<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, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 33-67058
COLEMAN HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3704484
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1526 COLE BLVD., SUITE 300, GOLDEN, COLORADO 80401
(Address of principal executive offices) (Zip Code)
303-202-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirement for the past 90 days. X Yes No
--- ---
The number of shares outstanding of the registrant's par value $.01 common
stock was 1,000 shares as of August 1, 1996 all of which were held by an
indirect wholly-owned subsidiary of Mafco Holdings Inc.
Exhibit Index on Page 16.
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COLEMAN HOLDINGS INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Earnings
Three months ended June 30, 1996 and 1995 and
Six months ended June 30, 1996 and 1995........................3
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995.............................4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995.........................5
Notes to Condensed Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................16
Item 6. Exhibits and Reports on Form 8-K....................................16
Signatures..........................................................17
2
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COLEMAN HOLDINGS INC. AND SUBSIDIARIES
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues..................................$452,654 $311,281 $726,214 $535,305
Cost of sales................................. 315,116 211,706 507,710 367,234
-------- -------- -------- --------
Gross profit.................................. 137,538 99,575 218,504 168,071
Selling, general and administrative expenses.. 79,019 45,917 125,819 85,598
Interest expense.............................. 19,646 14,558 36,606 28,262
Amortization of goodwill and deferred charges. 3,378 2,265 6,082 4,624
Other expense (income), net................... 623 30 (2,098) (120)
-------- -------- -------- --------
Earnings before income taxes,
minority interest and extraordinary item.... 34,872 36,805 52,095 49,707
Provision for income tax expense.............. 10,882 14,718 17,390 19,764
Minority interest in earnings of Camping Gaz.. 1,951 -- 1,951 --
Minority interest in earnings of Coleman...... 4,702 4,688 7,237 6,958
-------- -------- -------- --------
Earnings before extraordinary item............ 17,337 17,399 25,517 22,985
Extraordinary loss on early extinguishment
of debt, net of income tax benefit.......... (657) -- (1,239) --
-------- -------- -------- --------
Net earnings..................................$ 16,680 $ 17,399 $ 24,278 $ 22,985
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
COLEMAN HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, December 31,
1996 1995
----------------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 11,364 $ 12,065
Accounts receivable, net........................... 370,409 165,309
Inventories........................................ 291,995 216,236
Deferred tax assets................................ 20,115 20,481
Prepaid assets and other........................... 20,846 22,475
---------- ---------
Total current assets.......................... 714,729 436,566
Property, plant and equipment, net..................... 212,257 162,691
Intangible assets related to businesses acquired, net.. 321,455 225,247
Note receivable - affiliate............................ 54,764 50,685
Deferred tax assets and other.......................... 49,531 34,271
---------- ---------
$1,352,736 $ 909,460
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts and notes payable......................... $ 203,519 $ 90,679
Other current liabilities.......................... 106,492 59,296
---------- ---------
Total current liabilities..................... 310,011 149,975
Long-term debt......................................... 956,882 737,621
Income taxes payable - affiliate....................... 50,136 37,846
Other liabilities...................................... 65,909 48,072
Minority interest in Camping Gaz....................... 5,393 --
Minority interest in Coleman........................... 57,469 49,266
Contingencie...........................................
Stockholder's (deficit) equity:
Common stock....................................... 1 1
(Deficiency in) additional paid-in capital......... (128,308) (123,992)
Retained earnings.................................. 34,594 10,318
Currency translation adjustment.................... 649 353
---------- ---------
Total stockholder's (deficit) equity.......... (93,064) (113,320)
---------- ---------
$1,352,736 $ 909,460
---------- ---------
---------- ---------
See Notes to Condensed Consolidated Financial Statements
4
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COLEMAN HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
---------------------
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 24,278 $ 22,985
---------- ---------
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization..................... 18,050 13,445
Extraordinary loss on early extinguishment of debt 2,082 --
Non-cash tax sharing agreement provision.......... 7,898 11,466
Non-cash tax gain on LYON's conversion ........... (2,755) --
Minority interest in earnings of Camping Gaz...... 1,951 --
Minority interest in earnings of Coleman.......... 7,237 6,958
Interest accretion ............................... 17,799 16,259
Change in assets and liabilities:
Increase in receivables...................... (141,964) (85,154)
Increase in inventories...................... (14,318) (8,509)
Increase in accounts payable................. 24,298 12,397
Other, net................................... 13,202 13,611
---------- ---------
(66,520) (19,527)
---------- ---------
Net cash (used by) provided by operating activities........ (42,242) 3,458
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (18,803) (10,664)
Purchases of businesses, net of cash acquired.............. (158,228) (1,359)
Increase in note receivable - affiliate.................... (4,079) (6,742)
