UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended SEPTEMBER 30, 1999
------------------
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-988
-----
THE COLEMAN COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3639257
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2111 E. 37TH STREET NORTH, WICHITA, KANSAS 67219
- ------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
316-832-2700
------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirement for the past 90 days. __X__ Yes _____ No
The number of shares outstanding of the registrant's par value $.01 common
stock was 55,827,490 shares as of November 17, 1999 of which 44,067,520
shares were held by Coleman Worldwide Corporation, an indirect wholly-owned
subsidiary of Sunbeam Corporation.
Exhibit Index on Page 33
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended September 30, 1999 and 1998 and
Nine months ended September 30, 1999 and 1998.................................... 3
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998......................................... 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998.................................... 5
Notes to Condensed Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 33
Item 6. Exhibits and Reports on Form 8-K....................................................... 33
Signatures ........................................................................... 34
2
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ------------- ------------
Net revenues............................................ $ 335,901 $ 245,324 $ 1,017,516 $ 816,230
Cost of sales........................................... 223,100 179,818 691,699 587,232
----------- ----------- ------------- ------------
Gross profit............................................ 112,801 65,506 325,817 228,998
Selling, general and administrative expenses............ 72,002 59,508 201,705 192,158
Restructuring (credits) charges......................... (147) 6,582 (165) 16,867
Interest expense, net................................... 3,961 8,480 16,406 26,403
Amortization of goodwill and deferred charges........... 2,250 2,646 7,189 8,313
Gain on sale of business................................ -- (408) -- (25,098)
Other (income) expense, net............................. (2,793) (1,511) (2,721) 33
----------- ----------- ------------- ------------
Earnings (loss) before income taxes,
minority interest and extraordinary item............. 37,528 (9,791) 103,403 10,322
Income tax expense (benefit)............................ 14,448 (2,875) 39,810 13,315
Minority interest....................................... 827 92 1,404 332
----------- ----------- ------------- ------------
Earnings (loss) before extraordinary item............... 22,253 (7,008) 62,189 (3,325)
Extraordinary loss on early extinguishment
of debt, net of income tax benefit.................... -- -- -- (17,538)
----------- ----------- ------------- ------------
Net earnings (loss)..................................... 22,253 (7,008) 62,189 (20,863)
Participating preferred stock dividends and
allocated earnings................................... (1,466) -- (1,466) --
----------- ----------- ------------- ------------
Net earnings (loss) available for common
shareholders......................................... $ 20,787 $ (7,008) $ 60,723 $ (20,863)
=========== =========== ============= ============
Basic and diluted earnings (loss) per share:
Earnings before extraordinary item.................... $ 0.37 $ (0.13) $ 1.09 $ (0.06)
Extraordinary item.................................... -- -- -- (0.32)
----------- ----------- ------------- -----------
Net earnings (loss)................................. $ 0.37 $ (0.13) $ 1.09 $ (0.38)
=========== =========== ============= ===========
Weighted average common shares outstanding:
Basic and diluted ................................... 55,827 55,827 55,827 55,135
=========== =========== ============= ============
See Notes to Condensed Consolidated Financial Statements
3
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
1999 1998
---------------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 20,305 $ 23,413
Accounts and notes receivable, less allowance
of $9,083 in 1999 and $8,894 in 1998............................... 249,530 162,108
Inventories.......................................................... 242,346 230,126
Deferred tax assets.................................................. 28,221 26,926
Prepaid expenses and other current assets............................ 15,693 19,627
---------------- ------------
Total current assets............................................... 556,095 462,200
Property, plant and equipment, less accumulated depreciation
of $136,220 in 1999 and $122,868 in 1998............................. 141,278 145,823
Goodwill, net........................................................... 267,656 282,015
Deferred tax assets and other assets.................................... 32,505 43,219
---------------- ------------
$ 997,534 $ 933,257
================ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable........................................... $ 152,954 $ 146,064
Debt payable to affiliate............................................ 303,193 --
Other current liabilities............................................ 126,782 101,224
---------------- ------------
Total current liabilities.......................................... 582,929 247,288
Debt payable to affiliate............................................... -- 365,063
Long-term debt.......................................................... 389 362
Other liabilities....................................................... 84,746 75,231
Minority interest....................................................... 9,358 6,698
Contingencies...........................................................
Stockholders' equity:
Preferred stock...................................................... 30 --
Common stock......................................................... 558 558
Additional paid-in capital........................................... 254,276 221,730
Retained earnings.................................................... 84,166 21,977
Accumulated other comprehensive loss................................. (18,918) (5,650)
---------------- ------------
Total stockholders' equity......................................... 320,112 238,615
---------------- ------------
$ 997,534 $ 933,257
================ ============
See Notes to Condensed Consolidated Financial Statements
4
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended September 30,
-----------------------------
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................................................. $ 62,189 $ (20,863)
Adjustments to reconcile net earnings (loss) to net cash flows
from operating activities:
Depreciation and amortization.............................................. 24,404 26,766
Deferred income taxes...................................................... 23,743 (17,247)
Non-cash restructuring and other charges................................... -- 5,713
Minority interest.......................................................... 1,404 332
Gain on sale of business................................................... -- (25,098)
Extraordinary loss on early extinguishment of debt........................ -- 29,012
Changes in assets and liabilities, net of effects from sale of business:
Receivables........................................................... (89,600) (13,015)
Inventories........................................................... (16,369) 16,115
Accounts payable...................................................... 19,702 (18,519)
Prepaid expenses and other current assets and liabilities............. 32,455 24,125
Other, net............................................................ (75) 3,600
------------- ------------
Net cash provided by operating activities....................................... 57,853 10,921
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (19,554) (16,648)
Net proceeds from sale of business and fixed assets............................. 1,337 98,817
Other, net...................................................................... (703) (618)
------------- ------------
Net cash (used) provided by investing activities................................ (18,920) 81,551
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit agreement borrowings........................... -- (52,578)
Net change in short-term borrowings............................................. (8,475) (12,165)
Repayment of long-term debt, including redemption costs......................... (166) (447,250)
Net (decrease) increase in borrowings from affiliate............................ (61,870) 381,042
Proceeds from preferred stock issuance.......................................... 31,061 --
Proceeds from stock options exercised including tax benefits.................... -- 45,546
------------- ------------
Net cash used by financing activities........................................... (39,450) (85,405)
------------- ------------
Effect of exchange rate changes on cash......................................... (2,591) 7
------------- ------------
Net (decrease) increase in cash and cash equivalents............................ (3,108) 7,074
Cash and cash equivalents at beginning of the period............................ 23,413 13,031
------------- ------------
Cash and cash equivalents at end of the period.................................. $ 20,305 $ 20,105
============= ============
See Notes to Condensed Consolidated Financial Statements
5
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
1. BACKGROUND
The Coleman Company, Inc. ("Coleman" or the "Company") is a global
manufacturer and marketer of consumer products for outdoor recreation and
home hardware use.
Coleman is a subsidiary of Coleman Worldwide Corporation ("Coleman
Worldwide"). Coleman Worldwide is an indirect wholly-owned subsidiary of
Laser Acquisition Corp. ("Laser"), an indirect wholly-owned subsidiary of
Sunbeam Corporation ("Sunbeam"). On March 30, 1998, through its wholly-owned
subsidiary Laser, Sunbeam acquired Coleman Worldwide (the "Sunbeam
Acquisition"), then a wholly-owned subsidiary of MacAndrews & Forbes
Holdings, Inc. ("M&F"), pursuant to a merger agreement with a wholly-owned
subsidiary of M&F. Coleman Worldwide owns 44,067,520 shares of the common
stock of Coleman (approximately 79% of the outstanding Coleman common stock
as of September 30, 1999) and also owns 3,000,000 shares of voting preferred
stock of Coleman (100% of the outstanding preferred stock of Coleman as of
September 30, 1999). The shares of preferred stock, together with the Coleman
common stock owned by Coleman Worldwide, enable Coleman Worldwide to exercise
80.01% of the total voting power of Coleman's outstanding capital stock as of
November 17, 1999.
