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, 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
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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.)
2111 E. 37TH STREET NORTH, WICHITA, KANSAS 67219
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(Address of principal executive offices) (Zip Code)
316-832-2700
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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
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The number of shares outstanding of the registrant's par value $.01 common stock
was 53,424,856 shares as of November 4, 1997 of which 44,067,520 shares were
held by an indirect wholly-owned subsidiary of Mafco Holdings Inc.
Exhibit Index on Page 13.
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 Operations
Three months ended September 30, 1997 and 1996 and
Nine months ended September 30, 1997 and 1996. . . . . . . . 3
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 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 . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 13
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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,
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1997 1996 1997 1996
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Net revenues . . . . . . . . . . . . . . . . . . . . . . . $ 252,434 $ 269,607 $ 931,412 $ 995,821
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . 182,567 229,713 678,590 737,423
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Gross profit . . . . . . . . . . . . . . . . . . . . . . . 69,867 39,894 252,822 258,398
Selling, general and administrative expenses . . . . . . . 69,127 89,301 205,111 214,954
Interest expense, net. . . . . . . . . . . . . . . . . . . 9,855 9,982 31,594 28,795
Amortization of goodwill and deferred charges. . . . . . . 3,027 2,821 8,654 7,965
Other expense, net . . . . . . . . . . . . . . . . . . . . 703 578 1,500 1,235
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(Loss) earnings before income taxes,
minority interest and extraordinary item. . . . . . . . (12,845) (62,788) 5,963 5,449
Income tax (benefit) expense . . . . . . . . . . . . . . . (5,060) (14,249) 2,087 8,952
Minority interest in earnings (loss) of Camping Gaz. . . . 292 (81) 1,135 1,870
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(Loss) earnings before extraordinary item. . . . . . . . . (8,077) (48,458) 2,741 (5,373)
Extraordinary loss on early extinguishment
of debt, net of income tax benefit. . . . . . . . . . . . -- -- -- (647)
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Net (loss) earnings. . . . . . . . . . . . . . . . . . . . $ (8,077) $ (48,458) $ 2,741 $ (6,020)
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(Loss) earnings per share:
(Loss) earnings before extraordinary item. . . . . . . . $ (0.15) $ (0.91) $ 0.05 $ (0.10)
Extraordinary item . . . . . . . . . . . . . . . . . . . -- -- -- (0.01)
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Net (loss) earnings . . . . . . . . . . . . . . . . . . $ (0.15) $ (0.91) $ 0.05 $ (0.11)
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Weighted average common shares outstanding . . . . . . . . 53,377 53,214 53,316 53,190
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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,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 9,896 $ 17,299
Accounts and notes receivable, less allowance
of $9,705 in 1997 and $11,512 in 1996. . . . . . . . . 221,797 231,603
Inventories. . . . . . . . . . . . . . . . . . . . . . . 245,849 287,502
Deferred tax assets. . . . . . . . . . . . . . . . . . . 39,574 40,466
Prepaid assets and other . . . . . . . . . . . . . . . . 18,289 14,767
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Total current assets . . . . . . . . . . . . . . . . . 535,405 591,637
Property, plant and equipment, net . . . . . . . . . . . . 176,607 199,182
Intangible assets related to businesses acquired, net. . . 323,990 341,715
Deferred tax assets and other. . . . . . . . . . . . . . . 28,739 27,552
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$1,064,741 $1,160,086
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable . . . . . . . . . . . . . . . $ 155,692 $ 132,841
Other current liabilities. . . . . . . . . . . . . . . . 113,592 113,653
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Total current liabilities. . . . . . . . . . . . . . . 269,284 246,494
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 479,446 582,866
Other liabilities. . . . . . . . . . . . . . . . . . . . . 65,609 76,173
Minority interest. . . . . . . . . . . . . . . . . . . . . 1,586 1,608
Contingencies. . . . . . . . . . . . . . . . . . . . . . .