Proceeds from sale of fixed assets......................... 433 731
---------- ---------
Net cash used by investing activities...................... (180,677) (18,034)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments of) proceeds from revolving credit
agreement borrowings.................................... (31,996) 3,544
Net change in short-term borrowings........................ 24,068 16,752
Proceeds from issuance of long-term debt................... 235,000 --
Repayment of long-term debt................................ (6,022) (4,021)
Debt issuance and refinancing costs........................ (1,765) --
Purchases of Company common stock.......................... (2,329) (4,086)
Proceeds from stock options exercised...................... 1,655 3,510
Other, net................................................. 76 122
---------- ---------
Net cash provided by financing activities.................. 218,687 15,821
---------- ---------
Effect of exchange rate changes on cash.................... 3,531 (2,801)
---------- ---------
Net decrease in cash and cash equivalents.................. (701) (1,556)
Cash and cash equivalents at beginning of the period....... 12,065 8,319
---------- ---------
Cash and cash equivalents at end of the period............. $ 11,364 $ 6,763
---------- ---------
---------- ---------
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
COLEMAN HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
Coleman Holdings Inc. ("Coleman Holdings") is a holding company formed in
July 1993 in connection with the offering of Senior Secured Discount Notes
due 1998 (the "Old Notes") to hold all of the outstanding shares of capital
stock of Coleman Worldwide Corporation ("Coleman Worldwide"). Coleman
Worldwide is a holding company formed in March 1993 in connection with the
offering of Liquid Yield OptionTM Notes due 2013 (the "LYONs" TM). Coleman
Worldwide also holds 44,067,520 shares of the common stock of The Coleman
Company, Inc. (the "Company" or "Coleman") which represents approximately 83%
of the outstanding Coleman common stock as of June 30, 1996.
The accompanying unaudited condensed consolidated financial statements of
Coleman Holdings 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, 1996 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. The balance sheet at December 31, 1995 has been derived from the
audited financial statements for that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Coleman Holdings' annual report on Form 10-K for the year ended December
31, 1995.
2. INVENTORIES
The components of inventories consist of the following:
June 30, December 31,
1996 1995
------------ ------------
Raw material and supplies $ 84,066 $ 57,653
Work-in-process 10,355 5,389
Finished goods 197,574 153,194
----------- -----------
$ 291,995 $ 216,236
----------- -----------
----------- -----------
3. ACQUISITIONS
On January 2, 1996, the Company purchased substantially all the
assets and assumed certain liabilities of Seatt Corporation ("Seatt"), a
leading designer, manufacturer and distributor of a broad range of safety
related electronic products for residential and commercial applications. The
Seatt acquisition, which was accounted for under the purchase method, was
completed for approximately $64,982 including fees and expenses and was
financed through borrowings under the Company Credit Agreement, and
assumption of certain liabilities in the amount of $7,157 by the Company.
The results of operations of Seatt have been included in the consolidated
financial statements from the date of acquisition. In connection with the
preliminary purchase price allocation of the Seatt acquisition, the Company
recorded goodwill of approximately $37,821. The Company is amortizing this
amount over 40 years on the straight-line method.
6
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COLEMAN HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
On February 28, 1996, the Company and Butagaz S.N.C. ("Butagaz"), a
subsidiary of Societe de Petroles Shell S.A., jointly announced they had
entered into an agreement (the "Share Purchase Agreement") in connection with
the sale to Coleman of approximately 60 percent of the outstanding shares of
Application des Gaz, S.A. ("ADG" or "Camping Gaz"). Pursuant to the terms of
the Share Purchase Agreement and other related documents dated February 27,
1996, Coleman has the right to, and intends to, acquire the remaining shares
held by Butagaz, which represents approximately 10% of the outstanding shares
of ADG, and accordingly considers this 10% stock ownership as under the
control of the Company. The Company obtained effective control of Camping Gaz
on March 1, 1996. Camping Gaz is the leading manufacturer and distributor of
camping appliances in Europe. On June 24, 1996, Coleman commenced a public
tender offer for the purchase of all the publicly traded outstanding shares
of ADG, or approximately 30% of the outstanding shares. The tender offer
period expired in July 1996 with approximately 28% of the outstanding shares
of ADG tendered for purchase. The Company is currently completing the
necessary steps to acquire the remaining publicly held stock and expects to
complete those actions during the third quarter of 1996. As of June 30, 1996,
the acquisition of approximately 89% of the outstanding shares of ADG amounts
to approximately French Franc 443,646 (approximately $87,622 based on the
exchange rates in effect on the dates paid) including estimated fees and
expenses. The acquisition of Camping Gaz is being accounted for under the
purchase method. In connection with the preliminary allocation of purchase
price to the fair values of assets and liabilities acquired, the Company
recorded goodwill of approximately $60,682, which is being amortized over 40
years on the straight-line basis. The Company has included the results of
operations of Camping Gaz in the consolidated financial statements from March
1, 1996, the date on which the Company obtained effective control of Camping
Gaz, and has recognized minority interest related to the publicly traded
shares for the period March 1, 1996 through June 30, 1996.
