UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended MARCH 31, 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 May 12, 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 23
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998....................................... 3
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998............................................. 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 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........................................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 23
Item 6. Exhibits and Reports on Form 8-K....................................................... 23
Signatures ........................................................................... 24
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
Ended March 31,
-----------------------------
1999 1998
------------ ------------
Net revenues................................................................ $ 280,690 $ 244,499
Cost of sales............................................................... 198,371 175,777
------------ ------------
Gross profit................................................................ 82,319 68,722
Selling, general and administrative expenses................................ 61,360 74,855
Interest expense, net....................................................... 7,575 9,044
Amortization of goodwill and deferred charges............................... 2,564 2,934
Gain on sale of business.................................................... -- (26,137)
Other (income) expense, net................................................. (531) 1,861
------------ ------------
Earnings before income taxes,
minority interest and extraordinary item............................... 11,351 6,165
Income tax expense.......................................................... 4,540 7,518
Minority interest........................................................... 70 61
------------ ------------
Earnings (loss) before extraordinary item................................... 6,741 (1,414)
Extraordinary loss on early extinguishment
of debt, net of income tax benefit........................................ -- (1,232)
------------ ------------
Net earnings (loss)......................................................... $ 6,741 $ (2,646)
------------ ------------
------------ ------------
Basic and diluted earnings (loss) per share:
Earnings (loss) before extraordinary item................................. $ 0.12 $ (0.03)
Extraordinary item........................................................ -- (0.02)
------------ ------------
Net earnings (loss)..................................................... $ 0.12 $ (0.05)
------------ ------------
------------ ------------
Weighted average common shares outstanding:
Basic and diluted ........................................................ 55,827 53,732
------------ ------------
------------ ------------
See Notes to Condensed Consolidated Financial Statements
3
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
1999 1998
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 18,508 $ 23,413
Accounts and notes receivable, less allowance
of $8,695 in 1999 and $8,894 in 1998............................... 222,453 162,108
Inventories.......................................................... 253,409 230,126
Deferred tax assets.................................................. 28,403 26,926
Prepaid expenses and other current assets............................ 17,524 19,627
------------- ------------
Total current assets............................................... 540,297 462,200
Property, plant and equipment, less accumulated depreciation
of $125,613 in 1999 and $122,868 in 1998............................. 141,028 145,823
Goodwill, net........................................................... 274,262 282,015
Deferred tax assets and other assets.................................... 36,645 43,219
------------- ------------
$ 992,232 $ 933,257
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable........................................... $ 160,619 $ 146,064
Other current liabilities............................................ 106,370 101,224
------------- ------------
Total current liabilities.......................................... 266,989 247,288
Debt payable to affiliate............................................... 407,771 365,063
Long-term debt.......................................................... 435 362
Other liabilities....................................................... 74,315 75,231
Minority interest....................................................... 8,000 6,698
Contingencies...........................................................
Stockholders' equity:
Common stock......................................................... 558 558
Additional paid-in capital........................................... 223,245 221,730
Retained earnings.................................................... 28,718 21,977
Accumulated other comprehensive loss................................. (17,799) (5,650)
------------- ------------
Total stockholders' equity......................................... 234,722 238,615
------------- ------------
$ 992,232 $ 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)
Three Months
Ended March 31,
-----------------------------
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................................................. $ 6,741 $ (2,646)
Adjustments to reconcile net earnings (loss) to net cash flows
from operating activities:
Depreciation and amortization.............................................. 8,138 9,508
Minority interest.......................................................... 70 61
Gain on sale of business................................................... -- (26,137)
Extraordinary loss on early extinguishment of debt......................... -- 2,038
Change in assets and liabilities, net of effects from sale of business:
Increase in receivables.............................................. (65,104) (34,531)
Increase in inventories.............................................. (28,832) (31,043)
Increase in accounts payable......................................... 15,466 4,177
Other, net........................................................... 14,541 (5,036)
------------- ------------
Net cash used by operating activities........................................... (48,980) (83,609)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (3,919) (9,698)
Net proceeds from sale of business and fixed assets............................. 568 98,264
------------- ------------
Net cash (used) provided by investing activities................................ (3,351) 88,566
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit agreement borrowings........................... -- (52,578)
Net change in short-term borrowings............................................. 5,468 (3,352)
Repayment of long-term debt, including redemption costs......................... (53) (63,416)
Net increase in borrowings from affiliate....................................... 42,708 90,711
Proceeds from stock options exercised including tax benefits.................... -- 31,805
------------- ------------
Net cash provided by financing activities....................................... 48,123 3,170
------------- ------------
Effect of exchange rate changes on cash......................................... (697) 340
------------- ------------
Net (decrease) increase in cash and cash equivalents............................ (4,905) 8,467
Cash and cash equivalents at beginning of the period............................ 23,413 13,031
------------- ------------
Cash and cash equivalents at end of the period.................................. $ 18,508 $ 21,498
------------- ------------
------------- ------------
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"). Coleman Worldwide owns 44,067,520 shares of
the common stock of Coleman which represented approximately 79% of the
outstanding Coleman common stock as of March 31, 1999.
