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 June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to _______.
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 (L.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 August 12, 1996
Common Shares, par
value $.20 a share 11,356,163
<PAGE>
PART I - FINANCIAL INFORMATION
<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Tabular Amounts in Thousands)
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------ ------------ ------------
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,745 $ 12,393
Accounts receivable (less allowance for
possible loss of $1,680,000 in 1996 and
$1,587,000 in 1995) 38,009 55,019
Inventories 65,264 66,484
Prepaid and refundable income taxes 2,311
Prepaid expenses and other current assets 9,932 6,583
-------- --------
Total current assets 121,261 140,479
Property and equipment (at cost, less accumulated
depreciation and amortization) 25,717 24,163
Goodwill (less accumulated amortization) 15,952 16,391
Other assets 6,067 4,021
-------- --------
T O T A L $168,997 $185,054
-------- --------
LIABILITIES
Current liabilities:
Bank loans and drafts payable $ 3,416 $ 13,176
Current portion of long-term debt 4,913 5,131
Accounts payable 10,348 15,144
Accrued expenses 4,997 7,417
Income taxes payable 2,142 3,209
-------- --------
Total current liabilities 25,816 44,077
Long-term debt (less current portion above) 17,959 20,511
Other noncurrent liabilities 1,113 1,069
-------- --------
Total liabilities 44,888 65,657
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $1.00 par value each - authorized
10,000,000 shares; none issued -- --
Common stock - $.20 par value each - authorized
25,000,000 shares; issued $12,579,248 shares in
1996 and $12,296,160 shares in 1995 2,516 2,459
Additional paid-in capital 75,822 72,926
Retained earnings 50,968 48,797
Cumulative foreign currency translation
adjustment (262) (300)
-------- --------
Total 129,044 123,882
Treasury stock - 1,158,085 shares in 1996 and
1,132,770 shares in 1995, at cost (4,935) (4,485)
-------- --------
Total stockholders' equity 124,109 119,397
-------- --------
T O T A L $168,997 $185,054
======== ========
The attached notes are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands, Except Per Share Data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ --------------
1996 1995 1996 1995
-------- -------- --------- ------
<S> <C> <C> <C> <C>
Net sales $51,843 $42,527 $106,404 $79,481
Cost of goods sold 32,635 27,233 66,254 50,028
------- ------- -------- -------
Gross profit 19,208 15,294 40,150 29,453
------- ------- -------- -------
Selling, general and administrative
expenses 17,981 12,117 36,283 23,574
Interest expense 507 56 1,154 129
Investment (income) (80) (215) (144) (420)
------- ------- -------- -------
T o t a l 18,408 11,958 37,293 23,283
------- ------- -------- -------
Income before income taxes 800 3,336 2,857 6,170
Income tax provision 235 865 686 1,569
------- ------- -------- -------
NET INCOME $ 565 $ 2,471 $ 2,171 $ 4,601
======= ======= ======== =======
Earnings per common share:
Primary $.05 $.22 $.19 $.41
==== ==== ==== ====
Assuming full dilution $.05 $.22 $.19 $.41
==== ==== ==== ====
Number of shares used in computing per share amounts:
Primary 11,709 11,200 11,694 11,201
====== ====== ====== ======
Assuming full dilution 11,709 11,273 11,702 11,285
====== ====== ====== ======
Dividends None None None None
The attached notes are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Tabular Amounts in Thousands)
<CAPTION>
Six Months Ended
June 30,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995
----------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,171 $ 4,601
-------- --------
Adjustments to reconcile results of operations to net cash provided by
operating activities:
Depreciation and amortization 3,114 1,406
Provision for losses on accounts receivable 168 218
Deferred income taxes (706) (167)
Net change in asset and liability accounts:
Accounts receivable 16,840 6,940
Inventory 1,220 (3,987)
Prepaid and refundable income taxes (2,311)
Prepaid expenses and other current assets (3,187) 1
Other assets (189) (316)
Accounts payable and accrued expenses (7,190) (3,616)
Income taxes payable (1,017) (165)
Deferred compensation and other noncurrent
liabilities 44 24
------- --------
Total adjustments 6,786 338
------- --------
Net cash provided by operating activities 8,957 4,939
------- --------
Cash flows from investing activities:
Expenditures for property and equipment (3,500) (4,553)
Net assets acquired from Ampersand (712)
Expenditures for trademarks, patents and
intellectual property (81) (414)
Loan to International Jensen Incorporated (2,000)
------- ---------
Net cash used for investing activities (5,581) (5,679)
------- --------
Cash flows from financing activities:
Net repayments under credit agreements (9,755)
Repayment of long-term bank borrowings (2,760) (430)
Proceeds from exercise of stock options 1,384 71
Income tax benefit applicable to exercise
of stock options 1,119 2
Purchases of treasury stock (669)
------- --------
Net cash used for financing activities (10,012) (1,026)
-------- --------
Effect of foreign exchange rate changes on cash (12) (3)
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
(CARRIED FORWARD) (6,648) (1,769)
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
(BROUGHT FORWARD) $(6,648) $(1,769)
Cash and cash equivalents - January 1 12,393 15,475
------- -------
CASH AND CASH EQUIVALENTS - JUNE 30 $ 5,745 $13,706
======= =======
Supplemental disclosures of cash paid for:
Interest $ 973 $ 227
======= =======
Income taxes $ 3,352 $ 1,893
======= =======
</TABLE>
Noncash financing activities:
In connection with the exercise of incentive stock options in 1996, 143,701
shares of common stock were issued in exchange for 25,315 shares of
previously issued common stock with a market value of $449,678 and 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.
