<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999
-------------
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 55,827,490 shares as of August 10, 1999 of which 44,067,520 shares
were held by Coleman Worldwide Corporation, an indirect wholly-owned
subsidiary of Sunbeam Corporation.
Exhibit Index on Page 33
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended June 30, 1999 and 1998 and
Six months ended June 30, 1999 and 1998..................... 3
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998......................... 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998..................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 33
Item 6. Exhibits and Reports on Form 8-K.................................. 33
Signatures ...................................................... 34
</TABLE>
2
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues............................................ $ 400,925 $ 326,407 $ 681,615 $ 570,906
Cost of sales........................................... 270,228 231,637 468,599 407,414
----------- ----------- ------------ ------------
Gross profit............................................ 130,697 94,770 213,016 163,492
Selling, general and administrative expenses............ 68,341 58,510 129,703 132,650
Restructuring (credits) charges......................... (16) 9,570 (18) 10,285
Interest expense, net................................... 4,870 8,879 12,445 17,923
Amortization of goodwill and deferred charges........... 2,375 2,733 4,939 5,667
Loss (gain) on sale of business......................... -- 1,447 -- (24,690)
Other expense (income), net............................. 603 (317) 72 1,544
----------- ----------- ------------ ------------
Earnings before income taxes,
minority interest and extraordinary item............. 54,524 13,948 65,875 20,113
Income tax expense...................................... 20,822 8,672 25,362 16,190
Minority interest....................................... 507 179 577 240
----------- ----------- ------------ ------------
Earnings before extraordinary item...................... 33,195 5,097 39,936 3,683
Extraordinary loss on early extinguishment
of debt, net of income tax benefit.................... -- (16,306) -- (17,538)
----------- ----------- ------------ ------------
Net earnings (loss)..................................... $ 33,195 $ (11,209) $ 39,936 $ (13,855)
=========== =========== ============ ============
Basic and diluted earnings (loss) per share:
Earnings before extraordinary item.................... $ 0.59 $ 0.09 $ 0.72 $ 0.07
Extraordinary item.................................... -- (0.29) -- (0.32)
----------- ----------- ------------ ------------
Net earnings (loss)................................. $ 0.59 $ (0.20) $ 0.72 $ (0.25)
=========== =========== ============ ============
Weighted average common shares outstanding:
Basic ............................................... 55,827 55,822 55,827 54,783
=========== =========== ============ ============
Diluted ............................................. 55,827 55,958 55,827 55,168
=========== =========== ============ ============
</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>
June 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 23,266 $ 23,413
Accounts and notes receivable, less allowance
of $8,933 in 1999 and $8,894 in 1998............................... 281,389 162,108
Inventories.......................................................... 240,828 230,126
Deferred tax assets.................................................. 28,583 26,926
Prepaid expenses and other current assets............................ 16,807 19,627
------------- ------------
Total current assets............................................... 590,873 462,200
Property, plant and equipment, less accumulated depreciation
of $130,335 in 1999 and $122,868 in 1998............................. 142,365 145,823
Goodwill, net........................................................... 270,016 282,015
Deferred tax assets and other assets.................................... 23,234 43,219
------------- ------------
$ 1,026,488 $ 933,257
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable........................................... $ 168,448 $ 146,064
Debt payable to affiliate............................................ 390,557 --
Other current liabilities............................................ 118,501 101,224
------------- ------------
Total current liabilities.......................................... 677,506 247,288
Debt payable to affiliate............................................... -- 365,063
Long-term debt.......................................................... 423 362
Other liabilities....................................................... 74,245 75,231
Minority interest....................................................... 8,735 6,698
Contingencies...........................................................
Stockholders' equity:
Common stock......................................................... 558 558
Additional paid-in capital........................................... 223,245 221,730
Retained earnings.................................................... 61,913 21,977
Accumulated other comprehensive loss................................. (20,137) (5,650)
------------- ------------
Total stockholders' equity......................................... 265,579 238,615
------------- ------------
$ 1,026,488 $ 933,257
============= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------------------
1999 1998
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................................................. $ 39,936 $ (13,855)
Adjustments to reconcile net earnings (loss) to net cash flows
from operating activities:
Depreciation and amortization.............................................. 16,055 18,306
Deferred income taxes...................................................... 17,489 (14,638)
Non-cash restructuring and other charges................................... -- 3,890
Minority interest.......................................................... 577 240
Gain on sale of business................................................... -- (24,690)
Extraordinary loss on early extinguishment of debt........................ -- 29,012
Changes in assets and liabilities, net of effects from sale of business:
Receivables........................................................... (125,464) (85,166)
Inventories........................................................... (17,816) (9,708)
Accounts payable...................................................... 25,078 5,414
Prepaid expenses and other current assets and liabilities............. 21,694 11,584
Other, net............................................................ 1,163 262
------------- ------------
Net cash used by operating activities........................................... (21,288) (79,349)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (12,101) (13,567)
Net proceeds from sale of business and fixed assets............................. 911 98,210
------------- ------------
Net cash (used) provided by investing activities................................ (11,190) 84,643
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit agreement borrowings........................... -- (52,578)
Net change in short-term borrowings............................................. 6,090 (236)
Repayment of long-term debt, including redemption costs......................... (57) (446,839)
Net increase in borrowings from affiliate....................................... 25,494 453,932
Proceeds from stock options exercised including tax benefits.................... -- 45,546
------------- ------------
Net cash provided (used) by financing activities................................ 31,527 (175)
------------- ------------
Effect of exchange rate changes on cash......................................... 804 1,845
------------- ------------
Net (decrease) increase in cash and cash equivalents............................ (147) 6,964
Cash and cash equivalents at beginning of the period............................ 23,413 13,031
------------- ------------
Cash and cash equivalents at end of the period.................................. $ 23,266 $ 19,995
============= ============
</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 global
manufacturer and marketer of consumer products for outdoor recreation and
home hardware use.
Coleman is a subsidiary of Coleman Worldwide Corporation ("Coleman
Worldwide"). Coleman Worldwide is an indirect wholly-owned subsidiary of
Laser Acquisition Corp. ("Laser"), an indirect wholly-owned subsidiary of
Sunbeam Corporation ("Sunbeam"). Coleman Worldwide owns 44,067,520 shares of
the common stock of Coleman which represented approximately 79% of the
outstanding Coleman common stock as of June 30, 1999.
Coleman, Sunbeam and Camper Acquisition Corp. ("CAC"), a wholly-owned
subsidiary of Sunbeam, have entered into an Agreement and Plan of Merger (the
"Coleman Merger Agreement"), 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 shares, if any, for which appraisal rights have
been exercised) will be converted into the right to receive (i) 0.5677 of a
share of Sunbeam common stock, with cash paid in lieu of fractional shares,
and (ii) $6.44 in cash, without interest. In addition, unexercised stock
options at the time of the Coleman Merger will be cashed out by Sunbeam at a
price per share equal to the difference between $27.50 per share and the
exercise price of such options. In October 1998, Coleman and Sunbeam entered
into a memorandum of understanding to settle, subject to court approval,
certain class actions brought by minority shareholders of Coleman against
Coleman, Sunbeam and certain of their current and former officers and
directors challenging the proposed Coleman Merger. Under the terms of the
proposed settlement, if approved by the court, Sunbeam will issue to the
Coleman public shareholders and plaintiffs' counsel warrants to purchase up
to approximately 4.98 million shares of Sunbeam common stock at $7.00 per
share, subject to certain anti-dilution adjustments. Any shareholder who does
not exercise appraisal rights under Delaware law will receive the warrants.
These warrants will be issued when the Coleman Merger is consummated, which
is now expected to be during the second half of 1999. There can be no
assurance, however, that the court will approve the settlement as proposed,
although such approval is not a condition to the consummation of the Coleman
Merger.
The consummation of the Coleman Merger is conditional upon a registration
statement under the Securities Act of 1933 (the "Securities Act") to register
the shares of Sunbeam common stock to be issued in the Coleman Merger (the
"Registration Statement") becoming effective in accordance with the
provisions of the Securities Act. Sunbeam has filed the Registration
Statement, but is uncertain when the Registration Statement will become
effective. However, it is anticipated the Coleman Merger will be completed
during the second half of 1999. Upon consummation of the Coleman Merger,
Coleman will become an indirect wholly-owned subsidiary of Sunbeam and
Coleman will cease to be a separate reporting company. However, in the event
Coleman's separate consolidated financial statements are included in a
Securities and Exchange Commission filing for periods subsequent to the
consummation of the Coleman Merger, those separate consolidated financial
statements would reflect the allocation of the purchase price paid by
Sunbeam, for all of
6
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Coleman's common stock, to the fair value (determined by independent
appraisals) of Coleman's tangible and intangible assets acquired and
liabilities assumed under the purchase method of accounting.
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,
these statements include all adjustments necessary for a fair presentation of
results of operations, financial position and cash flows. The balance sheet
at December 31, 1998 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/A for the year ended December 31, 1998. Operating results for the
six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for future periods including the year ended December 31,
1999.
