<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-988
THE COLEMAN COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3639257
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2111 E. 37th Street North, Wichita, Kansas 67219
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
316-832-2700
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. _X_ Yes ___ No
The number of shares outstanding of the registrant's par value $.01 common stock
was 55,827,410 shares as of May 5, 1998, of which 44,067,520 shares were held by
Coleman Worldwide Corporation, an indirect wholly-owned subsidiary of Sunbeam
Corporation.
Exhibit Index on Page 14.
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997. . . . . . . . . 3
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997. . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997. . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244,499 $ 295,464
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,777 214,422
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,722 81,042
Selling, general and administrative expenses . . . . . . . . . . . . . . . 74,855 65,873
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,044 10,712
Amortization of goodwill and deferred charges. . . . . . . . . . . . . . . 2,934 2,865
Gain on sale of business . . . . . . . . . . . . . . . . . . . . . . . . . (26,137) --
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,861 271
---------- ----------
Earnings before income taxes, minority interest
and extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . 6,165 1,321
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,518 510
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 112
---------- ----------
(Loss) earnings before extraordinary item. . . . . . . . . . . . . . . . . (1,414) 699
Extraordinary loss on early extinguishment of debt,
net of income tax benefit . . . . . . . . . . . . . . . . . . . . . . . (1,232) --
---------- ----------
Net (loss) earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,646) $ 699
---------- ----------
---------- ----------
Basic and diluted (loss) earnings per share:
(Loss) earnings before extraordinary item . . . . . . . . . . . . . . . $ (0.03) $ 0.01
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02) --
---------- ----------
Net (loss) earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.05) $ 0.01
---------- ----------
---------- ----------
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,731,639 53,231,433
---------- ----------
---------- ----------
Dilutive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,731,639 53,283,832
---------- ----------
---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 21,498 $ 13,031
Accounts and notes receivable, less allowance of $8,051 in 1998
and $8,930 in 1997. . . . . . . . . . . . . . . . . . . . . . . . . . 215,098 194,616
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,343 236,327
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . 26,196 26,378
Prepaid assets and other. . . . . . . . . . . . . . . . . . . . . . . . 22,210 21,344
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . 531,345 491,696
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . 161,138 175,494
Intangible assets related to businesses acquired, net. . . . . . . . . . . 291,860 332,468
Deferred tax assets and other. . . . . . . . . . . . . . . . . . . . . . . 37,636 42,106
------------ ------------
$1,021,979 $1,041,764
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable. . . . . . . . . . . . . . . . . . . . . . . $ 151,315 $ 158,878
Affiliate debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,711 --
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . 86,360 94,319
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 328,386 253,197
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,231 477,276
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,096 69,586
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,224 1,236
Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552 534
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 203,860 172,072
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,649 80,296
Accumulated comprehensive income. . . . . . . . . . . . . . . . . . . . (15,019) (12,433)
------------ ------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 267,042 240,469
------------ ------------
$1,021,979 $1,041,764
------------ ------------
------------ ------------
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,646) $ 699
-------- --------
Adjustments to reconcile net (loss) earnings to net cash flows
from operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 9,508 9,590
Gain on sale of business. . . . . . . . . . . . . . . . . . . . . . . (26,137) --
Extraordinary loss on early extinguishment of debt. . . . . . . . . . 2,038 --
Minority interest in earnings of Camping Gaz. . . . . . . . . . . . . 61 112
Change in assets and liabilities:
Increase in receivables . . . . . . . . . . . . . . . . . . . . . . (34,531) (60,454)
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . (31,043) (5,258)
Increase in accounts payable. . . . . . . . . . . . . . . . . . . . 4,177 18,655
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,036) (4,383)
-------- --------
(80,963) (41,738)
-------- --------
Net cash used by operating activities. . . . . . . . . . . . . . . . . . . (83,609) (41,039)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,698) (6,313)
Net proceeds from sale of business and fixed assets. . . . . . . . . . . . 98,264 2,126
-------- --------
Net cash provided (used) by investing activities . . . . . . . . . . . . . 88,566 (4,187)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit agreement borrowings. . . . . . . . . . . (52,578) (8,959)
Net change in short-term borrowings. . . . . . . . . . . . . . . . . . . . (3,352) 48,996
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . (63,416) (64)
Increase in borrowings from affiliate. . . . . . . . . . . . . . . . . . . 90,711 --
Debt refinancing costs . . . . . . . . . . . . . . . . . . . . . . . . . . -- (718)
Proceeds from stock options exercised including tax benefits . . . . . . . 31,805 197
-------- --------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 3,170 39,452
-------- --------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . 340 1,341
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 8,467 (4,433)
Cash and cash equivalents at beginning of the period . . . . . . . . . . . 13,031 17,299
-------- --------
Cash and cash equivalents at end of the period . . . . . . . . . . . . . . $21,498 $12,866
-------- --------
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. BACKGROUND
The Coleman Company, Inc. ("Coleman" or the "Company") is a leading
manufacturer and marketer of consumer products for outdoor recreation and home
hardware use on a global basis.
