UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 1996
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or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-988
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THE COLEMAN COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3639257
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1526 COLE BLVD., SUITE 300, GOLDEN, COLORADO 80401
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(Address of principal executive offices) (Zip Code)
303-202-2400
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(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 53,214,220 shares as of August 1, 1996 of which 44,067,520 shares
were held by an indirect wholly-owned subsidiary of Mafco Holdings Inc.
Exhibit Index on Page 16.
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
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Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Earnings
Three months ended June 30, 1996 and 1995 and
Six months ended June 30, 1996 and 1995............. 3
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995.................. 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995.............. 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 15
Item 4. Submission of Matters to a Vote of Security Holders....... 15
Item 6. Exhibits and Reports on Form 8-K.......................... 16
Signatures................................................ 17
2
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Net revenues................................. $452,654 $311,281 $726,214 $535,305
Cost of sales................................ 315,116 211,706 507,710 367,234
-------- -------- -------- --------
Gross profit................................. 137,538 99,575 218,504 168,071
Selling, general and administrative
expenses.................................... 78,916 45,839 125,653 85,436
Interest expense............................. 10,732 6,393 18,813 12,003
Amortization of goodwill and deferred
charges..................................... 2,897 1,870 5,144 3,748
Other expense (income), net.................. 627 25 657 (69)
-------- -------- -------- --------
Earnings before income taxes,
minority interest and extraordinary item.... 44,366 45,448 68,237 66,953
Provision for income tax expense............. 14,369 17,854 23,201 26,112
Minority interest in earnings of
Camping Gaz................................. 1,951 -- 1,951 --
-------- -------- -------- --------
Earnings before extraordinary item........... 28,046 27,594 43,085 40,841
Extraordinary loss on early extinguishment
of debt, net of income tax benefit.......... (647) -- (647) --
-------- -------- -------- --------
Net earnings................................. $ 27,399 $ 27,594 $ 42,438 $ 40,841
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share:
Earnings before extraordinary item....... $ .53 $ .52 $ .81 $ .77
Extraordinary item....................... (.01) -- (.01) --
-------- -------- -------- --------
Net earnings........................ $ .52 $ .52 $ .80 $ .77
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares outstanding... 53,190 53,267 53,178 53,301
-------- -------- -------- --------
-------- -------- -------- --------
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,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 11,364 $ 12,065
Accounts receivable, net . . . . . . . . . . . . 370,409 165,309
Inventories . . . . . . . . . . . . . . . . . . . 291,995 216,236
Income tax refunds receivable - affiliate . . . . -- 2,400
Deferred tax assets . . . . . . . . . . . . . . . 20,115 20,481
Prepaid assets and other . . . . . . . . . . . . 20,788 22,308
---------- -----------
Total current assets . . . . . . . . . . . . 714,671 438,799
Property, plant and equipment, net . . . . . . . . . 212,257 162,691
Intangible assets related to businesses
acquired, net . . . . . . . . . . . . . . . . . . . $ 312,940 217,289
Deferred tax assets and other . . . . . . . . . . . . 41,885 25,708
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$1,281,753 $ 844,487
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable . . . . . . . . . . . $ 203,519 $ 90,679
Other current liabilities 113,932 59,188
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Total current liabilities . . . . . . . . . 317,451 149,867
Long-term debt . . . . . . . . . . . . . . . . . . . 558,537 354,206
Other liabilities . . . . . . . . . . . . . . . . . . 65,909 48,072
Minority interest . . . . . . . . . . . . . . . . . . 5,393 --
Contingencies
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . 532 532
Additional paid-in capital . . . . . . . . . . . 166,256 165,466
Retained earnings . . . . . . . . . . . . . . . . 167,163 126,179
Currency translation adjustment . . . . . . . . . 512 165
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Total stockholders' equity . . . . . . . . . 334,463 292,342
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$1,281,753 $ 844,487
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---------- -----------
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,
----------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 42,438 $ 40,841
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Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization . . . . . . . . . . . 17,112 12,568
Extraordinary loss on early extinguishment of debt. 1,078 --
Minority interest in earnings of Camping Gaz. . . . 1,951 --
Change in assets and liabilities:
Increase in receivables . . . . . . . . . . . (141,964) (85,154)
Increase in inventories . . . . . . . . . . . (14,318) (8,509)
Increase in accounts payable . . . . . . . . . 24,298 12,397
Other, net . . . . . . . . . . . . . . . . . . 23,055 23,797
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(88,788) (44,901)
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Net cash used by operating activities . . . . . . . . . . . (46,350) (4,060)
--------- --------