The following summarized, unaudited pro forma results of operations
for the six months ended June 30, 1996 and 1995 assumes the acquisition of
Seatt and the acquisition of all the outstanding shares of Camping Gaz
occurred as of the beginning of the respective periods. The pro forma
results include certain adjustments, primarily reflecting increased
amortization and interest expense and a lower income tax provision, and are
not necessarily indicative of what the results of operations would have been
had the Seatt and Camping Gaz acquisitions occurred at the beginning of the
respective periods. Moreover, the pro forma information is not intended to
be indicative of future results of operations.
Six Months ended
June 30,
---------------------------
1996 1995
------------ ------------
Net revenues $ 752,368 $ 692,980
Earnings before extraordinary item 25,379 26,509
Net earnings 24,140 26,509
4. RELATED PARTY TRANSACTION
The Company has entered into an agreement with an affiliate in which the
Company will be able to realize tax benefits associated with certain foreign
tax net operating loss carryforwards that had not previously been recognized.
Approximately $1,236 of this benefit is reflected in Coleman Holdings'
provision for income taxes in the three month and six month periods ended
June 30, 1996.
7
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COLEMAN HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(Unaudited)
5. LONG-TERM DEBT
On April 30, 1996, the Company amended the Company Credit Agreement
to revise several of the terms and provisions of the Company Credit Agreement
and to allow for the issuance of additional long-term notes. The Company
Credit Agreement, as amended, provides for (a) an unsecured French Franc term
loan in the amount of French Franc 385,125 ($75,000 at the then current
exchange rates) and (b) an unsecured revolving credit facility of $275,000.
The Company Credit Agreement, as amended, is available to the Company until
April 30, 2001.
The outstanding loans under the Company Credit Agreement bear
interest at either of the following rates, as selected by the Company from
time to time: (i) the higher of the agent's base lending rate or the federal
funds rate plus .50% or (ii) the London Inter-Bank Offered Rate ("LIBOR")
plus a margin ranging from .25% to 1.1% 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 and the margin will be 1.0% in the case of
U.S. Dollar denominated LIBOR loans and 1.1% for foreign currency denominated
LIBOR loans. The Company Credit Agreement also bears an overall facility fee
ranging from .15% to .375% based on the Company's financial performance.
The amended Company Credit Agreement contains various restrictive
covenants, including without limitation, requirements for the maintenance of
specified financial ratios and levels of consolidated net worth and certain
other provisions limiting the incurrence of additional debt, purchase or
redemption of Coleman Common Stock, issuance of Coleman Preferred Stock, and
the payment of dividends. Under the most restrictive of these covenants of
the amended Company Credit Agreement, approximately $83,560 would have been
available for payment by the Company of cash dividends at June 30, 1996.
In connection with the amending and restating of the Company's previous
credit agreement, the Company recognized an extraordinary loss of
approximately $1,078 ($647 after taxes, or $0.01 per share) in the quarter
ended June 30, 1996, which represents the write-off of the related
unamortized financing costs associated with the Company's previous credit
agreement.
On June 13, 1996, the Company completed (i) a private placement issuance
and sale of $85,000 aggregate principal amount of 7.10% Senior Notes, Series
A, due 2006 (the "Notes due 2006") and (ii) a private placement issuance and
sale of $75,000 aggregate principal amount of 7.25% Senior Notes, Series B,
due 2008 (the "Notes due 2008"). Proceeds from these private placement
issuances were used (i) to finance the acquisition of Camping Gaz, and (ii)
to pay down existing indebtedness under the revolving credit facility under
the Company Credit Agreement. The Notes due 2006 bear interest at the rate
of 7.10% per annum payable semiannually, and the principal amount is payable
in annual installments of $12,143 commencing June 13, 2000 with a final
payment due on June 13, 2006. If there is a default, the interest rate will
be the greater of (i) 9.10% or (ii) 2% above the prime interest rate. The
Notes due 2008 bear interest at the rate of 7.25% per annum payable
semiannually, and the principal amount is payable in annual installments of
$15,000 commencing June 13, 2004 with a final payment on June 13, 2008. If
there is a default, the interest rate will be the greater of (i) 9.25% or
(ii) 2% above the prime interest rate. The Notes due 2006 and the Notes due
2008 are unsecured and are subject to various restrictive covenants,
including without limitation, requirements for the maintenance of specified
financial ratios and levels of consolidated net worth and certain other
provisions limiting the incurrence of additional debt and sale and leaseback
transactions under the terms of the Note Purchase Agreement.
