UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 1997
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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: 1-11962
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COLEMAN WORLDWIDE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3704484
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1767 DENVER WEST BLVD., 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 $1.00 common
stock was 1,000 shares as of May 5, 1997, all of which were held by an indirect
wholly-owned subsidiary of Mafco Holdings Inc.
Exhibit Index on Page 12.
COLEMAN WORLDWIDE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
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Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended March 31, 1997 and 1996 . . . . . . . 3
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
--------------------
1997 1996
-------- --------
Net revenues . . . . . . . . . . . . . . . . . . . . . $295,464 $273,560
Cost of sales. . . . . . . . . . . . . . . . . . . . . 214,422 192,594
-------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . 81,042 80,966
Selling, general and administrative expenses . . . . . 65,923 46,776
Interest expense, net. . . . . . . . . . . . . . . . . 13,854 11,056
Amortization of goodwill and deferred charges. . . . . 3,010 2,392
Other expense (income), net. . . . . . . . . . . . . . 271 (2,721)
-------- --------
(Loss) earnings before income taxes, minority
interest and extraordinary item . . . . . . . . . . (2,016) 23,463
Income tax (benefit) expense . . . . . . . . . . . . . (775) 8,692
Minority interest in earnings of Camping Gaz . . . . . 112 --
Minority interest in earnings of Coleman . . . . . . . 120 2,535
-------- --------
(Loss) earnings before extraordinary item. . . . . . . (1,473) 12,236
Extraordinary loss on early extinguishment
of debt, net of income tax benefit. . . . . . . . . -- (582)
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Net (loss) earnings. . . . . . . . . . . . . . . . . . $ (1,473) $ 11,654
-------- --------
-------- --------
See Notes to Condensed Consolidated Financial Statements
3
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 12,866 $ 17,299
Accounts and notes receivable, less allowance of
$9,934 in 1997 and $11,512 in 1996. . . . . . . . . . 271,617 209,942
Inventories . . . . . . . . . . . . . . . . . . . . . . 288,166 287,502
Deferred tax assets . . . . . . . . . . . . . . . . . . 39,895 40,466
Prepaid assets and other. . . . . . . . . . . . . . . . 16,611 14,885
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Total current assets. . . . . . . . . . . . . . . . 629,155 570,094
Property, plant and equipment, net. . . . . . . . . . . . 194,739 199,182
Intangible assets related to businesses acquired, net . . 341,907 349,761
Note receivable - affiliate . . . . . . . . . . . . . . . 47,739 54,739
Deferred tax assets and other . . . . . . . . . . . . . . 39,892 32,673
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$1,253,432 $1,206,449
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts and notes payable. . . . . . . . . . . . . . . $ 194,462 $ 132,841
Other current liabilities . . . . . . . . . . . . . . . 115,902 113,691
---------- ----------
Total current liabilities . . . . . . . . . . . . . 310,364 246,532
Long-term debt. . . . . . . . . . . . . . . . . . . . . . 745,770 757,460
Income taxes payable - affiliate. . . . . . . . . . . . . 16,681 18,528
Other liabilities . . . . . . . . . . . . . . . . . . . . 75,711 76,173
Minority interest . . . . . . . . . . . . . . . . . . . . 44,598 45,088
Contingencies . . . . . . . . . . . . . . . . . . . . . .
