SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K/A - NO. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended
December 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 JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2950 LAKE EMMA ROAD, LAKE MARY, FLORIDA 32746
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (407) 333-8900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.20 PAR VALUE
(TITLE OF CLASS)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$144,534.57 based on the closing price on the Nasdaq Stock Market of $14.50 as
of March 23, 1999. For purposes of this computation, all executive officers and
directors of the Registrant have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such persons are, in
fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: 11,701,153 shares of
Common Stock as of April 21, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
ITEM 7 OF PART II AND ITEMS 10, 11, 12 AND 13 OF PART III OF THE FORM 10-K ARE
AMENDED TO READ AS FOLLOWS:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
CONSOLIDATED FINANCIAL DATA" APPEARING ABOVE AND THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
APPEARING AT PAGES F-1 THROUGH F-32.
GENERAL
Recoton Corporation (with its subsidiaries, Recoton or the Company) is a
global leader in the development, manufacturing and marketing of video and
computer game accessories, home and mobile accessories and other electronic
accessories for aftermarket use. Recoton's diverse accessory lines include
highly functional 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. The Company's diverse product offerings 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 Recoton's growth strategy has been to expand through
acquisitions. Prior to 1995, Recoton developed, manufactured and marketed a
broad range of consumer electronic accessories. In 1995 the Company
significantly expanded into the video and computer game accessory business with
the acquisition of STD Holdings 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, Recoton acquired the branded products business
of International Jensen Incorporated (now known as Recoton Audio Corporation),
which allowed the Company to enter the market for loudspeakers and other audio
products for home and automotive aftermarket use as well as expand the Company's
foothold for growth worldwide.
The Company classifies its business into three principal segments. Each
segment's earnings before corporate interest and income taxes are reported to
the Company's 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 the Company's 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), the
Company's 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 profit on products produced by STD for
and sold by the Company's other business segments has been allocated
to them. In fiscal 1998 approximately 35% of the Company's revenues
were from sales of 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 home and mobile audio products. Home audio
products are sold domestically 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 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. In fiscal 1998 approximately 33% of the
Company's revenues were from sales of this segment.
o ACCESSORIES BUSINESS: This segment consists of Recoton Corporation;
Christie Design Corporation, a research and development subsidiary;
Recoton (Far East) Ltd., a Hong Kong distributor; AAMP of Florida,
Inc., a distributor of car audio installation products; and Recoton
Canada Limited, a Canadian distributor of all Recoton 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. In fiscal 1998,
approximately 32% of the Company's revenues were from sales of this
segment.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the
Company expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 59.3 61.1 62.3 61.1 61.3
----- ----- ----- ----- -----
Gross profit..................... 40.7 38.9 37.7 38.9 38.7
Selling, general and administrative
expenses......... 30.2 29.5 32.9 35.0 32.8
Provision for expected U.S. customs
settlement...... 2.1
----- ----- ----- ----- -----
Operating income................. 10.5 9.4 4.8 3.9 3.8
Interest expense................. 0.4 0.4 1.5 2.5 2.6
Investment income................ (0.3) (0.3) - (0.1) (0.1)
----- ----- ----- ----- -----
Income before income taxes....... 10.4 9.3 3.3 1.5 1.3
Income tax provision (credit).... 3.2 2.2 0.8 (1.2) 0.7
Net income....................... 7.2 % 7.1% 2.5% 2.7% 0.6%
===== ===== ===== ===== =====
</TABLE>
The following table presents certain operating segment information for the
indicated years ended December 31 (further described in Note P to the
Consolidated Financial Statements):
(IN MILLIONS)
Video and Computer RAC Accessories
1998 GAME BUSINESS BUSINESS BUSINESS
------------------ -------- -------------
Net sales.......... $243.9 $234.1 $222.4
Gross profit....... 110.4 73.9 86.8
Income (loss) before
income taxes, unallocated
expenses and provision for
expected U.S. customs
settlement........ 27.4 (0.9) 14.3
Video and Computer RAC Accessories
1997 GAME BUSINESS BUSINESS BUSINESS
------------------ -------- -------------
Net sales........... $126.3 $182.0 $193.7
Gross profit........ 64.5 65.6 65.2
Income (loss) before
income taxes(1).... -- -- --
Video and Computer RAC Accessories
1996 GAME BUSINESS BUSINESS(2) BUSINESS
------------------ -------- -------------
Net sales............ $ 79.0 $ 64.6 $188.1
Gross profit......... 34.7 21.1 69.2
Income (loss) before
income taxes(1).... -- -- --
- -------------
(1) It is not practicable to provide comparable data for 1996 and 1997
because the Company did not maintain records of certain shared
costs and expenses in prior years.
(2) From date of acquisition on August 28, 1996.
The financial results of the reportable segments have been prepared using a
management approach, which is consistent with the basis and manner in which
Recoton 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 accordance with
generally accepted accounting principles.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 was the most successful sales year in Recoton's history. Net sales
increased from 1997 by $198.4 million, or 39.5%, to $700.4 million. The record
sales performance achieved by Recoton in 1998 is primarily the result of
expanded retail distribution, innovative new product introductions across the
Company's group of brand names, a strong worldwide distribution system and
global market share increases for the Company's consumer electronics, video and
PC gaming products and mobile accessories and loudspeakers. Net sales for the
video and computer game business were $243.9 million in 1998, an increase of
93.1% compared to $126.3 million in 1997. This record sales performance is the
result of the Company's continued R&D commitment and aggressive sales and
marketing strategy. Net sales for the RAC business were $234.1 million in 1998
compared to $182.0 million in 1997, an increase of 28.6%, due mainly to enhanced
offerings and a dynamic sales and marketing program. Net sales in the Company's
accessories business increased by $28.6 million, or 14.8%, to $222.4 million.
This increase is attributable to both the inclusion of AAMP (acquired in
November 1997) and expanded retail distribution of the Company's products.
Gross profit in 1998 increased $75.8 million to $271.1 million and
decreased as a percentage of net sales to 38.7% from 38.9% in 1997. The dollar
increase in gross profit was primarily reflective of strong growth in the sales
of video game, multimedia and mobile electronic products and the additional
sales due to the inclusion of AAMP. The slight decline in the gross profit
margin for the year was primarily attributable to sales mix and lower than
anticipated sales in home speaker products, resulting in higher factory overhead
per unit sold. In 1998, gross profit for the video and computer game business
increased $45.9 million to $110.4 million mainly due to the growth in sales of
video game and multimedia products, RAC business increased $8.3 million to $73.9
million primarily due to mobile accessories and speaker sales and the
accessories business increased $21.6 million to $86.8 million mainly due to the
inclusion of AAMP. As a percent of net sales, gross profit for the video game
and multimedia products decreased to 45.3% in 1998 from 51.1% in 1997 mainly due
to sales mix from the inclusion of PC products sourced by STD from outside
manufacturers, which sold at a lower margin than products manufactured by STD,
and competitive pricing pressures due to the mature nature of certain products.
