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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-13947
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RELTEC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3227019
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
5900 Landerbrook Drive, Suite 300
Cleveland, Ohio 44124-4019
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (440) 460-3600
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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
requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding as of October 30, 1998
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Common stock, par value 56,367,943
$0.01 per share
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RELTEC CORPORATION
INDEX TO FORM 10-Q
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PAGE
NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . . . . 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk . . . . . 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . 18
ITEM 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . 18
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . 18
ITEM 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RELTEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
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September 30, December 31,
(Dollars in millions, except share data) 1998 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 40.8 $ 11.9
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . 169.2 141.4
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 130.0 94.7
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 26.9 26.7
Other current assets. . . . . . . . . . . . . . . . . . . . . . . 14.4 18.4
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Total current assets . . . . . . . . . . . . . . . . . . . . 381.3 293.1
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 137.9 111.4
Goodwill and intangible assets, net. . . . . . . . . . . . . . . . . . 498.2 384.0
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . 30.4 16.1
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Total assets . . . . . . . . . . . . . . . . . . . . . . . . $1,047.8 $804.6
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of debt. . . . . . . . . . . . . . . . . . . . $ 30.6 $ 20.9
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . 101.5 78.8
Other current liabilities . . . . . . . . . . . . . . . . . . . . 74.8 66.2
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Total current liabilities. . . . . . . . . . . . . . . . . . 206.9 165.9
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307.5 250.3
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . 50.9 40.5
Preferred stock, $.01 par value; 1,000 shares of Series A redeemable
preferred stock issued and outstanding with $1,000 per share
redemption value at September 30, 1998 and December 31, 1997,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 1.0
Redeemable common stock, $.01 par value; 295,104 shares issued and
outstanding at December 31, 1997. . . . . . . . . . . . . . . . . - 3.4
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 56,367,943 shares and 49,743,504
shares issued and outstanding at September 30, 1998 and
December 31, 1997, respectively. . . . . . . . . . . . . . . 0.6 0.5
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . 525.5 341.2
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (47.6) (3.7)
Currency translation adjustment . . . . . . . . . . . . . . . . . 3.0 5.5
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Total stockholders' equity . . . . . . . . . . . . . . . . . 481.5 343.5
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Total liabilities and stockholders' equity . . . . . . . . . $1,047.8 $804.6
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
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RELTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions, except share data) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 251.4 $ 224.7 $ 769.6 $ 637.4
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179.4 155.4 540.2 452.3
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Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . 72.0 69.3 229.4 185.1
Operating expenses:
Research and product engineering. . . . . . . . . . . . . . . . . 18.4 13.6 52.1 40.3
Selling and administrative. . . . . . . . . . . . . . . . . . . . 31.1 22.2 94.1 61.9
Goodwill and intangible amortization. . . . . . . . . . . . . . . 8.6 7.9 25.2 23.7
Write-off of acquired in-process research and development . . . . 58.4 0.7 58.4 0.7
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 0.4 10.7 0.8
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Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . 125.3 44.8 240.5 127.4
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Operating income (loss). . . . . . . . . . . . . . . . . . . . . . . . (53.3) 24.5 (11.1) 57.7
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 4.5 9.1 14.2
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Income (loss) before income taxes. . . . . . . . . . . . . . . . . . . (56.0) 20.0 (20.2) 43.5
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 9.9 23.6 23.1
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Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $ (60.9) $ 10.1 $ (43.8) $ 20.4
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EARNINGS (LOSS) PER COMMON SHARE DATA (NOTE 2):
Basic net income (loss) per common share . . . . . . . . . . . . . . . $ (1.08) $ 0.20 $ (0.80) $ 0.42
Weighted average shares outstanding. . . . . . . . . . . . . . . . . . 56.4 49.9 54.7 48.5
Diluted net income (loss) per common share . . . . . . . . . . . . . . $ (1.08) $ 0.20 $ (0.80) $ 0.41
Weighted average shares and options outstanding. . . . . . . . . . . . 56.4 50.7 54.7 49.3
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
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RELTEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Ended
September 30,
(Dollars in millions) 1998 1997
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OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (43.8) $ 20.4
Adjustments to net income (loss) to arrive at net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 41.4 39.0
Write-off of acquired in-process research and development and
inventory acquisition step-up charges. . . . . . . . . . . . . . . . . 59.6 0.7
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (3.7) (7.4)
Changes in operating assets and liabilities excluding the effect of
acquisitions:
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . (20.7) (13.2)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23.2) (15.8)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0 (2.0)
Receivable from seller. . . . . . . . . . . . . . . . . . . . . . . . . . - 5.0
License termination . . . . . . . . . . . . . . . . . . . . . . . . . . . - (11.0)
Other assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . 1.9 10.7
