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 June 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-988
THE COLEMAN COMPANY, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3639257
- ------------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2111 E. 37TH STREET NORTH, WICHITA, KANSAS 67219
- ------------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
316-832-2700
------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. __X__ Yes _____ No
The number of shares outstanding of the registrant's par value $.01 common
stock was 55,827,490 shares as of August 10, 1999 of which 44,067,520 shares
were held by Coleman Worldwide Corporation, an indirect wholly-owned
subsidiary of Sunbeam Corporation.
Exhibit Index on Page 31
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended June 30, 1999 and 1998 and
Six months ended June 30, 1999 and 1998.......................................... 3
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998.............................................. 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1999 and 1998.......................................... 5
Notes to Condensed Consolidated Financial Statements................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................... 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................... 31
Item 6. Exhibits and Reports on Form 8-K....................................................... 31
Signatures ............................................................................ 32
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 Six Months
Ended June 30, Ended June 30,
------------------------ ---------------------------
1999 1998 1999 1998
----------- ----------- ------------ ------------
Net revenues............................................ $ 400,925 $ 326,407 $ 681,615 $ 570,906
Cost of sales........................................... 270,303 231,707 468,674 407,484
----------- ----------- ------------ ------------
Gross profit............................................ 130,622 94,700 212,941 163,422
Selling, general and administrative expenses............ 68,266 58,440 129,628 132,580
Restructuring (credits) charges......................... (16) 9,570 (18) 10,285
Interest expense, net................................... 4,870 8,879 12,445 17,923
Amortization of goodwill and deferred charges........... 2,375 2,733 4,939 5,667
Loss (gain) on sale of business......................... -- 1,447 -- (24,690)
Other expense (income), net............................. 603 (317) 72 1,544
----------- ----------- ------------ ------------
Earnings before income taxes,
minority interest and extraordinary item............. 54,524 13,948 65,875 20,113
Income tax expense...................................... 20,822 8,672 25,362 16,190
Minority interest....................................... 507 179 577 240
----------- ----------- ------------ ------------
Earnings before extraordinary item...................... 33,195 5,097 39,936 3,683
Extraordinary loss on early extinguishment
of debt, net of income tax benefit.................... -- (16,306) -- (17,538)
----------- ----------- ------------ ------------
Net earnings (loss)..................................... $ 33,195 $ (11,209) $ 39,936 $ (13,855)
=========== =========== ============ ============
Basic and diluted earnings (loss) per share:
Earnings before extraordinary item.................... $ 0.59 $ 0.09 $ 0.72 $ 0.07
Extraordinary item.................................... -- (0.29) -- (0.32)
----------- ----------- ------------ ------------
Net earnings (loss)................................. $ 0.59 $ (0.20) $ 0.72 $ (0.25)
=========== =========== ============ ============
Weighted average common shares outstanding:
Basic and diluted ................................... 55,827 55,822 55,827 54,783
=========== =========== ============ ============
See Notes to Condensed Consolidated Financial Statements
3
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, December 31,
1999 1998
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 23,266 $ 23,413
Accounts and notes receivable, less allowance
of $8,933 in 1999 and $8,894 in 1998............................... 281,389 162,108
Inventories.......................................................... 240,828 230,126
Deferred tax assets.................................................. 28,583 26,926
Prepaid expenses and other current assets............................ 16,807 19,627
------------- ------------
Total current assets............................................... 590,873 462,200
Property, plant and equipment, less accumulated depreciation
of $130,335 in 1999 and $122,868 in 1998............................. 142,365 145,823
Goodwill, net........................................................... 270,016 282,015
Deferred tax assets and other assets.................................... 23,234 43,219
------------- ------------
$ 1,026,488 $ 933,257
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable........................................... $ 168,448 $ 146,064
Debt payable to affiliate............................................ 390,557 --
Other current liabilities............................................ 118,501 101,224
------------- ------------
Total current liabilities.......................................... 677,506 247,288
Debt payable to affiliate............................................... -- 365,063
Long-term debt.......................................................... 423 362
Other liabilities....................................................... 74,245 75,231
Minority interest....................................................... 8,735 6,698
Contingencies...........................................................
Stockholders' equity:
Common stock......................................................... 558 558
Additional paid-in capital........................................... 223,245 221,730
Retained earnings.................................................... 61,913 21,977
Accumulated other comprehensive loss................................. (20,137) (5,650)
------------- ------------
Total stockholders' equity......................................... 265,579 238,615
------------- ------------
$ 1,026,488 $ 933,257
============= ============
See Notes to Condensed Consolidated Financial Statements
4
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
-----------------------------
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................................................. $ 39,936 $ (13,855)
Adjustments to reconcile net earnings (loss) to net cash flows
from operating activities:
Depreciation and amortization.............................................. 16,055 18,306
Deferred income taxes...................................................... 17,489 (14,638)
Non-cash restructuring and other charges................................... -- 3,890
Minority interest.......................................................... 577 240
Gain on sale of business................................................... -- (24,690)
Extraordinary loss on early extinguishment of debt........................ -- 29,012
Changes in assets and liabilities, net of effects from sale of business:
Receivables........................................................... (125,464) (85,166)
Inventories........................................................... (17,816) (9,708)
Accounts payable...................................................... 25,078 5,414
Prepaid expenses and other current assets and liabilities............. 21,694 11,584
Other, net............................................................ 1,163 262
------------- ------------
Net cash used by operating activities........................................... (21,288) (79,349)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (12,101) (13,567)
Net proceeds from sale of business and fixed assets............................. 911 98,210
------------- ------------
Net cash (used) provided by investing activities................................ (11,190) 84,643
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit agreement borrowings........................... -- (52,578)
Net change in short-term borrowings............................................. 6,090 (236)
Repayment of long-term debt, including redemption costs......................... (57) (446,839)
Net increase in borrowings from affiliate....................................... 25,494 453,932
Proceeds from stock options exercised including tax benefits.................... -- 45,546
------------- ------------
Net cash provided (used) by financing activities................................ 31,527 (175)
------------- ------------
Effect of exchange rate changes on cash......................................... 804 1,845
------------- ------------
Net (decrease) increase in cash and cash equivalents............................ (147) 6,964
Cash and cash equivalents at beginning of the period............................ 23,413 13,031
------------- ------------
Cash and cash equivalents at end of the period.................................. $ 23,266 $ 19,995
============= ============
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 June 30, 1999.
Coleman, Sunbeam and Camper Acquisition Corp. ("CAC"), a
wholly-owned subsidiary of Sunbeam, have entered into an Agreement and Plan
of Merger (the "Coleman Merger Agreement"), providing that among other
things, CAC will be merged with and into Coleman, with Coleman continuing as
the surviving corporation (the "Coleman Merger"). Pursuant to the Coleman
Merger Agreement, each share of the Company's common stock issued and
outstanding immediately prior to the effective time of the Coleman Merger
(other than shares held indirectly by Sunbeam and shares, if any, for which
appraisal rights have been exercised) will be converted into the right to
receive (i) 0.5677 of a share of Sunbeam common stock, with cash paid in lieu
of fractional shares, and (ii) $6.44 in cash, without interest. In addition,
unexercised stock options at the time of the Coleman Merger will be cashed
out by Sunbeam at a price per share equal to the difference between $27.50
per share and the exercise price of such options. In October 1998, Coleman
and Sunbeam entered into a memorandum of understanding to settle, subject to
court approval, certain class actions brought by minority shareholders of
Coleman against Coleman, Sunbeam and certain of their current and former
officers and directors challenging the proposed Coleman Merger. Under the
terms of the proposed settlement, if approved by the court, Sunbeam will
issue to the Coleman public shareholders and plaintiffs' counsel five-year
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 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, however, that the court will
approve the settlement as proposed, although such approval is not a condition
to the consummation of the Coleman Merger.
