SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period
from to .
0-5860
(Commission file number)
Recoton Corporation
(Exact name of registrant as specified in its charter)
New York 11-1771737
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2950 Lake Emma Road, Lake Mary, Florida 32746
Address of principal executive offices, including zip code)
407-333-8900
(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 filings
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 most recent
practicable date:
Outstanding as of
Class April 26, 1995
Common stock, par
value $.20 a share 10,680,606
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1995 1994
(Unaudited)
<S>
Current assets: <C> <C>
Cash and cash equivalents $ 19,870,921 $ 15,475,022
Accounts receivable (less allowance for
possible loss of $1,007,000 in 1995 and
$989,000 in 1994) 25,930,926 35,579,805
Inventories 46,163,668 43,669,443
Prepaid expenses and other current assets 4,165,473 4,299,719
Total current assets 96,130,988 99,023,989
Property and equipment (less accumulated
depreciation and amortization of $6,220,167
in 1995 and $5,854,299 in 1994) 14,121,676 12,947,992
Other assets 6,846,235 6,791,750
T O T A L $117,098,899 $118,763,731
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 866,856 $ 863,471
Accounts payable 6,747,447 8,944,083
Accrued expenses 3,293,092 4,117,191
Income taxes payable 1,939,059 1,876,398
Total current liabilities 12,846,454 15,801,143
Long-term debt (less current portion above) 5,002,894 5,220,899
Deferred compensation and other noncurrent
liabilities 1,111,679 1,108,222
Total liabilities 18,961,027 22,130,264
STOCKHOLDERS' EQUITY
Common stock - $.20 par value each - authorized
16,000,000 shares; issued 11,806,217 shares in
1995 and 11,793,198 shares in 1994 2,361,243 2,358,640
Additional paid-in capital 64,439,153 64,393,649
Retained earnings 35,874,130 33,744,271
Cumulative foreign currency translation
adjustment (359,882) (380,624)
102,314,644 100,115,936
Treasury stock - 1,116,115 shares in 1995 and
1,073,859 shares in 1994, at cost (4,176,772) (3,482,469)
Total stockholders' equity 98,137,872 96,633,467
T O T A L $117,098,899 $118,763,731
The attached notes are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Net sales $36,953,481 $29,044,732
Cost of goods sold 22,794,964 16,933,732
Gross profit 14,158,517 12,111,000
Selling, general and administrative expenses 11,457,033 9,593,945
Interest expense 72,974 292,721
Investment (income) (205,349) (3,161)
T o t a l 11,324,658 9,883,505
Income before income taxes 2,833,859 2,227,495
Income tax provision 704,000 758,000
NET INCOME $ 2,129,859 $ 1,469,495
Earnings per common share:
Primary $.19 $.17*
Assuming full dilution $.19 $.17*
Number of shares used in computing
per share amounts:
Primary 11,202,000 8,617,000*
Assuming full dilution 11,202,000 8,632,000*
Dividends NONE NONE
* Restated to give retroactive effect to the share distribution effected in the form of
a 50% stock dividend in July 1994.
The attached notes are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,129,859 $ 1,469,495
Adjustments to reconcile results of operations
to net cash provided by operating activities:
Depreciation and amortization 686,335 604,111
Provision for losses on accounts receivable 59,012 59,440
Deferred income taxes (61,000)
Net change in asset and liability accounts:
Accounts receivable 9,753,351 7,342,546
Inventory (2,131,188) (6,127,338)
Prepaid expenses and other current assets 118,386 (1,440,032)
Other assets (59,969) (33,911)
Accounts payable and accrued expenses (3,020,780) 1,186,839
Income taxes payable 62,614 150,874
Deferred compensation and other noncurrent
liabilities 3,456 (7,500)
Total adjustments 5,410,217 1,735,029
Net cash provided by operating activities 7,540,076 3,204,524
Cash flows from investing activities:
Expenditures for property and equipment (1,582,874) (719,071)
Net assets acquired from Ampersand (711,887)
Net cash used for investing activities (2,294,761) (719,071)
Cash flows from financing activities:
Net repayments under credit agreements (1,800,000)
Repayment of long-term bank borrowings (214,620) (322,918)
Proceeds from exercise of stock options 19,821 71,579
Income tax benefit applicable to exercise
of stock options 2,500 473,200
Purchases of treasury stock (668,517) (17,284)
Net cash used for financing activities (860,816) (1,595,423)
Effect of foreign exchange rate changes on cash 11,400 (39,024)
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,395,899 851,006
Cash and cash equivalents - January 1 15,475,022 4,187,555
CASH AND CASH EQUIVALENTS - MARCH 31 $19,870,921 $ 5,038,561
Supplemental disclosures of cash paid for:
Interest $ 114,949 $ 286,670
Income taxes $ 699,900 $ 130,738
Noncash financing activities:
In connection with the exercise of incentive stock options in
1995, 9,602 shares of common stock were issued in exchange for
1,540 shares of previously issued common stock with a market
value of $25,786.
