UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K/A
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended DECEMBER 31, 1998
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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
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THE COLEMAN COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3639257
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2111 E. 37TH STREET NORTH, WICHITA, KANSAS 67219
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 316-832-2700
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SAME CLASS THE PACIFIC STOCK EXCHANGE
(unlisted trading privileges)
SAME CLASS MIDWEST STOCK EXCHANGE
(unlisted trading privileges)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 requirements for the past 90 days. __X__ Yes _____ No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K/A or any amendment to this Form 10-K/A [ X ]
The aggregate market value of the voting stock of the registrant held
by non-affiliates, based upon the closing sale price of the common stock on
April 9, 1999 was approximately $84,524,784.
As of April 9, 1999, there were 55,827,490 shares of the registrant's
common stock outstanding, of which 44,067,520 shares were held by an indirect
wholly-owned subsidiary of Sunbeam Corporation.
Exhibit Index at pages 49 through 56.
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
1998 FORM 10-K/A ANNUAL REPORT
TABLE OF CONTENTS
PART I Page
Item 1. Business............................................................................ 3
Item 2. Properties.......................................................................... 9
Item 3. Legal Proceedings................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders................................. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stock Matters..................... 14
Item 6. Selected Financial Data............................................................. 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 16
Item 8. Financial Statements and Supplementary Data......................................... 36
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.......................................... 36
PART III
Item 10. Directors and Executive Officers of the Registrant.................................. 36
Item 11. Executive Compensation.............................................................. 39
Item 12. Security Ownership of Certain Beneficial Owners and Management...................... 45
Item 13. Certain Relationships and Related Transactions...................................... 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K..................... 49
Signatures.......................................................................... 57
2
PART I
ITEM 1. BUSINESS
GENERAL
The Coleman Company, Inc. ("Coleman" or the "Company") is a leading
manufacturer and marketer of consumer products for the worldwide outdoor
recreation market. The Company's products have been sold under the Coleman
brand name since the 1920s. The Company believes its strong market position
is attributable primarily to its well-recognized trademarks, particularly the
Coleman brand name, broad product line, product quality and innovation, and
marketing, distribution and manufacturing expertise.
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 December 31, 1998.
On February 27, 1998, CLN Holdings Inc. ("CLN Holdings"), the then
parent company of Coleman Worldwide, and Coleman (Parent) Holdings Inc.
("Parent Holdings"), the then parent company of CLN Holdings, entered into an
Agreement and Plan of Merger (as amended, the "Holdings Merger Agreement")
with Sunbeam and Laser. On March 30, 1998, pursuant to the Holdings Merger
Agreement, CLN Holdings was merged with and into Laser, with Laser continuing
as the surviving corporation and as a wholly-owned subsidiary of Sunbeam (the
"Holdings Merger"). In the Holdings Merger, Parent Holdings received
14,099,749 shares of Sunbeam common stock and $160.0 million in cash in
exchange for all of the outstanding shares of CLN Holdings. As a result of
the Holdings Merger, Sunbeam became the indirect owner of 44,067,520 shares
of Coleman common stock held by Coleman Worldwide (the "Sunbeam
Acquisition"). On August 12, 1998, Sunbeam announced it had entered into a
settlement agreement with Parent Holdings, a subsidiary of MacAndrews &
Forbes Holdings Inc. ("M&F"), in connection with the Holdings Merger (the
"Parent Holdings Settlement Agreement"). The Parent Holdings Settlement
Agreement, subject to the terms of such settlement: (i) released Sunbeam from
certain claims Parent Holdings and its affiliates, including M&F, may have
against Sunbeam arising out of the Sunbeam Acquisition; and (ii) enabled
Sunbeam and its subsidiaries to retain the services of executive personnel
affiliated with Parent Holdings who had previously been involved with
management of Coleman and who had been managing Sunbeam since mid-June of
1998. Pursuant to the Parent Holdings Settlement Agreement, Parent Holdings
received from Sunbeam a warrant expiring August 24, 2003 (the "Parent
Holdings Warrant") to purchase up to an additional 23 million shares of
Sunbeam common stock at an exercise price of $7.00 per share, subject to
anti-dilution provisions.
Coincident with the execution of the Holdings Merger Agreement, the
Company, Sunbeam and Camper Acquisition Corp. ("CAC"), a wholly-owned
subsidiary of Sunbeam, entered into an Agreement and Plan of Merger (the
"Coleman Merger Agreement" and with the Holdings Merger Agreement,
collectively, the "Merger Agreements"), providing that among other things,
CAC will be merged with and into Coleman, with Coleman continuing as the
surviving corporation (the "Coleman Merger"). Pursuant to the Coleman Merger
Agreement, each share of the Company's common stock issued and outstanding
immediately prior to the effective time of the Coleman Merger (other than
shares held indirectly by Sunbeam and dissenting shares, if any) will be
converted into the right to receive (a) 0.5677 of a share of Sunbeam common
stock, with cash paid in lieu of fractional shares, and (b) $6.44 in cash,
without interest. In addition, outstanding stock options of Coleman
immediately vested upon consummation of the Holdings Merger Agreement and
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. The
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hearing on the settlement was held on September 29, 1999, but the court has
not ruled on the settlement. Under the terms of the proposed settlement, if
approved by the court, Sunbeam will issue to the minority shareholders of
Coleman warrants to purchase up to 4.98 million shares of Sunbeam common
stock at $7.00 per share, subject to certain anti-dilution provisions. Any
shareholder who does not exercise his appraisal rights under Delaware law
will receive the warrants. These warrants will generally have the same terms
as the Parent Holdings Warrant and will be issued when the Coleman Merger is
consummated, which is now expected to occur during the second half of 1999.
There can be no assurance 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.
As a result of the Sunbeam Acquisition, all previous arrangements with Parent
Holdings and its affiliates for the provision of services to Coleman were
terminated. See also "Certain Relationships and Related
Transactions--Services Provided by M&F".
The Company has made several acquisitions in recent years designed
to expand its product lines. In 1996, the Company acquired the French company
Application des Gaz ("Camping Gaz") which is a leader in the European camping
equipment market and also acquired the assets of Seatt Corporation ("Seatt"),
a leading designer, manufacturer and distributor of safety and security
products including smoke alarms, thermostats and carbon monoxide detectors.
In 1998, the Company sold Coleman Safety & Security Products, Inc. ("CSS"),
the successor to the assets acquired from Seatt, to Ranco Incorporated of
Delaware ("Ranco"), a wholly-owned subsidiary of Siebe plc. As part of such
sale, the Company also licensed the "Coleman" name and trademark to Ranco for
manufacture and sale at retail by Ranco of certain smoke alarms, carbon
monoxide detectors and other similar products. In 1995, the Company acquired
Sierra Corporation of Fort Smith, Inc. ("Sierra"), a manufacturer of portable
outdoor and recreational folding furniture and accessories and substantially
all of the assets of Active Technologies, Inc. ("ATI"), a manufacturer of
technologically advanced lightweight generators and battery charging
equipment. In 1994, the Company acquired substantially all of the assets of
Eastpak, Inc. and all of the capital stock of M.G. Industries, Inc.
(together, "Eastpak"), a leading designer, manufacturer and distributor of
branded daypacks, sports bags and related products; and substantially all of
the assets of Sanborn Manufacturing Company ("Sanborn"), a manufacturer of a
broad line of portable and stationary air compressors.
The Company also restructured certain operations. In 1994, the
Company completed the restructuring of its German manufacturing operations
(the "German Restructuring"), including selling its plastic cooler business
located in Inheiden, Germany and Loucka, Czech Republic. In 1996, the Company
closed the Brazilian manufacturing operations it had acquired from Metal
Yanes, Ltda. in 1994. In 1997, the Company undertook further restructuring
including (i) exiting various low margin products, including pressure
washers, (ii) closing and relocating certain administrative and sales
offices, and (iii) closing several manufacturing facilities. During 1998, the
Company continued certain restructuring activities originally begun in 1997,
terminated 109 employees in connection with the Sunbeam Acquisition, closed
certain domestic and European facilities and incurred other costs directly
associated with the Sunbeam Acquisition. During 1998, the Company also sold
its portable spa products business.
PRODUCTS AND OPERATIONS
The Company has two primary classes of products, outdoor recreation
and hardware. The Company's principal outdoor recreation products include a
comprehensive line of lanterns and stoves, fuel-related products such as
disposable fuel cartridges, a broad range of coolers and jugs, sleeping bags,
backpacks, daypacks, adventure travel gear, tents, outdoor folding furniture,
portable electric lights, camping accessories and other products. The
Company's principal hardware products include portable generators,
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and portable and stationary air compressors. The Company's products are used
predominantly in outdoor recreation, but many products have applications in
emergency preparedness and some are also used in home improvement projects
and are distributed predominantly through mass merchandisers, home centers
and other retail outlets.
The Company's operations are managed through five groups: Outdoor
Recreation, Powermate, Eastpak, International and Corporate. The Company's
outdoor recreation products are sold domestically through the Outdoor
Recreation and Eastpak groups, and the hardware products are sold
domestically through Powermate, and both classes of products are sold
throughout the rest of the world through the International group. The
Company's Corporate group provides general and administrative services to all
operating groups and also includes the operation of the Company's retail
stores and the conduct of the Company's licensing activities.
OUTDOOR RECREATION
Coleman's principal Outdoor Recreation products include a
comprehensive line of lanterns and stoves for outdoor recreational use,
fuel-related products such as disposable fuel cartridges, a broad range of
coolers and jugs, sleeping bags, backpacks, tents, outdoor folding furniture,
portable electric lights, camping accessories and other products. These
products are used predominantly in outdoor recreation, but many products have
applications in emergency preparedness and some are also used in home
improvement projects and are distributed predominantly through mass
merchandisers, home centers and other retail outlets. The Company believes it
is the leading manufacturer of lanterns and stoves for outdoor recreational
use in the world. The Company's liquid fuel appliances include single and
dual fuel-powered lanterns and stoves and a broad range of propane- and
butane-fueled lanterns and stoves. These products are manufactured at the
Company's facilities located in the United States and are marketed under the
COLEMAN -Registered Trademark- and PEAK ONE-Registered Trademark- brand
names. The Outdoor Recreation group revenues accounted for approximately 38%
of the Company's total net revenues in 1998.
The Company manufactures and sells a wide variety of insulated
coolers and jugs and reusable ice substitutes, including personal coolers for
camping, picnics or lunch box use; large coolers; beverage coolers for use at
work sites and recreational and social events; and soft-sided coolers. The
Company's cooler products are manufactured predominantly at the Company's
facilities located in the United States and are marketed under the COLEMAN
brand name worldwide. The Company designs, manufactures or sources, and
markets textile products, including tents, sleeping bags, backpacks and
rucksacks. The Company's tents and sleeping bags are marketed under the
COLEMAN and PEAK ONE brand names. The Company manufactures and markets
aluminum- and steel-framed, portable, outdoor, folding furniture under the
COLEMAN and SIERRA TRAILS-Registered Trademark- brand names. These products
are manufactured predominantly at the Company's facilities located in the
United States. The Company designs and markets electric lighting products
that are manufactured by others and sold under the COLEMAN,
POWERMATE-Registered Trademark- and JOB-PRO-Registered Trademark- brand
names. These products include portable electric lights such as hand held
spotlights, flashlights and fluorescent lanterns and a line of rechargeable
lanterns and flashlights. The Company designs, sources and markets a variety
of small accessories for camping and outdoor use, such as cookware and
utensils. These products are manufactured by third-party vendors to Coleman's
specifications and are marketed under the COLEMAN brand name.
POWERMATE
The Company's principal Powermate products include portable
generators and portable and stationary air compressors. The Company is a
leading manufacturer and distributor of portable generators in the United
States. Generators are used for home improvement projects, small businesses,
emergency preparedness and outdoor recreation. These products are
manufactured by the Company at its United States facilities, using engines
manufactured by third parties, are marketed under the COLEMAN
POWERMATE-Registered Trademark- brand name and are distributed predominantly
through mass merchandisers and home center chains. The Company also produces
advanced, light-weight generators incorporating proprietary technology. The
Company's air compressors are manufactured at its facilities located in the
United States, are marketed under the COLEMAN
5
POWERMATE brand name and are distributed predominantly through mass
merchandisers and home center chains. The Powermate group revenues accounted
for approximately 20% of the Company's total net revenues in 1998.
EASTPAK
The Company designs, manufactures and distributes book bags,
backpacks and related goods under the EASTPAK-Registered Trademark- and
TIMBERLAND-Registered Trademark- brand names. The Company manufactures the
majority of its products in its plants located in Puerto Rico. The Eastpak
group revenues accounted for approximately 4% of the Company's total net
revenues in 1998.
INTERNATIONAL
The Company's International group is managed through the following
regional subdivisions: (1) Europe (manufacture, sale and distribution of
CAMPINGAZ-Registered Trademark- products and sales and distribution of other
Company products in Europe, Africa and the Middle East); (2) Latin America
(sales and distribution through Latin America of substantially all the
Company's products); (3) Japan (sales and distribution of primarily outdoor
recreation products in Japan); (4) Canada (sales and distribution of
substantially all the Company's products in Canada); and (5) East Asia (sales
and distribution in all areas of East Asia other than Japan of substantially
all the Company's products).
The Company markets a variety of products outside the United States.
While the Company sells many of the same products domestically and
internationally, it also sells products designed specifically to appeal to
foreign markets. The Company, through its foreign subsidiaries, has
manufacturing facilities in France, Italy, and Indonesia, and has sales
administration offices and warehouse and distribution facilities in
Australia, Austria, Belgium, Brazil, Canada, the Czech Republic, France,
Germany, Holland, Hong Kong, Hungary, Indonesia, Italy, Japan, Korea, Mexico,
the Philippines, Portugal, Spain, Switzerland, the United Arab Emirates and
the United Kingdom. Each office is responsible for sales and distribution of
the Company's products in the territories assigned to that office. The
Company's direct export operations market its products directly to
international customers in certain other markets through Company sales
managers, independent distributors, and commissioned sales representatives.
In total, the Company sells its products in more than 100 countries. The
products sold by the international group are sourced from the Company's
manufacturing operations or from vendors primarily located in Asia.
International group revenues accounted for approximately 33% of the Company's
total net revenues in 1998.
SALES AND MARKETING
The following table sets forth net revenues by class of products for
the years ended December 31, 1998, 1997 and 1996.
1998 1997 1996
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(in millions)
Outdoor Recreation.................. $ 779.0 $ 859.7 $ 859.6
Hardware............................ 236.4 294.6 360.6
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Total........................... $ 1,015.4 $ 1,154.3 $ 1,220.2
========== ========== ==========
In the United States and Canada, the Company's outdoor recreation
products are sold by the Company's own sales force and, to a lesser extent,
by sales representatives that serve specialty markets and related
distribution channels. The Company's hardware products are sold by Company
and independent sales representatives that serve specialty markets and
related distribution channels.
The Company promotes its products through national and local
advertising campaigns, frequently coordinating with retailers' promotions to
maximize the benefits of its advertising efforts.
6
Foreign sales represented 38%, 34% and 34% of net revenues for the
years ended December 31, 1998, 1997 and 1996, respectively. For 1998,
approximately 82% of the Company's foreign sales were in Europe, Japan and
Canada.
RETAIL AND LICENSING
RETAIL. The Company sells many of its products through its ten
retail outlet stores which are operated under the CAMP COLEMAN-Registered
Trademark- name.
LICENSING. The Company licenses the Coleman name and logo under two
types of licensing arrangements: general merchandise licenses and licenses to
purchasers of businesses divested by the Company. The Company's general
merchandise licensing activities involve licensing the Coleman name and logo,
for a royalty fee, to certain companies that manufacture and sell products
that complement the Company's product lines. Revenues from licensing
activities in 1998 were $6.2 million.
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 unseasonable weather conditions.
RAW MATERIALS/SUPPLIERS
The raw materials used in the manufacture of the Company's products
are available from numerous suppliers in quantities sufficient to meet normal
requirements. The Company's primary raw materials include aluminum, steel,
plastic resin, copper, electrical components, various textiles or fabrics and
corrugated cardboard for cartons. The Company also purchases a number of
finished products. The Company is not dependent upon any single supplier for
a material amount of such sourced products.
COMPETITION
The markets in which the Company operates are generally highly
competitive, based primarily on product quality, product innovation, price
and customer service and support, although the degree and nature of such
competition vary by location and product line. The Company believes that no
other company produces and markets the breadth of outdoor recreation products
marketed by the Company.
Each of the Company's outdoor recreation products is competitive
with various products based upon the product line. Lanterns and stoves
compete with, among others, products offered by Century Primus, American
Camper and Dayton Hudson Corporation, while Desa & Schau and Mr. Heater are
the primary competitors for heaters. The primary competitors for the
Company's portable furniture are a variety of import companies. The Company's
insulated cooler and jug products compete with products offered by Rubbermaid
Incorporated, Igloo Products Corp. and The Thermos Company. The Company's
sleeping bags compete with, among others, American Recreation, Slumberjack,
Academy Broadway Corp. and MZH Inc., as well as certain private label
manufacturers. In the tent market, the Company competes with, among others,
Wenzel, Eureka and Mountain Safety Research, as well as certain private label
manufacturers. The Company's backpack products compete with, among others,
American Camper, JanSport, Nike, Outdoor Products, The North Face and Kelty,
as well as certain private label manufacturers. The Company's competition in
the electric light business includes, among others, Eveready and Rayovac
Corporation. The Company's camping accessories compete primarily with
Coughlan's.
Each of the Company's hardware product lines also competes with
various products. The Company's primary competitors in the generator business
are Generac Corporation, Honda Motor Co., Ltd., Kawasaki and Yamaha. Primary
competitors in the air compressor business include DeVilbiss and Campbell
Hausfeld.
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In addition, the Company competes with various other entities in
international markets.
CUSTOMERS
The Company markets its products through virtually every category of
retailer including mass merchandisers, catalog showrooms, warehouse clubs,
department stores, catalogues, Company-owned outlet stores, hardware stores,
home improvement centers, and drug and grocery stores, as well as independent
distributors and military post exchange outlets. In 1998, the Company sold
products to virtually all of the top 100 U.S. retailers, including
Wal-Mart/Sam's Club, Kmart, Price Costco, Target Stores and Home Depot. The
Company's largest customer, Wal-Mart Stores, Inc. accounted for approximately
16% of sales in 1998. Currently, the Company has the majority of its U.S.
customers' sales on electronic data interchange (EDI) systems.
BACKLOG
The amount of backlog orders at any point in time is not a
significant factor in the Company's business.
PATENTS AND TRADEMARKS
The Company's operations are not significantly dependent upon any
single or related group of patents. While the Company does not believe any
single trademark is material to its business other than the
"Coleman-Registered Trademark-", "Coleman Powermate-Registered Trademark-",
"Campingaz-Registered Trademark-" and "Eastpak-Registered Trademark-"
trademarks, and the "Coleman in parallelogram with lantern symbol" logo mark,
it believes its trademarks taken as a whole are material to its business. The
Company aggressively monitors and protects its interests in all such
trademarks.
The Company holds numerous design and utility patents covering a
wide variety of products, the loss of any one of which would not have a
material adverse effect on the Company's business taken as a whole.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are linked to the
process of marketing its products. New products and improvements to existing
products are developed based upon the perceived needs and demands of
consumers. The Company's research and development is performed primarily by
an in-house team of marketing managers, engineers, draftsmen and product
testers using tools such as computer-assisted design and a variety of
consumer research techniques. Research and development expenditures are
expensed as incurred. The amounts charged against operations for the years
ended December 31, 1998, 1997 and 1996 were $10.4 million, $11.9 million and
$11.1 million, respectively.
INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS
Certain information concerning the Company's business and geographic
segments is set forth in Note 19 of the Notes to Consolidated Financial
Statements contained elsewhere in this Form 10-K/A Annual Report. Coleman has
sales in countries where economic growth has slowed, primarily Japan and
Korea. The economies of other foreign countries important to the Company's
operations could also suffer instability in the future. The following are
among the factors that could negatively affect Coleman's operations in
foreign markets: (1) access to markets; (2) currency devaluation; (3) new
tariffs; (4) changes in monetary policies; (5) inflation; and (6)
governmental instability. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Exposure to Market Risk."
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EMPLOYEES
As of December 31, 1998, the Company had approximately 4,700
full-time and part-time employees of which approximately 3,300 are employed
in the United States. None of the Company's United States employees are
represented by unions. The Company's Canadian warehouse employees are
represented by a union, as are all of the production employees in France and
Italy. The Company has had no material labor-related work stoppages and, in
the opinion of management, relations with its employees are generally good.
ITEM 2. PROPERTIES
The Company's principal properties as of December 31, 1998 are as
follows:
Building
Square Owned/
Location Principal Use Footage Leased
- -------- ------------- ------- ------
UNITED STATES
Kearney, NE Manufacture/assembly of portable generators;
office and warehouse..................................... 155,000 Leased(1)
Lake City, SC Manufacture of sleeping bags................................ 168,000 Owned
Maize, KS Manufacture of propane cylinders Owned/
and machined parts....................................... 232,760 Leased
New Braunfels, TX Manufacture of insulated coolers and other plastic
products................................................. 338,000 Owned
Pocola, OK Manufacture of outdoor folding furniture and warehouse...... 186,000 Owned
Springfield, MN Manufacture of air compressors.............................. 166,000 Owned
Wichita, KS Manufacture of lanterns and stoves and insulated coolers
and jugs; research and development and design
operations; office and warehouse......................... 1,197,000 Owned
Morovis and Orocovis, Manufacture of daypacks, sports bags, and related
Puerto Rico products; office and warehouse........................... 110,000 Leased
INTERNATIONAL
Centenaro di Lonata, Manufacture of butane lanterns, stoves, heaters and
Italy grills; office and warehouse............................. 77,000 Owned
St. Genis Laval, France Manufacture of lanterns and stoves, filling of gas
cylinders, and assembly of grills; office and
warehouse................................................ 2,070,000 Owned(2)
- ------------------
(1) The owned facilities at Kearney, Nebraska reside on land leased under three
leases that expire in 2007 with options to extend each for three additional
ten-year periods.
(2) The warehouse portion of St. Genis Laval, France is leased for terms that
expire in 2004; the remaining facility is owned.
The Company also maintains leased sales and administrative offices
in the United States, Japan, Australia, Belgium, Germany, Hong Kong, Austria,
the Czech Republic, Hungary, the Netherlands, the Philippines, Portugal,
Spain and the United Kingdom, among other sites. The Company leases various
warehouse facilities and/or accesses public warehouse facilities as needed on
a short-term lease basis. The Company also maintains gas filling plants in
Indonesia, the Philippines and the United Kingdom. The Company also leases a
total of 54,927 square feet for the operation of its retail outlet stores.
Company management considers the Company's facilities to be suitable for the
Company's operations, and believes that the Company's facilities provide
sufficient capacity for its production requirements and its operating plans.
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ITEM 3. LEGAL PROCEEDINGS
The following disclosure is as of April 9, 1999.
PRODUCT LIABILITY AND INSURANCE
The Company is party to various product liability lawsuits relating
to its products and incidental to its business. The Company believes that
many of the personal injury and damage claims brought against it arise from
the misuse or misapplication of the Company's products. In such cases, the
Company vigorously defends against such actions. Since the beginning of 1986,
in only one policy period did the Company have a product liability award that
exceeded the individual per occurrence self-insured retention amount and
product liability awards that exceeded the aggregate self-insured retention
amount. There can be no assurance, however, that the Company's future product
liability experience will be consistent with its past experience. The Company
believes that the ultimate conclusion of the various pending product
liability claims and lawsuits of the Company will not have a material adverse
effect on the financial position or results of operations of the Company.
The Company participates in product liability insurance programs
maintained by Sunbeam and reimburses Sunbeam for its allocable share of the
cost of such coverage. Such liability insurance is written on an "occurrence"
basis. An "occurrence" policy generally insures the Company for any claims
made arising from incidents or events which occurred while such insurance
coverage is in effect. Under Sunbeam's product liability insurance coverages,
the Company retains liability in the amount of $2.5 million per occurrence
and $18.0 million in the aggregate for the policy year. The Company believes
this type and level of coverage is adequate. For a discussion of the
Company's policy on accrual of reserves for the self-insured portions of the
risks covered by the insurance programs maintained by Sunbeam, see Notes 1
and 14 of the Notes to Consolidated Financial Statements of the Company,
which are included elsewhere in this Form 10-K/A Annual Report.
ENVIRONMENTAL MATTERS
The Company's operations, like those of comparable businesses, are
subject to certain federal, state, local and foreign environmental laws and
regulations in addition to laws and regulations regarding labeling and
packaging of products and the sales of products containing certain
environmentally sensitive materials ("Environmental Laws"). The Company
believes it is in substantial compliance with all Environmental Laws which
are applicable to its operations. Compliance with Environmental Laws involves
certain continuing costs; however, such costs of ongoing compliance have not
resulted, and are not anticipated to result, in a material increase in the
Company's capital expenditures or to have a material adverse effect on the
Company's results of operations, financial condition or competitive position.
The Company has established reserves, in accordance with Statement
of Financial Accounting Standards No. 5, "Accounting for Contingencies", to
cover the anticipated probable costs of remediation, based upon periodic
reviews of all sites for which the Company has, or may have, remediation
responsibility. The Company accrues environmental remediation costs when it
is both probable that a liability has been incurred and the amount can be
reasonably estimated and the Company's responsibility is established.
Generally, the timing of these accruals coincides with the earlier of the
completion of a feasibility study or the Company's commitment to a formal
plan of action. As of December 31, 1998 and 1997, the Company's environmental
reserves were $10.9 million (representing $10.4 million for the estimated
costs of facility investigations, corrective measure studies and known
remedial measures and $0.5 million for estimated legal costs)and $4.1 million
(representing $3.7 million for the estimated costs of facility
investigations, corrective measure studies and known remedial measures and
$0.4 million for estimated legal costs), respectively. It is anticipated that
the $10.9 million accrual at December 31, 1998 will be paid as follows: $1.1
million in 1999, $2.8 million in 2000, $1.2 million in 2001, $0.5 million in
2002, $0.5 million in 2003 and $4.8 million thereafter. The Company has
accrued its best estimate of remediation costs (based upon a range of
exposure of $5.6 million to $23.3 million) based upon facts known to the
Company and because of the inherent difficulties in estimating the ultimate
amount of environmental remediation costs, which are further described below,
these estimates may materially change in the future as a result of the
uncertainties described below. Estimated
10
costs, which are based upon experience with similar sites and technical
evaluations, are judgmental in nature and are recorded at undiscounted
amounts without considering the impact of inflation, and are adjusted
periodically to reflect changes in applicable laws or regulations, changes in
available technologies and receipt by the Company of new information. It is
difficult to estimate the ultimate level of future environmental expenditures
due to a number of uncertainties surrounding environmental liabilities. These
uncertainties include the applicability of laws and regulations, changes in
environmental remediation requirements, the enactment of additional
regulations, uncertainties surrounding remediation procedures including the
development of new technologies, the identification of new sites for which
the Company could be a potentially responsible party ("PRP"), information
relating to the exact nature and extent of the contamination at each site and
the extent of required clean up efforts and the varying costs of alternative
remediation strategies. Due to uncertainty over remedial measures to be
adopted at some sites, the possibility of changes in environmental laws and
regulations and the fact that joint and several liability with the right of
contribution is possible at federal and state Superfund sites, the Company's
ultimate future liability with respect to sites at which remediation has not
been completed may vary from the amounts reserved as of December 31, 1998.
The Company has recorded reserves for environmental matters which it
believes are adequate based upon facts known to the Company, applicable laws
and regulations, status of remediation efforts, ongoing investigations,
technical evaluations, and individual circumstances related to each site.
Amounts charged against operations for environmental remediation activities
for the years ended December 31, 1998, 1997, and 1996 were $7.6 million, $1.8
million, and $1.6 million, respectively.
The Company reviews the adequacy of its environmental reserves and
adjusts the reserves as additional information becomes available, as
previously described, which allows the Company to refine its estimates.
During the fourth quarter of 1998, the Kansas Department of Health and
Environment ("KDHE") approved a remedial investigation report prepared by
Coleman and requested Coleman to prepare and submit a remedial system design
to address off-site contamination originating from one of its existing sites.
Coleman is in the process of developing the feasibility study which will
propose several alternatives for remediating the on-site soil and groundwater
contamination and the off-site groundwater contamination resulting from the
on-site sources. Based upon the remedial system design, completed in the
fourth quarter of 1998 by the Company's outside environmental consultants,
Coleman recorded a charge of $5.7 million with respect to this issue during
the fourth quarter of 1998. The remaining charges recognized during 1998 are
related to an additional contamination source discovered at one site which
increased the estimated remediation period and increases in the estimated
costs for remedial system operation and maintenance at another site. During
1997 and 1996, amounts charged to operations for environmental remediation
activities related to refinement of remediation estimates based upon ongoing
investigations, feasibility studies, technical evaluations, and monitoring
procedures.
GILBERT AND MOSLEY SITE
As a result of investigations undertaken in 1986, the KDHE
discovered that groundwater in the Wichita area (the "Gilbert and Mosley
Site") was contaminated with volatile organic compounds ("VOCs"). Coleman
occupied a facility within the boundaries of the Gilbert and Mosley Site.
Subsequent investigations in the area, including investigations in November
1998 by Coleman, indicated the groundwater beneath the Coleman property is
contaminated with VOCs. Coleman is in the process of remediating the
contamination on its property.
The City of Wichita (the "City") has entered into a voluntary
agreement with KDHE in which the City agreed to investigate and then
remediate contamination at the Gilbert and Mosley Site. Coleman has entered
into an agreement with KDHE in which Coleman agreed to perform a similar
study for the Coleman property and to implement remedial activities at its
property. In addition, Coleman entered into an agreement with the City in
which Coleman agreed to fund its proportionate share of the City's study and
remediation of the Gilbert and Mosley Site.
11
In December 1996, the City completed a preliminary study of the
proportionate share of remediation costs which the City alleges should be the
responsibility of Coleman. The preliminary study proposed an allocation to
Coleman of $7.9 million of site response costs. Coleman disagrees with both
the City's methodology and assumptions as well as with the conclusion of the
City's preliminary study. Since completion of the preliminary study,
additional site investigation work has been performed by the City in an
attempt to design appropriate remedies. The City has submitted its final
remediation proposals to the KDHE in March 1999.
MAIZE SITE
Coleman has undertaken a soil and groundwater investigation at its
facility in Maize, Kansas (the "Maize Site"). Results indicate limited VOCs
contamination is present in the groundwater under and to the southeast of the
facility. The data has been reported to the KDHE, and Coleman has entered
into an agreement with KDHE to implement appropriate remedial actions. The
remediation system has been installed, and Coleman is in the process of
remediating the contaminated groundwater.
NORTHEAST SITE
In 1990, Coleman undertook a soil and groundwater investigation of
its facility in northeast Wichita (the "Northeast Site"). Results indicated
the presence of VOCs in the groundwater and soils. Although some of the
contamination may be a result of Coleman's operations at the facility, the
data also indicated contamination was migrating onto the Coleman property
from upgradient sources. Coleman reported the initial results of its study to
KDHE. Coleman has also provided copies of all data to the United States
Environmental Protection Agency (the "EPA"), at its request. The EPA has not
initiated any actions against the Company with respect to the Northeast Site.
An agreement has been entered into with KDHE to undertake additional
investigatory activities, and an interim remediation system has been
installed. As described above, during the fourth quarter of 1998, the KDHE
approved a remedial investigation report prepared by Coleman and requested
Coleman to prepare and submit a remedial system design to address off-site
contamination originating from one of its existing sites.