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Net cash provided by operating activities. . . . . . . . . . . . . . . 20.5 26.4
INVESTING ACTIVITIES:
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . (29.2) (15.9)
Investment in new business systems . . . . . . . . . . . . . . . . . . . . (12.4) (5.6)
Acquisition of Positron Fiber Systems, net of $18.6 million cash acquired (174.1) -
Other acquisitions and investments, net of cash acquired . . . . . . . . . (13.2) (9.9)
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Net cash used for investing activities. . . . . . . . . . . . . . . . . (228.9) (31.4)
FINANCING ACTIVITIES:
New Credit Facility borrowings (repayments). . . . . . . . . . . . . . . . 43.6 (57.2)
Money Market lines of credit and other debt net borrowings . . . . . . . . 23.2 22.3
Net proceeds from initial public stock offering. . . . . . . . . . . . . . 170.3 -
Other issuances of common stock, net . . . . . . . . . . . . . . . . . . . 0.2 50.4
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Net cash provided by financing activities . . . . . . . . . . . . . . . 237.3 15.5
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . 28.9 10.5
Cash and cash equivalents, beginning of period. . . . . . . . . . . . . . . . . 11.9 8.7
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Cash and cash equivalents, end of period. . . . . . . . . . . . . . . . . . . . $ 40.8 $ 19.2
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
5
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RELTEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of RELTEC Corporation include
the accounts of RELTEC Corporation and its subsidiaries ("RELTEC" or the
"Company"). The condensed consolidated financial statements are unaudited,
but in the opinion of management contain all adjustments, which are of a
normal recurring nature, necessary to present fairly the Company's financial
position, results of operations and cash flows. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to rules and regulations promulgated by the Securities
and Exchange Commission. The Company believes that the disclosures contained
herein are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1997 which
have been set forth in the Company's Registration Statement on Form S-1, File
No. 333-44277 filed by the Company with the Securities and Exchange
Commission. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
2. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed using the weighted average
number of common shares outstanding during the year; diluted earnings (loss)
per common share is computed after consideration of the dilutive effect of
stock options.
The following table reconciles net income (loss) available for common
shareholders and the weighted average shares outstanding for basic and
diluted earnings (loss) per common share for the periods presented:
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
September 30, September 30,
(In millions, except per share data) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . $(60.9) $10.1 $(43.8) $20.4
Less: preferred stock dividends . . . . . . . . . . . . . . . . . . . - - 0.1 0.1
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Net income (loss) available to common shareholders . . . . . . . . . . $(60.9) $10.1 $(43.9) $20.3
Basic earnings (loss) per common share:
Weighted average common shares outstanding . . . . . . . . . . . . . . 56.4 49.9 54.7 48.5
Basic earnings (loss) per common share . . . . . . . . . . . . . . . . $(1.08) $0.20 $(0.80) $0.42
Diluted earnings (loss) per common share:
Weighted average common shares outstanding . . . . . . . . . . . . . . 56.4 49.9 54.7 48.5
Add: effect of dilutive options . . . . . . . . . . . . . . . . . . . - 0.8 - 0.8
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56.4 50.7 54.7 49.3
Diluted earnings (loss) per common share . . . . . . . . . . . . . . . $(1.08) $0.20 $(0.80) $0.41
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</TABLE>
3. ACQUISITIONS
The Company's acquisitions have been accounted for using the purchase method of
accounting. Accordingly, for financial reporting purposes, a preliminary
allocation of the purchase price has been made using estimated fair market
values of the assets acquired and the liabilities assumed as of each acquisition
date in accordance with Accounting Principles Board Opinion No. 16 - "Business
Combinations". These preliminary allocations may be adjusted as the fair market
values are finalized. The results of these acquisitions have been included in
the accompanying condensed consolidated financial statements since the
respective dates of acquisition.
6
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POSITRON FIBER SYSTEMS
In September 1998, the Company acquired substantially all of the outstanding
shares of Positron Fiber Systems Corporation ("PFS") for $203.2 million (the
"PFS Acquisition"). Based in Montreal, Quebec, Canada, PFS is a manufacturer
of an advanced line of multiplexer products and provides network element
management capabilities. PFS' products complement the Company's next
generation digital loop carrier platform, creates a family of broadband access
platforms for delivering multimedia services and advances the Company's position
in the multi-billion dollar SONET/SDH broadband access delivery market.
The PFS Acquisition was consummated with $192.7 million in cash from the
Company's existing credit facility and approximately $10.5 million of RELTEC
stock options were exchanged for PFS stock options. The preliminary
independent appraisal of acquired assets resulted in $188.2 million being
assigned to intangible assets. Of this amount, $58.4 million was assigned to
in-process research and development, $46.5 million to developed technology,
assembled workforce, sales channels and customer relationships and $83.3
million to goodwill. The in-process research and development costs were
written-off as a one-time non-tax deductible charge. The Company believes
that the write-off of such costs is appropriate because there is no
alternative future use for these in-process research and development
projects. The remaining intangible assets are being amortized over periods
ranging from five to 25 years. In addition, $5.0 million of the purchase
price was allocated to inventory acquisition step-up. This amount is being
expensed through cost of sales as the acquired inventory is sold.
EVERGOOD TELECOM ENCLOSURES
In September 1998, the Company acquired certain assets of Evergood Telecom
Enclosures ("Evergood"), a wholly-owned subsidiary of the Walker Group, Inc,
for $13.2 million in cash. Based in Welcome, North Carolina, Evergood
designs and manufactures power transfer devices and custom enclosures used in
wireline and wireless telecommunications applications. The preliminary
purchase allocation resulted in $2.7 million being assigned to goodwill, which
is deductible for tax purposes. This amount is being amortized over 25 years.
