Sunbeam 2006 Annual Report Download - page 33

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Included in selling, general and administrative expenses 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 $62.4million and $32.2
million, respectively, resulting from the lapsing of restrictions over restricted stock awards and the early adoption of the provi-
sions of SFAS No. 123r.
Reorganization and acquisition-related integration costs of $29.1million were incurred in the year ended December 31,
2005,primarily consisting of severance and other employee related benefit costs as well as charges relating to the transitioning
of operations between facilities and offices, plant closures and write-offs of the carrying value of certain equipment and soft-
ware applications.
Net interest expense increased to $84.2million in the year ended December 31,2005 compared to $27.6million in the
year ended December 31,2004.This increase was principally due to higher levels of outstanding debt maintained during 2005
compared to the same period in 2004,resulting from the additional debt financing required to fund the acquisitions of
Holmes and AHI. In addition, its weighted average interest rate increased from approximately 5.5%in 2004 to just over 6.4%
in 2005.
The Company’s effective tax rate for the year ended December 31,2005 was 36.5%compared to an effective tax rate of
38%in the year ended December 31,2004.The principal reason for this decline was lower tax rates assessed on foreign earn-
ings, which represent a larger proportion of the Company’s earnings in 2005 as compared to 2004.
In connection with the AHI Acquisition, the Company issued $350 million of equity securities, comprised of approxi-
mately $21.4million of its common stock, approximately $128.6million of its Series B Convertible Participating Preferred
Stock (“Series B Preferred Stock”) and approximately $200.0million of its Series C Mandatory Convertible Participating
Preferred Stock (“Series C Preferred Stock”) to certain private equity investors (see “Financial Condition, Liquidity and
Capital Resources”). As a result, its net income of $60.7million for the year ended December 31,2005 was reduced by paid-
in-kind dividends on the Series B Preferred Stock and Series C Preferred Stock in the aggregate amount of approximately
$9.7million, and further reduced by a $38.9million beneficial conversion charge on the Series B Preferred Stock and Series
CPreferred Stock. Therefore, its earnings available to common stockholders was $12.1million for the year ended December
31,2005 and its diluted earnings per share was $0.22,compared to diluted earnings per share of $0.99 for the same period
last year. The Series B Preferred Stock and accrued paid-in-kind dividends were converted into common stock in the third
quarter of 2005.The Series C Preferred Stock and accrued paid-in-kind dividends were converted into Series B Preferred
Stock and common stock during the second quarter of 2005.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company believes that its cash and cash equivalents, cash generated from operations and the availability under the
senior credit facility as of December 31,2006,provide sufficient liquidity to support working capital requirements, planned
capital expenditures, completion of current and future reorganization and acquisition-related integration programs, and
servicing debt obligations.
Net cash provided by operating activities was $236 million for the year-ended December 31,2006,compared to net cash
provided by operating activities of $241 million for the same period last year. This includes $38.8million and $19.3million
of cash paid for reorganization and acquisition-related integration costs in 2006 and 2005, respectively. Excluding cash
restructuring, the overall improvement is primarily due to improved operating results and benefits realized from the reorgan-
ization and acquisition-related integration initiatives.
Net cash provided by financing activities for the year-ended December 31,2006 was $4.4million compared to net cash
provided of approximately $1.3billion for the same period in 2005.The decrease was principally driven by the repurchase of
two million shares of the Company’s common stock in March 2006 through a privately negotiated transaction for $50 million,
as well as the issuance of debt to fund the AHI and THG acquisitions during 2005.The Company has never paid cash divi-
dends on its common shares and currently does not plan to do so for the foreseeable future.
31
Management’s Discussion and Analysis
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