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . 534 532
Additional paid-in capital . . . . . . . . . . . . . . . 171,079 166,690
Retained earnings. . . . . . . . . . . . . . . . . . . . 85,573 82,832
Currency translation adjustment. . . . . . . . . . . . . (7,580) 3,176
Minimum pension liability adjustment . . . . . . . . . . (790) (285)
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Total stockholders' equity . . . . . . . . . . . . . . 248,816 252,945
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$1,064,741 $1,160,086
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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)
Nine Months
Ended September 30,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss). . . . . . . . . . . . . . . . . . . . $ 2,741 $ (6,020)
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Adjustments to reconcile net earnings (loss)
to net cash flows from operating activities:
Depreciation and amortization. . . . . . . . . . . . . 29,680 27,337
Non-cash restructuring and other charges . . . . . . . 16,774 33,268
Extraordinary loss on early extinguishment of debt . . -- 1,078
Minority interest in earnings of Camping Gaz . . . . . 1,135 1,870
Change in assets and liabilities:
Decrease (increase) in receivables . . . . . . . . . 1,112 (60,693)
Decrease (increase) in inventories . . . . . . . . . 28,092 (29,513)
Decrease in accounts payable . . . . . . . . . . . . (8,977) (22,216)
Other, net . . . . . . . . . . . . . . . . . . . . . (9,437) 28,329
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58,379 (20,540)
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Net cash provided (used) by operating activities . . . . . 61,120 (26,560)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . (19,075) (27,666)
Purchases of businesses, net of cash acquired. . . . . . . (1,000) (158,414)
Proceeds from sale of fixed assets . . . . . . . . . . . . 4,151 1,567
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Net cash used by investing activities. . . . . . . . . . . (15,924) (184,513)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit agreement borrowings. . . (91,741) (14,686)
Net change in short-term borrowings. . . . . . . . . . . . 39,648 33,215
Proceeds from issuance of long-term debt . . . . . . . . . -- 235,678
Repayment of long-term debt. . . . . . . . . . . . . . . . (2,807) (9,778)
Debt issuance and refinancing costs. . . . . . . . . . . . (766) (2,296)
Purchases of Company common stock. . . . . . . . . . . . . -- (2,329)
Proceeds from stock options exercised. . . . . . . . . . . 1,783 1,724
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Net cash (used) provided by financing activities . . . . . (53,883) 241,528
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Effect of exchange rate changes on cash. . . . . . . . . . 1,284 1,237
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Net (decrease) increase in cash and cash equivalents . . . (7,403) 31,692
Cash and cash equivalents at beginning of the period . . . 17,299 12,065
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Cash and cash equivalents at end of the period . . . . . . $ 9,896 $ 43,757
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See Notes to Condensed Consolidated Financial Statements
5
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
The Coleman Company, Inc. ("Coleman" or the "Company") include the accounts of
the Company and its subsidiaries after elimination of all material intercompany
accounts and transactions, and have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, 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, 1997 are not
necessarily indicative of the results that may be expected in future periods.
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 Company's annual
report on Form 10-K for the year ended December 31, 1996.
2. INVENTORIES
The components of inventories consist of the following:
September 30, December 31,
1997 1996
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Raw material and supplies. . . . . . . . . . $ 63,391 $ 82,399
Work-in-process. . . . . . . . . . . . . . . 7,393 12,878
Finished goods . . . . . . . . . . . . . . . 175,065 192,225
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$245,849 $287,502
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3. RESTRUCTURING AND OTHER CHARGES
During the nine months ended September 30, 1997, the Company recorded
cash and non-cash restructuring and other charges totaling $36,023 and related
tax benefits of $12,608. Pre-tax restructuring and other costs totaling $3,928
were recorded, primarily in selling, general and administrative ("SG&A")
expenses, in the first quarter of 1997 and related primarily to executive
severance costs. The second quarter pre-tax restructuring charge of $18,623
related primarily to (i) exiting various low margin products, including pressure
washers, (ii) closing and relocating certain administrative and sales offices,
and (iii) closing several manufacturing facilities. The third quarter pre-tax
restructuring charge of $13,472 related primarily to exiting low margin product
lines, facilities consolidations, and revised estimates of costs for previously
announced restructuring actions. These restructuring initiatives are expected to
be substantially completed within one year.
The costs associated with the second and third quarter restructuring
charges included pre-tax charges of $24,202 related to exiting certain products
and facilities of which $19,202 was reflected in cost of sales and $5,000 in
SG&A expenses. Included in these restructuring charges were $16,774 of pre-tax
charges related primarily to the write down of inventory and fixed assets to
estimated net realizable value, and $7,428 of liabilities for other exit costs,
including carrying costs of idle facilities and relocation costs, of which
$1,369 was paid as of September 30, 1997.
6
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
The costs associated with the second and third quarter restructuring
charges also included $7,893 of termination costs for 492 factory and
administrative employees of which $1,210 was reflected in cost of sales and
$6,683 in SG&A expenses. As of September 30, 1997 $4,676 of these termination
benefits were paid to the 393 employees who were terminated as of that date.
During 1996, the Company recorded restructuring charges primarily to (i)
integrate the Camping Gaz and Coleman operations, and (ii) exit certain
products. Activities associated with the implementation of those plans are
substantially completed or are in process at September 30, 1997. Remaining
liabilities of approximately $5,383 at September 30, 1997, relate primarily to
anticipated returns of discontinued products and to closing certain factory,
warehouse and office facilities.
