UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1996
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.)
1526 COLE BLVD., SUITE 300, GOLDEN, COLORADO 80401
- -------------------------------------------- ----------
(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 53,215,690 shares as of November 4, 1996 of which 44,067,520 shares were
held by an indirect wholly-owned subsidiary of Mafco Holdings Inc.
Exhibit Index on Page 15.
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995 and
Nine months ended September 30, 1996 and 1995 . . . . . . . . 3
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995. . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 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 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $269,607 $211,817 $995,821 $747,122
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,713 145,885 737,423 513,119
-------- -------- -------- --------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,894 65,932 258,398 234,003
Selling, general and administrative expenses. . . . . . . . . . . . . . 89,301 42,720 214,954 128,156
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,982 6,266 28,795 18,269
Amortization of goodwill and deferred charges . . . . . . . . . . . . . 2,821 1,967 7,965 5,715
Other expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 578 133 1,235 64
-------- -------- -------- --------
(Loss) earnings before income taxes,
minority interest and extraordinary item. . . . . . . . . . . . . . . (62,788) 14,846 5,449 81,799
Provision for income tax (benefit) expense. . . . . . . . . . . . . . . (14,249) 5,790 8,952 31,902
Minority interest in (loss) earnings of Camping Gaz . . . . . . . . . . (81) -- 1,870 --
-------- -------- -------- --------
(Loss) earnings before extraordinary item . . . . . . . . . . . . . . . (48,458) 9,056 (5,373) 49,897
Extraordinary loss on early extinguishment
of debt, net of income tax benefit. . . . . . . . . . . . . . . . . . -- (787) (647) (787)
-------- -------- -------- --------
Net (loss) earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $(48,458) $ 8,269 $ (6,020) $ 49,110
-------- -------- -------- --------
-------- -------- -------- --------
(Loss) earnings per share:
(Loss) earnings before extraordinary item . . . . . . . . . . . . . . $ (0.91) $ .17 $ (0.10) $ .93
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . -- (.01) (0.01) (.01)
-------- -------- -------- --------
Net (loss) earnings. . . . . . . . . . . . . . . . . . . . . . . . . $ (0.91) $ .16 $ (0.11) $ .92
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares outstanding. . . . . . . . . . . . . . . 53,214 53,147 53,190 53,249
-------- -------- -------- --------
-------- -------- -------- --------
See Notes to Condensed Consolidated Financial Statements
3
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 43,757 $ 12,065
Accounts receivable, net. . . . . . . . . . . . . . 285,529 165,309
Inventories . . . . . . . . . . . . . . . . . . . . 288,884 216,236
Income tax refunds receivable - affiliate . . . . . -- 2,400
Deferred tax assets . . . . . . . . . . . . . . . . 30,060 20,481
Prepaid assets and other. . . . . . . . . . . . . . 21,242 22,308
---------- --------
Total current assets. . . . . . . . . . . . . . . 669,472 438,799
Property, plant and equipment, net. . . . . . . . . . 203,652 162,691
Intangible assets related to businesses acquired, net 330,645 217,289
Deferred tax assets and other . . . . . . . . . . . . 33,914 25,708
---------- --------
$1,237,683 $844,487
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable. . . . . . . . . . . . . $ 166,674 $ 90,679
Other current liabilities . . . . . . . . . . . . . 137,325 59,188
---------- --------
Total current liabilities . . . . . . . . . . . . 303,999 149,867
Long-term debt. . . . . . . . . . . . . . . . . . . . 573,048 354,206
Other liabilities . . . . . . . . . . . . . . . . . . 71,839 48,072
Minority interest . . . . . . . . . . . . . . . . . . 1,416 --
Contingencies . . . . . . . . . . . . . . . . . . . .