Coleman is a subsidiary of Coleman Worldwide Corporation ("Coleman
Worldwide"). Coleman Worldwide is a subsidiary of Laser Acquisition Corp.
("Laser"), a wholly-owned subsidiary of Sunbeam Corporation ("Sunbeam").
Coleman Worldwide owns 44,067,520 shares of the common stock of Coleman which
represent approximately 80% of the outstanding Coleman common stock as of March
31, 1998.
On February 27, 1998, CLN Holdings Inc. ("CLN Holdings") and Coleman
(Parent) Holdings Inc. ("Parent Holdings"), the parent company of CLN Holdings,
entered into an Agreement and Plan of Merger (as amended, the "Holdings Merger
Agreement") with Sunbeam and Laser. On March 30, 1998, pursuant to the Holdings
Merger Agreement, CLN Holdings was merged with and into Laser, with Laser
continuing as the surviving corporation and as a wholly owned subsidiary of
Sunbeam (the "Holdings Merger"). In the Holdings Merger, Parent Holdings
received 14,099,749 shares of Sunbeam Common Stock and $159,957 in cash in
exchange for all of the outstanding shares of CLN Holdings. As a result of the
Holdings Merger, Sunbeam became the indirect owner of the 44,067,520 shares of
Coleman common stock held by Coleman Worldwide (the "Sunbeam Acquisition").
Coincident with the execution of the Holdings Merger Agreement, the
Company, Sunbeam and Camper Acquisition Corp. ("CAC"), a wholly-owned subsidiary
of Sunbeam, entered into an Agreement and Plan of Merger (the "Coleman Merger
Agreement" and with the Holdings Merger Agreement, collectively, the "Merger
Agreements"), providing that, among other things, CAC will be merged with and
into Coleman, with Coleman continuing as the surviving corporation (the "Coleman
Merger"). Pursuant to the Coleman Merger Agreement, each share of the Company's
common stock issued and outstanding immediately prior to the effective time of
the Coleman Merger (other than shares held indirectly by Sunbeam and dissenting
shares, if any) will be converted into the right to receive (a) 0.5677 of a
share of Sunbeam common stock, with cash paid in lieu of fractional shares, and
(b) $6.44 in cash, without interest.
Upon consummation of the Coleman Merger, Coleman will become an indirect
wholly-owned subsidiary of Sunbeam. Per the terms of the Merger Agreements,
certain arrangements with Parent Holdings and its affiliates have been or may be
altered or terminated. In addition, outstanding, unvested stock options of
Coleman immediately vested upon consummation of the Holdings Merger and will
be cashed out at a price per share equal to the difference between $27.50 and
the exercise price of such option.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Coleman include the accounts of the Company and its subsidiaries after
elimination of all material intercompany accounts and transactions, and have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and one-time adjustments related to the acquisition
of Coleman by Sunbeam) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the
6
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share data)
(Unaudited)
results that may be expected for the year ended December 31, 1998. The
balance sheet at December 31, 1997 has been derived from the audited
financial statements for that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1997.