Coleman, Sunbeam and Camper Acquisition Corp. ("CAC"), a wholly-owned
subsidiary of Sunbeam, have entered into an Agreement and Plan of Merger (the
"Coleman Merger Agreement"), providing that among other things, CAC will be
merged with and into Coleman, with Coleman continuing as the surviving
corporation (the "Coleman Merger"). Pursuant to the Coleman Merger Agreement,
each share of the Company's common stock issued and outstanding immediately
prior to the effective time of the Coleman Merger (other than shares held
indirectly by Sunbeam and shares, if any, for which appraisal rights have
been exercised) will be converted into the right to receive (a) 0.5677 of a
share of Sunbeam common stock, with cash paid in lieu of fractional shares,
and (b) $6.44 in cash, without interest. In addition, unexercised stock
options at the time of the Coleman Merger will be cashed out by Sunbeam at a
price per share equal to the difference between $27.50 per share and the
exercise price of such options. In October 1998, Coleman and Sunbeam entered
into a memorandum of understanding to settle, subject to court approval,
certain class actions brought by minority shareholders of Coleman against
Coleman, Sunbeam and certain of their current and former officers and
directors challenging the proposed Coleman Merger. Under the terms of the
proposed settlement, if approved by the court, Sunbeam will issue to the
Coleman public shareholders five-year warrants to purchase up to 4.98 million
shares of Sunbeam common stock at $7.00 per share, subject to certain
anti-dilution provisions. Any shareholder who does not exercise his appraisal
rights under Delaware law will receive the warrants. These warrants will be
issued when the Coleman Merger is consummated, which is now expected to be
during the second half of 1999. There can be no assurance that the court will
approve the settlement as proposed, although such approval is not a condition
to the consummation of the Coleman Merger.
The consummation of the Coleman Merger is contingent upon several
conditions including, among other things, the filing of a registration
statement under the Securities Act of 1933 (the "Securities Act") for the
purpose of registering the shares of Sunbeam common stock to be issued in the
Coleman Merger (the "Registration Statement") and that the Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act. Sunbeam has filed a preliminary Registration Statement,
but is uncertain when the Registration Statement will become effective.
However, it is anticipated the Coleman Merger will be completed during the
second half of 1999. Upon consummation of the Coleman Merger, Coleman will
become an indirect wholly-owned subsidiary of Sunbeam.
6
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Coleman 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 for
the year ended December 31, 1998. Operating results for the three months
ended March 31, 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:
March 31, December 31,
1999 1998
--------------- ---------------
Raw material and supplies......................... $ 48,818 $ 45,395
Work-in-process................................... 8,370 6,539
Finished goods.................................... 196,221 178,192
--------------- ---------------
$ 253,409 $ 230,126
--------------- ---------------
--------------- ---------------
4. DEBT PAYABLE TO AFFILIATE
Since Sunbeam's credit facility (the "Sunbeam Credit Facility") provides
that Sunbeam will not contribute capital to Coleman or, with some exceptions,
permit Coleman to borrow money from any source other than Sunbeam, 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 that it has the positive intent and ability to fund the
Company's requirements for borrowed funds through April 10, 2000. Amounts
loaned by Sunbeam are represented by a promissory note (the "Intercompany
Note") which totaled $407,771 at March 31, 1999 and until the amendment and
restatement of the Intercompany Note described below, were due on demand. For
1998 and through April 15, 1999, the Intercompany Note bore interest at a
floating rate equivalent to the weighted
7
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
average interest rate incurred by Sunbeam on its outstanding convertible debt
and borrowings under its bank credit facility. The weighted average interest
rate charged by Sunbeam on the Intercompany Note during the three months
ended March 31, 1999 was 7.3% and the total interest charged by Sunbeam to
Coleman was $7,173. Sunbeam also charged to Coleman a pro-rata share of
amortized debt issuance costs and unused bank credit facility commitment fees
totaling $277. 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 condensed consolidated balance sheet. Coleman is also a
borrower under the Sunbeam Credit Facility for purposes of letters of credit
borrowings.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements, the
lenders under the Sunbeam Credit Facility entered into an amended and
restated Intercompany Note (the "Amended Intercompany Note"), intercompany
security and pledge agreements, an amendment to the Sunbeam Credit Facility
and certain other agreements (collectively, the "Agreements"). The Amended
Intercompany Note is due April 15, 2000. The Amended Intercompany Note bears
interest at an annual rate equal to (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 Amended Intercompany Note. In addition, the Amended Intercompany Note
provides an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Amended Intercompany Note and in
certain circumstances the payment on the Amended Intercompany Note will be
subordinate to Coleman's obligations under the Sunbeam Credit Facility.
Pursuant to the Agreements, Coleman has pledged 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
domestic subsidiaries (but Coleman's subsidiaries have not pledged their
assets or stock of their subsidiaries), as security for the Amended
Intercompany Note. Sunbeam has pledged the Amended Intercompany Note as
security for the Sunbeam Credit Facility and assigned to such lenders the
security pledged by Coleman for the Amended Intercompany Note. Under the
Agreements, Coleman also agreed to give the lenders a direct pledge of the
assets securing the Amended 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 Amended Intercompany Note.
The Sunbeam Credit Facility provides for a revolving credit facility in
an aggregate principal amount of up to $400,000 (subject to certain
reductions) maturing March 31, 2005. In addition, pursuant to the Sunbeam
Credit Facility, at March 31, 1999, Sunbeam had approximately $1,260,000
outstanding debt consisting of two tranches of term loans with scheduled
repayments through maturity on March 31, 2005 and September 30, 2006. As a
result of Sunbeam's operating losses, Sunbeam was not in compliance with the
financial covenants and other terms contained in the Sunbeam Credit Facility.