Stockholder's equity:
Common stock. . . . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital. . . . . . . . . . . . . . . 28,159 23,687
Retained earnings . . . . . . . . . . . . . . . . . . . 34,887 36,360
Currency translation adjustment . . . . . . . . . . . . (2,364) 2,856
Minimum pension liability adjustment. . . . . . . . . . (375) (236)
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Total stockholder's equity. . . . . . . . . . . . . 60,308 62,668
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$1,253,432 $1,206,449
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See Notes to Condensed Consolidated Financial Statements
4
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
----------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings. . . . . . . . . . . . . . . . . . . . . . . . $ (1,473) $ 11,654
-------- ---------
Adjustments to reconcile net (loss) earnings to net cash flows
from operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 9,735 7,733
Non-cash tax sharing agreement (benefit) provision . . . . . . (1,847) 5,682
Minority interest in earnings of Coleman . . . . . . . . . . . 120 2,535
Minority interest in earnings of Camping Gaz . . . . . . . . . 112 --
Interest accretion . . . . . . . . . . . . . . . . . . . . . . 3,142 2,976
Non-cash gain on LYONs conversion. . . . . . . . . . . . . . . -- (2,751)
Extraordinary loss on early extinguishment of debt . . . . . . -- 986
Change in assets and liabilities:
Increase in receivables. . . . . . . . . . . . . . . . . . . (67,454) (84,659)
Increase in inventories. . . . . . . . . . . . . . . . . . . (5,258) (28,420)
Increase in accounts payable . . . . . . . . . . . . . . . . 18,655 8,741
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (3,812) (17,323)
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(46,607) (104,500)
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Net cash used by operating activities. . . . . . . . . . . . . . . (48,080) (92,846)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (6,313) (6,866)
Purchases of businesses, net of cash acquired. . . . . . . . . . . -- (60,132)
Decrease in note receivable - affiliate. . . . . . . . . . . . . . 7,000 --
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . 2,126 186
-------- ---------
Net cash provided by (used by) investing activities. . . . . . . . 2,813 (66,812)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments of) proceeds from revolving credit
agreement borrowings . . . . . . . . . . . . . . . . . . . . . . (8,959) 125,713
Net change in short-term borrowings. . . . . . . . . . . . . . . . 48,996 29,611
Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . (64) (172)
Debt issuance and refinancing costs. . . . . . . . . . . . . . . . (718) --
Purchases of Company common stock. . . . . . . . . . . . . . . . . -- (2,329)
Proceeds from stock options exercised. . . . . . . . . . . . . . . 197 967
Contributions from (distributions to) parent . . . . . . . . . . . 41 (10)
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Net cash provided by financing activities. . . . . . . . . . . . . 39,493 153,780
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Effect of exchange rate changes on cash. . . . . . . . . . . . . . 1,341 629
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Net decrease in cash and cash equivalents. . . . . . . . . . . . . (4,433) (5,249)
Cash and cash equivalents at beginning of the period . . . . . . . 17,299 12,065
-------- ---------
Cash and cash equivalents at end of the period . . . . . . . . . . $ 12,866 $ 6,816
-------- ---------
-------- ---------
See Notes to Condensed Consolidated Financial Statements
5
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
Coleman Worldwide Corporation ("Coleman Worldwide") was formed in March
1993 in connection with the offering of Liquid Yield Option-TM- Notes due 2013
(the "LYONs-TM-). Coleman Worldwide also holds 44,067,520 shares of the common
stock of The Coleman Company, Inc. ("Coleman" or the "Company") which
represents approximately 83% of the outstanding Coleman common stock as of March
31, 1997. Coleman Worldwide is a holding company with no business operations or
source of income of its own.
The accompanying unaudited condensed consolidated financial statements of
Coleman Worldwide include the accounts of Coleman Worldwide and 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 three months ended March 31, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997. The
balance sheet at December 31, 1996 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 Coleman Worldwide
annual report on Form 10-K for the year ended December 31, 1996.
2. INVENTORIES
The components of inventories consist of the following:
March 31, December 31,
1997 1996
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Raw material and supplies . . . $ 83,710 $ 82,399
Work-in-process . . . . . . . . 16,036 12,878
Finished goods. . . . . . . . . 188,420 192,225
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$288,166 $287,502
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3. OTHER CHARGES
During the three months ended March 31, 1997, the Company recorded certain
other charges totaling $2,435, net of tax, primarily related to severance costs
associated with recent executive changes.