Coleman, Sunbeam and Camper Acquisition Corp. ("CAC"), a
wholly-owned subsidiary of Sunbeam, have also entered into an Agreement and
Plan of Merger (the "Coleman Merger Agreement"), providing that among other
things, CAC will be merged with and into Coleman, with Coleman continuing as
the surviving corporation (the "Coleman Merger"). Pursuant to the Coleman
Merger Agreement, each share of the Company's common stock issued and
outstanding immediately prior to the effective time of the Coleman Merger
(other than shares held indirectly by Sunbeam and shares, if any, for which
appraisal rights have been exercised) will be converted into the right to
receive (i) 0.5677 of a share of Sunbeam common stock, with cash paid in lieu
of fractional shares, and (ii) $6.44 in cash, without interest. In addition,
unexercised stock options at the time of the Coleman Merger will be cashed
out by Sunbeam at a price per share equal to the difference between $27.50
per share and the exercise price of such options. In October 1998, Coleman
and Sunbeam entered into a memorandum of understanding to settle, subject to
court approval, certain class actions brought by minority shareholders of
Coleman against Coleman, Sunbeam and certain of their current and former
officers and directors challenging the proposed Coleman Merger. The court
approved the settlement on November 12, 1999. Under the terms of the
settlement, Sunbeam will issue to the Coleman minority shareholders and
plaintiffs' counsel in this action warrants to purchase up to approximately
4.98 million shares of Sunbeam common stock at $7.00 per share, subject to
certain anti-dilution adjustments. Any shareholder who does not exercise
appraisal rights under Delaware law will receive the warrants. These warrants
will be issued when the Coleman Merger is consummated, which is now expected
to occur in the fourth quarter of 1999 or early in the first quarter of 2000.
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
6
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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 in
the fourth quarter of 1999 or early in the first quarter of 2000. 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.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Coleman include the accounts of the Company and its
subsidiaries after elimination of all material intercompany accounts and
transactions, and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, these statements include all adjustments necessary for
a fair presentation of results of operations, financial position and cash
flows. The balance sheet at December 31, 1998 has been derived from the
audited financial statements for that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K/A for the year ended December 31,
1998. Operating results for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for future periods
including the year ended December 31, 1999.
3. INVENTORIES
The components of inventories consist of the following:
September 30, December 31,
1999 1998
--------------- ---------------
Raw material and supplies......................... $ 45,438 $ 45,395
Work-in-process................................... 8,763 6,539
Finished goods.................................... 188,145 178,192
--------------- ---------------
$ 242,346 $ 230,126
=============== ===============
4. DEBT PAYABLE TO AFFILIATE
Sunbeam's credit facility (the "Sunbeam Credit Facility") provides that
Sunbeam will not
7
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
contribute capital to Coleman or, with some exceptions, permit Coleman to
borrow money from any source other than Sunbeam. Therefore, the Company's
ability to meet its cash operating requirements, including capital
expenditures and other obligations, is dependent upon a combination of cash
flows from operations and loans to the Company from Sunbeam. Sunbeam has
informed the Company it has the positive intent and ability to fund the
Company's requirements for borrowed funds through April 10, 2000. Prior to
April 15, 1999, amounts loaned by Sunbeam to Coleman were represented by a
promissory note (the "Old Intercompany Note"), were due on demand and bore
interest at a floating rate equivalent to the weighted average interest rate
incurred by Sunbeam on its outstanding convertible debt and borrowings under
its bank credit facility.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements,
the lenders under the Sunbeam Credit Facility, amended and restated the Old
Intercompany Note (the "Intercompany Note"), entered into intercompany
security and pledge agreements, and entered into an amendment to the Sunbeam
Credit Facility and certain other agreements (collectively, the
"Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany
Note bears interest at an annual rate equal to (i) 4% if the three month
London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is
less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate
system is 6% or higher, subject to increases during an event of default, and
interest will be payable by adding the amount of such interest to the
principal balance of the Intercompany Note. In addition, the Intercompany
Note provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Intercompany Note and that in
certain circumstances the payment on the Intercompany Note will be
subordinate to Coleman's obligations under the Sunbeam Credit Facility.
Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all
of its domestic assets, other than its real property, including 66% of its
ownership interest in its direct foreign subsidiaries and domestic holding
companies for its foreign subsidiaries and all of its ownership interest in
its other direct domestic subsidiaries (but Coleman's subsidiaries have not
pledged their assets or stock of their subsidiaries), as security for the
Intercompany Note. Sunbeam has pledged the Intercompany Note as security for
the Sunbeam Credit Facility and assigned to such lenders the security pledged
by Coleman for the Intercompany Note. Coleman also gave the lending banks a
direct pledge of the assets securing the Intercompany Note to secure the
obligations under the Sunbeam Credit Facility, subject to a cap equal to the
balance due from time to time on the Intercompany Note.
As of September 30, 1999 the amount borrowed by the Company under
the Intercompany Note amounted to $303,193 and the applicable interest rate
was 4%. The weighted average interest rate charged by Sunbeam for amounts
borrowed under the Old Intercompany Note and the Intercompany Note during the
nine months ended September 30, 1999 was 5.3% and the total interest charged
by Sunbeam to Coleman was $15,276. Sunbeam also charged to Coleman a pro-rata
share of amortized debt issuance costs and unused bank credit facility
commitment fees totaling $319. Net amounts advanced from Sunbeam along with
the related unpaid interest and other costs are reflected as debt payable to
affiliate in the Company's consolidated balance sheet. Coleman is also a
borrower under the Sunbeam Credit Facility for purposes of letters of credit
issued for its account.
The Sunbeam Credit Facility provides for aggregate borrowings of up
to $1,700,000 pursuant
8
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
to (i) a revolving credit facility in an aggregate principal amount of up to
$400,000 (subject to certain reductions) maturing on March 30, 2005, of which
$52,500 may only be used to complete the Coleman Merger, (ii) up to $800,000
in term loans maturing on March 30, 2005, of which $35,000 may only be used
to complete the Coleman Merger, and (iii) a $500,000 term loan maturing on
September 30, 2006, of which $5,000 has already been repaid through September
30, 1999. At September 30, 1999, Sunbeam had $1,467,000 of outstanding debt
under the Sunbeam Credit Facility and approximately $165,000 available for
borrowing. As a result of Sunbeam's operating losses during 1998, among other
things, Sunbeam was not in compliance with the financial covenants and other
terms contained in the Sunbeam Credit Facility. In April 1999, Sunbeam and
its lenders entered into an amendment to the Sunbeam Credit Facility which
amended and added certain financial covenants and other terms and waived
compliance with certain other financial covenants and other terms through
April 10, 2000. Interest accrues at a rate selected at Sunbeam's option of:
(i) LIBOR plus an interest rate margin which varies depending upon the
occurrence of certain specified events or, (ii) the base rate of the
administrative agent (generally the higher of the prime commercial lending
rate of the administrative agent or the Federal Funds Rate plus one-half of
1%), plus an interest rate margin which varies depending upon the occurrence
of certain specified events.
Borrowings under the Sunbeam Credit Facility are secured by a pledge
of the stock of Sunbeam's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its
material subsidiaries, other than Coleman and its subsidiaries except as
otherwise described herein. Currently, Coleman's inventory and related assets
are pledged to secure its obligations for letters of credit issued for its
account under the Sunbeam Credit Facility.
The Sunbeam Credit Facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of
Sunbeam and its subsidiaries, including Coleman, to, among other things, (i)
declare dividends or repurchase stock, (ii) prepay, redeem or repurchase
debt, incur liens and engage in sale-leaseback transactions, (iii) make loans
and investments, (iv) incur additional debt, including revolving loans under
the Sunbeam Credit Facility, (v) amend or otherwise alter material agreements
or enter into restrictive agreements, (vi) make capital and Year 2000
compliance expenditures, (vii) engage in mergers, acquisitions and asset
sales, (viii) engage in certain transactions with affiliates, (ix) alter its
fiscal year or accounting policies, (x) enter into hedging agreements, (xi)
settle certain litigation, (xii) alter its cash management system and (xiii)
alter the businesses they conduct. Sunbeam is also required to comply with
specified financial covenants and ratios. The Sunbeam Credit Facility
provides for events of default customary for transactions of this type,
including nonpayment, misrepresentation, breach of covenant, cross-defaults,
bankruptcy, material adverse change arising from compliance with ERISA,
material adverse judgments, entering into guarantees, and change of ownership
and control. The Sunbeam Credit Facility, as amended, also provides it is an
event default if the registration statement for the shares of Sunbeam common
stock to be issued in the Coleman Merger is not declared effective by
January 10, 2000, if Sunbeam fails to complete the Coleman Merger within 25
business days after the related registration statement is declared effective
by the SEC, or if Sunbeam has to pay more than $87,500 (excluding expenses)
in cash to complete the Coleman Merger (including any payments made with
respect to appraisal rights). If an event of default occurs under the Sunbeam
Credit Facility or Sunbeam is unable to obtain a waiver or amendment of
certain financial covenants
9
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
after April 10, 2000, the Company may be required to reduce, delay or cancel
capital or other expenditures and/or seek loans or capital contributions
from, or sell assets or capital stock to, lending institutions and/or other
third parties or affiliates. The Sunbeam Credit Facility also requires
Sunbeam to prepay term loans under the Sunbeam Credit Facility on December
31, 1999 to the extent that cash on hand in Sunbeam's concentration accounts
plus the aggregate amount of unused revolving loan commitments on that date
exceeds $125,000 but Sunbeam is not required to prepay more than $69,300 in
the aggregate as a result of the provision.
