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, 1999
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 Jurisdiction of (IRS Employer
Incorporation or Identification No.)
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: 11,732,524 common shares, par
value $.20 per share, as of August 14, 1999.
<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 1999 1998
------ ------------ --------------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 18,459 $ 21,385
Accounts receivable (less allowance for doubtful
accounts of $3,499,000 in 1999 and $4,940,000
in 1998) 139,093 183,230
Inventories 174,984 161,294
Prepaid, refundable and deferred income taxes 13,951 12,931
Prepaid expenses and other current assets 16,577 12,629
--------- --------
TOTAL CURRENT ASSETS 363,064 391,469
PROPERTY AND EQUIPMENT (at cost, less accumulated
depreciation and amortization) 39,727 40,693
TRADEMARKS AND PATENTS (less accumulated amortization) 4,702 4,777
GOODWILL (less accumulated amortization) 36,094 37,233
DEFERRED INCOME TAXES 9,744 8,070
OTHER ASSETS 7,960 4,428
--------- --------
T O T A L $461,291 $486,670
========= ========
LIABILITIES
-----------
CURRENT LIABILITIES:
Bank loans and drafts payable $ 63,000 $ 95,526
Current portion of long-term debt 9,363 9,359
Accounts payable 72,615 63,848
Accrued expenses 22,152 40,418
Income taxes payable 1,659 4,023
--------- ---------
TOTAL CURRENT LIABILITIES 168,789 213,174
LONG-TERM DEBT (less current portion above) 144,498 114,186
OTHER NONCURRENT LIABILITIES 10,286 11,315
--------- ---------
TOTAL LIABILITIES 323,573 338,675
--------- ---------
SHAREHOLDERS' EQUITY
--------------------
PREFERRED SHARES - $1.00 par value each - authorized
10,000,000 shares; none issued -- --
COMMON SHARES - $.20 par value each - authorized
25,000,000 shares; issued 12,949,520 shares in
1999 and 12,933,704 shares in 1998 2,590 2,587
ADDITIONAL PAID-IN CAPITAL 83,517 80,867
RETAINED EARNINGS 65,833 75,088
CUMULATIVE OTHER COMPREHENSIVE INCOME (7,758) (4,090)
--------- ---------
TOTAL 144,182 154,452
TREASURY SHARES - 1,235,717 shares in 1999 and
1,235,367 shares in 1998, at cost (6,464) (6,457)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 137,718 147,995
--------- -------
T O T A L $461,291 $486,670
========= ========
</TABLE>
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $141,798 $134,104 $285,704 $278,821
COST OF SALES 92,480 79,925 180,478 169,532
---------- ---------- -------- --------
GROSS PROFIT 49,318 54,179 105,226 109,289
---------- ---------- -------- --------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 51,258 46,680 104,101 94,129
INTEREST EXPENSE 5,527 3,893 10,766 7,393
INVESTMENT INCOME (218) (126) (386) (205)
---------- ---------- -------- --------
T O T A L 56,567 50,447 114,481 101,317
---------- ---------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (7,249) 3,732 (9,255) 7,972
INCOME TAX PROVISION (542) (560) (1,196)
---------- ---------- -------- --------
NET INCOME (LOSS) $ (7,791) $ 3,172 $ (9,255) $ 6,776
========== ========= ========= =========
INCOME (LOSS) PER SHARE:
BASIC $(.67) $.27 $(.79) $.58
===== ==== ===== ====
DILUTED* $(.67) $.26 $(.79) $.56
===== ==== ===== ====
NUMBER OF SHARES USED IN COMPUTING
PER SHARE AMOUNTS:
BASIC 11,710 11,645 11,705 11,614
====== ====== ====== ======
DILUTED* 11,710 12,392 11,705 12,138
====== ====== ====== ======
DIVIDENDS NONE NONE NONE NONE
==== ==== ==== ====
</TABLE>
* The effect of the assumed exercise of outstanding stock options and warrants
for the three and six months ended June 30, 1999 is antidilutive and
therefore is not reflected in the diluted loss per share.
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(TABULAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (9,255) $ 6,776
-------- --------
Adjustments to reconcile results of operations to net cash provided by
operating activities:
Depreciation 4,628 4,192
Amortization of intangibles 1,959 1,558
Provision for (recoveries of) losses on accounts receivable (333) 1,063
Deferred income taxes (940) (3,378)
Expense applicable to stock options granted at
prices less than fair market value 55
Change in asset and liability accounts:
Accounts receivable 40,731 14,304
Inventory (15,590) (47,675)
Prepaid and refundable income taxes (1,397) (28)
Prepaid expenses and other current assets (3,690) 1,201
Other assets (679) (1,587)
Accounts payable and accrued expenses (9,093) 2,330
Income taxes payable (1,157) 3,759
Other noncurrent liabilities (69) (14)
-------- -----------
TOTAL ADJUSTMENTS 14,370 (24,220)
-------- -----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 5,115 (17,444)
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for trademarks, patents and
intellectual property (180) (71)
Expenditures for property and equipment (3,862) (7,015)
------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (4,042) (7,086)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under credit agreements
and other bank debt (32,524) 24,000
Net proceeds from sale of senior subordinated notes 33,880
Repayment of long-term bank borrowings (4,676) (4,672)
Proceeds from exercise of stock options 161 1,558
Purchase of treasury stock (7) (105)
---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (3,166) 20,781
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH OF FOREIGN SUBSIDIARIES (833) (34)
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,926) (3,783)
CASH AND CASH EQUIVALENTS - January 1 21,385 17,247
-------- --------
CASH AND CASH EQUIVALENTS - JUNE 30 $ 18,459 $13,464
======== =======
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 9,994 $ 7,789
======== =======
Income taxes paid (net of refunds received) $ 3,328 $ 483
======== =======
</TABLE>
NONCASH ACTIVITIES:
In connection with the exercise of stock options in 1998, 15,500 shares of
common stock were issued in exchange for 6,000 shares of previously issued
common stock with a market value of $213,000, plus cash of $14,965.