4. RELATED PARTY TRANSACTIONS
During the three months ended March 31, 1997, the Company agreed to
purchase an inactive subsidiary from an affiliate for $1,000. The Company
expects to realize certain foreign tax benefits from this transaction in future
years. The Company has accounted for this transaction in a manner similar to a
pooling-of-interests due to the Mafco Holdings Inc. common control over each of
the parties involved in the transaction. The $2,608 excess value of tax
benefits acquired over the purchase price has been accounted for as a capital
contribution.
6
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
On March 31, 1997, MacAndrews & Forbes Holdings Inc., an indirect parent,
assumed a liability of Coleman Worldwide in the amount of $2,271. The
assumption was accounted for as a capital contribution.
5. CONTINGENCIES
On July 22, 1993, Coleman Worldwide's parent, Coleman Holdings Inc.,
("Coleman Holdings") issued and sold $281,281 principal amount at maturity of
Senior Secured Discount Notes due 1998 (the "Old Notes") in a private placement
offering. Subsequent to the private placement offering, a registration
statement on Form S-1 was filed to exchange the Old Notes for Series B Senior
Secured Discount Notes (the "Holdings Notes"). The net proceeds of
approximately $162,299 were distributed to Coleman Holdings' parent.
The Holdings Notes will mature on May 27, 1998, and are secured by all the
shares of Coleman Worldwide. In connection with the Holdings Notes issuance,
Coleman Worldwide has provided a non-recourse guaranty, which is secured by its
pledge of 26,000,000 shares of Coleman Common Stock. There will be no periodic
payment of interest on the Holdings Notes. The aggregate principal amount of
the Holdings Notes represents a yield to maturity of 10.875% per annum (computed
on a semi-annual bond equivalent basis) calculated from July 22, 1993.
6. SUBSEQUENT EVENTS
In April 1997, the Company announced its intentions to (i) close its
corporate headquarters in Golden, Colorado, (ii) close its Geneva, Switzerland
international headquarters, (iii) reduce the Company's workforce by
approximately 10% and (iv) close or relocate three domestic factories and close
one international factory. Most of the costs associated with these actions
will be reflected in the results of operations for the quarter ended June 30,
1997.
On May 6, 1997, Coleman Worldwide and Coleman Holdings jointly announced
that Coleman Holdings intends to redeem the Holdings Notes on or about July 15,
1997, and that Coleman Worldwide intends to retire the LYONs. Coleman Worldwide
will make an offer to pay cash for the LYONs in excess of the market value of
the shares of the Company's common stock for which the LYONs may be exchanged.
Coleman Worldwide expects to commence the offer as soon as reasonably
practicable and to redeem any remaining LYONs on May 27, 1998. Redemption of
the Holdings Notes and retirement of the LYONs will be made with the proceeds
from the issuance of debt securities (the "Notes") by a newly formed holding
company. Upon the redemption of the Holdings Notes and retirement of the LYONs,
the Notes are expected to be secured by the shares of the Company's common
stock owned by Coleman Worldwide.
7
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Coleman Worldwide is a holding company with no business operations or
source of income of its own. Accordingly, except as otherwise indicated, the
following discussion relates to the results of operations of the Company.
As part of its strategy to improve its business processes, the Company has
announced several restructuring initiatives designed to reduce costs and
improve profitability and competitiveness. In March 1997, the Company
announced that it would close its executive offices in Golden, Colorado, with
most of its administrative functions expected to return to its Wichita, Kansas
facility. In April 1997, the Company announced its intention to (i) eliminate
700 employees, which represent approximately 10% of its current work force, (ii)
close or relocate three domestic factories and close one international factory,
(iii) close its Geneva, Switzerland international headquarters, (iv) rationalize
its product lines, including a significant reduction in SKUs, and (v) sell its
pressure washer business. In addition, the Company may sell other non-strategic
businesses if suitable opportunities arise. The Company has already begun to
implement its new restructuring plan. The Company has announced plans to close
its Hastings, Nebraska factory which was used in the manufacturing of portable
power generators and pressure washers. The Company expects to incur certain
restructuring and other charges in connection with these initiatives during
1997. The Company recorded other charges of approximately $2.4 million, net of
taxes, for the first quarter of 1997 and expects to record a significantly
greater amount of restructuring and other charges for the second quarter of
1997. There can be no assurance as to the amount of the restructuring and other
charges to be recorded in the second quarter of 1997 or that restructuring and
other charges will not be recorded in subsequent periods.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
1996
Net revenues of $295.5 million in 1997 were $21.9 million or 8.0% greater
than in 1996 with outdoor recreation products increasing $29.2 million or 15.5%
and hardware products decreasing $7.3 million or 8.6%. Geographically, United
States and Canadian revenues decreased 7.9% while international revenues
increased 60.6%.
