UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended September 30, 2002
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File No. 1-000052
SUNBEAM CORPORATION
(DEBTOR-IN-POSSESSION AS OF FEBRUARY 6, 2001)
(Exact name of registrant as specified in its charter)
DELAWARE 25-1638266
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2381 EXECUTIVE CENTER DRIVE
BOCA RATON, FL
33431
(Zip Code)
(Address of principal executive offices)
(561) 912-4100
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ] No [X]
On November 14, 2002 there were 107,422,500 shares of the registrant's Common
Stock ($.01 par value) outstanding.
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
QUARTERLY REPORT
ON FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (Unaudited)
for the three months and nine months ended September 30, 2002
and September 30, 2001........................................................... 2
Condensed Consolidated Balance Sheets (Unaudited)
as of September 30, 2002 and December 31, 2001................................... 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 2002 and September 30, 2001.............. 4
Notes to Condensed Consolidated Financial Statements (Unaudited)................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 30
Item 3. Quantitative and Qualitative Disclosure about Market Risk........................ 47
Item 4. Controls and Procedures.......................................................... 49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 50
Item 2. Changes in Securities and Use of Proceeds........................................ 56
Item 3. Defaults Upon Senior Securities.................................................. 56
Item 4. Submission of Matters to a Vote of Security Holders.............................. 56
Item 5. Other Information................................................................ 56
Item 6. Exhibits and Reports on Form 8-K................................................. 57
SIGNATURE .......................................................................................... 59
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002............................. 60
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.............................. 62
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
--------------------------- --------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales ................................................... $ 474,299 $ 484,506 $ 1,496,553 $ 1,594,673
Cost of goods sold .......................................... 344,846 371,739 1,110,833 1,215,130
Selling, general and administrative expense ................. 119,728 129,147 356,873 391,702
----------- ----------- ----------- -----------
Operating income (loss) ..................................... 9,725 (16,380) 28,847 (12,159)
Interest expense (contractual interest and Debenture discount
amortization for the three and nine months ended
September 30, 2002 and 2001, respectively, $48,758,
$57,261, $144,768 and $180,041) .......................... 4,268 6,267 12,894 42,134
Other (income) expense, net ................................. (954) 382 (3,016) 4,181
----------- ----------- ----------- -----------
Income (loss) before reorganization costs, income taxes and
cumulative effect of change in accounting principle ...... 6,411 (23,029) 18,969 (58,474)
Reorganization costs ........................................ 4,848 4,253 10,336 55,465
Income tax expense (benefit):
Current .................................................. 884 2,680 5,166 4,215
Deferred ................................................. 17 (2,218) 118 (2,600)
----------- ----------- ----------- -----------
901 462 5,284 1,615
----------- ----------- ----------- -----------
Income (loss) before cumulative effect of change
in accounting principle .................................. 662 (27,744) 3,349 (115,554)
Cumulative effect of change in accounting
principle, net of tax benefit of $97.5 million ........... -- -- (170,751) --
----------- ----------- ----------- -----------
Net income (loss) ........................................... $ 662 $ (27,744) $ (167,402) $ (115,554)
=========== =========== =========== ===========
Income (loss) per share, basic and diluted:
Income (loss) before cumulative effect of change
in accounting principle ................................ $ 0.01 $ (0.26) $ 0.03 $ (1.08)
Cumulative effect of change in accounting principle,
net of tax benefit of $97.5 million .................... -- -- (1.59) --
----------- ----------- ----------- -----------
Net income (loss), basic and diluted ..................... $ 0.01 $ (0.26) $ (1.56) $ (1.08)
=========== =========== =========== ===========
Weighted average common shares outstanding,
basic and diluted ........................................ 107,423 107,423 107,423 107,423
See Notes to Condensed Consolidated Financial Statements.
2
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
September 30, December 31,
2002 2001
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 27,301 $ 57,248
Receivables, net........................................................... 199,126 131,375
Inventories, net........................................................... 396,771 377,602
Prepaid expenses, deferred income taxes and other current assets........... 44,029 42,160
------------- -------------
Total current assets................................................. 667,227 608,385
Property, plant and equipment, net............................................ 324,154 361,133
Trademarks, tradenames and other intangibles.................................. 291,175 559,103
Goodwill ..................................................................... -- 6,396
Other assets.................................................................. 128,198 25,726
------------- -------------
$ 1,410,754 $ 1,560,743
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Liabilities not subject to compromise
Current liabilities:
Short-term debt and current portion of long-term debt.................... $ 30,472 $ 32,707
Accounts payable......................................................... 137,349 124,133
Other current liabilities................................................ 217,810 225,854
------------- -------------
Total current liabilities................................................ 385,631 382,694
Long-term debt, less current portion....................................... 11,359 1,143
Other long-term liabilities................................................ 194,336 194,175
Deferred income taxes ..................................................... 94,401 91,425
Liabilities subject to compromise............................................. 2,497,549 2,499,398
Commitments and contingencies (Notes 4, 5 and 13)
Shareholders' deficiency:
Preferred stock (2,000,000 shares authorized, none outstanding)............ -- --
Common stock (107,422,500 shares issued and outstanding)................... 1,074 1,074
Additional paid-in capital................................................. 1,179,629 1,179,629
Accumulated deficit........................................................ (2,856,426) (2,689,024)
Accumulated other comprehensive loss....................................... (96,799) (99,771)
------------ ----------
Total shareholders' deficiency ............................................ (1,772,522) (1,608,092)
------------ -------------
$ 1,410,754 $ 1,560,743
============= =============
See Notes to Condensed Consolidated Financial Statements.
3
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
Nine Months Ended
--------------------------------
September 30, September 30,
2002 2001
------------- -------------
OPERATING ACTIVITIES:
Net loss.................................................................. $ (167,402) $ (115,554)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization......................................... 51,476 71,444
Cumulative effect of change in accounting principle................... 170,751 --
Non-cash interest charges............................................. 3,192 12,420
Non-cash reorganization costs......................................... -- 39,869
Deferred income taxes................................................. 118 (2,600)
Loss on sale of business.............................................. 848 --
Gain on insurance settlement.......................................... (3,402) --
Changes in working capital and other, net of divestitures............. (74,900) (102)
------------- -------------
Net cash (used in) provided by operating activities............. (19,319) 5,477
------------- -------------
INVESTING ACTIVITIES:
Capital expenditures...................................................... (20,677) (24,809)
Net proceeds from sale of business........................................ 7,350 --
Proceeds from sales of other assets....................................... 260 511
Net proceeds from insurance settlement.................................... 5,631 472
------------- -------------
Net cash used in investing activities........................... (7,436) (23,826)
------------- -------------
FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit facilities............. 5,421 (10,594)
Net borrowings under DIP facility......................................... -- 42,000
Net borrowings (repayments) under debt obligations........................ 1,318 (828)
Deferred financing fees................................................... (5,087) (9,784)
Other, net................................................................ -- 15
------------- -------------
Net cash provided by financing activities....................... 1,652 20,809
------------- -------------
Effect of exchange rate changes on cash and cash equivalents.................. (4,844) 2,966
------------- -------------
Net (decrease) increase in cash and cash equivalents.......................... (29,947) 5,426
Cash and cash equivalents at beginning of period.............................. 57,248 27,225
------------- -------------
Cash and cash equivalents at end of period.................................... $ 27,301 $ 32,651
============ =============
See Notes to Condensed Consolidated Financial Statements.
4
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11
On February 6, 2001, Sunbeam Corporation and substantially all of its
subsidiaries (the "Subsidiary Debtors" and together with Sunbeam Corporation,
the "Debtors"), filed (the "Filings") voluntary petitions (the "Petitions") with
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code"). The case number for the Sunbeam case is 01-40291(AJG) and
the case numbers for the cases of the Subsidiary Debtors, which are being
jointly administered separately from the case of Sunbeam Corporation, are
01-40252(AJG) through 01-40290(AJG). The Debtors are managing their businesses
and properties as debtors-in-possession.
Sunbeam Corporation has been operating with significant debt since March 1998,
when prior management caused Sunbeam Corporation to borrow $2.0 billion under a
bank credit facility (as amended, modified and supplemented through and
including the date of the Filings, the "Pre-Petition Credit Facility"), among
Sunbeam Corporation, the Subsidiary Debtors, as guarantors, and certain
non-debtor subsidiary guarantors, and the lenders (the "Secured Lenders")
parties thereto, and through the issuance of zero coupon debentures due 2018
(the "Debentures"). The $2.0 billion was used to fund the acquisition of The
Coleman Company, Inc. ("Coleman"), Signature Brands, Inc. and First Alert, Inc.
("First Alert"), and to repay or defease (and pay associated penalties and
premiums) debt at such companies and certain indebtedness of Sunbeam
Corporation.
Sales of Sunbeam Corporation and its subsidiaries (collectively, the "Company"
or "Sunbeam") have been adversely affected by a reduction in retailer purchases
since approximately the second quarter of 2000, as retailers sought to reduce
their inventories in many of the categories in which the Company participates,
and as a result of slowing retail sales of consumer durables generally. The
Company's sales also were adversely affected by reduced sales of certain outdoor
products, including portable generators, that had unusually high sales during
1999 due to Year 2000 concerns ("Year 2000 Products") and the absence of severe
storm activity during 2000 which also adversely affected sales of Year 2000
Products. The foregoing significantly reduced the Company's sales and earnings,
and the reduction in sales coupled with the size of Sunbeam Corporation's debt
resulted in Sunbeam Corporation being unable to support its debt service
requirements.
As a result, in late 2000, Sunbeam Corporation determined that the most
effective and efficient manner in which to address its excessive debt
obligations, while at the same time minimizing disruption to the operations and
businesses of the Company, was to effectuate a restructuring of Sunbeam
Corporation and the Subsidiary Debtors under the auspices of Chapter 11 of the
Bankruptcy Code. To that end, Sunbeam Corporation and the Subsidiary Debtors
have reached an agreement with the Secured Lenders as to the principal terms,
conditions and provisions of such restructuring.
Pursuant to the plan of reorganization for Sunbeam Corporation dated October 2,
2002, (the "Sunbeam Corporation Plan"), if confirmed and if such plan becomes
effective (the date such plan becomes effective, the "Effective Date") among
other things, the claims of the Secured Lenders under the Pre-Petition Credit
Facility will be converted into (i) $100.0 million face value in the new
pay-in-kind secured debt of Sunbeam Corporation having an interest rate of 7.5%
(the "New Secured Debt") and (ii) 100% of the outstanding common stock of
Sunbeam Corporation ("Reorganized Sunbeam Corporation,") subject to options to
be issued to employees and the warrants described below. The Sunbeam Corporation
Plan provides, among other things, for (i) warrants to purchase 1% of the
outstanding shares of Sunbeam Corporation to be issued to the holders of the
Debentures provided the holders of Debentures as a class vote in favor of the
Sunbeam Corporation Plan, (ii) $1.0 million for other certain unsecured
creditors of Sunbeam Corporation, including claimants against Sunbeam
Corporation in the various litigations for securities fraud and other litigation
arising out of the events leading to the restatement of Sunbeam Corporation's
financial statements and earnings projections made by prior management, provided
that such unsecured creditors vote in favor of the Sunbeam Corporation Plan, and
(iii) no recovery for the equity holders of Sunbeam Corporation. There can be no
assurance that the Sunbeam Corporation Plan will be confirmed in its present
form or that if confirmed that it will not be amended in the future or that the
transactions contemplated thereby will be consummated. The secured creditors of
Sunbeam Corporation as a class voted in favor of the Sunbeam Corporation Plan.
The holders of Debentures as a class did not vote in favor of the Sunbeam
Corporation Plan and therefore the warrants will not be issued. The other
unsecured creditors of Sunbeam Corporation as a class voted in favor of the
Sunbeam Corporation Plan, and therefore will be entitled to the $1.0 million
described above.
5
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 -- (CONTINUED)
Pursuant to the joint plan of reorganization for the Subsidiary Debtors dated
October 2, 2002, (the "Subsidiary Plan" and collectively with the Sunbeam
Corporation Plan, the "Plans"), if such plan is confirmed and becomes effective,
among other things, (i) the Subsidiary Debtors will become guarantors of the New
Secured Debt issued pursuant to the Sunbeam Corporation Plan and will pledge
their assets to secure such debt; (ii) all other secured creditors of the
Subsidiary Debtors, if any, will be rendered unimpaired; (iii) all general
unsecured creditors of the Subsidiary Debtors (other than intercompany claims)
will be rendered unimpaired; and (iv) all equity interests in the Subsidiary
Debtors, which are held by Sunbeam Corporation or other Subsidiary Debtors, will
be rendered unimpaired and for certain Subsidiary Debtors will be subject to
employee stock options to be issued by such Subsidiary Debtors. There can be no
assurance that the Subsidiary Plan will be confirmed in its present form or that
it will not be amended in the future or that if confirmed that the transactions
contemplated thereby will be consummated. The secured creditors voted in favor
of the Subsidiary Plan.
The confirmation hearing on the Plans is scheduled for November 20, 2002.
In conjunction with the filing of the Petitions, the Secured Lenders under the
Pre-Petition Credit Facility provided Sunbeam Corporation with $285.0 million of
debtor-in-possession financing (the "DIP Credit Facility"), primarily to finance
the working capital needs of the Debtors. The size of the facility was developed
to accommodate, among other things, the traditional seasonal working capital
peak, which generally occurs during the second quarter. In accordance with the
terms of that facility, the total allowable commitments under the Dip Credit
Facility were reduced to $160.0 million as of June 30, 2001, and were consistent
with the Company's working capital needs. To accommodate the Company's 2002
seasonal work capital peak, commitments under the DIP Credit Facility were
increased to $200.0 million in March 2002. Consistent with the prior year, the
DIP Credit Facility allowable commitments were reduced to $180.0 million on May
1, 2002 and $160.0 million, effective June 1, 2002, consistent with seasonal
working capital requirements. The DIP Credit Facility is secured by a lien on
all property of the Debtors, subject to certain exceptions for the A/R
Securitization Facility (defined and described below) and certain other limited
exceptions. See Notes 4 and 7.
In addition, Coleman, Sunbeam Products, Inc., BRK Brands, Inc. ("BRK Brands"),
and Coleman Powermate, Inc. ("Powermate"), each a Subsidiary Debtor, have
entered into a $200.0 million accounts receivable securitization program (the
"A/R Securitization Facility") with GE Capital Corporation and the other
purchasers that are signatories thereto. See Note 7.
The Company believes that the financial restructuring contemplated under the
Plans (as described above) will reduce Sunbeam Corporation's outstanding debt
obligations to levels more manageable and consistent with the business
operations and projected financial performance of the Company, while minimizing
disruption and harm to the business operations of the Subsidiary Debtors. The
financial restructuring contemplated under the Plans also will enhance the
Company's ability to effectively compete and maintain critical relationships
with its suppliers and retail vendors.
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis of accounting, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business.
The recurring losses from operations and the inability of the Company to support
its debt service requirements for the periods preceding the Filings that
resulted in the Filings, as well as losses from operations for several periods
subsequent to the Filings, raise substantial doubt about the Company's ability
to continue as a going concern. The condensed consolidated financial statements
do not include any adjustments relating to recoverability and classification of
recorded asset amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The ability of the Company to continue as a going concern and the
appropriateness of using the going concern basis of accounting is dependent
upon, among other things, (i) the Company's ability to comply with the DIP
Credit Facility and the A/R Securitization Facility, (ii) confirmation of the
Plans (as such may be amended) under the Bankruptcy Code, (iii) the Company's
ability to achieve profitable operations after such confirmation, and (iv) the
Company's ability to generate sufficient cash from operations to meet its
obligations.
While operating as debtors-in-possession under the protection of Chapter 11 of
the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as
permitted in the ordinary course of business, the Debtors may sell or otherwise
dispose of assets and liquidate or settle liabilities for amounts other than
those reflected in the condensed consolidated financial statements. Further, the
amounts and classifications reported in the condensed consolidated historical
financial statements, do not give effect to any adjustments to the carrying
values of assets or amounts of liabilities that might be necessary as a
consequence of consummation of the Plans.
6
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1. VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11 -- (CONTINUED)
The accompanying condensed consolidated financial statements do not purport to
reflect or provide for the consequences of the Debtors' bankruptcy proceedings.
In particular, such condensed consolidated financial statements do not purport
to show (i) as to assets, their realizable value on a liquidation or sale basis
or their availability to satisfy liabilities, (ii) as to pre-petition
liabilities, the amounts that may be allowed for claims or contingencies, or the
status and priority thereof, (iii) as to stockholder accounts, the effect of any
changes that may be made in the capitalization of the Debtors, or (iv) as to
operations, the effect of any changes that may be made in the business of the
Debtors.
Substantially all of the Debtors' pre-petition debt is in default due to the
Filings. The accompanying Condensed Consolidated Balance Sheets reflect the
classification of such debt as current (for debt not subject to compromise) or
as liabilities subject to compromise for the periods ended September 30, 2002
and December 31, 2001. Included in liabilities subject to compromise is debt
outstanding under Sunbeam Corporation's Pre-Petition Credit Facility, as well as
the accreted amount of the Debentures. See Note 5.
As required by Statement of Position 90-7 ("SOP 90-7"), Financial Reporting by
Entities in Reorganization under the Bankruptcy Code, the Debtors, beginning in
the first quarter of 2001, were required to record their debt instruments at the
allowed amount, as defined by SOP 90-7. Accordingly, the Company accelerated the
amortization of its debt-related costs attributable to the Debtors and recorded
a pre-tax expense of approximately $40 million in February 2001. This expense is
classified as a reorganization cost and is comprised primarily of unamortized
financing costs.
2. OPERATIONS AND BASIS OF PRESENTATION
ORGANIZATION
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 certain of its products to professional
and commercial end users such as small businesses, hotels and other
institutions. The Company's principal products include household kitchen
appliances; health monitoring and care products for home use; scales for
consumer use; electric blankets and throws; clippers and trimmers for
professional and animal uses; smoke and carbon monoxide detectors; fire
extinguishers; outdoor barbecue grills, camping equipment such as tents,
lanterns, sleeping bags and stoves; coolers; backpacks, book bags and other
travel related gear; and portable and standby generators, compressors and
pressure washers.
BASIS OF PRESENTATION
The Condensed Consolidated Balance Sheet of the Company as of September 30,
2002, the Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2002 and 2001 and the Condensed Consolidated
Statements of Cash Flows for the nine months ended September 30, 2002 and 2001
are unaudited. The unaudited condensed consolidated financial statements have
been prepared on a going concern basis of accounting and in accordance with SOP
90-7. Preparation of these condensed consolidated financial statements on a
going concern basis contemplates continuity of operations, realization of assets
and liquidation of liabilities in the ordinary course of business. The December
31, 2001 Condensed Consolidated Balance Sheet was derived from the Company's
audited consolidated financial statements for the year ended December 31, 2001.
The Condensed Consolidated Financial Statements contained herein should be read
in conjunction with the Company's 2001 consolidated financial statements and
related notes provided as an exhibit to the Current Report on Form 8-K filed
with the Securities and Exchange Commission ("SEC") on September 6, 2002. In the
opinion of management, the unaudited condensed consolidated financial statements
contained herein include all adjustments (consisting of only recurring
adjustments) necessary for a fair presentation of the results of operations for
the interim periods presented. These interim results of operations are not
necessarily indicative of results for future periods.
BASIC AND DILUTED INCOME (LOSS) PER SHARE OF COMMON STOCK
Basic income (loss) per common share calculations are determined by dividing
income (loss) attributable to common shareholders by the weighted average number
of shares of common stock outstanding. Diluted income (loss) per share is
generally determined by dividing income (loss) attributable to common
shareholders by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding (which would have related to
outstanding stock options, restricted stock, warrants and the Debentures).
7
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. OPERATIONS AND BASIS OF PRESENTATION -- (CONTINUED)
For the three and nine months ended September 30, 2002 and 2001, shares related
to (i) stock options, (ii) restricted stock, (iii) shares related to the
conversion feature of the Debentures, and (iv) shares issuable upon the exercise
of warrants were not included in diluted average common shares outstanding as
these common stock equivalents are not and will never be exercisable due to the
Chapter 11 Filings. See Note 1.
NEW ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective
for exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. Management believes that the impact of this
statement will not have a material effect on the Company's consolidated
financial statements.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, but retains many of its fundamental provisions. Additionally,
this statement expands the scope of discontinued operations to include more
disposal transactions. The provisions of this statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The Company adopted SFAS No. 144 effective January 1, 2002. The impact of this
statement has not had a material effect on the Company's consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with early adoption
permitted. SFAS No. 143 is not expected to have a material effect on the
Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which the Company adopted as of January 1, 2002. Under the provisions of
this statement, goodwill and intangible assets that have indefinite useful lives
will no longer be amortized but rather will be tested at least annually for
impairment. As a result of adoption of SFAS No. 142, the Company recognized a
pre-tax charge of $268.3 million ($170.8 million net of tax benefit of $97.5
million) in the first quarter of 2002. This charge is reflected as "Cumulative
effect of change in accounting principle, net of tax benefit" in the Condensed
Consolidated Statements of Operations. In addition, the Company discontinued the
amortization of identifiable intangible assets that have indefinite useful lives
as of January 1, 2002. See Note 3.
In July 2001, the FASB issued SFAS No. 141, Business Combinations. This
statement is effective for periods beginning after December 15, 2001 and applies
to all business combinations entered into subsequent to June 30, 2001 and
requires that all such business combinations be accounted for using the purchase
method of accounting. The Company adopted SFAS No. 141 effective January 1,
2002. The impact of this statement has no effect on the Company's consolidated
financial statements.
Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, which requires that
all derivative instruments be reported on the balance sheet at fair value and
establishes criteria for designation and effectiveness of hedging relationships.
The cumulative effect of adopting SFAS No. 133 as of January 1, 2001 was not
material to the Company's consolidated financial statements.
8
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. OPERATIONS AND BASIS OF PRESENTATION -- (CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2002
presentation.
3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 2002, the Company adopted SFAS No. 142. This statement
addresses financial accounting and reporting for goodwill and other intangibles.
Under the provisions of this statement, goodwill and intangible assets that have
indefinite useful lives will no longer be amortized, but rather will be tested
at least annually, on a reporting unit basis, for impairment. (See Note 12 for a
description of the Company's reporting units.) The Company discontinued
amortization of identifiable intangible assets with indefinite lives as of
January 1, 2002. Identifiable intangible assets deemed to have indefinite lives
must be tested for impairment as of the beginning of the fiscal year in which
SFAS No. 142 is initially applied. That transitional intangible asset impairment
test must be completed in the first interim period in which SFAS No 142 is
initially applied for each applicable reporting unit. SFAS No. 142 prescribes
that impairment loss be measured as the difference between the carrying amount
of the identifiable intangible asset in each applicable reporting unit and its
estimated fair value.
SFAS No. 142 also redefines intangible assets, such that the concept of an
intangible asset related to assembled workforce is no longer recognized.
Accordingly, the Company discontinued amortization of the assembled workforce
intangible assets as of January 1, 2002 and reclassified the carrying amount to
goodwill. This reclassification resulted in additional goodwill of $0.8 million
in the Sunbeam Products business, $7.1 million in the Coleman business, $0.9
million in the First Alert business and $1.2 million in the Powermate business.
The additional goodwill in the Sunbeam Products business was written off in
connection with the sale of the Professional Scales Business. See Note 10. The
balance of this goodwill was then included in the transitional goodwill
impairment test described below.
SFAS No. 142 sets forth guidelines for the evaluation of goodwill for impairment
using a "two-step" transitional goodwill impairment test. SFAS No. 142 requires
the completion of the first step of the transitional goodwill impairment test
(whereby the fair value of a reporting unit is compared with its carrying value,
including goodwill) no later than June 30, 2002. If there is indication of
impairment, the second step used to measure the impairment loss (whereby if the
carrying amount of a reporting unit's goodwill exceeds the implied fair value of
that goodwill, an impairment loss is recognized in an amount equal to that
excess) must be completed by the end of the fiscal year.
9
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- (CONTINUED)
TRANSITIONAL IMPAIRMENT CHARGE
As a result of the adoption of SFAS No. 142, the Company recorded a pre-tax
charge of $268.3 million ($170.8 million net of tax benefit of $97.5 million) in
the first quarter of 2002 relating to the impairment of intangible assets,
specifically, trademarks and tradenames ($252.7 million pre-tax charge) and
goodwill ($15.6 million charge.) The fair value of intangible assets was
determined based on a valuation study performed by an external valuation firm
using various valuation methodologies, including the "relief from royalties"
method for the trademarks and tradenames valuation. The external valuation firm,
using both the discounted present value of future cash flows and market values
of comparable businesses, also determined the fair value of the goodwill. The
charge is reflected in the Condensed Consolidated Statements of Operations as
"Cumulative effect of change in accounting principle, net of tax benefit."