The Northeast Site is located in an area of Wichita which the KDHE
has designated as the North Industrial Corridor Site ("NIC Site"). The City
has entered into a voluntary agreement with KDHE in which the City agreed to
investigate and then remediate contamination at the NIC Site. In June 1996,
Coleman entered into an agreement with the City in which Coleman agreed to
fund its proportionate share, if any, of the cost to remediate the NIC Site.
The City has not completed its remedial investigation on the NIC Site. In
April 1999, Coleman, along with several other parties, received a demand from
the EPA to pay the EPA's past investigative and oversight cost for a former
EPA site which is now part of the NIC Site. Coleman believes that it has both
equitable and legal defenses to the EPA's demand for payment of these costs
and Coleman intends to defend itself vigorously with respect to the EPA's
demand.
LAKE CITY SITE
In 1992, Coleman undertook a soil and groundwater investigation of
its facility in Lake City, South Carolina (the "Lake City Site"). Results
indicated limited VOC and fuel oil contamination in the soil and groundwater.
In both instances, the contamination appeared to relate to activities of a
previous occupant of the Lake City Site. The results of the investigation
were reported to the appropriate South Carolina environmental agency and the
prior owner agreed to take over further site investigations and remediation
actions and reimbursed Coleman for a significant part of Coleman's past costs
related to site investigation.
The Company has not been named as a PRP by the EPA nor does it have
joint and several liability with any other PRP for remediation at any of the
above sites.
12
J.C. PENNCO SITE
Coleman has been identified as a PRP for the presence of hazardous
substances at the J.C. Pennco Site in San Antonio, Texas. In January 1999,
Coleman agreed to settle its alleged liability with the EPA, and in March
1999, Coleman agreed to settle its alleged liability with the Texas Natural
Resource Conservation Commission.
LITIGATION
Beginning on June 25, 1998, several class action lawsuits were filed
in the Court of Chancery of the State of Delaware by minority stockholders of
Coleman against Coleman, Sunbeam and certain of their current and former
officers and directors. These actions were consolidated into a single class
action lawsuit. The actions allege, among other things, that the
consideration payable to the public stockholders of Coleman in the proposed
Coleman Merger is no longer fair to such stockholders as a result of the
decline in the market price of Sunbeam common stock. In October 1998, Coleman
and Sunbeam entered into a memorandum of understanding to settle, subject to
court approval, the consolidated class action lawsuit. The court hearing on
the settlement was held on September 29, 1999, but the court has not ruled on
the settlement. Under the terms of the proposed settlement, if approved by
the court, Sunbeam will issue to the minority stockholders of Coleman
warrants to purchase 4.98 million shares of Sunbeam common stock at an
exercise price of $7.00 per share, subject to certain anti-dilution
provisions. These warrants will generally have the same terms as the Parent
Holdings Warrant and will be issued when the Coleman Merger is consummated,
which is now expected to occur during the second half of 1999. Any
shareholder who does not exercise appraisal rights under Delaware law will
receive the warrants. There can be no assurance that the court will approve
the settlement as proposed, although such approval is not a condition to the
consummation of the Coleman Merger.
OTHER MATTERS
The Company and its subsidiaries are also involved in various
lawsuits arising from time to time which the Company considers to be ordinary
routine litigation incidental to its business. In the opinion of the Company,
the resolution of these routine matters, and of certain matters relating to
prior operations, individually or in the aggregate, will not have a material
adverse effect upon the financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1998.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed and traded on the New York
Stock Exchange ("NYSE") under the symbol "CLN" and has unlisted trading
privileges on the Midwest Stock Exchange and the Pacific Stock Exchange. The
following table sets forth the high and low sales prices of the Company's
common stock as reported on the New York Stock Exchange Composite Transaction
Tape.
High Low
---- ---
1998
First Quarter................................. $ 35 9/16 $ 12 1/16
Second Quarter................................ 31 3/4 10 13/16
Third Quarter................................. 12 8 15/16
Fourth Quarter................................ 10 3/16 7 7/16
1997
First Quarter................................. $ 16 1/8 $ 11 1/2
Second Quarter................................ 19 1/8 12 7/8
Third Quarter................................. 18 15 3/16
Fourth Quarter................................ 16 13/16 12 3/8
As of the close of business on April 9, 1999, there were
approximately 575 holders of record of the Company's common stock.
In April 1999, the 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.
The Company has not declared a cash dividend on its common stock and
does not anticipate any dividends will be declared on its common stock in the
foreseeable future. The Coleman Merger Agreement prohibits payment of
dividends prior to completion of the Coleman Merger.
The Company did not sell any unregistered securities during 1998.
14
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the years presented in the table
below has been derived from the Consolidated Financial Statements and
includes financial data related to businesses acquired from their respective
dates of acquisition. This information should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and the related notes,
which are included elsewhere in this Annual Report on Form 10-K/A.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
Net revenues............................. $ 1,015,373 $ 1,154,294 $ 1,220,216 $ 933,574 $ 751,580
Cost of sales (a)........................ 748,295 828,107 917,947 649,427 535,710
----------- ----------- ----------- ---------- ---------
Gross profit............................. 267,078 326,187 302,269 284,147 215,870
Selling, general and
administrative expenses................ 255,071 255,785 271,541 174,688 128,466
Restructuring expense (a)................ 17,892 22,722 30,678 -- 18,456
Asset impairment charge (b).............. -- -- -- 12,289 --
Interest expense, net.................... 33,213 40,852 38,727 24,545 13,374
Amortization of goodwill and
deferred charges....................... 19,584 11,338 10,473 7,745 6,209
Gain on sales of businesses.............. (32,411) -- -- -- --
Other expense, net....................... 170 1,867 1,151 334 1,138
----------- ----------- ----------- ---------- ---------
(Loss) earnings before income taxes,
minority interest and
extraordinary item .................... (26,441) (6,377) (50,301) 64,546 48,227
Income tax expense (benefit)............. 13,846 (5,227) (10,927) 24,479 14,747
Minority interest........................ 276 1,386 1,872 -- --
----------- ----------- ----------- ---------- ---------
(Loss) earnings before
extraordinary item .................... (40,563) (2,536) (41,246) 40,067 33,480
Extraordinary loss on early
extinguishment of debt, net of
income taxes........................... (17,538) -- (647) (787) (677)
----------- ----------- ----------- ---------- ---------
Net (loss) earnings...................... $ (58,101) $ (2,536) $ (41,893) $ 39,280 $ 32,803
=========== =========== =========== ========== =========
Basic (loss) earnings
per common share ...................... $ (1.05) $ (0.05) $ (0.79) $ 0.74 $ 0.61
=========== =========== =========== ========== =========
Weighted average common
shares outstanding..................... 55,309 53,344 53,197 53,226 53,436
=========== =========== =========== ========== =========
DECEMBER 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets............................ $ 933,257 $ 1,041,764 $ 1,160,086 $ 844,487 $ 712,265
Long-term debt
(including current portions).......... 365,535 477,799 583,613 355,257 291,175
Total stockholders' equity.............. 238,615 240,469 252,945 292,342 253,363
- -------------------
(a) The Company recorded restructuring charges during the years ended December
31, 1998, 1997, and 1996 generally related to integration of operations
following business acquisitions, elimination of product lines,
consolidation and/or rationalization of facilities and employee termination
costs. See Note 3 of the Notes to Consolidated Financial Statements.
Restructuring expense for the year ended December 31, 1994 reflects
primarily the non-recurring charge taken in connection with the German
Restructuring which includes severance costs, commitments to third parties
and write-downs of leasehold improvements and other assets to estimated
realizable values.
(b) The asset impairment charge is related to the Company's Brazilian
operations which had not performed to the Company's expectations since the
acquisition of this operation in 1994 and reflects the charge taken in
connection with the adoption of FAS 121.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related notes, which are included
elsewhere in this Annual Report on Form 10-K/A.
ACQUISITION OF THE COMPANY
On February 27, 1998, CLN Holdings, the then parent of Coleman
Worldwide, and Parent Holdings, the then parent company of CLN Holdings,
entered into the Holdings Merger Agreement with Sunbeam and Laser. On March
30, 1998, pursuant to the Holdings Merger Agreement, CLN Holdings was merged
with and into Laser, with Laser continuing as the surviving corporation and
as a wholly-owned subsidiary of Sunbeam. In the Holdings Merger, Parent
Holdings received 14,099,749 shares of Sunbeam common stock and $160.0
million in cash in exchange for all of the outstanding shares of CLN
Holdings. As a result of the Holdings Merger, Sunbeam became the indirect
owner of 44,067,520 shares of Coleman common stock held by Coleman Worldwide.
On August 12, 1998, Sunbeam announced that it had entered into a settlement
agreement with Parent Holdings, a subsidiary of M&F, in connection with the
Holdings Merger. The Parent Holdings Settlement Agreement, subject to the
terms of such settlement: (i) released Sunbeam from certain claims Parent
Holdings and its affiliates, including M&F, may have against Sunbeam arising
out of the Sunbeam Acquisition; and (ii) enabled Sunbeam and its subsidiaries
to retain the services of executive personnel affiliated with Parent Holdings
who had previously been involved with management of Coleman and who had been
managing Sunbeam since mid-June of 1998. Pursuant to the Parent Holdings
Settlement Agreement, Parent Holdings received from Sunbeam a warrant
expiring August 24, 2003 to purchase up to an additional 23 million shares of
Sunbeam common stock at an exercise price of $7.00 per share, subject to
anti-dilution provisions.
Coincident with the execution of the Holdings Merger Agreement, the
Company, Sunbeam and CAC entered into the Coleman Merger Agreement providing
that among other things, CAC will be merged with and into Coleman, with
Coleman continuing as the surviving corporation. Pursuant to the Coleman
Merger Agreement, each share of the Company's common stock issued and
outstanding immediately prior to the effective time of the Coleman Merger
(other than shares held indirectly by Sunbeam and dissenting shares, if any)
will be converted into the right to receive (a) 0.5677 of a share of Sunbeam
common stock, with cash paid in lieu of fractional shares, and (b) $6.44 in
cash, without interest. In addition, outstanding stock options of Coleman
immediately vested upon consummation of the Holdings Merger Agreement, and
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, Sunbeam
and Coleman 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 minority shareholders of Coleman warrants to purchase up to 4.98
million shares of Sunbeam common stock at $7.00 per share, subject to certain
anti-dilution provisions. Any shareholder who does not exercise his appraisal
rights under Delaware law will receive the warrants. These warrants will
generally have the same terms as the Parent Holdings Warrant and 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 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 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
16
the second half of 1999. Upon consummation of the Coleman Merger, Coleman
will become an indirect wholly-owned subsidiary of Sunbeam.
RESULTS OF OPERATIONS
RESTRUCTURING CHARGES
During 1996, 1997 and 1998, the Company recorded restructuring
charges totaling $58.9 million, $30.8 million and $17.9 million,
respectively. Cost of sales includes $28.3 million and $8.1 million for the
years ended December 31, 1996 and 1997, respectively, with the remaining
restructuring charges of $30.6 million, $22.7 million and $17.9 million for
the years ended December 31, 1996, 1997, and 1998, respectively, classified
as restructuring expense. These restructuring charges generally relate to
integration of operations following business acquisitions (including costs
associated with consolidation of operations and severance), elimination of
product lines, consolidation and/or rationalization of facilities, severance
and employee termination costs and additional costs related to these
activities. The write-downs for fixed assets and other assets were determined
based upon the carrying value for abandoned assets, less applicable estimated
salvage value, and by third-party appraisal for significant vacated
facilities. The fixed assets generally were taken out of service at the time
of the write down and related depreciation was discontinued upon recognition
of the write down. For related inventory which management determined was
salable, the estimated write-down was based upon the differences between the
expected net sales proceeds of the inventory and the recorded value of the
inventory. In the case of abandoned inventory, the write-down was equal to
the recorded value of the inventory. These assets were component units of
their respective operations and, therefore, there were no significant
separately-identifiable operations generated from facilities or assets
included in a restructuring charge before or since the date of the charge.
Reserve balances for write-downs are presented as reductions from the related
asset balances and the other accrual balances are presented as accrued
expenses in the accompanying consolidated balance sheets. The cash reductions
to the reserve balances represent cash payments for accrued expenses and
other liabilities such as for employee severance pay and fringes, facility
closure costs, other exit activity costs and litigation costs and
settlements. Non-cash reductions to the reserve balances represent relief of
the reserve balances as the related assets were sold or discarded and the
impact of foreign exchange and were recorded as the events took place. 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 appropriately refine its
estimates.
The Company believes its restructuring programs including the
integration of Camping Gaz, the exit from certain businesses and product
lines, the closure of manufacturing facilities and the related employee
terminations have resulted in or will result in higher gross profits. The
Company believes its restructuring programs consisting of the closure and
relocation of administrative and sales offices and the related employee
terminations have resulted in or will result in lower selling, general and
administrative expenses. The Company believes the benefits of these programs
generally begin to be realized within one year of instituting the programs.
Although no assurance can be given, the Company believes the consolidated
results of operations are more favorable or will be more favorable than would
have otherwise been achieved had these restructuring programs not been
undertaken.
The major components of the restructuring activities are described
below.
INTEGRATION OF CAMPING GAZ AND COLEMAN - Restructuring charges
totaling $21.8 million were recorded during 1996 regarding the integration of
the Camping Gaz operations. Actions related to the integration included
consolidating facilities, eliminating duplicate product lines (including
related inventory and equipment), and employee terminations. In addition, in
connection with the worldwide integration of the Camping Gaz operations, the
Company also closed its South American manufacturing facility. The write-down
of inventory in the amount of $6.0 million represents management's best
estimate of net realizable value upon sale. Prior to the write-down, the
inventory had a carrying value of $7.4 million. The principal fixed asset
held for disposal is a warehouse vacated in 1997 (which was depreciated
through that date) with
17
a carrying value of approximately $5.1 million after recording the 1996
write-down. The other remaining fixed assets held for disposal had a carrying
value of approximately $1.0 million after recording the 1996 write-down.
Prior to the write-down, approximately $0.3 million and $0.6 million of
depreciation expense was incurred in 1996 for the warehouse and for the other
fixed assets held for disposal, respectively. The charge for other assets was
comprised principally of receivables ($0.8 million) and prepaid expenses
($0.7 million) related to abandoned operations. The charge for increased
receivables reserves related to the loss of leverage in collection efforts
due to abandoning the related operations. The charge for facility closure
costs was composed of lease termination costs ($0.6 million), forfeited tax
incentives ($0.7 million), relocation costs ($0.2 million) and costs
associated with the shutdown of a factory in South America ($0.2 million).
Relocation costs are expensed as incurred. The charge for other exit activity
costs includes sales agent termination costs ($0.5 million), claims brought
by terminated employees ($1.0 million), and real estate agent commission
related to selling the warehouse held for disposal ($0.3 million). The table
below (dollars in millions) shows charges by type of cost, cash and non-cash
reductions, and adjustments made to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1995 Income Reductions Reductions 1996
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 6.0 $ -- $ 2.3 $ 3.7
-------- -------- ------ -------- -------
Total included in cost of sales..... -- 6.0 -- 2.3 3.7
-------- -------- ------ -------- -------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 8.6 -- .3 8.3
Other assets........................ -- 1.8 -- 1.2 .6
-------- -------- ------ -------- -------
-- 10.4 -- 1.5 8.9
-------- -------- ------ -------- -------
Restructuring accruals:
Employee severance pay and fringes.. -- 1.9 1.5 -- .4
Facility closure costs, primarily lease
termination costs and forfeited tax
incentives........................ -- 1.7 0.3 -- 1.4
Other exit activity costs, primarily
sales agent termination costs and
claims brought by terminated
employees......................... -- 1.8 .1 -- 1.7
-------- -------- ------ ------- -------
-- 5.4 1.9 -- 3.5
-------- -------- ------ ------- -------
Totals included in restructuring.. -- 15.8 1.9 1.5 12.4
-------- -------- ------ -------- -------
Totals................................... $ -- $ 21.8 $ 1.9 $ 3.8 $ 16.1
======== ======== ====== ======== =======
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 3.7 $ (.6) $ -- $ 1.9 $ 1.2
-------- ------- -------- -------- -------
Total included in cost of sales..... 3.7 (.6) -- 1.9 1.2
-------- ------- -------- -------- -------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 8.3 (.1) -- 2.3 5.9
Other assets........................ .6 (.1) -- .3 0.2
-------- -------- -------- -------- -------
8.9 (.2) -- 2.6 6.1
-------- ------- -------- -------- -------
18
Restructuring accruals:
Employee severance pay and fringes.. .4 .2 .5 -- .1
Facility closure costs, primarily lease
termination costs and
forfeited tax incentives.......... 1.4 (.6) .2 -- .6
Other exit activity costs, primarily
sales agent termination costs and
claims brought by terminated
employees......................... 1.7 (.3) .6 -- .8
-------- ------- -------- -------- -------
3.5 (.7) 1.3 -- 1.5
-------- ------- -------- -------- -------
Totals included in restructuring.. 12.4 (.9) 1.3 2.6 7.6
-------- ------- -------- -------- -------
Totals................................... $ 16.1 $ (1.5) $ 1.3 $ 4.5 $ 8.8
======== ======= ======== ======== =======
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 1.2 $ (.1) $ -- $ .7 $ .4
-------- ------ ------- ------- ------
Total included in cost of sales..... 1.2 (.1) -- .7 .4
-------- ------ ------- ------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 5.9 1.6 -- -- 7.5
Other assets........................ .2 -- -- -- .2
-------- ------ ------- ------ ------
6.1 1.6 -- -- 7.7
-------- ------ ------- ------ ------
Restructuring accruals:
Employee severance pay and fringes.. .1 .1 .1 -- .1
Facility closure costs, primarily lease
termination costs,................ .6 (.3) .3 -- --
Other exit activity costs, primarily
sales agent termination costs and
claims brought by terminated
employees......................... .8 -- .1 -- .7
-------- ------ ------- ------ ------
1.5 (.2) .5 -- .8
-------- ------ ------- ------ ------
Totals included in restructuring.. 7.6 1.4 .5 -- 8.5
-------- ------ ------- ------ ------
Totals................................... $ 8.8 $ 1.3 $ .5 $ .7 $ 8.9
======== ====== ======= ======= ======
During the first and second quarters of 1997, the Company reduced
the restructuring reserve recorded in 1996 for write down of inventory by
$0.6 million because actual inventory liquidation results were better than
originally estimated, principally due to better-than-anticipated results in
liquidating inventory related to the elimination of duplicate product lines.
The decreases to the reserves for writedowns of fixed assets held for
disposal of $0.1 million and the reserves for writedowns of other assets of
$0.1 million during the fourth quarter of 1997 related to the sale of fixed
assets in Italy for an amount in excess of the original estimated selling
price and recovery of a receivable originally believed to be uncollectible,
respectively.
Employee severance and fringe benefit costs relate to 179
management, sales, administrative and production employees of which 150 and
29 left the Company during 1996 and 1997, respectively. The Company reduced
the reserve for facility closure costs by $0.6 million during the fourth
quarter of 1997 principally because a tax incentive provided by a foreign
government related to an abandoned facility was not required to be forfeited
as originally anticipated. The decrease to the reserve for other exit
activity costs of $0.3 million during the first quarter of 1997 resulted from
the successful avoidance of termination claims.
During the third quarter of 1998, the Company recorded an adjustment to
further decrease the
19
carrying value of the fixed assets held for disposal, principally the vacated
warehouse, by $1.6 million to reflect their current fair market value less
costs to sell. Operations at the warehouse were ceased as a result of the
integration of the Camping Gaz and Coleman Germany operations and the
warehouse was vacated during 1997. The warehouse has been held for sale since
1997, and accordingly, the Company monitors the valuation of the warehouse
and records appropriate adjustments to its carrying value based upon
independent third party appraisals.
In addition, during the third and fourth quarters of 1998, the
Company reduced the reserve for facility closure costs by $0.3 million in
recognition of successful negotiations to reduce lease termination costs
related to the Company's facilities in the United Kingdom and Holland, and
increased the reserves for employee severance pay and fringe benefits by $0.1
million to recognize an additional severance benefit in Holland.
The reserves remaining at December 31, 1998, principally relate to
the write down of the 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 END ELECTRIC PRESSURE WASHER BUSINESS - During 1996, the
Company recorded restructuring charges totaling $19.0 million to exit
substantially all of the Company's low end electric pressure washer business.
As part of the exit of the low end electric pressure washer business, the
Company reached agreement to buyback related inventory held by, or returned
to, significant customers. The product buyback was considered necessary as
the Company was no longer supporting the product line. Substantially all of
the inventory and related fixed assets were abandoned. Therefore, for
inventory and fixed assets held for disposal, the carrying value was fully
reserved. Prior to the write down of the fixed assets held for disposal,
approximately $0.1 million of depreciation expense was incurred in 1996. The
table below (dollars in millions) shows charges by type of cost, cash and
non-cash reductions, and adjustments made to the reserve as initially
established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1995 Income Reductions Reductions 1996
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 8.1 $ -- $ 5.8 $ 2.3
------- ------- -------- ------- -------
Total included in cost of sales..... -- 8.1 -- 5.8 2.3
------- ------- -------- ------- -------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- .6 -- .6 --
------- ------- -------- ------- -------
-- .6 -- .6 --
------- ------- -------- ------- -------
Restructuring accruals:
Product buyback costs............... -- 10.3 4.5 -- 5.8
------- ------- -------- ------- -------
-- 10.3 4.5 -- 5.8
------- ------- -------- ------- -------
Totals included in restructuring.. -- 10.9 4.5 .6 5.8
------- ------- -------- ------- -------
Totals................................... $ -- $ 19.0 $ 4.5 $ 6.4 $ 8.1
======= ======= ======== ======= =======
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 2.3 $ 1.2 $ -- $ 3.5 $ --
-------- ------- -------- ------- --------
Total included in cost of sales..... 2.3 1.2 -- 3.5 --
-------- ------- -------- ------- --------
20
Charges included in restructuring:
Restructuring accruals:
Product buyback costs............... 5.8 .1 4.7 -- 1.2
-------- ------- -------- ------- ------
5.8 .1 4.7 -- 1.2
-------- ------- -------- ------- ------
Totals included in restructuring.. 5.8 .1 4.7 -- 1.2
-------- ------- -------- ------- ------
Totals................................... $ 8.1 $ 1.3 $ 4.7 $ 3.5 $ 1.2
======== ======= ======== ======= ======
Balance at (Credits) Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
--------------- ---------- ---------- ---------- ------------
Charges included in restructuring:
Restructuring accruals:
Product buyback costs............... $ 1.2 $ (.5) $ .7 $-- $ --
-------- ------- -------- ----- ------
1.2 (.5) .7 -- --
-------- ------- -------- ----- ------
Totals included in restructuring.. 1.2 (.5) .7 -- --
-------- ------- -------- ----- ------
Totals................................... $ 1.2 $ (.5) $ .7 $-- $ --
======== ======= ======== ===== ======
During the first and third quarters of 1997, the inventory reserve
was increased by $1.2 million to recognize the impact of exiting the
remainder of the low end electric pressure washer business. During 1997 and
1998, the Company adjusted the reserve for product buyback costs by $0.1
million and ($0.5) million, respectively, for variances between actual and
projected product buyback costs.
EXIT A PORTION OF BATTERY POWERED LIGHT BUSINESS - During 1996,
restructuring charges totaling $18.1 million were recorded to exit a portion
of the Company's battery powered light business in connection with a
settlement with another battery powered light manufacturer. The table below
(dollars in millions) shows charges by type of cost, cash and non-cash
reductions, and adjustments made to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1995 Income Reductions Reductions 1996
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 14.1 $ -- $ 13.0 $ 1.1
------- ------- ------- ------- -------
Total included in cost of sales..... -- 14.1 -- 13.0 1.1
------- ------- ------- ------- -------
Charges included in restructuring:
Restructuring accruals:
Litigation costs and settlement..... -- 4.0 3.8 -- .2
------- ------- -------- ------- -------
Totals included in restructuring......... -- 4.0 3.8 -- .2
------- ------- -------- ------- -------
Totals................................... $ -- $ 18.1 $ 3.8 $ 13.0 $ 1.3
======= ======= ======== ======= =======
Balance at (Credits) Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 1.1 $ (.9) $ -- $ .2 $ --
-------- ------- ------ ------- -------
Total included in cost of sales..... 1.1 (.9) -- .2 --
-------- ------- ------ ------- -------
Charges included in restructuring:
Restructuring accruals:
Litigation costs and settlement..... .2 (.1) .1 -- --
-------- --------- ------- ------ -------
Totals included in restructuring.. .2 (.1) .1 -- --
-------- --------- ------- ------ -------
Totals................................... $ 1.3 $ (1.0) $ .1 $ .2 $ --
======== ========= ======= ======= =======
21
The inventory was destroyed in 1996, but subsequent adjustments were
necessary since actual customer settlements with respect to this product were
less than originally anticipated. The settlement with the other battery
powered light manufacturer was paid during 1996.
EXIT LOW-MARGIN PRODUCT LINES - During 1997, the Company recorded
restructuring charges of $16.0 million to eliminate several low-margin
product lines including the remaining pressure washer business and numerous
stock keeping units in the outdoor products business. The related inventory
had a carrying value of $26.8 million prior to the write down to management's
best estimate of net realizable value upon sale. The related fixed assets had
a carrying value of $2.5 million and were sold for salvage value. Prior to
the write down of the fixed assets held for disposal, depreciation expense of
$0.3 million and $0.7 million was incurred during 1997 and 1996,
respectively. As part of exiting the remaining pressure washer business, the
Company reached agreement to buyback related inventory held by, or returned
to, significant customers. The product buyback was considered necessary as
the Company was no longer supporting the product line. The table below
(dollars in millions) shows charges by type of cost, cash and non-cash
reductions, and adjustments made to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 7.7 $ -- $ 4.6 $ 3.1
------- -------- --------- ------- ------
Total included in cost of sales..... -- 7.7 -- 4.6 3.1
------- -------- --------- ------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 2.3 -- .4 1.9
------- --------- --------- ------- ------
-- 2.3 -- .4 1.9
------- -------- --------- ------- ------
Restructuring accruals:
Employee severance pay and fringes.. -- 1.5 1.3 -- .2
Other exit activity costs,
primarily product buyback costs... -- 4.5 2.4 -- 2.1
------- -------- --------- ------- ------
-- 6.0 3.7 -- 2.3
------- -------- --------- ------- ------
Totals included in restructuring.. -- 8.3 3.7 .4 4.2
------- -------- --------- ------- ------
Totals................................... $ -- $ 16.0 $ 3.7 $ 5.0 $ 7.3
======= ======== ========= ======= ======
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ 3.1 $ -- $ -- $ 2.7 $ .4
-------- -------- -------- ------- ------
Total included in cost of sales..... 3.1 -- -- 2.7 .4
-------- -------- -------- ------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 1.9 -- -- 1.8 .1
-------- ------- -------- ------- ------
1.9 -- -- 1.8 .1
-------- ------- -------- ------- ------
Restructuring accruals:
Employee severance pay and fringes.. .2 -- .2 -- --
Other exit activity costs,
primarily product buyback costs... 2.1 1.0 2.5 -- .6
-------- -------- -------- ------- ------
2.3 1.0 2.7 -- .6
-------- -------- -------- ------- ------
Totals included in restructuring.. 4.2 1.0 2.7 1.8 .7
-------- -------- -------- ------- ------
Totals................................... $ 7.3 $ 1.0 $ 2.7 $ 4.5 $ 1.1
======== ======== ======== ======= ======
22
Severance costs related to approximately 25 management and
administrative employees, all of whom had been terminated by December 31,
1997. During the fourth quarter of 1998, the Company received higher than
expected pressure washer product buyback returns. As a result of this higher
volume of returns occurring in a period when the Company expected returns to
be winding down, a re-evaluation of future expected returns was undertaken.
This reassessment in the fourth quarter of 1998 indicated that additional
reserves would be necessary to provide for this obligation and, accordingly,
the Company increased the reserve for the remaining pressure washer buyback
by $1.0 million. The remaining reserves at December 31, 1998, 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 - During
1997, the Company recorded restructuring charges totaling $10.4 million to
close and relocate certain administrative and sales offices. The locations
included corporate, domestic and international facilities. The related fixed
assets were abandoned. Depreciation recorded prior to the writedown of the
fixed assets was not material. Relocation costs totaling approximately $2.3
million were incurred principally to move employees between locations and are
included with other exit activity costs. Relocation costs are expensed as
incurred. Other exit activity costs also include lease commitments and other
contractual obligations of $0.8 million. The table below (dollars in
millions) shows charges by type of cost, cash and non-cash reductions, and
adjustments made to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ $ -- $ 1.5 $ -- $ 1.2 $ .3
Other assets........................ -- .1 -- .1 --
------ -------- -------- ------ ------
-- 1.6 -- 1.3 .3
------ -------- -------- ------ ------
Restructuring accruals:
Employee severance pay and fringes.. -- 5.7 4.3 -- 1.4
Other exit activity costs,
consisting of relocation expenses
and lease commitments and other
contractual obligations........... -- 3.1 2.6 -- .5
------ -------- -------- ------ ------
-- 8.8 6.9 -- 1.9
------ -------- -------- ------ ------
Totals included in restructuring.. -- 10.4 6.9 1.3 2.2
------ -------- -------- ------ ------
Totals................................... $ -- $ 10.4 $ 6.9 $ 1.3 $ 2.2
====== ======== ======== ====== ======
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ $ .3 $ (.2) $ -- $ .1 $--
------- -------- -------- -------- -----
.3 (.2) -- .1 --
------- -------- -------- -------- -----
Restructuring accruals:
Employee severance pay and fringes.. 1.4 5.1 3.1 -- 3.4
Other exit activity costs,
primarily lease commitments and
other contractual obligations..... .5 .2 .4 .3 --
------- -------- -------- -------- -----
1.9 5.3 3.5 .3 3.4
------- -------- -------- -------- -----
Totals included in restructuring.. 2.2 5.1 3.5 .4 3.4
------- -------- -------- -------- -----
Totals................................... $ 2.2 $ 5.1 $ 3.5 $ .4 $ 3.4
======= ======== ======== ======== =====
23
Severance costs related to approximately 85 executive, sales, and
administrative employees, all of whom left the Company by December 31, 1997.
The Company increased the employee severance pay and fringes reserve by $5.1
million in 1998 primarily related to subsequently agreed-upon contingent
severance benefits to be paid to former executives of the Company under the
terms of their related severance agreements, and additional severance to be
paid to a former Company executive as a result of an unfavorable outcome of
arbitration. The contingent severance benefits were recorded in the periods
when it became probable that the Company would be required to pay these
additional benefits. The unpaid severance costs at December 31, 1998 are
expected to be paid by December 31, 2000. The increase to the reserve for
other exit activity costs of $0.2 million during the fourth quarter of 1998
related to numerous individually insignificant adjustments to increase
estimated exit costs to the actual costs incurred.