The attached notes are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE A - The attached summarized financial information does not
include all disclosures required to be included in a complete
set of financial statements prepared in conformity with
generally accepted accounting principles. Such disclosures were
included with the consolidated financial statements of the
Company at December 31, 1994, included in its annual report on
Form 10-K. Such statements should be read in conjunction with
the data herein.
NOTE B - The financial information reflects all normal recurring
adjustments which, in the opinion of management, are deemed
necessary for a fair presentation of the results for
the interim periods. The results for the interim periods are
not necessarily indicative of the results to be expected
for the year. Historically, the Company's sales and earnings
have been higher in the second half of each year.
NOTE C - Inventory at March 31, 1995 is comprised of:
Raw materials and work-in-process $15,108,663
Finished goods 26,551,066
Merchandise in-transit 4,503,939
T o t a l $46,163,668
NOTE D - Segment Information:
Information applicable to the Company's foreign
operations in Hong Kong and Canada for the three months ended
March 31, 1995 is summarized as follows:
<TABLE>
<CAPTION> Consolidated U.S. Hong Kong Canada
<S> <C> <C> <C> <C>
Net sales $ 36,953,481 $ 29,479,526 $4,749,485 $2,724,470
Pre-tax income
(loss) $ 2,833,859 $ 1,198,193 $1,682,301 $ (46,635)
Identifiable
assets $117,098,899 $101,158,044 $9,324,745 $6,616,110
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of the quarters ended March 31, 1995 and 1994:
Results of Operations
Net sales for the first quarter of 1995 increased by 27% to
$36,953,000 from $29,045,000 in the same period in 1994. The
sales increase is attributable to strong sales of the Company's
various consumer electronics product lines, continued growth of
the Company's 900 MHz wireless products, growth in new product
areas including cellular phones and computer accessories, and
strong increases in Recoton Canada's and Recoton Far East's OEM
product sales.
Gross profit increased by approximately $2,048,000 in the
first quarter of 1995 as compared to the comparable period in
1994, but decreased as a percentage of net sales from 41.7% to
38.3%. The percentage decrease was due primarily to a change
in product mix, including increased sales of OEM products.
Compared to sales to retail customers, sales to OEM customers
typically carry lower gross margins, yet have lower associated
selling expenses.
Selling, general and administrative expenses increased in
1995 primarily because of selling expenses related to the
increased sales volume. However, overall selling, general and
administrative expenses as a percent of net sales decreased by
2% as compared to the same period in 1994. The percentage
decrease was primarily due to increased operating efficiencies,
as well as an increased proportion of sales to OEM customers.
Interest expense decreased by approximately $220,000 in the
first quarter of 1995 due to the repayment of short-term
borrowings from the proceeds of the public offering of the
Company's Common Stock concluded in April 1994.
Investment income increased by approximately $202,000 in
the first quarter of 1995. The increase in investment income
resulted from the investment of a portion of the proceeds from
the public offering of the Company's Common Stock in short-term
treasury bills and the investment of Recoton Far East's earnings
in certificates of deposit.
The effective income tax rate decreased to 24.8% in 1995
from 34% in 1994. The primary factor for the reduction in the
effective income tax rate is the income earned by the Company's
Hong Kong subsidiary, which is taxed at 16.5%.
For the three months ended March 31, 1995, primary and
fully-diluted earnings per share were $.19 based on 11,202,000
average shares outstanding (on both a primary and fully-diluted
basis). For the comparable three months of 1994, primary and
fully-diluted earnings per share were $.17 based on 8,617,000
(8,632,000 on a fully-diluted basis) average shares outstanding.
The 1994 calculations have been adjusted to reflect the share
distribution effected in the form of a 50% stock dividend
distributed by the Company in July 1994. The increase in
average shares outstanding primarily results from the shares
sold in the public offering of the Company's Common Stock in
April 1994. As a result of the offering, the Company's
outstanding Common Stock increased by approximately 30%.