4. INVENTORIES
Inventories are valued at the lower of cost or market and are stated on a
first-in, first-out (FIFO) cost basis. Inventories consisted of the
following:
<TABLE>
<CAPTION>
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September 30, December 31,
(Dollars in millions) 1998 1997
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Raw materials . . . . . . . . . . . . . . . . . $ 70.0 $ 58.4
Work in process . . . . . . . . . . . . . . . . 21.8 18.8
Finished goods. . . . . . . . . . . . . . . . . 38.2 17.5
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Total $ 130.0 $ 94.7
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</TABLE>
5. DEBT
In August 1998, the Company amended its credit facility. As a result, among
other things, a new borrowing tranche was created within the existing credit
facility and the maturity date of the new tranche is December 31, 2003.
In September 1998, the Company entered into an interest rate swap and an
interest rate collar agreement to reduce its variable interest rate exposure
on borrowings under the credit facility. The interest rate swap fixes the
interest rate at 5.10% on a notional amount of $100.0 million until September
2001. The interest rate collar has a capped interest rate of 6.75% and a
floor of 3.95% on a notional amount of $100.0 million until September 2001.
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6. COMMON STOCK AND STOCK OPTIONS
RELTEC completed an initial public offering of 6.3 million shares of common
stock on March 18, 1998. The Company used the net proceeds of $170.3 million
to reduce its aggregate outstanding debt and for general corporate purposes.
Prior to the initial public offering, the Company increased its authorized
shares of common stock to 150,000,000 shares and increased its authorized
shares of preferred stock to 20,000,000 shares.
In connection with the initial public offering, shares of common stock
previously classified as redeemable common stock have been reclassified to
stockholders' equity, as the right to put such shares to the Company by the
holder has been canceled. These shares were subject to a put agreement at
December 31, 1997.
Pursuant to the 1998 Equity Participation Plan, in August 1998, the Company
granted approximately 890,000 options to purchase shares of RELTEC common
stock at a strike price of $30.75 per share, which was equal to the fair
market of RELTEC common stock at the date of issuance. These options vest
proratably over a five-year period.
7. COMPREHENSIVE INCOME (LOSS)
In June 1997 the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130"). SFAS 130 discusses how to report and display
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of
net income. The following table reconciles the Company's net income (loss)
to comprehensive income (loss) for the periods presented:
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . $ (60.9) $ 10.1 $ (43.8) $ 20.4
Other comprehensive income
Currency translation adjustments. . . . . (2.4) (1.7) (2.5) (4.1)
- -------------------------------------------------------------------------------------------------------
Comprehensive income (loss) . . . . . . . . . $ (63.3) $ 8.4 $ (46.3) $ 16.3
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</TABLE>
8. RESTRUCTURING CHARGES
In July 1998, the Company initiated plans to restructure its European
operations by closing its St. Helens, U.K. manufacturing facility and
reducing the workforce in its Coventry, U.K. facility. As a result of this
restructuring, the Company recorded a one-time pre-tax charge of $4.3
million. This amount consisted of $1.2 million of non-cash charges related
to asset valuation write-downs and $3.1 million of cash expenditures for the
termination of approximately 225 employees. These costs are expected to be
paid during the fourth quarter of 1998 and have been accrued and classified
as other expense in the Condensed Consolidated Statements of Operations.
Additional costs to complete this restructuring, if any, are not expected to
be significant. At September 30, 1998, no costs have been charged against
this accrual.
In September 1998, the Company recorded a special pre-tax charge of $3.2
million related to an incentive severance program for certain employees in
North America. The $3.2 million charge consists of severance and employee
benefit costs for the termination of approximately 80 employees. These costs
are expected to be paid during the fourth quarter of 1998 and have been
accrued and classified as other expense in the Condensed Consolidated
Statements of Operations. Additional costs to complete
8
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this severance program, if any, are not expected to be significant. No costs
have been charged against this accrual at September 30, 1998.
9. JOINT VENTURES
In July 1998, SPLICE do Brasil Telecommunicacoes e Eletronica S.A. ("SPLICE")
and the Company agreed to establish RELTEC Sistemas de Energia Ltda.
("RSEL"), a new commercial joint venture based in Sao Paulo, Brazil. This
newly formed company will market and support power products and systems for
the telecommunications markets in Brazil and other Latin American countries.
The joint venture combines RELTEC's power products and power system
configurations technology with SPLICE's manufacturing capabilities and
knowledge of the Brazilian telecommunications markets. RSEL will be 50%
owned by each party.
In February 1998, the Company agreed to establish a new commercial joint
venture based in Skive, Denmark. This joint venture between the Company and
A/S Dantherm will be 50% owned by each party. The purpose of the joint
venture is to design, manufacture and sell advanced heat management systems
to the worldwide telecommunications market. Each party will contribute
certain assets, including existing technology and customer accounts to the
joint venture in exchange for their respective interests.