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . (18,803) (10,664)
Purchases of businesses, net of cash acquired . . . . . . . (158,228) (1,359)
Proceeds from sale of fixed assets . . . . . . . . . . . . . 433 731
--------- --------
Net cash used by investing activities . . . . . . . . . . . (176,598) (11,292)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments of) proceeds from revolving credit
agreement borrowings . . . . . . . . . . . . . . . . . . (31,996) 3,544
Net change in short-term borrowings. . . . . . . . . . . . . 24,068 16,752
Proceeds from issuance of long-term debt . . . . . . . . . . 235,000 --
Repayment of long-term debt. . . . . . . . . . . . . . . . . (5,917) (3,123)
Debt issuance and refinancing costs . . . . . . . . . . . . (1,765) --
Purchases of Company common stock . . . . . . . . . . . . . (2,329) (4,086)
Proceeds from stock options exercised . . . . . . . . . . . 1,655 3,510
--------- --------
Net cash provided by financing activities . . . . . . . . . 218,716 16,597
--------- --------
Effect of exchange rate changes on cash . . . . . . . . . . 3,531 (2,801)
--------- --------
Net decrease in cash and cash equivalents . . . . . . . . . (701) (1,556)
Cash and cash equivalents at beginning of the period . . . . 12,065 8,319
--------- --------
Cash and cash equivalents at end of the period . . . . . . . $ 11,364 $ 6,763
--------- --------
--------- --------
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. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
The Coleman Company, Inc. ("Coleman" or "Company") 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, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. The balance sheet at December
31, 1995 has been derived from the audited financial statements for that date
but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1995.
2. CAPITAL STOCK AND EARNINGS PER COMMON SHARE
On May 31, 1996, the Company's Board of Directors declared a two-for-one
stock split on its Common Stock, par value $.01 per share, effected in the
form of a dividend to stockholders of record on June 28, 1996 which was paid
on July 15, 1996. All references herein to number of shares and per share
amounts in the condensed consolidated financial statements and notes thereto
have been adjusted to reflect the stock split on a retroactive basis for all
periods.
3. INVENTORIES
The components of inventories consist of the following:
June 30, December 31,
1996 1995
--------- ------------
Raw material and supplies . . . $ 84,066 $ 57,653
Work-in-process . . . . . . . . 10,355 5,389
Finished goods . . . . . . . . 197,574 153,194
--------- ---------
$ 291,995 $ 216,236
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--------- ---------
4. ACQUISITIONS
On January 2, 1996, the Company purchased substantially all the assets
and assumed certain liabilities of Seatt Corporation ("Seatt"), a leading
designer, manufacturer and distributor of a broad range of safety related
electronic products for residential and commercial applications. The Seatt
acquisition, which was accounted for under the purchase method, was completed
for approximately $64,982 including fees and expenses and was financed
through borrowings under the Company Credit Agreement, and assumption of
certain liabilities in the amount of $7,157 by the Company. The results of
operations of Seatt have been included in the consolidated financial
statements from the date of acquisition. In connection with the preliminary
purchase price allocation of the Seatt acquisition, the Company recorded
goodwill of approximately $37,821. The Company is amortizing this amount
over 40 years on the straight-line method.
6
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
On February 28, 1996, the Company and Butagaz S.N.C. ("Butagaz"), a
subsidiary of Societe de Petroles Shell S.A., jointly announced they had
entered into an agreement (the "Share Purchase Agreement") in connection with
the sale to Coleman of approximately 60 percent of the outstanding shares of
Application des Gaz, S.A. ("ADG" or "Camping Gaz"). Pursuant to the terms of
the Share Purchase Agreement and other related documents dated February 27,
1996, Coleman has the right to, and intends to, acquire the remaining shares
held by Butagaz, which represents approximately 10% of the outstanding shares
of ADG, and accordingly considers this 10% stock ownership as under the
control of the Company. The Company obtained effective control of Camping Gaz
on March 1, 1996. Camping Gaz is the leading manufacturer and distributor of
camping appliances in Europe. On June 24, 1996, Coleman commenced a public
tender offer for the purchase of all the publicly traded outstanding shares
of ADG, or approximately 30% of the outstanding shares. The tender offer
period expired in July 1996 with approximately 28% of the outstanding shares
of ADG tendered for purchase. The Company is currently completing the
necessary steps to acquire the remaining publicly held stock and expects to
complete those actions during the third quarter of 1996. As of June 30, 1996,
the acquisition of approximately 89% of the outstanding shares of ADG amounts
to approximately French Franc 443,646 (approximately $87,622 based on the
exchange rates in effect on the dates paid) including estimated fees and
expenses. The acquisition of Camping Gaz is being accounted for under the
purchase method. In connection with the preliminary allocation of purchase
price to the fair values of assets and liabilities acquired, the Company
recorded goodwill of approximately $60,682, which is being amortized over 40
years on the straight-line method. The Company has included the results of
operations of Camping Gaz in the consolidated financial statements from March
1, 1996, the date on which the Company obtained effective control of Camping
Gaz, and has recognized minority interest related to the publicly traded
shares for the period March 1, 1996 through June 30, 1996.
