SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(MARK ONE)
x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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: 11,623,019 shares of Common
Stock, par value $.20 per share, as of April 21, 1998
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(TABULAR AMOUNTS IN THOUSANDS)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,983 $ 17,247
Accounts receivable (less allowance for doubtful
accounts of $4,670,000 in 1998 and $3,797,000
in 1997) 121,568 129,852
Inventories 148,200 142,362
Prepaid, refundable and deferred income taxes 18,973 18,220
Prepaid expenses and other current assets 9,755 9,484
---------- ----------
TOTAL CURRENT ASSETS 307,479 317,165
PROPERTY AND EQUIPMENT (at cost, less accumulated
depreciation and amortization) 37,130 36,184
TRADEMARKS AND PATENTS (less accumulated amortization) 5,024 5,126
GOODWILL (less accumulated amortization) 38,021 38,554
DEFERRED INCOME TAXES 6,738 6,724
OTHER ASSETS 3,573 3,509
--------- --------
T O T A L $397,965 $407,262
========= ========
LIABILITIES
CURRENT LIABILITIES:
Bank loan $ 5,000
Current portion of long-term debt $ 9,694 9,570
Accounts payable 51,085 53,231
Accrued expenses 31,706 26,588
Income taxes payable 1,358 388
---------- -------
TOTAL CURRENT LIABILITIES 93,843 94,777
LONG-TERM DEBT (less current portion above) 159,724 161,427
OTHER NONCURRENT LIABILITIES 2,260 11,775
---------- -------
TOTAL LIABILITIES 255,827 267,979
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 12,847,836 shares in
1998 and 12,797,601 shares in 1997 2,570 2,560
ADDITIONAL PAID-IN CAPITAL 78,925 78,376
RETAINED EARNINGS 74,362 70,758
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT (7,597) (6,295)
----------- --------
TOTAL 148,260 145,399
TREASURY STOCK - 1,225,467 shares in 1998 and
1,225,167 shares in 1997, at cost (6,122) (6,116)
----------- --------
TOTAL STOCKHOLDERS' EQUITY 142,138 139,283
--------- --------
T O T A L $397,965 $407,262
========= ========
The attached notes are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
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RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT INCOME PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
1998 1997*
------------ -----------
<S> <C> <C>
NET SALES $144,717 $95,761
COST OF SALES 89,607 58,925
---------- --------
GROSS PROFIT 55,110 36,836
--------- --------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 47,449 35,343
INTEREST EXPENSE 3,500 2,574
INVESTMENT INCOME (79) (148)
----------- ---------
T O T A L 50,870 37,769
-------- -------
INCOME (LOSS) BEFORE INCOME TAXES 4,240 (933)
INCOME TAX (PROVISION) CREDIT (636) 1,465
---------- --------
NET INCOME $ 3,604 $ 532
======== ========
INCOME PER SHARE:
BASIC $.31 $.05
==== ====
DILUTED $.30 $.05
==== ====
NUMBER OF SHARES USED IN COMPUTING
PER SHARE AMOUNTS:
BASIC 11,582 11,377
====== ======
DILUTED 11,885 11,525
====== ======
DIVIDENDS NONE NONE
==== ====
* Certain amounts have been reclassified between categories to
conform with the current year's presentation - see Note E.
