SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 5, 1995
RECOTON CORPORATION
(Exact name of registrant as specified in charter)
New York 0-5860 11-1771737
(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
2950 Lake Emma Road, Lake Mary, Florida 32746
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: 407-333-8900
N.A.
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Financial Statements of Business
Acquired (filed herewith)
1. STD Holding Limited and Subsidiaries Consolidated
Financial Statements as of and for the Years Ended
March 31, 1995 and 1994.
(a) Report of Independent Accountants of Price
Waterhouse dated August 15, 1995.
(b) Consolidated Balance Sheets.
(c) Consolidated Income Statements.
(d) Consolidated Statements of Changes in
Shareholders' Equity.
(e) Consolidated Statements of Cash Flows.
(f) Notes to Consolidated Financial Statements.
2. STD Holding Limited and Subsidiaries Consolidated
Financial Statements as of June 30, 1995 and for
the Six Month Periods Ended June 30, 1995 and
1994.
(a) Consolidated Balance Sheet (unaudited).
(b) Consolidated Income Statements (unaudited).
(c) Consolidated Statements of Cash Flows
(unaudited).
(d) Notes to Consolidated Financial Statements.
b. Pro Forma Financial Information (filed herewith)
1. Pro Forma Condensed Consolidated Balance Sheet as
at June 30, 1995.
2. Pro Forma Condensed Consolidated Statement of
Operations for the Year ended December 31, 1994.
3. Pro Forma Condensed Consolidated Statement of
Operations for the Six Months Ended June 30, 1995.
4. Notes to Pro Forma Financial Statements as at June
30, 1995 and for the Year and Six Month Periods
Ended December 31, 1994 and June 30, 1995.
c. Exhibits (previously filed)
1. Stock Purchase Agreement dated as of August 31,
1995 among the Company, STD BVI, Plomax, RFE, STD
Holding and the other shareholders of STD
Holding.
2. Asset Purchase Agreement dated as of the Closing
Date among the Company, STD USA, Interact, STD
Holding, STD BVI, Stephen Chu and other STD Group
shareholders.
<PAGE>
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 hereunto duly authorized.
RECOTON CORPORATION
By: /s/ Joseph H. Massot
Name: Joseph H. Massot
Title: Vice President &
Treasurer
Dated: November 16, 1995
<PAGE>
STD HOLDING LIMITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
MARCH 31, 1995 AND 1994
Price Waterhouse
Certified Public Accountant Telephone (852)2826 ext 2111
22nd Floor Princes' Building Telex HX73751PWHK
Hong Kong Fax (852)2810 9888
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and shareholders of STD Holding Limited.
We have audited the accompanying consolidated balance sheets of STD Holding
Limited and its subsidiaries as at March 31, 1995 and 1994 and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the two years in the period ended March 31, 1995, all
expressed in Hong Kong Dollars. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of STD Holding
Limited and its subsidiaries at March 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the two years in the
period ended March 31, 1995, in conformity with accounting principles
generally accepted in Hong Kong.
Accounting principles generally accepted in Hong Kong vary in certain
important respects from accounting principles generally accepted in the
United States. The application of these latter would have affected the
determination of consolidated net income expressed in Hong Kong Dollars for
each of the two years in the period ended March 31, 1995 and the
determination of consolidated shareholders' equity and consolidated
financial position also expressed in Hong Kong Dollars at March 31, 1995 and
1994 to the extent summarised in Note 23 to the consolidated financial
statements.
/s/ Price Waterhouse
PRICE WATERHOUSE
Certified Public Accountants
HONG KONG, August 15, 1995
<PAGE>
STD HOLDING LIMITED
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
Note 1995 1994
HK$'000 HK$'000
<S> <C> <C> <C>
NET SALES 3 315,796 292,702
COST OF SALES (190,329) (164,669)
125,467 128,033
SELLING AND ADMINISTRATION EXPENSES (79,134) (93,242)
INCOME FROM OPERATIONS 46,333 34,791
INTEREST EXPENSE (3,968) (2,748)
INTEREST INCOME 660 641
INCOME BEFORE INCOME TAXES 43,025 32,684
PROVISION FOR INCOME TAXES 5 (7,894) (4,927)
MINORITY INTERESTS - 450
NET INCOME 35,131 28,207
<PAGE>
STD HOLDING LIMITED
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 AND 1994
Note 1995 1994
ASSETS HK$'000 HK$'000
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS 49,944 25,804
TRADE RECEIVABLES NET OF
PROVISION FOR DOUBTFUL DEBTS
OF HK$0 (HK$2,859,410) 29,697 38,626
INVENTORIES 6 46,824 35,890
DUE FROM RELATED PARTIES 7 5,077 4,172
OTHER RECEIVABLES 8 11,965 8,155
INVESTMENT HELD FOR SALE 9 557 -
DEFERRED TAXATION 10 2,486 1,380
146,550 114,027
PROPERTY PLANT AND EQUIPMENT 11 21,845 28,085
NON-CURRENT RECEIVABLES 7 12,930 -
TOTAL ASSETS 181,325 142,112
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
SHORT-TERM BORROWINGS 12 20,842 14,533
CURRENT PORTION OF LONG-TERM DEBT 13 1,929 2,404
BANK OVERDRAFTS 315 2,083
ACCOUNTS PAYABLE 13,059 14,427
OTHER ACCRUED LIABILITIES 14 25,714 22,750
DUE TO RELATED PARTIES 15 - 2,319
TOTAL CURRENT LIABILITIES 61,859 58,516
LONG-TERM DEBT 13 1,733 4,167
TOTAL LIABILITIES 63,592 62,683
SHAREHOLDERS' EQUITY
COMMON STOCK, HK$1 PAR VALUE -
7 SHARES AUTHORISED; 2 SHARES ISSUED 18 - -
DEFERRED STOCK, HK$1 PAR VALUE -
27,733,333 SHARES AUTHORISED;
27,733,333 SHARES ISSUED 18 27,733 27,733
ADDITIONAL PAID IN CAPITAL 13,067 13,067
CAPITAL RESERVE ON CONSOLIDATION 2,566 2,566
RETAINED EARNINGS 74,287 36,063
EXCHANGE TRANSLATION RESERVE 80 -
117,733 79,429
CONTINGENT LIABILITIES AND 20
COMMITMENTS & 21 - -
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 181,325 142,112
</TABLE>
/s/Ho Tze Man /s/Wong Shiu Wah, Williamson
Director Director
<PAGE>
STD HOLDING LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR
THE YEARS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
Additional Capital Exchange
Common Deferred paid in reserve on Retained translation
Stock Stock capital consolidation earnings reserve Total
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Group
Balance at March 31, 1993 - 27,733 13,067 2,566 7,856 - 51,222
Net income - - - - 28,207 - 28,207
Balance at March 31, 1994 - 27,733 13,067 2,566 36,063 - 79,429
Adjustment due to
de-consolidation of a
subsidiary (note 21(b)) - - - - 3,093 - 3,093
Net income - - - - 35,131 - 35,131
Exchange translation difference - - - - - 80 80
Balance at March 31, 1995 - 27,733 13,067 2,566 74,287 80 117,733
</TABLE>
The capital reserve on consolidation represents negative
goodwill arising from acquisitions, where the fair values of the
assets acquired exceed the consideration paid.