3. INVENTORIES
The components of inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw material and supplies. . . . . $ 54,369 $ 59,406
Work-in-process . . . . . . . . . . . 9,207 7,813
Finished goods. . . . . . . . . . . . 182,767 169,108
------------ ------------
$246,343 $236,327
------------ ------------
------------ ------------
</TABLE>
4. LONG-TERM DEBT
In March 1998, as a result of the Sunbeam Acquisition, the Company repaid
all outstanding indebtedness under the Company's credit agreement and the credit
agreement was terminated. In connection with the termination of this agreement,
the Company recorded an extraordinary loss of $2,038 ($1,232 after tax, or $0.02
per share) which represents a write-off of the related unamortized financing
costs associated with the credit agreement.
In addition, the Company's various senior notes, aggregating $360,000 at
March 31, 1998, were redeemed on April 21, 1998 at a cost of $383,395. The
$23,395 of redemption costs in excess of carrying value will be reflected as
additional extraordinary loss on early extinguishment of debt in the second
quarter of 1998 along with the write-off of the related unamortized financing
costs associated with these senior note issuances in the amount of $2,694.
The Company relies upon loans from Sunbeam for the Company's liquidity
needs. Amounts advanced from Sunbeam are due on demand and bear interest at the
rate of 6% per annum as of March 31, 1998 and are reflected as affiliate debt in
the condensed consolidated balance sheet.
5. SALE OF BUSINESS
On March 24, 1998, the Company sold Coleman Safety & Security Products,
Inc. ("CSS"), a wholly-owned subsidiary of the Company which manufactured and
sold safety and security products, to Ranco Incorporated of Delaware
("Ranco") and Siebe plc, the parent of Ranco, for approximately $97,937, net
of fees and expenses. In connection with the sale of CSS, the Company
recorded a pre-tax gain of $26,137. The net proceeds from the sale of CSS
are subject to post-closing adjustments and could result in an adjustment to
the gain.
7
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share data)
(Unaudited)
6. OTHER CHARGES
During the three months ended March 31, 1998, the Company recorded
certain pre-tax charges totaling $12,931 which included (i) $7,128 of costs
associated with the acquisition of Coleman by Sunbeam, (ii) the write-off of
$3,578 of capitalized costs associated with the installation of a company-wide
enterprise resource computer software system which was abandoned following the
Sunbeam Acquisition, and (iii) $2,225 of costs to terminate a licensing services
agreement with an affiliate of Parent Holdings. During the three months ended
March 31, 1997, the Company recorded certain other pre-tax charges totaling
$3,928, primarily related to severance costs associated with certain executive
changes.
7. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this Statement had no impact
on the Company's net income or shareholders' equity. SFAS No. 130 requires
foreign currency translation adjustments and minimum pension liability
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. The Company's
comprehensive loss was $5,232 and $5,773 for the three months ended March 31,
1998 and 1997, respectively.
8. BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which establishes new standards for
computing and presenting basic and diluted earnings per share. As required by
SFAS No. 128, the Company adopted the provisions of the new standard with
retroactive effect beginning in 1997. Accordingly, all net earnings (loss) per
common share amounts for all prior periods have been restated to comply with
SFAS No. 128.
The basic earnings (loss) per common share has been computed based upon the
weighted average shares of outstanding common stock. Diluted earnings (loss)
per common share has been computed based upon the sum of the weighted average
shares of outstanding common stock and the weighted average incremental shares
that would have been outstanding assuming dilutive potential common stock had
been issued. The Company's outstanding common stock options represent the only
dilutive potential common stock. The amounts of earnings (loss) used in the
calculations of basic and diluted earnings (loss) per common share were the same
for all periods presented. The number of shares used in the calculation of
diluted earnings per common share included 52,399 incremental shares for the
three month period ended March 31, 1997 to recognize the effect of dilutive
stock options. The number of shares used in the calculation of diluted loss per
common share for the three month period ended March 31, 1998 does not include
any incremental shares that would have been outstanding assuming the exercise of
any stock options because the effect of these shares would have been
antidilutive.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments in
8
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except share data)
(Unaudited)
annual financial statements and requires those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will apply the provisions
of SFAS No. 131 beginning January 1, 1998; however, financial statement
disclosures for interim periods in 1998 are not required to be presented in
interim financial statements issued in 1998.