4. RELATED PARTY TRANSACTION
As of March 31, 1997, the Company purchased 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 estimated realizable tax benefits
acquired over the purchase price has been accounted for as a capital
contribution.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"), which specifies the computation, presentation, and disclosure
requirements for earnings per share with the objective to simplify the
computation of earnings per share. FAS 128 is effective for financial
statements for periods ending after December 15, 1997 and earlier application is
not permitted. After the effective date, all prior period earnings per share
data shall be restated to conform with the provisions of FAS 128. The adoption
of FAS 128 is not expected to have a material impact on the Company's earnings
per share data.
7
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As part of its strategy to improve profitability, the Company has developed
a restructuring program including (i) closing its executive offices in Golden,
Colorado, with most of its administrative functions relocating to its Wichita,
Kansas facility, (ii) reducing its work force by approximately 1,000 employees,
(iii) closing or relocating several of its factories and administrative offices,
(iv) closing its Geneva, Switzerland international headquarters, (v)
rationalizing its product lines, including a significant reduction in SKUs, and
(vi) exiting its pressure washer business. In addition, the Company continues
to evaluate the various components of its business operations and may, as a
result of those ongoing evaluations, sell certain businesses or assets if
suitable opportunities arise. Several of the initiatives involved in the
Company's restructuring plan, including closing and relocating certain
administrative and manufacturing facilities, were substantially completed as of
September 30, 1997. The remaining initiatives are expected to be substantially
completed within one year.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net revenues of $252.4 million in 1997 were $17.2 million or 6.4% less than
in 1996 with outdoor recreation products increasing $4.7 million or 2.7% and
hardware products decreasing $21.9 million or 23.6%. The outdoor recreation
products revenues increase primarily reflects stronger sales of backpacks and
related products worldwide, largely offset by the effects of the SKU reductions.
The hardware products revenues decrease is primarily due to lower generator
sales resulting from fewer storms on the East Coast of the United States,
coupled with a decline in pressure washer sales as a result of the Company's
decision to exit the pressure washer business. Geographically, United States
and Canadian revenues decreased $21.9 million or 11.5% while international
revenues increased $4.7 million or 5.9%.
Gross margins of 31.2%, excluding the impact of restructuring and other
charges which are more fully described below, increased as a percent of sales by
4.0 percentage points from 27.2% in 1996. The improvement is primarily the
result of increased demand for higher margin products and the elimination of low
margin SKUs.
Selling, general and administrative ("SG&A") expenses, excluding the impact
of restructuring and other charges which are more fully described below, were
$64.7 million in 1997 compared to $65.5 million in 1996.
During the third quarter of 1997, the Company recorded restructuring
charges totaling $13.4 million of which $9.0 million was reflected in cost of
sales and $4.4 million in SG&A expenses. These charges relate to (i) the
Company's continuing restructuring initiatives designed to improve
profitability, and (ii) revised estimates of the costs for previously announced
restructuring actions. Tax benefits of $4.0 million associated with these
charges are reflected in income tax expense.
During the third quarter of 1996, the Company recorded restructuring
charges of $49.7 million, certain other charges of $7.7 million and related tax
benefits of $12.9 million. The pre-tax restructuring charges of $49.7 million,
of which $28.6 million was reflected in cost of sales and $21.1 million in SG&A
expenses, consisted of (i) $24.7 million to integrate the Camping Gaz and
Coleman operations into a global recreation business, (ii) $20.0 million to exit
the low end pressure washer business, and (iii) $5.0 million related to
litigation associated with certain of the Company's battery powered lights.
Other pre-tax charges of $7.7 million relate primarily to certain asset write-
offs. These other charges, of which $5.0 million was reflected in cost of sales
and $2.7 million in SG&A expenses, were incurred in the Company's normal course
of business, although the amounts involved were higher than similar charges the
Company had recorded in prior periods. The provision for income taxes includes
$12.9 million of tax benefits resulting from these restructuring and other
charges, net of an increase in
8
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
the valuation reserve related to certain foreign deferred tax assets and other
foreign tax charges totaling $7.7 million.
Net interest expense was $9.9 million in 1997 compared with $10.0 million
in 1996, a decrease of $0.1 million. The favorable effects of lower borrowings
in the 1997 period resulting from the Company's working capital management
programs were almost offset by the effects of higher interest rates on the
Company's variable rate debt and lower interest income in 1997.
Minority interest reflects the minority interests held by other
shareholders in certain subsidiary operations acquired with the Camping Gaz
business.