In April 1995, 11,896 shares of treasury stock with a market value of
$194,000 were acquired in consideration for the cancellation of a loan
receivable.
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
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, 1995, 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 June 30, 1996 is comprised of:
Raw materials and work-in-process $19,209
Finished goods 40,190
Merchandise in-transit 5,865
-------
T o t a l $65,264
=======
NOTE D - Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" is effective January 1,
1996. As permitted under SFAS No. 123, the Company has decided to
continue accounting for employee stock compensation under APB 25
rules. However, in its financial statements for the year ending
December 31, 1996 the Company will disclose supplementally on a pro
forma basis its net income and earnings per common share as if it
has adopted the new standard's alternative accounting treatment.
Such alternative treatment calculates the total compensation expense
to be recognized as the fair value of the award at the date of
grant.
The Company granted stock options for 234,741 and 348,209 shares
during the six months ended June 30, 1996 and 1995, respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of the quarters ended June 30, 1996 and 1995 and the six-month
periods ended June 30, 1996 and 1995:
RESULTS OF OPERATIONS
Net sales for the second quarter of 1996 increased by 22% to $51.8 million
from $42.5 million in the same period in 1995. For the six-month period, net
sales increased by 34% to $106.4 million in 1996 from $79.5 million in 1995. The
sales increase is attributable to sales of the InterAct, Performance and STD
brands which were acquired by the Company in September 1995 through the
acquisition of STD Holding Limited ("STD").
Gross profit for the second quarter of 1996 increased by approximately $3.9
million as compared to the second quarter of 1995, and increased as a percentage
of net sales from 36.0% to 37.1%. Gross profit increased by approximately $10.7
million in the first six months of 1996 as compared to the comparable period in
1995, and increased slightly as a percentage of net sales from 37.1% to 37.7%.
Selling, general and administrative expenses for the second quarter of 1996
increased by approximately $5.9 million as compared to the second quarter of
1995, and increased as a percentage of net sales from 28.5% to 34.7%. Selling,
general and administrative expenses increased in the first six months of 1996 by
$12.7 million to $36.3 million, and increased as a percentage of net sales from
29.7% to 34.1%. The increases were primarily due to the acquired STD operations,
higher sales and marketing expenses in the weak domestic market, the operations
of Christie Design Corporation, which commenced manufacturing and shipments in
March 1996, increased research and development expenses and expenses related to
the Company's recently expanded Lake Mary, Florida facility.
Interest expense increased by approximately $1.0 million in the first six
months of 1996 and by approximately $.5 million in the second quarter of 1996.
The increases are primarily attributable to the acquisition and operations of
STD and the financing of the Company's new Lake Mary, Florida warehouse
facility.
Investment income decreased by approximately $.3 million in the first six
months of 1996. The decrease in investment income resulted from expanded working
capital requirements of the Company.
The effective income tax rate for the six-month period ended June 30, 1996
decreased to 24.0% from 25.4% in 1995 as a result primarily of the high
proportion of income earned by the Company's subsidiaries in Hong Kong and
China, which is taxed at a maximum rate of 16.5%. The effective income tax rate
for the first six months of 1996 may not be indicative of the effective income
tax for the year ending December 31, 1996 or thereafter because of the changes
in the proportion of domestic and foreign taxable income which might occur.