5.RESTRUCTURING CHARGES ( DOLLARS IN MILLIONS )
The Company reviews the adequacy of its restructuring reserves and
adjusts the reserves as the various activities are completed or additional
information becomes available which allows the Company to refine its
estimates. The Company decreased its restructuring reserves by $0.1 during
the nine months ended September 30, 1999 and increased its restructuring
reserves by $6.7 during the nine months ended September 30, 1998 as a result
of these reviews. In addition, during the nine months ended September 30,
1998, the Company recorded additional restructuring charges totaling $10.4
which included, (i) $9.0 of severance benefits related to approximately 104
employees whose employment with the Company was terminated following the
acquisition of the Company by Sunbeam, (ii) $1.1 of severance benefits for
approximately 110 employees at the Company's manufacturing facility in Cedar
City, Utah which was closed during June 1998, (iii) recognition of a net gain
of $0.1 related to the disposition of the Company's manufacturing facility in
Cedar City, Utah, and (iv) $0.4 of exit costs related to closing an operation
in Europe.
The following tables provide an analysis of the changes in the
Company's restructuring reserves since December 31, 1998. For a detailed
description of the Company's restructuring activities, see Note 3 to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1998.
INTEGRATION OF CAMPING GAZ AND COLEMAN
Balance at (Credits) Balance at
December 31, to Cash Non-Cash September 30,
1998 Income Reductions Reductions 1999
--------------- -------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory................ $ .4 $ -- $ -- $ .4 $ --
------- ------ -------- -------- -------
Total included in cost of sales.... .4 -- -- .4 --
------- ------ -------- -------- -------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use......................... 7.5 -- -- .7 6.8
Other assets......................... .2 -- -- .2 --
------- ------ -------- -------- -------
................................... 7.7 -- -- .9 6.8
------- ------ -------- -------- -------
10
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Restructuring accruals:
Employee severance pay and
fringes........................... .1 -- -- -- .1
Other exit activity costs, primarily
sales agent termination costs
and claims brought by
terminated employees............... .7 (.2) .1 .3 .1
------- ----- -------- -------- -------
.8 (.2) .1 .3 .2
------- ----- -------- -------- -------
Totals included in restructuring... 8.5 (.2) .1 1.2 7.0
------- ----- -------- -------- -------
Totals .................................. $ 8.9 $ (.2) $ .1 $ 1.6 $ 7.0
======= ===== ======== ======== =======
The reserves remaining at September 30, 1999 principally relate to
the write down of a vacated warehouse and an accrual for claims brought by
foreign employees terminated as part of the restructuring plan. The timing of
the resolution of the claims brought by foreign employees will vary depending
upon local practices. The Company continues to assess the propriety of the
carrying value of the related balances and make adjustments to the recorded
amounts as appropriate given current facts and circumstances.
EXIT LOW-MARGIN PRODUCT LINES
Charges
Balance at (Credits) Balance at
December 31, to Non-Cash September 30,
1998 Income Reductions 1999
---------------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory...................... $ .4 $ .1 $ .5 $ --
--------- -------- -------- ------
Total included in cost of sales............ .4 .1 .5 --
--------- -------- -------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... .1 (.1) -- --
--------- -------- ------- ------
.1 (.1) -- --
--------- -------- ------- ------
Restructuring accruals:
Other exit activity costs, primarily
product buyback costs.................... .6 -- .6 --
--------- -------- -------- ------
.6 -- .6 --
--------- -------- -------- ------
Totals included in restructuring......... .7 (.1) .6 --
--------- -------- -------- ------
Totals ........................................ $ 1.1 $ -- $ 1.1 $ --
========= ======== ======== ======
11
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
Balance at Charges Balance at
December 31, to Cash September 30,
1998 Income Reductions 1999
---------------- ---------- ---------- -----------
Restructuring accruals:
Employee severance pay and fringes........... $ 3.4 $ .2 $ .5 $ 3.1
--------- --------- -------- ------
Totals ........................................ $ 3.4 $ .2 $ .5 $ 3.1
========= ========= ======== ======
The unpaid severance costs at September 30, 1999 principally relate
to claims brought by employees terminated as part of the restructuring plan.
The timing of the resolution of the claims brought by the terminated
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.
CLOSE FACILITIES
Balance at (Credits) Balance at
December 31, to Cash September 30,
1998 Income Reductions 1999
---------------- ---------- ---------- -----------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... $ .2 $ -- $ -- $ .2
--------- --------- ------- ------
.2 -- -- .2
--------- --------- ------- ------
Restructuring accruals:
Employee severance pay and fringes......... 1.3 (.1) .7 .5
Other exit activity costs,
primarily lease termination costs........ .6 -- .4 .2
--------- --------- -------- ------
1.9 (.1) 1.1 .7
--------- ---------- -------- ------
Totals included in restructuring......... 2.1 (.1) 1.1 .9
--------- ---------- -------- ------
Totals ........................................ $ 2.1 $ (.1) $ 1.1 $ .9
========= ========== ======== ======
During the nine months ended September 30, 1999, of those employees
expected to be terminated, 13 employees left the Company and 5 employees
remain to be terminated. Remaining termination costs are expected to be paid
by December 31, 2000 in accordance with the long-term severance arrangements.
The fixed assets held for disposal at September 30, 1999, will be disposed of
during 1999. The remaining reserve balance for other exit activity costs at
September 30, 1999, principally relates to leases with fixed terms running
through 2001.
12
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
EMPLOYEE TERMINATION AND SEVERANCE
Balance at Balance at
December 31, Cash September 30,
1998 Reductions 1999
---------- ---------- -----------
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes......... $ 3.4 $ 2.4 $ 1.0
--------- ----------- --------
Totals ........................................ $ 3.4 $ 2.4 $ 1.0
========= =========== ========
During the nine months ended September 30, 1999, of those employees
expected to be terminated, 4 employees left the Company and 4 employees
remain to be terminated. The 4 remaining employees are expected to be
terminated by March 31, 2000. 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.
6. OTHER CHARGES
During the first nine months of 1998, the Company recorded other
charges totaling $13,357 ($12,931 in the first quarter of 1998 and $426 in
the second quarter of 1998) which consisted of (i) $7,242 of costs associated
with the acquisition of the Company by Sunbeam including advisory fees, (ii)
$3,890 of charges associated with abandoning a company-wide enterprise
resource computer software system, and (iii) $2,225 of costs associated with
terminating a licensing services agreement with an affiliate of Coleman
(Parent) Holdings, Inc., the then indirect parent company of Coleman
Worldwide. These costs were recorded in selling, general and administrative
expenses.
