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, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ___________
Commission file number: 0-5860
----------------------------
RECOTON CORPORATION
(Exact name of Registrant as Specified in its Charter)
NEW YORK 11-1771737
(State or Other (IRS Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
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
reporting requirements for the past 90 days. Yes x/ No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 11,402,194 shares of Common
Stock, par value $.20 per share, as of August 13, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
<PAGE>
Item 1. FINANCIAL STATEMENTS
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(TABULAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
-------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 11,986 $ 29,130
Accounts receivable (less allowance for
doubtful accounts of $3,887,000 in 1997 and
$3,119,000 in 1996) 84,978 101,278
Inventories 117,985 106,987
Prepaid, refundable and deferred income taxes 16,327 12,182
Prepaid expenses and other current assets 9,889 8,687
------- -------
TOTAL CURRENT ASSETS 241,165 258,264
PROPERTY AND EQUIPMENT (at cost, less
accumulated depreciation and amortization) 32,667 30,578
TRADEMARKS AND PATENTS (less accumulated amortization) 5,372 5,509
GOODWILL (less accumulated amortization) 32,393 31,251
DEFERRED INCOME TAXES 5,999 5,985
OTHER ASSETS 3,626 3,146
------ -----
T O T A L $321,222 $334,733
======== ========
LIABILITIES
CURRENT LIABILITIES:
Bank loans and drafts payable $ 32,600 $ 42,945
Current portion of long-term debt 8,719 8,683
Accounts payable 29,192 28,634
Accrued expenses 15,062 17,834
Income taxes payable 2,240 1,361
------ -------
TOTAL CURRENT LIABILITIES 87,813 99,457
LONG-TERM DEBT (less current portion above) 98,609 101,753
OTHER NONCURRENT LIABILITIES 8,394 5,049
------ --------
TOTAL LIABILITIES 194,816 206,259
-------- -------
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 12,622,561 shares in
1997 and 12,597,982 shares in 1996 2,525 2,520
ADDITIONAL PAID-IN CAPITAL 76,010 75,913
RETAINED EARNINGS 58,792 57,177
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT (4,805) (1,021)
---------- --------
TOTAL 132,522 134,589
TREASURY STOCK - 1,225,167 shares in 1997
and 1,225,067 shares in 1996, at cost (6,116) (6,115)
TOTAL STOCKHOLDERS' EQUITY 126,406 128,474
-------- -------
T O T A L $321,222 $334,733
========= =========
</TABLE>
The attached notes are made a part hereof.
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------5---------
1997 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $108,538 $51,843 $204,299 $106,404
COST OF GOODS SOLD
65,854 32,635 124,779 66,254
------ ------- -------- --------
GROSS PROFIT
42,684 19,208 79,520 40,150
------ ------ ------ -------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 40,318 17,981 75,661 36,283
INTEREST EXPENSE 2,930 507 5,504 1,154
INVESTMENT INCOME (172) (80) (320) (144)
------ ------ ------- ------
T O T A L 43,076 18,408 80,845 37,293
------ ------- ------ -------
INCOME (LOSS) BEFORE INCOME TAXES (392) 800 (1,325) 2,857
INCOME TAX CREDIT (PROVISION) 1,475 (235) 2,940 (686)
----- ----- ----- -----
NET INCOME $ 1,083 $ 565 $ 1,615 $2,171
===== ===== ====== =====
EARNINGS PER COMMON SHARE:
Primary $.09 $.05 $ .14 $ .19
===== ====== ===== =======
Assuming full dilution $.09 $.05 $.14 $.19
==== ====== ===== =======
NUMBER OF SHARES USED IN COMPUTING
PER SHARE AMOUNTS:
Primary 11,561 11,709 11,570 11,694
====== ====== ====== ======
Assuming full dilution 11,564 11,709 11,572 11,702
====== ====== ====== ======
Dividends NONE NONE NONE NONE
====== ====== ====== =====
</TABLE>
The attached notes are made a part hereof.
