Sunbeam 2004 Annual Report Download - page 20

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(cont’d)
restricted stock charges, our operating earnings would have been 37.8% higher than 2003. The principal
reason for this increase was the effect of our 2003 and 2004 acquisitions. Due to the integration of
certain of our acquisitions it is no longer possible to compare the operating earnings, exclusive of
acquisitions, in the branded consumables segment with the prior year. The operating earnings of our
consumer solutions segment decreased by $5.5 million principally due to the sales effects discussed
above. The operating earnings of our plastic consumables segment decreased by $2.9 million due to
higher plastic resin prices which were not passed through to our branded consumables segment with
respect to plastic cutlery products and higher validation costs incurred for new business development
projects, partially offset by the sales effects discussed above. Operating earnings of our other segment
increased by $3.5 million due primarily to the sales effects discussed above.
Gross margin percentages on a consolidated basis decreased to 32.8% in 2004 from 36.3% in 2003.
The principal reasons for this decrease are the impact of the acquisitions completed in the last sixteen
months which have relatively lower gross margins, higher distribution costs in our branded consumables
segment, a shift to lower priced FoodSaver®machines in our consumer solutions segment and the effect
of the contractual tolling changes in our other segment as discussed above.
Selling, general and administrative expenses decreased as a percentage of net sales from 20.4% in
2003 to 17.5% in 2004. The decrease in percentage terms was principally due to the inclusion of the
acquisitions completed during 2003 and 2004, which have relatively lower selling, general and
administrative expenses as a percentage of net sales and to spending not increasing at the same rate as
organic growth. The increase in dollar terms, from $119.8 million in 2003 to $146.9 million in 2004, was
principally the result of the acquisitions completed during 2003 and 2004, higher sales and marketing
expenses in our branded consumables segment and higher validation costs incurred for new business
development projects and higher employee compensation costs in our plastic consumables segment,
partially offset by lower media spending, lower legal costs and lower employee compensation costs in the
consumer solutions segment.
During the fourth quarters of 2004 and 2003, we recorded non-cash restricted stock charges of
approximately $32.4 million and $21.8 million, respectively, relating to the lapsing of restrictions over
restricted stock issuances to certain executive officers.
Net interest expense increased to $27.6 million in 2004 compared to $19.2 million in 2003. This
increase was primarily due to higher levels of outstanding debt in 2004 compared to 2003, resulting from
the additional debt financing required to fund the acquisitions completed in the last sixteen months.
Our effective tax rate in 2004 was 38.0% compared to an effective tax rate of 39.2% in 2003.
Our diluted earnings per share increased from $1.35 in 2003 to $1.49 in 2004 or, in percentage
terms, by 10.4% over the prior year. Given our diluted weighted average shares outstanding in 2004 and
2003 of 28.5 million and 23.5 million, respectively, the effect of the non-cash restricted stock charges
discussed above was to reduce our diluted earnings per share amounts reported under GAAP by $0.71
and $0.56 in 2004 and 2003, respectively.
Results of Operations – Comparing 2003 to 2002
We reported net sales of $587.7 million in 2003, a 60.1% increase from net sales of $367.1 million in
2002.
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