The attached notes are made a part hereof.
<PAGE>
RECOTON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(TABULAR AMOUNTS IN THOUSANDS)
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, 1998, 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, 1999 is comprised of:
Raw materials and work-in-process $ 34,804
Finished goods 132,130
Merchandise in-transit 8,050
--------
T O T A L $174,984
========
NOTE D - Total comprehensive income is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net income (loss) $(7,791) $ 3,172 $ (9,255) $ 6,776
Other comprehensive income - foreign
currency transaction adjustments (net
of income tax effect) (1,175) 128 (3,668) (1,174)
------- -------- ------- -------
Total comprehensive income (loss) $(8,966) $ 3,300 $(12,923) $ 5,602
======= ======== ======== =======
</TABLE>
NOTE E - In connection with the sale of $35 million of senior subordinated
notes to institutional investors in February 1999, the Company issued
310,000 common stock purchase warrants valued at approximately
$2,490,000; such amount has been credited to additional paid-in
capital and is being charged to operations over the term of the notes.
NOTE F - The following table presents certain operating segment information
for each of the six and three month periods ended June 30, 1999 and
June 30, 1998:
<TABLE>
<CAPTION>
VIDEO AND
COMPUTER
GAME RAC ACCESSORIES UNALLOCATED
BUSINESS BUSINESS BUSINESS CORPORATE TOTAL
SIX MONTHS ENDED --------- -------- ----------- ------------ -----
JUNE 30, 1999:
<S> <C> <C> <C> <C>
Net sales:
External customers $79,883 $114,325 $91,496 $285,704
Intersegment 10,448 1,128 277 11,853
Income (loss) before
income taxes (23) (4,025) 5,082 $(10,289) (9,255)
SIX MONTHS ENDED
JUNE 30, 1998:
Net sales:
External customers $90,142 $100,797 $87,882 $278,821
Intersegment 31,841 1,201 406 33,448
Income (loss) before
income taxes 9,029 (663) 6,449 $ (6,843) 7,972
THREE MONTHS ENDED
JUNE 30, 1999:
Net sales:
External customers $29,871 $66,784 $45,143 $141,798
Intersegment 3,939 61 146 4,146
Income (loss) before
income taxes (3,700) 646 1,095 $ (5,290) (7,249)
THREE MONTHS ENDED
JUNE 30, 1998:
Net sales:
External customers $36,147 $52,756 $45,201 $134,104
Intersegment 24,052 726 97 24,875
Income (loss) before
income taxes 2,305 2,347 2,645 $ (3,565) 3,732
</TABLE>
NOTE G - The Company records its income tax provisions for interim
reporting purposes based on its estimated annual effective income tax
rate for its calendar year ending December 31. At June 30, 1999, the
Company revised its estimates for the year ending December 31, 1999
and has recorded no income tax benefits attributable to its loss
before income taxes. Accordingly, the $542,000 income tax benefit
recorded in the three months ended March 31, 1999 has been reversed
and charged to operations in the three months ended June 30, 1999.
NOTE H - See "Legal Proceedings" in Part II, Item 1 of this Form 10-Q
for a discussion of a lawsuit commenced in April 1999 against Interact
Accessories, Inc. (a wholly-owned subsidiary of the Company) and one
of its suppliers by Sony Computer Entertainment America, Inc. and for
a discussion of the status of the investigation conducted by the
United States Customs Service and the United States Attorney's Office
in Orlando, Florida.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison for the Quarters Ended June 30, 1999 and 1998
And the Six Months Ended June 30, 1999 and 1998
GENERAL
Recoton Corporation is a global leader in the development,
manufacturing and marketing of branded video and computer game accessories, home
and mobile audio products and other electronic accessories for aftermarket use
by consumers. Our diverse accessory lines include accessories for audio, video,
car audio, camcorder, multi-media/computer, home office, cellular and standard
telephone, music and video game products and 900 Megahertz (MHz) wireless
technology headphones and speakers. Our products are sold under various brand
names including: AAMP, ADVENT, AMBICO, AMPERSAND, AR/ACOUSTIC RESEARCH,
DISCWASHER, HECO, INTERACT, JENSEN, LINEAR RESEARCH, MACAUDIO, MAGNAT, NHT(NOW
HEAR THIS), NITRO, PARSEC, PERIPHERAL, PHASE LINEAR, RECOTON, REMBRANDT,
ROADGEAR, ROSS, SOLE CONTROL, SOUNDQUEST, AND STINGER.
A significant part of our growth strategy has been to expand through
acquisitions. Since prior to 1995, we have developed, manufactured and marketed
a broad range of consumer electronic accessories. In 1995 we significantly
expanded into the video and computer game accessory business with the
acquisition of STD Holding Limited, a Hong Kong based company, and the business
of its U.S. distribution arm now operating under the name InterAct Accessories,
Inc. In August 1996, we acquired the branded products business of International
Jensen Incorporated (now known as Recoton Audio Corporation), which allowed us
to enter the market for loudspeakers and other audio products for home and
automotive aftermarket use as well as expand our foothold for growth worldwide.