Stockholders' equity:
Common stock. . . . . . . . . . . . . . . . . . . . 532 532
Additional paid-in capital. . . . . . . . . . . . . 166,232 165,466
Retained earnings . . . . . . . . . . . . . . . . . 118,705 126,179
Currency translation adjustment . . . . . . . . . . 1,912 165
---------- --------
Total stockholders' equity. . . . . . . . . . . . 287,381 292,342
---------- --------
$1,237,683 $844,487
---------- --------
---------- --------
See Notes to Condensed Consolidated Financial Statements
4
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended September 30,
--------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings . . . . . . . . . . . . . . . . . $ (6,020) $ 49,110
-------- --------
Adjustments to reconcile net (loss) earnings to net
cash flows from operating activities:
Depreciation and amortization . . . . . . . . . . 27,337 19,453
Non-cash restructuring and other charges. . . . . 33,268 --
Extraordinary loss on early extinguishment of debt 1,078 1,290
Minority interest in earnings of Camping Gaz. . . 1,870 --
Change in assets and liabilities:
Increase in receivables . . . . . . . . . . . (60,693) (58,547)
Increase in inventories . . . . . . . . . . . (29,513) (22,203)
(Decrease) increase in accounts payable . . . (22,216) 4,667
Other, net. . . . . . . . . . . . . . . . . . 28,329 19,413
-------- --------
(20,540) (35,927)
-------- --------
Net cash (used) provided by operating activities . . (26,560) 13,183
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . (27,666) (21,024)
Purchases of businesses, net of cash acquired. . . . (158,414) (19,915)
Proceeds from sale of fixed assets . . . . . . . . . 1,567 1,391
-------- --------
Net cash used by investing activities. . . . . . . . (184,513) (39,548)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit
agreement borrowings . . . . . . . . . . . . . . . (14,686) (100,213)
Net change in short-term borrowings. . . . . . . . . 33,215 14,137
Proceeds from issuance of long-term debt . . . . . . 235,678 200,000
Repayment of long-term debt. . . . . . . . . . . . . (9,778) (73,422)
Debt issuance and refinancing costs. . . . . . . . . (2,296) (3,494)
Purchases of Company common stock. . . . . . . . . . (2,329) (4,086)
Proceeds from stock options exercised. . . . . . . . 1,724 3,633
-------- --------
Net cash provided by financing activities. . . . . . 241,528 36,555
-------- --------
Effect of exchange rate changes on cash. . . . . . . 1,237 1,360
-------- --------
Net increase in cash and cash equivalents. . . . . . 31,692 11,550
Cash and cash equivalents at beginning of the period 12,065 8,319
-------- --------
Cash and cash equivalents at end of the period . . . $ 43,757 $ 19,869
-------- --------
-------- --------
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") include the accounts of
Coleman and its subsidiaries after elimination of all material intercompany
accounts and transactions and have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 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 numbers 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:
September 30, December 31,
1996 1995
--------- ---------
Raw material and supplies . . . . . . $ 84,639 $ 57,653
Work-in-process . . . . . . . . . . . 7,667 5,389
Finished goods. . . . . . . . . . . . 196,578 153,194
--------- ---------
$ 288,884 $ 216,236
--------- ---------
--------- ---------
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 and
security related electronic products for residential and commercial
applications. The Seatt acquisition, which was accounted for under the
purchase method, was completed for approximately $65,200 including fees and
expenses. 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 $40,400. The
Company is amortizing this amount over 40 years on the straight-line method.
6
THE COLEMAN COMPNY, 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"). Camping Gaz is the leading manufacturer
and distributor of camping appliances in Europe. 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 fourth quarter of 1996,
acquire the remaining shares held by Butagaz for approximately French Franc
48,434 (approximately $9,400 at current exchange rates), which represents
approximately 10% of the outstanding shares of ADG, and accordingly considers
these shares as under the control of the Company. The Company obtained
effective control of Camping Gaz on March 1, 1996. 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 94% of the
outstanding publicly traded shares of ADG tendered for purchase. The Company
completed the necessary steps to acquire the remaining publicly held stock
during the third quarter of 1996. The cost of acquiring all the shares of ADG
is approximately French Franc 477,822 (approximately $94,100) plus fees and
expenses of approximately $5,000.
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 acquired and liabilities assumed in connection with the
acquisition of Camping Gaz, the Company recorded goodwill of approximately
$75,800, 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
nine months ended September 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.
Nine Months ended
September 30,
-------------------------
1996 1995
---------- ---------
Net revenues . . . . . . . . . . . . . . . . . . . . . . $1,021,975 $ 971,840
(Loss) earnings before extraordinary item . . . . . . (5,534) 53,734
Net (loss) earnings . . . . . . . . . . . . . . . . . (6,181) 52,947
(Loss) earnings per common share:
(Loss) earnings before extraordinary item . . . . . . $ (0.11) $ 1.01
Net (loss) earnings . . . . . . . . . . . . . . . . . (0.12) 1.00
7
THE COLEMAN COMPNY, 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 expects to realize tax benefits associated with certain foreign tax net
operating loss carryforwards that had not previously been recognized.