<PAGE>
STD HOLDING LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
Note 1995 1994
HK$'000 HK$'000
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 22(a) 43,246 10,821
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest received 660 641
Interest paid (3,615) (1,983)
Interest element of finance lease rentals
payments (353) (492)
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE (3,308) (1,834)
TAXATION
Hong Kong profits tax paid (8,690) (3,263)
Hong Kong profits tax refunded 127 -
Overseas tax paid (1,487) (1,021)
TAX PAID (10,050) (4,284)
Net inflow from operations after taxation 29,888 4,703
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (5,142) (16,129)
Sale of fixed assets - 899
De-consolidation of a subsidiary 22(b) (124) -
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (5,266) (15,230)
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 24,622 (10,527)
CASH FLOW FROM FINANCING 22(c)
Issue of share capital - -
Proceeds from long-term debt - 495
Proceeds from capital leases - 775
Repayment of long-term debt (996) (996)
Principal payments on capital leases obligations (1,418) (1,805)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (2,414) (1,531)
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 22,208 (12,058)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 23,721 35,779
CASH AND CASH EQUIVALENTS AT END OF PERIOD 45,929 23,721
ANALYSIS OF THE BALANCES OF CASH AND CASH
EQUIVALENTS
Bank balances and cash 49,944 25,804
Bank overdrafts (315) (2,083)
Short term bank loans (with maturity less than 3 months) (3,700) -
45,929 23,721
</TABLE>
<PAGE>
STD HOLDING LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWO YEARS
ENDED MARCH 31, 1995 AND 1994
1. The consolidated financial statements and accompanying foot
note disclosures have been prepared in accordance with
accounting principles generally accepted in Hong Kong ("HK
GAAP") and presented in Hong Kong dollars ("HK$").
Differences between HK GAAP and generally accepted
accounting principles in the United States
of America ("US GAAP") and their effect on the consolidated
net income for the years ended March 31, 1995 and 1994 and
on the consolidated shareholders' equity as of March 31,
1995 and 1994 are set forth in Note 23.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Consolidation
The consolidated accounts include the accounts of the
company and all its subsidiaries (the "Company") made up to
the balance sheet date, except for STD Precision Industrial
Limited which is classified as an investment held for sale
(Note 9). All material inter-group transactions and
balances have been eliminated.
Details of the subsidiaries are as follows:
<TABLE>
<CAPTION>
Percentage
of equity
interest
Place of Principal held by
Name incorporation activities the company
<S> <C> <C> <C>
STD Electronic Hong Kong Trading of joysticks 100%
International
Limited
STD Manufacturing Hong Kong Manufacture of coils 100%
Limited and joysticks
STD Plastic Hong Kong Manufacture of plastic 100%
Industrial Limited products
STD Trading Limited Hong Kong Trading of computers and 100%
computer accessories
Peak Hero Limited Hong Kong Manufacture of metal 100%
products
STD Entertainment United States Trading of joysticks 100%
(USA) Inc of America and computer
accessories
STD (Tianjin) The People's Dormant 100%
International Republic of
Trade Development China
Company Limited
</TABLE>
(b) Reserve on consolidation
Reserve on consolidation represents the excess of fair
values ascribed to the net assets of subsidiaries acquired
over purchase consideration and is taken to capital reserve
in the year of acquisition.
(c) Cash at bank and in hand
None of the Company's cash is restricted as to withdrawal.
(d) Depreciation
Leasehold land in respect of which the remaining period of
the relevant lease is fifty years or less is amortised over
such remaining period; leasehold land with a remaining
lease period of more than fifty years is not amortised.
Depreciation of other fixed assets is calculated to write
off the cost of the assets over their estimated useful
lives on a straight line basis at the following annual
rates.
Buildings 2.5%
Machinery and equipment 25%
Computer equipment 40%
Moulds 35%
Motor vehicles 30%
Furniture and fixtures 20%
Office equipment 25%
(e) Inventories
Inventories are stated at the lower of cost and net
realisable value. Cost, calculated on the weighted
average basis, comprises materials, direct labor and an
appropriate proportion of all production overhead
expenditure. Net realisable value is determined on the
basis of anticipated sale proceeds less estimated selling
expenses.
(f) Assets under leases
i Capital leases
Leases that substantially transfer to the group all
the rewards and risks of ownership of assets, other
than legal title, are accounted for as capital leases.