RAC's gross margin decreased to 31.6% in 1998 compared to 36.0% in 1997 due
mainly to lower than anticipated gross profit margin in the domestic home
speaker products. Gross margin on the accessories business increased to 39.0% in
1998 compared to 33.7% in 1997 due primarily to the inclusion of AAMP sales for
the full year and the transfer of PC product sales to the video and computer
game business.
Selling, general and administrative expenses increased in 1998 by $53.6
million to $229.5 million, and decreased as a percentage of net sales from 35.0%
in 1997 to 32.8% in 1998. The dollar increase was attributable to the variable
selling expenses relating to the increased sales volume. There were also
additional expenses for promotional activities and market development. The
percent decrease was attributable to fixed costs being absorbed by the higher
sales volume.
As further described in Note O of the Notes to Consolidated Financial
Statements, the Company expects to soon reach agreements with the U.S.
Attorney's Office and U.S. Customs Service to settle all outstanding criminal
and civil matters involved in a pending customs investigation. The Company plans
to enter guilty pleas to a number of counts involving country of origin
mismarking and undervaluation of imports, which will be subject to judicial
approval. The Company is presently negotiating the precise terms of written
agreements with the government. While the Company is optimistic that this matter
will be settled shortly, there can be no assurance that the agreements will be
finalized or approved. The Company has recorded $14.0 million for this global
settlement, which together with related fees and costs of approximately $1.0
million, has been separately reflected in the 1998 consolidated statement of
operations. The classification of the accrual on the 1998 consolidated balance
sheet is based on the expected periods of payment, subject to approval by the
government.
Interest expense (net of investment income) increased by $5.4 million to
$17.9 million in 1998. The increase was attributable to increased borrowings
(interest rates were approximately the same) to support the inventory buildup
required for anticipated record sales in the fourth quarter.
Income before income taxes for 1998 was $9.2 million ($24.2 million before
the provision for the expected U.S. customs settlement), a 22.4% increase over
the $7.5 million reported in 1997. Net income for 1998 was $4.3 million ($19.1
million before the provision for the expected U.S. customs settlement), a 68.1%
decrease over the $13.6 million in 1997. The results of operations for 1998 also
include a charge of $881,000 related to a loan repayment extension in the fourth
quarter. In 1998, income before income taxes, unallocated expenses and the
expected U.S. customs settlement was $27.4 million for the video and computer
game business, $14.3 million for the accessories business and a loss of $884,000
for the RAC business, which includes a loss before income taxes of the U.S. home
audio division of RAC of $8.7 million. The consolidation of the domestic home
audio business under the Recoton Home Audio, Inc. subsidiary (RHA) and the
formation of the Recoton Mobile Electronics Division allowed this segment to
foster the profitable growth of the car stereo operations, as well as integrate
and reposition the home audio business to take advantage of the forthcoming
digital age. New management teams have been put in place, lead by talented
industry professionals, and investments are being made in RHA.
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 operations in 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 16.0% (16.5% in 1997). 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. This tax rate is higher in 1998 than
in 1997 because of the expiration of one half of the tax holiday. Recoton's
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. The Company's 1998 pretax income of $9.2 million is comprised of a
combination of foreign earnings and domestic losses. In addition, since no
determination has been made as to what portion of the expected settlement with
the U.S. Customs Service might be deductible for income tax purposes, no
deduction has been made for this item in the computation of income taxes for
1998. This resulted in a net income tax expense of $4.8 million or 52.8% of
pretax income in 1998. In 1997, the Company reported an income tax credit of
$6.1 on pretax income of $7.5 million, primarily because the tax credits
attributable to domestic tax losses were at higher tax rates than the income tax
expense attributable to earnings at foreign subsidiaries. Also, in 1997 the
Company reported the benefit of a $1.3 million nonrecurring tax credit in
Germany relating to the Company's decision to declare dividends from that
subsidiary to its U.S. parent.
In 1998, the Company adopted 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 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, the Company's
comprehensive income has been comprised of the Company's net income and foreign
currency translation adjustments (which adjustments were a positive $2.2 million
in 1998 and a negative $5.3 million in 1997) 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
years ended 1998 and 1997, and the related foreign currency translation
adjustments recorded by the Company, in addition to the changes in net income,
comprehensive income for the year ended December 31, 1998 was $6.5 million as
compared to $8.3 million for the year ended December 31, 1997. (See Note A of
the Notes to the Consolidated Financial Statements.)
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This statement, 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 operating performance and deciding how to allocate
resources. The Company's reportable operating business segments are described in
Note P to the Notes to Financial Statements.
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. The
Company elected early adoption of the SOP for 1998 which resulted in the
capitalization of software development costs of approximately $405,000. The
after tax effect on net income in 1998 was approximately $221,000 or $.02 per
diluted share.
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 was restated. There was no material change to EPS for the
year ended December 31, 1997 as a result of the adoption of this standard. For
the year ended December 31, 1998, basic EPS was $.37/share and diluted EPS was
$.36/share based on average shares of 11,656,000 (basic) and 12,179,000
(diluted). In 1997, basic EPS for the year was $1.19/share and diluted EPS was
$1.18/share based on average shares of 11,414,000 (basic) and 11,546,000
(diluted).
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Net sales in 1997 increased from 1996 by $170.3 million or 51.4%, to $502.0
million. The sales increase was primarily attributable to three factors. The
first factor is the inclusion of a full year's sales of the speaker and related
product lines acquired in late August 1996. The second factor is growth in the
video game and multi-media product lines. The video and multi- media product
lines contributed $126.3 million to gross sales in 1997 as compared to $79.0
million in 1996. The third factor is the acquisitions of Heco Audio Produkte
GmbH, a German manufacturer and marketer of home loudspeakers acquired in
December 1996, and Tambalan Limited, an English seller of headphones and other
consumer products under the name ROSS in the United Kingdom and to other
European and Asian markets, acquired in February 1997, and AAMP of America,
Inc., a direct marketer of car audio installation products acquired in November
1997. These increases were partially offset by slight declines in sales of
certain other accessory product lines. In 1997, net sales for the video and
computer game business increased by $47.3 million or 59.9%, to $126.3 million
due mainly to the increase in sales of the video and multi-media products, the
RAC business increased by $117.4 million to $182.0 million due to the inclusion
of a full year's sales of the speaker and related product lines of RAC, acquired
in late August 1996. The accessories business increased by $5.7 million or 3.0%,
to $193.8 million mainly due to the inclusion of sales from AAMP of America,
Inc. acquired in November 1997. These increases were partially offset by slight
declines in sales of certain other accessory product lines.