The attached notes are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
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RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1998 1977
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 3,604 $ 532
------- --------
Adjustments to reconcile results of operations to net cash provided by
operating activities:
Depreciation 2,015 1,892
Amortization of intangibles 773 859
Provision for losses on accounts receivable 611 271
Deferred income taxes (409) (421)
Expense applicable to stock options granted at
prices less than fair market value 55
Change in asset and liability accounts (net of effects of
acquisitions):
Accounts receivable 7,025 18,210
Inventory (6,237) (1,293)
Prepaid and refundable income taxes (393) (521)
Prepaid expenses and other current assets (327) (630)
Other assets (177) (1,244)
Accounts payable and accrued expenses (6,554) (4,831)
Income taxes payable 912 (85)
Other noncurrent liabilities (56) 1,039
--------- --------
TOTAL ADJUSTMENTS (2,762) 13,246
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 842 13,778
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions (net of cash acquired of
approximately $97,000) (267)
Expenditures for trademarks, patents and
intellectual property (49) (17)
Expenditures for property and equipment (2,974) (1,793)
------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (3,023) (2,077)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under credit agreements
and other bank debt $(4,400) $(24,933)
Repayment of bridge loans (75,000)
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 (2,176) (1,254)
Proceeds from exercise of stock options 528 22
Purchase of treasury stock (6)
--------- ---------
NET CASH USED FOR FINANCING ACTIVITIES (6,054) (28,932)
------- --------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH OF FOREIGN SUBSIDIARIES (29) (407)
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,264) (17,638)
CASH AND CASH EQUIVALENTS - January 1 17,247 29,130
------- --------
CASH AND CASH EQUIVALENTS - MARCH 31 $ 8,983 $11,492
======= =======
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID $ 3,615 $ 1,836
======= ========
INCOME TAXES PAID (REFUNDS RECEIVED) $ 593 $ (1,059)
======== ========
The attached notes are made a part hereof.
</TABLE>
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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, 1997, included in its annual report on Form
10-K. Such statements should be read in conjunction
with the data herein.
NOTE B - The financial information reflects all normal
recurring adjustments which, in the opinion of
management, are deemed necessary for a fair presentation
of the results for the interim periods. The results for
the interim periods are not necessarily indicative of
the results to be expected for the year. Historically,
the Company's sales and earnings have been higher in the
second half of each year.
NOTE C - Inventory at March 31, 1998 is comprised of:
Raw materials and work-in-process $ 38,411
Finished goods 97,575
Merchandise in-transit 12,214
----------
T O T A L $148,200*
==========
NOTE D - Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", became effective on
January 1, 1998. This statement requires that all items
recognized under accounting standards as components of
comprehensive income be reported in an annual financial
statement that is displayed with the same prominence as
other annual financial statements. This statement also
requires that an entity classify items of other
comprehensive income by their nature in an annual
financial statement. For the Company, other
comprehensive income will comprise the total of net
income and foreign currency translation adjustments.
Annual financial statements for prior periods will be
reclassified, as required. For the three months ended
March 31, 1998 and 1997, total comprehensive income was
as follows:
THREE MONTHS ENDED
MARCH 31,
1998 1997
Net income $ 3,604 $ 532
Less foreign currency
translation adjustments (1,302) (3,239)
------- --------
Net comprehensive income (loss) $ 2,302 $(2,707)
======= ========
NOTE E - Commencing April 1, 1997, the Company reclassified certain
miscellaneous revenues and costs of recently acquired businesses
from their previous financial statement categories to
those utilized by the Company in its financial
statements.
The amounts previously reported for the three months ended March
31, 1997 have been restated and are reconciled to the current
presentation as follows:
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AS PREVIOUSLY AS
REPORTED ADJUSTMENTS RESTATED
<S> <C> <C> <C>
Net sales $95,761 $95,761
Cost of sales 59,623 $(698) 58,925
-------- ----- -------
Gross profit 36,138 698 36,836
-------- ------ --------
Selling, general and administrative
expenses 34,819 524 35,343
Interest expense 2,574 2,574
Investment income (322) 174 (148)
--------- ------ ---------
T o t a l 37,071 698 37,769
-------- ------ --------
Loss before income taxes (933) -- (933)
Income tax credit 1,465 1,465
--------- -------- --------
NET INCOME $ 532 $ -- $ 532
========= ======= =========
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NOTE F - In July 1994, the U.S. Customs Service and U.S.
Attorney's office obtained certain property and business
records from the Company's 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 requirements, 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 quotas, 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 the ultimate
outcome, which could be material in relation to the
Company's current operations and/or financial condition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison for the Quarters Ended March 31, 1998 and 1997
RESULTS OF OPERATIONS
Net sales were $144.7 million for the quarter ended March 31, 1998, an
increase of $49 million or 51% over the first quarter of 1997. Sales increased
across all major product lines. The largest increase occurred as a result of
continued strong demand for STD/InterAct game and computer accessory products.
In addition, first quarter 1998 sales included $4.1 million from AAMP of
America, Inc., acquired in November 1997.
