-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KMrwbpGlDoEM+ACrelkSv81f0hqnvgBdkXg/N7nJ+gdWPBcCoNMmUE0wVM4I7Fe9 6nqxgrc+R9J38lgwQfe95g== 0000912057-99-003882.txt : 19991109 0000912057-99-003882.hdr.sgml : 19991109 ACCESSION NUMBER: 0000912057-99-003882 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLEMAN CO INC CENTRAL INDEX KEY: 0000021627 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 133639257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-00988 FILM NUMBER: 99743099 BUSINESS ADDRESS: STREET 1: 2111 E 37TH STREET NORTH STREET 2: SUITE 300 CITY: WICHITA STATE: KS ZIP: 67219- BUSINESS PHONE: (316)-832-2700 MAIL ADDRESS: STREET 1: 2111 E 37TH STREET NORTH STREET 2: SUITE 300 CITY: WICHITA STATE: KS ZIP: 67219- 10-Q/A 1 FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1999 ------------- or [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _____________ to _____________ Commission File Number: 1-988 ------- THE COLEMAN COMPANY, INC. --------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3639257 - ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2111 E. 37TH STREET NORTH, WICHITA, KANSAS 67219 - ------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) 316-832-2700 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days. X Yes No --- --- The number of shares outstanding of the registrant's par value $.01 common stock was 55,827,490 shares as of August 10, 1999 of which 44,067,520 shares were held by Coleman Worldwide Corporation, an indirect wholly-owned subsidiary of Sunbeam Corporation. Exhibit Index on Page 33 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...................................... 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 30 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. 33 Item 6. Exhibits and Reports on Form 8-K.................................. 33 Signatures ...................................................... 34
2 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months 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........................................... 270,228 231,637 468,599 407,414 ----------- ----------- ------------ ------------ Gross profit............................................ 130,697 94,770 213,016 163,492 Selling, general and administrative expenses............ 68,341 58,510 129,703 132,650 Restructuring (credits) charges......................... (16) 9,570 (18) 10,285 Interest expense, net................................... 4,870 8,879 12,445 17,923 Amortization of goodwill and deferred charges........... 2,375 2,733 4,939 5,667 Loss (gain) on sale of business......................... -- 1,447 -- (24,690) Other expense (income), net............................. 603 (317) 72 1,544 ----------- ----------- ------------ ------------ Earnings before income taxes, minority interest and extraordinary item............. 54,524 13,948 65,875 20,113 Income tax expense...................................... 20,822 8,672 25,362 16,190 Minority interest....................................... 507 179 577 240 ----------- ----------- ------------ ------------ Earnings before extraordinary item...................... 33,195 5,097 39,936 3,683 Extraordinary loss on early extinguishment of debt, net of income tax benefit.................... -- (16,306) -- (17,538) ----------- ----------- ------------ ------------ Net earnings (loss)..................................... $ 33,195 $ (11,209) $ 39,936 $ (13,855) =========== =========== ============ ============ Basic and diluted earnings (loss) per share: Earnings before extraordinary item.................... $ 0.59 $ 0.09 $ 0.72 $ 0.07 Extraordinary item.................................... -- (0.29) -- (0.32) ----------- ----------- ------------ ------------ Net earnings (loss)................................. $ 0.59 $ (0.20) $ 0.72 $ (0.25) =========== =========== ============ ============ Weighted average common shares outstanding: Basic ............................................... 55,827 55,822 55,827 54,783 =========== =========== ============ ============ Diluted ............................................. 55,827 55,958 55,827 55,168 =========== =========== ============ ============
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 warrants to purchase up to approximately 4.98 million shares of Sunbeam common stock at $7.00 per share, subject to certain anti-dilution adjustments. Any shareholder who does not exercise appraisal rights under Delaware law will receive the warrants. These warrants will be issued when the Coleman Merger is consummated, which is now expected to be during the second half of 1999. There can be no assurance, however, that the court will approve the settlement as proposed, although such approval is not a condition to the consummation of the Coleman Merger. The consummation of the Coleman Merger is conditional upon a registration statement under the Securities Act of 1933 (the "Securities Act") to register the shares of Sunbeam common stock to be issued in the Coleman Merger (the "Registration Statement") becoming effective in accordance with the provisions of the Securities Act. Sunbeam has filed the Registration Statement, but is uncertain when the Registration Statement will become effective. However, it is anticipated the Coleman Merger will be completed during the second half of 1999. Upon consummation of the Coleman Merger, Coleman will become an indirect wholly-owned subsidiary of Sunbeam and Coleman will cease to be a separate reporting company. However, in the event Coleman's separate consolidated financial statements are included in a Securities and Exchange Commission filing for periods subsequent to the consummation of the Coleman Merger, those separate consolidated financial statements would reflect the allocation of the purchase price paid by Sunbeam, for all of 6 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) Coleman's common stock, to the fair value (determined by independent appraisals) of Coleman's tangible and intangible assets acquired and liabilities assumed under the purchase method of accounting. 2. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited condensed consolidated financial statements of Coleman include the accounts of the Company and its subsidiaries after elimination of all material intercompany accounts and transactions, and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments necessary for a fair presentation of results of operations, financial position and cash flows. The balance sheet at December 31, 1998 has been derived from the audited financial statements for that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for future periods including the year ended December 31, 1999. 3. INVENTORIES The components of inventories consist of the following:
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 7 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) interest at a floating rate equivalent to the weighted average interest rate incurred by Sunbeam on its outstanding convertible debt and borrowings under its bank credit facility. On April 15, 1999, Coleman, Sunbeam and, as to certain agreements, the lenders under the Sunbeam Credit Facility, amended and restated the Old Intercompany Note (the "Intercompany Note"), entered into intercompany security and pledge agreements, and entered into an amendment to the Sunbeam Credit Facility and certain other agreements (collectively, the "Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany Note bears interest at an annual rate equal to (i) 4% if the three month London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate system is 6% or higher, subject to increases during an event of default, and interest will be payable by adding the amount of such interest to the principal balance of the Intercompany Note. In addition, the Intercompany Note provides that an event of default under the Sunbeam Credit Facility will constitute an event of default under the Intercompany Note and that in certain circumstances the payment on the Intercompany Note will be subordinate to Coleman's obligations under the Sunbeam Credit Facility. Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all of its domestic assets, other than its real property, including 66% of its ownership interest in its direct foreign subsidiaries and domestic holding companies for its foreign subsidiaries and all of its ownership interest in its other direct domestic subsidiaries (but Coleman's subsidiaries have not pledged their assets or stock of their subsidiaries), as security for the Intercompany Note. Sunbeam has pledged the Intercompany Note as security for the Sunbeam Credit Facility and assigned to such lenders the security pledged by Coleman for the Intercompany Note. Coleman also gave the lending banks a direct pledge of the assets securing the Intercompany Note to secure the obligations under the Sunbeam Credit Facility, subject to a cap equal to the balance due from time to time on the Intercompany Note. As of June 30, 1999 the amount borrowed by the Company under the Intercompany Note amounted to $390,557 and the applicable interest rate was 4%. The weighted average interest rate charged by Sunbeam for amounts borrowed under the Old Intercompany Note and the Intercompany Note during the six months ended June 30, 1999 was 5.9% and the total interest charged by Sunbeam to Coleman was $11,489. Sunbeam also charged to Coleman a pro-rata share of amortized debt issuance costs and unused bank credit facility commitment fees totaling $319. Net amounts advanced from Sunbeam along with the related unpaid interest and other costs are reflected as debt payable to affiliate in the Company's consolidated balance sheet. Coleman is also a borrower under the Sunbeam Credit Facility for purposes of letters of credit issued for its account. The Sunbeam Credit Facility provides for aggregate borrowings of up to $1,700,000 pursuant to (i) a revolving credit facility in an aggregate principal amount of up to $400,000 (subject to certain reductions) maturing on March 30, 2005, of which $52,500 may only be used to complete the Coleman Merger if the Coleman Merger does not occur prior to August 31, 1999, (ii) up to $800,000 in term loans maturing on March 30, 2005, of which $35,000 may only be used to complete the Coleman Merger, and (iii) a $500,000 term loan maturing on September 30, 2006, of which $5,000 has already been repaid through June 30, 1999. At June 30, 1999, Sunbeam had $1,410,000 of outstanding debt under the Sunbeam Credit Facility and approximately $218,300 available for borrowing. As a result of Sunbeam's operating losses during 1998, among other things, Sunbeam 8 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) was not in compliance with the financial covenants and other terms contained in the Sunbeam Credit Facility. In April 1999, Sunbeam and its lenders entered into an amendment to the Sunbeam Credit Facility which amended and added certain financial covenants and other terms and waived compliance with certain other financial covenants and other terms through April 10, 2000. Interest accrues at a rate selected at Sunbeam's option of: (i) LIBOR plus an interest rate margin which varies depending upon the occurrence of certain specified events or, (ii) the base rate of the administrative agent (generally the higher of the prime commercial lending rate of the administrative agent or the Federal Funds Rate plus one-half of 1%), plus an interest rate margin which varies depending upon the occurrence of certain specified events. Borrowings under the Sunbeam Credit Facility are secured by a pledge of the stock of Sunbeam's material subsidiaries, including Coleman, and by a security interest in substantially all of the assets of Sunbeam and its material subsidiaries, other than Coleman and its subsidiaries except as otherwise described herein. Currently, Coleman's inventory and related assets are pledged to secure its obligations for letters of credit issued for its account under the Sunbeam Credit Facility. The Sunbeam Credit Facility contains covenants customary for credit facilities of a similar nature, including limitations on the ability of Sunbeam and its subsidiaries, including Coleman, to, among other things, (i) declare dividends or repurchase stock, (ii) prepay, redeem or repurchase debt, incur liens and engage in sale-leaseback transactions, (iii) make loans and investments, (iv) incur additional debt, including revolving loans under the Sunbeam Credit Facility, (v) amend or otherwise alter material agreements or enter into restrictive agreements, (vi) make capital and Year 2000 compliance expenditures, (vii) engage in mergers, acquisitions and asset sales, (viii) engage in certain transactions with affiliates, (ix) alter its fiscal year or accounting policies, (x) enter into hedging agreements, (xi) settle certain litigation, (xii) alter its cash management system and (xiii) alter the businesses they conduct. Sunbeam is also required to comply with specified financial covenants and ratios. The Sunbeam Credit Facility provides for events of default customary for transactions of this type, including nonpayment, misrepresentation, breach of covenant, cross-defaults, bankruptcy, material adverse change arising from compliance with ERISA, material adverse judgments, entering into guarantees, and change of ownership and control. The Sunbeam Credit Facility, as amended, also provides it is an event default if the registration statement for the shares of Sunbeam common stock to be issued in the Coleman Merger is not declared effective by October 30, 1999, (effective as of October 25, 1999, the bank lenders agreed to extend this date to November 30, 1999), if Sunbeam fails to complete the Coleman Merger within 25 business days after the related registration statement is declared effective by the SEC, or if Sunbeam has to pay more than $87,500 (excluding expenses) in cash to complete the Coleman Merger (including any payments made with respect to appraisal rights). If an event of default occurs under the Sunbeam Credit Facility or Sunbeam is unable to obtain a waiver or amendment of certain financial covenants after April 10, 2000, the Company may be required to reduce, delay or cancel capital or other expenditures and/or seek loans or capital contributions from, or sell assets or capital stock to, lending institutions and/or other third parties or affiliates. The Sunbeam Credit Facility also requires Sunbeam to prepay term loans under the Sunbeam Credit Facility on each of September 30, 1999 and December 31, 1999 to the extent that cash on hand in Sunbeam's concentration accounts plus the aggregate amount of unused revolving loan commitments on these dates (excluding for the September measurement date, $52,500 reserved for the Coleman Merger), exceeds $115,000 and $125,000, respectively, but Sunbeam is not required to prepay more than $69,300 in the aggregate as a result of the provision. 9 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) 5. RESTRUCTURING CHARGES (DOLLARS IN MILLIONS) The Company reviews the adequacy of its restructuring reserves and adjusts the reserves as the various activities are completed or additional information becomes available which allows the Company to refine its estimates. During the six months ended June 30, 1999 and 1998, the Company increased its existing reserves by $0.1 million and $1.1 million, respectively, as a result of these reviews. In addition, during the six months ended June 30, 1998, the Company recorded additional restructuring charges totaling $9.1 million which included, (i) $8.1 million of severance benefits related to approximately 76 employees whose employment with the Company was terminated following the acquisition of the Company by Sunbeam, (ii) $1.1 million of severance benefits for approximately 110 employees at the Company's manufacturing facility in Cedar City, Utah which was closed during June 1998, and (iii) recognition of a net gain of $0.1 million related to the disposition of the Company's manufacturing facility in Cedar City, Utah. The following tables provide an analysis of the changes in the Company's restructuring reserves since December 31, 1998. For a detailed description of the Company's restructuring activities, see Note 3 to the consolidated financial statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. INTEGRATION OF CAMPING GAZ AND COLEMAN
Balance at Balance at December 31, Cash Non-Cash June 30, 1998 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 Other exit activity costs, including sales agent termination costs and claims brought by terminated employees................................ .7 .3 .1 .3 --------- --------- -------- ------ .8 .3 .1 .4 --------- --------- -------- ------ Totals included in restructuring......... 8.5 .3 1.0 7.2 --------- --------- -------- ------ Totals ........................................ $ 8.9 $ .3 $ 1.0 $ 7.6 ========= ========= ======== ======
The reserves remaining at June 30, 1999 principally relate to the write down of a vacated warehouse and an accrual for claims brought by foreign employees terminated as part of the 10 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) restructuring plan. The timing of the resolution of the claims brought by foreign employees will vary depending upon local practices. The Company continues to assess the propriety of the carrying value of the related balances and make adjustments to the recorded amounts as appropriate given current facts and circumstances. The remaining reserves for inventory and other assets relate to residual activity to be completed by the end of 1999. EXIT LOW-MARGIN PRODUCT LINES
Balance at Charges Balance at December 31, to Cash June 30, 1998 Income 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 buyback costs.................... .6 -- .1 .5 --------- --------- -------- ------ .6 -- .1 .5 --------- --------- -------- ------ Totals included in restructuring......... .7 -- .1 .6 --------- --------- -------- ------ Totals ........................................ $ 1.1 $ .1 $ .5 $ .7 ========= ========= ======== ======