SUNBEAM
(In thousands) PRODUCTS COLEMAN FIRST ALERT POWERMATE TOTAL
--------- --------- ----------- --------- ---------
GOODWILL
Balance as of January 1, 2002 ........... $ 6,396 $ -- $ -- $ -- $ 6,396
Reclassification of assembled workforce . 781 7,070 850 1,248 9,949
Impairment charge ....................... (6,396) (7,070) (850) (1,248) (15,564)
Sale of Professional Scales Business .... (781) -- -- -- (781)
--------- --------- --------- --------- ---------
Balance as of September 30, 2002 ........ $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
TRADEMARKS AND TRADENAMES
AND OTHER INTANGIBLES
Balance as of January 1, 2002 ........... $ 219,193 $ 265,560 $ 24,571 $ 43,500 $ 552,824
Reclassification of assembled workforce . (781) (7,070) (850) (1,248) (9,949)
Impairment charge ....................... (112,243) (96,490) (9,721) (34,252) (252,706)
Sale of Professional Scales Business .... (4,169) -- -- -- (4,169)
--------- --------- --------- --------- ---------
Balance as of September 30, 2002 ........ $ 102,000 $ 162,000 $ 14,000 $ 8,000 $ 286,000
========= ========= ========= ========= =========
INTANGIBLES WITH DEFINITE USEFUL LIVES
Because the Company's patents have definite useful lives, the Company will
continue to amortize those assets over their respective terms. The following
tables present information about the Company's patents, at September 30, 2002
and December 31, 2001 (in thousands):
PATENTS
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------------------------------------- -------------------------------------
USEFUL GROSS NET GROSS NET
LIFE CARRYING ACCUMULATED CARRYING CARRYING ACCUMULATED CARRYING
(IN YEARS) AMOUNT AMORTIZATION AMOUNT AMOUNT AMORTIZATION AMOUNT
---------- --------- ------------ ---------- ---------- ------------ ----------
Sunbeam Products............. 8 $ 1,800 $ (1,012) $ 788 $ 1,800 $ (844) $ 956
Coleman...................... 8 7,080 (3,802) 3,278 7,080 (3,097) 3,983
First Alert.................. 8 2,400 (1,350) 1,050 2,400 (1,125) 1,275
Powermate.................... 15 120 (61) 59 120 (55) 65
--------- ---------- ---------- ---------- --------- ----------
Total........................ $ 11,400 $ (6,225) $ 5,175 $ 11,400 $ (5,121) $ 6,279
========= ========== ========== ========== ========= ==========
The consolidated amortization expense related to patents was $0.4 million and
$1.1 million for the three and nine months ended September 30, 2002 and 2001,
respectively. Estimated amortization expense follows for the next five years
ending December 31:
Year Amount
---- ------
2002 $1,473
2003 1,473
2004 1,469
2005 1,469
2006 249
2007 and thereafter 146
10
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- (CONTINUED)
IMPACT OF NON-AMORTIZATION PROVISION FOR INTANGIBLE ASSETS
WITH INDEFINITE USEFUL LIVES
The Company determined that certain of its intangible assets have indefinite
useful lives and, upon adoption of SFAS No. 142 (January 1, 2002), the Company
discontinued amortization of these assets. The adoption of SFAS No. 142 resulted
in a positive impact of $4.8 million before income taxes, ($3.0 net of taxes),
and $14.3 million before income taxes, ($9.0 million net of taxes), for the
three and nine months ended September 30, 2002, respectively, related to the
discontinuance of amortization of goodwill and certain other intangible assets.
For fiscal year 2002, the Company expects the adoption of SFAS No. 142 to
increase income before the cumulative effect of change in accounting principle
by approximately $19.0 million, ($12.0 million net of taxes). The following
table shows the reconciliation of the Company's reported loss and loss per share
to adjusted net loss and loss per share as if the non-amortization provisions of
SFAS No. 142 had been applied at the beginning of the respective periods:
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
September 30, September 30, September 30, September 30,
(Amounts in thousands, except per share data) 2002 2001 2002 2001
------------ ------------ ------------ ------------
Income (loss) before cumulative effect of change
in accounting principle ................................ $ 662 $ (27,744) $ 3,349 $ (115,554)
Add back:
Goodwill amortization .................................. -- 183 -- 548
Trademarks, tradenames and other amortization .......... -- 4,671 -- 14,012
----------- ----------- ----------- -----------
Adjusted income (loss) .................................... $ 662 $ (22,890) $ 3,349 $ (100,994)
=========== =========== =========== ===========
Basic and diluted income (loss) per share before cumulative
effect of change in accounting principle:
Income (loss) before cumulative effect of change
in accounting principle ................................ $ 0.01 $ (0.26) $ 0.03 $ (1.08)
Add back:
Goodwill amortization .................................. -- -- -- 0.01
Trademarks, tradenames and other amortization .......... -- 0.05 -- 0.13
----------- ----------- ----------- -----------
Adjusted income (loss) .................................... $ 0.01 $ (0.21) $ 0.03 $ (0.94)
=========== =========== =========== ===========
4. DEBT
As a result of the Filings, no principal or interest payments were made on the
outstanding borrowings under the Pre-Petition Credit Facility after February 5,
2001. In addition, the Company ceased accruing interest on the Pre-Petition
Credit Facility and ceased amortizing the discount on the Debentures in
accordance with SOP 90-7. The Sunbeam Corporation Plan contemplates converting
all of the amounts outstanding under the Pre-Petition Credit Facility into the
New Secured Debt and equity interests in the Reorganized Sunbeam Corporation.
The Sunbeam Corporation Plan also contemplates converting the Debentures into
warrants to purchase 1% of the equity of the Reorganized Sunbeam Corporation.
See Note 1.
Substantially all of the Debtors' pre-petition debt is in default due to the
Filings. The accompanying Condensed Consolidated Balance Sheets reflect the
classification of such debt as current (for debt not subject to compromise) or
as liabilities subject to compromise for the periods ended September 30, 2002
and December 31, 2001. Included in liabilities subject to compromise is debt
outstanding under Sunbeam Corporation's Pre-Petition Credit Facility, as well as
the accreted amount of the Debentures.
11
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. DEBT -- (CONTINUED)
In connection with the filing of the Petitions, the Secured Lenders under the
Pre-Petition Credit Facility have provided Sunbeam Corporation with the DIP
Credit Facility. The DIP Credit Facility initially provided for a total
commitment of $285.0 million, with a $120.0 million sub-limit for letters of
credit. The letters of credit outstanding under the Pre-Petition Credit Facility
on the date of the Filings became outstanding letters of credit under the DIP
Credit Facility. In addition, pursuant to the DIP Credit Facility, the $50.0
million outstanding under the supplemental revolver of the Pre-Petition Credit
Facility became outstanding borrowings under the DIP Credit Facility, and
certain fees and expenses of the lenders under the DIP Credit Facility were paid
with borrowings under the DIP Credit Facility. The aggregate commitment under
the DIP Credit Facility will be permanently reduced by 100% of the net cash
proceeds from asset sales outside of the ordinary course of business. The
aggregate commitments were permanently reduced to $200.0 million on April 30,
2001 and further reduced to $160.0 million on June 30, 2001. The DIP Credit
Facility initially was to terminate at the earlier of (i) February 5, 2002, (ii)
the Effective Date of the Sunbeam Corporation Plan, or (iii) termination of the
commitments under the DIP Credit Facility. Pursuant to an amendment to the
agreement dated March 13, 2002, the DIP Credit Facility was extended through
February 5, 2003 and the total commitment was increased to $200.0 million. The
aggregate commitments were permanently reduced to $180.0 million on May 1, 2002
and were further reduced to $160.0 million on June 1, 2002. Under the terms of
the March 13, 2002 amendment, the Company paid an amendment fee of $4.0 million
in March 2002. This fee is being amortized to interest expense using the
straight-line method over the one-year period of the amendment. DIP Borrowings
under the DIP Credit Facility accrue interest at the Company's option: (i) LIBOR
plus 3.5%, or (ii) prime rate plus 2.5%.
The DIP Credit Facility contains various covenants, including (i) a cumulative
consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") covenant, (ii) a cumulative capital expenditures covenant, (iii) a
minimum domestic accounts payable covenant, (iv) a covenant limiting the amount
of post-petition intercompany receivables due from foreign subsidiaries, and (v)
a covenant regarding compliance with an agreed upon cash budget. In addition,
the DIP Credit Facility provided that the Company was required to fully utilize
borrowing availability under its A/R Securitization Facility at any time there
were loans or letters of credit outstanding under the DIP Credit Facility.
Effective August 30, 2002, the DIP Credit Facility was amended to exclude
letters of credit outstanding from the A/R Securitization Facility full
utilization provision. See Note 7.
In addition to the above described EBITDA and other tests and ratios, the DIP
Credit Facility contains covenants customary for credit facilities of a similar
nature, including limitations on the ability of Sunbeam Corporation and its
subsidiaries to, among other things, (i) declare dividends or repurchase stock,
(ii) incur liens or 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) fail to maximize
utilization of foreign credit facilities, (vii) fail to maintain its trade
accounts receivable securitization program, (viii) engage in mergers,
acquisitions or asset sales, (ix) engage in transactions with affiliates, (x)
alter its cash management system and (xi) alter the businesses they conduct. The
DIP Credit Facility provides for events of default customary for transactions of
this type, including nonpayment, misrepresentation, breach of covenant,
cross-defaults, material adverse change arising from compliance with ERISA,
entry of certain orders by the Bankruptcy Court in the Chapter 11 proceedings or
material adverse judgments.
Borrowings under the DIP Credit Facility are secured by a perfected first
priority lien on all the Debtors' assets subject to certain exceptions for the
A/R Securitization Facility, and certain other exceptions.
In March 2002, the Canadian subsidiary of the Company entered into a senior
secured revolving credit facility for up to $25.0 million Canadian dollars. This
facility is secured by this subsidiary's accounts receivable and inventory and
expires in April 2005. Borrowings under this facility accrue interest at the
index rate (average rate quoted on Reuters Monitor Screen applicable to Canadian
dollar bankers' acceptances with a term of 30 days as of the first business day
of the respective month) plus 2.25%. This facility contains various covenants
including (i) a cumulative consolidated EBITDA covenant, (ii) a cumulative
capital expenditures covenant, and (iii) a tangible net worth covenant. At
September 30, 2002, $9.5 million was outstanding under the revolver and is
reflected as long-term debt in the accompanying Condensed Consolidated Balance
Sheet.
12
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. DEBT -- (CONTINUED)
Although there can be no assurance, the Company believes that its financing
capacity under the DIP Credit Facility and the A/R Securitization Facility,
combined with its foreign working capital lines and securitization facilities,
cash flows from operations and existing cash and cash equivalent balances will
be sufficient to support the Company's planned working capital needs and planned
capital expenditures through the Debtors' anticipated emergence from Chapter 11.
See Note 7. Following the confirmation of the Sunbeam Corporation Plan and the
Subsidiary Plan, the Reorganized Sunbeam Corporation's seasonal working capital
borrowings and letter of credit requirements are anticipated to be funded under
(i) an exit working capital facility (the "Exit Working Capital Facility,") (ii)
an exit accounts receivable securitization facility or receivables based
financing, (the "Exit A/R Facility"), and (iii) the current foreign working
capital and securitization facilities ("the Foreign Facilities", and together,
the "Exit Facilities.") These facilities are expected to contain customary
covenants, including financial covenants. If Reorganized Sunbeam Corporation
cannot meet these covenants, it would be an event of default. Furthermore, the
Reorganized Sunbeam Corporation's liquidity could be adversely affected by the
prices at which the reorganized subsidiaries can sell trade accounts receivable
under these programs or by the termination of the Exit Facilities for any
reason, including termination due to an inability to comply with the terms of
these agreements.
Given these and other uncertainties there can be no assurance that the
aforementioned sources of funds will be sufficient to meet the Company's cash
requirements on a consolidated basis. If the Company is unable to satisfy such
cash requirements, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, borrowing
additional funds, restructuring indebtedness, selling assets or operations
and/or reducing expenditures for new product development, reducing headcount
and/or other expenditures, and certain of such actions would require the consent
of the lenders under the DIP Credit Facility or the Exit Facilities. There can
be no assurance that any of such actions could be effected, or if so, on terms
favorable to the Company, that such actions would enable the Company to continue
to satisfy its cash requirements and/or that such actions would be permitted
under the terms of the DIP Credit Facility or the Exit Facilities.
Debt at the end of each period consists of the following (in thousands):
September 30, December 31,
2002 2001
------------- ------------
DIP Credit Facility, average interest rate of 6.19% and 8.05% for the nine months ended
September 30, 2002 and the year ended December 31, 2001, respectively.................. $ -- $ --
Other lines of credit, including foreign working capital facilities....................... 30,227 23,228
Other long-term borrowings, due through 2015, weighted average interest rate of 4.66%
and 3.91% at September 30, 2002 and December 31, 2001, respectively.................... 11,604 10,622
---------- ---------
41,831 33,850
Less: short-term debt and current portion of long-term debt............................... 30,472 32,707
---------- ---------
Long-term debt............................................................................ $ 11,359 $ 1,143
========== =========
5. LIABILITIES SUBJECT TO COMPROMISE
Amounts representing liabilities of Sunbeam Corporation that were known to the
Company or estimable prior to the Filings for which the Company is seeking
relief pursuant to the Sunbeam Corporation Plan are presented as Liabilities
Subject to Compromise in the accompanying Condensed Consolidated Balance Sheets.
These liabilities consist primarily of amounts outstanding under the Company's
Pre-Petition Credit Facility and amounts owed related to the Debentures (net of
unamortized discount), accounts payable, accrued interest, and other accrued
expenses. These amounts represent Sunbeam Corporation's estimate of known or
potential claims to be discharged in connection with the Sunbeam Corporation
Plan. Such claims remain subject to future adjustments, which may result from
(i) actions of the Bankruptcy Court; (ii) further development with respect to
disputed claims; (iii) rejection of additional executory contracts or unexpired
leases; (iv) proofs of claim; (v) amendments or modifications to the Sunbeam
Corporation Plan or (vi) other events. Settlement, discharge and/or payment
terms for these amounts are provided for pursuant to the Sunbeam Corporation
Plan, see Note 1, although there can be no assurance that such plan of
reorganization will be confirmed in its present form or that it will not be
amended in the future or that if confirmed that the transactions contemplated
thereby will be consummated.
13
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. LIABILITIES SUBJECT TO COMPROMISE -- (CONTINUED)
On April 12, 2001, the Bankruptcy Court entered an order establishing May 31,
2001 as the deadline ("Bar Date") for the filing of the proofs of claim in the
Chapter 11 case of Sunbeam Corporation. On April 27, 2001 and April 30, 2001,
Sunbeam Corporation provided notice of the Bar Date to all known creditors of
Sunbeam Corporation as of February 6, 2001. In connection with the plan of
reorganization becoming effective, the Company will be resolving the proofs of
claims. Accordingly, the ultimate number and amount of allowed unsecured claims
is not presently known. The Sunbeam Corporation Plan provides for $1.0 million
of recovery to certain unsecured creditors. The Sunbeam Corporation Plan
provides limited recovery to secured creditors of Sunbeam Corporation. See Note
1.
In connection with the Filings, the Company received approval from the
Bankruptcy Court to pay pre-petition employee wages, salaries, benefits and
other employee obligations. The Subsidiary Debtors received approval from the
Bankruptcy Court to pay pre-petition liabilities to vendors and other providers
(other than professionals) in the ordinary course for goods and services
received, and to honor customer service programs, including warranties and
returns.
The principal categories of claims of Sunbeam Corporation classified as
liabilities subject to compromise under reorganization proceedings at September
30, 2002 and December 31, 2001 are identified below (in thousands):
September 30, December 31,
2002 2001
------------- ------------
Pre-Petition Credit Facility............. $ 1,541,999 $ 1,541,999
Debentures, net of discount.............. 864,261 864,261
Accrued interest and fees................ 60,514 60,514
Litigation related accruals.............. 18,474 20,356
Accounts payable......................... 6,728 6,694
Accrued expenses and other............... 5,573 5,574
------------- ------------
Total.................................... $ 2,497,549 $ 2,499,398
============= ============
Contractual interest expense not accrued or recorded on the Pre-Petition Credit
Facility totaled $98.0 million and $109.9 million for the nine months ended
September 30, 2002 and for the period February 6, 2001 (date of the Filings)
through September 30, 2001, respectively. Amortization of discount on the
Debentures not recorded for the same periods amounted to $33.8 million and $28.0
million, respectively.
6. REORGANIZATION COSTS
Expenses and income directly incurred or realized as a result of the Filings
have been segregated from the normal operations and are disclosed separately.
The major components of such costs for the nine months ended September 30, 2002
and the period February 6, 2001 (date of the Filings) through September 30, 2001
are as follows (in thousands):
Filing Date
Nine Months (February 6, 2001)
Ended through
September 30, September 30,
2002 2001
------------- ------------
Deferred financing fees....................... $ -- $ 40,048
Professional fees and administrative expense.. 5,417 12,709
Severance and other employee costs............ 4,919 2,887
Prepaid amendment fees........................ -- 1,644
Deferred gain on terminated swaps............. -- (1,823)
------------- -------------
Total......................................... $ 10,336 $ 55,465
============= ============
14
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
6. REORGANIZATION COSTS -- (CONTINUED)
Deferred financing fees
Deferred financing fees represent costs related to the Pre-Petition Credit
Facility and the Debentures, which were being amortized over the expected lives
of the respective instruments. The amortization of these fees was accelerated as
a result of the Filings, in accordance with SOP 90-7.
Professional fees and administrative expense
Professional fees and administrative expense relates to legal, accounting, and
other professional costs directly attributable to the Filings.
Severance and other employee costs
Severance costs relate to certain headcount reductions due to organizational
changes as a result of the Company's reorganization. Other employee costs relate
to retention payments to certain key employees to encourage continued employment
with the Company throughout the reorganization process.
Prepaid amendment fees
Prepaid amendment fees represent costs incurred in connection with certain
amendments to the Pre-Petition Credit Facility. These costs were being amortized
over the life of the respective amendments. The amortization of these fees was
accelerated as a result of the Filings, in accordance with SOP 90-7.
Deferred gain on terminated swaps
The deferred gain on terminated swaps relates to gains realized on interest rate
swap agreements sold during 2000. These gains were being amortized to interest
expense over the original terms of the interest rate swap agreements. As a
result of the Filings, amortization of these deferred gains was accelerated in
accordance with SOP 90-7.
7. ACCOUNTS RECEIVABLE SECURITIZATION
Prior to the Filings, certain subsidiaries of Sunbeam Corporation sold trade
accounts receivable pursuant to two separate receivable securitization programs.
The original program, entered into in December 1997, was amended in March 2000
to increase the program from $70.0 million to $100.0 million. This agreement
provided for the sale of certain trade accounts receivable without recourse
through a wholly owned subsidiary (the "Sunbeam Receivables Program"). In
mid-November 2000, the purchaser under the Sunbeam Receivables Program informed
the Company that it intended to discontinue its operations in mid-February 2001
and consequently ceased purchasing trade accounts receivable on January 15,
2001. In April 2000, the Company's Coleman and Powermate subsidiaries entered
into an additional revolving trade accounts receivable securitization program
(the "Coleman Receivables Program"), to sell, without recourse, through a
wholly-owned subsidiary of Coleman, up to a maximum of $95.0 million in trade
accounts receivable.
On February 7, 2001, certain Subsidiary Debtors entered into the $200.0 million
A/R Securitization Facility to replace the Sunbeam Receivables Program and the
Coleman Receivables Program (collectively the "Pre-Petition Receivables
Programs"). This trade accounts receivable program contains cross-default
provisions that provide the purchasers of the receivables an option to cease
purchasing receivables if, subject to certain grace periods, Sunbeam Corporation
is in default under the DIP Credit Facility. In addition, the A/R Securitization
Facility contains various other covenants customary for these types of programs,
including financial covenants. The Subsidiary Debtors that are party to the A/R
Securitization Facility retain collection and administrative responsibilities
for the receivables sold under such facility.
15
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
7. ACCOUNTS RECEIVABLE SECURITIZATION -- (CONTINUED)
During the nine months ended September 30, 2002 and 2001, the Company received
approximately $1,180.4 million, and $778.3 million, respectively, under the A/R
Securitization Facility and the Pre-Petition Receivables Programs. At September
30, 2002 and 2001, the Company had reduced accounts receivable by approximately
$125.2 million and $145.2 million, respectively, for receivables sold under
these programs. Costs of the programs, which primarily consist of the
purchasers' financing cost of issuing commercial paper backed by the
receivables, totaled $5.2 million and $7.3 million during the nine months ended
September 30, 2002 and 2001, respectively, and have been classified as interest
expense in the accompanying Condensed Consolidated Statements of Operations.
In September of 2001, a foreign subsidiary of Sunbeam Corporation in the United
Kingdom entered into an agreement to sell certain trade accounts receivable.
During the nine months ended September 30, 2002 and 2001, the foreign subsidiary
received $26.1 million and $6.7 million, respectively, and incurred costs of
$0.2 million and $0.1 million, respectively, which have been classified as
interest expense in the accompanying Condensed Consolidated Statements of
Operations. At September 30, 2002 and 2001, the foreign subsidiary had reduced
accounts receivable by $1.4 million and $2.5 million, respectively.
In March of 2001, another foreign subsidiary of Sunbeam Corporation in France
entered into an agreement to sell certain trade accounts receivable without
recourse. During the nine months ended September 30, 2002 and 2001, the foreign
subsidiary received $45.0 million and $28.5 million, respectively, and incurred
costs of $0.4 million for both periods, which have been classified as interest
expense in the accompanying Condensed Consolidated Statements of Operations. At
September 30, 2002 and 2001, the foreign subsidiary had reduced accounts
receivable by $9.1 million and $8.9 million, respectively.
8. COMPREHENSIVE LOSS
The components of the Company's comprehensive (loss) income are as follows (in
thousands):
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------ ------------ ------------
Net income (loss) ..................... $ 662 $ (27,744) $(167,402) $(115,554)
Foreign currency translation adjustment (1,383) 1,947 2,973 (443)
--------- --------- --------- ---------
Comprehensive loss .................... $ (721) $ (25,797) $(164,429) $(115,997)
========= ========= ========= =========
As of September 30, 2002 and December 31, 2001, "Accumulated other comprehensive
loss," as reflected in the Condensed Consolidated Balance Sheets is comprised of
the following:
Currency Minimum
Translation Pension
Adjustments Liability Total
----------- --------- -----
Balance at September 30, 2002......... $ (37,237) $(59,562) $(96,799)
Balance at December 31, 2001.......... (40,209) (59,562) (99,771)
9. SUPPLEMENTARY FINANCIAL STATEMENT DATA
Supplementary Balance Sheet data at the end of each period is as follows (in
thousands):
September 30, December 31,
2002 2001
------------- ------------
Receivables:
Trade (net of securitization programs, see Note 7)............ $ 213,707 $ 155,603
Sundry........................................................ 12,205 11,648
------------ ------------
225,912 167,251
Valuation allowance.............................................. (26,786) (35,876)
------------ ------------
$ 199,126 $ 131,375
============ ============
16
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
9. SUPPLEMENTARY FINANCIAL STATEMENT DATA -- (CONTINUED)
September 30, December 31,
2002 2001
------------- ------------
Inventories:
Finished goods....................................................... $ 295,820 $ 273,635
Work in process...................................................... 25,165 19,132
Raw materials and supplies........................................... 75,786 84,835
------------- ------------
$ 396,771 $ 377,602
============= ============
Prepaid expenses, deferred income taxes and other current assets:
Deferred income taxes................................................ $ 24,716 25,032
Prepaid expenses and other........................................... 19,313 17,128
------------- ------------
$ 44,029 $ 42,160
============= ============
Property, plant and equipment:
Land and improvements................................................ $ 14,767 $ 16,128
Buildings and improvements........................................... 187,696 187,981
Machinery and equipment.............................................. 469,699 465,336
Furniture and fixtures............................................... 19,438 18,584
------------- ------------
691,600 688,029
Accumulated depreciation and amortization............................... (367,446) (326,896)
------------- ------------
$ 324,154 $ 361,133
============= ============
Trademarks, tradenames and other intangibles:
Trademarks and tradenames............................................ $ 642,444 $ 647,044
Other intangible assets.............................................. 11,899 30,145
------------- ------------
654,343 677,189
Impairment charge.................................................... (252,706) --
Accumulated amortization............................................. (110,462) (118,086)
------------ ------------
$ 291,175 $ 559,103
============= ============
Other current liabilities:
Payrolls, commissions and employee benefits.......................... $ 62,820 $ 53,326
Advertising and sales promotion...................................... 32,181 38,827
Product liability and product warranty............................... 50,036 57,996
Sales returns........................................................ 8,461 7,470
Accrued pension...................................................... 3,500 6,644
Interest and amendment fees.......................................... 882 948
Other................................................................ 59,930 60,643
------------- ------------
$ 217,810 $ 225,854
============= ============
Other long-term liabilities:
Accrued post-retirement benefit obligation........................... $ 41,881 $ 43,147
Accrued pension...................................................... 28,360 30,957
Product liability, product warranty and workers compensation......... 72,176 70,768
Other................................................................ 51,919 49,303
------------- ------------
$ 194,336 $ 194,175
============= ============
Supplementary Statements of Operations data is as follows:
Freight costs
Freight costs of $15.0 million and $13.6 million in the three months ended
September 30, 2002 and 2001, respectively, and $45.2 million and $45.6 million
in the nine months ended September 30, 2002 and 2001, respectively, are included
in selling, general and administrative expense ("SG&A").