CLOSE SEVERAL MANUFACTURING FACILITIES - During 1997, restructuring
charges totaling $5.7 million were recorded to close two domestic and one
international manufacturing facilities to further consolidate operations and
reduce costs. The related inventory had a carrying value of $0.7 million and
was fully written off and destroyed. The related fixed assets had a carrying
value of $3.8 million prior to the write-down and were sold. Prior to the
write-down of the fixed assets held for disposal, depreciation expense of
$0.3 million and $0.1 million was incurred during 1997 and 1996,
respectively. The table below (dollars in millions) shows charges by type of
cost, cash and non-cash reductions, and adjustments made to the reserve as
initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
-------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ .7 $ -- $ .7 $ --
------ ------ --------- -------- ------
Total included in cost of sales..... -- .7 -- .7 --
------ ------ --------- -------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 2.7 -- 2.3 .4
------ ------ --------- -------- ------
-- 2.7 -- 2.3 .4
------ ------ --------- -------- ------
Restructuring accruals:
Employee severance pay and fringes.. -- 1.2 1.1 -- .1
Other exit activity costs,
primarily facility closure expenses
for cleanup and restoration and
lease termination costs........... -- 1.1 .8 -- .3
------ ------- --------- ------ ------
-- 2.3 1.9 -- .4
------ ------- --------- ------ ------
Totals included in restructuring.. -- 5.0 1.9 2.3 .8
------ ------- --------- ------ ------
Totals................................... $ -- $ 5.7 $ 1.9 $ 3.0 $ .8
====== ======= ========= ====== ======
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ $ .4 $ (.4) $ -- $ -- $ --
------- ------ --------- ------ ------
.4 (.4) -- -- --
------- ------ --------- ------ ------
Restructuring accruals:
Employee severance pay and fringes.. .1 .3 .4 -- --
Other exit activity costs,
primarily facility closure expenses
for lease termination costs....... .3 (.1) .2 -- --
------- ------ --------- ------ ------
.4 .2 .6 -- --
------- ------ --------- ------ ------
Totals included in restructuring.. .8 (.2) .6 -- --
------- ------ --------- ------ ------
Totals................................... $ .8 $ (.2) $ .6 $ -- $ --
======= ====== ========= ====== ======
24
The severance costs of $1.2 million in 1997 related to approximately
415 management, production, and administrative employees at various
locations, all of whom left the Company by December 31, 1997. The reserve for
employee severance pay and fringes was increased by $0.3 million during the
third quarter of 1998 to include thirteen additional employees who were
terminated and paid severance. During the fourth quarter of 1998, the
reserves for fixed assets held for disposal and other exit activity costs
were reduced by $0.4 million and $0.1 million, respectively, when the related
facility held for sale was sold at a higher price and in less time than was
originally anticipated by management.
CLOSE FACILITIES - During 1998, the Company recorded restructuring
charges of $3.3 million to further consolidate operations and improve
efficiency. The related actions included closing several operations in Europe
and one domestic manufacturing facility during the year. The table below
(dollars in millions) shows charges by type of cost, cash and non-cash
reductions, and adjustments made to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ .1 $ -- $ .1 $--
------ ------- --------- ------ -----
Total included in cost of sales..... -- .1 -- .1 --
------ ------- --------- ------ -----
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.. -- 2.4 1.1 -- 1.3
Other exit activity costs,
primarily facility closure expenses
for lease termination costs....... -- .6 -- -- .6
--------- ------- --------- ------ ------
-- 3.0 1.1 -- 1.9
--------- ------- --------- ------ ------
Totals included in restructuring.. -- 3.2 1.1 -- 2.1
--------- ------- --------- ------ ------
Totals................................... $ -- $ 3.3 $ 1.1 $ .1 $ 2.1
========= ======= ========= ====== ======
Severance costs related to approximately 150 management, production,
and administrative employees at various locations, of which approximately 132
had left the Company by December 31, 1998. Severance with respect to the
domestic employees had been fully paid by December 31, 1998, and severance
will be paid to the remaining 18 European employees by December 31, 2000. The
fixed assets held for disposal at December 31, 1998 will be disposed of
during 1999. Depreciation recorded prior to the write-down of the fixed
assets was not material. The remaining reserve balance for other exit
activity costs at December 31, 1998, principally relates to leases with fixed
terms running through 2001. No additional charges are anticipated in future
periods from the foregoing actions.
EMPLOYEE TERMINATION AND SEVERANCE - During 1998, the Company
recorded restructuring charges totaling $7.9 million following the Sunbeam
acquisition for the termination of 117 employees of which 8 employees remain
to be terminated at December 31, 1998. The 8 remaining employees are expected
to be terminated during 1999. The table below (dollars in millions) shows
charges by type of cost, cash and non-cash reductions, and adjustments made
to the reserve as initially established.
25
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes.. $ -- $ 7.9 $ 4.5 $ -- $ 3.4
------- ------- ------- ------- -------
Totals................................... $ -- $ 7.9 $ 4.5 $ -- $ 3.4
======= ======= ======= ======= =======
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 1996, the Company recorded other charges totaling $7.2
million which consist principally of costs to exit portions of certain
products and recognition of quality issues related to these and other
products. The Company exited various models of coolers and jugs and abandoned
the related inventory ($2.1 million) and fixed assets ($1.0 million). In
addition, the Company experienced quality issues with certain models of
thermal electric coolers and various other outdoor recreation products and
accrued for anticipated product returns based on negotiations with customers
and costs of related product repairs ($3.3 million). The remaining amounts
relate to allowances for accounts receivable based on a disputed amount
involving pending litigation and disputes with customers in a foreign
location ($0.8 million). $3.1 million of these costs were recorded in cost of
sales and $4.1 million of these costs were recorded in SG&A expenses.
During 1997, the Company recorded other costs of $3.6 million
related to severance costs associated with executive changes in the first
quarter of 1997. These costs were recorded in SG&A expenses.
During 1998, the Company recorded other charges totaling $13.7
million which consisted of (a) $7.2 million of costs associated with the
acquisition of the Company by Sunbeam including advisory fees, (b) $4.2
million of charges associated with abandoning a company-wide enterprise
resource computer software system, and (c) $2.3 million of costs associated
with terminating a licensing services agreement with an affiliate of Parent
Holdings. These costs were recorded in SG&A expenses.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
Net revenues of $1,015.4 million in the year ended December 31, 1998
were $138.9 million or 12.0% less than in the year ended December 31, 1997
with outdoor recreation products revenues decreasing $80.7 million or 9.4%.
The sales decrease occurred in nearly all product categories, primarily
reflecting the effects of the 1997 stock keeping unit ("SKU") reduction
program, softness in demand resulting from the domestic retail channel's
efforts to lower inventory levels, and adverse economic conditions in Japan
and Southeast Asia. The hardware products revenues decrease of $58.2 million
reflects the loss of pressure washer revenues due to exiting this business in
1997 and the loss of CSS revenues in 1998 due to the sale of this business in
March 1998. Excluding the revenues of each of these operations, the hardware
products revenues would show an increase of $33.3 million, or 17.8%, over
comparable 1997 revenues reflecting an increase in generator revenues as a
result of increased storm activity in 1998 which were partially offset by a
decline in compressor revenues. Geographically, United States revenues
decreased $130.4 million, or 17.1%, and foreign revenues decreased $8.5
million, or 2.1%. The United States revenues decrease reflects the loss of
the CSS and pressure washer revenues discussed above. Excluding these
revenues, United States revenues would show a decrease of $38.9 million or
6.0%
Gross profit, excluding the impact of restructuring charges of $8.1
million in 1997, which are more fully described above (see "Restructuring
Charges"), decreased as a percent of sales by 2.7 percentage points to 26.3%
in 1998 from 29% in 1997. This adjusted gross profit for 1998 reflects the
impact of $4.5 million of charges related to writedowns of returned goods
inventory and certain fixed assets related to discontinued SKUs and also a
$6.5 million charge resulting from an increase in the Company's reserves for
estimated costs of environmental remediation efforts resulting from ongoing
investigations, feasibility studies,
26
technical evaluations, and monitoring procedures in connection with
facilities currently in use. Gross profit in 1998 was also negatively
impacted by the effects of product mix including the loss of the CSS business
and lower sales of backpacks and related products which tend to have higher
gross profit percentages than the Company's average and higher sales of
hardware products which tend to have lower gross profit percentages than the
Company's average.
During the fourth quarter of 1998, the Kansas Department of Health
and Environment ("KDHE") approved a remedial investigation report prepared by
Coleman and requested Coleman to prepare and submit a remedial system design
to address off-site contamination originating from one of its existing sites.
Coleman is in the process of developing the feasibility study which will
propose several alternatives for remediating the on-site soil and groundwater
contamination and the off-site groundwater contamination resulting from the
on-site sources. Based upon the remedial system design, completed in the
fourth quarter of 1998 by the Company's outside environmental consultants,
Coleman recorded a charge of $5.8 million with respect to this issue during
the fourth quarter of 1998. The remaining environmental remediation charges
recognized during 1998 are related to an additional contamination source
discovered at one site which increased the estimated remediation period and
increases in the estimated costs for remedial system operation and
maintenance at another site.
SG&A expenses, excluding the impact of other charges of $13.7
million in 1998 and $3.6 million in 1997, which are more fully described
above (see "Other Charges"), were $241.4 million in 1998 compared to $252.2
million in 1997, a decrease of $10.8 million which is primarily due to the
reduction in expenses as a result of the sale of CSS in March 1998 offset by
increases in litigation expenses resulting from additional litigation, and
costs incurred to remediate Year 2000 issues.
On March 24, 1998, the Company sold CSS to Ranco for approximately
$95.8 million, net of fees and expenses. In connection with the sale of CSS,
the Company recorded a pre-tax gain of $25.1 million. On October 13, 1998,
the Company sold its portable spa products business ("Spas") to MAAX
Holdings, Inc. for approximately $17.0 million, net of fees and expenses. In
connection with the sale of Spas, the Company recorded a pre-tax gain of $7.3
million.
Interest expense was $33.2 million in 1998 compared with $40.9
million in 1997, a decrease of $7.7 million. The decrease in interest expense
reflects the favorable effects of lower borrowings as the proceeds from the
sales of CSS and Spas were primarily used to reduce outstanding debt and from
improvements in managing working capital.
Amortization of goodwill and deferred charges increased $8.2
million, or 72.7%, primarily as a result of a write-off of $8.8 million of
remaining goodwill (in addition to the charges described above under
"Restructuring Charges" and "Other Charges") associated with the 1993
acquisition of the Taymar Group ("Taymar") as a result of the Company's
fourth quarter 1998 review of its operations in Europe and changes in certain
operating strategies. Specifically, at the end of 1997, all manufacturing of
Taymar products was moved to another Coleman production facility. During
1998, all existing Taymar research and development activities were terminated
and the related research and development facility was shut down. All research
and development personnel left Taymar by the end of the second quarter of
1998. These employees were not redeployed elsewhere within Coleman.
Throughout 1998, the Coleman production facility encountered significant
difficulty in effectively producing the existing Taymar products and the
research and development group in place at the new facility was not effective
in identifying and advancing technologies for the Taymar line. Despite these
difficulties, operating management continued to pursue strategies to make the
product line viable. During the 1998 fourth quarter business reviews and in
conjunction with the preparation in the fourth quarter of 1998 of the 1999
business plan, Coleman's senior management reviewed the 1998 results of the
Taymar product line and considered its future prospects. From this review and
analysis, management decided in the fourth quarter of 1998 to exit the
existing Taymar product lines and replace them with other Coleman products
which would be available for sale beginning in 1999. As a result, by the end
of 1998, there
27
were no Taymar research and development activities, no plans for future
Taymar product development, no remaining production of existing Taymar
products and no projected sales of existing Taymar products. These factors
resulted in the remaining goodwill having no continuing value and
accordingly, the related goodwill was written off in the fourth quarter of
1998.
The Company recorded a provision for income tax expense of $13.8
million in 1998 compared to a provision for income tax benefit of $5.2
million in 1997. Excluding the tax benefits associated with the restructuring
and other charges of $3.3 million in 1998 and $13.9 million in 1997, the
provision for income tax expense in 1998 was negatively impacted by
nondeductible merger costs and deconsolidation charges whereas the provision
for income tax benefit in 1997 was favorably impacted by foreign operations
and tax rate changes.
Minority interest represents the interest of minority shareholders
in the Company's subsidiary operations in the Philippines, Indonesia, and
Canada.
In March 1998, in connection with the Sunbeam Acquisition, the
Company repaid all outstanding indebtedness under the Company's credit
agreement, primarily with funds borrowed from Sunbeam, and the credit
agreement was terminated. In connection with the termination of this
agreement, the Company recorded an extraordinary loss of $2.0 million which
represents a write-off of the related unamortized financing costs associated
with the credit agreement. In April 1998, as a result of the Sunbeam
Acquisition, the Company repaid the $360.0 million outstanding indebtedness
under the Company's various senior notes, primarily with funds borrowed from
Sunbeam. The $23.4 million of redemption costs in excess of carrying value
along with the write-off of related unamortized financing costs of $2.7
million and unamortized deferred interest rate swap losses of $0.9 million
are reflected as extraordinary loss on early extinguishment of debt. The
total $29.0 million of charges were reduced by $11.5 million of tax benefits
for a net after-tax charge of $17.5 million or $0.32 per share.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
Net revenues of $1,154.3 million in 1997 were $65.9 million or 5.4%
less than in 1996 with outdoor recreation products unchanged at $859.7
million and hardware products decreasing $66.0 million or 18.3%. The outdoor
recreation products revenues were adversely affected by (i) a restructuring
program which eliminated certain low margin SKUs, (ii) lower sales in Japan
and Korea due to weak market conditions, and (iii) a program to reduce
wholesaler inventories in Japan; however, growth in the core products outside
of Japan and Korea offset these declines. Hardware products revenues
decreased due to the Company's decision to exit the pressure washer business
and lower generator sales resulting from fewer storms on the East Coast of
the United States in the second half of 1997. Geographically, United States
revenues decreased $44.2 million, or 5.5%, due to lower hardware product
sales while foreign revenues decreased $21.7 million, or 5.2%, primarily
related to lower sales in Japan and Korea. Results in the 1996 period include
the Camping Gaz operations from the date of acquisition.
The gross profit percentage of 29.0%, excluding the impact of
restructuring charges and other charges which are more fully described above
(see "Restructuring Charges" and "Other Charges"), increased from 27.4% in
1996. The improvement was driven by increased demand for higher margin
products and the elimination of certain low margin SKUs.
SG&A expenses, excluding the impact of other charges which are more
fully described above (see "Other Charges"), were $252.2 million in 1997
compared to $267.4 million in 1996, a decrease of 5.7%. The inclusion of a
full twelve months of Camping Gaz SG&A costs in the 1997 period increased
SG&A expenses; however, these increases were more than offset by benefits
resulting from the integration of Camping Gaz operations and the
restructuring initiatives.
Interest expense was $40.9 million in 1997 compared with $38.7
million in 1996, an increase of $2.2 million. This increase was a result of
the effects of higher interest rates on the Company's variable rate debt
28
partially offset by the favorable effects of lower borrowings in 1997
resulting from the Company's working capital management programs.
The Company recorded income tax benefits of $5.2 million in 1997 and
$10.9 million in 1996, which includes the net tax benefits of $13.9 million
in 1997 and $21.7 million in 1996 associated with restructuring and other
charges discussed above. Excluding the net tax benefits from the
restructuring and other charges, the provision for income tax expense would
have been $8.7 million or 28.9% of pre-tax earnings in 1997 as compared to a
provision for income tax expense of $10.8 million or 45.0% of pre-tax
earnings in 1996. This decrease is primarily due to the impact of increased
foreign tax rates on deferred tax assets and increased foreign earnings at
lower tax rates.
Minority interest in the 1997 period reflects the minority interests
in certain subsidiary operations acquired with the Camping Gaz business. On
March 1, 1996, the Company acquired control of approximately 70% of Camping
Gaz and in early July 1996 obtained control of the remaining 30% of Camping
Gaz and, accordingly, in the 1996 period, minority interest reflects the
minority shareholders' approximate 30% proportionate share of the results of
operations of Camping Gaz for the period March through June of 1996 and also
includes interests of other minority shareholders in certain subsidiary
operations acquired with the Camping Gaz business.
In 1996, in connection with the renegotiation of its credit
agreement, the Company recorded an extraordinary loss of $1.1 million ($0.6
million net of tax) which represented a write-off of the related unamortized
financing costs associated with its then existing credit agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided $27.6 million and $91.2
million of cash during the years ended December 31, 1998 and 1997,
respectively. The decrease in cash provided by operating activities in 1998
as compared to 1997 is primarily attributable to the increase in the
Company's net loss in 1998 as compared to 1997. The Company's capital
expenditures were $23.7 million and $27.0 million during the years ended
December 31, 1998 and 1997, respectively. For 1999, the Company expects
capital expenditures to be within the range of $25.0 million to $30.0 million.
During 1998, the $49.7 million of proceeds from stock option
exercises along with $365.1 million of borrowings from Sunbeam and the
proceeds from the sales of CSS and Spas and sales of fixed assets of $117.8
million of cash were used to, among other things, (i) repay $116.0 million
outstanding indebtedness under the Company's 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 current cash operating requirements, including projected capital
expenditures and other obligations, is dependent upon a combination of cash
flows from operations and advances or loans to the Company from Sunbeam or
its affiliates. Sunbeam has informed the Company that it has the positive
intent and ability to fund the Company's cash requirements through April 10,
2000. Amounts loaned by Sunbeam are represented by a promissory note (the
"Intercompany Note") which totaled $365.1 million at December 31, 1998 and,
until the amendment and restatement of the Intercompany Note described below,
were due on demand. For 1998, the Intercompany Note bore interest at a
floating rate equal to the weighted average interest rate incurred by Sunbeam
on its outstanding convertible debt and borrowings under its bank credit
facility which during the year ended December 31, 1998 was 7.1%. Coleman is a
borrower under Sunbeam's credit facility (the "Sunbeam Credit Facility") for
purposes of letters of credit borrowings.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements,
the lenders under the Sunbeam Credit Facility entered into an amended and
restated Intercompany Note (the "Amended Intercompany Note"), intercompany
security and pledge agreements, an amendment to the Sunbeam Credit Facility
and
29
certain other agreements (collectively, the "Agreements"). The Amended
Intercompany Note is due April 15, 2000. The Amended Intercompany Note bears
interest at an annual rate equal to (x) 4% if the three month London
Interbank Offering Rate ("LIBOR") quoted on the Telerate system is less than
6%, or (y) 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
Amended Intercompany Note. In addition, the Amended Intercompany Note
provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Amended Intercompany Note and that
in certain circumstances the payment on the Amended 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 the
stock of its domestic holding companies for its foreign subsidiaries and all
of the stock of its other domestic subsidiaries (but Coleman's subsidiaries
have not pledged their assets or stock of their subsidiaries), as security
for the Amended Intercompany Note. Sunbeam has pledged the Amended
Intercompany Note as security for the Sunbeam Credit Facility and assigned to
such lenders the security pledged by Coleman for the Amended Intercompany
Note.
The Sunbeam Credit Facility provides for a revolving credit facility
in an aggregate principal amount of up to $400.0 million (subject to certain
reductions) maturing March 31, 2005. In addition, pursuant to the Sunbeam
Credit Facility, Sunbeam has borrowed approximately $1,262.5 million in two
tranches of term loans with scheduled repayments through maturity on March
31, 2005 and September 30, 2006. 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 November 1998,
approximately $277.0 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 $22.0 million.
Borrowings under the Sunbeam Credit Facility are secured by a pledge
of the stock of certain of Sunbeam's subsidiaries and by a security interest
in substantially all of the assets of Sunbeam and its material subsidiaries
(other than as described below, Coleman and its subsidiaries), including the
Amended Intercompany Note. Sunbeam has pledged its shares of Coleman common
stock and its shares of Sunbeam Corporation (Canada) Limited ("Sunbeam
Canada") common stock (see "Certain Relationships and Related
Transactions--Business Acquisitions") owned by it as security under the
Sunbeam Credit Facility. In addition, borrowings under the Sunbeam Credit
Facility are guaranteed by certain of Sunbeam's wholly owned material United
States subsidiaries (but not Coleman) and such subsidiary guarantees are
secured as described above. Coleman has pledged its inventory (but not that
of its subsidiaries) and the proceeds from the sale of such inventory as
collateral for its letter of credit borrowings 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, 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 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
30
then in effect. See Note 14 to the Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10-K/A.
The Company also maintains short-term bank lines of credit
aggregating approximately $76.4 million of which approximately $45.8 million
was outstanding at December 31, 1998. The weighted average interest rate for
amounts borrowed under these short-term lines was approximately 2.8% at
December 31, 1998. The Company also utilizes letters of credit which
aggregated approximately $40.6 million at December 31, 1998.
In April 1999, the 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.
EXPOSURE TO 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, which are included elsewhere in this Form 10-K/A Annual Report.
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, 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.
31
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 December 31, 1998 weighted average
interest rates. For interest rate swaps, the table presents notional amounts
and weighted average interest rates for the contracts at December 31, 1998.
Notional amounts are used to calculate the contractual payments to be
exchanged under the contracts.
EXPECTED MATURITY DATE
BALANCE ----------------------------------------------------------
AT THERE- FAIR
12/31/98 1999 2000 2001 2002 2003 AFTER TOTAL VALUE
-------- ------ ----- ----- ---- ---- ------- ------ -----
(US$ EQUIVALENT IN MILLIONS)
LONG-TERM DEBT
Fixed Rate................. $ 0.5 $ 0.1 $ 0.2 $ 0.1 $ 0.1 $ -- $ -- $ 0.5 $ 0.5
Average Interest Rate...... 2.91%
INTEREST RATE DERIVATIVES
Interest Rate Swaps:
Variable to Fixed (US$).. $ 25.0 $ -- $ -- $ -- $ -- $25.0 $ -- $ 25.0 $(0.9)
Average Pay Rate......... 6.12%
Average Receive Rate..... 5.08%
EXCHANGE RATE SENSITIVITY. The table below provides information
about Coleman's foreign currency derivative financial instruments and other
financial instruments, including forward exchange agreements, by functional
currency and presents such information in U.S. dollar equivalents. The table
summarizes information on instruments and transactions that are sensitive to
foreign currency exchange rates, including foreign currency variable rate
credit lines, foreign currency forward exchange agreements and foreign
currency purchased put option contracts. For debt obligations, the table
represents principal cash flows and related weighted average interest rates
by expected maturity dates. For foreign currency forward exchange agreements
and foreign currency put option contracts, the table presents the notional
amounts and weighted average exchange rates by expected (contractual)
maturity dates. These notional amounts generally are used to calculate the
contractual payments to be exchanged under the contract.
BALANCE
AT FAIR
12/31/98 (1) VALUE
------------ -----
(US$ EQUIVALENT IN MILLIONS)
FOREIGN CURRENCY SHORT-TERM DEBT
Variable Rate Credit Lines (Europe, Japan and Asia).................... $ 45.8 $ 45.8
Weighted Average Interest Rate......................................... 2.8%
FORWARD EXCHANGE AGREEMENTS
(Receive US$/Pay DM)
Contract Amount...................................................... $ 12.0 $12.2
Average Contractual Exchange Rate.................................... 1.62
(Receive US$/Pay JPY)
Contract Amount...................................................... $ 15.1 $14.5
Average Contractual Exchange Rate.................................... 116.11
32
(Receive US$/Pay GBP)
Contract Amount...................................................... $ 4.0 $4.1
Average Contractual Exchange Rate.................................... .60
PURCHASED PUT OPTION AGREEMENTS
(Receive US$/Pay DM)
Contract Amount...................................................... $ 18.4 $0.1
Average Strike Price................................................. 1.80
(Receive US$/Pay JPY)
Contract Amount...................................................... $ 12.4 $0.2
Average Strike Price................................................. 125.0
(Receive US$/Pay GBP)
Contract Amount...................................................... $ 1.5 $0.0
Average Strike Price................................................. .62
- -------------
(1) None of the instruments listed in the table have maturity dates beyond 1999.
SEASONALITY
The Company's sales generally are the strongest in the second
quarter of the year and weakest 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 unseasonable weather conditions. For
the years ended December 31, 1998, 1997 and 1996, second quarter sales
comprised approximately 32%, 33% and 37% of annual sales, respectively.
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 and is scheduled
to be completed in another location in September of 1999; (ii) the
installation of current Year 2000 compliant JBA software in one location
which is scheduled to be completed by July 1999; and (iii) remediation of
software codes for existing programs in another location which is scheduled
to be completed by July of 1999. The Company has identified one of these
locations as possessing 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.
33
As of December 31, 1998, the Company had expended approximately $3.5
million related to remediation of Year 2000 issues, of which approximately
$2.8 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 $12.0 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.
With the exception of certain aspects of the Company's Year 2000
readiness program, the Company did not engage an 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 tools which helped to identify potential Year 2000 issues 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, 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.
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "Euro"). The transition period for the
introduction of the Euro is between January 1, 1999 and January 1, 2002. The
Company has been preparing for the introduction of the Euro and continues to
evaluate and address the many
34
issues involved, including the conversion of information technology systems,
recalculating currency risk, strategies concerning continuity of contracts,
and impacts on the processes for preparing taxation and accounting records.
Based on the work to date, the Company believes the Euro conversion will not
have a material impact on its results of operations.
INFLATION
In general, manufacturing costs are affected by inflation and the
effects of inflation may be experienced by the Company in future periods.
Management believes, however, that such effects have not been material to the
Company during the past three years.
CAUTIONARY STATEMENTS
Certain statements in this Annual Report on Form 10-K/A may
constitute "forward looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as 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,
35
- 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,
- 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, and
- any material error in evaluating levels of retail inventories and
the related impact on operations of changes therein.
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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements listed in the accompanying
List of Financial Statements and Schedules on Page F-1 herein. Information
required by schedules called for under Regulation S-X is either not
applicable or is included in the consolidated financial statements or notes
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
The name, age, present principal occupation or employment, five-year
employment history, selected biographical information, and period of service
as a director of the Company of each of the directors of the Company as of
April 9, 1999 are set forth below.
Jerry W. Levin, age 54, was appointed Chief Executive Officer and a
Director of the Company in June 1998, and as Chairman of the Board on August
31, 1998. Mr. Levin was elected Chairman of the Board of Directors of Sunbeam
in March 1999, and has been Chief Executive Officer, President and a Director
of Sunbeam since June 1998. Mr. Levin previously held the position of
Chairman and Chief Executive Officer of Coleman from February 1997 until its
sale in March 1998. Mr. Levin was also the Chairman of Coleman from 1989 to
1991. Mr. Levin was Chairman of the Board of Revlon, Inc. from November 1995
until June 1998, Chief Executive Officer of Revlon, Inc. from 1992 until 1997
and President of Revlon, Inc. from 1992 until November 1995. Mr. Levin has
been Executive Vice President of M&F since March 1989. For 15 years prior to
joining M&F, Mr. Levin held various senior executive positions with the
Pillsbury Company. Mr.
36
Levin is also a member of the Boards of Directors of Ecolab, Inc., U.S.
Bancorp, Meridian Sports Incorporated and Revlon, Inc. For a description of
certain arrangements entered into by Sunbeam and M&F relating to the
appointment of Mr. Levin as an officer of Sunbeam, see "Certain Relationships
and Related Transactions--Services Provided by M&F". M&F owns approximately
14% of the outstanding common stock of Sunbeam.
Paul E. Shapiro, age 57, was appointed Executive Vice President,
Chief Administrative Officer and a Director of the Company in June 1998. Mr.
Shapiro also joined Sunbeam as Executive Vice President and Chief
Administrative Officer in June of 1998. He previously held the position of
Executive Vice President and General Counsel of Coleman from July 1997 until
its sale in March 1998. Before joining Coleman, he was Executive Vice
President, General Counsel and Chief Administrative Officer of Marvel
Entertainment Group, Inc. ("Marvel"). Marvel and several of its subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11") in 1996. Mr. Shapiro served as an
executive officer of Marvel at the time of such filing. He had previously
spent over 25 years in private law practice and as a business executive, most
recently as a shareholder in the law firm of Greenberg Traurig. Mr. Shapiro
is also a member of the Board of Directors of Toll Brothers, Inc. For a
description of certain arrangements entered into by Sunbeam and M&F relating
to the appointment of Mr. Shapiro as an officer of Sunbeam, see "Certain
Relationships and Related Transactions--Services Provided by M&F".
A. Whitman Marchand, age 62, is currently retired. Prior to his
retirement, Mr. Marchand was Managing Director and Group Head for the Special
Loan Group of Bankers Trust Company ("Bankers Trust") from 1982 to 1998.
Prior to 1982, Mr. Marchand held various positions within the national
banking department at Bankers Trust, including head of the Real Estate
Investment Trust Group. Mr. Marchand is a member of the Board of Directors of
RainTree Healthcare Corporation.
COMPENSATION OF DIRECTORS
Messrs. Levin and Shapiro receive no compensation for service as a
director of the Company. Directors who are not currently receiving
compensation as employees of the Company or any of its affiliates are paid an
annual $25,000 retainer fee and are reimbursed for reasonable out-of-pocket
expenses incurred in connection with Company business. In addition, such
directors receive a fee of $1,000 for each meeting of the Board of Directors
or any committee meeting they attend. Mr. Marchand also served as the sole
member of a special committee of the Board of Directors which approved and
authorized Coleman entering into the Agreements. Mr. Marchand was paid a fee
of $25,000 for serving on such special committee.
EXECUTIVE OFFICERS
The following table sets forth certain information as of April 9,
1999, concerning the executive officers of the Company. All executive
officers serve at the pleasure of the Board of Directors.
NAME AGE POSITION
---- --- --------
Jerry W. Levin........................... 54 Chairman of the Board and Chief Executive Officer
Paul E. Shapiro.......................... 57 Executive Vice President and
Chief Administrative Officer
Bobby G. Jenkins......................... 37 Executive Vice President
Karen K. Clark........................... 38 Vice President - Finance
Gwen C. Wisler........................... 39 Executive Vice President and
Chief Financial Officer
Janet G. Kelley.......................... 45 Vice President, General Counsel, and Secretary
William L. Phillips...................... 46 Vice President and General Manager
The following sets forth the position with the Company and selected
biographical information for the executive officers of the Company who are
not directors.
37
Bobby G. Jenkins was appointed Executive Vice President in August
1998. Mr. Jenkins joined Sunbeam as Executive Vice President and Chief
Financial Officer in June 1998. Mr. Jenkins previously held the position of
Chief Financial Officer of Coleman's Outdoor Recreation division from
September 1997 to May 1998. Mr. Jenkins was Executive Vice President and
Chief Financial Officer of Marvel from December 1993 through June 1997. Mr.
Jenkins served as an executive officer of Marvel at the time of the 1996
Chapter 11 filings of Marvel and several of its subsidiaries. Mr. Jenkins was
Assistant Vice President of Finance at Turner Broadcasting System from August
1992 to November 1993. Prior to that, Mr. Jenkins was with Price Waterhouse
LLP, last serving as Senior Audit Manager. For a description of certain
arrangements entered into by Sunbeam and M&F relating to the appointment of
Mr. Jenkins as an officer of Sunbeam, see "Certain Relationships and Related
Transactions--Services Provided by M&F".
Karen K. Clark was appointed Vice President - Finance in June 1997.
She joined Sunbeam in April of 1998 as Vice President, Operations Finance and
has served as Vice President, Finance of Sunbeam since June 1998. She was
Corporate Controller for Precision Castparts Corp. from 1994 to 1997 and
prior to that held various positions in public accounting and industry.
Gwen C. Wisler was appointed Executive Vice President and Chief
Financial Officer in March 1999, and was Senior Vice President and Chief
Financial Officer from July 1998. Ms. Wisler was appointed Senior Vice
President and Chief Financial Officer - Outdoor Leisure Group and
International for Sunbeam in March 1999, and was Senior Vice President and
Chief Financial Officer - Outdoor Leisure Group for Sunbeam from July 1998 to
March 1999. Ms. Wisler joined Coleman in January 1997 as Vice President and
Chief Financial Officer -International. Prior to that, Ms. Wisler was Vice
President and Chief Accounting Officer for New World Communications Group
Incorporated from February 1994 to January 1997, and Chief Financial Officer
for Cobb Partners from May 1993 to February 1994.