Outdoor recreation products revenues increased $29.2 million or 15.5%. The
sales increase includes the effects of Camping Gaz, a business acquired in
March 1996. Excluding the estimated effects of the Camping Gaz acquisition and
the strengthening of the US dollar, sales decreased approximately 3.9%
reflecting the Company's initiatives to reduce its dependence on promotional
programs. Hardware products revenues decreased $7.3 million or 8.6% due to
the decline in pressure washer sales, a result of the Company's decision to
exit the electric pressure washer business.
Gross margins decreased as a percent of sales by 2.2 percentage points from
29.6% in 1996. The decrease is driven by the effect of lower production levels
and to a lesser extent increased resin costs associated with the Company's
plastics business. The closing or relocating of three domestic factories and
the closing of one international factory as part of the Company's restructuring
initiatives is intended to reduce manufacturing costs in the latter part of
1997.
Selling, general and administrative ("SG&A") expenses were $65.9 million in
1997 compared to $46.7 million in 1996, an increase of 40.9%. The increase in
SG&A expenses reflects SG&A expenses associated with the Camping Gaz acquisition
and severance costs associated with recent executive changes.
8
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
Interest expense was $10.7 million in 1997 compared with $8.1 million in
1996, an increase of $2.6 million. This increase was primarily the result of
higher borrowings to fund the Camping Gaz acquisition and to a lesser extent
higher interest rates. On an unconsolidated basis, Coleman Worldwide had $3.2
million of interest expense in 1997 compared with $3.0 million in 1996, an
increase of $0.2 million. This increase is a result of the effects of
compounding interest related to the LYONs.
During the three months ended March 31, 1996, holders of LYONs with a
principal amount at maturity of $9.4 million elected to exchange such LYONs
pursuant to the terms of the LYONs indenture. In connection with these
exchanges, Coleman Worldwide delivered 74,107 shares of Coleman Common Stock
that Coleman Worldwide owned to the holders of such LYONs. Coleman Worldwide
recognized a gain of $2.7 million in connection with these exchanges which is
reflected in other income. Coleman Worldwide also recognized an extraordinary
loss on early extinguishment of debt as a result of the LYONs exchange in an
amount of $1.0 million ($0.6 million after tax). This extraordinary loss
represents (i) the excess fair value of the property delivered by Coleman
Worldwide to the holders of the LYONs which were exchanged over the accreted
value of the LYONs obligations at the time of the exchange, along with (ii) a
pro-rata portion of the related unamortized financing costs associated with the
LYONs issuance.
Minority interest in earnings of Camping Gaz represents the interest of
minority shareholders in certain subsidiary operations of Camping Gaz. Minority
interest in the earnings of Coleman represents the minority shareholders'
proportionate share of the results of operations of Coleman, which is reflected
on Coleman Worldwide's consolidated financial statements because of Coleman
Worldwide's approximate 83% ownership of Coleman's common stock.
The Company recorded a provision for income tax expense of $0.5 million or
38.6% of pre-tax earnings in 1997 compared to a provision for income tax expense
of $8.8 million or 37.0% of pre-tax earnings in 1996. On an unconsolidated
basis, Coleman Worldwide recorded an income tax benefit of $1.3 million in 1997
and $0.1 million in 1996, or approximately 38% of Coleman Worldwide's
unconsolidated pre-tax loss in each period.