10. SUBSEQUENT EVENT
On May 11, 1998, Sunbeam announced a comprehensive growth and restructuring
plan that includes certain initiatives involving Coleman's operations. The
restructuring initiatives related to Coleman include, among other things, (i)
combining the Company's headquarters with Sunbeam's headquarters in Florida,
(ii) the consolidation of factories, warehouses, and sales offices, and (iii)
the divestiture of the Eastpak related businesses and the compressor and spa
businesses.
9
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On February 27, 1998, CLN Holdings Inc. ("CLN Holdings") and Coleman
(Parent) Holdings Inc. ("Parent Holdings"), the parent company of CLN Holdings,
entered into an Agreement and Plan of Merger (as amended, the "Holdings Merger
Agreement") with Sunbeam and Laser. On March 30, 1998, pursuant to the Holdings
Merger Agreement, CLN Holdings was merged with and into Laser, with Laser
continuing as the surviving corporation and as a wholly owned subsidiary of
Sunbeam (the "Holdings Merger"). In the Holdings Merger, Parent Holdings
received 14,099,749 shares of Sunbeam Common Stock and $160.0 million in cash in
exchange for all of the outstanding shares of CLN Holdings. As a result of the
Holdings Merger, Sunbeam became the indirect owner of the 44,067,520 shares of
Coleman common stock held by Coleman Worldwide (the "Sunbeam Acquisition").
Coincident with the execution of the Holdings Merger Agreement, the
Company, Sunbeam and Camper Acquisition Corp. ("CAC"), a wholly-owned subsidiary
of Sunbeam, entered into an Agreement and Plan of Merger (the "Coleman Merger
Agreement" and with the Holdings Merger Agreement, collectively, the "Merger
Agreements"), providing that, among other things, CAC will be merged with and
into Coleman, with Coleman continuing as the surviving corporation (the "Coleman
Merger"). Pursuant to the Coleman Merger Agreement, each share of the Company's
common stock issued and outstanding immediately prior to the effective time of
the Coleman Merger (other than shares held indirectly by Sunbeam and dissenting
shares, if any) will be converted into the right to receive (a) 0.5677 of a
share of Sunbeam common stock, with cash paid in lieu of fractional shares, and
(b) $6.44 in cash, without interest.
Upon consummation of the Coleman Merger, Coleman will become an
indirect wholly-owned subsidiary of Sunbeam. Per the terms of the Merger
Agreements, certain arrangements with Parent Holdings and its affiliates have
been or may be altered or terminated. In addition, outstanding, unvested
stock options of Coleman immediately vested upon consummation of the Holdings
Merger and will be cashed out at a price per share equal to the difference
between $27.50 and the exercise price of such option.
Three months ended March 31, 1998 compared with the three months ended March 31,
1997
Net revenues of $244.5 million in 1998 were $51.0 million or 17.2% less
than in 1997 with outdoor recreation products decreasing $40.0 million or 18.4%
and hardware products decreasing $11.0 million or 14.1%. Geographically, United
States and Canadian revenues decreased 14.9% while international revenues
decreased 21.8%.
Outdoor recreation products revenues decreased $40.0 million or 18.4%. The
sales decrease occurred in nearly all product categories, primarily reflecting
the effects of the SKU reduction program in 1997, softness in demand resulting
from the domestic retail channel's efforts to lower inventory levels, and
adverse economic conditions in Japan and Southeast Asia. The hardware products
revenues decrease of $11.0 million reflects an increase in generator revenues
as a result of winter storms which were more than offset by a decline in
compressor revenues due to general softness in the industry and the loss of
pressure washer revenues due to exiting this business in 1997.
Gross margins increased as a percent of sales by 0.7 percentage points to
28.1% in 1998. The increase is driven by an improvement in the mix of products
sold, in part, due to the SKU reduction program which removed low or no-margin
SKUs, and greater licensing revenues in 1998.