8
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COLEMAN HOLDINGS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Coleman Holdings and Coleman Worldwide are holding companies with
no business operations or source of income of their own. Accordingly, except
as otherwise indicated, the following discussion relates to the results of
operations of the Company.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 1995
Net revenues in the 1996 and 1995 periods were $452.7 million and $311.3
million, respectively, an increase of $141.4 million, or 45.4%. All classes
of the Company's products contributed to this increase with recreation
products increasing by $101.5 million, hardware/home center products
contributing $22.5 million, and the Company's new class of home safety and
security products recording revenues of $17.4 million. Net revenues in the
United States and Canada increased 17.3%, and net revenues from international
markets increased 126.5%.
Recreation products revenues increased $101.5 million or 40.6%.
Excluding the impact of the Camping Gaz and Sierra acquisitions, the effect
of a weaker yen in 1996 as compared to 1995 and the one-time 1995
thermo-electric cooler premium promotion, comparable recreation revenues
increased approximately 11.0%. Strong new product growth was partially offset
by a decrease in camping appliances which were affected by adverse weather in
the spring. Hardware/home center revenues increased 36.8% or $22.5 million.
The increase was driven by continued growth of pressure washers sales and
sales of compressors and new lighting products. Total revenues in the 1996
period also include revenues from home safety and security products
associated with the Seatt business, which was acquired in January 1996.
Cost of sales was $315.1 million in 1996 compared with $211.7 million in
1995, an increase of 48.8%. Cost of sales as a percent of net revenues
increased to 69.6% in 1996 from 68.0% in 1995. Gross margins as a percent of
sales decreased to 30.4% in 1996 from 32.0% in 1995. Significantly higher
sales of pressure washers at reduced gross margins and lower sales of high
margin camping appliances primarily contributed to the decrease. Electric
pressure washer gross margins were significantly below 1995 as the Company
continued to experience declining sales prices. The Company does not plan to
participate in the opening price point electric pressure washer business in
1997.
Selling, general and administrative ("SG&A") expenses were $78.9 million
in 1996 compared to $45.8 million in 1995, an increase of 72.2%. The
increase in SG&A expenses primarily reflects SG&A expenses associated with
recent business acquisitions and to a lesser extent increased advertising and
marketing expenses.
The Company's interest expense was $10.7 million in 1996 compared with
$6.4 million in 1995, an increase of $4.3 million. This increase was
primarily the result of higher borrowings to fund business acquisitions and
to support the increased working capital. On an unconsolidated basis,
Coleman Worldwide had an additional $3.0 million of interest expense in 1996
compared with $2.8 million in 1995, an increase of $0.2 million. This
increase is a result of the effects of compounding interest related to the
LYONs. In addition, Coleman Holdings, on an unconsolidated basis, had $6.0
million of interest expense in 1996 compared with $5.4 million in 1995, an
increase of $0.6 million. This increase is a result of the effects of
compounding interest related to the Discount Notes.
The Company's effective income tax rate was 32.4% in 1996 compared with
39.3% in 1995. Coleman Holdings' consolidated effective income tax rate was
31.2% in 1996 compared with 40.0% in 1995. In each case, the decrease in the
effective tax rate in 1996 as compared to 1995 is primarily due to tax
benefits associated with
9
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COLEMAN HOLDINGS INC. AND SUBSIDIARIES
the Company's manufacturing operations in Puerto Rico along with lower taxes
on foreign operations, primarily in France. The 1996 effective tax rate also
includes recognition of tax benefits associated with certain foreign net
operating loss carryforwards that had not been previously recognized.
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
The Company obtained control of approximately 70% of Camping Gaz in
March 1996. Accordingly, the minority interest in the earnings of Camping
Gaz for the 1996 period represents the minority shareholders' approximate 30%
proportionate share of the results of operations of Camping Gaz.
Minority interest in the earnings of Coleman represents the minority
shareholders' proportionate share of the results of operations of Coleman,
which is reflected on Coleman Holdings' consolidated financial statements
because of Coleman Holdings' approximate 83% ownership of Coleman's common
stock.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED
JUNE 30, 1995
Net revenues in the 1996 and 1995 periods were $726.2 million and $535.3
million, respectively, an increase of $190.9 million, or 35.7%. All classes
of the Company's products contributed to this increase with recreation
products increasing by $116.7 million, hardware/home center products
contributing $38.9 million, and the Company's new class of home safety and
security products recording revenues of $35.3 million. Net revenues in the
United States and Canada increased 20.4%, and net revenues from international
markets increased 80.6%.
