Sunbeam 2005 Annual Report Download - page 17

Management’s Discussion and Analysis of Financial Condition and
Results of Operations (cont’d)
2005 Activity
On July 18, 2005, we completed our acquisition of Holmes, a privately held company, for
approximately $420 million in cash and 6.15 million shares of our common stock. Holmes is a leading
manufacturer and distributor of home environment and small kitchen electrics under brand names such as
Bionaire®, Crock-Pot®, Harmony®, Holmes®, Patton®, Rival®, Seal-a-Meal®and White Mountain™.
Effective on the acquisition date, the Holmes business was integrated within our existing consumer
solutions segment. Financing for the THG Acquisition is discussed in “Financial Condition, Liquidity and
Capital Resources” below.
On January 24, 2005, we completed our acquisition of AHI, a privately held company, for
approximately $745.6 million for the equity and the repayment of approximately $100 million of
indebtedness. Of the equity portion of the purchase price, we held back $40.0 million from the sellers to
cover potential indemnification claims against the sellers of AHI. Effective on the acquisition date, the
legacy Sunbeam Products business was integrated within our existing consumer solutions segment and the
Coleman business formed a new segment named outdoor solutions. Financing for the AHI Acquisition is
discussed in “Financial Condition, Liquidity and Capital Resources” below.
2004 Activity
On June 28, 2004 we acquired approximately 75.4% of the issued and outstanding stock of USPC and
subsequently acquired the remaining 24.6% pursuant to a put/call agreement (“Put/Call Agreement”) on
October 4, 2004. USPC is a manufacturer and distributor of playing cards and related games and
accessories. USPC’s portfolio of owned brands includes Aviator®, Bee®, Bicycle®and Hoyle®. In addition,
USPC has an extensive list of licensed brands, including Disney®, Harley-Davidson®, Mattel®, NASCAR®
and World Poker Tour™. USPC’s international holdings include Naipes Heraclio Fournier, S.A., a leading
playing card manufacturer in Europe. The aggregate purchase price was approximately $238.0 million,
including transaction expenses and deferred consideration amounts. The cash portion of the purchase price
funded on June 28, 2004 was financed using a combination of cash on hand, new debt financing (see
discussion in “Financial Condition, Liquidity and Capital Resources” below) and borrowings under our
then existing revolving credit facility. The cash portion of the October 4, 2004 exercise of the Put/Call
Agreement was funded by a combination of cash on hand and borrowings under our then existing revolving
credit facility.
As of December 31, 2005, in connection with the USPC Acquisition, we have accrued approximately
$9.5 million of deferred consideration for acquisitions. In addition, the USPC Acquisition includes an
earn-out provision with a potential payment in cash of up to $2 million and an additional potential payment
of up to $8 million (for a potential total of up to $10 million) in either cash or our common stock, at our sole
discretion, payable in 2007, provided that certain earnings performance targets are met. If paid, we expect
to capitalize the cost of the earn-out. USPC is included in our branded consumables segment from June 28,
2004.
During the first quarter of 2004, we completed the tuck-in acquisition of Loew-Cornell. Loew-Cornell
is a leading marketer and distributor of paintbrushes and other arts and crafts products. The Loew-Cornell
Acquisition includes an earn-out provision with a payment in cash or our common stock, at our sole
discretion, based on earnings performance targets. As of December 31, 2005, the outcome of the contingent
earn-out is not determinable beyond a reasonable doubt. Therefore, only the prepayment of the contingent
consideration ($0.3 million to be paid in 2006) has been recorded as part of Deferred Consideration for
Acquisitions on our Consolidated Balance Sheet. Loew-Cornell is included in the branded consumables
segment from March 18, 2004.
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