As of June 30, 1998, Sunbeam entered into an agreement with its bank lenders
which waived Sunbeam's compliance through December 31, 1998. On October 19,
1998, Sunbeam's bank lenders agreed to extend this waiver through April 10,
1999. In April 1999, the
8
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
waiver was extended to April 10, 2000, and the Sunbeam Credit Facility was
amended to add certain financial covenants and other terms. 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 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 specified events.
Borrowings under the Sunbeam Credit Facility are secured by a pledge of
the stock of Sunbeam's material subsidiaries and by a security interest in
substantially all of the assets of Sunbeam and its material domestic
subsidiaries (other than Coleman and its subsidiaries, except as otherwise
described herein), including the Amended Intercompany Note. Sunbeam has
pledged its shares of Coleman common stock and its shares of Sunbeam
Corporation (Canada) Limited ("Sunbeam Canada") common stock owned by it as
security under the Sunbeam Credit Facility. In addition, borrowings under the
Sunbeam Credit Facility are guaranteed by a number of Sunbeam's wholly-owned
material United States subsidiaries (but not Coleman) and such subsidiary
guarantees are secured as described above. Coleman has pledged its inventory
(but not that of its subsidiaries) and the proceeds from the sale of such
inventory as collateral for its letter of credit borrowings under the Sunbeam
Credit Facility.
The Sunbeam Credit Facility contains covenants customary for credit
facilities of a similar nature, including limitations on the ability of
Sunbeam and its subsidiaries, including Coleman, to, among other things, (i)
declare dividends or repurchase stock, (ii) prepay, redeem or repurchase
debt, incur liens and engage in sale-leaseback transactions, (iii) make loans
and investments, (iv) incur additional debt and maintain revolving loan
balances, (v) amend or otherwise alter material agreements or enter into
restrictive agreements, (vi) make capital and Year 2000 testing and
remediation expenditures, (vii) engage in mergers, acquisitions and asset
sales, (viii) engage in transactions with affiliates, (ix) alter its fiscal
year or accounting policies, (x) enter into hedging agreements, (xi) settle
litigations, (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
and insolvency, ERISA, judgments and change of ownership and control. The
Sunbeam Credit Facility, as amended, also provides it is an event default if
the registration statement for the shares of Sunbeam common stock to be
issued in the Coleman Merger is not declared effective by October 30, 1999,
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 merger (including any payments made with respect to appraisal rights).
9
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
5. RESTRUCTURING AND OTHER CHARGES
The Company continuously reviews the adequacy of its restructuring
reserves and adjusts the reserves as the various activities are completed or
additional information becomes available which allows the Company to refine
its estimates. During the three months ended March 31, 1999, the Company
reduced its reserves by $558 as a result of these reviews. During the three
months ended March 31, 1998, the Company increased its reserves by $715 as a
result of these reviews. In addition, during the three months ended March 31,
1998, the Company recorded other charges totaling $12,931 resulting from
expenses associated with the acquisition of the Company by Sunbeam including
advisory fees, abandoning a company-wide enterprise resource computer
software system, and terminating a licensing services agreement.
The following table provides an analysis of the changes in the Company's
restructuring reserves since December 31, 1998. For detailed information
regarding the Company's restructuring charges see Note 3 to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
Inventory Idle
Impairment and Other Facilities
of Fixed Asset Termination and Other
Assets Impairments Costs Exit Costs Total
----------- ----------- ----------- ----------- ----------
Balance at December 31, 1998............... $ 8,066 $ 1,809 $ 8,656 $ 3,339 $ 21,870
1999 (Credits) Charges..................... (325) (602) -- 369 (558)
Activity................................... (663) (436) (2,502) (676) (4,277)
----------- ----------- ----------- ----------- ----------
Balance at March 31, 1999.................. $ 7,078 $ 771 $ 6,154 $ 3,032 $ 17,035
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Significant components of the restructuring reserves at March 31, 1999
are as follows:
IMPAIRMENT OF FIXED ASSETS - This primarily represents the reserve for
loss on disposition of an idle warehouse.
TERMINATION COSTS - This represents severance benefits associated with
the termination of employees following the acquisition of the Company by
Sunbeam (the "Sunbeam Acquisition") and for employees who were terminated as
part of the Company's restructuring plans during 1997 and 1998. All
termination benefits are expected to be paid by December 31, 2000.
IDLE FACILITIES AND OTHER EXIT COSTS - This primarily relates to costs
to be expended to complete the closing of two foreign facilities.
10
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
6. COMPREHENSIVE LOSS
The components of the Company's comprehensive loss are as follows:
Three Months
Ended March 31,
-----------------------------
1999 1998
------------- ------------
Net earnings (loss)............................................ $ 6,741 $ (2,646)
Foreign currency translation adjustment, net of tax............ (12,149) (2,418)
Minimum pension liability adjustment, net of tax............... -- (168)
------------- ------------
Comprehensive loss............................................. $ (5,408) $ (5,232)
------------- ------------
------------- ------------
7. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic earnings per share is computed using the weighted average number
of shares of outstanding common stock. Diluted earnings per share for the
three months ended March 31, 1999 is based only on the weighted average
number of common shares outstanding during the three months ended March 31,
1999 because there were no common share equivalents. Stock options to
purchase 923,670 shares of common stock were outstanding at March 31, 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 years. Diluted earnings
per share for the three months ended March 31, 1998 is based only on the
weighted average number of common shares outstanding during the three months
ended March 31, 1998 as the inclusion of 633,571 common share equivalents
would have been antidilutive.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires an entity
to recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. SFAS No.