<PAGE>
<TABLE>
<CAPTION>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30
---------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,615 $ 2,171
----- -------
Adjustments to reconcile results of operations
to net cash provided by operating activities:
Depreciation 3,673 1,944
Amortization of intangibles 1,579 1,170
Provision for losses on accounts receivable 1,037 168
Deferred income taxes (111) (706)
Change in asset and liability accounts
(net of effects of acquisitions):
Accounts receivable 15,987 16,840
Inventory (11,199) 1,220
Prepaid and refundable income taxes (3,896) (2,311)
Prepaid expenses and other current assets (975) (3,187)
Other assets (817) (189)
Accounts payable and accrued expenses (4,378) (7,190)
Income taxes payable 727 (1,017)
Other noncurrent liabilities 2,667 44
------ ------
TOTAL ADJUSTMENTS 4,294 6,786
-------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,909 8,957
-------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions (net of cash acquired of
approximately $97,000 in 1997) (327)
Expenditures for trademarks, patents and
intellectual property (86) (81)
Expenditures for property and equipment (5,084) (3,500)
Loan to International Jensen Incorporated (2,000)
------- -------
NET CASH USED FOR INVESTING ACTIVITIES (5,497) (5,581)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under credit agreements and bridge loans $(86,587) $(9,755)
Net proceeds from sale of senior notes 75,000
Repayments of bank loans assumed upon
acquisition of businesses (2,767)
Repayment of long-term bank borrowings (2,490) (2,760)
Proceeds from exercise of stock options 22 1,384
Purchase of treasury stock (1)
Income tax benefit applicable to exercise of stock options 1,119
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (16,823) (10,012)
--------- --------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH OF FOREIGN SUBSIDIARIES (733) (12)
------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (17,144) (6,648)
CASH AND CASH EQUIVALENTS - January 1 29,130 12,393
------- ---------
CASH AND CASH EQUIVALENTS - JUNE 30 $11,986 $ 5,745
======= ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 4,722 $ 973
======= ========
Income taxes paid (net of refunds received) $ 59 $ 3,352
====== ========
</TABLE>
NONCASH ACTIVITIES:
In 1997, equipment with an aggregate cost of approximately $345,000 was
financed by capital lease obligations. 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.
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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, 1996, 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, 1997 is comprised of:
Raw materials and work-in-process $ 33,397
Finished goods 73,905
Merchandise in-transit 10,683
--------
TOTAL $117,985
========
NOTE D - In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
("SFAS 128"), Earnings Per Share. SFAS 128 eliminates the
presentation of primary and fully diluted earnings per share
("EPS") and requires presentation of basic and diluted EPS. The
principal difference between primary and basic EPS is that
common stock equivalents are not included with the weighted
average number of shares outstanding used in the computation of
basic EPS. Diluted EPS is computed similarly to fully diluted
EPS. SFAS 128 is effective for periods ending after December 15,
1997, including interim periods, and requires restatement of all
prior-period EPS data. Early adoption is not permitted. The
Company does not expect a material impact on reported earnings
per share from the adoption of this standard.
NOTE E - In July 1994, agents of the United States Customs Service,
working in conjunction with the United States Attorney's office
in Orlando, Florida, seized property and business records from
the Company's Lake Mary, Florida facility pursuant to a search
warrant and commenced a criminal and civil investigation. The
Company is in communication with the government regarding such
investigation, which the Company has been advised has focused on
country of origin marking, duty-free import status under the
Caribbean Basin Initiative, duties with respect to dies, molds
and tooling used overseas, commissions paid to agents,
importation of merchandise subject to textile quota and other
instances of undervaluation and other miscellaneous matters.
Management is hopeful of reaching a settlement of this matter.
