Sunbeam 2005 Annual Report Download - page 19

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Management’s Discussion and Analysis of Financial Condition and
Results of Operations (cont’d)
(3) The outdoor solutions segment was created upon the purchase of the Coleman business with the AHI
Acquisition, effective January 24, 2005.
(4) Intersegment sales are recorded at cost plus an agreed upon intercompany profit on intersegment sales.
We reported net sales of $3.2 billion in the year ended December 31, 2005, a 280% increase from net
sales of $839 million in the same period for 2004. On a segment by segment basis, the increase in net sales
from 2004 to 2005 is comprised as follows:
‰Our branded consumables segment reported net sales of $560.2 million compared to $473.1 million
in 2004. This increase of approximately $87.1 million, or 18.4%, was principally a result of the
USPC Acquisition completed during late June 2004. Net sales of USPC products was
approximately $148.5 million in 2005 compared to $87.7 million for the period from acquisition to
December 31, 2004 while combined sales of the other businesses comprising this segment grew by
a margin of 6.8%, or $26.3 million, in the year ended December 31, 2005 as compared to the same
period for 2004.
‰Our consumer solutions segment recorded net sales of $1.6 billion compared to $222 million in net
sales in 2004. This increase was the result of the AHI Acquisition and THG Acquisition, which
accounted for approximately $1.4 billion of the increase, offset by a $45.0 million decrease
primarily in sales of our FoodSaver®machines. The decline in FoodSaver®sales, which started
towards the end of 2004, is anticipated to abate in 2006 and results primarily from a shift in the mix
of the business to lower priced stock keeping units or “SKUs.”
‰Our outdoor solutions segment recorded net sales of $820.7 million. This segment was created
upon the purchase of the Coleman business with the AHI Acquisition, effective January 24, 2005.
‰Our other segment reported net sales of $233.6 million compared to $195.6 million for 2004. This
increase in net sales from 2004 to 2005 was principally due to higher sales of plastic cutlery and
Ball®freezer jars and higher third party sales of low denomination coinage.
Gross margin percentages on a consolidated basis decreased to 24.7% in the year ended December 31,
2005 compared to 32.9% in the year ended December 31, 2004. The gross margin percentage for the year
ended December 31, 2005 would have been 25.5% absent the negative impact of the purchase accounting
adjustments for manufacturer’s profit in acquired inventory and write-offs of inventory related to
reorganization and acquisition-related integration initiatives of $22.4 million and $2.5 million, respectively.
The principal reason for the decrease was due to the addition of the acquired AHI and Holmes product
lines, which have historically lower gross margins than the businesses included in the same 2004 period.
Selling, general and administrative (“SG&A”) expenses increased to $572 million in the year ended
December 31, 2005 from $179 million in the year ended December 31, 2004. On a percentage of net sales
basis, SG&A expenses decreased to 17.9% in 2005 from 21.4% in 2004. The increase in dollar terms was
principally the result of the acquisitions completed during 2005 and 2004. The decrease in percentage
terms was principally due to the inclusion of the acquired AHI and Holmes businesses which allow the
leveraging of these expenses over a larger revenue base and cost saving initiatives.
Included in SG&A for the years ended December 31, 2005 and 2004 are non-cash compensation costs
primarily related to stock options and restricted stock awards of approximately $62.4 million and $32.4
million, respectively, resulting from the lapsing of restrictions over restricted stock issuances to certain
executive officers and, with respect to such costs in 2005 only, the early adoption of the provisions of SFAS
No. 123R.
17