The audit committee of the board of directors
is advised periodically on the status of Sunbeam's Year 2000 readiness program.
The Year 2000 project team has developed a phased approach to identify and
resolve Year 2000 issues with many of these activities conducted in parallel.
Sunbeam's approach and the anticipated timing of each phase are described below.
Phase 1--Inventory and Assessment. During the first phase of Sunbeam's
Year 2000 readiness program, Sunbeam established a Year 2000 program management
office to centralize the management of all of Sunbeam's Year 2000 projects.
Through this office, Sunbeam developed a corporate-wide, uniform strategy for
assessing and addressing the Year 2000 issues.
Sunbeam has completed an inventory of its hardware and software systems,
manufacturing equipment, electronic data interchange, telecommunications and
other technical assets potentially subject to Year 2000 problems, such as
security systems and controls for lighting, air conditioning, ventilation and
facility access. This inventory was then entered into Sunbeam's Year 2000
database along with a determination of the item's level of criticality to
operations. For those inventory items anticipated to have a significant effect
on the business if not corrected, Sunbeam's Year 2000 program envisions repair
or replacement and testing of such items. All information relative to each item
is being tracked in Sunbeam's Year 2000 database. Sunbeam completed most of this
phase during the third and fourth quarters of 1998. Sunbeam has completed a
review of the readiness of embedded microprocessors in its products and
determined that none of Sunbeam's products have Year 2000 date sensitive
systems.
Phase 2--Correction and Testing. The second phase of Sunbeam's Year 2000
readiness program is structured to replace, upgrade or remediate, as necessary,
those items identified during Phase 1 as requiring corrective action.
Sunbeam relies on its IT functions to perform many tasks that are critical
to its operations. Significant transactions that could be impacted by not being
ready for any Year 2000 issues include, among others:
o purchases of materials;
o production management;
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<PAGE>
o order entry and fulfillment;
o payroll processing; and
o billing and collections.
Systems and applications that have been identified by Sunbeam to date as
not currently Year 2000 ready and which are critical to Sunbeam's operations
include:
o financial software systems, which process:
o order entry;
o purchasing;
o production management;
o general ledger;
o accounts receivable; and
o accounts payable functions;
o payroll applications; and
o critical applications in Sunbeam's manufacturing and distribution
facilities, such as warehouse management applications.
In 1997, Sunbeam began implementing a uniform international business and
accounting information system to improve internal reporting processes. Based
upon representations from the manufacturer that the current version of this
uniform information system is Year 2000 ready, Sunbeam has been actively
upgrading its business sites that currently utilize this uniform system to the
Year 2000 ready version. A small number of other business locations are
replacing their current non-Year 2000 ready systems with this new uniform
system.
Sunbeam is also actively replacing and/or upgrading legacy business systems
that are not Year 2000 ready, including those that use localized business system
packages which were not candidates to be replaced by the uniform business and
accounting information system. With respect to Sunbeam's non-IT systems,
including time and attendance, security, and in-line manufacturing hardware,
Sunbeam is actively analyzing these items to assess any Year 2000 issues. To
date, no material issues have been discovered, and Sunbeam will continue to
review, test and correct, if necessary, such items.
Sunbeam plans to complete the corrective work described above with respect
to its systems by the end of the second quarter of 1999 with final testing and
implementation of such systems occurring in the second and third quarters of
1999.
Phase 3--Customers, Suppliers and Business Partners. The third phase of
Sunbeam's Year 2000 readiness program which was initiated during the third and
fourth quarters of 1998 is designed to assess and interact with Sunbeam's
customers, suppliers, and business partners. As part of this effort, Sunbeam
surveyed 1,100 vendors and suppliers determined to be critical to Sunbeam. Based
on the survey, Sunbeam believes that there is only a low to medium risk of Year
2000 issues for approximately one-third of its vendors; however, a small
number--less than 3%--of vendors have been identified as high risk, and almost
two-thirds of the vendors did not respond fully to the survey. Sunbeam will
continue its vendor evaluation and assessment process through 1999, including
direct contact with high and medium risk vendors and vendors who have not
responded fully to Sunbeam's survey. Sunbeam has not independently verified the
responses of vendors and does not anticipate undertaking such independent
verification process.
Beginning in the second quarter of 1999, Sunbeam began contacting its major
customers to confirm their preparations for Year 2000 issues. Sunbeam has
already responded to numerous customer inquiries and believes that all of
Sunbeam's major customers have established programs to deal with Year 2000
issues. In order to improve Sunbeam's communication with its customers,
suppliers and business partners, Sunbeam has
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set up a Sunbeam Year 2000 telephone number and is in the process of providing
Year 2000 information on a Company web site.
Phase 4--Contingency Planning. This phase will involve contingency
planning for unresolved Year 2000 issues, particularly any issues arising with
third party suppliers. Sunbeam's Year 2000 readiness program is ongoing and its
ultimate scope, as well as the consideration of contingency plans, will continue
to be evaluated as new information becomes available. As a precautionary
measure, Sunbeam plans to establish a contingency plan for addressing any
effects of the Year 2000 on its operations, whether due to Sunbeam's systems or
those of third parties not being ready for any Year 2000 issues. Sunbeam expects
to complete such contingency plan by September 30, 1999; such contingency plan
will address alternative processes, such as manual procedures, electronic
spreadsheets, potential alternative service providers, and plans to address Year
2000 readiness issues as they arise.
The Risks of Sunbeam's Year 2000 Approach
The independent consultants assisting Sunbeam in its Year 2000 readiness
program have reviewed and concurred with Sunbeam's approach, have assisted in
developing cost estimates and have monitored costs for the largest single
component (upgrade or installation of Sunbeam's uniform system) of Sunbeam's
Year 2000 program. As a result, although Sunbeam did not engage an independent
third party to verify the program's overall approach or total cost, Sunbeam
believes that Sunbeam's exposure in this regard is mitigated. In addition,
through the use of external third-party diagnostic tools which helped to
identify potential Year 2000 issues in one significant business operation,
Sunbeam believes that it has also mitigated its risk by validating and verifying
key program components.
Management believes that, although there are significant systems that are
being modified or replaced, Sunbeam's information systems environment will be
made Year 2000 ready prior to January 1, 2000. Sunbeam's failure to timely
complete such corrective work could have a material adverse impact on Sunbeam.
With respect to customers, suppliers and business partners, the failure of
some of these third parties to become Year 2000 ready could also have a material
adverse impact on Sunbeam. For example, the failure of some of Sunbeam's
principal suppliers to have Year 2000 ready internal systems could impact
Sunbeam's ability to manufacture and/or ship its products or to maintain
adequate inventory levels for production.
At this time, Sunbeam believes that the most likely "worst-case" scenario
relating to Year 2000 involves potential disruptions in areas in which Sunbeam's
operations must rely on third parties, such as suppliers, whose systems may not
work properly after January 1, 2000. While such system failures could either
directly or indirectly affect important operations of Sunbeam and its
subsidiaries in a significant manner, Sunbeam cannot at present estimate either
the likelihood or the potential cost of such failures. Subject to the nature of
the goods or services provided to Sunbeam by third parties whose operations are
not made ready for Year 2000 issues, the impact on Sunbeam's operations could be
material if appropriate contingency plans cannot be developed prior to
January 1, 2000.
The nature and focus of Sunbeam's efforts to address the Year 2000 problem
may be revised periodically as interim goals are achieved or new issues are
identified. In addition, it is important to note that the description of
Sunbeam's efforts and assessments necessarily involves estimates and projections
with respect to activities required in the future. These estimates and
projections are subject to change as work continues, and such changes may be
substantial.
The Costs to Address Sunbeam's Year 2000 Issues
Through December 31, 1998, Sunbeam had expended approximately $19 million
to address Year 2000 issues of which approximately half was recorded as capital
expenditures and the remainder as SG&A expense. Sunbeam's current assessment of
the total costs to address and remedy Year 2000 issues and enhance its operating
systems, including costs for the acquired companies, is approximately
$60 million. The amount to be incurred for Year 2000 issues during 1999 of
approximately $41 million represents over 50% of Sunbeam's total 1999 budget for
information systems and related support, including Year 2000 costs. A
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large majority of these costs are expected to be incremental expenditures that
will not recur in the Year 2000 or thereafter. Fees and expenses related to
third party consultants, who are involved in the program management office as
well as the modification and replacement of software, represent approximately
75% of the total estimated cost. The balance of the total estimated cost relates
primarily to software license fees and new hardware, but excludes the costs
associated with company employees. Sunbeam expects these expenditures to be
financed through operating cash flows or borrowings, as applicable. A
significant portion of these expenditures will enhance Sunbeam's operating
systems in addition to resolving the Year 2000 issues. As Sunbeam completes its
assessment of the Year 2000 issues, the actual expenditures incurred or to be
incurred may differ materially from the amounts shown above. The bank credit
facility does not permit Sunbeam to spend more than $50 million on Year 2000
testing and remediation during 1999.
Because Year 2000 readiness is critical to the business, Sunbeam has
redeployed some resources from non-critical system enhancements to address Year
2000 issues. In addition, due to the importance of IT systems to Sunbeam's
business, management has deferred non-critical systems enhancements as much as
possible. Sunbeam does not expect these redeployments and deferrals to have a
material impact on Sunbeam's financial condition, results of operations or cash
flows.
EFFECTS OF INFLATION
For each of the three years in the period ended December 31, 1998,
Sunbeam's cost of raw materials and other product remained relatively stable. To
the extent possible, Sunbeam's objective is to offset the impact of inflation
through productivity enhancements, cost reductions and price increases.
CAUTIONARY STATEMENTS
Certain statements in this prospectus may constitute "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and in releases made by the SEC. These 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 or the acquired companies, including its
management, are intended to identify forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous important assumptions and other important factors that could
cause actual results to differ materially from those in the forward-looking
statements. These cautionary statements are being made in accordance with the
Securities Litigation Reform Act, with the intention of obtaining the benefits
of the "safe harbor" provisions of the Securities 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:
o high leverage;
o Sunbeam's ability to comply with the terms of its bank credit facility,
including financial covenants and covenants related to the completion of
the Coleman Merger, or to continue to obtain waivers from its bank
lenders with respect to its compliance with the existing covenants
contained in the bank credit facility, and to continue to have access to
its revolving credit facility;
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;
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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
Sunbeam's products;
o the 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 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 levels of retail inventories and the
related impact on operations.
Other factors and assumptions not included in the list above may cause Sunbeam's
actual results to materially differ from those projected.
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CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On November 20, 1998, the audit committee recommended and Sunbeam's board
approved the appointment of Deloitte & Touche as its independent auditors for
1998, to replace Arthur Andersen, Sunbeam's former auditor. Arthur Andersen is
continuing to provide certain professional services to Sunbeam.
On June 25, 1998, Sunbeam announced that Arthur Andersen would not consent
to the inclusion of its opinion on Sunbeam's 1997 financial statements in a
registration statement Sunbeam was planning to file with the SEC. On June 30,
1998, Sunbeam announced that the audit committee of its board of directors would
conduct a review of Sunbeam's prior financial statements and that, therefore,
those financial statements should not be relied upon. Sunbeam also announced
that Deloitte & Touche had been retained to assist the audit committee and
Arthur Andersen in their review of Sunbeam's prior financial statements. On
August 6, 1998, Sunbeam announced that the audit committee had determined that
Sunbeam would be required to restate its financial statements for 1997, the
first quarter of 1998 and possibly 1996, and that the adjustments, while not
then quantified, would be material. On October 20, 1998 Sunbeam announced the
restatement of its financial results for a six-quarter period from the fourth
quarter of 1996 through the first quarter of 1998. On November 12, 1998, Sunbeam
filed a Form 10-K/A for the year ended December 28, 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 Sunbeam's financial statements for the two
fiscal years of Sunbeam ended December 28, 1997 contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. In connection with its audits for those periods
and through November 20, 1998, there were no disagreements with Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Arthur Andersen would have caused Arthur Andersen to make
reference thereto in their report on the financial statements for such years.
Sunbeam has not consulted with Deloitte & Touche on any matter that was either
the subject of a disagreement or a reportable event between Sunbeam and Arthur
Andersen.
In connection with the restatements referred to above, in a letter dated
October 16, 1998, Arthur Andersen advised Sunbeam that there existed the
following conditions that Arthur Andersen believed to be material weaknesses in
Sunbeam's internal 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 Sunbeam has adopted to
prevent material misstatements in its financial statements will be effective
until the remainder of the additional controls can be implemented.
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BUSINESS
GENERAL
Sunbeam is a leading designer, manufacturer and marketer of branded
consumer products. Sunbeam's primary business is the manufacturing, marketing
and distribution of durable household and outdoor leisure consumer products
through mass market and other distribution channels in the United States and
internationally. Sunbeam also sells its products to professional and commercial
end users such as small businesses, health care providers, hotels and other
institutions. Sunbeam'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.
Sunbeam 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, Sunbeam completed a public offering of 20,000,000
shares of its common stock. In May 1995, Sunbeam changed its name from
Sunbeam-Oster Company, Inc. to Sunbeam Corporation.
In 1998 Sunbeam acquired an indirect controlling interest in Coleman and
all the outstanding common stock of Signature Brands and First Alert.
PRODUCTS AND OPERATIONS
Sunbeam's operations are managed through four groups: Household, Outdoor
Leisure, International and Corporate. The Household and Outdoor Leisure
operating groups encompass the following products:
o In the Household group:
(1) Appliances--including mixers, blenders, food steamers, breadmakers,
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 products--including tents, sleeping bags, coolers,
camping stoves, lanterns and outdoor heaters;
(2) Outdoor cooking products--including gas and charcoal outdoor grills and
grill parts and accessories;
(3) Powermate products--including portable power generators and air
compressors; and
(4) Eastpak products--including backpacks and bags.
Sunbeam'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 Sunbeam products;
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(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 Sunbeam's
products; and
(5) East Asia--sales and distribution in all areas of East Asia other than
Japan of substantially all Sunbeam's products.
Sunbeam's Corporate group provides certain management, accounting, legal,
risk management, treasury, human resources, tax and management information
services to all operating groups and also includes the operation of Sunbeam's
retail stores and the conduct of Sunbeam's licensing activities.
See Note 14 to the Consolidated Financial Statements for financial data
concerning Sunbeam's operating segments.
Household
Sunbeam's Household group includes appliances, health products, scales,
personal care products, blankets and First Alert products. Net sales of
Household group products accounted for approximately 50%, 73% and 74% of
Sunbeam's consolidated net sales in 1998, 1997 and 1996, respectively. Except as
discussed below, there were no Household group products or group of similar
products with sales that accounted for 10% or more of consolidated net sales in
any of the last three fiscal years.
Appliances. Small kitchen appliances include Mixmaster(Registered) stand
mixers, hand mixers, Osterizer(Registered) blenders, food processors, rice
cookers, food steamers, toasters, can openers, breadmakers, waffle makers, ice
cream makers, frying pans, deep fryers and culinary accessories, which are sold
primarily under the Sunbeam(Registered) and Oster(Registered) brand names. In
addition, Sunbeam 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). Sunbeam holds the number one or two market positions in
coffee makers, mixers, and breadmakers. Appliances also encompass garment care
appliances consisting of irons and steamers. Sunbeam 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. Sunbeam 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. Sunbeam assembles and/or manufactures its vaporizers, humidifiers and
heating pads at its United States and Mexico facilities. Sunbeam's other
personal health products are sourced from manufacturers primarily located in
China.
Scales. Sunbeam also designs, manufactures and markets scales for
consumer, office and professional use. Sunbeam 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). Sunbeam 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 brand. Sunbeam's line of scales also includes
letter and parcel scales for office use, marketed under the Pelouze(Registered)
brand name. Sunbeam has a commanding share of the office scale market with its
Pelouze scales. Sunbeam's Pelouze food scales include analog and digital portion
control scales, thermometers and timers for commercial and non-commercial
applications. Sunbeam manufactures approximately one-half of its scales at a
United States plant and sources the remaining scales from both domestic and
foreign suppliers.
Personal Care. Sunbeam's personal care products include a broad line of
hair clippers and trimmers for animals and humans which are sold through retail
channels. Sunbeam holds the number one or two
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position in its clipper and trimmer product lines. Sunbeam 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 Sunbeam's United States and Mexico facilities.
Blankets. Sunbeam's blanket products include electric blankets,
Cuddle-Up(Registered) heated throws and heated mattress pads. Sunbeam holds the
number one market position in each of electric blankets, heated throws and
heated mattress pads. These products are manufactured at Sunbeam's United States
and Mexico facilities. In 1996, sales of electric blankets accounted for
approximately 12% of consolidated net sales.
First Alert. Sunbeam is a leading manufacturer and marketer of a broad
range of residential safety products, including residential use ionization and
photoelectric smoke detectors in which Sunbeam 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. Sunbeam's smoke detectors are battery-operated and carbon
monoxide detectors are available in both plug in and battery operated units and
in a combination unit. These products are marketed primarily under the First
Alert(Registered) brand name. Sunbeam also uses the brand names Family
Gard(Registered) and Sure Grip(Registered) for certain of its products. Sunbeam
markets certain of these products under the BRK(Registered) brand for the
electrical wholesale markets. Sunbeam 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.
In 1996, Sunbeam's furniture business accounted for approximately 23% of
consolidated net sales. See Note 13 to the Consolidated Financial Statements for
information relating to the divestiture of Sunbeam's furniture business.
Outdoor Leisure
Sunbeam's Outdoor Leisure group includes products for outdoor recreation
and outdoor cooking, as well as the Powermate and Eastpak product lines. Net
sales of the Outdoor Leisure group accounted for approximately 50%, 25% and 26%
of Sunbeam's consolidated net sales in 1998, 1997 and 1996, respectively. Except
as discussed below, there were no other Outdoor Leisure products or groups of
similar products with sales that accounted for 10% or more of consolidated net
sales in any of the last three fiscal years.
Outdoor Recreation. Principal outdoor recreation products include a
comprehensive line of lanterns and stoves for outdoor recreational use,
fuel-related products such as disposable fuel cartridges, a broad range of
coolers and jugs, sleeping bags, backpacks, tents, outdoor folding furniture,
portable electric lights, camping accessories and other products. These products
are used predominantly in outdoor recreation, but many products have
applications in emergency preparedness and some are also used in home
improvement projects. The products are distributed predominantly through mass
merchandisers, home centers and other retail outlets. Sunbeam believes it is the
leading manufacturer of lanterns and stoves for outdoor recreational use in the
world. Sunbeam'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 Sunbeam's facilities located in the
United States and are marketed under the Coleman(Registered) and Peak
One(Registered) brand names.
Sunbeam 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. Sunbeam's cooler
products are manufactured predominantly at Sunbeam's facilities located in the
United States and are marketed under the Coleman brand name worldwide. Sunbeam
designs, manufactures or sources, and markets textile products, including tents,
sleeping bags, backpacks and rucksacks. Sunbeam's tents and sleeping bags are
marketed under the Coleman and Peak One brand names. Sunbeam 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 Sunbeam's facilities located in the United States.
Sunbeam designs and markets electric lighting products that are manufactured by
others and sold under the Coleman, Powermate 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. Sunbeam
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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 gas, electric and charcoal models which are
sold by Sunbeam primarily under the Sunbeam and Grillmaster(Registered) brand
names. Sunbeam'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 Sunbeam's grills are
manufactured at Sunbeam's United States facility. Sunbeam sources practically
all of its accessories and a portion of its replacement parts from various
manufacturers, many of which are in East Asia. A licensee of Sunbeam produces
gas barbecue grills under the Coleman name. In 1997 and 1996, sales of gas
grills accounted for approximately 13% and 19%, respectively, of consolidated
net sales.
Powermate. Sunbeam's principal Powermate products include portable
generators and portable and stationary air compressors. Sunbeam 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 Sunbeam
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. Sunbeam also
produces advanced, light-weight generators incorporating proprietary technology.
Sunbeam's air compressors are manufactured at its facilities located in the
United States, are marketed under the Coleman Powermate brand name and are
distributed predominantly through mass merchandisers and home center chains.
Eastpak. Sunbeam designs, manufactures and distributes book bags,
backpacks and related goods throughout the United States under the Eastpak and
Timberland(Registered) brand names. Sunbeam manufactures the majority of its
products in its plants located in Puerto Rico.
International
Sunbeam markets a variety of products outside the United States. While
Sunbeam sells many of the same products domestically and internationally, it
also sells products designed specifically to appeal to foreign markets. Sunbeam,
through its foreign subsidiaries, has manufacturing facilities in France,
Indonesia, Italy, Mexico, and Venezuela, and sales administration offices,
warehouse and distribution facilities in Canada, Europe, the Mideast, Asia and
Latin America. Sunbeam also sells its products directly to international
customers in certain other markets through Sunbeam sales managers, independent
distributors and commissioned sales representatives. The products sold by the
international group are sourced from Sunbeam's manufacturing operations or from
vendors primarily located in Asia. International sales accounted for
approximately 23%, 21% and 19% of Sunbeam's consolidated net sales in 1998, 1997
and 1996, respectively. Sunbeam's international operations are managed through
the following geographic areas:
Europe. Sunbeam's European operations are managed from Brussels and the
sales are dominated by the product lines acquired by Sunbeam as part of the
Coleman acquisition, including the Campingaz product lines and Eastpak products.
Sunbeam's European office also manages the sale and distribution of Company
products throughout Africa and the Middle East.
Japan. Sunbeam's sales in Japan are almost exclusively sales of camping
equipment such as tents, stoves, lanterns, sleeping bags and accessories.
Latin America. The activities of Sunbeam outside the United States were
primarily focused in Mexico and Latin America prior to the 1998 acquisition of
Coleman. Sunbeam enjoys a strong market position in a number of product lines in
Latin America. The Oster brand has the leading market share in small appliances
in a number of Latin American countries. Sunbeam's sales in Latin America are
derived primarily from household appliances, particularly the Oster blender and
the recently introduced Oster arepa maker.
Canada. Sunbeam sells substantially all of its products in Canada through
a distribution sales office located in Toronto.
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East Asia. During 1998, Sunbeam's sales in East Asia were hampered by the
economic downturn particularly in South Korea where Sunbeam had developed a
strong market for Eastpak bags, and in Indonesia where the company sells
Campingaz products. Sunbeam has established a sales office in Australia, from
which it sells primarily clippers and appliances, and distributes First Alert
products in Australia and New Zealand. Sales offices have also been established
in Manila and Hong Kong.
Sunbeam has sales and facilities in countries where economic growth has
slowed, primarily Japan, Korea and Latin America. The economies of other foreign
countries important to Sunbeam's operations could also suffer instability in the
future. The following are among the factors that could negatively affect
Sunbeam's operations in foreign markets: (1) access to markets; (2) currency
devaluation; (3) new tariffs; (4) changes in monetary policies; (5) inflation;
and (6) governmental instability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Foreign Operations."
CORPORATE
Retail. Sunbeam sells many of its products through its retail outlet
stores which are operated under the Sunbeam, Oster and Camp Coleman(Registered)
names. In addition, Sunbeam currently has 37 retail outlet stores in the United
States and Canada which primarily carry discontinued, overstock and refurbished
products for retail sale to consumers. Net sales from retail stores were not
significant in any of the last three fiscal years.
Licensing. Sunbeam 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 Sunbeam. Sunbeam'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 Sunbeam's product lines. Revenue from licensing
activities in 1998 in the amount of $4 million was generated primarily from the
license of the Coleman name. In addition, Sunbeam licenses trade names from
third parties for use in connection with Sunbeam's products. Revenue from
licensing activities was not significant in 1997 and 1996.
COMPETITION
The markets in which Sunbeam 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. Sunbeam believes that no other company produces and
markets the breadth of household appliance, camping and outdoor recreation
products marketed by Sunbeam.
Sunbeam competes with various manufacturers and distributors with respect
to its household appliances. Primary competitors in the kitchen appliance area
have been Black & Decker (which recently sold its appliance division to
Windmere), Hamilton Beach/Procter Silex, West Bend, Melita, Salton-Maxim,
Cuisinart, Regal, Krups, Kitchen Aid, Braun and Rival. Sunbeam's primary
competitor in the consumer scale market is Metro Corporation. Sunbeam's health
care products compete with those of numerous small manufacturers and
distributors, none of which dominates the home health care market. Sunbeam has
no domestic competitors for its electric blankets and heated throws and enjoys a
market share in excess of 90% for these products. Sunbeam's primary competitors
for retail clippers and trimmers are Wahl and Conair; the primary competitors in
the professional products lines are Wahl and Andis. Sunbeam 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. Sunbeam
competes with Micro General with respect to its Pelouze scales.
Sunbeam's Outdoor Leisure products compete with numerous products sold by
other manufacturers. 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 Sunbeam's portable furniture are a variety of import companies.
Sunbeam's insulated cooler and jug products compete with products offered by
Rubbermaid Incorporated, Igloo Products Corp. and The Thermos Company. Sunbeam'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, Sunbeam competes with, among others, Wenzel,
Eureka and Mountain Safety Research, as well as certain private label
manufacturers. Sunbeam competes with W.C. Bradley, Meco,
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Fiesta, Ducane, Weber and Keanall for sales of outdoor grills and accessories.
Sunbeam's backpack products compete with, among others, American Camper,
JanSport, Nike, Outdoor Products, The North Face, and Kelty, as well as certain
private label manufacturers. Sunbeam's competition in the electric light
business includes, among others, Eveready and Rayovac Corporation. Sunbeam's
camping accessories compete primarily with Coughlan's. Sunbeam'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, Sunbeam competes with
various other entities in international markets.
CUSTOMERS
Sunbeam 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, Sunbeam 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. Sunbeam's largest customer, Wal-Mart,
accounted for approximately 18%, 20% and 19% of consolidated net sales in 1998,
1997 and 1996, respectively. Sunbeam 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 Sunbeam's business.
PATENTS AND TRADEMARKS
Sunbeam 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), 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 Sunbeam's
products. Other important trademarks within Sunbeam include Oster
Designer(Registered), Cuddle-Up(Registered) and A5(Registered). The loss of any
single trademark would not have a material adverse effect on Sunbeam's business;
however, the Sunbeam, Coleman and Mr. Coffee trademarks are integral to certain
of Sunbeam's continuing operations and Sunbeam aggressively monitors and
protects these and other brands.
Sunbeam 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 Sunbeam's business taken as a whole.
RESEARCH AND DEVELOPMENT
New products and improvements to existing products are developed based upon
the perceived needs and demands of consumers. Research and development
expenditures are expensed as incurred. The amounts charged to operations for the
fiscal years ended 1998, 1997 and 1996 were $18.7 million, $5.7 million and
$6.5 million, respectively.
EMPLOYEES
As of December 31, 1998, Sunbeam had approximately 14,196 full-time and
part-time employees of which 6,848 are employed domestically. Sunbeam is a party
to collective bargaining agreements with its hourly employees located at the
Aurora, Illinois, Glenwillow, Ohio and Bridgeview, Illinois plants. Sunbeam's
Canadian warehouse employees are represented by a union, as are all of the
production employees at Sunbeam's operations in France and Italy. Sunbeam has
had no material labor-related work stoppages and, in the opinion of management,
relations with its employees are generally good.
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SEASONALITY
Sunbeam's sales, prior to the 1998 acquisitions, have not traditionally
exhibited substantial seasonality; however, sales have been strongest during the
fourth quarter of the calendar year. Additionally, sales of outdoor cooking
products are strongest in the first half of the year, while sales of appliances,
personal care and blanket products are strongest in the second half of the year.
After considering the seasonality of the acquired businesses, Sunbeam's
consolidated sales are not expected to exhibit substantial seasonality; however,
sales are expected to be strongest during the second quarter of the calendar
year. Furthermore, sales of a number of products, including warming blankets,
vaporizers, humidifiers, grills, First Alert products, camping and generator
products, may be impacted by unseasonable weather conditions.
RAW MATERIALS/SUPPLIERS
The raw materials used in the manufacture of Sunbeam's products are
available from numerous suppliers in quantities sufficient to meet normal
requirements. Sunbeam's primary raw materials include aluminum, steel, plastic
resin, copper, electrical components, various textiles or fabrics and corrugated
cardboard for cartons. Sunbeam also purchases a substantial number of finished
products. Sunbeam is not dependent upon any single supplier for a material
amount of such sourced products.
PROPERTIES
Sunbeam's principal properties as of December 31, 1998 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
Maize, KS Manufacture of propane cylinders
and machined parts........................................ 232,760 Leased
McMinnville, TN Manufacture of clippers, trimmers and blades.............. 169,400 Leased
Neosho, MO Manufacture of outdoor barbecue grills.................... 669,700 Owned
New Braunfels, TX Manufacture of insulated coolers and other plastic
products................................................ 338,000 Owned
Pocola, OK Manufacture of outdoor folding furniture and warehouse.... 186,000 Owned
Springfield, MN Manufacture of air compressors............................ 166,000 Owned
Waynesboro, MS Manufacture of electric blankets.......................... 853,714 Leased
Wichita, KS Manufacture of lanterns and stoves and insulated coolers
and jugs; research and development and design
operations; office and warehouse........................ 1,197,000 Owned
Morovis and Orocovis, Manufacture of daypacks, sports bags, and related
Puerto Rico products; office and warehouse.......................... 110,000 Leased
</TABLE>
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<TABLE>
<CAPTION>
BUILDING OWNED/
LOCATION PRINCIPAL USE SQUARE FOOTAGE LEASED
- ----------------------------- ---------------------------------------------------------- ---------- ------
INTERNATIONAL
<S> <C> <C> <C>
Acuna, Mexico Manufacture of appliances................................. 110,000 Owned
Barquisimeto, Venezuela Manufacture of appliances................................. 75,686 Owned
Brussels, Belgium European headquarters..................................... 14,721 Leased
Centenaro di Lonato, Italy Manufacture of butane lanterns, stoves, heaters and
grills; office and warehouse............................ 77,000 Owned
Juarez, Mexico Manufacture of smoke and carbon monoxide detectors........ 109,000 Leased
Matamoros, Mexico Manufacture of controls................................... 91,542 Owned
Mississauga, Canada Sales and distribution office............................. 19,891 Leased
St. Genis Laval, France Manufacture of lanterns and stoves, filling of gas
cylinders, and assembly of grills; office and
warehouse............................................... 2,070,000 Owned(2)
Tlalnepantla, Mexico Manufacture of appliances................................. 297,927 Owned
</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 for terms that
expire in 2004; the remaining facility is owned.
Sunbeam also maintains leased sales and administrative offices in the
United States, Europe, Asia and Latin America, among other sites. Sunbeam leases
various warehouse facilities and/or accesses public warehouse facilities as
needed on a short term lease basis. Sunbeam also maintains gas filling plants in
Indonesia, the Philippines and the United Kingdom. Sunbeam also leases a total
of 173,570 square feet for the operation of its retail outlet stores. Company
management considers Sunbeam's facilities to be suitable for Sunbeam's
operations, and believes that Sunbeam's facilities provide sufficient capacity
for its production requirements.
LITIGATION AND OTHER CONTINGENT LIABILITIES
On April 23, 1998, two class action lawsuits were filed on behalf of
purchasers of Sunbeam common stock in the U.S. District Court for the Southern
District of Florida against Sunbeam and some of its present and former directors
and former officers alleging violations of the federal securities laws as
discussed below. After that date, approximately fifteen similar class actions
were filed in the same Court. One of the lawsuits also named as defendant Arthur
Andersen, Sunbeam's independent accountants for the period covered by the
lawsuit.
On June 16, 1998, the court entered an order consolidating all these suits
and all similar class actions subsequently filed (collectively, the
"Consolidated Federal 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. This
order also stated that it shall apply to all subsequently filed actions which
are consolidated with the other actions. On August 28, 1998, plaintiffs in one
of the subsequently filed actions filed an objection to having their action
consolidated pursuant to the June 16, 1998 order, arguing that the class period
in their action differs from the class periods in the originally filed
consolidated actions. On December 9, 1998, the court entered an order overruling
plaintiffs' objections and affirming its prior order appointing lead plaintiffs
and lead counsel.
On January 6, 1999, plaintiffs filed a consolidated amended class action
complaint against Sunbeam, some of its present and former directors and former
officers, and Arthur Andersen. The consolidated amended class action complaint
alleges that, in violation of section 10(b) of the Exchange Act and SEC
Rule 10b-5, defendants made material misrepresentations and omissions regarding
Sunbeam's business operations, future prospects and anticipated earnings per
share, in an effort to artificially inflate the price of the common stock
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and call options, and that, in violation of section 20(a) of the Exchange Act,
the individual defendants exercised influence and control over Sunbeam, causing
Sunbeam to make material misrepresentations and omissions. The consolidated
amended complaint seeks an unspecified award of money damages. On February 5,
1999, plaintiffs moved for an order certifying a class consisting of all persons
and entities who purchased Sunbeam common stock or who purchased call options or
sold put options with respect to Sunbeam common stock during the period April
23, 1997 through June 30, 1998, excluding the defendants, their affiliates, and
employees of Sunbeam. Defendants' response to the motion for class certification
was filed on May 6, 1999. On March 8, 1999, all defendants who had been served
with the consolidated amended class action complaint moved to dismiss it. Under
the Private Securities Litigation Reform Act of 1995, all discovery in the
consolidated action is stayed pending resolution of the motions to dismiss.
On April 7, 1998, a purported derivative action was filed in the Circuit
Court for the Fifteenth Judicial Circuit in and for Palm Beach County, Florida
against Sunbeam and some of its present and former directors and former
officers. The action alleged that the individual defendants breached their
fiduciary duties and wasted corporate assets when Sunbeam granted stock options
at an exercise price of $36.85 to three of its officers and directors who were
subsequently terminated by Sunbeam on or about February 2, 1998. On June 25,
1998, all defendants filed a motion to dismiss the complaint for failure to make
a pre-suit demand on Sunbeam's board of directors. On October 22, 1998, the
plaintiff amended the complaint against all but one of the defendants named in
the original complaint. On February 19, 1999, plaintiffs filed a second amended
derivative complaint nominally on behalf of Sunbeam against some of its present
and former directors and former officers and Arthur Andersen. The second amended
complaint alleges, among other things, that Messrs. Dunlap and Kersh caused
Sunbeam to employ fraudulent accounting procedures in order to enable them to
secure new employment contracts, and seeks an award of damages and other
declaratory and equitable relief. The plaintiff has agreed that defendants need
not respond to the second amended complaint until May 14,1999. As described
below, Sunbeam and the plaintiffs have moved the court for an injunction against
Messrs. Dunlap and Kersh with respect to the arbitration action brought by them.
On June 25, 1998, four purported class actions were filed in the Court of
Chancery of the State of Delaware in New Castle County by minority stockholders
of Coleman against Coleman, Sunbeam and certain of Sunbeam's and Coleman's
present and former officers and directors. An additional class action was filed
on August 10, 1998, against the same parties. The complaints in these class
actions allege, in essence, that the existing exchange ratio for the proposed
Coleman Merger is no longer fair to Coleman public stockholders as a result of
the decline in the market value of the common stock. On October 21, 1998,
Sunbeam 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 Sunbeam will issue to Coleman
public stockholders and plaintiffs' counsel in this action, warrants to purchase
about 4.98 million shares of Sunbeam common stock at $7 per share, subject to
anti-dilution adjustments. These warrants will generally have the same terms as
the warrant issued to the MacAndrews & Forbes affiliate and will be issued when
the Coleman Merger is consummated, which is now expected to occur during the
second half of 1999. Issuance of these warrants will be accounted for as
additional purchase consideration. There can be no assurance that the court will
approve the settlement as proposed.
During the months of August and October 1998, purported class action and
derivative lawsuits were filed in the Court of Chancery of the State of Delaware
in New Castle County and in the U. S. District Court for the Southern District
of Florida by stockholders of Sunbeam against Sunbeam, MacAndrews & Forbes and
some of Sunbeam's present and former directors. These complaints allege that the
defendants breached their fiduciary duties when Sunbeam entered into a
settlement agreement with the MacAndrews & Forbes affiliate that sold Sunbeam a
controlling interest in Coleman. In the settlement agreement the MacAndrews &
Forbes affiliate released Sunbeam from threatened claims arising out of
Sunbeam's acquisition of its interest in Coleman, and MacAndrews & Forbes agreed
to provide management support to Sunbeam. Under the settlement agreement the
MacAndrews & Forbes affiliate was granted a five-year warrant to purchase up to
an additional 23 million shares of Sunbeam's common stock at an exercise price
of $7 per share, subject to anti-dilution provisions. The plaintiffs have
requested an injunction against the issuance of stock to MacAndrews & Forbes
upon the exercise of its warrant and unspecified money damages. These complaints
also allege that the rights of the public stockholders have been compromised, as
the settlement would
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normally require stockholder approval under the rules and regulations of the
NYSE. The audit committee of Sunbeam's board of directors determined that
obtaining such stockholder approval would have seriously jeopardized the
financial viability of Sunbeam 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,
and Sunbeam has moved to dismiss these actions. The action filed in the U.S.
District Court for the Southern District of Florida has been dismissed.
On September 16, 1998, an action was filed in the 56th Judicial District
Court of Galveston County, Texas alleging various claims in violation of the
Texas Securities Act and Texas Business and Commercial Code as well as common
law fraud as a result of Sunbeam's alleged misstatements and omissions regarding
Sunbeam'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. Sunbeam is the only named defendant in this action. The
complaint requests recovery of compensatory damages, punitive damages and
expenses in an unspecified amount. This action was removed to the U.S. District
Court for the Southern District of Texas and subsequently has been transferred
to the Southern District of Florida, the forum for the Consolidated Federal
Actions.
On October 30, 1998, a class action lawsuit was filed on behalf of certain
purchasers of the Debentures in the U.S. District Court of the Southern District
of Florida against Sunbeam and some of Sunbeam's former officers and directors,
alleging violations of the federal securities laws and common law fraud. The
complaint alleges that Sunbeam's offering memorandum used for the marketing of
the Debentures contained false and misleading information regarding Sunbeam's
financial position and that the defendants engaged in a plan to inflate
Sunbeam's earnings for the purpose of defrauding the plaintiffs and others. This
action has been transferred to the Southern District of Florida, where the
Consolidated Federal Actions are pending, and the parties have negotiated a
proposed coordination plan in order to coordinate proceedings in this action
with those in the Consolidated Federal Actions.
Sunbeam has been named as a defendant in an action filed in the District
Court of Tarrant County, Texas, 48th Judicial District, on November 20, 1998.
Sunbeam was served in this action through the Secretary of State of Texas on
January 15, 1999. The plaintiffs in this action are purchasers of the
Debentures. The plaintiffs allege that Sunbeam violated the Texas Securities Act
and the Texas Business & Commercial Code and committed state common law fraud by
materially misstating the financial position of Sunbeam 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. Sunbeam has
specially appeared to assert an objection to the Texas court's exercise of
personal jurisdiction over Sunbeam, and a hearing on this objection took place
on April 15, 1999. The court issued a letter ruling advising the parties that it
would grant Sunbeam's special appearance and sustain the challenge to personal
jurisdiction. The plaintiffs have moved for reconsideration of this decision.
Plaintiffs have also moved for partial summary judgment on their Texas
Securities Act claims, but in light of the court's decision on the special
appearance, the hearing on the summary judgment motion has been canceled.
On April 12, 1999, a class action lawsuit was filed in the U.S. District
Court for the Southern District of Florida. The lawsuit was filed on behalf of
persons who purchased Debentures during the period of March 20, 1998 through
June 30, 1998, inclusive, but after the initial offering of such Debentures. The
complaint asserts that Sunbeam made material omissions and misrepresentations
that had the effect of inflating the market price of the Debentures. The
complaint names as defendants Sunbeam, its former auditor, Arthur Andersen, and
two former Sunbeam officers, Messrs. Dunlap and Kersh. The plaintiff is an
institution which allegedly acquired in excess of $150,000,000 face amount of
the Debentures and now seeks unspecified money damages. Sunbeam was served on
April 16, 1999 in connection with this pending lawsuit. Sunbeam will request
that this action be coordinated with the Consolidated Federal Actions.
On February 9, 1999, Messrs. Dunlap and Kersh filed with the American
Arbitration Association demands for arbitration of claims under their respective
employment agreements with Sunbeam. Messrs. Dunlap and Kersh are requesting a
finding by the arbitrator that Sunbeam terminated their employment without cause
and that they should be awarded the corresponding benefits provided by their
respective employment agreements. On March 12, 1999, Sunbeam asked the Circuit
Court for the Fifteenth Judicial
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Circuit in and for Palm Beach County, Florida to issue an injunction prohibiting
Messrs. Dunlap and Kersh from pursuing their arbitration proceedings against
Sunbeam on the ground that the simultaneous litigation of the action filed in
that court on April 7, 1998, described above, and the arbitration proceedings
would subject Sunbeam to the threat of inconsistent adjudications with respect
to certain rights to compensation asserted by Messrs. Dunlap and Kersh. On March
19, 1999, the plaintiff in the April 7, 1998 action discussed above moved for a
similar injunction on the ground that the arbitration proceedings threatened
irreparable harm to Sunbeam and its stockholders. On March 26, 1999, Messrs.
Dunlap and Kersh filed a response in opposition to the motions for injunctive
relief. The court held a hearing on the motions for injunctive relief on
April 21, 1999, and as a result of Sunbeam's motion, the arbitrations were
suspended until May 10, 1999.
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in the Court
of Chancery of the State of Delaware seeking an order directing Sunbeam to
advance attorneys' fees and other expenses incurred in connection with various
state and federal class and derivative actions and an investigation instituted
by the SEC. The complaint alleges that such advancements are required by
Sunbeam's by-laws and by a forebearance agreement entered into between Sunbeam
and Messrs. Dunlap and Kersh in August, 1998. Sunbeam filed its answer to the
complaint and the Court of Chancery has scheduled a trial of this summary
proceeding to be held on June 15, 1999.
Sunbeam 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 Sunbeam's success in each case or the range of potential loss.
However, if Sunbeam were to lose these lawsuits, judgments would likely have a
material adverse effect on Sunbeam's financial position, results of operations
and cash flow.
On July 2, 1998, the American Insurance Company filed suit against Sunbeam
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 Insurance Company was
invalid and/or had been properly canceled by American Insurance Company.