Substantially all of the estimated $1,800 benefit is reflected in the Company's
provision for income taxes for the nine month period ended September 30, 1996,
with approximately $564 of this benefit reflected in the Company's provision for
income taxes during the three month period ended September 30, 1996.
6. RESTRUCTURING AND OTHER CHARGES
During the three month period ended September 30, 1996, the Company
recorded restructuring and certain other charges totaling $44,495, net of
tax. The restructuring charges total $32,380, net of tax, and consist of
charges to integrate the Camping Gaz and Coleman operations into a single
global recreation products business, exit the low end electric pressure
washer business, and increase the valuation reserve for certain foreign
deferred income tax assets. Other charges of $12,115, net of tax, relate to
litigation associated with certain of the Company's battery powered lights,
certain asset write-offs and certain foreign tax matters. These other
charges were incurred in the Company's normal course of business, although
the amounts involved are higher than similar charges that the Company has
recorded in prior periods. Cost of sales includes a pre-tax charge of
$33,567, selling, general and administrative expenses includes a pre-tax
charge of $23,767 and the provision for income tax benefit includes $12,839
of tax benefits resulting from these charges, net of the effects of an
increase in the valuation reserve related to certain foreign deferred tax
assets and other foreign tax charges. The Company anticipates incurring
additional charges of $5,000 to $7,000, net of tax, during the fourth quarter
of 1996 related to the Company's restructuring actions.
7. LONG-TERM DEBT
On April 30, 1996, the Company amended its unsecured credit agreement
(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. In connection with the Company recording the
restructuring and other charges as discussed in footnote 6, the Company
further amended the Company Credit Agreement on October 25, 1996. 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, as amended, 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 1.875% 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. 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
also prohibits the Company from paying any dividends until on or after January
1, 1999.
8
THE COLEMAN COMPNY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
In connection with the amending and restating of the Company's previous
credit agreement in April 1996, the Company recognized an extraordinary loss of
approximately $1,078 ($647 after taxes, or $0.01 per share) in the nine months
ended September 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 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.
8. SUBSEQUENT EVENT
On November 1, 1996, the Company settled all outstanding claims and
litigation with Black & Decker involving certain of the Company's light
products. The Company estimates that it will incur an after tax charge in the
fourth quarter of 1996 of approximately $8,000 to $10,000 representing costs
associated with the settlement that are in excess of reserves previously
recorded by the Company on this matter.
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 SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net revenues of $269.6 million in 1996 were $57.8 million or 27.3% greater
than in 1995 with recreation products increasing $27.3 million or 18.7% and
hardware/home center products increasing $9.6 million or 14.6%. Revenues in
1996 also include revenues of $20.9 million from the Company's home safety and
security products. Geographically, United States and Canada revenues increased
16.9% while international revenues increased 60.5%.
Recreation products revenues increased $27.3 million or 18.7%. Excluding
the impact of the Camping Gaz acquisition and the one-time 1995 thermo-electric
cooler premium promotion, comparable recreation revenues decreased approximately
8.2%. Strong revenue performance in soft goods, primarily Eastpak products,
were offset by softness in the Company's North America and Japanese base camping
business. The weather across key areas of the United States adversely affected
demand for the Company's camping products and Japan experienced an economic
downturn in the third quarter of 1996 which significantly reduced revenues as
compared to 1995. The increase in hardware/home center revenues of 14.6% or $9.6
million was driven by new products and increased generator sales. The Company's
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.
Gross margins, excluding the impact of restructuring and other charges
totaling $33.6 million (which are more fully discussed below), decreased as a
percent of sales by 3.9 percentage points from 31.1% in 1995. This decrease is
primarily the result of softness in the Company's camping business in North
America and Japan as discussed above. The Company's camping products tend to
have a higher gross margin percentage than the Company's average.
Selling, general and administrative ("SG&A") expenses, excluding $23.8
million of restructuring and other charges as discussed more fully below, were
$65.5 million in 1996 compared to $42.7 million in 1995, an increase of 53.4%.
