Sunbeam 2004 Annual Report Download - page 21

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(cont’d)
In 2003, our branded consumables segment reported net sales of $257.9 million compared to
$111.2 million in 2002. This increase of 131.8% was principally the result of the Diamond Acquisition,
effective February 1, 2003, and the Lehigh Acquisition, effective September 2, 2003. In addition, the
acquisition of OWD in the second quarter of 2003 contributed to this increase. Excluding the effect of
acquisitions, net sales for our branded consumables segment in 2003 were comparable to 2002.
Our consumer solutions segment reported net sales of $216.1 million in 2003 compared to $145.3
million in net sales in 2002. This increase of 48.7% was principally the result of this segment being
acquired in April 2002 and, therefore, net sales for 2003 reflect sales for the full year but net sales for
2002 reflect sales for only nine months of the year. Additionally, the acquisition of VillaWare in the
fourth quarter of 2003 contributed to this increase. Furthermore, the year-on-year increase is a result of
organic U.S. retail and international sales growth of over 10% for this segment in the last three quarters
of 2003 compared to the same period in 2002.
In 2003, our plastic consumables segment reported net sales of $109.1 million compared to $70.6
million in 2002. The principal reason for this increase of 54.5% was intercompany sales generated by the
addition of the plastic manufacturing business acquired in the Diamond Acquisition. In addition, the
intercompany sales resulting from the acquisition of OWD in the second quarter of 2003 also
contributed to this increase. Excluding intercompany sales, net sales for the plastic consumables
segment increased slightly in 2003 due to higher sales volumes with a number of customers, partially
offset by the loss of sales to one large customer and a contractual sales price reduction with another
large customer.
In 2003, our other segment reported net sales of $42.8 million compared to $41.0 million in 2002.
The principal reason for this increase of 4.3% was an increase in sales to a major customer as a result of
a contractual change whereby this segment took on the responsibility of purchasing the raw material
inventory for the customer.
We reported operating earnings of $71.5 million in 2003 compared to operating earnings of $65.1
million in 2002. This increase of $6.4 million, or 9.7%, occurred despite the 2003 operating earnings
being negatively impacted, as a result of a non-cash restricted stock charge of approximately $21.8
million. Excluding this non-cash restricted stock charge, our operating earnings would have been 43.3%
higher than 2002. The principal reason for this increase was that the branded consumables segment’s
operating earnings increased by $18.5 million from 2002 to 2003, due to the addition of the acquired
Diamond Brands and Lehigh product lines, as well as an increase in organic operating earnings due to a
favorable home canning sales mix resulting from increased sales of premium products. Also, the
operating earnings of the consumer solutions segment increased by $10.9 million, principally due to (i)
the acquisition of this business in April 2002; (ii) the acquisition of VillaWare in the fourth quarter of
2003 and (iii) increased organic net sales of over 10% in the final three quarters of 2003 relative to the
comparable prior year periods, partially offset by increased litigation costs arising from an action that we
took against certain competitors who we believe had infringed on our intellectual property. Operating
earnings in 2003 for our plastic consumables segment were approximately $0.5 million higher than the
same period in the prior year due to the earnings effect from the intercompany sales, partially offset by
lower gross margins resulting from the changes in net sales discussed above. Operating earnings in 2003
for our other segment were $0.8 million lower compared to the same period in the prior year due to a
greater amount of net sales having lower gross margins principally due to the contractual change with
one major customer as discussed above.
Gross margin percentages on a consolidated basis decreased to 36.3% in 2003 from 39.1% in 2002.
The primary reason for these lower gross margins is the addition of the relatively lower gross margin
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