Sunbeam's motion to transfer such action to the federal district court in which
the Consolidated Federal Actions are currently pending was recently denied. The
case is now in discovery. On October 20, 1998, an action was filed by Federal
Insurance Company in the U.S. District Court for the Middle District of Florida
requesting the same relief as that requested by American in the previously filed
action as to additional coverage levels under Sunbeam's directors' and officers'
liability insurance policy. This action has been transferred to the United
States District Court for the Southern District of Florida and is currently in
discovery. On December 22, 1998, an action was filed by Executive Risk
Indemnity, Inc. in the Circuit Court of the Seventeenth Judicial Circuit in and
for Broward County, Florida requesting the same relief as that requested by
American and Federal in their previously filed actions as to additional coverage
levels under Sunbeam's directors' and officers' liability insurance policy. On
April 15, 1999 Sunbeam filed an action in the United States District Court for
the Southern District of Florida against National Union Fire Insurance Company
of Pittsburgh, PA, Gulf Insurance Company and St. Paul Mercury Insurance Company
requesting, among other things, a declaratory judgment that National Union is
not entitled to rescind its liability insurance policy to Sunbeam and a
declaratory judgment that Sunbeam is entitled to coverage from these insurance
companies for the various lawsuits described herein under liability insurance
policies issued by each of the defendants. Sunbeam intends to pursue recovery
from all of its insurers if damages are awarded against Sunbeam or its
indemnified officers and/or directors under any of the foregoing actions.
Sunbeam's failure to obtain such insurance recoveries following an adverse
judgment in any of the actions described above could have a material adverse
effect on Sunbeam's financial position, results of operations and cash flows.
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 was served on Sunbeam requiring the production of certain documents.
On November 4, 1998, another SEC subpoena requiring the production of additional
documents was received by Sunbeam. Sunbeam has provided numerous documents to
the SEC staff and continues to cooperate fully with the SEC staff.
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The SEC has not commenced any civil or administrative proceedings as a
result of its investigation, and Sunbeam cannot predict at this time whether the
SEC will seek to impose any monetary or other penalties against Sunbeam. Under
these circumstances, Sunbeam cannot estimate the term of the investigation or
its outcome.
Sunbeam and its subsidiaries are also involved in various lawsuits arising
from time to time which Sunbeam considers to be ordinary routine litigation
incidental to its business. In the opinion of Sunbeam, 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 Sunbeam.
As of December 31, 1998 and December 28, 1997, Sunbeam had established
accruals for litigation matters, including legal fees, of $31.2 million and
$9.9 million, respectively. Sunbeam believes, based on existing information,
that anticipated probable costs of litigation matters existing as of
December 31, 1998 have been adequately reserved to the extent determinable.
ENVIRONMENTAL MATTERS
Sunbeam'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. Sunbeam believes it is in substantial compliance with all
environmental laws and regulations which are applicable to its operations.
Compliance with environmental laws and regulations involves certain continuing
costs; however, such costs of ongoing compliance have not resulted, and are not
anticipated to result, in a material increase in Sunbeam's capital expenditures
or to have a material adverse effect on Sunbeam's results of operations,
financial condition or competitive position.
In addition to ongoing environmental compliance at its operations, Sunbeam
also is actively engaged in environmental remediation activities many of which
related to divested operations. As of December 31, 1998, Sunbeam has been
identified by the United States Environmental Protection Agency ("EPA") or a
state environmental agency as a potentially responsible party ("PRP") in
connection with seven sites subject to the federal Superfund Act and five sites
subject to state Superfund laws comparable to the federal law (collectively the
"Environmental Sites"), exclusive of sites at which Sunbeam has been designated
(or expects to be designated) as a de minimis (less than 1%) participant.
The Superfund Act, and related state environmental remediation laws,
generally authorize governmental authorities to remediate a Superfund site and
to assess the costs against the PRPs or to order the PRPs to remediate the site
at their expense. Liability under the Superfund Act is joint and several and is
imposed on a strict basis, without regard to degree of negligence or
culpability. As a result, Sunbeam 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
Sunbeam 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 Sunbeam's
potential liability with respect to the Environmental Sites, Sunbeam has
actively participated in steering committees and other groups of PRPs
established with respect to such sites. Sunbeam 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.
Sunbeam has established reserves to cover the anticipated probable costs of
remediation, based upon periodic reviews of all sites for which Sunbeam has, or
may have, remediation responsibility. The amount of such reserves was
$25 million at December 31, 1998 and $24 million at December 28, 1997. Sunbeam
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 Sunbeam's environmental reserves.
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Sunbeam 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.
Sunbeam believes, based on existing information for sites where costs are
estimable, that the costs of completing environmental remediation of all sites
for which Sunbeam has a remediation responsibility have been adequately reserved
and that the ultimate resolution of these matters will not have a material
adverse effect upon Sunbeam's financial condition, results of operations or cash
flows.
Due to uncertainty over remedial measures to be adopted at some sites, the
possibility of changes in environmental laws and regulations and the fact that
joint and several liability with the right of contribution is possible at
federal and state Superfund sites, Sunbeam's ultimate future liability with
respect to sites at which remediation has not been completed may vary from the
amounts reserved as of December 31, 1998.
REGULATORY MATTERS
Sunbeam 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.
Sunbeam does not anticipate that its business or operations will be materially
adversely affected by compliance with any of these provisions.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following tables set forth information regarding the directors and
executive officers of Sunbeam, as well as of Philip E. Beekman, a nominee to the
board who is not currently a director. 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 current directors of Sunbeam will expire at the 1999 annual meeting of
Sunbeam stockholders, which is scheduled for June 29, 1999, 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>
Jerry W. Levin................................. 55 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
Paul E. Shapiro................................ 58 Executive Vice President and Chief
Administrative Officer
Bobby G. Jenkins............................... 37 Executive Vice President and Chief Financial
Officer
Karen K. Clark................................. 38 Senior Vice President, Finance
Janet G. Kelley................................ 46 Senior Vice President, General Counsel and
Secretary
Jack D. Hall................................... 53 President, International
Charles M. Elson............................... 39 Director
Howard Gittis.................................. 65 Director
John H. Klein.................................. 53 Director
Howard G. Kristol.............................. 61 Director
Peter A. Langerman............................. 45 Director
Faith Whittlesey............................... 60 Director
Philip E. Beekman.............................. 67 Nominee
</TABLE>
Jerry W. Levin was appointed Chief Executive Officer, President and a
director of Sunbeam in June of 1998 and was elected as Chairman of the Sunbeam
board of directors on March 29, 1999. 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 March 1998. Mr. Levin was also the Chairman of Coleman
from 1989 to 1991. Mr. Levin was Chairman of Revlon, Inc. from November 1995
until June 1998, Chief Executive Officer of Revlon, Inc. from 1992 until January
1997, and President of Revlon, Inc. from 1991 to 1995. 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 arrangements entered into by Sunbeam and
MacAndrews & Forbes relating to the appointment of Mr. Levin as an officer of
Sunbeam, see "--Other Transactions--Services Provided by MacAndrews & Forbes."
Paul E. Shapiro joined Sunbeam as Executive Vice President and Chief
Administrative Officer in June 1998. Mr. Shapiro was also 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 March 1998. Before
joining Coleman, he was Executive Vice President, General Counsel and Chief
Administrative Officer of Marvel Entertainment Group, Inc. 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
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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 arrangements entered into by Sunbeam and
MacAndrews & Forbes relating to the appointment of Mr. Shapiro as an officer of
Sunbeam, see "--Other Transactions--Services Provided by MacAndrews & Forbes."
Bobby G. Jenkins joined Sunbeam as Executive Vice President and Chief
Financial Officer in June 1998. Mr. Jenkins also serves as Executive Vice
President of Coleman. He was appointed to that position in August 1998.
Mr. Jenkins was 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
arrangements entered into by Sunbeam and MacAndrews & Forbes relating to the
appointment of Mr. Jenkins as an officer of Sunbeam, see "--Other
Transactions--Services Provided by MacAndrews & Forbes."
Karen K. Clark joined Sunbeam in April of 1998 as Vice President,
Operations Finance and served as Vice President, Finance from June 1998 until
her appointment as Senior Vice President, Finance since April 1999. Ms. Clark
also serves as Vice President, Finance of Coleman, a position she has 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 and Senior Vice President, General Counsel and Secretary in
April 1999. From 1994 to 1998, Ms. Kelley served as Group Counsel and Associate
General Counsel. Ms. Kelley also serves as Vice President, General Counsel and
Secretary of Coleman, a position she was appointed to in August 1998. Prior to
joining Sunbeam, she was a partner in the law firm of Wyatt, Tarrant & Combs in
Louisville, Kentucky.
Jack D. Hall joined Sunbeam in October 1998 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 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 since May 1995 has served as Of Counsel to the law firm of Holland &
Knight. 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.
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 several of its affiliates since 1985. Mr. Gittis also
is a member of the boards of directors of 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.
John H. Klein was appointed a director of Sunbeam in February 1999.
Mr. Klein is Chairman and Chief Executive Officer of BiLogix, Inc. and Strategic
Business and Technology Solutions LLC and Chairman of CyBear, positions he has
held since mid 1998. From April 1996 to May 1998, he was Chairman and Chief
Executive Officer of MIM Corporation, a provider of pharmacy benefit services to
medical groups. From January 1995 to April 1996, Mr. Klein served as President
of IVAX North America Multi-Source
71
<PAGE>
Pharmaceutical Group and from May 1989 to January 1995 he served as President
and Chief Executive Officer of Zenith Laboratories, a generic pharmaceutical
manufacturer.
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.
Peter A. Langerman has been a director of Sunbeam since 1990 and served as
the Chairman of the Sunbeam board of directors from June 13, 1998 until
March 29, 1999. 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.
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.
Philip E. Beekman is a nominee for election as a director of Sunbeam at the
1999 annual meeting of stockholders. Mr. Beekman is President of Owl Hollow
Enterprises Inc., a position he has held since July 1994. From December 1986 to
July 1994, he was Chairman and Chief Executive Officer of Hook SUPERX, a retail
drug store chain. Mr. Beekman also is a member of the boards of directors of
General Chemical Group, Inc., Linens 'N Things, Inc. and The Kendle Company.
DIRECTORS' COMPENSATION
The Amended and Restated Sunbeam Corporation Stock Option Plan (the "Option
Plan") provides that each director of Sunbeam who is not an employee of Sunbeam
or an affiliate of Sunbeam ("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 of directors (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 Outside Director's acceptance of his or
her election or appointment.
In addition to the grant of restricted stock, effective as of June 29,
1999, Outside Directors will be paid a $10,000 annual retainer and $1,000 for
each meeting of the board of directors or its committees that they attend,
whether in person or by telephone.
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, Sunbeam 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 Sunbeam in which certain of such
directors have been named as defendants. See "Business--Litigation and Other
Contingent Liabilities."
72
<PAGE>
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 (Messrs.
Langerman and Elson and Mrs. Whittlesey) each were paid $35,000 for their
services on the 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 Sunbeam in all capacities of those persons who, during 1998:
(1) served as chief executive officer of Sunbeam;
(2) were among the four most highly compensated executive officers of
Sunbeam, other than the CEO, as of Sunbeam's fiscal year end; and
(3) were among the four most highly compensated executive officers
during 1998, but who were not executive officers of Sunbeam as of year end.
The individuals referred to in clauses (1), (2) and (3) are collectively
referred to as the "Named Executives." Each of Messrs. Levin, Shapiro and
Jenkins and Ms. Clark joined Sunbeam during 1998. The employment of each of
Messrs. Dunlap and Kersh was terminated by Sunbeam in June 1998; Mr. Fannin's
employment terminated by mutual agreement in August 1998.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION AWARDS COMPENSATION
------------------------------------------------ ------------
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,
Chairman and 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) 239,102(7) 55,540(8) 0
Janet G. Kelley,
Senior Vice President & General Counsel........... 1998 218,000 112,500 -- 0
1997 144,500 30,000 -- 0
1996 140,000 19,463 -- 0
Karen K. Clark,
Senior Vice President, Finance.................... 1998 190,157(6) 180,124(7) 133,457(10) 0
FORMER OFFICERS
Albert J. Dunlap,
Former Chairman & Chief Executive Officer......... 1998 12,772,756(12) 0 13,917,409(13) 0
1997 1,115,385(12) 0 282,888(13) 0
1996 507,054(12) 0 63,850(13) 12,500,000
Russell A. Kersh,
Former Vice Chairman & Chief Administrative
Officer........................................... 1998 428,154(15) 0 2,123,267(17) 5,527,500
1997 425,000 0 -- 0
1996 190,384 125,000(16) 240,598(17) 1,812,500
David C. Fannin,
Former Executive Vice President & Chief Legal
Officer........................................... 1998 449,891(18) 0 315,067(19) 1,105,500
1997 313,233 0 -- 0
1996 272,112 0 -- 191,250
<CAPTION>
LONG TERM
COMPENSATION
------------
SECURITIES
UNDERLYING
OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION AWARD(3) COMPENSATION(4)
- ---------------------------------------------------- ------------ ---------------
<S> <C> <C>
CURRENT OFFICERS
Jerry W. Levin,
Chairman and Chief Executive Officer.............. 2,750,000 $ 980
Paul E. Shapiro,
Executive Vice President & Chief Administrative
Officer........................................... 600,000 588
Bobby G. Jenkins,
Executive Vice President & Chief Financial
Officer........................................... 450,000 18,633(9)
Janet G. Kelley,
Senior Vice President & General Counsel........... 146,250 363
5,000 0
42,500 0
Karen K. Clark,
Senior Vice President, Finance.................... 175,000(11) 0
FORMER OFFICERS
Albert J. Dunlap,
Former Chairman & Chief Executive Officer......... 3,750,000 840(14)
0 4,750(14)
2,500,000 4,750(14)
Russell A. Kersh,
Former Vice Chairman & Chief Administrative
Officer........................................... 1,125,000 653(14)
0 4,750(14)
500,000 2,098(14)
David C. Fannin,
Former Executive Vice President & Chief Legal
Officer........................................... 750,000(20) 1,261,546(22)
0 4,750(14)
175,000(21) 4,750(14)
</TABLE>
73
<PAGE>
- ------------------
(1) Does not include 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 restricted 1998 common stockholdings
were valued based on the market price of $36 7/8 as of February 1, 1998,
the date of such grants to Messrs. Kersh and Fannin. Mr. Dunlap's 1998
employment agreement provided for the grant of 300,000 shares of
non-restricted common stock and also provided that, of 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 of the 100,000 shares of restricted common stock
granted to him in 1996, 26,667 shares were canceled and the remaining
73,333 shares were fully vested. In addition, Mr. Kersh's 1998 employment
agreement provided for the grant of 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 Sunbeam through such dates or
upon the occurrence of certain events. Sunbeam is currently involved in
disputes with Messrs. Dunlap and Kersh over some of the stock grants made
to them. 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
Sunbeam and Messrs. Dunlap and Kersh over equity grants and other matters.
Under Mr. Fannin's agreement with Sunbeam 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 Sunbeam's discontinuance of dividend
payments in the second quarter of 1998. At December 31, 1998, none of the
other Named Executives held restricted common stock.
(3) The option grants to Messrs. Levin, Shapiro and Jenkins were provided for
in their respective employment agreements and are subject to stockholder
approval at Sunbeam's 1999 annual meeting of stockholders.
(4) For 1998, represents premiums paid by Sunbeam for term life insurance
coverage for Messrs. Levin, Shapiro, Dunlap and Kersh and Ms. Kelley.
(5) Includes $82,616 for reimbursement of country club fees, the value of a
Sunbeam-provided automobile, relocation expenses of $37,560 and taxes paid
by Sunbeam on the value of such relocation expenses.
(6) Includes each of Mr. Jenkins's and Ms. Clark's salary from Coleman from the
date of the acquisition of the MacAndrews & Forbes affiliate's interest in
Coleman by Sunbeam to their respective terminations of employment with
Coleman and their respective salaries from Sunbeam, from the date of
employment by Sunbeam. In the case of Mr. Jenkins, includes $12,327 paid
for accrued vacation in 1998 upon Mr. Jenkin's termination from employment
with Coleman.
(7) Includes the entire amount of bonuses paid to Mr. Jenkins and Ms. Clark in
1999 for services rendered to Coleman and Sunbeam during 1998.
(8) Includes a car allowance, reimbursement of relocation expenses of $37,692
and taxes paid by Sunbeam on such relocation payments.
(9) Severance payments made to Mr. Jenkins in connection with the termination
of his employment with Coleman.
(10) Includes reimbursement of relocation expenses of $64,506, taxes paid by
Sunbeam on such relocation payments, a car allowance and bonuses of $40,467
paid upon acceptance of employment with Sunbeam and relocation.
(11) Includes 75,000 options granted to Ms. Clark during 1998 which were
subsequently canceled in exchange for 50,000 options granted under
Sunbeam's stock option repricing program.
(Footnotes continued on next page)
74
<PAGE>
(Footnotes continued from previous page)
(12) 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 $51,923, $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" for information concerning
disputes between Sunbeam and Mr. Dunlap over equity grants and other
matters.
(13) For 1998, includes $13,698,561 for taxes paid by Sunbeam on the value of
the vesting of restricted common stock granted to Mr. Dunlap and other
Sunbeam 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 Sunbeam-provided automobile. The
1997 and 1996 amounts include $14,355 and $17,250, respectively, for the
value of a Sunbeam-provided automobile, $115,665 and $27,345, respectively,
for taxes paid by Sunbeam on the value of such automobile and other
Sunbeam-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.
(14) Sunbeam adopted an Executive Benefit Replacement Plan (the "Replacement
Plan") in 1994 to restore the amount of benefits payable to certain highly
compensated employees of Sunbeam who would otherwise be subject to certain
limitations on the amount of benefits payable under Sunbeam's
401(k) Savings and Profit Sharing Plan. The Replacement Plan was terminated
as of December 31, 1998. Amounts of "All Other Compensation" include
amounts accrued for Messrs. Dunlap, Kersh and Fannin, respectively, in 1997
and 1996 under the Replacement Plan, including Sunbeam'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 Sunbeam. 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 the respective employment agreements. Sunbeam has taken the
position that such amounts are not payable by Sunbeam. 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 Sunbeam and Messrs. Dunlap and
Kersh.
(15) Includes $61,298 paid in lieu of vacation. See "--Employment Agreements
with Messrs. Kersh and Fannin--Dispute with Mr. Kersh" for information
concerning disputes between Sunbeam and Mr. Kersh.
(16) One-time bonus paid when Mr. Kersh's employment began.
(17) For 1998, represents taxes paid by Sunbeam on the value of the vesting of
restricted common stock granted to Mr. Kersh. For 1996, represents a
discount on the purchase price of shares of common stock from Sunbeam in
the amount of $239,800 and premiums paid by Sunbeam for health and dental
insurance coverage.
(18) Includes $77,808 paid in lieu of vacation for the years 1996, 1997 and 1998
in accordance with Mr. Fannin's termination agreement.
(19) Represents taxes paid by Sunbeam on the value of the vesting of restricted
common stock granted to Mr. Fannin.
(20) All of these options have been canceled pursuant to Mr. Fannin's
termination agreement.
(21) 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.
(22) Includes the following amounts payable under 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
(Footnotes continued on next page)
75
<PAGE>
(Footnotes continued from previous page)
the balance of which is payable in monthly installments of $13,889;
(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; (d) $7,785 for
health and dental care premiums paid or payable, of which $1,795 was paid
in 1998; and (e) $127,801, which represents the total amount of
Mr. Fannin's account in the Replacement Plan. See "--Subsequent
Arrangements with Messrs. Dunlap, Kersh and Fannin."
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the options to
purchase shares of common stock granted to the Named Executives during 1998. The
option grants made to Messrs. Levin, Shapiro and Jenkins are subject to approval
of Sunbeam's stockholders at the 1999 annual meeting. The option grants made to
Messrs. Dunlap, Kersh and Fannin were approved by the stockholders of Sunbeam at
the 1998 annual meeting of the stockholders held on May 12, 1998. All other
option grants were provided for by the Option Plan. See "--Employment Agreement
with Mr. Dunlap--Dispute with Mr. Dunlap" and "--Employment Agreements with
Messrs. Kersh and Fannin--Dispute with Mr. Kersh" for information concerning
disputes between Sunbeam and Messrs. Dunlap and Kersh over equity grants and
other matters.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE MARKET PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) FISCAL YEAR ($/SHARE) ($/SHARE) DATE VALUE(7)
- ------------------------------ ---------- ------------ ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT OFFICERS
Jerry W. Levin................ 1,750,000(2) 10.6% $ 7.00 $ 6.88 8/11/2008 $ 6,457,500
500,000(2) 3.0% 10.50 6.88 8/11/2008 1,470,000
500,000(2) 3.0% 14.00 6.88 8/11/2008 1,205,000
Paul E. Shapiro............... 600,000(2) 3.6% 7.00 6.88 8/11/2008 2,214,000
Bobby G. Jenkins.............. 450,000(2) 2.7% 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
FORMER OFFICERS
Albert J. Dunlap.............. 3,750,000(5) 22.7% 36.85 36.85 2/01/2008 78,600,000
Russell J. Kersh.............. 1,125,000(6) 6.8% 36.85 36.85 2/01/2008 23,580,000
David C. Fannin............... 750,000(6) 4.5% 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
employees' respective employment agreements. See "--Employment Agreement
with Mr. Levin--Equity Grants" and "--Employment Agreements with Executives
Shapiro, Jenkins, Kelley and Clark--Equity Grants."
(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 one of the grants of 50,000
options set forth in the table above.
(5) Mr. Dunlap's employment 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.
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<PAGE>
(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 was
canceled upon the termination of his employment by mutual agreement.
(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 of dividends. 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.
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 Named Executives at
Sunbeam's fiscal year end. The option grants to Messrs. Levin, Shapiro and
Jenkins are subject to approval of the stockholders at the 1999 annual meeting.
Sunbeam and Messrs. Dunlap and Kersh are disputing the amounts and benefits paid
and payable to each of them under their respective employment agreements, and
Sunbeam is contesting the validity of options granted to them. The following
table includes the entire amount of the options granted by Sunbeam which Messrs.
Dunlap and Kersh assert are vested. See "--Employment Agreement with
Mr. Dunlap--Dispute with Mr. Dunlap" and "--Employment Agreement with Messrs.
Kersh and Fannin--Dispute with Mr. Kersh" for information concerning disputes
between Sunbeam and Messrs. Dunlap and Kersh over equity grants and other
matters.
<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>
CURRENT OFFICERS
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
FORMER OFFICERS
Albert J. Dunlap................... 0 0 6,250,000 0 0 0
Russell A. Kersh................... 0 0 1,625,000 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, Sunbeam entered into an employment agreement with
Mr. Levin ("the Levin Agreement") in which Sunbeam has agreed to employ
Mr. Levin as Chief Executive Officer, and Mr. Levin has agreed to serve in such
capacity, for an initial period ending June 14, 2001.
77
<PAGE>
Compensation
Under the Levin Agreement, Mr. Levin will be paid a base salary at an
annual rate of not less than $1,000,000. Effective April 1, 1999, Mr. Levin's
base compensation was increased to $1,150,000. Additionally, Mr. Levin was paid
a guaranteed bonus for 1998 of $541,667 and, thereafter, is eligible to receive
a performance-based target annual bonus of 100% of his base salary and, if
specified performance objectives are met, up to a bonus of 200% of his base
salary under Sunbeam's incentive plan subject to a maximum award of $2,000,000.
Mr. Levin participates in the other benefit plans available generally to
employees or other senior executives of Sunbeam. Sunbeam 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 each
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 by Sunbeam as of such date.
In addition, effective March 29, 1999, Mr. Levin received grants of options
under the Option Plan to purchase 250,000 shares of common stock at $5.57 per
share. These options will vest equally on the first, second and third
anniversaries of the grant date. Upon the occurrence of a "Change in Control" of
Sunbeam as defined in the Option Plan, all of the options granted to Mr. Levin
will vest in full.
Termination and Change in Control Provisions
Sunbeam 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 Sunbeam, (3) willful
misconduct in connection with the performance of any material portion of his
duties, (4) willful breach of any material provision of the Levin Agreement, or
(5) any conduct on Mr. Levin's part which would make his continued employment
materially prejudicial to the best interests of Sunbeam. In addition, he may
terminate his employment following a Company Breach upon 60 days' written notice
to Sunbeam. As defined in the Levin Agreement, "Company Breach" means (1) any
material breach of the Levin Agreement by Sunbeam, including the failure to
obtain shareholder approval of the grant of the Levin Options, or (2) a "Change
in Control" of Sunbeam, as defined in the Levin Agreement.
The Levin Agreement provides that, if Sunbeam terminates Mr. Levin's
employment for Cause or if he voluntarily terminates his employment, all
obligations, other than accrued obligations, of Sunbeam will cease and all
unvested Levin Options will be immediately forfeited. If a Company Breach
occurs, and Mr. Levin terminates the Levin Agreement, Sunbeam 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 remain exercisable for three years.
The Levin Agreement provides that, if Mr. Levin's employment is terminated
due to his death or his continued disability for six months, his legal
representatives or designated beneficiary, or Mr. Levin, 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 or termination due to
disability. The Levin Options will become vested and remain exercisable for
three years thereafter.
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EMPLOYMENT AGREEMENTS WITH EXECUTIVES SHAPIRO, JENKINS, KELLEY AND CLARK
Sunbeam 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, 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. Effective April 1, 1999, the
annual base salary for each of Messrs. Shapiro and Jenkins has been increased to
$750,000 and $425,000, respectively. Additionally, under the Executive
Agreements, 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
salaries. The Executives also participate in the other benefit plans available
generally to employees or other senior executives of Sunbeam.
Equity Grants
Under the Executive 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"). The
grants to Messrs. Shapiro and Jenkins are subject to stockholder approval at the
1999 annual meeting. 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. Mr. Jenkins was also granted an option, effective
March 29, 1999, to acquire 100,000 shares of common stock at a purchase price of
$5.57 per share. This option will vest in equal increments on the first, second
and third anniversaries of the grant date. Upon the occurrence of a "Change in
Control" of Sunbeam, as defined in the Option Plan, the Executive Options will
vest in full. In addition, under her employment agreement, Ms. Clark exchanged
75,000 options she had previously received upon joining Sunbeam for 50,000
options with an exercise price of $7.00 per share, as part of Sunbeam's option
exchange program.
Termination and Change in Control Provisions
Sunbeam 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 Sunbeam,
(3) willful misconduct in connection with the performance of any material
portion of the Executive's duties, (4) willful breach of any material provision
of the agreement by Executive, or (5) any conduct on the Executive's part which
would make continued employment materially prejudicial to the best interests of
Sunbeam. 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 Sunbeam. As
defined in the Executive Agreements, "Company Breach" means any material breach
of the Executive Agreement by Sunbeam. In the case of the agreements with
Messrs. Shapiro and Jenkins, a material breach includes the failure to obtain
shareholder approval of the grants of the Executive Options to Messrs. Shapiro
and Jenkins and a "Change of Control" of Sunbeam, as defined in their respective
Executive Agreements.
The Executive Agreements provide that, if Sunbeam terminates an Executive's
employment for Cause or if the Executive voluntarily terminates his or her
employment, all obligations, other than accrued obligations of Sunbeam will
cease and all unvested Executive Options shall be immediately forfeited. If a
Company
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Breach occurs, and an Executive terminates his or her Executive Agreement,
Sunbeam is obligated to continue to pay the Executive's base salary and target
bonus for the balance of the term and continue the Executive's benefits until
his reemployment. In addition, all of the Executive Options will vest and remain
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. Upon an Executive's death, the Executive Options will be vested
upon such death and will remain exercisable for three years thereafter.
EMPLOYMENT AGREEMENT WITH MR. DUNLAP
As of February 1, 1998, Sunbeam entered into an employment agreement with
Mr. Dunlap (the "Dunlap Agreement") in which Sunbeam 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 June 13, 1998, the Board of Directors
terminated Mr. Dunlap as Chairman and Chief Executive Officer. Mr. Dunlap has
asserted claims for breach of the Dunlap Agreement, and Sunbeam intends to
vigorously contest such claims, including claims regarding the validity of
grants of common stock and stock options to him. Nothing in this prospectus
should be construed to support his claims or to limit or otherwise affect
Sunbeam's claims against Mr. Dunlap, including claims with respect to his
entitlement to equity grants.
Compensation. Under the Dunlap Agreement, Mr. Dunlap was to be paid a base
salary at an annual rate of $2,000,000. Sunbeam 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 Sunbeam. However, he was not eligible to participate
in any incentive plan of Sunbeam. Sunbeam 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 Sunbeam 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 Sunbeam's stockholders
at the 1998 annual meeting. The Dunlap Options provided 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
Sunbeam. The Dunlap Agreement provided that upon the occurrence of a "Change in
Control" of Sunbeam, as defined in the Option Plan, the Dunlap Options would
have vested in full.
Termination and Change in Control Provisions. The Dunlap Agreement
provided that Sunbeam could terminate Mr. Dunlap's employment at any time, or
due to his disability, or for Cause. The Dunlap 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 no contest thereto.
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The Dunlap Agreement provided that, if Sunbeam terminated Mr. Dunlap's
employment other than for Cause and not due to his disability, or if he
terminated his employment for a "Good Reason", as defined in the Dunlap
Agreement:
(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 Sunbeam 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 Sunbeam would cease,
except that Mr. Dunlap would be able to exercise the Dunlap Options as well as
previously granted options which were exercisable on the date of termination
within 90 days, if the termination were for Cause, and within one year, if it
were by Mr. Dunlap without Good Reason.
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, to "excess parachute payments."
EMPLOYMENT AGREEMENTS WITH MESSRS. KERSH AND FANNIN
Sunbeam 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
Agreement" and collectively as the "Prior Executive Agreements") replaced and
superseded their respective previous employment agreements with Sunbeam.
Dispute with Mr. Kersh. On June 16, 1998, the Sunbeam board of directors
terminated Mr. Kersh as Vice Chairman and Chief Financial Officer. Mr. Kersh is
asserting claims for breach of his Prior Executive Agreement, and Sunbeam is
vigorously contesting these claims, including claims regarding 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
Sunbeam's claims against Mr. Kersh, including claims with respect to his
entitlement to equity grants.
Compensation. Under their respective Prior Executive 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 Sunbeam. However, the Prior Executives were not eligible to
participate in any cash incentive plan of Sunbeam.
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 provided that Sunbeam 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. These Prior Executive Restricted Shares
provided for vesting in four equal installments on each of February 1, 1998 and
the first,
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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 Sunbeam's stockholders at the 1998 annual
meeting (the "Prior Executive Options"). These Prior Executive Options provided
for vesting in four equal installments on the grant date of February 1, 1998 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 Fannin provided that Sunbeam 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).
Each Prior Executive Agreement provided that, if Sunbeam terminated the
Prior Executive's employment other than for Cause and not due to his disability,
or if the Prior Executive terminated his employment for "Good Reason," as
defined in the Prior Executive Agreements, or following a "Change in Control,"
as defined in the Prior Executive Agreements:
(1) such Prior Executive would 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 and Executive Restricted Shares granted to such Prior
Executive would become fully vested, and the Prior Executive will be
entitled to exercise his Prior Executive Options and previously granted
options for the balance of their original ten-year term; and
(3) the Prior Executive would 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 Sunbeam terminated the
Prior Executive's employment for Cause or if the Prior Executive terminated his
employment other than for Good Reason or following a Change in Control, all
obligations, other than accrued obligations, of Sunbeam would cease, except that
such Prior Executive would be able to exercise Prior Executive Options and
previously granted options granted to him which were exercisable on the date of
termination or within 90 days thereof, if the termination were for Cause, and
within one year thereof, if the termination were by the Executive other than for
Good Reason or following a Change in Control.
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 Internal Revenue Code to "excess parachute payments."
SUBSEQUENT ARRANGEMENTS WITH MESSRS. DUNLAP, KERSH AND FANNIN
In early August 1998, Sunbeam entered into a six-month agreement with
Messrs. Dunlap and Kersh in which all parties agreed not to assert claims
against each other and to exchange information relating to the various lawsuits
in which Sunbeam and Messrs. Dunlap Kersh are named as defendants. Sunbeam also
agreed to pay, and has paid, to Messrs. Dunlap and Kersh amounts related to
accrued vacation and employment benefits and, to advance litigation defense
costs subject to the receipt of an undertaking from each of them, which Sunbeam
has received, to repay all amounts so advanced if it is determined that they did
not meet the applicable standard of conduct for indemnification under Delaware
law. This agreement has expired and Messrs. Dunlap and Kersh have commenced an
arbitration action against Sunbeam for recovery of amounts they allege are
payable to them under their agreements, and they have filed an action in
Delaware Chancery Court requesting an order requiring Sunbeam to advance
litigation defense costs to each of them. Sunbeam is vigorously contesting these
actions.
In connection with the termination of Mr. Fannin's employment by mutual
agreement, Sunbeam entered into an agreement with him providing that, under 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:
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(a) $825,000 in severance payments, 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, 1997 and 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.
OTHER TRANSACTIONS
Settlement of Claims; Issuance of Warrant
On August 12, 1998, Sunbeam announced that, following investigation and
negotiation conducted by a special committee of the Sunbeam board of directors,
consisting of four outside directors not affiliated with MacAndrews & Forbes,
Sunbeam had entered into the settlement agreement with the MacAndrews & Forbes
affiliate from which Sunbeam had acquired a controlling interest in Coleman in
March 1998. Under the settlement agreement, Sunbeam was released from threatened
claims arising from that acquisition, and MacAndrews & Forbes agreed to provide
management personnel and assistance to Sunbeam, in exchange for the issuance to
the MacAndrews & Forbes affiliate of a five-year warrant to purchase up to
23 million shares of common stock at an exercise price of $7 per share, subject
to anti-dilution provisions.
Services Provided by MacAndrews & Forbes
Under the settlement agreement referred to in the previous paragraph, in
addition to making the services of Messrs. Levin, Shapiro and Jenkins available
to Sunbeam, MacAndrews & Forbes agreed to provide management assistance to
Sunbeam with respect to specified matters. Sunbeam does not reimburse MacAndrews
& Forbes for these services or for expenses incurred in providing these services
to Sunbeam, other than reimbursement of out-of-pocket expenses paid to third
parties. Execution of the settlement agreement was a condition to Sunbeam's
continued employment of Messrs. Levin, Shapiro and Jenkins as officers of
Sunbeam.
Registration Rights
Sunbeam and the MacAndrews & Forbes affiliate which sold Sunbeam its
controlling interest in Coleman have entered into a registration rights
agreement. Under the registration rights agreement, the MacAndrews & Forbes
affiliate can require Sunbeam to register under the federal and applicable state
securities laws the shares of Sunbeam common stock the affiliate received when
it sold its controlling interest in Coleman to Sunbeam. Sunbeam has also agreed
to permit former affiliates of Coleman that received Sunbeam common stock in the
March 1988 acquisition to join the MacAndrews & Forbes affiliate in any
registration of the affiliate's shares of Sunbeam common stock.
The registration rights agreement was amended in August 1998 to permit the
MacAndrews & Forbes affiliate to require Sunbeam to register (1) the warrant
issued to it by Sunbeam under its settlement agreement with Sunbeam and (2) the
shares of Sunbeam common stock issuable upon exercise of the warrant.
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Settlement of Coleman Options
Under Sunbeam's agreement providing for 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 and the exercise price of the
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 upon
completion of the Coleman Merger. Mr. Shapiro and Ms. Clark, executive officers
of Sunbeam, 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 in which Coleman has agreed to indemnify the
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, under 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 this
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, under which Coleman paid to this 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 obligations of
MacAndrews & Forbes under the tax sharing agreement were terminated when Sunbeam
bought a controlling interest in Coleman in March 1998. However, agreements
related to Sunbeam's acquisition of Coleman provide for tax indemnities and tax
sharing payments among Sunbeam and the MacAndrews & Forbes affiliates relating
to periods prior to the acquisition.
Office Space
During 1998, Sunbeam sublet office space in New York City from an affiliate
of MacAndrews & Forbes. The expense for such rent during 1998 was approximately
$130,000. The lease was terminated in 1999.
Employment of Law Firms
Sunbeam employed the law firms of Reboul, MacMurray, Hewitt, Maynard and
Kristol, of which Mr. Kristol is a partner, and Holland & Knight, of which
Mr. Elson is Of Counsel, to perform some legal services for Sunbeam 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
Sunbeam.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership, reported to
Sunbeam as of April 20, 1999, of common stock, including shares as to which a
right to acquire ownership exists, of: (1) each director of Sunbeam; (2) each of
the Named Executives, as defined herein under the caption "Management--Executive
Compensation"; and (3) the directors and current executive officers of Sunbeam
as a group. In addition, the following table sets forth, as of April 20, 1999,
the beneficial ownership of two former directors and a former Named Executive,
based on information filed with the SEC and made available to the public.
While reviewing the following information, please note:
o All directors and Named Executives have the sole power to vote and to
dispose of the shares of common stock listed below except as follows:
(1) Mr. Dunlap is believed to hold 1,491,564 of the listed shares
jointly with his wife;
(2) 151,600 shares listed as owned by Mr. Kersh are believed to be
held by the Russell A. Kersh Irrevocable Trust as to which Mr. Kersh is the
sole beneficiary, and Mr. Kersh is believed to hold 5,000 of the listed
shares jointly with his spouse;
(3) Mr. Fannin holds 20,433 shares of stock jointly with his wife; and
(4) Ms. Kelley holds 100 shares jointly with her spouse.
o The figures used to calculate the percentages in the second column
include 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 60 days. This
includes 200,000 and 86,583 shares which may be acquired by Mr. 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 60 days are not included in the table.
The figures also include stock awards and options to acquire 6,250,000
and 1,625,000 shares in the case of Messrs. Dunlap and Kersh,
respectively. Sunbeam is disputing the status of these stock awards and
options. 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 these
disputes.
<TABLE>
<CAPTION>
PERCENTAGE
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------------------------------------------------------------- ----------------------- ------------
<S> <C> <C>
DIRECTORS
Charles M. Elson.................................................. 10,500(a) *
Howard Gittis..................................................... --(c) --
John H. Klein..................................................... 415(a) *
Howard G. Kristol................................................. 10,500(a) *
Peter A. Langerman................................................ --(b) --
Jerry W. Levin.................................................... --(c) --
Faith Whittlesey.................................................. 6,890(a) *
FORMER DIRECTORS
Albert J. Dunlap.................................................. 7,741,564 7.4%
Russell A. Kersh.................................................. 1,889,150 1.8%
NAMED EXECUTIVE OFFICERS
Karen K. Clark.................................................... -- --
Bobby G. Jenkins.................................................. -- --
Janet G. Kelley................................................... 86,583 *
Paul E. Shapiro................................................... --(c) --
FORMER NAMED EXECUTIVE OFFICER
David C. Fannin................................................... 220,433 *
ALL DIRECTORS AND CURRENT EXECUTIVE OFFICERS AS
A GROUP (12 persons).............................................. 114,888(d) *
</TABLE>
------------------------
* Less than 1%.
(Footnotes continued on next page)
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<PAGE>
(Footnotes continued from previous page)
(a) Includes shares of restricted common stock granted to each of Directors
Elson, Klein, Kristol, and Whittlesey upon their respective elections,
appointments and subsequent reelections to the Sunbeam board of directors,
all of which shares were immediately vested.
(b) Does not include shares of common stock owned by Franklin Mutual Advisers,
Inc. as to which Mr. Langerman disclaims beneficial ownership. See "Security
Ownership of Certain Beneficial Owners."
(c) Does not include shares of Sunbeam common stock owned by MacAndrews & Forbes
and its affiliates, as to which Messrs. Levin, Gittis and Shapiro disclaim
beneficial ownership. See "Security Ownership of Certain Beneficial Owners."
(d) Includes shares of common stock which all current executive officers and
directors of Sunbeam have the right to acquire under options which are
currently exercisable, including options which may be exercised within the
next sixty days.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table set forth information as of April 20, 1999, with
respect to beneficial ownership of the common stock by all persons known by
Sunbeam 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>
PERCENTAGE
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNERSHIP COMMON STOCK
- ---------------------------------------------------------------- ----------------------- ------------
<S> <C> <C>
Ronald O. Perelman.............................................. 37,099,749(1) 29.9%(1)
Franklin Mutual Advisers, Inc................................... 17,541,398 16.1%
Albert J. Dunlap................................................ 7,741,564(2) 7.4%(2)
Invista Capital Management, LLC/Principal Mutual Holding
Company....................................................... 7,440,200 7.2%
</TABLE>
- ------------------
(1) Represents shares of common stock received by Coleman (Parent) Holdings,
Inc., a MacAndrews & Forbes affiliate, when it sold its controlling interest
in Coleman in March 1998. Also includes 23,000,000 shares of common stock
issuable upon exercise of the warrant issued to Coleman (Parent) Holdings
under the settlement of threatened legal claims. See "Management--Other
Transactions--Settlement of Claims; Issuance of Warrant." The shares of
common stock subject to the warrant have a $7 per share exercise price. The
address of Coleman (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 Coleman (Parent) Holdings. Accordingly,
Mr. Perelman may be deemed to be the beneficial owner of all of the shares
of common stock owned by Coleman (Parent) Holdings. Mr. Perelman's address
is 35 E. 62nd Street, New York, New York. 10021.
(2) Information reflected in this table with respect to Mr. Dunlap is based on
filings made by him with the SEC. Mr. Dunlap's holdings include stock grants
for 1,166,667 shares and options granted by Sunbeam to acquire an additional
6,250,000 shares of common stock which Mr. Dunlap and Sunbeam are disputing.
See "Security Ownership of Management" and "Management--Employment Agreement
with Mr. Dunlap--Dispute with Mr. Dunlap."
Information reflected in this table and the notes thereto with respect to
Franklin Mutual Advisers, Inc. is derived from Franklin Mutual Advisers' and its
predecessors' Schedule 13D, dated November 1, 1996, as amended, most recently on
March 1, 1999. The address of Franklin Mutual Advisers, Inc. is 51 John F.
Kennedy Parkway, Short Hills, New Jersey 07078. The shares of common stock
corresponding to Franklin Mutual Advisers above are beneficially owned by one or
more open-end investment companies or other managed accounts which, under
advisory contracts, are advised by Franklin Mutual Advisers. Franklin Mutual
Advisers disclaims beneficial ownership of these shares.
Information reflected in this table with respect to Invista Capital
Management, LLC and Principal Mutual Holding Company is derived from the
Form 13G jointly filed with the SEC by Invista and Principal on February 12,
1999. The address of Invista is 1900 Hub Tower, 699 Walnut Street, Des Moines,
Iowa 50309. The address of Principal is 711 High Street, Des Moines, Iowa 50392.
Invista and Principal exercise shared voting power and investment discretion
with respect to all of the shares of common stock they beneficially own.
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<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture dated as of March 25, 1998,
between Sunbeam and The Bank of New York, as trustee. Sunbeam 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 is a summary of
the material provisions of the Debentures and the indenture 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 of any 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 of the
indenture, are referred to, such provisions or defined terms are incorporated in
this document by reference. As used in this "Description of Debentures,"
"Sunbeam" refers to Sunbeam Corporation only and does not, unless the context
otherwise indicates, include its subsidiaries.