The increase in SG&A expenses primarily reflects SG&A expenses associated with
the Camping Gaz and Seatt business acquisitions and to a lesser extent increased
advertising and marketing expenses.
During the 1996 period, the Company recorded restructuring and certain
other charges totaling $44.5 million, net of tax. The restructuring charges
total $32.4 million, net of tax, and consist of charges to integrate the Camping
Gaz and Coleman operations into a single global recreation products business,
exit the low end electric pressure washer business, and increase the valuation
reserve for certain foreign deferred income tax assets. Other charges of $12.1
million, net of tax, relate to litigation associated with certain of the
Company's battery powered lights, certain asset write-offs and certain foreign
tax matters. These other charges were incurred in the Company's normal course
of business, although the amounts involved are higher than similar charges that
the Company has recorded in prior periods. Cost of sales includes a pre-tax
charge of $33.6 million, selling, general and administrative expenses includes a
pre-tax charge of $23.8 million, and the provision for income tax benefit
includes $12.9 million of tax benefits resulting from these charges, net of the
effect of an increase in the valuation reserve related to certain foreign
deferred tax assets and other foreign tax charges. The Company anticipates
incurring additional charges of $5.0 million to $7.0 million, net of tax, during
the fourth quarter of 1996 related to the Company's restructuring actions.
On November 1, 1996, the Company settled all outstanding claims and
litigation with Black & Decker
10
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
involving certain of the Company's light products. The Company estimates that
it will incur an after tax charge in the fourth quarter of 1996 of approximately
$8.0 million to $10.0 million representing costs associated with the settlement
that are in excess of reserves previously recorded by the Company on this
matter. In addition, the Company's results of operations in the fourth quarter
of 1996 will also be reduced by an estimated $2.5 million to $5.0 million ($.05
to $.10 per share) due to the loss of projected earnings associated with the
light products that are to be discontinued in connection with the Black &
Decker settlement.
Interest expense was $10.0 million in 1996 compared with $6.3 million in
1995, an increase of $3.7 million. This increase was primarily the result of
higher borrowings to fund business acquisitions and to support the increased
working capital.
Minority interest represents the interest of minority shareholders in
certain subsidiary operations of Camping Gaz.
The Company recorded a provision for income tax benefit of $14.2 million or
22.7% of the pre-tax loss in 1996 compared to a provision for income tax expense
of $5.8 million or 39.0% of the pre-tax earnings in 1995. Excluding the impact
of the restructuring and other charges, the provision for income tax benefit in
1996 was negatively impacted by the cumulative impact of the Company's increase
in its expected annual effective income tax rate from 34.0% to 34.7%.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net revenues in the 1996 and 1995 periods were $995.8 million and $747.1
million, respectively, an increase of $248.7 million, or 33.3% with recreation
products increasing by $143.9 million or 25.4% and hardware/home center products
increasing $48.5 million or 27.0%. The Company's home safety and security
products contributed revenues of $56.2 million. Geographically, United States
and Canada revenues increased a 19.4%, while international revenues increased
75.2%.
Recreation products revenues increased $143.9 million or 25.4%. 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 6.4%.
Strong revenue performance in soft goods and new products was partially offset
by softness in the Company's North America and Japanese camping business. The
weather across key areas of the United States adversely affected demand for the
Company's camping products and Japan experienced an economic downturn in the
third quarter of 1996 which significantly reduced revenues as compared to 1995.
The increase in hardware/home center revenues of 27.0% or $48.5 million was
driven by pressure washer growth, strong generator sales and new products. The
Company's 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.
Gross margins, excluding the impact of restructuring and other charges
totaling $33.6 million (which are more fully discussed below), decreased as a
percent of sales by 2.0 percentage points from 31.3% in 1995 to 29.3% in 1996.
This decrease is primarily the result of the unfavorable effects of product mix
including significantly higher sales of pressure washers at lower gross margin
percentages and lower sales of camping products which tend to have higher gross
margin percentages than the Company's average.
SG&A expenses, excluding $23.8 million of restructuring and other charges
as discussed more fully below, were $191.2 million in 1996 compared to $128.2
million in 1995, an increase of 49.1%. The increase in SG&A expenses primarily
reflects SG&A expenses associated with the Camping Gaz and Seatt business
acquisitions and to a lesser extent increased advertising and marketing
expenses.