Commencing with our financial statements for the year ended December
31, 1998, we have classified our business into three principal segments in
accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Each
segment's earnings before corporate interest and income taxes are reported to
our chief operating decision-makers. General corporate expenses other than
certain interest costs have been allocated to each segment on the basis used for
internal management decision making purposes.
Listed below are our three segments:
o VIDEO AND COMPUTER GAME BUSINESS: This segment consists of STD Holding
Limited and its Hong Kong and other Chinese subsidiaries (STD), including
its manufacturing operations producing video and computer game accessories
and InterAct Accessories, Inc. (InterAct), our distributor of computer and
video game accessories in the United States. Products sold under the
INTERACT brand name include peripherals and other accessories to enhance
the enjoyment of playing video and computer games, including joysticks,
controllers, game steering wheels and other accessories as well as computer
and multi-media accessories. The profits on products produced by STD for
and sold by our other business segments has been allocated to them. For the
six months ended June 30, 1999 approximately 28% of our revenues were from
sales by this segment.
o RECOTON AUDIO CORPORATION BUSINESS: This segment consists of Recoton Audio
Corporation and its United States and European subsidiaries (RAC), which
primarily sell audio products for home and aftermarket mobile use. Home
audio products are sold under the ADVENT, AR/ACOUSTIC RESEARCH, JENSEN AND
NHT/(NOW HEAR THIS) brand names and in Europe, under the HECO and MAGNAT
brand names. Home audio products include state-of-the-art designed
high-fidelity, high-performance stereo and home theater loudspeaker
systems. Audio products for the automobile and marine aftermarket, sold by
our Mobile Electronic Division under the ADVENT, JENSEN, LINEAR RESEARCH,
NITRO, PHASE LINEAR and ROADGEAR brand names in the United States and the
MAGNAT and MACAUDIO brand names in Europe, include speakers, subwoofers,
amplifiers, cassette receivers, equalizers, electronic crossovers, signal
processors, CD players, CD changers and installation accessories. For the
six months ended June 30, 1999 approximately 40% of our revenues were from
sales by this segment.
o ACCESSORIES BUSINESS: This segment consists of Recoton Corporation;
Christie Design Corporation, a research and development subsidiary; Recoton
(Far East) Limited, a Hong Kong distributor; AAMP of Florida, Inc., a
distributor of car audio installation products; and Recoton Canada Ltd., a
Canadian distributor of our products. Products sold include indoor and
outdoor television antennas, storage cases, headphones, remote controls,
and other accessories for home and mobile audio, camcorder, cellular and
standard telephone, music and video products, and 900 MHz and other
wireless technology products marketed under numerous brand names including
AAMP, ADVENT, AMBICO, DISCWASHER, JENSEN, PARSEC, RECOTON, ROADGEAR, SOLE
CONTROL, SOUNDQUEST AND STINGER and, under licenses, SPRINT for telephone
accessories and ROLLING STONE for music storage. For the six months ended
June 30, 1999, approximately 32% of our revenues were from sales by this
segment.
RESULTS OF OPERATIONS
The following table presents certain operating segment information for
the indicated three months ended June 30:
(IN MILLIONS)
Video and Computer RAC Accessories
1999 Game Business Business Business
- ------------------ ------------------ -------- -----------
Net sales.................. $29.9 $66.8 $45.1
Gross profit............... 12.7 18.6 18.0
Income (loss) before
income taxes and un-
allocated expenses...... (3.7) 0.6 1.1
Video and Computer RAC Accessories
1998 Game Business Business Business
- ------------------ ------------------ -------- -----------
Net sales.................. $36.1 $52.8 $45.2
Gross profit............... 17.4 18.1 18.7
Income before income
taxes and unallocated
expenses............... 2.3 2.3 2.6
The following table presents certain operating segment information for
the indicated six months ended June 30:
(IN MILLIONS)
Video and Computer RAC Accessories
1999 Game Business Business Business
- ------------------ ------------------ -------- -----------
Net sales.................. $79.9 $114.3 $91.5
Gross profit............... 35.5 33.0 36.7
Income (loss) before
income taxes and
unallocated expenses... 0.0 (4.0) 5.1
Video and Computer RAC Accessories
1998 Game Business Business Business
- ------------------ ------------------ -------- -----------
Net sales.................. $90.1 $100.8 $87.9
Gross profit............... 41.9 32.8 34.6
Income (loss) before
income taxes and
unallocated expenses... 9.0 (.7) 6.4
The financial results of the reportable segments have been prepared
using a management approach, which is consistent with the basis and manner in
which our management internally aggregates financial information for the
purposes of assisting in making internal operating decisions. In this regard,
certain corporate expenses were allocated among subsidiaries for decision-making
purposes which may be a less precise measure than would be required for
standalone financial information of an entity prepared in conformity with
generally accepted accounting principles.