However, based on the current status of the Company's
communication with the government, the Company is unable to make
a realistic estimate of the probable amount or probable range of
amounts for its ultimate outcome, which could be material in
relation to the Company's current operations and/or financial
condition.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison For the Quarters Ended June 30, 1997 and 1996
and the Six Months Ended June 30, 1997 and 1996
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1997 totaled $108.5 million,
an increase of $56.7 million or 109.4% from the second quarter 1996 level of
$51.8 million. Net sales for the six months ended June 30, 1997 totaled $204.3
million, up nearly $97.9 million or 92% from the $106.4 million level reported
for the six months ended June 30, 1996. The sales increases are primarily
attributable to: (1) the inclusion of sales by Recoton Audio Corporation (RAC)
(f/k/a International Jensen Incorporated) of approximately $36 million and $81
million for the three and six month periods ended June 30, 1997, which company
was acquired by Recoton in August 1996 and (2) continued strong demand for
STD/Interact game accessories.
Gross profit for the quarter ended June 30, 1997 was $42.7 million or
39.3% of sales. In comparison, for the quarter ended June 30, 1996 the Company's
gross profit was $19.2 million or 37.1% of sales. For the six months ended June
30, 1997, gross profit was $79.5 million or 38.9% of sales vs. $40.2 million or
37.7% of sales reported for the six months ended June 30, 1996. The dollar
increases in gross profit are primarily reflective of the addition of sales by
RAC and the percentage increase is primarily attributable to a higher margin
product mix.
Selling, general and administrative expenses for the quarter ended
June 30, 1997 totaled $40.3 million or 37.1% of sales. For the quarter ended
June 30, 1996, these expenses totaled $18.0 million or 34.7% of sales. Selling,
general and administrative expenses totaled $75.7 million or 37% of sales for
the six months ended June 30, 1997 as compared to $36.3 million or 34.1% of
sales for the same period of 1996. The major portion of the dollar and
percentage increases was attributable to the acquired RAC operations. As the
consolidation of the RAC operations into the Company's Florida facilities occurs
during the latter half of 1997, certain duplicate selling, general and
administrative expenses which occurred during the first half of 1997 should be
eliminated.
Interest expense totaled $2.9 million for the quarter ended June 30,
1997 and $5.5 million year to date. At June 30, 1996, interest expense totaled
$.5 million for the quarter and $1.2 million for the six month period. The
increase is attributable to the debt associated with the Company's acquisitions.
Interest is expected to remain higher in 1997 than in 1996 as a result of the
additional debt incurred.
For the quarter ended June 30, 1997, the Company incurred a loss
before income taxes of $.4 million as compared to income before income taxes of
$.8 million for the same period in 1996. For the six months ended June 30, 1997,
the Company incurred a loss of $1.3 million before income taxes as compared to
income before income taxes of $2.9 million in 1996. The major portion of the
losses is attributable to the increase in interest expense associated with the
RAC acquisition and losses incurred from the operations of RAC and Christie
Design Corporation.
The Company's income taxes and effective consolidated income tax rate
have been affected by changes in the proportion of domestic and foreign
earnings. While earnings from North America and Western Europe are primarily
taxed at or close to United States income tax rates, earnings from the Company's
Asian operations are taxed at a maximum rate of 16.5%. The Company's year to
date pretax loss of $1.3 million at June 30, 1997 is comprised of the excess of
domestic losses over foreign earnings. This resulted in a net income tax credit
which exceeded the consolidated pretax loss for the period because the tax
credits attributable to the domestic losses were higher than the income tax
expense attributable to the foreign earnings. Management is unable to estimate
whether the Company's effective income tax rate for the six months ended June
30, 1997 will be indicative of its effective income tax rate for the year ending
December 31, 1997 or thereafter because of changes in the proportion of domestic
and foreign taxable earnings which might occur.