10
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Selling, general and administrative ("SG&A") expenses were $74.9 million in
1998 compared to $65.9 million in 1997, an increase of $9.0 million. SG&A
expenses in 1998 include (i) $7.1 million of costs associated with the
acquisition of Coleman by Sunbeam, (ii) the write-off of $3.6 million of
capitalized costs associated with the installation of a company-wide enterprise
resource computer software system which was abandoned following the Sunbeam
Acquisition, and (iii) $2.2 million of costs to terminate a licensing services
agreement with an affiliate of Parent Holdings.
Interest expense was $9.0 million in 1998 compared with $10.7 million in
1997, a decrease of $1.7 million. This decrease was primarily the result of
lower borrowings resulting from improvements in managing working capital.
On March 24, 1998, the Company sold Coleman Safety & Security Products,
Inc. ("CSS"), a wholly-owned subsidiary of the Company which manufactured and
sold safety and security products, to Ranco Incorporated of Delaware
("Ranco") and Siebe plc, the parent of Ranco, for approximately $98.0
million, net of fees and expenses. In connection with the sale of CSS, the
Company recorded a pre-tax gain of $26.1 million. The net proceeds from the
sale of CSS are subject to post-closing adjustments and could result in an
adjustment to the gain.
Minority interest represents the interest of minority shareholders in
certain subsidiary operations of Camping Gaz.
The Company recorded a provision for income tax expense of $7.5 million in
1998 compared to a provision for income tax expense of $0.5 million in 1997.
The 1998 income tax provision reflects, among other things, (i) the write-off of
approximately $1.7 million deferred tax assets that became unrealizable as a
result of the change of control in the Company at the time of the Sunbeam
Acquisition, (ii) $0.4 million of tax expense due to the impact of decreased
foreign tax rates on deferred tax assets, and (iii) the impact of $7.1 million
non-deductible costs associated with the Sunbeam Acquisition. Excluding these
items, the 1998 effective income tax rate would have been approximately 40.8%.
In March 1998, as a result of the Holdings Merger, the Company repaid all
outstanding indebtedness under the Company's credit agreement and the credit
agreement was terminated. In connection with the termination of this agreement,
the Company recorded an extraordinary loss of $2.0 million ($1.2 million after
tax, or $0.02 per share) which represents a write-off of the related unamortized
financing costs associated with the credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $83.6 million and $41.0 million of
cash during the three months ended March 31, 1998 and 1997, respectively.
During the 1998 period, receivables increased $34.5 million as a result of the
seasonality of the Company's sales. Inventories increased approximately $31.0
million primarily as a result of unanticipated softness in the first quarter's
demand for the Company's products. The Company's capital expenditures were $9.7
million in the three months ended March 31, 1998. During the three months ended
March 31, 1998, the $31.8 million of proceeds from stock option exercises along
with $90.7 million of borrowings from Sunbeam and the proceeds from the sale of
the Company's safety and security business and sales of fixed assets of $98.3
million of cash were used to, among other things, repay the $116.0 million
outstanding indebtedness under the Company's credit agreement and fund the
Company's operating activities and capital expenditures.
The Company's various senior notes, aggregating $360.0 million at March 31,
1998, were redeemed on April 21, 1998 at a cost of $383.4 million. The $23.4
million of redemption costs in excess of carrying value
11
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
will be reflected as additional extraordinary loss on early extinguishment of
debt in the second quarter of 1998 along with the write-off of the related
unamortized financing costs associated with these senior note issuances in
the amount of $2.7 million.