Gross profit in 1997 increased $70.3 million to $195.3 million and
increased as a percentage of net sales to 38.9% from 37.7% in 1996. The dollar
increase resulted from increased sales, of which the RAC and video and computer
game businesses were the primary contributors. The increase in gross margin
percentage was attributable primarily to a higher margin product mix. In 1997,
gross margin for the video and computer business increased $33.4 million to
$68.1 million mainly due to increased sales of InterAct, the RAC business
increased to 51.1% from 43.9% in 1996 mainly due to a higher margin product mix
on video game products. The RAC business increased to 46% from 32.7% due
primarily to certain cost of goods and purchasing synergies. The accessories
business decreased to 33.7% from 36.8% in 1996 due to the inclusion of PC
products which sold at lower gross margin.
Selling, general and administrative expenses increased in 1997 by $66.7
million to $175.9 million, and increased as a percentage of net sales from 32.9%
to 35.0% in 1997. The primary portion of the dollar increase was attributable to
the inclusion of a full year of the RAC operations, acquired in late August
1996, and the other 1996-1997 acquisitions. The percentage increase was
attributable to several factors, including increases in bad debt expense as a
result of the bankruptcy of three customers and increases in market development
expenses.
Interest expense increased by $7.5 million to $12.5 million in 1997. This
was primarily attributable to the increased debt associated with the RAC
acquisition, which was carried for a full year in 1997 as compared to four
months in 1996. In addition, the Company incurred debt to finance the growth in
sales of the video and computer product lines.
The Company's income taxes and effective consolidated income tax rate were
affected by changes in the proportion of domestic and foreign earnings and
losses. While earnings from North America and Western Europe were primarily
taxed at or above United States income tax rates, earnings from the Company's
Asian operations were taxed at a maximum rate of 16.5%. The actual tax rate from
Asian operations was dependent on the proportion of earnings from mainland
China. The Company's 1997 pretax income of $7.5 million was comprised of a
combination of foreign earnings and domestic losses. This resulted in a net
income tax credit of $6.1 million, primarily because the tax credits
attributable to domestic tax losses were at higher tax rates than the income tax
expense attributable to earnings at foreign subsidiaries. Also in 1997 the
Company recorded the benefit of a $1.3 million nonrecurring tax credit in
Germany relating to the Company's decision to declare dividends from that
subsidiary to its U.S. parent. Under German law, the German corporate income tax
rate can be reduced by approximately 15% when income is distributed instead of
being transferred to retained earnings. Recoton's decision to declare stock
dividends from its German subsidiary triggered Germany's ability to receive a
refund of taxes previously paid at the higher corporate tax rate. This compares
to 1996 pretax income of $11.1 million and corresponding income tax expense of
$2.7 million.
As restated in accordance with Statement of Financial Accounting Standards
No. 128, for 1997 basic EPS was $1.19/share and diluted EPS was $1.18/share as
compared with basic EPS of $0.74/share and diluted EPS of $0.73/share for 1996.
Outstanding shares in 1997 were 11,414,000 (basic) and 11,546,000 (diluted) as
compared to 11,300,000 (basic) and 11,542,000 (diluted) in 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation and changing prices on the Company's net sales and
revenues and on income from continuing operations in each of the 1996, 1997 and
1998 fiscal years has been negligible.
LIQUIDITY AND CAPITAL RESOURCES
The Company's 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 the Company's securities, including the private placement of the
Company's notes. At December 31, 1998, the Company had cash and cash equivalents
of $21.4 million compared with $17.2 million at December 31, 1997.
At December 31, 1998, the Company had working capital of approximately
$178.3 million as compared to approximately $222.4 million at December 31, 1997.
The Company's ratio of current assets to current liabilities was 1.8 to 1 at
December 31, 1998 and 3.3 to 1 at December 31, 1997. The decreases in working
capital and the working capital ratio are primarily the result of the
classification of the loans under the Company's revolving line of credit which
expires in December 1999, as a current liability at December 31, 1998. At
December 31, 1997, these loans were classified as a noncurrent liability as a
result of extension in their terms and the elimination of a provision for an
annual "clean up." Trade receivables increased $53.4 million to $183.2 million
at December 31, 1998 as compared to December 31, 1997 as a result of the
increase in the Company's sales volume. Inventories increased from December 31,
1997 levels by $18.9 million to $161.3 million at December 31, 1998. The
increase in the inventory levels was substantially attributable to the Company's
video and computer game and mobile electronics product lines. Accounts payable
and accrued expenses increased $24.4 million to $104.3 million at December 31,
1998. The increase is primarily attributable to increases in inventories and
certain accrued performance bonuses payable in March 1999, which bonuses were
classified as noncurrent liabilities at December 30, 1997.
The Company currently has 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. As of March 29, 1999 the
Company has 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 letters of credit under the revolving facility were
approximately $95.7 million at December 31, 1998 as compared to $65.5 million at
December 31, 1997. The Company also has a $15.0 million term loan, repayable in
12 quarterly installments with the last installment due in May 2001 ($12.5
million balance as of December 31, 1998). The Credit Facility was modified in
March 1999 to accommodate the expected U.S. customs settlement. The revolving
credit loans and term loan bear interest at various rates depending on elections
made by the Company. 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 December 31, 1998 loans tied to the LIBOR rate
bore interest at approximately 9.32% to 9.38% per annum and loans tied to the
prime rate bore interest at approximately 8.25%. The majority of the Company's
borrowings under the revolver and the term loan are at the LIBOR-based rate.
There can be no assurance that the revolving credit facility will be extended or
replaced at the time of its expiration in December 1999.
In January 1997, the Company issued $75 million in principal amount of
adjustable rate senior notes due January 6, 2007 (the 1997 Notes), which bear
interest at 8.75% 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. As noted below, the proceeds of the
1997 Notes were utilized to reduce borrowings under a previous version of the
Credit Facility. In September 1998, the Company issued an additional $25 million
in principal amount of 10-year senior notes due September 1, 2008 (the 1998
Notes), which bear interest at 8.52%, 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, subject to reduction to 9.25% on the $75
million notes and 9.02% on the $25 million note should the Company receive
certain stipulated minimum proceeds from the public sale of either or both of
its common shares or subordinated debt indentures.
In February 1999, the Company issued $35 million in aggregate principal
amount of senior subordinated notes due February 4, 2004 (the 1999 Notes) and
310,000 common share purchase warrants. The proceeds were used to reduce
outstanding borrowings under the Company's revolving credit facility. The 1999
Notes are subject to required prepayment from the proceeds received by the
Company from the sale of either high yield indebtedness or common shares.
Interest is 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 share 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 notes are not repaid by May 4, 2001, the Company 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 the Company's common shares at that time.
At December 31, 1998 and at various times prior to such date, the Company
was not in compliance with certain financial covenants under the notes and the
Credit Facility. At such times both the note holders and bank lenders either
amended the covenants or waived the Company's non-compliance with such
covenants. At December 31, 1998, the Company was in compliance with the amended
covenants under the notes and the Credit Facility.
The Company also has outstanding borrowings from one member of the
multibank credit lenders aggregating approximately $10.7 million at December 31,
1998, which are due at various times through July 2001. Covenants similar to
those applicable to the multibank credit facility apply to these loans. The
Company has granted two mortgages on Florida property which it owns to secure
repayment of $2.7 million of such indebtedness. Interest rates on such loans
range between 6.6% and 8.4%.