The remaining reserves at June 30, 1999, relate to anticipated losses on final disposal of the remaining inventory and fixed assets and the projected remaining pressure washer buyback costs. The Company estimates the remaining activity will be completed by the end of 1999. CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
Balance at Charges Balance at December 31, to Cash June 30, 1998 Income Reductions 1999 ------------ ---------- ---------- ---------- Restructuring accruals: Employee severance pay and fringes........... $ 3.4 $ .1 $ .4 $ 3.1 --------- --------- -------- ------ Totals ......................................... $ 3.4 $ .1 $ .4 $ 3.1 ========= ========= ======== ======
The unpaid severance costs at June 30, 1999 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 (Credits) Balance at December 31, to Cash June 30, 1998 Income Reductions 1999 ------------ ---------- ---------- ---------- Charges included in restructuring: Write-downs: Fixed assets held for disposal, not in use............................... $ .2 $ -- $ -- $ .2 --------- ---------- -------- ------ .2 -- -- .2 --------- ---------- -------- ------ Restructuring accruals: Employee severance pay and fringes......... 1.3 (.1) .5 .7 Other exit activity costs, primarily lease termination costs........ .6 -- .3 .3 --------- ---------- -------- ------ 1.9 (.1) .8 1.0 --------- ---------- -------- ------ Totals included in restructuring......... 2.1 (.1) .8 1.2 --------- ---------- -------- ------ Totals ......................................... $ 2.1 $ (.1) $ .8 $ 1.2 ========= ========== ======== =======
During the six months ended June 30, 1999, of those employees expected to be terminated, 4 employees left the Company and 14 employees remain to be terminated. Remaining termination costs are expected to be paid by December 31, 2000 in accordance with the long-term severance arrangements. The fixed assets held for disposal at June 30, 1999, will be disposed of during 1999. The remaining reserve balance for other exit activity costs at June 30, 1999, principally relates to leases with fixed terms running through 2001. EMPLOYEE TERMINATION AND SEVERANCE
Balance at Balance at December 31, Cash June 30, 1998 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. The 5 remaining employees are expected to be terminated during 1999. Remaining termination costs are expected to be paid by December 31, 2000, and no additional charges are anticipated in future periods. 6. OTHER CHARGES During the first six months of 1998, the Company recorded other charges totaling $13,357 ($12,931 in the first quarter of 1998 and $426 in the second quarter of 1998) which consisted of (i) $7,242 of costs associated with the acquisition of the Company by Sunbeam including advisory fees, 12 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) (ii) $3,890 of charges associated with abandoning a company-wide enterprise resource computer software system, and (iii) $2,225 of costs associated with terminating a licensing services agreement with an affiliate of Coleman (Parent) Holdings, Inc., the then indirect parent company of Coleman Worldwide. These costs were recorded in selling, general and administrative expenses. 7. COMPREHENSIVE INCOME The components of the Company's comprehensive income are as follows:
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. 13 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) The cost of the services is assessed based on actual usage or allocations of actual costs based on relative usage of related services or time of specified personnel. 10. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". The provisions of SFAS No. 133 will now be effective for the Company's fiscal year beginning January 1, 2001. Earlier application of the provisions of SFAS No. 133 is encouraged; however, the Company has not determined if it will apply the provisions of SFAS No. 133 prior to January 1, 2001, nor has the Company estimated the impact of applying the provisions of SFAS No. 133 on the Company's statement of financial position or on the statement of operations. 14 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) 11. SEGMENT INFORMATION For detailed information regarding the Company's reportable segments, see Note 19 to the consolidated financial statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. INFORMATION ABOUT SEGMENT REVENUES, PROFITS AND ASSETS
Outdoor All Recreation Powermate Eastpak International Other Total ---------- --------- --------- ------------- -------- --------- Three Months Ended 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
15 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 Sunbeam to file consolidated federal income tax returns and, in certain jurisdictions, consolidated state income tax returns prior to the consummation of the Coleman Merger. The issue price per share of the voting preferred stock was equal to 110% of the average closing price per share of common stock of Coleman over the five trading days prior to the date of issuance of the voting preferred stock. Except for as required by law, the holders of the voting preferred stock vote as a single class with the holders of the Coleman common stock on all matters submitted to a vote of the holders of Coleman common stock, with each share of voting preferred stock and each share of Coleman common stock having one vote. The voting preferred stock has an annual dividend equal to 7% of $10.35, the issue price of the voting preferred stock, which accrues but will not be paid in cash unless a liquidation occurs or certain transactions are consummated as described below. In addition, the voting preferred stock will participate ratably with the Coleman common stock in all other dividends and distributions (other than liquidating distributions) made by Coleman to the holders of its common stock. The voting preferred stock will 16 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) participate with the Coleman common stock in any merger, consolidation, or any other transaction (other than a merger of a wholly owned subsidiary of Sunbeam with Coleman, including the Coleman Merger) and will receive on a per share basis the same type and amount of consideration as the Coleman common stock. On liquidations: (1) the holders of the voting preferred stock would receive a preferential distribution equal to $10.35, plus accrued and unpaid dividends, (2) next, the holders of the Coleman common stock would receive an amount equal to $10.35 per share of common stock and (3) any assets remaining after such distributions would be shared by the holders of the voting preferred stock and the Coleman common stock on a share for share basis. In connection with the issuance of the shares of preferred stock, Coleman entered into a tax sharing agreement with Sunbeam pursuant to which Coleman will pay to Sunbeam amounts equal to the federal and state income taxes that would have been payable by Coleman had Coleman not been included in the consolidated income tax return of Sunbeam. The terms of the voting preferred stock, their issue price and the terms of the tax sharing agreement were approved on Coleman's behalf by Coleman's sole independent director. The net proceeds from the issuance of the shares by Coleman of its voting preferred stock to Coleman Worldwide were used by Coleman to make a partial repayment of loans outstanding from Sunbeam under the Intercompany Note. 17 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the condensed consolidated financial statements and the related footnotes included elsewhere in this quarterly report on Form 10-Q/A, as well as the consolidated financial statements and related notes, and management's discussion and analysis of financial condition and results of operations in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. RESULTS OF OPERATIONS RESTRUCTURING CHARGES The Company reviews the adequacy of its restructuring reserves and adjusts the reserves as the various activities are completed or additional information becomes available which allows the Company to refine its estimates. During the six months ended June 30, 1999 and 1998, the Company increased its existing reserves by $0.1 million and $1.1 million, respectively, as a result of these reviews. In addition, during the six months ended June 30, 1998, the Company recorded additional restructuring charges totaling $9.1 million which included, (i) $8.1 million of severance benefits related to approximately 76 employees whose employment with the Company was terminated following the acquisition of the Company by Sunbeam (the "Sunbeam Acquisition"), (ii) $1.1 million of severance benefits for approximately 110 employees at the Company's manufacturing facility in Cedar City, Utah which was closed during June 1998, and (iii) recognition of a net gain of $0.1 million related to the disposition of the Company's manufacturing facility in Cedar City, Utah. The following tables (dollars in millions) provide an analysis of the changes in the Company's restructuring reserves since December 31, 1998. For a detailed description of the Company's restructuring activities see Note 3 to the consolidated financial statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. INTEGRATION OF CAMPING GAZ AND COLEMAN