At the inception of a capital lease, the fair value of
the asset is recorded together with the obligation,
excluding the interest element, to pay future rentals.
Finance charges are taken to the profit and loss
account in proportion to the capital balances
outstanding so as to produce a constant periodic rate
of charge.
ii Operating leases
Leases where substantially all the rewards and risks
of ownership of assets remain with the leasing company
are accounted for as operating leases. Rentals
applicable to such operating leases are expensed on a
straight line basis over the lease term.
(g) Deferred taxation
Deferred taxation is accounted for at the current tax rate
in respect of cumulative timing differences between profit
as computed for taxation purposes and profit as stated in
the accounts to the extent that a liability or asset is
expected to be payable or receivable in the foreseeable
future.
(h) Foreign currencies
Transactions in foreign currencies are translated at
exchange rates ruling at the transaction dates.
Monetary assets and liabilities expressed in foreign
currencies at the balance sheet date are translated at
rates of exchange ruling at the balance sheet date.
Exchange differences arising are dealt with in the profit
and loss account. Foreign exchange losses included in
income amounted to HK$1,282,000 for the year ended March
31, 1995 and HK$2,440,000 for the year ended March 31,
1994.
The accounts of subsidiaries expressed in foreign
currencies are translated at the rates of exchange
ruling at the balance sheet date. Exchange differences
arising therefrom are dealt with as a movement in reserves.
(i) Related parties
A related party includes management, directors,
shareholders, and related companies.
A related company is a company which has common beneficial
shareholders or directors as the Company.
(j) Research and development expenditure
Research and development expenditure is expensed as
incurred. Research and development expenditure incurred
amounted to HK$1,426,000 for the year ended March 31, 1995
and HK$1,477,000 for the year ended March 31, 1994.
(k) Net sales
Net sales represents net invoiced sales to third parties.
Net sales are recognised at the point at which title
passes.
(l) Cash and Cash equivalents
Cash equivalents are highly liquid investments with a
maturity of three months or less at their date of purchase.
3. NET SALES BY GEOGRAPHIC LOCATION
<TABLE>
<CAPTION>
1995 1994
HK$'000 HK$'000
<S> <C> <C>
USA 221,913 163,115
Europe 52,880 68,420
Australia 1,566 39
Asia 39,380 59,876
Other 57 1,252
315,796 292,702
</TABLE>
Substantially all assets are in Asia. The group operates
in a single industry segment being the manufacture and
trading of computer accessories.
4. SALES TO MAJOR CUSTOMERS
During the year two of the group's customers contributed
36% and 11% of turnover. For 1994 they contributed 13% and
14% respectively.
5. PROVISION FOR INCOME TAXES
Hong Kong income tax has been provided at the rate of 16.5%
(1994: 17.5%) on the estimated assessable income for the
year. Taxation on overseas income has been calculated on
the estimated assessable income for the year at the rates
of taxation prevailing in the country in which the group
operates.
<TABLE>
<CAPTION>
1995 1994
HK$'000 HK$'000
<S> <C> <C>
Hong Kong income tax 5,082 5,372
Overseas taxation 3,918 678
Deferred taxation (Note 10) (1,106) (1,123)
7,894 4,927
</TABLE>
Reconciliation of the expected taxation to the actual tax
expense
<TABLE>
<CAPTION>
1995 1994
HK$'000 HK$'000
<S> <C> <C>
Income before income taxes: 43,025 32,684
Applicable tax rate: 16.5% 17.5%
Estimated tax provision: 7,099 5,720
Adjustments:
Unprovided deferred tax (464) (1,417)
Foreign subsidiary taxed at a higher rate 1,116 (128)
Non deductible expenses 314 799
Others (171) (47)
Total 7,894 4,927
6. INVENTORIES
1995 1994
HK$'000 HK$'000
Raw materials 11,273 12,102
Work-in-progress 1,293 2,480
Finished goods 34,258 21,308
46,824 35,890
</TABLE>
Inventories are stated net of provision for inventory
obsolescence of HK$6,777,000 at March 31, 1995
(HK$3,233,000 at March 31, 1994)
7. DUE FROM RELATED PARTIES
<TABLE>
<CAPTION>
1995 1994
HK$'000 HK$'000
<S> <C> <C>
Amounts due from STD Precision Ltd (b) 4,445 -
Amounts due from other related parties (c) 632 4,172
5,077 4,172
Amounts due from directors (a) 12,930 -
18,007 4,172
(a) Amounts due from directors
1995 1994
Name HK$'000 HK$'000
Chu Nin Yiu 10,930 -
Loi Keong Kuong 2,000 -
12,930 -
</TABLE>
Amounts due from directors are unsecured and interest free,
have no fixed terms of repayment and are expected to be
repaid.
(b) Amounts due from STD Precision Ltd
STD Precision Ltd was reclassified in 1995 as an investment
held for sale (note 9). Following its deconsolidation
amounts owed by it of HK$4,445,000 are included in amounts
due from related parties.
(c) Amounts due from other related parties are as follows:
<TABLE>
<CAPTION>
1995 1994 Nature of transactions
HK$'000 HK$'000
<S> <C> <C> <C>
STD Computer Incorporation - 397 Sales of joysticks
Standard General Industrial Ltd - 8 Expenses paid by STD
Ever Smart Management Ltd 632 630 Advance from STD for
purchases of club
debentures
STD Entertainment Technology Ltd - 10 Expenses paid by STD
Manfaith Computer Ltd - 1,205 Sales of joysticks
Hillcas Industries Ltd - 1,922 Purchases and sales of
cable
632 4,172
</TABLE>
In 1994, all the related companies stated above had common
directors with the Company.
Related party sales amounted to HK$O for the year ended
March 31, 1995 and HK$1,023,000 for the year ended March
31, 1994.
In 1995, only Ever Smart Management Ltd remained as a
related company. All other companies ceased to be related
companies in early 1995 following the resignation of a
common director as a director of STD group.