3. INVENTORIES
The components of inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw material and supplies......................... $ 45,157 $ 45,395
Work-in-process................................... 8,399 6,539
Finished goods.................................... 187,272 178,192
------------ ------------
$ 240,828 $ 230,126
============ ============
</TABLE>
4. DEBT PAYABLE TO AFFILIATE
Sunbeam's credit facility (the "Sunbeam Credit Facility") provides that
Sunbeam will not contribute capital to Coleman or, with some exceptions,
permit Coleman to borrow money from any source other than Sunbeam. Therefore,
the Company's ability to meet its cash operating requirements, including
capital expenditures and other obligations, is dependent upon a combination
of cash flows from operations and loans to the Company from Sunbeam. Sunbeam
has informed the Company it has the positive intent and ability to fund the
Company's requirements for borrowed funds through April 10, 2000. Prior to
April 15, 1999, amounts loaned by Sunbeam to Coleman were represented by a
promissory note (the "Old Intercompany Note"), were due on demand and bore
7
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
interest at a floating rate equivalent to the weighted average interest rate
incurred by Sunbeam on its outstanding convertible debt and borrowings under
its bank credit facility.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements, the
lenders under the Sunbeam Credit Facility, amended and restated the Old
Intercompany Note (the "Intercompany Note"), entered into intercompany
security and pledge agreements, and entered into an amendment to the Sunbeam
Credit Facility and certain other agreements (collectively, the
"Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany
Note bears interest at an annual rate equal to (i) 4% if the three month
London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is
less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate
system is 6% or higher, subject to increases during an event of default, and
interest will be payable by adding the amount of such interest to the
principal balance of the Intercompany Note. In addition, the Intercompany
Note provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Intercompany Note and that in
certain circumstances the payment on the Intercompany Note will be
subordinate to Coleman's obligations under the Sunbeam Credit Facility.
Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all
of its domestic assets, other than its real property, including 66% of its
ownership interest in its direct foreign subsidiaries and domestic holding
companies for its foreign subsidiaries and all of its ownership interest in
its other direct domestic subsidiaries (but Coleman's subsidiaries have not
pledged their assets or stock of their subsidiaries), as security for the
Intercompany Note. Sunbeam has pledged the Intercompany Note as security for
the Sunbeam Credit Facility and assigned to such lenders the security pledged
by Coleman for the Intercompany Note. Coleman also gave the lending banks a
direct pledge of the assets securing the Intercompany Note to secure the
obligations under the Sunbeam Credit Facility, subject to a cap equal to the
balance due from time to time on the Intercompany Note.
As of June 30, 1999 the amount borrowed by the Company under the
Intercompany Note amounted to $390,557 and the applicable interest rate was
4%. The weighted average interest rate charged by Sunbeam for amounts
borrowed under the Old Intercompany Note and the Intercompany Note during the
six months ended June 30, 1999 was 5.9% and the total interest charged by
Sunbeam to Coleman was $11,489. Sunbeam also charged to Coleman a pro-rata
share of amortized debt issuance costs and unused bank credit facility
commitment fees totaling $319. Net amounts advanced from Sunbeam along with
the related unpaid interest and other costs are reflected as debt payable to
affiliate in the Company's consolidated balance sheet. Coleman is also a
borrower under the Sunbeam Credit Facility for purposes of letters of credit
issued for its account.
The Sunbeam Credit Facility provides for aggregate borrowings of up to
$1,700,000 pursuant to (i) a revolving credit facility in an aggregate
principal amount of up to $400,000 (subject to certain reductions) maturing
on March 30, 2005, of which $52,500 may only be used to complete the Coleman
Merger if the Coleman Merger does not occur prior to August 31, 1999, (ii) up
to $800,000 in term loans maturing on March 30, 2005, of which $35,000 may
only be used to complete the Coleman Merger, and (iii) a $500,000 term loan
maturing on September 30, 2006, of which $5,000 has already been repaid
through June 30, 1999. At June 30, 1999, Sunbeam had $1,410,000 of
outstanding debt under the Sunbeam Credit Facility and approximately $218,300
available for borrowing. As a result of Sunbeam's operating losses during
1998, among other things, Sunbeam
8
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
was not in compliance with the financial covenants and other terms contained
in the Sunbeam Credit Facility. In April 1999, Sunbeam and its lenders
entered into an amendment to the Sunbeam Credit Facility which amended and
added certain financial covenants and other terms and waived compliance with
certain other financial covenants and other terms through April 10, 2000.
Interest accrues at a rate selected at Sunbeam's option of: (i) LIBOR plus an
interest rate margin which varies depending upon the occurrence of certain
specified events or, (ii) the base rate of the administrative agent
(generally the higher of the prime commercial lending rate of the
administrative agent or the Federal Funds Rate plus one-half of 1%), plus an
interest rate margin which varies depending upon the occurrence of certain
specified events.
Borrowings under the Sunbeam Credit Facility are secured by a pledge of
the stock of Sunbeam's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its
material subsidiaries, other than Coleman and its subsidiaries except as
otherwise described herein. Currently, Coleman's inventory and related assets
are pledged to secure its obligations for letters of credit issued for its
account under the Sunbeam Credit Facility.
The Sunbeam Credit Facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of
Sunbeam and its subsidiaries, including Coleman, to, among other things, (i)
declare dividends or repurchase stock, (ii) prepay, redeem or repurchase
debt, incur liens and engage in sale-leaseback transactions, (iii) make loans
and investments, (iv) incur additional debt, including revolving loans under
the Sunbeam Credit Facility, (v) amend or otherwise alter material agreements
or enter into restrictive agreements, (vi) make capital and Year 2000
compliance expenditures, (vii) engage in mergers, acquisitions and asset
sales, (viii) engage in certain transactions with affiliates, (ix) alter its
fiscal year or accounting policies, (x) enter into hedging agreements, (xi)
settle certain litigation, (xii) alter its cash management system and (xiii)
alter the businesses they conduct. Sunbeam is also required to comply with
specified financial covenants and ratios. The Sunbeam Credit Facility
provides for events of default customary for transactions of this type,
including nonpayment, misrepresentation, breach of covenant, cross-defaults,
bankruptcy, material adverse change arising from compliance with ERISA,
material adverse judgments, entering into guarantees, and change of ownership
and control. The Sunbeam Credit Facility, as amended, also provides it is an
event default if the registration statement for the shares of Sunbeam common
stock to be issued in the Coleman Merger is not declared effective by October
30, 1999, (effective as of October 25, 1999, the bank lenders agreed to
extend this date to November 30, 1999), if Sunbeam fails to complete the
Coleman Merger within 25 business days after the related registration
statement is declared effective by the SEC, or if Sunbeam has to pay more
than $87,500 (excluding expenses) in cash to complete the Coleman Merger
(including any payments made with respect to appraisal rights). If an event
of default occurs under the Sunbeam Credit Facility or Sunbeam is unable to
obtain a waiver or amendment of certain financial covenants after April 10,
2000, the Company may be required to reduce, delay or cancel capital or other
expenditures and/or seek loans or capital contributions from, or sell assets
or capital stock to, lending institutions and/or other third parties or
affiliates. The Sunbeam Credit Facility also requires Sunbeam to prepay term
loans under the Sunbeam Credit Facility on each of September 30, 1999 and
December 31, 1999 to the extent that cash on hand in Sunbeam's concentration
accounts plus the aggregate amount of unused revolving loan commitments on
these dates (excluding for the September measurement date, $52,500 reserved
for the Coleman Merger), exceeds $115,000 and $125,000, respectively, but
Sunbeam is not required to prepay more than $69,300 in the aggregate as a
result of the provision.
9
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
5. RESTRUCTURING CHARGES (DOLLARS IN MILLIONS)
The Company reviews the adequacy of its restructuring reserves and
adjusts the reserves as the various activities are completed or additional
information becomes available which allows the Company to refine its
estimates. During the six months ended June 30, 1999 and 1998, the Company
increased its existing reserves by $0.1 million and $1.1 million,
respectively, as a result of these reviews. In addition, during the six
months ended June 30, 1998, the Company recorded additional restructuring
charges totaling $9.1 million which included, (i) $8.1 million of severance
benefits related to approximately 76 employees whose employment with the
Company was terminated following the acquisition of the Company by Sunbeam,
(ii) $1.1 million of severance benefits for approximately 110 employees at
the Company's manufacturing facility in Cedar City, Utah which was closed
during June 1998, and (iii) recognition of a net gain of $0.1 million related
to the disposition of the Company's manufacturing facility in Cedar City,
Utah.
The following tables provide an analysis of the changes in the Company's
restructuring reserves since December 31, 1998. For a detailed description of
the Company's restructuring activities, see Note 3 to the consolidated
financial statements included in the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1998.