7. COMPREHENSIVE INCOME
The components of the Company's comprehensive income (loss) are as
follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
1999 1998 1999 1998
------------ --------- ----------- ------------
Net earnings (loss)........................................ $ 22,253 $ (7,008) $ 62,189 $ (20,863)
Foreign currency translation adjustment, net of tax........ 1,219 10,154 (13,268) 6,351
Minimum pension liability adjustment, net of tax........... -- (168) -- (505)
------------ --------- ----------- ------------
Comprehensive income (loss)................................ $ 23,472 $ 2,978 $ 48,921 $ (15,017)
============ ========= =========== ============
8. PREFERRED STOCK
On July 12, 1999, Coleman Worldwide acquired 3,000,000 shares of a
newly created series of Coleman voting preferred stock for an aggregate purchase
price of approximately $31,061. These shares, together with the shares of
Coleman common stock owned by Coleman Worldwide, enable
13
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Coleman Worldwide to exercise 80.01% of the total voting power of Coleman's
outstanding capital stock as of November 17, 1999. Coleman created these shares
of preferred stock and Coleman Worldwide acquired them in order to enable
Coleman and Sunbeam to file consolidated federal income tax returns and, in
certain jurisdictions, consolidated state income tax returns prior to the
consummation of the Coleman Merger. The issue price per share of the voting
preferred stock was equal to 110% of the average closing price per share of
common stock of Coleman over the five trading days prior to the date of
issuance of the voting preferred stock. Except for as required by law, the
holders of the voting preferred stock vote as a single class with the holders
of the Coleman common stock on all matters submitted to a vote of the holders
of Coleman common stock, with each share of voting preferred stock and each
share of Coleman common stock having one vote. The voting preferred stock has
an annual dividend equal to 7% of $10.35 per share, the issue price of the
voting preferred stock, which accrues but will not be paid in cash unless a
liquidation occurs or certain transactions are consummated as described
below. At September 30, 1999, the accrued and unpaid dividends amounted to
$483. In addition, the voting preferred stock will participate ratably with
the Coleman common stock in all other dividends and distributions (other than
liquidating distributions) made by Coleman to the holders of its common
stock. The voting preferred stock will participate with the Coleman common
stock in any merger, consolidation, or any other transaction (other than a
merger of a wholly owned subsidiary of Sunbeam with Coleman, including the
Coleman Merger) and will receive on a per share basis the same type and
amount of consideration as the Coleman common stock. Upon liquidation of the
Company: (1) the holders of the voting preferred stock would receive a
preferential distribution equal to $10.35 per share, plus accrued and unpaid
dividends, (2) next, the holders of the Coleman common stock would receive an
amount equal to $10.35 per share, and (3) any assets remaining after such
distributions would be shared by the holders of the voting preferred stock
and the Coleman common stock on a share for share basis. In connection with
the issuance of the shares of preferred stock, Coleman entered into a tax
sharing agreement with Sunbeam pursuant to which Coleman will pay to Sunbeam
amounts equal to the federal and state income taxes that would have been
payable by Coleman had Coleman not been included in the consolidated income
tax return of Sunbeam. The terms of the voting preferred stock, their issue
price and the terms of the tax sharing agreement were approved on Coleman's
behalf by Coleman's sole independent director. The net proceeds from the
issuance of the shares by Coleman of its voting preferred stock to Coleman
Worldwide were used by Coleman to make a partial repayment of loans
outstanding from Sunbeam under the Intercompany Note.
9. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net earnings (loss)
available to common shareholders (the numerator) by the weighted average
number of common shares outstanding (the denominator). The computation of
diluted earnings per share is similar to the computation of basic earnings
per share except the denominator is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued. The numerator in calculating both
basic and diluted earnings per share is earnings (loss) less participating
preferred stock dividends of $483 and participating preferred stock allocated
earnings of $983 for both the three month and nine month periods ended
September 30, 1999. The participating preferred stock allocated earnings
amount is computed by using the "two class" method as described in Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earning per
14
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Share" due to the fact that the participating preferred stock is not
convertible into a class of common stock. Diluted earnings per share for the
three month and nine month periods ended September 30, 1999 is based only on
the weighted average number of common shares outstanding during the three
month and nine month periods ended September 30, 1999 because there were no
dilutive common share equivalents. Stock options to purchase 923,670 shares
of common stock were outstanding at September 30, 1999 but were not included
in the computation of common share equivalents because the option exercise
price was greater than the average market price of Coleman's common stock
during each of the respective periods. Diluted earnings per share for the
three month period ended September 30, 1998 is based only on the weighted
average number of common shares outstanding during the three month period
ended September 30, 1998 because there were no dilutive common share
equivalents. Diluted earnings per share for the nine month period ended
September 30, 1998 is based only on the weighted average number of common
shares outstanding during the nine month period ended September 30, 1998 as
the inclusion of 769,601 common share equivalents would have been
antidilutive.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133". The provisions of SFAS No. 133
will now be effective for the Company's fiscal year beginning January 1,
2001. Earlier application of the provisions of SFAS No. 133 is encouraged;
however, the Company has not determined if it will apply the provisions of
SFAS No. 133 prior to January 1, 2001, nor has the Company estimated the
impact of applying the provisions of SFAS No. 133 on the Company's statement
of financial position or on the statement of operations.
15
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
11. SEGMENT INFORMATION
For detailed information regarding the Company's reportable
segments, see Note 19 to the consolidated financial statements included in
the Company's Annual Report on Form 10-K/A for the year ended December 31,
1998.
INFORMATION ABOUT SEGMENT REVENUES, PROFITS AND ASSETS
Outdoor All
Recreation Powermate Eastpak International Other Total
---------- ---------- ---------- ------------ -------- ---------
Three Months Ended September 30, 1999:
Revenues from external customers.... $ 113,308 $ 80,747 $ 16,492 $ 121,423 $ 3,931 $ 335,901
Intersegment revenues................ 10,278 15,333 14,978 101 -- 40,690
Segment profit (loss)................ 18,834 13,221 (2,165) 13,431 1,122 44,443
Three Months Ended September 30, 1998:
Revenues from external customers..... 76,528 55,703 14,554 87,713 10,826 245,324
Intersegment revenues................ 15,920 1,839 7,572 12 -- 25,343
Segment profit (loss)................ 676 2,024 (1,829) 2,996 (169) 3,698
Nine Months Ended September 30, 1999:
Revenues from external customers..... 370,856 218,741 35,377 384,723 7,819 1,017,516
Intersegment revenues................ 52,888 29,297 38,669 163 -- 121,017
Segment profit (loss)................ 61,667 36,654 (5,194) 38,164 (283) 131,008
Nine Months Ended September 30, 1998:
Revenues from external customers..... 282,663 152,755 40,919 293,323 46,570 816,230
Intersegment revenues................ 68,421 3,404 26,756 124 -- 98,705
Segment profit (loss)................ 14,351 8,070 (3,149) 23,174 3,658 46,104
Segment Assets:
September 30, 1999................... 236,318 149,288 100,417 371,484 4,641 862,148
September 30, 1998................... 229,593 139,679 98,960 335,058 17,046 820,336
16
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
RECONCILIATION OF SELECTED SEGMENT INFORMATION TO THE COMPANY'S CONSOLIDATED
TOTALS
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------- ----------------------------
1999 1998 1999 1998
------------ ----------- -------------- ------------
REVENUES:
Total revenues for reportable segments................ $ 372,660 $ 259,841 $ 1,130,714 $ 868,365
Other revenues........................................ 3,931 10,826 7,819 46,570
Elimination of intersegment revenues.................. (40,690) (25,343) (121,017) (98,705)
------------ ----------- -------------- ------------
Total consolidated revenues........................ $ 335,901 $ 245,324 $ 1,017,516 $ 816,230
============ =========== ============== ============
PROFIT OR LOSS:
Total segment profit.................................. $ 44,443 $ 3,698 $ 131,008 $ 46,104
Unallocated items:
Corporate expenses................................. (3,497) (4,341) (6,731) (22,550)
Corporate restructuring credit (charge)............ -- 59 -- (3,581)
Interest expense, net.............................. (3,961) (8,480) (16,406) (26,403)
Amortization of goodwill
and deferred charges............................ (2,250) (2,646) (7,189) (8,313)
Gain on sale of business........................... -- 408 -- 25,098
Other income (expense), net........................ 2,793 1,511 2,721 (33)
------------ ----------- -------------- ------------
Earnings before income taxes, minority
interest and extraordinary item............... $ 37,528 $ (9,791) $ 103,403 $ 10,322
============ =========== ============== ============
17
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
condensed consolidated financial statements and the related footnotes
included elsewhere in this quarterly report on Form 10-Q, as well as the
consolidated financial statements and related notes, and management's
discussion and analysis of financial condition and results of operations in
the Company's Annual Report on Form 10-K/A for the year ended December 31,
1998.
RESULTS OF OPERATIONS
RESTRUCTURING CHARGES
The Company reviews the adequacy of its restructuring reserves and
adjusts the reserves as the various activities are completed or additional
information becomes available which allows the Company to refine its
estimates. The Company decreased the restructuring reserves by $0.1 million
during the nine months ended September 30, 1999 and increased the
restructuring reserves by $6.7 million during the nine months ended September
30, 1999 as a result of these reviews. In addition, during the nine months
ended September 30, 1998, the Company recorded additional restructuring
charges totaling $10.4 million which included, (i) $9.0 million of severance
benefits related to approximately 104 employees whose employment with the
Company was terminated following the Sunbeam Acquisition, (ii) $1.1 million
of severance benefits for approximately 110 employees at the Company's
manufacturing facility in Cedar City, Utah which was closed during June 1998,
(iii) recognition of a net gain of $0.1 million related to the disposition of
the Company's manufacturing facility in Cedar City, Utah, and (iv) $0.4
million of exit costs related to closing an operation in Europe.
The following tables (dollars in millions) provide an analysis of
the changes in the Company's restructuring reserves since December 31, 1998.
For a detailed description of the Company's restructuring activities see Note
3 to the consolidated financial statements included in the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1998.
