<PAGE>
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: 1-11962
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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.)
5900 NORTH ANDREWS AVENUE, SUITE 700
FORT LAUDERDALE, FLORIDA 33309
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(Address of principal executive offices) (Zip Code)
2111 E. 37TH STREET NORTH, WICHITA, KANSAS 67219
- ----------------------------------------------- ----------
(Former address of principal executive offices) (Zip Code)
954-772-9000
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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. Yes X No
--- ---
The number of shares outstanding of the registrant's par value $1.00 common
stock was 1,000 shares as of November 4, 1997 all of which were held by an
indirect wholly-owned subsidiary of Mafco Holdings Inc.
Exhibit Index on Page 15
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COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
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 . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2
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COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
1997 1996 1997 1996
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . $ 252,434 $ 269,607 $ 931,412 $ 995,821
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . 182,567 229,713 678,590 737,423
--------- ---------- ---------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 69,867 39,894 252,822 258,398
Selling, general and administrative expenses . . . . . . . 69,193 89,351 205,274 215,102
Interest expense, net. . . . . . . . . . . . . . . . . . . 9,950 13,012 37,660 37,762
Amortization of goodwill and deferred charges. . . . . . . 3,088 2,944 9,001 8,402
Other expense (income), net. . . . . . . . . . . . . . . . 703 578 1,500 (1,520)
--------- ---------- ---------- ---------
Loss before income taxes, minority interest
and extraordinary item. . . . . . . . . . . . . . . . . . (13,067) (65,991) (613) (1,348)
Income tax (benefit) expense . . . . . . . . . . . . . . . (5,021) (15,534) (422) 6,248
Minority interest in earnings (loss) of Camping Gaz. . . . 292 (81) 1,135 1,870
Minority interest in (loss) earnings of Coleman. . . . . . (1,411) (8,329) 475 (1,092)
--------- ---------- ---------- ---------
Loss before extraordinary item . . . . . . . . . . . . . . (6,927) (42,047) (1,801) (8,374)
Extraordinary loss on early extinguishment
of debt, net of income tax benefit. . . . . . . . . . . . -- (5) (10,929) (1,244)
--------- ---------- ---------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (6,927) $ (42,052) $ (12,730) $ (9,618)
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
September 30, December 31,
1997 1996
------------- ------------
ASSETS
<S> <C> <C>
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. . . . . . . . . 219,480 209,942
Inventories. . . . . . . . . . . . . . . . . . . . . . . 245,849 287,502
Deferred tax assets. . . . . . . . . . . . . . . . . . . 39,574 40,466
Prepaid assets and other . . . . . . . . . . . . . . . . 18,379 14,885
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . 533,178 570,094
Property, plant and equipment, net . . . . . . . . . . . . 176,607 199,182
Intangible assets related to businesses acquired, net. . . 331,048 349,761
Note receivable - affiliate. . . . . . . . . . . . . . . . 35,395 54,739
Deferred tax assets and other. . . . . . . . . . . . . . . 31,010 32,673
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$1,107,238 $1,206,449
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts and notes payable . . . . . . . . . . . . . . . $ 155,791 $ 132,841
Other current liabilities. . . . . . . . . . . . . . . . 118,313 113,691
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Total current liabilities . . . . . . . . . . . . . . 274,104 246,532
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 479,446 757,460
Income taxes payable - affiliate . . . . . . . . . . . . . 9,670 18,528
Other liabilities. . . . . . . . . . . . . . . . . . . . . 65,609 76,173
Minority interest. . . . . . . . . . . . . . . . . . . . . 45,032 45,088
Contingencies. . . . . . . . . . . . . . . . . . . . . . .