Gross profit for the first quarter of 1998 was $55.1 million, an increase
of approximately $18.3 million over the first quarter of 1997. The dollar
increase in gross profit is primarily reflective of the increase in sales. As a
percentage of net sales, gross profit on a consolidated basis was essentially
unchanged between the two periods. Certain amounts reflected in the condensed
consolidated statement of operations for the three months ended March 31, 1997
have been reclassified to conform with the current quarter's presentation. The
primary effect of these reclassifications was a change in the previously
reported gross profit percentage from 37.7% to 38.5%.
As a percentage of sales, selling, general and administrative expenses
declined in the first quarter of 1998 to 32.8% as compared to 36.9% for the
first quarter of 1997. This decline is primarily attributable to increased
efficiencies as fixed costs are absorbed across a higher sales volume and to the
realization of savings from the integration of RAC (formerly International
Jensen Incorporated, acquired in August 1996) into the Company. From a dollar
perspective, selling, general and administrative expenses for the first quarter
of 1998 increased approximately $12.1 million to $47.4 million as compared to
the first quarter of 1997. The major portion of the dollar increase was
attributable to the increased sales volume.
Interest expense (net of investment income) increased by approximately $1
million, to $3.4 million for the first quarter of 1998, as compared to the first
quarter of 1997. The increase is primarily attributable to increased borrowing
to support the growth in sales.
In recent years the Company's income taxes and effective consolidated
income tax rate have been materially affected by changes in the proportion of
domestic and foreign earnings. While earnings from North America and Western
Europe are primarily taxed at or above United States income tax rates, earnings
from the Company's Asian operations are taxed at a current maximum rate of 16%.
However, the actual tax rate from Asian operations is dependent on the
proportion of earnings from mainland China, which have been subject to a "tax
holiday." This tax rate is expected to be higher in 1998 because of the
expiration of a portion of the "tax holiday." The Company's income tax expense
for the first quarter of 1998 is based upon a 15% estimated effective annual
income tax rate for 1998. This rate is estimated by management based upon its
forecast of the Company's profitability in each of its various foreign and
domestic tax jurisdictions. Management will continue to review this estimated
rate throughout the year in comparison to actual results of operations. In the
first quarter of 1997, the net income tax credit exceeded the consolidated
pretax loss for the period because tax credits attributable to domestic losses
were computed at higher rates than income taxes attributable to foreign
earnings.
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," which establishes revised standards for computing
and presenting earnings per share (EPS). In accordance with this standard, all
prior period EPS data has been restated. There was no change to EPS for the
first quarter of 1997 as a result of the adoption of this standard. For the
first quarter of 1998, basic EPS was $.31/share and diluted EPS was $.30/share
as compared with EPS of $.05/share on both a basic and diluted basis for the
first quarter of 1997. Outstanding shares for the first quarter of 1998 were
11,582,000 (basic) and 11,885,000 (diluted) as compared to 11,377,000 (basic)
and 11,525,000 (diluted) for the first quarter of 1997.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This statement, effective for fiscal years beginning after December 15,
1997, requires the Company to report components of comprehensive income in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. To date, the Company's comprehensive income has been comprised of the
Company's net income and foreign currency translation adjustments included in
the consolidated statements of stockholders' equity. As a result of significant
increases in the value of the U.S. dollar in relation to currencies in Western
Europe in the first three months of both 1998 and 1997 and the related foreign
currency translation adjustments recorded by the Company, comprehensive income
for the quarter ended March 31, 1998, was $2.3 million. In comparison, for the
quarter ended March 31, 1997, comprehensive income was a loss of $2.7 million.
(See Note D to the Condensed Consolidated Financial Statements.)
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement, also effective for financial statements for
periods beginning after December 15, 1997, requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments. Management has evaluated the
provisions of SFAS No. 131 in the context of its present and planned operating
structure and believes that segment reporting is not applicable to its business.
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 1997,
the Company completed a $75 million private placement of 10-year senior notes.
The proceeds were utilized to reduce the bridge facility, which facility was
then converted to a four-year $15 million term loan and a three-year $71.5
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. In January 1998, the $71.5 million committed revolving line of
credit was restructured to a $66.5 million committed revolving line of credit
through December 1999 and a $5 million four-year term loan. The outstanding
borrowings and letters of credit under the revolving facility were approximately
$65.7 million at March 31, 1998 as compared to 65.5 million at December 31,
1997.