INTEGRATION OF CAMPING GAZ AND COLEMAN
Balance at (Credits) Balance at
December 31, to Cash Non-Cash September 30,
1998 Income Reductions Reductions 1999
------------ -------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory................ $ .4 $ -- $ -- $ .4 $ --
------- ------ -------- -------- -------
Total included in cost of sales.... .4 -- -- .4 --
------- ------ -------- -------- -------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use......................... 7.5 -- -- .7 6.8
Other assets......................... .2 -- -- .2 --
................................... ------- ------ -------- -------- -------
7.7 -- -- .9 6.8
------- ------ -------- -------- -------
18
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Restructuring accruals:
Employee severance pay and
fringes........................... .1 -- -- -- .1
Other exit activity costs, primarily
sales agent termination costs
and claims brought by
terminated employees............... .7 (.2) .1 .3 .1
------- ----- -------- -------- -------
.8 (.2) .1 .3 .2
------- ----- -------- -------- -------
Totals included in restructuring... 8.5 (.2) .1 1.2 7.0
------- ----- -------- -------- -------
Totals ................................... $ 8.9 $ (.2) $ .1 $ 1.6 $ 7.0
======= ===== ======== ======== =======
The reserves remaining at September 30, 1999 principally relate to
the write down of a vacated warehouse and an accrual for claims brought by
foreign employees terminated as part of the restructuring plan. The timing of
the resolution of the claims brought by foreign employees will vary depending
upon local practices. The Company continues to assess the propriety of the
carrying value of the related balances and make adjustments to the recorded
amounts as appropriate given current facts and circumstances.
EXIT LOW-MARGIN PRODUCT LINES
Charges
Balance at (Credits) Balance at
December 31, to Non-Cash September 30,
1998 Income Reductions 1999
------------ -------- ---------- -------------
Charges included in cost of sales:
Write-down of inventory...................... $ .4 $ .1 $ .5 $ --
--------- -------- -------- ------
Total included in cost of sales............ .4 .1 .5 --
--------- -------- -------- ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... .1 (.1) -- --
--------- -------- ------- ------
.1 (.1) -- --
--------- -------- ------- ------
Restructuring accruals:
Other exit activity costs, primarily
product buyback costs.................... .6 -- .6 --
--------- -------- -------- ------
.6 -- .6 --
--------- -------- -------- ------
Totals included in restructuring......... .7 (.1) .6 --
--------- -------- -------- ------
Totals ......................................... $ 1.1 $ -- $ 1.1 $ --
========= ======== ======== ======
19
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
Balance at Charges Balance at
December 31, to Cash September 30,
1998 Income Reductions 1999
------------ -------- ---------- ------------
Restructuring accruals:
Employee severance pay and fringes.......... $ 3.4 $ .2 $ .5 $ 3.1
------- ----- ----- ------
Totals ........................................ $ 3.4 $ .2 $ .5 $ 3.1
======= ===== ===== ======
The unpaid severance costs at September 30, 1999 principally relate
to claims brought by employees terminated as part of the restructuring plan.
The timing of the resolution of the claims brought by the terminated
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.
CLOSE FACILITIES
Balance at (Credits) Balance at
December 31, to Cash September 30,
1998 Income Reductions 1999
------------ --------- ---------- ------------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use............................... $ .2 $ -- $ -- $ .2
------- ----- ----- ------
.2 -- -- .2
------- ----- ----- ------
Restructuring accruals:
Employee severance pay and fringes......... 1.3 (.1) .7 .5
Other exit activity costs,
primarily lease termination costs........ .6 -- .4 .2
------- ----- ----- ------
1.9 (.1) 1.1 .7
------- ----- ----- ------
Totals included in restructuring......... 2.1 (.1) 1.1 .9
------- ----- ----- ------
Totals ......................................... $ 2.1 $ (.1) $ 1.1 $ .9
======= ===== ===== ======
During the nine months ended September 30, 1999, of those employees
expected to be terminated, 13 employees left the Company and 5 employees
remain to be terminated. Remaining termination costs are expected to be paid
by December 31, 2000 in accordance with the long-term severance arrangements.
The fixed assets held for disposal at September 30, 1999, will be disposed of
during 1999. The remaining reserve balance for other exit activity costs at
September 30, 1999, principally relates to leases with fixed terms running
through 2001.
EMPLOYEE TERMINATION AND SEVERANCE
Balance at Balance at
December 31, Cash September 30,
1998 Reductions 1999
------------ ---------- ------------
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes......... $ 3.4 $ 2.4 $ 1.0
------- ------- ------
Totals ......................................... $ 3.4 $ 2.4 $ 1.0
======= ======= ======
20
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
During the nine months ended September 30, 1999, of those employees
expected to be terminated, 4 employees left the Company and 4 employees
remain to be terminated. The 4 remaining employees are expected to be
terminated by March 31, 2000. Remaining termination costs are expected to be
paid by December 31, 2000, and no additional charges are anticipated in
future periods related to this issue.
OTHER CHARGES
During the first nine months of 1998, the Company recorded other
charges totaling $13.4 million ($12.9 million in the first quarter and $0.5
million in the second quarter) which consisted of (i) $7.3 million of costs
associated with the Sunbeam Acquisition, (ii) $3.9 million of charges
associated with abandoning a company-wide enterprise resource computer
software system, and (iii) $2.2 million of costs associated with terminating
a licensing services agreement with an affiliate of Coleman (Parent)
Holdings, Inc., the then indirect parent company of Coleman Worldwide. These
costs were recorded in selling, general and administrative ("SG&A") expenses.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net revenues of $335.9 million for the three months ended September
30, 1999 were $90.6 million, or 36.9%, greater than for the three months
ended September 30, 1998. The outdoor recreation products revenues,
reflecting both United States and foreign non-hardware products, increased
$52.8 million. Revenues for the 1999 period include $12.1 million of revenues
from sales of Sunbeam grills and other Sunbeam appliances which Coleman began
selling primarily in Europe and Canada in late 1998 and early 1999,
respectively. In addition, revenues for the 1998 period include $8.5 million
of revenues from sales of the Company's spa related products, a business
which was sold during 1998. Adjusting revenues for the 1999 period to exclude
the Sunbeam product revenues and adjusting the 1998 period to exclude the spa
related product revenues results in comparable outdoor recreation 1999 period
products revenues increasing $49.2 million, or 28.2%, over 1998 period
revenues. This increase occurred in nearly all product categories, primarily
reflecting strong retail replenishment demand and what the Company believes
is heightened consumer sensitivity to the need for emergency preparedness,
including Year 2000 considerations. The hardware products revenues increase
of $37.8 million includes $6.7 million of revenues from sales of Sunbeam's
First Alert products which Coleman began selling internationally, primarily
in Europe, in late 1998. Excluding the revenues from these First Alert
products, the hardware products revenues reflected an increase of $31.1
million, or 49.9%, over comparable 1998 revenues primarily reflecting an
increase in generator sales attributable to what the Company believes is
heightened consumer sensitivity to the need for emergency preparedness,
including power shortages arising from poor weather conditions and Year 2000
considerations. Geographically, United States revenues increased $59.6
million, or 38.5%, and foreign revenues increased $31.0 million, or 34.3%,
over the 1998 period revenues. The United States revenues for the 1998 period
include revenues from the Company's spa business which was sold during 1998.
Excluding these revenues from the 1998 period, United States revenues in 1999
reflected an increase of $68.1 million, or 46.6%, over the 1998 period
revenues. Excluding the Sunbeam product revenues from the foreign revenues in
the 1999 period, foreign revenues in 1999 reflected an increase of $12.2
million, or 13.5%, over the 1998 period revenues.
21
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Gross profit for the three months ended September 30, 1999 was
$112.8 million as compared to $65.5 million for the three months ended
September 30, 1998. Higher sales volume and favorable manufacturing
efficiencies resulting from higher production levels associated with the
higher sales volume in the 1999 period accounted for primarily all of the
increase in gross profit. Although the Company has experienced improved gross
margins in 1999, the Company continues to rationalize its international
production capabilities. The Company is evaluating the elimination of at
least one international manufacturing facility and expects to complete that
evaluation by December 31, 1999.
SG&A expenses were $72.0 million for the three months ended
September 30, 1999 compared to $59.5 million for the 1998 period. The overall
dollar increase in SG&A expenses is primarily due to increased selling costs
associated with the increase in 1999 sales partially offset by the reduction
in SG&A expenses associated with the Company's spa business which was sold
during 1998 and whose total SG&A expenses during the third quarter of 1998
were $1.3 million. SG&A expenses as a percent of net revenues decreased to
21.4% in 1999 from 24.2% in 1998 as revenues grew faster than SG&A expenses.