The consummation of the Coleman Merger is conditional upon a
registration statement under the Securities Act of 1933 (the "Securities
Act") to register the shares of Sunbeam common stock to be issued in the
Coleman Merger (the "Registration Statement") becoming effective in
accordance with the provisions of the Securities Act. Sunbeam has filed the
Registration Statement, but is uncertain when the Registration Statement will
become effective. However, it is anticipated the Coleman Merger will be
completed during the second half of 1999. Upon consummation of the Coleman
Merger, Coleman will become an indirect wholly-owned subsidiary of Sunbeam.
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 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 for the year ended December 31,
1998. Operating results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for future periods
including the year ended December 31, 1999.
3. INVENTORIES
The components of inventories consist of the following:
June 30, December 31,
1999 1998
--------------- ---------------
Raw material and supplies......................... $ 45,157 $ 45,395
Work-in-process................................... 8,399 6,539
Finished goods.................................... 187,272 178,192
--------------- ---------------
$ 240,828 $ 230,126
=============== ===============
4. DEBT PAYABLE TO AFFILIATE
Sunbeam's credit facility (the "Sunbeam Credit Facility") provides
that Sunbeam will not contribute capital to Coleman or, with some exceptions,
permit Coleman to borrow money from any source other than Sunbeam. Therefore,
the Company's ability to meet its cash operating requirements, including
capital expenditures and other obligations, is dependent upon a combination
of cash flows from operations and loans to the Company from Sunbeam. Sunbeam
has informed the Company it has the positive intent and ability to fund the
Company's requirements for borrowed funds through April 10, 2000. Prior to
April 15, 1999, amounts loaned by Sunbeam to Coleman were represented by a
promissory note (the "Old Intercompany Note"), were due on demand and bore
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.
7
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements,
the lenders under the Sunbeam Credit Facility, amended and restated the Old
Intercompany Note (the "Intercompany Note"), entered into intercompany
security and pledge agreements, and entered into an amendment to the Sunbeam
Credit Facility and certain other agreements (collectively, the
"Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany
Note bears interest at an annual rate equal to (i) 4% if the three month
London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is
less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate
system is 6% or higher, subject to increases during an event of default, and
interest will be payable by adding the amount of such interest to the
principal balance of the Intercompany Note. In addition, the Intercompany
Note provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Intercompany Note and that in
certain circumstances the payment on the Intercompany Note will be
subordinate to Coleman's obligations under the Sunbeam Credit Facility.
Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all
of its domestic assets, other than its real property, including 66% of its
ownership interest in its direct foreign subsidiaries and domestic holding
companies for its foreign subsidiaries and all of its ownership interest in its
other direct domestic subsidiaries (but Coleman's subsidiaries have not
pledged their assets or stock of their subsidiaries), as security for the
Intercompany Note. Sunbeam has pledged the Intercompany Note as security for
the Sunbeam Credit Facility and assigned to such lenders the security pledged
by Coleman for the Intercompany Note. Coleman also gave the lending banks a
direct pledge of the assets securing the Intercompany Note to secure the
obligations under the Sunbeam Credit Facility, subject to a cap equal to the
balance due from time to time on the Intercompany Note.
As of June 30, 1999 the amount borrowed by the Company under the
Intercompany Note amounted to $390,557 and the applicable interest rate was
4%. The weighted average interest rate charged by Sunbeam for amounts
borrowed under the Old Intercompany Note and the Intercompany Note during the
six months ended June 30, 1999 was 5.9% and the total interest charged by
Sunbeam to Coleman was $11,489. Sunbeam also charged to Coleman a pro-rata
share of amortized debt issuance costs and unused bank credit facility
commitment fees totaling $319. Net amounts advanced from Sunbeam along with
the related unpaid interest and other costs are reflected as debt payable to
affiliate in the Company's consolidated balance sheet. Coleman is also a
borrower under the Sunbeam Credit Facility for purposes of letters of credit
issued for its account.
The Sunbeam Credit Facility provides for aggregate borrowings of up
to $1,700,000 pursuant to (i) a revolving credit facility in an aggregate
principal amount of up to $400,000 (subject to certain reductions) maturing
on March 30, 2005, of which $52,500 may only be used to complete the Coleman
Merger if the Coleman Merger does not occur prior to August 31, 1999, (ii) up
to $800,000 in term loans maturing on March 30, 2005, of which $35,000 may
only be used to complete the Coleman Merger, and (iii) a $500,000 term loan
maturing on September 30, 2006, of which $5,000 has already been repaid
through June 30, 1999. At June 30, 1999, Sunbeam had $1,410,000 of
outstanding debt under the Sunbeam Credit Facility and approximately $218,300
available for borrowing. As a result of Sunbeam's operating losses during
1998, among other things, Sunbeam 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
8
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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 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
certain 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, material adverse change arising from compliance with ERISA,
material adverse judgments, entering into guarantees, and change of ownership
and control. The Sunbeam Credit Facility, as amended, also provides it is an
event default if the registration statement for the shares of Sunbeam common
stock to be issued in the Coleman Merger is not declared effective by October
30, 1999, if Sunbeam fails to complete the Coleman Merger within 25 business
days after the related registration statement is declared effective by the
SEC, or if Sunbeam has to pay more than $87,500 (excluding expenses) in cash
to complete the Coleman Merger (including any payments made with respect to
appraisal rights). If an event of default occurs under the Sunbeam Credit
Facility or Sunbeam is unable to obtain a waiver or amendment of certain
financial covenants after April 10, 2000, the Company may be required to
reduce, delay or cancel capital or other expenditures and/or seek loans or
capital contributions from, or sell assets or capital stock to, lending
institutions and/or other third parties or affiliates. The Sunbeam Credit
Facility also requires Sunbeam to prepay term loans under the Sunbeam Credit
Facility on each of September 30, 1999 and December 31, 1999 to the extent
that cash on hand in Sunbeam's concentration accounts plus the aggregate
amount of unused revolving loan commitments on these dates, exceeds $115,000
and $125,000, respectively, but Sunbeam is not required to prepay more than
$69,300 in the aggregate as a result of the provision.
9
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
5. RESTRUCTURING CHARGES
The Company reviews the adequacy of its restructuring reserves and
adjusts the reserves as the various activities are completed or additional
information becomes available which allows the Company to refine its
estimates. During the six months ended June 30, 1999 and 1998, the Company
increased its existing reserves by $89 and $1,140, respectively, as a result
of these reviews. In addition, during the six months ended June 30, 1998, the
Company recorded additional restructuring charges totaling $9,145 which
included, (i) $8,145 of severance benefits related to approximately 76
employees whose employment with the Company was terminated following the
acquisition of the Company by Sunbeam, (ii) $1,071 of severance benefits for
approximately 110 employees at the Company's manufacturing facility in Cedar
City, Utah which was closed during June 1998, and (iii) recognition of a net
gain of $71 related to the disposition of the Company's manufacturing
facility in Cedar City, Utah.
The following tables provide an analysis of the changes in the
Company's restructuring reserves since December 31, 1998. For a detailed
description of the Company's restructuring activities, see Note 3 to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
INTEGRATION OF CAMPING GAZ AND COLEMAN
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
----------------- ---------- ---------- ---------- ------------
Charges included in cost of sales:
Write-down of inventory............... $ 446 $ -- $ 48 $ 48 $ 350
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 446 -- 48 48 350
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 7,479 -- -- 869 6,610
Other assets........................ 222 -- -- 24 198
----------- ----------- ----------- ---------- ---------
7,701 -- -- 893 6,808
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. 111 -- 9 3 99
Facility closure costs.............. 135 -- 33 2 100
Other exit activity costs, principally
sales agent termination fees...... 741 -- 428 7 306
----------- ----------- ----------- ---------- ---------
987 -- 470 12 505
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 8,688 -- 470 905 7,313
----------- ----------- ----------- ---------- ---------
Totals................................... $ 9,134 $ -- $ 518 $ 953 $ 7,663
=========== =========== =========== ========== =========
The reserve remaining at June 30, 1999 principally relates to the
write down of a vacated warehouse and an accrual for claims brought by
certain employees terminated as part of the restructuring plan. The Company
is currently unable to estimate when these issues will be fully resolved.