Certain of the Company's foreign subsidiaries have lines of credit
aggregating $18.8 million with foreign banks, primarily for import facilities.
The banks have security interests to the extent of merchandise purchased under
these lines. Borrowings under these lines at December 31, 1998 aggregated
approximately $2.3 million. Outstanding letters of credit, which aggregated
approximately $11 million at December 31, 1998, reduce the amounts available
under the domestic and foreign lines.
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 from certain officers. In July 1996, the Company purchased
65,000 shares from an officer for approximately $1.2 million. Any future
repurchases may be limited by the terms of the Company's loan and note purchase
agreements.
In August 1996, Recoton acquired the branded product lines of RAC, 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 $34.0 million in notes and loans
payable. In December 1996, the Company 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 Recoton UK
(formally known as Tambalan Limited) at a cost of approximately $285,000 plus
closing costs and assumed certain outstanding debt of approximately $2.9
million. Recoton UK markets headphones and other consumer electronics products
in the United Kingdom and other European countries under the trade name ROSS and
has a branch operation in Hong Kong. In November 1997, the Company acquired AAMP
at a cost of approximately $2.4 million paid by the issuance of 169,706 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 referred to below. AAMP is a leading car audio accessories
company based in Clearwater, Florida whose business includes the STINGER and
PERIPHERAL brands.
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. Such demand note was repaid with the proceeds of the increased Credit
Facility.
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.
In May 1998, the Company completed construction of an approximately 318,000
square foot expansion of its warehouse on its Lake Mary, Florida property. The
cost of the building construction was approximately $5.0 million.
To date there has been limited exposure to loss due to foreign currency
risks in the Company's 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, the Company maintains the majority of
its currency in Asia in U.S. dollar accounts. However, as a result of on-going
turmoil in the Asian currency markets, there can be no assurance that these
relationships will continue.
The Company's operations, which are currently being transacted on a global
basis, are exposed to variations in foreign exchange rates. The Company's
shareholders' equity was increased by a foreign currency translation adjustment
of approximately $2.2 million for the year ended December 31, 1998. During the
year ended December 31, 1997, the Company's shareholders' equity was reduced by
a foreign currency translation adjustment of approximately $5.3 million, of
which approximately $3.2 million occurred in the first quarter of 1997. The
changes in the exchange rates of the German and Italian currencies, which were
the principal causes of the foreign translation adjustment, had no material
impact on the Company's results of operations.
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 the Company's 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 shareholder's' equity.
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.
YEAR 2000
The Company is in the process of analyzing and addressing what is known as
the year 2000 (or "Y2K") issue. Based on current information, the Company
believes that it will be year 2000 compliant in a timely manner and the cost of
achieving such compliance will not have a materially adverse effect on the
Company's 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.
BACKGROUND
This issue has arisen because many existing computer programs use only two
digits instead of four (e.g., "98" instead of "1998") to identify a year in the
date field. This is a holdover from the days when businesses first started using
computers and electronic memory was limited and storage was expensive. These
programs were designed and developed without considering the impact of the
upcoming change in the century. Accordingly, some computers can not determine if
the reference to the year "02" means 2002 or 1902. The failure of such
applications or systems to properly recognize the dates beginning in the year
2000 could result in miscalculations or even system failures.
The Company, through a team including its Vice President-Information
Systems and its Vice President-Compliance, is assessing its Y2K compliance
situation.
INTERNAL SYSTEMS
The Company's Vice President-Information Systems has the responsibility to
have the Company's entire computer and computer-dependent systems tested and, if
necessary, modified or replaced to ensure Y2K compliance. Based on its analysis
to date, including tests run on the Company's backup computer system and
analysis of the in-place systems, the Company believes that all of its domestic
and substantially all of its foreign internal computer systems (hardware, system
software and applications software) and computer-dependent systems, including
technology embedded in the Company's machinery and other equipment to the extent
that it is date sensitive, are currently Y2K compliant and that the foreign
operations which are not currently compliant will, through the replacement or
modification of existing hardware and software, be made compliant in a timely
manner. This process was completed in the first quarter of 1999. The Company has
not retained any outside service provider to conduct independent verification of
the Company's compliance status and does not at this time intend to hire any
such service provider.
The Company is currently in the process of contacting its key vendors and
service providers, as well as key customers, to ascertain their Y2K compliance
to the extent that their problems could affect the Company's internal systems or
other aspects of the Company's business. Inquiry letters have been sent to all
key United States vendors, service providers and customers and the Company is in
the process of sending similar letters to most key foreign vendors, service
providers and customers. Returns from such persons are being received. The
Company has not yet determined when it will have that process completed. The
Company at this time cannot make any prediction as to the degree of compliance
by such vendors and service providers or the consequence to the Company of any
noncompliance. Any serious Y2K problems which significant vendors and service
providers encounter could materially adversely impact the Company. If
significant customers (especially those which are ordering from the Company
electronically) have Y2K problems, that also could materially adversely impact
the Company by seriously impacting the level of their purchases from the Company
until such problems are resolved.
While the Company believes that the efforts which it has taken and plans to
take should be sufficient to identify and correct any Y2K problems before
December 31, 1999, there can be no assurance that the Company will be fully Y2K
compliant in a timely manner.
FINANCIAL RAMIFICATIONS
The expenses incurred to date to achieve year 2000 compliance have not had
a material impact on the Company's results of operations or financial condition.
Based on the Company's current status of internal Y2K compliance review and
other preliminary information, the Company does not anticipate that any expenses
yet to be incurred to achieve year 2000 compliance will have any material impact
on the Company's results of operations or financial condition or that its
business will be adversely affected by the Y2K issue in any material respect.
(The Company preliminarily estimates that the costs of achieving Y2K compliance,
including costs of personnel devoting significant effort on Y2K matters, will be
immaterial). The costs associated with any new computers or computer programs,
which are year 2000 compliant, have been and will be capitalized and amortized
over the computer's and/or software's expected useful life. Any system
modifications or maintenance costs necessary to make the Company's existing
computer programs Y2K compliant have been and will be expensed as incurred.
Achieving Y2K compliance, however, is dependent on multiple factors, many
of which are not within the Company's sole control. Accordingly, should one or
more of the internal systems of the Company or key customers or key vendors
exhibit significant Y2K problems, the Company's business and its results of
operations could be materially adversely affected.
No information technology projects have been deferred due to Y2K efforts.
RISKS
Until it has completed its Y2K assessment, and attempted to fix any
problems which such assessment may disclose, the Company can not be in a
position to determine what would be its most reasonably likely worst case Y2K
scenario or any plan for handling such scenario. The Company has not devised any
back-up plans should it suffer any internal Y2K problems or should any of its
vendors' or customers' Y2K problems affect the Company. After completion of its
Y2K assessment, including review of queries sent to such vendors and customers,
the Company will assess the need for any contingency plans.