Janet G. Kelley was appointed Vice President, General Counsel and
Secretary in August 1998, and from March 1998 until August 1998, Ms. Kelley
was Vice President, Associate General Counsel and Assistant Secretary. She
joined Sunbeam in March 1994 and was named General Counsel in April of 1998.
From 1994 to 1998, Ms. Kelley served as Group Counsel and Associate General
Counsel. Prior to joining Sunbeam, she was a partner in the law firm of
Wyatt, Tarrant & Combs in Louisville, Kentucky.
William L. Phillips was appointed Vice President and General Manager
in August 1998. Mr. Phillips serves as the President of the Company's Outdoor
Recreation division, and was Vice President and General Manager for the hard
goods business of Coleman's Outdoor Recreation division until August 1998.
From 1985 to 1998, Mr. Phillips held various positions in the sales and
marketing area of Coleman, and has been with the Company since 1978.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's Directors, executive officers and persons who own more
than 10% of a registered class of the Company's equity securities to file
certain reports regarding ownership of the Company's common stock with the
SEC and the New York Stock Exchange. These insiders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms
they file. To the Company's knowledge all Section 16(a) filing requirements
applicable to the Company's current officers, Directors and beneficial owners
of more than 10% of the outstanding shares of common stock were filed on a
timely basis. The Company is unable to determine whether the former chief
executive officer has complied with the Section 16(a) filing requirements.
38
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for services
rendered to the Company for the years ended December 31, 1998, December 31,
1997, and December 31, 1996, in all capacities of those persons who, during
1998, (i) served as Chief Executive Officer ("CEO") of the Company, (ii) were
the four most highly compensated executive officers of the Company, other
than the CEO, as of year-end, and (iii) were executive officers during 1998
who would have been among the four most highly compensated executive officers
but were not serving as executive officers of the Company as of year-end.
Messrs. Levin and Shapiro served as executive officers of the Company through
March 1998, and rejoined the Company as executive officers of Coleman in June
1998. Ms. Clark has served as an executive officer of the Company since June
1997. Ms. Wisler served as Chief Financial Officer of the International
division of the Company until July 1998 and became an executive officer of
Coleman in July 1998. Mr. Dunlap served as the Company's Chairman of the
Board with chief executive responsibilities from March 1998 to June 1998. Mr.
Goldman served as an executive officer of the Company until March 1998.
LONG TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- ---------------------
OTHER SECURITIES
ANNUAL UNDERLYING RESTRICTED ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS STOCK COMPENSATION
--------------------------- ---- ------ ----- ------------ ---------- ---------- ------------
CURRENT OFFICERS:
Jerry W. Levin ................ 1998 $ 333,333(1) $ 1,583,333(2) $ 22,285 0 0 $ 4,026 (3)
Chairman and Chief Executive 1997 300,000 300,000 2,567 500,000 0 0
Officer
Paul E. Shapiro................ 1998 157,693 (4) 37,125 0 0 0 256 (5)
Executive Vice President and 1997 145,832 0 0 77,500 0 525 (5)
Chief Administrative
Officer
Karen K. Clark................. 1998 160,501(6) 43,561 3,100 0 0 3,400 (7)
Vice President Finance 1997 88,173 81,761 3,150 25,000 0 0
William L. Phillips............ 1998 205,816 50,000 8,585 0 0 3,791 (8)
Vice President and 1997 155,438 53,804 6,916 20,000 0 2,736 (8)
General Manager 1996 137,955 0 7,604 5,000 0 3,714 (8)
Gwen C. Wisler................. 1998 226,484(9) 64,848 12,450 0 0 443 (5)
Executive Vice President and 1997 95,073 25,000 3,000 25,000 0 305 (5)
Chief Financial Officer
FORMER OFFICERS:
Albert J. Dunlap (10).......... 1998 0 0 0 0 0 0
Former Chief Executive Officer
Mark Goldman................... 1998 300,000 0 8,700 0 0 3,970 (11)
Former Executive Vice President 1997 250,000 0 6,300 40,000 0 4,230 (11)
1996 250,000 0 0 0 0 4,270 (11)
- --------------------
(1) Mr. Levin is also an executive officer of Sunbeam. Mr. Levin was
compensated directly by Coleman from January 1998 through March 1998. Mr.
Levin was compensated directly by Coleman from June 1998 to October 1998
and Sunbeam reimbursed the Company $319,167 during 1998, representing the
compensation Mr. Levin earned for services rendered to Sunbeam since June
1998. Mr. Levin was compensated directly by Sunbeam from October 1998
through December 1998 and the Company reimbursed Sunbeam $151,250 during
1998, representing the compensation Mr. Levin earned for services rendered
to Coleman from October 1998. See "Certain Relationships and Related
Transactions--Services Provided to and by Sunbeam".
(2) Includes a one-time bonus of $1,500,000 paid to Mr. Levin pursuant to a
prior employment agreement with Coleman resulting from the sale of a
subsidiary.
(3) Includes the Company's 401(k) matching contribution in the amount of
$3,400 and $626 for premiums paid by the Company for term life insurance.
39
(4) Mr. Shapiro is also an executive officer of Sunbeam. Mr. Shapiro was
compensated directly by Coleman from January 1998 through March 1998. Mr.
Shapiro was compensated directly by Sunbeam from June 1998 through
December 1998 and the Company reimbursed Sunbeam $86,625 during 1998,
representing the compensation Mr. Shapiro earned for services rendered to
Coleman since June 1998. See "Certain Relationships and Related
Transactions--Services Provided to and by Sunbeam".
(5) Represents premiums paid by the Company for term life insurance.
(6) Ms. Clark is also an executive officer of Sunbeam. Ms. Clark was
compensated directly by Coleman from January 1998 through December 1998
and Sunbeam reimbursed the Company $37,388 during 1998, representing the
compensation Ms. Clark earned for services rendered to Sunbeam since June
1998. See "Certain Relationships and Related Transactions--Services
Provided to and by Sunbeam".
(7) Represents the Company's 401(k) matching contribution.
(8) Includes the Company's 401(k) matching contributions and premiums paid for
term life insurance, respective, as follows: $3,400 and $391 for 1998;
$2,114 and $622 for 1997; and $3,162 and $552 for 1996.
(9) Ms. Wisler is also an executive officer of Sunbeam. Ms. Wisler was
compensated directly by Coleman from January 1998 through December 1998
and Sunbeam reimbursed the Company $9,193 during 1998, representing the
compensation Ms. Wisler earned for services rendered to Sunbeam since July
1998. See "Certain Relationships and Related Transactions--Services
Provided to and by Sunbeam".
(10) Mr. Dunlap was Chairman of Coleman with Chief Executive officer
responsibilities from March 1998 to June 1998 and Mr. Dunlap was also
Chairman and Chief Executive Officer of Sunbeam during 1998 until June
1998. Mr. Dunlap was not compensated by Coleman. Mr. Dunlap had an
employment agreement with Sunbeam and was paid by Sunbeam for 1998 until
June 1998 in the amount of $885,256 for salary (including $51,923 for
vacation pay accrued during 1998 and paid to Mr. Dunlap as a result of the
termination of his employment), $11,887,500 for the value of a 300,000
share stock grant, $0 in bonus, $13,917,409 in Other Annual Compensation
(including $13,698,561 for taxes paid by Sunbeam Corporation on the value
of the vesting of Restricted Stock and $218,848 in Other Sunbeam benefits
and gross-ups thereon).
(11) Includes the Company's 401(k) matching contributions and premiums paid for
term life insurance, respectively, as follows: $3,400 and $570 for 1998;
$3,230 and $1,000 for 1997; and $3,230 and $1,040 for 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not award any option grants to the Chief Executive
Officer and the other named executive officers during the year ended December
31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to option
exercises occurring during 1998 and the number of options held by the current
and previous Chief Executive Officers and the other named executive officers
at the Company's fiscal year-end.
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired December 31, 1998 December 31, 1998 (1)
on Value -------------------------------- ------------------------------
Name Exercise Realized Exercisable (2) Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Jerry W. Levin............. 500,000 $9,936,763 0 0 $ 0 $ 0
Paul E. Shapiro............ 0 0 77,500 0 0 0
Karen K. Clark............. 0 0 25,000 0 0 0
William L. Phillips........ 59,000 890,738 0 0 0 0
Gwen C. Wisler............. 25,000 392,015 0 0 0 0
Albert J. Dunlap (3)....... 0 0 0 0 0 0
Mark Goldman............... 60,000 830,482 0 0 0 0
(1) Market closing price of $9.125 per share on December 31, 1998 was used in
computing year-end values.
(2) Pursuant to the Coleman Merger Agreement, upon the consummation of the
Coleman Merger, the unexercised options under Coleman's stock option plans
will be cashed out at a price per share equal to the difference between
$27.50 per share and the exercise price of such options. Mr. Shapiro and
Ms. Clark hold 77,500 and 25,000 unexercised options, respectively, for
which they will receive payments before deductions for withholding taxes
of $823,000 and $275,005, respectively.
40
(3) There were no options to purchase shares of stock of Coleman granted to
Mr. Dunlap.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The following disclosure is as of April 9, 1999.
EMPLOYMENT AGREEMENT WITH MR. LEVIN.
On August 12, 1998, Sunbeam entered into an employment agreement
with Mr. Levin (the "Levin Agreement") pursuant to which Sunbeam has agreed
to employ Mr. Levin as Chief Executive Officer of Sunbeam, and Mr. Levin has
agreed to serve in such capacity, for an initial period of approximately
three years ending June 14, 2001.
Under the Levin Agreement, Mr. Levin will be paid a base salary at
an annual rate of not less than $1,000,000. Effective April 1, 1999, Mr.
Levin's base salary was increased to $1,150,000. Additionally, Mr. Levin was
paid a guaranteed bonus for 1998 of $541,667 and, thereafter, is eligible to
receive a performance-based annual bonus of up to 100% of his base salary
although under the terms of Sunbeam's incentive plan it is possible for an
eligible participant to earn up to twice such participant's target bonus in a
particular year if Sunbeam's results significantly exceed the targets for
such year. Mr. Levin is eligible to participate immediately in the other
benefit plans available generally to employees or other senior executives of
Sunbeam. Sunbeam also reimburses Mr. Levin for the cost of membership in a
country club. Mr. Levin is compensated directly by Sunbeam and the Company
reimburses Sunbeam for a portion of the compensation paid by Sunbeam to Mr.
Levin representing the compensation Mr. Levin earned for services rendered to
Coleman during such period. See "Certain Relationships and Related
Transactions--Services Provided to and by Sunbeam". In addition, for a
description of certain arrangements entered into by Sunbeam and M&F relating
to the appointment of Mr. Levin as an officer of Sunbeam, see "Certain
Relationships and Related Transactions--Services Provided by M&F".
Sunbeam may terminate Mr. Levin's employment under the Levin
Agreement due to his disability, or for Cause. As defined in the Levin
Agreement, "Cause" means (1) gross neglect of his duties, (2) his conviction
for a felony or any lesser crime or offense involving the property of
Sunbeam, (3) willful misconduct in connection with the performance of any
material portion of his duties, (4) willful breach of any material provision
of the agreement by Levin, or (5) any conduct on Levin's part which would
make his continued employment materially prejudicial to the best interests of
Sunbeam. In addition, he may terminate his employment following a Company
Breach upon 60 days written notice to Sunbeam. As defined in the Levin
Agreement, "Company Breach" means (1) any material breach of the agreement by
Sunbeam, or (2) a Change in Control of Sunbeam (as defined in the Levin
Agreement).
The Levin Agreement provides that, if Sunbeam terminates Mr. Levin's
employment for Cause or if he voluntarily terminates his employment, all
obligations (other than accrued obligations) of Sunbeam will cease and all
unvested Levin Options shall be immediately forfeited. If a Company Breach
occurs, and Mr. Levin terminates the agreement, Sunbeam is obligated to
continue to pay Mr. Levin's base salary and target bonus for the balance of
the term and continue his benefits until his reemployment. In addition, all
of the Levin Options vest and are exercisable for three years.
The Levin Agreement provides that, if Mr. Levin's employment is
terminated due to his death, his legal representatives or designated
beneficiary will receive continued payments in an amount equal to 60% of base
salary until the longer of 12 months or the end of the term in effect at the
time of his death. The Levin Options will become vested and exercisable upon
stockholder approval, and shall remain exercisable for three years thereafter.
41
EMPLOYMENT AGREEMENTS WITH EXECUTIVES SHAPIRO, PHILLIPS, CLARK, AND WISLER.
Sunbeam entered into employment agreements with Messrs. Shapiro and
Phillips, and Ms. Clark and Ms. Wisler in August 1998. Messrs. Shapiro and
Phillips, and Ms. Clark and Ms. Wisler are referred to as the "Executives".
The agreement with Mr. Shapiro is for an initial period of approximately
three years ending on June 14, 2001; the agreement with Mr. Phillips has no
definitive term; and the agreements with Ms. Clark and Ms. Wisler have terms
ending on June 14, 2000. The Executives' agreements are referred to
individually as an "Executive Agreement" and collectively as the "Executive
Agreements."
Under the Executive Agreements, Messrs. Shapiro and Phillips, and
Ms. Clark, and Ms. Wisler will be paid a base salary at annual rates not less
than $600,000, $250,000, $270,000, and $285,000, respectively. Effective
April 1, 1999, Mr. Shapiro's base salary was increased to $750,000.
Additionally, Mr. Shapiro, Ms. Clark and Ms. Wisler were paid a guaranteed
bonus for 1998 equal to $243,750, $73,125, and $65,313, respectively, and,
thereafter, are eligible to receive a performance-based annual bonus equal to
75%, 50%, and 50% of their respective annual salary. Mr. Phillips is eligible
to receive a performance-based annual bonus equal to 50% of his annual salary
although under the terms of Sunbeam's incentive plan it is possible for an
eligible participant to earn up to twice such participant's target bonus in a
particular year if Sunbeam's results significantly exceed the targets for
such year. They are also eligible to participate in the other benefit plans
available generally to employees or other senior executives of Sunbeam. Mr.
Shapiro is compensated directly by Sunbeam and the Company reimburses Sunbeam
for a portion of the compensation paid by Sunbeam to Mr. Shapiro representing
the salary Mr. Shapiro earned for services rendered to Coleman during such
period. Ms. Clark and Ms. Wisler are compensated directly by Coleman and
Sunbeam reimburses Coleman for a portion of the compensation paid by Coleman
to such persons representing the salary such persons earned for services
rendered to Sunbeam during such period. Mr. Phillips is compensated directly
by Coleman. See "Certain Relationships and Related Transactions--Services
Provided to and by Sunbeam." In addition, for a description of certain
arrangements entered into by Sunbeam and M&F relating to the appointment of
Mr. Shapiro as an officer of Sunbeam, see "Certain Relationships and Related
Transactions--Services Provided by M&F"
Sunbeam may terminate an Executive's employment under his or her
Executive Agreement due to disability, or for Cause. As defined in the
Executive Agreements, "Cause" means (1) gross neglect of duties, (2)
conviction for a felony or any lesser crime or offense involving the property
of Sunbeam, (3) willful misconduct in connection with the performance of any
material portion of duties, (4) willful breach of any material provision of
the agreement by the Executive, or (5) any conduct on the Executive's part
which would make continued employment materially prejudicial to the best
interests of Sunbeam. The Executive may terminate his or her employment under
the Executive Agreement at any time. In addition, he or she may terminate his
or her employment for Company Breach upon 60 days' written notice to Sunbeam.
As defined in the Executive Agreements, "Company Breach" means (1) any
material breach of the agreement by Sunbeam, or (2) a Change in Control of
Sunbeam (as defined in the Executive Agreements).
The Executive Agreements provide that, if Sunbeam terminates an
Executive's employment for Cause or if the Executive voluntarily terminates
his or her employment, all obligations (other than accrued obligations) of
Sunbeam will cease and all unvested Executive Options shall be immediately
forfeited. If a Company Breach occurs, and an Executive terminates the
agreement, Sunbeam is obligated to continue to pay the Executive's base
salary and target bonus for the balance of the term and continue the
Executive's benefits until the Executive's reemployment. In addition, all of
the Executive Options vest and are exercisable for three years.
The Executive Agreements provide that, if an Executive's employment
is terminated due to death, his or her legal representatives or designated
beneficiary will receive continued payments in an amount equal to 60% of base
salary until the longer of 12 months or the end of the term in effect at the
time of death. The Executive Options will become vested upon such death and
shall remain exercisable for three years thereafter.
42
EMPLOYMENT AGREEMENT WITH MR. GOLDMAN
The Company has entered into a letter agreement with Mark Goldman
dated January 1, 1999 (the "Goldman Agreement") whereby Mr. Goldman would be
chairman of Eastpak Corporation. The Goldman Agreement has no definite term
and is cancelable by either party on three months notice. Under the Goldman
Agreement, Mr. Goldman will be paid a base salary at an annual rate of
$300,000. Additionally, Mr. Goldman is eligible to receive a
performance-based annual bonus equal to 70% of his annual salary. Mr. Goldman
is also eligible to participate in the other benefit plans available
generally to employees of Coleman. Pursuant to the Goldman Agreement, Mr.
Goldman is entitled to receive a grant of options to purchase 30,000 shares
of Sunbeam common stock with 50% of such grant becoming exercisable on July
1, 1999, and 50% of such grant becoming exercisable on December 31, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee of the Board of
Directors. The Company's executive officers are compensated pursuant to
employment agreements with Sunbeam, and the Company reimburses Sunbeam for a
portion of the compensation paid by Sunbeam for the Company's executive
officers, except in the case of Mr. Phillips who is compensated directly by
Coleman in accordance with the terms of his employment agreement with Sunbeam
(see "--Employment Contracts and Termination of Employment and Change in
Control Arrangements"). Messrs. Levin, Shapiro and Jenkins and Ms. Wisler
participated in the deliberations regarding the portion of compensation paid
by Sunbeam to Coleman's executive officers to be reimbursed by Coleman to
Sunbeam.
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
The following disclosure is as of April 9, 1999.
ALTERNATIVE PENSION PLAN DISCLOSURE
Executive officers and other employees of the Company participate in
a noncontributory qualified defined benefit retirement plan: the New Coleman
Company, Inc. Retirement Plan for Salaried Employees (the "Salaried Pension
Plan"). This plan was amended effective January 1, 1999 to convert the plan
to a cash balance plan.
Benefits to participants vest after five years of vesting service as
defined in the Salaried Pension Plan and are based on eligible pay.
Eligibility pay is composed of regular base pay and contributions to
qualified deferred compensation plans and does not include amounts paid
pursuant to the Company's annual cash incentive compensation plans. Under a
new benefit accrual formula that applies in determining benefits under the
Salaried Pension Plan on or after January 1, 1999, a participant meeting the
Rule of 45 (age plus vesting service equal to 45; minimum of 5 years of
vesting service) or who has ten years of vesting service, receives a pay
credit at the end of each year in which the participant remains eligible and
receives eligible pay for services. The annual pay credit is equal to a
percentage of the participant's annual eligible pay. The percentage depends
on age and completed years of vesting service at the beginning of the year,
as shown below.
Age Plus Vesting Service Pay Credits
------------------------ -------------
Under 55.................................. 3.00%
55-59..................................... 4.00%
60-64..................................... 5.00%
65-69..................................... 6.00%
70-74..................................... 7.00%
75-79..................................... 8.00%
80-84..................................... 9.00%
85 and over............................... 10.00%
43
Prior to application of the new benefit accrual formula, benefits
for participants under the Salaried Pension Plan were determined under
another formula. To transition from the prior formula to the new formula, a
participant's accrued benefit earned under the prior formula is preserved as
a minimum.
Participants who have been employed by a company that is in the same
"controlled group" of companies as Coleman may be entitled to benefits under
the qualified defined benefit retirement plan of that company. The annual
pension from the Salaried Pension Plan will be reduced by any pension amounts
payable by those other plans.
Assuming that each of the individuals listed on the Summary
Compensation Table continues in their present positions at their present
salaries until retirement at age 65, their estimated annual pensions in a
single life annuity form would be:
Mr. Levin................................. $41,800
Mr. Shapiro............................... $22,300
Ms. Clark................................. $ 5,600
Mr. Phillips.............................. $76,600
Ms. Wisler................................ $63,400
Mr. Dunlap................................ Not an eligible plan participant
Mr. Goldman............................... $42,000
Such estimates are calculated assuming interest credits of 5% per year.
44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 9, 1999 with
respect to beneficial ownership of the Company's common stock by all persons
known by the Company to be the record or beneficial owner of more than 5% of
the outstanding shares of the Company's common stock. Except as otherwise
noted, all beneficial owners listed below have sole voting and investment
power with respect to the shares owned by them.
Percentage of Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Common Stock
------------------------ -------------------- ------------
Sunbeam Corporation.............................. 44,067,520 (1) 78.9%
2381 Executive Center Drive
Boca Raton, Florida 33431
- -------------------------
1) Pursuant to the Holdings Merger Agreement, Sunbeam, through its
indirect wholly-owned subsidiary Coleman Worldwide, became the
indirect beneficial owner of the shares acquired from Parent
Holdings. Sunbeam has pledged its shares of Coleman common stock and
its shares of Sunbeam Canada common stock (see "Certain
Relationships and Related Transactions--Business Acquisitions")
owned by it as security under the Sunbeam Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources".
The following table sets forth the beneficial ownership, reported to
the Company as of April 9, 1999, of the Company's common stock, including
shares as to which a right to acquire ownership exists, of: (1) each Director
of the Company; (2) each of the Named Executives and (3) the Directors and
current executive officers of the Company as a group. In addition, the
following table sets forth, as of April 9, 1999, the beneficial ownership of
two former Named Executives, based on information filed with the Commission
and made available to the public.
Percentage of Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Common Stock
------------------------ -------------------- ------------
Directors:
Jerry W. Levin................................ -- *
A. Whitman Marchand........................... -- *
Paul E. Shapiro............................... 77,500 (1) *
Named Executive Officers:
Karen K. Clark................................ 25,000 (1) *
William L. Phillips........................... -- *
Gwen C. Wisler................................ -- *
Albert J. Dunlap.............................. -- *
Mark Goldman.................................. -- *
All Directors and Current Executive Officers
as a Group (8 persons)........................ 102,500 (1) *
- ------------------
* Less than 1%
1) Represents shares of common stock which Directors, Named Executives and
current executive officers have the right to acquire pursuant to stock
options that are currently exercisable and may be exercised within the
next 60 days.
45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following disclosure is as of April 9, 1999.
RELATIONSHIP WITH SUNBEAM
Coleman is an indirect 79% owned subsidiary of Sunbeam. Sunbeam is a
leading manufacturer and marketer of branded consumer products sold under the
SUNBEAM(R), OSTER(R) and other brand names. Sunbeam markets its products
through virtually every category of retailer including mass merchandisers,
catalog showrooms, warehouse clubs, department stores, catalogs, television
shopping channels, Sunbeam-owned outlet stores, hardware stores, home
centers, drug and grocery stores, pet supply retailers, as well as
independent distributors and the military. Sunbeam also sells its products to
commercial end users such as hotels and other institutions.
RELATIONSHIP WITH M&F
Until the consummation of the Sunbeam Acquisition, Ronald O.
Perelman, through M&F, beneficially owned approximately 82% of Coleman's
common stock and was a director of the Company. M&F is a diversified holding
company with interests in several industries. The principal executive offices
of M&F are located at 35 East 62nd Street, New York, New York 10021.
CROSS-INDEMNIFICATION AGREEMENT
Coleman and an affiliate of M&F ("Holdings") are parties to a
cross-indemnification agreement pursuant to which Coleman has agreed to
indemnify Holdings, its officers, directors, employees, control persons,
agents and representatives against all past, present and future liabilities,
including product liability and environmental matters, related to the initial
assets of Coleman, which Coleman acquired from such affiliate in December
1991. In addition, pursuant to this cross-indemnification agreement, Holdings
agreed to indemnify Coleman and its officers, directors, employees, agents
and representatives against all other liabilities of Holdings or any of its
subsidiaries, including liabilities relating to the assets it did not
transfer to Coleman in December 1991. This cross-indemnification agreement
survived the Sunbeam Acquisition and will survive the Coleman Merger.
TAX SHARING AGREEMENT
For all taxable periods ended on or prior to March 30, 1998, the
Company was included in the consolidated tax group of which M&F was the
common parent and Coleman's tax liability was included in the consolidated
Federal income tax liability of M&F. Coleman was also included in certain
state and local tax returns of M&F or its affiliates. Coleman participated in
a Tax Sharing Agreement (the "Tax Sharing Agreement") pursuant to which it
paid to Coleman Worldwide amounts equal to the taxes that Coleman would
otherwise have had to pay if it were to file separate Federal, state or local
income tax returns (including any amounts determined to be due as a result of
a redetermination of the tax liability of M&F arising from an audit or
otherwise). Under Federal law, Coleman is subject to liability for the
consolidated Federal income tax liabilities of the consolidated group of
which M&F is the common parent, for any taxable period during which Coleman
or a subsidiary was a member of that consolidated group. M&F has agreed,
however, to indemnify Coleman for any such Federal income tax liability (and
certain state and local tax liabilities) of M&F or any of its subsidiaries
that Coleman is actually required to pay. As a result of the consummation of
the Holdings Merger, Coleman is no longer included in the M&F consolidated
tax group. Pursuant to the Holdings Merger Agreement the Tax Sharing
Agreement terminated with respect to M&F and its affiliates, but not with
respect to Coleman Worldwide. The Holdings Merger Agreement provides for
certain tax indemnities and tax sharing payments with respect to M&F, Coleman
and their respective affiliates.
46
INSURANCE PROGRAMS
Since the consummation of the Sunbeam Acquisition, Coleman has been
insured under policies maintained by Sunbeam or its affiliates, including
workers compensation and liability insurance. Until the consummation of the
Sunbeam Acquisition, Coleman was insured under policies maintained by M&F or
its affiliates, including workers compensation, and liability insurance. For
1998, the Company's insurance expense including its allocable share of
premium costs from Sunbeam and M&F for such insurance, was approximately $6.3
million. Insurance expense is allocated to the Company based on its actual
number of employees, property locations, nature of property, nature of
products sold and Company experience, as applicable, based on the nature of
the insurance coverage Management believes that the terms for such insurance
were at least as favorable as terms that could be obtained by the Company
were it separately insured.
BENEFIT PLANS
Until the consummation of the Sunbeam Acquisition, Holdings
maintained pension and other retirement plans in various forms covering
employees of Coleman who met eligibility requirements. Until the consummation
of the Sunbeam Acquisition, Holdings also had an unfunded excess benefit plan
covering certain of Coleman's U.S. employees whose benefits under the plans
described above are limited by provisions of the Code. Coleman paid to
Holdings its allocable costs of maintaining such plans for Coleman's
employees. As part of the consummation of the Holdings Merger, such pension
and other benefit plans associated with Coleman's employees were assigned and
assumed directly by Coleman.
SERVICES PROVIDED TO AND BY SUNBEAM
Since the consummation of the Sunbeam Acquisition, Coleman has
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 year ended December
31, 1998, the cost of the services provided by Coleman and charged to Sunbeam
and its affiliates was $2.3 million, and the charges to Coleman for services
received by Coleman from Sunbeam and its affiliates for such period was $3.0
million. 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.
BORROWINGS FROM SUNBEAM
The Company has borrowed funds from Sunbeam, which along with funds
generated from the Company's operations, has been used to fund the Company's
current cash requirements, including projected capital expenditures and other
obligations. Amounts loaned by Sunbeam totaled $365.1 million at December 31,
1998 and, until the amendment and restatement of the Intercompany Note
described below, were due on demand. For 1998, the Intercompany Note bore
interest at a floating rate equal to the weighted average interest rate
incurred by Sunbeam on its outstanding convertible debt and borrowings under
its bank credit facility which during the year ended December 31, 1998 was
7.1%.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements,
the lenders under the Sunbeam Credit Facility entered into the Agreements,
including the Amended Intercompany Note. The Amended Intercompany Note is due
April 15, 2000. The Amended Intercompany Note bears interest at an annual
rate equal to (x) 4% if the three month London Interbank Offering Rate
("LIBOR") quoted on the Telerate system is less than 6%, or (y) 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 Amended
Intercompany Note. In addition, the Amended Intercompany Note provides that
an event of default under the Sunbeam Credit Facility will constitute an
event of default under the Amended Intercompany Note and that in certain
circumstances the payment on the Amended
47
Intercompany Note will be subordinate to Coleman's obligations under the
Sunbeam Credit Facility. Pursuant to the Agreements, Coleman has pledged to
Sunbeam all of its domestic assets, other than its real property, including
66% of the stock of its domestic holding companies for its foreign
subsidiaries and all of the stock of its other domestic subsidiaries (but
Coleman's subsidiaries have not pledged their assets or stock of their
subsidiaries), as security for the Amended Intercompany Note. Sunbeam has
pledged the Amended Intercompany Note as security for the Sunbeam Credit
Facility and assigned to such lenders the security pledged by Coleman for the
Amended Intercompany Note. In addition, Sunbeam has pledged its shares of
Coleman common stock and its shares of Sunbeam Canada common stock (see
"--Business Acquisitions") owned by it as security under the Sunbeam Credit
Facility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 14 to
the Company's Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K/A.
SERVICES PROVIDED BY M&F
Until the Sunbeam Acquisition, from time to time, Coleman purchased
from M&F or its affiliates, at negotiated rates, specialized accounting and
other services. Coleman also provided, at negotiated rates, specialized
accounting services and other services to M&F and its affiliates. The net
expense for such services was approximately $0.5 million during 1998. Coleman
believes that the terms of such arrangements were at least as favorable to
Coleman as those it could have negotiated with nonaffiliated parties. In
addition, until the Sunbeam Acquisition, certain employees of the Company
have been paid by M&F or its affiliates, and the Company reimbursed such
affiliates for the compensation expense for such employees.
Pursuant to the Parent Holdings Settlement Agreement, M&F agreed to
provide certain management assistance to Sunbeam and its subsidiaries with
respect to financings, dealings with financing sources and capital markets,
investor and public relations, acquisitions, divestitures and other
extraordinary transactions, executive benefits and compensation and other
personnel matters, and compliance, litigation, insurance, regulatory and
other legal matters. Sunbeam and its subsidiaries, including Coleman, do not
reimburse M&F for such services or for expenses incurred in providing such
services to Sunbeam and its subsidiaries, other than reimbursement of
out-of-pocket expenses paid to third parties. Execution of the Parent
Holdings Settlement Agreement was a condition to Sunbeam's continued
employment of Messrs. Levin, Shapiro and Jenkins as officers of Sunbeam and
its subsidiaries.
OFFICE LEASE
Coleman subleased office space in New York City from an affiliate of
M&F pursuant to a month to month occupancy memorandum. The rent paid by
Coleman represents the allocable portion, based on the space leased, of the
rent paid by the affiliate to its third party landlord. The sublease was
terminated in April 1998. The expense for such rent during 1998 was
approximately $0.1 million. Coleman believes that the terms of the sublease
were at least as favorable to Coleman as those it could have negotiated with
nonaffiliated parties.
LICENSING SERVICES
The Company had engaged an affiliate of M&F to provide licensing
services. In connection with the Sunbeam Acquisition, the Company terminated
the licensing services agreement and recorded $2.0 million of expense related
to payments to be made under the terms of the termination agreement and $.2
million of expense related to certain receivables from an affiliate of Parent
Holdings which were forgiven as part of the same termination agreement.