Stockholder's equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . 216,444 23,687
Retained earnings. . . . . . . . . . . . . . . . . . . . 23,630 36,360
Currency translation adjustment. . . . . . . . . . . . . (6,045) 2,856
Minimum pension liability adjustment . . . . . . . . . . (653) (236)
---------- ----------
Total stockholder's equity. . . . . . . . . . . . . . 233,377 62,668
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$1,107,238 $1,206,449
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---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Nine Months
Ended September 30,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (12,730) $ (9,618)
---------- ----------
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization. . . . . . . . . . . . . 30,027 27,774
Non-cash restructuring and other charges . . . . . . . 16,774 33,268
Extraordinary loss on early extinguishment of debt . . 18,005 2,090
Non-cash tax sharing agreement (benefit) provision . . (8,858) 5,759
Non-cash gain on LYONs conversion. . . . . . . . . . . -- (2,755)
Minority interest in earnings of Camping Gaz . . . . . 1,135 1,870
Minority interest in earnings (loss) of Coleman. . . . 475 (1,092)
Interest accretion . . . . . . . . . . . . . . . . . . 6,067 8,976
Change in assets and liabilities:
Increase in receivables. . . . . . . . . . . . . . . (18,232) (60,693)
Decrease (increase) in inventories . . . . . . . . . 28,092 (29,513)
Decrease in accounts payable . . . . . . . . . . . . (8,977) (22,216)
Other, net . . . . . . . . . . . . . . . . . . . . . (10,043) 23,729
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54,465 (12,803)
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Net cash provided (used) by operating activities . . . . . 41,735 (22,421)
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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)
Decrease (increase) in note receivable - affiliate . . . . 19,344 (4,054)
Proceeds from sale of fixed assets . . . . . . . . . . . . 4,151 1,567
---------- ----------
Net cash provided (used) by investing activities . . . . . 3,420 (188,567)
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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. . . . . . . . . . . . . . . . (190,093) (9,908)
Debt issuance and refinancing costs. . . . . . . . . . . . (1,766) (2,296)
Purchases of Company common stock. . . . . . . . . . . . . -- (2,329)
Proceeds from stock options exercised. . . . . . . . . . . 1,783 1,724
Contributions from parent. . . . . . . . . . . . . . . . . 188,327 45
---------- ----------
Net cash (used) provided by financing activities . . . . . (53,842) 241,443
---------- ----------
Effect of exchange rate changes on cash. . . . . . . . . . 1,284 1,237
---------- ----------
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
---------- ----------
Cash and cash equivalents at end of the period . . . . . . $ 9,896 $ 43,757
---------- ----------
---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
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 September 30,
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 nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for 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 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:
September 30, December 31,
1997 1996
------------- ------------
Raw material and supplies. . . . . . . . . . $ 63,391 $ 82,399
Work-in-process. . . . . . . . . . . . . . . 7,393 12,878
Finished goods . . . . . . . . . . . . . . . 175,065 192,225
--------- ---------
$ 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.
6
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
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.
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. LONG-TERM DEBT
On May 20, 1997, CLN Holdings Inc. (formerly known as Coleman Escrow
Corp. ("CLN Holdings")) issued approximately $732,035 in principal amount at
maturity of Senior Secured Discount Notes due 2001 (the "Escrow Notes")
resulting in aggregate net proceeds of approximately $455,257. Approximately
$262,194 of the net proceeds of the Escrow Notes were contributed to Coleman
Holdings Inc. ("Coleman Holdings"), then a subsidiary of CLN 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. Approximately $188,286 of the
net proceeds of the Escrow Notes were contributed to Coleman Worldwide and
used by it to accept for exchange on June 20, 1997, $545,053 aggregate
principal amount at maturity of LYONs, including redemption fees and
expenses. Coleman Worldwide recorded an extraordinary loss of $10,929, net
of tax benefits of $7,076, relating to the excess of the exchange offer price
over the accreted value of the LYONs, the write-off of deferred charges
related to the LYONs exchanged and redemption fees and expenses. Coleman
Worldwide plans to redeem the remaining $16,500 aggregate principal amount at
maturity of LYONs on May 27, 1998 with the remaining proceeds from the
issuance of the Escrow Notes which are being held in escrow. 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 $16,500 principal amount at
maturity of LYONs which remain outstanding are secured by a pledge of
7,834,208 shares of Company common stock owned by Coleman Worldwide. The
Escrow Notes are secured by a pledge of all the shares of common stock of
Coleman Worldwide and guaranteed on a non-recourse basis by Coleman Worldwide
(the "Guaranty"), which Guaranty is currently secured by a pledge of
36,233,312 shares of Company common stock and will be secured by the shares
currently securing the LYONs upon the redemption of the LYONs.
7
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
5. RELATED PARTY TRANSACTIONS
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. ("Mafco") 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.
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.
8
<PAGE>
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 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, decide
to 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
9
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COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
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
the valuation reserve related to certain foreign deferred tax assets and
other foreign tax charges totaling $7.7 million.
The Company's 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. On an unconsolidated basis, Coleman Worldwide had $0.1 million of
interest expense in 1997 compared with $3.0 million in 1996, a decrease of
$2.9 million. This decrease is primarily due to the decrease in principal
amount of LYONs outstanding due to the exchange of LYONs for cash in June
1997.
Minority interest in the earnings of Camping Gaz reflects the minority
interests held by other shareholders in certain subsidiary operations
acquired with the Camping Gaz business. 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 ownership of
approximately 83% of Coleman's common stock.
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%. On an
unconsolidated basis, Coleman Worldwide recorded an income tax benefit of
$0.0 million in 1997 and $1.3 million in 1996, or approximately 40% of
Coleman Worldwide's unconsolidated pre-tax loss in each period.
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
10
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
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.