17
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
9. SUPPLEMENTARY FINANCIAL STATEMENT DATA -- (CONTINUED)
Supplementary Statements of Cash Flows data is as follows (in thousands):
Nine Months Ended
September 30, September 30,
2002 2001
----------- -----------
Cash paid (received) during the period for:
Interest............................. $ 9,768 $ 14,529
========== ==========
Income taxes ........................ $ 2,124 $ (2,822)
========== ==========
Reorganization costs................. $ 6,048 $ 10,764
========== ==========
10. ASSET IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES
2002 INTANGIBLE ASSET WRITE-DOWN PURSUANT TO THE IMPLEMENTATION OF SFAS NO. 142
The Company recorded a transitional pre-tax impairment charge of $268.3 million
($170.8 million net of tax benefit of $97.5 million) in the first quarter of
2002 related to trademarks, tradenames and goodwill as the result of the
implementation of SFAS No. 142. The charge is reflected as a "Cumulative effect
of change in accounting principle, net of tax benefit" in the Condensed
Consolidated Statements of Operations. See Note 3.
2001 ASSET IMPAIRMENT
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets pursuant to SFAS No. 121. In conjunction with the 2002 annual strategic
planning process, the Company evaluated factors, events and circumstances which
included, but were 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 warranted revision and/or whether the remaining asset values
were recoverable through future operations. When such factors, events or
circumstances indicated that long-lived assets should be evaluated for possible
impairment, the Company used either appraisals (when available) or estimates of
cash flows (undiscounted and without interest charges) over the remaining lives
of the assets to measure recoverability. If the estimated cash flows were less
than the carrying value of the asset, the loss was measured as the amount by
which the carrying value of the asset exceeded its fair value. Accordingly, in
the fourth quarter of 2001, as a result of a history of operating losses and
negative cash flows incurred by the Sunbeam Outdoor Grill business (Neosho
Facility), as well as the future prospects of the business, the Company
concluded that an impairment existed as of December 31, 2001 for this business.
A comparison of the fair value of the long-lived assets associated with that
business with the carrying value yielded an impairment charge of $30.9 million.
The fourth quarter 2001 charge is reflected in Goodwill and other asset
impairment in the Consolidated Statement of Operations for the year ended
December 31, 2001. Also, see Note 15 for a discussion of the Company's November
2002 announcement discussing additional modifications of its business strategy
for the Sunbeam Grills business.
SALE OF PROFESSIONAL SCALES BUSINESS
On November 5, 2001, Sunbeam Products and Pelstar, LLC ("Pelstar") entered into
a purchase agreement for the sale to Pelstar of substantially all of the assets
and the assumption of certain liabilities of the professional scales business of
Sunbeam Products (the "Professional Scales Business"), including, among other
items, the license of the Health o Meter(R) brand name for professional medical
scales. The Professional Scales Business is comprised of the Pelouze scales
business, as well as Health o Meter branded professional medical scales
business. Based upon the agreed upon purchase price, the Company determined that
there was an impairment to the carrying value of the Professional Scales
Business. Accordingly, during December 2001, the Company adjusted the carrying
value of the net assets of the Professional Scales Business to their estimated
fair market value (less estimated costs of the sale) resulting in a fourth
quarter 2001 non-cash impairment charge of $1.5 million. The fourth quarter 2001
charge is reflected in "Goodwill and other asset impairment" in the Consolidated
Statement of Operations for the year ended December 31, 2001. In the first
quarter of 2002, the Company incurred approximately $0.9 million in costs
related to the sale of the Professional Scales Business primarily consisting of
fixed asset write-offs ($1.1 million charge to Cost of goods sold ("COGS")) and
additional severance and retention charges, offset by the reclassification of a
fixed asset charge to COGS (net $0.2 million reduction of SG&A) which are
reflected in the Condensed Consolidated Statements of Operations for the nine
months ended September 30, 2002.
18
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
10. ASSET IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES -- (CONTINUED)
Prior to its sale, the Professional Scales Business was included in the Health
and Safety group (which was subsequently disbanded). In connection with the sale
of the Professional Scales Business, Sunbeam Products retained the consumer
retail scales business conducted under the Health o Meter(R), Sunbeam(R) and
Counselor(R) brand names. Net sales and operating results from the Professional
Scales Business were approximately 1% and 2%, respectively, of the consolidated
results for 2001.
2002 STRATEGIC BUSINESS REORGANIZATION
COST SAVINGS AND PRODUCTIVITY
During 2001, in connection with the Company's 2002 strategic planning process, a
number of decisions were made that generally consisted of cost savings and
productivity enhancement initiatives, business realignment along product brands
on a global basis, and reductions and closures. As a result of the cost savings
and productivity enhancement initiatives, the Company recognized a charge of
$11.4 million in 2001. The charge was reflected in SG&A ($8.0 million), COGS
($2.6 million) and Other expense (income), net ($0.8 million) in the
Consolidated Statement of Operations for the year ended December 31, 2001. This
charge resulted from decisions to (i) outsource the production of certain
previously manufactured stock keeping units ("SKUs") (primarily coffeemakers and
blanket controls), (ii) restructure the Sunbeam Products research and
development ("R&D") department, (iii) close Powermate's Longmont R&D office, and
(iv) insource the Information Technology support function for the Sunbeam
Products business segment. This charge consisted of severance, retention and
relocation expenses ($6.8 million), fixed asset write-offs ($3.4 million) and
contract termination penalties ($1.2 million). These decisions resulted in the
elimination of approximately 300 positions. Substantially all of these positions
were eliminated by December 31, 2001. Severance benefits of $1.3 million were
paid during 2001 and $3.2 million was paid during the nine months ended
September 30, 2002 for severance and other employee benefits. Substantially all
of the remaining severance obligation will be paid by December 31, 2002. During
2002, the Company also paid contract termination penalties of $1.1 million and
relocation expenses of $0.4 million. During the second quarter of 2002, the
Company recorded additional severance of $0.3 million as a result of additional
headcount reductions resulting from further cost saving initiatives. This charge
was reflected in SG&A in the Condensed Consolidated Statement of Operations for
the nine months ended September 30, 2002. As of September 30, 2002, the
remaining accrual balance was $2.3 million, primarily relating to severance and
other employee benefits.
BUSINESS REALIGNMENT
As part of the realignment of the businesses along product brands on a global
basis, the Company recorded a charge of $4.3 million in the third and fourth
quarters of 2001. The reorganization primarily included the closing of the sales
office in Brazil, the transition of the management of the retail scales business
from the Health and Safety group (which was subsequently disbanded) into the
Sunbeam Products business and headcount reductions. The 2001 charge of $4.3
million was recorded in the Consolidated Statement of Operations for the year
ended December 31, 2001 in SG&A ($3.8 million) and COGS ($0.5 million) and
consists of severance and other employee costs resulting from the elimination of
approximately 80 positions ($3.5 million) and fixed asset and other write-offs
($0.8 million). Severance and other employee benefits of $0.3 million were paid
during 2001 and $2.5 million was paid during the nine months ended September 30,
2002. As of September 30, 2002, the remaining accrual balance was $0.8 million,
primarily relating to severance and other employee benefits.
19
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
10. ASSET IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES -- (CONTINUED)
BUSINESS CLOSURE/REDUCTION
As a result of the decision to initiate certain business reductions or closures,
a $9.3 million charge was recorded in the third and fourth quarters of 2001
primarily related to the decision to exit the Timberland(R) branded business and
a reduction of headcount in the Sunbeam Grills business workforce. Also, see
Note 15 for a discussion of the Company's November 2002 announcement discussing
additional modifications of its business strategy for the Sunbeam Grills
business. The Company manufactured and marketed Timberland(R) branded backpacks
and luggage pursuant to a licensing agreement between the Timberland Corporation
and Coleman. Such licensing agreement was terminated in 2002. This charge
primarily related to the write-down of certain inventory to net realizable value
($3.4 million), severance costs ($2.5 million), fixed asset write-offs ($1.3
million), contract termination fees ($0.8 million) and the write-off of certain
deferred costs related to attempted sales of businesses that were not
consummated ($1.3 million). This charge was recorded in COGS ($3.4 million) and
SG&A ($5.9 million) in the Consolidated Statement of Operations for the year
ended December 31, 2001. These decisions resulted in the elimination of
approximately 260 positions. In the second quarter of 2002, the Company recorded
additional charges of $0.3 million in SG&A resulting from the decision to close
the sales office in Manila. Additionally, in the third quarter of 2002, the
Company completed the liquidation of the Timberland branded inventory with a
benefit to gross margin ($0.3 million), as a result of the reduced carrying
value of the inventory. During 2002, the Company paid $1.6 million in severance
and other employee benefits and approximately $0.2 million in contract
termination fees. As of September 30, 2002, the remaining accrual balance was
$1.4 million, primarily relating to severance, other employee benefits, and
contract termination fees.
2000 - 2001 EUROPEAN RESTRUCTURING PLAN
During the fourth quarter of 2000, the Company recorded a $4.3 million charge
associated with a restructuring plan related to its European operations. The
2000 European restructuring plan provided for the reduction of warehouses,
distribution centers, manufacturing and distribution headcount and product SKUs.
The $4.3 million restructuring charge was recorded in SG&A and consisted
primarily of severance and other employee costs resulting from the elimination
of approximately 80 positions. During 2001, 23 employees were terminated and
$1.5 million was paid for severance in accordance with this plan. In the second
quarter of 2001, a new management team was put in place in Europe. During the
fourth quarter of 2001, the new management team modified the 2000 restructuring
plan such that the decision to consolidate the warehouses and distribution
centers was largely put on hold. The modified plan includes additional
reductions in manufacturing and sales office headcount. As a result, $2.4
million of the 2000 restructuring reserve was reversed and the Company recorded
a $2.9 million charge relating to the revised restructuring plan. The remaining
reserve balance as of December 31, 2001 of $3.3 million primarily related to
severance and employee benefits.
During 2002, the Company paid $2.1 million in severance and reduced the
severance reserve by $0.1 million in the second quarter of 2002 (reflected in
SG&A) as a result of finalizing a settlement with one employee. Additionally, in
the second quarter of 2002, the Company reversed a portion of the reserve
relating to the closure of a sales office in the Czech Republic ($0.4 million in
SG&A) and for the 2002 period, the restructuring reserve increased $0.4 million
as a result of changes in foreign exchange rates. The reversal of the reserves
relating to the closure of the sales office in the Czech Republic resulted from
the Company's modification to the restructuring plan. As a result of this
revision, management notified the employees of the sales office that their
positions were no longer being eliminated. As of September 30, 2002, the
remaining reserve balance was $1.1 million, primarily relating to severance and
other employee benefits.
11. GAIN ON INSURANCE SETTLEMENT
During the third quarter of 2001, the Company experienced a fire in one of its
international manufacturing facilities, resulting in losses of inventory,
buildings and machinery and the interruption of business operations. Through
September 30, 2002, the Company has received net insurance proceeds related to
its property and inventory claims of $9.5 million ($5.6 million in 2002 and $3.9
million in 2001), and recognized a gain of $3.4 million in the second quarter of
2002. The gain is included in "Other (income) expense, net" in the Condensed
Consolidated Statements of Operations for the nine months ended September 30,
2002. As of September 30, 2002, amounts totaling $0.7 million relating to excess
expenses paid as a result of the fire are deferred on the Condensed Consolidated
Balance Sheets as the Company anticipates receiving reimbursement of these
costs. The amounts will remain on the Condensed Consolidated Balance Sheet until
the claim is settled. In addition, the Company's claim for reimbursement related
to business interruption for the 2001 and 2002 period has not yet been settled.
20
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
12. BUSINESS SEGMENT DATA
Beginning in January 2002, as a result of strategic business decisions, the
Company reorganized the businesses along product brands on a global basis. For
the nine months ended September 30, 2002, Sunbeam's operations were managed
through six reportable segments: Sunbeam Products, Coleman, First Alert,
Powermate, Sunbeam Grills and Corporate. Business segment information for prior
periods has been restated to conform to the current definition of reportable
segments.
The Sunbeam Products global business includes (i) Appliances, including mixers,
blenders, food steamers, coffeemakers, toasters, toaster ovens, irons and
garment steamers, (ii) Health Products, including vaporizers, humidifiers,
massagers, hot and cold packs, blood pressure monitors and scales, (iii)
Personal Care Products, including professional and animal clippers and supply of
small appliances to the hospitality industry, and (iv) Blankets, including
electric blankets, heated throws and mattress pads. Sunbeam Products'
international operations are primarily in Canada and Latin America.
The Coleman global business includes (i) Outdoor Recreation Products, including
tents, sleeping bags, coolers, camping stoves, lanterns, frame backpacks and
outdoor heaters, and (ii) Outdoor Cooking Products, including gas and charcoal
outdoor grills and grill parts and accessories under the Coleman(R) and
Campingaz(R) names. Coleman's international operations are primarily in Europe,
where outdoor recreation and cooking products are sold predominately under the
Campingaz brand name, Japan and Canada.
The First Alert global business includes (i) Detection products, including smoke
and carbon monoxide detectors, and (ii) Safety Products, including fire
extinguishers and home safety equipment. First Alert's international operations
are primarily in Europe.
The Powermate global business includes (i) Generators, including portable and
standby generators, and (ii) Compressor products, including pressure washers and
air compressors. Powermate's international operations are primarily in Canada
and Latin America.
The Sunbeam Grills business includes Sunbeam branded outdoor grills and grill
accessories. The Sunbeam Grills business is primarily a domestic business. See
Note 10 for discussion of the 2001 impairment charge related to the Sunbeam
Grills business and Note 15 for a discussion of the Company's November 2002
announcement discussing modifications of its business strategy for this segment.
The Company's Corporate group provides certain management, accounting, legal,
risk management, treasury, human resources, and tax services to all operating
groups and also includes the results of the Professional Scales Business prior
to the sale in early 2002, as well as the results of the Timberland business.
See Note 10 for discussion of the exiting of the Timberland branded business and
sale of the Professional Scales Business.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies, see Note 2. The
Company evaluates performance of the operating segments based upon EBITDA
excluding reorganization costs, significant and unusual gains and losses and
foreign exchange gains and losses. Intersegment sales and transfers are recorded
at cost plus a pre-determined margin in order to approximate arms-length
transactions. Such margins are eliminated upon consolidation of the Company's
results.
The following tables include selected financial information with respect to the
Company's six operating segments.
SUNBEAM SUNBEAM
PRODUCTS COLEMAN FIRST ALERT POWERMATE GRILLS CORPORATE TOTAL
-------- ------- ----------- --------- ------ --------- -----
NINE MONTHS ENDED SEPTEMBER 30, 2002
Net sales to unaffiliated
customers........................ $ 552,510 $ 637,121 $ 101,219 $ 121,758 $ 76,466 $ 7,479 $1,496,553
Intersegment net sales ............ 775 2,199 951 934 674 654 6,187
Segment EBITDA .................... 31,677 62,342 8,009 650 194 (21,971) 80,901
Segment depreciation expense ...... 16,118 22,670 3,343 2,904 3,665 1,671 50,371
NINE MONTHS ENDED SEPTEMBER 30, 2001
Net sales to unaffiliated
customers ....................... $ 525,306 $ 656,970 $ 102,884 $ 143,857 $ 135,833 $ 29,823 $1,594,673
Intersegment net sales ............ 2,067 -- 2,779 584 210 4,768 10,408
Segment EBITDA .................... 21,473 48,261 6,596 (4,156) (3,495) (20,374) 48,305
Segment depreciation expense ...... 16,654 22,712 3,834 2,753 8,031 1,786 55,770
SEGMENT ASSETS
September 30, 2002 ................ $ 532,268 $ 631,776 $ 80,601 $ 94,491 $ 39,240 $ 32,378 $1,410,754
December 31, 2001 ................. 568,075 677,597 88,328 113,749 43,773 69,221 1,560,743
21
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
12. BUSINESS SEGMENT DATA -- (CONTINUED)
Reconciliation of selected segment information to the Company's consolidated
totals:
NINE MONTHS ENDED
--------------------------
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
----------- -----------
Net sales:
Net sales for reportable segments ......................................... $ 1,502,740 $ 1,605,081
Elimination of intersegment net sales ..................................... (6,187) (10,408)
----------- -----------
Consolidated net sales ................................................. $ 1,496,553 $ 1,594,673
=========== ===========
Segment EBITDA:
Total EBITDA for reportable segments ...................................... $ 80,901 $ 48,305
Unallocated amounts:
Interest expense ....................................................... (12,894) (42,134)
Foreign exchange gains ................................................. (231) (2,914)
Depreciation expense ................................................... (50,371) (55,770)
Amortization of intangible assets ...................................... (1,105) (15,674)
Sale of the Professional Scales Business (Note 10) ..................... (848) --
Business realignment (Note 10) ......................................... -- (357)
Cost savings/productivity (Note 10) .................................... (253) (2,625)
Business closure/reduction (Note 10) ................................... (35) (821)
European restructuring (Note 10) ....................................... 403 --
Gain on insurance settlement (Note 11) ................................. 3,402 --
Insurance recovery ..................................................... -- 13,554
Other .................................................................. -- (38)
----------- -----------
(61,932) (106,779)
----------- -----------
Consolidated income (loss) before reorganization costs, income taxes and
cumulative effect of change in accounting principle .................. $ 18,969 $ (58,474)
=========== ===========
13. COMMITMENTS AND CONTINGENCIES
Litigation
Commencing in April 1998, lawsuits were filed on behalf of purchasers of Sunbeam
Corporation's common stock against Sunbeam Corporation and some of its present
and former directors and former officers, as well as Arthur Andersen LLP
("Arthur Andersen"), Sunbeam Corporation's independent accountants for the
period covered by the lawsuits, alleging violations of the federal and state
securities laws. The plaintiffs sought an unspecified award of money damages.
Commencing October 1998, lawsuits were filed in the U.S. District Court for the
Southern District of Florida on behalf of certain purchasers of the Debentures
against Sunbeam Corporation, certain of Sunbeam Corporation's former officers
and directors and Arthur Andersen, alleging, among other things, violations of
federal and state securities laws. The plaintiffs in the debentures actions
sought, among other things, either unspecified monetary damages or rescission of
their purchase of the Debentures. These lawsuits were consolidated in the U.S.
District Court for the Southern District of Florida. As a result of Sunbeam
Corporation's Filing, these cases were automatically stayed under the Bankruptcy
Code as against Sunbeam Corporation. Under the Sunbeam Corporation Plan, if it
is confirmed and becomes effective, the claims of the plaintiffs against Sunbeam
Corporation will be discharged and such claimants may potentially share in the
$1.0 million provided for unsecured creditors of Sunbeam Corporation (other than
holders of Debentures) under the Sunbeam Corporate Plan. See Note 1. In May
2001, the shareholder case was settled as to Arthur Andersen and in connection
with such settlement Arthur Andersen agreed to pay $110.0 million. In August
2002, the case was settled as to defendants Dunlap, Kersh, Gluck, Uzzi and
Fannin. Under the settlement agreements, judgments totaling $220.0 million were
entered against these individuals. However only defendants Dunlap and Kersh will
be required to fund the judgments, in the amount of $15.0 million and $0.3
million, respectively, while an additional $15.5 million is to be paid from a
portion of the proceeds of settlements among the individual defendants and
insurance carriers. The court denied class action status for the debenture
cases. The Company was informed that, in February and March 2002, the named
plaintiffs settled the debenture cases with all defendants (other than the
Company) in non-public proceedings.
22
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
In April 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 Corporation and some of its present and former directors and former
officers. In this action, plaintiffs allege, among other things, that Messrs.
Dunlap and Kersh, Sunbeam Corporation's former Chairman and Chief Executive
Officer and former Chief Financial Officer, respectively, caused Sunbeam
Corporation to employ fraudulent accounting procedures in order to enable them
to secure new employment contracts, and seeks a declaration that the individual
defendants have violated fiduciary duties, an injunction against the payment of
compensation to Messrs. Dunlap and Kersh or the imposition of a constructive
trust on such payments, and unspecified money damages. The defendants have each
moved to dismiss the amended complaint in whole or in part. As a result of
Sunbeam Corporation's Filing, this case is automatically stayed under the
Bankruptcy Code as against Sunbeam Corporation. Pursuant to the Bankruptcy Code
and the Sunbeam Corporation Plan, if it is confirmed and becomes effective, such
derivative actions become assets of Sunbeam Corporation. Sunbeam Corporation
believes the claims against Arthur Andersen are potentially meritorious. If
Sunbeam Corporation were to pursue claims against Arthur Andersen, it can be
expected that Arthur Andersen would defend itself vigorously and would assert
several defenses and offsets in addition to the defenses raised on its motion to
dismiss. As a result of the complexity of the case, and the potential defenses
and offsets Arthur Andersen may assert, it is not possible to estimate with any
certainty the likelihood of success of any action against Arthur Andersen or the
amount of any judgement Sunbeam Corporation could obtain in connection with such
an action. Sunbeam Corporation has not undertaken a detailed assessment of the
value of its potential claim against Arthur Andersen and the law relating to the
claim is uncertain and not fully developed.
However, Sunbeam Corporation believes that there is substantial doubt as to
Sunbeam Corporation's ability to collect on any judgement entered against Arthur
Andersen. On June 15, 2002, a jury convicted Arthur Andersen of obstruction of
justice as a result of, among other things, destruction of documents related to
its audit of Enron Corporation. In December 2001, Enron Corporation filed a
petition for relief under Chapter 11 of the Bankruptcy Code. Subsequent to
Arthur Andersen's conviction, Arthur Andersen ceased auditing companies on
August 31, 2002. In light of the potential exposure to creditors of Enron
Corporation, among other constituencies, it is not known whether there will be
any assets, including insurance proceeds, and if so, how much, available to
satisfy any judgement Sunbeam Corporation may obtain against Arthur Andersen.
As to the claims against Dunlap and Kersh, Sunbeam Corporation believes that
viable breach of fiduciary duty claims could be asserted against them for their
actions as Chief Executive Officer and Chief Financial Officer. In addition to
the claims already asserted, Sunbeam Corporation believes that additional claims
relating to their failure to disclose to the Board of Directors certain sales
and accounting practices utilized and/or authorized by them violated their
fiduciary duties to Sunbeam Corporation as well as claims to such repayment of
funds advanced to them by Sunbeam Corporation for their legal expenses. Both are
expected to put up vigorous defenses and the outcome is uncertain. Sunbeam
Corporation believes that viable claims exist and that it has a reasonable
probability of obtaining a substantial judgment against both for the very
significant and obvious diminution in the value of Sunbeam Corporation which
occurred as a result of their breach of fiduciary duties. Sunbeam Corporation
has concerns as to whether any judgment could be collected against either Dunlap
or Kersh and believes it may not be likely that insurance coverage (exclusive of
those that have settled with Sunbeam Corporation) would be available. All of the
insurance carriers have vigorously contested coverage and certain of the
carriers have already settled with Dunlap and Kersh in connection with other
litigation.
Sunbeam Corporation was named as a defendant in an action filed in the District
Court of Tarrant County, Texas, 48th Judicial District, on November 20, 1998.
The plaintiffs in this action are purchasers of the Debentures. The plaintiffs
allege that Sunbeam Corporation violated the Texas Securities Act and the Texas
Business & Commercial Code and committed state common law fraud in connection
with the offering and sale of the Debentures. Sunbeam Corporation specially
appeared to assert an objection to the Texas court's exercise of personal
jurisdiction over Sunbeam Corporation, and the complaint was dismissed without
prejudice for lack of jurisdiction. In October 2000, the plaintiffs also filed a
complaint against Sunbeam Corporation's subsidiary Sunbeam Products, Inc. in the
District Court for Dallas County alleging substantially the same allegations as
the complaint filed against Sunbeam Corporation in Tarrant County. The court in
such case has, on its own motion, closed this case without prejudice, and
provided either party to the case the right to file a motion to reinstate the
case within a 30 day period following the conclusion of the Chapter 11 case of
Sunbeam Products, Inc.
23
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Messrs. Dunlap and Kersh have commenced an action against Sunbeam Corporation in
the Chancery Court for the State of Delaware seeking advancement from Sunbeam
Corporation of their alleged expenses incurred in connection with defending
themselves in the various actions described above in which they are defendants
and the investigation by the SEC described below. Sunbeam has defended these
claims contending, among other things, that the expenses for which plaintiffs
seek advancement are unreasonable. As a result of Sunbeam Corporation's Filing,
this case is automatically stayed under the Bankruptcy Code. Under the Sunbeam
Corporation Plan, if it is confirmed and becomes effective, the claims of
Messrs. Dunlap and Kersh for these payments will be discharged and such
claimants may potentially share in the $1.0 million provided for unsecured
creditors of Sunbeam Corporation (other than holders of Debentures) under the
Sunbeam Corporate Plan. See Note 1.
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 Corporation. Messrs. Dunlap and Kersh are
requesting a finding by the arbitrator that Sunbeam Corporation terminated their
employment without cause and that they should be awarded certain benefits based
upon their respective employment agreements. Sunbeam Corporation has filed
counterclaims asserting among other things fraudulent inducement by Messrs.