Earnings per share were $.19 on both a primary and fully-diluted basis for
the six months ended June 30, 1996 and $.05 on both a primary and fully-diluted
basis for the three months ended June 30, 1996. The 1996 per share calculations
were based on 11,694,000 (11,702,000 on a fully-diluted basis) average common
and common equivalent shares outstanding for the six-month period and 11,709,000
(on both a primary and fully-diluted basis) for the three month period. For the
comparable six months of 1995, earnings per share were $.41 on both a primary
and fully-diluted basis based on 11,201,000 (11,285,000 on a fully-diluted
basis) average common and common equivalent shares outstanding. For the
comparable three months of 1995, earnings per share were $.22 on both a primary
and fully-diluted basis, based on 11,200,000 (11,273,000 on a fully-diluted
basis) average common and common equivalent shares outstanding. The increase in
average shares outstanding in 1996 primarily results from the 406,092 shares
issued as part of the STD purchase in September 1995.
Statement of Financial Standards No. 123, "Accounting for Stock-Based
compensation," became effective January 1, 1996. The Company has decided to
continue accounting for employee stock-based compensation under APB 25 rules, as
permitted under SFAS 123, but will disclose in its annual financial statement
for the year ending December 31, 1996 the pro forma effect on net income and
earnings per share as if it had adopted the new standard's alternative
accounting treatment.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains domestic lines of credit of $50 million with three
banks of which $5 million can only be used for acquisition purposes, any of
which may be terminated by such banks at any time. At June 30, 1996, loans and
letters of credit of $6.2 million were outstanding on the domestic lines of
credit. The Company maintains foreign lines of credit of $13.9 million, of which
$.6 million were outstanding for loans at June 30, 1996.
At June 30, 1996, the Company had working capital of approximately $95.4
million as compared with approximately $96.4 million at December 31, 1995.
However, the Company's working capital ratio increased to 4.7 to 1 at June 30,
1996 from 3.2 to 1 at December 31, 1995.
In June and August of 1994, the Company purchased approximately 30 acres of
land in Lake Mary, Florida on which it completed construction in 1995 of a
245,000 square foot warehouse building. The cost for the land and building
construction was approximately $7.2 million. The Company initially utilized a
combination of its own cash and existing bank lines for this project. However,
in December 1995 the Company obtained a five-year $7 million uncollateralized
bank loan, in connection with this facility.
In August 1994, the Board of Directors authorized the repurchase by the
Company of up to 500,000 outstanding Common Shares. In 1995, 42,366 shares were
repurchased for $170,000; no shares were repurchased in the six months ended
June 30, 1996. In June 1996, the Board of Directors authorized under certain
circumstances the purchase from time to time of additional shares of the
Company's stock from certain officers. In July 1996, the Company purchased
65,000 shares of stock from an officer, for a total sales price of approximately
$1.1 million.
In April 1995, Recoton formed Christie Design Corporation, located in
Chatsworth, California. This wholly-owned subsidiary, which develops and markets
speaker products, commenced manufacturing and shipments in March 1996. Through
June 30, 1996, the Company has expended approximately $3.5 million for start-up
and capital costs for this subsidiary.
In September 1995, Recoton acquired STD Holding Limited, a Hong Kong-based
international manufacturer and marketer of multimedia and computer accessories,
including video game joysticks, controllers and accessories and computer
speakers sold under the InterAct, Performance and STD brand names. STD's
operations are in Hong Kong, the People's Republic of China and Maryland
(U.S.A.). The total cost of the purchase of $22.7 million was paid through a
combination of cash and 406,092 Recoton Common Shares (valued at $8.3 million).
The cash portion of the purchase price was initially borrowed under existing
bank lines of credit. In December 1995, the Company obtained a five-year bank
term loan to replace these borrowings.
In January 1996, Recoton announced it had executed a definitive merger
agreement to acquire International Jensen Incorporated (IJI), a leading marketer
of home and automotive loudspeakers and automotive electronics, subsequent to
the sale to a third party of IJI's original equipment manufacturing (OEM)
business. The current total estimated cost is approximately $60 million cash,
plus the assumption of IJI debt. The purchase is expected to be financed through
medium-term debt and revolving lines of credit. The transaction is subject to
the approval of Jensen's stockholders as well as certain other conditions. While
another company has announced a competing bid for IJI and there is litigation
against both IJI and the Company in connection with the merger, the Company
currently hopes to close the acquisition in late August.