During 1997 and 1996, the Company undertook several restructuring
initiatives to strengthen its business operations, including (i) exiting various
low-margin products, including pressure washers, (ii) closing and relocating
certain administrative and sales offices, and (iii) closing several
manufacturing facilities. In connection with those initiatives, Coleman
recorded a total of $110.6 million pre-tax restructuring and other charges
during the years ended December 31, 1996 and 1997. During the first quarter of
1998, the Company revised its estimate of costs to complete the previously
announced restructuring initiatives and recorded an additional $0.7 million of
charges. An analysis of the reserves for restructuring and other charges is
outlined in the following table (dollars in millions):
<TABLE>
<CAPTION>
1998 Charges During
Balance at Additional Quarter Ended Balance at
12/31/97 Reserves 3/31/98 3/31/98
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Impairment of fixed assets . . . . . . . . . $ 8.1 $ -- $(0.4) $ 7.7
Inventory and other asset impairments. . . . 8.4 -- (1.8) 6.6
Termination costs. . . . . . . . . . . . . . 2.8 0.5 (1.2) 2.1
Idle facilities, relocation and other exit costs 8.7 0.2 (3.0) 5.9
---------- ---------- -------------- ----------
$28.0 $0.7 $(6.4) $22.3
---------- ---------- -------------- ----------
---------- ---------- -------------- ----------
</TABLE>
In connection with the Sunbeam Acquisition, the Company expects to incur
additional restructuring charges as the operations of Coleman are integrated
into Sunbeam's existing business structure. On May 11, 1998, Sunbeam announced
a comprehensive growth and restructuring plan that includes certain initiatives
involving Coleman's operations. The restructuring initiatives related to
Coleman include, among other things, (i) combining the Company's headquarters
with Sunbeam's headquarters in Florida, (ii) the consolidation of factories,
warehouses, and sales offices, and (iii) the divestiture of the Eastpak
related businesses and the compressor and spa businesses.
The Company's ability to meet its current cash operating requirements,
including projected capital expenditures and other obligations is dependent upon
a combination of cash flows from operations and capital contributions or loans
to the Company from Sunbeam or its affiliates.
The Company periodically uses a variety of derivative financial instruments
to manage its foreign currency and interest rate exposures. The Company does
not speculate on interest rates or foreign currency rates. Instead it uses
derivatives when implementing its risk management strategies to reduce the
possible effects of these exposures.
With respect to foreign currency exposures, the Company principally uses
forward and option contracts to reduce risks arising from firm commitments,
anticipated intercompany sales transactions and intercompany receivable and
payable balances. The Company generally uses interest rate swaps and interest
rate caps to fix certain of its variable rate debt. The Company manages credit
risk related to these derivative contracts through credit approvals, exposure
limits and other monitoring procedures.
SEASONALITY
The Company's sales generally are highest in the second quarter of the year
and lowest in the fourth quarter. As a result of this seasonality, the Company
has generally incurred a loss in the fourth quarter. The Company's sales may be
affected by weather conditions, especially during the second and third quarters
of the year. The Company's annual results are generally dependent on its
results during the second quarter. The acquisition of a majority ownership of
the Company by Sunbeam occurred on March 30, 1998, immediately
12
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
preceding the beginning of the Company's second quarter. As a result, the
Company is being integrated with Sunbeam's operations. There can be no
assurance as to the success of this integration or assurance that the
integration or integration-related activities will not be adverse to future
results.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Form 10-Q are subject to certain risks and uncertainties.
Actual results could differ materially from current expectations. The factors
that could affect the Company's actual results and could cause results to differ
materially from those contained in the forward-looking statements include, but
are not limited to (i) unanticipated costs or delays in developing new products,
(ii) a decrease in the public's interest in camping and related activities,
(iii) economic softness in Japan, Korea, and other Asian countries, (iv) weather
conditions which are adverse to the specific businesses of the Company, (v)
significant adverse market or economic conditions which negatively affect demand
for the Company's products, (vi) disruptions or delays resulting from the
transactions contemplated by the Merger Agreements with Sunbeam for the
acquisition of CLN Holdings and the Company, and (vii) changes in operating
philosophy following the consummation of the Holdings Merger and the Company
Merger. Other factors could also cause actual results to vary materially from
the future results covered in such forward-looking statements.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to represent the applicable year. As a result, those computer
programs recognize a date represented by "00" as the year 1900 rather than the
year 2000. This situation, known as the "Year 2000" issue, could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on ongoing assessments of the Company's operations, the Company has
determined it will be required to modify or replace portions of its computer
software so the computer systems will function properly with respect to dates in
the year 2000 and thereafter. The Company believes that, in most instances,
with minor modifications to existing software, the Year 2000 issue will not pose
significant operational problems for its computer systems. The Company has
identified one location with significant Year 2000 software issues. Failure to
complete a timely conversion of this location to a Year 2000 compliant system
could have a material impact on the operations of the Company. The Company is
unable to estimate the costs of becoming Year 2000 compliant.