10. COMMITMENTS AND CONTINGENCIES
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company relating to the conduct of its business,
including those pertaining to environmental, safety and health, employment
and contract matters. Although the outcome of litigation cannot be predicted
with certainty and some lawsuits, claims or proceedings may be disposed of
unfavorably to the Company, management believes the disposition of matters
which are pending or asserted will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash
flows.
11. SUBSEQUENT EVENT
In October 1998, the Company completed its acquisition of Italtel
Tecnomeccanica S.p.A. ("Tecnomeccanica"), a wholly-owned subsidiary of
Italtel S.p.A., itself a jointly-owned subsidiary of Siemens AG and Telecom
Italia S.p.A. Tecnomeccanica manufactures switching frames for central
offices, indoor wireless base station cabinets and power generator cabinets.
9
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE STATEMENTS CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS ARE TO BE
CONSIDERED FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
INVOLVE MANY RISKS AND UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO, RAPID
TECHNOLOGICAL CHANGE, THE IMPORTANCE OF DEVELOPING AND SUCCESSFULLY MARKETING
NEW PRODUCTS, UNCERTAIN MARKETS FOR THE COMPANY'S SYSTEMS AND PRODUCTS,
UNPREDICTABLE SALES CYCLES, COMPETITION, A CHANGING REGULATORY ENVIRONMENT,
CUSTOMER CONCENTRATION, RISKS ASSOCIATED WITH ACQUISITIONS AND INTERNATIONAL
OPERATIONS AND NUMEROUS OTHER RISKS WHICH HAVE BEEN SET FORTH IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM S-1, FILE NO. 333-44277 FILED BY THE
COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY ADVISES
THE READER OF THESE STATEMENTS THAT ACTUAL RESULTS OR CONDITIONS MAY DIFFER
MATERIALLY FROM THOSE SET FORTH HEREIN.
OVERVIEW
RELTEC Corporation was formed in July 1995 by management and certain
affiliates of Kohlberg Kravis Roberts & Co. L.P. to acquire Reliance Comm/Tec
Corporation from Reliance Electric Company, a subsidiary of Rockwell
International Corporation. RELTEC is a leader in the design, manufacture and
sale of a broad range of telecommunications systems, products and services.
Its Access Systems, Integrated Wireless Solutions and Network Components and
Services are sold to wireline and wireless service providers and OEMs around
the globe. RELTEC operates in North America, Europe, Asia/Pacific and Latin
America and has over 6,200 employees worldwide.
The Company conducts business in a single industry segment, the global
telecommunications equipment market. This segment includes integrated
systems, components and services for voice, video and data communications.
The Company's net sales are divided into three groupings: Access Systems,
Integrated Wireless Solutions and Network Components and Services. The
Company's products are sold directly to end users, such as Regional Bell
Operating Companies ("RBOCs") and other telecommunications service providers,
to telecommunications OEMs and, to a lesser extent, through third party
distributors. For certain products, particularly in Access Systems, the
purchase decision process may be long and unpredictable, and may involve a
protracted standardization and evaluation process.
The Company's operating results may fluctuate significantly from quarter to
quarter due to several factors, including, without limitation, the volume and
timing of orders from and shipments to major customers, the timing of new
product announcements by, and the availability of products from, the Company
or its competitors, the overall level of capital expenditures by public
network providers, market acceptance of new and enhanced versions of the
Company's products, variations in the mix of products, systems and services
sold by the Company or its sales channels and the availability and cost of
key components.
RESULTS OF OPERATIONS
NET SALES
The following table sets forth, for the periods indicated, net sales by
product line offerings, expressed in dollar volumes:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three Months Ended
September 30,
Percentage
(Dollars in millions) 1998 1997 Change
- ------------------------------------------- ------------------------- ------------
<S> <C> <C> <C>
Net Sales:
Access Systems . . . . . . . . . . . . . . $ 81.2 $ 77.8 4.4 %
Integrated Wireless Solutions. . . . . . . 44.6 41.5 7.5
Network Components and Services. . . . . . 125.6 105.4 19.2
---------- ----------
Total. . . . . . . . . . . . . . . . . $ 251.4 $ 224.7 11.9 %
- --------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
Percentage
(Dollars in millions) 1998 1997 Change
- ------------------------------------------- ------------------------- ------------
<S> <C> <C> <C>
Net Sales:
Access Systems . . . . . . . . . . . . . . $ 259.1 $ 210.1 23.3 %
Integrated Wireless Solutions. . . . . . . 143.2 138.5 3.4
Network Components and Services. . . . . . 367.3 288.8 27.2
---------- ----------
Total.. . . . . . . . . . . . . . . . $ 769.6 $ 637.4 20.7 %
- --------------------------------------------------------------------------------------------
</TABLE>
Net sales increased $26.7 million, or 11.9%, to $251.4 million for the
quarter ended September 30, 1998 from $224.7 million for the quarter ended
September 30, 1997. Included in the 1998 third quarter results were $19.5
million of net sales contributed by businesses acquired since September 30,
1997.
Net sales increased $132.2 million, or 20.7%, to $769.6 million for the nine
months ended September 30, 1998 from $637.4 million for the nine months ended
September 30, 1997. Included in the results of the first nine months of 1998
were $49.2 million of net sales contributed by businesses acquired in 1998
and 1997.