Net sales for the quarter ended June 30, 1999 totaled $141.8 million,
an increase of $7.7 million or 5.7% from the quarter ended June 30, 1998 of
$134.1 million. Net sales for the six months ended June 30, 1999 totaled $285.7
million, up $6.9 million or 2.5% from the $278.8 million reported for the six
months ended June 30, 1998. Sales by segment were as follows:
o Net sales for the video and computer game business for the second
quarter of 1999 were $29.9 million, a decrease of 17.2% compared
to $36.1 million for the same period in 1998. Sales for the six
months ended June 30, 1999 were $79.9 million, a decrease of
11.3%, compared to $90.1 million for the same period in 1998. The
decline in sales for the first half of 1999 was attributable to
(a) the current general transition phase of the video game
business before new game platforms are introduced by Sega,
Nintendo and Sony and (b) sales in the first half of 1998 were
unusually high due to new product introductions by InterAct and
increased sales as customers replenished their inventories after
a better than anticipated 1997 holiday selling season. We expect
to begin selling new products for delivery in the second half of
1999 and into 2000 to coincide with the introductions of the new
game platforms by Sega, Nintendo, and Sony. Sega's new video
platform, Sega Dreamcast(TM), is scheduled to arrive at U.S.
stores September 9, 1999.
o Net sales for the RAC business for the second quarter of 1999
were $66.8 million, an increase of 26.5% compared to $52.8
million for the same period in 1998. Sales for the six months
ended June 30, 1999 were $114.3 million, an increase of 13.4%,
compared to $100.8 million for the six months ended June 30,
1998. The sales increases for this segment were mainly due to our
mobile electronic business.
O Net sales by the accessory business remained relatively constant
at $45.1 million for the second quarter of 1999 compared to $45.2
million in the second quarter of 1998. Sales for the six months
ended June 30, 1999 were $91.5 million compared to $87.9 million
for the same period in 1998, an increase of 4.1%.
Gross margin for the second quarter of 1999 decreased to 34.8% from
40.4% for the same period in 1998 and decreased to 36.8% for the six months
ended June 30, 1999 compared to 39.2% for the same period in 1998. The gross
margin decrease was due mainly to decreased margins on InterAct products and the
RAC business slightly offset by increased margins from the accessory business.
In addition, the increase in percentage of total revenue by the RAC business
(approximately 40% of total revenue for the six months ended June 30, 1999
compared to approximately 36% of total revenue for the six months ended June 30,
1998), which is a lower gross margin segment, resulted in a further decrease in
gross margin.
o Gross margin for the video and computer game business decreased
to 42.5% for the quarter ended June 30, 1999 from 48.2% for the
quarter ended June 30, 1998 and decreased to 44.4% for the six
months ended June 30, 1999 from 46.5% for the six months ended
June 30, 1998. The decrease is mainly due to competitive pricing
pressures on InterAct products and the transition of the industry
from existing platforms as manufacturers get ready for the
introduction of a new generation of products.
o Gross margin for the RAC business decreased to 27.8% for the
quarter ended June 30, 1999 from 34.3% for the quarter ended June
30, 1998 and decreased to 28.9% for the six months ended June 30,
1999 from 32.5% for the six months ended June 30, 1998. This
decrease is mainly due to the product mix sold in the second
quarter by the mobile electronic division and softer demand for
our products in the European market.
o Gross margin for the accessories business decreased to 39.9% for
the quarter ended June 30, 1999 from 41.4% for the quarter ended
June 30, 1998 and increased slightly to 40.1% for the six months
ended June 30, 1999 from 39.4% for the six months ended June 30,
1998.
Selling, general and administrative expenses increased for the second
quarter of 1999 by $4.6 million to $51.3 million compared to the second quarter
of 1998 of $46.7 million and increased as a percentage of net sales from 34.8%
in the second quarter of 1998 to 36.2% for the second quarter of 1999. For the
six months ended June 30, 1999, selling, general and administrative expenses
increased to $104.1 million compared to $94.1 million for the same period in
1998 and increased as a percentage of net sales from 33.8% to 36.4% for the six
months ended June 30, 1999. The increases were attributable to increased market
development and promotional activities principally related to InterAct products.
Interest expense (net of investment income) increased by $1.5 million
to $5.3 million for the second quarter of 1999 compared to the same period in
1998 and by $3.2 million to $10.4 million for the six months ended June 30, 1999
compared to the same period in 1998. The increase was attributable to increased
borrowings, the sale of $35 million of senior subordinated notes in February
1999 and increases in interest rates.
On a consolidated basis, the loss before income taxes for the second
quarter of 1999 was $7.2 million compared to income of $3.7 million reported for
the same period in 1998. For the six months ended June 30, 1999, the loss before
income taxes was $9.3 million compared to income before income taxes of $8.0
million reported for the same period in 1998.
The following discussion on a segment basis reflects results before
income taxes and before unallocated expenses, which expenses consist primarily
of interest:
o For the second quarter of 1999, loss before income taxes and
unallocated expenses for the video and computer game business was
$3.7 million compared to income before income taxes and
unallocated expenses of $2.3 million in the second quarter of
1998. For the six months ended June 30, 1999 loss before income
taxes and unallocated expenses was $23,000 compared to income
before income taxes and unallocated expenses of $9.0 million for
the six months ended June 30, 1998. The differences were
attributable to lower gross profits and higher promotional
expenses.
o Income before income taxes and unallocated expenses for the RAC
business was $0.6 million for the second quarter of 1999 compared
to $2.3 million for the second quarter of 1998. For the six
months ended June 30, 1999 the loss before income taxes and
unallocated expenses was $4.0 million compared to a loss of $0.7
million for the six months ended June 30, 1998. In addition to
the effect of lower gross margins and softer European demand,
other factors contributing to the six month 1999 RAC loss include
increases in domestic and European product research, advertising,
and market development costs and operational expenses in the
United Kingdom.
o Income before income taxes and unallocated expenses for the
accessories business was $1.1 million for the second quarter of
1999 compared to $2.6 million for the second quarter of 1998. For
the six months ended June 30, 1999 income before income taxes and
unallocated expenses was $5.1 million compared to $6.4 million
for the six months ended June 30, 1998. The declines reflected
were attributable to both a marginal decline in the gross margin
percentage in the second quarter of 1999 and an increase in
operating expenses.