The Company has initiated formal communications with some of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. There can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
In 1996, the Company began a project to select and install a Company-wide
enterprise resource computer software system designed to improve operational
efficiency. In March 1998, as a result of decisions made following the Holdings
Merger, this project was terminated and previously capitalized costs of $3.6
million were written off. Sunbeam is completing preliminary plans for the
integration of the Company's systems into its own, and, likewise, is
assessing the Year 2000 computer issues. The timing and cost of this
integration process are not yet determined.
13
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
4.1X Intercompany Note dated April 6, 1998 between The
Coleman Company, Inc. and Sunbeam Corporation.
27 X Financial Data Schedule
-------------------
X Filed herewith
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on March 3, 1998 to disclose
certain information with regard to the acquisition of CLN Holdings and the
Company by Sunbeam Corporation.
A Current Report on Form 8-K/A was filed on March 5, 1998 to amend and
restate the Company's Current Report on Form 8-K filed on March 3, 1998.
A Current Report on Form 8-K was filed on April 3, 1998 to disclose
that Sunbeam Corporation had acquired indirect beneficial ownership of the
44,067,520 shares of common stock of the Company.
A Current Report on Form 8-K was filed on April 3, 1998 to disclose
that the Company had completed the sale of all of the outstanding shares of
capital stock of Coleman Safety & Security Products, Inc., a wholly-owned
subsidiary of the Company, to Ranco Incorporated of Delaware, a
wholly-owned subsidiary of Siebe plc, as of March 24, 1998.
A Current Report on Form 8-K/A was filed on April 9, 1998 to amend the
Company's Current Report on Form 8-K filed on April 3, 1998 to include the
pro forma financial information regarding the sale of all of the
outstanding shares of capital stock of Coleman Safety & Security Products,
Inc.
14
<PAGE>
THE COLEMAN COMPANY, INC SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COLEMAN COMPANY, INC.
(Registrant)
Date: May 15, 1998 By: /s/ Russell A. Kersh
------------------------- ----------------------------------------
Russell A. Kersh
President and Chief Financial Officer
15
<PAGE>
INTERCOMPANY NOTE
Dated: April 6, 1998
FOR VALUE RECEIVED, the undersigned, The Coleman Company, Inc., a Delaware
corporation (the "PAYOR"), hereby promises to pay to the order of Sunbeam
Corporation, a Delaware corporation (the "PAYEE"), on demand, any and all
Indebtedness (as defined in the Credit Agreement referred to below) (including
interest thereon) owed to the Payee by the Payor from time to time.
The undersigned agrees that the accounts of the Payee shall be "prima
facie" evidence of Indebtedness (including interest thereon) owed to the Payee
by the undersigned and the amounts repaid by the undersigned to the Payee. All
advances made by the Payee to the Payor hereunder, and all payments made on
account of principal and interest hereof, shall be recorded by the Payee, and,
prior to any transfer hereof, shall be endorsed on the schedule attached hereto
which is part of this Intercompany Note.
The undersigned also agrees to pay on demand all costs and expenses
(including reasonable fees and expenses of counsel) incurred by the Payee in
enforcing this Intercompany Note.
This Note is one of the Intercompany Agreements referred to in a Pledge and
Security Agreement (as defined in, and entered into pursuant to the Credit
Agreement dated as of March 30, 1998 (as amended, supplemented or modified from
time to time, the "CREDIT AGREEMENT") among Sunbeam Corporation, the Subsidiary
Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior
Funding, Inc., as Syndication Agent, Bank of America National Trust and Savings
Association, as Documentation Agent and First Union National Bank, as
Administrative Agent). Capitalized terms used in this Intercompany Note and not
otherwise defined have the respective meanings assigned to them in such Pledge
and Security Agreement or the Credit Agreement.