GENERAL
The Debentures are unsecured general obligations of Sunbeam subordinate in
right of payment to borrowings under Sunbeam's principal bank credit facility
and certain other secured obligations of Sunbeam 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 or the issuance or
repurchase of securities of Sunbeam. The indenture contains no covenants or
other provisions to afford protection to holders of the Debentures in the event
of a highly leveraged transaction, a change in control of Sunbeam or any other
transaction that may adversely affect Debenture holders, 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 was $372.43 per $1,000 principal amount at maturity, constitutes
original issue discount. See "United States Federal Income Tax Considerations."
Original issue discount accrues on a daily basis at a rate of 5.0% per year,
using a 360-day year consisting of twelve 30-day months. Maturity, conversion,
purchase by Sunbeam at the option of a holder or redemption of a Debenture will
cause original issue discount and interest on any overdue amounts to cease to
accrue for such Debenture, under the terms and subject to the conditions of the
indenture. Sunbeam may not reissue a Debenture that has matured or been
converted, purchased by Sunbeam 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. The trustee is also the initial
conversion agent and registrar. Sunbeam will not charge a service charge for any
registration of transfer or exchange of Debentures; however, Sunbeam may require
payment by a holder of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with the registration of transfer or
exchange.
CONVERSION OF DEBENTURES
A holder of a Debenture may convert it into common stock of Sunbeam at any
time through the close of business on March 25, 2018. However, 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 unless Sunbeam
defaults in the payment of the redemption price. If a Debenture holder has
delivered a purchase notice exercising the holder's option to require Sunbeam to
purchase some or all of the holder's Debentures, then those Debentures to be
purchased by Sunbeam may be converted only if the purchase 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
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<PAGE>
require redemption upon a Fundamental Change may be converted only if the holder
withdraws the election to exercise the option in accordance with the terms of
the indenture. A holder may convert 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 the events described below. A holder entitled to a fractional
share of common stock shall receive cash equal to the then current market value
of the fractional share.
On conversion of a Debenture, a holder will not receive any cash payment
representing accrued original issue discount. Sunbeam'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 any fractional
share, will be deemed to satisfy Sunbeam'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.
The date on which all of the foregoing requirements have been satisfied is the
conversion date.
The conversion rate is subject to adjustment in the following events:
(1) the issuance of common stock of Sunbeam as a dividend or
distribution on the common stock;
(2) 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 Sunbeam or of
assets, including securities other than common stock, but excluding those
rights and warrants referred to in clause (3) 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:
(A) 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 under this clause, as adjusted to reflect subdivisions or
combinations of the common stock; and
(B) 3.75% 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, in each case, excluding any dividend or distribution in connection with the
liquidation, dissolution or winding up of Sunbeam;
(6) payment in respect of a tender offer or exchange offer by Sunbeam
or any subsidiary of Sunbeam 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 (defined below) per
share of common stock on the trading day next succeeding the last date on
which tenders or exchanges may be made under such tender or exchange offer;
and
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<PAGE>
(7) payment in respect of a tender offer or exchange offer by a person
other than Sunbeam or any subsidiary of Sunbeam in which, as of the closing
date of the offer, Sunbeam's board of directors is not recommending
rejection of the offer.
If an adjustment is required to be under the fifth clause above as a result
of a distribution that is a quarterly dividend, the adjustment would be based
upon the amount by which the distribution exceeds the amount of the quarterly
cash dividend permitted to be excluded by the fifth clause above. If an
adjustment is required to be made under the fifth clause above as a result of a
distribution that is not a quarterly dividend, that 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 under 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 Sunbeam to engage in a
consolidation or merger of Sunbeam or a sale of all or substantially all of
Sunbeam's assets.
No adjustment in the conversion rate will be required unless the adjustment
would require a change of at least 1% in the rate then in effect, but any
adjustment that would otherwise be required to be made will 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 Sunbeam or a sale or conveyance to
another corporation of the property and assets of Sunbeam as an entirety
or substantially as an entirety;
in each case, as a result of which holders of common stock will 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
some other circumstances requiring an adjustment to the conversion rate, the
holders of Debentures may 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 "United States Federal Income Tax Considerations."
Sunbeam 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
Sunbeam will give at least 15 days' notice of the increase, if Sunbeam's board
of directors has made a determination that such increase would be in the best
interests of Sunbeam, which determination shall be conclusive. Sunbeam may, at
its option, make 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 "Material United States Federal Income Tax
Considerations."
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<PAGE>
REDEMPTION OF DEBENTURES AT THE OPTION OF SUNBEAM
There is no sinking fund for the Debentures. Prior to March 25, 2003, the
Debentures will not be redeemable at the option of Sunbeam. Beginning on
March 25, 2003, Sunbeam may, subject to applicable contractual restrictions,
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, 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 will 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 the
holder converts a portion of the certificated Debentures, the converted portion
will 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."
Sunbeam's bank credit facility prohibits the redemption of the Debentures
for cash. There can be no assurance that any future credit agreements, including
an extension of the bank credit facility, or other agreements relating to
indebtedness to which Sunbeam becomes a party will not contain prohibitions on
or defaults with respect to the prepayment or redemption of the Debentures.
REDEMPTION AT OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE
If a Fundamental Change (defined below) occurs at any time prior to
March 25, 2018, each holder of Debentures will have the right, at the holder's
option, to require Sunbeam to redeem for cash any or all of such holder's
Debentures on the date that is 45 days after the date of Sunbeam's notice of the
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.
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<PAGE>
Sunbeam will redeem these 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 (defined below) with respect to the
Fundamental Change is less than the Reference Market Price (defined below),
Sunbeam will redeem the 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.
Sunbeam will 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 the
Fundamental Change. Sunbeam will deliver to the trustee a copy of the notice. To
exercise the redemption right, holders of Debentures must deliver, on or before
the 30th day after the date of Sunbeam's notice of a Fundamental Change, 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 Sunbeam or an agent designated by Sunbeam for such
purpose. Payment for Debentures surrendered for redemption and not withdrawn
prior to the 30th day after the date of Sunbeam's notice of a Fundamental Change
will be made promptly following the repurchase date.
The term "Fundamental Change" means the occurrence of any transaction or
event in which all or substantially all of the common stock is to 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 which
is 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.
Under New York law, which governs the indenture and the Debentures, there is no
precise definition for the phrase "all or substantially all." This may result in
uncertainty over whether a transaction involving "all or substantially all"
common stock of a particular company has occurred. In such a case, it would also
be unclear whether a Fundamental Change triggering a redemption right of
Debenture holders has occurred.
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 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 cash, securities, property or other assets in the Fundamental
Change.
The term "Reference Market Price" will 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 in accordance with 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.
Sunbeam 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 to the redemption rights of Debenture holders in the event of a
Fundamental Change.
The rights of the holders of Debentures to require redemption of the
Debentures upon a Fundamental Change could discourage a potential acquirer of
Sunbeam in that the redemption could be difficult to finance due to the
substantial amounts involved. The Fundamental Change redemption feature,
however, is not the result of management's knowledge of any specific effort to
obtain control of Sunbeam 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.
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The term "Fundamental Change" is limited to the transactions specified in
the definition above and may not include other events that might adversely
affect the financial condition of Sunbeam, nor would the requirement that
Sunbeam 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
Sunbeam. In addition, the indenture contains no other provisions that would
protect the holders of the Debentures in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving Sunbeam.
Sunbeam does not currently have any other liabilities that rank equally
with the Debentures and also contain fundamental change repayment provisions.
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
Debentures.
In the event of a Fundamental Change and exercise by holders of the
Debentures of their associated rights to require Sunbeam to redeem all or a
portion of their Debentures, there can be no assurance that Sunbeam would have
sufficient funds to pay the redemption price for all the Debentures tendered by
the holders thereof.
Sunbeam's bank credit facility prohibits the redemption of the Debentures
for cash. In addition, this credit facility provides, and any future credit
agreements, including an extension of the bank credit facility, or other
agreements relating to indebtedness to which Sunbeam becomes a party also may
provide, that a Fundamental Change would constitute an event of default
thereunder. This would permit the acceleration of the maturity of the credit
agreement and thereby cause the subordination provisions in the indenture to
apply, preventing redemption of the Debentures until Senior Indebtedness
(defined below) is paid in full. At least until all outstanding borrowings under
Sunbeam's bank credit facility are repaid or such time as the credit facility is
amended or an adequate waiver is obtained from the lenders under the bank credit
facility, Sunbeam's bank credit facility will effectively prevent a redemption
of the Debentures upon a Fundamental Change. As of December 31, 1998, Sunbeam
had approximately $1,360 million outstanding under this credit facility.
If Sunbeam is prohibited from redeeming the Debentures upon the occurrence
of a Fundamental Change, Sunbeam could seek the consent of its then existing
lenders to redeem the Debentures or could attempt to refinance the borrowings
that contain the prohibitions. If Sunbeam does not obtain required consents or
repay these borrowings, Sunbeam would remain prohibited from redeeming the
Debentures. In that case, Sunbeam'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 Sunbeam outstanding at such time, including Senior
Indebtedness. In these 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.
Neither Sunbeam nor the trustee, without the consent of the holders of the
Debentures, can waive the requirement that Sunbeam redeem Debentures at the
option of holders upon a Fundamental Change.
PURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER
On March 25, 2003, March 25, 2008 and March 25, 2013 Sunbeam will become
obligated to purchase, at the option of the Debenture holder, 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 prior to the relevant
purchase date until the close of business on the purchase date and for which the
purchase notice has not been withdrawn, subject to additional conditions.
The purchase notice shall state:
(1) the certificate numbers of the Debentures to be delivered by the
holder for purchase by Sunbeam;
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<PAGE>
(2) the portion of the principal amount at maturity of Debentures to
be purchased, which portion must be $1,000 or a whole multiple of $1,000;
(3) that the Debentures are to be purchased by Sunbeam in accordance
with applicable provisions of the Debentures; and
(4) in the event Sunbeam elects to pay some or all of the purchase
price to be paid as of the purchase date in common stock, but the purchase
price is ultimately to be paid entirely in cash because a condition 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 the 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 the purchase notice.
If the holder fails to indicate, in the purchase notice and in any written
notice of withdrawal relating to such purchase notice, the 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 Sunbeam on a purchase date,
see "Material 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 for a Debenture shall be equal to the issue
price of the Debenture 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. Sunbeam 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 Sunbeam 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 will be equal to such portion of the
purchase price divided by the Market Price (defined below) of the common stock.
However, Sunbeam will not deliver any fractional shares of common stock upon any
purchase by Sunbeam of Debentures. Instead, Sunbeam will pay cash based on the
Market Price for all fractional shares of common stock.
Sunbeam will give notice not less than 20 business days prior to the
purchase 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 Sunbeam will pay the purchase price of the Debentures in
cash or common stock, or any combination thereof, specifying the percentage of
each, and, if Sunbeam 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 (defined below) of
the common stock for the five trading day period ending (A) on the third
business day prior to the applicable purchase date, or (B) if the third business
day prior to the applicable purchase date is not a trading day, then on the last
trading day prior to such third business day, in each case appropriately
adjusted to take into account the occurrence during the period commencing on the
first of such trading days during the five trading day period and ending on the
purchase date of any events that would result in an adjustment of the conversion
rate under the indenture with respect to the common stock.
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<PAGE>
The "Sale Price" of the common stock on any date means (A) the closing per
share sale price, or (B) if no closing sale price is reported, the average bid
and ask prices, or (C) if more than one in either case, the average of the
average bid and average ask prices, in each case 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 the purchase date. Sunbeam 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, Sunbeam will publish the figures in a
daily newspaper of national circulation.
Sunbeam'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 the conditions are not satisfied by a purchase date, Sunbeam will pay the
purchase price of the Debentures to be purchased on the purchase date entirely
in cash. Sunbeam 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 with respect to any offer
by Sunbeam 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 the 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 the purchase
notice.
Payment of the purchase price for a Debenture will be made promptly
following the later of the purchase date or the time of book-entry transfer or
delivery of the Debenture. If the paying agent holds, in accordance with the
terms of the indenture, money or securities sufficient to pay the purchase price
of the Debenture on the business day following the purchase date, then, on and
after such date, the Debenture will cease to be outstanding and original issue
discount on the Debenture will cease to accrue whether or not book-entry
transfer of the Debenture is made or the Debenture is delivered to the paying
agent, and all other rights of the holder will terminate, other than the right
to receive the purchase price upon delivery of the Debenture.
No Debentures will be purchased at the option of the holder for cash if,
prior to, on or after the giving by the holders of the Debentures the required
purchase notice 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 purchase price with respect to such Debentures.
If Sunbeam becomes obligated to purchase any outstanding Debenture on a
purchase date, there can be no assurance that Sunbeam would have sufficient
funds to pay the purchase price on that purchase date, in which case Sunbeam
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.
Sunbeam's bank 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 bank credit facility, or other agreements relating
to indebtedness to which Sunbeam 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.
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In the event a purchase date occurs at a time when Sunbeam is prohibited
from repurchasing the Debentures, Sunbeam could seek the consent of its then
existing lenders to repurchase the Debentures or could attempt to refinance the
borrowings that contain the prohibitions. If Sunbeam does not obtain required
consents or repay these borrowings, Sunbeam would remain prohibited from
repurchasing the Debentures. Sunbeam'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 Sunbeam outstanding at such time, including
Senior Indebtedness. In these circumstances, the subordination provisions in the
indenture would prohibit or restrict payments to the holders of Debentures.
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 (defined below) of all
existing and future Senior Indebtedness. This subordination will not prevent the
occurrence of any event of default under the indenture.
Upon any distribution of assets of Sunbeam upon any dissolution, winding
up, voluntary or involuntary bankruptcy, insolvency, liquidation,
reorganization, receivership or similar proceeding relating to Sunbeam or its
property, an assignment for the benefit of creditors or any marshaling of
Sunbeam'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 relating to 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.
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 will be made to the holders of Senior Indebtedness.
By reason of the subordination, in the event of Sunbeam's dissolution,
winding up, bankruptcy, insolvency, liquidation, reorganization, receivership or
similar proceeding relating to Sunbeam or its property, an assignment for the
benefit of creditors or any marshaling of Sunbeam'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 Sunbeam.
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
Sunbeam is obligated to notify promptly holders of Senior Indebtedness of such
acceleration. Sunbeam may not pay monies owed on 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.
Sunbeam also may not make any payment on the Debentures if:
o a default in any payment obligations on 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 on Designated Senior
Indebtedness (defined below) 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 from Sunbeam
or from a representative for any issue of Designated Senior
Indebtedness.
Payments on the Debentures may and will 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
default is cured or waived in accordance with the terms of the governing
instrument or ceases to exist or 179 days after the date
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on which the applicable notice of default 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 notice of
default unless and until 365 days have elapsed since the initial effectiveness
of the immediately prior notice of default. No nonpayment default that existed
or was continuing on the date of delivery of any notice of default to the
trustee will be, or will be made, the basis for a subsequent notice of default
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 will constitute a new
event of default:
o any action of Sunbeam or any of its subsidiaries occurring subsequent to
delivery of a notice of default that would give rise to any event of
default under 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
notice of default.
The term "Senior Indebtedness" means:
o the principal of, premium, if any, interest, original issue discount,
rent and end of term payments payable on or with respect to and
o 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 with respect to
Secured Indebtedness (defined below) of Sunbeam, whether outstanding on the date
of the indenture or thereafter created, incurred, assumed, guaranteed or in
effect guaranteed by Sunbeam, including all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to, the foregoing.
The term Senior Indebtedness does not include:
(1) Indebtedness (defined below) of Sunbeam to any subsidiary of Sunbeam, a
majority of the voting stock of which is owned, directly or indirectly, by
Sunbeam;
(2) accounts payable or other indebtedness to trade creditors created or
assumed by Sunbeam in the ordinary course of business; and
(3) 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 ranks
equally with, or is subordinated or junior to, the Debentures.
For the purposes of the definition of Senior Indebtedness, the term
"interest" includes 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.
The term "Indebtedness" means, with respect to any person and without
duplication:
(1) all indebtedness, obligations and other liabilities (contingent or
otherwise) of such person for borrowed money, including obligations of Sunbeam
arising from 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, arising from
leases of such person:
o required, in conformity with generally accepted accounting
principles, to be accounted for as capitalized lease obligations on
the balance sheet of such person; or
o 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
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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 guarantees or similar agreements by such person
relating to, and obligations or liabilities, contingent or otherwise, of such
person to purchase or otherwise acquire or otherwise assure a creditor against
loss with respect to, indebtedness, obligations or liabilities of another person
of the kind described in clauses (1)-(4) above;
(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 Sunbeam's bank credit facility; or
o any other particular Senior Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee of Senior
Indebtedness or related agreements or documents to which Sunbeam is a
party expressly provides that the Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the indenture; however,
the 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 Indebtedness of a 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 Sunbeam. Since the operations
of Sunbeam are conducted through subsidiaries, Sunbeam's 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, Sunbeam. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amount on the Debentures or to make any
funds available for payments on the Debentures, whether by dividends, loans or
other payments. In addition, the payment of dividends and making of loans and
advances to Sunbeam by its subsidiaries are subject to statutory and contractual
restrictions, including those under Sunbeam's bank credit facility, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of Sunbeam 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 Sunbeam is itself recognized as a creditor of such
subsidiary, in which case the claims of Sunbeam 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 Sunbeam.
At December 31, 1998, Sunbeam had approximately $1.4 billion of Senior
Indebtedness outstanding and Sunbeam's subsidiaries had approximately
$832 million of indebtedness and other liabilities outstanding, excluding
intercompany liabilities, to which the Debentures would have been effectively
subordinated. The Debentures rank equally with all other outstanding
indebtedness and liabilities of Sunbeam, including trade payables. Except for
trade payables, Sunbeam currently does not have any such indebtedness or
liabilities outstanding. The indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which Sunbeam can create, incur,
assume or guarantee, nor does the indenture limit the amount of indebtedness
which any subsidiary can create, incur, assume or guarantee.
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However, in the event that the trustee or any holder of the Debentures
receives any payment or distribution of assets of Sunbeam of any kind in
contravention of any of the subordination provisions of the indenture, whether
in cash, property or securities, including by way of set-off or otherwise,
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.
Sunbeam is obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against 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
relating to all funds collected or held by the trustee.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The indenture provides that, if an event of default 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 Sunbeam cures all defaults other than the nonpayment of
issue price and accrued original issue discount which shall have become due by
acceleration and several other conditions are met, the 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 defaults relating to 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 some circumstances, the holders of a majority in
aggregate principal amount at maturity of the outstanding Debentures may rescind
such an acceleration with respect to the Debentures and its consequences.
Interest will 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 Sunbeam to comply with any of its other agreements in
the Debentures or the indenture upon the receipt by Sunbeam 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
Sunbeam's failure to cure such default within 60 days after receipt by
Sunbeam 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. However, this direction may not conflict with
any law or the indenture and is subject to other limitations. Before proceeding
to exercise any right or power under
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the indenture at the direction of holders, the trustee will be entitled to
receive from these holders reasonable security or indemnity satisfactory to it
against the costs, expenses and liabilities which it might incur 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) the holder shall have previously given the trustee written
notice of a continuing event of default;
(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) the 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
Sunbeam is obligated to promptly notify holders of Senior Indebtedness of the
acceleration. Sunbeam may not pay monies owed on the Debentures until 120 days
have passed after the acceleration occurs and may thereafter pay the Debentures
if the terms of the indenture otherwise permit payment at that time.
However, the following rights of a holder will not be impaired or adversely
affected without the holder's consent:
o the right 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 as a result
of a default in the payment of any such amounts on a Debenture, on or
after the due date expressed in such Debenture;
o the right to institute suit for the enforcement of any such payments or
conversion; or
o the right to convert Debentures.
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 relating to the conversion rights of the Debentures; or
o any default concerning the 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.
Sunbeam will be required to furnish to the trustee annually a statement as
to any default by Sunbeam in the performance and observance of its obligations
under the indenture.
MERGERS AND SALES OF ASSETS BY SUNBEAM
Sunbeam 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 Sunbeam, is
organized and existing under the laws of the United States, any state
thereof or the District of Columbia;
o the successor person assumes all obligations of Sunbeam under the
Debentures and the indenture; and
o Sunbeam or the successor person will not immediately thereafter be in
default under the indenture.
Upon the assumption of Sunbeam's obligations in these circumstances,
subject to several exceptions, Sunbeam will be discharged from all obligations
under the Debentures and the indenture. If this transaction constituted a
Fundamental Change, each holder would be able to require Sunbeam to redeem the
Debentures of the holder as described under "--Redemption at Option of the
Holder Upon a Fundamental Change."
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MODIFICATION
Sunbeam and the trustee may modify or amend the indenture or the Debentures
with the consent of the holders of not less than a majority in aggregate
principal amount at maturity of the Debentures then outstanding. However, 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 Sunbeam to purchase a Debenture or the
right to require Sunbeam 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 some types of modification of its terms,
which are generally minor modifications, 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 the Senior Indebtedness consent to such
change.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced with respect to Sunbeam, the claim
of the holder of a Debenture is, under U.S. bankruptcy law, 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 Sunbeam's
subsidiaries. See "--Subordination of Debentures" above.
TAXATION OF DEBENTURES
See "Material United States Federal Income Tax Considerations" for a
discussion of the material 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
Sunbeam 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, which are
incorporated by reference in the indenture, contain limitations on the rights of
the trustee, should the trustee become a creditor of Sunbeam, to obtain payment
of some types of claims or to realize on property received for such claims, as
security or otherwise. The trustee is permitted to engage in other transactions;
however, if it acquires any conflicting interest, within the meaning of the
Trust Indenture Act, it must eliminate the 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 rules and operating procedures of the depositary, The Depository
Trust Company, that affect transfers of interest in the global certificate or
certificates issued in connection with sales of Debentures made with this
prospectus.
The Debentures sold with this prospectus are represented by one or more
fully registered global notes as well as Debentures in definitive form and were
deposited upon issuance with, or on behalf of, DTC and registered in the name of
the DTC or its nominee or 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, a global note may be transferred, in whole and not in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
DTC 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 under provisions of Section 17A of the
Exchange Act. DTC 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 these participants
through electronic computerized book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations. DTC 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 DTC'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 DTC only through the
participants or the indirect participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the participants and indirect
participants.
Purchase of Debentures within the DTC system must be made by or through
participants. In accordance with procedures established by DTC, (1) upon deposit
of a global note, DTC will credit the accounts of participants with portions of
the principal amount of the global note and (2) ownership of such interests in a
global note will be shown on, and the transfers of ownership thereof will be
effected only through, records maintained by DTC (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.
DTC has no knowledge of the actual beneficial owners of the Debentures;
DTC'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 a 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 Sunbeam, the trustee, nor any agent of Sunbeam, or the trustee will
have any responsibility or liability for (1) any aspect of DTC'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 DTC's records or any participant's records relating to the
beneficial ownership interests in a global note or (2) any other matter relating
to the actions and practices of DTC or any of its participants.
Payments in respect of the principal of any Debentures registered in the
name of the registered owners of the global note on any relevant record date
will be payable by the trustee to the registered owners of the global note in
its capacity as the registered holder under the indenture. Under the terms of
the indenture, Sunbeam 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
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purposes whatsoever. Consequently, neither Sunbeam, the trustee, nor any agent
of Sunbeam 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 DTC or any of its participants.
Sunbeam understands that DTC'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 DTC, unless DTC
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 DTC, the trustee or Sunbeam.
Neither Sunbeam nor the trustee will be liable for any delay by DTC or any of
its participants in identifying the beneficial owners of the Debentures, and
Sunbeam and the trustee may conclusively rely on and will be protected in
relying on instructions from the registered owner of a global note for all
purposes.
So long as DTC, or its nominee, is the registered owner or holder of a
global note, DTC 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 DTC's applicable procedures, in addition to those provided for
under the indenture.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC 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 DTC and the procedures set forth in the
indenture.
Sunbeam expects that DTC 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 DTC 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 Sunbeam expects that DTC will agree to the foregoing procedures in
order to facilitate transfers of interests in a global note among participants
of DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither Sunbeam
nor the trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depository for a
global note and a successor depository is not appointed by Sunbeam within
90 days, Sunbeam will issue definitive certificated Debentures in exchange for a
global note.
These definitive certificated Debentures will 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 DTC 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 DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Sunbeam believes to be reliable, but Sunbeam
takes no responsibility for the accuracy thereof.
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REGISTRATION RIGHTS
The following summary of the material provisions of the registration rights
agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the registration rights agreement, which appears as an exhibit
to the registration statement of which this prospectus forms a part.
Sunbeam entered into a registration rights agreement in which Sunbeam
agreed, at its expense, for the benefit of the holders of the Debentures and the
shares of common stock issued and issuable upon conversion of the Debentures, to
file with the SEC by June 23, 1998 a registration statement covering resale of
these securities. Sunbeam 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 under the registration statement of all the securities
registered; and
o the expiration of the holding period applicable to such securitites held
by persons that are not affiliates of Sunbeam under Rule 144(k) under the
Securities Act, or any successor provision, subject to permitted
exceptions.
Sunbeam will be permitted to suspend the use of this prospectus under
circumstances relating to pending corporate developments, public filings with
the SEC 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; however,
Sunbeam 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 circumstances relating to probable acquisitions, acquisitions, financings
or similar transactions.
Sunbeam has agreed to pay predetermined liquidated damages as described
herein to holders of Debentures and common stock issued upon conversion thereof
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. These
liquidated damages accrue until the failure to file or become effective or
unavailability is cured:
o in the case 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 the case 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.
Sunbeam has agreed to pay these liquidated damages to holders of Debentures
and common stock issued upon conversion thereof if Sunbeam 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.
Sunbeam did not file the registration statement until February 4, 1999,
225 days after the deadline contained in the registration rights agreement. The
SEC did not declare the registration statement effective until ,
1999, days after the deadline contained in the registration rights agreement.
From June 23, 1998 until the registration statement was declared effective,
Sunbeam was required to pay cash liquidated damages. Liquidated damages payments
totaling approximately $ accrued during this period, of which
approximately $500,000 was paid on September 25, 1998 and approximately
$2 million was paid on March 25, 1999.
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DESCRIPTION OF OTHER INDEBTEDNESS
BANK CREDIT FACILITY
Sunbeam's bank credit facility, as amended, provides for aggregate
borrowings of up to $1.7 billion through:
o a revolving credit facility in an aggregate principal amount of up to
$400 million, maturing on March 30, 2005, of which $52.5 million may only
be used to complete the Coleman Merger if the merger does not occur prior
to August 31, 1999;
o up to $800 million in Tranche A term loans maturing on March 30, 2005, of
which $35 million may only be used to complete the Coleman Merger; and
o a Tranche B $500 million term loan maturing on September 30, 2006.
Absent a further extension by Sunbeam's bank lenders of the April 15, 1999
waiver or a refinancing of the bank credit facility, the foregoing maturities
could be accelerated by Sunbeam's bank lenders at any time after April 10, 2000.
Under this credit facility, interest accrues, at Sunbeam's option:
o at LIBOR or;
o at the base rate of the administrative agent, which is generally the
higher of the prime commercial lending rate of the administrative agent
or the Federal Funds Rate plus 0.50%;
in each case plus an interest rate margin which varies depending upon the
occurrence of specified events. These events relate to:
o the execution and delivery by Coleman and its domestic subsidiaries of
guarantees and related security documents which will become effective
upon the completion of the Coleman Merger;
o the filing with the SEC of an amended registration statement for the
shares of Sunbeam's common stock to be issued to complete the Coleman
Merger;
o the completion of the Coleman Merger; and
o the reduction of the bank lenders' commitment and loan exposure under the
bank credit facility.
The interest rate margin is currently 3.75% for LIBOR loans and 2.50% for base
rate loans, but can increase or decrease in the future.
Security and Guarantees. Borrowings under the bank credit facility are
secured by a pledge of the stock of Sunbeam's material subsidiaries, including
Coleman and, by a security interest in substantially all of the assets of
Sunbeam and its material domestic subsidiaries, other than Coleman and its
subsidiaries except as described below. Currently, Coleman's inventory and
related assets are pledged to secure its obligations for letters of credit
issued for its account under the bank credit facility. Additionally, as security
for a note payable from Coleman to Sunbeam, Coleman pledged substantially all of
its domestic assets, other than real property. The pledge runs in favor of
Sunbeam's lending banks, to which the Coleman note has been pledged as security
for Sunbeam's obligations to them. Upon the completion of the Coleman Merger,
substantially all of Coleman's assets and the assets of Coleman's domestic
subsidiaries will be pledged to secure the obligations under the bank credit
facility.
Borrowings under the bank credit facility are guaranteed by a number of
Sunbeam's wholly owned material domestic subsidiaries and these subsidiary
guarantees are secured as described above. Upon completion of the Coleman
Merger, Coleman and each of its doemstic subsidiaries will become guarantors of
the obligations under the bank credit facility. To the extent extensions of
credit are made to any subsidiaries of Sunbeam, the obligations of these
subsidiaries are guaranteed by Sunbeam.
Repayment and Refinancing. Sunbeam has made no decision with respect to
the repayment or refinancing of indebtedness incurred or to be incurred under
its bank credit facility and may repay this 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
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advisability of particular transactions, as well as on prevailing interest rates
and financial and economic conditions.
Covenants. The bank 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:
o declare dividends or repurchase stock;
o prepay, redeem or repurchase debt, incur liens and engage in sale-leaseback
transactions;
o make loans and investments;
o incur additional debt and maintain revolving loan balances;
o amend or otherwise alter material agreements or enter into restrictive
agreements;
o make capital and Year 2000 testing and remediation expenditures;
o engage in mergers, acquisitions and asset sales;
o engage in transactions with affiliates;
o alter its fiscal year or accounting policies;
o enter into hedging agreements;
o settle litigation;
o alter its cash management system; and
o alter the businesses they conduct.
Sunbeam is also required to comply with specified financial covenants and
ratios. As a result of Sunbeam's operating losses, Sunbeam was not in compliance
with these financial covenants and other terms of its bank credit facility. As
of June 30, 1998, Sunbeam entered into an agreement with its bank lenders which
waived Sunbeam's compliance through December 31, 1998. On October 19, 1998,
Sunbeam's bank lenders agreed to extend this waiver through April 10, 1999. In
April 1999, the waiver was extended to April 10, 2000, and the bank credit
facility was amended to, among other things:
o require Sunbeam to meet new financial tests and ratios;
o decrease the interest rates to the levels described above;
o reduce the interest rate margin by 0.50% and postpone until April 10,
2000 principal payments of $69,250,000 otherwise due September 30, 1999
and principal payments of $69,250,000 otherwise due March 31, 2000, as
soon as (1) Coleman and its domestic subsidiaries execute and deliver
guarantees and security documents which will become effective upon the
completion of the Coleman Merger so long as they are executed and
delivered by May 25, 1999 and (2) Sunbeam files with the SEC an amendment
to Sunbeam's registration statement for the shares of its common stock to
be issued to complete the Coleman Merger;
o provide that the following events relating to the Coleman Merger will be
events of default under the bank credit facility:
o if Sunbeam fails to have the SEC declare effective by October 30,
1999 its registration statement for the shares of Sunbeam common
stock to be issued to complete the Coleman Merger;
o if Sunbeam fails to complete the Coleman Merger within 25 business
days after the related registration statement is declared effective
by the SEC; or
o if Sunbeam has to pay more than $87.5 million in cash to complete
the Coleman Merger, including any payments on account of the
exercise of any appraisal rights, but excluding related legal,
accounting and other customary fees and expenses;
o require Sunbeam and Coleman to amend Coleman's note payable to Sunbeam
and to have Coleman secure the note, which is pledged by Sunbeam to
secure the obligations under Sunbeam's bank credit facility, with
substantially all of Coleman's domestic assets other than real property,
including 66% of
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its ownership interests in Coleman's direct foreign subsidiaries and
domestic holding companies for its foreign subsidiaries, and all of its
ownership interests in its other direct domestic subsidiaries;
o impose restrictions on the aggregate revolving loan principal balance
permitted to be outstanding at the end of each month under the bank
credit facility;
o require Sunbeam to maintain a concentration cash management system and to
repay revolving loans, which may be reborrowed subject to satisfaction of
the bank credit facility's borrowing conditions, to the extent that cash
on hand in the concentration account on any business day exceeds
$15 million;
o require Sunbeam to prepay term loans under the bank credit facility on
each of September 30, 1999 and December 31,1999 to the extent that cash
on hand in Sunbeam's concentration account plus the aggregate amount of
unused revolving loan commitments on these dates exceeds $115 million and
$125 million, respectively, but Sunbeam is not required to prepay more
than $69.3 million in the aggregate as a result of this provision;
o require Sunbeam to reserve $52.5 million of availability under the
revolving credit facility, if the Coleman Merger does not occur on or
before August 31, 1999, for use solely to pay required cash portion of
the Coleman Merger consideration;
o limit the amount that Sunbeam and its subsidiaries may spend on Year 2000
compatibility testing and remediation to $50 million in the aggregate
during the fiscal year ending December 31, 1999;
o require Sunbeam to obtain the bank lenders' consent to any litigation
settlement concerning the restatement of Sunbeam's 1996 and 1997 fiscal
year and first quarter 1998 financial statements if such settlements
require the payment of money, not paid by insurance carriers or other
third parties, of more than $1 million in total;
o impose new informational reporting requirements; and
o provide Sunbeam with a $40 million foreign currency revolving loan
subfacility.
At December 31, 1998, following the scheduled repayment of a portion of the
term loan, approximately $1,360 million was outstanding and approximately
$260 million was available for borrowing under the credit facility.
Defaults. The bank credit facility provides for events of default
customary for transactions of this type, including nonpayment,
misrepresentation, breach of covenant, cross-defaults, bankruptcy and
insolvency, ERISA, judgments and change of ownership and control. As stated
above, the bank credit facility, as amended, also provides that it is an event
of default if the registration statement in connection with the Coleman Merger
is not declared effective by the SEC by October 30, 1999, if Sunbeam fails to
complete the Coleman Merger within 25 business days after the related
registration statement is declared effective by the SEC, or if the cash
consideration to complete the Coleman Merger, excluding expenses, exceeds
$87.5 million.
COLEMAN NOTE
In connection with Sunbeam's March 1998 acquisition of the controlling
interest in Coleman, Coleman, repaid substantially all of its outstanding
indebtedness with the proceeds of borrowings from Sunbeam. These borrowings,
together with loans made by Sunbeam to Coleman after March 30, 1998, were
evidenced by an unsecured subordinated demand note payable by Coleman to Sunbeam
which had an unpaid principal amount of $365.1 million at December 31, 1998. The
note bore interest at a floating rate equivalent to the weighted average
interest rate incurred by Sunbeam on borrowings under its bank credit facility
and on the Debentures (about 7.1% per annum during 1998). The note was pledged
by Sunbeam as security for its obligations under its bank credit facility.
In connection with the April, 1999 amendment to Sunbeam's bank credit
facility, the Coleman note payable to Sunbeam was revised to, among other
things:
o lower the interest rate to 4% if the three month LIBOR quoted on the
telerate system is less than 6%, or 5% if the three month LIBOR quoted
on the telerate system is 6% or higher;
o make the note payable on April 15, 2000 rather than on demand;
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o add customary representations, warranties, covenants and events of
default; and
o provide that an event of default under Sunbeam's bank credit facility
also constitutes an event of default under the Coleman note.
As security for the revised Coleman note, Coleman pledged substantially all
of its domestic assets, other than real property, including 66% of its ownership
interest in its direct foreign subsidiaries and domestic holding companies for
its foreign subsidiaries, and all of its ownership interest in its other direct
domestic subsidiaries, but Coleman's subsidiaries have not pledged their assets
or the stock of their subsidiaries. The revised Coleman note is also pledged as
security for Sunbeam's obligations to its lending banks and Sunbeam assigned to
the lending banks the security pledged by Coleman for the revised Coleman note.
Coleman also agreed to give the lending banks a direct pledge of the assets
securing the revised Coleman note to secure the obligations under Sunbeam's bank
credit facility, subject to a cap equal the balance due from time to time on the
revised Coleman note.
Since the Sunbeam bank credit facility provides that Sunbeam will not
contribute capital to Coleman or, with some exceptions, permit Coleman to borrow
money from any source other than Sunbeam, Coleman's ability to meet its cash
operating requirements, including working capital requirements, capital
expenditures and other obligations, is dependent upon its cash flow from
operations and loans from Sunbeam. Sunbeam intends, and believes it will have
the ability, to fund any Coleman requirements for borrowed funds through
April 10, 2000. All loans from Sunbeam to Coleman will be added to the Coleman
note payable to Sunbeam, and all repayments of such loans by Coleman will be
subtracted from the Coleman note payable to Sunbeam.
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 provisions of Sunbeam's
capital stock. The summaries are qualified in their entirety by reference to the
full text of Sunbeam's Restated Certificate of Incorporation (the "Sunbeam
Charter") and By-Laws, copies of which are filed as exhibits to the registration
statement of which this prospectus forms a part.
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 April 30, 1999, there were 100,887,960 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. Sunbeam's bank credit facility prohibits Sunbeam from
paying cash 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.
WARRANTS
Sunbeam currently has outstanding one warrant which entitles the holder to
purchase up to 23 million shares of Sunbeam common stock at an exercise price of
$7 per share, subject to anti-dilution adjustments. This warrant was issued on
August 24, 1998 under the terms of a settlement agreement, dated August 12,
1998, by and between Sunbeam and Coleman (Parent) Holdings, Inc., the MacAndrews
& Forbes affiliate from which Sunbeam acquired a controlling interest in
Coleman. The MacAndrews & Forbes affiliate is the holder of the warrant. The
warrant has a term of five years. See "Recent Developments--Settlement of Claims
of MacAndrews & Forbes."
Under the terms of a proposed settlement of litigation relating to the
Coleman Merger, Sunbeam will issue warrants to purchase about 4.98 million
shares of Sunbeam common stock at an exercise price of $7 per share, subject to
anti-dilution adjustments. The warrants will be issued to the minority
stockholders and plaintiffs' counsel upon completion of the Coleman Merger. The
proposed settlement, however, remains subject to court approval. See "Recent
Developments--Proposed Settlement of Coleman Stockholders' Claims."
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Subject to the qualifications set forth below, in the opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, tax counsel to Sunbeam, the following
discussion summarizes the anticipated material U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the
Debentures and Sunbeam common stock to a holder of a Debenture or Sunbeam common
stock that is, for U.S. federal income tax purposes:
o a citizen or resident of the United States;
o a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof;
o an estate, the income of which is subject to United States federal income
taxation regardless of its source; or
o 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 discussion 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 IRS will not challenge one or more of the tax
consequences described herein, and Sunbeam 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 discussion deals only with holders of Debentures who hold the
Debentures and any common stock into which the Debentures are converted as
capital assets. This discussion does not address the tax consequences arising
under the laws of any foreign, state or local jurisdiction and does not address
tax considerations applicable to investors that may be subject to special tax
rules, such as rules relating to persons who are not citizens or residents of
the United States; financial institutions and banks; tax-exempt organizations;
insurance companies; dealers in securities; and persons who hold Debentures or
Sunbeam common stock as part of a hedge, conversion or constructive sale
transaction, straddle or other risk reduction transaction.
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 Sunbeam 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 constitutes original issue discount. 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 Sunbeam."
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 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 or, to the extent
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provided in regulations, on the disposition of exchanged basis property received
in exchange for a Debenture having market discount will generally 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 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. Except as described above under the heading "Market
Discount on Debentures" and except as discussed below, 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 Sunbeam to purchase its
Debentures on a purchase date and Sunbeam issues common stock in satisfaction of
all of the purchase price, as described in the "Description of Debentures"
section under the heading "Purchase of Debentures at the Option of the Holder,"
the exchange of the Debentures for common stock will 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
will generally be the same as the holder's tax basis in the Debenture at the
time of the exchange, except for any tax basis allocable to a fractional share.
The holding period for the common stock received in such exchange will generally
include the holding period of the Debenture exchanged, except that it is
possible that the IRS may argue that the holding period of the common stock
allocable to original issue discount will commence on the date of the purchase.
If the purchase price is paid with a combination of common stock and cash,
gain, but not loss, realized by the holder will generally be recognized, but
only to the extent of all cash received. The character of any gain realized may
be capital or ordinary depending on the circumstances, including the extent to
which a holder actually or constructively has any other equity interest in
Sunbeam. A holder's tax basis in the common stock received will generally be the
same as such holder's tax basis in the Debenture at the time of the exchange
(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 will generally include the holding period of the
Debenture tendered to Sunbeam in exchange, except that it is possible that the
IRS may argue that the holding period of Sunbeam common stock allocable to
original issue discount will commence on the date of the purchase. The receipt
of cash in
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lieu of a fractional share of common stock will 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. The tax basis in the common stock received on conversion of a Debenture
will generally be the same as the holder's tax basis in such Debenture, except
for any tax basis allocable to a fractional share. 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 IRS may argue that the
holding period of the common stock allocable to original issue discount will
commence on the date of the conversion, subject to the discussion above under
the heading "Market Discount on Debentures." The receipt of cash in lieu of a
fractional share of common stock will 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 Sunbeam's current or
accumulated earnings and profits.
If at any time Sunbeam 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
Sunbeam, 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 Sunbeam or in other circumstances as
described in the "Description of Debentures" section under the heading
"Conversion of Debentures," 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
Except to the extent discussed above under the heading "Market Discount on
Debentures," 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.
112
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth, as of May 11, 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.
Please note that the shares of common stock listed under the last column
have been calculated on an "as converted" basis using the conversion rate
described on the front cover page of this prospectus.
<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
- ----------------------------------- ---------------------- ---------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Asset Allocation Management........ $ 500,000 * -- 3,288
Century National Insurance
Company.......................... 2,100,000 * -- 13,808
CFW-C, L.P......................... 50,000,000 2.5 -- 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 * -- 23,013
Fidelity Devonshire Trust: Fidelity
Equity-Income Fund............... 128,730,000 6.4 -- 846,400
Fidelity Financial Trust: Fidelity
Convertible Securities
Fund............................. 22,000,000 1.1 -- 144,650
Fidelity Management Trust Company
on behalf of accounts managed by
it............................... 14,632,000 * -- 110,342
Fidelity Variable Insurance
Products Fund: Equity-Income
Portfolio........................ 60,290,000 3.0 -- 396,407
Global Series Fund II--Prudential
Inconvertible Fund I............. 8,000,000 * -- 52,600
Hamilton Global Investors
Limited.......................... 10,000,000 * -- 65,750
HBK Cayman L.P..................... 95,523,000 4.7 -- 628,064
HBK Offshore Fund Ltd.............. 200,315,000 10.0 80,966 1,317,071
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
Reliance Insurance Company......... 219,000,000 10.9 -- 1,439,925
SG Cowen Securities Corporation.... 4,500,000 * -- 29,588
Soundshore Partners L.P............ 22,500,000 1.1 -- 147,938
The Class IC Company, Ltd.......... 1,500,000 * -- 9,862
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
Zazove Convertible Fund, L.P. ..... 7,000,000 * -- 46,025
</TABLE>
- ------------------
* Less than 1.0%
Deutsche Bank Securities, Inc. and its affiliated companies and/or
individuals may, from time to time, own, have positions in, or options in
Sunbeam common stock and may also provide advisory services and/or lending or
other credit relationships with Sunbeam.