Recreation products revenues increased $116.7 million or 27.7%.
Excluding the impact of the Camping Gaz and Sierra acquisitions, the effect
of a weaker yen in 1996 as compared to 1995 and the one-time 1995
thermo-electric cooler premium promotion, comparable recreation revenues
increased approximately 11.2%. Strong new product growth was partially offset
by a decrease in camping appliances which were affected by adverse weather in
the spring. Hardware/home center revenues increased 34.2% or $38.9 million.
The increase was driven by strong generator sales in the winter and early
spring, pressure washer growth and new products. Total revenues in the 1996
period also include revenues from home safety and security products
associated with the Seatt business, which was acquired in January 1996.
Cost of sales was $507.7 million in 1996 compared with $367.2 million in
1995, an increase of 38.3%. Cost of sales as a percent of net revenues
increased to 69.9% in 1996 from 68.6% in 1995. Gross margins as a percent of
sales decreased to 30.1% in 1996 from 31.4% in 1995. Significantly higher
sales of pressure washers at reduced gross margins and lower sales of high
margin camping appliances primarily contributed to the decrease. Electric
pressure washer gross margins were significantly below 1995 as the Company
continued to experience declining sales prices. The Company does not plan to
participate in the opening price point electric pressure washer business in
1997.
SG&A expenses were $125.7 million in 1996 compared to $85.4 million in
1995, an increase of 47.1%. The increase in SG&A expenses primarily reflects
SG&A expenses associated with recent business acquisitions and to a lesser
extent increased advertising and marketing expenses.
The Company's interest expense was $18.8 million in 1996 compared with
$12.0 million in 1995, an increase of $6.8 million. This increase was
primarily the result of higher borrowings to fund business acquisitions and
support the increased working capital. On an unconsolidated basis, Coleman
Worldwide had an additional $5.9 million of interest expense in 1996 compared
with $5.6 million in 1995, an increase of $0.3 million. This increase is a
result of the effects of compounding interest related to the LYONs. In
addition, Coleman Holdings,
10
<PAGE>
COLEMAN HOLDINGS INC. AND SUBSIDIARIES
on an unconsolidated basis, had $11.9 million of interest expense in 1996
compared with $10.7 million in 1995, an increase of $1.2 million. This
increase is a result of the effects of compounding interest related to the
Discount Notes.
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
that Coleman Worldwide owned to the holders of the LYONs which were
exchanged. Coleman Worldwide recognized a gain of $2.7 million in connection
with these exchanges and 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.
The Company's effective income tax rate was 34.0% in 1996 compared with
39.0% in 1995. Coleman Holdings' consolidated effective income tax rate was
33.4% in 1996 compared with 39.8% in 1995. In each case, the decrease in the
effective tax rate in 1996 as compared to 1995 is primarily due to tax
benefits associated with the Company's manufacturing operations in Puerto
Rico along with lower taxes on foreign operations, primarily in France.
The 1996 effective tax rate also includes recognition of tax benefits
associated with certain foreign net operating loss carryforwards that had not
been previously recognized.
The Company obtained control of approximately 70% of Camping Gaz in
March 1996. Accordingly, the minority interest in the earnings of Camping
Gaz for the 1996 period represents the minority shareholders approximate 30%
proportionate share of the results of operations of Camping Gaz.
Minority interest in the earnings of Coleman represents the minority
stockholders' proportionate share of the results of operations of Coleman,
which is reflected on Coleman Holdings' consolidated financial statements
because of Coleman Holdings' approximate 83% ownership of Coleman's common
stock.
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
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in Coleman Holdings' consolidated operations were $42.2
million during the six months ended June 30, 1996; where as, Coleman
Holdings' consolidated operations provided cash flows of $3.5 million for the
six months ended June 30, 1995. Cash used during the 1996 period reflects
the Company's seasonal working capital requirements associated with generally
higher sales in the first half of the year as compared to the second half of
the year. Receivables increased by $142.0 million and $85.2 million for the
six months ended June 30, 1996 and 1995, respectively, as a result of the
seasonality of the Company's sales and an increase in the overall level of
the Company's sales. Inventories increased by $14.3 million and $8.5 million
in the six months ended June 30, 1996 and 1995, respectively, to support the
growth of the Company, especially in new products. Coleman Holdings'
consolidated net cash used for investing activities was $180.7 million and
$18.0 million for the six months ended June 30, 1996 and 1995, respectively.