133 will be effective for the Company's fiscal year beginning January 1,
2000. Earlier application of the provisions of SFAS No. 133 is encouraged;
however, the Company has not determined if it will apply the provisions of
SFAS No. 133 prior to January 1, 2000, nor has the Company estimated the
impact of applying the provision of SFAS No. 133 on the Company's statement
of financial position or on the statement of operations.
11
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
9. SEGMENT INFORMATION
For detailed information regarding the Company's reportable segments,
see Note 18 to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
INFORMATION ABOUT SEGMENT PROFITS AND SEGMENTS ASSETS
Outdoor All
Recreation Powermate Eastpak International Other Total
---------- ---------- -------- ------------- --------- -----------
Three Months Ended March 31, 1999:
Revenues from external customers..... $ 95,146 $ 64,518 $ 3,083 $ 116,497 $ 1,446 $ 280,690
Intersegment revenues................ 24,782 5,664 11,035 64 -- 41,545
Segment profit (loss)................ 9,545 9,324 (3,095) 9,317 (1,605) 23,486
Segment assets....................... 239,405 138,071 88,061 382,450 5,395 853,382
Three Months Ended March 31, 1998:
Revenues from external customers..... 75,062 51,154 3,457 90,287 24,539 244,499
Intersegment revenues................ 20,635 295 10,000 80 -- 31,010
Segment profit (loss)................ 1,963 3,269 (3,310) 6,500 2,230 10,652
Segment assets....................... 275,428 133,654 96,702 342,209 15,706 863,699
RECONCILIATION OF SELECTED SEGMENT INFORMATION TO THE COMPANY'S CONSOLIDATED
TOTALS
Three Months
Ended March 31,
---------------------------
1999 1998
------------ -------------
REVENUES:
Total revenues for reportable segments..................................... $ 320,789 $ 250,970
Other revenues............................................................. 1,446 24,539
Elimination of intersegment revenues....................................... (41,545) (31,010)
------------ -------------
Total consolidated revenues.............................................. $ 280,690 $ 244,499
------------ -------------
------------ -------------
PROFIT OR LOSS:
Total segment profit....................................................... $ 23,486 $ 10,652
Unallocated items:
Corporate expenses....................................................... (3,079) (5,358)
Corporate restructuring credits (charges)................................ 552 (11,427)
Interest expense, net.................................................... (7,575) (9,044)
Amortization of goodwill and deferred charges............................ (2,564) (2,934)
Gain on sale of business................................................. -- 26,137
Other income (expense), net.............................................. 531 (1,861)
------------ -------------
Earnings before income taxes, minority interest
and extraordinary item............................................. $ 11,351 $ 6,165
------------ -------------
------------ -------------
12
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 for the year ended December 31, 1998.
RESULTS OF OPERATIONS
RESTRUCTURING AND OTHER CHARGES
The Company continuously reviews the adequacy of its restructuring
reserves and adjusts the reserves as the various activities are completed or
additional information becomes available which allows the Company to refine
its estimates. During the three months ended March 31, 1999, the Company
reduced its reserves by $0.6 million as a result of these reviews. During the
three months ended March 31, 1998, the Company increased its reserves by $0.7
million as a result of these reviews. In addition, during the three months
ended March 31, 1998, the Company recorded other charges totaling $12.9
million resulting from expenses associated with the Sunbeam Acquisition
including advisory fees, abandoning a company-wide enterprise resource
computer software system, and terminating a licensing services agreement.
The following table (dollars in millions) provides an analysis of the
changes in the Company's restructuring reserves since December 31, 1998. For
detailed information regarding the Company's restructuring charges see Note 3
to the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
Inventory Idle
Impairment and Other Facilities
of Fixed Asset Termination and Other
Assets Impairments Costs Exit Costs Total
------ ----------- ----------- ---------- -------
Balance at December 31, 1998............... $ 8.1 $ 1.8 $ 8.7 $ 3.3 $ 21.9
1999 (Credits) Charges..................... (0.3) (0.6) -- 0.3 (0.6)
Activity................................... (0.7) (0.4) (2.5) (0.7) (4.3)
------ ------- -------- ------- -------
Balance at March 31, 1999.................. $ 7.1 $ 0.8 $ 6.2 $ 2.9 $ 17.0
------ ------- -------- ------- -------
------ ------- -------- ------- -------
Significant components of the restructuring reserves at March 31, 1999
are as follows:
IMPAIRMENT OF FIXED ASSETS - This primarily represents the reserve for
loss on disposition of an idle warehouse.
TERMINATION COSTS - This represents severance benefits associated with
the termination of employees following the Sunbeam Acquisition and for
employees who were terminated as part of the
13
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Company's restructuring plans during 1997 and 1998. All termination benefits
are expected to be paid by December 31, 2000.