At December 31, 1997, the Company was not in compliance with certain
covenants involving the maintenance of financial ratios and minimum tangible net
worth under the senior notes and bank loan agreements. Both the senior note
holders and bank lenders agreed to waive the covenants at December 31, 1997 and
temporarily relax them until such time as the loan agreements were amended to
include less restrictive requirements, but not later than June 29, 1998. At
March 31, 1998 the Company was not in compliance with a financial ratio covenant
under the bank loan agreement, but has obtained a waiver of this covenant
from the banks.
In November 1997 the Company borrowed $5.0 million under a demand note
agreement to finance the acquisition of AAMP. The note was paid in January 1998.
In May 1998 the Company borrowed an additional $10 million, under a demand note
agreement due no later than July 31, 1998, to provide additional working
capital, substantially all of which has been used. The Company is currently
seeking additional debt and/or equity financing to fund expansion of the
Company's business. There can be no assurances that additional financing will be
available on terms favorable to the Company, or at all.
At March 31, 1998, the Company had working capital of approximately $213.6
million as compared to approximately $222.4 million at December 31, 1997. The
principal reason for the decline in working capital is that certain accrued
performance bonuses due to executives of subsidiaries are now current
liabilities because they are payable in the first quarter of 1999. The Company's
ratio of current assets to current liabilities was 3.3 to 1 at both March 31,
1998 and December 31, 1997. Trade receivables declined $8.3 million to $121.6
million at March 31,1998 as compared to December 31, 1997. Inventories increased
from December 31, 1997 levels by $5.8 million to $148.2 million at March 31,
1998. Accounts payable and accrued expenses increased $3.0 million to $82.8
million at March 31, 1998, which includes the aforementioned accrued executive
performance bonuses, as compared to December 31, 1997.
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 approximately $.7 million; no shares were repurchased pursuant to
such authorization in 1996, 1997 or 1998. 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 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 $61.6 million. In connection with the acquisition, Recoton assumed
approximately $34 million in notes and loans payable.
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 $285,000 plus closing costs 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 and has a
branch operation in Hong Kong.
In November 1997, the Company acquired AAMP of Florida, Inc. ("AAMP"),
d.b.a. AAMP of America, Inc., at a cost of approximately $2.4 million paid by
the issuance of 169,706 Recoton Common Shares. In conjunction with the
acquisition, the company assumed approximately $4.5 million in debt, which was
repaid in November 1997 from the proceeds of a $5 million loan. AAMP is a
leading car audio accessories company based in Clearwater, Florida whose
business includes the STINGER and PERIPHERAL brands.
In December 1997, the Company acquired, out of bankruptcy, selected assets
of Capa Industries, Inc. at a cost of approximately $1.1 million. The
acquisition provided expanded manufacturing and electronic engineering capacity
to enhance the home and car audio products line.
The Company completed construction, in January 1998, of a 318,000 square
foot expansion of its warehouse on its Lake Mary, Florida property. The cost of
the building construction was approximately $5 million.
There has been limited exposure to loss due to foreign currency risks in
the Company's Asian subsidiaries, because the Hong Kong dollar in recent years
has been pegged to the U.S. dollar at an official exchange rate of approximately
HK $7.75 to US $1.00. Additionally, in recent years there have been no material
fluctuations in the Hong Kong/Chinese exchange rates. Also, the company
maintains the majority of its currency in Asia in U.S. dollar accounts. However,
as a result of recent turmoil in the Asian currency markets, there can be no
assurance that these relationships will continue.
With the RAC, Heco and Tambalan acquisitions, the Company's operations in
Western Europe are exposed to variations in foreign exchange rates. Due to the
strengthening of the U.S. dollar against the German mark and Italian lira during
1998, the Company's stockholders' equity was reduced by a foreign currency
translation adjustment of approximately $1.3 million in the first quarter of
1998. During 1997, the Company's stockholders' equity was reduced by a foreign
currency translation adjustment of approximately $5.3 million, of which
approximately $3.2 million occurred during the three months ended March 31,
1997. The declines in the German and Italian currencies had no material impact
on the Company's results of operations. 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 included in the
consolidated financial statements and could cause further increases in the
amount of foreign currency translation adjustments which are charged directly to
stockholder's' equity.