The following summarized, unaudited pro forma results of operations
for the six months ended June 30, 1996 and 1995 assumes the acquisition of
Seatt and the acquisition of all the outstanding shares of Camping Gaz
occurred as of the beginning of the respective periods. The pro forma
results include certain adjustments, primarily reflecting increased
amortization and interest expense and a lower income tax provision, and are
not necessarily indicative of what the results of operations would have been
had the Seatt and Camping Gaz acquisitions occurred at the beginning of the
respective periods. Moreover, the pro forma information is not intended to
be indicative of future results of operations.
Six Months ended
June 30,
------------------------
1996 1995
--------- ---------
Net revenues . . . . . . . . . . . . . . $ 752,368 $ 692,980
Earnings before extraordinary item . . . 42,924 45,088
Net earnings . . . . . . . . . . . . . . 42,277 45,088
Earnings per common share:
Earnings before extraordinary item. . $ 0.80 $ 0.85
Net earnings . . . . . . . . . . . . 0.79 0.85
7
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
5. RELATED PARTY TRANSACTION
The Company has entered into an agreement with an affiliate in which
the Company will be able to realize tax benefits associated with certain
foreign tax net operating loss carryforwards that had not previously been
recognized. Approximately $1,236 of this benefit is reflected in the
Company's provision for income taxes in the three month and six month periods
ended June 30, 1996.
6. LONG-TERM DEBT
On April 30, 1996, the Company amended the Company Credit Agreement
to revise several of the terms and provisions of the Company Credit Agreement
and to allow for the issuance of additional long-term notes. The Company
Credit Agreement, as amended, provides for (a) an unsecured French Franc term
loan in the amount of French Franc 385,125 ($75,000 at the then current
exchange rates) and (b) an unsecured revolving credit facility of $275,000.
The Company Credit Agreement, as amended, is available to the Company until
April 30, 2001.
The outstanding loans under the Company Credit Agreement bear
interest at either of the following rates, as selected by the Company from
time to time: (i) the higher of the agent's base lending rate or the federal
funds rate plus .50% or (ii) the London Inter-Bank Offered Rate ("LIBOR")
plus a margin ranging from .25% to 1.1% based on the Company's financial
performance. If there is a default, the interest rate otherwise in effect
will be increased by 2% per annum and the margin will be 1.0% in the case of
U.S. Dollar denominated LIBOR loans and 1.1% for foreign currency denominated
LIBOR loans. The Company Credit Agreement also bears an overall facility fee
ranging from .15% to .375% based on the Company's financial performance.
The amended Company Credit Agreement contains various restrictive
covenants, including without limitation, requirements for the maintenance of
specified financial ratios and levels of consolidated net worth and certain
other provisions limiting the incurrence of additional debt, purchase or
redemption of Coleman Common Stock, issuance of Coleman Preferred Stock, and
the payment of dividends. Under the most restrictive of these covenants of
the amended Company Credit Agreement, approximately $83,560 would have been
available for payment by the Company of cash dividends at June 30, 1996.
In connection with the amending and restating of the Company's
previous credit agreement, the Company recognized an extraordinary loss of
approximately $1,078 ($647 after taxes, or $0.01 per share) in the quarter
ended June 30, 1996, which represents the write-off of the related
unamortized financing costs associated with the Company's previous credit
agreement.