IDLE FACILITIES AND OTHER EXIT COSTS - This primarily relates to costs
to be expended to complete the closing of two foreign facilities.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THE THREE MONTHS ENDED MARCH
31, 1998
Net revenues of $280.7 million for the three months ended March 31, 1999
were $36.2 million or 14.8% greater than for the three months ended March 31,
1998. The outdoor recreation products revenues, reflecting both United States
and foreign non-hardware products, increased $33.6 million or 19.1% and
occurred in nearly all product categories, primarily reflecting strong retail
replenishment demand. The Company experienced unusually weak retail
replenishment demand in the first quarter of 1998. The hardware products
revenues increase of $2.6 million includes the impact of the loss of revenues
from the Company's safety and security business in 1999 due to the sale of
this business in March 1998. Excluding the revenues of this business, the
hardware products revenues reflected an increase of $18.9 million, or 36.2%,
over comparable 1998 revenues reflecting an increase in generator revenues
attributable to increased awareness of power shortages arising from poor
weather conditions and other events partially offset by a decline in
compressor revenues. Geographically, United States revenues increased $15.5
million, or 10.4%, and foreign revenues increased $20.7 million, or 21.6%.
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 $36.8 million or 28.9%.
Gross profit for the three months ended March 31, 1999 was $82.3 million
as compared to $68.7 million for the three months ended March 31, 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.
Selling, general and administrative ("SG&A") expenses, excluding the
impact of restructuring credits of $0.6 million in 1999 and restructuring and
other charges of $13.6 million in 1998, which are more fully described above,
were $61.9 million or 22.1% of net revenues in 1999 compared to $61.2 million
or 25.0% of net revenues in 1998. 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
first quarter of 1998 were $5.4 million. SG&A expenses as a percent of net
revenues decreased to 22.1% in 1999 from 25.0% in 1998 as revenues grew
faster than SG&A expenses.
Interest expense was $7.6 million in 1999 compared with $9.0 million in
1998, a decrease of $1.4 million. The decrease in interest expense reflects
the favorable effects of lower borrowings.
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 $4.5 million
or 40.0% of pre-tax earnings in 1999 compared to a provision for income tax
expense of $7.5 million in 1998. The
14
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
1998 income tax provision reflects, among other things, (i) the write-off of
approximately $1.7 million deferred tax assets that became unrealizable as a
result of the change of control in the Company at the time of the Sunbeam
Acquisition, (ii) $0.4 million of tax expense due to the impact of decreased
foreign tax rates on deferred tax assets, and (iii) the impact of $7.1
million non-deductible costs associated with the Sunbeam Acquisition.
Excluding these items, the 1998 effective income tax rate would have been
approximately 40.8%.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities during the three months ended March
31, 1999 was $49.0 million compared to $83.6 million for the three months
ended March 31, 1998. This decrease is attributable to higher earnings before
non-cash charges and gain on sale of business. During the three months ended
March 31, 1999, receivables increased $65.1 million and inventories increased
approximately $28.8 million as a result of the seasonality of the Company's
sales. The Company's capital expenditures were $3.9 million during the three
months ended March 31, 1999.
The Company's uses of cash for 1999 are expected to be primarily for
working capital and capital expenditure requirements. Since the Sunbeam
Credit Facility provides that Sunbeam will not contribute capital to Coleman
or, with some exceptions, permit Coleman to borrow money from any source
other than Sunbeam, 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 that it has the
positive intent and ability to fund the Company's requirements for borrowed
funds through April 10, 2000. Amounts loaned by Sunbeam are represented by
the Intercompany Note which totaled $407.8 million at March 31, 1999 and,
until the amendment and restatement of the Intercompany Note described below,
were due on demand. For 1998 and through April 15, 1999, the Intercompany
Note 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 which during the three months ended
March 31, 1999 was 7.3%. Coleman is a borrower under the Sunbeam Credit
Facility for purposes of letters of credit borrowings.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements, the
lenders under the Sunbeam Credit Facility entered into the Agreements,
including the Amended Intercompany Note, intercompany security and pledge
agreements, an amendment to the Sunbeam Credit Facility and certain other
agreements. The Amended Intercompany Note is due April 15, 2000. The Amended
Intercompany Note bears interest at an annual rate equal to (i) 4% if the
three month 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 Amended
Intercompany Note. In addition, the Amended Intercompany Note provides an
event of default under the Sunbeam Credit Facility will constitute an event
of default under the Amended Intercompany Note and in certain circumstances
the payment on the Amended Intercompany Note will be subordinate to Coleman's
obligations under the Sunbeam Credit Facility. Pursuant to the Agreements,
Coleman has pledged 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 domestic subsidiaries (but
Coleman's subsidiaries have
15
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
not pledged their assets or stock of their subsidiaries), as security for the
Amended Intercompany Note. Sunbeam has pledged the Amended Intercompany Note
as security for the Sunbeam Credit Facility and assigned to such lenders the
security pledged by Coleman for the Amended Intercompany Note. Under the
Agreements, Coleman also agreed to give the lenders a direct pledge of the
assets securing the Amended 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 Amended Intercompany Note.
