<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 JUNE 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
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.)
2111 E. 37TH STREET NORTH, WICHITA, KANSAS 67219
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(Address of principal executive offices) (Zip Code)
1767 DENVER WEST BLVD., GOLDEN, COLORADO 80401
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(Former 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
--- ---
The number of shares outstanding of the registrant's par value $1.00 common
stock was 1,000 shares as of August 11, 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
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Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations
Three months ended June 30, 1997 and 1996 and
Six months ended June 30, 1997 and 1996 3
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows
Six months ended June 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
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
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1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $383,514 $452,654 $678,978 $726,214
Cost of sales 281,601 315,116 496,023 507,710
-------- -------- -------- --------
Gross profit 101,913 137,538 182,955 218,504
Selling, general and administrative expenses 70,158 78,975 136,081 125,751
Interest expense, net 13,856 13,694 27,710 24,750
Amortization of goodwill and deferred charges 2,903 3,066 5,913 5,458
Other expense (income), net 526 623 797 (2,098)
-------- -------- -------- --------
Earnings before income taxes, minority interest
and extraordinary item 14,470 41,180 12,454 64,643
Income tax expense 5,374 13,090 4,599 21,782
Minority interest in earnings of Camping Gaz 731 1,951 843 1,951
Minority interest in earnings of Coleman 1,766 4,702 1,886 7,237
-------- -------- -------- --------
Earnings before extraordinary item 6,599 21,437 5,126 33,673
Extraordinary loss on early extinguishment
of debt, net of income tax benefit (10,929) (657) (10,929) (1,239)
-------- -------- -------- --------
Net (loss) earnings $ (4,330) $ 20,780 $ (5,803) $ 32,434
-------- -------- -------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, December 31,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 17,047 $ 17,299
Accounts and notes receivable, less allowance of
$9,262 in 1997 and $11,512 in 1996 309,921 209,942
Inventories 252,880 287,502
Deferred tax assets 40,040 40,466
Prepaid assets and other 15,781 14,885
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Total current assets 635,669 570,094
Property, plant and equipment, net 180,161 199,182
Intangible assets related to businesses acquired, net 333,954 349,761
Note receivable - affiliate 35,395 54,739
Deferred tax assets and other 33,546 32,673
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$1,218,725 $1,206,449
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts and notes payable $ 207,879 $ 132,841
Other current liabilities 123,534 113,691
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Total current liabilities 331,413 246,532
Long-term debt 522,819 757,460
Income taxes payable - affiliate 12,182 18,528
Other liabilities 62,299 76,173
Minority interest 47,120 45,088
Contingencies
Stockholder's equity:
Common stock 1 1
Additional paid-in capital 216,444 23,687
Retained earnings 30,557 36,360
Currency translation adjustment (3,596) 2,856
Minimum pension liability adjustment (514) (236)
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Total stockholder's equity 242,892 62,668
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$1,218,725 $1,206,449
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See Notes to Condensed Consolidated Financial Statements
<PAGE>
COLEMAN WORLDWIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
-----------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (5,803) $ 32,434
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Adjustments to reconcile net (loss) earnings to net
cash flows from operating activities:
Depreciation and amortization 19,679 17,426
Non-cash restructuring and other charges 9,897 --
Extraordinary loss on early extinguishment of debt 18,005 2,082
Non-cash tax sharing agreement (benefit) provision (6,346) 12,290
Non-cash gain on LYONs conversion -- (2,755)
Minority interest in earnings of Camping Gaz 843 1,951
Minority interest in earnings of Coleman 1,886 7,237
Interest accretion 5,972 5,943
Change in assets and liabilities:
Increase in receivables (102,401) (141,964)
Decrease (increase) in inventories 27,526 (14,318)
Increase in accounts payable 19,992 24,298
Other, net 49 13,173
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(4,898) (74,637)
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Net cash used by operating activities (10,701) (42,203)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,660) (18,803)
Purchases of businesses, net of cash acquired -- (158,228)
Decrease (increase) in note receivable - affiliate 19,344 (4,079)
Proceeds from sale of fixed assets 2,815 433
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Net cash provided by (used by) investing activities 9,499 (180,677)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of revolving credit agreement borrowings (49,959) (31,996)