On June 13, 1996, the Company completed (i) a private placement
issuance and sale of $85,000 aggregate principal amount of 7.10% Senior
Notes, Series A, due 2006 (the "Notes due 2006") and (ii) a private
placement issuance and sale of $75,000 aggregate principal amount of 7.25%
Senior Notes, Series B, due 2008 (the "Notes due 2008"). Proceeds from these
private placement issuances were used (i) to finance the acquisition of
Camping Gaz, and (ii) to pay down existing indebtedness under the revolving
credit facility under the Company Credit Agreement. The Notes due 2006 bear
interest at the rate of 7.10% per annum payable semiannually, and the
principal amount is payable in annual installments of $12,143 commencing June
13, 2000 with a final payment due on June 13, 2006. If there is a default,
the interest rate will be the greater of (i) 9.10 % or (ii) 2% above the
prime interest rate. The Notes due 2008 bear interest at the rate of 7.25%
per annum payable semiannually, and
8
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
the principal amount is payable in annual installments of $15,000 commencing
June 13, 2004 with a final payment on June 13, 2008. If there is a default,
the interest rate will be the greater of (i) 9.25 % or (ii) 2% above the
prime interest rate. The Notes due 2006 and the Notes due 2008 are unsecured
and are subject to various restrictive covenants, including without
limitation, requirements for the maintenance of specified financial ratios
and levels of consolidated net worth and certain other provisions limiting
the incurrence of additional debt and sale and leaseback transactions under
the terms of the Note Purchase Agreement.
9
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED JUNE
30, 1995
Net revenues in the 1996 and 1995 periods were $452.7 million and $311.3
million, respectively, an increase of $141.4 million, or 45.4%. All classes
of the Company's products contributed to this increase with recreation
products increasing by $101.5 million, hardware/home center products
contributing $22.5 million, and the Company's new class of home safety and
security products recording revenues of $17.4 million. Net revenues in the
United States and Canada increased 17.3%, and net revenues from international
markets increased 126.5%.
Recreation products revenues increased $101.5 million or 40.6%.
Excluding the impact of the Camping Gaz and Sierra acquisitions, the effect
of a weaker yen in 1996 as compared to 1995 and the one-time 1995
thermo-electric cooler premium promotion, comparable recreation revenues
increased approximately 11.0%. Strong new product growth was partially offset
by a decrease in camping appliances which were affected by adverse weather in
the spring. Hardware/home center revenues increased 36.8% or $22.5 million.
The increase was driven by continued growth of pressure washers sales and
sales of compressors and new lighting products. Total revenues in the 1996
period also include revenues from home safety and security products
associated with the Seatt business, which was acquired in January 1996.
Cost of sales was $315.1 million in 1996 compared with $211.7 million in
1995, an increase of 48.8%. Cost of sales as a percent of net revenues
increased to 69.6% in 1996 from 68.0% in 1995. Gross margins as a percent of
sales decreased to 30.4% in 1996 from 32.0% in 1995. Significantly higher
sales of pressure washers at reduced gross margins and lower sales of high
margin camping appliances primarily contributed to the decrease. Electric
pressure washer gross margins were significantly below 1995 as the Company
continued to experience declining sales prices. The Company does not plan to
participate in the opening price point electric pressure washer business in
1997.
Selling, general and administrative ("SG&A") expenses were $78.9 million
in 1996 compared to $45.8 million in 1995, an increase of 72.2%. The
increase in SG&A expenses primarily reflects SG&A expenses associated with
recent business acquisitions and to a lesser extent increased advertising and
marketing expenses.
Interest expense was $10.7 million in 1996 compared with $6.4 million in
1995, an increase of $4.3 million. This increase was primarily the result of
higher borrowings to fund business acquisitions and to support the increased
working capital.
The Company's effective income tax rate was 32.4% in 1996 compared with
39.3% in 1995. The decrease in the effective tax rate in 1996 as compared to
1995 is primarily due to tax benefits associated with the Company's
manufacturing operations in Puerto Rico along with lower taxes on foreign
operations, primarily in France. The 1996 effective tax rate also includes
recognition of tax benefits associated with certain foreign net operating
loss carryforwards that had not been previously recognized.
The Company obtained control of approximately 70% of Camping Gaz in
March 1996. Accordingly, the minority interest for the 1996 period
represents the minority shareholders approximate 30% proportionate share of
the results of operations of the Camping Gaz operations.