Each of Fidelity Devonshire Trust: Fidelity Equity--Income Fund and
Fidelity Financial Trust: Fidelity Convertible Securities Fund is either an
investment company or a portfolio of an investment company registered under
Section 8 of the Investment Company Act of 1940 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 and provides investment
advisory services to each of these Fidelity entities, and to other registered
investment companies
113
<PAGE>
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.
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.
Except as described above, none of the selling securityholders listed above
has, or within the past three years has had, any position, office or other
material relationship with Sunbeam 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 May 11, 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 securities set forth opposite their respective names
may sell such securities pursuant to the registration statement of which this
prospectus forms a part. Sunbeam may from time to time include additional
selling securityholders in supplements to this prospectus.
114
<PAGE>
PLAN OF DISTRIBUTION
Sunbeam is registering the securities being offered by this prospectus (the
"Offered Securities") to permit public secondary trading of such securities by
the holders from time to time after the date of this prospectus. Sunbeam will
not receive any of the proceeds from the sale by the selling securityholders of
the Offered Securities. Sunbeam 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, including crosses or block transactions:
o 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;
o in the over-the-counter market; or
o 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 the Offered Securities. If the selling securityholders effect these
transactions by selling Offered Securities to or through underwriters,
brokers-dealers or agents, the 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. These
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." Sunbeam 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 or any other automated quotation
system. Accordingly, no assurance can be given as to the development of
liquidity or any trading market for the Debentures. See the risk factors titled
"There is no public market for the Debentures; this may negatively impact you as
a holder of the Debentures."
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 under the 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 the
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without
115
<PAGE>
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.
All expenses of the registration of the Debentures and common stock as
provided for in 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. Sunbeam 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 under 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 Sunbeam.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, is acting as
special counsel to Sunbeam.
EXPERTS
The Consolidated Financial Statements of Sunbeam Corporation and its
consolidated subsidiaries (except The Coleman Company, Inc. and its
subsidiaries) as of December 31, 1998 and for the year then ended, included in
this prospectus and the related financial statement schedule included elsewhere
in the registration statement have been audited by Deloitte & Touche LLP as
stated in their report appearing herein. The consolidated financial statements
of The Coleman Company, Inc. (consolidated with those of Sunbeam) have been
audited by Ernst & Young LLP as stated in their report included herein. The
Consolidated Financial Statements of Sunbeam Corporation and its consolidated
subsidiaries are included herein in reliance upon the respective reports of such
firms, in each case given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP, and Ernst & Young LLP, are independent
auditors.
The Consolidated Financial Statements and schedule of Sunbeam Corporation
included in this prospectus and in the corresponding registration statement as
of December 28, 1997 and for the years ended December 28, 1997 and December 29,
1996 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, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and 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 on the authority of such firm as experts in accounting and
auditing.
116
<PAGE>
WHERE TO FIND MORE INFORMATION
Sunbeam has 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.
Sunbeam is subject to the informational requirements of the Securities
Exchange Act of 1934. Accordingly, Sunbeam files annual, quarterly and current
reports, proxy statements and other information with the SEC. Sunbeam also
furnish to its stockholders annual reports, which include financial statements
audited by its independent certified public accountants, and other reports which
the law requires us to send to its stockholders. The public may read and copy
any reports, proxy statements, or other information that Sunbeam files 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. Sunbeam's 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."
Sunbeam's common stock is listed on the New York Stock Exchange. You can
inspect and copy reports, proxy statements and other information about Sunbeam
at the NYSE's offices at 20 Broad Street, New York, New York 10005.
117
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUNBEAM CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Deloitte & Touche LLP............................................................................ F-2
Report of Arthur Andersen LLP.............................................................................. F-3
Consolidated Statements of Operations
for the Fiscal Years Ended December 31, 1998, December 28, 1997 and December 29, 1996.................... F-4
Consolidated Balance Sheets as of December 31, 1998 and December 28, 1997.................................. F-5
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended December 31, 1998, December 28,
1997 and December 29, 1996............................................................................... F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 1998, December 28, 1997 and
December 29, 1996........................................................................................ F-7
Notes to Consolidated Financial Statements................................................................. F-8
FINANCIAL STATEMENT SCHEDULE*:
II. Valuation and Qualifying Accounts...................................................................... F-47
</TABLE>
<TABLE>
<S> <C>
THE COLEMAN COMPANY, INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors............................................................................. F-48
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................... F-49
Consolidated Statements of Operations
for the years ended December 31, 1998, 1997 and 1996..................................................... F-50
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996..................................................... F-51
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996..................................................... F-52
Notes to Consolidated Financial Statements................................................................. F-53
</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>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Sunbeam Corporation and subsidiaries:
We have audited the accompanying consolidated balance sheet of Sunbeam
Corporation and subsidiaries (the "Company") as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. Our audit also included the financial statement
schedule as of and for the year ended December 31, 1998, listed in the Index to
Financial Statements. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit. We did not audit the consolidated financial
statements of The Coleman Company, Inc. and subsidiaries (consolidated
subsidiaries), which statements reflect total assets constituting 27% of
consolidated total assets as of December 31, 1998, and total revenues
constituting 40% of consolidated total revenues for the year then ended. Those
consolidated financial statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for The Coleman Company, Inc. and subsidiaries, is based solely on the
report of such other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors,
such consolidated financial statements present fairly, in all material respects,
the financial position of Sunbeam Corporation and subsidiaries as of
December 31, 1998, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, based on our audit and (as to the amounts included for The
Coleman Company, Inc. and subsidiaries) the report of other auditors, such
financial statement schedule as of and for the year ended December 31, 1998,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 16, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Sunbeam Corporation:
We have audited the accompanying consolidated balance sheet of Sunbeam
Corporation (a Delaware corporation) and subsidiaries as of December 28, 1997
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the two fiscal years in the period ended December 28,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunbeam Corporation and
subsidiaries as of December 28, 1997, and the results of their operations and
their cash flows for each of the two fiscal years in the period ended
December 28, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II for each of the two years in
the period ended December 28, 1997 is presented for the purpose of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This Schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
October 16, 1998
F-3
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales............................................................ $1,836,871 $1,073,090 $984,236
Cost of goods sold................................................... 1,788,819 830,956 896,938
Selling, general and administrative expense.......................... 718,077 152,653 221,655
Restructuring and asset impairment (benefit) charges................. -- (14,582) 110,122
-- -------- -------
Operating (loss) earnings............................................ (670,025) 104,063 (244,479)
Interest expense..................................................... 131,091 11,381 13,588
Other (income) expense, net.......................................... (4,768) 12 3,738
------- -- -----
(Loss) earnings from continuing operations before
income taxes, minority interest and extraordinary charge.......... (796,348) 92,670 (261,805)
Income taxes (benefit):
Current........................................................... 8,667 1,528 (22,419)
Deferred.......................................................... (18,797) 38,824 (69,206)
-------- ------ --------
(10,130) 40,352 (91,625)
-------- ------ --------
Minority interest.................................................... (10,681) -- --
-------- -- --
(Loss) earnings from continuing operations before extraordinary charge (775,537) 52,318 (170,180)
Earnings from discontinued operations, net of taxes.................. -- -- 839
Loss on sale of discontinued operations, net of taxes................ -- (14,017) (39,140)
Extraordinary charge from early extinguishments of debt.............. (122,386) -- --
--------- -- --
Net (loss) earnings.................................................. $(897,923) $38,301 $(208,481)
========== ======= ==========
(Loss) earnings per share:
(Loss) earnings from continuing operations before extraordinary charge:
Basic........................................................... $(7.99) $0.62 $(2.05)
======= ===== =======
Diluted......................................................... (7.99) 0.60 (2.05)
====== ==== ======
(Loss) from sale of discontinued operations:
Basic........................................................... $-- $(0.17) $(0.46)
=== ======= =======
Diluted......................................................... -- (0.16) (0.46)
== ====== ======
Extraordinary charge:
Basic........................................................... $(1.26) $-- $--
======= === ===
Diluted......................................................... (1.26) -- --
====== == ==
Net (loss) earnings:
Basic........................................................... $(9.25) $0.45 $(2.51)
======= ===== =======
Diluted......................................................... (9.25) 0.44 (2.51)
====== ==== ======
Weighted average common shares outstanding:
Basic........................................................... 97,121 84,945 82,925
Diluted......................................................... 97,121 87,542 82,925
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $61,432 $52,298
Restricted investments........................................................ 74,386 --
Receivables, net.............................................................. 361,774 228,460
Inventories................................................................... 519,189 304,900
Prepaid expenses and other current assets..................................... 74,187 16,584
------ ------
Total current assets....................................................... 1,090,968 602,242
Property, plant and equipment, net................................................ 455,172 249,524
Trademarks, tradenames, goodwill and other, net................................... 1,859,377 207,162
--------- -------
$3,405,517 $1,058,928
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt......................... $119,103 $668
Accounts payable.............................................................. 162,173 108,374
Other current liabilities..................................................... 321,185 124,085
------- -------
Total current liabilities.................................................. 602,461 233,127
Long-term debt, less current portion.............................................. 2,142,362 194,580
Other long-term liabilities....................................................... 248,459 154,300
Deferred income taxes............................................................. 100,473 4,842
Minority interest................................................................. 51,325 --
Commitments and contingencies (Notes 3 and 15)
Shareholders' equity:
Preferred stock (2,000,000 shares authorized, none outstanding) -- --
Common stock (100,739,053 and 89,984,425 shares issued)....................... 1,007 900
Additional paid-in capital.................................................... 1,123,457 479,200
(Accumulated deficit) retained earnings....................................... (809,997) 89,801
Accumulated other comprehensive loss.......................................... (54,030) (33,063)
--------- -------
Other shareholders' equity.................................................... -- (1,714)
--------- -------
260,437 535,124
Treasury stock, at cost (4,454,394 shares in 1997).............................. -- (63,045)
--------- --------
Total shareholders' equity................................................. 260,437 472,079
--------- -------
$3,405,517 $1,058,928
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(ACCUMULATED ACCUMULATED
ADDITIONAL DEFICIT) OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE UNEARNED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS (LOSS) INCOME COMPENSATION STOCK EQUITY
------ ---------- ------------ ------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996.......... $878 $441,786 $266,698 $(24,483) $(397) $(83,449) $601,033
Comprehensive loss:
Net loss.......................... -- -- (208,481) -- -- -- (208,481)
Minimum pension liability
(net of tax of $2,672).......... -- -- -- 4,963 -- -- 4,963
Translation adjustments......... -- -- -- 1,246 -- -- 1,246
-----
Comprehensive loss.................. (202,272)
Common dividends ($0.04 per
share)........................ -- -- (3,318) -- -- -- (3,318)
Exercise of stock options....... 6 7,313 -- -- -- -- 7,319
Grant of restricted stock....... -- (1,120) -- -- (14,346) 15,466 --
Amortization of unearned
compensation.................. -- -- -- -- 7,707 -- 7,707
Retirement and sale of
treasury shares............... -- (31) -- -- -- 4,595 4,564
-- ---- -- -- -- ----- -----
Balance at December 29, 1996........ 884 447,948 54,899 (18,274) (7,036) (63,388) 415,033
Comprehensive income:
Net earnings...................... -- -- 38,301 -- -- -- 38,301
Minimum pension liability......... -- -- -- (14,050) -- -- (14,050)
Translation adjustments........... -- -- -- (739) -- -- (739)
-----
Comprehensive income................ 23,512
Common dividends ($0.04 per share).. -- -- (3,399) -- -- -- (3,399)
Exercise of stock options........... 16 30,496 -- -- -- -- 30,512
Amortization of unearned compensation. -- -- -- -- 5,322 -- 5,322
Other stock issuances............... -- 756 -- -- -- 343 1,099
-- --- -- -- -- --- -----
Balance at December 28, 1997........ 900 479,200 89,801 (33,063) (1,714) (63,045) 472,079
Comprehensive loss:
Net loss.......................... -- -- (897,923) -- -- -- (897,923)
Minimum pension liability......... -- -- -- (21,795) -- -- (21,795)
Translation adjustments........... -- -- -- 828 -- -- 828
---
Comprehensive loss................ (918,890)
Common dividends ($0.02 per share).. -- -- (1,875) -- -- -- (1,875)
Exercise of stock options........... 9 18,383 -- -- -- -- 18,392
Grant of restricted stock.......... 4 18,880 -- -- (32,500) -- (13,616)
Cancellation of restricted stock.... (1) (5,228) -- -- 10,182 (2,250) 2,703
Amortization of unearned compensation. -- -- -- -- 24,032 -- 24,032
Acquisition of Coleman.............. 95 541,428 -- -- -- 65,200 606,723
Warrants issued..................... -- 70,000 -- -- -- -- 70,000
Other stock issuances............... -- 794 -- -- -- 95 889
-- --- -- -- -- -- ---
Balance at December 31, 1998........ $1,007 $1,123,457 $(809,997) $(54,030) $-- $-- $260,437
====== ========== ========== ========= === === ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings............................................. $(897,923) $38,301 $(208,481)
Adjustments to reconcile net (loss)
earnings to net cash (used in)
provided by operating activities:
Depreciation and amortization................................ 107,865 39,757 47,429
Non-cash interest charges.................................... 32,531 -- --
Restructuring and asset impairment (benefit) charges......... -- (14,582) 110,122
Other non-cash special charges............................... -- -- 10,047
Loss on sale of discontinued operations, net of taxes ... -- 14,017 39,140
Deferred income taxes........................................ (18,797) 38,824 (69,206)
Minority interest............................................ (10,681) -- --
Loss on sale of property, plant and equipment................ 3,260 -- --
Provision for fixed assets................................... 39,404 -- --
Provision for excess and obsolete inventory.................. 95,830 -- 60,800
Goodwill impairment.......................................... 62,490 -- --
Issuance of warrants......................................... 70,000 -- --
Non-cash compensation charge................................. 13,118 -- --
Extraordinary charge from early extinguishments of debt . 122,386 -- --
Changes in operating assets and liabilities, exclusive of impact of
divestitures and acquisitions:
Receivables, net............................................. 147,045 1,044 (845)
Inventories.................................................. 37,112 (140,555) 11,289
Accounts payable............................................. (68,187) 4,261 11,029
Restructuring accrual........................................ (3,894) (31,957) --
Prepaid expenses and other current assets and liabilities 50,622 (16,092) 39,657
Income taxes payable......................................... 15,758 52,052 (21,942)
Change in other long-term and non-operating liabilities . 13,994 (1,401) (27,089)
Other, net................................................... (2,347) 10,288 12,213
------- ------ ------
Net cash (used in) provided by operating activities........... (190,414) (6,043) 14,163
--------- ------- ------
INVESTING ACTIVITIES:
Capital expenditures............................................ (53,686) (60,544) (75,336)
Proceeds from sale of divested operations and other assets . 9,575 90,982 --
Purchases of businesses, net of cash acquired................... (522,412) -- --
Other, net...................................................... (139) -- (860)
----- -- -----
Net cash (used in) provided by investing activities........... (566,662) 30,438 (76,196)
--------- ------ --------
FINANCING ACTIVITIES:
Issuance of convertible senior subordinated debentures, net
of financing fees............................................. 729,622 -- --
Net borrowings under revolving credit facility.................. 1,205,675 5,000 30,000
Issuance of long-term debt...................................... -- -- 11,500
Payments of debt obligations, including prepayment penalties (1,186,796) (12,157) (1,794)
Proceeds from exercise of stock options......................... 19,553 26,613 4,684
Sale of treasury stock.......................................... -- -- 4,578
Payments of dividends on common stock........................... (1,875) (3,399) (3,318)
Other, net...................................................... 31 320 (364)
-- --- -----
Net cash provided by financing activities..................... 766,210 16,377 45,286
------- ------ ------
Net increase (decrease) in cash and cash equivalents................ 9,134 40,772 (16,747)
Cash and cash equivalents at beginning of year...................... 52,298 11,526 28,273
------ ------ ------
Cash and cash equivalents at end of year............................ $61,432 $52,298 $11,526
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<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 designer,
manufacturer and marketer of branded consumer products. The Company's primary
business is the manufacturing, marketing and distribution of durable household
and outdoor leisure consumer products through mass market and other distribution
channels in the United States and internationally. The Company also sells its
products to professional and commercial end users such as small businesses,
health care providers, hotels and other institutions. The Company's principal
products include household kitchen appliances; health monitoring and care
products for home use; scales for consumer and professional use for weight
management and business uses; electric blankets and throws; clippers and
trimmers for consumer, professional and animal uses; smoke and carbon monoxide
detectors; outdoor barbecue grills; camping equipment such as tents, lanterns,
sleeping bags and stoves; coolers; backpacks and book bags; and portable
generators and compressors.
In 1998 the Company acquired an indirect controlling interest in The Coleman
Company, Inc. ("Coleman") and all the outstanding common stock of Signature
Brands USA, Inc. ("Signature Brands") and First Alert, Inc. ("First Alert").
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries that it controls. All material intercompany
balances and transactions have been eliminated.
PRESENTATION OF FISCAL PERIODS
To standardize the fiscal period ends of the Company and its acquired entities,
effective with its 1998 fiscal year, the Company has changed its fiscal year end
from the Sunday nearest December 31 to a calendar year. The impact of this
change in fiscal period on net sales for 1998 was to increase sales by
approximately $5.5 million, and the impact on operating results for the period
was to increase the net loss by approximately $1.5 million.
Fiscal years 1997 and 1996 ended on December 28, 1997 and December 29, 1996,
respectively, which encompassed 52-week periods.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Significant accounting estimates include the establishment of the
allowance for doubtful accounts, tax valuation allowances, reserves for sales
returns and allowances, product warranty, product liability, excess and obsolete
inventory, litigation and environmental exposures.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Substantially all of the Company's trade receivables are due from retailers and
distributors located throughout the United States, Europe, Latin America,
Canada, and Japan. Approximately 38% of the Company's sales in 1998 were to its
five largest customers. The Company establishes its credit policies based on an
ongoing evaluation of its customers' creditworthiness and competitive market
conditions and establishes its allowance for
F-8
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
doubtful accounts based on an assessment of exposures to credit losses at each
balance sheet date. The Company believes its allowance for doubtful accounts is
sufficient based on the credit exposures outstanding at December 31, 1998.
However, certain retailers filed for bankruptcy protection in the last several
years and it is possible that additional credit losses could be incurred if
other retailers seek bankruptcy protection or if the trends of retail
consolidation continue.
INVENTORIES
Inventories are stated at the lower-of-cost-or-market with cost being determined
principally by the first-in, first-out method.
In certain instances, the Company receives rebates from vendors based on the
volume of merchandise purchased. Vendor rebates are recorded as reductions in
the price of the purchased merchandise and are recognized in operations as the
related inventories are sold.
Effective in fiscal 1997, the Company began capitalizing manufacturing supplies
inventories, whereas previously these inventories were charged to operations
when purchased. This change increased pre-tax operating earnings in fiscal 1997
by $2.8 million.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company provides for
depreciation using primarily the straight-line method in amounts that allocate
the cost of property, plant and equipment over the following useful lives:
Buildings and improvements.................... 5 to 45 years
Machinery, equipment and tooling.............. 3 to 15 years
Furniture and fixtures........................ 3 to 10 years
Leasehold improvements are amortized on a straight-line basis over the shorter
of its estimated useful life or the term of the lease.
LONG-LIVED ASSETS
The Company accounts for long-lived assets pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The Company
periodically evaluates factors, events and circumstances which include, but are
not limited to, the historical and projected operating performance of the
business operations, specific industry trends and general economic conditions to
assess whether the remaining estimated useful lives of long-lived assets may
warrant revision or whether the remaining asset values are recoverable through
future operations. When such factors, events or circumstances indicate that
long-lived assets should be evaluated for possible impairment, the Company uses
an estimate of cash flows (undiscounted and without interest charges) over the
remaining lives of the assets to measure recoverability. If the estimated cash
flows are less than the carrying value of the asset, the loss is measured as the
amount by which the carrying value of the asset exceeds fair value.
With respect to enterprise level goodwill, the Company reviews impairment when
changes in circumstances, similar to those described above for long-lived
assets, indicate that the carrying value may not be recoverable. Under these
circumstances, the Company estimates future cash flows using the recoverability
method (undiscounted and including related interest charges), as a basis for
recording any impairment loss. An impairment loss is then recorded to adjust the
carrying value of goodwill to the recoverable amount. The impairment loss taken
is no greater than the amount by which the carrying value of the net assets of
the business exceeds its fair value.
F-9
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements and foreign exchange rate
contracts as part of the management of its interest rate and foreign currency
exchange rate exposures. The Company has no derivative financial instruments
held for trading purposes and none of the instruments is leveraged. All
financial instruments are put into place to hedge specific exposures. Amounts to
be paid or received under swap agreements are recognized over the terms of the
agreements as adjustments to interest expense. Amounts receivable or payable
under the agreements are included in receivables or other current liabilities in
the Consolidated Balance Sheets. Gains and losses on foreign currency forward
contracts offset gains and losses resulting from the underlying transactions.
Gains and losses on contracts that hedge specific foreign currency commitments
are deferred and recorded in operations in the period in which the underlying
transaction is recorded.
CAPITALIZED INTEREST
Interest costs for the construction of certain long-term assets are capitalized
and amortized over the related assets' estimated useful lives. Total interest
costs during 1998, 1997 and 1996 amounted to $131.9 million, $12.3 million and
$14.0 million, respectively, of which $0.8 million, $0.9 million and $0.4
million, respectively, was capitalized as a cost of the related long-term
assets.
DEFERRED FINANCING COSTS
Costs incurred in connection with obtaining financing are deferred and amortized
as a charge to interest expense over the terms of the related borrowings using
the interest method.
AMORTIZATION PERIODS
Trademarks, tradenames and goodwill are being amortized on a straight-line basis
over 20 to 40 years.
REVENUE RECOGNITION
The Company recognizes sales and related cost of goods sold from product sales
at the latter of the time of shipment or when title passes to the customers. In
some situations, the Company has shipped product with the right of return where
the Company is unable to reasonably estimate the level of returns and/or the
sale is contingent upon the resale of the product. In these situations, the
Company does not recognize revenue upon product shipment, but rather when the
buyer of the product informs the Company that the product has been sold. Net
sales is comprised of gross sales less provisions for estimated customer
returns, discounts, promotional allowances, cooperative advertising allowances
and costs incurred by the Company to ship product to customers. Reserves for
estimated returns are established by the Company concurrently with the
recognition of revenue. Reserves are established based on a variety of factors,
including historical return rates, estimates of customer inventory levels, the
market for the product and projected economic conditions. The Company monitors
these reserves and makes adjustments to them when management believes that
actual returns or costs to be incurred differ from amounts recorded.
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.
F-10
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
PRODUCT LIABILITY
The Company provides for product liability costs it estimates will be needed to
cover future product liability costs for product sold during the year. Estimates
of product liability costs are periodically reviewed and adjusted, when
necessary, to consider actual experience, and other relevant factors.
LEGAL COSTS
The Company records charges for the costs it anticipates incurring in connection
with litigation and claims against the Company when management can reasonably
estimate these costs.
INCOME TAXES
The Company accounts for income taxes under the liability method in accordance
with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. The provision for income taxes
includes deferred income taxes resulting from items reported in different
periods for income tax and financial statement purposes. Deferred tax assets and
liabilities represent the expected future tax consequences of the differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The effects of changes in tax rates
on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
ADVERTISING COSTS
Media advertising costs included in Selling, General and Administrative Expense
("SG&A") are expensed as incurred. Allowances provided to customers for
cooperative advertising are charged to operations, as earned, based on revenues
and are included as a deduction from gross sales in determining net sales. The
amounts charged to operations for media and cooperative advertising during 1998,
1997 and 1996 were $124.5 million, $55.7 million and $78.7 million,
respectively.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed in the period incurred. The
amounts charged against operations during 1998, 1997 and 1996 were $18.7
million, $5.7 million and $6.5 million, respectively.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of subsidiaries, other than those operating in highly
inflationary economies, are translated into U.S. dollars with resulting
translation gains and losses accumulated in a separate component of
shareholders' equity. Income and expense items are converted into U.S. dollars
at average rates of exchange prevailing during the year.
For subsidiaries operating in highly inflationary economies (Venezuela and
Mexico), inventories and property, plant and equipment are translated at the
rate of exchange on the date the assets were acquired, while other assets and
liabilities are translated at year-end exchange rates. Translation adjustments
for those operations are included in Other (Income) Expense, Net in the
accompanying Consolidated Statements of Operations. Effective January 1, 1999,
Mexico will no longer be considered highly inflationary.
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.
F-11
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
The Company has chosen to account for its stock options using the intrinsic
value based method prescribed in APB Opinion No. 25 and, accordingly, does not
recognize compensation expense for stock option grants made at an exercise price
equal to or in excess of the fair market value of the stock at the date of
grant. Pro forma net income and earnings per share amounts as if the fair value
method had been adopted are presented in Note 9. SFAS No. 123 does not impact
the Company's results of operations, financial position or cash flows.
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE OF COMMON STOCK
Basic (loss) earnings per common share calculations are determined by dividing
(loss) earnings available to common shareholders by the weighted average number
of shares of common stock outstanding. Diluted (loss) earnings per share are
determined by dividing (loss) earnings available to common shareholders by the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding (all related to outstanding stock options, restricted
stock, warrants and the Zero Coupon Convertible Senior Subordinated Debentures).
For the years ended December 31, 1998 and December 29, 1996, respectively,
1,902,177 and 1,552,684 shares related to stock options, were not included in
diluted average common shares outstanding because their effect would be
antidilutive. Diluted average common shares outstanding as of December 29, 1996
also excluded (78,654) shares related to restricted stock. Diluted average
common shares outstanding as of December 31, 1998 also excluded 13,242,050
shares related to the conversion feature of the Zero Coupon Convertible Senior
Subordinated Debentures (see Note 3) and 23,000,000 shares issuable on the
exercise of warrants, due to antidilution. For the year ended December 28, 1997,
the dilutive effect of 2,718,649 equivalent shares related to stock options and
(120,923) equivalent shares of restricted stock were used in determining the
dilutive average shares outstanding.
NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 requires computer
software costs associated with internal use software to be expensed as incurred
until certain capitalization criteria are met. The Company will adopt SOP 98-1
on January 1, 1999. Adoption of this statement is not expected to have a
material impact on the Company's consolidated financial position, results of
operations, or cash flows. Actual charges incurred due to systems projects may
be material.
In April 1998, the AICPA issued Statement of Position 98-5, REPORTING ON THE
COST OF START-UP ACTIVITIES ("SOP 98-5"). SOP 98-5 requires all costs associated
with pre-opening, pre-operating and organization activities to be expensed as
incurred. The Company will adopt SOP 98-5 beginning January 1, 1999. Adoption of
this statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations, or cash flows.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 requires the recognition of all
derivatives in the Consolidated Balance Sheets as either assets or liabilities
measured at fair value. The Company will adopt SFAS No. 133 for the 2000 fiscal
year. The Company has not yet determined the impact SFAS No. 133 will have on
its consolidated financial position, results of operations or cash flows.
F-12
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
2. ACQUISITIONS
On March 30, 1998, the Company, through a wholly-owned subsidiary, acquired
approximately 81% of the total number of then outstanding shares of common stock
of Coleman from an affiliate of MacAndrews & Forbes Holdings, Inc. ("M&F"), in
exchange for 14,099,749 shares of the Company's common stock and approximately
$160 million in cash. In addition, the Company assumed approximately $1,016
million in debt. The value of the common stock issued at the date of acquisition
was derived by using the average closing stock price as reported on the New York
Stock Exchange Composite Tape for the day before and day of the public
announcement of the acquisition. Immediately thereafter, as a result of the
exercise of employee stock options, Sunbeam's indirect beneficial ownership of
Coleman decreased to approximately 79% of the total number of the outstanding
shares of Coleman common stock.
On August 12, 1998, the Company announced that, following investigation and
negotiation conducted by a Special Committee of the Board consisting of four
outside directors not affiliated with M&F, the Company had entered into a
settlement agreement with an affiliate of M&F pursuant to which the Company was
released from certain threatened claims of M&F and its affiliates arising from
the Coleman acquisition and M&F agreed to provide certain management personnel
and assistance to the Company in exchange for the issuance to the M&F affiliate
of a five-year warrant to purchase up to 23 million shares of the Company's
common stock at a cash exercise price of $7.00 per share, subject to
antidilution adjustments. Accordingly, a $70.0 million non-cash SG&A expense was
recorded in the third quarter of 1998, based on a valuation performed as of
August 1998 using facts existing at that time. The valuation was conducted by an
independent consultant engaged by the Special Committee of the Board of
Directors.
The Company expects to acquire the remaining equity interest in Coleman pursuant
to a merger transaction in which the existing Coleman minority shareholders will
receive 0.5677 shares of the Company's common stock and $6.44 in cash for each
share of Coleman common stock outstanding. In addition, unexercised options
under Coleman's stock option plans will be cashed out at a price per share equal
to the difference between $27.50 and the exercise price of such options. The
Company expects to issue approximately 6.7 million shares of common stock and
expend approximately $87 million in cash to complete the Coleman acquisition.
Although there can be no assurance, it is anticipated the Coleman merger will
occur in the second half of 1999. The acquisition of the remaining outstanding
shares of Coleman common stock will be accounted for under the purchase method
of accounting on the date of consummation of the Coleman merger. (Also see Note
15 for information regarding the proposed issuance of warrants related to this
transaction.)
On April 6, 1998, the Company completed the acquisitions of First Alert, valued
at approximately $182 million (including $133 million of cash and $49 million of
assumed debt) and Signature Brands valued at $255 million, (reflecting cash
paid, including the required retirement or defeasance of debt).
All of these acquisitions were accounted for by the purchase method of
accounting. Accordingly, the results of operations of the acquired entities are
included in the accompanying Consolidated Statements of Operations from their
respective dates of acquisition.
F-13
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2. ACQUISITIONS - (CONTINUED)
In each acquisition, the purchase price paid has been allocated to the fair
value (determined by independent appraisals) of tangible and identified
intangible assets acquired and liabilities assumed as follows (in millions):
<TABLE>
<CAPTION>
SIGNATURE FIRST
COLEMAN BRANDS ALERT TOTAL
------- --------- ----- -----
<S> <C> <C> <C> <C>
Value of common stock issued......................... $607 $-- $-- $607
Cash paid including expenses and mandatory
redemption of debt, net of cash acquired......... 160 255 133 548
Cash received from sale of Coleman Spas, Inc......... (17) -- -- (17)
Cash received from stock option proceeds............. (9) -- -- (9)
--- -- -- ---
Net cash paid and equity issued...................... 741 255 133 1,129
Fair value of liabilities assumed.................... 1,455 83 103 1,641
----- -- --- -----
2,196 338 236 2,770
Fair value of assets acquired........................ 1,113 191 172 1,476
----- --- --- -----
Excess of purchase price over fair value
of net assets acquired............................ $1,083 $147 $64 $1,294
====== ==== === ======
</TABLE>
The excess of purchase price over the fair value of net assets acquired has been
classified as goodwill. Goodwill related to the Coleman and Signature Brands
acquisitions is being amortized on a straight-line basis over 40 years. During
the fourth quarter of 1998, as a result of the significant loss incurred by
First Alert, as well as its future prospects, the Company determined that the
goodwill relating to this acquisition was impaired and, based on the
determination of fair value, has written-off the net carrying value of goodwill
approximating $62.5 million. This one-time charge is reflected in SG&A expense
in the Consolidated Statements of Operations.
The following unaudited pro forma financial information for the Company gives
effect to the Coleman and Signature Brands acquisitions as if they had occurred
at the beginning of the periods presented. No pro forma adjustments have been
made for the First Alert acquisition as its effects are not significant. These
pro forma results have been prepared for informational purposes only and do not
purport to be indicative of the results of operations which actually would have
occurred had the acquisitions been consummated on the dates indicated, or which
may result in the future. The unaudited pro forma results follow (in millions,
except per share data):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------
DECEMBER 31, DECEMBER 28,
1998 1997
---- ----
<S> <C> <C>
Net sales............................................................... $2,098.7 $2,408.9
Net loss from continuing operations before extraordinary charge... (801.1) (23.6)
Basic and diluted loss per share from continuing operations
before extraordinary charge........................................ (7.96) (0.24)
</TABLE>
F-14
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. DEBT
Debt at the end of each fiscal year consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Term loans, due in installments through 2006,
average interest rate of 8.47% for 1998....................................... $1,262,500 $--
Revolving credit facility, average interest rate
of 8.55% for 1998 and 5.99% for 1997.......................................... 94,000 110,000
Zero coupon convertible senior subordinated
debentures, net of unamortized discount of
$1,234,845, due 2018.......................................................... 779,155 --
Senior subordinated notes, bearing interest at
13.0%, payable semiannually, due August 1999.................................. 70,000 --
Hattiesburg industrial revenue bond due 2009,
fixed interest rate of 7.85%.................................................. -- 75,000
Other lines of credit, including foreign facilities.. 45,803 --
Other long-term borrowings, due through 2012, weighted average interest rate of
3.89% and 3.92%, at December 31, 1998 and December 28,
1997, respectively............................................................ 10,007 10,248
------ ------
2,261,465 195,248
Less short-term debt and current portion of
long-term debt............................................................. 119,103 668
------- ---
Long-term debt............................................................. $2,142,362 $194,580
========== ========
</TABLE>
Concurrent with the acquisitions, the Company replaced its $250 million
syndicated unsecured five-year revolving credit facility with a revolving and
term credit facility (the "New Credit Facility"). The New Credit Facility
provided for aggregate borrowings of up to $1.7 billion. As a result of its
operating losses incurred in fiscal 1998, among other things, the Company was
not in compliance with certain covenants set forth in the New Credit Facility.
The Company and its lenders entered into agreements as of June 30, 1998, October
19, 1998 and April 10, 1999, in each case providing for waivers of compliance
with such covenants under the New Credit Facility. Effective April 15, 1999,
Sunbeam and its lenders entered into an agreement which waived compliance with
such covenants through April 10, 2000 and provided for new financial covenants.
The following description of the New Credit Facility reflects the terms of the
New Credit Facility as amended through April 15, 1999.
The New Credit Facility provided for aggregate borrowings of up to $1.7 billion
pursuant to: (i) a revolving credit facility in an aggregate principal amount of
up to $400 million maturing March 30, 2005 ($52.5 million of which may only be
used to complete the Coleman merger if the Coleman merger is not completed prior
to August 31, 1999); (ii) $800 million in term loans maturing on March 30, 2005
(of which $35.0 million may only be used to complete the Coleman merger) and
(iii) a $500 million term loan maturing September 30, 2006. As of December 31,
1998, $1.4 billion was outstanding and $0.3 billion was available for borrowing
under the New Credit Facility.
Pursuant to the New Credit Facility, interest accrues, at the Company's option:
(i) at the London Interbank Offered Rate ("LIBOR"), or (ii) at the base rate of
the administrative agent which is generally the higher of the prime commercial
lending rate of the administrative agent or the Federal Funds Rate plus 0.50%,
in each case plus an agreed upon interest margin which is currently 3.75% for
LIBOR borrowings and 2.50% for base rate borrowings. The applicable interest
margin is subject to downward adjustment upon the occurrence of certain events.
Borrowings under the New Credit Facility are secured by a pledge of the stock of
the Company's material subsidiaries, including Coleman, and by a security
interest in substantially all of the assets of Sunbeam and its material domestic
subsidiaries, other than Coleman and its material subsidiaries except as
described below. Currently, Coleman's inventory and related assets are pledged
to secure its obligations for letters of credit issued for its account under the
New Credit Facility. Additionally, as security for Coleman's note payable to the
Company, Coleman pledged substantially all of its domestic assets, other than
real property, including 66% of the
F-15
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. DEBT - (CONTINUED)
stock of its direct foreign subsidiaries and domestic holding companies for its
foreign subsidiaries, and all of the stock of its other direct domestic
subsidiaries (but not the assets of Coleman's subsidiaries). The pledge runs in
favor of Sunbeam's lending banks, to which the Coleman note has been pledged as
security for Sunbeam's obligations to them. Upon completion of the Coleman
merger, substantially all of Coleman's assets and the assets of Coleman's
domestic subsidiaries will be pledged to secure the obligations under the New
Credit Facility. In addition, borrowings under the New Credit Facility are
guaranteed by a number of the Company's wholly owned material domestic
subsidiaries and these subsidiary guarantees are secured as described above.
Upon completion of the Coleman merger, Coleman and each of its United States
subsidiaries will become guarantors of the obligations under the New Credit
Facility. To the extent borrowings are made by any subsidiaries of the Company,
the obligations of such subsidiaries are guaranteed by the Company.
The New Credit Facility contains covenants customary for credit facilities of a
similar nature, including limitations on the ability of Sunbeam and its
subsidiaries, including Coleman, to, among other things, (i) declare dividends
or repurchase stock, (ii) prepay, redeem or repurchase debt, incur liens and
engage in sale-leaseback transactions, (iii) make loans and investments, (iv)
incur additional debt, (v) amend or otherwise alter material agreements or enter
into restrictive agreements, (vi) make capital and year 2000 compliance
expenditures, (vii) engage in mergers, acquisitions and asset sales, (viii)
engage in certain transactions with affiliates, (ix) settle certain litigation,
(x) alter its cash management system and (xi) alter the businesses they conduct.
Sunbeam is also required to comply with specified financial covenants and
ratios. The New Credit Facility provides for events of default customary for
transactions of this type, including nonpayment, misrepresentation, breach of
covenant, cross-defaults, bankruptcy, material adverse change arising from
compliance with ERISA, material adverse judgments, entering into guarantees and
change of ownership and control. It is also an event of default under the New
Credit Facility if Sunbeam's registration statement in connection with the
Coleman merger is not declared effective by the Securities and Exchange
Commission ("SEC") on or before October 30, 1999 or if the merger does not occur
within 25 business days of the effectiveness of the registration statement or if
the cash consideration (including any payments on account of the exercise of any
appraisal rights, but excluding related legal, accounting and other customary
fees and expenses) to consummate the Coleman merger exceeds $87.5 million.
Although there can be no assurance, the Company anticipates that it will satisfy
these conditions. Unless waived by the bank lenders, the failure to satisfy
these requirements (as with the occurrence of any other event of default) would
permit the bank lenders to accelerate the maturity of all outstanding borrowings
under the New Credit Facility. The New Credit Facility also includes provisions
for the deferral of the 1999 scheduled term loan payments of $69.3 million,
subject to delivery of certain collateral documents and the filing of an
amendment to the Company's registration statement on Form S-4 relating to the
Coleman merger. If these conditions are met, and there are no events of default,
the scheduled loan payments will be extended until April 10, 2000. The Company
anticipates that it will satisfy these conditions and, accordingly, has
classified these amounts as long-term in the Consolidated Balance Sheet.
In March 1998, the Company completed an offering of Zero Coupon Convertible
Senior Subordinated Debentures due 2018 (the "Debentures") at a yield to
maturity of 5.0% (approximately $2,014 million principal amount at maturity)
which resulted in approximately $730 million of net proceeds. The Debentures are
exchangeable for shares of the Company's common stock at an initial conversion
rate of 6.575 shares for each $1,000 principal amount at maturity of the
Debentures, subject to adjustment upon occurrence of certain events. The
Debentures are subordinated in right of payment to all existing and future
senior indebtedness of the Company. The Debentures are not redeemable by the
Company prior to March 25, 2003. On or after such date, the Debentures are
redeemable for cash with at least 30 days notice, at the option of the Company.
The Company is required to purchase Debentures at the option of the holder as of
March 25, 2003, March 25, 2008 and March 25, 2013, at purchase prices equal to
the issue price plus accrued original discount to such dates. The Company may,
at its option, elect to pay any such purchase price in cash or common stock, or
any combination thereof. The Company was required to file a registration
statement with the SEC to register the Debentures by June 23, 1998. This
registration statement was filed February 4, 1999 and the SEC has not declared
the
F-16
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. DEBT - (CONTINUED)
registration statement effective. Sunbeam's failure to file the registration
statement by June 23, 1998 did not constitute a default under the terms of the
Debentures. As part of the normal review process by the SEC, a number of
comments have been made by the staff of the division of Corporation Finance
relating to the registration statement and the restated 1996 and 1997 financial
statements included therein. The Company expects to resolve these comments when
it files an amendment to the registration statement. From June 23, 1998 until
the registration statement is declared effective, the Company is required to pay
to the Debenture holders cash liquidated damages accruing, for each day during
such period, at a rate per annum equal to 0.25% during the first 90 days and
0.50% thereafter multiplied by the total of the issue price of the Debentures
plus the original issue discount thereon on such day. The Company made its first
payment of approximately $0.5 million to the Debenture holders on September 25,
1998. As of December 31, 1998 the Company had accrued additional payments
totaling $1.0 million. The Company made a payment to Debenture holders in March
1999 of approximately $2.0 million. This amount included liquidated damages that
accrued during the first quarter of 1999.
In connection with the acquisition of Signature Brands, the Company was required
to defease $70.0 million of acquired debt. Cash was placed with a trustee to
provide for the defeasance, including the related prepayment penalty. This cash
was used to purchase Treasury Notes. Accordingly, $74.4 million of restricted
investments held by the trustee for the August 1999 liquidation of this acquired
debt are reflected as an asset and $70.0 million is reflected as short-term debt
in the Consolidated Balance Sheet at December 31, 1998. The prepayment penalty
is reflected as part of the acquisition price of Signature Brands.
In March 1998, the Company prepaid the $75.0 million 7.85% industrial revenue
bond related to its Hattiesburg facility originally due in 2009. In connection
with the early extinguishment of this debt, the Company recognized an
extraordinary charge of $7.5 million. As a result of repayment of certain
indebtedness assumed in the Coleman acquisition, the Company also recognized an
extraordinary charge of $114.9 million. These extraordinary charges consisted
primarily of redemption premiums.