BUSINESS ACQUISITIONS
On December 31, 1998, Canadian Coleman Company LTD ("Canadian
Coleman"), a subsidiary of Coleman, acquired a subsidiary from Sunbeam
("Canadian Sunbeam") in exchange for newly issued
48
common stock of Canadian Coleman. The issuance of additional common stock to
Sunbeam reduced Coleman's ownership in Canadian Coleman from 100% to
approximately 57%. The Company has accounted for this transaction in a manner
similar to a pooling-of-interests due to Sunbeam's common control over each
of the parties involved in the transaction. The $0.2 million of excess book
value of Coleman's 43% interest given up in the net assets of Canadian
Coleman prior to the transaction over Coleman's 57% interest received in the
net assets of Canadian Sunbeam have been charged to retained earnings.
Subsequent to December 31, 1998, Canadian Coleman and Canadian Sunbeam
amalgamated to form Sunbeam Corporation (Canada) Limited.
OTHER ARRANGEMENTS
During 1998, Coleman purchased products for resale from Sunbeam for
approximately $17.5 million.
Prior to the Sunbeam Acquisition, Coleman paid approximately $0.2
million for air transportation services to a corporation, one of whose
shareholders was a director of Coleman until the consummation of the Sunbeam
Acquisition.
During 1998, a subsidiary of Coleman paid approximately $0.2 million
for warehouse space leased from a real estate partnership in which Mr.
Goldman, who was an Executive Vice President of Coleman until March 31, 1998,
and three other immediate family members of Mr. Goldman's are partners. A
manufacturing business owned by Mr. Goldman's father contracted with
Coleman's subsidiary for the manufacture of goods sold to the subsidiary, for
which the subsidiary paid approximately $1.4 million during 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedule.
See List of Financial Statements and Schedules which appears on
page F-1 herein.
(3) Exhibits
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger among Sunbeam
Corporation, Camper Acquisition Corp. and The Coleman
Company, Inc. dated as of February 27, 1998
(incorporated by reference to Exhibit 2.1 to The
Coleman Company, Inc. Current Report on Form 8-K/A
filed on March 5, 1998).
2.2 Agreement and Plan of Merger among Sunbeam
Corporation, Laser Acquisition Corp., CLN Holdings
Inc. and Coleman (Parent) Holdings Inc. dated as of
February 27, 1998 (incorporated by reference to
Exhibit 10.1 to The Coleman Company, Inc. Current
Report on Form 8-K/A filed on March 5, 1998).
2.3 Amendment 1 to Agreement and Plan of Merger, dated as
of March 29, 1998, among Sunbeam Corporation, Laser
Acquisition Corp., Coleman (Parent) Holdings Inc.,
and CLN Holdings Inc (incorporated by reference to
Exhibit 2.3 to The Coleman Company, Inc. 1998 Annual
Report on Form 10-K).
49
3.1 Certificate of Incorporation of The Coleman Company,
Inc., filed with the Secretary of State of Delaware
on December 17, 1991 (incorporated by reference to
Exhibit 3.1 to The Coleman Company, Inc. 1993 Annual
Report on Form 10-K).
3.2 Bylaws of The Coleman Company, Inc., as amended
(incorporated by reference to Exhibit 3.1 to The
Coleman Company, Inc. Form 10-Q for the period ended
June 30, 1997).
4.1 Specimen copy of definitive certificate of common
stock of The Coleman Company, Inc., par value $.01
per share (incorporated by reference to Exhibit 4.4
to The Coleman Company, Inc. 1992 Annual Report on
Form 10-K).
4.2 Subsidiary Borrowing Agreement dated as of February
12, 1999 among The Coleman Company, Inc., Sunbeam
Corporation, and First Union National Bank
(incorporated by reference to Exhibit 4.2 to The
Coleman Company, Inc. 1998 Annual Report on Form
10-K).
4.3 Subsidiary Borrower Security Agreement dated as of
February 12, 1999 between The Coleman Company, Inc.
and First Union National Bank (incorporated by
reference to Exhibit 4.3 to The Coleman Company, Inc.
1998 Annual Report on Form 10-K).
4.4 Intercompany Note dated April 6, 1998 between The
Coleman Company, Inc. and Sunbeam Corporation
(incorporated by reference to Exhibit 4.4 to The
Coleman Company, Inc.
1998 Annual Report on Form 10-K).
4.5 Credit Agreement dated as of March 30, 1998 among
Sunbeam Corporation, the Subsidiary Borrowers
referred to therein, the Lenders party thereto,
Morgan Stanley Senior Funding, Inc., Bank of America
National Trust and Savings Association and First
Union National Bank (incorporated by reference to
Exhibit 10.a to the Sunbeam Corporation Form 10-Q for
the quarter ended March 30, 1998).
4.6 First Amendment to Credit Agreement dated as of May
8, 1998 among Sunbeam Corporation, the Subsidiary
Borrowers referred to therein, the Lenders party
thereto, Morgan Stanley Senior Funding, Inc., Bank of
America National Trust and Savings Association and
First Union National Bank (incorporated by reference
to Exhibit 10.b to the Sunbeam Corporation Form 10-Q
for the quarter ended March 30, 1998).
4.7 Second Amendment to Credit Agreement dated as of
March 30, 1998, among Sunbeam Corporation, the
Subsidiary Borrowers referred to therein, the Lenders
party thereto, Morgan Stanley Senior Funding, Inc.,
Bank of America National Trust and Savings
Association and First Union National Bank
(incorporated by reference to Exhibit 10.bb to the
Sunbeam Corporation Annual Report on Form 10-K/A for
the year ended December 28, 1997).
4.8 Third Amendment to Credit Agreement dated as of
October 19, 1998, among Sunbeam Corporation, the
Subsidiary Borrowers referred to therein, the Lenders
party thereto, Morgan Stanley Senior Funding, Inc.,
Bank of America National Trust and Savings
Association and First Union National Bank
(incorporated by reference to Exhibit 10.cc to the
Sunbeam Corporation Annual Report on Form 10-K/A for
the year ended December 28, 1997).
50
4.9 Waiver of Credit Agreement and Amendment to
Subsidiary Pledge and Security Agreement, dated as of
December 23, 1998 to the Credit Agreement dated as of
March 30, 1998 (as amended) among Sunbeam
Corporation, the Subsidiary Borrowers, the Lenders
party thereto, Morgan Stanley Senior Funding, Inc.,
Bank of America National Trust and Savings
Association, and First Union National Bank, and
Amendment dated as of December 23, 1998 to the
Subsidiary Pledge and Security Agreement dated as of
March 30, 1998 between Sunbeam Americas Holdings,
Ltd., the other Grantors party thereto, and First
Union National Bank (incorporated by reference to
Exhibit 4.9 to The Coleman Company, Inc. 1998 Annual
Report on Form 10-K).
4.10 Fourth Amendment, dated as of April 10, 1999, to the
Credit Agreement, dated as of March 30, 1998, among
Sunbeam Corporation, the Borrowers referred to
therein, the Lenders party thereto, Morgan Stanley
Senior Funding, Inc., Bank of America National Trust
and Savings Association, and First Union National
Bank (incorporated by reference to Exhibit 4.10 to
The Coleman Company, Inc. 1998 Annual Report on Form
10-K).
4.11 Fifth Amendment, Third Waiver and Agreement, dated as
of April 15, 1999, to and under the Credit Agreement,
dated as of March 30, 1998, among Sunbeam
Corporation, the Borrowers referred to therein, the
Lenders party thereto, Morgan Stanley Senior Funding,
Inc., Bank of America National Trust and Savings
Association, and First Union National Bank
(incorporated by reference to Exhibit 4.11 to The
Coleman Company, Inc. 1998 Annual Report on Form
10-K).
4.12 Omnibus Amendment to Collateral Documents, dated as
of April 15, 1999, to (a) the Parent Pledge and
Security Agreement, dated as of March 30, 1998
between Sunbeam Corporation and First Union National
Bank, (b) the Parent Security Agreement, dated as of
July 10, 1998 between the Parent and the
Administrative Agent; (c) the Subsidiary Pledge and
Security Agreement, dated as of March 30, 1998 among
each subsidiary of the Parent and the Administrative
Agent; and (d) the Subsidiary Security Agreement,
dated as of July 10, 1998 among the Grantors and the
Administrative Agent (incorporated by reference to
Exhibit 4.12 to The Coleman Company, Inc. 1998 Annual
Report on Form 10-K).
4.13 Intentionally Omitted.
4.14 Intentionally Omitted.
4.15 Amended and Restated Subordinated Intercompany Note,
dated as of April 6, 1998 between The Coleman
Company, Inc. and Sunbeam Corporation (incorporated
by reference to Exhibit 4.15 to The Coleman Company,
Inc. 1998 Annual Report on Form 10-K).
10.1 Cross-Indemnification Agreement dated as of February
26, 1992 among New Coleman Holdings Inc., Coleman
Finance Holdings Inc., The Coleman Company, Inc., and
certain subsidiaries of New Coleman Holdings Inc. and
The Coleman Company, Inc., (incorporated by reference
to Exhibit 10.1 to The Coleman Company, Inc. 1992
Annual Report on Form 10-K).
10.2 Amendment No. 1 dated as of December 30, 1992 to the
Cross-Indemnification Agreement (incorporated by
reference to Exhibit 10.2 to The Coleman Company,
Inc. 1992 Annual Report on Form 10-K).
51
10.3 Reimbursement Agreement dated as of February 26, 1992
between The Coleman Company, Inc., and MacAndrews &
Forbes Holdings Inc. (incorporated by reference to
Exhibit 10.4 to The Coleman Company, Inc. 1992 Annual
Report on Form 10-K).
10.4 Tax Allocation Agreement dated as of August 24, 1990
among MacAndrews & Forbes Holdings Inc., New Coleman
Holdings Inc. and subsidiaries of New Coleman
Holdings Inc. (incorporated by reference to Exhibit
10.29 to The Coleman Company, Inc. 1992 Annual Report
on Form 10-K).
10.5 Amendment No. 1 dated as of February 26, 1992 to the
Tax Allocation Agreement dated as of August 24, 1990
among MacAndrews & Forbes Holdings Inc., Mafco
Holdings Inc., New Coleman Holdings Inc. and
subsidiaries of New Coleman Holdings Inc.
(incorporated by reference to Exhibit 10.30 to The
Coleman Company, Inc. 1992 Annual Report on Form
10-K).
10.6 Amendment No. 2 dated as of December 30, 1992 to the
Tax Allocation Agreement dated as of August 24, 1990
among MacAndrews & Forbes Holdings Inc., New Coleman
Holdings Inc. and subsidiaries of New Coleman
Holdings Inc. (incorporated by reference to Exhibit
10.31 to The Coleman Company, Inc. 1992 Annual Report
on Form 10-K).
10.7 Amendment No. 3 dated as of May 27, 1993 to the Tax
Allocation Agreement dated as of August 24, 1990
among Mafco Holdings Inc., New Coleman Holdings Inc.
and subsidiaries of New Coleman Holdings Inc.
(incorporated by reference to Exhibit 10.45 to the
Coleman Holdings Inc. Registration Statement Form S-1
(File No. 33-67058), filed on August 6, 1993).
10.8 Tax Sharing Agreement II dated as of February 26,
1992, among Mafco Holdings Inc., Coleman Finance
Holdings Inc., The Coleman Company, Inc. and certain
subsidiaries of The Coleman Company, Inc.
(incorporated by reference to Exhibit 10.25 to The
Coleman Company, Inc. 1992 Annual Report on Form
10-K).
10.9 Amendment No. 1 dated as of December 30, 1992 to the
Tax Sharing Agreement II dated as of February 26,
1992, among Mafco Holdings Inc., Coleman Finance
Holdings Inc., The Coleman Company, Inc. and certain
subsidiaries of The Coleman Company, Inc.
(incorporated by reference to Exhibit 10.26 to The
Coleman Company, Inc. 1992 Annual Report on Form
10-K).
10.10 Supplemental Tax Sharing Agreement dated as of
February 26, 1992, between The Coleman Company, Inc.
and MacAndrews and Forbes Holdings Inc. (incorporated
by reference to Exhibit 10.32 to The Coleman Company,
Inc. 1992 Annual Report on Form 10-K).
10.11 Tax Sharing Agreement III dated as of February 26,
1992 among Mafco Holdings Inc., New Coleman Holdings
Inc., Coleman Finance Holdings Inc. and subsidiaries
of Coleman Finance Holdings Inc. (incorporated by
reference to Exhibit 10.27 to The Coleman Company,
Inc. 1992 Annual Report on Form 10-K).
10.12 Amendment No. 1 dated as of December 30, 1992 to the
Tax Sharing Agreement III dated as of February 26,
1992 among Mafco Holdings Inc., New Coleman Holdings
Inc., Coleman Finance Holdings Inc. and subsidiaries
of Coleman Finance Holdings Inc. (incorporated by
reference to Exhibit 10.28 to The Coleman Company,
Inc. 1992 Annual Report on Form 10-K).
52
10.13 Tax Sharing Agreement V dated as of May 27, 1993
among Mafco Holdings Inc., Coleman Worldwide
Corporation, The Coleman Company, Inc. and certain
subsidiaries of The Coleman Company, Inc.
(incorporated by reference to Exhibit 10.38 to the
Coleman Holdings Inc. Registration Statement Form S-1
(File 33-67058), filed on August 6, 1993).
10.14 Tax Sharing Termination Agreement dated as of May 27,
1993 among MacAndrews & Forbes Holdings Inc., New
Coleman Holdings Inc., Coleman Finance Holdings Inc.,
The Coleman Company, Inc. and subsidiaries of The
Coleman Company, Inc. and Coleman Finance Holdings
Inc. (incorporated by reference to Exhibit 10.40 to
the Coleman Holdings Inc. Registration Statement Form
S-1 (File 33-67058), filed on August 6, 1993).
10.15 Worldwide Registration Rights Agreement dated as of
May 27, 1993 among Coleman Worldwide Corporation, The
Coleman Company, Inc. the Lenders Party thereto and
the Agent (incorporated by reference to Exhibit 10.47
to the Coleman Holdings Inc. Registration Statement
Form S-1 (File 33-67058), filed on August 6, 1993).
10.16* The Coleman Company, Inc. Executive Severance Policy
effective as of February 27, 1998 (incorporated by
reference to Exhibit 10.16 to The Coleman Company,
Inc. 1997 Annual Report on Form 10-K).
10.17 Share Purchase Agreement dated as of February 27,
1996 by and among Butagaz S.N.C. and Bafiges S.A.
(incorporated by reference to Exhibit 10.26 to The
Coleman Company, Inc.
1995 Annual Report on Form 10-K).
10.18 Amendment to the Share Purchase Agreement dated as of
February 27, 1996 by and among Bafiges S.A. and
Butagaz S.N.C. (incorporated by reference to Exhibit
10.27 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.19 Shareholders Agreement dated as of February 27, 1996
by and among Butagaz S.N.C., The Coleman Company,
Inc. and Bafiges S.A. (incorporated by reference to
Exhibit 10.28 to The Coleman Company, Inc. 1995
Annual Report on Form 10-K).
10.20 Agreement dated as of February 27, 1996 by and
between Shell International Petroleum Company
Limited, Butagaz S.N.C. on the first part, and
Bafiges S.A. and The Coleman Company, Inc. on the
second part (incorporated by reference to Exhibit
10.29 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.21* Letter Agreement dated as of August 19, 1997 between
The Coleman Company, Inc. and Mark Goldman
(incorporated by reference to Exhibit 10.21 to The
Coleman Company, Inc.
1998 Annual Report on Form 10-K).
10.22* Letter Agreement dated as of January 7, 1999 between
The Coleman Company, Inc. and Mark Goldman
(incorporated by reference to Exhibit 10.22 to The
Coleman Company, Inc.
1998 Annual Report on Form 10-K).
10.23* The Coleman Retirement Salaried Incentive Savings
Plan (incorporated by reference to Exhibit 10.3 to
The Coleman Company, Inc. Form 10-Q for the period
ended March 31, 1996).
53
10.24* The Coleman Retirement Incentive Savings Plan (the
"Savings Plan") (incorporated by reference to Exhibit
10.54 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.25* First Amendment dated as of October 11, 1994 to the
Savings Plan (incorporated by reference to Exhibit
10.55 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.26* Second Amendment dated as of January 1, 1995 to the
Savings Plan (incorporated by reference to Exhibit
10.56 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.27* Amendment dated as of December 14, 1995 to the
Savings Plan (incorporated by reference to Exhibit
10.60 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.28* Amendment dated as of December 14, 1995 to the
Savings Plan (incorporated by reference to Exhibit
10.61 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.29* Amendment dated as of January 1, 1996 to the Savings
Plan (incorporated by reference to Exhibit 10.62 to
The Coleman Company, Inc. 1995 Annual Report on Form
10-K).
10.30* New Coleman Holdings Inc. Excess Benefit Plan dated
as of January 1, 1995 (incorporated by reference to
Exhibit 10.1 to The Coleman Company, Inc. Form 10-Q
for the period ended June 30, 1996).
10.31* The New Coleman Company, Inc. Retirement Plan for
Salaried Employees (the "Retirement Plan")
(incorporated by reference to Exhibit 10.63 to The
Coleman Company, Inc. 1995 Annual Report on Form
10-K).
10.32* Amendment dated as of October 17, 1994 to the
Retirement Plan (incorporated by reference to Exhibit
10.64 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.33* Amendment dated as of December 14, 1995 to the
Retirement Plan (incorporated by reference to Exhibit
10.65 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.34* Amendment dated as of December 14, 1995 to the
Retirement Plan (incorporated by reference to Exhibit
10.66 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.35* Amendment dated as of October 12, 1995 to the
Retirement Plan (incorporated by reference to Exhibit
10.67 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.36* Amendment dated as of January 1, 1996 to the
Retirement Plan (incorporated by reference to Exhibit
10.68 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
54
10.37* Amendment dated as of December 31, 1995 to the
Retirement Plan (incorporated by reference to Exhibit
10.69 to The Coleman Company, Inc. 1995 Annual Report
on Form 10-K).
10.38* The Coleman Company, Inc. Executive Employees
Deferred Compensation Plan, as amended by the First
Amendment thereto (incorporated by reference to
Exhibit 10.11 to The Coleman Company, Inc.
Registration Statement on Form S-1 (File 33-44728),
filed on December 23, 1991).
10.39* The Coleman Company, Inc. 1992 Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.3 to
The Coleman Company, Inc. Form 10-Q for the period
ended June 30, 1997).
10.40* The Coleman Company, Inc. 1993 Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.1 to
The Coleman Company, Inc. Form 10-Q for the period
ended June 30, 1997).
10.41* The Coleman Company, Inc. 1996 Stock Option Plan, as
amended (incorporated by reference to Exhibit 10.53
to The Coleman Company, Inc. 1996 Annual Report on
Form 10-K).
10.42* Stock Purchase Agreement among The Coleman Company,
Inc., as Seller, Siebe plc, as Guarantor, and Ranco
Incorporated of Delaware, as Buyer, dated as of
February 18, 1998 (incorporated by reference to
Exhibit 10.56 to The Coleman Company, Inc. 1997
Annual Report on Form 10-K).
10.43* Amendment No. 2 to The New Coleman Company, Inc.
Retirement Plan for Salaried Employees (incorporated
by reference to Exhibit 10.57 to The Coleman Company,
Inc. 1997 Annual Report on Form 10-K).
10.44* Special Amendment to The New Coleman Company, Inc.
Retirement Plan for Salaried Employees (incorporated
by reference to Exhibit 10.58 to The Coleman Company,
Inc. 1997 Annual Report on Form 10-K).
10.45* The New Coleman Company, Inc. Pension Plan for Weekly
Salaried and Hourly Paid Employees (incorporated by
reference to Exhibit 10.59 to The Coleman Company,
Inc. 1997 Annual Report on Form 10-K).
10.46* Amendments to The Coleman Retirement Incentive
Savings Plan, dated March 15, 1999 (incorporated by
reference to Exhibit 10.46 to The Coleman Company,
Inc. 1998 Annual Report on Form 10-K).
10.47* Amendments to The Coleman Monthly Salaried Retirement
Incentive Savings Plan, dated March 15, 1999
(incorporated by reference to Exhibit 10.47 to The
Coleman Company, Inc. 1998 Annual Report on Form
10-K).
10.48* Supplement 1 to The Coleman Retirement Incentive
Savings Plan, dated March 15, 1999 (incorporated by
reference to Exhibit 10.48 to The Coleman Company,
Inc. 1998 Annual Report on Form 10-K).
10.49* Supplement 1 to The Coleman Monthly Salaried
Retirement Incentive Savings Plan, dated March 15,
1999 (incorporated by reference to Exhibit 10.49 to
The Coleman Company, Inc. 1998 Annual Report on Form
10-K).
55
10.50* Appendix B to The Coleman Retirement Incentive
Savings Plan, dated March 15, 1999 (incorporated by
reference to Exhibit 10.50 to The Coleman Company,
Inc. 1998 Annual Report on Form 10-K).
10.51* Appendix B to The Coleman Monthly Salaried Retirement
Incentive Savings Plan, dated March 15, 1999
(incorporated by reference to Exhibit 10.51 to The
Coleman Company, Inc. 1998 Annual Report on Form
10-K).
10.52* Amendment to The New Coleman Company, Inc. Retirement
Plan for Salaried Employees, dated March 15, 1999
(incorporated by reference to Exhibit 10.52 to The
Coleman Company, Inc. 1998 Annual Report on Form
10-K).
10.53 Support Services Agreement dated as of December 23,
1998, by and between Sunbeam Corporation, Inc.,
Sunbeam Products, Inc., The Coleman Company, Inc.
Application des Gaz, Eastpak Corporation, Coleman
Powermate, Inc., BRK Brands, Inc., and Signature
Brands, Inc. (incorporated by reference to Exhibit
10.53 to The Coleman Company, Inc.
1998 Annual Report on Form 10-K).
10.54 Indemnification Agreement, dated as of April 12,
1999, between The Coleman Company, Inc. and A.
Whitman Marchand (incorporated by reference to
Exhibit 10.54 to The Coleman Company, Inc. 1998
Annual Report on Form 10-K).
21.1 Subsidiaries of the Company (incorporated by
reference to Exhibit 21.1 to The Coleman Company,
Inc. 1998 Annual Report on Form 10-K).
23.1 X Consent of Independent Auditors.
27 X Financial Data Schedule, submitted electronically to
the Securities and Exchange Commission for
information only and not filed.
---------------
* Management Contracts and Compensatory Plans
X Filed herewith
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the
three months ended December 31, 1998.
56
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COLEMAN COMPANY, INC.
(Registrant)
Date: October 11, 1999 By: /s/ Jerry W. Levin
------------------------------- --------------------------------------
Jerry W. Levin
Chairman of the Board,
Chief Executive Officer, and Director
Date: November 4, 1999 By: /s/ Gwen C. Wisler
------------------------------- -------------------------------------
Gwen C. Wisler
Executive Vice President and
Chief Financial Officer
Date: November 4, 1999 By: /s/ Lynn E. Feldkamp
------------------------------- ------------------------------------
Lynn E. Feldkamp
Principal Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: October 12, 1999 By: /s/ Paul E. Shapiro
------------------------------- ------------------------------------
Paul E. Shapiro
Director
Date: November 4, 1999 By: /s/ John Klein
------------------------------- ------------------------------------
John Klein
Director
Date: October 12, 1999 By: /s/ Whitman Marchand
------------------------------- ------------------------------------
Whitman Marchand
Director
57
ANNUAL REPORT ON FORM 10-K/A
ITEM 8, ITEM 14(a)(1) AND (2) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1998
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
The following consolidated financial statements of The Coleman Company,
Inc. and Subsidiaries are included in Item 8:
Page
----
Consolidated Balance Sheets as of December 31, 1998 and 1997................................ F-3
Consolidated Statements of Operations
for the years ended December 31, 1998, 1997 and 1996...................................... F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996...................................... F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1998, 1997 and 1996...................................... F-6
Notes to Consolidated Financial Statements.................................................. F-7
Consolidated financial statement schedules of The Coleman Company,
Inc. and Subsidiaries included in Item 14(d):
All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
The Coleman Company, Inc.
We have audited the accompanying consolidated balance sheets of The
Coleman Company, Inc. and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of The Coleman Company, Inc. and subsidiaries at December 31, 1998
and 1997, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Wichita, Kansas
April 15, 1999
F-2
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
-------------------------
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 23,413 $ 13,031
Accounts receivable, less allowance of $8,894 in 1998
and $8,930 in 1997.......................................................... 143,670 154,279
Notes receivable................................................................ 17,419 25,477
Inventories..................................................................... 230,126 236,327
Income tax refunds receivable - affiliate....................................... 1,019 14,860
Deferred tax assets............................................................. 26,926 26,378
Prepaid expenses and other current assets....................................... 19,627 21,344
---------- ----------
Total current assets........................................................ 462,200 491,696
Property, plant and equipment, net................................................ 145,823 175,494
Goodwill, net..................................................................... 282,015 332,468
Deferred tax assets and other..................................................... 43,219 42,106
---------- ----------
$ 933,257 $1,041,764
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................... $ 110 $ 523
Short-term borrowings........................................................... 45,803 64,207
Accounts payable................................................................ 77,558 91,846
Accounts payable - affiliates................................................... 22,703 2,825
Accrued expenses................................................................ 101,114 93,796
---------- ----------
Total current liabilities................................................... 247,288 253,197
Long-term debt.................................................................... 362 477,276
Debt payable to affiliate......................................................... 365,063 --
Other liabilities................................................................. 75,231 69,586
Minority interest................................................................. 6,698 1,236
Contingencies.....................................................................
Stockholders' equity:
Preferred stock, par value $.01 per share;
20,000,000 shares authorized, no shares issued
or outstanding.............................................................. -- --
Common stock, par value $.01 per share;
80,000,000 shares authorized;
55,827,490 shares issued and outstanding in 1998;
53,433,414 shares issued and outstanding in 1997............................ 558 534
Additional paid-in capital...................................................... 221,730 172,072
Retained earnings............................................................... 21,977 80,296
Accumulated other comprehensive loss............................................ (5,650) (12,433)
---------- ----------
Total stockholders' equity.................................................. 238,615 240,469
---------- ----------
$ 933,257 $1,041,764
========== ==========
See Notes to Consolidated Financial Statements
F-3
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
Year Ended December 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
Net revenues......................................................... $ 1,015,373 $ 1,154,294 $ 1,220,216
Cost of sales........................................................ 748,295 828,107 917,947
------------ ------------ ------------
Gross profit......................................................... 267,078 326,187 302,269
Selling, general and administrative expenses......................... 255,071 255,785 271,541
Restructuring expense................................................ 17,892 22,722 30,678
Interest expense, net................................................ 33,213 40,852 38,727
Amortization of goodwill and deferred charges........................ 19,584 11,338 10,473
Gain on sales of businesses.......................................... (32,411) -- --
Other expense, net................................................... 170 1,867 1,151
------------ ------------ ------------
Loss before income taxes, minority interest
and extraordinary item............................................ (26,441) (6,377) (50,301)
Income tax expense (benefit)......................................... 13,846 (5,227) (10,927)
Minority interest.................................................... 276 1,386 1,872
------------ ------------ --------------
Loss before extraordinary item....................................... (40,563) (2,536) (41,246)
Extraordinary loss on early extinguishment of debt,
net of income tax benefit of $11,474 in 1998,
and $431 in 1996................................................... (17,538) -- (647)
------------ ------------ ------------
Net loss............................................................. $ (58,101) $ (2,536) $ (41,893)
============ ============ ============
Basic and diluted loss per share:
Loss before extraordinary item..................................... $ (0.73) $ (.05) $ (0.78)
Extraordinary item................................................. (0.32) -- (0.01)
------------ ------------ ------------
Net loss....................................................... $ (1.05) $ (.05) $ (0.79)
============ ============ ============
Weighted average common shares outstanding:
Basic and diluted.................................................. 55,309 53,344 53,197
============ ============ ============
See Notes to Consolidated Financial Statements
F-4
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock Accumulated
-------------------- Additional Other
Number Paid-In Retained Comprehensive
of Shares Amount Capital Earnings Income (Loss) Total
--------- ------ ------- -------- ------------- -----
Balance at December 31, 1995.............. 53,177,280 $ 532 $ 165,466 $ 126,179 $ 165 $ 292,342
Comprehensive loss:
Net loss ........................... -- -- -- (41,893) -- (41,893)
Currency translation adjustment..... -- -- -- -- 3,011 3,011
Minimum pension liability
adjustment........................ -- -- -- -- (285) (285)
-----------
Comprehensive loss............ (39,167)
Purchases of common stock............. (100,000) (1) (874) (1,454) -- (2,329)
Stock split issuance costs............ -- -- (93) -- -- (93)
Stock issued under stock
option plans..................... 145,140 1 1,737 -- -- 1,738
Stock option tax benefits............. -- -- 454 -- -- 454
------------- ----- ---------- ---------- --------- -----------
Balance at December 31, 1996.............. 53,222,420 532 166,690 82,832 2,891 252,945
Comprehensive loss:
Net loss ........................... -- -- -- (2,536) -- (2,536)
Currency translation adjustment..... -- -- -- -- (14,686) (14,686)
Minimum pension liability
adjustment........................ -- -- -- -- (638) (638)
-----------
Comprehensive loss............ (17,860)
Stock issued under stock
option plans..................... 210,994 2 2,358 -- -- 2,360
Stock option tax benefits............. -- -- 225 -- -- 225
Contribution to capital by parent..... -- -- 2,799 -- -- 2,799
-------------- ----- ---------- ---------- --------- -----------
Balance at December 31, 1997.............. 53,433,414 534 172,072 80,296 (12,433) 240,469
Comprehensive loss:
Net loss ........................... -- -- -- (58,101) -- (58,101)
Currency translation adjustment..... -- -- -- -- 7,126 7,126
Minimum pension liability
adjustment........................ -- -- -- -- (343) (343)
-----------
Comprehensive loss............ (51,318)
Stock issued under stock
option plans..................... 2,394,076 24 36,207 -- -- 36,231
Stock option tax benefits............. -- -- 13,451 -- -- 13,451
Other................................. -- -- -- (218) -- (218)
-------------- ----- ---------- ---------- --------- -----------
Balance at December 31, 1998.............. 55,827,490 $ 558 $ 221,730 $ 21,977 $ (5,650) $ 238,615
============== ===== ========== ========== ========= ===========
See Notes to Consolidated Financial Statements
F-5
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................... $ (58,101) $ (2,536) $ (41,893)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization.................................... 44,697 37,977 36,358
Non-cash restructuring and other charges......................... 6,652 17,325 48,269
Gain on sales of businesses...................................... (32,411) -- --
Extraordinary loss on early extinguishment of debt............... 29,012 -- 1,078
Minority interest................................................ 276 1,386 1,872
Change in assets and liabilities,
net of effects from business acquisitions and dispositions:
Decrease in receivables..................................... 28,821 23,296 976
Decrease (increase) in inventories.......................... 851 35,250 (42,402)
(Decrease) increase in accounts payable..................... (2,426) 1,226 (12,308)
Other, net.................................................. 10,216 (22,683) (1,279)
----------- ----------- ------------
Net cash provided (used) by operating activities....................... 27,587 91,241 (9,329)
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................... (23,663) (26,973) (41,334)
Purchases of businesses, net of cash acquired.......................... -- (14,300) (161,875)
Net proceeds from sales of businesses and fixed assets................. 117,841 5,728 2,924
----------- ----------- ----------
Net cash provided (used) by investing activities....................... 94,178 (35,545) (200,285)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings.................................... (23,125) 37,071 (11,043)
Net payments of revolving credit agreement borrowings.................. (52,578) (91,498) (2,779)
Proceeds from issuance of long-term debt............................... 174 -- 235,000
Net increase in borrowings from affiliate ............................. 365,063 -- --
Repayment of long-term debt, including redemption costs................ (447,229) (2,867) (6,648)
Debt issuance and refinancing costs.................................... -- (766) (3,902)
Purchases of Company common stock...................................... -- -- (2,329)
Proceeds from stock options exercised including tax benefits........... 49,682 2,585 2,192
----------- ----------- ----------
Net cash (used) provided by financing activities....................... (108,013) (55,475) 210,491
----------- ----------- ----------
Effect of exchange rate changes on cash................................ (3,370) (4,489) 4,357
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents................... 10,382 (4,268) 5,234
Cash and cash equivalents at beginning of the year..................... 13,031 17,299 12,065
----------- ----------- ----------
Cash and cash equivalents at end of the year........................... $ 23,413 $ 13,031 $ 17,299
=========== =========== ==========
See Notes to Consolidated Financial Statements
F-6
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
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 December 31, 1998.