Earnings per share were $.09 on both a primary and fully-diluted basis
for the quarter ended June 30, 1997 based on common and common equivalent shares
outstanding of 11,561,000 on a primary basis and 11,564,000 on a fully diluted
basis . For the quarter ended June 30, 1996, earnings per share were $.05 on
both a primary and fully-diluted basis based on common and common equivalent
shares outstanding of 11,709.000 on both a primary and fully- diluted basis. For
the six months ended June 30,1997, earnings per share on a primary and fully-
diluted basis were $.14 based on 11,570,000 shares (primary) and 11,572,000
shares (fully-diluted). In 1996, earnings per share for the six months ended
June 30 were $.19 (on a primary and fully-diluted basis) based on common and
common equivalent shares outstanding of 11,694,000 (primary) and 11,702,000
(fully-diluted).
Statement of Financial Accounting Standards No. 128 , "Earnings Per
Share," establishes revised standards for computing and presenting earnings per
share (EPS). This Statement is effective for financial statements issued for
periods ending after December 15, 1997 and will be implemented by the Company by
December 31, 1997. The Company does not expect a material impact on reported EPS
from the adoption of this standard.
LIQUIDITY AND CAPITAL RESOURCES
In August 1996, the Company entered into a multibank $120 million
bridge facility, which was subsequently increased to $135 million, to
accommodate the acquisition of RAC and to finance the Company's on-going
operations. In January 1997, the Company completed a $75 million private
placement of 10-year senior notes, the proceeds of which were utilized to reduce
the bridge facility, which facility was then converted and increased to a
four-year $15 million term loan and a three-year $50 million committed revolving
line of credit. The four-year term loan refinanced at more favorable interest
rates $15 million of RAC indebtedness assumed on its acquisition. At June 30,
1997, outstanding borrowings and letters of credit under the revolving facility
were approximately $42.5 million.
At June 30, 1997, the Company had working capital of approximately
$153.4 million as compared to approximately $158.8 million at December 31, 1996.
However, the Company's ratio of current assets to current liabilities increased
to 2.7 to 1 at June 30, 1997 as compared with 2.6 to 1 at December 31, 1996.
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 purchased for $.7 million; no shares were repurchased pursuant to such
authorization in 1996 or in the six months ended June 30, 1997. 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 approximately $1.2 million. Any future repurchases may be limited
by the terms of the Company's loan agreements.
In April 1995, Recoton formed Christie Design Corporation. This
wholly-owned subsidiary, which develops and markets speaker products, commenced
manufacturing and shipments in March 1996. The Company expended approximately
$3.9 million of start-up and capital costs for this subsidiary.
In September 1995, Recoton acquired STD Holding Limited (STD), 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 and STD brand names. STD's operations
are in the People's Republic of China (including Hong Kong) 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).
In connection with the acquisition, the Company assumed notes and loans payable
of approximately $6.1 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 August 1996, Recoton acquired the branded product lines of RAC
(then known as International Jensen Incorporated), a leading marketer of home
and automotive loudspeakers and automotive electronics, for a total cost of
approximately $61.1 million, which includes closing costs and estimated
consolidation costs. In connection with the acquisition, Recoton assumed
approximately $34 million in notes and loans payable. The transaction occurred
by merger with a Recoton subsidiary, after the sale of Jensen's original
equipment manufacturing business to a third party.
In December 1996, the Company, through a German subsidiary, acquired
selected assets of Heco GmbH and Heco Electronics GmbH (both in Germany) for a
cost of approximately $1.3 million. Heco is a leading brand of home speakers in
Germany.
In February 1997, Recoton acquired the outstanding stock of Tambalan
Limited (Tambalan) at a cost of approximately $468,000 and assumed certain
outstanding debt of approximately $2.9 million. Tambalan markets headphones and
other consumer electronics products in the United Kingdom and other European
countries under the trade name Ross Consumer Products. Tambalan is located in
England and also has a branch operation in Hong Kong.
The Company is currently constructing a 318,000 square foot expansion
of its warehouse on its Lake Mary, Florida property. The estimated cost of the
building construction is approximately $5 million.