Net change in short-term borrowings 51,594 24,068
Proceeds from issuance of long-term debt -- 235,000
Repayment of long-term debt (189,662) (6,022)
Debt issuance and refinancing costs (1,766) (1,765)
Purchases of Company common stock -- (2,329)
Proceeds from stock options exercised 1,443 1,655
Contributions from parent 188,327 37
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Net cash provided by financing activities (23) 218,648
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Effect of exchange rate changes on cash 973 3,531
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Net decrease in cash and cash equivalents (252) (701)
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 $ 17,047 $ 11,364
--------- ---------
See Notes to Condensed Consolidated Financial Statements
<PAGE>
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 June 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 six months ended June 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:
June 30, December 31,
1997 1996
---- ----
Raw material and supplies $ 67,937 $ 82,399
Work-in-process 11,569 12,878
Finished goods 173,374 192,225
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$252,880 $ 287,502
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3. RESTRUCTURING AND OTHER CHARGES
During the six months ended June 30, 1997, the Company recorded
restructuring and other charges totaling $22,551 and related tax benefits of
$8,569. 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. These restructuring
initiatives are expected to be substantially completed within one year. 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 costs associated with the second quarter restructuring charge included
pre-tax charges of $12,919 related to exiting certain products and facilities of
which $10,261 was reflected in cost of sales and $2,658 in SG&A expenses.
Included in this restructuring charge was $8,632 of pre-tax charges related
primarily to the write down of inventory and fixed assets to estimated net
realizable value, and $4,287 of liabilities for other exit costs, including
carrying costs of idle facilities and relocation costs, of which $1,134 was paid
as of June 30, 1997.
The costs associated with the second quarter restructuring charge also
included $5,704 of termination costs for 389 factory and administrative
employees of which $1,141 was reflected in cost of sales and $4,563 in SG&A
expenses. As of June 30, 1997, $1,763 of these termination benefits were paid
to the 234 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 June 30, 1997. Remaining
liabilities of approximately $8,500 at June 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, Coleman Holdings Inc. (formerly known as Coleman Escrow
Corp. ("Coleman Escrow")) 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
$262,197 of the net proceeds of the Escrow Notes were contributed to Coleman
Holdings Inc. ("Old Coleman Holdings"), then a subsidiary of Coleman Escrow,
and used by it to redeem, on July 15, 1997, its Senior Secured Discount Notes
due 1998 (the "Old Holdings Notes"). 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 benefit 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
<PAGE>
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. Following the redemption of the Old Holdings Notes,
Old Coleman Holdings was merged into Coleman Escrow and the name of Coleman
Escrow was changed to "Coleman Holdings Inc." The LYONs and the Escrow
Notes, to which the Company is not a party, provide 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 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 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.
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.
<PAGE>
Page 10
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 plans to (i) close its executive offices in
Golden, Colorado, with most of its administrative functions relocating to its
Wichita, Kansas facility, (ii) reduce its work force by approximately 10% or 700
employees, (iii) close or relocate several of its factories, (iv) close its
Geneva, Switzerland international headquarters, (v) rationalize its product
lines, including a significant reduction in SKUs, and (vi) exit 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 June 30, 1997. The
remaining initiatives are expected to be substantially completed within one
year.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1996
Net revenues of $383.5 million in 1997 were $69.1 million or 15.3% less
than in 1996 with outdoor recreation products decreasing $48.6 million or 13.7%
and hardware products decreasing $20.5 million or 21.2%. The outdoor recreation
products revenues decrease primarily reflects reduced sales in Japan due to weak
market conditions and a program to reduce wholesaler inventories and the
inclusion of Camping Gaz revenues from the date of acquisition in 1996. The
hardware products revenues decrease is primarily due to 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 0.3%
while international revenues decreased 38.6% reflecting the decline in outdoor
recreation products revenues outside the United States as described above.