INTEGRATION OF CAMPING GAZ AND COLEMAN
<TABLE>
<CAPTION>
Balance at Balance at
December 31, Cash Non-Cash June 30,
1998 Reductions Reductions 1999
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Charges included in cost of sales:
Write-down of inventory...................... $ .4 $ -- $ -- $ .4
--------- -------- -------- ------
Total included in cost of sales............ .4 -- -- .4
--------- -------- -------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... 7.5 -- .9 6.6
Other assets............................... .2 -- -- .2
--------- -------- -------- ------
7.7 -- .9 6.8
--------- -------- -------- ------
Restructuring accruals:
Employee severance pay and fringes......... .1 -- -- .1
Other exit activity costs, including
sales agent termination costs and
claims brought by terminated
employees................................ .7 .3 .1 .3
--------- --------- -------- ------
.8 .3 .1 .4
--------- --------- -------- ------
Totals included in restructuring......... 8.5 .3 1.0 7.2
--------- --------- -------- ------
Totals ........................................ $ 8.9 $ .3 $ 1.0 $ 7.6
========= ========= ======== ======
</TABLE>
The reserves remaining at June 30, 1999 principally relate to the write
down of a vacated warehouse and an accrual for claims brought by foreign
employees terminated as part of the
10
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
restructuring plan. The timing of the resolution of the claims brought by
foreign employees will vary depending upon local practices. The Company
continues to assess the propriety of the carrying value of the related
balances and make adjustments to the recorded amounts as appropriate given
current facts and circumstances. The remaining reserves for inventory and
other assets relate to residual activity to be completed by the end of 1999.
EXIT LOW-MARGIN PRODUCT LINES
<TABLE>
<CAPTION>
Balance at Charges Balance at
December 31, to Cash June 30,
1998 Income Reductions 1999
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Charges included in cost of sales:
Write-down of inventory...................... $ .4 $ .1 $ .4 $ .1
--------- --------- -------- ------
Total included in cost of sales............ .4 .1 .4 .1
--------- --------- -------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... .1 -- -- .1
--------- --------- -------- ------
.1 -- -- .1
--------- --------- -------- ------
Restructuring accruals:
Other exit activity costs, primarily
product buyback costs.................... .6 -- .1 .5
--------- --------- -------- ------
.6 -- .1 .5
--------- --------- -------- ------
Totals included in restructuring......... .7 -- .1 .6
--------- --------- -------- ------
Totals ........................................ $ 1.1 $ .1 $ .5 $ .7
========= ========= ======== ======
</TABLE>
The remaining reserves at June 30, 1999, relate to anticipated losses on
final disposal of the remaining inventory and fixed assets and the projected
remaining pressure washer buyback costs. The Company estimates the remaining
activity will be completed by the end of 1999.
CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
<TABLE>
<CAPTION>
Balance at Charges Balance at
December 31, to Cash June 30,
1998 Income Reductions 1999
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Restructuring accruals:
Employee severance pay and fringes........... $ 3.4 $ .1 $ .4 $ 3.1
--------- --------- -------- ------
Totals ......................................... $ 3.4 $ .1 $ .4 $ 3.1
========= ========= ======== ======
</TABLE>
The unpaid severance costs at June 30, 1999 are expected to be paid by
December 31, 2000.
11
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
CLOSE FACILITIES
<TABLE>
<CAPTION>
Balance at (Credits) Balance at
December 31, to Cash June 30,
1998 Income Reductions 1999
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... $ .2 $ -- $ -- $ .2
--------- ---------- -------- ------
.2 -- -- .2
--------- ---------- -------- ------
Restructuring accruals:
Employee severance pay and fringes......... 1.3 (.1) .5 .7
Other exit activity costs,
primarily lease termination costs........ .6 -- .3 .3
--------- ---------- -------- ------
1.9 (.1) .8 1.0
--------- ---------- -------- ------
Totals included in restructuring......... 2.1 (.1) .8 1.2
--------- ---------- -------- ------
Totals ......................................... $ 2.1 $ (.1) $ .8 $ 1.2
========= ========== ======== =======
</TABLE>
During the six months ended June 30, 1999, of those employees expected to
be terminated, 4 employees left the Company and 14 employees remain to be
terminated. Remaining termination costs are expected to be paid by December
31, 2000 in accordance with the long-term severance arrangements. The fixed
assets held for disposal at June 30, 1999, will be disposed of during 1999.
The remaining reserve balance for other exit activity costs at June 30, 1999,
principally relates to leases with fixed terms running through 2001.
EMPLOYEE TERMINATION AND SEVERANCE
<TABLE>
<CAPTION>
Balance at Balance at
December 31, Cash June 30,
1998 Reductions 1999
----------- ---------- ----------
<S> <C> <C> <C>
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes......... $ 3.4 $ 2.0 $ 1.4
--------- --------- --------
Totals ......................................... $ 3.4 $ 2.0 $ 1.4
========= ========= ========
</TABLE>
During the six months ended June 30, 1999, of those employees expected to
be terminated, 3 employees left the Company and 5 employees remain to be
terminated. The 5 remaining employees are expected to be terminated during
1999. Remaining termination costs are expected to be paid by December 31,
2000, and no additional charges are anticipated in future periods.
6. OTHER CHARGES
During the first six months of 1998, the Company recorded other charges
totaling $13,357 ($12,931 in the first quarter of 1998 and $426 in the second
quarter of 1998) which consisted of (i) $7,242 of costs associated with the
acquisition of the Company by Sunbeam including advisory fees,
12
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
(ii) $3,890 of charges associated with abandoning a company-wide enterprise
resource computer software system, and (iii) $2,225 of costs associated with
terminating a licensing services agreement with an affiliate of Coleman
(Parent) Holdings, Inc., the then indirect parent company of Coleman
Worldwide. These costs were recorded in selling, general and administrative
expenses.
7. COMPREHENSIVE INCOME
The components of the Company's comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
1999 1998 1999 1998
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss)........................................... $ 33,195 $ (11,209) $ 39,936 $ (13,855)
Foreign currency translation adjustment, net of tax........... (2,338) (1,385) (14,487) (3,803)
Minimum pension liability adjustment, net of tax.............. -- (169) -- (337)
--------- --------- ---------- ---------
Comprehensive income (loss)................................... $ 30,857 $ (12,763) $ 25,449 $ (17,995)
========= ========= ========== =========
</TABLE>
8. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic earnings per share is computed using the weighted average number of
shares of outstanding common stock. Diluted earnings per share for the three
month and six month periods ended June 30, 1999 are based only on the
weighted average number of common shares outstanding during the three month
and six month periods ended June 30, 1999 because there were no dilutive
common share equivalents. Stock options to purchase 923,670 shares of common
stock were outstanding at June 30, 1999 but were not included in the
computation of common share equivalents because the option exercise price was
greater than the average market price of Coleman's common stock during each
of the respective periods. The number of shares used in the calculation of
diluted earnings per share for the three month and six month periods ended
June 30, 1998 includes 136,030 and 384,801 of common share equivalents,
respectively, to recognize the effect of dilutive stock options.
9. RELATED PARTY TRANSACTIONS
During 1999, the Company provided certain management services to Sunbeam
and its affiliates and also received certain management services from Sunbeam
and its affiliates. These services included, among other things, (i)
executive, general administrative, legal and financial services, (ii) factory
management and inventory control services, and (iii) sales and marketing
services. For the three month and six month periods ended June 30, 1999, the
cost of the services provided by the Company and charged to Sunbeam and its
affiliates in the amounts of $65 and $118, respectively, have been reflected
as a reduction in selling, general and administration ("SG&A") expenses and
the $2,805 and $5,241, respectively, of charges to Coleman for services
received by Coleman or its subsidiaries from Sunbeam and its affiliates has
been included in SG&A expenses.
13
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
The cost of the services is assessed based on actual usage or allocations of
actual costs based on relative usage of related services or time of specified
personnel.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires an entity
to recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133". The provisions of SFAS No. 133 will now be effective for the Company's
fiscal year beginning January 1, 2001. Earlier application of the provisions
of SFAS No. 133 is encouraged; however, the Company has not determined if it
will apply the provisions of SFAS No. 133 prior to January 1, 2001, nor has
the Company estimated the impact of applying the provisions of SFAS No. 133
on the Company's statement of financial position or on the statement of
operations.
14
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
11. SEGMENT INFORMATION
For detailed information regarding the Company's reportable segments, see
Note 19 to the consolidated financial statements included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1998.