Excluding the impact of newly acquired businesses, sales for the three months
ended September 30, 1998 increased moderately when compared to sales for the
three months ended September 30, 1997. Threatened and actual labor strikes
at several major U.S. telecommunications carriers disrupted planning and
construction during July and August and several major customers reduced their
capital spending during this period. Secondly, seasonally abnormal weather
in the southern U.S. shifted some major account activity away from
construction and into repair and maintenance of existing lines. Finally, a
capacity shortfall in part of the Network Components business further
contributed to less than anticipated sales figures in the third quarter. The
Company does not believe that these reductions in capital expenditures
represent an industry trend and expects to realize these delayed shipments in
future periods.
For the nine months ended September 30, 1998 compared to the same period in
the prior year, net sales increased primarily from higher sales of Access
Systems and Network Components and Services. The growth of Access Systems
resulted from continued strong demand for the Company's Next Generation
Digital Loop Carrier ("NGDLC") platform including its industry-leading
fiber-to-the-curb technology. Network Components and Services increased over
the same periods in the prior years led by continued strong demand for
engineering and installation services by a broad range of ILEC, CLEC,
wireless and alternative carrier customers.
Integrated Wireless Solutions sales increased slightly over the three month
and nine month comparable periods in the prior year. The wireless market
weakness in Europe was partially offset by period-to-period increases in
North America and Asia/Pacific. The European weakness was due to excess
customer inventories, the delay of awards of new GSM licenses and the
continuing strength of the British pound against other European currencies.
GROSS PROFIT
Gross profit as a percentage of net sales decreased to 28.6% (29.1% excluding
the write-off of inventory acquisition step-up charges) for the quarter ended
June 30, 1998 from 30.8% for the quarter ended September 30, 1997.
Gross profit as a percentage of net sales increased to 29.8% (30.0% excluding
the write-off of inventory acquisition step-up charges) for the nine months
ended September 30, 1998 from 29.0% for the nine months ended September 30,
1997.
The decrease in gross profit percentage for the quarter ended September 30,
1998 compared to the same period in the prior year was largely attributable
to lower than anticipated sales volumes and the impact of a higher mix of
lower margin services. This decrease, offset by benefits associated with
product cost reduction initiatives, process improvements and increased sales
volumes of higher margin products have increased gross profit moderately for
the nine months ended September 30, 1998 as compared with the same period in
the prior year.
11
<PAGE>
RESEARCH AND PRODUCT ENGINEERING
Research and product engineering expense increased $4.8 million, or 35.3%, to
$18.4 million for the quarter ended September 30, 1998 from $13.6 million for
the quarter ended September 30, 1997. Research and product engineering costs
were 7.3% of net sales for the third quarter of 1998 and 6.1% of net sales
for the third quarter of 1997.
Research and product engineering expense increased $11.8 million, or 29.3%,
to $52.1 million for the nine months ended September 30, 1998 from $40.3
million for the nine months ended September 30, 1997. Research and product
engineering costs were 6.8% of net sales for the nine months ended September
30, 1998 and 6.3% of net sales for the nine months ended September 30, 1997.
Approximately one-half of the Company's research and product engineering
expense in these periods was related to Access Systems, reflecting the
Company's continued focus on this product line.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses increased $8.9 million to 12.4% of net
sales for the quarter ended September 30, 1998 compared to 9.9% of net sales
for the quarter ended September 30, 1997.
Selling and administrative expenses increased $32.2 million to 12.2% of net
sales for nine months ended September 30, 1998 compared to 9.7% of net sales
for the nine months ended September 30, 1997.
The increase in selling and administrative expenses was primarily due to
RELTEC's continued organizational investments in Latin America and
Asia/Pacific, higher sales commissions on sales outside of North America and
the costs associated with the implementation of new business systems.
GOODWILL AND INTANGIBLE AMORTIZATION
Goodwill and intangible amortization increased $0.7 million to $8.6 million
for the quarter ended September 30, 1998 from $7.9 million for the same
period in 1997. Goodwill amortization and intangible amortization were $4.6
million and $4.0 million, respectively, for the three months ended September
30, 1998 compared to $4.4 million and $3.5 million, respectively, for the
three months ended September 30, 1997.
Goodwill and intangible amortization increased $1.5 million to $25.2 million
for the nine months ended September 30, 1998 from $23.7 million for the same
period in 1997. Goodwill amortization and intangible amortization were $14.1
million and $11.1 million, respectively, for the nine months ended September
30, 1998 compared to $13.1 million and $10.6 million, respectively, for the
nine months ended September 30, 1997.
This increase is primarily the result of the additional goodwill resulting
from an October 1997 acquisition and the Company's 1998 acquisitions of PFS
and Evergood.
RESTRUCTURE CHARGES
In July 1998, the Company initiated plans to restructure its European
operations by closing its St. Helens, U.K. manufacturing facility and
reducing the workforce in its Coventry, U.K. facility. As a result of this
restructuring, the Company recorded a one-time pre-tax charge of $4.3
million. This amount consisted of $1.2 million of non-cash charges related
to asset valuation write-downs and $3.1 million of cash expenditures for the
termination of approximately 225 employees. These costs are expected to be
paid during the fourth quarter of 1998 and have been accrued and classified
as other expense in the Condensed Consolidated Statements of Operations.