As further described in Note F to the Notes to Condensed Consolidated
Financial Statements, the financial impact of the pending criminal and civil
customs investigation cannot be determined at this time, but could be material
to the Company.
The Company has addressed what has become known as the Year 2000 Issue.
This issue has arisen because many existing computer programs use only two
digits to identify a year in the date field. These programs were designed and
developed without considering the impact of the upcoming change in the century.
The company believes that all of its computer systems are Year 2000 compliant.
The Company is communicating with its customers and vendors to ascertain their
compliance to the extent that their problems could affect the Company.
The Company has leased expanded facilities for sales and warehousing in
Germany and the U.K. and is considering enlarging its manufacturing facilities
in mainland China. In addition, the Company is considering the acquisition of
additional computer hardware and software to be used both in the United States
and in its foreign locations. The Company will also continue to evaluate
possible acquisitions that may be attractive to the growth of the Company.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
All of the Company's external borrowings are denominated in U.S. dollars,
its functional currency. A substantial portion (over 90%) of such borrowings
bear fixed interest rates, although borrowings under the Company's $66.5 million
revolving credit facility are made at rates in effect when the loans are made
and remain in effect until they are "rolled-over," unless the Company has
elected to borrow at the prime rate, under one of several interest rate options
available to it when each loan is made. The balance of outstanding loans which
are due in installments through 2001 bear interest which varies with changes in
the Company's financial ratios and changes in LIBOR.
The Company and two of its subsidiaries have intercompany loans which are
not denominated in their home country currency, which exposes the Company to
exchange rate fluctuations. The Company has not entered into any foreign
currency or derivative contracts to hedge these potential exchange adjustments,
which are initially recorded as cumulative foreign currency translation
adjustments, a component of stockholders' equity, but will ultimately be
reflected in operations when the debt is repaid. Exclusive of intercompany
receivables and payables for current transactions, the principal outstanding
exposure at March 31, 1998 (expressed in U.S. dollars at current exchange rates)
is for foreign currency loans made by the Company and its subsidiaries to
subsidiaries in the following countries in the following aggregate amounts:
Germany $22,604,000
Italy 6,628,000
United Kingdom 1,250,000
These loans have no fixed due dates.
PART II - OTHER INFORMATION
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:
10.35 Promissory Note for $10 million, dated May 6, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K: none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RECOTON CORPORATION
/S/ ROBERT L. BORCHARDT
Robert L. Borchardt
Co-Chairman, CEO, President
/S/ JOSEPH H. MASSOT
Joseph H. Massot
Vice President, Treasurer and Principal
Accounting Officer
Dated: May 13, 1998
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
10.35 Promissory Note for $10 million,
dated May 6, 1998
27 Financial Data Schedule
EXHIBIT 10.35
DEMAND NOTE
New York, New York
$10,000,000.00 May 6, 1998
For value received, the undersigned hereby promises to pay, ON DEMAND (and
in any event, on July 31, 1998), to the order of THE CHASE MANHATTAN BANK
(hereinafter the "LENDER") at its office at 95-25 Queens Boulevard, 11th Floor,
Rego Park, New York 11374, the principal amount of TEN MILLION AND 00/100
DOLLARS ($10,000,000.00), together with interest on the portion of such
principal outstanding from time to time at a per annum rate equal to the Prime
Rate of The Chase Manhattan Bank from time to time in effect, PLUS 0.25% (the
"Prime Rate" shall be the rate of interest as is publicly announced at the
Lender's principal office from time to time as its Prime Rate), adjusted as of
the date of each such change. The foregoing rate shall be computed for the
actual number of days elapsed on the basis of a 360 day-year, but in no event
shall be higher than the maximum permitted under applicable law. Interest on any
past due amount, whether at the due date thereof or by acceleration, shall be
paid at a rate of 2% per annum in excess of the above stated rate, but in no
event higher than the maximum permitted under applicable law. Accrued interest
on overdue interest and overdue principal shall be due and payable from time to
time upon demand therefor by the Lender and on the date the outstanding
principal of this Note is paid in full. Time for payment extended by law shall
be included in the computation of interest.