During 1997, the Company repaid $12.2 million of long-term borrowings related to
the divested furniture operations and other assets sold.
At December 31, 1998, the aggregate annual maturities on short-term and
long-term debt in each of the years 1999-2003, and thereafter, were $119
million, $1,355 million, $1 million, $1 million, $1 million, and $5 million,
respectively. In addition, the fully accreted Debenture amount of $2,014 million
matures in 2018. The total of annual debt maturities for all years presented
does not agree to the balance of debt outstanding at December 31, 1998 as a
result of the accretion of discount on the Debentures. The outstanding balances
relating to the New Credit Facility are included in the maturity schedule in
2000, consistent with the expiration of the covenant waiver. Sunbeam has made no
decision with respect to the repayment or refinancing of indebtedness incurred
or to be incurred under the New Credit Facility and may repay such indebtedness
out of its internally generated funds or from proceeds of a subsequent
financing. Any decisions with respect to such repayment or refinancing will be
made based on a review from time to time of the advisability of particular
transactions, as well as on prevailing interest rates and financial and economic
conditions.
4. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments as of December 31, 1998
and December 28, 1997 was estimated based upon the following methods and
assumptions:
CASH AND CASH EQUIVALENTS--The carrying amount of cash and cash equivalents is
assumed to approximate fair value as cash equivalents include all highly liquid,
short-term investments with original maturities of three months or less.
F-17
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. FINANCIAL INSTRUMENTS - (CONTINUED)
SHORT AND LONG TERM DEBT--The fair value of the Company's fixed rate debt is
estimated using either reported transaction values or discounted cash flow
analysis. The fair value of the Company's fixed rate debt was $319 million as of
December 31, 1998 as compared to the carrying value of $859 million. The
carrying value of the Company's variable rate debt is assumed to approximate
market based upon periodic adjustments of the interest rate to the current
market rate in accordance with the terms of the debt agreements. The carrying
value of the Company's various debt outstanding as of December 28, 1997
approximated market.
LETTERS OF CREDIT AND SURETY BONDS--The Company utilizes stand-by letters of
credit to back certain financing instruments and insurance policies and
commercial letters of credit guaranteeing various international trade
activities. In addition, the Company also entered into surety bonds largely as a
result of litigation judgements that are currently under appeal. The contract
amounts of the letters of credit and surety bonds approximate their fair values.
The contract value of letters of credit were $82.3 million and $29.0 million as
of December 31, 1998 and December 28, 1997, respectively. Contract values for
surety bonds as of December 31, 1998 were approximately $26.5 million and were
not significant at December 28, 1997.
DERIVATIVE FINANCIAL INSTRUMENTS--The Company utilizes interest rate swap
agreements to reduce the impact on interest expense of fluctuating interest
rates on its floating rate debt. The use of derivatives did not have a material
impact on the Company's operations in 1998, 1997 and 1996. At December 31, 1998,
the Company held three floating to fixed interest rate swap agreements, one with
a notional value of $25 million and two with notional amounts of $150 million
each. The swap agreements are contracts to exchange floating rate for fixed
interest payments periodically over the lives of the agreements without the
exchange of the underlying notional principal amounts. The swaps expire in
January 2003, June 2001 and June 2003, respectively. Under these agreements, the
Company received an average floating rate of 5.64%, 5.59% and 5.59%,
respectively, and paid an average fixed rate of 6.12%, 5.75% and 5.58%,
respectively, during 1998. The Company estimates that it would have to pay $7.3
million to terminate the 1998 swaps. The Company had no swap agreements
outstanding at December 28, 1997.
In order to mitigate the transaction exposures that may arise from changes in
foreign exchange rates, the Company purchases foreign currency option and
forward contracts to hedge specific transactions, principally the purchases of
inventories. The option contracts typically expire within one year. The options
are accounted for as hedges pursuant to SFAS No. 52, FOREIGN CURRENCY
TRANSLATION, accordingly gains and losses thereon are deferred and recorded in
operations in the period in which the underlying transaction is recorded. At
December 31, 1998, the Company held purchased option contracts with a notional
value of $32.3 million and forward contracts with a notional value of $30.9
million. These contracts had gross unrealized gains of $0.3 million and gross
unrealized losses of $0.7 million at December 31, 1998. The Company did not hold
any such contracts at December 28, 1997.
Exposure to market risk on interest rate and foreign currency financial
instruments results from fluctuations in interest and currency rates,
respectively, during the periods in which the contracts are outstanding. The
counterparties to the Company's interest rate swap agreements and currency
exchange contracts consist of a diversified group of major financial
institutions, each of which is rated investment grade A or better. The Company
is exposed to credit risk to the extent of potential nonperformance by
counterparties on financial instruments. The Company believes the risk of
incurred losses due to credit risk is remote.
5. ACCOUNTS RECEIVABLE SECURITIZATION
In December 1997, the Company entered into a receivable securitization program,
that expires March 2000, to sell without recourse, through a wholly owned
subsidiary, certain trade accounts receivable, up to a maximum of $70.0 million.
During 1998, the Company has received approximately $200.0 million under this
arrangement. At December 31, 1998, the Company had reduced accounts receivable
by $20.0 million for receivables sold under this program. At December 28, 1997,
the Company had received $58.9 million under this arrangement, of
F-18
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. ACCOUNTS RECEIVABLE SECURITIZATION4. (CONTINUED)
which $39.1 million related to sales recorded in fiscal 1997 and the balance
related to sales to be recognized in the first quarter of 1998. Accordingly, at
December 28, 1997, the accompanying Consolidated Balance Sheet reflects a
reduction in accounts receivable of $39.1 million and an increase in other
current liabilities of $19.8 million. Proceeds from the sales of receivables
were used to reduce borrowings under the Company's revolving credit facility or
to provide cash flow for working capital purposes, thereby reducing the need to
borrow under the credit facility. Costs of the program, which primarily consist
of the purchaser's financing cost of issuing commercial paper backed by the
receivables, totaled $2.3 million and $0.2 million during 1998 and 1997,
respectively, and have been classified as interest expense in the accompanying
Consolidated Statements of Operations. The Company, through a wholly-owned
subsidiary, retains collection and administrative responsibilities for the
purchased receivables. This agreement contains cross-default provisions that
provide the purchaser of the receivables an option to cease purchasing
receivables from the Company if the Company is in default under the New Credit
Facility.
6. INCOME TAXES
(Loss) earnings from continuing operations before income taxes, minority
interest and extraordinary charge for each fiscal year is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic............................................. $(723,179) $80,946 $(244,255)
Foreign.............................................. (73,169) 11,724 (17,550)
-------- ------ --------
$(796,348) $92,670 $(261,805)
========== ======= ==========
</TABLE>
Income tax provisions include current and deferred taxes (tax benefits) for each
fiscal year as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal... $1,203 $(3,421) $(22,924)
State.......... 275 3,266 (202)
Foreign... 7,189 1,683 707
----- ----- ---
8,667 1,528 (22,419)
----- ----- --------
Deferred:
Federal... (6,343) 30,554 (57,211)
State.......... (1,316) 3,962 (11,050)
Foreign... (11,138) 4,308 (945)
-------- ----- -----
(18,797) 38,824 (69,206)
-------- ------ --------
$(10,130) $40,352 $(91,625)
========= ======= =========
</TABLE>
F-19
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES - (CONTINUED)
The effective tax rate on earnings (loss) before income taxes, minority interest
and extraordinary charges varies from the current statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(Benefit) provision at statutory rate......................... (35.0)% 35.0% (35.0)%
State taxes, net.............................................. -- 5.1 (2.8)
Amortization of intangible assets
and goodwill............................................... 4.3 -- --
Warrants issued in settlement of claim... 3.1 -- --
Foreign earnings and dividends taxed
at other rates............................................. 2.7 2.0 2.3
Valuation allowance........................................... 23.6 20.4 --
Reversal of tax liabilities
no longer required......................................... -- (14.4) --
Other, net.................................................... -- (4.6) 0.5
------ ----- -------
Effective tax rate (benefit) provision... (1.3)% 43.5% (35.0)%
====== ===== =======
</TABLE>
6. INCOME TAXES - (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Receivables.......................................................... $19,180 $10,516
Postretirement benefits other than pensions .. 22,714 11,430
Reserves for self-insurance and warranty costs 40,765 33,426
Pension liabilities.................................................. 16,334 2,811
Inventories.......................................................... 27,822 14,437
Net operating loss carryforwards..................................... 322,273 --
Tax credits.......................................................... 13,510 12,955
Other, net........................................................... 89,577 33,388
------ ------
Total deferred tax assets.................................. 552,175 118,963
Valuation allowance.................................................. 290,520 23,215
------- ------
Net deferred tax assets.................................... 261,655 95,748
------- ------
Deferred tax liabilities:
Depreciation......................................................... 43,377 22,532
Acquired intangible assets........................................... 244,378 68,311
Other, net........................................................... 19,850 9,747
------ -----
Total deferred tax liabilities............................. 307,605 100,590
------- -------
Net deferred tax liabilities............................... $(45,950) $(4,842)
========= ========
</TABLE>
The Company establishes valuation allowances in accordance with the provisions
of SFAS No. 109. The Company continually reviews the adequacy of the valuation
allowances and recognizes tax benefits when it is more likely than not that the
benefits will be realized. In the fourth quarter of 1997, the Company increased
the valuation allowance by $23.2 million, reflecting management's assessment
that it was more likely than not that the deferred tax assets would not be
realized through future taxable income. Of this amount, approximately $18.9
million related to deferred tax assets, the majority of which was recognized as
a benefit in the first three quarters of 1997. The remainder related to minimum
pension liabilities and was therefore recorded as an adjustment in shareholders'
equity. This assessment was made as a result of the significant leverage
undertaken by the Company as part of the acquisitions (see Note 2) and the
significant decline in net sales and earnings from anticipated levels during the
fourth quarter of 1997 and the first quarter of 1998.
F-20
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES - (CONTINUED)
During 1998, the Company increased the valuation allowance to $291 million,
which increase reflects management's assessment that it is more likely than not
that the deferred tax asset will not be realized through future taxable income.
At December 31, 1998, the Company had net operating loss carryforwards ("NOL's")
of approximately $725 million for domestic income tax purposes and $169 million
for foreign income tax purposes. The domestic NOL's begin expiring in 2018. Of
the foreign tax NOL's, $3 million, $4 million, $19 million, $18 million and $16
million expire in the years ending December 31, 1999 through 2003, respectively,
and $91 million of such NOL's have an unlimited life.
The Company has not provided U.S. income taxes on undistributed foreign earnings
of approximately $32 million at December 31, 1998, as the Company intends to
permanently reinvest these earnings in the future growth of the business.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its hypothetical
calculation.
7. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors several defined benefit pension plans covering eligible
U.S. salaried and hourly employees. Benefit accruals under such plans covering
all U.S. salaried employees were frozen, effective December 31, 1990.
Accordingly, no credit in the pension formula is given for service or
compensation after that date. However, these employees continue to earn service
toward vesting in their interest in the frozen plans as of December 31, 1990.
The Company also provides health care and life insurance benefits to certain
former employees who retired from the Company prior to March 31, 1991. The
Company has consistently followed a policy of funding the cost of postretirement
health care and life insurance benefits on a pay-as-you-go basis.
As a result of the Company's acquisitions of Coleman and First Alert (see Note
2), the liabilities for their respective defined benefit pension plans (the
"Plans") were assumed and have been accounted for in accordance with Accounting
Principles Board Opinion No.16 ("APB 16"), ACCOUNTING FOR BUSINESS COMBINATIONS.
Effective January 1, 1999, the Coleman and First Alert salaried pension plans
were amended to change the pension benefit formula to a cash balance formula
from the existing benefit calculation. The benefits accrued under these plans as
of December 31, 1998 were frozen and converted to the new cash balance plan
using a 7.0% interest rate assumption. The effect of the amendment of the Plans
is reflected in the projected benefit obligation as of the date of acquisition
as required by APB 16. Under the cash balance plan, the Company will credit
certain participants' accounts annually. At the date of acquisition the pension
benefit obligation and the fair value of the plan assets attributable to these
Plans were $43.4 million and $27.7 million, respectively, and are reflected in
the table below.
In addition, Coleman provided certain unfunded postretirement health and life
insurance benefits for certain retired employees. At the date of acquisition the
postretirement benefit obligation associated with this plan was $19.5 million as
reflected in the table below, and has been accounted for in accordance with APB
16.
The Company funds all pension plans in amounts consistent with applicable laws
and regulations. Pension plan assets include corporate and U.S. government
bonds, corporate stocks, mutual funds, fixed income securities, and cash
equivalents.
Employees of non-U.S. subsidiaries generally receive retirement benefits from
Company sponsored plans or from statutory plans administered by governmental
agencies in their countries. The assets, liabilities and pension costs of the
Company's non-U.S. defined benefit retirement plans are not material to the
consolidated financial statements.
On January 1, 1998, the Company adopted SFAS No. 132, EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS ("SFAS No. 132"). This
statement revises
F-21
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. EMPLOYEE BENEFIT PLANS - (CONTINUED)
employers' disclosures about pension and other postretirement benefit plans.
SFAS No. 132 does not change the method of accounting for such plans. The
following table includes disclosures of the funded status and amounts recognized
in the Company's Consolidated Balance Sheets at the end of each fiscal year as
required by SFAS No. 132 (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year . $127,229 $122,754 $14,220 $14,555
Acquisitions.................................... 43,404 -- 19,477 --
Service cost.................................... 1,551 157 689 --
Interest cost................................... 10,875 8,970 2,088 996
Amendments...................................... -- 84 -- --
Actuarial loss.................................. 20,456 10,630 4,069 --
Settlement...................................... -- (1,732) -- --
Benefits paid................................... (15,018) (13,634) (1,677) (1,331)
-------- -------- ------- -------
Benefit obligation at end of year............... $188,497 $127,229 $38,866 $14,220
======== ======== ======= =======
Change in Plan Assets:
Fair value of plan assets at beginning
of year..................................... $116,485 $116,522 $-- $--
Acquisitions.................................... 27,657 -- -- --
Actual return on plan assets.................... 6,424 12,511 -- --
Employer contributions.......................... 8,889 2,818 1,677 1,331
Settlement...................................... -- (1,732) -- --
Benefits paid................................... (15,018) (13,634) (1,677) (1,331)
-------- -------- ------- -------
Fair value of plan assets at end of year $144,437 $116,485 $-- $--
======== ======== === ===
Reconciliation of Funded Status:
Funded status................................... $(44,060) $(10,744) $(38,866) $(14,220)
Unrecognized net actuarial loss/(gain) .. 48,616 25,192 3,829 (240)
Unrecognized prior service cost................. -- -- (12,991) (15,934)
-- -- -------- --------
Net amount recognized........................... $4,556 $14,448 $(48,028) $(30,394)
====== ======= ========= =========
Amount Recognized in the Consolidated
Balance Sheets Consist of:
Accrued benefit liability....................... $(42,431) $(10,744) $(48,028) $(30,394)
Accumulated other comprehensive
income...................................... 46,987 25,192 -- --
------ ------ --------- ---------
Net amount recognized........................... $4,556 $14,448 $(48,028) $(30,394)
====== ======= ========= =========
</TABLE>
In determining the actuarial present value of the benefit obligation, the
weighted average discount rate was 6.75% and 7.25% as of December 31, 1998 and
December 28, 1997, respectively; the expected return on plan assets ranged from
6.75% to 9.00% for 1998 and was 7.25% for 1997. The expected increase in future
compensation levels was 4.00% for Coleman for 1998.
The assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 7.0% to 8.0% for the plans for 1999 and
were assumed to decrease gradually to 5.0% by 2003 and remain at that level
thereafter.
F-22
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. EMPLOYEE BENEFIT PLANS - (CONTINUED)
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
--------------- --------------
<S> <C> <C>
Effect on total of service and interest
cost components................................................. $508 $(424)
Effect on the postretirement benefit
obligation...................................................... $6,035 $(5,144)
</TABLE>
Net pension expense and periodic postretirement benefit include the following
components (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------- -----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic pension benefit cost:
Service cost................................... $1,551 $157 $411 $689 $-- $--
Interest cost.................................. 10,875 8,970 9,071 2,088 996 1,041
Expected return of market value of assets...... (10,127) (8,586) (816) -- -- --
Amortization of unrecognized prior service cost -- -- -- (2,943) (2,942) (2,942)
Recognized net actuarial loss (gain)........... 735 414 (7,518) -- -- --
--- --- ------- -- -- --
Net periodic benefit cost (benefit)............ 3,034 955 1,148 (166) (1,946) (1,901)
Settlement charge.............................. -- 615 -- -- -- --
Curtailment charge............................. -- 106 -- -- -- --
-- --- -- -- -- --
Total expense (benefit)........................ $3,034 $1,676 $1,148 $(166) $(1,946) $(1,901)
====== ====== ====== ====== ======== ========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the plans with accumulated benefit obligations in excess of
plan assets were $186.4 million, $161.6 million and $125.5 million at December
31, 1998 and $127.2 million, $127.2 million and $116.5 million at December 28,
1997, respectively.
DEFINED CONTRIBUTION PLANS
As a result of the Company's acquisitions of Coleman, First Alert and Signature
Brands, the Company amended its Savings & Investment and Profit Sharing Plan
("Savings Plan") to assume the assets of the respective savings plans at each of
the acquired companies and establish parity with the benefits provided by
Sunbeam. Effective January 1, 1999, all eligible employees could participate in
the Savings Plan. Company contributions to these plans include employer matching
contributions as well as discretionary contributions depending on the
performance of the Company, in an amount up to 10% of eligible compensation. The
Company provided $1.9 million in 1998, $1.8 million in 1997 and $1.7 million in
1996 for its defined contribution plans.
8. SHAREHOLDERS' EQUITY
COMMON STOCK
At December 31, 1998, the Company had 500,000,000 shares of $0.01 par value
common stock authorized and there were 14,094,158 shares of common stock
reserved for issuance upon the exercise of outstanding stock options.
F-23
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
COMPENSATORY STOCK GRANTS
In July 1996, the Company granted 1,100,000 shares of restricted stock in
connection with the employment of a then new Chairman and Chief Executive
Officer and two other senior officers of the Company. Compensation expense
attributable to the restricted stock awards was amortized to expense beginning
in 1996 over the periods in which the restrictions lapse (which in the case of
333,333 shares, was immediately upon the date of grant, in the case of 666,667
shares, was to be amortized equally over two years from the date of grant and in
the case of the remaining 100,000 shares, was equally over three years from the
date of grant). These restricted stock awards resulted in a $7.7 million charge
to SG&A expense in 1996.
On February 20, 1998, the Company entered into new three-year employment
agreements with its then Chairman and Chief Executive Officer and two other then
senior officers of the Company. These agreements replaced previous employment
agreements entered into in July 1996 that were scheduled to expire in July 1999.
The new employment agreement for the Company's then Chairman and Chief Executive
Officer provided for, among other items, the acceleration of vesting of 200,000
shares of restricted stock and the forfeiture of the remaining 133,334 shares of
unvested restricted stock granted under the July 1996 agreement, a new equity
grant of 300,000 shares of unrestricted stock, a new grant of a ten-year option
to purchase 3,750,000 shares of the Company's common stock with an exercise
price equal to the fair market value of the stock at the date of grant and
exercisable in three equal annual installments beginning on the date of grant
and the acceleration of vesting of 833,333 outstanding stock options granted
under the July 1996 agreement, as further described in Note 9. In addition, the
new employment agreement with the then Chairman and Chief Executive Officer
provided for income tax gross-ups with respect to any tax assessed on the equity
grant and acceleration of vesting of restricted stock.
The new employment agreements with the two other then senior officers provided
for, among other items, the grant of a total of 180,000 shares of restricted
stock that were to vest in four equal annual installments beginning on the date
of grant, the acceleration of vesting of 44,000 shares of restricted stock and
the forfeiture of the remaining 29,332 shares of unvested restricted stock
granted under the July 1996 agreements, new grants of ten-year options to
purchase a total of 1,875,000 shares of the Company's common stock with an
exercise price equal to the fair market value of the stock at the date of grant
and exercisable in four equal annual installments beginning on the date of grant
and the acceleration of vesting of 383,334 outstanding stock options granted
under the July 1996 agreements. In addition, the new employment agreements
provided for income tax gross-ups with respect to any tax assessed on the
restricted stock grants and acceleration of vesting of restricted stock.
Compensation expense attributed to the equity grant, the acceleration of vesting
of restricted stock and the related income tax gross-ups was recognized in the
first quarter of 1998 and compensation expense related to the new restricted
stock grants and related tax gross-ups was amortized to expense beginning in the
first quarter of 1998 with amortization to continue over the period in which the
restrictions lapse. Total compensation expense recognized in 1998 related to
these items was approximately $31 million.
On June 15, 1998, the Company's Board of Directors announced the removal of the
then Chairman and Chief Executive Officer and subsequently announced the removal
or resignation of other senior officers, including the Company's then Chief
Financial Officer. In connection with the removal or resignation of the senior
officers and the termination of their restricted stock grants, the unamortized
portion of the deferred compensation expense attributable to the restricted
stock grants was reversed. The Company and certain of its former officers are in
disagreement as to the Company's obligations to these individuals under prior
employment agreements and arising from their terminations. (See Note 15.)
F-24
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. SHAREHOLDERS' EQUITY (CONTINUED)
ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss consist of the following
(in thousands):
<TABLE>
<CAPTION>
CURRENCY MINIMUM
TRANSLATION PENSION
ADJUSTMENTS LIABILITY TOTAL
----------- --------- -----
<S> <C> <C> <C>
Balance at December 29, 1996........................... $(12,111) $(6,163) $(18,274)
Balance at December 28, 1997........................... (12,850) (20,213) (33,063)
Balance at December 31, 1998........................... (12,022) (42,008) (54,030)
</TABLE>
9. EMPLOYEE STOCK OPTIONS AND AWARDS
The Company has one stock-based compensation plan, the Amended and Restated
Sunbeam Corporation Stock Option Plan (the "Plan"). Under the Plan, all
employees are eligible for grants of options to purchase up to an aggregate of
16,300,000 shares of the Company's common stock at an exercise price equal to or
in excess of the fair market value of the stock on the date of grant. The term
of each option commences on the date of grant and expires on the tenth
anniversary of the date of grant subject to earlier cancellation. Options
generally become exercisable over a three to five year period.
The Plan also provides for the grant of restricted stock awards of up to 200,000
shares, in the aggregate, to employees and non-employee directors. See Note 8
for a discussion of restricted stock awards made outside the Plan.
In July 1996, options to purchase an aggregate of 3,000,000 shares (of which
2,750,000 options were outstanding at December 28, 1997) were granted outside of
the Plan at exercise prices equal to the fair market value of the Company's
common stock on the dates of grant in connection with the employment of a then
new Chairman and Chief Executive Officer and two other senior officers of the
Company. These outstanding options have terms of ten years and, with respect to
options for 2,500,000 shares, were exercisable in three annual installments
beginning July 17, 1996. Options for the remaining 250,000 shares still
outstanding were exercisable in three annual installments beginning on the first
anniversary of the July 22, 1996 grant date. On February 20, 1998 the vesting
provisions of the options granted outside the Plan were accelerated. Additional
stock option grants outside the Plan were made in February 1998, with a portion
thereof subsequently terminated in connection with the removal of the then
Chairman and Chief Executive Officer. The then Chairman and Chief Executive
Officer and another senior officer are disputing termination of their stock
option grants. (See Notes 8 and 15.)
In the third and fourth quarters of 1998, options to purchase an aggregate of
4,200,000 shares were granted outside of the Plan in connection with the
employment of the new Chief Executive Officer and certain members of the new
senior management team. The options were granted to certain senior executives at
exercise prices equal to or greater than the fair market value of the Company's
common stock on the dates of the grant. The senior officers were granted options
to purchase 3,200,000 shares of common stock at a price of $7.00 per share;
500,000 shares of common stock at a price of $10.50 per share and 500,000 shares
at a price of $14.00 per share. All of these outstanding options have terms of
ten years and become fully exercisable at the end of two to three year periods
if the executive remains employed by the Company as of such date. These grants
are subject the shareholder approval at the 1999 Annual Meeting. A measurement
date pursuant to APB Opinion No. 25 will be established for these grants upon
shareholder approval.
In August 1998, the Company approved a plan to reprice outstanding common stock
options held by the Company's employees. The repricing program, which has been
completed, provided for outstanding options with exercise prices in excess of
$10.00 per share to be exchanged for new options on a voluntary basis in an
exchange ratio ranging from approximately two to three old options for one new
option, (as determined by reference to a Black-Scholes option pricing model)
with the exercise price of the new options set at $7.00 per share. These
F-25
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS (CONTINUED)
options were repriced at an exercise price approximating the market value of the
Company's common stock at the date of the repricing and, consequently, there was
no related compensation expense.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for outstanding stock options. Had compensation cost for the
Company's outstanding stock options been determined based on the fair value at
the grant dates for those options consistent with SFAS No. 123, the Company's
net (loss) earnings and diluted (loss) earnings per share would have differed as
reflected by the pro forma amounts indicated below (in thousands except per
share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net (loss) earnings:
As reported.............................................. $(897,923) $38,301 $(208,481)
Pro forma................................................ (955,685) 14,524 (218,405)
Diluted (loss) earnings per share:
As reported................................................ (9.25) 0.44 (2.51)
Pro forma................................................ (9.84) 0.17 (2.63)
</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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected volatility.................................................. 52.80% 34.19% 36.78%
Risk-free interest rate.............................................. 4.68% 6.36% 6.34%
Dividend yield....................................................... 0.0% 0.1% 0.1%
Expected life........................................................ 6 years 6 years 5 years
</TABLE>
F-26
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS (CONTINUED)
A summary of the status of the Company's outstanding stock options as of
December 31, 1998, December 28, 1997 and December 29, 1996, and changes during
the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Plan options
Outstanding at beginning
of year....................... 6,654,068 $25.61 6,271,837 $19.43 4,610,387 $16.67
Granted......................... 6,663,998 17.13 3,105,263 32.40 4,061,450 20.39
Exercised....................... (879,088) 22.25 (1,549,196) 17.20 (622,994) 7.51
Canceled........................ (6,826,070) 27.75 (1,173,836) 21.10 (1,777,006) 18.64
----------- ----------- -----------
Outstanding at end of year. 5,612,908 $13.32 6,654,068 $25.61 6,271,837 $19.43
========= ========= =========
Options exercisable
at year-end................... 1,717,545 $20.91 1,547,198 $19.13 1,655,450 $16.13
Weighted-average fair
value of options granted
during the year............... $10.47 $15.46 $14.76
Options outside plan
Outstanding at beginning
of year....................... 2,750,000 $12.43 2,750,000 $12.43 692,500 $16.70
Granted......................... 9,825,000 24.64 -- -- 3,000,000 12.65
Canceled........................ (4,093,750) 36.85 -- -- (942,500) 16.27
----------- --------- ---------
Outstanding at end of year. 8,481,250 $14.77 2,750,000 $12.43 2,750,000 $12.43
========= ========= =========
Options exercisable at
year-end...................... 4,281,250 $21.17 1,750,000 $12.35 833,333 $12.25
Weighted-average fair value
of options granted during
the year...................... $19.31 N/A $5.99
</TABLE>
Included in the outstanding and exercisable options, as presented above, are
options vested by the former Chairman and Chief Executive Officer and a former
senior officer. The Company and these individuals are in a dispute regarding the
status of these options.
F-27
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. EMPLOYEE STOCK OPTIONS AND AWARDS (CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 CONTRACTUAL LIFE (YEARS) EXERCISE PRICE
- --------------- ----------- ------------------------ ----------------
<S> <C> <C> <C>
$5.00 to 7.00....................... 6,076,805 9.2 $6.91
$7.01 to $14.00..................... 4,048,200 8.3 11.80
$14.01 to $15.00.................... 642,124 7.6 14.43
$15.01 to $23.15.................... 697,697 7.2 19.47
$23.16 to $26.71.................... 733,714 8.3 25.07
$26.72 to $36.85.................... 1,607,840 9.1 36.57
$36.86 and over..................... 287,778 8.9 40.32
-------
$5.00 to $50.77..................... 14,094,158 8.7 14.19
==========
<CAPTION>
OPTIONS EXERCISABLE
-------------------
NUMBER
RANGE OF EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/98 EXERCISE PRICE
- --------------- ----------- ----------------
<S> <C> <C>
$5.00 to $7.00.......................................... 95,895 $5.01
$7.01 to $14.00......................................... 2,500,000 12.25
$14.01 to $15.00........................................ 571,290 14.41
$15.01 to $23.15........................................ 627,488 19.30
$23.16 to $26.71........................................ 540,055 25.10
$26.72 to $36.85........................................ 1,563,211 36.74
$36.86 and over......................................... 100,856 40.60
-------
$5.00 to $50.77......................................... 5,998,795 21.09
=========
</TABLE>
F-28
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. SUPPLEMENTARY FINANCIAL STATEMENT DATA
Supplementary Balance Sheet data at the end of each fiscal year is as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Receivables:
Trade.......................................................... $407,452 $250,699
Sundry......................................................... 7,347 7,794
----- -----
414,799 258,493
Valuation allowance................................................ (53,025) (30,033)
-------- --------
$361,774 $228,460
======== ========
Inventories:
Finished goods................................................. $370,622 $193,864
Work in process................................................ 39,143 25,679
Raw materials and supplies..................................... 109,424 85,357
------- -------
$519,189 $304,900
======== ========
Prepaid expenses and other current assets:
Deferred income taxes.......................................... $40,756 $--
Prepaid expenses and other..................................... 33,431 16,584
------ ------
$74,187 $16,584
======= =======
Property, plant and equipment:
Land........................................................... $10,664 $1,793
Buildings and improvements..................................... 168,685 98,054
Machinery and equipment........................................ 395,763 248,138
Furniture and fixtures......................................... 18,208 7,327
------ -----
593,320 355,312
Accumulated depreciation and amortization (138,148) (105,788)
--------- ---------
$455,172 $249,524
======== ========
Trademarks, tradenames, goodwill and other:
Trademarks and tradenames...................................... $597,515 $237,095
Goodwill....................................................... 1,254,880 24,687
Deferred financing costs....................................... 47,325 983
Other intangible assets........................................ 28,012 424
------ ---
1,927,732 263,189
Accumulated amortization....................................... (101,783) (56,880)
--------- --------
1,825,949 206,309
Other assets....................................................... 33,428 853
------ ---
$1,859,377 $207,162
========== ========
</TABLE>
F-29
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. SUPPLEMENTARY FINANCIAL STATEMENT DATA - (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Other current liabilities:
Payrolls, commissions and employee benefits $61,294 $12,227
Advertising and sales promotion..................................... 56,288 34,749
Product warranty.................................................... 50,287 21,498
Accounts receivable securitization liability -- 19,750
Sales returns....................................................... 16,972 7,846
Interest............................................................ 26,202 941
Other............................................................... 110,142 27,074
------- ------
$321,185 $124,085
======== ========
Other long-term liabilities:
Accrued postretirement benefit obligation .. $48,028 $30,394
Accrued pension..................................................... 42,431 10,744
Product liability and workers compensation . 71,868 41,901
Other............................................................... 86,132 71,261
------ ------
$248,459 $154,300
======== ========
Supplementary Statements of Operations and Cash Flows data for each fiscal year
are summarized as follows (in thousands):
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Other (income) expense, net:
Interest income........................................... $(2,897) $(2,561) $(1,255)
Other, net................................................ (1,871) 2,573 4,993
------- ----- -----
$(4,768) $12 $3,738
======== === ======
Cash paid (received) during the period for:
Interest.................................................. $81,291 $13,058 $13,397
======= ======= =======
Income taxes (net of refunds)............................. $(17,358) $(44,508) $(540)
========= ========= ======
</TABLE>
11. ASSET IMPAIRMENT AND OTHER CHARGES
In the fourth quarter of 1998, the Company recorded a $62.5 million charge for
the write-off of the carrying value of First Alert's goodwill (see Note 2).
In the second quarter of 1998, as a result of decisions to outsource or
discontinue a substantial number of products previously made by the Company,
certain facilities and equipment will either no longer be used or will be
utilized in a significantly different manner. Accordingly, a charge of $29.6
million was recorded in Cost of Goods Sold to write certain of these assets down
to their estimated fair market value. Approximately 80% of this charge related
to machinery, equipment and tooling at the Company's Mexico City and
Hattiesburg, Mississippi manufacturing plants, the estimated fair value for
which was derived through an auction process. The remainder of this charge
related to tooling and equipment at various other facilities, which either had a
nominal value or the fair market value of which was derived through an auction
process. These assets were taken out of service at the time of the write-down
and consequently were not depreciated further after the write-down.
Personnel at the Mexico City facility were notified in the second quarter of
1998 that the plant was scheduled for closure at year-end 1998, accordingly, at
that time, a liability of $1.8 million was recorded in Cost of Goods Sold
primarily for employee severance. The employee severance related to
approximately 1,200 positions of which approximately 1,100 were terminated as of
December 31, 1998. In the third quarter of 1998,
F-30
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. ASSET IMPAIRMENT AND OTHER CHARGES - (CONTINUED)
the Company recorded as Cost of Goods Sold, an additional provision for
impairment of fixed assets of $3.1 million in an acquired entity, relating to
assets taken out of service for which there was no remaining value. The asset
impairment resulted from management's decision to discontinue certain product
lines subsequent to the acquisition. These fixed assets were taken out of
service at the time of the write-down and consequently were not depreciated
further after the write-down. In the fourth quarter of 1998, the Company
recorded a $7.1 million charge as a result of management's decision to outsource
the production of certain appliances. This charge to Cost of Goods Sold
primarily consists of a provision for certain tooling and equipment ($6.7
million) and severance and related benefits ($0.4 million). The tooling and
equipment was recorded at their estimated fair values which were derived from
comparable market data. Depreciation of this equipment was discontinued at the
time of the write-down.
During 1997 and the first half of 1998, the Company built inventories in
anticipation of 1998 sales volumes which did not materialize. As a result, it
has been and will continue to be necessary to dispose of some portions of excess
inventories at amounts less than cost. Accordingly, during 1998, when the facts
and circumstances were known that such sales volume would not materialize, the
Company recorded $58.2 million in charges to properly state this inventory at
the lower-of-cost-or-market. This inventory primarily related to certain
appliances, grills and grill accessories. The Company also recorded a charge of
$11.0 million for excess inventories for raw materials and work in process that
will not be used due to outsourcing the production of irons, breadmakers,
toasters and certain other appliances. In addition, during 1998, the Company
made the decision to exit certain product lines, primarily air and water
filtration products and eliminate certain stock keeping units within existing
product lines, primarily relating to appliances, grills and grill accessories.
As a result of this decision, a $26.6 million charge was recorded to properly
state this inventory at the lower-of-cost-or-market. Total charges for excess
inventories recorded at the lower-of-cost-or-market amounted to approximately
$95.8 million at December 31, 1998. (See Note 12 for asset impairment and other
charges recorded in conjunction with a 1996 restructuring plan.)
12. RESTRUCTURING
In November 1996, the Company announced the details of a restructuring plan. The
plan included the consolidation of administrative functions within the Company,
the reduction of manufacturing and warehouse facilities, the centralization of
the Company's procurement function, and reduction of the Company's product
offerings and stock keeping units ("SKU's"). The Company also announced plans to
divest several lines of business (see Note 13).
As part of the restructuring plan, the Company consolidated six divisional and
regional headquarter's functions into a single worldwide corporate headquarter's
and outsourced certain back office activities resulting in a reduction in total
back-office/administrative headcount. Overall, the restructuring plan called for
a reduction in the number of production facilities from 26 to 8 and the
elimination of over 6,000 positions from the Company's workforce, including
3,300 from the disposition of certain business operations and the elimination of
approximately 2,800 other positions, some of which were outsourced. The Company
completed the major phases of the restructuring plan by July 1997.
In conjunction with the implementation of the restructuring plan, the Company
recorded a pre-tax charge of $239.2 million in the fourth quarter of 1996. This
amount is recorded as follows in the accompanying Consolidated Statements of
Operations: $110.1 million in Restructuring and Asset Impairment Charges, as
further described below; $60.8 million in Cost of Goods Sold related principally
to inventory write-downs as a result of a reduction in SKU's and costs of
inventory liquidation programs; $10.1 million in SG&A expense, for period costs
principally relating to outsourcing and package redesign, and $58.2 million
($39.1 million net of taxes) in Loss on Sale of Discontinued Operations related
to the divestiture of its furniture business. In 1997, upon completion of the
sale of the furniture business, the Company recorded an additional pre-tax loss
of
F-31
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. RESTRUCTURING (CONTINUED)
$22.5 million from discontinued operations ($14.0 million net of taxes) due
primarily to lower than anticipated sales proceeds relating to the post closing
adjustment process that was part of the sale agreement.
Amounts included in Restructuring and Asset Impairment Charges in 1996 in the
accompanying Consolidated Statements of Operations included cash items such as
severance and other employee costs of $24.7 million, lease obligations of $12.6
million and other exit costs associated with facility closures and related to
the implementation of the restructuring plan of $4.1 million, principally
representing costs related to clean-up and restoration of facilities for either
sale or return to the landlord.
Included in Restructuring and Asset Impairment Charges in 1996 was $68.7 million
of non-cash charges principally consisting of: (a) asset write-downs to net
realizable value for disposals of excess facilities and equipment and certain
product lines ($22.5 million); (b) write-offs of redundant computer systems from
the administrative back-office consolidations and outsourcing initiatives ($12.3
million); (c) write-off of intangibles relating to discontinued product lines
($10.1 million); (d) write-off of capitalized product and package design costs
and other expenses related to exited product lines and SKU reductions ($9.0
million), and (e) losses related to the divestiture of certain non-core products
and businesses ($14.8 million). The asset write-downs of $34.8 million included
equipment taken out of service in 1996 (either abandoned in 1996 or sold in
1997) and accordingly, depreciation was not recorded subsequent to the date of
the impairment charge. The losses of $14.8 million related to the divestiture of
non-core products and businesses resulted from divesting of the time and
temperature business (sold in March 1997) and Counselor/registered trademark/
and Borg/registered trademark/ scale product lines (sold in May 1997) and the
sale of the textile mill in Biddeford, Maine in May 1997. These charges
primarily represented the estimated non-cash loss to exit these products
including fixed assets and inventory write-downs and other costs related to
exiting these product lines.
The $24.7 million for severance and other employee costs, including COBRA and
other fringe benefits, related to approximately 3,700 positions that were
planned to be eliminated as a result of the restructuring plan, excluding
approximately 2,400 employees terminated from the furniture business for which
severance was included in Loss on Sale of Discontinued Operations (see Note 13).
The furniture business was sold in 1997. In 1996 and 1997, approximately 1,200
employees and 1,800 employees, respectively, were terminated from continuing
operations. Due largely to attrition, the remaining planned terminations were
not required. In 1997, the Company determined that its severance and related
employee costs were less than originally accrued principally due to lower than
expected severance and COBRA costs, and accordingly reversed accruals of $7.9
million in the third and fourth quarters. At December 31, 1997, the balance
accrued of $1.2 million represented the remaining severance and related employee
costs for certain employees terminated during 1997. During 1998, all amounts
were expended.
The amounts accrued at December 29, 1996, for Restructuring and Asset Impairment
Charges recorded in fiscal 1996, exceeded amounts ultimately required
principally due to reductions in anticipated severance costs of $7.9 million, as
discussed above, and reductions in estimated lease payments of $6.7 million
resulting from better than anticipated rentals received under sub-leases and
favorable negotiation of lease terminations. Accordingly, the fiscal 1997
Consolidated Statement of Operations included $14.6 million of benefit ($5.8
million in the third quarter and $8.8 million in the fourth quarter of 1997)
related to the reversal of accruals no longer required, which were recorded as
these reduced obligations became known.
In 1996, in conjunction with the initiation of the restructuring plan, the
Company recorded additional charges totaling $129.1 million, reflected in Cost
of Goods Sold; SG&A expense and Loss on Sale of Discontinued Operations. The
charge included in Cost of Goods Sold ($60.8 million) principally represented
inventory write-downs and anticipated losses on the disposition of the inventory
as a result of the significant reduction in SKU's provided for in the
restructuring plan. The write-down included $26.9 million related to raw
materials, work-in process and finished goods for discontinued outdoor cooking
products, principally grills and grills accessories and the balance related to
raw materials, work-in-process and finished goods for other
F-32
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. RESTRUCTURING (CONTINUED)
discontinued products including appliances, clippers and blankets. SG&A expense
included period costs in 1997 and 1996 of $15.8 million and $10.1 million,
respectively, relating to employee relocation and recruiting, outsourcing,
equipment movement and package redesign costs expended as a result of the
implementation of the restructuring plan. The Loss on Sale of Discontinued
Operations of $58.2 million is discussed further in Note 13.
At December 28, 1997, the Company had $5.2 million in liabilities accrued
related to the 1996 restructuring plan, including $1.2 million of severance
related costs and $4.0 million related to facility closures, which principally
represented future lease payments (net of sub-leases) on exited facilities.
During 1998, this liability was reduced by $4.0 million as a result of cash
expenditures. At December 28, 1997, the Company had $3.0 million of warranty
liabilities related to the discontinued furniture operations. During 1998, $2.5
million of this liability was liquidated.