INFORMATION ABOUT SEGMENT REVENUES, PROFITS AND ASSETS
<TABLE>
<CAPTION>
Outdoor All
Recreation Powermate Eastpak International Other Total
---------- --------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended June 30, 1999:
Revenues from external customers.... $ 162,402 $ 73,476 $ 15,802 $ 146,803 $ 2,442 $ 400,925
Intersegment revenues................ 17,828 8,300 12,654 -- -- 38,782
Segment profit....................... 34,600 14,109 66 15,416 200 64,391
Three Months Ended June 30, 1998:
Revenues from external customers..... 131,073 45,898 22,908 115,323 11,205 326,407
Intersegment revenues................ 31,866 1,270 9,184 32 -- 42,352
Segment profit....................... 11,712 2,777 1,990 13,684 1,597 31,760
Six Months Ended June 30, 1999:
Revenues from external customers..... 257,548 137,994 18,885 263,300 3,888 681,615
Intersegment revenues................ 42,610 13,964 23,691 62 -- 80,327
Segment profit (loss)................ 42,833 23,433 (3,029) 24,733 (1,405) 86,565
Six Months Ended June 30, 1998:
Revenues from external customers..... 206,135 97,052 26,365 205,610 35,744 570,906
Intersegment revenues................ 52,501 1,565 19,184 112 -- 73,362
Segment profit (loss)................ 13,675 6,046 (1,320) 20,178 3,827 42,406
Segment Assets:
June 30, 1999........................ 254,989 138,610 106,240 398,305 4,238 902,392
June 30, 1998........................ 268,059 132,367 118,465 361,276 18,179 898,346
</TABLE>
15
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
RECONCILIATION OF SELECTED SEGMENT INFORMATION TO THE COMPANY'S
CONSOLIDATED TOTALS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Total revenues for reportable segments................ $ 437,265 $ 357,554 $ 758,054 $ 608,524
Other revenues........................................ 2,442 11,205 3,888 35,744
Elimination of intersegment revenues.................. (38,782) (42,352) (80,327) (73,362)
---------- ---------- ---------- ----------
Total consolidated revenues........................ $ 400,925 $ 326,407 $ 681,615 $ 570,906
========== ========== ========== ==========
PROFIT OR LOSS:
Total segment profit.................................. $ 64,391 $ 31,760 $ 86,565 $ 42,406
Unallocated items:
Corporate expenses................................. (2,019) (2,145) (3,234) (18,209)
Corporate restructuring charges.................... -- (2,925) -- (3,640)
Interest expense, net.............................. (4,870) (8,879) (12,445) (17,923)
Amortization of goodwill
and deferred charges............................ (2,375) (2,733) (4,939) (5,667)
(Loss) gain on sale of business.................... -- (1,447) -- 24,690
Other (expense) income, net........................ (603) 317 (72) (1,544)
---------- ---------- ---------- ----------
Earnings before income taxes, minority
interest and extraordinary item............... $ 54,524 $ 13,948 $ 65,875 $ 20,113
========== ========== ========== ==========
</TABLE>
12. SUBSEQUENT EVENT
On July 12, 1999, Coleman Worldwide acquired 3,000,000 shares of a newly
created series of Coleman voting preferred stock for an aggregate purchase
price of approximately $31,061. These shares, together with the shares of
Coleman common stock owned by Coleman Worldwide, enable Coleman Worldwide to
exercise 80.01% of the total voting power of Coleman's outstanding capital
stock as of July 12, 1999. Coleman created these shares of preferred stock
and Coleman Worldwide acquired them in order to enable Coleman and Sunbeam to
file consolidated federal income tax returns and, in certain jurisdictions,
consolidated state income tax returns prior to the consummation of the
Coleman Merger. The issue price per share of the voting preferred stock was
equal to 110% of the average closing price per share of common stock of
Coleman over the five trading days prior to the date of issuance of the
voting preferred stock. Except for as required by law, the holders of the
voting preferred stock vote as a single class with the holders of the Coleman
common stock on all matters submitted to a vote of the holders of Coleman
common stock, with each share of voting preferred stock and each share of
Coleman common stock having one vote. The voting preferred stock has an
annual dividend equal to 7% of $10.35, the issue price of the voting
preferred stock, which accrues but will not be paid in cash unless a
liquidation occurs or certain transactions are consummated as described
below. In addition, the voting preferred stock will participate ratably with
the Coleman common stock in all other dividends and distributions (other than
liquidating distributions) made by Coleman to the holders of its common
stock. The voting preferred stock will
16
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
participate with the Coleman common stock in any merger, consolidation, or
any other transaction (other than a merger of a wholly owned subsidiary of
Sunbeam with Coleman, including the Coleman Merger) and will receive on a per
share basis the same type and amount of consideration as the Coleman common
stock. On liquidations: (1) the holders of the voting preferred stock would
receive a preferential distribution equal to $10.35, plus accrued and unpaid
dividends, (2) next, the holders of the Coleman common stock would receive an
amount equal to $10.35 per share of common stock and (3) any assets remaining
after such distributions would be shared by the holders of the voting
preferred stock and the Coleman common stock on a share for share basis. In
connection with the issuance of the shares of preferred stock, Coleman
entered into a tax sharing agreement with Sunbeam pursuant to which Coleman
will pay to Sunbeam amounts equal to the federal and state income taxes that
would have been payable by Coleman had Coleman not been included in the
consolidated income tax return of Sunbeam. The terms of the voting preferred
stock, their issue price and the terms of the tax sharing agreement were
approved on Coleman's behalf by Coleman's sole independent director. The net
proceeds from the issuance of the shares by Coleman of its voting preferred
stock to Coleman Worldwide were used by Coleman to make a partial repayment
of loans outstanding from Sunbeam under the Intercompany Note.
17
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and the related footnotes included
elsewhere in this quarterly report on Form 10-Q/A, as well as the
consolidated financial statements and related notes, and management's
discussion and analysis of financial condition and results of operations in
the Company's Annual Report on Form 10-K/A for the year ended December 31,
1998.
RESULTS OF OPERATIONS
RESTRUCTURING CHARGES
The Company reviews the adequacy of its restructuring reserves and
adjusts the reserves as the various activities are completed or additional
information becomes available which allows the Company to refine its
estimates. During the six months ended June 30, 1999 and 1998, the Company
increased its existing reserves by $0.1 million and $1.1 million,
respectively, as a result of these reviews. In addition, during the six
months ended June 30, 1998, the Company recorded additional restructuring
charges totaling $9.1 million which included, (i) $8.1 million of severance
benefits related to approximately 76 employees whose employment with the
Company was terminated following the acquisition of the Company by Sunbeam
(the "Sunbeam Acquisition"), (ii) $1.1 million of severance benefits for
approximately 110 employees at the Company's manufacturing facility in Cedar
City, Utah which was closed during June 1998, and (iii) recognition of a net
gain of $0.1 million related to the disposition of the Company's
manufacturing facility in Cedar City, Utah.
The following tables (dollars in millions) provide an analysis of the
changes in the Company's restructuring reserves since December 31, 1998. For
a detailed description of the Company's restructuring activities see Note 3
to the consolidated financial statements included in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1998.
INTEGRATION OF CAMPING GAZ AND COLEMAN
<TABLE>
<CAPTION>
Balance at Balance at
December 31, Cash Non-Cash June 30,
1998 Reductions Reductions 1999
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Charges included in cost of sales:
Write-down of inventory...................... $ .4 $ -- $ -- $ .4
--------- -------- ------- ------
Total included in cost of sales............ .4 -- -- .4
--------- -------- ------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... 7.5 -- .9 6.6
Other assets............................... .2 -- -- .2
--------- -------- ------- ------
7.7 -- .9 6.8
--------- -------- -------- ------
</TABLE>
18
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C> <C> <C> <C>
Restructuring accruals:
Employee severance pay and fringes......... .1 -- -- .1
Other exit activity costs, including
sales agent termination costs and
claims brought by terminated
employees................................ .7 .3 .1 .3
--------- --------- -------- ------
.8 .3 .1 .4
--------- --------- -------- ------
Totals included in restructuring......... 8.5 .3 1.0 7.2
--------- --------- -------- ------
Totals ........................................ $ 8.9 $ .3 $ 1.0 $ 7.6
========= ========= ======== ======
</TABLE>
The reserves remaining at June 30, 1999 principally relate to the write
down of a vacated warehouse and an accrual for claims brought by foreign
employees terminated as part of the restructuring plan. The timing of the
resolution of the claims brought by foreign employees will vary depending
upon local practices. The Company continues to assess the propriety of the
carrying value of the related balances and make adjustments to the recorded
amounts as appropriate given current facts and circumstances. The remaining
reserves for inventory and other assets relate to residual activity to be
completed by the end of 1999.
EXIT LOW-MARGIN PRODUCT LINES
<TABLE>
<CAPTION>
Balance at Charges Balance at
December 31, to Cash June 30,
1998 Income Reductions 1999
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Charges included in cost of sales:
Write-down of inventory...................... $ .4 $ .1 $ .4 $ .1
--------- --------- -------- ------
Total included in cost of sales............ .4 .1 .4 .1
--------- --------- -------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... .1 -- -- .1
--------- --------- -------- ------
.1 -- -- .1
--------- --------- -------- ------
Restructuring accruals:
Other exit activity costs, primarily
product buyback costs.................... .6 -- .1 .5
--------- --------- -------- ------
.6 -- .1 .5
--------- --------- -------- ------
Totals included in restructuring......... .7 -- .1 .6
--------- --------- -------- ------
Totals ........................................ $ 1.1 $ .1 $ .5 $ .7
========= ========= ======== ======
</TABLE>
The remaining reserves at June 30, 1999, relate to anticipated losses on
final disposal of the remaining inventory and fixed assets and the projected
remaining pressure washer buyback costs. The Company estimates the remaining
activity will be completed by the end of 1999.
19
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
<TABLE>
<CAPTION>
Balance at Charges Balance at
December 31, to Cash June 30,
1998 Income Reductions 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Restructuring accruals:
Employee severance pay and fringes........... $ 3.4 $ .1 $ .4 $ 3.1
--------- --------- -------- ------
Totals ........................................ $ 3.4 $ .1 $ .4 $ 3.1
========= ========= ======== ======
</TABLE>
The unpaid severance costs at June 30, 1999 are expected to be paid by
December 31, 2000.