Additional costs to complete this restructuring, if any, are not expected to
be significant.
In September 1998, the Company recorded a special pre-tax charge of $3.2
million related to an incentive severance program for certain employees in
North America. The $3.2 million charge consists of severance and employee
benefit costs for the termination of approximately 80 employees. These costs
are expected to be paid during the fourth quarter of 1998 and have been
accrued and classified as other expense in the Condensed Consolidated
Statements of Operations. Additional costs to complete this severance
program, if any, are not expected to be significant.
12
<PAGE>
INTEREST EXPENSE
Interest expense decreased $1.8 million to $2.7 million for the quarter ended
September 30, 1998 from $4.5 million for the quarter ended September 30,
1997.
Interest expense decreased $5.1 million to $9.1 million for the nine months
ended September 30, 1998 from $14.2 million for the nine months ended
September 30, 1997.
This decrease resulted from lower debt levels due to the application of
proceeds from the Company's March 18, 1998 initial public offering of common
stock. The overall decrease in interest expense in the third quarter of 1998
was partially offset by additional interest expense resulting from borrowings
related to the PFS Acquisition.
NET INCOME (LOSS) AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
After one-time and special charges, the Company had a net loss of $60.9
million for the third quarter of 1998 ($1.08 net loss per diluted common
share) compared with net income of $10.1 million ($0.20 net earnings per
diluted common share) for the same period in 1997.
Net income before one-time and special charges for the third quarter of 1998
was $4.2 million ($0.07 per diluted common share), compared with $10.5
million ($0.21 per diluted common share) for the same period in 1997.
After one-time and special charges, the Company had a net loss of $43.8
million for the nine months ended September 30, 1998 ($0.80 net loss per
diluted common share) compared with net income of $20.4 million ($0.41 net
earnings per diluted common share) for the same period in 1997.
Net income before one-time and special charges for the first nine months of
1998 of $21.3 million ($0.38 per diluted common share), compared with $20.8
million ($0.42 per diluted common share) for the same period in the prior
year.
COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130"). SFAS 130 discusses how to report and display
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is a more inclusive financial
reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of
net income.
Comprehensive income (loss) for the quarter ended September 30, 1998 decreased
to ($63.3) million from $8.4 million for the quarter ended September 30, 1997.
Comprehensive income (loss) for the nine months ended September 30, 1998
decreased to ($46.3) million from $16.3 million for the nine months ended
September 30, 1997.
In addition to items impacting net income (loss) as previously described, the
changes in comprehensive income (loss) for the three months and nine months
ended September 30, 1998 compared the same periods in the prior year are due
to fluctuations in currency translation rates for the Company's non-U.S.
affiliates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity needs are working capital requirements,
capital expenditures and investments such as acquisitions, strategic
investments and joint ventures. The Company's working capital requirements
have grown as the Company has grown. The Company has funded its liquidity
requirements principally from cash flows from operations, borrowings under
its credit facilities, issuances of its common stock and to a lesser extent,
from capital leases for new equipment.
13
<PAGE>
In September 1998, the Company acquired substantially all of the outstanding
shares of Positron Fiber Systems Corporation ("PFS") for $203.2 million (the
"PFS Acquisition"). Based in Montreal, Quebec, Canada, PFS is a manufacturer
of an advanced line of multiplexer products and provides network element
management capabilities. PFS' products complement the Company's next
generation digital loop carrier platform, creates a family of broadband
access platforms for delivering multimedia services and advances the
Company's position in the multi-billion dollar SONET/SDH broadband access
delivery market.
The PFS Acquisition was consummated with $192.7 million in cash from the
Company's existing credit facility and approximately $10.5 million of RELTEC
stock options were exchanged for PFS stock options. The preliminary
independent appraisal of acquired assets resulted in $188.2 million being
assigned to intangible assets. Of this amount, $58.4 million was assigned to
in-process research and development, $46.5 million to developed technology,
assembled workforce, sales channels and customer relationships and $83.3
million to goodwill. The in-process research and development costs were
written-off as a one-time non-tax deductible charge. The Company believes
that the write-off of such costs is appropriate because there is no
alternative future use for these in-process research and development
projects. The remaining intangible assets are being amortized over periods
ranging from five to 25 years. In addition, $5.0 million of the purchase
price was allocated to inventory acquisition step-up. This amount is being
expensed through cost of sales as the acquired inventory is sold.
In September 1998, the Company acquired certain assets of Evergood Telecom
Enclosures ("Evergood"), a wholly-owned subsidiary of the Walker Group, Inc,
for $13.2 million in cash (the "Evergood Acquisition"). Based in Welcome,
North Carolina, Evergood designs and manufactures power transfer devices and
custom enclosures used in wireline and wireless telecommunications
applications. The preliminary purchase allocation resulted in $2.7 million
being assigned to goodwill, which is deductible for tax purposes. This amount
is being amortized over 25 years.
The results of the PFS and Evergood acquisitions have been included in the
Company's Condensed Consolidated Financial Statements since their respective
acquisition dates.