The Company recorded an income tax benefit of $5.1 million in 1997 and
$14.2 million in 1996. Excluding the impact of the restructuring and other
charges, the income tax benefit in 1997 was favorably impacted by the cumulative
impact of the Company's decrease in its expected annual effective income tax
rate from 38.0% to 35.0% whereas the 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, 1997 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net revenues of $931.4 million in 1997 were $64.4 million or 6.5% less
than in 1996 with outdoor recreation products decreasing $14.6 million or
2.0% and hardware products decreasing $49.8 million or 18.1%. The outdoor
recreation products revenues decrease is largely attributable to lower sales
in Japan due to weak market conditions and a program to reduce wholesaler
inventories partially offset by stronger sales of backpacks and related
products worldwide. The hardware products revenues decrease is due to a
decline in pressure washer sales as a result of the Company's decision to
exit the pressure washer business and lower generator sales resulting from
fewer storms on the East Coast of the United States in the third quarter of
1997. Geographically, United States and Canadian revenues decreased $37.7
million or 5.6% while international revenues decreased $26.7 million or 8.4%
primarily related to lower sales of outdoor recreation products in Japan.
Results in the 1996 period include the Camping Gaz operations from the date
of acquisition.
The gross margin percentage of 29.3%, excluding the impact of restructuring
and other charges which are more fully described below, remained unchanged from
the 1996 period. The effects of lower sales of high margin products in Japan
which reduced the overall margin percentage in the earlier part of 1997 were
offset by an improved mix of product sales in the third quarter. The closing of
several of the Company's factories as part of the Company's restructuring
initiatives is intended to reduce manufacturing costs in future periods.
SG&A expenses, excluding the impact of restructuring and other charges
which are more fully described below, were $189.1 million in 1997 compared to
$191.2 million in 1996, a decrease of 1.1%. The inclusion of a full nine months
of Camping Gaz SG&A costs in the 1997 period increased SG&A expenses; however,
these increases were more than offset by reduced costs in the Company's various
promotional programs and benefits resulting from the integration of Camping Gaz
operations and the restructuring initiatives.
During the 1997 period, the Company recorded restructuring charges totaling
$36.0 million of which $20.0 million was reflected in cost of sales and $16.0
million in SG&A expenses. These charges relate to the Company's restructuring
initiatives designed to improve profitability. Tax benefits of $12.6 million
associated with these charges are reflected in income tax expense. During the
third quarter of 1996, the Company recorded restructuring charges of $49.7
million, certain other charges totaling $7.7 million and related tax benefits of
$12.9 million as described above.
9
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
Interest expense was $31.6 million in 1997 compared with $28.8 million in
1996, an increase of $2.8 million. This increase was primarily the result of
higher interest rates and increased borrowings related to the Camping Gaz
acquisition.
Minority interest in the 1997 period reflects the minority interests held
by other shareholders in certain subsidiary operations acquired with the Camping
Gaz business. On March 1, 1996, the Company acquired control of approximately
70% of Camping Gaz and in July 1996 obtained control of the remaining 30% of
Camping Gaz and, accordingly, in the 1996 period, minority interest reflected
the minority shareholders' approximate 30% proportionate share of the results of
operations of Camping Gaz for the period March through June of 1996 and also
includes interests of minority shareholders in certain subsidiary operations
acquired with the Camping Gaz business.
The Company recorded a provision for income tax expense of $2.1 million in
1997 and $9.0 million in 1996. Excluding the net tax benefits from the
restructuring and other charges, the provision for income tax expense would have
been $14.7 million or 35.0% of pre-tax earnings in 1997 as compared to a
provision for income tax expense of $21.9 million or 34.7% of pre-tax earnings
in 1996.
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 net of tax) which represented a write-off of the
related unamortized financing costs associated with its then existing credit
agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided $61.1 million of cash during
the nine months ended September 30, 1997 and used $26.6 million of cash in the
same period a year ago. Improved management of receivables and inventories and
rationalization of product lines during the 1997 period as compared to the 1996
period led to the improvement in cash provided by operating activities. The
Company's net cash used for investing activities was $15.9 million and $184.5
million for the nine months ended September 30, 1997 and 1996, respectively.
The Company used $158.4 million of cash in the 1996 period for the Camping Gaz
and Seatt business acquisitions. The Company's capital expenditures were $19.1
million in the nine months ended September 30, 1997.