Gross margins of 29.5%, excluding the impact of restructuring and other
charges which are more fully described below, decreased as a percent of sales by
0.9 percentage points from 30.4% in 1996. The decrease is primarily the result
of the effect of lower sales of high margin products in Japan. Closing 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 $62.9 million or 16.4% of sales in
1997 compared to $78.9 million or 17.4% of sales in 1996. The decrease in SG&A
expenses reflects reduced promotional and advertising spending, cost reductions
from the integration of the Camping Gaz business and timing of the acquisition
in 1996, and the restructuring initiatives implemented in 1997.
During the second quarter of 1997, the Company recorded restructuring
charges totaling $18.6 million of which $11.4 million was reflected in cost of
sales and $7.2 million in SG&A
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expenses. These charges relate to the Company's restructuring initiatives
designed to improve profitability. Tax benefits of $7.1 million associated
with these charges are reflected in income tax expense.
Interest expense was $11.0 million in 1997 compared with $10.7 million in
1996, an increase of $0.3 million. This increase was primarily the result of
higher interest rates. On an unconsolidated basis, Coleman Worldwide had $2.9
million of interest expense in 1997 compared with $3.0 million in 1996, a
decrease of $0.1 million. This decrease is 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 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 second quarter of
1997 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 second quarter of 1996, minority interest in the earnings of Camping Gaz
reflected the approximately 30% share of Camping Gaz held by other shareholders
and also the minority interests 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's 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 $6.6 million
or 38.0% of pre-tax earnings in 1997 compared to a provision for income tax
expense of $14.4 million or 32.4% of pre-tax earnings in 1996. The increase
in the effective tax rate in 1997 as compared to 1996 is primarily due to
reduced tax benefits associated with certain of the Company's offshore
operations. On an unconsolidated basis, Coleman Worldwide recorded an income
tax benefit of $1.2 million in 1997 and $1.3 million in 1996, or
approximately 40% of Coleman Worldwide's unconsolidated pre-tax loss in each
period.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1996
Net revenues of $679.0 million in 1997 were $47.2 million or 6.5% less than
in 1996 with outdoor recreation products decreasing $19.4 million or 3.6% and
hardware products decreasing $27.8 million or 15.3%. 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. The
hardware products revenues decrease is primarily due to a
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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 3.3% while international revenues decreased 13.1%
primarily related to lower sales in Japan. Results in the 1996 period
include the Camping Gaz operations from the date of acquisition.
Gross margins of 28.6%, excluding the impact of restructuring and other
charges which are more fully described below, decreased as a percent of sales by
1.5 percentage points from 30.1% in 1996. The decrease is primarily the result
of the effect of lower sales of high margin products in Japan. 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 $124.4 million in 1997 compared to
$125.7 million in 1996, a decrease of 1.0%. The inclusion of a full six 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
$22.6 million of which $11.0 million was reflected in cost of sales and $11.6
million in SG&A expenses. These charges relate to the Company's restructuring
initiatives designed to improve profitability. Tax benefits of $8.6 million
associated with these charges are reflected in income tax expense.
Interest expense was $21.7 million in 1997 compared with $18.8 million in
1996, an increase of $2.9 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 $6.0 million of
interest expense in 1997 compared with $5.9 million in 1996, an increase of $0.1
million. This slight increase is a result of the effects of compounding
interest related to the LYONs, offset by the reduction in the outstanding amount
of LYONs due to the exchange of LYONs for cash in June 1997.
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 six months ended
June 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
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Page 13
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 reflected the
approximately 30% share of Camping Gaz held by other shareholders and also the
minority interests 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's 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 $7.1 million or
38.0% of pre-tax earnings in 1997 compared to a provision for income tax expense
of $23.2 million or 34.0% of pre-tax earnings in 1996. The increase in the
effective tax rate in 1997 as compared to 1996 is primarily due to reduced tax
benefits associated with certain of the Company's offshore operations. On an
unconsolidated basis, Coleman Worldwide recorded an income tax benefit of $2.5
million in 1997 and $1.4 million in 1996, or approximately 40% of Coleman
Worldwide's unconsolidated pre-tax loss in each period.