The following table sets forth the details and the activity from the charges (in
millions):
<TABLE>
<CAPTION>
ACCRUAL
ACCRUAL ADDITIONS BALANCE
BALANCE CHARGED TO CASH NON-CASH DECEMBER 29,
JANUARY 1, 1996 INCOME REDUCTIONS REDUCTIONS 1996
--------------- ------ ---------- ---------- ----
<S> <C> <C> <C> <C> <C>
Write-downs:
Fixed assets, held for disposal, not in use $-- $34.8 $-- $34.8 $--
Fixed assets, held for disposal, used until disposed 11.3 14.8 -- 11.3 14.8
Inventory on hand -- 60.8 -- 60.8 --
Other assets, principally trademarks and
intangible assets -- 19.1 -- 18.0 1.1
-- ---- -- ---- ---
11.3 129.5 -- 124.9 15.9
---- ----- -- ----- ----
Restructuring accruals:
Employee severance pay and fringes -- 24.7 5.6 -- 19.1
Lease payments and termination fees 2.5 12.6 2.5 -- 12.6
Other exit activity costs, principally
facility closure expenses -- 4.1 -- -- 4.1
-- --- -- -- ---
2.5 41.4 8.1 -- 35.8
--- ---- --- -- ----
Total restructuring and asset impairment accrual 13.8 170.9 8.1 124.9 51.7
---- ----- --- ----- ----
Other related period costs incurred:
Employee relocation; equipment relocation and
installation and other -- 3.2 3.2 -- --
Transitional fees related to outsourcing arrangements -- 4.9 4.9 -- --
Package redesign -- 2.0 2.0 -- --
-- --- --- -- --
-- 10.1 10.1 -- --
-- ---- ---- -- --
Total included in continuing operations 13.8 181.0 18.2 124.9 51.7
Total included in discontinued operations -- 58.2 -- -- 58.2
-- ---- -- -- ----
$13.8 $239.2 $18.2 $124.9 $109.9
===== ====== ===== ====== ======
</TABLE>
F-33
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. RESTRUCTURING (CONTINUED)
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
BALANCE ADDITIONS BALANCE
DECEMBER 30, CHARGED TO CASH NON-CASH DECEMBER 28,
1996 INCOME REDUCTIONS REDUCTIONS REVERSALS 1997
---- ------ ---------- ---------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Write-downs:
Fixed assets, held for
disposal, used
until disposed $14.8 $-- $-- $14.8 $-- $--
Other assets,
principally trademarks
and intangible assets 1.1 -- -- 1.1 -- --
--- -- -- --- -- --
15.9 -- -- 15.9 -- --
---- -- -- ---- -- --
Restructuring accruals:
Employee severance pay
and fringes 19.1 -- 10.0 -- 7.9 1.2
Lease payments and
termination fees 12.6 -- 2.6 -- 6.7 3.3
Other exit activity costs,
principally facility
closure expenses 4.1 -- 3.4 -- -- 0.7
--- -- --- -- -- ---
35.8 -- 16.0 -- 14.6 5.2
---- -- ---- -- ---- ---
Total restructuring and
asset impairment
accrual 51.7 -- 16.0 15.9 14.6 5.2
Discontinued operations 58.2 22.5 6.1 71.6 -- 3.0
---- ---- --- ---- -- ---
$109.9 $22.5 $22.1 $87.5 $14.6 $8.2
------ ----- ----- ----- ----- ----
<CAPTION>
ACCRUAL ACCRUAL
BALANCE BALANCE
DECEMBER 29, CASH DECEMBER 31,
1997 REDUCTIONS 1998
---- ---------- ----
<S> <C> <C> <C>
Restructuring accruals:
Employees severance pay
and fringes $1.2 $1.2 $--
Leases payments and
termination fees 3.3 2.1 1.2
Other exit activity costs,
principally facility
closure expenses 0.7 0.7 --
--- --- --
Total restructuring accrual 5.2 4.0 1.2
--- --- ---
Discontinued operations 3.0 2.5 0.5
--- --- ---
$8.2 $6.5 $1.7
==== ==== ====
</TABLE>
F-34
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. DISCONTINUED OPERATIONS
As part of the 1996 restructuring plan, the Company also announced the
divestiture of the furniture business, by a sale of assets. In February 1997,
the Company entered into an agreement to sell the business to U.S. Industries,
Inc. in a transaction that was completed on March 17, 1997. In connection with
the furniture divestiture, the Company recorded a provision for estimated losses
to be incurred on the sale of $39.1 million in 1996, net of applicable income
tax benefits of $19.9 million. Although the discontinued furniture operations
were profitable, net income had declined from $21.7 million in 1994 to $0.8
million in 1996. This decline, along with the Company's announcement that it
intended to divest this line of business contributed to the loss on sale.
Revenues for the discontinued furniture business were $51.6 million in the first
quarter of 1997, $227.5 million in 1996 and $185.6 million in 1995. Results of
operations were nominal in 1997 and 1996, down from $12.9 million (net of $7.9
million in taxes) in 1995. In connection with the sale of these assets
(primarily inventory, property, plant and equipment), the Company received $69.0
million in cash. The Company retained accounts receivable related to the
furniture business of approximately $50 million as of the closing date and
retained certain liabilities. The final purchase price for the furniture
business was subject to a post-closing adjustment based on the terms of the
asset purchase agreement and in the first quarter of 1997, after completion of
the sale, the Company recorded an additional loss of $14.0 million, net of
applicable income tax benefits of $8.5 million.
In addition to the furniture business divestiture, the Company also completed
the sale of other product lines and assets in 1997 as part of its restructuring
plan, including time and temperature products, Counselor/registered trademark/
and Borg/registered trademark/ scales and a textile facility. Losses incurred on
the disposal of these assets, which consist primarily of write-downs of assets
to net realizable value, are included in Restructuring and Asset Impairment
Charges in 1996 in the Consolidated Statements of Operations.
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA
Throughout 1998 Sunbeam's operations were managed through four reportable
segments: Household, Outdoor Leisure, International and Corporate. Reportable
segments are identified by the Company based upon the distinct products
manufactured (Household and Outdoor Leisure) or based upon the geographic region
in which its products are distributed (International). The Company's reportable
segments are all separately managed.
The Household group consists of appliances (including mixers, blenders, food
steamers, bread makers, rice cookers, coffee makers, toasters, irons and garment
steamers), health products (including vaporizers, humidifiers, air cleaners,
massagers, hot and cold packs and blood pressure monitors), scales, personal
care products (including hair clippers and trimmers and related products for the
professional beauty, barber and veterinarian trade and sales of products to
commercial and institutional channels), blankets (including electric blankets,
heated throws and mattress pads) and First Alert/registered trademark/ products
(smoke and carbon monoxide detectors, fire extinguishers and home safety
equipment).
The Outdoor Leisure group includes outdoor recreation products (which encompass
tents, sleeping bags, coolers, camping stoves, lanterns and outdoor heaters),
outdoor cooking products (including gas and charcoal outdoor grills and grill
parts and accessories), Powermate/registered trademark/ products (including
portable power generators and air compressors), and Eastpak/registered
trademark/ products (including backpacks and bags).
The International group is managed through five regional subdivisions: Europe,
Latin America, Japan, Canada and East Asia. Europe includes the manufacture,
sales and distribution of Campingaz/registered trademark/ products and sales and
distribution in Europe, Africa and the Middle East of other Company products.
The Latin American region includes the manufacture, sales and distribution
throughout Latin America of small appliances, and sales and distribution of
personal care products, professional clippers and related products, camping
products and Powermate products. Japan includes the sales and distribution of
primarily outdoor recreation products. Canada includes sales of substantially
all the Company's products and East Asia encompasses sales and distribution in
all areas of East Asia other than Japan of substantially all the Company's
products.
F-35
<PAGE>
The Company's Corporate group provides certain management, accounting, legal,
risk management, treasury, human resources, tax and management information
services to all operating groups and also includes the operation of the
Company's retail stores and the conduct of the Company's licensing activities.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies (see Note 1) except
that certain bad debt expense is recorded at a consolidated level and included
in the Corporate group. Sunbeam evaluates performance and allocates resources
based upon profit or loss from operations before amortization, income taxes,
minority interest, interest expense, non-recurring gains and losses and foreign
exchange gains and losses. Intersegment sales and transfers are primarily
recorded at cost.
The following tables include selected financial information with respect to
Sunbeam's four operating segments. Business segment information for prior years
has been reclassified to conform to the current year presentation.
<TABLE>
<CAPTION>
OUTDOOR
HOUSEHOLD LEISURE INTERNATIONAL CORPORATE TOTAL
--------- ------- ------------- --------- -----
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Net sales to unaffiliated customers $714,568 $677,526 $413,864 $30,913 $1,836,871
Intersegment net sales............. 62,971 111,583 98,120 -- 272,674
Segment operating loss............. (69,276) (71,612) (29,941) (151,868) (322,697)
Segment assets..................... 864,745 1,782,994 413,755 344,023 3,405,517
Segment depreciation expense....... 24,086 32,759 2,448 4,742 64,035
YEAR ENDED DECEMBER 28, 1997
Net sales to unaffiliated customers $568,921 $258,484 $229,572 $16,113 $1,073,090
Intersegment net sales............. 100,355 3,520 64,549 -- 168,424
Segment operating earnings (loss) . 73,210 8,205 43,793 (42,915) 82,293
Segment assets..................... 510,183 141,332 167,591 239,822 1,058,928
Segment depreciation expense....... 15,358 9,494 3,204 3,872 31,928
YEAR ENDED DECEMBER 29, 1996
Net sales to unaffiliated customers $555,215 $245,600 $183,267 $154 $984,236
Intersegment net sales............. 48,961 8,940 30,012 -- 87,913
Segment operating (loss) earnings . (37,598) 39,970 5,567 (62,355) (54,416)
Segment assets..................... 352,253 215,757 89,360 402,078 1,059,448
Segment depreciation expense....... 25,950 9,180 2,464 741 38,335
F-36
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA - (CONTINUED)
Reconciliation of selected segment information to Sunbeam's consolidated totals
for the years ended:
<CAPTION>
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales:
Net sales for reportable segments............................. $2,109,545 $1,241,514 $1,072,149
Elimination of intersegment net sales......................... (272,674) (168,424) (87,913)
--------- --------- --------
Consolidated net sales................................. $1,836,871 $1,073,090 $984,236
========== ========== ========
Segment (loss) earnings:
Total (loss) earnings for reportable segments................. $(322,697) $82,293 $(54,416)
Unallocated amounts:
Interest expense......................................... (131,091) (11,381) (13,588)
Other (income) expense, net.............................. 4,768 (12) (3,738)
Amortization of intangible assets........................ (43,830) (7,829) (9,094)
Provision for inventory (Notes 11 and 12)................ (95,830) -- (60,800)
Asset impairment (Notes 2 and 11)........................ (101,894) -- --
Issuance of warrants (Note 2)............................ (70,000) -- --
Former employees deferred
compensation and severance (Note 8)................ (31,200) -- --
Restructuring benefit (charges) (Note 12)................ -- 14,582 (110,122)
Restructuring related charges (Note 12).................. -- (15,800) (10,047)
Reversals of reserves no longer required................. -- 27,963 --
Other (charges) benefit.................................. (4,574) 2,854 --
------- ----- --
(473,651) 10,377 (207,389)
--------- ------ ---------
Consolidated (loss) earnings from
continuing operations before income taxes,
minority interest and extraordinary charge $(796,348) $92,670 $(261,805)
========== ======= ==========
</TABLE>
F-37
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. SEGMENT, CUSTOMER AND GEOGRAPHIC DATA - (CONTINUED)
ENTERPRISE-WIDE DISCLOSURES
Net sales from the Company's Household products represented 50%, 73% and 74% of
consolidated net sales in 1998, 1997 and 1996, respectively. Net sales from the
Company's Outdoor Leisure products represented 50%, 25% and 26% of consolidated
net sales in 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
Geographic Area Data 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales to unaffiliated customers:
United States.................................. $1,423,007 $843,518 $800,969
Europe......................................... 170,910 17,415 18,872
Latin America.................................. 158,670 164,044 125,072
Other.......................................... 84,284 48,113 39,323
------ ------ ------
Total net sales........................................ $1,836,871 $1,073,090 $984,236
========== ========== ========
Identifiable assets:
United States.................................. $2,991,762 $891,337 $970,088
Europe......................................... 244,670 9,703 15,476
Latin America.................................. 80,943 127,036 54,921
Other.......................................... 88,142 30,852 18,963
------ ------ ------
Total identifiable assets.............................. $3,405,517 $1,058,928 $1,059,448
========== ========== ==========
</TABLE>
Revenue from one customer in Sunbeam's Household and Outdoor Leisure segments
accounted for approximately 18%, 20% and 19% of consolidated net sales in 1998,
1997 and 1996, respectively.
15. COMMITMENTS AND CONTINGENCIES
SEC INVESTIGATION
By letter dated June 17, 1998, the staff of the Division of Enforcement of the
SEC advised the Company that it was conducting an informal inquiry into the
Company's accounting policies and procedures and requested that the Company
produce certain documents. On July 2, 1998, the SEC issued a Formal Order of
Private Investigation, designating officers to take testimony and pursuant to
which a subpoena duces tecum was served on the Company requiring the production
of certain documents. On November 4, 1998, the Company received another SEC
subpoena duces tecum requiring the production of further documents. The Company
has provided numerous documents to the SEC staff and continues to cooperate
fully with the SEC staff. The Company cannot predict the term of such
investigation or its potential outcome.
LITIGATION
On April 23, 1998, two class action lawsuits were filed on behalf of purchasers
of the Company's common stock in the U.S. District Court for the Southern
District of Florida against the Company and some of its present and former
directors and former officers alleging violations of the federal securities laws
as discussed below (the "Consolidated Federal Actions"). After that date,
approximately fifteen similar class actions were filed in the same Court. One of
the lawsuits also named as defendant Arthur Andersen LLP, the Company's
independent accountants for the period covered by the lawsuit.
On June 16, 1998, the Court entered an Order consolidating all these suits and
all similar class actions subsequently filed and providing time periods for the
filing of a consolidated amended complaint and defendants' response thereto. On
June 22, 1998, two groups of plaintiffs made motions to be appointed lead
plaintiffs and to
F-38
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
have their selection of counsel approved as lead counsel. On July 20, 1998, the
Court entered an Order appointing lead plaintiffs and lead counsel. This Order
also stated that it "shall apply to all subsequently filed actions which are
consolidated herewith." On August 28, 1998, plaintiffs in one of the
subsequently filed actions filed an objection to having their action
consolidated pursuant to the June 16, 1998 Order, arguing that the class period
in their action differs from the class periods in the originally filed
consolidated actions. On December 9, 1998, the Court entered an Order overruling
plaintiffs' objections and affirming its prior Order appointing lead plaintiffs
and lead counsel.
On January 6, 1999, plaintiffs filed a consolidated amended class action
complaint against the Company, some of its present and former directors and
former officers, and Arthur Andersen LLP. The consolidated amended class action
complaint alleges that, in violation of section 10(b) of the Exchange Act and
SEC Rule 10b-5, defendants made material misrepresentations and omissions
regarding the Company's business operations, future prospects and anticipated
earnings per share, in an effort to artificially inflate the price of the common
stock and call options, and that, in violation of section 20(a) of the Exchange
Act, the individual defendants exercised influence and control over the Company,
causing the Company to make material misrepresentations and omissions. The
consolidated amended complaint seeks an unspecified award of money damages. On
February 5, 1999, plaintiffs moved for an order certifying a class consisting of
all persons and entities who purchased Sunbeam common stock or who purchased
call options or sold put options with respect to Sunbeam common stock during the
period April 23, 1997 through June 30, 1998, excluding the defendants, their
affiliates, and employees of Sunbeam. Defendants have filed a response to the
motion for class certification. On March 8, 1999, all defendants who had been
served with the consolidated amended class action complaint moved to dismiss it.
Under the Private Securities Litigation Reform Act of 1995, all discovery in the
consolidated action is stayed pending resolution of the motions to dismiss.
On April 7, 1998, a purported derivative action was filed in the Circuit Court
for the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against
the Company and some of its present and former directors and former officers.
The action alleged that the individual defendants breached their fiduciary
duties and wasted corporate assets when the Company granted stock options at an
exercise price of $36.85 to three of its officers and directors (who were
subsequently terminated) on or about February 2, 1998. On June 25, 1998, all
defendants filed a motion to dismiss the complaint for failure to make a presuit
demand on Sunbeam's Board of Directors. On October 22, 1998, the plaintiff
amended the complaint against all but one of the defendants named in the
original complaint. On February 19, 1999, plaintiff filed a second amended
derivative complaint nominally on behalf of Sunbeam against some of its present
and former directors and former officers and Arthur Andersen LLP. The second
amended complaint alleges, among other things, that Messrs. Dunlap and Kersh
(the Company's former Chairman and Chief Executive Officer and Chief Financial
Officer, respectively) caused Sunbeam to employ fraudulent accounting procedures
in order to enable them to secure new employment contracts, and seeks an award
of damages and other declaratory and equitable relief. The plaintiff has agreed
that defendants need not respond to the second amended complaint until May 14,
1999. As described below, the Company and the plaintiff have moved the Court for
injunctive relief against Messrs. Dunlap and Kersh with respect to the
arbitration action brought by them.
On June 25, 1998, four purported class actions were filed in the Court of
Chancery of the State of Delaware in New Castle County by minority shareholders
of Coleman against Coleman, the Company and some of the Company's and Coleman's
present and former officers and directors. An additional class action was filed
on August 10, 1998, against the same parties. The complaints in these class
actions allege, in essence, that the existing exchange ratio for the proposed
Coleman merger is no longer fair to Coleman's public shareholders as a result of
the decline in the market value of the common stock. On October 21, 1998, the
Company announced that it had entered into a Memorandum of Understanding to
settle, subject to court approval, the class actions. Under the terms of the
proposed settlement, if approved by the Court the Company will issue to the
Coleman public shareholders, and plaintiff's counsel in this action, warrants to
purchase up to approximately 4.98 million
F-39
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
shares of the Company's common stock at a cash exercise price of $7 per share,
subject to certain anti-dilution provisions. These warrants will generally have
the same terms as the warrants issued to an affiliate of M&F (see Note 2) and
will be issued when the Coleman merger is consummated, which is now expected to
be during the second half of 1999. Issuance of these warrants will be accounted
for as additional purchase consideration. There can be no assurance that the
Court will approve the settlement as proposed.
During the months of August and October 1998, purported class action and
derivative lawsuits were filed in the Court of Chancery of the State of Delaware
in New Castle County and in the U.S. District Court for the Southern District of
Florida by shareholders of the Company against the Company, M&F and certain of
the Company's present and former directors. These complaints allege that the
defendants breached their fiduciary duties when the Company entered into a
settlement agreement whereby M&F and its affiliates released the Company from
certain claims they may have had arising out of the Company's acquisition of
M&F's interest in Coleman, and M&F agreed to provide management support to the
Company. Under the settlement agreement, M&F was granted a five-year warrant to
purchase up to an additional 23 million shares of Sunbeam's common stock at an
exercise price of $7 per share, subject to certain anti-dilution provisions. The
plaintiffs have requested an injunction against issuance of stock to M&F
pursuant to exercise of the warrants and unspecified money damages. These
complaints also allege that the rights of the public shareholders have been
compromised, as the settlement would normally require shareholders' approval
under the rules and regulations of the New York Stock Exchange ("NYSE"). The
Audit Committee of the Company's Board of Directors determined that obtaining
such shareholders' approval would have seriously jeopardized the financial
viability of the Company, which is an allowable exception to the NYSE
shareholders' approval requirements. By Order of the Court of Chancery dated
January 7, 1999, the derivative actions filed in that Court were consolidated
and the Company has moved to dismiss such action. The action filed in the U.S.
District Court for the Southern District of Florida has been dismissed.
On September 16, 1998, an action was filed in the 56th Judicial District Court
of Galveston County, Texas alleging various claims in violation of the Texas
Securities Act and Texas Business & Commercial Code as well as common law fraud
as a result of the Company's alleged misstatements and omissions regarding the
Company's financial condition and prospects during a period beginning May 1,
1998 and ending June 16, 1998, in which the plaintiffs engaged in transactions
in the Company's common stock. The Company is the only named defendant in this
action. The complaint requests recovery of compensatory damages, punitive
damages and expenses in an unspecified amount. This action was removed to the
U.S. District Court for the Southern District of Texas and subsequently has been
transferred to the Southern District of Florida, the forum for the Consolidated
Federal Actions.
On October 30, 1998, a class action lawsuit was filed on behalf of certain
purchasers of the Debentures in the U.S. District Court of the Southern District
of Florida against the Company and some of the Company's former officers and
directors, alleging violations of the federal securities laws and common law
fraud. The complaint alleges that the Company's offering memorandum used for the
marketing of the Debentures contained false and misleading information regarding
the Company's financial position and that the defendants engaged in a plan to
inflate the Company's earnings for the purpose of defrauding the plaintiffs and
others. This action has been transferred to the Southern District of Florida,
the forum for the Consolidated Federal Actions, and the parties have negotiated
a proposed coordination plan in order to coordinate proceedings in this action
with those in the Consolidated Federal Actions.
The Company has been named as a defendant in an action filed in the District
Court of Tarrant County, Texas, 48th Judicial District, on November 20, 1998,
which was served on the Company through the Secretary of State of Texas on
January 15, 1999. The plaintiffs in this action are purchasers of the
Debentures. The plaintiffs allege that the Company violated the Texas Securities
Act and the Texas Business & Commercial Code and committed state common law
fraud by materially misstating the financial position of the Company in
connection with the offering and sale of the Debentures. The complaint seeks
rescission, as well as compensatory and
F-40
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
exemplary damages in an unspecified amount. The Company specially appeared to
assert an objection to the Texas Court's exercise of personal jurisdiction over
the Company, and a hearing on this objection was held on April 15, 1999. The
Court has issued a letter ruling advising the parties that it would grant the
Company's special appearance and sustain the challenge to personal jurisdiction.
The plaintiffs have moved for reconsideration of this decision. Plaintiffs had
also moved for partial summary judgment on their Texas Securities Act claims,
but, in light of the Court's decision on the special appearance, the hearing on
the summary judgment motion has been cancelled.
On April 12, 1999, a class action lawsuit was filed in the U.S. District Court
for the Southern District of Florida. The lawsuit was filed on behalf of persons
who purchased the Debentures during the period of March 20, 1998 through June
30, 1998, inclusive, but after the initial offering of such Debentures. The
complaint asserts that Sunbeam made material omissions and misrepresentations
that had the effect of inflating the market price of the Debentures. The
complaint names as defendants the Company, its former auditor, Arthur Andersen
LLP and two former Sunbeam officers, Messrs. Dunlap and Kersh. The plaintiff is
an institution which allegedly acquired in excess of $150,000,000 face amount of
the Debentures and now seeks unspecified money damages. The Company was served
on April 16, 1999 in connection with this pending lawsuit. The Company will
advise the Court of the pending Consolidated Federal Actions and request
transfer of the action.
On February 9, 1999, Messrs. Dunlap and Kersh filed with the American
Arbitration Association demands for arbitration of claims under their respective
employment agreements with Sunbeam. Messrs. Dunlap and Kersh are requesting a
finding by the arbitrator that they were terminated by the Company without cause
and should be awarded the corresponding benefits set forth in their respective
employment agreements. On March 12, 1999, Sunbeam asked the Circuit Court for
the Fifteenth Judicial Circuit in and for Palm Beach County, Florida to issue an
injunction prohibiting Messrs. Dunlap and Kersh from pursuing their arbitration
proceedings against Sunbeam on the ground that the simultaneous litigation of
the April 7, 1998 action and these arbitration proceedings would subject Sunbeam
to the threat of inconsistent adjudications with respect to certain rights to
compensation asserted by Messrs. Dunlap and Kersh. On March 19, 1999, the
plaintiff in the April 7, 1998 action discussed above moved for a similar
injunction on the ground that the arbitration proceedings threatened irreparable
harm to Sunbeam and its shareholders. On March 26, 1999, Messrs. Dunlap and
Kersh filed a response in opposition to the motions for injunctive relief. A
hearing on the motions for injunctive relief has been held and, as a result of
Sunbeam's motion for preliminary injunction, administration of the arbitrations
has been suspended until May 10, 1999.
On March 23, 1999, Messrs. Dunlap and Kersh filed a complaint in the Court of
Chancery of the State of Delaware seeking an order directing Sunbeam to advance
attorneys' fees and other expenses incurred in connection with various state and
federal class and derivative actions and an investigation instituted by the SEC.
The complaint alleges that such advancements are required by Sunbeam's by-laws
and by a forebearance agreement entered into between Sunbeam and Messrs. Dunlap
and Kersh in August 1998. The Company has filed its answer to the complaint and
the Court of Chancery has scheduled a trial of this summary proceeding to be
held on June 15, 1999.
The Company intends to vigorously defend each of the foregoing lawsuits other
than those as to which a Memorandum of Understanding to settle has been reached,
but cannot predict the outcome and is not currently able to evaluate the
likelihood of the Company's success in each case or the range of potential loss.
However, if the foregoing actions were determined adversely to the Company, such
judgements would likely have a material adverse effect on the Company's
financial position, results of operations and cash flows.
On July 2, 1998, the American Insurance Company ("American") filed suit against
the Company in the U.S. District Court for the Southern District of New York
requesting a declaratory judgment of the Court that the directors' and officers'
liability insurance policy for excess coverage issued by American was invalid
and/or had been properly canceled by American. The Company's motion to transfer
such action to the federal district court
F-41
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
in which the Consolidated Federal Actions are currently pending was recently
denied. The case is now in discovery. On October 20, 1998, an action was filed
by Federal Insurance Company in the U.S. District Court for the Middle District
of Florida requesting the same relief as that requested by American in the
previously filed action as to additional coverage levels under the Company's
directors' and officers' liability insurance policy. This action has been
transferred to the U.S. District Court for the Southern District of Florida and
is currently in discovery. On December 22, 1998, an action was filed by
Executive Risk Indemnity, Inc. in the Circuit Court of the Seventeenth Judicial
Circuit in and for Broward County, Florida requesting the same relief as that
requested by American and Federal in their previously filed actions as to
additional coverage levels under the Company's directors' and officers'
liability insurance policy. On April 15, 1999, the Company filed an action in
the U.S. District Court for the Southern District of Florida against the
National Union Fire Insurance Company of Pittsburgh, PA, Gulf Insurance Company
and St. Paul Mercury Insurance Company requesting, among other things, a
declaratory judgment that National Union is not entitled to rescind its
liability insurance policy to the Company and a declaratory judgment that the
Company is entitled to coverage from these insurance companies for various
lawsuits described herein under liability insurance policies issued by each of
the defendants. The Company intends to pursue recovery from all of its insurers
if damages are awarded against the Company or its indemnified officers and/or
directors under any of the foregoing actions. The Company's failure to obtain
such insurance recoveries following an adverse judgement in any of the foregoing
actions could have a material adverse effect on the Company's financial
position, results of operations and cash flows.
The Company and its subsidiaries are also involved in various lawsuits arising
from time to time that the Company considers to be ordinary routine litigation
incidental to its business. In the opinion of the Company, the resolution of
these routine matters, and of certain matters relating to prior operations,
individually or in the aggregate, will not have a material adverse effect upon
the financial position, results of operations, or cash flows of the Company.
In the fourth quarter of 1996, the Company recorded a $12.0 million charge
related to a case for which an adverse development arose near year-end. In 1997,
this case was favorably resolved and, as a result, $8.1 million of the charge
established in 1996 was reversed into income primarily in the fourth quarter of
1997.
As of December 31, 1998 and December 28, 1997, the Company had established
accruals for litigation matters, including legal fees, of $31.2 million and $9.9
million, respectively. The Company believes, based on existing information, that
anticipated probable costs of litigation matters existing as of December 31,
1998 have been adequately reserved to the extent determinable.
ENVIRONMENTAL MATTERS
The Company's operations, like those of comparable businesses, are subject to
certain federal, state, local and foreign environmental laws and regulations in
addition to laws and regulations regarding labeling and packaging of products
and the sales of products containing certain environmentally sensitive materials
("Environmental Laws"). The Company believes it is in substantial compliance
with all Environmental Laws which are applicable to its operations. Compliance
with Environmental Laws involves certain continuing costs; however, such costs
of ongoing compliance have not resulted, and are not anticipated to result, in a
material increase in the Company's capital expenditures or to have a material
adverse effect on the Company's results of operations, financial condition or
competitive position.
In addition to ongoing environmental compliance at its operations, the Company
also is actively engaged in certain environmental remediation activities many of
which relate to divested operations. As of December 31, 1998, the Company has
been identified by the United States Environmental Protection Agency ("EPA") or
a state environmental agency as a potentially responsible party ("PRP") in
connection with seven sites subject to the federal Superfund Act and five sites
subject to state Superfund laws comparable to the federal law
F-42
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
(collectively the "Environmental Sites"), exclusive of sites at which the
Company has been designated (or expects to be designated) as a de minimis (less
than 1%) participant.
The Superfund Act, and related state environmental remediation laws, generally
authorize governmental authorities to remediate a Superfund site and to assess
the costs against the PRPs or to order the PRPs to remediate the site at their
expense. Liability under the Superfund Act is joint and several and is imposed
on a strict basis, without regard to degree of negligence or culpability. As a
result, the Company recognizes its responsibility to determine whether other
PRPs at a Superfund site are financially capable of paying their respective
shares of the ultimate cost of remediation of the site. Whenever the Company has
determined that a particular PRP is not financially responsible, it has assumed
for purposes of establishing reserve amounts that such PRP will not pay its
respective share of the costs of remediation. To minimize the Company's
potential liability with respect to the Environmental Sites, the Company has
actively participated in steering committees and other groups of PRPs
established with respect to such sites. The Company currently is engaged in
active remediation activities at 12 sites, seven of which are among the
Environmental Sites referred to above, and five of which have not been
designated as Superfund sites under federal or state law.
The Company has established reserves, in accordance with SFAS No. 5, Accounting
for Contingencies, to cover the anticipated probable costs of remediation, based
upon periodic reviews of all sites for which the Company has, or may have
remediation responsibility. The amount of such reserves was $25.0 million at
December 31, 1998 and $24.0 million at December 28, 1997. The Company continues
to pursue the recovery of some environmental remediation costs from certain of
its liability insurance carriers; however, such potential recoveries have not
been offset against potential liabilities and have not been considered in
determining the Company's environmental reserves. Due to uncertainty over
remedial measures to be adopted at some sites, the possibility of changes in
Environmental Laws and regulations and the fact that joint and several liability
with the right of contribution is possible at federal and state Superfund sites,
the Company's ultimate future liability with respect to sites at which
remediation has not been completed may vary from the amounts reserved as of
December 31, 1998.
In the fourth quarter of 1996, a comprehensive review of all environmental
exposures was performed, and the Company accelerated its strategy for the
resolution and settlement of certain environmental claims. As a result, the
Company recorded additional environmental reserves of approximately $9.0 million
in the fourth quarter of 1996. The Company believes, based on existing
information, that the costs of completing environmental remediation of all sites
for which the Company has a remediation responsibility have been adequately
reserved, and that the ultimate resolution of these matters will not have a
material adverse effect upon the Company's financial condition, results of
operations or cash flows.
PRODUCT LIABILITY MATTERS
The Company is party to various personal injury and property damage lawsuits
relating to its products and incidental to its business. Annually, the Company
sets its product liability insurance program based on the Company's current and
historical claims experience and the availability and cost of insurance. The
Company's program for 1998 was comprised of a self-insurance retention of $2.5
million per occurrence.
Cumulative amounts estimated to be payable by the Company with respect to
pending and potential claims for all years in which the Company is liable under
its self-insurance retention have been accrued as liabilities. Such accrued
liabilities are necessarily based on estimates taking into account prior
experience, numbers of claims and other relevant factors; thus, the Company's
ultimate liability may exceed or be less than the amounts accrued. The methods
of making such estimates and establishing the resulting liability are reviewed
periodically and any adjustments resulting therefrom are reflected in current
operating results.
Historically, product liability awards have rarely exceeded the Company's
individual per occurrence self-insured retention. There can be no assurance,
however, that the Company's future product liability experience
F-43
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
will be consistent with its past experience. Based on existing information, the
Company believes that the ultimate conclusion of the various pending product
liability claims and lawsuits of the Company, individually or in the aggregate,
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
LEASES
The Company rents certain facilities, equipment and retail stores under
operating leases. Rental expense for operating leases amounted to $28.1 million
in 1998, $7.4 million for 1997 and $8.0 million for 1996. The minimum future
rentals due under noncancelable operating leases as of December 31, 1998
aggregated to $167.6 million. The amounts payable in each of the years 1999-2003
and thereafter are $34.6 million, $33.7 million, $17.1 million, $13.5 million,
$9.7 million and $59.0 million, respectively.
In connection with a warehouse expansion related to the electric blanket
business, the Company entered into a $5 million capital lease obligation in
1996.
CERTAIN DEBT OBLIGATIONS
Responsibility for servicing certain debt obligations of the Company's
predecessor were assumed by third parties in connection with the acquisition of
former businesses, although the Company's predecessor remained the primary
obligor in accordance with the respective loan documents. Such obligations,
which amounted to approximately $17.3 million at December 31, 1998, and the
corresponding receivables from the third parties, are not included in the
Consolidated Balance Sheets since these transactions occurred prior to the
issuance of SFAS No. 76, EXTINGUISHMENT OF DEBT. Management believes that the
third parties will continue to meet their obligations pursuant to the assumption
agreements.
PURCHASE AND OTHER COMMITMENTS
In conjunction with the sale of the Biddeford, Maine textile mill in 1997, the
Company entered into a five-year agreement to purchase blanket shells from the
mill. The agreement provides for a minimum purchase commitment each year of the
contract. As of December 31, 1998, the Company had remaining minimum commitments
under the contract of approximately $104 million.
In connection with Coleman's 1995 purchase of substantially all of the assets of
Active Technologies, Inc. ("ATI"), the Company may be required to make payments
to the predecessor owner of ATI of up to $18.8 million based on the Company's
sales of ATI related products and royalties received by the Company for
licensing arrangements related to ATI patents. As of December 31, 1998, the
amounts paid under the terms of this agreement have been immaterial.
16. RELATED PARTY TRANSACTIONS
SERVICES PROVIDED BY M&F
Pursuant to the settlement agreement with M&F, M&F agreed to make certain
executive management personnel available to the Company and to provide certain
management assistance to Sunbeam. The Company does not reimburse M&F for such
services, other than reimbursement of out-of-pocket expenses paid to third
parties. (See Note 2.)
F-44
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. RELATED PARTY TRANSACTIONS -(CONTINUED)
LIQUIDATION OF OPTIONS
The Company expects to acquire the remaining approximately 20% equity interest
in Coleman in the second half of 1999. Upon the consummation of the merger
transaction, the unexercised options under Coleman's stock option plans will be
cashed out at a price per share equal to the difference between $27.50 per share
and the exercise price of such options. Ronald O. Perelman, the sole stockholder
of M&F, holds 500,000 options for which he will receive a net payment of
$6,750,000. Mr. Shapiro and Ms. Clark, executive officers of the Company, hold
77,500 and 25,000 options, respectively, for which they will receive net
payments of $823,000 and $275,005, respectively.
ARRANGEMENTS BETWEEN COLEMAN AND M&F
Coleman and an affiliate of M&F are parties to a cross-indemnification agreement
pursuant to which Coleman has agreed to indemnify such affiliate, its officers,
directors, employees, control persons, agents and representatives against all
past, present and future liabilities, including product liability and
environmental matters, related to the initial assets of Coleman, which Coleman
acquired from such affiliate in December 1991. In addition, pursuant to this
cross-indemnification agreement, the M&F affiliate has agreed to indemnify
Coleman and its officers, directors, employees, agents and representatives
against all other liabilities of such M&F affiliate or any of its subsidiaries,
including liabilities relating to the assets it did not transfer to Coleman in
December 1991. This cross-indemnification agreement will survive the Coleman
merger.
Coleman previously was included in the consolidated tax group for the M&F
companies and was a party to a tax sharing agreement with a M&F affiliate,
pursuant to which Coleman paid to such affiliate the amount of taxes which would
have been paid by Coleman if it were required to file separate federal, state or
local income tax returns. The tax sharing agreement was terminated upon the
acquisition of Coleman; however, the acquisition agreement provides for certain
tax indemnities and tax sharing payments among the Company and the M&F
affiliates relating to periods prior to the acquisition.
LEASE OF OFFICE SPACE
During 1998, the Company sublet office space in New York City from an affiliate
of M&F. The expense for such rent during 1998 was approximately $130,000. The
lease was terminated in 1999.
17. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL 1998 (a)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales............................................. $247.6 $578.5 $496.0 $514.8
Gross profit (loss)................................... 33.8 (52.5) 67.4 (0.6)
Operating loss........................................ (37.4) (193.3) (161.0) (278.3)
Loss from continuing operations before
extraordinary charge........................... (45.6) (241.0) (188.9) (300.0)
Basic and diluted loss per share from
continuing operations before
extraordinary charge........................... (0.53) (2.39) (1.88) (2.98)
Extraordinary charge.................................. (8.6) (103.1) -- (10.7)
Net loss.............................................. (54.1) (344.1) (188.9) (310.8)
Basic and diluted loss per share...................... (0.63) (3.41) (1.88) (3.09)
F-45
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<CAPTION>
17. UNAUDITED QUARTERLY FINANCIAL DATA - (CONTINUED)
FISCAL 1997 (a)(b)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................. $252.5 $271.4 $286.8 $262.4
Gross profit.......................................... 58.3 55.3 76.5 52.1
Operating earnings.................................... 17.1 16.8 45.1 25.1
Earnings from continuing
operations..................................... 9.0 8.7 27.5 7.1
Basic earnings per share
from continuing operations..................... 0.11 0.10 0.32 0.08
Diluted earnings per share
from continuing operations..................... 0.11 0.10 0.31 0.08
(Loss) on sale of discontinued operations,
net of taxes................................... (13.7) -- (2.7) 2.4
Net (loss) earnings................................... (4.7) 8.7 24.8 9.5
Basic (loss) earnings per share....................... (0.06) 0.10 0.29 0.11
Diluted (loss) earnings per share..................... (0.06) 0.10 0.28 0.11
(a) Due to the net loss incurred, earnings per share calculations exclude
common stock equivalents for all four quarters and for the year in 1998 and
for the first and third quarters in 1997. Earnings (loss) per share are
computed independently for each of the quarters presented. Therefore, the
sum of the quarterly earnings (loss) per share in 1998 and 1997 does not
equal the total computed for the year.
(b) Each quarter consists of a 13-week period.
During 1998, significant unusual charges affected the respective quarters
as follows:
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Compensation agreements with former
senior officers (Note 8).................... $31.2 $-- $-- $--
Excess and obsolete inventory reserves
(Note 11)................................... -- 84.0 2.2 9.6
Facilities impairment charges (Note 11)... -- 29.6 3.1 6.7
Warrants issued to M&F (Note 2).................. -- -- 70.0 --
Costs associated with financial statement
restatement................................. -- -- 10.8 9.6
Goodwill impairment (Note 2)..................... -- -- -- 62.5
----- ------ ----- -----
Total............................................ $31.2 $113.6 $86.1 $88.4
===== ====== ===== =====
</TABLE>
During the first, second, third and fourth quarters of fiscal 1997,
approximately $0.5 million, $4.5 million, $1.5 million and $21.5 million,
respectively, of pre-tax liabilities no longer required were reversed and taken
into income. Included in these reserves is the $8.1 million litigation reserve
reversal discussed in Note 15. Also, during the third and fourth quarters of
fiscal 1997, approximately $5.8 million and $8.8 million, respectively, of
restructuring reserves no longer required were reversed and taken into income,
as discussed in Note 12. Additionally, during the fourth quarter of fiscal 1997,
approximately $13.3 million of tax liabilities no longer required were reversed
and taken into income.
F-46
<PAGE>
SUNBEAM CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO RESERVES BALANCE AT
BEGINNING COSTS AND FROM END OF
DESCRIPTION OF PERIOD EXPENSES ACQUISITIONS DEDUCTIONS PERIOD
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts and cash discounts:
Fiscal year ended $25,050 (b)
December 31, 1998................... $30,033 $32,919 $15,216 93 (c) $53,025
======= ======= ======= ====== =======
$(2,000)(a)
Fiscal year ended 8,948 (b)
December 28, 1997..................... $19,701 $17,297 $-- 17 (c) $30,033
======= ======= === ====== =======
$(233)(a)
Fiscal year ended 19,911 (b)
December 29, 1996..................... $12,326 $27,053 $-- -- (c) $19,701
======= ======= === ====== =======
</TABLE>
Notes: (a) Reclassified to/from accrued liabilities for customer
deductions. (b) Accounts written off as uncollectible. (c) Foreign
currency translation adjustment. (d) Reserve balances of acquired
companies at acquisition date.