In recent years, our 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 operations in North America and
Western Europe are primarily taxed at or above United States income tax rates,
earnings from our Asian operations are taxed at a current maximum rate of 16.0%.
However, the actual tax rate from Asian operations is dependent upon the
proportion of earnings from mainland China, which have been subject to a tax
holiday. Our Chinese subsidiary, being a production-oriented Foreign Investment
Enterprise located in a Special Economic Zone in China, was granted a five year
tax holiday beginning in 1996. This tax holiday allows for full exemption from
Chinese corporate tax for the 1996 and 1997 years, and a 50% exemption for the
following three years. Through June 30, 1999, we have not provided for
additional U.S. income taxes which would be payable upon the payment of
dividends from our Hong Kong subsidiaries, because the earnings of these
subsidiaries are considered indefinitely invested. Our effective income tax rate
on future earnings from Hong Kong and additional U.S. income taxes on the Hong
Kong retained earnings at June 30, 1999 are, in part, dependent upon our future
domestic cash requirements. While we currently project that our Hong Kong
retained earnings at June 30, 1999 will remain indefinitely invested, such
estimate is subject to future revision based upon such factors as our domestic
operations, our ability to borrow or otherwise obtain funds to finance our
operations, market conditions in the consumer electronics industry and general
economic conditions in the United States and Asia. For interim reporting
purposes we record income taxes based on our estimated annual effective income
tax rate for the calendar year ending December 31. As a result of the losses
incurred for the six months ended June 30, 1999, we have revised our estimate of
our effective income tax rate for the year ending December 31, 1999 and have
recorded no income tax benefit on our loss before income taxes for the six month
period. Therefore, the $542,000 income tax benefit recorded in the quarter ended
March 31, 1999 has been reversed and charged to operations in the current
quarter. For the three and six months periods ended June 30, 1998, our income
tax expense was based upon a 15% estimated effective annual income tax rate.
In 1998, we adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This statement, effective for fiscal
years beginning after December 15, 1997, requires us 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 non-owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. To date, our comprehensive income has been comprised of
our net income or loss and foreign currency translation adjustments (which
adjustments were a negative $3.7. million for the six months ended June 30, 1999
and a negative $1.2 million for the same period in 1998) included in the
consolidated statements of stockholders' equity. As a result of significant
fluctuations in the value of the U.S. dollar in relation to currencies in
Western Europe for the six months ended June 30, 1999 and 1998, and the related
foreign currency translation adjustments recorded by us, in addition to the
changes in net income or loss, comprehensive loss for the six months ended June
30, 1999 was $12.9 million compared to income of $5.6 million for the six months
ended June 30, 1998. Comprehensive loss for the quarter ended June 30, 1999 was
$9.0 million as compared to comprehensive income of $3.3 million for the quarter
ended June 30, 1998. (See Note D of the notes to the Condensed Consolidated
Financial Statements.)
For the second quarter of 1999, basic and diluted EPS were a loss of
$.67/share based on average outstanding shares of 11,710,000. For the second
quarter of 1998, basic EPS was $.27/share and diluted EPS was $.26/share based
on average shares of 11,645,000 (basic) and 12,392,000 (diluted). For the six
months ended June 30, 1999, basic and diluted EPS were a loss of $.79/share
(which includes an $.11 per share one-time charge associated with the shut down
of our amplifier manufacturing division in the first quarter of 1999) based on
average outstanding shares of 11,705,000. The effect of the assumed exercise of
outstanding stock options and warrants for the three and six months ended June
30, 1999 is antidilutive and therefore is not reflected in the diluted loss per
share. For the six months ended June 30,1998, basic EPS was $.58/share and
diluted EPS was $.56/share based on average shares of 11,614,000 (basic) and
12,138,000 (diluted).
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires
capitalization of costs of software developed or purchased for internal use. We
elected early adoption of the SOP for 1998 which resulted in the capitalization
of software development costs of approximately $405,000 for the year ended 1998,
all of which was recorded in the fourth quarter of 1998. Approximately $150,000
and $300,000 of such costs were capitalized in the three and six months periods
ended June 30, 1999, respectively. The per share effect was a reduction in loss
per share of $.02 and $.03 per basic and diluted share in these respective
periods.
In view of our operating performance, we retained the services of a
consulting firm in May 1999 to aid in the evaluation, development and
implementation of a comprehensive plan geared towards improving our overall
operations, cash flow and return on assets. The plan, which is subject to final
revision, has been approved in principle by our Board of Directors.
Implementation of certain aspects of the plan has commenced. We anticipate
restructuring and/or one-time charges of approximately $15 million to be taken
in conjunction with the plan in the third quarter of 1999. The plan includes a
reduction of staff, consolidation of businesses, discontinuation of product
lines and the sale of certain assets and is anticipated to generate in excess of
$25 million in annualized increased profitability. The plan should provide an
enhanced management structure that will better accommodate a company of our size
and global presence, while allowing our corporate management team to focus on a
broader range of issues. The plan further incorporates a more incentive-based
method of compensation, more stringent financial controls and an upgrade of our
management information systems.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation and changing prices on our net sales and
revenues and on income from continuing operations for the six months ending June
30, 1999 was negligible.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND COMPONENTS OF WORKING CAPITAL. Our principal sources of
funds have historically been, and are expected to continue to be, cash flow from
operations, borrowings under credit facilities provided by banks in the United
States and abroad and proceeds from the sale of our securities, including the
private placement of our notes. At June 30, 1999,we had cash and cash
equivalents of $18.5 million compared with $21.4 million at December 31, 1998.