CLOSE FACILITIES
<TABLE>
<CAPTION>
Balance at (Credits) Balance at
December 31, to Cash June 30,
1998 Income Reductions 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... $ .2 $ -- $ -- $ .2
--------- --------- -------- ------
.2 -- -- .2
--------- --------- -------- ------
Restructuring accruals:
Employee severance pay and fringes......... 1.3 (.1) .5 .7
Other exit activity costs,
primarily lease termination costs........ .6 -- .3 .3
--------- --------- -------- ------
1.9 (.1) .8 1.0
--------- --------- -------- ------
Totals included in restructuring......... 2.1 (.1) .8 1.2
--------- --------- -------- ------
Totals ........................................ $ 2.1 $ (.1) $ .8 $ 1.2
========= ========= ======== ======
</TABLE>
During the six months ended June 30, 1999, of those employees expected to
be terminated, 4 employees left the Company and 14 employees remain to be
terminated. Remaining termination costs are expected to be paid by December
31, 2000 in accordance with the long-term severance arrangements. The fixed
assets held for disposal at June 30, 1999, will be disposed of during 1999.
The remaining reserve balance for other exit activity costs at June 30, 1999,
principally relates to leases with fixed terms running through 2001.
EMPLOYEE TERMINATION AND SEVERANCE
<TABLE>
<CAPTION>
Balance at Balance at
December 31, Cash June 30,
1998 Reductions 1999
----------- ---------- ----------
<S> <C> <C> <C>
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes......... $ 3.4 $ 2.0 $ 1.4
--------- --------- --------
Totals ........................................ $ 3.4 $ 2.0 $ 1.4
========= ========= ========
</TABLE>
During the six months ended June 30, 1999, of those employees expected to
be terminated, 3 employees left the Company and 5 employees remain to be
terminated. The 5 remaining
20
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
employees are expected to be terminated during 1999. Remaining termination
costs are expected to be paid by December 31, 2000, and no additional charges
are anticipated in future periods related to this issue.
OTHER CHARGES
During the first six months of 1998, the Company recorded other charges
totaling $13.4 million ($12.9 million in the first quarter and $0.5 million
in the second quarter) which consisted of (i) $7.3 million of costs
associated with the acquisition of the Company by Sunbeam including advisory
fees, (ii) $3.9 million of charges associated with abandoning a company-wide
enterprise resource computer software system, and (iii) $2.2 million of costs
associated with terminating a licensing services agreement with an affiliate
of Coleman (Parent) Holdings, Inc., the then indirect parent company of
Coleman Worldwide. These costs were recorded in selling, general and
administrative ("SG&A") expenses.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net revenues of $400.9 million for the three months ended June 30, 1999
were $74.5 million, or 22.8%, greater than for the three months ended June
30, 1998. The outdoor recreation products revenues, reflecting both United
States and foreign non-hardware products, increased $34.7 million. Revenues
for the 1999 period include $12.8 million of revenues from sales of Sunbeam
grills and other Sunbeam appliances which Coleman began selling primarily in
Europe and Canada in late 1998 and early 1999, respectively. In addition,
revenues for the 1998 period include $8.4 million of revenues from sales of
the Company's spa related products, a business which was sold during 1998.
Adjusting revenues for the 1999 period to exclude the Sunbeam product
revenues and adjusting the 1998 period to exclude the spa related product
revenues results in comparable outdoor recreation 1999 period products
revenues increasing $30.3 million, or 11.3%, over 1998 period revenues. This
increase occurred in nearly all product categories, primarily reflecting
strong retail replenishment demand and what the Company believes is
heightened consumer sensitivity to the need for emergency preparedness,
including Year 2000 considerations. The Company experienced unusually weak
retail replenishment demand in the second quarter of 1998. The hardware
products revenues increase of $39.8 million includes $6.7 million of revenues
from sales of Sunbeam's First Alert products which Coleman began selling
internationally, primarily in Europe, in late 1998. Excluding the revenues
from these First Alert products, the hardware products revenues reflected an
increase of $33.1 million, or 67.5%, over comparable 1998 revenues primarily
reflecting an increase in generator sales attributable to what the Company
believes is heightened consumer sensitivity to the need for emergency
preparedness, including power shortages arising from poor weather conditions
and Year 2000 considerations. Geographically, United States revenues
increased $46.9 million, or 22.7%, and foreign revenues increased $27.6
million, or 23.0%, over the 1998 period revenues. The United States revenues
for the 1998 period include revenues from the Company's spa business which
was sold during 1998. Excluding these revenues from the 1998 period, United
States revenues in 1999 reflected an increase of $55.3 million, or 27.9%,
over the 1998 period revenues. Excluding the Sunbeam product revenues from
the foreign revenues in the 1999 period, foreign revenues in 1999 reflected
an increase of $8.1 million, or 6.8%, over the 1998 period revenues.
Gross profit for the three months ended June 30, 1999 was $130.7 million
as compared to $94.8 million for the three months ended June 30, 1998. Higher
sales volume and favorable manufacturing efficiencies resulting from higher
production levels associated with the higher sales
21
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
volume in the 1999 period accounted for primarily all of the increase in
gross profit. Although the Company has experienced improved gross margins in
1999, the Company continues to rationalize its international production
capabilities. The Company is evaluating the elimination of at least one
international manufacturing facility and expects to complete that evaluation
by December 31, 1999.
SG&A expenses, excluding the impact of $0.5 million of other charges in
the three months ended June 30, 1998 and described above, were $68.3 million
for the three months ended June 30, 1999 compared to $58.0 million for the
1998 period. The overall dollar increase in SG&A expenses is primarily due to
increased selling costs associated with the increase in 1999 sales partially
offset by the reduction in SG&A expenses associated with the Company's spa
business which was sold during 1998 and whose total SG&A expenses during the
second quarter of 1998 were $1.5 million. SG&A expenses as a percent of net
revenues decreased to 17.0% in 1999 from 17.8% in 1998 as revenues grew
faster than SG&A expenses.
Interest expense was $4.9 million for the three months ended June 30,
1999 compared with $8.9 million in the 1998 period, a decrease of $4.0
million. Approximately 35% of this decrease is attributable to lower
borrowings with the balance of the decrease primarily attributable to a
reduction in the interest rate on amounts borrowed from Sunbeam.
Minority interest represents the interest of minority shareholders in the
Company's subsidiary operations in the Philippines, Indonesia, and Canada.
The Company recorded a provision for income tax expense of $20.8 million
or 38.2% of pre-tax earnings in 1999 compared to a provision for income tax
expense of $8.7 million in 1998. The 1999 income tax provision reflects $1.2
million of tax expense due to the impact of decreased foreign tax rates on
deferred tax assets. The 1998 income tax provision reflects the write-off of
approximately $3.8 million deferred tax assets that became unrealizable as a
result of the Sunbeam Acquisition. Excluding these items, the 1999 effective
income tax rate would have been approximately 36.0% and the 1998 effective
income tax rate would have been approximately 34.9%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net revenues of $681.6 million for the six months ended June 30, 1999
were $110.7 million, or 19.4%, greater than for the six months ended June 30,
1998. The outdoor recreation products revenues, reflecting both United States
and foreign non-hardware products, increased $61.8 million. Revenues for the
1999 period include $19.2 million of revenues from sales of Sunbeam grills
and other Sunbeam appliances which Coleman began selling primarily in Europe
and Canada in late 1998 and early 1999, respectively. In addition, revenues
for the 1998 period include $13.5 million of revenues from sales of the
Company's spa related products, a business which was sold during 1998.
Adjusting revenues for the 1999 period to exclude the Sunbeam product
revenues and adjusting the 1998 period to exclude the spa related product
revenues results in comparable outdoor recreation products 1999 period
revenues increasing $56.1 million, or 12.8%, over 1998 period revenues. This
increase occurred in nearly all product categories, primarily reflecting
strong retail replenishment demand and what the Company believes is
heightened consumer sensitivity to emergency preparedness, including Year
2000 considerations. The Company experienced unusually weak retail
replenishment demand in the first half of 1998. The hardware products
revenues increase of $48.9 million includes $13.1 million of revenues from
sales of Sunbeam's First Alert products which Coleman began selling
internationally, primarily in Europe, in late 1998. In addition, revenues
22
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
for the 1998 period include $16.3 million of revenues from the Company's
safety and security business which was sold in March 1998. Excluding the
revenues from these First Alert products and the safety and security business
products, the hardware products revenues reflected an increase of $52.1
million, or 51.0%, over comparable 1998 revenues primarily reflecting an
increase in generator sales attributable to what the Company believes is
heightened consumer sensitivity to the need for emergency preparedness,
including power shortages arising from poor weather conditions and Year 2000
considerations. Geographically, United States revenues increased $62.4
million, or 17.6%, and foreign revenues increased $48.3 million, or 22.4%,
over the 1998 period revenues. The United States revenues for the 1998 period
includes revenues from the Company's safety and security business and spa
business, both of which were sold during 1998. Excluding these revenues from
the 1998 period, United States revenues in 1999 reflected an increase of
$92.2 million or 28.3%, over the 1998 period revenues. Excluding the Sunbeam
product revenues from the foreign revenues in the 1999 period, foreign
revenues in 1999 reflected an increase of $16.0 million, or 7.4%, over the
1998 period revenues.
Gross profit for the six months ended June 30, 1999 was $213.0 million as
compared to $163.5 million for the six months ended June 30, 1998. Higher
sales volume and favorable manufacturing efficiencies resulting from higher
production levels associated with the higher sales volume in the 1999 period
accounted for primarily all of the increase in gross profit.