LIQUIDITY AND CAPITAL RESOURCES
Coleman Worldwide's operating activities used $48.1 million and $92.8
million of cash during the three months ended March 31, 1997 and 1996. During
the 1997 period, receivables increased $67.5 million as a result of the
seasonality of the Company's sales and an increase in the overall level of the
Company's sales. Despite the seasonality of the business, inventories were
approximately equal to the levels at December 31, 1996 as a result of the
Company's initiatives to reduce inventory.
Coleman Worldwide's investing activities provided net cash of $2.8 million
and used cash of $66.8 million for the three months ended March 31, 1997 and
1996, respectively. The Company's capital expenditures were $6.3 million in the
three months ended March 31, 1997 and Coleman Worldwide also had a reduction in
the net advances to Mafco Holdings Inc. under the Coleman Worldwide tax sharing
agreement and the terms of the LYONs trust indenture in the amount of $7.0
million during the three months ended March 31, 1997.
Coleman Worldwide's net cash provided by financing activities for the three
months ended March 31, 1997 consisted primarily of an increase in short-term
borrowings to finance the seasonal increase in working capital.
The Company's working capital requirements are currently funded by cash
flow from operations and domestic and foreign bank lines of credit.
Availability under the Company's domestic revolving credit agreement, as amended
(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 March 31, 1997, $135.1 million was available for borrowings
under the Company Credit Agreement. However, debt instruments of
9
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
Coleman Worldwide and Coleman Holdings Inc. ("Coleman Holdings") contain
certain provisions that by their terms restrict the Company's ability to,
among other things, incur debt. Accordingly, to the extent that borrowings by
the Company of amounts otherwise available under the Company Credit Agreement
exceed the level of borrowings permitted by such holding company debt
instruments, a default will result under such debt instruments.
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 2.125% 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 Company Credit Agreement contains various restrictive covenants
including, without limitation, requirements for the maintenance of specified
financial ratios, levels of consolidated net worth and profits, and certain
other provisions limiting the incurrence of additional debt, purchase or
redemption of the Company's common stock, issuance of preferred stock of the
Company, and also prohibits the Company from paying any dividends until on or
after January 1, 1999, and limits the amount of dividends the Company may pay
thereafter. The Company Credit Agreement also provides for a specific
requirement relating to the Company's financial leverage at December 31, 1997,
which, if not achieved, will result in the Company Credit Agreement becoming
secured by the Company's assets. For purposes of determining the Company's
compliance with certain of such covenants, the Company Credit Agreement
excludes up to $30.0 million of charges in connection with the Company's
restructuring initiatives.
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. The Company's ability to borrow
under the terms of the Company Credit Agreement 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, the Company will
need to renegotiate its current Company Credit Agreement, and/or enter into
alternative financing arrangements. 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.
The Company periodically 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.
Coleman Worldwide is a holding company with no business operations or
source of income of its own, and its ability to meet its obligations with
respect to the LYONs and any other obligations is contingent upon distributions
from the Company, including payments under the Company tax sharing agreement,
capital contributions or loans from its direct and indirect parent companies,
other borrowings and proceeds from the disposition of the common stock of
Coleman owned by Coleman Worldwide. As the holder of approximately
10
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
83% of the capital stock of the Company, Coleman Worldwide has the ability to
cause the Company to make distributions up to the maximum amount permitted by
law, subject to limitations in the debt instruments of the Company. However,
Coleman Worldwide currently expects that, for the foreseeable future, the net
earnings and cash flow of the Company will be retained and used in the
business of the Company and that Coleman Worldwide will not receive any
distributions from the Company other than payments under the Company's tax
sharing agreement. Furthermore, the terms of the Company Credit Agreement
prohibits the Company from paying any dividends until on or after January 1,
1999 and limits the amount of dividends the Company may pay thereafter. The
receipt by Coleman Worldwide of tax sharing payments from the Company will
cease upon Coleman Worldwide's ownership interest in Coleman falling below
80%, but the Indenture does not require Coleman Worldwide to own more than a
majority of the Coleman Common Stock. Pursuant to the LYONs indenture
agreement, at any time that the LYONs are outstanding, the amounts that
Coleman Worldwide would be required to pay to Mafco under the Worldwide Tax
Sharing Agreement, together with any remaining funds paid to Coleman Worldwide
by the Company under the tax sharing agreement between Coleman Worldwide and
the Company, may not be paid as tax sharing payments, but Coleman Worldwide
may advance such funds to Mafco as long as the aggregate amount of such
advances at any time does not exceed the issue price plus accrued OID of the
LYONs. Such advances are evidenced by noninterest bearing unsecured demand
promissory notes from Mafco in the amount of $47.7 million at March 31, 1997.