10
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
EXIT LOW-MARGIN PRODUCT LINES
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
----------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ 370 $ 107 $ 394 $ -- $ 83
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 370 107 394 -- 83
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 146 -- -- -- 146
----------- ----------- ----------- ---------- ---------
146 -- -- -- 146
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Other exit activity costs,
primarily product returns......... 562 -- 46 -- 516
----------- ----------- ----------- ---------- ---------
562 -- 46 -- 516
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 708 -- 46 -- 662
----------- ----------- ----------- ---------- ---------
Totals................................... $ 1,078 $ 107 $ 440 $ -- $ 745
=========== =========== =========== ========== =========
The remaining accruals at June 30, 1999 relate to products expected
to be returned and to anticipated losses on final disposal of the remaining
assets. The Company estimates the remaining disposals will occur by the end
of 1999.
CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
------------------ ---------- ---------- ---------- -----------
Restructuring accruals:
Employee severance pay and fringes.... $ 3,406 $ 70 $ 416 $ -- $ 3,060
Other exit activity costs,
primarily facility closure expenses. 1,033 -- 334 8 691
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 4,439 70 750 8 3,751
----------- ----------- ----------- ---------- ---------
Totals................................... $ 4,439 $ 70 $ 750 $ 8 $ 3,751
=========== =========== =========== ========== =========
The remaining accrual primarily relates to severance costs owed to
former Company executives under long-term severance arrangements. The unpaid
costs are expected to be paid by December 31, 2000.
11
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
CLOSE FACILITIES
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
----------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ 33 $ -- $ -- $ 3 $ 30
----------- ----------- ----------- ---------- ---------
Total included in cost of sales..... 33 -- -- 3 30
----------- ----------- ----------- ---------- ---------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ 216 -- -- 22 194
----------- ----------- ----------- ---------- ---------
216 -- -- 22 194
----------- ----------- ----------- ---------- ---------
Restructuring accruals:
Employee severance pay and fringes.. 1,254 (86) 446 12 710
Other exit activity costs,
primarily facility closure expenses 608 (2) 315 11 280
----------- ----------- ----------- ---------- ---------
1,862 (88) 761 23 990
----------- ----------- ----------- ---------- ---------
Totals included in restructuring.. 2,078 (88) 761 45 1,184
----------- ----------- ----------- ---------- ---------
Totals................................... $ 2,111 $ (88) $ 761 $ 48 $ 1,214
=========== =========== =========== ========== =========
During the six months ended June 30, 1999, of those employees
expected to be terminated, 4 employees left the Company and 14 employees
remain to be terminated. Remaining termination costs are expected to be paid
by December 31, 2000 in accordance with the long-term severance arrangements,
and no additional charges are anticipated in future periods.
EMPLOYEE TERMINATION AND SEVERANCE
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
----------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes.. $ 3,425 $ -- $ 2,046 $ -- $ 1,379
----------- ----------- ----------- ---------- ---------
Totals................................... $ 3,425 $ -- $ 2,046 $ -- $ 1,379
=========== =========== =========== ========== =========
During the six months ended June 30, 1999, of those employees
expected to be terminated, 3 employees left the Company and 5 employees
remain to be terminated. Remaining termination costs are expected to be paid
by December 31, 2000, and no additional charges are anticipated in future
periods.
6. OTHER CHARGES
During the first six months of 1998, the Company recorded other
charges totaling $13,357 ($12,931 in the first quarter of 1998 and $426 in
the second quarter of 1998) which consisted of (i) $7,242 of costs associated
with the acquisition of the Company by Sunbeam including advisory fees, (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.
12
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
7. COMPREHENSIVE INCOME
The components of the Company's comprehensive loss are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- -------------------------
1999 1998 1999 1998
----------- ---------- ----------- ------------
Net earnings (loss)........................................... $ 33,195 $ (11,209) $ 39,936 $ (13,855)
Foreign currency translation adjustment, net of tax........... (2,338) (1,385) (14,487) (3,803)
Minimum pension liability adjustment, net of tax.............. -- (169) -- (337)
----------- ---------- ----------- ------------
Comprehensive income (loss)................................... $ 30,857 $ (12,763) $ 25,449 $ (17,995)
=========== ========== =========== ============
8. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Basic earnings per share is computed using the weighted average
number of shares of outstanding common stock. Diluted earnings per share for
the three month and six month periods ended June 30, 1999 are based only on
the weighted average number of common shares outstanding during the three
month and six month periods ended June 30, 1999 because there were no
dilutive common share equivalents. Stock options to purchase 923,670 shares
of common stock were outstanding at June 30, 1999 but were not included in
the computation of common share equivalents because the option exercise price
was greater than the average market price of Coleman's common stock during
each of the respective periods. The number of shares used in the calculation
of diluted earnings per share for the three month and six month periods ended
June 30, 1998 includes 136,030 and 384,801 of common share equivalents,
respectively, to recognize the effect of dilutive stock options.
9. RELATED PARTY TRANSACTIONS
During 1999, the Company provided certain management services to
Sunbeam and its affiliates and also received certain management services from
Sunbeam and its affiliates. These services included, among other things, (i)
executive, general administrative, legal and financial services, (ii) factory
management and inventory control services, and (iii) sales and marketing
services. For the three month and six month periods ended June 30, 1999, the
cost of the services provided by the Company and charged to Sunbeam and its
affiliates in the amounts of $65 and $118, respectively, have been reflected
as a reduction in selling, general and administration ("SG&A") expenses and
the $2,805 and $5,241, respectively, of charges to Coleman for services
received by Coleman or its subsidiaries from Sunbeam and its affiliates has
been included in SG&A expenses. The cost of the services is assessed based on
actual usage or allocations of actual costs based on relative usage of
related services or time of specified personnel.
13
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133". The provisions of SFAS No. 133
will now be effective for the Company's fiscal year beginning January 1,
2001. Earlier application of the provisions of SFAS No. 133 is encouraged;
however, the Company has not determined if it will apply the provisions of
SFAS No. 133 prior to January 1, 2001, nor has the Company estimated the
impact of applying the provisions of SFAS No. 133 on the Company's statement
of financial position or on the statement of operations.