The Company's capital expenditures were $18.8 million and $10.7 million in
the six months ended June 30, 1996 and 1995, respectively. The increase in
capital expenditures reflects the addition of equipment to expand the
Company's capacity to manufacture certain of its product lines. The Company
used $158.2 million and $1.4 million of cash for business acquisitions during
the six months ended June 30, 1996 and 1995, respectively. Coleman Worldwide
also had net advances to Mafco
11
<PAGE>
COLEMAN HOLDINGS INC. AND SUBSIDIARIES
Holdings Inc. under the Coleman Worldwide tax sharing agreement and the terms
of the LYONs trust indenture in the amounts of $4.1 million and $6.7 million
during the six months ended June 30, 1996 and 1995, respectively. Net cash
provided by financing activities for the six months ended June 30, 1996
consisted primarily of increases in long-term and short-term borrowings to
finance the seasonal increase in working capital and the Company's investing
activities. The Company also paid $2.3 million to acquire 200,000 shares of
its Common Stock and $4.1 million to acquire 440,000 shares of its Common
Stock in the open market during the six months ended June 30, 1996 and 1995,
respectively.
The Company's working capital requirements are currently funded by cash
flow from operations and domestic and foreign bank lines of credit. In April
1996, the Company amended its credit agreement to allow for the Camping Gaz
acquisition as well as to extend the maturity of the credit agreement (the
"Company Credit Agreement"). The Company Credit Agreement provides a term
loan of French Franc 385,125 ($75.0 million at the then current exchange
rates) and a revolving credit facility in an amount of $275.0 million.
Availability under the Company Credit Agreement is reduced by any commercial
paper borrowings outstanding. The Company Credit Agreement is available to
the Company until April 30, 2001. At June 30, 1996, $156.8 million would
have been 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 1.1% 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 and the margin will be 1.0% in the case of
U.S. Dollar denominated LIBOR loans and 1.1% for foreign currency denominated
LIBOR loans. 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 and levels of consolidated net worth and certain other
provisions limiting the incurrence of additional debt, purchase or redemption
of Coleman Common Stock, issuance of Coleman Preferred Stock, and the payment
of dividends. Under the most restrictive of these covenants of the Company
Credit Agreement, approximately $83.6 million would have been available for
payment by the Company of cash dividends at June 30, 1996.
On February 28, 1996, the Company and Butagaz S.N.C. ("Butagaz"), a
subsidiary of Societe de Petroles Shell S.A., jointly announced they had
entered into an agreement (the "Share Purchase Agreement") in connection with
the sale to Coleman of approximately 60 percent of the outstanding shares of
Application des Gaz, S.A. ("ADG" or "Camping Gaz"). Pursuant to the terms of
the Share Purchase Agreement and other related documents dated February 27,
1996, Coleman has the right to, and intends to during the third quarter of
1996, acquire the remaining shares held by Butagaz, which represents
approximately 10% of the outstanding shares of ADG, and accordingly considers
this 10% stock ownership as under the control of the Company. The Company
obtained effective control of Camping Gaz on March 1, 1996. Camping Gaz is
the leading manufacturer and distributor of camping appliances in Europe. On
June 24, 1996, the Company commenced a tender offer for the purchase of all
the publicly traded outstanding shares of ADG, or approximately 30% of the
outstanding shares, for French Franc 404 per share. The tender offer period
expired in July 1996 with approximately 28% of the outstanding shares of ADG
tendered for purchase. The Company is currently completing the necessary
steps to acquire the remaining publicly held stock and expects to complete
those actions during the third quarter of 1996.
Coleman is financing the acquisition of the shares of ADG with net
proceeds from (i) a private placement issuance and sale of $85.0 million
aggregate principal amount of 7.10% Senior Notes, Series A, due 2006 (the
"Notes due 2006") and (ii) a private placement issuance and sale of $75.0
million aggregate principal amount
12
<PAGE>
COLEMAN HOLDINGS INC. AND SUBSIDIARIES
of 7.25% Senior Notes, Series B, due 2008 (the "Notes due 2008"). The Notes
due 2006 bear interest at the rate of 7.10% per annum payable semiannually,
and the principal amount is payable in annual installments of $12.1 million
commencing June 13, 2000 with a final payment due on June 13, 2006. If there
is a default, the interest rate will be the greater of (i) 9.10% or (ii) 2%
above the prime interest rate. The Notes due 2008 bear interest at the rate
of 7.25% per annum payable semiannually, and the principal amount is payable
in annual installments of $15.0 million commencing June 13, 2004 with a final
payment due on June 13, 2008. If there is a default, the interest rate will
be the greater of (i) 9.25% or (ii) 2% above the prime interest rate. The
Notes due 2006 and the Notes due 2008 are unsecured and are subject to
various restrictive covenants, including without limitation, requirements for
the maintenance of specified financial ratios and levels of consolidated net
worth and certain other provisions limiting the incurrence of additional debt
and sale and leaseback transactions under the terms of the Note Purchase
Agreement.