11
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
During the 1996 period, the Company recorded restructuring and certain
other charges totaling $44.5 million, net of tax. The restructuring charges
total $32.4 million, net of tax, and consist of charges to integrate the Camping
Gaz and Coleman operations into a single global recreation products business,
exit the low end electric pressure washer business, and increase the valuation
reserve for certain foreign deferred income tax assets. Other charges of $12.1
million, net of tax, relate to litigation associated with certain of the
Company's battery powered lights, certain asset write-offs and certain foreign
tax matters. These other charges were incurred in the Company's normal course
of business, although the amounts involved are higher than similar charges that
the Company has recorded in prior periods. Cost of sales includes a pre-tax
charge of $33.6 million, selling, general and administrative expenses includes a
pre-tax charge of $23.8 million, and the provision for income tax expense
includes $12.9 million of tax benefits resulting from these charges, net of the
effect of an increase in the valuation reserve related to certain foreign
deferred tax assets and other foreign tax charges. The Company anticipates
incurring additional charges of $5.0 million to $7.0 million, net of tax, during
the fourth quarter of 1996 related to the Company's restructuring actions.
Interest expense was $28.8 million in 1996 compared with $18.3 million in
1995, an increase of $10.5 million. This increase was primarily the result of
higher borrowings to fund business acquisitions and support the increased
working capital.
The Company recorded a provision for income tax expense in 1996 of $9.0
million, which includes the net tax benefits of $12.9 million discussed above.
Excluding the net tax benefit from restructuring and other charges, the
provision for income taxes would have been $21.9 million or 34.7% of pre-tax
earnings as compared to a provision for income tax expense of $31.9 million or
39.0% of pre-tax earnings in 1995. The decrease in the effective tax rate
before restructuring and other charges 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,
and to a lesser extent due to the recognition of tax benefits associated with
certain foreign net operating loss carryforwards that had not been previously
recognized.
The Company obtained effective control of approximately 70% of Camping Gaz
in March 1996 and obtained control of the remaining 30% in July 1996.
Accordingly, the minority interest for the 1996 period primarily represents the
minority shareholders approximate 30% proportionate share of the results of
operations of the Camping Gaz operations for the period March through June of
1996. Minority interest also includes the interests of minority shareholders in
certain subsidiary operations of Camping Gaz.
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. During the third quarter of 1995, the Company
completed a $200.0 million private placement debt issue. In connection with the
private placement, the Company renegotiated its previous credit agreement and
recorded an extraordinary loss of $1.3 million ($0.8 million after taxes, or
$0.01 per share) which represents a write-off of the related unamortized
financing costs associated with its previous credit agreement.
12
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $26.6 million of cash during the
nine months ended September 30, 1996 and provided $13.2 million of cash
during the nine months ended September 30, 1995. During the 1996 period,
receivables, excluding the amount of receivables acquired in connection with
business acquisitions, increased by $60.7 million as a result of the
seasonality of the Company's sales and an increase in the overall level of
the Company's sales. Inventories, excluding the amount of inventories
acquired in connection with business acquisitions, increased by $29.5 million
in the nine months ended September 30, 1996 to support the growth of the
Company, especially in new products. The Company's net cash used for
investing activities was $184.5 million and $39.5 million for the nine months
ended September 30, 1996 and 1995, respectively. The Company's capital
expenditures were $27.7 million in the nine months ended September 30, 1996.
The Company used $158.4 million of cash for business acquisitions during the
nine months ended September 30, 1996. Net cash provided by financing
activities for the nine months ended September 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 100,000 shares of its Common Stock
in the open market during the nine months ended September 30, 1996.
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"). In connection with the Company recording the
restructuring and other charges as discussed previously, the Company further
amended the Company Credit Agreement in October 1996. The Company Credit
Agreement, as amended, provides a term loan of French Franc 385,125 ($75.0
million at the then current exchange rates) and an unsecured revolving credit
facility in an amount of $275.0 million. Availability under the Company Credit
Agreement, as amended, is reduced by any commercial paper borrowings
outstanding. The Company Credit Agreement, as amended, is available to the
Company until April 30, 2001. At September 30, 1996, $137.9 million would have
been available for borrowings under the Company Credit Agreement, as amended.