During the second quarter of 1996, in connection with the renegotiation
of its then existing credit agreement, the Company recorded an extraordinary
loss of $1.1 million ($0.6 million after taxes, or $0.01 per
10
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
share) which represents a write-off of the related unamortized financing
costs associated with its then existing credit agreement
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
1995
Net revenues in the 1996 and 1995 periods were $726.2 million and $535.3
million, respectively, an increase of $190.9 million, or 35.7%. All classes
of the Company's products contributed to this increase with recreation
products increasing by $116.7 million, hardware/home center products
contributing $38.9 million, and the Company's new class of home safety and
security products recording revenues of $35.3 million. Net revenues in the
United States and Canada increased 20.4%, and net revenues from international
markets increased 80.6%.
Recreation products revenues increased $116.7 million or 27.7%.
Excluding the impact of the Camping Gaz and Sierra acquisitions, the effect
of a weaker yen in 1996 as compared to 1995 and the one-time 1995
thermo-electric cooler premium promotion, comparable recreation revenues
increased approximately 11.2%. Strong new product growth was partially offset
by a decrease in camping appliances which were affected by adverse weather in
the spring. Hardware/home center revenues increased 34.2% or $38.9 million.
The increase was driven by strong generator sales in the winter and early
spring, pressure washer growth and new products. Total revenues in the 1996
period also include revenues from home safety and security products
associated with the Seatt business, which was acquired in January 1996.
Cost of sales was $507.7 million in 1996 compared with $367.2 million in
1995, an increase of 38.3%. Cost of sales as a percent of net revenues
increased to 69.9% in 1996 from 68.6% in 1995. Gross margins as a percent of
sales decreased to 30.1% in 1996 from 31.4% in 1995. Significantly higher
sales of pressure washers at reduced gross margins and lower sales of high
margin camping appliances primarily contributed to the decrease. Electric
pressure washer gross margins were significantly below 1995 as the Company
continued to experience declining sales prices. The Company does not plan to
participate in the opening price point electric pressure washer business in
1997.
SG&A expenses were $125.7 million in 1996 compared to $85.4 million in
1995, an increase of 47.1%. The increase in SG&A expenses primarily reflects
SG&A expenses associated with recent business acquisitions and to a lesser
extent increased advertising and marketing expenses.
Interest expense was $18.8 million in 1996 compared with $12.0 million in
1995, an increase of $6.8 million. This increase was primarily the result of
higher borrowings to fund business acquisitions and support the increased
working capital.
The Company's effective income tax rate was 34.0% in 1996 compared with
39.0% in 1995. The decrease in the effective tax rate in 1996 as compared to
1995 is primarily due to tax benefits associated with the Company's
manufacturing operations in Puerto Rico along with lower taxes on foreign
operations, primarily in France. The 1996 effective tax rate also includes
recognition of tax benefits associated with certain foreign net operating
loss carryforwards that had not been previously recognized.
The Company obtained control of approximately 70% of Camping Gaz in
March 1996. Accordingly, the minority interest for the 1996 period
represents the minority shareholders approximate 30% proportionate share of
the results of operations of the Camping Gaz operations.
During the second quarter of 1996, in connection with the renegotiation
of its then existing credit agreement, the Company recorded an extraordinary
loss of $1.1 million ($0.6 million after taxes, or $0.01 per share) which
represents a write-off of the related unamortized financing costs associated
with its then existing credit agreement
11
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operations were $46.4 million and $4.1 million for the
six months ended June 30, 1996 and 1995, respectively. Cash used during
these periods reflects the Company's seasonal working capital requirements
associated with generally higher sales in the first half of the year as
compared to the second half of the year. Receivables increased by $142.0
million and $85.2 million for the six months ended June 30, 1996 and 1995,
respectively, as a result of the seasonality of the Company's sales and an
increase in the overall level of the Company's sales. Inventories increased
by $14.3 million and $8.5 million in the six months ended June 30, 1996 and
1995, respectively, to support the growth of the Company, especially in new
products. The Company's net cash used for investing activities was $176.6
million and $11.3 million for the six months ended June 30, 1996 and 1995,
respectively. The Company's capital expenditures were $18.8 million and
$10.7 million in the six months ended June 30, 1996 and 1995, respectively.
The increase in capital expenditures reflects the addition of equipment to
expand the Company's capacity to manufacture certain of its product lines.