All the amounts stated above are unsecured, interest free
and with no fixed terms of repayment. All transactions
with related parties are executed at arm's length.
8. OTHER RECEIVABLES
1995 1994
HK$'000 HK$'000
Bills receivable 4,088 2,951
Other debtors and prepayments 7,523 5,130
Taxation prepaid 354 74
11,965 8,155
Bills receivable represents amounts receivable on "Bills of
Exchange", a form of commercial paper, issued by the
debtor.
9. INVESTMENT HELD FOR SALE
Investment held for sale represents the Company's 55%
equity interest in STD Precision Industrial Limited ("STD
Precision"), which is incorporated in Hong Kong and is
engaged in the business of mould manufacturing. During the
year, the directors of the Company decided to dispose of
the company's investment in STD Precision. Accordingly,
the cost of investment in STD Precision as at March 31,
1995 was reclassIfied as investment held for sale at March
31, 1995 and included in current assets. Subsequent to the
balance sheet date, a prospective buyer has given an
undertaking to the Company to purchase the Company's
interest in and receivable from STD Precision at a
consideration not less than their book value.
10. DEFERRED TAXATION
1995 1994
HK$'000 HK$'000
Balance at beginning of year 1,380 257
Transfer to profit and loss account 1,106 1,123
Balance at end of year 2,486 1,380
The deferred taxation (liabilities)/assets accounted for in
the accounts are in respect of the following:
1995 1994
HK$'000 HK$'000
Accelerated depreciation allowances (59) 17
Provision for doubtful debts 741 602
Other timing differences 1,804 761
2,486 1,380
The potential deferred taxation (liabilities)/assets which
have not been accounted for comprise:
<TABLE>
<CAPTION>
Accelerated Tax losses
depreciation available for
allowances carry forward Total
HK$'000 HK$'000 HK$'000
<S> <C> <C> <C>
Balance at beginning of year (1,069) 452 (617)
Adjustment due to de-consolidation of a
subsidiary (Note 9) 129 (381) (252)
(Charges)/credits for the year 493 (28) 465
Balance at end of year (447) 43 (404)
</TABLE>
11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is analysed as follows:
<TABLE>
<CAPTION>
Medium
term
Long term leasehold
leasehold land and
land and building Machinery Furniture
buildings in outside and Computer Motor and Office
Hong Kong Hong Kong equipment equipment Moulds vehicles fixtures equipment Total
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost
At beginning of year 8,469 2,696 12,113 2,113 12,327 4,555 13,058 402 55,733
Additions - - 209 115 2,080 - 1,950 60 5,142
Disposals - - - - (86) - (194) (11) (291)
Adjustment due to
de-consolidation of
a subsidiary
(note 21(b)) - - (2,537) (65) (236) - (537) - (3,375)
At end of year 8,469 2,696 9,785 2,163 14,813 4,555 14,277 451 57,209
----- ----- ------- ------ ------- ----- ------ ---- ------
Accumulated Depreciation
At beginning of year 429 65 7,389 1,744 8,382 3,156 6,203 280 27,648
Charge for the year 106 71 1,574 305 3,437 789 2,446 95 8,823
Written back on disposals - - - - (86) - (173) (6) (265)
Adjustment due to
de-consolidation of a
subsidiary (note 21(b)) - - (634) (19) (80) - (109) - (842)
At end of year 535 136 8,329 2,030 11,653 3,945 8,367 369 35,364
----- ----- ------ ----- ------ ----- ------ ---- ------
Net book value
At end of year 7,934 2,560 1,456 133 3,160 610 5,910 82 21,845
At beginning of year 8,040 2,631 4,724 369 3,945 1,399 6,855 122 28,085
</TABLE>
ASSETS HELD UNDER CAPITAL LEASES INCLUDED UNDER PROPERTY, PLAN
AND EQUIPMENT ABOVE
<TABLE>
<CAPTION>
Machinery Furniture
and Computer Motor and Office
equipment equipment Moulds vehicles fixtures equipment Total
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
<S> <C> <C> <C> <C> <C> <C> <C>
Cost 1,124 - - 3,999 1,005 78 6,206
Accumulated depreciation (889) - - (3,471) (804) (78) (5,242)
Net book value at end of year 235 - - 528 201 - 964
Net book value at beginning of year 562 - - 1,184 402 20 2,186
Depreciation charge for the period
for assets held under capital leases 326 - - 656 201 20 1,203
</TABLE>
12. SHORT-TERM BORROWINGS
1995 1994
HK$'000 HK$'000
Trust receipt loans 17,142 14,533
Short-term bank loan 3,700 -
20,842 14,533
On September 2, 1994, the Company entered into a 1 year
agreement with the Hong Kong and Shanghai Banking
Corporation Ltd (the "Bank"). The accounts receivable
associated with sales by STD Entertainment (USA) Inc. were
pledged as security for a loan granted by the Bank at an
interest charge of 1% over US$ Best Lending Rate (the best
lending rate or any replacement or substitute interest rate
as quoted by the Bank from time to time in Hong Kong for
the relevant currency but subject to a minimum of 3%). The
loan provided is limited to a value of 75% of the
accounts receivable pledged. Information relating to this
factoring facility is summarized as follows:
1995 1994
HK$'000 HK$'000
Total credit facility available 31,200 -
Balance at end of year 3,700 -
Outstanding accounts receivable
factored at the end of year 5,192 -
The Company maintains overdraft credit facilities granted
by the Hong Kong and Shanghai Banking Corporation which
bear Interest at a rate of 0.5% over Best Lending Rate.
The maximum overdraft facility is HK$5,000,000.
The Company also maintains import facilities with the Hong
Kong and Shanghai Banking Corporation under which a trust
receipt loan of up to HK$32,000,000 is available at a daily
interest charge of 0.5% over Best Lending Rate. At March
31, 1995 HK$17,141,000 had been advanced to the Company
under this facility.