The outstanding loans under the Company Credit Agreement, as amended, 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 1.875% 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. The Company Credit Agreement, as amended, also bears an
overall facility fee ranging from .15% to .375% based on the Company's financial
performance.
The Company Credit Agreement, as amended, 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
also prohibits the Company from paying any dividends until on or after January
1, 1999.
The Company's ability to meet its current cash operating requirements,
including projected capital expenditures, tax sharing payments and other
obligations is dependent upon a combination of cash flows from operations and
borrowings under the Company Credit Agreement, as amended. The Company's
ability to borrow under the terms of the Company Credit Agreement, as amended,
is subject to the Company's continuing requirement to meet the various
restrictive covenants, including without limitation, those described above. If
the Company fails to meet the various restrictive covenants of the Company
Credit Agreement, as amended, the Company will need to renegotiate its current
Company Credit Agreement, as amended, and/or enter into alternative financing
arrangements and there is no assurance that the terms and conditions of such
agreements would be as favorable as those now contained in the Company Credit
Agreement, as amended.
13
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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 fourth quarter of 1996, acquire the
remaining shares held by Butagaz for approximately French Franc 48,434
(approximately $9,400 at current exchange rates), which represents approximately
10% of the outstanding shares of ADG, and accordingly considers these shares as
under the control of the Company. 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 94% of
the outstanding publicly traded shares of ADG tendered for purchase. The
Company completed the necessary steps to acquire the remaining publicly held
stock during the third quarter of 1996.
Coleman financed 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.
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 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.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Form 10-Q are subject to certain risks and uncertainties.
Actual results could differ materially from current expectations. Among the
factors which could affect the Company's actual results and could cause results
to differ from those contained in the forward-looking statements contained
herein are the success of the Company's restructuring programs, the potential
impact of the Black & Decker settlement on the Company's operations being
different than anticipated, the possibility that negative external factors like
the adverse weather in North America and the consumer spending decline in Japan
will continue to impact the business, and the possibility the Company may be
required to renegotiate its credit agreements.
14
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX DESCRIPTION
4.1 Amendment No. 3 dated as of May 29, 1996 to the Amended and
Restated Company Credit Agreement among the Company, the
Lenders party thereto, the Issuing Bank, the Agent, and the
Co-Agents.
4.2 Amendment No. 4 dated as of October 25, 1996 to the Amended
and Restated Company Credit Agreement among the Company, the
Lenders party thereto, the Issuing Bank, the Agent, and the
Co-Agents.
10.1* First Amendment dated August 1, 1996 to Employment Agreement
effective as of August 1, 1996, by and between The Coleman
Company, Inc. and Steven F. Kaplan.
10.2* First Amendment dated August 1, 1996 to Employment Agreement
effective as of May 1, 1996, by and between The Coleman
Company, Inc. and Frederik van den Bergh.
10.3* First Amendment dated August 1, 1996 to Employment Agreement
effective as of January 1, 1996, by and between The Coleman
Company, Inc. and Michael N. Hammes.
10.4* First Amendment dated August 1, 1996 to Employment Agreement
effective as of January 1, 1996, by and between The Coleman
Company, Inc. and David Stearns.
10.5* First Amendment dated August 1, 1996 to Employment Agreement
effective as of January 1, 1996, by and between The Coleman
Company, Inc. and George Mileusnic.
10.6* First Amendment dated August 1, 1996 to Employment Agreement
effective as of January 1, 1996, by and between The Coleman
Company, Inc. and Patrick McEvoy.
10.7* First Amendment dated August 1, 1996 to Employment Agreement
effective as of January 1, 1996, by and between The Coleman
15
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Company, Inc. and Larry E. Sanford.
10.8* First Amendment dated August 1, 1996 to Employment Agreement
effective as of January 1, 1996, by and between The Coleman
Company, Inc. and Gerry E. Brown.
23.1 Consent of Friedman Eisenstein Raemer and Schwartz, LLP,
independent auditors of Seatt Corporation.
27 Financial Data Schedule
--------------------------
* Management Contracts and Compensatory Plans
(b) Reports on Form 8-K
A report on Form 8-K/A was filed on August 28, 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: November 13, 1996 By: /s/ Steven F. Kaplan
-------------------------- ------------------------------------
Steven F. Kaplan
Executive Vice President and Chief
Financial Officer
17