The Company's net 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. On an unconsolidated basis, Coleman
Worldwide had $6.1 million of interest expense in 1997 compared with $9.0
million in 1996, an decrease of $2.9 million. This decrease is primarily due
to the decrease in principal amount of LYONs outstanding due to the exchange
of LYONs for cash in June 1997 partially offset by the effects of compounding
interest related to the LYONs.
During the second quarter of 1997, in connection with the exchange of
$545.1 million aggregate principal amount at maturity of LYONs for cash,
Coleman Worldwide recorded an extraordinary loss of $10.9 million, net of tax
benefits of $7.1 million, relating to the excess of the exchange offer price
over the accreted value of the LYONs, the write-off of deferred charges
related to the LYONs exchanged and redemption fees and expenses. During the
nine months ended September 30, 1996, holders of LYONs with a principal
amount at maturity of $9.8 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 owned by
Coleman Worldwide to the holders of the LYONs which were exchanged. Coleman
Worldwide recognized a gain of $2.7 million in connection with these
exchanges which is included 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. In addition, 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) which represents a write-off of the
related unamortized financing costs associated with its then existing credit
agreement.
Minority interest in the earnings of Camping Gaz 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 in the earnings of Camping
Gaz reflects 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. 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 ownership of approximately 83% of Coleman's common stock.
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
11
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
income tax expense of $21.9 million or 34.7% of pre-tax earnings in 1996. On
an unconsolidated basis, Coleman Worldwide recorded an income tax benefit of
$2.5 million in 1997 and $2.8 million in 1996, or approximately 38% and 40%
of Coleman Worldwide's unconsolidated pre-tax loss in 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Coleman Worldwide's consolidated operating activities provided $41.7
million of cash during the nine months ended September 30, 1997 and used
$22.4 million of cash during the nine months ended September 30, 1996.
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.
Coleman Worldwide's consolidated investing activities provided net cash
of $3.4 million and used cash of $188.6 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 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 $19.3
million during 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.
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
12
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
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.
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 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, at any time the LYONs are outstanding, the amounts Coleman
Worldwide would be required to pay to Mafco under the Coleman 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 $35.4 million
at September 30, 1997.
13
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
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. The remaining net proceeds of the
Escrow Notes may be used to finance any required purchase of LYONs by Coleman
Worldwide following an Additional Purchase Right Event.
On May 20, 1997, CLN Holdings issued approximately $732.0 million in
principal amount at maturity of Escrow Notes resulting in net proceeds of
approximately $455.3 million. Approximately $262.2 million of the net
proceeds of the Escrow Notes were contributed to Coleman Holdings, then a
subsidiary of CLN Holdings, and used by it to redeem, on July 15, 1997, the
Holdings Notes. Following the redemption of the Holdings Notes, Coleman
Holdings was merged into CLN Holdings. Approximately $188.3 million of the
net proceeds of the Escrow Notes were 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 LYONs, including redemption fees and
expenses. 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 which are being held
in escrow. 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
$16.5 million principal amount at maturity of LYONs which remain outstanding
is secured by a pledge of 7,834,208 shares of Company common stock owned by
Coleman Worldwide. The Escrow Notes are secured by a pledge of all the
shares of common stock of Coleman Worldwide and guaranteed by the Guaranty,
which Guaranty is currently secured by a pledge of 36,233,312 shares of
Company common stock and will be secured by the shares currently securing the
LYONs upon the redemption of the LYONs.
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. 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.
14
<PAGE>
COLEMAN WORLDWIDE CORPORATION 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.
15
<PAGE>
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: November 13, 1997 By: /s/ Irwin Engelman
----------------------- ------------------------------
Irwin Engelman
Executive Vice President and
Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS FILED IN THE COMPANY'S FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,896
<SECURITIES> 0
<RECEIVABLES> 229,185
<ALLOWANCES> 9,705
<INVENTORY> 245,849
<CURRENT-ASSETS> 533,178
<PP&E> 285,522
<DEPRECIATION> 108,915
<TOTAL-ASSETS> 1,107,238
<CURRENT-LIABILITIES> 274,104
<BONDS> 479,446
0
0
<COMMON> 1
<OTHER-SE> 233,376
<TOTAL-LIABILITY-AND-EQUITY> 1,107,238
<SALES> 927,206
<TOTAL-REVENUES> 931,412
<CGS> 678,590
<TOTAL-COSTS> 678,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,917
<INTEREST-EXPENSE> 37,660
<INCOME-PRETAX> (613)
<INCOME-TAX> (422)
<INCOME-CONTINUING> (1,801)
<DISCONTINUED> 0
<EXTRAORDINARY> (10,929)
<CHANGES> 0
<NET-INCOME> (12,730)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