Balance at Balance at December 31, Cash Non-Cash June 30, 1998 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 --------- -------- -------- ------
18 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES Restructuring accruals: Employee severance pay and fringes......... .1 -- -- .1 Other exit activity costs, including sales agent termination costs and claims brought by terminated employees................................ .7 .3 .1 .3 --------- --------- -------- ------ .8 .3 .1 .4 --------- --------- -------- ------ Totals included in restructuring......... 8.5 .3 1.0 7.2 --------- --------- -------- ------ Totals ........................................ $ 8.9 $ .3 $ 1.0 $ 7.6 ========= ========= ======== ======
The reserves remaining at June 30, 1999 principally relate to the write down of a vacated warehouse and an accrual for claims brought by foreign employees terminated as part of the restructuring plan. The timing of the resolution of the claims brought by foreign employees will vary depending upon local practices. The Company continues to assess the propriety of the carrying value of the related balances and make adjustments to the recorded amounts as appropriate given current facts and circumstances. The remaining reserves for inventory and other assets relate to residual activity to be completed by the end of 1999. EXIT LOW-MARGIN PRODUCT LINES
Balance at Charges Balance at December 31, to Cash June 30, 1998 Income 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 buyback costs.................... .6 -- .1 .5 --------- --------- -------- ------ .6 -- .1 .5 --------- --------- -------- ------ Totals included in restructuring......... .7 -- .1 .6 --------- --------- -------- ------ Totals ........................................ $ 1.1 $ .1 $ .5 $ .7 ========= ========= ======== ======
The remaining reserves at June 30, 1999, relate to anticipated losses on final disposal of the remaining inventory and fixed assets and the projected remaining pressure washer buyback costs. The Company estimates the remaining activity will be completed by the end of 1999. 19 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES CLOSE AND RELOCATE CERTAIN ADMINISTRATIVE AND SALES OFFICES
Balance at Charges Balance at December 31, to Cash June 30, 1998 Income Reductions 1999 ----------- ---------- ---------- ---------- Restructuring accruals: Employee severance pay and fringes........... $ 3.4 $ .1 $ .4 $ 3.1 --------- --------- -------- ------ Totals ........................................ $ 3.4 $ .1 $ .4 $ 3.1 ========= ========= ======== ======
The unpaid severance costs at June 30, 1999 are expected to be paid by December 31, 2000. CLOSE FACILITIES
Balance at (Credits) Balance at December 31, to Cash June 30, 1998 Income Reductions 1999 ----------- ---------- ---------- ---------- Charges included in restructuring: Write-downs: Fixed assets held for disposal, not in use............................... $ .2 $ -- $ -- $ .2 --------- --------- -------- ------ .2 -- -- .2 --------- --------- -------- ------ Restructuring accruals: Employee severance pay and fringes......... 1.3 (.1) .5 .7 Other exit activity costs, primarily lease termination costs........ .6 -- .3 .3 --------- --------- -------- ------ 1.9 (.1) .8 1.0 --------- --------- -------- ------ Totals included in restructuring......... 2.1 (.1) .8 1.2 --------- --------- -------- ------ Totals ........................................ $ 2.1 $ (.1) $ .8 $ 1.2 ========= ========= ======== ======
During the six months ended June 30, 1999, of those employees expected to be terminated, 4 employees left the Company and 14 employees remain to be terminated. Remaining termination costs are expected to be paid by December 31, 2000 in accordance with the long-term severance arrangements. The fixed assets held for disposal at June 30, 1999, will be disposed of during 1999. The remaining reserve balance for other exit activity costs at June 30, 1999, principally relates to leases with fixed terms running through 2001. EMPLOYEE TERMINATION AND SEVERANCE
Balance at Balance at December 31, Cash June 30, 1998 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. The 5 remaining 20 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES employees are expected to be terminated during 1999. Remaining termination costs are expected to be paid by December 31, 2000, and no additional charges are anticipated in future periods related to this issue. OTHER CHARGES During the first six months of 1998, the Company recorded other charges totaling $13.4 million ($12.9 million in the first quarter and $0.5 million in the second quarter) which consisted of (i) $7.3 million of costs associated with the acquisition of the Company by Sunbeam including advisory fees, (ii) $3.9 million of charges associated with abandoning a company-wide enterprise resource computer software system, and (iii) $2.2 million of costs associated with terminating a licensing services agreement with an affiliate of Coleman (Parent) Holdings, Inc., the then indirect parent company of Coleman Worldwide. These costs were recorded in selling, general and administrative ("SG&A") expenses. THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 Net revenues of $400.9 million for the three months ended June 30, 1999 were $74.5 million, or 22.8%, greater than for the three months ended June 30, 1998. The outdoor recreation products revenues, reflecting both United States and foreign non-hardware products, increased $34.7 million. Revenues for the 1999 period include $12.8 million of revenues from sales of Sunbeam grills and other Sunbeam appliances which Coleman began selling primarily in Europe and Canada in late 1998 and early 1999, respectively. In addition, revenues for the 1998 period include $8.4 million of revenues from sales of the Company's spa related products, a business which was sold during 1998. Adjusting revenues for the 1999 period to exclude the Sunbeam product revenues and adjusting the 1998 period to exclude the spa related product revenues results in comparable outdoor recreation 1999 period products revenues increasing $30.3 million, or 11.3%, over 1998 period revenues. This increase occurred in nearly all product categories, primarily reflecting strong retail replenishment demand and what the Company believes is heightened consumer sensitivity to the need for emergency preparedness, including Year 2000 considerations. The Company experienced unusually weak retail replenishment demand in the second quarter of 1998. The hardware products revenues increase of $39.8 million includes $6.7 million of revenues from sales of Sunbeam's First Alert products which Coleman began selling internationally, primarily in Europe, in late 1998. Excluding the revenues from these First Alert products, the hardware products revenues reflected an increase of $33.1 million, or 67.5%, over comparable 1998 revenues primarily reflecting an increase in generator sales attributable to what the Company believes is heightened consumer sensitivity to the need for emergency preparedness, including power shortages arising from poor weather conditions and Year 2000 considerations. Geographically, United States revenues increased $46.9 million, or 22.7%, and foreign revenues increased $27.6 million, or 23.0%, over the 1998 period revenues. The United States revenues for the 1998 period include revenues from the Company's spa business which was sold during 1998. Excluding these revenues from the 1998 period, United States revenues in 1999 reflected an increase of $55.3 million, or 27.9%, over the 1998 period revenues. Excluding the Sunbeam product revenues from the foreign revenues in the 1999 period, foreign revenues in 1999 reflected an increase of $8.1 million, or 6.8%, over the 1998 period revenues. Gross profit for the three months ended June 30, 1999 was $130.7 million as compared to $94.8 million for the three months ended June 30, 1998. Higher sales volume and favorable manufacturing efficiencies resulting from higher production levels associated with the higher sales 21 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES volume in the 1999 period accounted for primarily all of the increase in gross profit. Although the Company has experienced improved gross margins in 1999, the Company continues to rationalize its international production capabilities. The Company is evaluating the elimination of at least one