The Company's acquisitions have been accounted for using the purchase method
of accounting. Accordingly, for financial reporting purposes, a preliminary
allocation of the purchase price has been made using estimated fair market
values of the assets acquired and the liabilities assumed as of each
acquisition date in accordance with Accounting Principles Board Opinion No.
16 - "Business Combinations". These preliminary allocations may be adjusted
as the fair market values are finalized. The results of these acquisitions
have been included in the accompanying condensed consolidated financial
statements since the respective dates of acquisition.
Cash flows provided by operating activities were $20.5 million and $26.4
million for the nine months ended September 30, 1998 and 1997, respectively.
Cash flows from operating activities decreased by $5.9 million for the nine
months ended September 30, 1998 compared to the same period in 1997 primarily
due to overall lower net earnings, increases in accounts receivable and
increases in inventories, offset by increases in accounts payable. The
Company's increase in inventory balances is due to acquired inventories and
higher anticipated sales.
Capital expenditures, exclusive of acquisitions and investments in business
systems, were $29.2 million and $15.9 million for the nine months ended
September 30, 1998 and 1997, respectively.
On March 18, 1998, the Company consummated an initial public offering of 6.3
million shares of common stock, which resulted in net proceeds of $170.3
million, which were used to repay indebtedness and for general corporate
purposes. These lower levels of indebtedness were offset by borrowings
incurred in conjunction with the PFS and Evergood acquisitions. As of
September 30, 1998, the Company's aggregate borrowing availability under its
credit facilities was $128.0 million. In August 1998, the Company amended its
credit facility. As a result, among other things, a new borrowing tranche
was created within the existing credit facility and the maturity date of the
new tranche is December 31, 2003.
In September 1998, the Company entered into an interest rate swap and an
interest rate collar agreement to reduce its variable interest rate exposure
on borrowings under the credit facility. The interest rate swap fixes the
interest rate at 5.10% on a notional amount of $100.0 million until September
2001. The interest rate collar has a capped interest rate of 6.75% and a
floor of 3.95% on a notional amount of $100.0 million until September 2001.
The Company believes that its cash balances, cash generated from future
operations and its existing credit facilities will be adequate to satisfy
anticipated working capital requirements, capital expenditures for
14
<PAGE>
equipment and other investment requirements for the next twelve months. As
business and market conditions permit, the Company may, from time to time,
invest in, or acquire, complementary technologies, products or businesses.
These activities may require the Company to seek additional equity and/or
debt to fund such activities, which could result in dilution to existing
stockholders.
YEAR 2000 READINESS DISCLOSURE
The disclosure in the following section is a "Year 2000 Readiness Disclosure"
within the meaning of Section 3(9) of the Year 2000 Information and Readiness
Disclosure Act.
The Year 2000 Issue ("Y2K") presents concerns for both businesses and
consumers, including, but not limited to computer systems failures and
business interruptions. To address this problem, the Company launched an
initiative in 1996 to upgrade its major business systems. This upgrade was
to address Y2K and to improve the Company's ability to service customers with
integrated business systems.
The Company recognizes that Y2K will affect many aspects of business operations
in addition to its business systems. The Company is taking measures to make the
Company's products, design and manufacturing capabilities, suppliers,
facilities, information technology infrastructure and electronic interfaces
Y2K compliant.
To manage this effort and to establish a common approach, RELTEC has
established a company-wide Y2K program (the "Program") with central
coordination through a dedicated, full-time Program manager. Individual
business units have Y2K teams that are responsible for the resolution
efforts, and resources have been mobilized across the Company to support this
effort. A standard Y2K methodology and process within RELTEC has been
established to manage and coordinate Y2K efforts.
The Company's Y2K Program encompasses a wide range of issues. The following
is a summary of the areas currently being addressed:
Applications. The Company's major business systems are currently being
replaced by a Y2K compliant commercial system. The major business systems
comprise manufacturing, order management, and financial systems. Minor
business systems are currently being reviewed for Y2K compliance. If
identified as non-compliant, such systems will be replaced or repaired. In
addition, the Company places a substantial number of orders with its
suppliers via the Electronic Data Interchange (EDI) process. The Company is
currently in the process of upgrading its EDI capabilities to Y2K compliant
versions of the EDI standards, and coordinating and testing these upgrades
with the Company's business partners.
Infrastructure. The Company's computers, servers, networks, and other
internal systems are currently being reviewed for Y2K compliance. If
identified as non-compliant such systems will be replaced or repaired.
Supply Chain. The Company is currently evaluating the readiness of
significant suppliers and is seeking Y2K compliance assurances from such
suppliers. Assurances are being sought from the Company's major suppliers for
goods and services, as well as transportation providers. Where the Company
determines that a significant supplier is not already Y2K compliant, the
Company will monitor their progress towards compliance and take such action
as it deems necessary, such as selecting alternate suppliers.
Product and Service Compliance. The products that the Company currently
manufactures and the services that the Company provides are being reviewed
internally and, in some cases, by third party testing organizations, for Y2K
compliance.
Design and Manufacturing. The Company's engineering and development systems,
shop floor systems, machine tool systems, CAM systems and testing systems are
currently being reviewed for Y2K compliance. If identified as
non-compliant such systems will be replaced or repaired.