To date foreign currency fluctuations have not materially affected the
Company's results of operations. The Company believes there is currently a
limited exposure to loss due to foreign currency risks in its Asian
subsidiaries. The Hong Kong dollar has been pegged to the U.S. dollar at an
official exchange rate of HK $7.745 to US $1.00. Historically, there have been
no material fluctuations in the Hong Kong/United States and the Hong
Kong/Chinese exchange rates. However, as a result of the RAC, Heco and Tambalan
acquisitions, the Company's newly acquired operations in Western Europe are
exposed to variations in foreign exchange rates. Due to the strengthening of the
U.S. dollar against certain foreign currencies (including the German mark and
Italian lira) in the first six months of 1997, the Company's stockholders'
equity was reduced by a foreign currency translation adjustment of approximately
$3.8 million of which approximately $3.3 million occurred in the first quarter
of 1997. If there are any further material adverse changes in the relationships
between the European and/or Canadian currencies with the United States dollar,
such changes could adversely affect the results of the Company's European and/or
Canadian operations.
As further described in Note E to the Notes to Condensed Consolidated
Financial Statements, the financial impact of the pending criminal and civil
customs investigation can not be determined at this time, but could be material
to the Company.
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.
CUSTOMS INVESTIGATION. In July 1994, agents of the United States
Customs Service, working in conjunction with the United States Attorney's office
in Orlando, Florida, seized property and business records from the Company's
Lake Mary, Florida facility pursuant to a search warrant and commenced a
criminal and civil investigation. The Company is in communication with the
government regarding such investigation, which the Company has been advised has
focused on country of origin marking, duty-free import status under the
Caribbean Basin Initiative, duties with respect to dies, molds and tooling used
overseas, commissions paid to agents, importation of merchandise subject to
textile quota and other instances of undervaluation and other miscellaneous
matters. Management is hopeful of reaching a settlement of this matter. However,
based on the current status of the Company's communication with the government,
the Company is unable to make a realistic estimate of the probable amount or
probable range of amounts for its ultimate outcome, which could be material in
relation to the Company's current operations and/or financial condition.
LITIGATION REGARDING JENSEN. The Illinois litigation between Recoton,
International Jensen Incorporated and Emerson Radio Corporation ("Emerson"),
among others, as described in the Company's Form 10-K for the year ended
December 31, 1996 (the "Form 10-K"), was settled on June 11, 1997 on terms which
Recoton believes to be beneficial to it, releases were exchanged and the actions
were dismissed on June 26, 1997.
On or about April 24, 1997 the plaintiffs in the Delaware stockholder
suit described in the Form 10-K filed a motion to approve the dismissal of such
action with prejudice. Plaintiff's counsel is seeking approximately $340,000 for
fees and expenses, which the Company is contesting.
ITEM 2. CHANGES IN SECURITIES.
Pursuant to a written agreement executed in the Second Quarter of 1997
but effective February 25, 1997, the Company sold 5,311 shares of its Common
Stock, through certain subsidiaries of the Company, to Gian Piero Staffa, the
Admministratori of the Company's Italian subsidiary Entel s.r.l., at $15.25 per
share, the fair market value thereof at February 25, 1997. Such sale was in
satisfaction of the Admministratori's right under a prior agreement with
International Jensen Incorporated (now known as Recoton Audio Corporation --
"RAC") to be paid a portion of his annual compensation ($81,000 with respect to
calendar 1995) in stock, which the parties agreed would henceforth be paid in
stock of the Company instead of stock of RAC. The sale of such stock was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1993, as
amended, as not involving a public offering based in part on certain
representations made and undertakings given by the Admministratori.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Annual Meeting of the Shareholders of the Corporation was held on June
11, 1997. Each of the four candidates for the position of director, Messrs.