international manufacturing facility and expects to complete that evaluation by December 31, 1999. SG&A expenses, excluding the impact of $0.5 million of other charges in the three months ended June 30, 1998 and described above, were $68.3 million for the three months ended June 30, 1999 compared to $58.0 million for the 1998 period. The overall dollar increase in SG&A expenses is primarily due to increased selling costs associated with the increase in 1999 sales partially offset by the reduction in SG&A expenses associated with the Company's spa business which was sold during 1998 and whose total SG&A expenses during the second quarter of 1998 were $1.5 million. SG&A expenses as a percent of net revenues decreased to 17.0% in 1999 from 17.8% in 1998 as revenues grew faster than SG&A expenses. Interest expense was $4.9 million for the three months ended June 30, 1999 compared with $8.9 million in the 1998 period, a decrease of $4.0 million. Approximately 35% of this decrease is attributable to lower borrowings with the balance of the decrease primarily attributable to a reduction in the interest rate on amounts borrowed from Sunbeam. Minority interest represents the interest of minority shareholders in the Company's subsidiary operations in the Philippines, Indonesia, and Canada. The Company recorded a provision for income tax expense of $20.8 million or 38.2% of pre-tax earnings in 1999 compared to a provision for income tax expense of $8.7 million in 1998. The 1999 income tax provision reflects $1.2 million of tax expense due to the impact of decreased foreign tax rates on deferred tax assets. The 1998 income tax provision reflects the write-off of approximately $3.8 million deferred tax assets that became unrealizable as a result of the Sunbeam Acquisition. Excluding these items, the 1999 effective income tax rate would have been approximately 36.0% and the 1998 effective income tax rate would have been approximately 34.9%. SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 Net revenues of $681.6 million for the six months ended June 30, 1999 were $110.7 million, or 19.4%, greater than for the six months ended June 30, 1998. The outdoor recreation products revenues, reflecting both United States and foreign non-hardware products, increased $61.8 million. Revenues for the 1999 period include $19.2 million of revenues from sales of Sunbeam grills and other Sunbeam appliances which Coleman began selling primarily in Europe and Canada in late 1998 and early 1999, respectively. In addition, revenues for the 1998 period include $13.5 million of revenues from sales of the Company's spa related products, a business which was sold during 1998. Adjusting revenues for the 1999 period to exclude the Sunbeam product revenues and adjusting the 1998 period to exclude the spa related product revenues results in comparable outdoor recreation products 1999 period revenues increasing $56.1 million, or 12.8%, over 1998 period revenues. This increase occurred in nearly all product categories, primarily reflecting strong retail replenishment demand and what the Company believes is heightened consumer sensitivity to emergency preparedness, including Year 2000 considerations. The Company experienced unusually weak retail replenishment demand in the first half of 1998. The hardware products revenues increase of $48.9 million includes $13.1 million of revenues from sales of Sunbeam's First Alert products which Coleman began selling internationally, primarily in Europe, in late 1998. In addition, revenues 22 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES for the 1998 period include $16.3 million of revenues from the Company's safety and security business which was sold in March 1998. Excluding the revenues from these First Alert products and the safety and security business products, the hardware products revenues reflected an increase of $52.1 million, or 51.0%, over comparable 1998 revenues primarily reflecting an increase in generator sales attributable to what the Company believes is heightened consumer sensitivity to the need for emergency preparedness, including power shortages arising from poor weather conditions and Year 2000 considerations. Geographically, United States revenues increased $62.4 million, or 17.6%, and foreign revenues increased $48.3 million, or 22.4%, over the 1998 period revenues. The United States revenues for the 1998 period includes revenues from the Company's safety and security business and spa business, both of which were sold during 1998. Excluding these revenues from the 1998 period, United States revenues in 1999 reflected an increase of $92.2 million or 28.3%, over the 1998 period revenues. Excluding the Sunbeam product revenues from the foreign revenues in the 1999 period, foreign revenues in 1999 reflected an increase of $16.0 million, or 7.4%, over the 1998 period revenues. Gross profit for the six months ended June 30, 1999 was $213.0 million as compared to $163.5 million for the six months ended June 30, 1998. Higher sales volume and favorable manufacturing efficiencies resulting from higher production levels associated with the higher sales volume in the 1999 period accounted for primarily all of the increase in gross profit. SG&A expenses, excluding the impact of $13.4 million of other charges in the six months ended June 30, 1998 as described above, were $129.7 million for the six months ended June 30, 1999 compared to $119.3 million in the 1998 period. The overall dollar increase in SG&A expenses is primarily due to increased selling costs associated with the increase in 1999 sales partially offset by the reduction in SG&A expenses associated with the Company's safety and security business and spa business, both of which were sold during 1998, and whose total SG&A expenses during the 1998 period were $6.9 million. SG&A expenses as a percent of net revenues decreased to 19.0% in 1999 from 20.9% in 1998 as revenues grew faster than SG&A expenses. Interest expense was $12.4 million for the six months ended June 30, 1999 compared with $17.9 million in the 1998 period, a decrease of $5.5 million. Approximately 59% of this decrease is attributable to lower borrowings with the balance of the decrease primarily attributable to a reduction in the interest rate on amounts borrowed from Sunbeam. Minority interest represents the interest of minority shareholders in the Company's subsidiary operations in the Philippines, Indonesia, and Canada. The Company recorded a provision for income tax expense of $25.4 million or 38.5% of pre-tax earnings in 1999 compared to a provision for income tax expense of $16.2 million in 1998. The 1999 income tax provision reflects $1.2 million of tax expense due to the impact of decreased foreign tax rates on deferred tax assets. The 1998 income tax provision reflects, among other things, (i) the write-off of approximately $5.5 million deferred tax assets that became unrealizable as a result of the Sunbeam Acquisition, (ii) $0.4 million of tax expense due to the impact of decreased foreign tax rates on deferred tax assets, and (iii) the impact of $7.2 million non-deductible costs associated with the Sunbeam Acquisition. Excluding these items, the 1999 effective income tax rate would have been approximately 36.7% and the 1998 effective income tax rate would have been approximately 37.6%. 23 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used $21.3 million and $79.3 million of cash during the six months ended June 30, 1999 and 1998, respectively. The Company's higher working capital needs during the 1999 period were largely offset by higher operating profits. Receivables and inventories increased $125.5 million and $17.8 million, respectively, in the six months ended June 30, 1999 as compared to $85.6 million and $9.7 million, respectively, in the six months ended June 30, 1998. The overall increase in receivables and inventories in 1999 as compared to 1998 is largely due to a higher level of business activity in 1999. The Company's capital expenditures were $12.1 million and $13.6 million in the six months ended June 30, 1999 and 1998, respectively. Net cash provided by financing activities for the six months ended June 30, 1999, primarily reflects borrowings under the Intercompany Note to fund the Company's operating activities and capital expenditures. During the six months ended June 30, 1998, the $45.5 million of proceeds from stock option exercises along with $453.9 million of borrowings from Sunbeam and the proceeds from the sale of the Company's safety and security business and sales of fixed assets of $98.2 million were used to, among other things, (i) repay the $116.0 million outstanding indebtedness under the Company's then existing credit agreement (ii) redeem the Company's various senior notes at a cost of $383.4 million, and (iii) fund the Company's operating activities and capital expenditures. The Company's uses of cash for 1999 are expected to be primarily for working