11. 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 REVENUES, PROFITS AND ASSETS
Outdoor All
Recreation Powermate Eastpak International Other Total
---------- --------- ------- ------------- ----- -----
Three Months Ended June 30, 1999:
Revenues from external customers..... $ 162,402 $ 73,476 $ 15,802 $ 146,803 $ 2,442 $ 400,925
Intersegment revenues................ 17,828 8,300 12,654 -- -- 38,782
Segment profit....................... 34,600 14,109 66 15,416 200 64,391
Three Months Ended June 30, 1998:
Revenues from external customers..... 131,073 45,898 22,908 115,323 11,205 326,407
Intersegment revenues................ 31,866 1,270 9,184 32 -- 42,352
Segment profit....................... 11,712 2,777 1,990 13,684 1,597 31,760
Six Months Ended June 30, 1999:
Revenues from external customers..... 257,548 137,994 18,885 263,300 3,888 681,615
Intersegment revenues................ 42,610 13,964 23,691 62 -- 80,327
Segment profit (loss)................ 42,833 23,433 (3,029) 24,733 (1,405) 86,565
Six Months Ended June 30, 1998:
Revenues from external customers..... 206,135 97,052 26,365 205,610 35,744 570,906
Intersegment revenues................ 52,501 1,565 19,184 112 -- 73,362
Segment profit (loss)................ 13,675 6,046 (1,320) 20,178 3,827 42,406
Segment Assets:
June 30, 1999........................ 254,989 138,610 106,240 398,305 4,238 902,392
June 30, 1998........................ 268,059 132,367 118,465 361,276 18,179 898,346
14
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 Six Months
Ended June 30, Ended June 30,
------------------------ --------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
REVENUES:
Total revenues for reportable segments................ $ 437,265 $ 357,554 $ 758,054 $ 608,524
Other revenues........................................ 2,442 11,205 3,888 35,744
Elimination of intersegment revenues.................. (38,782) (42,352) (80,327) (73,362)
------------ ----------- ------------ ------------
Total consolidated revenues........................ $ 400,925 $ 326,407 $ 681,615 $ 570,906
============ =========== =========== ============
PROFIT OR LOSS:
Total segment profit.................................. $ 64,391 $ 31,760 $ 86,565 $ 42,406
Unallocated items:
Corporate expenses................................. (2,019) (2,145) (3,234) (18,209)
Corporate restructuring charges.................... -- (2,925) -- (3,640)
Interest expense, net.............................. (4,870) (8,879) (12,445) (17,923)
Amortization of goodwill
and deferred charges............................ (2,375) (2,733) (4,939) (5,667)
(Loss) gain on sale of business.................... -- (1,447) -- 24,690
Other (expense) income, net........................ (603) 317 (72) (1,544)
------------ ----------- ------------ ------------
Earnings before income taxes, minority
interest and extraordinary item............... $ 54,524 $ 13,948 $ 65,875 $ 20,113
============ =========== ============ ============
12. SUBSEQUENT EVENT
On July 12, 1999, Coleman Worldwide acquired 3,000,000 shares of a
newly created series of Coleman voting preferred stock for an aggregate
purchase price of approximately $31,061. These shares, together with the
shares of Coleman common stock owned by Coleman Worldwide, enable Coleman
Worldwide to exercise 80.01% of the total voting power of Coleman's
outstanding capital stock as of July 12, 1999. Coleman created these shares
of preferred stock and Coleman Worldwide acquired them in order to enable
Coleman and Coleman Worldwide 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. The holders of the voting
preferred stock vote as a single class with the holders of the Coleman common
stock on all matters submitted to a vote of the holders of Coleman common
stock, with each share of voting preferred stock and each share of Coleman
common stock having one vote. The voting preferred stock has an annual
dividend equal to 7% of $10.35, the issue price of the voting preferred
stock, which accrues
15
but will not be paid in cash unless a liquidation occurs or certain
transactions are consummated as described below. In addition, the voting
preferred stock will participate ratably with the Coleman common stock in all
other dividends and distributions (other than liquidating distributions) made
by Coleman to the holders of its common stock. The voting preferred stock
will participate with the Coleman common stock in any merger, consolidation,
or any other transaction (other than a merger of a wholly owned subsidiary
of Sunbeam with Coleman, including the Coleman Merger) and will receive on a
per share basis the same type and amount of consideration as the Coleman
common stock. On liquidations: (1) the holders of the voting preferred stock
would receive a preferential distribution equal to $10.35, plus accrued and
unpaid dividends, (2) next, the holders of the Coleman common stock would
receive an amount equal to $10.35 per share of common stock and (3) any
assets remaining after such distributions would be shared by the holders of
the voting preferred stock and the Coleman common stock on a share for share
basis. In connection with the issuance of the shares of preferred stock,
Coleman entered into a tax sharing agreement with Coleman Worldwide pursuant
to which Coleman will pay to Coleman Worldwide 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 Coleman
Worldwide. 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.
16
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 CHARGES
The Company reviews the adequacy of its restructuring reserves and
adjusts the reserves as the various activities are completed or additional
information becomes available which allows the Company to refine its
estimates. During the six months ended June 30, 1999 and 1998, the Company
increased its existing reserves by $0.1 million and $1.1 million,
respectively, as a result of these reviews. In addition, during the six
months ended June 30, 1998, the Company recorded additional restructuring
charges totaling $9.1 million which included, (i) $8.1 million of severance
benefits related to approximately 76 employees whose employment with the
Company was terminated following the acquisition of the Company by Sunbeam
(the "Sunbeam Acquisition"), (ii) $1.1 million of severance benefits for
approximately 110 employees at the Company's manufacturing facility in Cedar
City, Utah which was closed during June 1998, and (iii) recognition of a net
gain of $0.1 million related to the disposition of the Company's
manufacturing facility in Cedar City, Utah.
The following tables (dollars in millions) provide an analysis of
the changes in the Company's restructuring reserves since December 31, 1998.
For a detailed description of the Company's restructuring activities see Note
3 to the consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
INTEGRATION OF CAMPING GAZ AND COLEMAN
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 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 -- -- .9 6.6
Other assets........................ .2 -- -- -- .2
-------- ------ ------- ------ ------
7.7 -- -- .9 6.8
-------- ------- ------- ------ ------
Restructuring accruals:
Employee severance pay and fringes.. .1 -- -- -- .1
Facility closure costs.............. .1 -- -- -- .1
Other exit activity costs, principally
sales agent termination fees .8 -- .5 -- .3
-------- ------- ------- ------ ------
.................................. 1.0 -- .5 -- .5
-------- ------- ------- ------ ------
Totals included in restructuring.. 8.7 -- .5 .9 7.3
-------- ------- ------- ------- ------
Totals................................... $ 9.1 $ -- $ .5 $ .9 $ 7.7
======== ======= ======= ======= ======
17
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
The reserve remaining at June 30, 1999 principally relates to the
write down of a vacated warehouse and an accrual for claims brought by
certain employees terminated as part of the restructuring plan. The Company
is unable to estimate when these issues will be fully resolved.
EXIT LOW-MARGIN PRODUCT LINES
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
---------------- ---------- ---------- ---------- -----------
Charges included in cost of sales:
Write-down of inventory............... $ .4 $ .1 $ .4 $ -- $ .1
-------- -------- -------- ------ ------
Total included in cost of sales..... .4 .1 .4 -- .1
-------- -------- -------- ------ ------
Charges included in restructuring:
Write-downs:
Fixed assets held for disposal,
not in use........................ .1 -- -- -- .1
-------- ------- -------- ------ ------
.1 -- -- -- .1
-------- ------- -------- ------ ------
Restructuring accruals:
Other exit activity costs, primarily
product returns................... .6 -- .1 -- .5
-------- ------- --------- -------- -----
.6 -- .1 -- .5
-------- ------- --------- -------- -----
Totals included in restructuring.. .7 -- .1 -- .6
-------- ------- -------- ------ ------
Totals................................... $ 1.1 $ .1 $ .5 $ -- $ .7
======== ======== ======== ======= ======
The remaining accruals at June 30, 1999 relate to products expected
to be returned and to anticipated losses on final disposal of the remaining
assets. The Company estimates the remaining disposals will occur by the end
of 1999.
CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
---------------- ---------- ---------- ---------- -----------
Restructuring accruals:
Employee severance pay and fringes.... $ 3.4 $ .1 $ .4 $ -- $ 3.1
Other exit activity costs,
primarily facility closure expenses. 1.0 -- .3 -- .7
------- ------- -------- -------- -----
Totals included in restructuring.. 4.4 .1 .7 -- 3.8
------- ------ -------- -------- -----
Totals................................... $ 4.4 $ .1 $ .7 $ -- $ 3.8
======= ====== ======== ======== =====
The remaining accrual relates primarily to severance costs owed to
Company executives under long-term severance arrangements. The unpaid costs
at June 30, 1999 are expected to be paid by December 31, 2000.
