Sunbeam 2007 Annual Report Download - page 54

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Results of Operations—Comparing 2007 to 2006
Net Sales
Years Ended December 31,
2007 2006
(in millions)
Outdoor Solutions ....................................................... $1,698.6 $ 901.0
Consumer Solutions ...................................................... 1,869.2 1,892.2
Branded Consumables .................................................... 806.2 812.0
Process Solutions ........................................................ 353.6 309.4
Intercompany eliminations(1) .............................................. (67.5) (68.3)
$4,660.1 $3,846.3
(1) Intersegment sales are recorded at cost plus an agreed upon intercompany profit on intersegment sales.
Net sales in 2007 increased $814 million, or 21%, to $4.7 billion versus 2006. The overall increase in net
sales was due to the acquisitions of K2 and Pure Fishing (combined revenue $863 million). Net sales in the
Outdoor Solutions segment increased $798 million as a result of the K2 and Pure Fishing acquisitions, offset by
decreases in the domestic Coleman business, primarily due to inventory reduction initiatives at certain mass
retailers. Net sales in the Consumer Solutions segment decreased $23 million or 1.2%, which was primarily due
to weakness in domestic sales, partially offset by increased demand and improved pricing internationally. Net
sales in the Branded Consumables segment decreased slightly, which is mainly due to decreased category
demand, primarily at domestic home improvement retailers and poker-related sales. The Process Solutions
segment grew 14.3% on a year over year basis, primarily due to the inclusion of the K2 monofilament business
and the impact of cost increases in zinc compared to 2006.
Cost of sales increased $613 million to $3.5 billion for 2007 versus 2006, primarily due to the increase in
sales volume from acquisitions and the inclusion of a $119 million charge related to the purchase accounting
adjustment for the elimination of manufacturer’s profit in inventory related to the K2 and Pure Fishing
acquisitions (versus $10.4 million in 2006). The fair value of the inventory acquired was valued at the sales price
of the finished inventory, less costs to complete and a reasonable profit allowance for selling effort. Cost of sales
as a percentage of net sales for both 2007 and 2006 was 75.5% (72.9% and 75.2%, respectively excluding the
charges for the elimination of manufacturer’s profit in inventory). The improved margins are primarily due to
acquired businesses favorable product mix, price increases, the benefit of integration related activities and
improved operating efficiencies, partially offset by raw material price increases.
Selling, general and administrative expenses increased $256 million to $861 million for 2007 versus 2006.
The increase was primarily due to acquisitions of K2 and Pure Fishing ($199 million), incremental stock based
compensation expense ($41 million) and increased advertising, marketing and product development costs, as
well as the benefits from prior year reorganization and integration initiatives.
Reorganization and acquisition-related integration costs, net, increased $12.8 million to $49.6 million for
2007 versus the same period in the prior year primarily due to the K2 and Pure Fishing acquisitions and lease exit
costs. These charges primarily relate to the ongoing integration-related activities across all segments as the
Company rationalizes its manufacturing and administrative platforms principally as a result of acquisitions in
both current and prior years. The Company expects that any additional charges over the next two years will be
incurred primarily within the Outdoor Solutions segment, as the reorganization of the Branded Consumables and
Consumer Solutions segments are largely complete.
Net interest expense increased by $37.1 million for 2007 versus 2006. This increase was principally due to
higher levels of outstanding debt versus the same prior year period, partially offset by a $3.7 million increase in
interest income primarily generated from our cash on hand as a result of the February 2007 debt refinancing
(discussed hereafter in the “Capital Resources” section). The weighted average interest rate for 2007 decreased to
7.0% from 7.3% in 2006.
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