The Company currently believes there is no material exposure to loss due to
foreign currency risks in its foreign subsidiaries. The Hong Kong dollar has
been pegged to the U.S. dollar at an official exchange rate of HK$7.78 to
US$1.00. Historically, there have been no material fluctuations in the Hong
Kong/United States and the Hong Kong/Chinese exchange rates. No material amounts
are invested in Canadian assets. Upon the consummation of the merger with IJI,
the Company may in the future, be exposed to currency fluctuation risks related
to IJI's European operations.
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) DELAWARE LITIGATION REGARDING JENSEN MERGER. Three separate
actions were commenced against Recoton and others in the courts of the state of
Delaware in connection with the pending merger (the "Merger") with International
Jensen Incorporated ("Jensen"): (I) RANDI MARCUS V. INTERNATIONAL JENSEN
INCORPORATED, ROBERT G. SHAW, ROBERT H. JENKINS, DAVID G. CHANDLER, RECOTON
CORPORATION, RC ACQUISITION SUB, INC., IJI ACQUISITION CORP. WILLIAM BLAIR &
COMPANY, AND WILLIAM BLAIR LEVERAGED CAPITAL FUND LIMITED PARTNERSHIP (Chancery
Court, Delaware, Civil Action No. 14992) (ii) HARBOR FINANCE PARTNERS V. ROBERT
G. SHAW, ET AL. (CHANCERY COURT, DELAWARE, CIVIL ACTION NO. 15006); AND (III)
EMERSON RADIO CORP. V. INTERNATIONAL JENSEN INCORPORATED, ROBERT G. SHAW, DAVID
G. CHANDLER, ROBERT H. JENKINS, NORMAN H. MCMILLAN, WILLIAM BLAIR LEVERAGED
CAPITAL FUND, L.P, RC ACQUISITION SUB, INC., IJI ACQUISITION CORP. AND RECOTON
CORPORATION (Chancery Court, Delaware, Civil Action No. 15130NC). The first two
actions were, effective July 3, 1996, consolidated into a single action,
captioned In Re International Jensen Incorporated Shareholders Litigation
(Chancery Court, Delaware, Civil Action No. 14992).
STOCKHOLDER SUITS. On May 9, 1996, Randi Marcus filed an action in the
Court of Chancery of the State of Delaware against Jensen, its directors,
Recoton, RC Acquisition Sub, Inc. ("RC Acquisition"), IJI Acquisition Corp.
("IJI Acquisition"), William Blair & Company and William Blair Leveraged Capital
Fund, L.P. ("WBLCF") seeking to enjoin the Jensen merger. The complaint alleged
(i) breaches of fiduciary duty by Jensen's directors and affiliates of some of
the directors by taking various actions, including approving and continuing to
pursue the sale of the original equipment manufacturing business (the "OEM
Business") of Jensen to Robert Shaw, refusing to pursue the allegedly higher
priced proposal from Emerson Radio Corp. ("Emerson") and imposing allegedly
inappropriate asset lockups and termination fees; (ii) that Recoton and the
other defendants have aided and abetted the alleged breaches of fiduciary duty;
and (iii) that various agreements of Jensen with Recoton and others (including
the termination fee provisions of the Merger Agreement, a license/option
agreement between Jensen and Recoton regarding the Jensen trademarks "Acoustic
Research" and "AR," an agreement between Recoton and Robert Shaw pursuant to
which Recoton would receive certain proceeds if Shaw sold his shares of Jensen
stock under certain circumstances and a stock option and voting agreement with
WBLCF relating to stock of Jensen (the "Stock Option and Voting Agreement") are
invalid as a matter of Delaware law. The plaintiff requested temporary and
permanent injunctive and declaratory relief, rescission of various agreements,
such other equitable or damage relief as the court finds proper and an award of
attorneys' fees and expenses. After the Merger transaction was enhanced on May
10, 1996, the plaintiff filed an amended complaint on May 15, 1996, making
comparable and additional claims as to the enhanced transaction.
On May 20, 1996, a second stockholder of Jensen, Harbor Finance
Partners, filed an action in the Court of Chancery of the State of Delaware
against Jensen, its directors, Recoton and RC Acquisition, seeking to enjoin the
Merger. The complaint alleged (i) breaches of fiduciary duty by Jensen's
directors, including allegedly failing to act in good faith to negotiate with
both Emerson and Recoton, rejecting an allegedly higher priced all cash
transaction with Emerson and failing to act reasonably in order to obtain the
best price in the sale of Jensen; and (ii) that Recoton and the other defendants
have aided and abetted the alleged breaches of fiduciary duty. The plaintiff
requested that the lawsuit be maintained as a class action on behalf of all
public stockholders and sought temporary and permanent injunctive and
declaratory relief, rescission of the Merger should it occur, the establishment
of a stockholders' committee to participate in the sale of Jensen, the awarding
of compensatory damages against the defendants and such other and further relief
as the court finds proper and an award of attorneys' fees and expenses.