15
<PAGE>
The following chart indicates the starting and planned completion dates for
each of the major components of the Company's Y2K Program:
<TABLE>
<CAPTION>
Y2K Program Component Period Commenced Planned Completion
- --------------------- ---------------- ------------------
<S> <C> <C>
Products 1st Quarter, 1998 4th Quarter, 1998
Major Business Systems 3rd Quarter, 1996 2nd Quarter, 1999
Minor Business Systems 3rd Quarter, 1998 3rd Quarter, 1999
Supply Chain 2nd Quarter, 1998 4th Quarter, 1998
EDI 4th Quarter, 1998 2nd Quarter, 1999
Design/Manufacturing 3rd Quarter, 1998 3rd Quarter, 1999
Infrastructure 2nd Quarter, 1998 2nd Quarter, 1999
</TABLE>
The Company currently estimates that direct costs of its Y2K Program,
including implementation of new business systems, will be approximately $31
million. The Company began budgeting for Y2K Program costs in fiscal 1996.
As of September 30, 1998, approximately $21 of these costs have been incurred
relating to the Y2K Program. Not included in the amount allocated to the Y2K
Program are costs associated with new product compliance. New product budgets
include amounts necessary for compliance with various engineering and
operational standards, which now include issues relating to Y2K. The Company
is currently funding Y2K Program costs through its normal operating cash
flows and expects to have adequate future operating cash flows to complete
the Y2K Program.
The Company's most reasonably likely worst case Y2K scenarios include, but
are not limited to, the inability to process routine transactions, including
customer orders, on a timely basis, suppliers' delay or failure to deliver
materials necessary to the Company's manufacturing process, delay or failure
of the Company's transportation providers to deliver the Company's products
to its customers and the inability of the Company to receive payment for
products that have been delivered. The Company has not completed all aspects
of its assessment of Y2K risks. There may be other risks for the Company
associated with Y2K that will be identified as its Y2K Program is
implemented. The Company is in the process of analyzing the most reasonably
likely worst case scenarios and developing a contingency plan to handle such
scenarios. The Company expects the contingency plan to be completed by the
end of the first quarter of 1999.
The Company believes that its Y2K Program will identify its Y2K related issues,
determine business risk, establish a resolution plan, and implement resolution.
The Company expects that, upon successful completion of the Program, its
ability to design, manufacture and deliver products to its customers and to
provide services to its customers will not be adversely affected by the year
2000. However, the Company cannot be certain that the failure of a major
customer, supplier or third party to timely assess or remediate its products or
systems or that the incompatibility of a conversion undertaken by such
16
<PAGE>
party with the Company's systems will not have a material adverse effect on
the Company's business, results of operations or financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 - "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. The Company must implement SFAS 131 in 1998. The Company has
not completed its evaluation of this statement, but does not anticipate a
material impact on the consolidated financial statements from the adoption of
the additional disclosure requirements of this accounting standard.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132 - "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS 132"). SFAS 132 revises employers' disclosures about
pension and other postretirement benefit plans but does not change the
measurement or recognition of these plans. SFAS 132 is effective for fiscal
years beginning after December 31, 1997. Restatement of disclosures for
earlier periods provided for comparative purposes is required unless the
information is not readily available. The Company has not completed its
evaluation of this statement, but does not anticipate a material impact on
the consolidated financial statements from the adoption of the disclosure
requirements of this accounting standard.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 - "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. Earlier application of this statement is
encouraged, but is permitted only as of the beginning of any fiscal quarter
beginning after June of 1998. The Company has not completed its evaluation
of this statement, but does not anticipate a material impact on the
consolidated financial statements from the adoption of this accounting
standard.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. 27
Financial Data Schedule
(b) Reports on Form 8-K:
- Current Report on Form 8-K dated August 11, 1998
- Current Report on Form 8-K dated September 8, 1998
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.
RELTEC Corporation
November 13, 1998 By:______________
John L. Wilson
Vice President and Controller
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RELTEC'S
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 40,800,000
<SECURITIES> 0
<RECEIVABLES> 174,900,000
<ALLOWANCES> 5,700,000
<INVENTORY> 130,000,000
<CURRENT-ASSETS> 381,300,000
<PP&E> 185,300,000
<DEPRECIATION> 47,400,000
<TOTAL-ASSETS> 1,047,800,000
<CURRENT-LIABILITIES> 206,900,000
<BONDS> 307,500,000
1,000,000
0
<COMMON> 600,000
<OTHER-SE> 480,900,000
<TOTAL-LIABILITY-AND-EQUITY> 1,047,800,000
<SALES> 769,600,000
<TOTAL-REVENUES> 769,600,000
<CGS> 540,200,000
<TOTAL-COSTS> 540,200,000
<OTHER-EXPENSES> 240,500,000
<LOSS-PROVISION> 2,400,000
<INTEREST-EXPENSE> 9,100,000
<INCOME-PRETAX> (20,200,000)
<INCOME-TAX> 23,600,000
<INCOME-CONTINUING> (43,800,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,800,000)
<EPS-PRIMARY> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