The failure to correct a material Y2K problem could result in an
interruption of, or inability to perform on a timely fashion, a necessary
business activity or operation. Such failures could materially adversely affect
the Company's results of operations, liquidity and/or financial condition.
Because of the general uncertainty which companies face regarding the year 2000
issue, in part due to the fact that actions of third-parties could affect the
Company's compliance, it is not possible to determine at this time whether any
actual failures will have any material adverse impact on the Company.
IMPLICATIONS TO THE COMPANY FROM THE ADOPTION OF A EUROPEAN COMMON CURRENCY
The Company has extensive operations in certain European countries,
including Germany, Italy and the United Kingdom. It also sells to additional
countries in Europe. For the most recently competed fiscal year, approximately
15% of the Company's net sales were in Europe. With the exception of the United
Kingdom, all of the countries in which the Company has operations have confirmed
their participation in a new 11-country European common currency, the Euro. The
adoption of such common currency is being phased in over a three-year period,
which started in January 1999. During such phase-in period, both the Euro and
the historical currency of a country will be valid, although new
Euro-denominated currency will not be issued until 2002. Each member-country
will decide when its legacy currency will cease to be legal tender, which will
occur during the period January 1 through June 30, 2002. Until the introduction
of Euro-denominated currency, the paying party will have the option to decide
whether to pay in the legacy currency or in Euro converted to the legacy
currency.
Among other possible economic implications, it is expected that the
adoption of such common currency will lead to greater price transparency and
thereby increased competition within such common currency zone. For instance,
with a single currency applicable to the entire region, consumers may be able to
more easily discern any material price differences for the Company's products
between different countries and modify their buying practices accordingly. This
may require adjustments in the Company's marketing and pricing strategies.
Whether any such price differentials will lead to significant changes in
purchasing practices by the Company's customers depends on factors such as
convenience and language-related matters as well as other factors which may
determine where a consumer will purchase products. The Company is not able at
this time to gauge whether the likelihood of increased competition arising from
the introduction of the Euro would have any significant long-term adverse impact
on the pricing for the Company's products.
The adoption of a common currency may require a significant modification to
the Company's accounting systems. Among other things, it will be necessary to
operate in each country with dual currencies until the three-year phase-in
period has passed. Management believes, however, that any necessary changes can
be rapidly and inexpensively implemented using "off-the-shelf" systems if the
Company's internal systems are not sufficient.
The Company does not believe that the adoption of a common currency will
give any parties to material contracts with the Company the right to terminate
or modify such contracts on the grounds of "frustration," "impossibility" or
"impracticability".
Other risks associated with such currency conversion include possible
currency exchange and tax risks, neither of which the Company believes will have
a significant affect.
While the Company does 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 the Company or its European business, its
analysis of this issue has only commenced recently and the Company has not yet
fully evaluated the implications of the Euro's adoption. The Company has not
adopted, nor is at this time contemplating the adoption of, any contingency
plans regarding this issue.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding the executive officers of Recoton is contained
under "Directors and Executive Officers of Recoton" under Item 1 to this Report.
The directors of Recoton and certain information regarding such persons are
as follows:
Name and Position BUSINESS EXPERIENCE,
WITH THE COMPANY DIRECTORSHIPS AND AGE
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Robert L. Borchardt ROBERT L. BORCHARDT , 61, has
Chairman, President, Chief Executive served as a director of Recoton
Officer and Director since 1964, as President since
1976, as Chief Executive Officer
since 1996 and as Chairman since
June 1998. He was Co- Chairman
from 1992 until June 1998, Co-
Chief Executive Officer from 1992
unitl 1996, Executive Vice Presi-
dent from 1969 until 1976, a Vice
President from 1964 until 1969
and Treasurer from 1969 until
1975. Mr. Borchardt began working
for the Company in 1961. He is on
the Executive Board of the
Consumer Electronic Manufacturing
Association (CEMA), a division of
the Electronics Industries
Alliance (EIA), is on the Board
of Governors of the Electronic
Industries Alliance and is a
trustee of the Electronics
Industries Foundation. He may be
deemed to be a control person of
Recoton.
George Calvi GEORGE CALVI, 48, has served as a
Director director of Recoton since 1984.
Mr. Calvi was Vice President from
1978 until 1988, Senior Vice
President-Sales and Marketing
from 1988 until 1992 and
Executive Vice President-Sales
and Marketing of the Company from
1992 until 1996.
Paul E. Feffer PAUL E. FEFFER, 77, has served as
Director a director of Recoton since 1996.
He has been Chairman of Feffer
Consulting Co., Inc., an
international media consulting
firm, since 1991. Mr. Feffer
founded Feffer and Simons Inc. in
1955, which was sold to Doubleday
& Co. in 1962 (where he remained
as President of the subsidiary
Feffer and Simons until 1986) and
was Chairman of Baker & Taylor
International, a subsidiary of W.
R. Grace & Co., from 1987 until
1991. From 1991 to 1996 he was a
consultant to Merck & Company's
publishing division. Feffer &
Simons and Baker & Taylor
specialized in international
publishing and book and magazine
distribution and development of
overseas markets for U.S.
publishers.
Stuart Mont STUART MONT, 58, has served as a
Executive Vice President-Operations, director of Recoton since 1975,
Chief Operating Officer, Chief as Chief Operating Officer since
Financial Officer, Secretary and 1993, as Chief Financial Officer
Director since 1992, Secretary and
Director as Secretary since 1989
and as Executive Vice
President-Operations since 1992.
He was a Vice President from 1978
until 1989, Senior Vice President
from 1989 until 1992, and
Treasurer from 1975 until 1989.
Mr. Mont has also served as
President of Recoton Canada Ltd.
since 1992.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Stephen Chu STEPHEN CHU, 41, has served as a
Director director of Recoton since 1997,
as President and a Managing
Director of STD and of its
various subsidiaries since 1990
and as President of Recoton Japan
Inc. since 1998. STD was acquired
by the Company in 1995.
Ronald E. McPherson RONALD E. MCPHERSON, 69, has
Director served as a director of Recoton
Recoton from 1964 and a Vice
President from 1978, until his
retirement in 1989.
Peter Wish PETER WISH, 63, has served as a
Executive Vice President-Administration director of Recoton since 1969
and Director and as Executive Vice President-
Administration since 1992. Mr.
Wish was Vice President from 1969
until 1976 and Executive Vice
President from 1976 until 1992.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Irwin S. Friedman IRWIN S. FRIEDMAN, 65, has served
Director as a director of Recoton since
1982. Mr. Friedman has been
President, Chief Executive
Officer and the principal
shareholder of I. Friedman
Equities, Inc., a corporate
financial consulting firm, for
more than five years. He has also
been a director of The
Kushner-Locke Company, a
California- based publicly traded
media company, since June 1998.
Joseph M. Idy JOSEPH M. IDY, 58, has served as
Director a director of Recoton since 1990.