SG&A expenses, excluding the impact of $13.4 million of other charges in
the six months ended June 30, 1998 as described above, were $129.7 million
for the six months ended June 30, 1999 compared to $119.3 million in the 1998
period. The overall dollar increase in SG&A expenses is primarily due to
increased selling costs associated with the increase in 1999 sales partially
offset by the reduction in SG&A expenses associated with the Company's safety
and security business and spa business, both of which were sold during 1998,
and whose total SG&A expenses during the 1998 period were $6.9 million. SG&A
expenses as a percent of net revenues decreased to 19.0% in 1999 from 20.9%
in 1998 as revenues grew faster than SG&A expenses.
Interest expense was $12.4 million for the six months ended June 30, 1999
compared with $17.9 million in the 1998 period, a decrease of $5.5 million.
Approximately 59% of this decrease is attributable to lower borrowings with
the balance of the decrease primarily attributable to a reduction in the
interest rate on amounts borrowed from Sunbeam.
Minority interest represents the interest of minority shareholders in the
Company's subsidiary operations in the Philippines, Indonesia, and Canada.
The Company recorded a provision for income tax expense of $25.4 million
or 38.5% of pre-tax earnings in 1999 compared to a provision for income tax
expense of $16.2 million in 1998. The 1999 income tax provision reflects $1.2
million of tax expense due to the impact of decreased foreign tax rates on
deferred tax assets. The 1998 income tax provision reflects, among other
things, (i) the write-off of approximately $5.5 million deferred tax assets
that became unrealizable as a result 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 $7.2 million non-deductible
costs associated with the Sunbeam Acquisition. Excluding these items, the
1999 effective income tax rate would have been approximately 36.7% and the
1998 effective income tax rate would have been approximately 37.6%.
23
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $21.3 million and $79.3 million
of cash during the six months ended June 30, 1999 and 1998, respectively. The
Company's higher working capital needs during the 1999 period were largely
offset by higher operating profits. Receivables and inventories increased
$125.5 million and $17.8 million, respectively, in the six months ended June
30, 1999 as compared to $85.6 million and $9.7 million, respectively, in the
six months ended June 30, 1998. The overall increase in receivables and
inventories in 1999 as compared to 1998 is largely due to a higher level of
business activity in 1999. The Company's capital expenditures were $12.1
million and $13.6 million in the six months ended June 30, 1999 and 1998,
respectively. Net cash provided by financing activities for the six months
ended June 30, 1999, primarily reflects borrowings under the Intercompany
Note to fund the Company's operating activities and capital expenditures.
During the six months ended June 30, 1998, the $45.5 million of proceeds from
stock option exercises along with $453.9 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 $98.2 million were used to, among other things,
(i) repay the $116.0 million outstanding indebtedness under the Company's
then existing credit agreement (ii) redeem the Company's various senior notes
at a cost of $383.4 million, and (iii) fund the Company's operating
activities and capital expenditures.
The Company's uses of cash for 1999 are expected to be primarily for
working capital and capital expenditure requirements. The Company's ability
to meet its cash operating requirements, including capital expenditures and
other obligations, is dependent upon a combination of cash flows from
operations and loans to the Company from Sunbeam. Sunbeam has informed the
Company it has the positive intent and ability to fund the Company's
requirements for borrowed funds through April 10, 2000. Prior to April 15,
1999, amounts loaned by Sunbeam to Coleman were represented by a promissory
note (the "Old Intercompany Note"), were due on demand and bore interest at a
floating rate equivalent to the weighted average interest rate incurred by
Sunbeam on its outstanding convertible debt and borrowings under its bank
credit facility.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements, the
lenders under the Sunbeam Credit Facility, amended and restated the Old
Intercompany Note (the "Intercompany Note"), entered into intercompany
security and pledge agreements, and entered into an amendment to the Sunbeam
Credit Facility and certain other agreements (collectively, the
"Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany
Note bears interest at an annual rate equal to (i) 4% if the three month
London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is
less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate
system is 6% or higher, subject to increases during an event of default, and
interest will be payable by adding the amount of such interest to the
principal balance of the Intercompany Note. In addition, the Intercompany
Note provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Intercompany Note and that in
certain circumstances the payment on the Intercompany Note will be
subordinate to Coleman's obligations under the Sunbeam Credit Facility.
Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all
of its domestic assets, other than its real property, including 66% of its
ownership interest in its direct foreign subsidiaries and domestic holding
companies for its foreign subsidiaries and all of its ownership interest in
its other direct domestic subsidiaries (but Coleman's subsidiaries have not
pledged their assets or stock of their subsidiaries), as security for the
Intercompany Note. Sunbeam has pledged the Intercompany Note as security for
the Sunbeam Credit Facility and assigned to such lenders the security pledged
by Coleman for the Intercompany Note. Coleman also gave the lending
24
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
banks a direct pledge of the assets securing the Intercompany Note to secure
the obligations under the Sunbeam Credit Facility, subject to a cap equal to
the balance due from time to time on the Intercompany Note.
As of June 30, 1999 the amount borrowed by the Company under the
Intercompany Note amounted to $390.6 million and the applicable interest rate
was 4%. The weighted average interest rate charged by Sunbeam for amounts
borrowed under the Old Intercompany Note and the Intercompany Note during the
six months ended June 30, 1999 was 5.9% and the total interest charged by
Sunbeam to Coleman was $11.5 million. Sunbeam also charged to Coleman a
pro-rata share of amortized debt issuance costs and unused bank credit
facility commitment fees totaling $0.3 million. Net amounts advanced from
Sunbeam along with the related unpaid interest and other costs are reflected
as debt payable to affiliate in the Company's consolidated balance sheet.
Coleman is also a borrower under the Sunbeam Credit Facility for purposes of
letters of credit issued for its account.
The Sunbeam Credit Facility provides for aggregate borrowings of up to
$1,700.0 million pursuant to (i) a revolving credit facility in an aggregate
principal amount of up to $400.0 million (subject to certain reductions)
maturing on March 30, 2005, of which $52.5 million may only be used to
complete the Coleman Merger if the Coleman Merger does not occur prior to
August 31, 1999, (ii) up to $800.0 million in term loans maturing on March
30, 2005, of which $35.0 million may only be used to complete the Coleman
Merger, and (iii) a $500.0 million term loan maturing on September 30, 2006,
of which $5.0 million has already been repaid through June 30, 1999. At June
30, 1999, Sunbeam had $1,410.0 million of outstanding debt under the Sunbeam
Credit Facility and approximately $218.3 million available for borrowing. As
a result of Sunbeam's operating losses during 1998, among other things,
Sunbeam was not in compliance with the financial covenants and other terms
contained in the Sunbeam Credit Facility. In April 1999, Sunbeam and its
lenders entered into an amendment to the Sunbeam Credit Facility which
amended and added certain financial covenants and other terms and waived
compliance with certain other financial covenants and other terms through
April 10, 2000. At the end of June 1999, approximately $233.5 million was
available to the Company under the Sunbeam Credit Facility either through
letters of credit borrowings or loans from Sunbeam. In addition, at the same
time, Sunbeam's cash balance available for debt repayment was approximately
$15.2 million.
Borrowings under the Sunbeam Credit Facility are secured by a pledge of
the stock of Sunbeam's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its
material subsidiaries, other than Coleman and its subsidiaries except as
otherwise described herein. Currently, Coleman's inventory and related assets
are pledged to secure its obligations for letters of credit issued for its
account under the Sunbeam Credit Facility.
The Sunbeam Credit Facility contains covenants customary for credit
facilities of a similar nature, and events of default customary for
transactions of this type. The Sunbeam Credit Facility requires that the
registration statement for the shares of Sunbeam common stock to be issued in
the Coleman Merger be declared effective by October 30, 1999, (effective as
of October 25, 1999, the bank lenders agreed to extend this date to November
30, 1999), and that the Coleman Merger be consummated no more than 25
business days after such registration statement is declared effective.
Sunbeam is also required to maximize its subsidiaries' utilization of
available foreign credit facilities and Sunbeam's accounts receivable
facility and to comply with specified financial covenants and ratios. If an
event of default occurs under the Sunbeam Credit Facility or Sunbeam is
unable to obtain a waiver or amendment of certain financial covenants after
April 10, 2000, the Company may
25
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
be required to reduce, delay or cancel capital or other expenditures and/or
seek loans or capital contributions from, or sell assets or capital stock to,
lending institutions and/or other third parties or affiliates. There can be
no assurance that any of such transactions could be consummated or if
consummated, would be on favorable terms or in amounts sufficient to permit
the Company to meets its cash requirements, or that any of such transactions
would be permitted under Sunbeam's debt instruments then in effect. See Note
14 to the Consolidated Financial Statements in the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1998.
In April 1999, the New York Stock Exchange ("NYSE") advised Coleman that
it did not meet the NYSE's continuing listing standards because Coleman did
not have tangible net assets of at least $12.0 million at September 30, 1998
and average annual net income of at least $0.6 million for fiscal years 1997,
1996 and 1995. At that time, Coleman requested the NYSE to continue to list
the Coleman common stock until completion of the Coleman Merger. The NYSE
subsequently advised Coleman that Coleman also failed to satisfy certain
non-financial continuing listing standards. On August 5, 1999, the NYSE
advised Coleman that the NYSE had revised its continuing listing standards,
and that Coleman is in compliance with the revised financial standards.