Dunlap and Kersh of their 1998 employment agreements and seeking, among other
things, the return of all consideration paid under such February 1998 employment
agreements. If Sunbeam Corporation were to prevail on its fraudulent inducement
counterclaim, Messrs. Dunlap and Kersh might still be entitled to recover the
remaining portions of their 1996 employment contracts as a set off. Sunbeam
Corporation believes that collectibility could be an issue should such a
judgment be entered against Dunlap and Kersh. As a result of Sunbeam
Corporation's Filing, this case is automatically stayed under the Bankruptcy
Code. Under the Sunbeam Corporation Plan, if it is confirmed and becomes
effective, the claims of Messrs. Dunlap and Kersh will be discharged and such
claimants may potentially share in the $1.0 million provided for unsecured
creditors of Sunbeam Corporation (other than holders of Debentures) under the
Sunbeam Corporate Plan. See Note 1.
Commencing in July 1998, three of the insurers that issued directors and
officers insurance filed suit against the Company requesting a declaratory
judgment that the directors' and officers' liability insurance policy for
coverage issued by such issuers was invalid and/or had been properly canceled.
Two of these cases were transferred to the U.S. District Court for the Southern
District of Florida for coordination and consolidation of pre-trial proceedings
with the various actions pending in that court. One of the cases is pending in
the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County,
Florida. As a result of Sunbeam Corporation's Filing, these cases are
automatically stayed as against Sunbeam Corporation. In April 1999, Sunbeam
Corporation filed an action in the U.S. 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 these insurers are not entitled to rescind
their respective directors' and officers' liability insurance policies issued to
Sunbeam Corporation and a declaratory judgment that Sunbeam Corporation is
entitled to coverage from these insurance companies for the various lawsuits
described herein under directors' and officers' liability insurance policies
issued by each of the defendants. Sunbeam Corporation has settled the National
Union action in 2000 resulting in the recovery of $10.0 million and has settled
the St. Paul and Gulf actions in 2001 resulting in the recovery of $13.6
million. The remaining actions are stayed.
By letter dated June 17, 1998, the staff of the Division of Enforcement of the
SEC advised Sunbeam Corporation that it was conducting an informal inquiry into
Sunbeam Corporation's accounting policies and procedures and requested that
Sunbeam Corporation produce certain documents. In July 1998, the SEC issued a
Formal Order of Private Investigation, pursuant to which subpoenas were served
on Sunbeam Corporation requiring the production of certain documents. Sunbeam
Corporation has resolved this investigation and in connection with such
resolution consented to an order which provided that Sunbeam Corporation will
cease and desist from future violations of the antifraud and other provisions of
the federal securities laws, but such order did not provide for the imposition
of monetary penalties.
Sunbeam Corporation has been informed that the office of the U.S. Attorney for
the Southern District of New York (the "U.S. Attorney") is conducting an
investigation into events that occurred at Sunbeam Corporation during the tenure
of Messrs. Dunlap and Kersh. The U.S. Attorney has not informed Sunbeam
Corporation of the particular matters under investigation. Based on Sunbeam
Corporation's settlement with the SEC, Sunbeam Corporation has no reason to
believe that it is the target of such investigation, although it has not
received any assurances from the U.S. Attorney's office in that regard.
24
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Sunbeam Corporation and/or its subsidiaries are also involved in various other
lawsuits arising from time to time that Sunbeam Corporation considers to be
ordinary routine litigation incidental to its business. In the opinion of
Sunbeam Corporation, 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 Corporation and its subsidiaries.
Amounts accrued for litigation matters represent the anticipated costs (damages
and/or settlement amounts) in connection with pending litigation and claims and
related anticipated legal fees for defending such actions. The costs are accrued
when it is both probable that an asset has been impaired or a liability has been
incurred and the amount can be reasonably estimated. The accruals are based upon
the Company's assessment, after consultation with counsel, of probable loss
based on the facts and circumstances of each case, the legal issues involved,
the nature of the claim made, the nature of the damages sought and any relevant
information about the plaintiffs and other significant factors which vary by
case. When it is not possible to estimate a specific expected cost to be
incurred, the Company evaluates the range of probable loss and records the
minimum end of the range. As of September 30, 2002 and December 31, 2001,
Sunbeam Corporation and its subsidiaries had established accruals for litigation
matters of $27.5 million and $24.9 million, respectively. The September 30, 2002
balance includes $17.8 million that is subject to discharge under the terms of
the Sunbeam Corporation Plan. Of the remaining accrual balance of $9.7 million,
$4.6 million and $5.1 million represent estimated damages or settlement amounts
and legal fees, respectively. It is anticipated that the $27.5 million accrual
at September 30, 2002 will be paid as follows: $2.1 million in 2002, and $7.6
million in 2003, and $17.8 million will be subject to discharge under the terms
of the Sunbeam Corporation Plan. The Company believes, based on information
available on September 30, 2002, that anticipated probable costs of litigation
matters existing as of September 30, 2002 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. The Company 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 the Company's capital
expenditures or to have a material adverse effect on the Company's competitive
position, results of operations, financial position or cash flows.
In addition to ongoing environmental compliance at its operations, the Company
also is actively engaged in environmental remediation activities, many of which
relate to divested operations. As of September 30, 2002, Sunbeam Corporation or
various of its subsidiaries have been identified by the United States
Environmental Protection Agency ("EPA") or a state environmental agency as a
Potentially Responsible Party ("PRP") pursuant to the federal Superfund Act
and/or state Superfund laws comparable to the federal law at various sites
(collectively the "Environmental Sites").
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 Corporation or various of its subsidiaries recognize their
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 Corporation or various of its
subsidiaries have 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 Corporation's or various of its subsidiaries' potential
liability with respect to the Environmental Sites, Sunbeam Corporation or
various of its subsidiaries have actively participated in steering committees
and other groups of PRPs established with respect to such sites. Sunbeam
Corporation or various of its subsidiaries engage in active remediation
activities at seven Environmental Sites referred to above. The remediation
efforts in which the Sunbeam Corporation or various of its subsidiaries are
involved include facility investigations, including soil and groundwater
investigations, corrective measure studies, including feasibility studies,
groundwater monitoring, extraction and treatment and soil sampling, excavation
and treatment relating to environmental clean-ups. In certain instances, Sunbeam
Corporation or various of its subsidiaries have entered into agreements with
governmental authorities to undertake additional investigatory activities and in
other instances have agreed to implement appropriate remedial actions. Sunbeam
Corporation or various of its subsidiaries, when necessary, have also
established reserve amounts for certain non-compliance matters including those
involving air emissions.
25
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Sunbeam Corporation or various of its subsidiaries have established reserves to
cover the anticipated probable costs of investigation and remediation, based
upon periodic reviews of all sites for which they have, or may have remediation
responsibility. Sunbeam Corporation or various of its subsidiaries accrue
environmental investigation and remediation costs when it is probable that a
liability has been incurred, the amount of the liability can be reasonably
estimated and their responsibility for the liability is established. Generally,
the timing of these accruals coincides with the earlier of formal commitment to
an investigation plan, completion of a feasibility study or a commitment to a
formal plan of action. As of September 30, 2002 and December 31, 2001, Sunbeam
Corporation's consolidated environmental reserves were $18.6 million and $20.1
million, respectively. The September 30, 2002 balance of $18.6 million includes
$17.6 million for the estimated costs of facility investigations, corrective
measure studies, or known remedial measures, and $1.0 million for estimated
legal costs. The reserves for the matters that are the responsibility of the
inactive domestic subsidiaries of Sunbeam Corporation (the "Inactive
Subsidiaries") that have not filed for reorganization under the Bankruptcy Code
and liabilities for reserves that have been established for Sunbeam Corporation
that are subject to discharge under the Sunbeam Corporation Plan total, in the
aggregate, $2.8 million as of September 30, 2002; of which $2.1 million
represents the estimated costs of facility investigations, corrective measure
studies, or known remedial measures, and $0.7 million represents the estimated
legal costs. Prior to the Filings, Sunbeam Corporation loaned funds to the
Inactive Subsidiaries from time to time to enable the Inactive Subsidiaries to
fund their activities. However, as a result of Sunbeam Corporation's Filing, the
Inactive Subsidiaries may no longer depend upon Sunbeam Corporation for funding.
It is anticipated that the $15.8 million accrual at September 30, 2002 (which is
exclusive of the accrual for the matters subject to discharge under the Sunbeam
Corporation Plan and the accrual for certain of the Inactive Subsidiaries) will
be paid as follows: $2.7 million in 2002, $3.1 million in 2003, $1.7 million in
2004, $1.2 million in 2005, $0.8 million in 2006 and $6.3 million thereafter.
Sunbeam Corporation or various of its subsidiaries accrued its best estimate of
investigation and remediation costs based upon facts known to them at such dates
and because of the inherent difficulties in estimating the ultimate amount of
environmental costs, which are further described below, these estimates may
materially change in the future as a result of the uncertainties described
below. 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 Sunbeam Corporation and various of its
subsidiaries of new information. It is difficult to 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 technology, the
identification of new sites for which Sunbeam Corporation and various of its
subsidiaries could be a PRP, information relating to the exact nature and extent
of the contamination at each site and the extent of required cleanup efforts,
the uncertainties with respect to the ultimate outcome of issues which may be
actively contested and the varying costs of alternative remediation strategies.
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 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, Sunbeam Corporation and various of its
subsidiaries' ultimate future liability with respect to sites at which
remediation has not been completed may vary from the amounts reserved as of
September 30, 2002 and December 31, 2001. As a result of the Filings,
environmental matters, mostly involving claims for cost recovery or damages,
have been automatically stayed under the Bankruptcy Code as against the Debtors
unless an order lifting the stay is granted. Under the Sunbeam Corporation Plan,
if it is confirmed and becomes effective, the claims for payment of money
against Sunbeam Corporation will be discharged with no recovery for such claims.
The Company believes, based on information available as of September 30, 2002
for sites where costs are estimable, that the costs of completing environmental
remediation of all sites for which the Company has a remediation responsibility
have been adequately reserved and that the ultimate resolution of these matters
will not have a material adverse effect upon the Company's financial position,
results of operations or cash flows.
26
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Product Liability Matters
As a consumer goods manufacturer and distributor, Sunbeam Corporation and/or its
subsidiaries face the risk 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 Sunbeam
Corporation's consolidated financial position, results of operations or cash
flows. Some of the product lines the Company acquired in the 1998 acquisitions
have increased its exposure to product liability and related claims.
Sunbeam Corporation and/or its subsidiaries are party to various personal injury
and property damage lawsuits relating to their products and incidental to its
business. Annually, Sunbeam Corporation sets its product liability insurance
program which is an occurrence based program based on Sunbeam Corporation and
its subsidiaries current and historical claims experience and the availability
and cost of insurance. The program for 2002 is comprised of a self-insurance
retention generally totaling $2.5 million per occurrence, and is limited to
$25.0 million in the aggregate.
Two putative nationwide class action lawsuits were filed in May 1998 against
First Alert and its subsidiary BRK Brands. One action was filed in Illinois
state court (the "Illinois Action") and the other action was filed in U.S.
District Court for the Northern District of Alabama (the "Alabama Action"). The
plaintiffs in the Illinois Action and Alabama Action alleged, among other
things, that the defendants failed to adequately inform consumers of the varying
performance characteristics of ionization and photoelectric smoke alarms.
Defendants reached a settlement with the plaintiffs in the Alabama Action to
resolve all similar claims nationwide and the Alabama court permanently enjoined
the plaintiffs in the Illinois Action from proceeding.
There are five components to the financial obligations of BRK Brands and First
Alert under the settlement: (1) the costs associated with the funding of a
public information campaign, (2) the costs associated with the development and
distribution of fire safety informational kits for retailers; (3) the costs
associated with a rebate program; (4) reimbursement of litigation expenses
incurred by plaintiffs' counsel in pursuing the class action litigation; and (5)
the costs of providing "incentive awards" to named plaintiffs in the class
action. It is anticipated that the future financial obligations arising under
the settlement will total approximately $4.7 million, excluding the potential
cost of the rebate program and separate and apart from the attorneys' fees of
$1.0 million that were placed into a segregated account in connection with the
settlement of the Alabama Action. These costs will be incurred over the two year
period following BRK Brands and First Alert's emergence from Chapter 11. The
district court approved the settlement of the Alabama Action. The named
plaintiffs in the Illinois Action filed a notice of appeal with the Eleventh
Circuit Court of Appeals. With the Debtors' consent, the Bankruptcy Court
modified the automatic stay solely to the extent necessary to permit the appeal
to proceed. On May 9, 2002, the Eleventh Circuit Court of Appeals rejected each
of the objectors' arguments and affirmed the district court's approval of the
settlement in its entirety. The settlement has become final. The Company
obtained limited relief from the automatic stay for the purpose of returning to
the Federal District Court in Alabama to seek certain modifications relating to
the implementation of the settlement and to release the attorneys' fees from the
segregated account referenced above.
Sunbeam Corporation (Canada) Limited ("Sunbeam Canada"), First Alert, BRK Brands
and other companies are defendants in an action brought in District Court, in
Ontario, Canada, by Trevor Hughes on behalf of himself and other Canadian
purchasers of ionization smoke alarms. Plaintiff is seeking class action status,
but the case has not been certified as a class action. Plaintiff contends that
ionization smoke alarms are inherently unreliable because, as plaintiff alleges,
they do not adequately detect smoke from smoldering fires. The plaintiff
contends that smoke alarms should only be sold if they use photoelectric
technology or a combination of photoelectric and ionization technologies.
Accordingly, plaintiff seeks a refund of the purchase price for his ionization
smoke alarm, and the cost of removing it and installing a replacement.
Defendants deny plaintiff's contentions. The Superior Court in Ontario, Canada
entered an order striking plaintiff's Statement of Claim as against all
defendants with leave to amend, and plaintiff appealed. In an order dated
September 11, 2002, the Court of Appeal for Ontario dismissed plaintiff's appeal
of the Superior Court's order striking his claims against Sunbeam Canada and BRK
Brands on the grounds that plaintiff alleged that the ionization smoke alarm he
purchased was manufactured by First Alert, and plaintiff cannot claim to have a
reasonable cause of action against defendants who did not manufacture his smoke
alarm. The Court of Appeal allowed plaintiff's appeal of the order striking
plaintiff's negligence claim against First Alert for recovery of economic loss.
In allowing plaintiff's appeal, the Court of Appeal noted Canadian courts have
limited recovery for purely economic losses in cases where the plaintiff does
not allege personal or property damage. The Court of Appeal ruled that the
Superior Court should have an evidentiary record before determining whether
First Alert owed a duty of care to compensate plaintiff for purely economic
loss. Plaintiff has indicated that he intends to seek leave to appeal from the
Supreme Court of Canada. First Alert intends to defend vigorously plaintiff's
claims.
27
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
13. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
On October 9, 2001, the Consumer Product Safety Commission (the "CPSC") filed an
administrative complaint against Sunbeam Corporation, certain non debtor
subsidiaries of Sunbeam Corporation and certain third parties, including
Chemetron Corporation ("Chemetron"), Chemetron Investments, Inc. ("Chemetron
Investments"), Sprinkler Corporation of Milwaukee, Inc. (f/k/a Star Sprinkler,
Inc., f/k/a Grunau Sprinkler ("Grunau")), Manufacturing Company, Inc., and
Grucon Corporation seeking an order requiring the parties to recall and replace
approximately 700,000 Star ME-1 dry sprinklers manufactured from 1977 to 1996
(the "CPSC Action"). With respect to Sunbeam Corporation, Chemetron, and
Chemetron Investments, the CPSC alleged that Chemetron and/or Chemetron
Investments manufactured Star ME-1 dry sprinklers from 1977 to 1983, and that
Sunbeam Corporation is legally responsible for this recall. The CPSC estimates
that approximately 50,000 - 60,000 Star ME-1 dry sprinkler heads were
manufactured between 1977-1983, the period of time for which the CPSC alleges
Sunbeam Corporation, Chemetron, and Chemetron Investments are responsible. The
Star sprinkler business of Chemetron and/or Chemetron Investments was sold to
Grunau in 1983, and the remainder of the fire suppression business of Chemetron
and/or Chemetron Investments was purchased by Figgie International ("Figgie")
when Figgie acquired the stock of Chemetron Fire Systems in 1985. Sunbeam
Corporation acquired the stock of Chemetron and Chemetron Investments in
September 1990 when it acquired certain assets of Allegheny International.
Sunbeam Corporation is challenging this action on several grounds, including:
(i) Star ME-1 sprinklers are not within the jurisdiction of the CPSC because
they are not "consumer products" as defined by the Consumer Product Safety Act
(the "CPSA"); and (ii) the Star ME-1 sprinklers do not present a "substantial
product hazard" as defined in the CPSA. Sunbeam Corporation's position is that
the CPSA allows Sunbeam Corporation to elect the remedy. One of the remedies
under that statute is reimbursement of the purchase price, minus a reasonable
allowance for use. As a result, Sunbeam Corporation's position is that any
claims for reimbursement are subject to the limited recovery provided for
unsecured creditors in the Plan. The CPSC has taken the position that, under the
applicable statutes, the CPSC is given the authority to approve the responsible
parties' election of remedies; and that in this case, it would require the
responsible parties to repair and replace the sprinkler heads, which would
require the responsible party to pay for a replacement head and the costs of
repair and installation. The cost of repair and replacement, including
installation, could be approximately one hundred to one hundred fifty dollars
per sprinkler head. Discovery in the CPSC Action is currently scheduled to close
in November 2002.
As a result of the Filings, product liability cases in the United States
existing on the date of the Filings are automatically stayed under the
Bankruptcy Code against the Debtors, unless an order is granted lifting the
automatic stay.
Cumulative amounts estimated to be payable by the Company with respect to
pending and potential claims for all years in which the Company is liable under
its self-insurance retention have been accrued as liabilities. Such accrued
liabilities are necessarily based on estimates (which include actuarial
determinations made by an independent actuarial consultant as to liability
exposure, taking into account prior experience, numbers of claims and other
relevant factors); thus, the Company's ultimate liability may exceed or be less
than the amounts accrued. The methods of making such estimates and establishing
the resulting liability are reviewed on a regular basis and any adjustments
resulting therefrom are reflected in current operating results.
Historically, product liability awards have rarely exceeded the Company's
individual per occurrence self-insured retention. There can be no assurance,
however, that the Company's future product liability experience will be
consistent with its past experience. Based on existing information, the Company
believes that the ultimate conclusion of the various pending product liability
claims and lawsuits of the Company, individually or in the aggregate, will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
14. RELATED PARTY TRANSACTION
Arrangements Between Coleman and MacAndrews & Forbes Holdings Inc. ("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 M&F 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 survived Sunbeam's
acquisition of Coleman.
28
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
14. RELATED PARTY TRANSACTION -- (CONTINUED)
Coleman previously was included in the consolidated tax group for the M&F
companies and was a party to a tax sharing agreement with an 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 by Sunbeam Corporation in 1998; 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.
15. SUBSEQUENT EVENT
On November 13, 2002, the Company announced that it is modifying its business
strategy for the Sunbeam branded outdoor grill business. The revisions to the
existing strategy include discontinuing manufacturing operations in Neosho,
Missouri. Activities to discontinue manufacturing will be initiated immediately
and the process will continue in phases, with the final closing of the
manufacturing operations expected during 2003. The Company anticipates recording
a charge in the fourth quarter of 2002 relating to this decision. The amount of
such charge has not yet been determined.
The Company is currently considering a number of different options to continue
supporting customer and consumer demand for Sunbeam branded grills in this
market, including licensing agreements or strategic partnerships to provide
Sunbeam branded outdoor grills and accessories. The Coleman and Campingaz grill
businesses are not affected by this decision.
Net sales from the Sunbeam Grills business were approximately 5% and 7% of
consolidated net sales in the nine months ended September 30, 2002 and for the
year ended December 31, 2001, respectively. Operating losses were $3.4 million
and $49.4 million in the nine months ended September 30, 2002 and for the year
ended December 31, 2001, respectively. The 2001 operating loss includes an asset
impairment charge of $30.9 million. See Note 10 for further discussion of the
2001 impairment charge.
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and the related footnotes included
in this quarterly report on Form 10-Q, as well as the December 31, 2001
consolidated financial statements and related footnotes filed as an exhibit to
the Form 8-K filed on September 6, 2002.
BUSINESS OVERVIEW
Beginning in January 2002, as a result of strategic business decisions, the
Company reorganized the businesses along product brands on a global basis. For
the nine months ended September 30, 2002, Sunbeam's operations were managed
through six reportable segments: Sunbeam Products, Coleman, First Alert,
Powermate, Sunbeam Grills and Corporate. Business segment information for prior
periods has been restated to conform to the current definition of reportable
segments.
The Sunbeam Products global business includes (i) Appliances, including mixers,
blenders, food steamers, coffeemakers, toasters, toaster ovens, irons and
garment steamers, (ii) Health Products, including vaporizers, humidifiers,
massagers, hot and cold packs, blood pressure monitors and scales, (iii)
Personal Care Products, including professional and animal clippers and supply of
small appliances to the hospitality industry, and (iv) Blankets, including
electric blankets, heated throws and mattress pads. Sunbeam Products'
international operations are primarily in Canada and Latin America.
The Coleman global business includes (i) Outdoor Recreation Products, including
tents, sleeping bags, coolers, camping stoves, lanterns, frame backpacks and
outdoor heaters, and (ii) Outdoor Cooking Products, including gas and charcoal
outdoor grills and grill parts and accessories under the Coleman(R) and
Campingaz(R) names. Coleman's international operations are primarily in Europe,
where outdoor recreation and cooking products are sold predominately under the
Campingaz brand name, Japan and Canada.
The First Alert global business includes (i) Detection products, including smoke
and carbon monoxide detectors, and (ii) Safety Products, including fire
extinguishers and home safety equipment. First Alert's international operations
are primarily in Europe.
The Powermate global business includes (i) Generators, including portable and
standby generators; and (ii) Compressor products, including pressure washers and
air compressors. Powermate's international operations are primarily in Canada
and Latin America.
The Sunbeam Grills business includes Sunbeam branded outdoor grills and grill
accessories. The Sunbeam Grills business is primarily a domestic business. See
Note 10 of Notes to Condensed Consolidated Financial Statements for discussion
of the 2001 impairment charge related to the Sunbeam Grills business and Note 15
of Notes to Condensed Consolidated Financial Statements for a discussion of the
Company's November 2002 announcement discussing modifications of its business
strategy for this segment.
The Company's Corporate group provides certain management, accounting, legal,
risk management, treasury, human resources, and tax services to all operating
groups and also includes the results of the Professional Scales Business prior
to the sale in early 2002, as well as the results of the Timberland business.
See Note 10 of Notes to Condensed Consolidated Financial Statements for
discussion of the exiting of the Timberland branded business and sale of the
Professional Scales Business.
SIGNIFICANT EVENTS
VOLUNTARY PETITION FOR RELIEF UNDER CHAPTER 11
On February 6, 2001, Sunbeam Corporation and substantially all of its
subsidiaries filed voluntary petitions with the United States Bankruptcy Court
for the Southern District of New York under Chapter 11 of Title 11 of the United
States Bankruptcy Code. See Note 1 of Notes to Condensed Consolidated Financial
Statements.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
In July 2001, the FASB issued SFAS No. 142, which the Company adopted as of
January 1, 2002. Under the provisions of this statement, goodwill and intangible
assets that have indefinite useful lives will no longer be amortized but rather
will be tested at least annually for impairment. As a result of the adoption of
SFAS No. 142, the Company recorded a pre-tax transitional impairment charge
relating to trademarks, tradenames and goodwill of $268.3 million ($170.8
million net of tax benefit of $97.5 million) in the first quarter of 2002. This
charge was determined based on a valuation study performed by an external
valuation firm and is reflected as "Cumulative effect of change in accounting
principle, net of tax benefit" in the Condensed Consolidated Statements of
Operations. See Note 3 of Notes to Condensed Consolidated Financial Statements.
30
SUBSEQUENT EVENT -- MODIFICATION TO SUNBEAM GRILLS BUSINESS STRATEGY
On November 13, 2002, the Company announced that it is modifying its business
strategy for the Sunbeam branded outdoor grill business. The revisions to the
existing strategy include discontinuing manufacturing operations in Neosho,
Missouri. Activities to discontinue manufacturing will be initiated immediately
and the process will continue in phases, with the final closing of the
manufacturing operations expected during 2003. The Company anticipates recording
a charge in the fourth quarter of 2002 relating to this decision. The amount of
such charge has not yet been determined.
The Company is currently considering a number of different options to continue
supporting customer and consumer demand for Sunbeam branded grills in this
market, including licensing agreements or strategic partnerships to provide
Sunbeam branded outdoor grills and accessories. The Coleman and Campingaz grill
businesses are not affected by this decision.
Net sales from the Sunbeam Grills business were approximately 5% and 7% of
consolidated net sales in the nine months ended September 30, 2002 and for the
year ended December 31, 2001, respectively. Operating losses were $3.4 million
and $49.4 million in the nine months ended September 30, 2002 and for the year
ended December 31, 2001, respectively. The 2001 operating loss includes an asset
impairment charge of $30.9 million. See Note 10 of Notes to Condensed
Consolidated Financial Statements for further discussion of the 2001 impairment
charge.