F-47
<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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of Sunbeam's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Coleman Company, Inc. and subsidiaries at December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Wichita, Kansas
April 15, 1999
F-48
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 23,413 $ 13,031
Accounts receivable, less allowance of $8,894 in 1998 and $8,930 in 1997.............. 143,670 154,279
Notes receivable...................................................................... 17,419 25,477
Inventories........................................................................... 230,126 236,327
Income tax refunds receivable--affiliate.............................................. 1,019 14,860
Deferred tax assets................................................................... 26,926 26,378
Prepaid expenses and other current assets............................................. 19,627 21,344
-------- ----------
Total current assets.......................................................... 462,200 491,696
Property, plant and equipment, net.................................................... 145,823 175,494
Goodwill, net......................................................................... 282,015 332,468
Deferred tax assets and other......................................................... 43,219 42,106
-------- ----------
$933,257 $1,041,764
-------- ----------
-------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................................................... $ 110 $ 523
Short-term borrowings................................................................. 45,803 64,207
Accounts payable...................................................................... 77,558 91,846
Accounts payable--affiliates.......................................................... 22,703 2,825
Accrued expenses...................................................................... 101,114 93,796
-------- ----------
Total current liabilities..................................................... 247,288 253,197
Long-term debt.......................................................................... 362 477,276
Debt payable to affiliate............................................................... 365,063 --
Other liabilities....................................................................... 75,231 69,586
Minority interest....................................................................... 6,698 1,236
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; 55,827,490
shares issued and outstanding in 1998; 53,433,414 shares
issued and outstanding in 1997..................................................... 558 534
Additional paid-in capital............................................................ 221,730 172,072
Retained earnings..................................................................... 21,977 80,296
Accumulated other comprehensive loss.................................................. (5,650) (12,433)
-------- ----------
Total stockholders' equity.................................................... 238,615 240,469
-------- ----------
$933,257 $1,041,764
-------- ----------
-------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-49
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues............................................................ $1,015,373 $1,154,294 $1,220,216
Cost of sales........................................................... 750,486 840,331 928,497
---------- ---------- ----------
Gross profit............................................................ 264,887 313,963 291,719
Selling, general and administrative expenses............................ 270,772 266,283 291,669
Interest expense, net................................................... 33,213 40,852 38,727
Amortization of goodwill and deferred charges........................... 19,584 11,338 10,473
Gain on sales of businesses............................................. (32,411) -- --
Other expense, net...................................................... 170 1,867 1,151
---------- ---------- ----------
Loss before income taxes, minority interest and
extraordinary item.................................................... (26,441) (6,377) (50,301)
Income tax expense (benefit)............................................ 13,846 (5,227) (10,927)
Minority interest....................................................... 276 1,386 1,872
---------- ---------- ----------
Loss before extraordinary item.......................................... (40,563) (2,536) (41,246)
Extraordinary loss on early extinguishment of debt, net of income tax
benefit of $11,474 in 1998, and $431 in 1996.......................... (17,538) -- (647)
---------- ---------- ----------
Net loss................................................................ $ (58,101) $ (2,536) $ (41,893)
---------- ---------- ----------
---------- ---------- ----------
Basic and diluted loss per share:
Loss before extraordinary item........................................ $ (0.73) $ (.05) $ (0.78)
Extraordinary item...................................................... (0.32) -- (0.01)
---------- ---------- ----------
Net loss................................................................ $ (1.05) $ (.05) $ (0.79)
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding:
Basic and diluted..................................................... 55,309 53,344 53,197
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
F-50
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL OTHER
NUMBER PAID-IN RETAINED COMPREHENSIVE
OF SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) TOTAL
---------- ------ ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995......... 53,177,280 $532 $165,466 $126,179 $ 165 $292,342
Comprehensive loss:
Net loss........................ -- -- -- (41,893) -- (41,893)
Currency translation
adjustment.................... -- -- -- -- 3,011 3,011
Minimum pension liability
adjustment.................... -- -- -- -- (285) (285)
--------
Comprehensive loss......... (39,167)
Purchases of common stock....... (100,000) (1) (874) (1,454) -- (2,329)
Stock split issuance costs...... -- -- (93) -- -- (93)
Stock issued under stock option
plans......................... 145,140 1 1,737 -- -- 1,738
Stock option tax benefits....... -- -- 454 -- -- 454
---------- ---- -------- -------- --------- --------
Balance at December 31, 1996......... 53,222,420 532 166,690 82,832 2,891 252,945
Comprehensive loss:
Net loss........................ -- -- -- (2,536) -- (2,536)
Currency translation
adjustment.................... -- -- -- -- (14,686) (14,686)
Minimum pension liability
adjustment.................... -- -- -- -- (638) (638)
------
Comprehensive loss......... (17,860)
Stock issued under stock option
plans......................... 210,994 2 2,358 -- -- 2,360
Stock option tax benefits....... -- -- 225 -- -- 225
Contribution to capital by
parent........................ -- -- 2,799 -- -- 2,799
---------- ---- -------- -------- --------- --------
Balance at December 31, 1997......... 53,433,414 534 172,072 80,296 (12,433) 240,469
Net loss........................ -- -- -- (58,101) -- (58,101)
Currency translation
adjustment.................... -- -- -- -- 7,126 7,126
Minimum pension liability
adjustment.................... -- -- -- -- (343) (343)
------
Comprehensive loss......... (51,318)
Stock issued under stock option
plans......................... 2,394,076 24 36,207 -- -- 36,231
Stock option tax benefits....... -- -- 13,451 -- -- 13,451
Other........................... -- -- -- (218) -- (218)
---------- ---- -------- -------- --------- --------
Balance at December 31, 1998......... 55,827,490 $558 $221,730 $ 21,977 $ (5,650) $238,615
---------- ---- -------- -------- --------- --------
---------- ---- -------- -------- --------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F-51
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................... $(58,101) $ (2,536) $(41,893)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization........................................... 44,697 37,977 36,358
Non-cash restructuring and other charges................................ 6,652 17,325 48,269
Gain on sales of businesses............................................. (32,411) -- --
Extraordinary loss on early extinguishment of debt...................... 29,012 -- 1,078
Minority interest....................................................... 276 1,386 1,872
Change in assets and liabilities, net of effects from business
acquisitions and dispositions:
Decrease in receivables............................................... 28,821 23,296 976
Decrease (increase) in inventories.................................... 851 35,250 (42,402)
(Decrease) increase in accounts payable............................... (2,426) 1,226 (12,308)
Other, net............................................................ 10,216 (22,683) (1,279)
-------- -------- --------
Net cash provided (used) by operating activities................... 27,587 91,241 (9,329)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures....................................................... (23,663) (26,973) (41,334)
Purchases of businesses, net of cash acquired.............................. -- (14,300) (161,875)
Net proceeds from sales of businesses and fixed assets..................... 117,841 5,728 2,924
-------- -------- --------
Net cash provided (used) by investing activities................... 94,178 (35,545) (200,285)
-------- -------- --------
Cash flows from financing activities:
Net change in short-term borrowings........................................ (23,125) 37,071 (11,043)
Net payments of revolving credit agreement borrowings...................... (52,578) (91,498) (2,779)
Proceeds from issuance of long-term debt................................... 174 -- 235,000
Net increase in borrowings from affiliate.................................. 365,063 -- --
Repayment of long-term debt, including redemption costs.................... (447,229) (2,867) (6,648)
Debt issuance and refinancing costs........................................ -- (766) (3,902)
Purchases of Company common stock.......................................... -- -- (2,329)
Proceeds from stock options exercised including tax benefits............... 49,682 2,585 2,192
-------- -------- --------
Net cash (used) provided by financing activities................... (108,013) (55,475) 210,491
-------- -------- --------
Effect of exchange rate changes on cash...................................... (3,370) (4,489) 4,357
-------- -------- --------
Net increase (decrease) in cash and cash equivalents......................... 10,382 (4,268) 5,234
Cash and cash equivalents at beginning of the year........................... 13,031 17,299 12,065
-------- -------- --------
Cash and cash equivalents at end of the year................................. $ 23,413 $ 13,031 $ 17,299
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements
F-52
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
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 an indirect wholly-owned subsidiary of Laser
Acquisition Corp. ("Laser"), an indirect wholly-owned subsidiary of Sunbeam
Corporation ("Sunbeam"). Coleman Worldwide owns 44,067,520 shares of the common
stock of Coleman which represented approximately 79% of the outstanding Coleman
common stock as of December 31, 1998.
On February 27, 1998, CLN Holdings Inc. ("CLN Holdings"), the then parent
of Coleman Worldwide, and Coleman (Parent) Holdings Inc. ("Parent Holdings"),
the then 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 44,067,520 shares of Coleman common stock held by Coleman Worldwide (the
"Sunbeam Acquisition"). On August 12, 1998, Sunbeam announced that it had
entered into a settlement agreement with Parent Holdings, a subsidiary of
MacAndrews & Forbes Holdings Inc. ("M&F"), in connection with the Holdings
Merger (the "Parent Holdings Settlement Agreement"). The Parent Holdings
Settlement Agreement subject to the terms of such settlement: (i) released
Sunbeam from certain claims Parent Holdings and its affiliates, including M&F,
may have against Sunbeam arising out of the Sunbeam Acquisition; and (ii)
enabled Sunbeam to retain the services of executive personnel affiliated with
Parent Holdings who had previously been involved with management of Coleman and
who had been managing Sunbeam since mid-June of 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 Sunbeam common stock at an exercise price of $7.00 per share,
subject to anti-dilution provisions.
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. In addition, outstanding stock options of
Coleman immediately vested upon consummation of the Holdings Merger Agreement
and unexercised stock options at the time of the Coleman Merger will be cashed
out by Sunbeam at a price per share equal to the difference between $27.50 per
share and the exercise price of such options. In October 1998, Coleman and
Sunbeam entered into a memorandum of understanding to settle, subject to court
approval, certain class actions brought by minority shareholders of Coleman
against Coleman, Sunbeam and certain of their current and former officers and
directors challenging the proposed Coleman Merger. Under the terms of the
proposed settlement, if approved by the court, Sunbeam will issue to the Coleman
public shareholders five-year warrants to purchase up to 4.98 million shares of
Sunbeam common stock at $7.00 per share, subject to certain anti-dilution
provisions. These warrants will generally have the same terms as the warrants
previously issued to Parent Holdings and will be issued when the Coleman Merger
is consummated, which is now expected to be during the second half of 1999.
There can be no
F-53
<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)
assurance that the court will approve the settlement as proposed, although such
approval is not a condition to the consummation of the Coleman Merger.
The consummation of the Coleman Merger is contingent upon several
conditions including, among other things, the filing of a registration statement
under the Securities Act of 1933 (the "Securities Act") for the purpose of
registering the shares of Sunbeam common stock to be issued in the Coleman
Merger (the "Registration Statement") and that the Registration Statement shall
have become effective in accordance with the provisions of the Securities Act.
Sunbeam has filed a preliminary Registration Statement, but is uncertain when
the Registration Statement will become effective. However, it is anticipated the
Coleman Merger will be completed during the second half of 1999. Upon
consummation of the Coleman Merger, Coleman will become an indirect wholly-owned
subsidiary of Sunbeam.
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.
Goodwill
Goodwill represents the excess of purchase price over the fair value of
identifiable assets related to various acquisitions, 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 or other qualitative factors, the carrying
amount of the goodwill is reduced to estimated fair value based on market value
or discounted cash flows, as appropriate. During 1998, the Company wrote off
$8,759 of goodwill as a result of its review of the Company's operations in
Europe and changes in certain operating strategies following the Sunbeam
Acquisition. Accumulated amortization aggregated $52,992 and $47,250 at
December 31, 1998 and 1997, respectively.
F-54
<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.
Estimated customer returns and allowances are recognized at the time of sale
primarily based on historical experience.
Research and Development
Research and development expenditures are expensed as incurred. The amounts
charged against operations for the years ended December 31, 1998, 1997 and 1996
were $10,370, $11,871, and $11,082, 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, 1998, 1997 and 1996 were $52,062, $53,408, and $58,823,
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 stockholders' equity and other
comprehensive income. 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
Interest rate swap and cap agreements. The Company uses interest-rate swap
and cap agreements to manage the interest rate characteristics of its
outstanding debt to a more desirable fixed or variable rate basis or to limit
the Company's exposure to rising interest rates. Interest rate differentials to
be paid or received as a result of interest rate swap or cap agreements are
accrued and recognized as an adjustment of interest expense related to the
designated debt. The fair value of the swap and cap agreements and changes in
the fair value as a result of changes in market interest rates are not
recognized in the financial statements. Related premiums paid are amortized to
interest expense ratably during the life of the swap or cap agreement.
Gains and losses on termination of interest rate swap and cap contracts are
deferred and amortized as an adjustment to interest expense over the original
period of interest exposure, provided the designated liability continues to
exist. Realized and unrealized changes in fair value of interest rate swap and
caps designated with liabilities that no longer exist are recorded as a
component of the gain or loss arising from the disposition of the designated
liability.
F-55
<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)
Foreign currency options and forward contracts. The Company uses foreign
currency option and forward contracts (collectively, "Foreign Currency
Contracts") to reduce its exposure to foreign currency risk related primarily to
transactions with its foreign subsidiaries, including amounts payable or
receivable, firm commitments and anticipated transactions. Foreign Currency
Contracts designated and effective as hedges are marked to market with realized
and unrealized gains and losses deferred and recognized in earnings when the
designated transaction occurs. Foreign Currency Contracts not designated as
hedges, fail to be or continue as effective hedges, or relate to transactions
which are no longer probable of occurring are included in income as foreign
exchange gains or losses. Discounts or premiums on forward contracts designated
and effective as hedges are accreted or amortized to expense using the
straight-line method over the term of the related contract. Discounts or
premiums on forward contracts not designated or effective as hedges are included
in the mark to market adjustment and recognized in income as foreign exchange
gains or losses. Initial premiums paid for purchased option contracts are
amortized over the related option period.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
trade receivables and derivative financial instruments. The Company places its
funds into high credit quality financial institutions and, at times, may be in
excess of the federal depository insurance limit. 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 18), 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, including debt payable to
affiliate, approximate their fair value. The fair value of the Company's
senior notes issues (see Note 9) was 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 were estimated based on quoted market prices of
comparable contracts, adjusted through interpolation where necessary for
maturity differences.
Interest rate swap: The fair values of interest rate swap agreements were
the amounts at which they could be terminated, based on estimates obtained
from dealers.
F-56
<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)
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
OF ASSET/ OF ASSET/ OF ASSET/ OF ASSET/
(LIABILITY) (LIABILITY) (LIABILITY) (LIABILITY)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents.............................. $ 23,413 $ 23,413 $ 13,031 $ 13,031
Short-term debt........................................ (45,803) (45,803) (64,207) (64,207)
Long-term debt excluding capital leases................ -- -- (477,499) (445,792)
Foreign currency exchange contracts.................... 83 (22) 128 128
Debt payable to affiliate.............................. (363,893) (363,893) -- --
Interest rate swap agreement........................... -- (930) -- (171)
</TABLE>
Stock-Based Compensation
The Company accounts 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.
Earnings per Share
Basic loss per share is computed using the weighted average number of
shares of outstanding common stock. Diluted loss per share for the years ended
December 31, 1998, 1997 and 1996 is based only on the weighted average number of
common shares outstanding during each of those years, as the inclusion of
192,400, 153,218, and 352,926 common share equivalents, respectively, would have
been antidilutive.
Stock options to purchase 923,670, 1,931,000, and 2,457,520 shares of
common stock were outstanding at December 31, 1998, 1997, and 1996,
respectively, but were not included in the computation of common share
equivalents because the option exercise price was greater than the average
market price of Coleman's common stock during each of the respective years.
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 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 requires an entity to
recognize all derivatives as either assets or liabilities in the balance
F-57
<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)
sheet and measure those instruments at fair value with any unrealized gain or
loss recognized as a component of net income or other comprehensive income. SFAS
No. 133 will be effective for the Company's fiscal year beginning January 1,
2000. Earlier application of the provisions of SFAS No. 133 are encouraged;
however, the Company has not determined if it will apply the provisions of SFAS
No. 133 prior to January 1, 2000, nor has the Company estimated the impact of
applying the provisions of SFAS No. 133 on the Company's statement of financial
position or statement of operations.
2. ACQUISITIONS AND DIVESTITURES
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. On March 24, 1998, the
Company sold Coleman Safety & Security Products, Inc. ("CSS"), the successor to
the assets acquired from Seatt, to Ranco Incorporated of Delaware ("Ranco"), a
wholly-owned subsidiary of Siebe plc, for approximately $95,798, net of fees and
expenses. In connection with the sale of CSS, the Company recorded a pre-tax
gain of $25,098 during 1998.
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 a liability in the
amount of $21,898 representing severance and other termination benefits for
certain production and administrative employees of Camping Gaz pursuant to a
plan adopted by management to integrate the Camping Gaz and Coleman operations
into a global recreation products business. During 1998, 1997, and 1996,
approximately $2,161, $10,459, and $5,409, respectively, of severance and other
termination benefits were paid and charged against the liability. The Company
has recorded reductions to the liability of $1,696 related primarily to changes
in its initial estimate, which have been reflected as a reduction of the cost to
acquire Camping Gaz and has reduced the related goodwill. As of December 31,
1998, $2,173 of this liability remains and is expected to be paid by the first
quarter of 2000.
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
year ended December 31, 1996 assume the acquisition of all the outstanding
shares of Camping Gaz occurred as of the beginning of 1996. 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
F-58
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. ACQUISITIONS AND DIVESTITURES--(CONTINUED)
been had the Camping Gaz acquisition occurred at the beginning of 1996.
Moreover, the pro forma information is not intended to be indicative of future
results of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
Net revenues............................................................... $ 1,246,370
Loss before extraordinary item............................................. 41,407
Net loss................................................................... 42,054
Basic loss per common share:
Loss before extraordinary item........................................... $ 0.78
Net loss................................................................. 0.79
</TABLE>
On October 13, 1998, the Company sold Coleman Spas, Inc. ("Spas"), a
wholly-owned subsidiary of the Company, which manufactures and markets portable
spas and related products for the consumer market, to MAAX Holdings Inc., a
wholly-owned subsidiary of MAAX Inc., for approximately $17,040, net of fees and
expenses. In connection with the sale of Spas, the Company recorded a pre-tax
gain of $7,313 in 1998. The net proceeds from the sale of Spas are subject to
certain post-closing adjustments which could change the pre-tax gain.
3. RESTRUCTURING AND OTHER CHARGES
During 1996, 1997 and 1998, the Company recorded restructuring charges
totaling $66,202, $32,791 and $17,635, respectively. The charges generally
relate to integration of operations following business acquisitions (including
costs associated with consolidation of operations and severance), elimination of
product lines, consolidation and/or rationalization of facilities, severance and
employee termination costs and additional costs related to these activities.
There were no significant operations generated from facilities or assets
included in a restructuring charge since the date of the charge.
In addition to the restructuring charges, the Company recorded other
charges during 1996, 1997 and 1998 totaling $7,998, $3,628 and $13,672,
respectively. These charges primarily relate to asset write-offs and integration
expense, but do not meet the criteria to qualify as restructuring charges. These
charges are combined with the restructuring charges in the following table.
<TABLE>
<CAPTION>
INVENTORY IDLE
IMPAIRMENT AND OTHER FACILITIES
OF FIXED ASSET TERMINATION AND OTHER
ASSETS IMPAIRMENTS COSTS EXIT COSTS TOTAL
---------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
1996 Charges...................................... $ 10,012 $38,257 $ 2,018 $23,913 $74,200
Activity.......................................... (1,789) (25,875) (1,633) (12,429) (41,726)
-------- ------- ------- ------- -------
Balance at 12/31/96............................... 8,223 12,382 385 11,484 32,474
1997 Charges...................................... 6,449 10,961 12,146 6,863 36,419
Activity.......................................... (6,530) (14,966) (9,729) (9,656) (40,881)
-------- ------- ------- ------- -------
Balance at 12/31/97............................... 8,142 8,377 2,802 8,691 28,012
1998 Charges...................................... 1,288 3,956 15,668 10,395 31,307
Activity.......................................... (1,364) (10,524) (9,814) (15,747) (37,449)
-------- ------- ------- ------- -------
Balance at 12/31/98............................... $ 8,066 $ 1,809 $ 8,656 $ 3,339 $21,870
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
During 1996, the Company recorded restructuring charges of $66,202 and
other charges of $7,998. The Company reflected $44,005 of the charges in cost of
sales and $30,195 in selling, general and administrative ("SG&A") expenses. The
components of the charges are as follows.
F-59
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. RESTRUCTURING AND OTHER CHARGES--(CONTINUED)
Integration of Camping Gaz and Coleman--Restructuring charges totaling
$29,067 were recorded to integrate the Camping Gaz operations. Actions related
to the integration included consolidating facilities, eliminating duplicate
product lines including related inventory and equipment, and termination of
employees. The charges for these actions are included in the table above as
follows: Impairment of Fixed Assets, $9,035; Inventory and Other Asset
Impairments, $6,437; Termination Costs, $1,799; and Idle Facilities and Other
Exit Costs, $11,796. The severance and termination costs related to
approximately 200 employees, all of whom had left the Company by December 31,
1996. The severance and termination costs and other exit costs were cash
charges, while the fixed asset and inventory and other asset impairments
resulted in non-cash charges. The integration actions were substantially
complete by December 31, 1998, with the disposal of an idle warehouse being the
only significant remaining action to be completed. The only significant
adjustment recorded to the original charge was to increase the allowance for the
idle warehouse by $1,705 to $7,938. The warehouse remains unsold at
December 31, 1998.
Exit Low End Electric Pressure Washer Business--The Company recorded
restructuring charges totaling $19,000 to exit the Company's low end electric
pressure washer business. The exit costs included $13,211 for disposing of
inventory and other assets, and $5,789 for other exit costs. The inventory
disposal was substantially complete by December 31, 1997, and resulted in
non-cash charges. The other exit costs were substantially paid by December 31,
1997, and principally resulted in cash charges. No significant adjustments were
made to the original charge in subsequent periods.
Exit a Portion of Battery Powered Light Business--Restructuring charges
totaling $18,135 were recorded to exit a portion of the Company's battery
powered light business during the year as part of a settlement with another
battery powered light manufacturer. The charges included $12,618 for inventory
and other asset impairments and $5,517 for other exit costs. Other exit costs
include $4,000 cash charges to settle litigation with the other battery powered
light manufacturer. The inventory was destroyed and the exit costs were fully
paid by December 31, 1997. No significant adjustments were made to the original
charge in subsequent periods.
Other Charges--The Company recorded other charges totaling $7,998 which
principally consist of costs to exit portions of certain products and
recognition of quality issues related to these and other products. The costs do
not qualify as restructuring charges, but are included in the table above since
the amounts involved are larger than similar charges in prior years. These costs
are included in the table above as follows: Impairment of Fixed Assets, $977;
Inventory and Other Asset Impairments, $5,991; Termination Costs, $219; and Idle
Facilities and Other Exit Costs, $811.
During 1997, the Company recorded restructuring charges of $32,791 and
other charges of $3,628. The Company reflected $19,673 of the charges in cost of
sales and $16,746 in SG&A expenses. Significant components of the charges are as
follows.
Exit Low-Margin Product Lines--The Company recorded restructuring charges
of $15,735 to eliminate several low-margin product lines including the remaining
pressure washer business and numerous stock keeping units in the outdoor
products business. The majority of these charges relate to inventory disposals
and related actions and are included in the table above as follows: Impairment
of Fixed Assets, $2,105; Inventory and Other Asset Impairments, $10,290;
Termination Costs, $1,503; and Idle Facilities and Other Exit Costs, $1,837. The
termination costs and other exit costs were generally cash charges, while the
charges for the inventory and other assets were generally non-cash charges. The
actions to exit the low-margin product lines were substantially complete by
December 31, 1998. The termination costs related to approximately 25 employees,
all of whom had left the Company by December 31, 1997. No significant
adjustments were made to the original charge in subsequent periods.
Close and Relocate Certain Administrative and Sales Offices--The Company
recorded restructuring and other charges totaling $14,943 to close and relocate
certain administrative and sales offices during the year. The
F-60
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. RESTRUCTURING AND OTHER CHARGES--(CONTINUED)
locations included corporate, domestic and international facilities and the
majority of the charges related to employee termination benefits. The charges
are included in the table above as follows: Impairment of Fixed Assets, $1,617;
Termination Costs, $9,450; and Idle Facilities and Other Exit Costs, $3,876.
This plan was fully implemented in 1997, and substantially all of the
termination and other exit costs were cash charges. The termination costs
related to approximately 85 employees, all of whom left the Company by
December 31, 1997. The fixed asset impairments resulted in non-cash charges. An
additional charge of approximately $5,347 was included in the 1998 restructuring
charges to add to the employee termination benefits due to the outcome of
related arbitration. The remaining amount of unpaid termination costs at
December 31, 1998 of $4,264 is expected to be paid by December 31, 2000.
Close Several Manufacturing Facilities--Restructuring charges totaling
$5,741 were recorded to close two domestic and one international manufacturing
facility in 1997 in order to further consolidate operations and reduce costs.
Costs associated with the closures are included in the table above as follows:
Impairment of Fixed Assets, $2,727; Inventory and Other Asset Impairments, $671;
Termination Costs $1,193; and Idle Facilities and Other Exit Costs, $1,150. The
actions associated with the facilities closure were substantially complete as of
December 31, 1997, and consisted of cash charges for termination costs and other
exit costs and primarily non-cash charges for asset impairments. The termination
costs related to approximately 415 employees, all of whom left the Company by
December 31, 1997. No significant adjustments were made to the original charge
in subsequent periods.
During 1998, the Company recorded $17,635 of restructuring charges and
other charges of $13,672. The Company reflected $1,062 of the charges in cost of
sales and $30,245 in SG&A expenses. Significant components of the charges are as
follows.
Close Facilities--The Company recorded restructuring charges of $3,507 to
further consolidate operations and improve efficiency. The related actions
included closing several operations in Europe and one domestic manufacturing
facility during the year. The charges associated with the closures are included
in the table above as follows: Impairment of Fixed Assets, $13; Inventory and
Other Asset Impairments, $101; Termination Costs, $2,547; and Idle Facilities
and Other Exit Costs, $846. The termination costs included severance benefits
for approximately 150 employees, which had been fully paid to the former
domestic employees by December 31, 1998, and will be fully paid to the European
employees by December 31, 2000. The asset impairment charges are principally
non-cash charges and the related actions were generally completed by
December 31, 1998. The other exit costs are primarily non-cash charges and have
generally been paid by December 31, 1998. No additional charges are anticipated
in future periods from the foregoing actions.
Employee Termination and Severance--The Company recorded restructuring and
other charges totaling $7,891 following the Sunbeam acquisition for the
termination of 117 employees. The charges, all included in Termination Costs in
the above table, are cash charges which will be fully paid by December 31, 2000.
No additional charges are anticipated in future periods related to this issue.
Revise Prior Year Estimates--The Company recorded restructuring and other
charges totaling $6,237 as adjustments to charges previously recorded in 1996
and 1997, due to changes in facts and circumstances related to the prior years'
restructuring issues, including a change in the carrying value of the idle
warehouse identified as part of the integration of Camping Gaz and Coleman and a
change in the termination benefits related to the closure and relocation of
certain administrative and sales offices described above. The charges are
included in the table above as follows: Impairment of Fixed Assets, $1,119;
Inventory and Other Asset Impairments, ($419); Termination Costs, $5,230; and
Idle Facilities and Other Exit Costs, $307. As indicated above, the idle
warehouse remains held for sale at December 31, 1998, and the additional
termination costs are expected be paid by December 31, 2000.
F-61
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
3. RESTRUCTURING AND OTHER CHARGES--(CONTINUED)
Acquisition of Coleman by Sunbeam--The Company recorded other charges
totaling $13,672 resulting from expenses associated with the acquisition of the
Company by Sunbeam including advisory fees, abandoning a company-wide enterprise
resource computer software system, and terminating a licensing services
agreement with an affiliate of Parent Holdings. These charges do not qualify as
restructuring charges, but are included in the table above because of the
unusual nature of the costs. These charges are included in the table above as
follows: Impairment of Fixed Assets, $156; Inventory and Other Asset
Impairments, $4,274; and Idle Facilities and Other Exit Costs, $9,242. No
additional charges are anticipated in future periods related to this issue.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Raw material and supplies..................................................... $ 45,395 $ 59,406
Work-in-process............................................................... 6,539 7,813
Finished goods................................................................ 178,192 169,108
-------- --------
$230,126 $236,327
-------- --------
-------- --------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Land and land improvements.................................................. $ 6,429 $ 7,700
Buildings and building improvements......................................... 73,964 79,101
Machinery and equipment..................................................... 180,315 192,650
Construction-in-progress.................................................... 7,983 10,076
--------- ---------
268,691 289,527
Accumulated depreciation.................................................... (122,868) (114,033)
--------- ---------
$ 145,823 $ 175,494
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was $25,672, $26,956, and $25,770 for the years ended
December 31, 1998, 1997 and 1996, respectively.
6. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- -------
<S> <C> <C>
Compensation and related benefits.............................................. $ 26,305 $20,385
Other.......................................................................... 74,809 73,411
-------- -------
$101,114 $93,796
-------- -------
-------- -------
</TABLE>
F-62
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
7. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Pensions and other postretirement benefits...................................... $52,770 $49,121
Other........................................................................... 22,461 20,465
------- -------
$75,231 $69,586
------- -------
------- -------
</TABLE>
8. SHORT-TERM BORROWINGS
The Company maintained short-term bank lines of credit at December 31, 1998
and 1997 aggregating approximately $76,390, and $115,249, respectively, of which
approximately $45,803 and $64,207 were outstanding at December 31, 1998 and
1997, respectively. The weighted average interest rate on amounts borrowed under
these short-term lines was approximately 2.8% and 2.7% at December 31, 1998 and
1997, respectively.
Outstanding letters of credit aggregated approximately $40,606 and $37,208
at December 31, 1998 and 1997, respectively.
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
---- --------
<S> <C> <C>
7.26% Senior Notes due 2007(b).................................................... $ -- $200,000
7.10% Senior Notes due 2006(b).................................................... -- 85,000
7.25% Senior Notes due 2008(b).................................................... -- 75,000
Revolving credit facility(a)...................................................... -- 52,127
Term loan(a)...................................................................... -- 64,894
Other............................................................................. 472 778
---- --------
472 477,799
Less current portion.............................................................. 110 523
---- --------
$362 $477,276
---- --------
---- --------
</TABLE>
- -------------------------
a) In April 1996, the Company amended its credit agreement to: a) provide a
French Franc term loan, b) provide a $275,000 unsecured revolving credit
facility, c) allow for the Camping Gaz acquisition and d) extend the maturity
of the credit agreement. Based upon the amended terms of the credit
agreement, the Company deemed the amended terms were substantially different
from the original terms of the credit agreement and therefore, accounted for
the transaction as an extinguishment of the old credit agreement and creation
of a new credit agreement. The extraordinary loss recorded by the Company of
$1,078 in 1996 represents a write-off of the unamortized financing costs
associated with the old credit agreement. In March 1998, in connection with
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 in 1998 which represents a write-off of the
related unamortized financing costs associated with the credit agreement.
b) The Company's various senior notes aggregating $360,000 were redeemed on
April 21, 1998 at a cost of $383,395. The $23,395 of redemption costs in
excess of carrying value along with the write-off of the related
F-63
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
9. LONG-TERM DEBT--(CONTINUED)
unamortized financing costs of $2,694 and unamortized deferred interest rate
swap losses of $885 are reflected as an extraordinary loss on early
extinguishment of debt.
The aggregate scheduled amounts of long-term debt maturities in the years
1999 through 2003 are $110, $175, $97, $24, and $24, respectively.
10. ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED
CURRENCY MINIMUM OTHER
TRANSLATION PENSION COMPREHENSIVE
ADJUSTMENT LIABILITY INCOME/(LOSS)
----------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995.............................. $ 165 $ -- $ 165
Current year pre-tax change............................... 3,011 (470) 2,541
Tax benefit............................................... -- 185 185
--------- ------- ---------
Balance at December 31, 1996.............................. 3,176 (285) 2,891
Current year pre-tax change............................... (9,946) (1,056) (11,002)
Tax (expense) benefit..................................... (3,566) 418 (3,148)
Minority interest......................................... (1,174) -- (1,174)
--------- ------- ---------
Balance at December 31, 1997.............................. (11,510) (923) (12,433)
Current year pre-tax change............................... 8,142 (568) 7,574
Tax (expense) benefit..................................... (602) 225 (377)
Minority interest......................................... (414) -- (414)
--------- ------- ---------
Balance at December 31, 1998.............................. $ (4,384) $(1,266) $ (5,650)
--------- ------- ---------
--------- ------- ---------
</TABLE>
F-64
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign currency forward exchange contracts and
purchased foreign currency options to mitigate a portion of the risk related
primarily to transactions with its foreign subsidiaries including amounts
payable or receivable, firm commitments and anticipated transactions. The
purpose of the Company's foreign currency risk management activities is to
protect the Company from the risk that future cash flows resulting from
transactions with its foreign subsidiaries will be adversely affected by changes
in exchange rates.
At December 31, 1998 and 1997, the Company had forward exchange contracts
and purchased options, all having maturities of less than one year, to exchange
various foreign currencies for U.S. dollars in the amount of $63,286 and $1,580,
respectively. The table below summarizes by currency, the contractual amounts
and related unrealized gain (loss) of the Company's forward exchange and option
contracts at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
RECOGNIZED
PURCHASED UNREALIZED DEFERRED
FORWARD OPTION TOTAL GAIN UNREALIZED
CONTRACTS CONTRACTS CONTRACTS (LOSS) GAIN (LOSS)
--------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Currency:
Deutschemark.............................. $12,000 $18,369 $30,369 $ 207 $ --
Yen....................................... 14,941 12,451 27,392 (655) --
Pound sterling............................ 4,000 1,525 5,525 57 --
------- ------- ------- ------ -----
Total....................................... $30,941 $32,345 $63,286 $ (391) $ --
------- ------- ------- ------ -----
------- ------- ------- ------ -----
December 31, 1997
Currency:
Yen....................................... $ 1,580 $ -- $ 1,580 $ -- $ 128
------- ------- ------- ------ -----
------- ------- ------- ------ -----
</TABLE>
The Company also manages its interest rate risks through the use of
interest rate swaps under which the Company agrees to exchange, at specified
intervals, the difference between fixed- and variable-interest amounts
calculated on an agreed notional principal amount. As the Company's interest
bearing liabilities primarily represent variable-rate short- and long-term debt,
interest rate swaps are used to reduce the impact of changes in interest rates
on interest expense. At December 31, 1998, $25,000 of the Company's debt payable
to affiliate was subject to an interest rate swap agreement. 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 over the next three years.
The Company accounts for its interest rate swaps and caps using hedge
accounting with the net payable or receivable accrued as an adjustment to
current period interest expense. Unrealized gains or losses related to interest
rate swaps and caps are not reflected in the accompanying financial statements.
As of December 31, 1998 and 1997, the Company's interest rate swaps and caps had
a cumulative unrealized loss of approximately $930 and $171, respectively.
12. INCOME TAXES
For all taxable periods ended on or prior to March 30, 1998, the Company
was included in the consolidated federal income tax return of M&F and certain
consolidated state tax returns of M&F or its affiliates (collectively, the "M&F
Consolidated Returns") pursuant to a tax sharing agreement (the "Tax Sharing
Agreement") between M&F, Coleman Worldwide and Coleman. Pursuant to the Holdings
Merger Agreement, the Tax Sharing Agreement terminated with respect to M&F and
its affiliates, but not with respect to Coleman Worldwide. The Sunbeam
Acquisition caused the Company to become deconsolidated from the M&F
Consolidated Return and resulted in the loss of certain deferred tax assets
which have been charged to income tax expense. For periods ended subsequent to
March 30, 1998, the Company will file its own separate federal and certain state
income tax returns until such time as Sunbeam owns more than 80% of the
outstanding Coleman common stock and also will
F-65
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
12. INCOME TAXES--(CONTINUED)
be included in certain other consolidated state income tax returns of Sunbeam.
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 $1,019 and $14,860 of federal and state income
taxes receivable from affiliates at December 31, 1998 and 1997, respectively.
For financial reporting purposes, (loss) earnings before income taxes,
minority interest and extraordinary item include the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
(Loss) earnings before income taxes, minority interest and extraordinary
item:
Domestic............................................................... $ (24,833) $ (14,129)
Foreign................................................................ (1,608) 7,752
--------- ---------
$ (26,441) $ (6,377)
--------- ---------
--------- ---------
<CAPTION>
1996
-----------------------
<S> <C>
(Loss) earnings before income taxes, minority interest and extraordinary
item:
Domestic............................................................... $ (29,532)
Foreign................................................................ (20,769)
---------
$ (50,301)
---------
---------
</TABLE>
Significant components of the provision for income tax expense (benefit)
were as follow:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
<S> <C> <C>
Current:
Federal............................................................... $ 2,093 $ (11,045)
State................................................................. 72 --
Foreign............................................................... 2,868 1,485
------- ---------
Total current...................................................... 5,033 (9,560)
------- ---------
Deferred:
Federal............................................................... 2,735 7,851
State................................................................. (1,323) (1,493)
Foreign............................................................... 7,401 (2,025)
------- ---------
Total deferred..................................................... 8,813 4,333
------- ---------
$13,846 $ (5,227)
------- ---------
------- ---------
<CAPTION>
1996
-----------------------
<S> <C>
Current:
Federal............................................................... $ (709)
State................................................................. (334)
Foreign............................................................... 3,454
---------
Total current...................................................... 2,411
---------
Deferred:
Federal............................................................... (10,686)
State................................................................. (2,178)
Foreign............................................................... (474)
---------
Total deferred..................................................... (13,338)
---------
$ (10,927)
---------
---------
</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,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
(Benefit) provision at statutory rate....................................... (35.0)% (35.0)%
State taxes, net............................................................ (3.1) (15.2)
Nondeductible amortization.................................................. 29.0 37.1
Nondeductible merger costs.................................................. 9.4 --
Deconsolidation tax charges................................................. 17.5 --
Foreign operations.......................................................... 5.9 (66.4)
Change in tax rates......................................................... 6.2 (20.8)
Valuation allowance......................................................... 29.0 37.0
Puerto Rico operations...................................................... (2.2) (12.9)
Other, net.................................................................. (4.3) (5.8)
----- -----
Effective tax rate (benefit) provision...................................... 52.4% (82.0)%
----- -----
----- -----
<CAPTION>
1996
-----------------------
<S> <C>
(Benefit) provision at statutory rate....................................... (35.0)%
State taxes, net............................................................ (4.6)
Nondeductible amortization.................................................. 5.0
Nondeductible merger costs.................................................. --
Deconsolidation tax charges................................................. --
Foreign operations.......................................................... 4.3
Change in tax rates......................................................... --
Valuation allowance......................................................... 7.0
Puerto Rico operations...................................................... 0.4
Other, net.................................................................. 1.2
-----
Effective tax rate (benefit) provision...................................... (21.7)%
-----
-----
</TABLE>
F-66
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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 assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions.................................. $12,991 $12,964
Reserves for self-insurance and warranty costs............................... 5,979 4,898
Pension liabilities.......................................................... 8,137 7,377
Inventory.................................................................... 8,322 6,626
Net operating loss carryforwards............................................. 74,095 56,739
Other, net................................................................... 12,632 12,728
------- -------
Total deferred tax assets................................................. 122,156 101,332
Valuation allowance.......................................................... (45,058) (39,990)
------- -------
Net deferred tax assets................................................. 77,098 61,342
------- -------
Deferred tax liabilities:
Depreciation................................................................. 16,507 19,872
Other, net................................................................... 13,811 10,676
------- -------
Total deferred tax liabilities............................................ 30,318 30,548
------- -------
Net deferred tax assets................................................. $46,780 $30,794
------- -------
------- -------
</TABLE>
The deferred tax account balance at December 31, 1998 differs from the
account balance at December 31, 1997 due primarily to the 1998 deferred tax
provision, the tax effects of foreign translation adjustments, the exercise of
employee stock options recorded as a component of stockholders' equity and the
tax effect of the benefit related to debt extinguishment treated as an
extraordinary item.
During 1998, the Company increased the valuation allowance related to
certain foreign deferred tax assets due to uncertainties over realization. At
December 31, 1998, the Company had net operating loss carryforwards ("NOLs") of
approximately $160,227 for certain domestic and foreign income tax purposes.
These NOLs expire beginning in 1999.
The Company has not provided for taxes on undistributed foreign earnings of
approximately $19,153 at December 31, 1998, as the Company intends to
permanently reinvest these earnings in the future growth of the business.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its hypothetical
calculation.
13. RELATED PARTY TRANSACTIONS
Borrowings from Sunbeam
The Company's ability to meet its current cash operating requirements,
including projected capital expenditures and other obligations, is dependent
upon a combination of cash flows from operations and advances or loans to the
Company from Sunbeam or its affiliates. Sunbeam has informed the Company that it
has the positive intent and ability to fund the Company's cash requirements
through April 10, 2000. Amounts loaned by Sunbeam are represented by a
promissory note (the "Intercompany Note") which totaled $365,063 at December 31,
1998 and until the amendment and restatement of the Intercompany Note described
below, were due on demand. For 1998, the Intercompany Note bore interest at a
floating rate equal to the weighted average interest rate incurred by Sunbeam on
its outstanding convertible debt and borrowings under its bank credit facility.
The weighted average interest rate charged by Sunbeam on the Intercompany Note
during the year ended December 31, 1998 was 7.1% and the total interest charged
by Sunbeam to Coleman was $20,991. Sunbeam also
F-67
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
charged to Coleman a pro-rata share of amortized debt issuance costs and unused
bank credit facility commitment fees totaling $743. Net amounts advanced from
Sunbeam along with the related unpaid interest and other costs are reflected as
debt payable to affiliate in the Company's consolidated balance sheet. Coleman
is also a borrower under Sunbeam's credit facility (the "Sunbeam Credit
Facility") for purposes of letters of credit borrowings.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements, the
lenders under the Sunbeam Credit Facility entered into an amended and restated
Intercompany Note (the "Amended Intercompany Note"), intercompany security and
pledge agreements, an amendment to the Sunbeam Credit Facility and certain other
agreements (collectively, the "Agreements"). The Amended Intercompany Note is
due April 15, 2000. The Amended Intercompany Note bears interest at an annual
rate equal to (x) 4% if the three month London Interbank Offered Rate ("LIBOR")
quoted on the Telerate system is less than 6%, or (y) 5% if the three month
LIBOR quoted on the Telerate system is 6% or higher, subject to increases during
an event of default, and interest will be payable by adding the amount of such
interest to the principal balance of the Amended Intercompany Note. In addition,
the Amended Intercompany Note provides that an event of default under the
Sunbeam Credit Facility will constitute an event of default under the Amended
Intercompany Note and that in certain circumstances the payment on the Amended
Intercompany Note will be subordinate to Coleman's obligations under the Sunbeam
Credit Facility. Pursuant to the Agreements, Coleman has pledged to Sunbeam all
of its domestic assets, other than its real property, including 66% of the stock
of its domestic holding companies for its foreign subsidiaries and all of the
stock of its other domestic subsidiaries (but Coleman's subsidiaries have not
pledged their assets or stock of their subsidiaries), as security for the
Amended Intercompany Note. Sunbeam has pledged the Amended Intercompany Note as
security for the Sunbeam Credit Facility and assigned to such lenders the
security pledged by Coleman for the Amended Intercompany Note.
The Sunbeam Credit Facility provides for a revolving credit facility in an
aggregate principal amount of up to $400,000 (subject to certain reductions)
maturing March 31, 2005. In addition, pursuant to the Sunbeam Credit Facility,
Sunbeam has borrowed approximately $1,262,500 in two tranches of term loans with
scheduled repayments through maturity on March 31, 2005. As a result of
Sunbeam's operating losses during 1998, Sunbeam was not in compliance with the
financial covenants contained in the Sunbeam Credit Facility. In April 1999,
Sunbeam and its lenders entered into an amendment to the Sunbeam Credit Facility
which amended and added certain financial covenants and waived compliance with
certain other financial covenants through April 10, 2000. Interest accrues at a
rate selected at Sunbeam's option of: (i) LIBOR plus an agreed upon interest
margin which varies depending upon the occurrence of certain specified events
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 occurrence of certain specified events.
Borrowings under the Sunbeam Credit Facility are secured by a pledge of the
stock of certain of Sunbeam's subsidiaries and by a security interest in
substantially all of the assets of Sunbeam and its material subsidiaries (other
than as described below, Coleman and its subsidiaries), including the Amended
Intercompany Note. Sunbeam has pledged its shares of Coleman common stock and
its shares of Sunbeam Corporation Canada Limited ("Sunbeam Canada") common stock
owned by it as security under the Sunbeam Credit Facility. In addition,
borrowings under the Sunbeam Credit Facility are guaranteed by certain of
Sunbeam's wholly owned material United States subsidiaries (but not Coleman) and
such subsidiary guarantees are secured as described above. Coleman has pledged
its inventory (but not that of its subsidiaries) and the proceeds from the sale
of such inventory as collateral for its letter of credit borrowings under the
Sunbeam Credit Facility.