The Company used $158.2 million and $1.4 million of cash for business
acquisitions during the six months ended June 30, 1996 and 1995,
respectively. Net cash provided by financing activities for the six months
ended June 30, 1996 consisted primarily of increases in long-term and
short-term borrowings to finance the seasonal increase in working capital and
the Company's investing activities. The Company also paid $2.3 million to
acquire 200,000 shares of its Common Stock and $4.1 million to acquire
440,000 shares of its Common Stock in the open market during the six months
ended June 30, 1996 and 1995, respectively.
The Company's working capital requirements are currently funded by cash
flow from operations and domestic and foreign bank lines of credit. In April
1996, the Company amended its credit agreement to allow for the Camping Gaz
acquisition as well as to extend the maturity of the credit agreement (the
"Company Credit Agreement"). The Company Credit Agreement provides a term
loan of French Franc 385,125 ($75.0 million at the then current exchange
rates) and a revolving credit facility in an amount of $275.0 million.
Availability under the Company Credit Agreement is reduced by any commercial
paper borrowings outstanding. The Company Credit Agreement is available to
the Company until April 30, 2001. At June 30, 1996, $156.8 million would
have been available for borrowings under the Company Credit Agreement.
The outstanding loans under the Company Credit Agreement bear interest at
either of the following rates, as selected by the Company from time to time:
(i) the higher of the agent's base lending rate or the federal funds rate
plus .50% or (ii) the London Inter-Bank Offered Rate ("LIBOR") plus a margin
ranging from .25% to 1.1% based on the Company's financial performance. If
there is a default, the interest rate otherwise in effect will be increased
by 2% per annum and the margin will be 1.0% in the case of U.S. Dollar
denominated LIBOR loans and 1.1% for foreign currency denominated LIBOR
loans. The Company Credit Agreement also bears an overall facility fee
ranging from .15% to .375% based on the Company's financial performance.
The Company Credit Agreement contains various restrictive covenants,
including without limitation, requirements for the maintenance of specified
financial ratios and levels of consolidated net worth and certain other
provisions limiting the incurrence of additional debt, purchase or redemption
of Coleman Common Stock, issuance of Coleman Preferred Stock, and the payment
of dividends. Under the most restrictive of these covenants of the Company
Credit Agreement, approximately $83.6 million would have been available for
payment by the Company of cash dividends at June 30, 1996.
On February 28, 1996, the Company and Butagaz S.N.C. ("Butagaz"), a
subsidiary of Societe de Petroles Shell S.A., jointly announced they had
entered into an agreement (the "Share Purchase Agreement") in connection with
the sale to Coleman of approximately 60 percent of the outstanding shares of
Application des Gaz, S.A. ("ADG" or "Camping Gaz"). Pursuant to the terms of
the Share Purchase Agreement and other related documents dated February 27,
1996, Coleman has the right to, and intends to during the third quarter of
1996, acquire the remaining shares held by Butagaz, which represents
approximately 10% of the outstanding shares
12
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
of ADG, and accordingly considers this 10% stock ownership as under the
control of the Company. The Company obtained effective control of Camping Gaz
on March 1, 1996. Camping Gaz is the leading manufacturer and distributor of
camping appliances in Europe. On June 24, 1996, the Company commenced a
tender offer for the purchase of all the publicly traded outstanding shares
of ADG, or approximately 30% of the outstanding shares, for French Franc 404
per share. The tender offer period expired in July 1996 with approximately
28% of the outstanding shares of ADG tendered for purchase. The Company is
currently completing the necessary steps to acquire the remaining publicly
held stock and expects to complete those actions during the third quarter of
1996.
Coleman is financing the acquisition of the shares of ADG with net
proceeds from (i) a private placement issuance and sale of $85.0 million
aggregate principal amount of 7.10% Senior Notes, Series A, due 2006 (the
"Notes due 2006") and (ii) a private placement issuance and sale of $75.0
million aggregate principal amount of 7.25% Senior Notes, Series B, due 2008
(the "Notes due 2008"). The Notes due 2006 bear interest at the rate of
7.10% per annum payable semiannually, and the principal amount is payable in
annual installments of $12.1 million commencing June 13, 2000 with a final
payment due on June 13, 2006. If there is a default, the interest rate will
be the greater of (i) 9.10% or (ii) 2% above the prime interest rate. The
Notes due 2008 bear interest at the rate of 7.25% per annum payable
semiannually, and the principal amount is payable in annual installments of
$15.0 million commencing June 13, 2004 with a final payment due on June 13,
2008. If there is a default, the interest rate will be the greater of (i)
9.25% or (ii) 2% above the prime interest rate. The Notes due 2006 and the
Notes due 2008 are unsecured and are subject to various restrictive
covenants, including without limitation, requirements for the maintenance of
specified financial ratios and levels of consolidated net worth and certain
other provisions limiting the incurrence of additional debt and sale and
leaseback transactions under the terms of the Note Purchase Agreement.