13. LONG-TERM DEBT
1995 1994
HK$'000 HK$'000
Bank loan secured 2,016 3,012
Obligation under capital leases
wholly repayable within five years 1,646 3,064
Other loan - 495
3,662 6,571
Amount due within one year included
under current liabilities (1,929) (2,404)
1,733 4,167
The secured bank loan bears interest on a daily basis of
0.5% over Best Lending Rate of the Hong Kong and Shanghai
Banking Corporation and is fully repayable in 1997.
Capital Leases
The future minimum lease payments and associated interest
payments at March 31, 1995 are as follows:
Minimum
lease Interest Net
Year payment payment amount
HK$'000 HK$'000 HK$'000
1996 1,098 166 932
1997 510 51 459
1998 196 21 175
1999 82 2 80
Total 1,886 240 1,646
Obligations under capital leases mainly relate to the
purchase of motor vehicles.
14. OTHER ACCRUED LIABILITIES
1995 1994
HK$'000 HK$'000
Provision for taxation 4,532 5,301
Provision for defective goods 4,673 -
Provision for staff bonus 2,264 5,816
Provision for floatation expense - 3,104
Other 14,245 8,529
25,714 22,750
15. DUE TO RELATED PARTIES
1995 1994 Nature
HK$'000 HK$'000
Hillcas Industries Ltd. - 2,319 purchases of
cable
The liabilities arose from purchases of inventory items
during the normal course of business. For the year ended
March 31, 1995 purchases from Hillcas amounted to
HK$6,981,000. For the year ended March 31, 1994 purchases
from Hillcas amounted to HK$3,827,000.
16. ASSET LIENS
The Company has pledged bank deposits to the extent of
HK$13,000,000 (1994:HK$4,109,000) and given a floating
charge over all the remaining assets of the Company for the
banking facilities granted by its bankers.
The bank loan is secured by a legal mortgage on the
Company's long term leasehold land and building in Hong
Kong, with a cost at HK$8,469,000. Restrictions imposed by
its banker are as follows:
(a) the Company should not distribute any dividend to the
shareholders without the banker's prior written
consent.
(b) Debt/Equity ratio is not to exceed 1.2 times and
leverage is to be maintained below 50% and
(c) the Company is required to direct at least
HK$200,000,000 of import and export business to
the banker annually.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
There is no material difference between the recorded value
of financial instruments disclosed in the accounts and
their fair value.
18. COMMON STOCK
<TABLE>
<CAPTION>
1995 1994
HK$'000 HK$'000
<S> <C> <C>
Authorized:
7 ordinary shares of HK$1 each - -
27,733,333 non-voting deferred shares
of HK$1 each 27,733 27,733
27,733 27,733
Issued and fully paid:
2 ordinary shares of HK$1 each - -
27,733,333 non-voting deferred shares of
HK$1 each 27,733 27,733
27,733 27,733
</TABLE>
The holders of the non-voting deferred shares are not
entitled to any profit distribution of the Company. On a
return of assets on a winding up the holders of the
deferred shares will be entitled to half of the proceeds in
excess of HK$100 trillion.
19. OPERATING LEASES
The company enters into non-cancellable lease agreements
for premises and equipment used in the normal course of
business. The following table shows the future minimum
obligations under operating lease commitments:
1995
HK$'000
1996 2,596
1997 2,134
1998 1,384
1999 1,170
2000 1,170
Thereafter 2,048
10,502
20. CONTINGENT LIABILITIES
(a) Bills discounted with recourse represent bills of exchange
sold to third parties prior to maturity of the bill. In
such cases, the acquirer has a right of recourse against
the company if the original issuer is unable to pay at
maturity. Management does not expect any liability to
arise from these transactions.
1995 1994
HK$'000 HK$'000
Bills discounted with recourse 2,755 468
(b) Legal claims by third parties
(i) On November 7, 1991, a legal claim was brought by
certain third parties against a subsidiary, STD
Electronic International Limited ("STD Electronic")
for trading products resembling the branded products
of these third parties without specifying the amount
of claim. Based on external legal advice, the
directors consider that it is too early to predict
the possible outcome nor to quantify the amount of the
claims based on the current circumstances.
(ii) On March 30, 1994, certain other third parties filed a
writ of summons against STD Electronic for
infringement of copyright. Based on legal advice, the
directors are of the opinion that the Company has a
good defence to the claim and therefore no provision
for loss is necessary.
(c) At March 31, 1995, a number of employees have completed the
required number of years of service under the Employment
Ordinance to be eligible for long service payments on
termination of their employment. However, the group is
liable to make such payments only when certain
circumstances specified in the Ordinance are met or when
the employees reach retirement age. If all the
circumstances required by the Ordinance were met, the
group's liability at the balance sheet date would be
approximately HK$723,000 (1994: HK$650,000). No provision
has been made in the accounts on the basis that the present
value of any amount that becomes payable is not material.
21. COMMITMENTS
(a) Capital Commitments
1995 1994
HK$'000 HK$'000
Authorized but not contracted for - 1,326
Contracted but not provided for 3,603 965
3,603 2,291
(b) Obligations incurred for the acquisition of materials
The company had outstanding irrevocable letters of credit
in the amount of HK$125,000 and HK$3,359,000 at March 31,
1995 and March 31, 1994, respectively. These letters of
credit, which have terms from one month to three months,
collateralize the Company's obligations to third parties
for the purchase of inventory.