Coleman and the NYSE have agreed upon a program whereby Coleman will correct
the deficiencies in its non-financial continuing listing standards by the end
of 1999. Coleman is currently complying with such program. If Coleman were to
be delisted from the NYSE, it could adversely affect the market price of
Coleman's common stock and Coleman's ability to sell its capital stock to
third parties. However, Sunbeam's bank credit facility currently restricts
Coleman from taking such actions.
In May 1998, the NYSE advised Sunbeam that it did not meet the NYSE's
continuing listing standards because Sunbeam did not have tangible net assets
of $12.0 million at December 31, 1997 and average annual net income of at
least $0.6 million for fiscal years 1997, 1996 and 1995. Sunbeam
representatives met with NYSE officials, and in March 1999, the NYSE informed
Sunbeam that Sunbeam common stock would not be delisted at that time,
although the NYSE would, however, continue to monitor Sunbeam's financial
condition and operations. On August 5, 1999, the NYSE advised Sunbeam that
the NYSE had revised its continuing listing standards, and that Sunbeam is in
compliance with the revised standards.
On July 12, 1999, Coleman Worldwide acquired 3,000,000 shares of a newly
created series of Coleman voting preferred stock for an aggregate purchase
price of approximately $31.1 million. These shares, together with the shares
of Coleman common stock owned by Coleman Worldwide, enable Coleman Worldwide
to exercise 80.01% of the total voting power of Coleman's outstanding capital
stock as of July 12, 1999. Coleman created these shares of preferred stock
and Coleman Worldwide acquired them in order to enable Coleman and Sunbeam to
file consolidated federal income tax returns and, in certain jurisdictions,
consolidated state income tax returns prior to the consummation of the
Coleman Merger. In connection with the issuance of the shares of preferred
stock, Coleman entered into a tax sharing agreement with Sunbeam pursuant to
which Coleman will pay to Sunbeam amounts equal to the federal and state
income taxes that would have been payable by Coleman had Coleman not been
included in the consolidated income tax return of Sunbeam. The net proceeds
from the issuance of the shares by Coleman of its voting preferred stock to
Coleman Worldwide were used by Coleman to make a partial repayment of loans
outstanding from Sunbeam under the Intercompany Note.
26
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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.
YEAR 2000 READINESS DISCLOSURE
The Company is continuing the process of assessing the impact of the Year
2000 on its operations. The Company is being assisted in its review and
remediation work by Sunbeam's Year 2000 Program Management Office and
consulting firms employed by Sunbeam. The Company has completed an inventory
of its hardware and software systems, manufacturing equipment, electronic
data interchange, telecommunications and other technical assets potentially
subject to Year 2000 problems, such as security and telephone systems and
controls for lighting, heating, ventilation and facility access.
Additionally, the Company is assessing the effects of noncompliance by its
vendors, service providers, customers and financial institutions.
The Company relies on its information technology functions to perform
many tasks that are critical to its operations. Significant transactions that
could be impacted by Year 2000 noncompliance include, among others, purchases
of materials, production management, order entry and fulfillment, and payroll
processing. Systems and applications that have been identified by the Company
to date as not currently Year 2000 compliant that are critical to the
Company's operations include certain of its financial software systems, which
process the order entry, purchasing, production management, general ledger,
accounts receivable, and accounts payable functions, and critical
applications in the Company's manufacturing and distribution facilities.
The Company's corrective work to achieve Year 2000 compliance has
included the following: (i) installation of Year 2000 compliant JD Edwards
software which has recently been completed in one location; (ii) the
installation of Year 2000 compliant JBA software in one location which is
substantially complete; (iii) remediation of software codes for existing
programs in another location which is substantially complete; and (iv)
installation of Year 2000 compliant JD Edwards software which is scheduled to
be completed in another location in September 1999. This last location has
significant Year 2000 issues. Coleman's failure to complete a timely
conversion of this location to a Year 2000 compliant system could have a
material impact on the Company's operations. Management believes that,
although there are significant systems that are being or will be modified or
replaced, Coleman's information systems environment will be made Year 2000
compliant prior to January 1, 2000.
As of June 30, 1999, the Company had expended approximately $8.5 million
related to remediation of Year 2000 issues, of which approximately $5.7
million was recorded as SG&A expenses and the remainder as capital
expenditures. The Company's preliminary assessment of the total costs to
address and remedy Year 2000 issues is approximately $14.0 million. This
estimate includes the costs of software and hardware modifications and
replacements, and fees to third party consultants, but excludes the costs
associated with Company employees. The Company expects these expenditures to
be financed through operating cash flows or borrowings, as applicable. There
can be no assurance that these preliminary estimates will not change as the
Company completes its assessment of the Year 2000 issues.
27
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
The Company's Year 2000 program was developed and is monitored with the
help of independent consultants. Therefore, with the exception of certain
aspects of the Company's Year 2000 readiness program, the Company did not
engage another independent third party to verify the program's overall
approach or total cost. However, the Company believes that through its use of
various external consulting firms which perform significant roles within the
program, the Company's exposure in this regard is mitigated. In addition,
through the use of external third party diagnostic software packages that are
designed to analyze the Year 2000 readiness in the software code which the
Company is remediating, the Company believes that it has also mitigated its
risk by validating and verifying key program components.
The Company has contacted its major vendors and suppliers of products and
services to determine their Year 2000 readiness, and is continuing to monitor
their status with respect to such plans. This review includes third party
providers to whom the Company has outsourced the processing of its cash
receipt and cash disbursement transactions and its payroll. The Company is
currently assessing the vendor responses and will conduct additional reviews,
including on-site meetings, if deemed necessary, with any major suppliers who
have not indicated their readiness for the Year 2000. The failure of certain
of these third party suppliers to become Year 2000 compliant could have a
material adverse impact on the Company. The Company will also contact its
customers to determine if they are prepared for Year 2000 issues. Their
failure to evaluate and prepare for Year 2000 issues could have a material
adverse effect on Coleman's operations.
The Company plans to establish a contingency plan for addressing any
effects of the Year 2000 on its operations, whether due to noncompliance of
the Company's systems or those of third parties. The Company expects to
substantially complete such contingency plan by September 30, 1999 and
expects that such contingency plan will include an analysis of the Company's
worst case scenario and will address alternative processes, such as manual
procedures to replace those processed by noncompliant systems, electronic
spreadsheets, potential alternative service providers, and plans to address
compliance issues as they arise. At this time, the Company believes that the
most likely "worst-case" scenario relating to Year 2000 issues generally
involves potential disruptions in areas in which the Company's operations
must rely on vendors, suppliers and customers whose systems may not work
properly after January 1, 2000. While such failures could either directly or
indirectly affect important operations of the Company and its subsidiaries in
a significant manner, the Company cannot at present estimate either the
likelihood or the potential cost of such failures. However, subject to the
nature of the systems and applications of the Company or third parties which
are not made Year 2000 compliant, the impact of such non-compliance on the
Company's operations could be material if appropriate contingency plans
cannot be developed prior to January 1, 2000.
Because Year 2000 readiness is critical to the business, the Company has
redeployed some resources from non-critical system enhancements to address
Year 2000 issues. In addition, due to the importance of information systems
to the Company's business, management has deferred non-mission-critical
systems enhancements as much as possible. The Company does not expect these
redeployments and deferrals to have a material impact on the Company's
financial condition or results of operations.
CAUTIONARY STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q/A may constitute
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as
28
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
the same may be amended from time to time (the "Act") and in releases made by
the Securities and Exchange Commission ("SEC") from time to time. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Statements that are not historical facts, including statements
about the Company's beliefs and expectations, are forward-looking statements.