Camping Gaz has a significant presence in the market for camping
equipment in Europe and has recently pursued its development internationally.
The Company is currently in the process of reviewing its integration
alternatives with respect to the combination of the business operations of
Coleman and Camping Gaz. The conclusions of the review could result in a
charge against earnings in 1996.
The Company's parent (Coleman Worldwide Corporation) and its parent
(Coleman Holdings Inc.) have entered into borrowing agreements which are
collateralized by the Company's common stock.
The Company expects that the combination of the cash flow generated by
its operations and borrowings under the Company Credit Agreement will be
sufficient to enable it to meet its current operating requirements, including
projected capital expenditures, tax sharing payments and other obligations.
The Company uses a variety of derivative financial instruments to manage
its foreign currency and interest rate exposures. The Company 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.
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. The Company generally uses interest rate swaps and
interest rate caps to fix certain of its variable rate debt. The Company
manages credit risk related to these derivative contracts through credit
approvals, exposure limits and other monitoring procedures.
13
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.
14
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 annual meeting of shareholders was held on May 31, 1996.
Directors elected at the meeting were Ronald O. Perelman, Donald G. Drapkin,
Jordan L. Haines, Michael N. Hammes, Lawrence M. Jones, Robert J. Lanigan,
Jerry W. Levin, Robert S. Miller, John A. Moran, Bruce Slovin, and William H.
Spoor, constituting the entire board of directors. All of the directors were
elected without opposition. There were no broker nonvotes. Other matters
voted on were proposals to ratify the appointment of Ernst & Young LLP as the
independent certified public accountants for the Company for 1996 and to
approve The Coleman Company, Inc. 1996 Stock Option Plan.
The tabulation of votes (adjusted to reflect the two-for-one stock split
paid on July 15, 1996) for each matter are as follows:
1. ELECTION OF DIRECTORS
Nominees
for Against or
Directors For Withheld Abstained
--------- --- ---------- ---------
Ronald O. Perelman 51,420,376 37,044 --
Donald G. Drapkin 51,420,376 37,044 --
Jordan L. Haines 51,420,376 37,044 --
Michael N. Hammes 51,418,976 38,444 --
Lawrence M. Jones 51,420,350 37,070 --
Robert J. Lanigan 51,419,976 37,444 --
Jerry W. Levin 51,420,376 37,044 --
Robert S. Miller 51,420,372 37,048 --
John A. Moran 51,420,376 37,044 --
Bruce Slovin 51,420,376 37,044 --
William H. Spoor 51,419,770 37,650 --
2. Ratification of Independent Certified Public Accountants
51,427,130 4,476 25,544
3. Approval of the 1996 Stock Option Plan
51,123,836 282,496 51,088
15
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Index Description
------------- -----------
10.1* Employment Agreement dated as of May 1, 1996 between the
Company and Frederik van den Bergh.
10.2* Employment Agreement dated as of August 1, 1996 between the
Company and Steven F. Kaplan.
10.3* Addendum dated August 3, 1996 and effective August 1, 1996
to Employment Agreement dated as of August 1, 1996 between
the Company and Steven F. Kaplan.
10.4* First Amendment dated July 1, 1996 to Employment Agreement
effective January 1, 1996 between the Company and Michael N.
Hammes.
10.5* First Amendment dated July 1, 1996 to the Consolidated
Supplemental Retirement Plan adopted January 1, 1996.
27 Financial Data Schedule
____________
* Management Contracts and Compensatory Plans
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 14, 1996 to provide
information regarding the two-for-one stock split authorized by the Board
of Directors of the Company on May 31, 1996.
A report on Form 8-K was filed on July 1, 1996 to disclose certain
information with regard to the Company's acquisition of Application des
Gaz, S.A.
16
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE COLEMAN COMPANY, INC.
(Registrant)
Date: August 13, 1996 By: /s/ George Mileusnic
-----------------------------
George Mileusnic
Executive Vice President and
Chief Financial Officer
17