LIQUIDITY AND CAPITAL RESOURCES
Coleman Worldwide's consolidated operating activities used $10.7 million
and $42.2 million of cash during the six months ended June 30, 1997 and 1996.
Net cash used by operating activities during the 1997 period reflects an
increase in receivables and a decrease in inventories as a result of the
seasonality of the Company's sales and was also favorably impacted by improved
management of receivables and inventories.
Coleman Worldwide's investing activities provided net cash of $9.5 million
and used cash of $180.7 million for the six months ended June 30 1997 and 1996,
respectively. The Company used $158.2 million of cash in the 1996 period for
the Camping Gaz and Seatt business acquisitions. The Company's capital
expenditures were $12.7 million in the six months ended June 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 six months ended
June 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 $22.6 million associated with these actions and expects to
record additional pre-tax charges of approximately $7.0 million during the
remaining periods of 1997. These restructuring initiatives are expected to
generate cost savings in the future from reductions in personnel, production
facilities and administrative 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
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Page 14
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 $66.1
million at June 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 June 30, 1997, $173.5 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 covenants, the Company Credit Agreement
excludes, among other things, up to $30.0 million of pre-tax charges 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
<PAGE>
Page 15
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 June 30, 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. 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, Coleman Escrow 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 Old Coleman Holdings, then a
subsidiary of Coleman Escrow, and used by it to redeem, on July 15, 1997, the
Old Holdings Notes. 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
<PAGE>
Page 16
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. Following the redemption of the Old
Holdings Notes, Old Coleman Holdings was merged into Coleman Escrow and the
name of Coleman Escrow was changed to "Coleman Holdings Inc." 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. 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, (ii) unanticipated costs or delays in eliminating low or unprofitable
products or businesses, 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, and (vi) adverse weather, market or
economic conditions which negatively affect demand for the Company's products.
<PAGE>
Page 17
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* The Coleman Company, Inc. 1993 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 to the "Company's
June 30, 1997 Form 10-Q").
10.2* The Coleman Company, Inc. Executive Annual Incentive Plan
(incorporated by reference to Exhibit A, pp. 30 to 34, of
The Coleman Company Inc.'s 1997 Proxy Statement).
10.3* The Coleman Company, Inc. 1992 Stock Option Plan
(incorporated by reference to Exhibit 10.3 to the "Company's
June 30, 1997 Form 10-Q").
10.4* The Coleman Company, Inc. 1996 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4 to the "Company's
June 30, 1997 Form 10-Q").
10.5* Letter agreement dated as of June 30, 1997 between the
Company and Frederick van den Bergh (incorporated by
reference to Exhibit 10.5 to the "Company's June 30, 1997
Form 10-Q").
27 T Financial Data Schedule
----------------
* Management Contracts and Compensatory Plans
T Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1997.
<PAGE>
Page 18
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: August 14, 1997 By: /s/ Irwin Engelman
-----------------------------------
Irwin Engelman
Executive Vice President and Chief
Financial Officer
<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 JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,047
<SECURITIES> 0
<RECEIVABLES> 319,183
<ALLOWANCES> 9,262
<INVENTORY> 252,880
<CURRENT-ASSETS> 635,669
<PP&E> 283,619
<DEPRECIATION> 103,458
<TOTAL-ASSETS> 1,218,725
<CURRENT-LIABILITIES> 331,413
<BONDS> 522,819
0
0
<COMMON> 1
<OTHER-SE> 242,891
<TOTAL-LIABILITY-AND-EQUITY> 1,218,725
<SALES> 675,952
<TOTAL-REVENUES> 678,978
<CGS> 496,023
<TOTAL-COSTS> 496,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,155
<INTEREST-EXPENSE> 27,710
<INCOME-PRETAX> 12,454
<INCOME-TAX> 4,599
<INCOME-CONTINUING> 5,126
<DISCONTINUED> 0
<EXTRAORDINARY> (10,929)
<CHANGES> 0
<NET-INCOME> (5,803)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