At June 30, 1999, we had working capital of approximately $194.3
million as compared to approximately $178.3 million at December 31, 1998. Our
ratio of current assets to current liabilities was 2.2 to 1 at June 30, 1999 and
1.8 to 1 at December 31, 1998. The increase in working capital and the working
capital ratio are primarily the result of the proceeds from the issuance of $35
million in aggregate principle amount of senior subordinated notes used to
reduce outstanding borrowings under the revolving credit facility. Trade
receivables decreased $44.1 million to $139.1 million at June 30, 1999 as
compared to December 31, 1998. Inventories increased from December 31, 1998
levels by $13.7 million to 175.0 million at June 30, 1999. Accounts payable and
accrued expenses decreased $9.5 million to $94.8 million at June 30, 1999. These
changes are the result of our normal sales and purchasing patterns, where sales
have traditionally been higher in the third and fourth quarters of each year.
CURRENT SOURCES OF CREDIT. We currently have a multibank credit
facility (the Credit Facility), entered into in January 1997 and modified
several times with the most recent modification occurring on March 12, 1999. We
presently have a $86.5 million revolving credit facility through December 26,
1999, reduced from $101.5 million, which was in effect on December 31, 1998. The
outstanding borrowings and commitments pursuant to letters of credit under the
revolving facility were approximately $75.9 million at June 30, 1999 as compared
to $95.7 million at December 31, 1998. We also have a $15.0 million term loan,
repayable in quarterly installments with the last installment due in May 2001
($10.0 million balance as of June 30, 1999). The revolving credit loans and term
loan currently bear interest at various rates depending on elections made by us.
The applicable rates include rates tied to the London Inter Bank Offering Rate
(LIBOR) and rates tied to the greater of the prime rate or a federal funds-based
rate. As of June 30, 1999, all of these loans were tied to the prime rate and
bore interest at approximately 8.25%. We are currently in the process of
negotiating with institutional lenders various alternate financing sources.
There can not, however, be any assurance that a replacement facility will be
arranged. (See the discussion below regarding restructuring of this debt and our
outstanding notes and other borrowings.)
In January 1997, we issued $75 million in principal amount of
adjustable rate senior notes due January 6, 2007 (the 1997 Notes), which
currently bear interest at 9.75% (8.75% in 1998) per annum. The 1997 Notes
require interest-only payments for the first four years, then seven equal
installments of principal on each anniversary date, beginning January 2001. In
September 1998, we issued an additional $25 million in principal amount of
10-year senior notes due September 1, 2008 (the 1998 Notes), which currently
bear interest at 9.52% (8.52% in September 1998), on terms substantially
identical to the Senior Notes. The 1998 Notes require interest-only payments for
the first four years, then seven equal installments of principal on each
anniversary date, beginning September 2002.
In 1999, both note agreements were amended and the interest rates were
increased effective January 1, 1999 to 9.75% and 9.52% for the $75 million and
$25 million notes, respectively.
In February 1999, we issued $35 million in aggregate principal amount
of senior subordinated notes due February 4, 2004 (the 1999 Notes) and 310,000
common stock purchase warrants. The proceeds were used to reduce outstanding
borrowings under our revolving credit facility. The 1999 Notes are subject to
required prepayment from the proceeds received by us from the sale of either
high yield indebtedness or common shares. Interest is currently payable
quarterly at 11.5% a year to November 4, 1999 increasing to 12.5% per annum on
November 4, 1999 and by 0.50% per annum on each of the next five interest
payment dates. The common stock purchase warrants are exercisable at $18.26 a
share and mature on February 4, 2004. The note agreements also provide that if
any of the 1999 Notes are not repaid by May 4, 2001,we will issue to the holders
of the 1999 Notes additional common share purchase warrants to purchase such
number of shares as equals 310,000 multiplied by a fraction, the numerator of
which is the then-unpaid principal amount of notes and the denominator of which
is $35 million. The pricing of the additional warrants would be based on market
values for our common shares at that time.
We also have outstanding borrowings from one member of the multibank
credit lenders aggregating approximately $8.5 million at June 30, 1999, which
are due at various times through July 2001. Covenants similar to those
applicable to the multibank credit facility apply to these loans. We have
granted two mortgages on our Florida property to secure repayment of $2.5
million of such indebtedness. Interest rates on such loans currently range
between 6.6% and 8.4%.
Certain of our foreign subsidiaries have lines of credit of
approximately $17.4 million with foreign banks, primarily for import facilities.
The banks have security interests to the extent of merchandise purchased under
these lines. As of June 30, 1999, there were no trust receipt loans and
approximately $3.1 million of letters of credit outstanding which reduce the
amounts available under these foreign lines.