The Sunbeam Credit Facility provides for a revolving credit facility in
an aggregate principal amount of up to $400.0 million (subject to certain
reductions) maturing March 31, 2005. In addition, pursuant to the Sunbeam
Credit Facility, at March 31, 1999, Sunbeam had approximately $1,260.0
million outstanding debt consisting of two tranches of term loans with
scheduled repayments through maturity on March 31, 2005 and September 30,
2006. As a result of Sunbeam's operating losses, Sunbeam was not in
compliance with the financial covenants and other terms contained in the
Sunbeam Credit Facility. As of June 30, 1998, Sunbeam entered into an
agreement with its bank lenders which waived Sunbeam's compliance through
December 31, 1998. On October 19, 1998, Sunbeam's bank lenders agreed to
extend this waiver through April 10, 1999. In April 1999, the waiver was
extended to April 10, 2000, and the Sunbeam Credit Facility was amended to
add certain financial covenants and other terms. At the end of March 1999,
approximately $230.0 million was available to the Company under the Sunbeam
Credit Facility either through letters of credit borrowings or loans from
Sunbeam.
Borrowings under the Sunbeam Credit Facility are secured by a pledge of
the stock of Sunbeam's material subsidiaries and by a security interest in
substantially all of the assets of Sunbeam and its material domestic
subsidiaries (other than Coleman and its subsidiaries, except as otherwise
described herein), including the Amended Intercompany Note. Sunbeam has
pledged its shares of Coleman common stock and its shares of Sunbeam Canada
common stock owned by it as security under the Sunbeam Credit Facility. In
addition, borrowings under the Sunbeam Credit Facility are guaranteed by a
number of Sunbeam's wholly-owned material United States subsidiaries (but not
Coleman) and such subsidiary guarantees are secured as described above.
Coleman has pledged its inventory (but not that of its subsidiaries) and the
proceeds from the sale of such inventory as collateral for its letter of
credit borrowings under the Sunbeam Credit Facility.
The Sunbeam Credit Facility contains covenants customary for credit
facilities of a similar nature, and events of default customary for
transactions of this type. Sunbeam is also required to comply with specified
financial covenants and ratios. If an event of default occurs under the
Sunbeam Credit Facility or Sunbeam is unable to refinance the Sunbeam Credit
Facility or obtain another waiver or amendment of certain financial covenants
and other terms by the time its existing waiver expires on 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 13 to the
16
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
EXPOSURE TO MARKET RISK
QUALITATIVE INFORMATION
Coleman uses a variety of derivative financial instruments to manage its
foreign currency and interest rate exposures. Coleman does not speculate on
interest rates or foreign currency rates. Instead, it uses derivatives when
implementing its risk management strategies to reduce the possible effects of
these exposures. See also Note 11 to the Consolidated Financial Statements in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The Company's international operations are located primarily in Europe,
Japan and Canada, which are not considered to be highly inflationary
environments. With respect to foreign currency exposures, the Company
principally uses forward and option contracts to reduce risks arising from
firm commitments, anticipated intercompany sales transactions and
intercompany receivable and payable balances. Coleman is most vulnerable to
changes in United States dollar/Japanese yen (JPY), United States
dollar/Canadian dollar (CAD), United States dollar/German Deutschemark (DM),
and United States dollar/British Pound (GBP) exchange rates.
The Company's interest income and expense are most sensitive to changes
in the general level of U.S. interest rates. In this regard, changes in U.S.
interest rates affect the interest earned on the Company's cash equivalents
and short-term investments as well as interest paid on its debt. To mitigate
the impact of fluctuations in U.S. interest rates, the Company maintains a
portion of its debt as fixed rate in nature by entering into interest rate
swap transactions.
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.
17
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
For debt obligations, the table presents principal cash flows by
expected maturity date and related March 31, 1999 weighted average interest
rates. For interest rate swaps, the table presents notional amounts and
weighted average interest rates for the contracts at March 31, 1999. Notional
amounts are used to calculate the contractual payments to be exchanged under
the contracts.
Expected Maturity Date
Balance -----------------------------------------------------------
at There- Fair
3/31/99 1999 2000 2001 2002 2003 after Total Value
------- ------ ----- ----- ---- ---- ------- ------ -----
(US$ Equivalent in Millions)
Long-Term Debt:
Fixed Rate.................. $ 0.6 $ 0.1 $ 0.2 $ 0.1 $ 0.1 $ 0.1 $ -- $ 0.6 $ 0.6
Average Interest Rate....... 2.91%
Interest Rate Derivatives:
Interest Rate Swaps:
Variable to Fixed (US$).. $ 25.0 $ -- $ -- $ -- $ -- $ 25.0 $ -- $ 25.0 $ (0.6)
Average Pay Rate......... 6.12%
Average Receive Rate..... 5.08%
EXCHANGE RATE SENSITIVITY. The table below provides information about
Coleman's foreign currency derivative financial instruments and other
financial instruments, including forward exchange agreements, by functional
currency and presents such information in U.S. dollar equivalents. The table
summarizes information on instruments and transactions that are sensitive to
foreign currency exchange rates, including foreign currency variable rate
credit lines, foreign currency forward exchange agreements and foreign
currency purchased put option contracts. For debt obligations, the table
represents principal cash flows and related weighted average interest rates
by expected maturity dates. For foreign currency forward exchange agreements
and foreign currency put option contracts, the table presents the notional
amounts and weighted average exchange rates by expected (contractual)
maturity dates. These notional amounts generally are used to calculate the
contractual payments to be exchanged under the contract.