Camping Gaz has a significant presence in the market for camping
equipment in Europe and has recently pursued its development internationally.
The Company is currently in the process of reviewing its integration
alternatives with respect to the combination of the business operations of
Coleman and Camping Gaz. The conclusions of the review could result in a
charge against earnings in 1996.
The Company's parent (Coleman Worldwide Corporation) and its parent
(Coleman Holdings Inc.) have entered into borrowing agreements which are
collateralized by the Company's common stock.
The Company expects that the combination of the cash flow generated by
its operations and borrowings under the Company Credit Agreement will be
sufficient to enable it to meet its current operating requirements, including
projected capital expenditures, tax sharing payments and other obligations.
The Company uses a variety of derivative financial instruments to manage
its foreign currency and interest rate exposures. The Company does not
speculate on interest rates or foreign currency rates. Instead it uses
derivatives when implementing its risk management strategies to reduce the
possible effects of these exposures.
With respect to foreign currency exposures the Company principally uses
forward and option contracts to reduce risks arising from firm commitments,
anticipated intercompany sales transactions and intercompany receivable and
payable balances. The Company generally uses interest rate swaps and
interest rate caps to fix certain of its variable rate debt. The Company
manages credit risk related to these derivative contracts through credit
approvals, exposure limits and other monitoring procedures.
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 Coleman Common Stock 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 flows 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 may limit its ability to pay dividends or make other
payments to Coleman Worldwide. 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%, and the Indenture does not
require Coleman Worldwide to own more than a majority of the Coleman Common
Stock. Pursuant to the LYONs indenture agreement, at any time that the LYONs
are outstanding, the amounts that Coleman Worldwide would be required to pay
to Mafco under the Worldwide Tax Sharing
13
<PAGE>
COLEMAN HOLDINGS INC. AND SUBSIDIARIES
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 $54.8 million at June 30, 1996.
Coleman Worldwide currently anticipates that in order to pay the
principal amount at maturity of the LYONs, to redeem the LYONs or to
repurchase the LYONs for cash, including upon a Purchase Date (as defined) or
upon the occurrence of any Additional Purchase Right Event (as defined),
Coleman Worldwide will be required to adopt one or more alternatives, such as
seeking capital contributions or loans from its direct and indirect parent
companies, refinancing its indebtedness or disposing of Coleman Common Stock
owned by Coleman Worldwide (which disposition could result in tax sharing
payments ceasing to be available to Coleman Worldwide). None of the
affiliates of Coleman Worldwide will be required to make any capital
contributions or other payments to Coleman Worldwide with respect to Coleman
Worldwide's obligations on the LYONs, nor has any affiliate of Coleman
Worldwide or any other person guaranteed the obligations of Coleman Worldwide
with respect to the LYONs. There can be no assurance that any of the
foregoing actions could be effected on satisfactory terms, that they would be
sufficient to enable Coleman Worldwide to make any payments in respect of the
LYONs when required or that any of such actions would be permitted by the
terms of the Indenture or, with respect to sales of Coleman Common Stock, the
debt instruments of the Company then in effect.
Coleman Holdings 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 Discount Notes and any other obligations is contingent upon
distributions from Coleman Worldwide, capital contributions or loans from its
direct and indirect parent companies and other borrowings. As the indirect
holder through Coleman Worldwide of approximately 83% of the capital stock of
the Company, Coleman Holdings has the ability to cause the Company and
Coleman Worldwide to make distributions up to the maximum amount permitted by
law, subject to limitations in the debt instruments of the Company and
Coleman Worldwide. However, Coleman Holdings 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 Holdings
will not receive any distributions from the Company or Coleman Worldwide.
Furthermore, the terms of Coleman's Credit Agreement may limit its ability to
pay dividends or make other payments to Coleman Worldwide and Coleman
Holdings, and the LYONs Indenture restricts Coleman Worldwide's ability to
pay dividends and make other payments to Coleman Holdings. Although Coleman
Worldwide may receive payments from the Company pursuant to the Company tax
sharing agreement, Coleman Worldwide will not distribute such payments to
Coleman Holdings. In addition, the LYONs Indenture requires that any such
payments received from the Company be paid to Mafco Holdings Inc. or retained
by Coleman Worldwide (except under certain limited circumstances which are
unlikely to occur prior to the maturity of the Discount Notes).