22. NOTES TO THE CASH FLOW STATEMENT
(a) Reconciliation of income before taxation to net cash inflow
from operating activities
<TABLE>
<CAPTION>
1995 1994
HK$'000 HK$'000
<S> <C> <C>
Income before income taxes 43,025 32,684
Depreciation 8,823 10,100
Interest income (660) (641)
Interest expenses on bank loans and overdrafts 3,615 1,983
Interest expenses on finance leases 353 492
Loss on sale of fixed assets 28 (293)
Increase in stocks and work in progress (11,751) (13,769)
Decrease/(increase) in amounts due by related companies 3,540 (4,062)
Increase in amounts due by directors (12,930) -
Decrease/(increase) in bills receivable, debtors
and prepayments 4,837 (19,328)
Increase in amount due by investee company (424) -
Increase in trust receipt loans, creditors and accrued expenses 7,027 1,336
(Decrease)/increase in amount due to a related company (2,317) 2,319
Exchange translation differences 80 -
Net cash inflow from operating activities 43,246 10,821
</TABLE>
(b) De-consolidation of a subsidiary
During the year, the group has reclassified its investment
in STD Precision as investment held for sale (note 9). The
assets and liabilities of STD Precision at April 1, 1994
de-consolidated from the group accounts were as follows:
<TABLE>
<CAPTION>
HK$'000
<S> <C>
Fixed assets 2,533
Cash 124
Stocks and work in progress 817
Bills receivable 562
Trust receipt loans, creditors and accrued expenses (2,054)
Amount due to a related company (2)
Net amount due to STD Holding Limited and its subsidiaries (4,028)
Loan from minority shareholder (495)
(2,543)
Accumulated loss of STD Precision de-consolidated from the group accounts 3,093
Increase in investment held for sale 550
</TABLE>
(c) Analysis of changes in financing during the year
<TABLE>
<CAPTION>
Loans and
capital lease
obligations
HK$'000
<S> <C>
Balance at beginning of year 6,571
Repayment of bank loan (996)
De-consolidation of a subsidiary (495)
Capital element of capital lease rentals payments (1,418)
Balance at end of year 3,662
</TABLE>
23. SIGNIFICANT DIFFERENCES BETWEEN HK GAAP AND US GAAP
Accounting principles
These consolidated financial statements have been prepared
in accordance with HK GAAP, which differs in certain
significant respects from US GAAP. A description of the
relevant accounting principles which differ materially is
given below:
(a) Goodwill and other acquisition accounting adjustments
Under HK GAAP, STD Holding Ltd has credited negative
goodwill arising from the excess of the fair value of
assets acquired over the purchase consideration paid
to reserves. US GAAP requires valuation of acquired
companies at cost.
(b) Taxes on income
Under HK GAAP, deferred taxes are only accounted for
to the extent that it is considered probable that a
liability or asset will crystallize in the foreseeable
future. Under US GAAP, deferred taxes are accounted
for on all cumulative timing differences and a
valuation allowance is established in respect of those
deferred tax assets where it is more likely than
not that some portion will remain unrealized.
Deferred tax also arises in relation to the tax
effect of the other US GAAP adjustments.
(c) Gain on deconsolidation of STD Precision Industrial
Limited
Under HK GAAP this loss making subsidiary was
deconsolidated and reclassified as an investment held
for sale. It was restated at its original cost with
the resulting gain being taken directly to reserves.
Under US GAAP the investment is required to be
restated at its carrying value at the date of
deconsolidation.
(d) Depreciation of land leases
Under HK GAAP land leases in excess of 50 years are
not depreciated. Under US GAAP these assets must be
depreciated over the lease term.
(e) Cash flow statements.
The cash flow statement is prepared in conformity with
Statement of Standard Accounting Practice Number 15
issued by Hong Kong Society of Accountants. The
principal differences between this statement and cash
flow statements presented in accordance with
US Financial Accounting Standard number 95 are as
follows:
1. Under HK GAAP, net cash flow from operating
activities is determined before considering cash
flows from (a) returns on investments and
servicing of finance and (b) taxes paid. Under
US GAAP, net cash flow from operating activities
is determined after these items.
2. Under HK GAAP, dividends are classified as
returns on investments and servicing of finance
while under US GAAP, dividends are classified as
financing activities.
3. Under HK GAAP, cash and cash equivalents include
advances from banks or financial institutions
with a maturity of three months or less at the
date of the advance. Under US GAAP, these
liabilities are not included in cash and cash
equivalents but treated as part of financing
activities.
(f) Capitalization of long leases
Hong Kong GAAP permits the capitalization of the
premium paid in respect of long term land and building
leases. US GAAP requires classification of such
premiums as prepaid operating lease expense. This
difference has no effect on net income or
shareholders' equity.
ADJUSTMENTS TO CONSOLIDATED NET INCOME
<TABLE>
<CAPTION>
Reference in 1995 1994
note above HK$'000 HK$'000
<S> <C> <C> <C>
Net income attributable to ordinary
shareholders in accordance with HK GAAP 35,131 28,207
US GAAP adjustments:
Deferred taxation (b) 213 (1,417)
Additional depreciation (d) (93) (93)
Net income in accordance with
US GAAP 35,251 26,697
</TABLE>
<TABLE>
<CAPTION>
ADJUSTMENTS TO CONSOLIDATED SHAREHOLDERS' EQUITY
Reference in 1995 1994
note above HK$'000 HK$'000
<S> <C> <C> <C>
Shareholders' equity under HK GAAP 117,733 79,429
US GAAP Adjustments:
Deferred taxation (b) (404) (617)
Negative goodwill (a) (2,566) (2,566)
Gain recognized on deconsolidation
of STD Precision Industrial Ltd (c) (3,093) -
Additional depreciation (d) (372) (279)
Shareholders' equity in
accordance with US GAAP 111,298 75,967
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STD HOLDING LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1995
(UNAUDITED)
HK$ '000
<S> <C>
Fixed assets $ 23,492
Current assets:
Cash and cash equivalents 18,523
Trade debtors 33,650
Inventories 59,259
Other receivables and prepayments 8,396
Investment held for sale 574
Prepaid income taxes 1,258
Deferred tax asset 2,613
T O T A L 124,273
Current liabilities:
Hire purchases (current) 492
Trade creditors 43,214
Bank overdrafts and loans 8,550
Sundry creditors and accruals 14,056
Income taxes payable 3,592
69,904
Net current assets 54,369
Net assets $ 77,861
Financed by:
Share capital - authorized 27,733,340 shares
of HK $1 each, issued and fully paid
27,733,335 shares of HK $1 each $ 27,733
Share premium 13,067
Capital reserve on consolidation 2,566
Retained profit 31,433
Exchange translation reserve 80
Shareholders' funds 74,879
Long-term liabilities 2,982
T O T A L $ 77,861
</TABLE>
The attached notes are part hereof.