Forward-looking statements can be identified by, among other things, the use
of forward-looking language, such as "believe," "expects," "estimates",
"projects", "may," "will," "should," "seeks," "plans," "scheduled to,"
"anticipates" or "intends" or the negative of those terms, or other
variations of those terms or comparable language, or by discussions of
strategy or intentions. Forward-looking statements speak only as of the date
they are made, and the Company undertakes no obligation to update them. These
forward-looking statements were based on various factors and were derived
utilizing numerous important assumptions and other important factors that
could cause actual results to differ materially from those in the
forward-looking statements. These cautionary statements are being made
pursuant to the Act, with the intention of obtaining the benefits of the
"Safe Harbor" provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance. Important assumptions and other important factors that could
cause actual results to differ materially from those contained in the
forward-looking statements with respect to the Company include, but are not
limited to risks associated with:
- high leverage,
- Sunbeam having sufficient borrowing capacity or other funds to lend to
the Company to satisfy the Company's cash needs,
- unavailability of sufficient cash flows from operations and borrowings
from Sunbeam, and the inability of the Company to secure loans or
capital contributions from, or sell assets or capital stock to,
lending institutions and/or other third parties or affiliates,
- Sunbeam's ability to comply with the terms of the Sunbeam Credit
Facility, and to continue to have access to its revolving credit
facility,
- Coleman's ability to maintain and increase market shares for its
products at acceptable margins,
- Coleman's ability to successfully introduce new products and to
provide on-time delivery and a satisfactory level of customer service,
- changes in domestic and/or foreign laws and regulations, including
changes in tax laws, accounting standards, environmental laws,
occupational, health and safety laws,
- access to foreign markets together with foreign economic and political
conditions, including currency fluctuations, and trade, monetary,
fiscal and/or tax policies,
- uncertainty as to the effect of competition in existing and potential
future lines of business,
- fluctuations in the cost and/or availability of raw materials and/or
products,
- changes in the availability and/or costs of labor,
- effectiveness of advertising and marketing programs,
- product quality, including excess warranty costs, product liability
expenses and costs of product recalls,
- weather conditions which are adverse to the specific businesses of
Coleman,
- the possibility of a recession in the United States or other countries
resulting in a decrease in consumer demands for Coleman's products,
29
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
- ability of third party service providers that have been engaged to
provide services such as factory maintenance and certain back office
administrative services to timely and accurately provide their
services to the Company,
- changes in consumer preferences or a decrease in the public's interest
in camping and related activities,
- combinations or other actions by retail customers that adversely
affect sales or profitability,
- actions by competitors including business combinations, new product
offerings and marketing and promotional activities,
- failure of Coleman and/or its customers and suppliers of goods or
services to timely complete the remediation of computer systems to
effectively process Year 2000 information,
- any material error in evaluating levels of retail inventories and the
related impact on operations, and
- Coleman's sourcing of products from international vendors, including
the ability to select reliable vendors and avoid delays in shipments.
Other factors and assumptions not included in the foregoing may cause the
Company's actual results to materially differ from those projected. The
Company assumes no obligation to update any forward-looking statements or
these cautionary statements to reflect actual results or changes in other
factors affecting such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
QUALITATIVE INFORMATION
Coleman uses a variety of derivative financial instruments to manage its
foreign currency and interest rate exposures. Coleman 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. See also Note 12 to the Consolidated Financial Statements in
the Company's Annual Report on Form 10-K/A for the year ended December 31,
1998.
The Company's international operations are located primarily in Europe,
Japan and Canada, which are not considered to be highly inflationary
environments. 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. Coleman is most vulnerable to
changes in United States dollar/Japanese yen (JPY), United States
dollar/Canadian dollar (CAD), United States dollar/German Deutschemark (DM),
and United States dollar/British Pound (GBP) exchange rates.
The Company's interest income and expense are most sensitive to changes
in the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's cash equivalents
and short-term investments as well as interest paid on its debt. To mitigate
the impact of fluctuations in U.S. interest rates, the Company maintains a
portion of its debt as fixed rate in nature by entering into interest rate
swap transactions.
30
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Coleman manages credit risk related to its derivative instruments through
credit approvals, exposure limits, threshold amounts and other monitoring
procedures.
QUANTITATIVE INFORMATION
Set forth below are tabular presentations of certain information related
to Coleman's investments in market risk sensitive instruments. All of the
instruments set forth in the following tables have been entered into by
Coleman for purposes other than trading.
INTEREST RATE SENSITIVITY. The table below provides information about
Coleman's derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates, including interest rate
swaps and debt obligations.
For debt obligations, the table presents principal cash flows by expected
maturity date and related June 30, 1999 weighted average interest rates. For
interest rate swaps, the table presents notional amounts and weighted average
interest rates for the contracts at June 30, 1999. Notional amounts are used
to calculate the contractual payments to be exchanged under the contracts.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
Balance -----------------------------------------------------------
at There- Fair
6/30/99 1999 2000 2001 2002 2003 After Total Value
-------- ---- ----- ----- ---- ---- ------- ------ -----
(US$ Equivalent in Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt:
Fixed Rate.................. $ 0.6 $ 0.1 $ 0.2 $ 0.2 $ 0.1 $-- $ -- $ 0.6 $ 0.6
Average Interest Rate....... 4.60%
Interest Rate Derivatives:
Interest Rate Swaps:
Variable to Fixed (US$)... $ 25.0 $ -- $-- $-- $-- $ 25.0 $ -- $ 25.0 $ (0.1)
Average Pay Rate.......... 6.12%
Average Receive Rate...... 5.00%
</TABLE>
EXCHANGE RATE SENSITIVITY. The table below provides information about
Coleman's foreign currency derivative financial instruments and other
financial instruments, including forward exchange agreements, by functional
currency and presents such information in U.S. dollar equivalents. The table
summarizes information on instruments and transactions that are sensitive to
foreign currency exchange rates, including foreign currency variable rate
credit lines, foreign currency forward exchange agreements and foreign
currency purchased put option contracts. For debt obligations, the table
represents principal cash flows and related weighted average interest rates
by expected maturity dates. For foreign currency forward exchange agreements
and foreign currency put option contracts, the table presents the notional
amounts and weighted average exchange rates by expected (contractual)
maturity dates. These notional amounts generally are used to calculate the
contractual payments to be exchanged under the contract.
31
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Balance
at Fair
6/30/99 (1) Value
----------- ---------
(US$ Equivalent in Millions)
<S> <C> <C>
Foreign Currency Short-Term Debt:
Variable Rate Credit Lines (Europe, Japan and Asia)....... $ 48.0 $ 48.0
Weighted Average Interest Rate............................ 2.7%
Forward Exchange Agreements:
(Receive US$/Pay DM)
Contract Amount......................................... $ 6.0 $ 6.8
Average Contractual Exchange Rate....................... 1.62
(Receive US$/Pay JPY)
Contract Amount......................................... $ 6.0 $ 6.2
Average Contractual Exchange Rate....................... 114.17
(Receive US$/Pay GBP)
Contract Amount......................................... $ 2.0 $ 2.1
Average Contractual Exchange Rate....................... .60
(Receive US$/Pay CAD)
Contract Amount......................................... $ 3.4 $ 3.4
Average Contractual Exchange Rate....................... 1.46
Purchased Put Option Agreements:
(Receive US$/Pay DM)
Contract Amount......................................... $ 10.9 $ 0.5
Average Strike Price.................................... 1.80
(Receive US$/Pay JPY)
Contract Amount......................................... $ 11.6 $ 0.1
Average Strike Price.................................... 125.00
(Receive US$/Pay GBP)
Contract Amount......................................... $ 0.7 $ 0.0
Average Strike Price.................................... .62
(Receive US$/Pay CAD)
Contract Amount......................................... $ 30.2 $ 0.1
Average Strike Price.................................... 1.53
</TABLE>
- -------------------
(1) None of the instruments listed in the table have maturity dates beyond 1999.
32
<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
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Designation, Preferences and Rights of
Series A Participating Preferred Stock of The Coleman
Company, Inc., dated as of July 9, 1999 (incorporated
by reference to Exhibit 3.1 to The Coleman Company,
Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990).
10.1 Sixth Amendment to Credit Agreement, dated as of May
25, 1999 among Sunbeam Corporation ("Sunbeam"), the
Subsidiary Borrowers referred to therein, the Lenders
party thereto, Morgan Stanley Senior Funding, Inc.,
Bank America National Trust and Savings Association
and First Union National Bank (incorporated by
reference to Exhibit 10.32 to Amendment Number 2 to
Sunbeam's Registration Statement on Form S-1,
Registration Number 333-71819).
10.2 Tax Sharing Agreement, dated as of July 12, 1999 by
and among Sunbeam Corporation and The Coleman
Company, Inc (incorporated by reference to Exhibit
10.2 to The Coleman Company, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990).
27 Financial Data Schedule, submitted electronically to
the Securities and Exchange Commission for
information only and not filed.
</TABLE>
- -------------------
(b) Report on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
33
<PAGE>
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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.
Date: November 4, 1999 By: /s/ Gwen C. Wisler
--------------------- ----------------------------
Gwen C. Wisler
Executive Vice President and
Chief Financial Officer
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COLEMAN COMPANY, INC. FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 23,266 19,995
<SECURITIES> 0 0
<RECEIVABLES> 289,303 261,029
<ALLOWANCES> 8,933 9,702
<INVENTORY> 240,828 223,569
<CURRENT-ASSETS> 590,873 544,310
<PP&E> 272,700 273,068
<DEPRECIATION> 130,335 115,995
<TOTAL-ASSETS> 1,026,488 1,031,869
<CURRENT-LIABILITIES> 677,506 702,241
<BONDS> 423 216
0 0
0 0
<COMMON> 558 558
<OTHER-SE> 265,021 267,462
<TOTAL-LIABILITY-AND-EQUITY> 1,026,488 1,031,869
<SALES> 680,944 565,201
<TOTAL-REVENUES> 681,615 570,906
<CGS> 468,599 407,414
<TOTAL-COSTS> 468,599 407,414
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,964 1,555
<INTEREST-EXPENSE> 12,445 17,923
<INCOME-PRETAX> 65,875 20,113
<INCOME-TAX> 25,362 16,190
<INCOME-CONTINUING> 39,936 3,683
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (17,538)
<CHANGES> 0 0
<NET-INCOME> 39,936 (13,855)
<EPS-BASIC> 0.72 (0.25)
<EPS-DILUTED> 0.72 (0.25)
</TABLE>