GAIN ON INSURANCE SETTLEMENT
During the third quarter of 2001, the Company experienced a fire in one of its
international manufacturing facilities, resulting in losses of inventory,
buildings and machinery and the interruption of business operations. Through
September 30, 2002, the Company has received net insurance proceeds related to
its property and inventory claims of $9.5 million ($5.6 million in 2002 and $3.9
million in 2001), and recognized a gain of $3.4 million in the second quarter of
2002. The gain is included in "Other (income) expense, net" in the Condensed
Consolidated Statements of Operations for the nine months ended September 30,
2002. As of September 30, 2002, expenses totaling $0.7 million relating to
excess expenses paid as a result of the fire are deferred on the Condensed
Consolidated Balance Sheets as the Company anticipates receiving reimbursement
of these costs. The amounts will remain on the Condensed Consolidated Balance
Sheet until the claim is settled. In addition, the Company's claim for
reimbursement related to business interruption for the 2001 and 2002 period has
not yet been settled.
ASSET IMPAIRMENT CHARGES
2001 ASSET IMPAIRMENT
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets pursuant to SFAS No. 121. In conjunction with the 2002 annual strategic
planning process, the Company evaluated factors, events and circumstances which
included, but were 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 warranted revision and/or whether the remaining asset values
were recoverable through future operations. When such factors, events or
circumstances indicated that long-lived assets should be evaluated for possible
impairment, the Company used either appraisals (when available) or estimates of
cash flows (undiscounted and without interest charges) over the remaining lives
of the assets to measure recoverability. If the estimated cash flows were less
than the carrying value of the asset, the loss was measured as the amount by
which the carrying value of the asset exceeded its fair value. Accordingly, in
the fourth quarter of 2001, as a result of a history of operating losses and
negative cash flows incurred by the Sunbeam Outdoor Grill business (Neosho
Facility), as well as the future prospects of the business, the Company
concluded that an impairment existed as of December 31, 2001 for this business.
A comparison of the fair value of the long-lived assets associated with that
business with the carrying value yielded an impairment charge of $30.9 million.
The fourth quarter 2001 charge is reflected in Goodwill and other asset
impairment in the Consolidated Statement of Operations for the year ended
December 31, 2001. Also, see Note 15 of Notes to the Condensed Consolidated
Financial Statements and Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, in particular, subheadings
"Significant Events," and "Subsequent Event -- Modification to Sunbeam Grills
Business Strategy" above for a discussion of the Company's November 2002
announcement discussing additional modifications of its business strategy for
the Sunbeam Grills business.
31
SALE OF PROFESSIONAL SCALES BUSINESS
On November 5, 2001, Sunbeam Products and Pelstar entered into a purchase
agreement for the sale to Pelstar of substantially all of the assets and the
assumption of certain liabilities of the Professional Scales Business,
including, among other items, the license of the Health o Meter(R) brand name
for professional medical scales. The Professional Scales Business is comprised
of the Pelouze scales business, as well as Health o Meter branded professional
medical scales business. Based upon the agreed upon purchase price, the Company
determined that there was an impairment to the carrying value of the
Professional Scales Business. Accordingly, during December 2001, the Company
adjusted the carrying value of the net assets of the Professional Scales
Business to their estimated fair market value (less estimated costs of the sale)
resulting in a fourth quarter 2001 non-cash impairment charge of $1.5 million.
The fourth quarter 2001 charge is reflected in "Goodwill and other asset
impairment" in the Consolidated Statement of Operations for the year ended
December 31, 2001. In the first quarter of 2002, the Company incurred
approximately $0.9 million in costs related to the sale of the Professional
Scales Business primarily consisting of fixed asset write-offs ($1.1 million
charge to COGS) and additional severance and retention charges, offset by the
reclassification of a fixed asset charge to COGS (net $0.2 million reduction of
SG&A) which are reflected in the Condensed Consolidated Statements of Operations
for the nine months ended September 30, 2002.
Prior to its sale, the Professional Scales Business was included in the Health
and Safety group (which was subsequently disbanded). In connection with the sale
of the Professional Scales Business, Sunbeam Products retained the consumer
retail scales business conducted under the Health o Meter(R), Sunbeam(R) and
Counselor(R) brand names. Net sales and operating results from the Professional
Scales Business were approximately 1% and 2%, respectively, of the consolidated
results for 2001.
2002 STRATEGIC BUSINESS REORGANIZATION
COST SAVINGS AND PRODUCTIVITY
During 2001, in connection with the Company's 2002 strategic planning process, a
number of decisions were made that generally consisted of cost savings and
productivity enhancement initiatives, business realignment along product brands
on a global basis, and reductions and closures. As a result of the cost savings
and productivity enhancement initiatives, the Company recognized a charge of
$11.4 million in 2001. The charge was reflected in SG&A ($8.0 million), COGS
($2.6 million) and Other expense (income), net ($0.8 million) in the
Consolidated Statement of Operations for the year ended December 31, 2001. This
charge resulted from decisions to (i) outsource the production of certain
previously manufactured SKUs (primarily coffeemakers and blanket controls), (ii)
restructure the Sunbeam Products R&D department, (iii) close Powermate's
Longmont R&D office, and (iv) insource the Information Technology support
function for the Sunbeam Products business segment. This charge consisted of
severance, retention and relocation expenses ($6.8 million), fixed asset
write-offs ($3.4 million) and contract termination penalties ($1.2 million).
These decisions resulted in the elimination of approximately 300 positions.
Substantially all of these positions were eliminated by December 31, 2001.
Severance benefits of $1.3 million were paid during 2001 and $3.2 million was
paid during the nine months ended September 30, 2002 for severance and other
employee benefits. Substantially all of the remaining severance obligation will
be paid by December 31, 2002. During 2002, the Company also paid contract
termination penalties of $1.1 million and relocation expenses of $0.4 million.
During the second quarter of 2002, the Company recorded additional severance of
$0.3 million as a result of additional headcount reductions resulting from
further cost saving initiatives. This charge was reflected in SG&A in the
Condensed Consolidated Statement of Operations for the nine months ended
September 30, 2002. As of September 30, 2002, the remaining accrual balance was
$2.3 million, primarily relating to severance and other employee benefits.
BUSINESS REALIGNMENT
As part of the realignment of the businesses along product brands on a global
basis, the Company recorded a charge of $4.3 million in the third and fourth
quarters of 2001. The reorganization primarily included the closing of the sales
office in Brazil, the transition of the management of the retail scales business
from the Health and Safety group (which was subsequently disbanded) into the
Sunbeam Products business and headcount reductions. The 2001 charge of $4.3
million was recorded in the Consolidated Statement of Operations for the year
ended December 31, 2001 in SG&A ($3.8 million) and COGS ($0.5 million) and
consists of severance and other employee costs resulting from the elimination of
approximately 80 positions ($3.5 million) and fixed asset and other write-offs
($0.8 million). Severance and other employee benefits of $0.3 million were paid
during 2001 and $2.5 million was paid during the nine months ended September 30,
2002. As of September 30, 2002, the remaining accrual balance was $0.8 million,
primarily relating to severance and other employee benefits.
32
BUSINESS CLOSURE/REDUCTION
As a result of the decision to initiate certain business reductions or closures,
a $9.3 million charge was recorded in the third and fourth quarters of 2001
primarily related to the decision to exit the Timberland(R) branded business and
a reduction of headcount in the Sunbeam Grills business workforce. Also, see
Note 15 of Notes to the Condensed Consolidated Financial Statements and Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, in particular, subheadings "Significant Events," and
"Subsequent Event -- Modification to Sunbeam Grills Business Strategy" above for
a discussion of the Company's November 2002 announcement discussing additional
modifications of its business strategy for the Sunbeam Grills business. The
Company manufactured and marketed Timberland(R) branded backpacks and luggage
pursuant to a licensing agreement between the Timberland Corporation and
Coleman. Such licensing agreement was terminated in 2002. This charge primarily
related to the write-down of certain inventory to net realizable value ($3.4
million), severance costs ($2.5 million), fixed asset write-offs ($1.3 million),
contract termination fees ($0.8 million) and the write-off of certain deferred
costs related to attempted sales of businesses that were not consummated ($1.3
million). This charge was recorded in COGS ($3.4 million) and SG&A ($5.9
million) in the Consolidated Statement of Operations for the year ended December
31, 2001. These decisions resulted in the elimination of approximately 260
positions. In the second quarter of 2002, the Company recorded additional
charges of $0.3 million in SG&A resulting from the decision to close the sales
office in Manila. Additionally, in the third quarter of 2002, the Company
completed the liquidation of the Timberland branded inventory with a benefit to
gross margin ($0.3 million), as a result of the reduced carrying value of the
inventory. During 2002, the Company paid $1.6 million in severance and other
employee benefits and approximately $0.2 million in contract termination fees.
As of September 30, 2002, the remaining accrual balance was $1.4 million,
primarily relating to severance, other employee benefits, and contract
termination fees.
2000 - 2001 EUROPEAN RESTRUCTURING PLAN
During the fourth quarter of 2000, the Company recorded a $4.3 million charge
associated with a restructuring plan related to its European operations. The
2000 European restructuring plan provided for the reduction of warehouses,
distribution centers, manufacturing and distribution headcount and product SKUs.
The $4.3 million restructuring charge was recorded in SG&A and consisted
primarily of severance and other employee costs resulting from the elimination
of approximately 80 positions. During 2001, 23 employees were terminated and
$1.5 million was paid for severance in accordance with this plan. In the second
quarter of 2001, a new management team was put in place in Europe. During the
fourth quarter of 2001, the new management team modified the 2000 restructuring
plan such that the decision to consolidate the warehouses and distribution
centers was largely put on hold. The modified plan includes additional
reductions in manufacturing and sales office headcount. As a result, $2.4
million of the 2000 restructuring reserve was reversed and the Company recorded
a $2.9 million charge relating to the revised restructuring plan. The remaining
reserve balance as of December 31, 2001 of $3.3 million primarily related to
severance and employee benefits.
During 2002, the Company paid $2.1 million in severance and reduced the
severance reserve by $0.1 million in the second quarter of 2002 (reflected in
SG&A) as a result of finalizing a settlement with one employee. Additionally, in
the second quarter of 2002, the Company reversed a portion of the reserve
relating to the closure of a sales office in the Czech Republic ($0.4 million in
SG&A) and for the 2002 period, the restructuring reserve increased $0.4 million
as a result of changes in foreign exchange rates. The reversal of the reserves
relating to the closure of the sales office in the Czech Republic resulted from
the Company's modification to the restructuring plan. As a result of this
revision, management notified the employees of the sales office that their
positions were no longer being eliminated. As of September 30, 2002, the
remaining reserve balance was $1.1 million, primarily relating to severance and
other employee benefits.
33
SIGNIFICANT AND UNUSUAL ITEMS
Consolidated operating results for the three and nine months ended September 30,
2002 and 2001 were impacted by a number of significant and unusual items.
Operating income (loss), adjusted for these items, is summarized in the
following table and succeeding narrative.
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 30, September 30, September 30, September 30,
(Amounts in millions) 2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales -- as reported ................. $ 474.3 $ 484.5 $1,496.6 $1,594.7
Businesses divested or being exited . (2.8) (8.7) (7.5) (29.6)
-------- -------- -------- --------
Adjusted net sales .............. 471.5 475.8 1,489.1 1,565.1
Gross margin -- as reported .............. 129.5 112.8 385.7 379.5
Businesses divested or being exited . (0.6) (2.6) (0.1) (8.6)
-------- -------- -------- --------
128.9 110.2 385.6 370.9
Significant and unusual items:
Sale of Professional Scales business -- -- 1.1 --
Business closure/reduction .......... (0.3) -- (0.3) --
Cost savings/productivity ........... -- -- -- 0.4
-------- -------- -------- --------
Adjusted gross margin ........... 128.6 110.2 386.4 371.3
Adjusted gross margin percentage 27.3% 23.2% 25.9% 23.7%
Selling, general and administrative
expense -- as reported ................. 119.7 129.1 356.9 391.7
Businesses divested or being exited . (0.4) (3.7) (2.4) (10.9)
-------- -------- -------- --------
119.3 125.4 354.5 380.8
Impact of not amortizing goodwill
and certain intangibles in accordance
with SFAS No. 142 ...................... -- (4.9) -- (14.6)
Significant and unusual items:
Sale of Professional Scales Business -- -- 0.2 --
D&O insurance recovery .............. -- -- -- 13.6
Business closure/reduction .......... -- (0.9) (0.3) (0.9)
Cost savings/productivity ........... -- (1.8) (0.3) (1.9)
Business realignment ................ -- (0.3) -- (0.3)
2000-2001 European restructuring .... -- -- 0.5 --
-------- -------- -------- --------
Adjusted SG&A expense ........... 119.3 117.5 354.6 376.7
-------- -------- -------- --------
Adjusted operating income (loss) ......... $ 9.3 $ (7.3) $ 31.8 $ (5.4)
======== ======== ======== ========
The results from operations for the three and nine months ended September 30,
2002 and 2001 are adjusted to exclude the results of the Professional Scales
Business that was divested in the first quarter of 2002 and the Timberland
branded business that the Company has essentially exited in the third quarter of
2002. The results for 2001 have also been adjusted to exclude amortization on
goodwill and intangible assets that was discontinued in 2002 pursuant to SFAS
No. 142. Presentation of results for the periods presented excluding the
divested businesses and the impact of discontinued amortization is provided to
enhance comparability between the periods presented.
SALE OF PROFESSIONAL SCALES BUSINESS
See discussion above under Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, in particular, subheading
"Asset Impairment Charges." In the first quarter of 2002, the Company incurred
approximately $0.9 million related to the sale of the Professional Scales
Business primarily consisting of fixed asset write-offs ($1.1 million charge to
COGS) and additional severance and retention charges, offset by the
reclassification of a fixed asset charge to COGS (net $0.2 credit to SG&A) which
are reflected in the Condensed Consolidated Statements of Operations for the
nine months ended September 30, 2002.
34
BUSINESS CLOSURE/REDUCTION
See discussion above under Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, in particular, subheadings
"Asset Impairment Charges," and "2002 Strategic Business Reorganization." As a
result of the decision made in 2001 to initiate certain business reductions or
closures, a $0.9 million charge was recorded in SG&A expense during the third
quarter of 2001 to write-off certain deferred costs related to attempted sales
of businesses that were not consummated. In the second quarter of 2002, the
Company recorded additional charges of $0.3 million in SG&A resulting from the
decision to close the sales office in Manila. Additionally, in the third quarter
of 2002, the Company completed the liquidation of the Timberland branded
inventory with a benefit to gross margin ($0.3 million), as a result of the
reduced carrying value of the inventory.
COST SAVINGS AND PRODUCTIVITY
See discussion above under Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, in particular, subheading
"Asset Impairment Charges," and "2002 Strategic Business Reorganization." As a
result of the 2001 cost savings and productivity enhancement initiatives, the
Company recorded charges of $0.4 million in COGS (during the second quarter of
2001), and $1.9 million in SG&A expense ($0.1 million and $1.8 million during
the second and third quarters of 2001, respectively. The charge to COGS resulted
from fixed assets write-offs, and the SG&A charges recorded in the second and
third quarters of 2001 related to Corporate headcount reductions.
During the second quarter of 2002, the Company recorded additional severance of
$0.3 million in SG&A as a result of additional headcount reductions resulting
from further cost savings initiatives.
IMPACT OF NOT AMORTIZING GOODWILL AND CERTAIN INTANGIBLES IN ACCORDANCE
WITH SFAS NO. 142
In July 2001, the FASB issued SFAS No. 142, which the Company adopted as of
January 1, 2002. Under the provisions of this statement, goodwill and intangible
assets that have indefinite useful lives will no longer be amortized but rather
will be tested at least annually for impairment. Included in SG&A for the three
and nine months ended September 30, 2001, is $4.9 million and $14.6 million,
respectively, related to the amortization of goodwill, trademarks and tradenames
and certain other intangible assets that are no longer subject to amortization
in 2002. See Note 3 of Notes to Condensed Consolidated Financial Statements.
D&O INSURANCE RECOVERY
In the first quarter of 2001, the Company settled claims against St. Paul and
Gulf, two directors' and officers' liability insurance carriers under which,
among other things, the insurers reimbursed the Company for $13.6 million of
defense costs. See Note 13 of Notes to Condensed Consolidated Financial
Statements and Part II. "Other Information," Item 1. "Legal Proceedings". This
reimbursement is included in SG&A expense in the first quarter of 2001.
BUSINESS REALIGNMENT
See discussion above under Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, in particular, subheadings
"Asset Impairment Charges," and "2002 Strategic Business Reorganization." As a
result of the decision to realign the businesses along product brands on a
global basis, the Company recorded a charge of $0.3 million in SG&A expense
during the third quarter of 2001. The charge primarily included the transition
of the management of the retail scales business from the First Alert business
into the Sunbeam Products business.
2000 - 2001 EUROPEAN RESTRUCTURING PLAN
See discussion above under Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, in particular, subheading
"Asset Impairment Charges." As a result of finalizing a settlement with one
employee, the Company reduced the severance reserve by $0.1 million in the
second quarter of 2002 (reflected in SG&A). Additionally, in the second quarter
of 2002, the Company reversed a portion of the reserve relating to the closure
of a sales office in the Czech Republic ($0.4 million in SG&A). The reversal of
the reserves relating to the closure of the sales office in the Czech Republic
resulted from the Company's modification to the restructuring plan. As a result
of this revision, management notified the employees of the sales office that
their positions were no longer being eliminated.
35
The following discussion on the consolidated operating results for the three and
nine months ended September 30, 2002 as compared to the same periods in 2001 is
based on results that have been adjusted to exclude businesses divested or
exited, as well as significant and unusual items in each of the respective
periods. The significant and unusual items are excluded from the results
reported as management believes these charges/benefits are not representative of
normal operations. Discussion of the consolidated operating results excluding
the effects of the businesses sold or exited and the significant and unusual
items is to enhance comparability between the periods presented. Refer to the
table above, in this Item 2, under the heading "Significant and Unusual Items"
for a summary of the operating results as adjusted and a description of the
significant and unusual items.
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 2001
Consolidated net sales for the three months ended September 30, 2002 (the "2002
quarter") and 2001 (the "2001 quarter") were $474.3 million and $484.5 million
respectively, a decrease of $10.2 million or 2.1%. Excluding the impact of
businesses divested and being exited, adjusted net sales for the 2002 quarter
were $471.5 million, a decrease of $4.3 million or approximately 1% as compared
to the 2001 quarter. This decline was primarily due to decreases in revenue in
the Sunbeam Grills, Powermate and Sunbeam Products businesses, partially offset
by increased revenues in the Coleman and First Alert businesses. Compared to the
2001 quarter, net sales for the Sunbeam Products business in the 2002 quarter
decreased $3.3 million to $225.5 million. The decrease was driven by declines in
sales in Sunbeam Products' international operations, primarily in Venezuela due
to political and economic instability. Domestic sales in the 2002 quarter for
the Sunbeam Products business were consistent with the 2001 quarter, with
increases in the sales of appliances as a result of a new marketing program to a
major retailer in the 2002 quarter being offset by lower sales in the 2002
quarter in all other product categories. Compared to the 2001 quarter, net sales
for the Sunbeam Grills business decreased $4.3 million to $10.3 million largely
due to loss of product placement at a major retailer. Net sales for the Coleman
business were $156.0 million representing an increase of $5.9 million compared
to the 2001 quarter. The increase was largely driven by Coleman's European
business due to the impact of favorable foreign currency exchange rates in the
2002 quarter compared to the 2001 quarter, as well as increased sales of gas
cartridges and outdoor recreation products. Domestically, Coleman sales were
relatively consistent with the 2001 quarter due to the success of new product
introductions that, for the most part, offset the impact of the loss of grills
product placement at a major retailer. Compared to the 2001 quarter, net sales
for the Powermate business decreased $4.7 million to $37.3 million in the 2002
quarter due to the loss of pressure washer distribution at a major retailer,
softness in generator sales, and due to loss of distribution to two major
customers as the result of those customers filing for relief under chapters 11
and 7 of the Bankruptcy Code. Net sales for the First Alert business were
relatively consistent at $42.4 million and $40.3 million in the 2002 and 2001
quarters, respectively, increasing $2.1 million, or 5.2%. While the Company is
unable to quantify the amount, it anticipates a negative impact to fourth
quarter 2002 sales and operating results, primarily in the Sunbeam Products
business, as a result of labor disputes involving West Coast dockworkers.
Gross margin for the 2002 quarter was $129.5 million, or $16.7 million better
than the 2001 quarter. As a percentage of net sales, gross margin was 27.3% in
the 2002 quarter as compared to 23.3% in the 2001 quarter. Excluding the impact
of businesses divested and being exited, as well as the effects of significant
and unusual items, adjusted gross margin was $128.6 million in the 2002 quarter
or $18.4 million better than the 2001 quarter. As a percentage of adjusted net
sales, adjusted gross margin was 27.3% in the 2002 quarter as compared to the
2001 quarter adjusted gross margin of 23.2%. The improvement in the adjusted
gross margin percentage of adjusted net sales is attributable to (i) lower
commodity costs and cost savings initiatives including those driven by the
Company's Six Sigma program, (ii) reduced depreciation expense resulting from
the impairment charge recognized in 2001 for the Sunbeam Grills business, and
(iii) reduced product liability expense resulting from favorable claim trends.
The aforementioned positive factors were partially offset by higher costs
resulting from increased warranty returns in the Sunbeam Products business,
primarily related to certain Mr. Coffee(R) SKUs and bedding products, and higher
levels of excess and obsolete inventory in the Powermate business.
SG&A expense in the 2002 quarter was $119.7 million, representing a 7.3%
decrease compared to the 2001 quarter. Excluding the impact of businesses
divested and being exited, as well as the effects of significant and unusual
items, including the effect of implementing SFAS No. 142 (which requires that
goodwill and certain intangible assets no longer be amortized), adjusted SG&A
expense for the 2002 quarter was $119.3 million, as compared to $125.4 million
in the 2001 quarter. Although adjusted SG&A spending for the 2002 and the 2001
quarters is consistent, the 2002 quarter includes increased insurance costs of
approximately $1 million primarily relating to increased premiums for property
insurance due to the events of September 11, 2001 and historical losses of the
Company. Subsequent to the terrorist attacks of September 11, 2001, the Company
has experienced significant percentage increases in premiums for a number of
different types of insurance coverages. The Company is unable to predict whether
such increases will continue in the future and/or whether any such future
increases would be material to the Company's results of operations. The 2002
quarter also includes increased costs associated with certain litigation matters
of $3.2 million, primarily related to the former headquarters of Coleman and a
business divested by a subsidiary of a predecessor of Sunbeam Corporation. See
Note 13 of Notes to Condensed Consolidated Financial Statements and Part II.
"Other Information," Item 1. "Legal Proceedings." These increases in the 2002
period adjusted SG&A expense are fully offset by favorable adjustments to bad
debt and deductions reserves ($1.9 million), R&D spending ($1.5 million) and
lower environmental reserve provisions as compared to the 2001 quarter ($0.7
million). The environmental reserve provisions recorded in both periods relate
to divested or inactive sites.
36
Operating income for the 2002 quarter was $9.7 million compared to the 2001
quarter loss of $16.4 million. Excluding the impact of businesses divested and
being exited, as well as the effects of significant and unusual items, including
the impact of the implementation of the non-amortization provision of SFAS No.
142, adjusted operating income was $9.3 million in the 2002 quarter compared to
a loss of $7.3 million in the 2001 quarter. The quarter-over-quarter improvement
resulted from the factors discussed above.
Interest expense decreased for the 2002 quarter to $4.3 million compared to $6.3
million in the 2001 quarter. The decrease is driven in part by a decrease in
borrowings outstanding under the DIP Credit Facility and utilization of the A/R
Securitization Facility (see Notes 4 and 7 of Notes to Condensed Consolidated
Financial Statements), as well as due to a decrease in amortization of interest
expense related to deferred financing fees on the DIP Credit Facility and the
A/R Securitization Facility.
Other income, net of $1.0 million for the 2002 quarter is largely attributable
to foreign exchange gains. Other expense, net of $0.4 million in the 2001
quarter is primarily driven by foreign exchange losses and losses on the
disposal of assets.
Tax expense of $0.9 million and $0.5 million recorded in the 2002 and 2001
quarters, respectively, primarily relates to taxes on foreign income.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
Net sales for the nine months ended September 30, 2002 (the "2002 period") and
2001 (the "2001 period") were $1,496.6 million and $1,594.7 million,
respectively, representing a decrease of $98.1 million or approximately 6.2%.