Mr. Idy has been a stockbroker
and money manager at PaineWebber
Inc. for more than fifteen years
and Senior Vice President of
PaineWebber Inc. since 1989.
Joseph H. Massot JOSEPH H. MASSOT, 54, has served
Principal Accounting Officer, Vice as a director of Recoton since
President, Treasurer, Assistant 1985, as Principal Accounting
Secretary and Director Officer, Vice President and
Treasurer since 1989 and as
Assistant Secretary since 1983.
He was Recoton's Controller and
Assistant Treasurer from 1978
until 1989.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission and the
Nasdaq Stock Market. Officers, directors and greater than ten-percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of the copies
of such forms received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the Company believes
that all such 1998 filing requirements were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
This section of the Annual Report discloses fiscal 1998 plan and non-plan
compensation awarded or paid to, or earned by, the (i) Company's Chief Executive
Officer (CEO) , (ii) the Company's four most highly compensated executive
officers other than the CEO who were serving as executive officers at December
31, 1998 and (iii) one additional executive officer who would have been included
in category (ii) except that he was not an executive officer at the end of the
year, to the extent aggregate salary and bonuses exceeded $100,000 (together,
these six persons are sometimes referred to as the Named Executives).
SUMMARY COMPENSATION TABLE
The following table contains compensation data for the Named Executives for
the past three fiscal years:
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------------------------
Pay-
Annual Compensation Awards Outs
- ----------------------------------------------------------------------------------------------------------------------------------
Other Restricted Securities LTIP
Annual Shares Underlying Pay- All Other
Name and Principal Salary Bonus Compensation Awards Options Outs Compensation
Position Year ($)(1) ($)(2) ($)(3) ($) (#) ($) ($)(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Borchardt, 1998 $1,065,487 $ 87,697 -- -- 230,975 -- $19,385
Chairman, CEO 1997 1,007,793 150,000 -- -- 250,000(5) -- 22,753
and President 1996 947,570 90,000 -- -- 229,741 -- 15,322
Herbert H. Borchardt, 1998 211,838 -- -- -- -- -- 11,454
Former Co-Chairman(6) 1997 214,507 -- -- -- -- -- 16,870
1996 208,259 -- -- -- -- -- 59,187
Stephen Chu(7) 1998 391,098 4,179,291(8) -- -- 50,000 -- 20,813
President, STD 1997 360,208 4,029,924(8) -- -- -- -- 21,736
Holding Limited 1996 328,238 1,734,522(8) -- -- -- -- 21,736
Stuart Mont, COO and 1998 276,076 110,000 -- -- 30,000 -- 42,264
Executive Vice 1997 217,240 125,000 -- -- -- -- 37,790
President-Operations 1996 182,227 125,000 -- -- -- -- 13,873
Peter Wish, Executive 1998 226,437 80,000 -- -- 5,000 -- 6,817
Vice President- 1997 218,548 90,000 -- -- -- -- 12,008
Administration 1996 204,673 90,000 -- -- -- -- 6,842
Dennis Wherry, Senior 1998 164,752 50,000 -- -- 5,000 -- 4,729
Vice President- 1997 150,256 50,000 -- -- -- -- 9,920
Operations 1996 139,966 45,000 -- -- -- -- 5,074
- --------------------------------------------------------------------------------------------------------------------------------
1 Includes amounts allocated to the executive's deferred compensation account
for each for Mr. R. Borchardt of $53,123 for 1998, $52,733 for 1997 and
$49,408 for 1996; and Mr. Wish of $15,146 for 1998, $14,907 for 1997 and
$14,032 for 1996 (see "EMPLOYMENT CONTRACTS AND CHANGES-IN-CONTROL
ARRANGEMENTS" below).
2 Represents bonus awards determined for the performance year indicated,
whether paid in such year or paid in the following year.
3 The column "Other Annual Compensation" includes the value of certain
personal benefits only where the value is greater than the lower of $50,000
or 10% of an executive's salary and bonus for the year.
4 Consists of (a) the vested portion of the Company's contribution pursuant
to the Recoton Corporation Employees' Profit Sharing Plan for Mr. R.
Borchardt of $4,009 for 1998, $9,200 for 1997 and $1,710 for 1996; for Mr.
H. Borchardt of $4,009 for 1998, $9,200 for 1997 and $1,463 for 1996; for
Mr. Mont of $4,009 for 1998, $9,200 for 1997 and $3,650 for 1996; for Mr.
Wish of $4,009 for 1998, $9,200 for 1997 and $3,683 for 1996; and for Mr.
Wherry of $4,009 for 1998, $9,200 for 1997 and $4,412 for 1996; (b)
premiums paid by the Company for split dollar insurance arrangements for
Mr. R. Borchardt of $11,866 for 1998, $10,741 for 1997 and $10,687 for
1996; (c) premiums paid by the Company for life insurance over $50,000 in
principal amount for the direct or indirect benefit of Mr. R. Borchardt of
$3,510 for 1998, $2,812 for 1997 and $2,925 for 1996; for Mr. H. Borchardt
of $7,445 for 1998, $7,670 for 1997 and $7,445 for 1996; for Mr. Mont of
$1,800 for 1998, $1,875 for 1997 and $1,890 for 1996; for Mr. Wish of
$2,808 for 1998, $2,808 for 1997 and $3,159 for 1996; and for Mr. Wherry of
$720 for 1998, $720 for 1997 and $662 for 1996; (d) premiums paid by the
Company for life insurance for the benefit of Stephen Chu; (e) the value of
interest assumed by the Company on relocation and other loans for Mr. Mont
of $36,455 for 1998, $26,715 for 1997 and $8,333 for 1996; and (e)
reimbursed medical payments not covered by insurance for Mr. H. Borchardt
of $50,279 for 1996.
5 Consists solely of repriced options previously granted in 1994 and 1995.
6 "Salary" and "All Other Compensation" data for 1996 has been restated to
reflect a recharacterization of $4,691 of "Salary" as "All Other
Compensation."
7 Mr. Chu's position was not considered an executive office until fiscal
1998. Salary data includes a housing allowance of $124,031 for 1998,
$122,093 for 1997 and $77,519 for 1996.
8 Consists of payments from a bonus pool established in connection with the
acquisition of STD Holding Limited in 1995. The amount of the payments from
the bonus pool were settled in 1999 but were earned in the years noted
above. For further information, see "EMPLOYMENT CONTRACTS AND
CHANGE-IN-CONTROL ARRANGEMENTS - STEPHEN CHU EMPLOYMENT AGREEMENT" below.