18
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CLOSE FACILITIES
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions 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) .5 -- .7
Other exit activity costs,
primarily facility closure expenses .6 -- .3 -- .3
--------- ------- -------- ------ ------
1.9 (.1) .8 -- 1.0
--------- ------- -------- ------ ------
Totals included in restructuring.. 2.1 (.1) .8 -- 1.2
--------- ------- -------- ------ ------
Totals................................... $ 2.1 $ (.1) $ .8 $ -- $ 1.2
========= ======= ======== ====== ======
During the six months ended June 30, 1999, of those employees
expected to be terminated, 4 employees left the Company and 14 employees
remain to be terminated. Remaining termination costs are expected to be paid
by December 31, 2000 in accordance with the long-term severance agreements,
and no additional charges are anticipated in future periods.
EMPLOYEE TERMINATION AND SEVERANCE
Balance at Charges Balance at
December 31, (Credits) to Cash Non-Cash June 30,
1998 Income Reductions Reductions 1999
--------------- ---------- ---------- ---------- -----------
Charges included in restructuring:
Restructuring accruals:
Employee severance pay and fringes.. $ 3.4 $ -- $ 2.0 $ -- $ 1.4
-------- -------- ------- ------- -------
Totals................................... $ 3.4 $ -- $ 2.0 $ -- $ 1.4
======== ======== ======= ======= =======
During the six months ended June 30, 1999, of those employees
expected to be terminated, 3 employees left the Company and 5 employees
remain to be terminated. Remaining termination costs are expected to be paid
by December 31, 2000, and no additional charges are anticipated in future
periods related to this issue.
OTHER CHARGES
During the first six months of 1998, the Company recorded other
charges totaling $13.4 million ($12.9 million in the first quarter and $0.5
million in the second quarter) which consisted of (i) $7.3 million of costs
associated with the acquisition of the Company by Sunbeam including advisory
fees, (ii) $3.9 million of charges associated with abandoning a company-wide
enterprise resource computer software system, and (iii) $2.2 million of costs
associated with terminating a licensing services agreement with an affiliate
of Coleman (Parent) Holdings, Inc., the then indirect parent company of
Coleman Worldwide. These costs were recorded in selling, general and
administrative ("SG&A") expenses.
19
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net revenues of $400.9 million for the three months ended June 30,
1999 were $74.5 million, or 22.8%, greater than for the three months ended
June 30, 1998. The outdoor recreation products revenues, reflecting both
United States and foreign non-hardware products, increased $34.7 million.
Revenues for the 1999 period include $12.8 million of revenues from sales of
Sunbeam grills and other Sunbeam appliances which Coleman began selling
primarily in Europe and Canada in late 1998 and early 1999, respectively. In
addition, revenues for the 1998 period include $8.4 million of revenues from
sales of the Company's spa related products, a business which was sold during
1998. Adjusting revenues for the 1999 period to exclude the Sunbeam product
revenues and adjusting the 1998 period to exclude the spa related product
revenues results in comparable outdoor recreation 1999 period products
revenues increasing $30.3 million, or 11.3%, over 1998 period revenues. This
increase occurred in nearly all product categories, primarily reflecting
strong retail replenishment demand and what the Company believes is
heightened consumer sensitivity to the need for emergency preparedness,
including Year 2000 considerations. The Company experienced unusually weak
retail replenishment demand in the second quarter of 1998. The hardware
products revenues increase of $39.8 million includes $6.7 million of revenues
from sales of Sunbeam's First Alert products which Coleman began selling
internationally, primarily in Europe, in late 1998. Excluding the revenues
from these First Alert products, the hardware products revenues reflected an
increase of $33.1 million, or 67.5%, over comparable 1998 revenues primarily
reflecting an increase in generator sales attributable to what the Company
believes is heightened consumer sensitivity to the need for emergency
preparedness, including power shortages arising from poor weather conditions
and Year 2000 considerations. Geographically, United States revenues
increased $46.9 million, or 22.7%, and foreign revenues increased $27.6
million, or 23.0%, over the 1998 period revenues. The United States revenues
for the 1998 period include revenues from the Company's spa business which
was sold during 1998. Excluding these revenues from the 1998 period, United
States revenues in 1999 reflected an increase of $55.3 million, or 27.9%,
over the 1998 period revenues. Excluding the Sunbeam product revenues from
the foreign revenues in the 1999 period, foreign revenues in 1999 reflected
an increase of $8.1 million, or 6.8%, over the 1998 period revenues.
Gross profit for the three months ended June 30, 1999 was $130.6
million as compared to $94.7 million for the three months ended June 30,
1998. Higher sales volume and favorable manufacturing efficiencies resulting
from higher production levels associated with the higher sales volume in the
1999 period accounted for primarily all of the increase in gross profit.
Although the Company has experienced improved gross margins in 1999, the
Company continues to rationalize its international production capabilities.
The Company is evaluating the elimination of at least one international
manufacturing facility and expects to complete that evaluation by December
31, 1999.
SG&A expenses, excluding the impact of $0.5 million of other charges
in the three months ended June 30, 1998 and described above, were $68.3
million for the three months ended June 30, 1999 compared to $58.0 million
for the 1998 period. The overall dollar increase in SG&A expenses is
primarily due to increased selling costs associated with the increase in 1999
sales partially offset by the reduction in SG&A expenses associated with the
Company's spa business which was sold during 1998 and whose total SG&A
expenses during the second quarter of 1998 were $1.5 million. SG&A expenses
as a percent of net revenues decreased to 17.0% in 1999 from 17.8% in 1998 as
revenues grew faster than SG&A expenses.
Interest expense was $4.9 million for the three months ended June
30, 1999 compared with $8.9 million in the 1998 period, a decrease of $4.0
million. Approximately 35% of this decrease is
20
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
attributable to lower borrowings with the balance of the decrease primarily
attributable to a reduction in the interest rate on amounts borrowed from
Sunbeam.
Minority interest represents the interest of minority shareholders
in the Company's subsidiary operations in the Philippines, Indonesia, and
Canada.
The Company recorded a provision for income tax expense of $20.8
million or 38.2% of pre-tax earnings in 1999 compared to a provision for
income tax expense of $8.7 million in 1998. The 1999 income tax provision
reflects $1.2 million of tax expense due to the impact of decreased foreign
tax rates on deferred tax assets. The 1998 income tax provision reflects the
write-off of approximately $3.8 million deferred tax assets that became
unrealizable as a result of the Sunbeam Acquisition. Excluding these items,
the 1999 effective income tax rate would have been approximately 36.0% and
the 1998 effective income tax rate would have been approximately 34.9%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net revenues of $681.6 million for the six months ended June 30,
1999 were $110.7 million, or 19.4%, greater than for the six months ended
June 30, 1998. The outdoor recreation products revenues, reflecting both
United States and foreign non-hardware products, increased $61.8 million.