Excluding the impact of businesses divested and being exited, adjusted net sales
were $1,489.1 million and $1,565.1 million for the 2002 and 2001 periods
respectively, representing a decrease of $76.0 million or 4.9%. This decrease is
primarily attributable to lower sales at the Sunbeam Grills business, Coleman
(primarily grills) and lower sales of Powermate products. These decreases in net
sales are partially offset by net sales of the Sunbeam Products business, which
increased $27.2 million to $552.5 million in the 2002 period. The increase in
Sunbeam Products net sales as compared to the 2001 period is driven by the
domestic business, primarily as a result of a new strategic marketing program
for appliances at a significant customer. The increases in Sunbeam Products
domestic sales in the 2002 period as compared to 2001 are partially offset by
declines in international sales, primarily driven by Venezuela as of result of
the political and economic instability in the country. Compared to the 2001
period, net sales for the Sunbeam Grills business decreased $59.4 million to
$76.5 million largely due to loss of product placement at a major retailer. Net
sales for the Coleman business were $637.1 million representing a decrease of
$20.2 million compared to the 2001 period. This decrease is primarily
attributable to a decline in sales of Coleman branded grills in the United
States, which were also impacted by the loss of distribution at the same major
retailer discussed above in reference to the Sunbeam Grill business. Excluding
the Coleman grill business, domestic net sales for Coleman increased due to new
product introductions and increased sales in the inflatables and personal and
chest cooler product categories. Coleman international net sales in the 2002
period were consistent with the 2001 period, with increases in net sales in
Europe and Asia being offset by decreases in Japan and Latin America. The
increased net sales in Europe are attributable to favorable foreign exchange
rates and increased sales of outdoor recreation products in the 2002 period. The
decreased net sales in Japan is largely due to unfavorable foreign exchange
rates and the decline in sales in Latin America is attributable to the closing
of the Brazil sales office in early 2002. Compared to the 2001 period, net sales
for the Powermate business decreased $22.1 million to $121.8 million in the 2002
period due to loss of pressure washer placement at two major retailers, softness
in generator sales, and lost distribution to two major customers as the result
of those customers filing for relief under chapters 11 and 7 of the Bankruptcy
Code. Net sales for the First Alert business were relatively consistent at
$101.2 million and $102.9 million in the 2002 and 2001 periods, respectively,
representing a decrease of $1.7 million or 1.7%. While the Company is unable to
quantify the amount, it anticipates a negative impact to fourth quarter 2002
sales and operating results, primarily in the Sunbeam Products business, as a
result of labor disputes involving West Coast dockworkers.
Gross margin in the 2002 period was $385.7 million, or $6.2 million better than
the 2001 period. As a percentage of net sales, gross margin was 25.8% in the
2002 period as compared to 23.8% in the 2001 period. Excluding the impact of
businesses divested and being exited, as well as the effects of significant and
unusual items, adjusted gross margin was $386.4 million in the 2002 period or
$15.1 million better than the 2001 period. As a percentage of adjusted net
sales, adjusted gross margin was 25.9% in the 2002 period as compared to 23.7%
in the 2001 period. The improvement in adjusted gross margin as a percentage of
adjusted net sales is primarily attributable to (i) fewer sales of low margin
grills as a result of lower Sunbeam and Coleman branded grill sales; (ii) lower
commodity costs and cost savings initiatives including those driven by the
Company's Six Sigma program; (iii) reduced depreciation expense resulting from
the impairment charge recognized in 2001 for the Sunbeam Grills business, and
(iv) reduced product liability expense resulting from favorable claims trends.
The aforementioned positive factors were partially offset by higher costs
resulting from increased warranty returns in the Sunbeam Products business,
primarily related to certain Mr. Coffee(R) SKUs and bedding products, and higher
levels of excess and obsolete inventory in the Powermate business.
37
SG&A expense for the 2002 period was $356.9 million, a decrease of $34.8 million
or 8.9% compared to the 2001 period. Excluding the impact of businesses divested
and being exited, as well as the effects of significant and unusual items, and
including effect of implementing SFAS No. 142, adjusted SG&A expense for the
2002 period was $354.6 million, as compared to $376.7 million in the 2001
period, representing a reduction of $22.1 million, or 5.9%. The period over
period decrease in SG&A spending is primarily attributable to lower levels of
volume driven selling costs during the 2002 period resulting from the decrease
in net sales, favorable adjustments to bad debt and deductions reserves ($3.6
million), decreased spending for R&D ($5.6 million) and lower environmental
reserve provisions ($1.4 million). These decreases are partially offset by
increases in insurance costs ($2.4 million) and increased costs associated with
certain litigation matters ($3.6 million), the reasons for these increases are
discussed above in the discussion relating to the results for the 2002 quarter.
Operating income for the 2002 period was $28.8 million compared to the 2001
period operating loss of $12.2 million. Excluding the impact of businesses
divested and being exited, as well as the effects of significant and unusual
items, including the impact of the implementation of the non-amortization
provision of SFAS No. 142, adjusted operating income was $31.8 million in the
2002 period compared to an adjusted operating loss of $5.4 million in the 2001
period. The improvement resulted from the factors discussed above.
Interest expense decreased in the 2002 period to $12.9 million compared to $42.1
million in the 2001 period. The decrease is the result of (i) interest expense
of approximately $20 million recognized in the 2001 period related to
pre-petition debt for the period January 1, 2001 through February 6, 2001 (date
of the Filings) whereas, subsequent to the Filings, according to SOP-97,
interest on pre-petition debt is no longer recognized or accrued, (ii) $5.0
million more in amortization of deferred financing fees was recognized in the
2001 period due to the initial development and negotiations of the DIP Credit
Facility and A/R Securitization Facility, compared to no such fees in the 2002
period, and (iii) less outstanding borrowings in the 2002 period compared to the
2001 period.
Other income, net of $3.0 million for the 2002 period primarily includes the
gain on the insurance settlement related to the fire at an international
manufacturing facility, partially offset by foreign exchange losses. Other
expense, net of $4.2 million in the 2001 period was primarily comprised of
foreign exchange losses and losses on the disposal of assets.
Tax expense of $5.3 million and $1.6 million recorded in the 2002 and 2001
periods, respectively, primarily relates to taxes on foreign income.
FOREIGN OPERATIONS
Approximately 75% of the Company's business is conducted in U.S. dollars,
including domestic sales, U.S. dollar denominated export sales, primarily to
Latin American markets and Asian sales. The Company's non-U.S. dollar
denominated sales are made principally by subsidiaries in Europe, Canada, Japan,
and Latin America. Translation adjustments resulting from the Company's non-U.S.
denominated subsidiaries have not had a material impact on the Company's
financial condition, results of operations or cash flows.
On a limited basis, the Company selectively uses derivatives, primarily foreign
exchange option and forward contracts, to manage foreign exchange exposures that
arise in the normal course of business. No derivative contracts are entered into
for trading or speculative purposes. The use of derivatives has not had a
material impact on the Company's financial results.
SEASONALITY
The Company's consolidated sales are not expected to exhibit substantial
seasonality; however, Coleman sales are expected to be strongest during the
first and second quarters of the calendar year and Sunbeam Products sales are
expected to be strongest during the third and fourth quarters 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 the timing or absence of certain weather conditions,
such as unseasonably cool or wet weather impacting camping product sales, and an
absence of hurricanes impacting Powermate generator sales.
38
LIQUIDITY AND CAPITAL RESOURCES
DEBT INSTRUMENTS
In connection with the filing of the Petitions, the Secured Lenders under the
Pre-Petition Credit Facility have provided Sunbeam Corporation with the DIP
Credit Facility. The DIP Credit Facility initially provided for a total
commitment of $285.0 million, with a $120.0 million sub-limit for letters of
credit. The letters of credit outstanding under the Pre-Petition Credit Facility
on the date of the Filings became outstanding letters of credit under the DIP
Credit Facility. In addition, pursuant to the DIP Credit Facility, the $50.0
million outstanding under the supplemental revolver of the Pre-Petition Credit
Facility became outstanding borrowings under the DIP Credit Facility, and
certain fees and expenses of the lenders under the DIP Credit Facility were paid
with borrowings under the DIP Credit Facility. The aggregate commitment under
the DIP Credit Facility will be permanently reduced by 100% of the net cash
proceeds from asset sales outside of the ordinary course of business. The
aggregate commitments were permanently reduced to $200.0 million on April 30,
2001 and further reduced to $160.0 million on June 30, 2001. The DIP Credit
Facility initially was to terminate at the earlier of (i) February 5, 2002, (ii)
the Effective Date of the Sunbeam Corporation Plan, or (iii) termination of the
commitments under the DIP Credit Facility. Pursuant to an amendment to the
agreement dated March 13, 2002, the DIP Credit Facility was extended through
February 5, 2003 and the total commitment was increased to $200.0 million. The
aggregate commitments were permanently reduced to $180.0 million on May 1, 2002
and were further reduced to $160.0 million on June 1, 2002. Under the terms of
the March 13, 2002 amendment, the Company paid an amendment fee of $4.0 million
in March 2002. This fee is being amortized to interest expense using the
straight-line method over the one-year period of the amendment. DIP Borrowings
under the DIP Credit Facility accrue interest at the Company's option: (i) LIBOR
plus 3.5%, or (ii) prime rate plus 2.5%.
The DIP Credit Facility contains various covenants, including (i) a cumulative
consolidated EBITDA covenant, (ii) a cumulative capital expenditures covenant,
(iii) a minimum domestic accounts payable covenant, (iv) a covenant limiting the
amount of post-petition intercompany receivables due from foreign subsidiaries,
and (v) a covenant regarding compliance with an agreed upon cash budget. In
addition, the DIP Credit Facility provided that the Company was required to
fully utilize borrowing availability under its A/R Securitization Facility at
any time there were loans or letters of credit outstanding under the DIP Credit
Facility. Effective August 30, 2002, the DIP Credit Facility was amended to
exclude letters of credit outstanding from the A/R Securitization Facility full
utilization provision. See Notes 4 and 7 of Notes to Condensed Consolidated
Financial Statements.
In addition to the above described EBITDA and other tests and ratios, the DIP
Credit Facility contains covenants customary for credit facilities of a similar
nature, including limitations on the ability of Sunbeam Corporation and its
subsidiaries to, among other things, (i) declare dividends or repurchase stock,
(ii) incur liens or 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) fail to maximize
utilization of foreign credit facilities, (vii) fail to maintain its trade
accounts receivable securitization program, (viii) engage in mergers,
acquisitions or asset sales, (ix) engage in transactions with affiliates, (x)
alter its cash management system and (xi) alter the businesses they conduct. The
DIP Credit Facility provides for events of default customary for transactions of
this type, including nonpayment, misrepresentation, breach of covenant,
cross-defaults, material adverse change arising from compliance with ERISA,
entry of certain orders by the Bankruptcy Court in the Chapter 11 proceedings or
material adverse judgments.
Borrowings under the DIP Credit Facility are secured by a perfected first
priority lien on all the Debtors' assets subject to certain exceptions for the
A/R Securitization Facility, and certain other exceptions.
In March 2002, the Canadian subsidiary of the Company entered into a senior
secured revolving credit facility for up to $25.0 million Canadian dollars. This
facility is secured by this subsidiary's accounts receivable and inventory and
expires in April 2005. Borrowings under this facility accrue interest at the
index rate (average rate quoted on Reuters Monitor Screen applicable to Canadian
dollar bankers' acceptances with a term of 30 days as of the first business day
of the respective month) plus 2.25%. This facility contains various covenants
including (i) a cumulative consolidated EBITDA covenant, (ii) a cumulative
capital expenditures covenant, and (iii) a tangible net worth covenant. At
September 30, 2002, $9.5 million was outstanding under the revolver and is
reflected as long-term debt in the accompanying Condensed Consolidated Balance
Sheet.
39
ACCOUNTS RECEIVABLE SECURITIZATION
Prior to the Filings, certain subsidiaries of Sunbeam Corporation sold trade
accounts receivable pursuant to two separate receivable securitization programs.
The original program, entered into in December 1997, was amended in March 2000
to increase the program from $70.0 million to $100.0 million. This agreement
provided for the sale of certain trade accounts receivable without recourse
through the Sunbeam Receivables Program. In mid-November 2000, the purchaser
under the Sunbeam Receivables Program informed the Company that it intended to
discontinue its operations in mid-February 2001 and consequently ceased
purchasing trade accounts receivable on January 15, 2001. In April 2000, the
Company's Coleman and Powermate subsidiaries entered into the Coleman
Receivables Program, to sell, without recourse, through a wholly-owned
subsidiary of Coleman, up to a maximum of $95.0 million in trade accounts
receivable.
On February 7, 2001, certain Subsidiary Debtors entered into the $200.0 million
A/R Securitization Facility to replace the Pre-Petition Receivables Programs.
This trade accounts receivable program contains cross-default provisions that
provide the purchasers of the receivables an option to cease purchasing
receivables if, subject to certain grace periods, Sunbeam Corporation is in
default under the DIP Credit Facility. In addition, the A/R Securitization
Facility contains various other covenants customary for these types of programs,
including financial covenants. The Subsidiary Debtors that are party to the A/R
Securitization Facility retain collection and administrative responsibilities
for the receivables sold under such facility.
During the nine months ended September 30, 2002 and 2001, the Company received
approximately $1,180.4 million, and $778.3 million, respectively, under the A/R
Securitization Facility and the Pre-Petition Receivables Programs. At September
30, 2002 and 2001, the Company had reduced accounts receivable by approximately
$125.2 million and $145.2 million, respectively, for receivables sold under
these programs. Costs of the programs, which primarily consist of the
purchasers' financing cost of issuing commercial paper backed by the
receivables, totaled $5.2 million and $7.3 million during the nine months ended
September 30, 2002 and 2001, respectively, and have been classified as interest
expense in the accompanying Condensed Consolidated Statements of Operations.
In September of 2001, a foreign subsidiary of Sunbeam Corporation in the United
Kingdom entered into an agreement to sell certain trade accounts receivable.
During the nine months ended September 30, 2002 and 2001, the foreign subsidiary
received $26.1 million and $6.7 million, respectively, and incurred costs of
$0.2 million and $0.1 million, respectively, which have been classified as
interest expense in the accompanying Condensed Consolidated Statements of
Operations. At September 30, 2002 and 2001, the foreign subsidiary had reduced
accounts receivable by $1.4 million and $2.5 million, respectively.
In March of 2001, another foreign subsidiary of Sunbeam Corporation in France
entered into an agreement to sell certain trade accounts receivable without
recourse. During the nine months ended September 30, 2002 and 2001, the foreign
subsidiary received $45.0 million and $28.5 million, respectively, and incurred
costs of $0.4 million for both periods, which have been classified as interest
expense in the accompanying Condensed Consolidated Statements of Operations. At
September 30, 2002 and 2001, the foreign subsidiary had reduced accounts
receivable by $9.1 million and $8.9 million, respectively.
CASH FLOWS
As of September 30, 2002, the Company had cash and cash equivalents of $27.3
million and borrowings totaling $41.8 million. No borrowings were outstanding
under the DIP Credit Facility at September 30, 2002. The foregoing amounts do
not include balances outstanding under the Pre-Petition Credit Facility, which
are subject to compromise.
Operating Activities
Cash used in operating activities during the nine months ended September 30,
2002 (the "2002 period") was $19.3 million, compared to $5.5 million provided by
operations during the nine months ended September 30, 2001 (the "2001 period")
resulting in a period over period increase in the use of cash of $24.8 million.
This increase is primarily attributable to an increase in cash used for working
capital of $74.8 million ($74.9 million and $0.1 million used in the 2002 period
and 2001 period, respectively). The increase in cash used for working capital is
partially offset by a $50.0 million period over period increase in cash provided
from operating results other than working capital after giving effect to
non-cash items.
40
The increase in cash used for working capital in the 2002 period versus the 2001
period is primarily driven by an $84.1 million increase in accounts receivable.
In the 2002 period, accounts receivable increased $65.1 million compared to a
decrease of $19.0 million in the 2001 period. Changes in gross receivables
balances were relatively consistent in both periods. The increase in the
accounts receivable balance in the 2002 period compared to the 2001 period
results primarily from changes in utilization of accounts receivable
securitization programs between the two periods. In the 2002 period, amounts
financed using accounts receivable securitization programs were relatively
unchanged (decreased by $8.1 million), while in the 2001 period, amounts
financed using such arrangements increased by $56.8 million. This 2001 period
increase is reflective of the termination of the Sunbeam Receivables Program
used to finance accounts receivable at the Sunbeam Products and First Alert
business segments in the later part of 2000. As such, amounts financed under
accounts receivable securitization programs at December 31, 2000 were largely
limited to the accounts receivable of the Coleman and Powermate business
segments financed under the Coleman Receivables Program. On February 7, 2001,
certain Subsidiary Debtors entered into the $200.0 million A/R Securitization
Facility to replace both the terminated Sunbeam Receivables Program and the
Coleman Receivables Program. See Note 1 and Note 7 of Notes to Condensed
Consolidated Financial Statements for additional information related to the A/R
Securitization Facility.
Investing Activities
Cash used in investing activities in the 2002 period amounted to $7.4 million.
This amount includes $7.4 million in proceeds from the sale of the Professional
Scales Business, as well as $5.6 million in insurance proceeds related to the
fire at an international manufacturing facility. For additional discussion
related to the sale of the Professional Scales business and the insurance
proceeds relating to the fire, see Item 2. "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, in particular, subheading
"Significant Events." Capital spending for the 2002 period totaled $20.7
million, primarily for equipment and tooling for new products and information
systems enhancements, including the insourcing of the IT function. The remaining
$0.3 million relates to proceeds received from the sale of assets.
Cash used in investing activities in the 2001 period amounted to $23.8 million,
which is comprised of $24.8 million in capital spending and $1.0 million in cash
received related in part to the fire at an international manufacturing facility
discussed above, as well as from miscellaneous asset sales. Capital spending for
the 2001 period was primarily for equipment and tooling for new products and
information systems enhancements.
The Company anticipates 2003 capital spending to be approximately $50 million.
Financing Activities
Cash provided by financing activities totaled $20.8 million in the 2001 period
and reflects $42.0 million in net borrowings under the DIP Credit Facility
partially offset by net repayments of $11.4 million under the Company's foreign
working capital facilities, various equipment leases and other secured debt
obligations. Cash provided by financing activities totaled $1.7 million in the
2002 period and reflects $6.7 million in net borrowings under the Company's
foreign credit facilities and other debt instruments (primarily equipment
leases), offset by $5.1 million in cash paid related to financing fees primarily
for the DIP Credit Facility ($4.4 million). See Notes 4 and 7 of Notes to
Condensed Consolidated Financial Statements, as well as the discussion above
under "Debt Instruments," for a discussion of the Company's borrowing and
financing activities. Cash of $9.8 million was paid for financing fees in the
2001 period related to the DIP Credit Facility ($6.3 million) and the A/R
Securitization Facility ($3.5 million). See Notes 4 and 7 of Notes to Condensed
Consolidated Financial Statements, as well as the discussion above under "Debt
Instruments," for a discussion of the Company's borrowing and financing
activities.
Letters of Credit and Surety Bonds
At September 30, 2002, standby and commercial letters of credit aggregated $58.8
million and were predominately for insurance policies, workers' compensation,
and international trade activities. In addition, as of September 30, 2002,
surety bonds with a contract value of $29.1 million were outstanding largely for
the Company's pension plans and as a result of environmental issues and
litigation judgments that are currently under appeal.
41
Short-term and Long-term Liquidity Outlook
Although there can be no assurance, the Company believes that its financing
capacity under the DIP Credit Facility and the A/R Securitization Facility,
combined with its Foreign Facilities, cash flows from operations and existing
cash and cash equivalent balances will be sufficient to support the Company's
planned working capital needs and planned capital expenditures through the
Debtors' anticipated emergence from Chapter 11. See Notes 4 and 7 of Notes to
Condensed Consolidated Financial Statements. Following the confirmation of the
Sunbeam Corporation Plan and the Subsidiary Plan, the Reorganized Sunbeam
Corporation's seasonal working capital borrowings and letter of credit
requirements are anticipated to be funded under the Exit Facilities. These
facilities are expected to contain customary covenants, including financial
covenants. If Reorganized Sunbeam Corporation cannot meet these covenants, it
would be an event of default. Furthermore, the Reorganized Sunbeam Corporation's
liquidity could be adversely affected by the prices at which the reorganized
subsidiaries can sell trade accounts receivable under these programs or by the
termination of the Exit Facilities for any reason, including termination due to
an inability to comply with the terms of these agreements.
Given these and other uncertainties there can be no assurance that the
aforementioned sources of funds will be sufficient to meet the Company's cash
requirements on a consolidated basis. If the Company is unable to satisfy such
cash requirements, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, borrowing
additional funds, restructuring indebtedness, selling assets or operations
and/or reducing expenditures for new product development, reducing headcount
and/or other expenditures, and certain of such actions would require the consent
of the lenders under the DIP Credit Facility or the Exit Facilities. There can
be no assurance that any of such actions could be effected, or if so, on terms
favorable to the Company, that such actions would enable the Company to continue
to satisfy its cash requirements and/or that such actions would be permitted
under the terms of the DIP Credit Facility or the Exit Facilities. See
"Cautionary Statements" below.
Prior to the Filings, the Company was involved in significant litigation
relating to public disclosures by prior management, and certain other events
which led to the restatement of its consolidated financial statements. See Note
13 of Notes to Condensed Consolidated Financial Statements and Part II. "Other
Information,", Item 1. "Legal Proceedings". As a result of the Filings, these
claims are stayed as against Sunbeam Corporation. See Note 1 of Notes to
Condensed Consolidated Financial Statements for a discussion of the potential
opportunity for such claimants to share in the $1.0 million provided for
unsecured creditors of Sunbeam Corporation (other than holders of Debentures)
under the Sunbeam Corporation Plan.
Amounts accrued for litigation matters represent the anticipated costs (damages
and/or settlement amounts) in connection with pending litigation and claims and
related anticipated legal fees for defending such actions. The costs are accrued
when it is both probable that an asset has been impaired or a liability has been
incurred and the amount can be reasonably estimated. The accruals are based upon
the Company's assessment, after consultation with counsel, of probable loss
based on the facts and circumstances of each case, the legal issues involved,
the nature of the claim made, the nature of the damages sought and any relevant
information about the plaintiffs and other significant factors which vary by
case. When it is not possible to estimate a specific expected cost to be
incurred, the Company evaluates the range of probable loss and records the
minimum end of the range. As of September 30, 2002 and December 31, 2001,
Sunbeam Corporation and its subsidiaries had established accruals for litigation
matters of $27.5 million and $24.9 million, respectively. The September 30, 2002
balance includes $17.8 million that is subject to discharge under the terms of
the Sunbeam Corporation Plan. Of the remaining accrual balance of $9.7 million,
$4.6 million and $5.1 million represent estimated damages or settlement amounts
and legal fees, respectively. It is anticipated that the $27.5 million accrual
at September 30, 2002 will be paid as follows: $2.1 million in 2002, and $7.6
million in 2003, and $17.8 million will be subject to discharge under the terms
of the Sunbeam Corporation Plan. The Company believes, based on information
available on September 30, 2002, that anticipated probable costs of litigation
matters existing as of September 30, 2002 have been adequately reserved to the
extent determinable.
42
Sunbeam Canada, First Alert, BRK Brands and other companies are defendants in an
action brought in District Court, in Ontario, Canada, by Trevor Hughes on behalf
of himself and other Canadian purchasers of ionization smoke alarms. Plaintiff
is seeking class action status, but the case has not been certified as a class
action. Plaintiff contends that ionization smoke alarms are inherently
unreliable because, as plaintiff alleges, they do not adequately detect smoke
from smoldering fires. The plaintiff contends that smoke alarms should only be
sold if they use photoelectric technology or a combination of photoelectric and
ionization technologies. Accordingly, plaintiff seeks a refund of the purchase
price for his ionization smoke alarm, and the cost of removing it and installing
a replacement. Defendants deny plaintiff's contentions. The Superior Court in
Ontario, Canada entered an order striking plaintiff's Statement of Claim as
against all defendants with leave to amend, and plaintiff appealed. In an order
dated September 11, 2002, the Court of Appeal for Ontario dismissed plaintiff's
appeal of the Superior Court's order striking his claims against Sunbeam Canada
and BRK Brands on the grounds that plaintiff alleged that the ionization smoke
alarm he purchased was manufactured by First Alert, and plaintiff cannot claim
to have a reasonable cause of action against defendants who did not manufacture
his smoke alarm. The Court of Appeal allowed plaintiff's appeal of the order
striking plaintiff's negligence claim against First Alert for recovery of
economic loss. In allowing plaintiff's appeal, the Court of Appeal noted
Canadian courts have limited recovery for purely economic losses in cases where
the plaintiff does not allege personal or property damage. The Court of Appeal
ruled that the Superior Court should have an evidentiary record before
determining whether First Alert owed a duty of care to compensate plaintiff for
purely economic loss. Plaintiff has indicated that he intends to seek leave to
appeal from the Supreme Court of Canada. First Alert intends to defend
vigorously plaintiff's claims.
On October 9, 2001, the CPSC filed the CPSC Action. With respect to Sunbeam
Corporation, Chemetron, and Chemetron Investments, the CPSC alleged that
Chemetron and/or Chemetron Investments manufactured Star ME-1 dry sprinklers
from 1977 to 1983, and that Sunbeam Corporation is legally responsible for this
recall. The CPSC estimates that approximately 50,000 - 60,000 Star ME-1 dry
sprinkler heads were manufactured between 1977-1983, the period of time for
which the CPSC alleges Sunbeam Corporation, Chemetron, and Chemetron Investments
are responsible. The Star sprinkler business of Chemetron and/or Chemetron
Investments was sold to Grunau in 1983, and the remainder of the fire
suppression business of Chemetron and/or Chemetron Investments was purchased by
Figgie when Figgie acquired the stock of Chemetron Fire Systems in 1985. Sunbeam
Corporation acquired the stock of Chemetron and Chemetron Investments in
September 1990 when it acquired certain assets of Allegheny International.
Sunbeam Corporation is challenging this action on several grounds, including (i)
Star ME-1 sprinklers are not within the jurisdiction of the CPSC because they
are not "consumer products" as defined by the CPSA, and (ii) the Star ME-1
sprinklers do not present a "substantial product hazard" as defined in the CPSA.