</TABLE>
OPTION GRANTS IN 1998
The following table contains information concerning the grant of stock
options under the Company's stock option plans to the Named Executives during
1998 (the Company has not granted any stock appreciation rights - sometimes
referred to as SARs):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Securities Percent of Total Options Exercise
Underlying Options Granted to Employees in Price Expiration Grant Date
NAME Granted (#)(1) Fiscal Year ($/Share)(2) Date(3) Present Value( $)(4)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert L. Borchardt 130,975 20.1% $14.063 2/5/08 $1,228,131
Robert L. Borchardt 100,000 15.3% 22.625 3/22/08 1,515,297
Herbert Borchardt -- -- -- -- --
Stephen Chu 50,000 7.7% 13.500 1/15/08 342,475
Stuart Mont 30,000 4.6% 13.500 1/15/08 205,485
Peter Wish 5,000 0.8% 13.500 1/15/08 34,248
Dennis Wherry 5,000 0.8% 13.500 1/15/08 34,248
- -----------------------------------------------------------------------------------------------------------------------------------
1 Except as otherwise noted, all options vest over a five year period, 20%
per year, commencing on the first anniversary of the date of grant. In the
event of death, disability or retirement at or after age 65 unvested
installments become fully exerciseable. In the event of death or disability
options are fully exerciseable by the optionee or the optionee's legal
representative for one year following the event, and in the event of
termination of employment for any other reason except "cause" the options
are fully exerciseable by the optionee for three months, or until the
normal expiration date, whichever occurs first. Options also become fully
exerciseable in the event of a "change of control" of the Company as
defined in the relevant option plan. The options on 130,975 shares granted
to Robert Borchardt vest in full six months after grant.
2 The exercise price is equal to the fair market value of the Company's
common shares on the date of the grant.
3 Subject to earlier termination in case of termination of employment.
4 The estimated present value of the stock options as of their grant date was
calculated using the Black-Scholes option pricing model. The assumptions
used in the model include (a) an expected Recoton stock price volatility of
47.2%, (b) risk-free interest rates ranging from 5.56% to 5.86%, (c) no
dividends being paid and (d) all options being exercised at the end of
their expected holding period (ten years for the options held by Robert
Borchardt and a weighted average of 5.5 years for the other options).
Whether these assumptions will prove accurate cannot be known at the date
of grant. Executives may not sell or assign any stock options (other than
assignments which may be allowed to family members in certain
circumstances), which have value only to the extent of share price
appreciation, which will benefit all shareholders commensurately. Actual
gains, if any, on stock option exercises and stock holdings are dependent
on the market price of the Company's common shares at the dates of exercise
and sale.
</TABLE>
AGGREGATED OPTION EXERCISES IN 1998
AND 1998 YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during 1998 and unexercised
options held at year-end:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at 12/31/98 at 12/31/98 (S)1
- -----------------------------------------------------------------------------------------------------------------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Borchardt -- -- 808,250 185,800 $3,762,602 $254,288
Herbert H. Borchardt -- -- -- -- -- --
Stephen Chu -- -- -- 50,000 -- 221,875
Stuart Mont -- -- 61,168 38,000 541,237 152,625
Peter Wish 6,667 83,780 24,500 9,000 76,615 31,938
Dennis Wherry 15,000 116,970 2,250 9,000 7,539 31,938
- -----------------------------------------------------------------------------------------------------------------------------------
1 Market value of underlying securities at exercise or year end, as
applicable, minus the exercise price. The per share closing sale price on
the Nasdaq Stock Market on December 31, 1998 was $17.9375. Certain options
granted in 1996 and 1998 were excluded since they were not in the money at
year-end.
</TABLE>
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
ROBERT L. BORCHARDT EMPLOYMENT AGREEMENT. Effective January 1, 1995, the
Company entered into an employment agreement with Robert L. Borchardt, currently
its Chief Executive Officer, Chairman of the Board and President, for a ten year
term. The agreement is automatically renewed thereafter for successive two-year
periods unless either party affirmatively elects to not renew. Such agreement
provides for a base annual salary of $850,000 which is to be adjusted annually
to reflect the greater of the changes in the consumer price index or 6%
($1,012,364 effective January 1, 1998) and an annual bonus equal to two percent
of the Company's net income after taxes for the just-completed year but before
deducting the bonus (Net Income Before Bonus or NIBB) (but in no event more than
two percent of the corresponding NIBB for the prior year) plus five percent of
the amount by which such NIBB number for the just-completed year exceeds the
NIBB number for the prior year. Mr. Borchardt waived the right to receive
certain portions of his 1996 and 1997 bonuses. The agreement references an
option grant to Mr. Borchardt for 150,000 shares during 1996 (exercisable at the
fair market value as of the grant date) and requires the Company to exercise its
best efforts to grant the employee during the employment term options on 250
shares for each $10,000 by which the NIBB for each just- completed year during
the contract term exceeds the NIBB for the prior year (exercisable at the fair
market value as of the grant date). Mr. Borchardt received options on 130,975
shares in 1998 with respect to the growth in the Company's earnings from 1996 to
1997 and no options were issued in 1997 with respect to 1995 to 1996 earnings
changes or in 1999 with respect to 1997 to 1998 earnings changes. The agreement
provides for disability insurance and medical benefits, vacation and perquisites
customary for a chief executive officer as well as certain demand and "piggy
back" rights to have his shares registered.
The agreement is terminable by the Company only for cause (as defined in
the agreement). If the Company elects not to renew the agreement at its
expiration or if Mr. Borchardt terminates employment at age 65, upon a change of
control or for good reason (as defined in the agreement), he has the right to
become a consultant to the Company until the time of his death. As a consultant,
Mr. Borchardt would receive an amount equal to his salary at the time of
termination of employment for two years, an amount equal to 75% of that salary
for two more years and an amount equal to 50% of that salary for the balance of
the consultancy period (all such payments being subject to cost of living
adjustments). Upon a change of control (as defined in the agreement) during the
term of employment or consultancy, the Company is obligated to pay Mr. Borchardt
$2 million (subject to cost of living adjustments), he would have the right to
cause the Company to purchase his shares in the Company and he would have the
right to remain in employment or to terminate his employment and become a
consultant to the Company. If Mr. Borchardt has good reason, he may terminate
his employment or consultancy, in which event he is entitled to receive his
salary and bonus or his consultancy fee on a periodic or discounted lump sum
basis (at his option) for the balance of the employment and/or consulting period
and may elect to receive the cash value of unexercised options (whether vested
or not). In certain events the Company is required to gross up payments to
reflect certain excise taxes which may be imposed under the Internal Revenue
Code. Upon Mr. Borchardt's termination of employment for disability, he would
receive his salary and bonus for one year and his salary as in effect at the
date of termination and benefits until his death. Upon Mr. Borchardt 's death,
his estate would receive his salary and bonus for one year and his salary for
one additional year thereafter.
HERBERT H. BORCHARDT EMPLOYMENT AGREEMENT. On May 18, 1987, the Company
entered into an employment agreement with Herbert H. Borchardt for a period
equal to the life of Mr. Borchardt. Pursuant to the agreement, the Company shall
pay Mr. Borchardt not less than $150,000 per annum while he is Chairman of the
Board (including Co-Chairman) and not less than $125,000 per annum during his
life when he is not Chairman of the Board (such sums being subject to increase
based on changes in the consumer price index). Mr. Borchardt resigned as
Co-Chairman and a director of the Company on October 14, 1998. For the year
commencing January 1, 1998 Mr. Borchardt was paid at the annual rate of $219,662
through October 14, 1998 and at the annual rate of $183,052 after October 14. He
remains employed by the Company but not as an officer. In 1999 he is being paid
at the rate of $185,903 per annum pursuant to the agreement.