On July 3, 1996, the stockholder cases were consolidated into a single
action. On July 8, 1996, an amended consolidated stockholder complaint was filed
by the existing Delaware plaintiffs against the same defendants making claims
similar to those previously made with additional allegations charging that the
wrongful conduct continued through Jensen's acceptance of Recoton's latest offer
and rejection of Emerson's latest offer.
On July 16, 1996, the plaintiffs in the Delaware action filed a motion
for leave to file a supplement to their complaint alleging that the Merger
Agreement as amended on June 23, 1996 resulted in the termination of the Stock
Option and Voting Agreement and further that the voting and proxy provisions of
such agreement were no longer in effect.
On July 16, 1996, the Delaware court denied the plaintiffs' motion for
an order to expedite discovery and to schedule a hearing on the plaintiffs'
application for a preliminary injunction to enjoin the Merger, determining that
the Merger will not result in irreparable harm to the plaintiffs because any
alleged wrongful conduct could be adequately remedied by a money damages award.
EMERSON SUIT. On July 30, 1996, Emerson filed an action in the Court
of Chancery of the State of Delaware against Jensen, its directors, WBLCF, IJI
Acquisition, Recoton and RC Acquisition, seeking to enjoin the Merger and the
sale of Jensen's OEM Business. The complaint alleged (i) that Jensen and its
directors have failed to act in good faith to negotiate with Emerson, rejecting
allegedly superior offers from Emerson and failing to act reasonably in order to
obtain the best price in the sale of Jensen; (ii) that the defendants have
deliberately interfered with the prospective business relationship between
Emerson and Jensen; and (iii) that Recoton and WBLCF have aided and abetted the
alleged breaches of fiduciary duty by Jensen's Board of Directors. Emerson
sought preliminary and permanent injunctive and declaratory relief, the awarding
of compensatory damages against the defendants and such other and further relief
as the court finds proper.
GENERAL. On July 31, 1996, the Delaware Chancery Court scheduled a
hearing on a motion for a preliminary injunction by Emerson and by certain
stockholders of International Jensen for August 15, 1996. Recoton believes that
both the consolidated stockholder complaint and the Emerson complaint are
without basis in fact or law, are based upon misleading information and that the
court lacks personal jurisdiction over it. Recoton intends to oppose both
litigations vigorously.
(b) ILLINOIS LITIGATION REGARDING JENSEN MERGER.
On May 10, 1996, Jensen filed an action in Federal District Court in
Chicago, Illinois against Emerson and its President for violations of proxy
solicitation rules and for breach of a confidentiality agreement with Jensen
(the "Confidentiality Agreement"). INTERNATIONAL JENSEN INCORPORATED V. EMERSON
RADIO CORP., AND EUGENE DAVIS (U.S. District Court, Northern District of
Illinois, Eastern Division, No. 96C 2816). On May 14, 1996, the court entered a
temporary restraining order against Emerson and its President, enjoining them
from (i) further solicitation of Jensen's stockholders or their representatives
until Emerson has filed a proxy statement with the Securities and Exchange
Commission which complies with the provisions of Regulation 14A of the
Securities Exchange Act of 1934; (ii) making further solicitation containing
false or misleading statements of material fact or material omissions; and (iii)
disclosing confidential information in violation of the Confidentiality
Agreement. On May 20, 1996, Emerson filed a counterclaim in this action alleging
that Jensen and Robert Shaw fraudulently induced Emerson to enter into the
Confidentiality Agreement and failed to negotiate with Emerson in good faith.
Emerson requested rescission of the Confidentiality Agreement and such other
equitable or damage relief as the court finds proper and an award of attorneys'
fees and expenses. On May 23, 1996 the Federal District Court and the parties
agreed to proceed with the bidding process and Emerson agreed that the terms of
the temporary restraining order would continue and Jensen and Emerson agreed to
suspend the prosecution of the litigation until the Jensen Board had had an
opportunity to consider both the Emerson and Recoton proposals. The temporary
restraining order lapsed on May 23, 1996.