Herbert H. Borchardt, Stephen Chu, Ronald McPherson and Peter Wish, were
elected. The directors whose term of office continued after the meeting were
Messrs. Robert Borchardt, George Calvi, Paul Feffer, Irwin Friedman, Joseph Idy,
Joseph Massot, Stuart Mont and Robert Shaw.
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:
Herbert H. Borchardt
For: 9,829,971
Withhold Authority: 368,672
Stephen Chu
For: 9,866,471
Withhold Authority: 332,172
Ronald McPherson
For: 9,846,146
Withhold Authority: 352,497
Peter Wish
For: 9,849,946
Withhold Authority: 348,697
2. Ratification of the appointment of Cornick, Garber & Sandler, LLP
as Independent Auditors for the Fiscal Year Ending December 31, 1997:
For: 10,149,020
Against: 8,984
Abstain: 40,639
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:
(10.33) Amendment Agreement to Note Purchase
Agreement dated January 6, 1997 between Recoton Corporation
and the several purchasers, dated as of August 13, 1997
(27) Financial Data Schedule
(b) Reports on Form 8-K: none
<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
/S/ STUART MONT
Stuart Mont
COO, CFO, Exec.V.P. - Operations, Secretary
/S/ JOSEPH H. MASSOT
Joseph H. Massot
Vice President, Treasurer and
Principal Accounting Officer
Dated: August 14, 1997
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
10.33 Amendment Agreement to Note
Purchase Agreement dated
January 6, 1997 between Recoton
Corporation and the several
purchasers, dated as of August 13, 1997
27 Financial Data Schedule
EXHIBIT 10.33
SECOND AMENDMENT AGREEMENT
SECOND AMENDMENT AGREEMENT (this "AGREEMENT"), dated as of August 13,
1997, by and among RECOTON CORPORATION, a New York corporation (together with
its successors and assigns, the "COMPANY"), THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY, MELLON BANK, N.A. (SOLELY IN ITS CAPACITY AS TRUSTEE FOR THE
LONG TERM INVESTMENT TRUST, AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY, AND NOT IN ITS INDIVIDUAL CAPACITY), JOHN HANCOCK LIFE INSURANCE
COMPANY OF AMERICA and MELLON BANK, N.A. (SOLELY IN ITS CAPACITY AS TRUSTEE FOR
THE NYNEX MASTER PENSION TRUST, AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY, AND NOT IN ITS INDIVIDUAL CAPACITY) (collectively, the
"NOTEHOLDERS").
RECITALS:
A. The Company has entered into that certain Note Purchase Agreement,
dated as of January 6, 1997, as amended by that certain Amendment Agreement
dated as of May 13, 1997 (the "EXISTING NOTE PURCHASE AGREEMENT" and, as amended
hereby, the "AMENDED NOTE PURCHASE AGREEMENT" ), with the Noteholders, pursuant
to which the Company originally issued and sold to the Noteholders an aggregate
principal amount of $75,000,000 of the Company's Adjustable Rate Senior Notes
due January 6, 2007.
B. The Noteholders are the current holders of 100% of the Notes
outstanding as of the date hereof (the "AMENDMENT DATE").
C. The Company has requested that certain of the provisions in the
Existing Note Purchase Agreement be amended, as more particularly provided
herein.
D. The Noteholders are agreeable, subject to the terms and conditions
set forth below, to amending the Existing Note Purchase Agreement, and in
connection therewith, the Company and the Noteholders have agreed to amend the
Existing Note Purchase Agreement as set forth herein.
E. Unless otherwise expressly provided for herein, capitalized terms
used herein and defined in the Existing Note Purchase Agreement are used herein
with the meanings ascribed to them in the Existing Note Purchase Agreement.
AGREEMENT:
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. AMENDMENTS.