On February 27, 1998, CLN Holdings Inc. ("CLN Holdings"), the then
parent of Coleman Worldwide, and Coleman (Parent) Holdings Inc. ("Parent
Holdings"), the then parent company of CLN Holdings, entered into an
Agreement and Plan of Merger (as amended, the "Holdings Merger Agreement")
with Sunbeam and Laser. On March 30, 1998, pursuant to the Holdings Merger
Agreement, CLN Holdings was merged with and into Laser, with Laser continuing
as the surviving corporation and as a wholly-owned subsidiary of Sunbeam (the
"Holdings Merger"). In the Holdings Merger, Parent Holdings received
14,099,749 shares of Sunbeam common stock and $159,957 in cash in exchange
for all of the outstanding shares of CLN Holdings. As a result of the
Holdings Merger, Sunbeam became the indirect owner of 44,067,520 shares of
Coleman common stock held by Coleman Worldwide (the "Sunbeam Acquisition").
On August 12, 1998, Sunbeam announced that it had entered into a settlement
agreement with Parent Holdings, a subsidiary of MacAndrews & Forbes Holdings
Inc. ("M&F"), in connection with the Holdings Merger (the "Parent Holdings
Settlement Agreement"). The Parent Holdings Settlement Agreement subject to
the terms of such settlement: (i) released Sunbeam from certain claims Parent
Holdings and its affiliates, including M&F, may have against Sunbeam arising
out of the Sunbeam Acquisition; and (ii) enabled Sunbeam to retain the
services of executive personnel affiliated with Parent Holdings who had
previously been involved with management of Coleman and who had been managing
Sunbeam since mid-June of 1998. Pursuant to the Parent Holdings Settlement
Agreement, Parent Holdings received from Sunbeam a warrant expiring
August 24, 2003 (the "Parent Holdings Warrant") to purchase up to an
additional 23 million shares of Sunbeam common stock at an exercise price of
$7.00 per share, subject to anti-dilution provisions.
Coincident with the execution of the Holdings Merger Agreement, the
Company, Sunbeam and Camper Acquisition Corp. ("CAC"), a wholly-owned
subsidiary of Sunbeam, entered into an Agreement and Plan of Merger (the
"Coleman Merger Agreement" and with the Holdings Merger Agreement,
collectively, the "Merger Agreements"), providing that among other things,
CAC will be merged with and into Coleman, with Coleman continuing as the
surviving corporation (the "Coleman Merger"). Pursuant to the Coleman Merger
Agreement, each share of the Company's common stock issued and outstanding
immediately prior to the effective time of the Coleman Merger (other than
shares held indirectly by Sunbeam and dissenting shares, if any) will be
converted into the right to receive (a) 0.5677 of a share of Sunbeam common
stock, with cash paid in lieu of fractional shares, and (b) $6.44 in cash,
without interest. In addition, outstanding stock options of Coleman
immediately vested upon consummation of the Holdings Merger Agreement and
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 warrants to purchase up to 4.98
million shares of Sunbeam common stock at $7.00
F-7
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
per share, subject to certain anti-dilution provisions. These warrants will
generally have the same terms as the warrants previously issued to Parent
Holdings and 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
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 contingent upon several
conditions including, among other things, the filing of a registration
statement under the Securities Act of 1933 (the "Securities Act") for the
purpose of registering the shares of Sunbeam common stock to be issued in the
Coleman Merger (the "Registration Statement") and that the Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act. Sunbeam has filed a preliminary 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 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all material intercompany
accounts and transactions.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or
less at the date of purchase are considered to be cash equivalents. The
Company's cash equivalents consist primarily of investments in money market
funds and commercial paper. The Company's cash equivalents are generally held
until maturity and are carried at cost, which approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and depreciated on
a straight-line basis over the estimated useful lives of such assets as
follows: land improvements, 5 to 25 years; buildings and building
improvements, 7 to 45 years; and machinery and equipment, 3 to 15 years.
Leasehold improvements are amortized over their estimated useful lives or the
terms of the leases, whichever is shorter. Repairs and maintenance are
charged to operations as incurred, and significant expenditures for additions
and improvements are capitalized.
F-8
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
GOODWILL
Goodwill represents the excess of purchase price over the fair value
of identifiable assets related to various acquisitions, which is being
amortized on a straight-line basis over periods not in excess of 40 years.
Accumulated amortization aggregated $52,992 and $47,250 at December 31, 1998
and 1997, respectively. The carrying amount of goodwill is reviewed if facts
and circumstances suggest it may be impaired. If this review indicates
goodwill will not be recoverable over the remaining amortization period, as
determined based on the estimated undiscounted cash flows of the entity
acquired or other qualitative factors, the carrying amount of the goodwill is
reduced to estimated fair value based on market value or discounted cash
flows, as appropriate. In the fourth quarter of 1998, the Company wrote off
the remaining goodwill in the amount of $8,759 that was associated with the
1993 acquisition of the Taymar Group ("Taymar") as a result of the Company's
fourth quarter 1998 review of its operations in Europe and changes in certain
operating strategies. Specifically, at the end of 1997, all manufacturing of
Taymar products was moved to another Coleman production facility. Beginning
in late March 1998, all existing Taymar research and development activities
were terminated and the related research and development facility was shut
down. All research and development personnel left Taymar by the end of the
second quarter of 1998. These employees were not redeployed elsewhere within
Coleman. Throughout 1998, the Coleman production facility encountered
significant difficulty in effectively producing the existing Taymar products
and the research and development group in place at the new facility was not
effective in advancing the technologies for the Taymar line. Despite these
difficulties, operating management continued to pursue strategies to make the
product line viable. During the 1998 fourth quarter business reviews and in
conjunction with the preparation in the fourth quarter of 1998 of the 1999
business plan, Coleman's senior management reviewed the 1998 results of the
Taymar product line and considered its future prospects. From this review and
analysis, management decided in the fourth quarter of 1998 to exit the
existing Taymar product lines and replace them with other Coleman products
which would be available for sale beginning in 1999. As a result, by the end
of 1998, there were no Taymar research and development activities, no plans
for future Taymar product development, no remaining production of existing
Taymar products and no projected sales of existing Taymar products. These
factors resulted in the remaining goodwill having no continuing value and
accordingly, the related goodwill was written off in the fourth quarter of
1998.
REVENUE RECOGNITION
The Company recognizes revenues at the time title passes to the
customer. Estimated customer returns and allowances are recognized at the
time of sale primarily based on historical experience.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed as incurred. The
amounts charged against operations for the years ended December 31, 1998,
1997 and 1996 were $10,370, $11,871, and $11,082, respectively.
ADVERTISING AND PROMOTION EXPENSE
Production costs of future media advertising are deferred until the
advertising occurs. All other advertising and promotion costs are expensed
when incurred. The amounts charged against operations for the years ended
December 31, 1998, 1997 and 1996 were $52,062, $53,408, and $58,823,
respectively.
F-9
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
INSURANCE PROGRAMS
The Company obtains insurance coverage for catastrophic exposures as
well as those risks required to be insured by law or contract. It is the
policy of the Company to retain a significant portion of certain losses
related primarily to workers' compensation, employee health benefits,
physical loss and property, and product and vehicle liability. Provisions for
losses expected under these programs are recorded based upon the Company's
estimates of the aggregate liability for claims incurred.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are generally
translated into United States dollars at the rates of exchange in effect at
the balance sheet date. Income and expense items are generally translated at
the weighted average exchange rates prevailing during each period presented.
Gains and losses resulting from foreign currency transactions are included in
the results of operations. Gains and losses resulting from translation of
financial statements of foreign subsidiaries and branches operating in
non-highly inflationary economies are recorded as a component of
stockholders' equity and other comprehensive income. Foreign subsidiaries and
branches operating in highly inflationary economies translate nonmonetary
assets and liabilities at historical rates and include translation
adjustments in the results of operations.
DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST RATE SWAP AND CAP AGREEMENTS
The Company uses interest-rate swap and cap agreements to manage the
interest rate characteristics of its outstanding debt to a more desirable
fixed or variable rate basis or to limit the Company's exposure to rising
interest rates. Interest rate differentials to be paid or received as a
result of interest rate swap or cap agreements are accrued and recognized as
an adjustment of interest expense related to the designated debt. The fair
value of the swap and cap agreements and changes in the fair value as a
result of changes in market interest rates are not recognized in the
financial statements. Related premiums paid are amortized to interest expense
ratably during the life of the swap or cap agreement.
Gains and losses on termination of interest rate swap and cap
contracts are deferred and amortized as an adjustment to interest expense
over the original period of interest exposure, provided the designated
liability continues to exist. Realized and unrealized changes in fair value
of interest rate swap and caps designated with liabilities that no longer
exist are recorded as a component of the gain or loss arising from the
disposition of the designated liability.
FOREIGN CURRENCY OPTIONS AND FORWARD CONTRACTS
The Company uses foreign currency option and forward contracts
(collectively, "Foreign Currency Contracts") to reduce its exposure to
foreign currency risk related primarily to transactions with its foreign
subsidiaries, including amounts payable or receivable, firm commitments and
anticipated transactions. Foreign Currency Contracts designated and effective
as hedges are marked to market with realized and unrealized gains and losses
deferred and recognized in earnings when the designated transaction occurs.
Foreign Currency Contracts not designated as hedges, those which fail to be
or do not continue as effective hedges, or those which relate to transactions
which are no longer probable of occurring, and those specifically associated
with anticipated transactions are included in income as foreign exchange
gains or losses. Discounts or premiums on forward contracts designated and
effective as hedges are accreted or amortized to expense using the
straight-line method over the term of the related contract. Discounts or
F-10
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
premiums on forward contracts not designated or effective as hedges are
included in the mark to market adjustment and recognized in income as foreign
exchange gains or losses. Initial premiums paid for purchased option
contracts are amortized over the related option period.
CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents,
trade receivables and derivative financial instruments. The Company places
its funds into high credit quality financial institutions and, at times, may
be in excess of the federal depository insurance limit. Credit risk on trade
receivables is minimized as a result of the large and diversified nature of
the Company's worldwide customer base. Although the Company has one
significant customer (See Note 19), there have been no credit losses related
to this customer. With respect to its derivative contracts, the Company is
also subject to credit risk of non-performance by counterparties and its
maximum potential loss may exceed the amount recognized in the financial
statements. The Company controls its exposure to credit risk through credit
approvals, credit limits and monitoring procedures. Collateral is generally
not required for the Company's financial instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair
value.
LONG- AND SHORT-TERM DEBT: The carrying amounts of the Company's
borrowings under its foreign bank lines of credit, revolving
credit agreement and other variable rate debt, including debt
payable to affiliate, approximate their fair value. The fair value
of the Company's senior notes issues (see Note 10) was estimated
using discounted cash flow analysis based on the Company's
estimated current borrowing rate for similar types of borrowing
arrangements.
FOREIGN CURRENCY EXCHANGE CONTRACTS: The fair values of the
Company's foreign currency contracts were estimated based on
quoted market prices of comparable contracts, adjusted through
interpolation where necessary for maturity differences.
INTEREST RATE SWAP: The fair values of interest rate swap
agreements were the amounts at which they could be terminated,
based on estimates obtained from dealers.
The carrying amounts and fair values of the Company's financial
instruments are as follows:
F-11
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 1998 December 31, 1997
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
of Asset/ of Asset/ of Asset/ of Asset/
(Liability) (Liability) (Liability) (Liability)
----------- ----------- ----------- -----------
Cash and cash equivalents..................... $ 23,413 $ 23,413 $ 13,031 $ 13,031
Short-term debt............................... (45,803) (45,803) (64,207) (64,207)
Long-term debt excluding capital leases....... -- -- (477,499) (445,792)
Foreign currency exchange contracts........... 83 (22) 128 128
Debt payable to affiliate..................... (365,063) (365,063) -- --
Interest rate swap agreement.................. -- (930) -- (171)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of Coleman's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
EARNINGS PER SHARE
Basic loss per share is computed using the weighted average number
of shares of outstanding common stock. Diluted loss per share for the years
ended December 31, 1998, 1997 and 1996 is based only on the weighted average
number of common shares outstanding during each of those years, as the
inclusion of 192,400, 153,218, and 352,926 common share equivalents,
respectively, would have been antidilutive.
Stock options to purchase 923,670, 1,931,000, and 2,457,520 shares
of common stock were outstanding at December 31, 1998, 1997, and 1996,
respectively, 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 years.
RECLASSIFICATIONS
Certain prior year amounts in the financial statements have been
reclassified to conform to the current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (the "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
F-12
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. SFAS No. 133 requires an entity
to recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value with any unrealized gain or
loss recognized as a component of net income or other comprehensive income.
SFAS No. 133 will be effective for the Company's fiscal year beginning
January 1, 2000. Earlier application of the provisions of SFAS No. 133 are
encouraged; however, the Company has not determined if it will apply the
provisions of SFAS No. 133 prior to January 1, 2000, nor has the Company
estimated the impact of applying the provisions of SFAS No. 133 on the
Company's statement of financial position or statement of operations.
2. ACQUISITIONS AND DIVESTITURES
On January 2, 1996, the Company purchased substantially all the
assets and assumed certain liabilities of Seatt Corporation ("Seatt"), a
leading designer, manufacturer and distributor of safety and security related
electronic products for residential and commercial applications. The Seatt
acquisition, which was accounted for under the purchase method, was completed
for approximately $65,300 including fees and expenses. The results of
operations of Seatt have been included in the consolidated financial
statements from the date of acquisition. In connection with the purchase
price allocation of the Seatt acquisition, the Company recorded goodwill of
approximately $38,800. On March 24, 1998, the Company sold Coleman Safety &
Security Products, Inc. ("CSS"), the successor to the assets acquired from
Seatt, to Ranco Incorporated of Delaware ("Ranco"), a wholly-owned subsidiary
of Siebe plc, for approximately $95,798, net of fees and expenses. In
connection with the sale of CSS, the Company recorded a pre-tax gain of
$25,098 during 1998.
On February 28, 1996, the Company purchased approximately 70% of the
outstanding shares of Application des Gaz, S.A. ("ADG" or "Camping Gaz"), a
leading manufacturer and distributor of camping appliances in Europe. The
Company completed the necessary steps to acquire the remaining 30% of the
outstanding shares during the second quarter of 1996. The cost of acquiring
all the shares of ADG was approximately $100,000 including fees and expenses.
The acquisition of Camping Gaz was accounted for under the purchase method.
In connection with the final allocation of purchase price to the fair values
of assets acquired and liabilities assumed, the Company recorded goodwill of
approximately $78,900, which is being amortized over 40 years on the
straight-line method. As of the consummation date of the acquisition of
Camping Gaz, executive management of Coleman were assessing and beginning to
formulate plans to eliminate duplicate activities and functions, fully
integrate Camping Gaz into Coleman's operations and to realize anticipated
savings of the combined organization. These plans were expected to include
the involuntary termination of employees at nine Camping Gaz locations, many
of which have statutory requirements governing employee terminations. As a
result, the Company was required to submit its termination plans to various
foreign governments, labor unions and workers' councils for their review and
acceptance. The review and acceptance of the termination plans occurred
within one year from the consummation date of the acquisition. Under the
provisions of the various accepted termination plans and legal statutory
restrictions, the Company was restricted as to the number of employees which
could be terminated in each year. The Company recognized a liability in the
amount of $21,898 representing severance and fringe benefits costs for 324
employees pursuant to the termination plan approved by executive management
of Coleman. During 1998, 1997, and 1996, 22, 155 and 78 employees,
respectively, left the Company. As of December 31, 1998, there were 24
employees remaining to be terminated. During 1998, 1997, and 1996,
approximately $2,161, $10,459, and $5,409, respectively, of severance and
other fringe benefits were paid and charged against the liability. The
Company has recorded net reductions to the liability of $1,696 to reflect
revised estimates based on statutorily accepted termination plans
representing a reduced number of terminations due to voluntary terminations
and early retirements, offset in part by revised estimates of the costs of
certain terminations. The reduction in the liability has been reflected as a
F-13
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
reduction of the cost to acquire Camping Gaz and has reduced the related
goodwill. As of December 31, 1998, $2,173 of this reserve remains. Benefits
under the plans are expected to be paid through the first quarter of 2000.
The Company has included the results of operations of Camping Gaz in
the consolidated financial statements from March 1, 1996, the date on which
the Company obtained control of Camping Gaz, and has recognized minority
interest related to the remaining shares for the period March 1, 1996 through
June 30, 1996.
The following summarized, unaudited pro forma results of operations
for the year ended December 31, 1996 assume the acquisition of all the
outstanding shares of Camping Gaz occurred as of the beginning of 1996. The
pro forma results include certain adjustments, primarily reflecting increased
amortization and interest expense and a lower income tax provision, and are
not necessarily indicative of what the results of operations would have been
had the Camping Gaz acquisition occurred at the beginning of 1996. Moreover,
the pro forma information is not intended to be indicative of future results
of operations.
Year Ended
December 31,
1996
------------
Net revenues...................................................... $ 1,246,370
Loss before extraordinary item.................................... 41,407
Net loss.......................................................... 42,054
Basic loss per common share:
Loss before extraordinary item............................... $ 0.78
Net loss..................................................... 0.79
On October 13, 1998, the Company sold Coleman Spas, Inc. ("Spas"), a
wholly-owned subsidiary of the Company, which manufactures and markets
portable spas and related products for the consumer market, to MAAX Holdings
Inc., a wholly-owned subsidiary of MAAX Inc., for approximately $17,040, net
of fees and expenses. In connection with the sale of Spas, the Company
recorded a pre-tax gain of $7,313 in 1998. The net proceeds from the sale of
Spas are subject to certain post-closing adjustments which could change the
pre-tax gain.
3. RESTRUCTURING CHARGES
During 1996, 1997 and 1998, the Company recorded restructuring
charges totaling $58,941, $30,815 and $17,902, respectively. These
restructuring charges generally relate to integration of operations following
business acquisitions (including costs associated with consolidation of
operations and severance), elimination of product lines, consolidation and/or
rationalization of facilities, severance and employee termination costs and
additional costs related to these activities. The write-downs for fixed
assets and other assets were determined based upon the carrying value for
abandoned assets, less applicable estimated salvage value, and by third-party
appraisal for significant vacated facilities. The fixed assets generally were
taken out of service at the time of the write-down and related depreciation
was discontinued upon recognition of the write down. For related inventory
which management determined was salable, the estimated write-down was based
upon the differences between the expected net sales proceeds of the inventory
and the recorded value of the inventory. In the case of abandoned inventory,
the write-down was equal to the recorded value of the inventory. These assets
were component units of their respective operations and, therefore, there
were no significant separately-identifiable operations generated from
facilities or assets included in a restructuring charge before or since the
date of the charge. Reserve balances for write-downs are presented as
reductions
F-14
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
from the related asset balances and the other accrual balances are presented
as accrued expenses in the accompanying consolidated balance sheets. The cash
reductions to the reserve balances represent cash payments for accrued
expenses and other liabilities such as for employee severance pay and
fringes, facility closure costs, other exit activity costs and litigation
costs and settlements. Non-cash reductions to the reserve balances represent
relief of the reserve balances as the related assets were sold or discarded
and the impact of foreign exchange and were recorded as the events took
place. 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 appropriately
refine its estimates. The major components of the restructuring activities
are described below.
INTEGRATION OF CAMPING GAZ AND COLEMAN - Restructuring charges
totaling $21,806 were recorded during 1996 regarding the integration of the
Camping Gaz operations. Actions related to the integration included
consolidating facilities, eliminating duplicate product lines (including
related inventory and equipment), and employee terminations. In addition, in
connection with the worldwide integration of the Camping Gaz operations, the
Company also closed its South American manufacturing facility. The write-down
of inventory in the amount of $6,013 represents management's best estimate of
net realizable value upon sale. Prior to the write-down, the inventory had a
carrying value of $7,426. The principal fixed asset held for disposal is a
warehouse vacated in 1997 (which was depreciated through that date) with a
carrying value of approximately $5,169 after recording the 1996 write-down.
The other remaining fixed assets held for disposal had a carrying value of
approximately $1,043 after recording the 1996 writedown. Prior to the
write-down, approximately $310 and $628 of depreciation expense was incurred
in 1996 for the warehouse and for the other fixed assets held for disposal,
respectively. The charge for other assets was comprised principally of
receivables ($750) and prepaid expenses ($691) related to abandoned
operations. The charge for increased receivables reserves related to the loss
of leverage in collection efforts due to abandoning the related operations.
The charge for facility closure costs was composed of lease termination costs
($626), forfeited tax incentives ($740), relocation costs ($187) and costs
associated with the shutdown of a factory in South America ($157). Relocation
costs are expensed as incurred. The charge for other exit activity costs
includes sales agent termination costs ($554), claims brought by
terminated employees ($1,000) and real estate agent commission related to
selling the warehouse held for disposal ($268). The table below shows charges
by type of cost, cash and non-cash reductions, and adjustments made to the
reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1995 Income Reductions Reductions 1996
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 6,013 $ -- $ 2,314 $ 3,699
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... -- 6,013 -- 2,314 3,699
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 8,604 -- 282 8,322
Other assets........................ -- 1,807 -- 1,199 608
----------- ----------- ----------- ---------- ---------
-- 10,411 -- 1,481 8,930
----------- ----------- ----------- ---------- ---------
F-15
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Restructuring accruals:
Employee severance pay and fringes.. -- 1,850 1,446 -- 404
Facility closure costs, primarily lease
termination costs and forfeited tax
incentives........................ -- 1,710 366 -- 1,344
Other exit activity costs, principally
sales agent termination costs and
claims brought by terminated
employees......................... -- 1,822 119 -- 1,703
----------- ----------- ----------- ---------- ---------
-- 5,382 1,931 -- 3,451
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. -- 15,793 1,931 1,481 12,381
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 21,806 $ 1,931 $ 3,795 $ 16,080
=========== =========== =========== ========== =========
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 3,699 $ (604) $ -- $ 1,859 $ 1,236
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 3,699 (604) -- 1,859 1,236
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 8,322 (146) -- 2,345 5,831
Other assets........................ 608 (58) -- 339 211
----------- ----------- ----------- ---------- ---------
8,930 (204) -- 2,684 6,042
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. 404 172 511 -- 65
Facility closure costs, primarily lease
termination costs and forfeited tax
incentives........................ 1,344 (546) 215 -- 583
Other exit activity costs, principally
sales agent termination costs and
claims brought by terminated
employees......................... 1,703 (325) 552 -- 826
----------- ----------- ----------- ---------- ---------
3,451 (699) 1,278 -- 1,474
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 12,381 (903) 1,278 2,684 7,516
----------- ----------- ----------- ---------- ---------
Totals................................... $ 16,080 $ (1,507) $ 1,278 $ 4,543 $ 8,752
=========== =========== =========== ========== =========
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 1,236 $ (91) $ -- $ 699 $ 446
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 1,236 (91) -- 699 446
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 5,831 1,618 -- (30) 7,479
Other assets........................ 211 -- -- (11) 222
----------- ----------- ----------- ---------- ---------
6,042 1,618 -- (41) 7,701
----------- ----------- ----------- ---------- ---------
F-16
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Restructuring accruals:
Employee severance pay and fringes.. 65 108 62 -- 111
Facility closure costs, primarily lease
termination costs................. 583 (252) 331 -- --
Other exit activity costs, principally
sales agent termination costs and
claims brought by terminated
employees......................... 826 14 119 -- 721
----------- ----------- ----------- ---------- ---------
1,474 (130) 512 -- 832
----------- ------------ ----------- ---------- ---------
Totals included in restructuring.. 7,516 1,488 512 (41) 8,533
----------- ----------- ----------- ---------- ---------
Totals................................... $ 8,752 $ 1,397 $ 512 $ 658 $ 8,979
=========== =========== =========== ========== =========
During the first and second quarters of 1997, the Company reduced
the restructuring reserve recorded in 1996 for write down of inventory by
$604 because actual inventory liquidation results were better than originally
estimated, principally due to better-than-anticipated results in liquidating
inventory related to the elimination of duplicate product lines. The
decreases to the reserves for writedowns of fixed assets held for disposal of
$146 and the reserves for writedowns of other assets of $58 during the fourth
quarter of 1997 related to the sale of fixed assets in Italy for an amount in
excess of the original estimated selling price and recovery of a receivable
originally believed to be uncollectible, respectively.
Employee severance and fringe benefit costs relate to 179
management, sales, administrative and production employees of which 150 and
29 left the Company during 1996 and 1997, respectively. The Company reduced
the reserve for facility closure costs by $546 during the fourth quarter of
1997 principally because a tax incentive provided by a foreign government
related to an abandoned facility was not required to be forfeited as
originally anticipated. The decrease to the reserve for other exit activity
costs of $325 during the first quarter of 1997 resulted from the successful
avoidance of termination claims.
During the third quarter of 1998, the Company recorded an adjustment
to further decrease the carrying value of the fixed assets held for disposal,
principally the vacated warehouse, by $1,618 to reflect their current fair
market value less costs to sell. Operations at the warehouse were ceased as a
result of the integration of the Camping Gaz and Coleman Germany operations
and the warehouse was vacated during 1997. The warehouse has been held for
sale since 1997, and accordingly, the Company monitors the valuation of the
warehouse and records appropriate adjustments to its carrying value based
upon independent third party appraisals.
In addition, during the third and fourth quarters of 1998, the
Company reduced the reserve for facility closure costs by $252 in recognition
of successful negotiations to reduce lease termination costs related to the
Company's facilities in the United Kingdom and Holland, and increased the
reserves for employee severance pay and fringe benefits by $108 to recognize
an additional severance benefit in Holland.
The reserves remaining at December 31, 1998, principally relate to
the write down of the 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.
F-17
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
EXIT LOW END ELECTRIC PRESSURE WASHER BUSINESS - During 1996, the
Company recorded restructuring charges totaling $19,000 to exit substantially
all of the Company's low end electric pressure washer business. As part of
the exit of the low end electric pressure washer business, the Company
reached agreement to buyback related inventory held by, or returned to,
significant customers. The product buyback was considered necessary as the
Company was no longer supporting the product line. Substantially all of the
inventory and related fixed assets were abandoned. Therefore, for inventory
and fixed assets held for disposal, the carrying value was fully reserved.
Prior to the write down of the fixed assets held for disposal, approximately
$136 of depreciation expense was incurred in 1996. The table below shows
charges by type of cost, cash and non-cash reductions, and adjustments made
to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1995 Income Reductions Reductions 1996
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 8,115 $ -- $ 5,786 $ 2,329
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... -- 8,115 -- 5,786 2,329
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 627 -- 627 --
----------- ----------- ----------- ---------- ---------
-- 627 -- 627 --
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Product buyback costs............... -- 10,258 4,492 -- 5,766
----------- ----------- ----------- ---------- ---------
-- 10,258 4,492 -- 5,766
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. -- 10,885 4,492 627 5,766
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 19,000 $ 4,492 $ 6,413 $ 8,095
=========== =========== =========== ========== =========
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 2,329 $ 1,217 $ -- $ 3,546 $ --
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 2,329 1,217 -- 3,546 --
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Restructuring accruals:
Product buyback costs............... 5,766 52 4,647 -- 1,171
----------- ----------- ----------- ---------- ---------
5,766 52 4,647 -- 1,171
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 5,766 52 4,647 -- 1,171
----------- ----------- ----------- ---------- ---------
Totals................................... $ 8,095 $ 1,269 $ 4,647 $ 3,546 $ 1,171
=========== =========== =========== ========== =========
Balance at (Credits) Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
--------------- ---------- ---------- ---------- ------------
Charges included in restructuring:
Restructuring accruals:
Product buyback costs............... $ 1,171 $ (548) $ 623 $ -- $ --
----------- ----------- ----------- ---------- ---------
1,171 (548) 623 -- --
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 1,171 (548) 623 -- --
----------- ----------- ----------- ---------- ---------
Totals................................... $ 1,171 $ (548) $ 623 $ -- $ --
=========== =========== =========== ========== =========
F-18
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
During the first and third quarters of 1997, the inventory reserve
was increased by $1,217 to recognize the impact of exiting the remainder of
the low end electric pressure washer business. During 1997 and 1998, the
Company adjusted the reserve for product buyback costs by $52 and ($548),
respectively, for variances between actual and projected product buyback
costs.
EXIT A PORTION OF BATTERY POWERED LIGHT BUSINESS - During 1996,
restructuring charges totaling $18,135 were recorded to exit a portion of the
Company's battery powered light business in connection with a settlement with
another battery powered light manufacturer. The table below shows charges by
type of cost, cash and non-cash reductions, and adjustments made to the
reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1995 Income Reductions Reductions 1996
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 14,135 $ -- $ 13,062 $ 1,073
----------- ----------- ----------- -----------------------
Total included in cost of sales..... -- 14,135 -- 13,062 1,073
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Restructuring accruals:
Litigation costs and settlement..... -- 4,000 3,806 -- 194
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. -- 4,000 3,806 -- 194
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 18,135 $ 3,806 $ 13,062 $ 1,267
=========== =========== =========== ========== =========
Balance at (Credits) Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 1,073 $ (893) $ -- $ 165 $ 15
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 1,073 (893) -- 165 15
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Restructuring accruals:
Litigation costs and settlement..... 194 (133) 61 -- --
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 194 (133) 61 -- --
----------- ----------- ----------- ---------- ---------
Totals................................... $ 1,267 $ (1,026) $ 61 $ 165 $ 15
=========== =========== =========== ========== =========
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 15 $ 45 $ -- $ 60 $ --
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... $ 15 $ 45 $ -- $ 60 $ --
=========== =========== =========== ========== =========
The inventory was destroyed in 1996, but subsequent adjustments were
necessary since actual customer settlements with respect to this product were
less than originally anticipated. The settlement with the other battery
powered light manufacturer was paid during 1996.
EXIT LOW-MARGIN PRODUCT LINES - During 1997, the Company recorded
restructuring charges of $15,953 to eliminate several low-margin product
lines including the remaining pressure washer business and
F-19
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
numerous stock keeping units in the outdoor products business. The related
inventory had a carrying value of $26,758 prior to the write down to
management's best estimate of net realizable value upon sale. The related
fixed assets had a carrying value of $2,523 and were sold for salvage value.