Revenues for the 1999 period include $19.2 million of revenues from sales of
Sunbeam grills and other Sunbeam appliances which Coleman began selling
primarily in Europe and Canada in late 1998 and early 1999, respectively. In
addition, revenues for the 1998 period include $13.5 million of revenues from
sales of the Company's spa related products, a business which was sold during
1998. Adjusting revenues for the 1999 period to exclude the Sunbeam product
revenues and adjusting the 1998 period to exclude the spa related product
revenues results in comparable outdoor recreation products 1999 period
revenues increasing $56.1 million, or 12.8%, over 1998 period revenues. This
increase occurred in nearly all product categories, primarily reflecting
strong retail replenishment demand and what the Company believes is
heightened consumer sensitivity to the need for emergency preparedness,
including Year 2000 considerations. The Company experienced unusually weak
retail replenishment demand in the first half of 1998. The hardware products
revenues increase of $48.9 million includes $13.1 million of revenues from
sales of Sunbeam's First Alert products which Coleman began selling
internationally, primarily in Europe, in late 1998. In addition, revenues for
the 1998 period include $16.3 million of revenues from the Company's safety
and security business which was sold in March 1998. Excluding the revenues
from these First Alert products and the safety and security business
products, the hardware products revenues reflected an increase of $52.1
million, or 51.0%, over comparable 1998 revenues primarily reflecting an
increase in generator sales attributable to what the Company believes is
heightened consumer sensitivity to the need for emergency preparedness,
including power shortages arising from poor weather conditions and Year 2000
considerations. Geographically, United States revenues increased $62.4
million, or 17.6%, and foreign revenues increased $48.3 million, or 22.4%,
over the 1998 period revenues. The United States revenues for the 1998 period
includes revenues from the Company's safety and security business and spa
business, both of which were sold during 1998. Excluding these revenues from
the 1998 period, United States revenues in 1999 reflected an increase of
$92.2 million or 28.3%, over the 1998 period revenues. Excluding the Sunbeam
product revenues from the foreign revenues in the 1999 period, foreign
revenues in 1999 reflected an increase of $16.0 million, or 7.4%, over the
1998 period revenues.
Gross profit for the six months ended June 30, 1999 was $212.9
million as compared to $163.4 million for the six months ended June 30, 1998.
Higher sales volume and favorable
21
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
manufacturing efficiencies resulting from higher production levels associated
with the higher sales volume in the 1999 period accounted for primarily all
of the increase in gross profit.
SG&A expenses, excluding the impact of $13.4 million of other
charges in the six months ended June 30, 1998 as described above, were $129.5
million for the six months ended June 30, 1999 compared to $119.2 million in
the 1998 period. The overall dollar increase in SG&A expenses is primarily
due to increased selling costs associated with the increase in 1999 sales
partially offset by the reduction in SG&A expenses associated with the
Company's safety and security business and spa business, both of which were
sold during 1998, and whose total SG&A expenses during the 1998 period were
$6.9 million. SG&A expenses as a percent of net revenues decreased to 19.0%
in 1999 from 20.9% in 1998 as revenues grew faster than SG&A expenses.
Interest expense was $12.4 million for the six months ended June 30,
1999 compared with $17.9 million in the 1998 period, a decrease of $5.5
million. Approximately 59% of this decrease is attributable to lower
borrowings with the balance of the decrease primarily attributable to a
reduction in the interest rate on amounts borrowed from Sunbeam.
Minority interest represents the interest of minority shareholders
in the Company's subsidiary operations in the Philippines, Indonesia, and
Canada.
The Company recorded a provision for income tax expense of $25.4
million or 38.5% of pre-tax earnings in 1999 compared to a provision for
income tax expense of $16.2 million in 1998. The 1999 income tax provision
reflects $1.2 million of tax expense due to the impact of decreased foreign
tax rates on deferred tax assets. The 1998 income tax provision reflects,
among other things, (i) the write-off of approximately $5.5 million deferred
tax assets that became unrealizable as a result of the Sunbeam Acquisition,
(ii) $0.4 million of tax expense due to the impact of decreased foreign tax
rates on deferred tax assets, and (iii) the impact of $7.2 million
non-deductible costs associated with the Sunbeam Acquisition. Excluding these
items, the 1999 effective income tax rate would have been approximately 36.7%
and the 1998 effective income tax rate would have been approximately 37.6%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $21.3 million and $79.3
million of cash during the six months ended June 30, 1999 and 1998,
respectively. The Company's higher working capital needs during the 1999
period were largely offset by higher operating profits. Receivables and
inventories increased $125.5 million and $17.8 million, respectively, in the
six months ended June 30, 1999 as compared to $85.6 million and $9.7 million,
respectively, in the six months ended June 30, 1998. The overall increase in
receivables and inventories in 1999 as compared to 1998 is largely due to a
higher level of business activity in 1999. The Company's capital expenditures
were $12.1 million and $13.6 million in the six months ended June 30, 1999
and 1998, respectively. Net cash provided by financing activities for the six
months ended June 30, 1999, primarily reflects borrowings under the
Intercompany Note to fund the Company's operating activities and capital
expenditures. During the six months ended June 30, 1998, the $45.5 million of
proceeds from stock option exercises along with $453.9 million of borrowings
from Sunbeam and the proceeds from the sale of the Company's safety and
security business and sales of fixed assets of $98.2 million were used to,
among other things, (i) repay the $116.0 million outstanding indebtedness
under the
22
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Company's then existing credit agreement (ii) redeem the Company's various
senior notes at a cost of $383.4 million, and (iii) fund the Company's
operating activities and capital expenditures.
The Company's uses of cash for 1999 are expected to be primarily for
working capital and capital expenditure requirements. The Company's ability
to meet its cash operating requirements, including capital expenditures and
other obligations, is dependent upon a combination of cash flows from
operations and loans to the Company from Sunbeam. Sunbeam has informed the
Company it has the positive intent and ability to fund the Company's
requirements for borrowed funds through April 10, 2000. Prior to April 15,
1999, amounts loaned by Sunbeam to Coleman were represented by a promissory
note (the "Old Intercompany Note"), were due on demand and bore interest at a
floating rate equivalent to the weighted average interest rate incurred by
Sunbeam on its outstanding convertible debt and borrowings under its bank
credit facility.
On April 15, 1999, Coleman, Sunbeam and, as to certain agreements,
the lenders under the Sunbeam Credit Facility, amended and restated the Old
Intercompany Note (the "Intercompany Note"), entered into intercompany
security and pledge agreements, and entered into an amendment to the Sunbeam
Credit Facility and certain other agreements (collectively, the
"Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany
Note bears interest at an annual rate equal to (i) 4% if the three month
London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is
less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate
system is 6% or higher, subject to increases during an event of default, and
interest will be payable by adding the amount of such interest to the
principal balance of the Intercompany Note. In addition, the Intercompany
Note provides that an event of default under the Sunbeam Credit Facility will
constitute an event of default under the Intercompany Note and that in
certain circumstances the payment on the Intercompany Note will be
subordinate to Coleman's obligations under the Sunbeam Credit Facility.
Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all
of its domestic assets, other than its real property, including 66% of its
ownership interest in its direct foreign subsidiaries and domestic holding
companies for its foreign subsidiaries and all of its ownership interest in
its other direct domestic subsidiaries (but Coleman's subsidiaries have not
pledged their assets or stock of their subsidiaries), as security for the
Intercompany Note. Sunbeam has pledged the Intercompany Note as security for
the Sunbeam Credit Facility and assigned to such lenders the security pledged
by Coleman for the Intercompany Note. Coleman also gave the lending banks a
direct pledge of the assets securing the Intercompany Note to secure the
obligations under the Sunbeam Credit Facility, subject to a cap equal to the
balance due from time to time on the Intercompany Note.
As of June 30, 1999 the amount borrowed by the Company under the
Intercompany Note amounted to $390.6 million and the applicable interest rate
was 4%. The weighted average interest rate charged by Sunbeam for amounts
borrowed under the Old Intercompany Note and the Intercompany Note during the
six months ended June 30, 1999 was 5.9% and the total interest charged by
Sunbeam to Coleman was $11.5 million. Sunbeam also charged to Coleman a
pro-rata share of amortized debt issuance costs and unused bank credit
facility commitment fees totaling $0.3 million. Net amounts advanced from
Sunbeam along with the related unpaid interest and other costs are reflected
as debt payable to affiliate in the Company's consolidated balance sheet.
Coleman is also a borrower under the Sunbeam Credit Facility for purposes of
letters of credit issued for its account.