On July 2, 1996 Emerson filed an amended counterclaim and third party
complaint in the Chicago Federal District Court making allegations similar to
those in its original counterclaim and additional claims that Jensen and Mr.
Shaw continued to mislead Emerson and negotiate in bad faith, with Recoton and
WBLCF added as alleged co-conspirators with respect to such continuing conduct.
WBLCF was later dismissed as a third-party defendant to the action without
prejudice. On August 8, 1996, Emerson amended its counterclaims and third party
complaint to add claims against Jensen for its alleged violation of Section
14(a) of the Securities Exchange Act of 1934. The allegations against Recoton
remain substantially similar to those previously asserted. In connection with
its amended counterclaims and third party complaint, Emerson moved before the
Chicago Federal District Court on August 8, 1996 for a temporary restraining
order and preliminary injunction enjoining Jensen from (1) proceeding with the
August 28, 1996 special meeting of stockholders called to vote on the Merger;
(2) utilizing at the special meeting any proxies allegedly improperly solicited;
and (3) enforcing against Emerson a confidentiality and standstill agreement At
a hearing on August 12, 1996, the court set a briefing schedule for the parties.
Recoton intends to vigorously oppose the third-party claims asserted against it.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Annual Meeting of the Shareholders of the Corporation was held on
June 12, 1996. Each of the four candidates for the position of director, Messrs.
Robert Borchardt, Stuart Mont, George Calvi and Paul E. Feffer, were elected.
The directors whose term of office continued after the meeting were Messrs.
Herbert H. Borchardt, Peter Wish, Joseph Massot, Ronald McPherson, Irwin
Friedman and Joseph Idy.
The matters voted upon at the meeting and the number of votes cast
for, against or withheld (including abstentions and broker non-votes) as to each
matter, including nominees for office, are as follows:
1. Director election:
Robert L. Borchardt
For: 9,246,578
Withhold Authority: 207,897
Stuart Mont
For: 9,245,478
Withhold Authority: 208,997
George Calvi
For: 9,245,578
Withhold Authority: 208,897
Paul E. Feffer
For: 9,238,067
Withhold Authority: 216,408
2. Ratification of the appointment of Cornick, Garber & Sandler, LLP as
Independent Auditors for the Fiscal Year Ending December 31, 1996:
For: 9,237,475
Against: 3,721
Abstain: 213,279
Nonvote: 0
Item 5. OTHER INFORMATION.
When used in this Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer, the
words or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," "expect," "believe," "hope" or similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
such forward-looking statements, which speak only as of the date made.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K: Reports were filed on Forms 8-K during the
quarter ended June 30, 1996 dated May 1, 1996, May 9, 1996, May 22, 1996 and
June 23, 1996 describing, under Item 5, amendments to, and action related to,
the merger agreement with International Jensen Incorporated dated as of January
3, 1996 and, with respect to the filing on May 24, 1996, the institution of the
Harbor Finance Partners action described above.
<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 thereunto duly authorized.
RECOTON CORPORATION
Date: August 13, 1996 /s/ Robert L. Borchardt
------------------------
Robert L. Borchardt
President, Co-Chairman of
the Board and Chief
Executive Officer
Date: August 13, 1996 /s/ Stuart Mont
----------------
Stuart Mont
Chief Operating Officer,
Executive Vice President
- Operations, Chief
Financial Officer and
Secretary
<PAGE>
EXHIBIT INDEX
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Condensed
Consolidated Statement of Financial Condition at June 30, 1996 (Unaudited) and
the Condensed Consolidated Statement of Income for the Six Months Ended June 30,
1996 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,745
<SECURITIES> 0
<RECEIVABLES> 39,689
<ALLOWANCES> 1,680
<INVENTORY> 65,264
<CURRENT-ASSETS> 121,261
<PP&E> 35,908
<DEPRECIATION> 10,191
<TOTAL-ASSETS> 168,997
<CURRENT-LIABILITIES> 25,816
<BONDS> 17,959
0
0
<COMMON> 2,516
<OTHER-SE> 121,593
<TOTAL-LIABILITY-AND-EQUITY> 168,997
<SALES> 106,404
<TOTAL-REVENUES> 106,508
<CGS> 66,254
<TOTAL-COSTS> 66,254
<OTHER-EXPENSES> 39,115
<LOSS-PROVISION> 168
<INTEREST-EXPENSE> 1,154
<INCOME-PRETAX> 2,857
<INCOME-TAX> 686
<INCOME-CONTINUING> 2,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,171
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