Balance
at Fair
3/31/99 (1) Value
----------- -----
(US$ Equivalent in Millions)
Foreign Currency Short-Term Debt:
Variable Rate Credit Lines (Europe, Japan and Asia).......... $ 48.4 $ 48.4
Weighted Average Interest Rate............................... 2.8%
Forward Exchange Agreements:
(Receive US$/Pay DM)
Contract Amount........................................ $ 9.0 $ 9.9
Average Contractual Exchange Rate...................... 1.62
(Receive US$/Pay JPY)
Contract Amount........................................ $ 9.0 $ 9.2
Average Contractual Exchange Rate...................... 114.73
(Receive US$/Pay GBP)
Contract Amount........................................ $ 3.5 $ 3.6
Average Contractual Exchange Rate...................... .60
18
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Purchased Put Option Agreements:
(Receive US$/Pay DM)
Contract Amount........................................ $ 15.8 $ 0.4
Average Strike Price................................... 1.80
(Receive US$/Pay JPY)
Contract Amount........................................ $ 12.4 $ 0.3
Average Strike Price................................... 125.0
(Receive US$/Pay GBP)
Contract Amount........................................ $ 1.4 $ 0.0
Average Strike Price................................... .62
(Receive US$/Pay CAD)
Contract Amount........................................ $ 15.0 $ 0.1
Average Strike Price................................... 1.54
- ------------------
(1) None of the instruments listed in the table have maturity dates beyond
1999.
SEASONALITY
The Company's sales generally are highest in the second quarter of the
year and lowest in the fourth quarter. As a result of this seasonality, the
Company has generally incurred a loss in the fourth quarter. The Company's
sales may be affected by unseasonable weather conditions.
YEAR 2000 READINESS DISCLOSURE
The Company is continuing the process of assessing the impact of the
Year 2000 on its operations. The Company is being assisted in its review and
remediation work by Sunbeam's Year 2000 Program Management Office and
consulting firms employed by Sunbeam. The Company has completed an inventory
of its hardware and software systems, manufacturing equipment, electronic
data interchange, telecommunications and other technical assets potentially
subject to Year 2000 problems, such as security and telephone systems and
controls for lighting, heating, ventilation and facility access.
Additionally, the Company is assessing the effects of noncompliance by its
vendors, service providers, customers and financial institutions.
The Company relies on its information technology functions to perform
many tasks critical to its operations. Significant transactions that could be
impacted by Year 2000 noncompliance include, among others, purchases of
materials, production management, order entry and fulfillment, and payroll
processing. Systems and applications that have been identified by the Company
to date as not currently Year 2000 compliant that are critical to the
Company's operations include certain of its financial software systems, which
process the order entry, purchasing, production management, general ledger,
accounts receivable, and accounts payable functions, and critical
applications in the Company's manufacturing and distribution facilities.
The Company's corrective work to achieve Year 2000 compliance has
included the following: (i) installation of Year 2000 compliant JD Edwards
software which has recently been completed in one location and is scheduled
to be completed in another location in September of 1999; (ii) the
installation of Year 2000 compliant JBA software in one location which is
scheduled to be completed
19
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
by June 1999; and (iii) remediation of software codes for existing programs
in another location which is scheduled to be completed by July of 1999. The
Company has identified one of these locations as possessing significant Year
2000 issues. Coleman's failure to complete a timely conversion of this
location to a Year 2000 compliant system could have a material impact on the
Company's operations. Management believes, although there are significant
systems that are being or will be modified or replaced, Coleman's information
systems environment will be made Year 2000 compliant prior to January 1, 2000.
As of March 31, 1999, the Company had expended approximately $6.0
million related to remediation of Year 2000 issues, of which approximately
$5.0 million was recorded as SG&A expenses and the remainder as capital
expenditures. The Company's preliminary assessment of the total costs to
address and remedy Year 2000 issues is approximately $12.0 million. This
estimate includes the costs of software and hardware modifications and
replacements, and fees to third party consultants, but excludes the costs
associated with Company employees. The Company expects these expenditures to
be financed through operating cash flows or borrowings, as applicable. There
can be no assurance that these preliminary estimates will not change as the
Company completes its assessment of the Year 2000 issues. Additionally, the
Sunbeam Credit Facility does not permit Sunbeam and its subsidiaries,
including Coleman and its subsidiaries, to spend more than $50.0 million in
the aggregate on Year 2000 testing and remediation during the year ended
December 31, 1999. Sunbeam currently expects that for 1999, Year 2000 testing
and remediation spending for Sunbeam and its subsidiaries, including Coleman
and its subsidiaries, will total approximately $41.0 million.
With the exception of certain aspects of the Company's Year 2000
readiness program, the Company did not engage an independent third party to
verify the program's overall approach or total cost. However, the Company
believes through its use of various external consulting firms which perform
significant roles within the program, the Company's exposure in this regard
is mitigated. In addition, through the use of external third party diagnostic
tools which helped to identify potential Year 2000 issues in the software
code which the Company is remediating, the Company believes it has also
mitigated its risk by validating and verifying key program components.