Sunbeam Corporation's position is that the CPSA allows Sunbeam Corporation to
elect the remedy. One of the remedies under that statute is reimbursement of the
purchase price, minus a reasonable allowance for use. As a result, Sunbeam
Corporation's position is that any claims for reimbursement are subject to the
limited recovery provided for unsecured creditors in the Plan. The CPSC has
taken the position that, under the applicable statutes, the CPSC is given the
authority to approve the responsible parties' election of remedies; and that in
this case, it would require the responsible parties to repair and replace the
sprinkler heads, which would require the responsible party to pay for a
replacement head and the costs of repair and installation. The cost of repair
and replacement, including installation, could be approximately one hundred to
one hundred fifty dollars per sprinkler head. Discovery in the CPSC Action is
currently scheduled to close in November 2002.
As a consumer goods manufacturer and distributor, the Company faces 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 the Company's financial
position, results of operations or cash flows. Some of the product lines the
Company acquired in the 1998 acquisitions have increased its exposure to product
liability and related claims.
The Company and its subsidiaries are also involved in various lawsuits from time
to time that the Company considers to be ordinary routine litigation incidental
to its business. In the opinion of the Company, the resolution of these routine
matters, and of certain matters relating to prior operations, individually or in
the aggregate, will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
See Note 13 of Notes to Condensed Consolidated Financial Statements and Part II.
"Other Information," Item 1., "Legal Proceedings".
NEW ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective for exit
or disposal activities that are initiated after December 31, 2002, with early
application encouraged. Management believes that the impact of this statement
will not have a material effect on the Company's consolidated financial
statements.
43
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, but retains many of its fundamental provisions. Additionally,
this statement expands the scope of discontinued operations to include more
disposal transactions. The provisions of this statement are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
The Company adopted SFAS No. 144 effective January 1, 2002. The impact of this
statement has not had a material effect on the Company's consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with early adoption
permitted. SFAS No. 143 is not expected to have a material effect on the
Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which the Company adopted as of January 1, 2002. Under the provisions of
this statement, goodwill and intangible assets that have indefinite useful lives
will no longer be amortized but rather will be tested at least annually for
impairment. As a result of adoption of SFAS No. 142, the Company recognized a
pre-tax charge of $268.3 million ($170.8 million net of tax benefit of $97.5
million) in the first quarter of 2002. This charge is reflected as "Cumulative
effect of change in accounting principle, net of tax benefit" in the Condensed
Consolidated Statements of Operations. In addition, the Company discontinued the
amortization of identifiable intangible assets that have indefinite useful lives
as of January 1, 2002. See Note 3 of Notes to Condensed Consolidated Financial
Statements.
In July 2001, the FASB issued SFAS No. 141, Business Combinations. This
statement is effective for periods beginning after December 15, 2001 and applies
to all business combinations entered into subsequent to June 30, 2001 and
requires that all such business combinations be accounted for using the purchase
method of accounting. The Company adopted SFAS No. 141 effective January 1,
2002. The impact of this statement has no effect on the Company's consolidated
financial statements.
Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, which requires that
all derivative instruments be reported on the balance sheet at fair value and
establishes criteria for designation and effectiveness of hedging relationships.
The cumulative effect of adopting SFAS No. 133 as of January 1, 2001 was not
material to the Company's consolidated financial statements.
CAUTIONARY STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q may constitute
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as the same may be amended from time to time (the
"Act") 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 the Company to be materially
different from any future results, performance, or achievements expressed or
implied by such forward-looking statements. Statements that are not historical
fact are forward-looking statements. Forward-looking statements can be
identified by, among other things, the use of forward-looking language, such as
the word "estimate," "project," "intend," "expect," "believe," "may," "well,"
"should," "seeks," "plans," "scheduled to," "anticipates," or "intends," or the
negative of these terms or other variations of these terms or comparable
language, or by discussions of strategy or intentions, when used in connection
with the Company, including its management. These forward-looking statements
were based on various factors and were derived utilizing numerous important
assumptions and other important factors that could cause actual results to
differ materially from those in the forward-looking statements. These cautionary
statements are being made pursuant to the Act, with the intention of obtaining
the benefits of the "safe harbor" provisions of the Act. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance. Important assumptions and other important
factors that could cause actual results to differ materially from those in the
forward-looking statements with respect to the Company include, but are not
limited to, risks associated with:
o Non-Confirmation of the Plans
Although Sunbeam Corporation believes that the Plans will satisfy all
requirements necessary for confirmation by the Bankruptcy Court, there can
be no assurance that the Bankruptcy Court will reach the same conclusion.
Moreover, there can be no assurance that modifications to the Plans will
not be required for confirmation or that such modifications would not
necessitate the resolicitation of votes. If the conditions precedent to the
confirmation set forth in the Plans have not occurred or been waived, the
Plans will not be confirmed by the Bankruptcy Court. The Company's sales
and earnings will likely be adversely affected if the Company's Plans are
not confirmed.
44
o Non-Consensual Confirmation
In the event any impaired class of claims or equity interests of the
Debtors does not accept the Plan, the Bankruptcy Court may nevertheless
confirm the Plans at the Debtors' request if at least one impaired class
has accepted the Plan (such acceptance being determined without including
the vote of any "insider" in such class), and as to each impaired class
that has not accepted the Plan, if the Bankruptcy Court determines that the
Plan "does not discriminate unfairly" and is "fair and equitable" with
respect to the dissenting impaired classes. Because the Sunbeam Corporation
Plan deems certain classes to have rejected the Sunbeam Corporation Plan,
these requirements must be satisfied with respect to such classes. The
Company's sales and earnings will likely be adversely affected if the
Company's Plans are not confirmed.
o Non-Occurrence of The Effective Date
Although Sunbeam Corporation believes that the Effective Date will occur
soon after the confirmation date, there can be no assurance as to the
timing of the Effective Date. If the conditions precedent to the Effective
Date set forth in the Plans has not occurred or been waived within 60 days
after the confirmation date (unless extended for up to 60 additional days
in certain circumstances), the confirmation order will be vacated, in which
event no distributions under the Plans would be made. The Company's sales
and earnings will likely be adversely affected if the Effective Date does
not occur.
o Possible Economic Slowdown
The possibility of a slowdown in economic growth or retail sales of the
United Sates and/or other countries or a recession in the United States or
other countries could result in a decrease in consumer demands for the
Company's products.
o International Exposure
The Company currently has sales in countries where economic growth has
slowed or where economies have been unstable or hyperinflationary in recent
years. The economies of other foreign countries important to the Company's
operations could also suffer slower economic growth or instability in the
future. Economic uncertainty exists in Japan, Korea and other Asian
countries, as well as in Mexico, Venezuela and other Latin American
countries. The following are among the risks that could negatively affect
the Company's operations and sales in foreign markets: new restrictions on
access to markets; currency fluctuations; new tariffs; adverse changes in
monetary and/or tax policies; inflation; governmental instability; and
changes in foreign laws and regulations including tax laws, accounting
standards, environmental laws and occupational health and safety laws.
Should any of these risks occur, they could impair the Company's ability to
export its products and result in a loss of sales and profits from the
Company's international operations.
o Need to Develop New Products
The Company must develop innovative new products to increase sales. The
Company may not be able to meet its schedules for future product
development. Failure to develop and manufacture successful new products
could have a material adverse effect on the Company's future financial
performance.
o Competitive Conditions
The Company's businesses are highly competitive. The Company competes with
numerous domestic and foreign competitors, many of whom are financially
strong and capable of competing effectively with the Company. Competitors
may take actions to match new product introductions and other initiatives.
Certain competitors may be willing to reduce prices and accept lower profit
margins to compete with the Company. As a result of this competition, the
Company could lose market share and sales and suffer losses, which could
have a material adverse effect on the Company's future performance.
45
o Customers
Due to the consolidation of the retail industry in the United States, the
Company's customer base has become relatively concentrated. The Company's
five largest customers combined accounted for approximately 32% of net
sales in the nine months ended September 30, 2002 and for the year ended
December 31, 2001. The Company has no long-term supply contracts with any
of its customers. As a result, the Company must receive a continuous flow
of new orders from its large, high-volume retailing customers. New orders
may become increasingly difficult to secure due to the trend by retailers
of increasing the scope of private label or retailer-specific brands,
particularly in appliances. The Company has responded to the challenges of
its markets by pursuing strategic relationships with large, high-volume
merchandisers. However, the Company cannot make assurances that the
strategic relationships will result in increased sales or earnings.
Furthermore, on-time delivery and satisfactory customer service is becoming
increasingly important to the Company's customers. There can be no
assurance that the Company can continue to successfully meet the needs of
its customers.
o Critical Raw Materials and Components
Raw materials and components constitute a significant portion of the cost
of the Company's goods. Factors that are largely beyond the Company's
control, such as movements in commodity prices for the specific material
the Company requires, may affect the future cost of such raw materials and
components. In addition, any inability of the Company's suppliers to timely
deliver raw materials and components or any unanticipated change in the
Company's suppliers could be disruptive and costly. A significant failure
by the Company to contain raw material or component costs could have a
material adverse effect on the Company's future financial performance. In
addition, delays or cancellations by suppliers could adversely affect
results.
o Dependence upon Third-party Suppliers and Service Providers
The Company currently manufactures many of its products, but it sources
many of its parts and products from third parties, including international
vendors. The Company's 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. Further,
the ability of third-party suppliers to timely deliver finished goods
and/or raw materials may be effected by events beyond their control, such
as inability of shippers to timely deliver merchandise due to work
stoppages or slowdowns, or significant weather conditions affecting
third-party suppliers and/or shippers. Any inability of the Company's
suppliers to timely deliver quality parts and products or any unanticipated
change in suppliers or pricing of products could be disruptive and costly.
o Production Related Risks
To realize sales and operating profits at anticipated levels, the Company
must manufacture, source and deliver in a timely manner products of high
quality. Among others, the following factors may have a negative effect on
the Company's ability to do these things: labor difficulties; scheduling
and transportation difficulties; management dislocation; substandard
product quality, which can result in higher warranty, product liability and
product recall costs, delays in development of quality new products;
changes in laws and regulations (domestic and international), including
changes in tax rates, accounting standards, environmental laws and
occupational health and safety laws; and changes in the availability and
cost of labor. Possible resulting product liability expenses may consist of
insurance, litigation fees and damages and/or settlement costs, as well as
other costs including legal fees and penalties (if any) and lost business
and/or goodwill of product recalls.
o Weather Conditions
Weather conditions, including the absence of severe storms, may negatively
impact sales of many of the Company's products. The Company may not sell as
many portable generators and certain outdoor recreation products (such as
lanterns, tents and sleeping bags) 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 Reliance on Key Personnel
The Company's operations and prospects depend in large part on the
performance of its senior management team. There can be no assurance that
the Company would be able to find qualified replacements for any of these
individuals if their services were no longer available. The loss of the
services of one or more members of the Company's senior management team
could have a material adverse effect on the Company's business, financial
condition and results of operations.
46
o Adverse Publicity
Adverse publicity or news coverage relating to the Filings or the Debtors
may negatively impact the Debtors' efforts to establish and promote name
recognition and a positive image.
o Ability to Refinance Certain Indebtedness
Following the Effective Date, Sunbeam Corporation's and its subsidiaries
seasonal working capital borrowings and letter of credit requirements are
anticipated to be funded under the Exit Facilities. These Exit Facilities
are expected to contain customary covenants, including financial covenants.
If Sunbeam Corporation and its subsidiaries cannot meet these covenants, it
would be an event of default. Further, the Exit Facilities includes trade
accounts receivable programs and the liquidity of Sunbeam Corporation and
its subsidiaries could be adversely affected by the prices at which trade
accounts receivable are sold under these programs or by the termination of
this program for any reason, including termination due to an inability to
comply with the terms of these programs. Furthermore, there can be no
assurance that Sunbeam Corporation and its subsidiaries, upon expiration of
the Exit Facilities, will be able to obtain replacement financing to fund
future seasonal borrowings and letters of credit, or that such replacement
financing, if obtained, will be on terms equally favorable to Sunbeam
Corporation and its subsidiaries.
o Foreign Working Capital Lines
Certain of the Company's foreign businesses fund their working capital or
other liquidity needs through foreign working capital lines, some of which
are demand lines which may be terminated at any time by the lender. If any
of such working capital lines are terminated, there can be no assurance
that the Company could replace such working capital lines or if replaced,
that they could be replaced on terms acceptable to the Company. The
termination of any such working capital lines could have an adverse effect
on the liquidity of the Company.
Other factors and assumptions not included in the list above may also cause the
Company's actual results to materially differ from those projected.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
EXPOSURE TO MARKET RISK
QUALITATIVE INFORMATION
The Company uses a variety of derivative financial instruments to manage its
foreign currency and interest rate exposures. The Company does not speculate on
interest rates or foreign currency rates. Instead, it uses derivatives when
implementing its risk management strategies to reduce the possible effects of
these exposures.
With respect to foreign currency exposures, the Company is most vulnerable to
changes in rates between the United States dollar and the Japanese yen, Canadian
dollar, E.E.U. Euro, U.K. pound, Mexican peso and Venezuelan bolivar exchange
rates. The Company principally uses forward and option contracts to reduce
foreign currency exchange rates risk arising from intercompany cash flows. Prior
to the Filing, the Company generally used interest rate swaps and caps to reduce
its variable interest rate risk on a portion of its debt.
QUANTITATIVE INFORMATION
INTEREST RATE SENSITIVITY. On February 6, 2001, Sunbeam Corporation and
substantially all of its subsidiaries filed voluntary petitions with the
Bankruptcy Court under the Bankruptcy Code. See Note 1 of Notes to Condensed
Consolidated Financial Statements. The Sunbeam Corporation Plan contemplates
converting all of the outstanding amounts under the Pre-Petition Credit Facility
described below into the New Secured Debt and equity interests in the
Reorganized Sunbeam Corporation. See Note 1 of Notes to Condensed Consolidated
Financial Statements.
47
The table below provides information about the Company's financial instruments,
specifically its borrowings not subject to compromise at September 30, 2002,
that are sensitive to changes in interest rates. For these debt obligations, the
table below presents principal cash flows by expected maturity date and related
(weighted) September 30, 2002 average interest rates, under the assumption that
the debt will be paid. Weighted average variable interest rates are based on
implied forward rates in the yield curve at the reporting date. As discussed
above, the Sunbeam Corporation Plan contemplates the conversion or discharge of
the majority of the debt outstanding as of the date of the Filings (February 6,
2001). Due to Sunbeam Corporation's Filing, the net amount due under the
Debentures and net amount due under the Pre-Petition Credit Facility at the date
of filing is reflected in Liabilities subject to compromise in the accompanying
Condensed Consolidated Balance Sheet, and is classified as borrowings subject to
compromise in the table below.
Expected Maturity Date
---------------------------------------------- Fair
Balance at September 30, 2002 2003 2004 2005 Total Value (1)
------ ------ ------ ------ ------ --------
(US $Equivalent in Millions)
Borrowings not subject to compromise
Variable Rate Debt
DIP Facility .................... $ -- $ -- $ -- $ -- $ -- $ --
Canadian GE Facility ............ 10 -- -- 10 10 10
Foreign borrowings .............. 21 21 -- -- 21 21
------ ------ ------ ------ ------ ------
Total Variable Rate Debt .......... 31 21 -- 10 31 31
Average interest rate ............. 3.99% 3.99% 5.75% 6.15% 4.97%
Fixed Rate Debt
Other (2) ....................... 11 10 1 -- 11 11
------ ------ ------ ------ ------ ------
Total Fixed Rate Debt ............. 11 10 1 -- 11 11
Average interest rate ............. 4.45% 4.25% 5.79% 5.0% 4.87%
Total borrowings not subject
to compromise ...................... $ 42 $ 31 $ 1 $ 10 $ 42 $ 42
====== ====== ====== ====== ====== ======
Borrowings subject to compromise (3)
Pre-Petition Credit Facility .... $1,542
Debentures ...................... 864
------
Total Borrowings subject to compromise $2,406
======
(1) The fair value of fixed rate debt is estimated using either reported
transaction values or discounted cash flow analysis. For purposes of
presentation in the above table, 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
Company's Borrowings subject to compromise is not determinable in
light of the Filings, see Note 1 and Note 5 of Notes to Condensed
Consolidated Financial Statements.
(2) The majority of debt classified as other in the table above has been
reclassified to current as a result of the Filings. See Note 1 and
Note 4 of Notes to Condensed Consolidated Financial Statements.
(3) Expected to be discharged upon emergence from Chapter 11 and is not
currently expected to mature. See Note 1 and Note 5 of Notes to
Condensed Consolidated Financial Statements.
EXCHANGE RATE SENSITIVITY. 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. Effective January 1, 2001,
the Company adopted SFAS No. 133, which requires that all derivative financial
instruments be reported on the balance sheet at fair value. At September 30,
2002, the Company included a liability of $0.5 million representing the fair
value of its foreign exchange rate derivatives, which is reflected in the
Condensed Consolidated Balance Sheet.
48
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer and Principal Financial Officer
have evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13(a) -14(c) and
15(d)-14(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation
Date, the Company's disclosure controls and procedures are effective in
alerting them on a timely basis to material information relating to the
Company (including its consolidated subsidiaries) required to be
included in the Company's reports filed or submitted under the Exchange
Act.
(b) Changes in Internal Controls.
Since the Evaluation Date, there have not been any significant changes
in the Company's internal controls or in other factors that could
significantly affect such controls.
49
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Litigation
Commencing in April 1998, lawsuits were filed on behalf of purchasers of Sunbeam
Corporation's common stock against Sunbeam Corporation and some of its present
and former directors and former officers, as well as Arthur Andersen LLP
("Arthur Andersen"), Sunbeam Corporation's independent accountants for the
period covered by the lawsuits, alleging violations of the federal and state
securities laws. The plaintiffs sought an unspecified award of money damages.
Commencing October 1998, lawsuits were filed in the U.S. District Court for the
Southern District of Florida on behalf of certain purchasers of the Debentures
against Sunbeam Corporation, certain of Sunbeam Corporation's former officers
and directors and Arthur Andersen, alleging, among other things, violations of
federal and state securities laws. The plaintiffs in the debentures actions
sought, among other things, either unspecified monetary damages or rescission of
their purchase of the Debentures. These lawsuits were consolidated in the U.S.
District Court for the Southern District of Florida. As a result of Sunbeam
Corporation's Filing, these cases were automatically stayed under the Bankruptcy
Code as against Sunbeam Corporation. Under the Sunbeam Corporation Plan, if it
is confirmed and becomes effective, the claims of the plaintiffs against Sunbeam
Corporation will be discharged and such claimants may potentially share in the
$1.0 million provided for unsecured creditors of Sunbeam Corporation (other than
holders of Debentures) under the Sunbeam Corporate Plan. See Note 1 of Notes to
Condensed Consolidated Financial Statements. In May 2001, the shareholder case
was settled as to Arthur Andersen and in connection with such settlement Arthur
Andersen agreed to pay $110.0 million. In August 2002, the case was settled as
to defendants Dunlap, Kersh, Gluck, Uzzi and Fannin. Under the settlement
agreements, judgments totaling $220.0 million were entered against these
individuals. However only defendants Dunlap and Kersh will be required to fund
the judgments, in the amount of $15.0 million and $0.3 million, respectively,
while an additional $15.5 million is to be paid from a portion of the proceeds
of settlements among the individual defendants and insurance carriers. The court
denied class action status for the debenture cases. The Company was informed
that, in February and March 2002, the named plaintiffs settled the debenture
cases with all defendants (other than the Company) in non-public proceedings.
In April 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 Corporation and some of its present and former directors and former
officers. In this action, plaintiffs allege, among other things, that Messrs.
Dunlap and Kersh, Sunbeam Corporation's former Chairman and Chief Executive
Officer and former Chief Financial Officer, respectively, caused Sunbeam
Corporation to employ fraudulent accounting procedures in order to enable them
to secure new employment contracts, and seeks a declaration that the individual
defendants have violated fiduciary duties, an injunction against the payment of
compensation to Messrs. Dunlap and Kersh or the imposition of a constructive
trust on such payments, and unspecified money damages. The defendants have each
moved to dismiss the amended complaint in whole or in part. As a result of
Sunbeam Corporation's Filing, this case is automatically stayed under the
Bankruptcy Code as against Sunbeam Corporation. Pursuant to the Bankruptcy Code
and the Sunbeam Corporation Plan, if it is confirmed and becomes effective, such
derivative actions become assets of Sunbeam Corporation. Sunbeam Corporation
believes the claims against Arthur Andersen are potentially meritorious. If
Sunbeam Corporation were to pursue claims against Arthur Andersen, it can be
expected that Arthur Andersen would defend itself vigorously and would assert
several defenses and offsets in addition to the defenses raised on its motion to
dismiss. As a result of the complexity of the case, and the potential defenses
and offsets Arthur Andersen may assert, it is not possible to estimate with any
certainty the likelihood of success of any action against Arthur Andersen or the
amount of any judgement Sunbeam Corporation could obtain in connection with such
an action. Sunbeam Corporation has not undertaken a detailed assessment of the
value of its potential claim against Arthur Andersen and the law relating to the
claim is uncertain and not fully developed.
However, Sunbeam Corporation believes that there is substantial doubt as to
Sunbeam Corporation's ability to collect on any judgement entered against Arthur
Andersen. On June 15, 2002, a jury convicted Arthur Andersen of obstruction of
justice as a result of, among other things, destruction of documents related to
its audit of Enron Corporation. In December 2001, Enron Corporation filed a
petition for relief under Chapter 11 of the Bankruptcy Code. Subsequent to
Arthur Andersen's conviction, Arthur Andersen ceased auditing companies on
August 31, 2002. In light of the potential exposure to creditors of Enron
Corporation, among other constituencies, it is not known whether there will be
any assets, including insurance proceeds, and if so, how much, available to
satisfy any judgement Sunbeam Corporation may obtain against Arthur Andersen.
50
As to the claims against Dunlap and Kersh, Sunbeam Corporation believes that
viable breach of fiduciary duty claims could be asserted against them for their
actions as Chief Executive Officer and Chief Financial Officer. In addition to
the claims already asserted, Sunbeam Corporation believes that additional claims
relating to their failure to disclose to the Board of Directors certain sales
and accounting practices utilized and/or authorized by them violated their
fiduciary duties to Sunbeam Corporation as well as claims to such repayment of
funds advanced to them by Sunbeam Corporation for their legal expenses. Both are
expected to put up vigorous defenses and the outcome is uncertain. Sunbeam
Corporation believes that viable claims exist and that it has a reasonable
probability of obtaining a substantial judgment against both for the very
significant and obvious diminution in the value of Sunbeam Corporation which
occurred as a result of their breach of fiduciary duties. Sunbeam Corporation
has concerns as to whether any judgment could be collected against either Dunlap
or Kersh and believes it may not be likely that insurance coverage (exclusive of
those that have settled with Sunbeam Corporation) would be available. All of the
insurance carriers have vigorously contested coverage and certain of the
carriers have already settled with Dunlap and Kersh in connection with other
litigation.
Sunbeam Corporation was named as a defendant in an action filed in the District
Court of Tarrant County, Texas, 48th Judicial District, on November 20, 1998.
The plaintiffs in this action are purchasers of the Debentures. The plaintiffs
allege that Sunbeam Corporation violated the Texas Securities Act and the Texas
Business & Commercial Code and committed state common law fraud in connection
with the offering and sale of the Debentures. Sunbeam Corporation specially
appeared to assert an objection to the Texas court's exercise of personal
jurisdiction over Sunbeam Corporation, and the complaint was dismissed without
prejudice for lack of jurisdiction. In October 2000, the plaintiffs also filed a
complaint against Sunbeam Corporation's subsidiary Sunbeam Products, Inc. in the
District Court for Dallas County alleging substantially the same allegations as
the complaint filed against Sunbeam Corporation in Tarrant County. The court in
such case has, on its own motion, closed this case without prejudice, and
provided either party to the case the right to file a motion to reinstate the
case within a 30 day period following the conclusion of the Chapter 11 case of
Sunbeam Products, Inc.
Messrs. Dunlap and Kersh have commenced an action against Sunbeam Corporation in
the Chancery Court for the State of Delaware seeking advancement from Sunbeam
Corporation of their alleged expenses incurred in connection with defending
themselves in the various actions described above in which they are defendants
and the investigation by the SEC described below. Sunbeam has defended these
claims contending, among other things, that the expenses for which plaintiffs
seek advancement are unreasonable. As a result of Sunbeam Corporation's Filing,
this case is automatically stayed under the Bankruptcy Code. Under the Sunbeam
Corporation Plan, if it is confirmed and becomes effective, the claims of
Messrs. Dunlap and Kersh for these payments will be discharged and such
claimants may potentially share in the $1.0 million provided for unsecured
creditors of Sunbeam Corporation (other than holders of Debentures) under the
Sunbeam Corporate Plan. See Note 1 of Notes to Condensed Consolidated Financial
Statements.
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 Corporation. Messrs. Dunlap and Kersh are
requesting a finding by the arbitrator that Sunbeam Corporation terminated their
employment without cause and that they should be awarded certain benefits based
upon their respective employment agreements. Sunbeam Corporation has filed
counterclaims asserting among other things fraudulent inducement by Messrs.