Liquidity and Capital Resources
As of March 31, 1995, the Company has available
approximately $19.9 million in cash and cash equivalents,
working capital of approximately $83.3 million, and
stockholders' equity in excess of $98 million. The Company
continues to maintain lines of credit of $45 million with three
banks, plus another $5 million line of credit, which can only be
used for acquisition purposes, any of which may be terminated by
such banks at any time.
On October 4, 1993, the Company converted to medium- and
long-term financing approximately $5 million of short-term debt
assumed as part of the Ambico acquisition or incurred as part of
the construction of the building addition at the Company's Lake
Mary, Florida facility.
In June and August of 1994, the Company purchased
approximately 30 acres of land in Lake Mary, Florida on which it
is constructing a new 245,000 square foot warehouse building.
The estimated cost for the land and building construction is
approximately $5 million of which approximately $2.6 million had
been incurred as of March 31, 1995. The Company intends to
finance the completion of the warehouse construction primarily
through existing cash resources.
In August 1994, the Board of Directors authorized the
repurchase by the Company of up to 500,000 shares of its
outstanding Common Stock. In December 1994, 4,000 shares were
repurchased for $68,000 and, in February 1995, an additional
40,000 shares were repurchased for $655,000.
In September 1994, Recoton purchased selected assets and
assumed certain liabilities of Sound Quest, Inc., a leading
supplier of car audio installation and accessory products, for a
purchase price of approximately $2.5 million plus additional
contingent payments over five years, not to exceed $1.15
million. After this acquisition, Sound Quest's assumed bank
loans of approximately $1.175 million were repaid.
In February 1995, Recoton purchased selected assets of
Ampersand, a division of Ampco Industries, Inc., of Chatsworth,
California, at a cost of approximately $722,000. Ampersand is a
manufacturer and supplier of car stereo installation
accessories.
In April 1995, Recoton announced the formation of a
subsidiary corporation named The Audio Group, Inc., to be
located in Chatsworth, California. The wholly-owned subsidiary
will develop and market speaker products.
In May 1995, Recoton announced that it signed a letter of
intent to purchase substantially all the assets of
STD Holding Limited, a Hong Kong based international
manufacturer and marketer of multi-media and computer
accessories, including video game joy sticks, controllers and
accessories, and computer speakers sold under the Interact and
Performance brand names.
The Company has no other material commitments for capital
expenditures, although it will continue to evaluate possible
acquisitions which may be attractive to the growth of the
Company.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Strand Services Corp. v. Recoton Corp, et. al. As
noted in the Company's Form 10-K for the year ended December 31,
1994, the plaintiff and defendants had orally agreed to dismiss
the action, without prejudice, but that the stipulation had not
yet been filed and was subject to further negotiation at such
time. Such stipulation was executed by both parties in May 1995
and is being submitted to the Court for its approval. Pursuant
to the stipulation, the action will be dismissed without
prejudice to any later re-filing by the plaintiff and all
applicable statutes of limitations as respects the
plaintiff are tolled from July 22, 1994 (the date the action was
commenced) until December 31, 1995 for the claims alleged in the
complaint.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None
(b) Reports on Form 8-K: None.
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.
RECOTON CORPORATION
Date: May 12, 1995 /s/ Herbert H. Borchardt
Herbert H. Borchardt
Co-Chairman of the Board and
Co-Chief Executive Officer
Date: May 12, 1995 /s/ Joseph H. Massot
Joseph H. Massot
Vice President, Treasurer
and Principal Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the Condensed Consolidated Balance Sheet at March 31, 1995
(Unaudited) and the Condensed Consolidated Statement of
Operations for the Three Months Ended March 31, 1995
(Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 19,870,921
<SECURITIES> 0
<RECEIVABLES> 26,937,926
<ALLOWANCES> 1,007,000
<INVENTORY> 46,163,668
<CURRENT-ASSETS> 96,130,988
<PP&E> 20,341,843
<DEPRECIATION> 6,220,167
<TOTAL-ASSETS> 117,098,899
<CURRENT-LIABILITIES> 12,846,454
<BONDS> 5,002,894
<COMMON> 2,361,243
0
0
<OTHER-SE> 95,776,629
<TOTAL-LIABILITY-AND-EQUITY> 117,098,899
<SALES> 36,953,481
<TOTAL-REVENUES> 37,158,830
<CGS> 22,794,964
<TOTAL-COSTS> 22,794,964
<OTHER-EXPENSES> 11,398,021
<LOSS-PROVISION> 59,012
<INTEREST-EXPENSE> 72,974
<INCOME-PRETAX> 2,833,859
<INCOME-TAX> 704,000
<INCOME-CONTINUING> 2,129,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,129,859
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