The Indenture governing the LYONs provides the holders of LYONs with the
option to require Coleman Worldwide to purchase the LYONs after the occurrence
of certain events ("Additional Purchase Right Events"). Additional Purchase
Right Events occur, among other things, upon the Company's Consolidated Debt
Ratio (as defined) exceeding 0.75 to 1.0 or the Consolidated Net Worth (as
defined) of Coleman Worldwide as of the end of any fiscal quarter being less
than a specified amount which is $60.0 million at March 31, 1997 and increases
to $70.0 million at June 30, 1997.
Substantially all of the shares of the Company's common stock owned by
Coleman Worldwide are pledged to secure the LYONs and the Holdings Notes. On
May 6, 1997, Coleman Worldwide and Coleman Holdings jointly announced that
Coleman Holdings intends to redeem the Holdings Notes on or about July 15,
1997, and that Coleman Worldwide intends to retire the LYONs. Coleman
Worldwide will make an offer to pay cash for the LYONs in excess of the market
value of the shares of the Company's common stock for which the LYONs may
be exchanged. Coleman Worldwide expects to commence the offer as soon as
reasonably practicable and to redeem any remaining LYONs on May 27, 1998.
Redemption of the Holdings Notes and retirement of the LYONs will be made with
the proceeds from the issuance of debt securities (the "Notes") by a newly
formed holding company. Upon the redemption of the Holdings Notes and
retirement of the LYONs, the Notes are expected to be secured by the shares of
the Company's common stock owned by Coleman Worldwide.
On March 31, 1997, MacAndrews & Forbes Holdings Inc., an indirect parent,
assumed a liability of Coleman Worldwide in the amount of $2.3 million. The
assumption was accounted for as a capital contribution.
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. The Company's annual results are generally dependent on its
results during the second quarter. Furthermore, the Company has announced and
is in the process of implementing certain restructuring initiatives, which the
Company expects to have an impact on its results during the remainder of 1997.
There can be no assurance as to the Company's success in implementing such
initiatives or the results therefrom or as to any adverse impact of the
Company's restructuring initiatives.
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COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
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 (i) the success of the Company's restructuring programs, (ii)
negative external factors like adverse weather in North America or other
regions, (iii) possible continued consumer spending decline in Japan, (iv) the
possibility the Company may be required to renegotiate its credit agreements,
and (v) difficulties or delays in executing the sale of the Notes, the proceeds
from which will be used to redeem the Holdings Notes and retire the LYONs, as
well as other difficulties in effecting such redemption and retirement.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Index Description
------------- -----------
10.1*+ Letter Agreement dated as of March 15, 1997 between the
Company and Frederick J. Fritz (incorporated by
reference to Exhibit 10.1 to The Coleman
Company, Inc. Form 10-Q for the period ended March 31,
1997).
27+ Financial Data Schedule
-------------
* Management Contracts and Compensatory Plans
+ Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
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COLEMAN WORLDWIDE CORPORATION 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.
COLEMAN WORLDWIDE CORPORATION
(Registrant)
Date: May 12, 1997 By: /s/ Irwin Engelman
----------------------- ------------------------------
Irwin Engelman
Executive Vice President and Chief
Financial Officer
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