At December 31, 1998 and at various times prior to such date, we were
not in compliance with certain financial covenants, including those involving
the maintenance of financial ratios and minimum tangible net worth, under our
outstanding notes and the Credit Facility. At such times both the note holders
and bank lenders either amended the covenants or waived our non-compliance with
such covenants and temporarily relaxed such covenants. At June 30, 1999, we were
not in compliance with certain amended covenants under the notes and the Credit
Facility. In connection with a restructuring of our debt currently under
discussion, our lenders and noteholders granted a further waiver of such
non-compliance (see discussion below).
PROPOSED RESTRUCTURING. We are in discussions with our lenders and
noteholders regarding a restructuring of our debt. The lenders and noteholders
granted to us a waiver of our defaults at August 16, 1999 under the current
credit agreements and note purchase agreements through November 14, 1999
conditioned on our closing prior to September 1, 1999 on refinancing agreements
to be prepared consistent with the terms of an agreed-upon term sheet. The term
sheet envisions an extension of the current credit facilities, a shortening of
the term of our adjustable rate senior notes and the providing of an
additional credit facility of up to $50 million for working capital purposes,
each of which will become due on June 30, 2001. The financial covenants under
our outstanding debt would be reduced in number and significantly relaxed.
Pursuant to such term sheet we will grant the lenders collateral security, the
interest rates which we will pay on our outstanding debt will increase and
certain fees and warrants to acquire common stock will be required. While we are
reasonably confident that we will be able to close on the restructuring in a
timely fashion, there can be no assurance that such a closing will occur on the
terms outlined or on other acceptable terms. Failure to reach agreement on such
restructuring in a timely fashion will result in our bank debt and outstanding
notes being subject to call. There can be no assurance that we will be in
compliance with the modified covenants in the future or that the lenders or note
holders will waive or amend any of the covenants should we be in violation of
any such covenants in the future.
FACILITIES. In January 1998, we completed construction of an
approximately 318,000 square foot expansion of our warehouse on our Lake Mary,
Florida property. The cost of the building construction was approximately $5.0
million.
FOREIGN OPERATIONS. To date there has been limited exposure to loss
due to foreign currency risks in our Asian subsidiaries, because the Hong Kong
dollar has been pegged to the U.S. dollar at an official exchange rate of 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, we maintain the
majority of our currency in Asia in U.S. dollar accounts. However, there can be
no assurance that these relationships will continue.
Our operations, which are currently being transacted on a global
basis, are exposed to variations in foreign exchange rates. Our shareholders'
equity was reduced by a foreign currency translation adjustment of approximately
$3.7 million for the six months ended June 30, 1999. During the six months ended
June 30, 1998, our shareholders' equity was reduced by a foreign currency
translation adjustment of approximately $1.2 million. The changes in the
exchange rates of the German and Italian currencies against the American dollar,
which were the principal causes of the foreign translation adjustment, had no
material impact on our results of operations but such adjustments serve to
reduce our tangible net worth which is required to be maintained at specified
levels under financial covenants in our loan and note purchase agreements.
If there are any material adverse changes in the relationships between
the European and/or Canadian currencies with the United States dollar or if the
Hong Kong or Chinese currencies should no longer be tied to the U.S. dollar,
such changes could adversely affect the results of our European, Canadian and/or
Asian 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 shareholders' equity.
We have leased expanded facilities for sales and warehousing in
Germany and the U.K. and are considering enlarging our manufacturing facilities
in Mainland China. In addition we are considering the purchase of additional
computer hardware and software to be used both in the United States and in its
foreign locations. We do not, however, anticipate engaging in any other
acquisitions.
YEAR 2000
We are in the process of addressing what is known as the year 2000 (or
Y2K) issue. Based on current information, we believe that we will be year 2000
compliant in a timely manner and the cost of achieving such compliance will not
have a materially adverse effect on our results of operations or financial
condition. As noted in the following discussion, however, there are multiple
variables in determining whether full Y2K compliance can be achieved, many of
which are dependent on efforts of third parties. For a discussion of this
problem, see our Form 10-K for the year ended December 31, 1998," Item 7.
Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
We believe that all of our domestic and foreign internal computer
systems and computer-dependent systems are currently Y2K compliant. As noted in
our Form 10-K, we have been contacting our key vendors and service providers as
well as our key customers, to ascertain their Y2K compliance to the extent that
their problems could affect our internal systems or other aspects of our
business. Inquiry letters have been sent to all key United States and most key
foreign vendors, service providers and customers.
Positive responses or other assurances have been received from
substantially all of our significant vendors and service providers and from most
of our significant customers. Responses from European vendors and customers,
however, have been slow in coming as many European countries have only recently
recognized the potential severity of the Y2K problem. We have received
satisfactory responses from (or deemed it not necessary to query) vendors
representing approximately 85% of our worldwide purchases (95% of purchases by
all non-European companies) and from customers representing approximately 80% of
our worldwide sales (90% of sales by all non-European companies. For our
planning purposes we are assuming that companies which do not satisfactorily
respond will not be Y2K compliant and we are commencing the process of
ascertaining, on a case-by-case basis, whether any contingency plans will be
necessary with respect to any of such companies. We have instructed our
operating companies to substantially complete that process by approximately
September 30th. Any serious Y2K problems which significant vendors and service
providers encounter could impact our ability to sell the affected products. If
significant customers (especially those which are ordering from us
electronically) have Y2K problems, that also could impact the level of their
purchases until such problems are resolved.