Dunlap and Kersh of their 1998 employment agreements and seeking, among other
things, the return of all consideration paid under such February 1998 employment
agreements. If Sunbeam Corporation were to prevail on its fraudulent inducement
counterclaim, Messrs. Dunlap and Kersh might still be entitled to recover the
remaining portions of their 1996 employment contracts as a set off. Sunbeam
Corporation believes that collectibility could be an issue should such a
judgment be entered against Dunlap and Kersh. As a result of Sunbeam
Corporation's Filing, this case is automatically stayed under the Bankruptcy
Code. Under the Sunbeam Corporation Plan, if it is confirmed and becomes
effective, the claims of Messrs. Dunlap and Kersh will be discharged and such
claimants may potentially share in the $1.0 million provided for unsecured
creditors of Sunbeam Corporation (other than holders of Debentures) under the
Sunbeam Corporate Plan. See Note 1 of Notes to Condensed Consolidated Financial
Statements.
51
Commencing in July 1998, three of the insurers that issued directors and
officers insurance filed suit against the Company requesting a declaratory
judgment that the directors' and officers' liability insurance policy for
coverage issued by such issuers was invalid and/or had been properly canceled.
Two of these cases were transferred to the U.S. District Court for the Southern
District of Florida for coordination and consolidation of pre-trial proceedings
with the various actions pending in that court. One of the cases is pending in
the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County,
Florida. As a result of Sunbeam Corporation's Filing, these cases are
automatically stayed as against Sunbeam Corporation. In April 1999, Sunbeam
Corporation filed an action in the U.S. 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 these insurers are not entitled to rescind
their respective directors' and officers' liability insurance policies issued to
Sunbeam Corporation and a declaratory judgment that Sunbeam Corporation is
entitled to coverage from these insurance companies for the various lawsuits
described herein under directors' and officers' liability insurance policies
issued by each of the defendants. Sunbeam Corporation has settled the National
Union action in 2000 resulting in the recovery of $10.0 million and has settled
the St. Paul and Gulf actions in 2001 resulting in the recovery of $13.6
million. The remaining actions are stayed.
By letter dated June 17, 1998, the staff of the Division of Enforcement of the
SEC advised Sunbeam Corporation that it was conducting an informal inquiry into
Sunbeam Corporation's accounting policies and procedures and requested that
Sunbeam Corporation produce certain documents. In July 1998, the SEC issued a
Formal Order of Private Investigation, pursuant to which subpoenas were served
on Sunbeam Corporation requiring the production of certain documents. Sunbeam
Corporation has resolved this investigation and in connection with such
resolution consented to an order which provided that Sunbeam Corporation will
cease and desist from future violations of the antifraud and other provisions of
the federal securities laws, but such order did not provide for the imposition
of monetary penalties.
Sunbeam Corporation has been informed that the office of the U.S. Attorney for
the Southern District of New York (the "U.S. Attorney") is conducting an
investigation into events that occurred at Sunbeam Corporation during the tenure
of Messrs. Dunlap and Kersh. The U.S. Attorney has not informed Sunbeam
Corporation of the particular matters under investigation. Based on Sunbeam
Corporation's settlement with the SEC, Sunbeam Corporation has no reason to
believe that it is the target of such investigation, although it has not
received any assurances from the U.S. Attorney's office in that regard.
Sunbeam Corporation and/or its subsidiaries are also involved in various other
lawsuits arising from time to time which Sunbeam Corporation considers to be
ordinary routine litigation incidental to its business. In the opinion of
Sunbeam Corporation, 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 Corporation and its subsidiaries.
Amounts accrued for litigation matters represent the anticipated costs (damages
and/or settlement amounts) in connection with pending litigation and claims and
related anticipated legal fees for defending such actions. The costs are accrued
when it is both probable that an asset has been impaired or a liability has been
incurred and the amount can be reasonably estimated. The accruals are based upon
the Company's assessment, after consultation with counsel, of probable loss
based on the facts and circumstances of each case, the legal issues involved,
the nature of the claim made, the nature of the damages sought and any relevant
information about the plaintiffs and other significant factors which vary by
case. When it is not possible to estimate a specific expected cost to be
incurred, the Company evaluates the range of probable loss and records the
minimum end of the range. As of September 30, 2002 and December 31, 2001,
Sunbeam Corporation and its subsidiaries had established accruals for litigation
matters of $27.5 million and $24.9 million, respectively. The September 30, 2002
balance includes $17.8 million that is subject to discharge under the terms of
the Sunbeam Corporation Plan. Of the remaining accrual balance of $9.7 million,
$4.6 million and $5.1 million represent estimated damages or settlement amounts
and legal fees, respectively. It is anticipated that the $27.5 million accrual
at September 30, 2002 will be paid as follows: $2.1 million in 2002, and $7.6
million in 2003, and $17.8 million will be subject to discharge under the terms
of the Sunbeam Corporation Plan. The Company believes, based on information
available on September 30, 2002, that anticipated probable costs of litigation
matters existing as of September 30, 2002 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. The Company 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 the Company's capital
expenditures or to have a material adverse effect on the Company's competitive
position, results of operations, financial position or cash flows.
52
In addition to ongoing environmental compliance at its operations, the Company
also is actively engaged in environmental remediation activities, many of which
relate to divested operations. As of September 30, 2002, Sunbeam Corporation or
various of its subsidiaries have been identified by the EPA or a state
environmental agency as a PRP pursuant to the federal Superfund Act and/or state
Superfund laws comparable to the federal law at the Environmental Sites.
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 Corporation or various of its subsidiaries recognize their
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 Corporation or various of its
subsidiaries have 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 Corporation's or various of its subsidiaries' potential
liability with respect to the Environmental Sites, Sunbeam Corporation or
various of its subsidiaries have actively participated in steering committees
and other groups of PRPs established with respect to such sites. Sunbeam
Corporation or various of its subsidiaries engage in active remediation
activities at seven Environmental Sites referred to above. The remediation
efforts in which the Sunbeam Corporation or various of its subsidiaries are
involved include facility investigations, including soil and groundwater
investigations, corrective measure studies, including feasibility studies,
groundwater monitoring, extraction and treatment and soil sampling, excavation
and treatment relating to environmental clean-ups. In certain instances, Sunbeam
Corporation or various of its subsidiaries have entered into agreements with
governmental authorities to undertake additional investigatory activities and in
other instances have agreed to implement appropriate remedial actions. Sunbeam
Corporation or various of its subsidiaries, when necessary, have also
established reserve amounts for certain non-compliance matters including those
involving air emissions.
Sunbeam Corporation or various of its subsidiaries have established reserves to
cover the anticipated probable costs of investigation and remediation, based
upon periodic reviews of all sites for which they have, or may have remediation
responsibility. Sunbeam Corporation or various of its subsidiaries accrue
environmental investigation and remediation costs when it is probable that a
liability has been incurred, the amount of the liability can be reasonably
estimated and their responsibility for the liability is established. Generally,
the timing of these accruals coincides with the earlier of formal commitment to
an investigation plan, completion of a feasibility study or a commitment to a
formal plan of action. As of September 30, 2002 and December 31, 2001, Sunbeam
Corporation's consolidated environmental reserves were $18.6 million and $20.1
million, respectively. The September 30, 2002 balance includes $17.6 million for
the estimated costs of facility investigations, corrective measure studies, or
known remedial measures, and $1.0 million for estimated legal costs. The
reserves for the matters that are the responsibility of the Inactive
Subsidiaries that have not filed for reorganization under the Bankruptcy Code
and liabilities for reserves that have been established for Sunbeam Corporation
that are subject to discharge under the Sunbeam Corporation Plan total, in the
aggregate, $2.8 million as of September 30, 2002; of which $2.1 million
represents the estimated costs of facility investigations, corrective measure
studies, or known remedial measures, and $0.7 million represents the estimated
legal costs. Prior to the Filings, Sunbeam Corporation loaned funds to the
Inactive Subsidiaries from time to time to enable the Inactive Subsidiaries to
fund their activities. However, as a result of Sunbeam Corporation's Filing, the
Inactive Subsidiaries may no longer depend upon Sunbeam Corporation for funding.
It is anticipated that the $15.8 million accrual at September 30, 2002 (which is
exclusive of the accrual for the matters subject to discharge under the Sunbeam
Corporation Plan and the accrual for certain of the Inactive Subsidiaries) will
be paid as follows: $2.7 million in 2002, $3.1 million in 2003, $1.7 million in
2004, $1.2 million in 2005, $0.8 million in 2006 and $6.3 million thereafter.
Sunbeam Corporation or various of its subsidiaries accrued its best estimate of
investigation and remediation costs based upon facts known to them at such dates
and because of the inherent difficulties in estimating the ultimate amount of
environmental costs, which are further described below, these estimates may
materially change in the future as a result of the uncertainties described
below. 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 Sunbeam Corporation and various of its
subsidiaries of new information. It is difficult to 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 technology, the
identification of new sites for which Sunbeam Corporation and various of its
subsidiaries could be a PRP, information relating to the exact nature and extent
of the contamination at each site and the extent of required cleanup efforts,
the uncertainties with respect to the ultimate outcome of issues which may be
actively contested and the varying costs of alternative remediation strategies.
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 environmental reserves.
53
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 Corporation and various of its
subsidiaries' ultimate future liability with respect to sites at which
remediation has not been completed may vary from the amounts reserved as of
September 30, 2002 and December 31, 2001. As a result of the Filings,
environmental matters, mostly involving claims for cost recovery or damages,
have been automatically stayed under the Bankruptcy Code as against the Debtors
unless an order lifting the stay is granted. Under the Sunbeam Corporation Plan,
if it is confirmed and becomes effective, the claims for payment of money
against Sunbeam Corporation will be discharged with no recovery for such claims.
The Company believes, based on information available as of September 30, 2002
for sites where costs are estimable, that the costs of completing environmental
remediation of all sites for which the Company has a remediation responsibility
have been adequately reserved and that the ultimate resolution of these matters
will not have a material adverse effect upon the Company's financial position,
results of operations or cash flows.
Product Liability Matters
As a consumer goods manufacturer and distributor, Sunbeam Corporation and/or its
subsidiaries face the risk 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 Sunbeam
Corporation's consolidated financial position, results of operations or cash
flows. Some of the product lines the Company acquired in the 1998 acquisitions
have increased its exposure to product liability and related claims.
Sunbeam Corporation and/or its subsidiaries are party to various personal injury
and property damage lawsuits relating to their products and incidental to its
business. Annually, Sunbeam Corporation sets its product liability insurance
program which is an occurrence based program based on Sunbeam Corporation and
its subsidiaries current and historical claims experience and the availability
and cost of insurance. The program for 2002 is comprised of a self-insurance
retention generally totaling $2.5 million per occurrence, and is limited to
$25.0 million in the aggregate.
Two putative nationwide class action lawsuits were filed in May 1998 against
First Alert and its subsidiary BRK Brands. One action was filed in Illinois
state court (the "Illinois Action") and the other action was filed in U.S.
District Court for the Northern District of Alabama (the "Alabama Action"). The
plaintiffs in the Illinois Action and Alabama Action alleged, among other
things, that the defendants failed to adequately inform consumers of the varying
performance characteristics of ionization and photoelectric smoke alarms.
Defendants reached a settlement with the plaintiffs in the Alabama Action to
resolve all similar claims nationwide and the Alabama court permanently enjoined
the plaintiffs in the Illinois Action from proceeding.
There are five components to the financial obligations of BRK Brands and First
Alert under the settlement: (1) the costs associated with the funding of a
public information campaign, (2) the costs associated with the development and
distribution of fire safety informational kits for retailers; (3) the costs
associated with a rebate program; (4) reimbursement of litigation expenses
incurred by plaintiffs' counsel in pursuing the class action litigation; and (5)
the costs of providing "incentive awards" to named plaintiffs in the class
action. It is anticipated that the future financial obligations arising under
the settlement will total approximately $4.7 million, excluding the potential
cost of the rebate program and separate and apart from the attorneys' fees of
$1.0 million that were placed into a segregated account in connection with the
settlement of the Alabama Action. These costs will be incurred over the two year
period following BRK Brands and First Alert's emergence from Chapter 11. The
district court approved the settlement of the Alabama Action. The named
plaintiffs in the Illinois Action filed a notice of appeal with the Eleventh
Circuit Court of Appeals. With the Debtors' consent, the Bankruptcy Court
modified the automatic stay solely to the extent necessary to permit the appeal
to proceed. On May 9, 2002, the Eleventh Circuit Court of Appeals rejected each
of the objectors' arguments and affirmed the district court's approval of the
settlement in its entirety. The settlement has become final. The Company
obtained limited relief from the automatic stay for the purpose of returning to
the Federal District Court in Alabama to seek certain modifications relating to
the implementation of the settlement and to release the attorneys' fees from the
segregated account referenced above.
54
Sunbeam Corporation (Canada) Limited ("Sunbeam Canada"), First Alert, BRK Brands
and other companies are defendants in an action brought in District Court, in
Ontario, Canada, by Trevor Hughes on behalf of himself and other Canadian
purchasers of ionization smoke alarms. Plaintiff is seeking class action status,
but the case has not been certified as a class action. Plaintiff contends that
ionization smoke alarms are inherently unreliable because, as plaintiff alleges,
they do not adequately detect smoke from smoldering fires. The plaintiff
contends that smoke alarms should only be sold if they use photoelectric
technology or a combination of photoelectric and ionization technologies.
Accordingly, plaintiff seeks a refund of the purchase price for his ionization
smoke alarm, and the cost of removing it and installing a replacement.
Defendants deny plaintiff's contentions. The Superior Court in Ontario, Canada
entered an order striking plaintiff's Statement of Claim as against all
defendants with leave to amend, and plaintiff appealed. In an order dated
September 11, 2002, the Court of Appeal for Ontario dismissed plaintiff's appeal
of the Superior Court's order striking his claims against Sunbeam Canada and BRK
Brands on the grounds that plaintiff alleged that the ionization smoke alarm he
purchased was manufactured by First Alert, and plaintiff cannot claim to have a
reasonable cause of action against defendants who did not manufacture his smoke
alarm. The Court of Appeal allowed plaintiff's appeal of the order striking
plaintiff's negligence claim against First Alert for recovery of economic loss.
In allowing plaintiff's appeal, the Court of Appeal noted Canadian courts have
limited recovery for purely economic losses in cases where the plaintiff does
not allege personal or property damage. The Court of Appeal ruled that the
Superior Court should have an evidentiary record before determining whether
First Alert owed a duty of care to compensate plaintiff for purely economic
loss. Plaintiff has indicated that he intends to seek leave to appeal from the
Supreme Court of Canada. First Alert intends to defend vigorously plaintiff's
claims.
On October 9, 2001, CPSC filed the CPSC Action. With respect to Sunbeam
Corporation, Chemetron, and Chemetron Investments, the CPSC alleged that
Chemetron and/or Chemetron Investments manufactured Star ME-1 dry sprinklers
from 1977 to 1983, and that Sunbeam Corporation is legally responsible for this
recall. The CPSC estimates that approximately 50,000 - 60,000 Star ME-1 dry
sprinkler heads were manufactured between 1977-1983, the period of time for
which the CPSC alleges Sunbeam Corporation, Chemetron, and Chemetron Investments
are responsible. The Star sprinkler business of Chemetron and/or Chemetron
Investments was sold to Grunau in 1983, and the remainder of the fire
suppression business of Chemetron and/or Chemetron Investments was purchased by
Figgie when Figgie acquired the stock of Chemetron Fire Systems in 1985. Sunbeam
Corporation acquired the stock of Chemetron and Chemetron Investments in
September 1990 when it acquired certain assets of Allegheny International.
Sunbeam Corporation is challenging this action on several grounds, including (i)
Star ME-1 sprinklers are not within the jurisdiction of the CPSC because they
are not "consumer products" as defined by the CPSA, and (ii) the Star ME-1
sprinklers do not present a "substantial product hazard" as defined in the CPSA.
Sunbeam Corporation's position is that the CPSA allows Sunbeam Corporation to
elect the remedy. One of the remedies under that statute is reimbursement of the
purchase price, minus a reasonable allowance for use. As a result, Sunbeam
Corporation's position is that any claims for reimbursement are subject to the
limited recovery provided for unsecured creditors in the Plan. The CPSC has
taken the position that, under the applicable statutes, the CPSC is given the
authority to approve the responsible parties' election of remedies; and that in
this case, it would require the responsible parties to repair and replace the
sprinkler heads, which would require the responsible party to pay for a
replacement head and the costs of repair and installation. The cost of repair
and replacement, including installation, could be approximately one hundred to
one hundred fifty dollars per sprinkler head. Discovery in the CPSC Action is
currently scheduled to close in November 2002.
As a result of the Filings, product liability cases in the United States
existing on the date of the Filings are automatically stayed under the
Bankruptcy Code against the Debtors, unless an order is granted lifting the
automatic stay.
Cumulative amounts estimated to be payable by the Company with respect to
pending and potential claims for all years in which the Company is liable under
its self-insurance retention have been accrued as liabilities. Such accrued
liabilities are necessarily based on estimates (which include actuarial
determinations made by independent actuarial consultants as to liability
exposure, taking into account prior experience, numbers of claims and other
relevant factors); thus, the Company's ultimate liability may exceed or be less
than the amounts accrued. The methods of making such estimates and establishing
the resulting liability are reviewed on a regular basis and any adjustments
resulting therefrom are reflected in current operating results.
Historically, product liability awards have rarely exceeded the Company's
individual per occurrence self-insured retention. There can be no assurance,
however, that the Company's future product liability experience will be
consistent with its past experience. Based on existing information, the Company
believes that the ultimate conclusion of the various pending product liability
claims and lawsuits of the Company, individually or in the aggregate, will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
55
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As a result of the Filings, the Company has not made any principal or interest
payments on pre-petition indebtedness classified as liabilities subject to
compromise.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders of the Company was held on June 27,
2000, for the purpose of considering and voting on the following proposals, all
as fully described in the Company's Proxy Statement related to such Annual
Meeting. The vote of each matter is set forth below:
PROPOSAL NO. 1
To elect the following Nominees as Directors of the Company:
For Withheld
--- --------
Philip E. Beekman.......................................................... 95,954,375 3,185,488
Charles M. Elson........................................................... 95,953,275 3,186,588
Howard Gittis.............................................................. 95,951,671 3,188,192
John H. Klein.............................................................. 95,957,457 3,182,406
Jerry W. Levin............................................................. 89,452,476 9,687,387
David J. Pecker............................................................ 95,950,114 3,189,749
James D. Robinson III...................................................... 95,956,850 3,183,013
Faith Whittlesey........................................................... 95,950,216 3,189,647
For Withheld Abstained
--- -------- ---------
PROPOSAL NO. 2
Approval of Stock Option Grant to Jerry W. Levin.................. 45,566,552 14,822,923 834,605
PROPOSAL NO. 3
Approval of Stock Option Grant to Paul E. Shapiro................. 45,480,269 14,974,760 834,052
PROPOSAL NO. 4
Approval of Stock Option Grant to Bobby G. Jenkins................ 45,526,944 14,906,270 856,265
PROPOSAL NO. 5
Approval of the amendment to the Sunbeam Corporation
Management Incentive Plan......................................... 54,003,515 6,433,865 851,703
PROPOSAL NO. 6
Approval to adopt the Sunbeam Corporation Key Executive
Long Term Incentive Plan.......................................... 54,170,078 6,287,091 831,911
PROPOSAL NO. 7
Approval to adopt the Sunbeam Corporation 2000 Option Plan........ 45,642,372 14,741,378 905,334
ITEM 5. OTHER INFORMATION
None
56
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
4.1 Revolving Credit and Grantee Agreement dated as of
February 6, 2001, as amended (the "DIP Credit Facility")
by and among Sunbeam Corporation, as Borrower, the
Subsidiary Debtors party thereto, the lenders party
thereto and Wachovia Corporation (as successor to First
Union National Bank), as Administrative Agent.
4.2 Amendment No. 1 dated as of March 12, 2001 to the DIP
Credit Facility
4.3 Amendment No. 2 dated as of March 22, 2001 to the DIP
Credit Facility
4.4 Amendment No. 3 dated as of March 30, 2001 to the DIP
Credit Facility
4.5 Amendment No. 4 dated as of April 30, 2001 to the DIP
Credit Facility
4.6 Amendment No. 5 dated as of June 29, 2001 to the DIP
Credit Facility
4.7 Amendment No. 6 dated as of August 17, 2001 to the DIP
Credit Facility
4.8 Amendment No. 7 dated as of August 31, 2001 to the DIP
Credit Facility
4.9 Amendment No. 8 dated as of September 28, 2001 to the
DIP Credit Facility
4.10 Amendment No. 9 dated as of October 31, 2001 to the DIP
Credit Facility
4.11 Amendment No. 10 dated as of November 30, 2001 to the
DIP Credit Facility
4.12 Amendment No. 11 dated as of December 31, 2001 to the
DIP Credit Facility
4.13 Amendment No. 12 dated as of January 25, 2002 to the DIP
Credit Facility
4.14 Amendment No. 13 dated as of January 31, 2002 to the DIP
Credit Facility
4.15 Amendment No. 14 dated as of February 28, 2002 to the
DIP Credit Facility
4.16 Amendment No. 15 dated as of March 13, 2002 to the DIP
Credit Facility
4.17 Amendment No. 16 dated as of March 29, 2002 to the DIP
Credit Facility
4.18 Amendment No. 17 dated as of April 15, 2002 to the DIP
Credit Facility
4.19 Amendment No. 18 dated as of April 30, 2002 to the DIP
Credit Facility
4.20 Amendment No. 19 dated as of May 31, 2002 to the DIP
Credit Facility
4.21 Amendment No. 20 dated as of June 28, 2002 to the DIP
Credit Facility
4.22 Amendment No. 21 dated as of July 31, 2002 to the DIP
Credit Facility
4.23 Amendment No. 22 dated as of August 30, 2002 to the DIP
Credit Facility
4.24 Amendment No. 23 dated as of November 8, 2002 to the DIP
Credit Facility
4.25 Third Amended Plan of Reorganization for Sunbeam
Corporation (Incorporated by reference from Exhibit 99.2
to the Current Report on Form 8-K filed on October 11,
2001 (the "Form 8-K").).
4.26 Third Amended Plan of Reorganization for the Subsidiary
Debtors (Incorporated by reference from Exhibit 99.4 to
the Form 8-K.).
4.27 Other instruments defining the rights of holders of
long-term debt of the registrant and its consolidated
subsidiaries are omitted pursuant to Rule 601(b)(4)(iii)
of Regulation 5-K. The registrant agrees to furnish
copies of such instruments to the Commission upon
request
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
57
(b) Reports on Form 8-K
On November 13, 2002, Sunbeam filed a Current Report on Form 8-K reporting,
under Item 9- Regulation FD Disclosure, announcing that Sunbeam Corporation
is modifying its business strategy for its outdoor grill business. Such
modifications include, but are not limited to, discontinuing manufacturing
operations in Neosho, Missouri.
On October 17, 2002, Sunbeam filed a Current Report on Form 8-K reporting,
under Item 9- Regulation FD Disclosure, disclosing the resignation of its
Chief Financial Officer.
On October 11, 2002, Sunbeam filed a Current Report on Form 8-K reporting,
under Item 9- Regulation FD Disclosure, disclosing the filing with the
Bankruptcy Court its revised Third Amended Plan of Reorganization, the
revised Third Amended Joint Plan of Reorganization for the Subsidiary
Debtors, and related revised Second Amended Disclosure Statements.
On September 27, 2002, Sunbeam filed a Current Report on Form 8-K
reporting, under Item 9- Regulation FD Disclosure, disclosing financial
information for the second quarter and six months ended June 30, 2002.
On September 10, 2002, Sunbeam filed a Current Report on Form 8-K
reporting, under Item 9- Regulation FD Disclosure, disclosing the filing
with the Bankruptcy Court of its Third Amended Plan of Reorganization, and
the Third Amended Joint Plan of Reorganization for the Subsidiary Debtors,
and the related Second Amended Disclosure Statements.
On February [20], 2001, Sunbeam filed a Current Report on Form 8-K
reporting, under Item 3- Bankruptcy or Receivership, disclosing the filing
of petitions for relief by Sunbeam Corporation and substantially all of its
domestic subsidiaries and the filing with the Bankruptcy Court of a Plan of
Reorganization for Sunbeam Corporation and the Joint Plan of Reorganization
for such subsidiaries of Sunbeam Corporation.
On December 6, 2000, Sunbeam filed a Current Report on Form 8-K reporting,
under. Item 4- Change in Accountant Previously Engaged to Audit a
Significant Subsidiary, dismissing Ernst and Young LLP as the auditor of
The Coleman Company and retaining Deloitte & Touche LLP.
58
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNBEAM CORPORATION
By: /s/ JOHN W. FREDERICK
------------------------------------
John W. Frederick
Senior Vice President of Finance and
Corporate Controller
(Principal Financial Officer)
Dated: November 19, 2002
59
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jerry W. Levin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sunbeam
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 19, 2002
/s/ Jerry W. Levin
Jerry W. Levin
Title: Chief Executive Officer
60
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John W. Frederick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Sunbeam
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 19, 2002
/s/ John W. Frederick
John W. Frederick
Title: Senior Vice President of Finance and Corporate Controller
(Principal Financial Officer)
61