capital and capital expenditure requirements. The Company's ability to meet its cash operating requirements, including capital expenditures and other obligations, is dependent upon a combination of cash flows from operations and loans to the Company from Sunbeam. Sunbeam has informed the Company it has the positive intent and ability to fund the Company's requirements for borrowed funds through April 10, 2000. Prior to April 15, 1999, amounts loaned by Sunbeam to Coleman were represented by a promissory note (the "Old Intercompany Note"), were due on demand and bore interest at a floating rate equivalent to the weighted average interest rate incurred by Sunbeam on its outstanding convertible debt and borrowings under its bank credit facility. On April 15, 1999, Coleman, Sunbeam and, as to certain agreements, the lenders under the Sunbeam Credit Facility, amended and restated the Old Intercompany Note (the "Intercompany Note"), entered into intercompany security and pledge agreements, and entered into an amendment to the Sunbeam Credit Facility and certain other agreements (collectively, the "Agreements"). The Intercompany Note is due April 15, 2000. The Intercompany Note bears interest at an annual rate equal to (i) 4% if the three month London Interbank Offering Rate ("LIBOR") quoted on the Telerate system is less than 6%, or (ii) 5% if the three month LIBOR quoted on the Telerate system is 6% or higher, subject to increases during an event of default, and interest will be payable by adding the amount of such interest to the principal balance of the Intercompany Note. In addition, the Intercompany Note provides that an event of default under the Sunbeam Credit Facility will constitute an event of default under the Intercompany Note and that in certain circumstances the payment on the Intercompany Note will be subordinate to Coleman's obligations under the Sunbeam Credit Facility. Pursuant to the Agreements, Coleman has pledged to Sunbeam substantially all of its domestic assets, other than its real property, including 66% of its ownership interest in its direct foreign subsidiaries and domestic holding companies for its foreign subsidiaries and all of its ownership interest in its other direct domestic subsidiaries (but Coleman's subsidiaries have not pledged their assets or stock of their subsidiaries), as security for the Intercompany Note. Sunbeam has pledged the Intercompany Note as security for the Sunbeam Credit Facility and assigned to such lenders the security pledged by Coleman for the Intercompany Note. Coleman also gave the lending 24 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES banks a direct pledge of the assets securing the Intercompany Note to secure the obligations under the Sunbeam Credit Facility, subject to a cap equal to the balance due from time to time on the Intercompany Note. As of June 30, 1999 the amount borrowed by the Company under the Intercompany Note amounted to $390.6 million and the applicable interest rate was 4%. The weighted average interest rate charged by Sunbeam for amounts borrowed under the Old Intercompany Note and the Intercompany Note during the six months ended June 30, 1999 was 5.9% and the total interest charged by Sunbeam to Coleman was $11.5 million. Sunbeam also charged to Coleman a pro-rata share of amortized debt issuance costs and unused bank credit facility commitment fees totaling $0.3 million. Net amounts advanced from Sunbeam along with the related unpaid interest and other costs are reflected as debt payable to affiliate in the Company's consolidated balance sheet. Coleman is also a borrower under the Sunbeam Credit Facility for purposes of letters of credit issued for its account. The Sunbeam Credit Facility provides for aggregate borrowings of up to $1,700.0 million pursuant to (i) a revolving credit facility in an aggregate principal amount of up to $400.0 million (subject to certain reductions) maturing on March 30, 2005, of which $52.5 million may only be used to complete the Coleman Merger if the Coleman Merger does not occur prior to August 31, 1999, (ii) up to $800.0 million in term loans maturing on March 30, 2005, of which $35.0 million may only be used to complete the Coleman Merger, and (iii) a $500.0 million term loan maturing on September 30, 2006, of which $5.0 million has already been repaid through June 30, 1999. At June 30, 1999, Sunbeam had $1,410.0 million of outstanding debt under the Sunbeam Credit Facility and approximately $218.3 million available for borrowing. As a result of Sunbeam's operating losses during 1998, among other things, Sunbeam was not in compliance with the financial covenants and other terms contained in the Sunbeam Credit Facility. In April 1999, Sunbeam and its lenders entered into an amendment to the Sunbeam Credit Facility which amended and added certain financial covenants and other terms and waived compliance with certain other financial covenants and other terms through April 10, 2000. At the end of June 1999, approximately $233.5 million was available to the Company under the Sunbeam Credit Facility either through letters of credit borrowings or loans from Sunbeam. In addition, at the same time, Sunbeam's cash balance available for debt repayment was approximately $15.2 million. Borrowings under the Sunbeam Credit Facility are secured by a pledge of the stock of Sunbeam's material subsidiaries, including Coleman, and by a security interest in substantially all of the assets of Sunbeam and its material subsidiaries, other than Coleman and its subsidiaries except as otherwise described herein. Currently, Coleman's inventory and related assets are pledged to secure its obligations for letters of credit issued for its account under the Sunbeam Credit Facility. The Sunbeam Credit Facility contains covenants customary for credit facilities of a similar nature, and events of default customary for transactions of this type. The Sunbeam Credit Facility requires that the registration statement for the shares of Sunbeam common stock to be issued in the Coleman Merger be declared effective by October 30, 1999, (effective as of October 25, 1999, the bank lenders agreed to extend this date to November 30, 1999), and that the Coleman Merger be consummated no more than 25 business days after such registration statement is declared effective. Sunbeam is also required to maximize its subsidiaries' utilization of available foreign credit facilities and Sunbeam's accounts receivable facility and to comply with specified financial covenants and ratios. If an event of default occurs under the Sunbeam Credit Facility or Sunbeam is unable to obtain a waiver or amendment of certain financial covenants after April 10, 2000, the Company may 25 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES be required to reduce, delay or cancel capital or other expenditures and/or seek loans or capital contributions from, or sell assets or capital stock to, lending institutions and/or other third parties or affiliates. There can be no assurance that any of such transactions could be consummated or if consummated, would be on favorable terms or in amounts sufficient to permit the Company to meets its cash requirements, or that any of such transactions would be permitted under Sunbeam's debt instruments then in effect. See Note 14 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. In April 1999, the New York Stock Exchange ("NYSE") advised Coleman that it did not meet the NYSE's continuing listing standards because Coleman did not have tangible net assets of at least $12.0 million at September 30, 1998 and average annual net income of at least $0.6 million for fiscal years 1997, 1996 and 1995. At that time, Coleman requested the NYSE to continue to list the Coleman common stock until completion of the Coleman Merger. The NYSE subsequently advised Coleman that Coleman also failed to satisfy certain non-financial continuing listing standards. On August 5, 1999, the NYSE advised Coleman that the NYSE had revised its continuing listing standards, and that Coleman is in compliance with the revised financial standards. Coleman and the NYSE have agreed upon a program whereby Coleman will correct the deficiencies in its non-financial continuing listing standards by the end of 1999. Coleman is currently complying with such program. If Coleman were to be delisted from the NYSE, it could adversely affect the market price of Coleman's common stock and Coleman's ability to sell its capital stock to third parties. However, Sunbeam's bank credit facility currently restricts Coleman from taking such actions. In May 1998, the NYSE advised Sunbeam that it did not meet the NYSE's continuing listing standards because Sunbeam did not have tangible net assets of $12.0 million at December 31, 1997 and average annual net income of at least $0.6 million for fiscal years 1997, 1996 and 1995. Sunbeam representatives met with NYSE officials, and in March 1999, the NYSE