The Company has contacted its major vendors and suppliers of products
and services to determine their Year 2000 readiness, and is continuing to
monitor their status with respect to such plans. This review includes third
party providers to whom the Company has outsourced the processing of its cash
receipt and cash disbursement transactions and its payroll. The Company is
currently assessing the vendor responses and will conduct additional reviews,
including on-site meetings, if deemed necessary, with any major suppliers who
have not indicated their readiness for the Year 2000. The failure of certain
of these third party suppliers to become Year 2000 compliant could have a
material adverse impact on the Company. The Company will also contact its
customers to determine if they are prepared for Year 2000 issues. Their
failure to evaluate and prepare for Year 2000 issues could have a material
adverse effect on Coleman's operations.
The Company plans to establish a contingency plan for addressing any
effects of the Year 2000 on its operations, whether due to noncompliance of
the Company's systems or those of third parties. The Company expects to
complete such contingency plan by September 30, 1999 and expects such
contingency plan will include an analysis of the Company's worst case
scenario and will address
20
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
alternative processes, such as manual procedures to replace those processed
by noncompliant systems, potential alternative service providers, and plans
to address compliance issues as they arise. At this time, the Company
believes the most likely "worst-case" scenario relating to Year 2000 issues
generally involves potential disruptions in areas in which the Company's
operations must rely on vendors, suppliers and customers whose systems may
not work properly after January 1, 2000. While such failures could either
directly or indirectly affect important operations of the Company and its
subsidiaries in a significant manner, the Company cannot at present estimate
either the likelihood or the potential cost of such failures. However,
subject to the nature of the systems and applications of the Company or third
parties which are not made Year 2000 compliant, the impact of such
non-compliance on the Company's operations could be material if appropriate
contingency plans cannot be developed prior to January 1, 2000.
Because Year 2000 readiness is critical to the business, the Company has
redeployed some resources from non-critical system enhancements to address
Year 2000 issues. In addition, due to the importance of information systems
to the Company's business, management has deferred non-mission-critical
systems enhancements as much as possible. The Company does not expect these
redeployments and deferrals to have a material impact on the Company's
financial condition or results of operations.
CAUTIONARY STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q 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
from time to time. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Statements that are not historical facts,
including statements about the Company's beliefs and expectations, are
forward-looking statements. Forward-looking statements can be identified by,
among other things, the use of forward-looking language, such as "believe,"
"expects," "estimates", "projects", "may," "will," "should," "seeks,"
"plans," "scheduled to," "anticipates" or "intends" or the negative of those
terms, or other variations of those terms or comparable language, or by
discussions of strategy or intentions. Forward-looking statements speak only
as of the date they are made, and the Company undertakes no obligation to
update them. These forward-looking statements were based on various factors
and were derived utilizing numerous important assumptions and other important
factors that could cause actual results to differ materially from those in
the forward-looking statements. These cautionary statements are being made
pursuant to the Act, with the intention of obtaining the benefits of the
"Safe Harbor" provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance. Important assumptions and other important factors that could
cause actual results to differ materially from those contained in the
forward-looking statements with respect to the Company include, but are not
limited to risks associated with:
- high leverage,
21
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
- 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, or to continue to obtain waivers from its bank lenders with
respect to compliance with the existing covenants contained in the
Sunbeam Credit Facility, and to continue to have access to its
revolving credit facility,
- Coleman's ability to maintain and increase market shares for its
products at acceptable margins,
- Coleman's ability to successfully introduce new products and to provide
on-time delivery and a satisfactory level of customer service,
- changes in domestic and/or foreign laws and regulations, including
changes in tax laws, accounting standards, environmental laws,
occupational, health and safety laws,
- access to foreign markets together with foreign economic and political
conditions, including currency fluctuations, and trade, monetary,
fiscal and/or tax policies,
- uncertainty as to the effect of competition in existing and potential
future lines of business,
- fluctuations in the cost and/or availability of raw materials and/or
products,
- changes in the availability and/or costs of labor,
- effectiveness of advertising and marketing programs,
- product quality, including excess warranty costs, product liability
expenses and costs of product recalls,
- weather conditions which are adverse to the specific businesses of
Coleman,
- the possibility of a recession in the United States or other countries
resulting in a decrease in consumer demands for Coleman's products,
- ability of third party service providers that have been engaged to
provide services such as factory maintenance and certain back office
administrative services to timely and accurately provide their services
to the Company,
- changes in consumer preferences or a decrease in the public's interest
in camping and related activities,
- combinations or other actions by retail customers that adversely affect
sales or profitability,
- actions by competitors including business combinations, new product
offerings and marketing and promotional activities, and
- 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.
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.
22
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
4.1 /X/ Intercompany Pledge and Security Agreement, dated as
of April 15, 1999, between The Coleman Company, Inc.
and Sunbeam Corporation.
4.2 /X/ Intercompany Security Agreement dated as of April 15,
1999, between The Coleman Company, Inc. and Sunbeam
Corporation.
27 /X/ Financial Data Schedule, submitted electronically to
the Securities and Exchange Commission for
information only and only and not filed.
------------------
/X/ Filed herewith
(b) Report on Form 8-K
No reports on Form 8-K were filed during the quarter ended March
31, 1999.
23
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: May 19, 1999 By: /s/ Gwen C. Wisler
------------------------- -----------------------------------------
Gwen C. Wisler
Executive Vice President and
Chief Financial Officer
24