The undersigned agrees that it will not make any voluntary prepayments of
loans outstanding under the Credit Agreement, dated as of September 9, 1997,
among the undersigned, the several banks and other financial institutions from
time to time parties thereto and The Chase Manhattan Bank, as administrative
agent, unless and until this Note shall have been paid in full.
The undersigned hereby irrevocably consents to the IN PERSONAM jurisdiction
of the federal and/or state courts located within the State of New York over
controversies arising from or relating to this Note or the liabilities hereunder
and IRREVOCABLY WAIVES TRIAL BY JURY and the right to interpose any counterclaim
or offset of any nature in any such litigation. The undersigned further
irrevocably waives presentment, demand, protest, notice of dishonor and all
other notices or demands of any kind in connection with this Note or any
liabilities hereunder.
The undersigned agrees to pay the Lender, as soon as incurred, all costs
and expenses incurred in connection with the enforcement or collection of this
Note, or in any way relating to the rights of the Lender hereunder, including
fees and expenses of counsel. No failure or delay on the part of the Lender in
exercising any right or remedy granted to it hereby or otherwise provided by
law, nor any partial exercise of any such right or remedy, shall operate as a
waiver thereof or of any other such right and remedy. Each and every right and
remedy hereby granted to the Lender or allowed to it by law shall be cumulative
and not exclusive and each may be exercised by the Lender from time to time and
as often as may be necessary.
All payments of the principal hereof and interest hereon shall be payable
in lawful currency of the United States of America, in immediately available
funds and at the office of the Lender set forth above or at or to such other
place as the Lender may specify to the undersigned from time to time for such
purpose in writing. Payments hereunder that are received by the Lender on any
day that is not a business day or after 2:00 p.m. (New York, New York time) on
any business day shall be deemed to have been made for all purposes hereof on
the next succeeding business day.
No modification or waiver of any of the provisions of this Note shall be
effective unless in writing, signed by the Lender, and only to the extent
therein set forth; nor shall any such waiver be applicable except in the
specific instance for which given. This Note sets forth the entire understanding
of the parties, and the undersigned acknowledges that no oral or other
agreements, conditions, promises, understandings, representations or warranties
exist in regard to the obligations hereunder, except those specifically set
forth herein.
Each reference herein to the Lender shall be deemed to include its
successors, endorsees and assigns, in whose favor the provisions hereof shall
also inure. Each reference herein to the undersigned shall be deemed to include
the heirs, executors, administrators, legal representatives, successors and
assigns of the undersigned, all of whom shall be bound by the provisions hereof;
PROVIDED that the undersigned may not assign or otherwise transfer (pursuant to
a merger or otherwise) any of its rights or obligations hereunder without the
prior written consent of the Lender.
The provisions of this Note shall be construed and interpreted and all
rights and obligations hereunder determined in accordance with the laws of the
State of New York without giving effect to the principles of conflicts of law
thereof.
This Note has been duly executed by an authorized signatory of the
undersigned on the date first stated above.
RECOTON CORPORATION
By: /s/ Joseph H. Massot
Name: Joseph H. Massot
Title: Vice President & Treasurer
Address: 2950 Lake Emma Road
Lake Mary, Florida 32746
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at March 31, 1998
(Unaudited) and the Condensed Consolidated Statement of Income for the Three
Months ended March 31, 1998 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 8,983
<SECURITIES> 0
<RECEIVABLES> 126,238
<ALLOWANCES> 4,670
<INVENTORY> 148,200
<CURRENT-ASSETS> 307,479
<PP&E> 57,750
<DEPRECIATION> 20,620
<TOTAL-ASSETS> 397,965
<CURRENT-LIABILITIES> 93,843
<BONDS> 159,724
<COMMON> 2,570
0
0
<OTHER-SE> 139,568
<TOTAL-LIABILITY-AND-EQUITY> 397,965
<SALES> 144,717
<TOTAL-REVENUES> 144,796
<CGS> 89,607
<TOTAL-COSTS> 89,607
<OTHER-EXPENSES> 46,838
<LOSS-PROVISION> 611
<INTEREST-EXPENSE> 3,500
<INCOME-PRETAX> 4,240
<INCOME-TAX> 636
<INCOME-CONTINUING> 3,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,604
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