IMPLICATIONS TO THE COMPANY FROM THE ADOPTION OF A EUROPEAN COMMON CURRENCY
We have extensive operations in certain European countries, including
Germany, Italy and the United Kingdom. We also sell to additional countries in
Europe. For the six months ended June 30, 1998, approximately 16% of our net
sales were in Europe. With the exception of the United Kingdom, all of the
countries in which we have operations have confirmed their participation in a
new 11-country European common currency, the Euro. We do not at this time
anticipate that the adoption of the Euro and any resulting changes in European
economic and market conditions will have any material adverse impact on us or
our European business. For a discussion of the implications to us regarding the
recent adoption of a common European currency, see our Form 10-K for the year
ended December 31, 1998, "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A majority (over 66%) of our borrowings bear fixed interest rates.
However, borrowings under the revolving credit portion of the Credit Facility
bear various interest rates depending on elections made by us. A $15.0 million
term loan ($10.0 million balance as of June 30, 1999), which is due in
installments through May 2001, bears interest which varies with changes in our
financial ratios and changes in the prime rate.
We have no significant foreign borrowings from third parties. Recoton
Corporation and certain of its subsidiaries have intercompany loans which are
not denominated in their home country currency, which exposes us to exchange
rate fluctuations. We have 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
shareholders' 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 June 30, 1999 (expressed in
U.S. dollars at current exchange rates) for foreign currency loans made by
Recoton Corporation and its subsidiaries to other subsidiaries in Germany and
Italy is $32.0 million. These loans have no fixed due dates.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CUSTOMS. We have entered into agreements to resolve all matters in the
pending customs investigation by the U.S Customs Service and the U.S. Attorney
for the Middle District of Florida. The agreement with the U.S. Attorney's
office is subject to court approval. We agreed to plead guilty to a number of
counts involving country of origin mismarking and undervaluation of imports and
pay a fine to be determined by the court. A hearing date has been set for
September 2, 1999. We will pay the U.S. Customs Service the difference between
$14.0 million and the fine determined by the court. The agreements are
consistent with the tentative settlement, which we announced in March 1999. The
settlement amount did not have any impact on our current statement of operations
since a pre-tax charge of $15.0 million for the expected settlement and certain
related costs was recorded in the fourth quarter of 1998. There can be no
assurance that the agreement with the U.S. Attorney will be approved. For a
further discussion of this matter see our Form 10-K for the year ended December
31, 1998," Item 3, "Legal Proceedings" and our Form 8-K dated July 27, 1999.
SONY V. INTERACT. Sony Computer Entertainment America Inc. sued our
subsidiary InterAct Accessories, Inc, and Datel Electronics, Ltd., the supplier
of InterAct's GameShark product, in the U.S. District Court for the Northern
District of California on April 7, 1999. For a further discussion of this case,
see our Form 10-Q for the quarter ended March 31, 1999, Part II, Item 1 "Legal
Proceedings." The parties have conducted expedited discovery.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Our Annual Meeting of Shareholders was held on June 9, 1999. Each of
the candidates for the position of director, Messrs. Robert L. Borchardt, George
Calvi, Paul E. Feffer and Stuart Mont were elected. The directors whose term of
office continued after the meeting were Messrs. Stephen Chu, Irwin Friedman,
Joseph M. Idy, Ronald McPherson, Joseph H. Massot and Peter Wish. Mr. Chu
subsequently resigned from the Board in July 1999.
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:
Mr. Borchardt
For: 9,089,608
Withhold Authority: 676,756
Mr. Calvi:
For: 9,517,160
Withhold Authority: 249,204
Mr. Feffer
For: 9,514,350
Withhold Authority: 252,014
Mr. Mont
For: 9,511,530
Withhold Authority: 254,834
2. Ratification of the appointment of Cornick, Garber & Sandler, LLP as
Independent Auditors for the Fiscal Year Ending December 31, 1999:
For: 9,654,562
Against: 88,262
Abstain: 23,540
Nonvote: 0
ITEM 5. OTHER INFORMATION
When used in this Form 10-Q and in future filings by us with the
Securities and Exchange Commission, in our 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. We wish 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
(1) A report dated June 28, 1999 was filed to report under Item 5 certain
amendments to our shareholder rights plan.
(2) A report dated July 27, 1999 was filed to report under Item 5
agreements to resolve the pending customs matter.
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 Borchardt
Chairman of the Board, President and
Chief Executive Officer
/S/ ARNOLD KEZSBOM
--------------------------------------
Arnold Kezsbom
Senior Vice President-Finance,
Treasurer and Chief Financial Officer
Dated: August 16, 1999
<PAGE>
EXHIBIT INDEX
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, 1999
(Unaudited) and the Condensed Consolidated Statement of Income for the Six
Months Ended June 30, 1999 (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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,459
<SECURITIES> 0
<RECEIVABLES> 142,592
<ALLOWANCES> 3,499
<INVENTORY> 174,984
<CURRENT-ASSETS> 363,064
<PP&E> 76,544
<DEPRECIATION> 36,817
<TOTAL-ASSETS> 461,291
<CURRENT-LIABILITIES> 168,789
<BONDS> 144,498
<COMMON> 2,590
0
0
<OTHER-SE> 135,128
<TOTAL-LIABILITY-AND-EQUITY> 461,291
<SALES> 285,704
<TOTAL-REVENUES> 286,090
<CGS> 180,478
<TOTAL-COSTS> 180,478
<OTHER-EXPENSES> 104,434
<LOSS-PROVISION> (333)
<INTEREST-EXPENSE> 10,766
<INCOME-PRETAX> (9,255)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,255)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,255)
<EPS-BASIC> (.79)
<EPS-DILUTED> (.79)
</TABLE>