Interest expense was $4.0 million for the three months ended
September 30, 1999 compared with $8.5 million in the 1998 period, a decrease
of $4.5 million. Approximately 34% of this decrease is attributable to lower
borrowings with the balance of the decrease primarily attributable to a
reduction in the interest rate on amounts borrowed from Sunbeam as a result
of the amendment to the intercompany note between Sunbeam and Coleman (See
"--Liquidity and Capital Resources").
Minority interest represents the interest of minority shareholders
in the Company's subsidiary operations in the Philippines, Indonesia, and
Canada.
The Company recorded a provision for income tax expense of $14.4
million or 38.5% of pre-tax earnings in 1999 compared to a provision for
income tax benefit of $2.9 million or 29.4% of pretax earnings in 1998. The
1998 income tax benefit was negatively impacted by nondeductible items.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Net revenues of $1,017.5 million for the nine months ended September
30, 1999 were $201.3 million, or 24.7%, greater than for the nine months
ended September 30, 1998. The outdoor recreation products revenues,
reflecting both United States and foreign non-hardware products, increased
$114.6 million. Revenues for the 1999 period include $31.3 million of
revenues from sales of Sunbeam grills and other Sunbeam appliances which
Coleman began selling primarily in Europe and Canada in late 1998 and early
1999, respectively. In addition, revenues for the 1998 period include $22.0
million of revenues from sales of the Company's spa related products, a
business which was sold during 1998. Adjusting revenues for the 1999 period
to exclude the Sunbeam product revenues and adjusting the 1998 period to
exclude the spa related product revenues results in comparable outdoor
recreation products 1999 period revenues increasing $105.3 million, or 17.2%,
over 1998 period revenues. This increase occurred in nearly all product
categories, primarily reflecting strong retail replenishment demand and what
the Company believes is heightened consumer sensitivity to emergency
preparedness, including Year 2000 considerations. The Company experienced
unusually weak retail replenishment demand in the first half of 1998. The
hardware products revenues increase of $86.7 million includes $19.8 million
of revenues from sales of
22
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Sunbeam's First Alert products which Coleman began selling internationally,
primarily in Europe, in late 1998. In addition, revenues for the 1998 period
include $16.3 million of revenues from the Company's safety and security
business which was sold in March 1998. Excluding the revenues from these
First Alert products and the safety and security business products, the
hardware products revenues reflected an increase of $83.2 million, or 50.6%,
over comparable 1998 revenues primarily reflecting an increase in generator
sales attributable to what the Company believes is heightened consumer
sensitivity to the need for emergency preparedness, including power shortages
arising from poor weather conditions and Year 2000 considerations.
Geographically, United States revenues increased $122.0 million, or 23.9%,
and foreign revenues increased $79.3 million, or 25.9%, over the 1998 period
revenues. The United States revenues for the 1998 period includes revenues
from the Company's safety and security business and spa business, both of
which were sold during 1998. Excluding these revenues from the 1998 period,
United States revenues in 1999 reflected an increase of $160.3 million or
34.0%, over the 1998 period revenues. Excluding the Sunbeam product revenues
from the foreign revenues in the 1999 period, foreign revenues in 1999
reflected an increase of $28.2 million, or 9.2%, over the 1998 period
revenues.
Gross profit for the nine months ended September 30, 1999 was $325.8
million as compared to $229.0 million for the nine months ended September 30,
1998. Higher sales volume and favorable manufacturing efficiencies resulting
from higher production levels associated with the higher sales volume in the
1999 period accounted for primarily all of the increase in gross profit.
SG&A expenses, excluding the impact of $13.4 million of other
charges in the nine months ended September 30, 1998 as described above, were
$201.7 million for the nine months ended September 30, 1999 compared to
$178.8 million in the 1998 period. The overall dollar increase in SG&A
expenses is primarily due to increased selling costs associated with the
increase in 1999 sales partially offset by the reduction in SG&A expenses
associated with the Company's safety and security business and spa business,
both of which were sold during 1998, and whose total SG&A expenses during the
1998 period were $8.2 million. SG&A expenses as a percent of net revenues
decreased to 19.8% in 1999 from 21.9% in 1998 as revenues grew faster than
SG&A expenses.
Interest expense was $16.4 million for the nine months ended
September 30, 1999 compared with $26.4 million in the 1998 period, a decrease
of $10.0 million. Approximately 48% of this decrease is attributable to lower
borrowings with the balance of the decrease primarily attributable to a
reduction in the interest rate on amounts borrowed from Sunbeam as a result
of the amendment to the intercompany note between Sunbeam and Coleman (See
"--Liquidity and Capital Resources").
Minority interest represents the interest of minority shareholders
in the Company's subsidiary operations in the Philippines, Indonesia, and
Canada.
The Company recorded a provision for income tax expense of $39.8
million or 38.5% of pre-tax earnings in 1999 compared to a provision for
income tax expense of $13.3 million in 1998. The 1999 income tax provision
reflects $1.2 million of tax expense due to the impact of decreased foreign
tax rates on deferred tax assets. Excluding this item, the 1999 effective
income tax rate would have been approximately 37.3%. The 1998 income tax
provision reflects, among other things, (i) the write-off of approximately
$5.5 million deferred tax assets that became unrealizable as a result of the
Sunbeam Acquisition, (ii) $0.4 million of tax expense due to the impact of
decreased foreign tax rates on deferred tax assets, and (iii) the impact of
$7.2 million non-deductible costs associated
23
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
with the Sunbeam Acquisition. Excluding these items, the 1998 effective
income tax rate would have been approximately 42.0% which is higher than the
statutory Federal income tax rate primarily because of state income taxes,
nondeductible amortization and foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided $57.9 million and $10.9
million of cash during the nine months ended September 30, 1999 and 1998,
respectively. Cash provided by operating activities increased in the 1999
period over the 1998 period due to higher earnings after giving effect to
non-cash items offset in part by higher working capital needs during the 1999
period. Receivables, inventories and accounts payables increased $89.6
million, $16.3 million and $19.7 million, respectively, in the nine months
ended September 30, 1999 as compared to a $13.0 million increase in
receivables and a $16.1 million and $18.5 million decrease in inventories and
account payables, respectively, in the nine months ended September 30, 1998.
The overall net increase in receivables, inventories and accounts payables in
1999 as compared to 1998 is largely due to a higher level of business
activity in 1999. The Company may also increase inventory during the fourth
quarter of 1999 as a contingency against supply disruption from suppliers for
Year 2000 issues. The Company's capital expenditures were $19.6 million and
$16.6 million in the nine months ended September 30, 1999 and 1998,
respectively. Capital expenditures for the nine months ended September 30,
1999 includes approximately $4.6 million of capitalized costs incurred to
address Year 2000 issues.
On July 12, 1999, Coleman Worldwide acquired 3,000,000 shares of a
newly created series of Coleman voting preferred stock for an aggregate
purchase price of approximately $31.1 million. These shares, together with
the shares of Coleman common stock owned by Coleman Worldwide, enable Coleman
Worldwide to exercise 80.01% of the total voting power of Coleman's
outstanding capital stock as of November 17, 1999. Coleman created these shares
of preferred stock and Coleman Worldwide acquired them in order to enable
Coleman and Sunbeam to file consolidated federal income tax returns and, in
certain jurisdictions, consolidated state income tax returns prior to the
consummation of the Coleman Merger. In connection with the issuance of the
shares of preferred stock, Coleman entered into a tax sharing agreement with
Sunbeam pursuant to which Coleman will pay to Sunbeam amounts equal to the
federal and state income taxes that would have been payable by Coleman had
Coleman not been included in the consolidated income tax return of Sunbeam.
The net proceeds from the issuance of the shares by Coleman of its voting
preferred stock to Coleman Worldwide and a portion of the cash provided by
operations were used by Coleman to repay a portion of the loans outstanding
from Sunbeam under the Intercompany Note. During the nine months ended
September 30, 1998, the $45.5 million of proceeds from stock option exercises
along with $381.0 million of net borrowings from Sunbeam and the proceeds
from the sale of the Company's safety and security business and sales of
fixed assets of $98.8 million were used to, among other things, (i) repay the
$116.0 million outstanding indebtedness under the Company's then existing
credit agreement (ii) redeem the Company's various senior notes at a cost of
$383.4 million, and (iii) fund the Company's operating activities and capital
expenditures.
On November 9, 1999, Sunbeam announced a plan to divest Coleman's
Eastpak business and certain other non-essential Sunbeam and Coleman assets.
Sunbeam said net proceeds from these sales, estimated at $200 million, will
be used to primarily pay down Sunbeam debt.