<PAGE>
If at any time demand is made against the Payor under, and pursuant to
the terms of, any guaranty executed by the Payor in connection with the
Secured Obligations (as defined in the Pledge and Security Agreement), this
Intercompany Note, and the payment obligations of the Payor evidenced hereby,
shall therewith be null and void and the Payee shall be deemed to have
contributed such obligations to the capital of the Payor.
The Indebtedness evidenced by this Intercompany Note is subordinate and
subject in right of payment to the prior payment in full of the Secured
Obligations in the manner and to the extent set forth below:
(a) In the event of (i) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Payor
or to its creditors as such, or to its properties or assets, or (ii) any
liquidation, dissolution or other winding-up of the Payor, whether
voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (iii) any assignment for the benefit of creditors or any
other marshaling of assets or liabilities of the Payor, then and in any
such event the holders of Secured Obligations shall be entitled to receive
payment in full of all amounts due on or to become due on or in respect of
Secured Obligations then outstanding, in cash or in any other manner
acceptable to the holders of Secured Obligations, before the holder is
entitled to receive any payment or distribution of any kind or character on
account of principal of or interest on this Intercompany Note, and to that
end the holders of Secured Obligations shall be entitled to receive, for
application to the payment thereof, any payment or distribution of assets
of the Payor of any kind or character including, without limitation,
securities that are subordinated in right of payment to all Secured
Obligations to substantially the same extent as, or to a greater extent
than, this Intercompany Note, that may be payable or deliverable in respect
of this Intercompany Note in any such case, proceeding, dissolution,
liquidation or other winding-up or event referred to in clauses (i) through
(iii) above.
(b) In the event that the Payee shall receive any payment or
distribution of assets of the Payor of any kind or character in respect of
principal of or interest on this Intercompany Agreement in contravention of
subsection (a) hereof, then and in such event such payment or distribution
shall be received and held by the Payee in trust for the holders of the
Secured Obligations and shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment
2
<PAGE>
or distribution of assets of the Payor in trust for the holders of, and for
application to the payment of, all Secured Obligations remaining unpaid, to
the extent necessary to pay all Secured Obligations in full, in cash or in
any other manner acceptable to the holders of Secured Obligations, after
giving effect to any concurrent payment or distribution to or for the
holders of Secured Obligations.
The undersigned hereby waives presentment for payment, demands, notice of
dishonor and protest of this Intercompany Note and further agrees that none of
its terms or provisions may be waived, altered, modified or amended except as
the Payee may consent in a writing duly signed for and on its behalf.
No failure or delay on the part of the Payee in exercising any of its
rights, powers or privileges hereunder shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercise of any right, power or privilege. The remedies provided herein are
cumulative and are not exclusive of any remedies provided by law.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
The Coleman Company, Inc.
Address:
By: /s/ Robert Totte
-----------------------------------
Title: Vice President
3
<PAGE>
<TABLE>
<CAPTION>
ADVANCES AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount of
Amount of Principal Paid Unpaid Principal Notation
Date Loan or Prepaid Balance Made By
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS FILED IN THE COMPANY'S
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 21,498
<SECURITIES> 0
<RECEIVABLES> 212,086
<ALLOWANCES> 8,051
<INVENTORY> 246,343
<CURRENT-ASSETS> 531,345
<PP&E> 275,373
<DEPRECIATION> 114,235
<TOTAL-ASSETS> 1,021,979
<CURRENT-LIABILITIES> 328,386
<BONDS> 360,231
0
0
<COMMON> 552
<OTHER-SE> 266,490
<TOTAL-LIABILITY-AND-EQUITY> 1,021,979
<SALES> 240,310
<TOTAL-REVENUES> 244,499
<CGS> 175,777
<TOTAL-COSTS> 175,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 663
<INTEREST-EXPENSE> 9,044
<INCOME-PRETAX> 6,165
<INCOME-TAX> 7,518
<INCOME-CONTINUING> (1,414)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,232)
<CHANGES> 0
<NET-INCOME> (2,646)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