The Company and, subject to the satisfaction of the conditions set
forth in Section 4, the Noteholders hereby consent and agree to the following
amendments to the Existing Note Purchase Agreement, such amendments to be deemed
to have been in effect on and after the Closing Date:
(I) PARAGRAPH 6D - paragraph 6D shall be amended and
restated in its entirety as follows:
6D. INTEREST EXPENSE COVERAGE. The Company
will not permit the ratio of
(i) Consolidated Adjusted Cash Flow for
any period of four consecutive complete fiscal
quarters of the Company to
(ii) Consolidated Interest Expense for
such period to be less than (a) if such period
ends on or after the Closing Date and on or prior
to September 30, 1997, 2.50 to 1.00, and (b) if
such period ends after September 30, 1997, 3.50 to
1.00.
(II) PARAGRAPH 6E -- paragraph 6E shall be amended and
restated in its entirety as follows:
6E. NET WORTH. The Company will not at any time
permit Consolidated Tangible Net Worth to be less
than
(i) if such time is on or after the
Closing Date and before June 30, 1997,
$87,000,000,
(ii) if such time is on or after June
30, 1997 and before December 31, 1997,
$88,000,000, and
(iii) if such time is on or after
December 31, 1997, the sum of
(a) $90,000,000, plus
(b) the sum of the Annual Net
Worth Increase Amounts for all fiscal
years ended after the Closing Date.
"Annual Net Worth Increase Amount" means, for any fiscal year
of the Company ended after December 31, 1996, the greater of
(a) 50% of Consolidated Net Income for such fiscal year and
(b) $0.
SECTION 2. AFFIRMATION.
The Company hereby acknowledges and affirms all of its obligations
under the terms of the Existing Note Purchase Agreement.
SECTION 3. WARRANTIES AND REPRESENTATIONS.
To induce the Noteholders to enter into this Agreement, the Company
warrants and represents to the Noteholders that as of the Amendment Date:
3.1 ACTIONS PENDING. Except as set forth in Part 8C of Annex 3 to the
Note Purchase Agreement, there is no action, suit, investigation or proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any of the Subsidiaries, or any Properties of the Company or any of the
Subsidiaries, by or before any court, arbitrator or administrative or
governmental body which might result in any material adverse change in the
business, condition (financial or otherwise) or operations of the Company and
the Subsidiaries taken as a whole.
3.2 NO DEFAULTS. No Defaults or Events of Default exist under the
terms of the Amended Note Purchase Agreement.
SECTION 4. CONDITIONS.
The consent of the Noteholders to the amendments set forth in Section
1 shall be effective as of the Closing Date upon the execution hereof by the
Company and the Required Holders and receipt of an executed copy of an
acceptable waiver of any violations of covenants contained in the Bank Credit
Agreement.
SECTION 5. MISCELLANEOUS.
5.1 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW
YORK.
5.2 DUPLICATE ORIGINALS.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument. This Agreement may be executed in one or
more counterparts and shall be effective when at least one counterpart shall
have been executed by the Company and the Required Holders, and each set of
counterparts which, collectively, show execution by each party hereto shall
constitute one duplicate original.
5.3 EFFECT OF THIS AGREEMENT.
Except as specifically provided in this Agreement, no terms or
provisions of the Existing Note Purchase Agreement have been modified or changed
by this Agreement and the terms and provisions of the Existing Note Purchase
Agreement, as amended hereby, shall continue in full force and effect.
5.4 WAIVERS AND AMENDMENTS OF THIS AGREEMENT.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, or by any action or inaction, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
5.5 SECTION HEADINGS.
The titles of the sections hereof appear as a matter of convenience
only, do not constitute a part of this Agreement and shall not affect the
construction hereof.
5.6 COSTS AND EXPENSES.
The Company shall pay promptly (and in any event within 30 days of
receiving a statement therefor) all costs and expenses of the Noteholders
related hereto, including, but not limited to, the statement for fees and
disbursements of the Noteholders' special counsel for matters in connection with
this Agreement. The obligations of the Company under this Section 5.6 shall
survive the payment or prepayment of the Notes and the termination of the
Amended Note Purchase Agreement.