The Company's uses of cash for 1999 are expected to be primarily for
working capital and capital expenditure requirements. The Company's ability
to meet its cash operating requirements,
24
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
including capital expenditures and other obligations, is dependent upon a
combination of cash flows from operations and loans to the Company from
Sunbeam. Sunbeam has informed the Company it has the positive intent and
ability to fund the Company's requirements for borrowed funds through April
10, 2000. Prior to April 15, 1999, amounts loaned by Sunbeam to Coleman were
represented by a promissory note (the "Old Intercompany Note"), were due on
demand and bore interest at a floating rate equivalent to the weighted
average interest rate incurred by Sunbeam on its outstanding convertible debt
and borrowings under its bank credit facility.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements,
the lenders under the Sunbeam Credit Facility, amended and restated the Old
Intercompany Note (the "Intercompany Note"), entered into intercompany
security and pledge agreements, and entered into an amendment to the Sunbeam
Credit Facility and certain other agreements (collectively, the
"Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany
Note bears interest at an annual rate equal to (i) 4% if the three month
London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is
less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate
system is 6% or higher, subject to increases during an event of default, and
interest will be payable by adding the amount of such interest to the
principal balance of the Intercompany Note. In addition, the Intercompany
Note provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Intercompany Note and that in
certain circumstances the payment on the Intercompany Note will be
subordinate to Coleman's obligations under the Sunbeam Credit Facility.
Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all
of its domestic assets, other than its real property, including 66% of its
ownership interest in its direct foreign subsidiaries and domestic holding
companies for its foreign subsidiaries and all of its ownership interest in
its other direct domestic subsidiaries (but Coleman's subsidiaries have not
pledged their assets or stock of their subsidiaries), as security for the
Intercompany Note. Sunbeam has pledged the Intercompany Note as security for
the Sunbeam Credit Facility and assigned to such lenders the security pledged
by Coleman for the Intercompany Note. Coleman also gave the lending banks a
direct pledge of the assets securing the Intercompany Note to secure the
obligations under the Sunbeam Credit Facility, subject to a cap equal to the
balance due from time to time on the Intercompany Note.
As of September 30, 1999 the amount borrowed by the Company under
the Intercompany Note amounted to $303.2 million and the applicable interest
rate was 4%. The weighted average interest rate charged by Sunbeam for
amounts borrowed under the Old Intercompany Note and the Intercompany Note
during the nine months ended September 30, 1999 was 5.3% and the total
interest charged by Sunbeam to Coleman was $15.3 million. Sunbeam also
charged to Coleman a pro-rata share of amortized debt issuance costs and
unused bank credit facility commitment fees totaling $0.3 million. Net
amounts advanced from Sunbeam along with the related unpaid interest and
other costs are reflected as debt payable to affiliate in the Company's
consolidated balance sheet. Coleman is also a borrower under the Sunbeam
Credit Facility for purposes of letters of credit issued for its account.
The Sunbeam Credit Facility provides for aggregate borrowings of up
to $1,700.0 million pursuant to (i) a revolving credit facility in an
aggregate principal amount of up to $400.0 million (subject to certain
reductions) maturing on March 30, 2005, of which $52.5 million may only be
used to complete the Coleman Merger, (ii) up to $800.0 million in term loans
maturing on March 30, 2005, of which $35.0 million may only be used to
complete the Coleman Merger, and (iii) a $500.0 million term loan maturing on
September 30, 2006, of which $5.0 million has already been
25
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
repaid through September 30, 1999. At September 30, 1999, Sunbeam had
$1,467.5 million of outstanding debt under the Sunbeam Credit Facility and
approximately $165.0 million available for borrowing. As a result of
Sunbeam's operating losses during 1998, among other things, Sunbeam was not
in compliance with the financial covenants and other terms contained in the
Sunbeam Credit Facility. In April 1999, Sunbeam and its lenders entered into
an amendment to the Sunbeam Credit Facility which amended and added certain
financial covenants and other terms and waived compliance with certain other
financial covenants and other terms through April 10, 2000. At the end of
September 1999, approximately $185.0 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 $24.1 million.
Borrowings under the Sunbeam Credit Facility are secured by a pledge
of the stock of Sunbeam's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its
material subsidiaries, other than Coleman and its subsidiaries except as
otherwise described herein. Currently, Coleman's inventory and related assets
are pledged to secure its obligations for letters of credit issued for its
account under the Sunbeam Credit Facility.
The Sunbeam Credit Facility contains covenants customary for credit
facilities of a similar nature, and events of default customary for
transactions of this type. The Sunbeam Credit Facility requires the
Registration Statement be declared effective by January 10, 2000, and that
the Coleman Merger be consummated no more than 25 business days after the
Registration Statement is declared effective. 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 in the fourth quarter of 1999 or early in the first quarter of
2000. 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 then in effect. See Note 14 to the consolidated
financial statements in the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1998.
In April 1999, the New York Stock Exchange ("NYSE") advised Coleman
that it did not meet the NYSE's continuing listing standards because Coleman
did not have tangible net assets of at least $12.0 million at September 30,
1998 and average annual net income of at least $0.6 million for fiscal years
1997, 1996 and 1995. At that time, Coleman requested the NYSE to continue to
list the Coleman common stock until completion of the Coleman Merger. The
NYSE subsequently advised Coleman that Coleman also failed to satisfy certain
non-financial continuing listing standards. On August 5, 1999, the NYSE
advised Coleman that the NYSE had revised its continuing listing standards,
and that Coleman is in compliance with the revised financial standards.
Coleman and the NYSE have agreed upon a program whereby Coleman will correct
the deficiencies in its non-financial continuing listing standards by the end
of 1999. Coleman is currently complying with such program. If Coleman were to
be delisted from the NYSE, it could adversely affect the market price
26
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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.
SEASONALITY
The Company's sales generally are highest in the second quarter of
the year and lowest in the fourth quarter. As a result of this seasonality,
the Company has generally incurred a loss in the fourth quarter. The
Company's sales may be affected by weather conditions, especially during the
second and third quarters of the year.
YEAR 2000 READINESS DISCLOSURE
The Company is preparing for 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 systems and controls for lighting,
air-conditioning, 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 not being ready for any Year 2000
issues include, among others, purchases of materials, production management,
order entry and fulfillment, payroll processing, and billing and collections.
Systems and applications that were identified by the Company as not currently
Year 2000 ready and which are critical to the Company's operations include
certain of its financial software systems which process order entry,
purchasing, production management, general ledger, accounts receivable, and
accounts payable functions, payroll applications, and critical applications
in the Company's manufacturing and distribution facilities.
The Company's corrective work to achieve Year 2000 readiness has
included the following: (i) installation of Year 2000 ready JD Edwards
software which has been completed in one location; (ii) installation of Year
2000 ready JBA software in another location which has recently been
completed; (iii) remediation of software codes for existing programs in
another location which has been completed and tested to be Year 2000 ready;
and (iv) installation of Year 2000 ready JD Edwards software which is
substantially complete in another location.
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 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 Company has
verified that all of the Company's major customers have planned programs to
deal with Year 2000 issues and is currently completing the process of
contacting its major customers to confirm they are implementing their planned
programs to address Year 2000 issues.
The Company has substantially completed all its Year 2000 corrective
work. Coleman's Year 2000 readiness program is ongoing and its ultimate
scope, as well as the consideration of
27
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
contingency plans, will continue to be evaluated as new information becomes
available. The Company has designed its Year 2000 contingency plan and is in
the process of implementing it. The development of the contingency plan
included a process whereby the Company's critical information technology and
other systems were evaluated for Year 2000 readiness. As a result of this
evaluation, the Company does not expect to require additional operational
equipment or significant process contingency measures. Although the Company
does not currently believe there is significant risk associated with its
third party suppliers, the contingency plan includes the continuing
evaluation of the readiness of the Company's suppliers and consideration of
the Company's inventory requirements to protect against supply disruption.
This evaluation process may result in an increase in inventory during the
fourth quarter of 1999.
The Company's Year 2000 program was developed and is monitored with
the help of independent consultants. Therefore, with the exception of certain
aspects of the Company's Year 2000 readiness program, the Company did not
engage another independent third party to verify the program's overall
approach or total cost. However, the Company believes that through its use of
various external consulting firms which perform significant roles within the
Year 2000 program, the Company's exposure in this regard is mitigated. In
addition, through the use of external third party diagnostic software
packages that are designed to analyze the Year 2000 readiness in the software
code of business software programs which the Company has remediated, the
Company believes that it has also mitigated its risk by validating and
verifying key program components.