Prior to the write down of the fixed assets held for disposal, depreciation
expense of $374 and $683 was incurred during 1997 and 1996, respectively. As
part of exiting the remaining pressure washer business, the Company reached
agreement to buyback related inventory held by, or returned to, significant
customers. The product buyback was considered necessary as the Company was no
longer supporting the product line. The table below shows charges by type of
cost, cash and non-cash reductions, and adjustments made to the reserve as
initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 7,652 $ -- $ 4,563 $ 3,089
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... -- 7,652 -- 4,563 3,089
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 2,264 -- 399 1,865
----------- ----------- ----------- ---------- ---------
-- 2,264 -- 399 1,865
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. -- 1,503 1,294 -- 209
Other exit activity costs,
primarily product buyback costs... -- 4,534 2,441 -- 2,093
----------- ----------- ------------- ---------- ---------
-- 6,037 3,735 -- 2,302
----------- -------- --------- -------- ---------
Totals included in restructuring.. -- 8,301 3,735 399 4,167
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 15,953 $ 3,735 $ 4,962 $ 7,256
=========== =========== =========== ========== =========
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ 3,089 $ (45) $ -- $ 2,674 $ 370
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 3,089 (45) -- 2,674 370
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 1,865 -- -- 1,719 146
----------- ----------- ----------- ---------- ---------
1,865 -- -- 1,719 146
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. 209 -- 209 -- --
Other exit activity costs, primarily
product buyback costs......... 2,093 1,034 2,565 -- 562
----------- ----------- ----------- ---------- ---------
.................................. 2,302 1,034 2,774 -- 562
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 4,167 1,034 2,774 1,719 708
----------- ----------- ----------- ---------- ---------
Totals................................... $ 7,256 $ 989 $ 2,774 $ 4,393 $ 1,078
=========== =========== =========== ========== =========
Severance costs related to approximately 25 management and
administrative employees, all of whom had been terminated by December 31,
1997. During the fourth quarter of 1998, the Company received higher than
expected pressure washer product buyback returns. As a result of this higher
volume of returns occurring in a period when the Company expected returns to
be winding down, a re-evaluation of future expected returns was undertaken.
This reassessment in the fourth quarter of 1998 indicated that additional
reserves would be necessary to provide for this obligation and, accordingly,
the Company increased the reserve for the remaining pressure washer buyback
by $1,034.
F-20
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The remaining reserves at December 31, 1998, 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 - During
1997, the Company recorded restructuring charges totaling $10,357 to close
and relocate certain administrative and sales offices. The locations included
corporate, domestic and international facilities. The related fixed assets
were abandoned. Depreciation recorded prior to the writedown of the fixed
assets was not material. Relocation costs totaling approximately $2,292 were
incurred principally to move employees between locations and are included
with other exit activity costs. Relocation costs are expensed as incurred.
Other exit activity costs also include lease commitments and other
contractual obligations of $844. The table below shows charges by type of
cost, cash and non-cash reductions, and adjustments made to the reserve as
initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
--------------- ---------- ---------- ---------- ------------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ $ -- $ 1,478 $ -- $ 1,225 $ 253
Other assets........................ -- 94 -- 64 30
----------- ----------- ----------- ---------- ---------
-- 1,572 -- 1,289 283
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. -- 5,649 4,252 -- 1,397
Other exit activity costs consisting of
relocation expenses and lease
commitments and other
contractual obligations........... -- 3,136 2,650 -- 486
----------- ----------- ----------- ---------- ---------
-- 8,785 6,902 -- 1,883
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. -- 10,357 6,902 1,289 2,166
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 10,357 $ 6,902 $ 1,289 $ 2,166
=========== =========== =========== ========== =========
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ $ 253 $ (174) $ -- $ 79 $ --
Other assets........................ 30 -- -- 30 --
----------- ----------- ----------- ---------- ---------
283 (174) -- 109 --
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. 1,397 5,060 3,051 -- 3,406
Other exit activity costs, primarily
lease commitments and other
contractual obligations........... 486 162 394 254 --
----------- ----------- ----------- ---------- ---------
1,883 5,222 3,445 254 3,406
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 2,166 5,048 3,445 363 3,406
----------- ----------- ----------- ---------- ---------
Totals................................... $ 2,166 $ 5,048 $ 3,445 $ 363 $ 3,406
=========== =========== =========== ========== =========
F-21
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Severance costs related to approximately 85 executive, sales, and
administrative employees, all of whom left the Company by December 31, 1997.
The Company increased the employee severance pay and fringes reserve by
$5,060 in 1998 primarily related to subsequently agreed-upon contingent
severance benefits to be paid to former executives of the Company under the
terms of their related severance agreements, and additional severance to be
paid to a former Company executive as a result of an unfavorable outcome of
arbitration. The contingent severance benefits were recorded in the periods
when it became probable that the Company would be required to pay these
additional benefits. The unpaid severance costs at December 31, 1998 are
expected to be paid by December 31, 2000. The increase to the reserve for
other exit activity costs of $162 during the fourth quarter of 1998 related
to numerous individually insignificant adjustments to increase estimated exit
costs to the actual costs incurred.
CLOSE SEVERAL MANUFACTURING FACILITIES - During 1997, restructuring
charges totaling $5,769 were recorded to close two domestic and one
international manufacturing facilities to further consolidate operations and
reduce costs. The related inventory had a carrying value of $721 and was
fully written off and destroyed. The related fixed assets had a carrying
value of $3,777 prior to the write-down and were sold. Prior to the
write-down of the fixed assets held for disposal, depreciation expense of
$265 and $120 was incurred during 1997 and 1996, respectively. The table
below shows charges by type of cost, cash and non-cash reductions, and
adjustments made to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1996 Income Reductions Reductions 1997
-------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 721 $ -- $ 721 $ --
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... -- 721 -- 721 --
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 2,714 -- 2,334 380
----------- ----------- ----------- ---------- ---------
-- 2,714 -- 2,334 380
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. -- 1,184 1,122 -- 62
Other exit activity costs,
primarily facility closure expenses
for cleanup and restoration and
lease termination costs........... -- 1,150 817 -- 333
----------- ----------- ----------- ---------- ---------
-- 2,334 1,939 -- 395
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. -- 5,048 1,939 2,334 775
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 5,769 $ 1,939 $ 3,055 $ 775
=========== =========== =========== ========== =========
F-22
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ $ 380 $ (367) $ -- $ 13 $ --
----------- ----------- ----------- ---------- ---------
380 (367) -- 13 --
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. 62 262 324 -- --
Other exit activity costs,
primarily facility closure expenses
for lease termination costs... 333 (113) 220 -- --
----------- ----------- ----------- ---------- ---------
395 149 544 -- --
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 775 (218) 544 13 --
----------- ----------- ----------- ---------- ---------
Totals................................... $ 775 $ (218) $ 544 $ 13 $ --
=========== =========== =========== ========== =========
The severance costs of $1,184 in 1997 related to approximately 415
management, production, and administrative employees at various locations,
all of whom left the Company by December 31, 1997. The reserve for employee
severance pay and fringes was increased by $262 during the third quarter of
1998 to include thirteen additional employees who were terminated and paid
severance. During the fourth quarter of 1998, the reserves for fixed assets
held for disposal and other exit activity costs were reduced by $367 and
$113, respectively, when the related facility held for sale was sold at a
higher price and in less time than was originally anticipated by management.
CLOSE FACILITIES - During 1998, the Company recorded restructuring
charges of $3,285 to further consolidate operations and improve efficiency.
The related actions included closing several operations in Europe and one
domestic manufacturing facility during the year. The table below shows
charges by type of cost, cash and non-cash reductions, and adjustments made
to the reserve as initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ -- $ 101 $ -- $ 68 $ 33
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... -- 101 -- 68 33
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ -- 213 -- (3) 216
----------- ----------- ----------- ---------- ---------
-- 213 -- (3) 216
----------- ----------- ----------- ----------- ---------
F-23
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Restructuring accruals:
Employee severance pay and fringes.. -- 2,335 1,081 -- 1,254
Other exit activity costs,
primarily facility closure expenses
for lease termination costs... -- 636 28 -- 608
----------- ----------- ----------- ---------- ---------
-- 2,971 1,109 -- 1,862
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. -- 3,184 1,109 (3) 2,078
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 3,285 $ 1,109 $ 65 $ 2,111
=========== =========== =========== ========== =========
Severance costs related to approximately 150 management, production,
and administrative employees at various locations, of which approximately 132
had left the Company by December 31, 1998. Severance with respect to the
domestic employees had been fully paid by December 31, 1998, and severance
will be paid to the remaining 18 European employees by December 31, 2000. The
fixed assets held for disposal at December 31, 1998 will be disposed of
during 1999. Depreciation recorded prior to the write-down of the fixed
assets was not material. The remaining reserve balance for other exit
activity costs at December 31, 1998, principally relates to leases with fixed
terms running through 2001. No additional charges are anticipated in future
periods from the foregoing actions.
EMPLOYEE TERMINATION AND SEVERANCE - During 1998, the Company
recorded restructuring charges totaling $7,904 following the Sunbeam
acquisition for the termination of 117 employees of which 8 employees remain
to be terminated at December 31, 1998. The 8 remaining employees are expected
to be terminated during 1999. The table below shows charges by type of cost,
cash and non-cash reductions, and adjustments made to the reserve as
initially established.
Balance at Charges Balance at
December 31, to Cash Non-Cash December 31,
1997 Income Reductions Reductions 1998
-------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes.. $ -- $ 7,904 $ 4,479 $ -- $ 3,425
----------- ----------- ----------- ---------- ---------
Totals................................... $ -- $ 7,904 $ 4,479 $ -- $ 3,425
=========== =========== =========== ========== =========
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.
4. OTHER CHARGES
During 1996, the Company recorded other charges totaling $7,248
which consist principally of costs to exit portions of certain products and
recognition of quality issues related to these and other products. The
Company exited various models of coolers and jugs and abandoned the related
inventory ($2,150) and fixed assets ($977). In addition, the Company
experienced quality issues with certain models of thermal electric coolers
and various other outdoor recreation products and accrued for anticipated
product returns based on negotiations with customers and costs of related
product repairs ($3,280). The remaining amounts relate to allowances for
accounts receivable based on a disputed amount involving pending litigation
and disputes with customers in a foreign location ($841). $3,127 of these
costs were recorded in cost of sales and $4,121 of these costs were recorded
in SG&A expenses.
During 1997, the Company recorded other costs of $3,586 related to
severance costs associated with executive changes in the first quarter of
1997. These costs were recorded in SG&A expenses.
F-24
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
During 1998, the Company recorded other charges totaling $13,672
which consisted of (a) $7,242 of costs associated with the acquisition of the
Company by Sunbeam including advisory fees, (b) $4,205 of charges associated
with abandoning a company-wide enterprise resource computer software system,
and (c) $2,225 of costs associated with terminating a licensing services
agreement with an affiliate of Parent Holdings. These costs were recorded in
SG&A expenses.
5. INVENTORIES
Inventories consisted of the following:
December 31,
-------------------------
1998 1997
----------- -----------
Raw material and supplies......................................... $ 45,395 $ 59,406
Work-in-process................................................... 6,539 7,813
Finished goods.................................................... 178,192 169,108
----------- -----------
$ 230,126 $ 236,327
=========== ===========
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
December 31,
-------------------------
1998 1997
----------- -----------
Land and land improvements........................................ $ 6,429 $ 7,700
Buildings and building improvements............................... 73,964 79,101
Machinery and equipment........................................... 180,315 192,650
Construction-in-progress.......................................... 7,983 10,076
----------- -----------
268,691 289,527
Accumulated depreciation.......................................... (122,868) (114,033)
----------- -----------
$ 145,823 $ 175,494
=========== ===========
Depreciation expense was $25,672, $26,956, and $25,770 for the years
ended December 31, 1998, 1997 and 1996, respectively.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
December 31,
-------------------------
1998 1997
----------- -----------
Compensation and related benefits................................. $ 26,305 $ 20,385
Other............................................................. 74,809 73,411
----------- -----------
$ 101,114 $ 93,796
============ ===========
F-25
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
8. OTHER LIABILITIES
Other liabilities consisted of the following:
December 31,
--------------------
1998 1997
------- ---------
Pensions and other postretirement benefits........................ $52,770 $ 49,121
Other............................................................. 22,461 20,465
------- ---------
$75,231 $ 69,586
======= =========
9. SHORT-TERM BORROWINGS
The Company maintained short-term bank lines of credit at December
31, 1998 and 1997 aggregating approximately $76,390, and $115,249,
respectively, of which approximately $45,803 and $64,207 were outstanding at
December 31, 1998 and 1997, respectively. The weighted average interest rate
on amounts borrowed under these short-term lines was approximately 2.8% and
2.7% at December 31, 1998 and 1997, respectively.
Outstanding letters of credit aggregated approximately $40,606 and
$37,208 at December 31, 1998 and 1997, respectively.
10. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31,
--------------------------
1998 1997
------------ -----------
7.26% Senior Notes due 2007 (b)................................... $ -- $ 200,000
7.10% Senior Notes due 2006 (b)................................... -- 85,000
7.25% Senior Notes due 2008 (b)................................... -- 75,000
Revolving credit facility (a)..................................... -- 52,127
Term loan (a)..................................................... -- 64,894
Other............................................................. 472 778
------------ -----------
472 477,799
Less current portion.............................................. 110 523
------------ -----------
$ 362 $ 477,276
============ ===========
- -----------------------
a) In April 1996, the Company amended its credit agreement to: a)
provide a French Franc term loan, b) provide a $275,000 unsecured
revolving credit facility, c) allow for the Camping Gaz
acquisition and d) extend the maturity of the credit agreement.
Based upon the amended terms of the credit agreement, the Company
deemed the amended terms were substantially different from the
original terms of the credit agreement and therefore, accounted
for the transaction as an extinguishment of the old credit
agreement and creation of a new credit agreement. The
extraordinary loss recorded by the Company of $1,078 in 1996
represents a write-off of the unamortized financing costs
associated with the old credit agreement. In March 1998, in
connection with the Sunbeam Acquisition, the Company repaid all
outstanding indebtedness under the Company's credit agreement and
the credit agreement was terminated. In connection
F-26
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
with the termination of this agreement, the Company recorded an
extraordinary loss of $2,038 in 1998 which represents a write-off
of the related unamortized financing costs associated with the
credit agreement.
b) The Company's various senior notes aggregating $360,000 were
redeemed on April 21, 1998 at a cost of $383,395. The $23,395 of
redemption costs in excess of carrying value along with the
write-off of the related unamortized financing costs of $2,694 and
unamortized deferred interest rate swap losses of $885 are
reflected as an extraordinary loss on early extinguishment of
debt.
The aggregate scheduled amounts of long-term debt maturities in the
years 1999 through 2003 are $110, $175, $97, $24, and $24, respectively.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) consisted of the
following:
Accumulated
Currency Minimum Other
Translation Pension Comprehensive
Adjustment Liability Income/(Loss)
---------- --------- -------------
Balance at December 31, 1995......................... $ 165 $ -- $ 165
Current year pre-tax change.......................... 3,011 (470) 2,541
Tax benefit.......................................... -- 185 185
--------- --------- ---------
Balance at December 31, 1996......................... 3,176 (285) 2,891
Current year pre-tax change.......................... (9,946) (1,056) (11,002)
Tax (expense) benefit................................ (3,566) 418 (3,148)
Minority interest.................................... (1,174) -- (1,174)
--------- --------- ---------
Balance at December 31, 1997......................... (11,510) (923) (12,433)
Current year pre-tax change.......................... 8,142 (568) 7,574
Tax (expense) benefit................................ (602) 225 (377)
Minority interest.................................... (414) -- (414)
--------- --------- ---------
Balance at December 31, 1998......................... $ (4,384) $ (1,266) $ (5,650)
========= ========= =========
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign currency forward exchange contracts
and purchased foreign currency options to mitigate a portion of the risk
related primarily to transactions with its foreign subsidiaries including
amounts payable or receivable, firm commitments and anticipated transactions.
The purpose of the Company's foreign currency risk management activities is
to protect the Company from the risk that future cash flows resulting from
transactions with its foreign subsidiaries will be adversely affected by
changes in exchange rates.
F-27
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
At December 31, 1998 and 1997, the Company had forward exchange
contracts and purchased options, all having maturities of less than one year,
to exchange various foreign currencies for U.S. dollars in the amount of
$63,286 and $1,580, respectively. The table below summarizes by currency, the
contractual amounts and related unrealized gain (loss) of the Company's
forward exchange and option contracts at December 31, 1998 and 1997:
Purchased Recognized Deferred
Forward Option Total Unrealized Unrealized
Contracts Contracts Contracts Gain (Loss) Gain (Loss)
---------- ----------- ---------- ----------- -----------
December 31, 1998 Currency:
Deutschemark............... $ 12,000 $ 18,369 $ 30,369 $ 207 $ --
Yen........................ 14,941 12,451 27,392 (655) --
Pound sterling............ 4,000 1,525 5,525 57 --
---------- ----------- ---------- ------- -------
Total $ 30,941 $ 32,345 $ 63,286 $ (391) $ --
========== =========== ========== ======= =======
December 31, 1997 Currency:
Yen........................ $ 1,580 $ -- $ 1,580 $ -- $ 128
========== =========== ========== ======= =======
The Company also manages its interest rate risks through the use of
interest rate swaps under which the Company agrees to exchange, at specified
intervals, the difference between fixed- and variable-interest amounts
calculated on an agreed notional principal amount. As the Company's interest
bearing liabilities primarily represent variable-rate short- and long-term
debt, interest rate swaps are used to reduce the impact of changes in
interest rates on interest expense. At December 31, 1998 and 1997, $25,000 of
the Company's debt payable to affiliate and outstanding long-term debt,
respectively, was subject to an interest rate swap agreement. Under the
interest rate swap agreement, the Company pays the counterparty interest at a
fixed rate of 6.115%, and the counterparty pays the Company interest at a
variable rate equal to the three month LIBOR for a seven-year period
commencing January 2, 1996.
At December 31, 1997, $25,000 of the Company's outstanding long-term
debt was subject to an interest rate cap. The interest rate cap agreement
entitled the Company to receive the amount, if any, by which the Company's
interest payments on $25,000 of its variable rate debt exceeded 7.35%. The
$509 premium paid for the interest rate cap was amortized to interest expense
over its three-year term commencing January 3, 1995.
The Company accounts for its interest rate swaps and caps using
hedge accounting with the net payable or receivable accrued as an adjustment
to current period interest expense. Unrealized gains or losses related to
interest rate swaps and caps are not reflected in the accompanying financial
statements. As of December 31, 1998 and 1997, the Company's interest rate
swaps and caps had a cumulative unrealized loss of approximately $930 and
$171, respectively.
13. INCOME TAXES
For all taxable periods ended on or prior to March 30, 1998, the
Company was included in the consolidated federal income tax return of M&F and
certain consolidated state tax returns of M&F or its affiliates
(collectively, the "M&F Consolidated Returns") pursuant to a tax sharing
agreement (the "Tax Sharing Agreement") between M&F, Coleman Worldwide and
Coleman. Pursuant to the Holdings Merger Agreement, the Tax Sharing Agreement
terminated with respect to M&F and its affiliates, but not with
F-28
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
respect to Coleman Worldwide. The Sunbeam Acquisition caused the Company to
become deconsolidated from the M&F Consolidated Return and resulted in the
loss of certain deferred tax assets which have been charged to income tax
expense. For periods ended subsequent to March 30, 1998, the Company will
file its own separate federal and certain state income tax returns until such
time as Sunbeam owns more than 80% of the outstanding Coleman common stock
and also will be included in certain other consolidated state income tax
returns of Sunbeam. For all periods presented, federal and state income taxes
are provided as if the Company filed its own income tax returns. The
accompanying consolidated balance sheet includes approximately $1,019 and
$14,860 of federal and state income taxes receivable from affiliates at
December 31, 1998 and 1997, respectively.
For financial reporting purposes, (loss) earnings before income taxes,
minority interest and extraordinary item include the following components:
Year Ended December 31,
-----------------------------------------
1998 1997 1996
------------ ------------ ------------
(Loss) earnings before income taxes, minority
interest and extraordinary item:
Domestic.......................................... $ (24,833) $ (14,129) $ (29,532)
Foreign........................................... (1,608) 7,752 (20,769)
------------ ------------ ------------
$ (26,441) $ (6,377) $ (50,301)
============ ============ ============
Significant components of the provision for income tax expense
(benefit) were as follow:
Year Ended December 31,
-----------------------------------------
1998 1997 1996
------------ ------------ ------------
Current:
Federal.............................................. $ 2,093 $ (11,045) $ (709)
State .............................................. 72 -- (334)
Foreign.............................................. 2,868 1,485 3,454
------------ ------------ ------------
Total current..................................... 5,033 (9,560) 2,411
------------ ------------ ------------
Deferred:
Federal.............................................. 2,735 7,851 (10,686)
State .............................................. (1,323) (1,493) (2,178)
Foreign.............................................. 7,401 (2,025) (474)
------------ ------------ -------------
Total deferred.................................... 8,813 4,333 (13,338)
------------ ------------ ------------
$ 13,846 $ (5,227) $ (10,927)
============ ============ ============
F-29
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The effective tax rate on (loss) earnings before income taxes, minority
interest and extraordinary item varies from the current statutory federal income
tax rate as follows:
Year Ended December 31,
-----------------------------------
1998 1997 1996
------- ------ ------
(Benefit) provision at statutory rate................... (35.0)% (35.0)% (35.0)%
State taxes, net........................................ (3.1) (15.2) (4.6)
Nondeductible amortization ............................. 29.0 37.1 5.0
Nondeductible merger costs.............................. 9.4 -- --
Deconsolidation tax charges............................. 17.5 -- --
Foreign operations...................................... 5.9 (66.4) 4.3
Change in tax rates..................................... 6.2 (20.8) --
Valuation allowance..................................... 29.0 37.0 7.0
Puerto Rico operations.................................. (2.2) (12.9) 0.4
Other, net.............................................. (4.3) (5.8) 1.2
------- ------ ------
Effective tax rate (benefit) provision.................. 52.4% (82.0)% (21.7)%
======= ====== ======
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
December 31,
-------------------------
1998 1997
----------- -----------
Deferred tax assets:
Postretirement benefits other than pensions....................... $ 12,991 $ 12,964
Reserves for self-insurance and warranty costs.................... 5,979 4,898
Pension liabilities............................................... 8,137 7,377
Inventory......................................................... 8,322 6,626
Net operating loss carryforwards.................................. 74,095 56,739
Other, net........................................................ 12,632 12,728
----------- -----------
Total deferred tax assets.................................... 122,156 101,332
Valuation allowance............................................... (45,058) (39,990)
----------- -----------
Net deferred tax assets.................................. 77,098 61,342
----------- -----------
Deferred tax liabilities:
Depreciation...................................................... 16,507 19,872
Other, net........................................................ 13,811 10,676
----------- -----------
Total deferred tax liabilities............................... 30,318 30,548
----------- -----------
Net deferred tax assets.................................. $ 46,780 $ 30,794
=========== ===========
The deferred tax account balance at December 31, 1998 differs from the
account balance at December 31, 1997 due primarily to the 1998 deferred tax
provision, the tax effects of foreign translation adjustments, the exercise of
employee stock options recorded as a component of stockholders' equity and the
tax effect of the benefit related to debt extinguishment treated as an
extraordinary item.
F-30
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
During 1998, the Company increased the valuation allowance related
to certain foreign deferred tax assets due to uncertainties over realization.
At December 31, 1998, the Company had net operating loss carryforwards
("NOLs") of approximately $160,227 for certain domestic and foreign income
tax purposes. These NOLs expire beginning in 1999.
The Company has not provided for taxes on undistributed foreign
earnings of approximately $19,153 at December 31, 1998, as the Company
intends to permanently reinvest these earnings in the future growth of the
business. Determination of the amount of unrecognized deferred U.S. income
tax liability is not practicable because of the complexities associated with
its hypothetical calculation.
14. RELATED PARTY TRANSACTIONS
BORROWINGS FROM SUNBEAM
The Company's ability to meet its current cash operating
requirements, including projected capital expenditures and other obligations,
is dependent upon a combination of cash flows from operations and advances or
loans to the Company from Sunbeam or its affiliates. Sunbeam has informed the
Company that it has the positive intent and ability to fund the Company's
cash requirements through April 10, 2000. Amounts loaned by Sunbeam are
represented by a promissory note (the "Intercompany Note") which totaled
$365,063 at December 31, 1998 and until the amendment and restatement of the
Intercompany Note described below, were due on demand. For 1998, the
Intercompany Note bore interest at a floating rate equal to the weighted
average interest rate incurred by Sunbeam on its outstanding convertible debt
and borrowings under its bank credit facility. The weighted average interest
rate charged by Sunbeam on the Intercompany Note during the year ended
December 31, 1998 was 7.1% and the total interest charged by Sunbeam to
Coleman was $20,991. Sunbeam also charged to Coleman a pro-rata share of
amortized debt issuance costs and unused bank credit facility commitment fees
totaling $743. 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
Sunbeam's credit facility (the "Sunbeam Credit Facility") for purposes of
letters of credit borrowings.
On April 15,1999, Coleman, Sunbeam and, as to certain agreements,
the lenders under the Sunbeam Credit Facility entered into an amended and
restated Intercompany Note (the "Amended Intercompany Note"), intercompany
security and pledge agreements, an amendment to the Sunbeam Credit Facility
and certain other agreements (collectively, the "Agreements"). The Amended
Intercompany Note is due April 15, 2000. The Amended Intercompany Note bears
interest at an annual rate equal to (x) 4% if the three month London
Interbank Offering Rate ("LIBOR") quoted on the Telerate system is less than
6%, or (y) 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
Amended Intercompany Note. In addition, the Amended Intercompany Note
provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Amended Intercompany Note and that
in certain circumstances the payment on the Amended 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 the
stock of its domestic holding companies for its foreign subsidiaries and all
of the stock of its other domestic subsidiaries (but Coleman's subsidiaries
have not pledged their assets or stock of their subsidiaries), as security
for the Amended Intercompany Note. Sunbeam has pledged the Amended
Intercompany Note as security for the Sunbeam Credit Facility and assigned to
such lenders the security pledged by Coleman for the Amended Intercompany
Note.
F-31
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The Sunbeam Credit Facility provides for a revolving credit facility
in an aggregate principal amount of up to $400,000 (subject to certain
reductions) maturing March 31, 2005 and September 30, 2006. In addition,
pursuant to the Sunbeam Credit Facility, Sunbeam has borrowed approximately
$1,262,500 in two tranches of term loans with scheduled repayments through
maturity on March 31, 2005. 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. Interest accrues at a rate selected at Sunbeam's
option of: (i) LIBOR plus an agreed upon interest 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 agreed upon interest 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 certain of Sunbeam's subsidiaries and by a security interest
in substantially all of the assets of Sunbeam and its material subsidiaries
(other than as described below, Coleman and its subsidiaries), including the
Amended Intercompany Note. Sunbeam has pledged its shares of Coleman common
stock and its shares of Sunbeam Corporation Canada Limited ("Sunbeam Canada")
common stock owned by it as security under the Sunbeam Credit Facility. In
addition, borrowings under the Sunbeam Credit Facility are guaranteed by
certain of Sunbeam's wholly owned material United States subsidiaries (but
not Coleman) and such subsidiary guarantees are secured as described above.
Coleman has pledged its inventory (but not that of its subsidiaries) and the
proceeds from the sale of such inventory as collateral for its letter of
credit borrowings 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, (vi) make capital expenditures and Year 2000 compliance
expenditures, (vii) engage in mergers, acquisitions and asset sales, (viii)
engage in certain transactions with affiliates, (ix) settle certain
litigation, (x) alter its cash management system and (xi) alter the
businesses they conduct. 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, 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. The Sunbeam Credit Facility provides for
events of default customary for transactions of this type, including
nonpayment, misrepresentation, breach of covenant, cross-defaults,
bankruptcy, ERISA, judgments and change of ownership and control.
BUSINESS ACQUISITIONS
As of March 31, 1997, the Company purchased an inactive subsidiary
from an affiliate of M&F for net cash consideration of $1,031, including
transaction costs. The Company expects to realize certain foreign tax
benefits from this transaction in future years. Under certain circumstances,
a portion of these tax benefits will be payable to the affiliate to the
extent such tax benefits are realized by the Company. During the fourth
quarter of 1997, the Company purchased an inactive subsidiary from an
affiliate of M&F in a transaction in which the Company expects to realize
certain foreign tax benefits in future years and for which the Company
F-32
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
agreed to pay 50% of those realized benefits to the affiliate. The Company
has recorded a liability to the affiliate in the amount of $219 which
represents 50% of the estimated amount of future tax benefits. The $2,799
excess value of estimated realizable tax benefits acquired over the total
acquisition costs have been accounted for as a capital contribution due to
M&F's common control over each of the parties involved at the time of each
transaction.
On December 31, 1998, the Canadian Coleman Company LTD ("Canadian
Coleman"), a subsidiary of Coleman, acquired a subsidiary from Sunbeam
("Canadian Sunbeam") in exchange for newly issued common stock of Canadian
Coleman. The issuance of additional common stock to Sunbeam reduced Coleman's
ownership in Canadian Coleman from 100% to approximately 57%. The Company has
accounted for this transaction in a manner similar to a pooling-of-interests
due to Sunbeam's common control over each of the parties involved in the
transaction. The $218 of excess book value of Coleman's 43% interest given up
in the net assets of Canadian Coleman prior to the transaction over Coleman's
57% interest received in the net assets of Canadian Sunbeam have been charged
to retained earnings. Subsequent to December 31, 1998, Canadian Coleman and
Canadian Sunbeam amalgamated to form Sunbeam Corporation (Canada) Limited.
INSURANCE PROGRAMS
Since the consummation of the Sunbeam Acquisition, Coleman has been
insured under policies maintained by Sunbeam or its affiliates, including
workers compensation and liability insurance. Until the consummation of the
Sunbeam Acquisition, Coleman was insured under policies maintained by M&F or
its affiliates, including workers compensation and liability insurance. The
Company's insurance expense including its allocable share of premium costs
from Sunbeam and M&F for such insurance was $6,269, $5,728 and $4,967 for the
years ended December 31, 1998, 1997 and 1996, respectively. Insurance expense
is allocated to the Company based on its actual number of employees, property
locations, nature of property, nature of products sold and Company
experience, as applicable, based on the nature of the insurance coverage.
SERVICES ARRANGEMENTS
Until the Sunbeam Acquisition, from time to time, Coleman purchased,
at negotiated rates, specialized accounting and other services from M&F and
its affiliates. Coleman also provided, at negotiated rates, specialized
accounting services and other services to M&F and its affiliates. The net
expense for such services was $493 and $394 during 1998 and 1997,
respectively, and was immaterial in prior years.
Since the consummation of the Sunbeam Acquisition, the Company has
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 year ended December
31, 1998, the cost of the services provided by the Company and charged to
Sunbeam and its affiliates in the amount of $2,268 has been reflected as a
reduction in selling, general and administration ("SG&A") expenses, and the
$3,009 of charges to Coleman for services received by Coleman from Sunbeam
and its affiliates for such period has been included in SG&A expenses. 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.
F-33
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
LICENSING SERVICES
During 1997, the Company engaged an affiliate of M&F to provide
licensing services. The Company recorded expenses of $650 based on negotiated
rates related to these services in 1997. In connection with the Sunbeam
Acquisition, during 1998 the Company terminated the licensing services
agreement and recorded $2,000 of expense related to payments to be made under
the terms of the termination agreement and $225 of expense related to certain
receivables from an affiliate of Parent Holdings which were forgiven as part
of the same termination agreement.