The Sunbeam Credit Facility provides for aggregate borrowings of up
to $1,700.0 million
23
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
pursuant to (i) a revolving credit facility in an aggregate principal amount
of up to $400.0 million (subject to certain reductions) maturing on March 30,
2005, of which $52.5 million may only be used to complete the Coleman Merger
if the Coleman Merger does not occur prior to August 31, 1999, (ii) up to
$800.0 million in term loans maturing on March 30, 2005, of which $35.0
million may only be used to complete the Coleman Merger, and (iii) a $500.0
million term loan maturing on September 30, 2006, of which $5.0 million has
already been repaid through June 30, 1999. At June 30, 1999, Sunbeam had
$1,410.0 million of outstanding debt under the Sunbeam Credit Facility and
approximately $218.3 million available for borrowing. As a result of
Sunbeam's operating losses during 1998, among other things, Sunbeam was not
in compliance with the financial covenants and other terms contained in the
Sunbeam Credit Facility. In April 1999, Sunbeam and its lenders entered into
an amendment to the Sunbeam Credit Facility which amended and added certain
financial covenants and other terms and waived compliance with certain other
financial covenants and other terms through April 10, 2000. At the end of
June 1999, approximately $233.5 million was available to the Company under
the Sunbeam Credit Facility either through letters of credit borrowings or
loans from Sunbeam. In addition, at the same time, Sunbeam's cash balance
available for debt repayment was approximately $15.2 million.
Borrowings under the Sunbeam Credit Facility are secured by a pledge
of the stock of Sunbeam's material subsidiaries, including Coleman, and by a
security interest in substantially all of the assets of Sunbeam and its
material subsidiaries, other than Coleman and its subsidiaries except as
otherwise described herein. Currently, Coleman's inventory and related assets
are pledged to secure its obligations for letters of credit issued for its
account under the Sunbeam Credit Facility.
The Sunbeam Credit Facility contains covenants customary for credit
facilities of a similar nature, and events of default customary for
transactions of this type. The Sunbeam Credit Facility requires that the
registration statement for the shares of Sunbeam common stock to be issued in
the Coleman Merger be declared effective by October 30, 1999, and that the
Coleman Merger be consummated no more than 25 business days after such
registration statement is declared effective. Sunbeam is also required to
maximize its subsidiaries' utilization of available foreign credit facilities
and Sunbeam's accounts receivable facility and to comply with specified
financial covenants and ratios. If an event of default occurs under the
Sunbeam Credit Facility or Sunbeam is unable to obtain a waiver or amendment
of certain financial covenants after April 10, 2000, the Company may be
required to reduce, delay or cancel capital or other expenditures and/or seek
loans or capital contributions from, or sell assets or capital stock to,
lending institutions and/or other third parties or affiliates. There can be
no assurance that any of such transactions could be consummated or if
consummated, would be on favorable terms or in amounts sufficient to permit
the Company to meets its cash requirements, or that any of such transactions
would be permitted under Sunbeam's debt instruments then in effect. See Note
13 to the Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
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.
24
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
YEAR 2000 READINESS DISCLOSURE
The Company is continuing the process of assessing the impact of the
Year 2000 on its operations. The Company is being assisted in its review and
remediation work by Sunbeam's Year 2000 Program Management Office and
consulting firms employed by Sunbeam. The Company has completed an inventory
of its hardware and software systems, manufacturing equipment, electronic
data interchange telecommunications and other technical assets potentially
subject to Year 2000 problems, such as security and telephone systems and
controls for lighting, heating, ventilation and facility access.
Additionally, the Company is assessing the effects of noncompliance by its
vendors, service providers, customers and financial institutions.
The Company relies on its information technology functions to
perform many tasks that are critical to its operations. Significant
transactions that could be impacted by Year 2000 noncompliance include, among
others, purchases of materials, production management, order entry and
fulfillment, and payroll processing. Systems and applications that have been
identified by the Company to date as not currently Year 2000 compliant that
are critical to the Company's operations include certain of its financial
software systems, which process the order entry, purchasing, production
management, general ledger, accounts receivable, and accounts payable
functions, and critical applications in the Company's manufacturing and
distribution facilities.
The Company's corrective work to achieve Year 2000 compliance has
included the following: (i) installation of Year 2000 compliant JD Edwards
software which has recently been completed in one location; (ii) the
installation of Year 2000 compliant JBA software in one location which is
substantially complete; (iii) remediation of software codes for existing
programs in another location which is substantially complete; and (iv)
installation of Year 2000 compliant JD Edwards software which is scheduled to
be completed in another location in September 1999. This last location has
significant Year 2000 issues. Coleman's failure to complete a timely
conversion of this location to a Year 2000 compliant system could have a
material impact on the Company's operations. Management believes that,
although there are significant systems that are being or will be modified or
replaced, Coleman's information systems environment will be made Year 2000
compliant prior to January 1, 2000.
As of June 30, 1999, the Company had expended approximately $8.5
million related to remediation of Year 2000 issues, of which approximately
$5.7 million was recorded as SG&A expenses and the remainder as capital
expenditures. The Company's preliminary assessment of the total costs to
address and remedy Year 2000 issues is approximately $14.0 million. This
estimate includes the costs of software and hardware modifications and
replacements, and fees to third party consultants, but excludes the costs
associated with Company employees. The Company expects these expenditures to
be financed through operating cash flows or borrowings, as applicable. There
can be no assurance that these preliminary estimates will not change as the
Company completes its assessment of the Year 2000 issues.
The Company's Year 2000 program was developed and is monitored with
the help of independent consultants. Therefore, with the exception of certain
aspects of the Company's Year 2000 readiness program, the Company did not
engage another independent third party to verify the program's overall
approach or total cost. However, the Company believes that through its use of
various external consulting firms which perform significant roles within the
program, the Company's
25
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
exposure in this regard is mitigated. In addition, through the use of
external third party diagnostic software packages that are designed to
analyze the Year 2000 readiness in the software code which the Company is
remediating, the Company believes that it has also mitigated its risk by
validating and verifying key program components.
The Company has contacted its major vendors and suppliers of
products and services to determine their Year 2000 readiness, and is
continuing to monitor their status with respect to such plans. This review
includes third party providers to whom the Company has outsourced the
processing of its cash receipt and cash disbursement transactions and its
payroll. The Company is currently assessing the vendor responses and will
conduct additional reviews, including on-site meetings, if deemed necessary,
with any major suppliers who have not indicated their readiness for the Year
2000. The failure of certain of these third party suppliers to become Year
2000 compliant could have a material adverse impact on the Company. The
Company will also contact its customers to determine if they are prepared for
Year 2000 issues. Their failure to evaluate and prepare for Year 2000 issues
could have a material adverse effect on Coleman's operations.
The Company plans to establish a contingency plan for addressing any
effects of the Year 2000 on its operations, whether due to noncompliance of
the Company's systems or those of third parties. The Company expects to
complete such contingency plan by September 30, 1999 and expects that such
contingency plan will include an analysis of the Company's worst case
scenario and will address alternative processes, such as manual procedures to
replace those processed by noncompliant systems, electronic spreadsheets,
potential alternative service providers, and plans to address compliance
issues as they arise. At this time, the Company believes that the most likely
"worst-case" scenario relating to Year 2000 issues generally involves
potential disruptions in areas in which the Company's operations must rely on
vendors, suppliers and customers whose systems may not work properly after
January 1, 2000. While such failures could either directly or indirectly
affect important operations of the Company and its subsidiaries in a
significant manner, the Company cannot at present estimate either the
likelihood or the potential cost of such failures. However, subject to the
nature of the systems and applications of the Company or third parties which
are not made Year 2000 compliant, the impact of such non-compliance on the
Company's operations could be material if appropriate contingency plans
cannot be developed prior to January 1, 2000.