The Sunbeam 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
F-68
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
transactions, (iii) make loans and investments, (iv) incur additional debt,
(v) amend or otherwise alter material agreements, (vi) make capital expenditures
and Year 2000 remediation expenditures, (vii) engage in mergers, acquisitions
and asset sales, (viii) engage in certain transactions with affiliates,
(ix) settle certain litigations, (x) alter its cash management system and
(xi) alter the businesses they conduct. The Sunbeam Credit Facility requires
that the registration statement for the shares of Sunbeam common stock to be
issued in the Coleman Merger be declared effective by October 30, 1999, and that
the Coleman Merger be consummated no more than 25 business days after such
registration statement is declared effective. Sunbeam is also required to
maximize its subsidiaries' utilization of available foreign credit facilities
and Sunbeam's accounts receivable facility and to comply with specified
financial covenants and ratios. The Sunbeam 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.
Business Acquisitions
As of March 31, 1997, the Company purchased an inactive subsidiary from an
affiliate of M&F 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 of M&F 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 $2,799 excess value of estimated realizable tax benefits acquired
over the total acquisition costs have been accounted for as a capital
contribution due to M&F's common control over each of the parties involved at
the time of each transaction.
On December 31, 1998, the Canadian Coleman Company LTD ("Canadian
Coleman"), a subsidiary of Coleman, acquired a subsidiary from Sunbeam
("Canadian Sunbeam") in exchange for newly issued common stock of Canadian
Coleman. The issuance of additional common stock to Sunbeam reduced Coleman's
ownership in Canadian Coleman from 100% to approximately 57%. The Company has
accounted for this transaction in a manner similar to a pooling-of-interests due
to Sunbeam's common control over each of the parties involved in the
transaction. The $218 of excess book value of Coleman's 43% interest given up in
the net assets of Canadian Coleman prior to the transaction over Coleman's 57%
interest received in the net assets of Canadian Sunbeam have been charged to
retained earnings. Subsequent to December 31, 1998, Canadian Coleman and
Canadian Sunbeam amalgamated to form Sunbeam Corporation (Canada) Limited.
Insurance Programs
Since the consummation of the Sunbeam Acquisition, Coleman has been insured
under policies maintained by Sunbeam or its affiliates, including workers
compensation and liability insurance. Until the consummation of the Sunbeam
Acquisition, Coleman was insured under policies maintained by M&F or its
affiliates, including workers compensation and liability insurance. The
Company's insurance expense including its allocable share of premium costs from
Sunbeam and M&F for such insurance was $6,269, $5,728 and $4,967 for the years
ended December 31, 1998, 1997 and 1996, respectively.
Services Arrangements
Until the Sunbeam Acquisition, from time to time, Coleman purchased, at
negotiated rates, specialized accounting and other services from M&F and its
affiliates. Coleman also provided, at negotiated rates, specialized accounting
services and other services to M&F and its affiliates. The net expense for such
services was $493 and $394 during 1998 and 1997, respectively, and was
immaterial in prior years.
F-69
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. RELATED PARTY TRANSACTIONS--(CONTINUED)
Since the consummation of the Sunbeam Acquisition, the Company has provided
certain management services to Sunbeam and its affiliates and also received
certain management services from Sunbeam and its affiliates. These services
included, among other things, (i) executive, general administrative, legal and
financial services, (ii) factory management and inventory control services, and
(iii) sales and marketing services. For the year ended December 31, 1998, the
cost of the services provided by the Company and charged to Sunbeam and its
affiliates in the amount of $2,268 has been reflected as a reduction in selling,
general and administration ("SG&A") expenses, and the $3,009 of charges to
Coleman for services received by Coleman from Sunbeam and its affiliates for
such period has been included in SG&A expenses. The cost of the services is
assessed based on actual usage or other allocation methods which management
believes are reasonable.
Licensing Services
During 1997, the Company engaged an affiliate of M&F to provide licensing
services. The Company recorded expenses of $650 related to these services in
1997. In connection with the Sunbeam Acquisition, during 1998 the Company
terminated the licensing services agreement and recorded $2,000 of expense
related to payments to be made under the terms of the termination agreement and
$225 of expense related to certain receivables from an affiliate of Parent
Holdings which were forgiven as part of the same termination agreement.
Other
During 1998, Coleman purchased products for resale from Sunbeam for
approximately $17,537.
The Company subleased six thousand square feet of office space in New York
City from an affiliate of M&F pursuant to a month-to-month occupancy memorandum
(the "Lease") entered into during 1997. The Lease was terminated during 1998.
The rent paid by the Company pursuant to the Lease was $81 and $158 during the
years ended December 31, 1998 and 1997, respectively.
Prior to the Sunbeam Acquisition, Coleman purchased air transportation
services from a corporation, one of whose shareholders was a director of Coleman
until the consummation of the Sunbeam Acquisition. The Company paid $168 and
$158 for these services during the years ended December 31, 1998 and 1997,
respectively.
In 1996, the Company entered into an agreement with an affiliate of M&F 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.
For all taxable periods ended on or prior to March 30, 1998, the Company
was included in the M&F Consolidated Returns and was party to the Tax Sharing
Agreement. Pursuant to the Holdings Merger Agreement, the Tax Sharing Agreement
terminated with respect to M&F and its affiliates, but not with respect to
Coleman Worldwide. See Note 12.
14. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Benefit Plans
The Company sponsors defined benefit plans covering certain employees of
the Company who meet eligibility requirements. The plans' benefits are based on
an employee's years of service. Effective January 1, 1999, the Company's
retirement plan for salaried employees was amended to convert the plan to a cash
balance plan. The plans' assets primarily consist of corporate stocks, mutual
funds and fixed income securities. Funding of the plans is based on actuarial
computations that are designed to satisfy minimum funding requirements of
applicable regulations and to achieve adequate funding of projected benefit
obligations. The Company also provides certain unfunded postretirement health
and life insurance benefits for certain retired employees.
F-70
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The following table presents the funded status and amounts recognized in
the Company's consolidated balance sheet for the Company's defined pension
benefit and other postretirement plans:
<TABLE>
<CAPTION>
PENSION BENEFITS
---------------------------------------------
DECEMBER 31,
---------------------------------------------
1998 1997
----------------- ------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year......................... $ 43,246 $ 37,092
Service cost.................................................... 3,076 3,081
Interest cost................................................... 3,157 2,813
Plan amendment.................................................. (3,641) 222
Plan participants' contributions................................ -- --
Curtailment (gain) loss......................................... (300) 840
Benefits paid................................................... (1,112) (628)
Actuarial loss (gain)........................................... 57 (174)
--------- --------
Benefit obligation at end of year............................... 44,483 43,246
--------- --------
Change in plan assets:
Fair value of plan assets at beginning of year.................. 23,102 16,197
Actual return on plan assets.................................... 2,577 2,946
Employer contributions.......................................... 1,737 4,587
Plan participants' contributions................................ -- --
Benefits paid................................................... (1,112) (628)
--------- --------
Fair value of plan assets at end of year........................ 26,304 23,102
--------- --------
Under funded plans................................................ (18,179) (20,144)
Unrecognized transition asset..................................... -- --
Unrecognized net actuarial loss (gain)............................ 1,774 6,259
Unrecognized prior service cost (benefit)......................... 43 130
--------- --------
Net amounts recognized............................................ $ (16,362) $(13,755)
--------- --------
--------- --------
Amounts recognized in the consolidated balance sheet consist of:
Accrued benefit liability....................................... $ (18,510) $(15,424)
Intangible asset................................................ 54 143
Accumulated other comprehensive income.......................... 2,094 1,526
--------- --------
Net amount recognized............................................. $ (16,362) $(13,755)
--------- --------
--------- --------
Weighted average assumptions as of December 31,
Discount rate................................................... 6.75% 7.50%
Expected return on plan assets.................................. 9.00% 9.00%
Rate of compensation increase................................... 4.00% 5.00%
<CAPTION>
POSTRETIREMENT BENEFITS
---------------------------------------------
DECEMBER 31,
---------------------------------------------
1998 1997
----------------- ------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year......................... $ 19,080 $ 18,787
Service cost.................................................... 919 927
Interest cost................................................... 1,473 1,453
Plan amendment.................................................. (487) --
Plan participants' contributions................................ 58 74
Curtailment (gain) loss......................................... -- --
Benefits paid................................................... (1,206) (890)
Actuarial loss (gain)........................................... 3,118 (1,271)
--------- --------
Benefit obligation at end of year............................... 22,955 19,080
--------- --------
Change in plan assets:
Fair value of plan assets at beginning of year.................. -- --
Actual return on plan assets.................................... -- --
Employer contributions.......................................... 1,148 816
Plan participants' contributions................................ 58 74
Benefits paid................................................... (1,206) (890)
--------- --------
Fair value of plan assets at end of year........................ -- --
--------- --------
Under funded plans................................................ (22,955) (19,080)
Unrecognized transition asset..................................... (3,441) (3,707)
Unrecognized net actuarial loss (gain)............................ (573) (3,817)
Unrecognized prior service cost (benefit)......................... (803) (404)
--------- --------
Net amounts recognized............................................ $ (27,772) $(27,008)
--------- --------
--------- --------
Amounts recognized in the consolidated balance sheet consist of:
Accrued benefit liability....................................... $ (27,772) $(27,008)
Intangible asset................................................ -- --
Accumulated other comprehensive income.......................... -- --
--------- --------
Net amount recognized............................................. $ (27,772) $(27,008)
--------- --------
--------- --------
Weighted average assumptions as of December 31,
Discount rate................................................... 6.75% 7.50%
Expected return on plan assets.................................. 9.00% 9.00%
Rate of compensation increase................................... 4.00% 5.00%
</TABLE>
F-71
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. EMPLOYEE BENEFIT PLANS--(CONTINUED)
Net pension expense and periodic postretirement benefit expense include the
following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
Pension expense:
Service cost................................................... $ 3,076 $ 3,081
Interest cost.................................................. 3,157 2,813
Curtailment loss............................................... 79 972
Expected return on plan assets................................. (2,144) (1,623)
Amortization of unrecognized prior service cost................ 5 10
Amortization of net loss....................................... 171 242
------- -------
Net pension expense......................................... $ 4,344 $ 5,495
------- -------
------- -------
Postretirement expense:
Service cost................................................... $ 919 $ 927
Interest cost.................................................. 1,473 1,453
Amortization of transition asset............................... (266) (266)
Amortization of unrecognized prior service benefit............. (88) (88)
Amortization of net gain....................................... (126) (4)
------- -------
Net periodic postretirement benefit expense................. $ 1,912 $ 2,022
------- -------
------- -------
<CAPTION>
1966
-----------------------
<S> <C>
Pension expense:
Service cost................................................... $ 3,098
Interest cost.................................................. 2,442
Curtailment loss............................................... --
Expected return on plan assets................................. (1,078)
Amortization of unrecognized prior service cost................ 7
Amortization of net loss....................................... 425
-------
Net pension expense......................................... $ 4,894
-------
-------
Postretirement expense:
Service cost................................................... $ 1,044
Interest cost.................................................. 1,454
Amortization of transition asset............................... (266)
Amortization of unrecognized prior service benefit............. (88)
Amortization of net gain....................................... --
-------
Net periodic postretirement benefit expense................. $ 2,144
-------
-------
</TABLE>
The weighted-average assumed health care cost trend rates used for
postretirement benefits measurement purposes were 7% for 1999 then gradually
trending down to 5.0% by the year 2003 and remaining at that level thereafter. A
1% increase in the assumed health care cost trend rate would increase the
combined postretirement service and interest cost by approximately 22% and the
postretirement benefit obligation by approximately 19%. A 1% decrease in the
assumed health care cost trend rate would decrease the combined postretirement
service and interest cost by approximately 18% and the postretirement benefit
obligation by approximately 16%.
Savings Plan
Coleman sponsors 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 effective January 1, 1999, this plan allows
employees to contribute up to 15% of their salary to the plan and the Company
matches, at 100%, employee contributions of up to 2% of their salary; and at
50%, employee contributions from 2% to 4% of their salary. Amounts charged to
expense for matching contributions were $1,245, $1,401, and $1,314 for the years
ended December 31, 1998, 1997 and 1996, respectively.
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 exercise
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.
F-72
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The following table summarizes the stock option transactions under the
Stock Option Plans:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- ----------------------
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,............... 3,347,550 $ 15.14 3,017,630 $ 15.84 2,572,930 $ 15.25
Granted:
at market price.................. 6,000 12.94 2,081,000 14.77 294,000 19.73
above market price............... -- -- 75,000 15.00 381,000 15.00
Exercised........................... (2,405,950) 15.14 (220,750) 11.42 (154,890) 12.17
Forfeited........................... (23,930) 13.63 (1,605,330) 16.49 (75,410) 14.19
---------- ---------- ---------
Outstanding--December 31,............. 923,670 15.14 3,347,550 15.14 3,017,630 15.84
---------- ---------- ---------
---------- ---------- ---------
Exercisable--December 31,............. 923,670 15.14 927,000 14.02 513,440 13.25
---------- ---------- ---------
---------- ---------- ---------
Weighted-average fair value of options
granted during the year:
at market price.................. $ 6.30 $ 7.43 $ 6.62
---------- ---------- ---------
---------- ---------- ---------
above market price............... $ -- $ 5.28 $ 3.21
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 1998:
<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-$14.00 535,795 8.0 years $ 13.98 535,795 $ 13.98
$14.01-$20.38 387,875 8.2 16.75 387,875 16.75
------- -------
$12.25-$20.38 923,670 8.1 15.14 923,670 15.14
------- -------
------- -------
</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. The fair value of ISOs and NQSOs granted during 1998, 1997 and
1996 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 5.51%, 6.53% and 6.11 % for 1998, 1997 and 1996, respectively, dividend yield
of 0.0%, volatility of the expected market price of the Company's common stock
of 35.8%, 31.3% and 20.2% for 1998, 1997 and 1996, respectively, and a
weighted-average expected life of the option of 7.1, 7.7 and 5.5 years for 1998,
1997 and 1996, 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 in 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.
F-73
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. EMPLOYEE BENEFIT PLANS--(CONTINUED)
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, 1998, 1997 and 1996 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>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Pro forma net loss................................................... $ 64,535 $ 6,069 $42,760
Pro forma basic and diluted loss per common share.................... 1.17 0.11 0.80
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
Shareholder Lawsuits
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. In October 1998, Coleman and Sunbeam 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 Sunbeam common stock at an exercise
price of $7.00 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
occur during the second half of 1999. There can be no assurance that the court
will approve the settlement as proposed, although such approval is not a
condition to the consummation of the Coleman Merger.
Leases
The Company leases manufacturing, administrative and sales facilities and
various types of equipment under operating lease agreements expiring through
2007. Rental expense was $12,812, $15,620, and $14,164 for the years ended
December 31, 1998, 1997 and 1996, respectively. Minimum rental commitments under
all noncancellable operating leases with remaining lease terms in excess of one
year from December 31, 1998, aggregated $31,677; such commitments for each of
the five years subsequent to December 31, 1998 are $7,400, $6,178, $4,694,
$3,815, and $2,008, respectively, and $7,582 thereafter.
Environmental Matters
The operations of Coleman involve the use and disposal of substances
regulated under environmental protection laws. The Company has an environmental
policy intended to ensure the Company operates in compliance with applicable
environmental regulations. The Company does not anticipate charges to income for
environmental liabilities will have a material effect on the results of
operations in a particular year.
The Company accrues environmental remediation costs when it is both
probable that a liability has been incurred and the amount can be reasonably
estimated. Estimated costs, which are based upon experience with similar sites
and technical evaluations, are judgmental in nature and are recorded at
undiscounted amounts without considering the impact of inflation, and are
adjusted periodically to reflect changes in applicable laws or regulations,
changes in available technologies and receipt by the Company of new information.
It is difficult to
F-74
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
estimate the ultimate level of future environmental expenditures due to a number
of uncertainties surrounding environmental liabilities. These uncertainties
include the applicability of laws and regulations, changes in environmental
remediation requirements, the enactment of additional regulations, uncertainties
surrounding remediation procedures including the development of new
technologies, the identification of new sites for which the Company could be a
potentially responsible party ("PRP"), information relating to the exact nature
and extent of the contamination at each site and the extent of required clean up
efforts and the varying costs of alternative remediation strategies.
The Company has recorded reserves for environmental matters which it
believes are adequate based upon facts known to the Company, applicable laws and
regulations, status of remediation efforts, ongoing investigations, technical
evaluations, and individual circumstances related to each site. Amounts charged
against operations for environmental remediation activities for the years ended
December 31, 1998, 1997, and 1996 were $7,629, $1,766, and $834, respectively.
The increase in amounts charged to operations for the year ended December 31,
1998, relates to revised environmental cost estimates resulting from ongoing
investigations, feasibility studies, technical evaluations, and monitoring
procedures.
Gilbert and Mosley Site. As a result of investigations undertaken in 1986,
the Kansas Department of Health and Environment ("KDHE") discovered that ground
water in the Wichita area (the "Gilbert and Mosley Site") was contaminated with
volatile organic compounds ("VOCs"). Coleman occupied a facility within the
boundaries of the Gilbert and Mosley Site. Subsequent investigations in the
area, including investigations in November 1998 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 (the "City") has entered into a voluntary agreement
with KDHE in which the City agreed to investigate and then remediate
contamination at the Gilbert 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 in which Coleman
agreed to fund its proportionate share of the City's study and remediation of
the Gilbert and Mosley Site.
In December 1996, the City completed a preliminary study of the
proportionate share of remediation costs which the City alleges should be the
responsibility of Coleman. The preliminary study proposed an allocation to
Coleman of $7,964 of site response costs. Coleman disagrees with both the City's
methodology and assumptions as well as with the conclusion of the City's
preliminary study. Since completion of the preliminary study, additional site
investigation work has been performed by the City in an attempt to design
appropriate remedies. The City has submitted its final remediation proposals to
the KDHE in March 1999.
Maize Site. Coleman has undertaken a soil and groundwater investigation at
its facility in Maize, Kansas (the "Maize Site"). Results indicate limited VOCs
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 contamination was migrating onto the Coleman
property from upgradient 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
F-75
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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.
During 1998, KDHE approved the remedial investigation report prepared by
Coleman and requested Coleman to prepare and submit a remedial system design to
address off-site contamination. Coleman is in the process of developing the
feasibility study which will propose several potential alternatives for
remediating the on-site soil and groundwater contamination sources and the
off-site groundwater contamination resulting from the on-site sources. In
addition, Coleman has revised its estimate for remediation of on-site soil
contamination and off-site groundwater contamination based upon the results of
preliminary ongoing investigations and monitoring procedures.
The Northeast Site is located in an area of Wichita which the KDHE has
designated as the North Industrial Corridor Site ("NIC Site"). The City has
entered into a voluntary agreement with KDHE in which the City agreed to
investigate and then remediate contamination at the NIC Site. In June 1996,
Coleman entered into an agreement with the City in which Coleman agreed to fund
its proportionate share, if any, of the cost to remediate the NIC Site. The City
has not completed its remedial investigation on the NIC Site. In April 1999,
Coleman, along with several other parties, received a demand from the EPA to pay
the EPA's past investigative and oversight cost for a former EPA site which is
now part of the NIC Site. Coleman believes that it has both equitable and legal
defenses to the EPA's demand for payment of these costs and Coleman intends to
defend itself vigorously with respect to the EPA's demand.
Lake City Site. In 1992, Coleman undertook a soil and groundwater
investigation of its facility in Lake City, South Carolina (the "Lake City
Site"). Results indicated limited VOC and fuel oil contamination in the soil and
groundwater. In both instances, the contamination appeared to relate to
activities of a previous occupant of the Lake City Site. The results of the
investigation were reported to the appropriate South Carolina environmental
agency and the prior owner agreed to take over further site investigations and
remediation actions and reimbursed Coleman for a significant part of Coleman's
past costs related to site investigation.
The Company has not been named as a PRP by the EPA nor does it have joint
and several liability with any other PRP for remediation at any of the above
sites.
J.C. Pennco Site. Coleman has been identified as a PRP for the presence of
hazardous substances at the J.C. Pennco Site in San Antonio, Texas. In January
1999, Coleman agreed to settle its alleged liability with the EPA, and in March
1999, Coleman agreed to settle its alleged liability with the Texas Natural
Resource Conservation Commission.
Other
The Company is 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.
Coleman and an affiliate of M&F ("Holdings") are parties to a
cross-indemnification pursuant to which Coleman has agreed to indemnify
Holdings, 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, Holdings agreed to
indemnify Coleman and its officers, directors, employees, agents and
representatives against all other liabilities of Holdings or any of its
subsidiaries, including liabilities relating to the assets it did not transfer
to Coleman in December 1991. This cross-indemnification agreement survived the
Sunbeam Acquisition and will survive the Coleman Merger.
F-76
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
15. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In connection with the 1995 purchase of substantially all of the assets of
Active Technologies, Inc. ("ATI"), 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, 1998, the
amounts paid under the terms of this agreement have been immaterial.
The Company is party to a license agreement which requires payments of
minimum guaranteed royalties aggregating to $10,738 at December 31, 1998; such
commitments for each of the four years remaining under the agreement subsequent
to December 31, 1998 are $1,745, $2,434, $3,010, and $3,549, respectively.
As more fully described in Note 13, the Company relies upon borrowings from
Sunbeam for the Company's liquidity needs.
16. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from operating
activities. Interest paid was $41,165, $42,217, and $37,608 and net income taxes
(refunded) paid were $(11,427), $(16,138) and $7,041 for the years ended
December 31, 1998, 1997 and 1996, 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. SEGMENT INFORMATION
Descriptive information about Reportable Segments
Coleman has four reportable segments: Outdoor Recreation, Powermate,
Eastpak and International. The Outdoor Recreation segment produces and sells
lanterns, stoves, coolers, sleeping bags, camping accessories and other products
primarily used in outdoor recreation activities. The Powermate segment produces
and sells portable power generators, air compressors and related accessories
primarily used in homes and small businesses. The Eastpak segment produces and
sells book bags, backpacks, travel adventure gear and other accessories for
recreational use. The International segments produces and sells recreational
appliances and thermal products and sells products produced domestically or
purchased directly from outside vendors. The Company's reportable segments are
business units that offer different products. The reportable segments are each
managed separately because they manufacture or distribute distinct products in
distinct markets and areas of the world.
The "All Other" segment includes information related to (i) the Company's
safety and security business and its spas business, both of which were sold
during 1998, (ii) royalty revenues from license agreements and (iii) the
Company's retail operations.
Coleman evaluates performance and allocates resources based on profit or
loss from operations before income taxes, minority interest, interest expense,
amortization of goodwill and deferred charges, gain on sale of businesses, and
foreign exchange gains or losses. The accounting policies of the reportable
segments are the same
F-77
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
18. SEGMENT INFORMATION--(CONTINUED)
as those described in the summary of significant accounting policies except as
to elimination of intersegment sales. Generally, intersegment sales are made at
cost plus a share of operating profit.
Information about Segment Profits and Segment Assets
<TABLE>
<CAPTION>
OUTDOOR ALL
RECREATION POWERMATE EASTPAK INTERNATIONAL OTHER TOTAL
---------- --------- -------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
Revenues from external
customers...................... $384,643 $ 202,405 $ 43,954 $ 335,158 $ 49,213 $1,015,373
Intersegment revenues............. 59,033 6,807 31,991 -- -- 97,831
Segment profit (loss)............. 9,340 12,351 (7,894) 7,777 3,765 25,339
Segment assets.................... 218,189 133,514 86,504 342,377 6,193 786,777
Depreciation expense.............. 14,923 3,136 626 5,726 1,091 25,502
Restructuring and other charges
(credit)....................... 3,945 5,834 (110) 5,089 2,725 17,483
Expenditures for long-lived
assets......................... 8,400 2,436 1,142 6,769 2,495 21,242
Year Ended December 31, 1997:
Revenues from external
customers...................... 423,265 201,865 55,239 345,698 128,227 1,154,294
Intersegment revenues............. 47,850 6,443 39,821 1,152 114 95,380
Segment profit (loss)............. 27,589 (1,553) 1,355 24,731 22,168 74,290
Segment assets.................... 270,920 129,235 93,106 308,794 96,154 898,209
Depreciation expense.............. 15,707 3,156 396 5,320 2,200 26,779
Restructuring and other charges... 7,643 12,136 1,351 5,293 -- 26,423
Expenditures for long-lived
assets......................... 8,688 3,281 1,840 9,076 2,671 25,556
Year Ended December 31, 1996:
Revenues from external
customers...................... 412,143 270,525 44,229 375,105 118,214 1,220,216
Intersegment revenues............. 72,367 5,235 18,143 530 2 96,277
Segment profit (loss)............. 8,143 (6,189) (3,034) 7,024 14,350 20,294
Segment assets.................... 303,618 181,782 78,870 342,353 102,871 1,009,494
Depreciation expense.............. 15,196 2,460 283 6,264 1,702 25,905
Restructuring and other charges... 25,235 19,000 -- 26,632 -- 70,867
Expenditures for long-lived
assets......................... 16,415 7,947 1,086 9,240 5,645 40,330
</TABLE>
F-78
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
18. SEGMENT INFORMATION--(CONTINUED)
Reconciliation of Selected Segment Information to the Company's Consolidated
Totals
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Total revenues for reportable segments........................... $1,063,991 $1,121,333 $1,198,277
Other revenues................................................... 49,213 128,341 118,216
Elimination of intersegment revenues............................. (97,831) (95,380) (96,277)
---------- ---------- ----------
Total consolidated revenues................................... $1,015,373 $1,154,294 $1,220,216
---------- ---------- ----------
---------- ---------- ----------
Profit or Loss:
Total segment profit............................................. $ 25,339 $ 74,290 $ 20,294
Unallocated items:
Corporate expenses............................................ (17,400) (16,614) (16,910)
Corporate restructuring charges............................... (13,824) (9,996) (3,334)
Interest expense, net......................................... (33,213) (40,852) (38,727)
Amortization of goodwill and deferred charges................. (19,584) (11,338) (10,473)
Gain on sales of businesses................................... 32,411 -- --
Other expense, net............................................ (170) (1,867) (1,151)
---------- ---------- ----------
Income before taxes and minority interest................... $ (26,441) $ (6,377) $ (50,301)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
-------- ---------- ----------
<S> <C> <C> <C>
Assets:
Total assets for reportable segments............................... $786,777 $ 898,209 $1,009,494
Unallocated amounts:
Corporate assets, including goodwill............................ 146,480 143,555 150,592
-------- ---------- ----------
Total consolidated assets..................................... $933,257 $1,041,764 $1,160,086
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
Enterprise-Wide Disclosures
<TABLE>
<CAPTION>
Product revenues: YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Outdoor recreation products........................................... $ 778,981 $ 859,647 $ 859,555
Hardware products..................................................... 236,392 294,647 360,661
---------- ---------- ----------
Total consolidated revenues........................................ $1,015,373 $1,154,294 $1,220,216
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Geographic area revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
United States......................................................... $ 628,644 $ 759,097 $ 803,325
Europe................................................................ 213,193 201,820 188,838
Other foreign countries............................................... 173,536 193,377 228,053
---------- ---------- ----------
Total consolidated revenues........................................ $1,015,373 $1,154,294 $1,220,216
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-79
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
18. SEGMENT INFORMATION--(CONTINUED)
Geographic area long-lived assets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States.............................................................. $110,411 $136,021 $146,698
Europe..................................................................... 30,106 30,845 32,320
Other foreign countries.................................................... 5,306 8,628 20,164
-------- -------- --------
Total consolidated assets............................................... $145,823 $175,494 $199,182
-------- -------- --------
-------- -------- --------
</TABLE>
Major customer:
Revenues from one customer of the Company's Outdoor Recreation segment
accounted for approximately 16%, 13% and 15% of the Company's consolidated net
revenues in the years ended December 31, 1998, 1997 and 1996, respectively.
19. QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)
Summarized quarterly financial data for 1998 and 1997 are as follow:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1998
Net revenues..................................... $ 244,499 $326,407 $ 245,324 $199,143
Gross profit (a)................................. 68,722 93,700 64,480 37,985
Earnings (loss) before extraordinary item (a).... (1,414) 5,097 (7,008) (37,238)
Net earnings (loss) (a).......................... (2,646) (11,209) (7,008) (37,238)
Basic earnings (loss) per share:
Earnings (loss) before extraordinary item...... $ (0.03) $ 0.09 $ (0.13) $ (0.67)
Net earnings (loss)............................ (0.05) (0.20) (0.13) (0.67)
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)
(a) Includes restructuring and other charges (credits) as follows:
1998
Gross profit................................... $ -- $ 1,000 $ 139 $ (77)
Earnings before extraordinary item............. 13,220 9,935 4,361 416
Net earnings................................... 13,220 9,935 4,361 416
1997
Gross profit................................... (425) 11,402 9,010 (314)
Net earnings................................... 2,435 11,547 9,433 (914)
</TABLE>
F-80
<PAGE>
[LOGO]
SUNBEAM (Registered)
<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
in connection with the offering of the securities being registered hereby. 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 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.
II-1
<PAGE>
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 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. Sunbeam sold the Debentures to the initial purchaser for
$727,571,799.40, and the initial purchaser resold the Debentures to investors
for $750,074,020, or 37.243% of aggregate principal amount at maturity. The
underwriting discounts and commissions totaled $22,502,220.60.
(2) Coleman Acquisition. On March 30, 1998, Sunbeam acquired from an
affiliate of MacAndrews & Forbes Holdings, Inc. indirect beneficial ownership of
44,067,520 shares of common stock of The Coleman Company, Inc., or about 81%
(79% after the exercise of certain stock options immediately after the
acquisition) of the then outstanding shares of Coleman common stock, for
14,099,749 shares of Sunbeam common stock, in addition to approximately $160
million in cash and the assumption by Sunbeam of approximately $1,016 million of
indebtedness. Sunbeam issued these shares to the MacAndrews & Forbes affiliate
pursuant to Section 4(2) of the Securities Act.
(3) MacAndrews & Forbes Warrant. On August 12, 1998, Sunbeam entered into
a settlement agreement with Coleman (Parent) Holdings, Inc., an affiliate of
MacAndrews & Forbes Holdings, Inc., under which Sunbeam was released from
threatened claims arising from the acquisition of Coleman. MacAndrews & Forbes
also agreed to provide management personnel and assistance to Sunbeam. In
exchange for MacAndrews & Forbes releasing Sunbeam from these claims and in
accordance with Section 4(2) of the Securities Act, Sunbeam issued in a private
sale to the MacAndrews & Forbes affiliate Warrant No. W-1 which entitles the
affiliate to purchase up to 23 million shares of common stock of Sunbeam at an
exercise price of $7 per share, subject to anti-dilution adjustments, at any
time prior to the fifth anniversary of the issuance of the warrant.
(4) Unregistered Securities Paid to Messrs. Dunlap, Kersh and
Fannin. Effective February 1, 1998 Sunbeam granted 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.
<TABLE>
<S> <C>
Albert J. Dunlap............................................. 3,750,000
Russell A. Kersh............................................. 1,125,000
David C. Fannin.............................................. 750,000
</TABLE>
The 1998 Options have a term of 10 years and an exercise price of $36.85
per share.
As of February 1, 1998, Sunbeam 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.
For more information on these securities grants and the disputes involving
grants to Messrs. Dunlap and Kersh, see the "Management" section of the
prospectus which forms a part of this registration statement and the heading
"Litigation and Other Contingent Liabilities" under the "Business" section of
the prospectus.
II-2
<PAGE>
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 Sunbeam 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 Sunbeam 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 Sunbeam and Coleman (Parent)
Holdings, Inc.(9)
4.4 -- Settlement Agreement, dated as of August 12, 1998, by and between Sunbeam and Coleman (Parent)
Holdings, Inc.(10)
4.5 -- Amendment to Registration Rights Agreement, dated as of August 12, 1998, between Sunbeam and
Coleman (Parent) Holdings, Inc.(11)
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP+
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP+
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(13)
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)
10.18 -- 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)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 June 30, 1998, among Sunbeam, 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 Sunbeam, 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 -- Fourth Amendment to Credit Agreement dated as of April 10, 1999, among Sunbeam, 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(14)
10.31 -- Fifth Amendment to Credit Agreement, Third Waiver and Agreement dated as of April 15, 1999, among
Sunbeam, the Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley
Funding, Bank America National Trust and Savings Association and First Union National Bank(14)
10.32 -- Employment Agreement between Sunbeam and Jerry W. Levin, dated as of June 15, 1998(11)
10.33 -- Employment Agreement between Sunbeam and Paul Shapiro, dated as of June 15, 1998(11)
10.34 -- Employment Agreement between Sunbeam and Bobby Jenkins, dated as of June 15, 1998(11)
10.35 -- Agreement between Sunbeam and David Fannin, dated August 20, 1998(11)
10.36 -- First Amendment to Receivables Sale and Contribution Agreement, dated April 2, 1998, between
Sunbeam Products, Inc. and Sunbeam Assets Diversification, Inc.(11)
10.37 -- First Amendment to Receivables Purchase and Servicing Agreement, dated April 2, 1998, between
Llama Retail Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.38 -- Second Amendment to Receivables Purchase and Servicing Agreement, dated July 29, 1998, between
Llama Retail Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.39 -- Sunbeam Corporation Management Incentive Compensation Plan(15)
10.40 -- Stock Option Replacement Program(15)
10.41 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 29, 1998, among Sunbeam, Laser
Acquisition Corp., Coleman (Parent) Holdings Inc., and CLN Holdings Inc.(14)
10.42 -- Employment Agreement between Sunbeam and Janet G. Kelley, dated as of December 16, 1998++
10.43 -- Employment Agreement between Sunbeam and Karen K. Clark, dated as of August 31, 1998++
10.44 -- Employment Agreement dated as of October 1, 1998 between Sunbeam and Jack Hall(15)
10.45 -- Agreement dated as of August 20, 1998 between Sunbeam and David C. Fannin(15)
10.46 -- Compensation and Indemnification Agreement entered into as of June 29, 1998, between Sunbeam and
each of Howard G. Kristol, Charles M. Elson, Peter A. Langerman and Faith Whittlesey(15)
10.47 -- Agreement between Sunbeam Asset Diversification, Inc. and Capital USA, LLC amending the
Receivables Purchase Agreement among Llama Retail Funding, L.P., Sunbeam Asset Diversification,
Inc., Capital USA, LLC and Sunbeam Products, Inc.(15)
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+
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C> <C>
23.1 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1)+
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.1)+
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Ernst & Young LLP
23.5 -- Consent of Deloitte & Touche 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 Sunbeam's new strategy and senior manage ment
team(11)
99.5 -- Press Release, dated October 20, 1998 regarding Sunbeam's restatement of its financial results(11)
</TABLE>
- ------------------
(1) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990.
(2) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended July 3, 1994.
(3) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(4) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1996.
(5) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 29, 1996.
(6) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1997.
(7) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 28, 1997.
(8) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
(9) Incorporated by reference to Sunbeam's Report on Form 8-K filed April 13,
1998.
(10) Incorporated by reference to Sunbeam's Report on Form 8-K filed August 14,
1998.
(11) Incorporated by reference to Sunbeam's Annual Report on Form 10-K/A for the
fiscal year ended December 28, 1997.
(12) Incorporated by reference to Sunbeam's Report on Form 8-K filed
November 30, 1998.
(13) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(14) Incorporated by reference to the Annual Report on Form 10-K filed by the
Coleman Company, Inc. for the fiscal year ended December 31, 1998.
(15) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
+ To be filed by amendment.
++ Previously filed.
II-5
<PAGE>
(b) Financial Statement Schedules.
II. Valuation and Qualifying Accounts (included on page F-47 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 Boca Raton, State
of Florida, on this 13th day of May, 1999.
SUNBEAM CORPORATION
By: /s/ BOBBY JENKINS
----------------------------------
Bobby Jenkins
Executive Vice President
and Chief Financial Officer
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>
* President of the Board May 13, 1999
- ------------------------------------------
Peter A. Langerman
* President, Chief Executive Officer May 13, 1999
- ------------------------------------------
Jerry W. Levin
* Director May 13, 1999
- ------------------------------------------
Charles M. Elson
* Director May 13, 1999
- ------------------------------------------
Howard Gittis
* Director May 13, 1999
- ------------------------------------------
Howard G. Kristol
* Director May 13, 1999
- ------------------------------------------
Faith Whittlesey
* Executive Vice President and Chief Financial May 13, 1999
- ------------------------------------------ Officer
Bobby Jenkins (Principal Financial Officer)
* Senior Vice President, Finance May 13, 1999
- ------------------------------------------ (Principal Accounting Officer)
Karen K. Clark
*By: /s/ PAUL SHAPIRO May 13, 1999
- ------------------------------------------
Paul Shapiro,
Attorney-in-Fact
</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>
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 Sunbeam 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 Sunbeam 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 Sunbeam and Coleman (Parent)
Holdings, Inc.(9)
4.4 -- Settlement Agreement, dated as of August 12, 1998, by and between Sunbeam and Coleman (Parent)
Holdings, Inc.(10)
4.5 -- Amendment to Registration Rights Agreement, dated as of August 12, 1998, between Sunbeam and
Coleman (Parent) Holdings, Inc.(11)
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP+
8.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP+
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(13)
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)
10.18 -- 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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
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 June 30, 1998, among Sunbeam, 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 Sunbeam, 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 -- Fourth Amendment to Credit Agreement dated as of April 10, 1999, among Sunbeam, 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(14)
10.31 -- Fifth Amendment to Credit Agreement, Third Waiver and Agreement dated as of April 15, 1999, among
Sunbeam, the Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley
Funding, Bank America National Trust and Savings Association and First Union National Bank(14)
10.32 -- Employment Agreement between Sunbeam and Jerry W. Levin, dated as of June 15, 1998(11)
10.33 -- Employment Agreement between Sunbeam and Paul Shapiro, dated as of June 15, 1998(11)
10.34 -- Employment Agreement between Sunbeam and Bobby Jenkins, dated as of June 15, 1998(11)
10.35 -- Agreement between Sunbeam and David Fannin, dated August 20, 1998(11)
10.36 -- First Amendment to Receivables Sale and Contribution Agreement, dated April 2, 1998, between
Sunbeam Products, Inc. and Sunbeam Assets Diversification, Inc.(11)
10.37 -- First Amendment to Receivables Purchase and Servicing Agreement, dated April 2, 1998, between
Llama Retail Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.38 -- Second Amendment to Receivables Purchase and Servicing Agreement, dated July 29, 1998, between
Llama Retail Funding, L.P., Capital USA, LLC, Sunbeam Products, Inc. and Sunbeam Asset
Diversification, Inc.(11)
10.39 -- Sunbeam Corporation Management Incentive Compensation Plan(15)
10.40 -- Stock Option Replacement Program(15)
10.41 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of March 29, 1998, among Sunbeam, Laser
Acquisition Corp., Coleman (Parent) Holdings Inc., and CLN Holdings Inc.(14)
10.42 -- Employment Agreement between Sunbeam and Janet G. Kelley, dated as of December 16, 1998++
10.43 -- Employment Agreement between Sunbeam and Karen K. Clark, dated as of August 31, 1998++
10.44 -- Employment Agreement dated as of October 1, 1998 between Sunbeam and Jack Hall(15)
10.45 -- Agreement dated as of August 20, 1998 between Sunbeam and David C. Fannin(15)
10.46 -- Compensation and Indemnification Agreement entered into as of June 29, 1998, between Sunbeam and
each of Howard G. Kristol, Charles M. Elson, Peter A. Langerman and Faith Whittlesey(15)
10.47 -- Agreement between Sunbeam Asset Diversification, Inc. and Capital USA, LLC amending the
Receivables Purchase Agreement among Llama Retail Funding, L.P., Sunbeam Asset Diversification,
Inc., Capital USA, LLC and Sunbeam Products, Inc.(15)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------------------------------------
<S> <C>
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 Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1)+
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.1)+
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Ernst & Young LLP
23.5 -- Consent of Deloitte & Touche 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 Sunbeam's new strategy and senior management
team(11)
99.5 -- Press Release, dated October 20, 1998 regarding Sunbeam's restatement of its financial results(11)
</TABLE>
- ------------------
(1) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended September 30, 1990.
(2) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended July 3, 1994.
(3) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(4) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended September 29, 1996.
(5) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 29, 1996.
(6) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 30, 1997.
(7) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 28, 1997.
(8) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998.
(9) Incorporated by reference to Sunbeam's Report on Form 8-K filed April 13,
1998.
(10) Incorporated by reference to Sunbeam's Report on Form 8-K filed August 14,
1998.
(11) Incorporated by reference to Sunbeam's Annual Report on Form 10-K/A for the
fiscal year ended December 28, 1997.
(12) Incorporated by reference to Sunbeam's Report on Form 8-K filed
November 30, 1998.
(13) Incorporated by reference to Sunbeam's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(14) Incorporated by reference to the Annual Report on Form 10-K filed by the
Coleman Company, Inc. for the fiscal year ended December 31, 1998.
(15) Incorporated by reference to Sunbeam's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
+ To be filed by amendment.
++ Previously filed.
<PAGE>
Computation of Ratio of Earnings to Fixed Charges
(in thousands of dollars, except ratios)
<TABLE>
<CAPTION>
Historical Pro forma
----------------------------------------------------------------------------
Fiscal Years Ended
----------------------------------------------------------------------------
1/1/95 12/31/95 12/29/96 12/28/97 12/31/98 12/31/98
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Pretax income from continuing operations $144,794.0 $60,635.0 $(261,805.0) $ 92,670.0 $(796,348.0) $(822,134.0)
Add: Fixed charges; below 10,774.3 15,571.7 16,654.7 14,747.7 141,257.7 154,395.7
Less: Interest capitalized (867.0) (3,268.0) (400.0) (900.0) (800.0) (800.0)
----------------------------------------------------------------------------
$154,701.3 $72,938.7 $(245,550.3) $106,517.7 $(655,890.3) $(668,538.3)
----------------------------------------------------------------------------
Fixed Charges
Interest expense $ 6,974.0 9,437.0 $ 13,588.0 $ 11,381.0 $ 131,091.0 $ 144,229.0
Capitalized interest 867.0 3,268.0 400.0 900.0 800.0 800.0
1/3 rent expense 2,933.3 2,866.7 2,666.7 2,466.7 9,366.7 9,366.7
----------------------------------------------------------------------------
$ 10,774.3 $15,571.7 $ 16,654.7 $ 14,747.7 $ 141,257.7 $ 154,395.7
----------------------------------------------------------------------------
Ratio of earnings to fixed charges 14.4 4.7 7.2
Amount by which earnings do not
meet fixed charges $ 262,205.0 $ 797,148.0 $ 822,934.0
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report dated October 16, 1998, (and to all references to our Firm) included in
or made part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida
May 11, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent ot the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-1 No. 333-71819) 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 April 15, 1999, 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, 1998, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Wichita, Kansas
May 12, 1999
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-71819 of Sunbeam Corporation on Form S-1 of our report dated April 16,
1999, appearning in the Prospectus, which is part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
May 12, 1999