<PAGE>
<TABLE>
<CAPTION>
STD HOLDING LIMITED AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
Six Months Ended
June 30,
1995 1994
HK$ '000 HK$ '000
<S> <C> <C>
Net sales $110,941 $ 98,127
Cost of sales 73,672 66,928
37,269 31,199
Selling and administrative expenses 37,275 46,112
Research and development expenses 2,780 3,946
Expenses in connection with aborted
public offering 4,000
40,055 54,058
Loss from operations (2,786) (22,859)
Interest expense (1,155) (1,803)
Interest income 725 251
Other income 153 5,537
Loss before taxation (3,063) (18,874)
Taxation (1,635) 4,330
NET LOSS $ (4,698) $(14,544)
</TABLE>
The attached notes are part hereof.
<PAGE>
<TABLE>
<CAPTION>
STD HOLDING LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1995 1994
HK $ '000 HK $ '000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,698) $(14,544)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 4,608 5,253
Loss on disposal of fixed assets 2 43
Deferred income taxes (1,339) (130)
Net change in asset and liability accounts:
Trade debtors 19,318 45,009
Inventories 2,815 (4,595)
Other receivables and prepayments 19,551 425
Prepaid income taxes (1,258) 28
Trade creditors (7,179) (23,397)
Sundry creditors and accruals (7,472) (3,097)
Income taxes payable (6,132) (8,759)
Total adjustments 22,914 10,780
Net cash provided by (used for)
operating activities 18,216 (3,764)
Cash flows from investing activities:
Purchase of property, plant and equipment (5,749) (4,789)
Repayments from directors 929
Net cash used for investing activities (4,820) (4,789)
Cash flows from financing activities:
Net repayments on bank overdrafts and loans (1,255) (2,640)
Principal payments on long-term liabilities (1,159) (1,576)
Dividends paid (40,000)
Net cash used for financing activities (42,414) (4,216)
NET DECREASE IN CASH AND CASH EQUIVALENTS (29,018) (12,769)
Cash and cash equivalents - January 1 47,541 25,396
CASH AND CASH EQUIVALENTS - JUNE 30 $ 18,523 $ 12,627
Supplemental disclosures of cash paid for:
Interest $ 1,155 $ 1,803
Income taxes $ 6,903 $ 3,937
</TABLE>
Noncash investing and financing activities:
The Company acquired motor vehicles under capital
lease obligations aggregating HK $330,000 and
HK $775,000 during the six month periods ending
June 30, 1995 and 1994, respectively.
The attached notes are part hereof.
<PAGE>
STD HOLDING LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE A - The attached summarized financial information does not
include all disclosures required to be included in a
complete set of financial statements prepared in
conformity with generally accepted accounting
principles. Such disclosures were
included with the consolidated financial statements of
the Company at March 31, 1995. Such statements should
be read in conjunction with the data herein.
NOTE B - The financial information reflects all normal recurring
adjustments which, in the opinion of management, are
deemed necessary for a fair presentation of the results
for the interim periods. The results for the interim
periods are not necessarily indicative of the results
to be expected for the year. Historically, the
Company's sales and earnings have been higher in the
second half of each year.
NOTE C - Inventory at June 30, 1995 is comprised of:
HK$ '000
Raw materials and work-in-process $29,412
Finished goods 29,847
T O T A L $59,259
NOTE D - The Company and each of its subsidiaries files separate
income tax returns; no consolidated income tax returns
are filed. Income taxes have been provided in the
attached financial statements for each of the profitable
entities. No tax benefits have been recorded for those
subsidiaries which have incurred net losses in each of
the six month periods ended June 30, 1995 and 1994.