5.7 SURVIVAL.
All warranties, representations, certifications and covenants made by
the Company hereunder, or in any certificate or other instrument delivered
pursuant hereto or thereto, shall be considered to have been relied upon by the
Noteholders and shall survive the execution of this Agreement regardless of any
investigation made by or on behalf of the Noteholders.
5.8 SUBSIDIARY CONSENTS.
The Company covenants to obtain an executed consent to this Agreement
from each of its Subsidiaries that is a party to a Subsidiary Guaranty within
ten days after the date hereof. This covenant shall be deemed to be an agreement
of the type referred to in paragraph 7A(iv) of the Amended Note Purchase
Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK. NEXT PAGE IS SIGNATURE PAGE.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf by a duly authorized officer or agent thereof, as
the case may be, as of the date first above written.
RECOTON CORPORATION
By /s/ Joseph Massot
Name: Joseph Massot
Title: Treasurer & Assistant Secretary
The foregoing Agreement is hereby accepted as of the date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By /s/ Kevin J. Kraska
Name: Kevin J. Kraska
Title: Vice President
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By /s/ Daniel C. Budde
Name: Daniel C. Budde
Title: Senior Investment Officer
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By /s/ Daniel C. Budde
Name: Daniel C. Budde
Title: Authorized Officer
[Signature page to the Amendment Agreement among Recoton
Corporation and the Noteholders listed therein.]
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MELLON BANK, N.A., SOLELY IN ITS CAPACITY AS The decision to participate in this investment,
TRUSTEE FOR THE LONG TERM INVESTMENT TRUST, any representations made herein by the
(AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE INSURANCE participant, and any actions taken hereunder
COMPANY), AND NOT IN ITS INDIVIDUAL CAPACITY by the participant has/have been made solely
at the discretion of the investment fiduciary who
has sole investment discretion with respect
to this investment.
By /s/ Carole Bruno [SEAL]
Name: /s/ Carole Bruno
Title: Authorized Signatory
JOHN HANCOCK LIFE INSURANCE COMPANY OF AMERICA
By /s/ Daniel C. Budde
Name: Daniel C. Budde
Title: Authorized Officer
MELLON BANK, N.A., SOLELY IN ITS CAPACITY AS The decision to participate in this investment,
TRUSTEE FOR THE NYNEX MASTER PENSION TRUST, any representations made herein by the
(AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE INSURANCE participant, and any actions taken hereunder
COMPANY), AND NOT IN ITS INDIVIDUAL CAPACITY by the participant has/have been made solely
at the discretion of the investment fiduciary who
has sole investment discretion with respect
to this investment.
By /s/ Carole Bruno [SEAL]
Name: /s/ Carole Bruno
Title: Authorized Signatory
</TABLE>
[Signature page to the Amendment Agreement among Recoton Corporation
and the Noteholders listed therein.]
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at June 30, 1997
(Unaudited) and the Condensed Consolidated Statement of Income for the Six
Months Ended June 30, 1997 (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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,986
<SECURITIES> 0
<RECEIVABLES> 88,865
<ALLOWANCES> 3,887
<INVENTORY> 117,985
<CURRENT-ASSETS> 241,165
<PP&E> 48,881
<DEPRECIATION> 16,214
<TOTAL-ASSETS> 321,222
<CURRENT-LIABILITIES> 87,813
<BONDS> 98,609
0
0
<COMMON> 2,525
<OTHER-SE> 123,881
<TOTAL-LIABILITY-AND-EQUITY> 321,222
<SALES> 204,299
<TOTAL-REVENUES> 204,619
<CGS> 124,779
<TOTAL-COSTS> 124,779
<OTHER-EXPENSES> 74,624
<LOSS-PROVISION> 1,037
<INTEREST-EXPENSE> 5,504
<INCOME-PRETAX> (1,325)
<INCOME-TAX> (2,940)
<INCOME-CONTINUING> 1,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,615
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