As part of its strategy to improve profitability, the Company has announced
several restructuring initiatives. The Company has recognized year-to-date pre-
tax charges of $36.0 million associated with these actions. These restructuring
initiatives are expected to generate cost savings in the future from reductions
in personnel, production facilities and overhead. There can be no assurance as
to the Company's success in implementing its planned initiatives or the results
therefrom, the amount of future charges, or against any adverse impact of the
Company's restructuring initiatives.
The Company's working capital requirements are currently funded by cash
flow from operations and domestic and foreign bank lines of credit. The
Company's Amended and Restated Credit Agreement, dated as of August 3, 1995, as
amended (the "Company Credit Agreement"), consists of a $275.0 million unsecured
revolving credit facility (the "Revolving Credit Facility") and a term loan
facility of approximately 385.0 million French Francs (approximately $65.2
million at September 30, 1997 exchange rates). Availability under the Revolving
Credit Agreement is reduced by any commercial paper borrowings outstanding. The
Company Credit Agreement is available to the Company until April 30, 2001. At
September 30, 1997, $215.3 million was available for borrowings under the
Company Credit Agreement.
10
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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, among other things, up to $30.0 million of pre-tax cash charges, as
defined in the Company Credit Agreement, in connection with the Company's
restructuring initiatives. In addition to the Company Credit Agreement, the
Company has private placement notes outstanding totaling $360.0 million (the
"Private Placement Notes") which, among other provisions, provide for the
Private Placement Notes to become secured if the Company Credit Agreement
becomes secured.
The Company believes that cash flow from operations and borrowings under
the Company Credit Agreement will be sufficient for the Company to meet its
current cash operating requirements, including projected capital expenditures,
tax sharing payments and other obligations. 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 covenants, including without
limitation, those described above, and the various covenants in the Private
Placement Notes. If the Company fails to meet the various restrictive covenants
of the Company Credit Agreement, the Company will need to seek a waiver of such
provisions, renegotiate its current Company Credit Agreement, and/or enter into
alternative financing arrangements. There is no assurance that the Company
would be able to obtain such waiver or that terms and conditions of such
renegotiated or alternative agreements, if any, would be as favorable as those
now contained in the Company Credit Agreement.
All of the shares of the Company's common stock owned by Coleman Worldwide
Corporation ("Coleman Worldwide") are pledged to secure indebtedness of Coleman
Worldwide and CLN Holdings Inc. (formerly known as Coleman Escrow Corp. ("CLN
Holdings")). On May 20, 1997, CLN Holdings issued approximately $732.0 million
in principal amount at maturity of Senior Secured Discount Notes due 2001 (the
"Escrow Notes"). A portion of the net proceeds from the issuance of the Escrow
Notes was contributed to Coleman Holdings Inc. ("Coleman Holdings") and used by
it to redeem, on July 15, 1997, its Senior Secured Discount Notes due 1998 (the
"Holdings Notes"). Following the redemption of the Holdings Notes, Coleman
Holdings was merged into CLN Holdings. A portion of the net proceeds from the
issuance of the Escrow Notes was contributed to Coleman Worldwide and used by it
to accept for exchange on June 20, 1997, $545.1 million aggregate principal
amount at maturity of Liquid Yield Option Notes TM due 2013 (the "LYONs"TM ).
Coleman Worldwide plans to redeem the remaining $16.5 million aggregate
principal amount at maturity of LYONs on May 27, 1998 with the remaining
proceeds from the issuance of the Escrow Notes. The LYONs and the Escrow Notes,
to which the Company is not a party, provide that it is an additional purchase
right event and an event of default, respectively, under these debt instruments
if, among other things, the amount of debt incurred by the Company exceeds
certain limitations.
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
11
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
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.
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. Sales by Powermate of generators and certain
other products were adversely affected by weather in the third quarter of
1997. The Company's annual results are generally dependent on its results
during the second quarter.
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) difficulties or delays in
the reduction of wholesaler inventories in Japan exacerbated by the Japanese
economy, (ii) unanticipated costs or delays in eliminating low or
unprofitable products or businesses or closing facilities or consummating
the Company's other restructuring activities, (iii) unanticipated costs or
delays in developing new products, (iv) the possibility the Company fails to
meet the various restrictive covenants of the Company Credit Agreement, (v) a
decrease in the public's interest in camping and related activities, (vi)
significant market or economic conditions which negatively affect demand for
the Company's products, and (vii) weather conditions which are adverse to
specific businesses of the Company. The Company assumes no responsibility to
update forward-looking information contained herein.
12
THE COLEMAN COMPANY, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Index Description
------------- -----------
27.1* Financial Data Schedule
------------
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
13
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, 1997 By: /s/ Joseph Page
-------------------------- -----------------------------------
Joseph Page
Executive Vice President and
Chief Financial Officer
14