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1995
Historical Amounts
Recoton STD Holding Pro Forma
Corporation Limited Adjustments Adjusted
ASSETS and Subsidiaries and Subsidiaries (1) Pro Forma
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 13,705,825 $ 2,393,172 $ (500,000) $ 15,598,997
Accounts receivable (less allowance
for possible loss) 28,631,841 4,347,580 32,979,421
Inventories 48,091,940 7,656,263 55,748,203
Prepaid expenses and other current assets 4,090,304 1,584,897 (80,330) 5,257,263
(337,608)
Total current assets 94,519,910 15,981,912 (917,938) 109,583,884
Property and equipment (less accumulated
depreciation and amortization) 16,588,879 3,035,166 19,624,045
Other assets 7,650,200 74,161 12,982,838 20,707,199
T O T A L $118,758,989 $19,091,239 $12,064,900 $149,915,128
The attached notes to pro forma financial statements are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1995
-2-
Historical Amounts
Recoton STD Holding Pro Forma
Corporation Limited Adjustments Adjusted
LIABILITIES and Subsidiaries and Subsidiaries (1) Pro Forma
<S> <C> <C> <C> <C>
Current liabilities:
Bank overdrafts and loans payable $ 1,104,660 $ 1,104,660
Current portion of long-term debt $ 870,311 247,746 $ 1,641,100 2,759,157
Accounts payable 7,708,630 5,583,209 13,291,839
Accrued expenses 2,259,207 1,816,039 571,989 4,647,235
Income taxes payable 1,677,588 464,085 (106,807) 2,034,866
Total current liabilities 12,515,736 9,215,739 2,106,282 23,837,757
Long-term debt (less current portion above) 4,783,998 201,093 11,358,900 16,343,991
Deferred compensation and other noncurrent
liabilities 927,632 927,632
Total liabilities 18,227,366 9,416,832 13,465,182 41,109,380
STOCKHOLDERS' EQUITY
Common stock 2,362,774 3,583,147 81,218 2,443,992
(3,583,147)
Additional paid-in capital 64,488,193 1,688,213 8,192,907 72,681,100
(1,688,213)
Retained earnings 38,344,879 4,392,671 (4,392,671) 38,344,879
Cumulative foreign currency translation
adjustment (293,451) 10,376 (10,376) (293,451)
104,902,395 9,674,407 (1,400,282) 113,176,520
Treasury stock - at cost (4,370,772) (4,370,772)
Total stockholders' equity 100,531,623 9,674,407 (1,400,282) 108,805,748
T O T A L $118,758,989 $19,091,239 $12,064,900 $149,915,128
The attached notes to pro forma financial statements are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
Historical Amounts
Recoton STD Holding
Corporation Limited Pro Forma Adjusted
and Subsidiaries and Subsidiaries Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $79,481,225 $14,344,671 $93,825,896
Cost of sales 50,028,069 9,525,790 59,553,859
Gross profit 29,453,156 4,818,881 34,272,037
Selling, general and administrative
expenses 23,574,113 5,179,112 $ 411,802 (2) 29,165,027
Interest expense 129,125 149,342 476,938 (4) 755,405
Investment income (419,691) (113,525) (533,216)
23,283,547 5,214,929 888,740 29,387,216
Income (loss) before income taxes 6,169,609 (396,048) (888,740) 4,884,821
Income tax provision (credit) 1,569,000 211,000 (90,000) (5) 1,690,000
NET INCOME (LOSS) $ 4,600,609 $ (607,048) $(798,740) $ 3,194,821
Earnings per share:
Primary $0.41 $ (0.13) (6) $0.28
Assuming full dilution $0.41 $(0.14) (6) $0.27
Number of shares used in computing
per share amounts:
Primary 11,201,000 406,000 (6) 11,607,000
Assuming full dilution 11,285,000 406,000 (6) 11,691,000
The attached notes to pro forma financial statements are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
Historical Amounts
Recoton STD Holding
Corporation Limited Pro Forma Adjusted
and Subsidiaries and Subsidiaries Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $163,973,167 $40,832,423 $204,805,590
Cost of sales 97,317,162 24,609,540 121,926,702
Gross profit 66,656,005 16,222,883 82,878,888
Selling, general and administrative
expenses 49,454,190 9,714,826 $ 823,603 (2) 61,726,820
1,734,201 (3)
Interest expense 607,926 513,062 958,448 (4) 2,079,436
Investment income (479,474) (85,338) (564,812)
49,582,642 10,142,550 3,516,252 63,241,444
Income before income taxes 17,073,363 6,080,333 (3,516,252) 19,637,444
Income tax provision 5,269,000 1,115,600 (541,000) (5) 5,843,600
NET INCOME $ 11,804,363 $ 4,964,733 $(2,975,252) $ 13,793,844
Earnings per share:
Primary $1.12 $0.14 (6) $1.26
Assuming full dilution $1.12 $0.14 (6) $1.26
Number of shares used in computing
per share amounts:
Primary 10,560,000 406,000 (6) 10,966,000
Assuming full dilution 10,572,000 406,000 (6) 10,978,000
The attached notes to pro forma financial statements are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
AS AT JUNE 30, 1995 AND
FOR THE YEAR AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1994 AND JUNE 30, 1995
On September 5, 1995, Recoton Corporation ("Recoton")
acquired in a purchase transaction the outstanding stock of STD
Holding Limited ("STD"), as well as certain net assets owned by
one of STD's subsidiaries. STD is a Hong Kong based manufacturer
and marketer of video game joysticks, controllers and computer
accessories. The purchase price of $21,774,125 was comprised of
cash payments of $13,500,000 and the issuance of 406,092 shares
of Recoton's common stock (at $20.375 a share), plus
approximately $652,000 of legal and accounting fees and other
acquisition costs.
The attached pro forma financial statements combine the
historical consolidated amounts of Recoton as at June 30, 1995
and for the six months then ended and for the year ended December
31, 1994 with those of STD as at June 30, 1995 and for the six
months then ended and for the year ended March 31, 1995, after
excluding a charge in the year ended March 31, 1995
which is unrelated to the operations acquired. The results of
operations of STD for the six months ended June 30, 1995 are not
considered indicative of its operations for the year ending
December 31, 1995 due to the seasonal nature of its business.
In connection with the acquisition, Recoton borrowed
$13,000,000 from a bank for the cash portion of the purchase
price and certain assets of an STD subsidiary were not acquired.
Additionally, the asset purchase agreement provides for the
payment of bonuses based on STD's future profitable operations.
The pro forma financial statements reflect the liability for the
bank borrowing, exclude those assets not acquired, and provide
for the applicable additional bonuses. Because management
anticipates benefits from the acquisition which are not reflected
in the pro forma amounts, no representation is made that the pro
forma results are necessarily indicative of the combined results
that would have been achieved or as to the future combined
operations of Recoton and STD.
The pro forma adjustment column is comprised of the
following:
1. To record the balance sheet effects of the
acquisition of STD and the net assets of its
subsidiary, the issuance of shares of Recoton's
stock and the bank financing incurred.
2. To record the amortization over a 15 year period of
the excess of the purchase price over the net
assets acquired.
3. To record bonuses to be paid under the terms of the
purchase agreement.
4. To record interest expense on the bank financing.
5. To record the income tax effect of the foregoing
adjustments to results of operations, based on the
applicable foreign and domestic effective income
tax rates of the companies.
6. To reflect the per share effect of the acquisition.