OTHER
During 1998, Coleman purchased products for resale from Sunbeam for
approximately $17,537.
The Company subleased six thousand square feet of office space in
New York City from an affiliate of M&F pursuant to a month-to-month occupancy
memorandum (the "Lease") entered into during 1997. The Lease was terminated
during 1998. The rent paid by the Company pursuant to the Lease was $81 and
$158 during the years ended December 31, 1998 and 1997, respectively.
Prior to the Sunbeam Acquisition, Coleman purchased air
transportation services from a corporation, one of whose shareholders was a
director of Coleman until the consummation of the Sunbeam Acquisition. The
Company paid $168 and $158 for these services during the years ended December
31, 1998 and 1997, respectively.
In 1996, the Company entered into an agreement with an affiliate of
M&F in which the Company realized approximately $1,800 of net tax benefits
associated with certain foreign tax net operating loss carryforwards that had
not previously been recognized.
For all taxable periods ended on or prior to March 30, 1998, the
Company was included in the M&F Consolidated Returns and was party to the Tax
Sharing Agreement. Pursuant to the Holdings Merger Agreement, the Tax Sharing
Agreement terminated with respect to M&F and its affiliates, but not with
respect to Coleman Worldwide. See Note 13.
15. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors defined benefit plans covering certain
employees of the Company who meet eligibility requirements. The plans'
benefits are based on an employee's years of service. Effective January 1,
1999, the Company's retirement plan for salaried employees was amended to
convert the plan to a cash balance plan. The plans' assets primarily consist
of corporate stocks, mutual funds and fixed income securities. Funding of the
plans is based on actuarial computations that are designed to satisfy minimum
funding requirements of applicable regulations and to achieve adequate
funding of projected benefit obligations. The Company also provides certain
unfunded postretirement health and life insurance benefits for certain
retired employees.
F-34
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table presents the funded status and amounts
recognized in the Company's consolidated balance sheet for the Company's
defined pension benefit and other postretirement plans:
Pension Benefits Postretirement Benefits
---------------------- --------------------------
December 31, December 31,
---------------------- --------------------------
1998 1997 1998 1997
----------- ---------- ----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year.................. $ 43,246 $ 37,092 $ 19,080 $ 18,787
Service cost............................................. 3,076 3,081 919 927
Interest cost............................................ 3,157 2,813 1,473 1,453
Plan amendment........................................... (3,641) 222 (487) --
Plan participants' contributions......................... -- -- 58 74
Curtailment (gain) loss.................................. (300) 840 -- --
Benefits paid............................................ (1,112) (628) (1,206) (890)
Actuarial loss (gain).................................... 57 (174) 3,118 (1,271)
----------- ---------- ----------- -----------
Benefit obligation at end of year........................ 44,483 43,246 22,955 19,080
----------- ---------- ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year........... 23,102 16,197 -- --
Actual return on plan assets............................. 2,577 2,946 -- --
Employer contributions................................... 1,737 4,587 1,148 816
Plan participants' contributions......................... -- -- 58 74
Benefits paid............................................ (1,112) (628) (1,206) (890)
----------- --------- ----------- -----------
Fair value of plan assets at end of year................. 26,304 23,102 -- --
----------- ---------- ----------- -----------
Under funded plans........................................... (18,179) (20,144) (22,955) (19,080)
Unrecognized transition asset................................ -- -- (3,441) (3,707)
Unrecognized net actuarial loss (gain)....................... 1,774 6,259 (573) (3,817)
Unrecognized prior service cost (benefit).................... 43 130 (803) (404)
----------- ---------- ----------- -----------
Net amounts recognized....................................... $ (16,362)$ (13,755) $ (27,772) $ (27,008)
=========== ========== =========== ===========
Amounts recognized in the consolidated balance sheet
consist of:
Accrued benefit liability.............................. $ (18,510) $ (15,424) $ (27,772) $ (27,008)
Intangible asset....................................... 54 143 -- --
Accumulated other comprehensive income................. 2,094 1,526 -- --
----------- ---------- ----------- -----------
Net amount recognized........................................ $ (16,362)$ (13,755) $ (27,772) $ (27,008)
=========== ========== =========== ===========
Weighted average assumptions as of December 31,
Discount rate............................................ 6.75% 7.50% 6.75% 7.50%
Expected return on plan assets........................... 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase............................ 4.00% 5.00% 4.00% 5.00%
F-35
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Net pension expense and periodic postretirement benefit expense
include the following components:
Year Ended December 31,
---------------------------------------
1998 1997 1996
------------ ------------- ------------
Pension expense:
Service cost........................................ $ 3,076 $ 3,081 $ 3,098
Interest cost....................................... 3,157 2,813 2,442
Curtailment loss.................................... 79 972 --
Expected return on plan assets...................... (2,144) (1,623) (1,078)
Amortization of unrecognized
prior service cost .............................. 5 10 7
Amortization of net loss............................ 171 242 425
------------ ------------ ------------
Net pension expense............................ $ 4,344 $ 5,495 $ 4,894
============ ============ ============
Postretirement expense:
Service cost........................................ $ 919 $ 927 $ 1,044
Interest cost....................................... 1,473 1,453 1,454
Amortization of transition asset.................... (266) (266) (266)
Amortization of unrecognized
prior service benefit............................ (88) (88) (88)
Amortization of net gain............................ (126) (4) --
------------ ------------ ------------
Net periodic postretirement
benefit expense............................ $ 1,912 $ 2,022 $ 2,144
============ ============ ============
The weighted-average assumed health care cost trend rates used for
postretirement benefits measurement purposes were 7% for 1999 then gradually
trending down to 5.0% by the year 2003 and remaining at that level
thereafter. A 1% increase in the assumed health care cost trend rate would
increase the combined postretirement service and interest cost by
approximately 22% and the postretirement benefit obligation by approximately
19%. A 1% decrease in the assumed health care cost trend rate would decrease
the combined postretirement service and interest cost by approximately 18%
and the postretirement benefit obligation by approximately 16%.
SAVINGS PLAN
Coleman sponsors an employee savings plan under Section 401(k) of
the Internal Revenue Code. This plan covers substantially all of the
Company's full-time U.S. employees and effective January 1, 1999, this plan
allows employees to contribute up to 15% of their salary to the plan and the
Company matches, at 100%, employee contributions of up to 2% of their salary;
and at 50%, employee contributions from 2% to 4% of their salary. Amounts
charged to expense for matching contributions were $1,245, $1,401, and $1,314
for the years ended December 31, 1998, 1997 and 1996, respectively.
STOCK OPTION PLANS
The Company adopted The Coleman Company, Inc. 1992 Stock Option Plan
(the "1992 Stock Option Plan") in 1992. During 1993, the shareholders
approved the 1993 Stock Option Plan (the "1993 Stock Option Plan") and during
1996, the shareholders approved The Coleman Company, Inc. 1996 Stock Option
Plan (the "1996 Stock Option Plan"). Under the terms of the 1992 Stock Option
Plan, the 1993 Stock Option Plan and the 1996 Stock Option Plan (collectively
the "Stock Option Plans"), incentive stock options ("ISOs"), non-qualified
stock options ("NQSOs") and stock appreciation rights may be granted to key
F-36
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
employees of the Company and any of its affiliates from time to time. Stock
options have been granted under the Stock Option Plans with vesting terms and
maximum exercise terms of approximately five years and ten years,
respectively. The aggregate number of shares of common stock as to which
options and rights may be granted under the Stock Option Plans may not exceed
4,700,000.
The following table summarizes the stock option transactions under the
Stock Option Plans:
1998 1997 1996
---------------------------- ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
----------- -------------- ----------- -------------- ----------- -------------
Outstanding - January 1, 3,347,550 $ 15.14 3,017,630 $ 15.84 2,572,930 $ 15.25
Granted:
at market price 6,000 12.94 2,081,000 14.77 294,000 19.73
above market price -- -- 75,000 15.00 381,000 15.00
Exercised (2,405,950) 15.14 (220,750) 11.42 (154,890) 12.17
Forfeited (23,930) 13.63 (1,605,330) 16.49 (75,410) 14.19
----------- ---------- -----------
Outstanding - December 31, 923,670 15.14 3,347,550 15.14 3,017,630 15.84
=========== ========= =========
Exercisable - December 31, 923,670 15.14 927,000 14.02 513,440 13.25
=========== =========== ===========
Weighted-average fair value
of options granted during
the year:
at market price $ 6.30 $ 7.43 $ 6.62
============== ============= =============
above market price $ -- $ 5.28 $ 3.21
============== ============= =============
The following table summarizes information concerning currently
outstanding and exercisable options at December 31, 1998:
Options Outstanding Options Exercisable
-------------------------------------------------------------------- ---------------------------------
Range Weighted-Average
of Exercise Number Remaining Weighted-Average Number Weighted-Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------- ----------- ---------------- -------------- ----------- --------------
$12.25-$14.00 535,795 8.0 years $ 13.98 535,795 $ 13.98
$14.01-$20.38 387,875 8.2 16.75 387,875 16.75
--------- --------
$12.25-$20.38 923,670 8.1 15.14 923,670 15.14
========= ========
As described in Note 1, the Company follows APB Opinion No. 25 in
accounting for stock compensation arrangements. Pro forma financial
information regarding net income and earnings per share has been determined
as if the Company had accounted for its employee stock options under the fair
value method of SFAS No. 123. The fair value of ISOs and NQSOs granted during
1998, 1997 and 1996 were estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 5.51%, 6.53% and 6.11 % for 1998,
1997 and 1996, respectively, dividend yield of 0.0%, volatility of the
expected market price of the Company's common stock of 35.8%, 31.3% and 20.2%
for 1998, 1997 and 1996, respectively, and a weighted-average expected life
of the option of 7.1, 7.7 and 5.5 years for 1998, 1997 and 1996, respectively.
F-37
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
SFAS No. 123 requires the use of option valuation models, one of
which is the Black-Scholes model, that were not developed for use in valuing
ISOs or NQSOs. Further, these option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
In management's opinion, based on the above, the existing models do not
necessarily provide a reliable single measure of the fair value of its ISOs
or NQSOs.
The following summarized, unaudited pro forma results of operations
assume the estimated fair value of the ISOs and NQSOs granted during the
years ended December 31, 1998, 1997 and 1996 is amortized to expense over the
ISOs' and NQSOs' vesting period. SFAS No. 123 does not require disclosure of
the effect of any grants of stock based compensation prior to 1995 and,
therefore, the pro forma effect of SFAS No. 123 on net earnings is not
representative of the pro forma effect on net earnings in future years.
Year Ended December 31,
---------------------------------------
1998 1997 1996
------------ ------------ ------------
Pro forma net loss............................................ $ 64,535 $ 6,069 $ 42,760
Pro forma basic and diluted loss per common share............. 1.17 0.11 0.80
16. COMMITMENTS AND CONTINGENCIES
SHAREHOLDER LAWSUITS
Beginning on June 25, 1998, several class action lawsuits were filed
in the Court of Chancery of the State of Delaware by minority stockholders of
Coleman against Coleman, Sunbeam and certain of their current and former
officers and directors. These actions were consolidated into a single class
action lawsuit. The actions allege, among other things, that the
consideration payable to the public stockholders of Coleman in the proposed
Coleman Merger is no longer fair to such stockholders as a result of the
decline in the market price of Sunbeam common stock. In October 1998, Coleman
and Sunbeam entered into a memorandum of understanding to settle, subject to
court approval, the consolidated class action lawsuit. Under the terms of the
proposed settlement, if approved by the court, Sunbeam will issue to the
minority stockholders of Coleman warrants to purchase 4.98 million shares of
Sunbeam common stock at an exercise price of $7.00 per share, subject to
certain anti-dilution provisions. These warrants will generally have the same
terms as the Parent Holdings Warrant and will be issued when the Coleman
Merger is consummated, which is now expected to occur during the second half
of 1999. There can be no assurance that the court will approve the settlement
as proposed, although such approval is not a condition to the consummation of
the Coleman Merger.
LEASES
The Company leases manufacturing, administrative and sales
facilities and various types of equipment under operating lease agreements
expiring through 2007. Rental expense was $12,812, $15,620, and $14,164 for
the years ended December 31, 1998, 1997 and 1996, respectively. Minimum
rental commitments under all noncancellable operating leases with remaining
lease terms in excess of one year from December 31, 1998, aggregated $31,677;
such commitments for each of the five years subsequent to December 31, 1998
are $7,400, $6,178, $4,694, $3,815, and $2,008, respectively, and $7,582
thereafter.
ENVIRONMENTAL MATTERS
The Company's operations, like those of comparable businesses, are
subject to certain federal, state, local and foreign environmental laws and
regulations in addition to laws and regulations regarding labeling
F-38
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
and packaging of products and the sales of products containing certain
environmentally sensitive materials ("Environmental Laws"). The Company
believes it is in substantial compliance with all Environmental Laws which
are applicable to its operations. Compliance with Environmental Laws involves
certain continuing costs; however, such costs of ongoing compliance have not
resulted, and are not anticipated to result, in a material increase in the
Company's capital expenditures or to have a material adverse effect on the
Company's results of operations, financial condition or competitive position.
The Company has established reserves, in accordance with SFAS No. 5,
"Accounting for Contingencies", to cover the anticipated probable costs of
remediation, based upon periodic reviews of all sites for which the Company
has, or may have, remediation responsibility. The Company accrues
environmental remediation costs when it is both probable that a liability has
been incurred and the amount can be reasonably estimated and the Company's
responsibility is established. Generally, the timing of these accruals
coincides with the earlier of the completion of a feasibility study or the
Company's commitment to a formal plan of action. As of December 31, 1998 and
1997, the Company's environmental reserves were $10,887 (representing $10,369
for the estimated costs of facility investigations, corrective measure
studies and known remedial measures and $518 for estimated legal costs)and
$4,123 (representing $3,744 for the estimated costs of facility
investigations, corrective measure studies and known remedial measures and
$379 for estimated legal costs), respectively. It is anticipated that the
$10,887 accrual at December 31, 1998 will be paid as follows: $1,043 in 1999,
$2,828 in 2000, $1,139 in 2001, $533 in 2002, $528 in 2003 and $4,816,
thereafter. The Company has accrued its best estimate of remediation costs
(based upon a range of exposure of $5,600 to $23,300) based upon facts known
to the Company and because of the inherent difficulties in estimating the
ultimate amount of environmental remediation costs, which are further
described below, these estimates may materially change in the future as a
result of the uncertainties described below. Estimated costs, which are based
upon experience with similar sites and technical evaluations, are judgmental
in nature and are recorded at undiscounted amounts without considering the
impact of inflation, and are adjusted periodically to reflect changes in
applicable laws or regulations, changes in available technologies and receipt
by the Company of new information. It is difficult to estimate the ultimate
level of future environmental expenditures due to a number of uncertainties
surrounding environmental liabilities. These uncertainties include the
applicability of laws and regulations, changes in environmental remediation
requirements, the enactment of additional regulations, uncertainties
surrounding remediation procedures including the development of new
technologies, the identification of new sites for which the Company could be
a potentially responsible party ("PRP"), information relating to the exact
nature and extent of the contamination at each site and the extent of
required clean up efforts and the varying costs of alternative remediation
strategies. Due to uncertainty over remedial measures to be adopted at some
sites, the possibility of changes in environmental laws and regulations and
the fact that joint and several liability with the right of contribution is
possible at federal and state Superfund sites, the Company's ultimate future
liability with respect to sites at which remediation has not been completed
may vary from the amounts reserved as of December 31, 1998.
The Company has recorded reserves for environmental matters which it
believes are adequate based upon facts known to the Company, applicable laws
and regulations, status of remediation efforts, ongoing investigations,
technical evaluations, and individual circumstances related to each site.
Amounts charged against operations for environmental remediation activities
for the years ended December 31, 1998, 1997, and 1996 were $7,629, $1,766,
and $1,584, respectively.
The Company reviews the adequacy of its environmental reserves and
adjusts the reserves as additional information becomes available, as
previously described, which allows the Company to refine its estimates.
During the fourth quarter of 1998, the Kansas Department of Health and
Environment ("KDHE") approved a remedial investigation report prepared by
Coleman and requested Coleman to prepare and submit
F-39
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
a remedial system design to address off-site contamination originating from
one of its existing sites. Coleman is in the process of developing the
feasibility study which will propose several alternatives for remediating the
on-site soil and groundwater contamination and the off-site groundwater
contamination resulting from the on-site sources. Based upon the remedial
system design, completed in the fourth quarter of 1998 by the Company's
outside environmental consultants, Coleman recorded a charge of $5,728 with
respect to this issue during the fourth quarter of 1998. The remaining
charges recognized during 1998 are related to an additional contamination
source discovered at one site which increased the estimated remediation
period and increases in the estimated costs for remedial system operation and
maintenance at another site. During 1997 and 1996, amounts charged to
operations for environmental remediation activities related to refinement of
remediation estimates based upon ongoing investigations, feasibility studies,
technical evaluations, and monitoring procedures.
GILBERT AND MOSLEY SITE
As a result of investigations undertaken in 1986, the KDHE
discovered that ground water in the Wichita area (the "Gilbert and Mosley
Site") was contaminated with volatile organic compounds ("VOCs"). Coleman
occupied a facility within the boundaries of the Gilbert and Mosley Site.
Subsequent investigations in the area, including investigations in November
1998 by Coleman, indicated the groundwater beneath the Coleman property is
contaminated with VOCs. Coleman is in the process of remediating the
contamination on its property.
The City of Wichita (the "City") has entered into a voluntary
agreement with KDHE in which the City agreed to investigate and then
remediate contamination at the Gilbert and Mosley Site. Coleman has entered
into an agreement with KDHE in which Coleman agreed to perform a similar
study for the Coleman property and to implement remedial activities at its
property. In addition, Coleman entered into an agreement with the City in
which Coleman agreed to fund its proportionate share of the City's study and
remediation of the Gilbert and Mosley Site.
In December 1996, the City completed a preliminary study of the
proportionate share of remediation costs which the City alleges should be the
responsibility of Coleman. The preliminary study proposed an allocation to
Coleman of $7,964 of site response costs. Coleman disagrees with both the
City's methodology and assumptions as well as with the conclusion of the
City's preliminary study. Since completion of the preliminary study,
additional site investigation work has been performed by the City in an
attempt to design appropriate remedies. The City has submitted its final
remediation proposals to the KDHE in March 1999.
MAIZE SITE
Coleman has undertaken a soil and groundwater investigation at its
facility in Maize, Kansas (the "Maize Site"). Results indicate limited VOCs
contamination is present in the groundwater under and to the southeast of the
facility. The data has been reported to the KDHE, and Coleman has entered
into an agreement with KDHE to implement appropriate remedial actions. The
remediation system has been installed, and Coleman is in the process of
remediating the contaminated groundwater.
NORTHEAST SITE
In 1990, Coleman undertook a soil and groundwater investigation of
its facility in northeast Wichita (the "Northeast Site"). Results indicated
the presence of VOCs in the groundwater and soils. Although some of the
contamination may be a result of Coleman's operations at the facility, the
data also indicated contamination was migrating onto the Coleman property
from upgradient sources. Coleman reported the
F-40
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
initial results of its study to KDHE. Coleman has also provided copies of all
data to the United States Environmental Protection Agency (the "EPA"), at its
request. The EPA has not initiated any actions against the Company with
respect to the Northeast Site. An agreement has been entered into with KDHE
to undertake additional investigatory activities, and an interim remediation
system has been installed.
The Northeast Site is located in an area of Wichita which the KDHE
has designated as the North Industrial Corridor Site ("NIC Site"). The City
has entered into a voluntary agreement with KDHE in which the City agreed to
investigate and then remediate contamination at the NIC Site. In June 1996,
Coleman entered into an agreement with the City in which Coleman agreed to
fund its proportionate share, if any, of the cost to remediate the NIC Site.
The City has not completed its remedial investigation on the NIC Site. In
April 1999, Coleman, along with several other parties, received a demand from
the EPA to pay the EPA's past investigative and oversight cost for a former
EPA site which is now part of the NIC Site. Coleman believes that it has both
equitable and legal defenses to the EPA's demand for payment of these costs
and Coleman intends to defend itself vigorously with respect to the EPA's
demand.
LAKE CITY SITE
In 1992, Coleman undertook a soil and groundwater investigation of
its facility in Lake City, South Carolina (the "Lake City Site"). Results
indicated limited VOC and fuel oil contamination in the soil and groundwater.
In both instances, the contamination appeared to relate to activities of a
previous occupant of the Lake City Site. The results of the investigation
were reported to the appropriate South Carolina environmental agency and the
prior owner agreed to take over further site investigations and remediation
actions and reimbursed Coleman for a significant part of Coleman's past costs
related to site investigation.
The Company has not been named as a PRP by the EPA nor does it have
joint and several liability with any other PRP for remediation at any of the
above sites.
J.C. PENNCO SITE
Coleman has been identified as a PRP for the presence of hazardous
substances at the J.C. Pennco Site in San Antonio, Texas. In January 1999,
Coleman agreed to settle its alleged liability with the EPA, and in March
1999, Coleman agreed to settle its alleged liability with the Texas Natural
Resource Conservation Commission.
OTHER
The Company is involved in various claims and legal actions arising
in the ordinary course of business. The Company believes the ultimate
disposition of these matters is not expected to have a material adverse
effect on the Company's consolidated financial condition or results of
operations.
Coleman and an affiliate of M&F ("Holdings") are parties to a
cross-indemnification pursuant to which Coleman has agreed to indemnify
Holdings, its officers, directors, employees, control persons, agents and
representatives against all past, present and future liabilities, including
product liability and environmental matters, related to the initial assets of
Coleman, which Coleman acquired from such affiliate in December 1991. In
addition, pursuant to this cross-indemnification agreement, Holdings agreed
to indemnify Coleman and its officers, directors, employees, agents and
representatives against all other liabilities of Holdings or any of its
subsidiaries, including liabilities relating to the assets it did not
transfer to Coleman in December 1991. This cross-indemnification agreement
survived the Sunbeam Acquisition and will survive the Coleman Merger.
F-41
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
In connection with the 1995 purchase of substantially all of the
assets of Active Technologies, Inc. ("ATI"), the Company may also be required
to make payments to the predecessor owner of ATI of up to $18,750 based on
the Company's sales of ATI related products and royalties received by the
Company for licensing arrangements related to ATI patents. As of December 31,
1998, the amounts paid under the terms of this agreement have been immaterial.
The Company is party to a license agreement which requires payments
of minimum guaranteed royalties aggregating to $10,738 at December 31, 1998;
such commitments for each of the four years remaining under the agreement
subsequent to December 31, 1998 are $1,745, $2,434, $3,010, and $3,549,
respectively.
As more fully described in Note 14, the Company relies upon
borrowings from Sunbeam for the Company's liquidity needs.
17. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from
operating activities. Interest paid was $41,165, $42,217, and $37,608 and net
income taxes (refunded) paid were $(11,427), $(16,138) and $7,041 for the
years ended December 31, 1998, 1997 and 1996, respectively. Certain non-cash
transactions relating to acquisitions and the issuance of long-term debt have
been reported in Notes 2 and 10.
18. PREFERRED STOCK
The Company has authorized 20,000,000 shares of preferred stock, par
value $0.01 per share. The Company's Certificate of Incorporation authorizes
the Board of Directors to provide for the issuance of a series of preferred
stock, to establish the number of shares of each such series and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof.
19. SEGMENT INFORMATION
DESCRIPTIVE INFORMATION ABOUT REPORTABLE SEGMENTS
Coleman has four reportable segments: Outdoor Recreation, Powermate,
Eastpak and International. The Outdoor Recreation segment produces and sells
lanterns, stoves, coolers, sleeping bags, camping accessories and other
products primarily used in outdoor recreation activities. The Powermate
segment produces and sells portable power generators, air compressors and
related accessories primarily used in homes and small businesses. The Eastpak
segment produces and sells book bags, backpacks, travel adventure gear and
other accessories for recreational use. The International segments produces
and sells recreational appliances and thermal products and sells products
produced domestically or purchased directly from outside vendors. The
Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
manufacture or distribute distinct products in distinct markets and areas of
the world.
The "All Other" segment includes information related to (i) the
Company's safety and security business and its spas business, both of which
were sold during 1998, (ii) royalty revenues from license agreements and
(iii) the Company's retail operations.
F-42
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Coleman evaluates performance and allocates resources based on
profit or loss from operations before income taxes, minority interest,
interest expense, amortization of goodwill and deferred charges, gain on sale
of businesses, and foreign exchange gains or losses. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies except as to elimination of intersegment
sales. Generally, intersegment sales are made at cost plus a share of
operating profit.
INFORMATION ABOUT SEGMENT REVENUES, PROFITS AND ASSETS
Outdoor All
Recreation Powermate Eastpak International Other Total
----------- ----------- -------- ------------- --------- -----------
Year Ended December 31, 1998:
Revenues from external customers..... $ 384,643 $ 202,405 $ 43,954 $ 335,158 $ 49,213 $ 1,015,373
Intersegment revenues................ 59,033 6,807 31,991 -- -- 97,831
Segment profit (loss)................ 9,340 12,351 (7,894) 7,777 3,765 25,339
Segment assets....................... 218,189 133,514 86,504 342,377 6,193 786,777
Depreciation expense................. 14,923 3,136 626 5,726 1,091 25,502
Restructuring charges (credit)....... 3,945 5,867 (110) 4,971 500 15,173
Expenditures for long-lived assets... 8,400 2,436 1,142 6,769 2,495 21,242
Year Ended December 31, 1997:
Revenues from external customers..... 423,265 201,865 55,239 345,698 128,227 1,154,294
Intersegment revenues................ 47,850 6,443 39,821 1,152 114 95,380
Segment profit (loss)................ 27,589 (1,553) 1,355 24,731 22,168 74,290
Segment assets....................... 270,920 129,235 93,106 308,794 96,154 898,209
Depreciation expense................. 15,707 3,156 396 5,320 2,200 26,779
Restructuring charges................ 7,557 12,211 1,351 5,255 -- 26,374
Expenditures for long-lived assets... 8,688 3,281 1,840 9,076 2,671 25,556
Year Ended December 31, 1996:
Revenues from external customers..... 412,143 270,525 44,229 375,105 118,214 1,220,216
Intersegment revenues................ 72,367 5,235 18,143 530 2 96,277
Segment profit (loss)................ 8,143 (6,189) (3,034) 7,024 14,350 20,294
Segment assets....................... 303,618 181,782 78,870 342,353 102,871 1,009,494
Depreciation expense................. 15,196 2,460 283 6,264 1,702 25,905
Restructuring charges................ 18,135 19,000 -- 18,472 -- 55,607
Expenditures for long-lived assets... 16,415 7,947 1,086 9,240 5,645 40,330
F-43
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
RECONCILIATION OF SELECTED SEGMENT INFORMATION TO THE COMPANY'S CONSOLIDATED
TOTALS
Year Ended December 31,
----------------------------------------
1998 1997 1996
----------- ------------ -------------
REVENUES:
Total revenues for reportable segments..................... $ 1,063,991 $ 1,121,333 $ 1,198,277
Other revenues............................................. 49,213 128,341 118,216
Elimination of intersegment revenues....................... (97,831) (95,380) (96,277)
----------- ------------ -------------
Total consolidated revenues.............................. $ 1,015,373 $ 1,154,294 $ 1,220,216
=========== ============ =============
PROFIT OR LOSS:
Total segment profit....................................... $ 25,339 $ 74,290 $ 20,294
Unallocated items:
Corporate expenses....................................... (28,495) (22,169) (16,910)
Corporate restructuring charges.......................... (2,729) (4,441) (3,334)
Interest expense, net.................................... (33,213) (40,852) (38,727)
Amortization of goodwill and deferred charges............ (19,584) (11,338) (10,473)
Gain on sales of businesses.............................. 32,411 -- --
Other expense, net....................................... (170) (1,867) (1,151)
----------- ------------ -------------
Loss before income taxes, minority interest and
extraordinary item................................. $ (26,441) $ (6,377) $ (50,301)
=========== ============ =============
December 31,
----------------------------------------
1998 1997 1996
----------- ------------ -------------
ASSETS:
Total assets for reportable segments....................... $ 786,777 $ 898,209 $ 1,009,494
Unallocated amounts:
Corporate assets, including goodwill..................... 146,480 143,555 150,592
------------ ------------ -------------
Total consolidated assets............................ $ 933,257 $ 1,041,764 $ 1,160,086
============ ============ =============
ENTERPRISE-WIDE DISCLOSURES
PRODUCT REVENUES:
Year Ended December 31,
-----------------------------------------
1998 1997 1996
------------ ------------ -------------
Outdoor recreation products................................ $ 778,981 $ 859,647 $ 859,555
Hardware products.......................................... 236,392 294,647 360,661
------------ ------------ -------------
Total consolidated revenues.............................. $ 1,015,373 $ 1,154,294 $ 1,220,216
============ ============ =============
F-44
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
GEOGRAPHIC AREA REVENUES:
Year Ended December 31,
----------------------------------------
1998 1997 1996
----------- ------------ -------------
United States.............................................. $ 628,644 $ 759,097 $ 803,325
Europe .................................................. 213,193 201,820 188,838
Other foreign countries.................................... 173,536 193,377 228,053
----------- ------------ -------------
Total consolidated revenues.............................. $ 1,015,373 $ 1,154,294 $ 1,220,216
=========== ============ =============
GEOGRAPHIC AREA LONG-LIVED ASSETS:
December 31,
----------------------------------------
1998 1997 1996
----------- ------------ -------------
United States.............................................. $ 110,411 $ 136,021 $ 146,698
Europe .................................................. 30,106 30,845 32,320
Other foreign countries.................................... 5,306 8,628 20,164
----------- ------------ -------------
Total consolidated assets................................ $ 145,823 $ 175,494 $ 199,182
=========== ============ =============
MAJOR CUSTOMER:
Revenues from one customer of the Company's Outdoor Recreation
segment accounted for approximately 16%, 13% and 15% of the Company's
consolidated net revenues in the years ended December 31, 1998, 1997 and 1996,
respectively.
F-45
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(IN THOUSANDS, EXCEPT SHARE DATA)
20. QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)
Summarized quarterly financial data for 1998 and 1997 are as follow:
Quarter Ended
-------------------------------------------------------------
March 31, June 30, September 30, December 31,
------------- ------------ ------------ ------------
1998
- ----
Net revenues............................... $ 244,499 $ 326,407 $ 245,324 $ 199,143
Gross profit (a)........................... 68,722 94,770 65,506 38,080
Earnings (loss) before
extraordinary item (b).................. (1,414) 5,097 (7,008) (37,238)
Net earnings (loss) (b).................... (2,646) (11,209) (7,008) (37,238)
Basic earnings (loss) per share:
Earnings (loss) before
extraordinary item................... $ (0.03) $ 0.09 $ (0.13) $ (0.67)
Net earnings (loss).................... (0.05) (0.20) (0.13) (0.67)
1997
- ----
Net revenues............................... $ 295,464 $ 383,514 $ 252,434 $ 222,882
Gross profit (a)........................... 80,617 109,269 75,324 60,977
Net earnings (loss) (b).................... 699 10,119 (8,077) (5,277)
Basic earnings (loss) per share............ $ 0.01 $ 0.19 $ (0.15) $ (0.10)
(a) Includes pre-tax restructuring charges (credit) as follows:
1998.................................. $ -- -- $ 156 $ (146)
1997.................................. -- 4,356 3,909 (172)
(b) Includes after-tax restructuring charges (credit) as follows:
1998.................................. $ 432 $ 5,864 $ 4,257 $ 468
1997.................................. -- 11,180 8,938 (1,223)
F-46