Because Year 2000 readiness is critical to the business, the Company
has redeployed some resources from non-critical system enhancements to
address Year 2000 issues. In addition, due to the importance of information
systems to the Company's business, management has deferred
non-mission-critical systems enhancements as much as possible. The Company
does not expect these redeployments and deferrals to have a material impact
on the Company's financial condition or results of operations.
CAUTIONARY STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q 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
26
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
historical facts, including statements about the Company's beliefs and
expectations, are forward-looking statements. Forward-looking statements can
be identified by, among other things, the use of forward-looking language,
such as "believe," "expects," "estimates", "projects", "may," "will,"
"should," "seeks," "plans," "scheduled to," "anticipates" or "intends" or the
negative of those terms, or other variations of those terms or comparable
language, or by discussions of strategy or intentions. Forward-looking
statements speak only as of the date they are made, and the Company
undertakes no obligation to update them. These forward-looking statements
were based on various factors and were derived utilizing numerous important
assumptions and other important factors that could cause actual results to
differ materially from those in the forward-looking statements. These
cautionary statements are being made pursuant to the Act, with the intention
of obtaining the benefits of the "Safe Harbor" provisions of the Act. The
Company cautions investors that any forward-looking statements made by the
Company are not guarantees of future performance. Important assumptions and
other important factors that could cause actual results to differ materially
from those contained in the forward-looking statements with respect to the
Company include, but are not limited to risks associated with:
- high leverage,
- Sunbeam having sufficient borrowing capacity or other funds to lend
to the Company to satisfy the Company's cash needs,
- unavailability of sufficient cash flows from operations and
borrowings from Sunbeam, and the inability of the Company to secure
loans or capital contributions from, or sell assets or capital
stock to, lending institutions and/or other third parties or
affiliates,
- Sunbeam's ability to comply with the terms of the Sunbeam Credit
Facility, and to continue to have access to its revolving credit
facility,
- Coleman's ability to maintain and increase market shares for its
products at acceptable margins,
- Coleman's ability to successfully introduce new products and to
provide on-time delivery and a satisfactory level of customer
service,
- changes in domestic and/or foreign laws and regulations, including
changes in tax laws, accounting standards, environmental laws,
occupational, health and safety laws,
- access to foreign markets together with foreign economic and
political conditions, including currency fluctuations, and trade,
monetary, fiscal and/or tax policies,
- uncertainty as to the effect of competition in existing and
potential future lines of business,
- fluctuations in the cost and/or availability of raw materials
and/or products,
- changes in the availability and/or costs of labor,
- effectiveness of advertising and marketing programs,
- product quality, including excess warranty costs, product liability
expenses and costs of product recalls,
- weather conditions which are adverse to the specific businesses of
Coleman,
- the possibility of a recession in the United States or other
countries resulting in a decrease in consumer demands for Coleman's
products,
- 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,
27
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
- combinations or other actions by retail customers that adversely
affect sales or profitability,
- actions by competitors including business combinations, new product
offerings and marketing and promotional activities,
- failure of Coleman and/or its customers and suppliers of goods or
services to timely complete the remediation of computer systems to
effectively process Year 2000 information,
- any material error in evaluating levels of retail inventories and
the related impact on operations, and
- Coleman's sourcing of products from international vendors,
including the ability to select reliable vendors and avoid delays
in shipments.
Other factors and assumptions not included in the foregoing may
cause the Company's actual results to materially differ from those projected.
The Company assumes no obligation to update any forward-looking statements or
these cautionary statements to reflect actual results or changes in other
factors affecting such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUALITATIVE INFORMATION
Coleman uses a variety of derivative financial instruments to manage
its foreign currency and interest rate exposures. Coleman does not speculate
on interest rates or foreign currency rates. Instead, it uses derivatives
when implementing its risk management strategies to reduce the possible
effects of these exposures. See also Note 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.
28
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
QUANTITATIVE INFORMATION
Set forth below are tabular presentations of certain information
related to Coleman's investments in market risk sensitive instruments. All of
the instruments set forth in the following tables have been entered into by
Coleman for purposes other than trading.
Interest Rate Sensitivity. The table below provides information
about Coleman's derivative financial instruments and other financial
instruments that are sensitive to changes in interest rates, including
interest rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows by
expected maturity date and related June 30, 1999 weighted average interest
rates. For interest rate swaps, the table presents notional amounts and
weighted average interest rates for the contracts at June 30, 1999. Notional
amounts are used to calculate the contractual payments to be exchanged under
the contracts.
Expected Maturity Date
Balance -------------------------------------------------------------------
at There- Fair
6/30/99 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...... 4.60%
Interest Rate Derivatives:
Interest Rate Swaps:
Variable to Fixed (US$).. $ 25.0 $ -- $ -- $ -- $ -- $ 25.0 $ -- $ 25.0 $ (0.1)
Average Pay Rate......... 6.12%
Average Receive Rate..... 5.00%
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.
29
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Balance
at Fair
6/30/99 (1) Value
----------- -----
(US$ Equivalent in Millions)
Foreign Currency Short-Term Debt:
Variable Rate Credit Lines (Europe, Japan and Asia)............................... $ 48.0 $ 48.0
Weighted Average Interest Rate.................................................... 2.7%
Forward Exchange Agreements:
(Receive US$/Pay DM)
Contract Amount............................................................... $ 6.0 $ 6.8
Average Contractual Exchange Rate............................................. 1.62
(Receive US$/Pay JPY)
Contract Amount............................................................... $ 6.0 $ 6.2
Average Contractual Exchange Rate............................................. 114.17
(Receive US$/Pay GBP)
Contract Amount............................................................... $ 2.0 $ 2.1
Average Contractual Exchange Rate............................................. .60
(Receive US$/Pay CAD)
Contract Amount............................................................... $ 3.4 $ 3.4
Average Contractual Exchange Rate............................................. 1.46
Purchased Put Option Agreements:
(Receive US$/Pay DM)
Contract Amount............................................................... $ 10.9 $ 0.5
Average Strike Price.......................................................... 1.80
(Receive US$/Pay JPY)
Contract Amount............................................................... $ 11.6 $ 0.1
Average Strike Price.......................................................... 125.00
(Receive US$/Pay GBP)
Contract Amount............................................................... $ 0.7 $ 0.0
Average Strike Price.......................................................... .62
(Receive US$/Pay CAD)
Contract Amount............................................................... $ 30.2 $ 0.1
Average Strike Price.......................................................... 1.53
- -------------------
(1) None of the instruments listed in the table have maturity dates beyond 1999.
30
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
----------- -----------
3.1 /X/ Certificate of Designation, Preferences and
Rights of Series A Participating Preferred Stock
of The Coleman Company, Inc., dated as of July
9, 1999.
10.1 Sixth Amendment to Credit Agreement, dated as of
May 25, 1999 among Sunbeam Corporation
("Sunbeam"), the Subsidiary Borrowers referred
to therein, the Lenders party thereto, Morgan
Stanley Senior Funding, Inc., Bank America
National Trust and Savings Association and First
Union National Bank (incorporated by reference
to Exhibit 10.32 to Amendment Number 2 to
Sunbeam's Registration Statement on Form S-1,
Registration Number 333-71819).
10.2 /X/ Tax Sharing Agreement, dated as of July 12, 1999
by and among Sunbeam Corporation and The Coleman
Company, Inc.
27 Financial Data Schedule, submitted
electronically to the Securities and Exchange
Commission for information 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
June 30, 1999.
31
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: August 13, 1999 By: /s/ Gwen C. Wisler
------------------------- --------------------------------
Gwen C. Wisler
Executive Vice President and
Chief Financial Officer
32