Coleman Holdings currently anticipates that in order to pay the
principal amount at maturity of the Discount Notes, to redeem the Discount
Notes or to repurchase the Discount Notes upon the occurrence of a change of
control, Coleman Holdings will be required to adopt one or more alternatives,
such as seeking capital contributions or loans from its direct and indirect
parent companies or refinancing its indebtedness. None of the affiliates of
Coleman Holdings will be required to make any capital contributions or other
payments to Coleman Holdings with respect to Coleman Holdings's obligations
on the Discount Notes, and, except for the non-recourse guaranty of Coleman
Worldwide, the obligations of Coleman Holdings with respect to the Discount
Notes will not be guaranteed by any affiliate of Coleman Holdings or any
other person. There can be no assurance that any of the foregoing actions
could be effected on satisfactory terms, that they would be sufficient to
enable Coleman Holdings to make any payments in respect of the Discount Notes
when required or that any of such actions would be permitted by the terms of
the Discount Notes trust indenture (the "Discount Notes Indenture"), the
LYONs
14
<PAGE>
COLEMAN HOLDINGS INC. AND SUBSIDIARIES
Indenture or the debt instruments of the Company or Coleman Worldwide then in
effect. Moreover, the events that constitute a change of control under the
Discount Notes Indenture may also constitute events of default or repurchase
right events under certain debt instruments of Coleman Holdings'
subsidiaries. Such events may permit the lenders under such debt instruments
to accelerate the debt (or, in the case of LYONs, to require Coleman
Worldwide to repurchase LYONs) and, if the debt is not paid or repurchased,
to enforce their security interest in substantially all the assets of Coleman
Holdings' subsidiaries. Any such enforcement may limit Coleman Holdings'
ability to raise cash to purchase the Discount Notes and may have a material
adverse effect on the market price of Coleman Common Stock and on the price
that could be obtained for the Coleman Worldwide capital stock and thus on
the ability of the Discount Notes trustee to realize value through sales of
the collateral.
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.
15
<PAGE>
COLEMAN HOLDINGS 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
------------- -----------
10.1* Employment Agreement dated as of May 1, 1996 between the
Company and Frederik van den Bergh; (incorporated by
reference to Exhibit 10.1 to The Coleman Company Inc.'s Form
10-Q for the period ended June 30, 1996 (the "Company's June
30, 1996 Form 10-Q")).
10.2* Employment Agreement dated as of August 1, 1996 between the
Company and Steven F. Kaplan; (incorporated by reference to
Exhibit 10.2 to the Company's June 30, 1996 Form 10-Q).
10.3* Addendum dated August 3, 1996 and effective August 1, 1996
to Employment Agreement dated as of August 1, 1996 between
the Company and Steven F. Kaplan; (incorporated by
reference to Exhibit 10.3 to the Company's June 30, 1996
Form 10-Q).
10.4* First Amendment dated July 1, 1996 to Employment Agreement
effective January 1, 1996 between the Company and Michael
N. Hammes; (incorporated by reference to Exhibit 10.4 to the
Company's June 30, 1996 Form 10-Q).
10.5* First Amendment dated July 1, 1996 to the Consolidated
Supplemental Retirement Plan adopted January 1, 1996;
(incorporated by reference to Exhibit 10.5 to the Company's
June 30, 1996 Form 10-Q).
27 Financial Data Schedule.
----------------
* Management Contracts and Compensatory Plans
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 14, 1996 to provide
information regarding the two-for-one stock split authorized by the Board
of Directors of Coleman on May 31, 1996.
A report on Form 8-K was filed on July 1, 1996 to disclose certain
information with regard to the Coleman's acquisition of Application des Gaz,
S.A.
16
<PAGE>
COLEMAN HOLDINGS 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.
COLEMAN HOLDING INC.
(Registrant)
Date: August 13, 1996 By: /s/ George Mileusnic
--------------- -------------------------------------------------
George Mileusnic
Executive Vice President and Chief Financial Officer
17
<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, 1996 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,364
<SECURITIES> 0
<RECEIVABLES> 374,739
<ALLOWANCES> 4,575
<INVENTORY> 291,995
<CURRENT-ASSETS> 714,729
<PP&E> 290,104
<DEPRECIATION> 77,847
<TOTAL-ASSETS> 1,352,736
<CURRENT-LIABILITIES> 310,011
<BONDS> 956,882
0
0
<COMMON> 1
<OTHER-SE> (93,065)
<TOTAL-LIABILITY-AND-EQUITY> 1,352,736
<SALES> 724,333
<TOTAL-REVENUES> 726,214
<CGS> 507,710
<TOTAL-COSTS> 507,710
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,906
<INTEREST-EXPENSE> 36,606
<INCOME-PRETAX> 52,095
<INCOME-TAX> 17,390
<INCOME-CONTINUING> 25,517
<DISCONTINUED> 0
<EXTRAORDINARY> (1,239)
<CHANGES> 0
<NET-INCOME> 24,278
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