Management believes Coleman's information systems environment will
be made Year 2000 ready prior to January 1, 2000. Coleman's failure to timely
complete such corrective work could have a material adverse impact on
Coleman. With respect to customers and suppliers, the failure of some of
these third parties to become Year 2000 ready could also have a material
adverse impact on Coleman. For example, the failure of some of Coleman's
principal suppliers to have Year 2000 ready internal systems could impact
Coleman's ability to manufacture and/or ship its products or to maintain
adequate inventory levels for production.
At this time, Coleman believes that the most likely "worst-case"
scenario relating to Year 2000 involves potential disruptions in areas in
which the Company's operations must rely on third parties, such as suppliers,
whose systems may not work properly after January 1, 2000. While such system
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. Subject to the nature of the goods or services provided to the
Company by third parties whose operations are not made ready for Year 2000
issues, the impact on the Company's operations could be material if
appropriate contingency plans cannot be developed prior to January 1, 2000.
As of September 30, 1999, including costs incurred in 1998, the
Company had expended approximately $11.3 million to address Year 2000 issues
of which approximately $5.7 million was recorded as SG&A expenses and the
remainder as capital expenditures. The Company's current assessment of the
total costs to address and remedy Year 2000 issues is approximately $14.0
million. This estimate includes the costs of software and hardware
modifications and replacements, and fees to third party consultants, but
excludes the costs associated with Company employees. There can be no
assurance that these current estimates will not change as the Company
completes its assessment of the Year 2000 issues. The Company expects these
expenditures to be financed through operating cash flows or borrowings, as
applicable.
28
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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
technology systems to the Company's business, management has deferred
non-critical systems enhancements as much as possible. The Company does not
expect these redeployments and deferrals to have a material impact on the
Company's financial condition or results of operations.
CAUTIONARY STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q 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 the word "believe," "expect," "estimate", "project", "may," "will,"
"should," "seek," "plan," "scheduled to," "anticipate" or "intend" 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 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,
- the Company's ability to repay the Intercompany Note when
due on April 15, 2000 or the Company's ability to refinance the
Intercompany Note at acceptable rates with acceptable terms,
- Coleman's ability to maintain and increase market share for its
products at acceptable margins,
29
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
- Coleman's ability to successfully introduce new products and to
provide on-time delivery and a satisfactory level of customer
service,
- changes in domestic and/or foreign laws and regulations, including
changes in tax laws, accounting standards, environmental laws,
occupational, health and safety laws,
- access to foreign markets together with foreign economic
and political conditions, including currency fluctuations, and
trade, monetary, fiscal and/or tax policies,
- uncertainty as to the effect of competition in existing and
potential future lines of business,
- fluctuations in the cost and/or availability of raw materials
and/or products,
- changes in the availability and/or costs of labor,
- effectiveness of advertising and marketing programs,
- product quality, including excess warranty costs, product liability
expenses and costs of product recalls,
- weather conditions which can have an unfavorable impact upon sales
of certain of Coleman's products,
- the possibility of a recession in the United States or other
countries resulting in a decrease in consumer demands for Coleman's
products,
- 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
- Coleman's sourcing of products from international vendors,
including the ability to select reliable vendors and avoid delays
in shipments.
Other factors and assumptions not included in the foregoing may
cause the Company's actual results to materially differ from those projected.
The Company assumes no obligation to update any forward-looking statements or
these cautionary statements to reflect actual results or changes in other
factors affecting such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUALITATIVE INFORMATION
Coleman uses a variety of derivative financial instruments to manage
its foreign currency and interest rate exposures. Coleman does not speculate
on interest rates or foreign currency rates. Instead, it uses derivatives
when implementing its risk management strategies to reduce the possible
effects of these exposures. See also Note 12 to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1998.
The Company's international operations are located primarily in
Europe, Japan and Canada, which are not considered to be highly inflationary
environments. With respect to foreign currency
30
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
exposures, the Company principally uses forward and option contracts to
reduce risks arising from firm commitments, anticipated intercompany sales
transactions and intercompany receivable and payable balances. Coleman is
most vulnerable to changes in United States dollar/Japanese yen (JPY), United
States dollar/Canadian dollar (CAD), United States dollar/German Deutschemark
(DM), and United States dollar/British Pound (GBP) exchange rates.
The Company's interest income and expense are most sensitive to
changes in the general level of U.S. interest rates. In this regard, changes
in U.S. interest rates affect the interest earned on the Company's cash
equivalents and short-term investments as well as interest paid on its debt.
To mitigate the impact of fluctuations in U.S. interest rates, the Company
maintains a portion of its debt as fixed rate in nature by entering into
interest rate swap transactions.
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 September 30, 1999 weighted average
interest rates. For interest rate swaps, the table presents notional amounts
and weighted average interest rates for the contracts at September 30, 1999.
Notional amounts are used to calculate the contractual payments to be
exchanged under the contracts.
Expected Maturity Date
Balance ------------------------------------------------------------
at There- Fair
9/30/99 1999 2000 2001 2002 2003 after Total Value
------- ---- ---- ---- ---- ---- ------- ------ -----
(US$ Equivalent in Millions)
Long-Term Debt:
Fixed Rate.................. $ 0.6 $ 0.1 $ 0.2 $ 0.2 $ 0.1 $ -- $ -- $ 0.6 $ 0.6
Average Interest Rate....... 5.10%
Interest Rate Derivatives:
Interest Rate Swaps:
Variable to Fixed (US$).. $ 25.0 $ -- $ -- $ -- $ -- $ 25.0 $ -- $ 25.0 $ 0.0
Average Pay Rate......... 6.12%
Average Receive Rate..... 5.37%
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
31
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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
9/30/99 (1) Value
----------- ---------
(US$ Equivalent in Millions)
Foreign Currency Short-Term Debt:
Variable Rate Credit Lines (Europe, Japan and Asia)...... $ 36.7 $ 36.7
Weighted Average Interest Rate........................... 2.2%
Forward Exchange Agreements:
(Receive US$/Pay DM)
Contract Amount....................................... $ 3.0 $ 3.3
Average Contractual Exchange Rate..................... 1.61
(Receive US$/Pay JPY)
Contract Amount....................................... $ 3.0 $ 2.7
Average Contractual Exchange Rate..................... 113.6
(Receive US$/Pay GBP)
Contract Amount....................................... $ 1.0 $ 1.0
Average Contractual Exchange Rate..................... .60
(Receive US$/Pay CAD)
Contract Amount....................................... $ 3.4 $ 3.4
Average Contractual Exchange Rate..................... 1.46
Purchased Put Option Agreements:
(Receive US$/Pay DM)
Contract Amount....................................... $ 4.3 $ 0.1
Average Strike Price.................................. 1.80
(Receive US$/Pay JPY)
Contract Amount....................................... $ 1.0 $ 0.0
Average Strike Price.................................. 125.00
(Receive US$/Pay GBP)
Contract Amount....................................... $ 0.3 $ 0.0
Average Strike Price.................................. .62
(Receive US$/Pay CAD)
Contract Amount....................................... $ 6.1 $ 0.0
Average Strike Price.................................. 1.53
- -------------------
(1) None of the instruments listed in the table have maturity dates beyond 1999.
32
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Eastpak Corporation is a defendant in a case entitled HENRY BELKIN
V. EASTPAK, INC., AND EASTPAK CORPORATION (collectively the "Eastpak
Defendants") in the Superior Court for Middlesex County, Massachusetts. Mr.
Belkin alleges in the lawsuit that he and one or both of the Eastpak
Defendants had entered into a Sales Management Agreement ("SMA") which had a
term expiring in the year 2003. Mr. Belkin alleges, among other things, that
one or both of the Eastpak Defendants terminated the SMA without cause and
claims substantial damages from lost commissions. The trial is expected to
commence in January 2000. The Eastpak Defendants intend to vigorously defend
the foregoing lawsuit, but cannot predict the outcome.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Seventh Amendment to Credit Agreement, dated as of
October 25, 1999 among Sunbeam Corporation
("Sunbeam"), 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 10.33 to
Amendment Number 4 to Sunbeam's Registration
Statement on Form S-1, Registration Number
333-71819).
10.2 Eighth Amendment to Credit Agreement, dated as of
November 16, 1999 among Sunbeam Corporation
("Sunbeam"), 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 10.1 to Sunbeam's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1999).
27 Financial Data Schedule, submitted electronically to
the Securities and Exchange Commission for
information only and not filed.
(b) Report on Form 8-K
A report on Form 8-K was filed on July 30, 1999 to disclose the
issuance of 3,000,000 shares of a newly created series of voting preferred
stock to Coleman Worldwide on July 12, 1999.
33
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COLEMAN COMPANY, INC.
Date: November 19, 1999 By: /s/ Gwen C. Wisler
------------------------ ----------------------------
Gwen C. Wisler
Executive Vice President and
Chief Financial Officer
34