informed Sunbeam that Sunbeam common stock would not be delisted at that time, although the NYSE would, however, continue to monitor Sunbeam's financial condition and operations. On August 5, 1999, the NYSE advised Sunbeam that the NYSE had revised its continuing listing standards, and that Sunbeam is in compliance with the revised standards. On July 12, 1999, Coleman Worldwide acquired 3,000,000 shares of a newly created series of Coleman voting preferred stock for an aggregate purchase price of approximately $31.1 million. These shares, together with the shares of Coleman common stock owned by Coleman Worldwide, enable Coleman Worldwide to exercise 80.01% of the total voting power of Coleman's outstanding capital stock as of July 12, 1999. Coleman created these shares of preferred stock and Coleman Worldwide acquired them in order to enable Coleman and Sunbeam to file consolidated federal income tax returns and, in certain jurisdictions, consolidated state income tax returns prior to the consummation of the Coleman Merger. In connection with the issuance of the shares of preferred stock, Coleman entered into a tax sharing agreement with Sunbeam pursuant to which Coleman will pay to Sunbeam amounts equal to the federal and state income taxes that would have been payable by Coleman had Coleman not been included in the consolidated income tax return of Sunbeam. The net proceeds from the issuance of the shares by Coleman of its voting preferred stock to Coleman Worldwide were used by Coleman to make a partial repayment of loans outstanding from Sunbeam under the Intercompany Note. 26 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES SEASONALITY The Company's sales generally are highest in the second quarter of the year and lowest in the fourth quarter. As a result of this seasonality, the Company has generally incurred a loss in the fourth quarter. The Company's sales may be affected by weather conditions, especially during the second and third quarters of the year. YEAR 2000 READINESS DISCLOSURE The Company is continuing the process of assessing the impact of the Year 2000 on its operations. The Company is being assisted in its review and remediation work by Sunbeam's Year 2000 Program Management Office and consulting firms employed by Sunbeam. The Company has completed an inventory of its hardware and software systems, manufacturing equipment, electronic data interchange, telecommunications and other technical assets potentially subject to Year 2000 problems, such as security and telephone systems and controls for lighting, heating, ventilation and facility access. Additionally, the Company is assessing the effects of noncompliance by its vendors, service providers, customers and financial institutions. The Company relies on its information technology functions to perform many tasks that are critical to its operations. Significant transactions that could be impacted by Year 2000 noncompliance include, among others, purchases of materials, production management, order entry and fulfillment, and payroll processing. Systems and applications that have been identified by the Company to date as not currently Year 2000 compliant that are critical to the Company's operations include certain of its financial software systems, which process the order entry, purchasing, production management, general ledger, accounts receivable, and accounts payable functions, and critical applications in the Company's manufacturing and distribution facilities. The Company's corrective work to achieve Year 2000 compliance has included the following: (i) installation of Year 2000 compliant JD Edwards software which has recently been completed in one location; (ii) the installation of Year 2000 compliant JBA software in one location which is substantially complete; (iii) remediation of software codes for existing programs in another location which is substantially complete; and (iv) installation of Year 2000 compliant JD Edwards software which is scheduled to be completed in another location in September 1999. This last location has significant Year 2000 issues. Coleman's failure to complete a timely conversion of this location to a Year 2000 compliant system could have a material impact on the Company's operations. Management believes that, although there are significant systems that are being or will be modified or replaced, Coleman's information systems environment will be made Year 2000 compliant prior to January 1, 2000. As of June 30, 1999, the Company had expended approximately $8.5 million related to remediation of Year 2000 issues, of which approximately $5.7 million was recorded as SG&A expenses and the remainder as capital expenditures. The Company's preliminary assessment of the total costs to address and remedy Year 2000 issues is approximately $14.0 million. This estimate includes the costs of software and hardware modifications and replacements, and fees to third party consultants, but excludes the costs associated with Company employees. The Company expects these expenditures to be financed through operating cash flows or borrowings, as applicable. There can be no assurance that these preliminary estimates will not change as the Company completes its assessment of the Year 2000 issues. 27 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES The Company's Year 2000 program was developed and is monitored with the help of independent consultants. Therefore, with the exception of certain aspects of the Company's Year 2000 readiness program, the Company did not engage another independent third party to verify the program's overall approach or total cost. However, the Company believes that through its use of various external consulting firms which perform significant roles within the program, the Company's exposure in this regard is mitigated. In addition, through the use of external third party diagnostic software packages that are designed to analyze the Year 2000 readiness in the software code which the Company is remediating, the Company believes that it has also mitigated its risk by validating and verifying key program components. The Company has contacted its major vendors and suppliers of products and services to determine their Year 2000 readiness, and is continuing to monitor their status with respect to such plans. This review includes third party providers to whom the Company has outsourced the processing of its cash receipt and cash disbursement transactions and its payroll. The Company is currently assessing the vendor responses and will conduct additional reviews, including on-site meetings, if deemed necessary, with any major suppliers who have not indicated their readiness for the Year 2000. The failure of certain of these third party suppliers to become Year 2000 compliant could have a material adverse impact on the Company. The Company will also contact its customers to determine if they are prepared for Year 2000 issues. Their failure to evaluate and prepare for Year 2000 issues could have a material adverse effect on Coleman's operations. The Company plans to establish a contingency plan for addressing any effects of the Year 2000 on its operations, whether due to noncompliance of the Company's systems or those of third parties. The Company expects to substantially complete such contingency plan by September 30, 1999 and expects that such contingency plan will include an analysis of the Company's worst case scenario and will address alternative processes, such as manual procedures to replace those processed by noncompliant systems, electronic spreadsheets, potential alternative service providers, and plans to address compliance issues as they arise. At this time, the Company believes that the most likely "worst-case" scenario relating to Year 2000 issues generally involves potential disruptions in areas in which the Company's operations must rely on vendors, suppliers and customers whose systems may not work properly after January 1, 2000. While such failures could either directly or indirectly affect important operations of the Company and its subsidiaries in a significant manner, the Company cannot at present estimate either the likelihood or the potential cost of such failures. However, subject to the nature of the systems and applications of the Company or third parties which are not made Year 2000 compliant, the impact of such non-compliance on the Company's operations could be material if appropriate contingency plans cannot be developed prior to January 1, 2000. Because Year 2000 readiness is critical to the business, the Company has redeployed some resources from non-critical system enhancements to address Year 2000 issues. In addition, due to the importance of information systems to the Company's business, management has deferred non-mission-critical systems enhancements as much as possible. The Company does not expect these redeployments and deferrals to have a material impact on the Company's financial condition or results of operations. CAUTIONARY STATEMENTS Certain statements in this Quarterly Report on Form 10-Q/A may constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995, as 28 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES the same may be amended from time to time (the "Act") and in releases made by the Securities and Exchange Commission ("SEC") from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as "believe," "expects," "estimates", "projects", "may," "will," "should," "seeks," "plans," "scheduled to," "anticipates" or "intends" or the negative of those terms, or other variations of those terms or comparable language, or by discussions of strategy or intentions. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update them. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. These cautionary statements are being made pursuant to the Act, with the intention of obtaining the benefits of the "Safe Harbor" provisions of the Act. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those contained in the forward-looking statements with respect to the Company include, but are not limited to risks associated with: - high leverage, - Sunbeam having sufficient borrowing capacity or other funds to lend to the Company to satisfy the Company's cash needs, - unavailability of sufficient cash flows from operations and borrowings from Sunbeam, and the inability of the Company to secure loans or capital contributions from, or sell assets or capital stock to, lending institutions and/or other third parties or affiliates, - Sunbeam's ability to comply with the terms of the Sunbeam Credit Facility, and to continue to have access to its revolving credit facility, - Coleman's ability to maintain and increase market shares for its products at acceptable margins, - Coleman's ability to successfully introduce new products and to provide on-time delivery and a satisfactory level of customer service, - changes in domestic and/or foreign laws and regulations, including changes in tax laws, accounting standards, environmental laws, occupational, health and safety laws, - access to foreign markets together with foreign economic and political conditions, including currency fluctuations, and trade, monetary, fiscal and/or tax policies, - uncertainty as to the effect of competition in existing and potential future lines of business, - fluctuations in the cost and/or availability of raw materials and/or products, - changes in the availability and/or costs of labor, - effectiveness of advertising and marketing programs, - product quality, including excess warranty costs, product liability expenses and costs of product recalls, - weather conditions which are adverse to the specific businesses of Coleman, - the possibility of a recession in the United States or other countries resulting in a decrease in consumer demands for Coleman's products, 29 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES - ability of third party service providers that have been engaged to provide services such as factory maintenance and certain back office administrative services to timely and accurately provide their services to the Company, - changes in consumer preferences or a decrease in the public's interest in camping and related activities, - combinations or other actions by retail customers that adversely affect sales or profitability, - actions by competitors including business combinations, new product offerings and marketing and promotional activities, - failure of Coleman and/or its customers and suppliers of goods or services to timely complete the remediation of computer systems to effectively process Year 2000 information, - any material error in evaluating levels of retail inventories and the related impact on operations, and - Coleman's sourcing of products from international vendors, including the ability to select reliable vendors and avoid delays in shipments. Other factors and assumptions not included in the foregoing may cause the Company's actual results to materially differ from those projected. The Company assumes no obligation to update any forward-looking statements or these cautionary statements to reflect actual results or changes in other factors affecting such forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK QUALITATIVE INFORMATION Coleman uses a variety of derivative financial instruments to manage its foreign currency and interest rate exposures. Coleman does not speculate on interest rates or foreign currency rates. Instead, it uses derivatives when implementing its risk management strategies to reduce the possible effects of these exposures. See also Note 12 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998. The Company's international operations are located primarily in Europe, Japan and Canada, which are not considered to be highly inflationary environments. With respect to foreign currency exposures, the Company principally uses forward and option contracts to reduce risks arising from firm commitments, anticipated intercompany sales transactions and intercompany receivable and payable balances. Coleman is most vulnerable to changes in United States dollar/Japanese yen (JPY), United States dollar/Canadian dollar (CAD), United States dollar/German Deutschemark (DM), and United States dollar/British Pound (GBP) exchange rates. The Company's interest income and expense are most sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Company's cash equivalents and short-term investments as well as interest paid on its debt. To mitigate the impact of fluctuations in U.S. interest rates, the Company maintains a portion of its debt as fixed rate in nature by entering into interest rate swap transactions. 30 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES Coleman manages credit risk related to its derivative instruments through credit approvals, exposure limits, threshold amounts and other monitoring procedures. QUANTITATIVE INFORMATION Set forth below are tabular presentations of certain information related to Coleman's investments in market risk sensitive instruments. All of the instruments set forth in the following tables have been entered into by Coleman for purposes other than trading. INTEREST RATE SENSITIVITY. The table below provides information about Coleman's derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal cash flows by expected maturity date and related June 30, 1999 weighted average interest rates. For interest rate swaps, the table presents notional amounts and weighted average interest rates for the contracts at June 30, 1999. Notional amounts are used to calculate the contractual payments to be exchanged under the contracts.
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. 31 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. 32 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 Certificate of Designation, Preferences and Rights of Series A Participating Preferred Stock of The Coleman Company, Inc., dated as of July 9, 1999 (incorporated by reference to Exhibit 3.1 to The Coleman Company, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1990). 10.1 Sixth Amendment to Credit Agreement, dated as of May 25, 1999 among Sunbeam Corporation ("Sunbeam"), the Subsidiary Borrowers referred to therein, the Lenders party thereto, Morgan Stanley Senior Funding, Inc., Bank America National Trust and Savings Association and First Union National Bank (incorporated by reference to Exhibit 10.32 to Amendment Number 2 to Sunbeam's Registration Statement on Form S-1, Registration Number 333-71819). 10.2 Tax Sharing Agreement, dated as of July 12, 1999 by and among Sunbeam Corporation and The Coleman Company, Inc (incorporated by reference to Exhibit 10.2 to The Coleman Company, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1990). 27 Financial Data Schedule, submitted electronically to the Securities and Exchange Commission for information only and not filed.
- ------------------- (b) Report on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1999. 33 THE COLEMAN COMPANY, INC. AND SUBSIDIARIES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE COLEMAN COMPANY, INC. Date: November 4, 1999 By: /s/ Gwen C. Wisler --------------------- ---------------------------- Gwen C. Wisler Executive Vice President and Chief Financial Officer 34 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COLEMAN COMPANY, INC. FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS 6-MOS DEC-31-1999 DEC-31-1998 JAN-01-1999 JAN-01-1998 JUN-30-1999 JUN-30-1998 23,266 19,995 0 0 289,303 261,029 8,933 9,702 240,828 223,569 590,873 544,310 272,700 273,068 130,335 115,995 1,026,488 1,031,869 677,506 702,241 423 216 0 0 0 0 558 558 265,021 267,462 1,026,488 1,031,869 680,944 565,201 681,615 570,906 468,599 407,414 468,599 407,414 0 0 2,964 1,555 12,445 17,923 65,875 20,113 25,362 16,190 39,936 3,683 0 0 0 (17,538) 0 0 39,936 (13,855) 0.72 (0.25) 0.72 (0.25)
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