STEPHEN CHU EMPLOYMENT AGREEMENT. When Recoton acquired STD Holding Limited
effective August 31, 1995 it entered into an employment agreement with STD
Holding's Group Managing Director, Stephen Chu, for a term through December 31,
2001. The agreement may be terminated by the Company for cause or disability (as
defined in the agreement), in which case no additional compensation is due. The
Company may also terminate the agreement without cause provided that it pays Mr.
Chu the benefits which he would have received under the agreement until August
30, 2000.
The starting base compensation under the agreement was HK$2,390,000 per
year (approximately US$308,000), which is subject to a cost-of-living adjustment
as well as discretionary adjustments set by the Board of Directors. Effective
May 1, 1996 the agreement was amended to include in the base compensation a
housing allowance but not to increase the aggregate compensation. Mr. Chu
receives customary fringe benefits made available to comparable Recoton
employees. Pursuant to the terms of the stock purchase agreement for STD, Mr.
Chu is entitled to receive certain bonuses out of a bonus pool established for
the employees of STD and its affiliated United States marketing company,
InterAct Accessories, Inc. (collectively, New STD). The bonus pool is comprised
of five separate payments:
(1) a payment of 15% of the net after-tax earnings of New STD for the
period from the August 31, 1995 through December 31, 1995, payable
between January 1, 1996 and March 30, 1996; PLUS
(2) a payment of US$500,000, payable between January 1, 1999 and March 30,
1999; PLUS
(3) a payment of 33.3% of the cumulative net after-tax earnings of New STD
for the period from January 1, 1996 through December 31, 1998, such
payment not to exceed US$5.0 million in the aggregate, payable between
January 1, 1999 and March 30, 1999; PLUS
(4) a payment of an additional 20% of the cumulative net after-tax
earnings of New STD for the period from January 1, 1996 through
December 31, 1998, which are in excess of US$15 million, payable
between January 1, 1999 and March 30, 1999; PLUS
(5) a payment of 20% of the cumulative net after-tax earnings of New STD
for the period from January 1, 1999 through December 31, 2000, payable
between January 1, 2001 and March 30, 2001.
Mr. Chu is guaranteed to receive 20% of the payments set forth in clause
(1), 53.1% of the payments set forth in clause (2), 28.5% of the payments set
forth in clause (3) and 17.5% of the payments set forth in clauses (4) and (5).
Certain other employees were also guaranteed payments. The remaining payments
are to be made to employees (which may include Mr. Chu) of New STD pursuant to
the recommendations of a compensation committee comprised of Stephen Chu and
Robert Borchardt. Mr. Chu received advances against such bonus of $652,775 in
1996 and $1,677,012 in 1997 and the balance of the bonus payment under clauses
(1)-(4) of $7,640,450 in 1999.
SPLIT DOLLAR LIFE INSURANCE. Pursuant to two separate Split Dollar Life
Insurance Agreements effective as of February 24, 1989 among Recoton and Trudi
Borchardt and Marvin Schlacter (the "Joint Owners") and Robert L. Borchardt, the
Company agreed to maintain life insurance policies on Robert L. Borchardt's life
in the aggregate face amount of $2,500,000, the proceeds of which (after
reimbursement to the Company for premiums paid) are payable to beneficiaries
designated by the Company and the Joint Owners. Pursuant to three separate Split
Dollar Life Insurance Agreements effective December 17, 1994 among Recoton, the
Robert and the Trudi Borchardt 1994 Family Trust (the "1994 Borchardt Family
Trust") and Robert L. Borchardt, the Company agreed to maintain life insurance
policies on the joint lives of Robert L. Borchardt and his wife Trudi Borchardt
in the aggregate face amount of $10 million and a life insurance policy on the
life of Robert L. Borchardt in the face amount of $1.3 million, the proceeds of
which (after reimbursement to the Company for premiums paid) are payable to the
beneficiary designated by the 1994 Borchardt Family Trust. Effective November 6,
1998, two of the 1994 Split Dollar Life Insurance Agreements on the joint lives
of Mr. and Mrs. Borchardt were amended to change the carriers and two additional
Split Dollar Life Insurance Agreements were entered into pursuant to which the
Company agreed to maintain additional life insurance policies on the joint lives
of Mr. and Mrs. Borchardt in the face amount of $4.25 million.
DEFERRED COMPENSATION AGREEMENTS. Pursuant to a Deferred Compensation
Agreement effective as of July 1, 1982 between Recoton and Robert L. Borchardt,
amounts credited under a prior deferred compensation agreement to Mr. Borchardt
plus five percent of the salary which Mr. Borchardt is or may become entitled to
receive from the Company together with interest accrued thereon shall be paid to
Mr. Borchardt in monthly installments upon termination of his employment for any
reason whatsoever. In the event of Mr. Borchardt's death, all or any unpaid
portion of his deferred compensation shall be payable to a beneficiary
designated by Mr. Borchardt. Mr. Peter Wish and the Company entered into a
similar Deferred Compensation Agreement effective as of October 1, 1982.
CHANGE OF CONTROL ARRANGEMENTS. Options granted under the Company's 1998
and 1991 Stock Option Plans may include provisions accelerating the vesting
schedule in the case of defined changes-in-control. Options granted to-date
under such plan have included such provision. See also the discussion above
regarding the Robert L. Borchardt Employment Agreement.
COMPENSATION OF DIRECTORS
During 1998, none of the directors who are employees of the Company
received any compensation in addition to his regular compensation from the
Company for any services as a director or as a member of a committee of the
Board of Directors. Each of the directors who was not an employee of the Company
received an annual retainer of $10,000 in 1998 and was reimbursed for expenses,
if any, incurred in attending meetings. In 1998 each non-employee director also
received a grant of options under the Company's 1998 Stock Option Plan for 1000
shares at an exercise price of $22.625 per share exercisable at any time until
March 22, 2008. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for
transactions with directors or their affiliates for services other than as a
director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Company's Compensation Committee and Stock Option
Committees is employed by the Company. Mr. McPherson was an officer and employee
of the Company until 1989 and was retained by the Company through December 31,
1993 and a company of which Mr. Friedman is principal was under retainer by the
Company as a consultant during 1998 (see "Certain Relationships and Related
Transactions"). No director of the Company served during the last completed
fiscal year as an executive officer of any entity whose compensation committee
(or other comparable committee, or the Board, as appropriate) included an
executive officer of the Company. There are no "interlocks" as defined by the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's common shares, its only outstanding shares of capital
stock, by (a) each person who is known by the Company to own beneficially more
than 5% of the outstanding common shares, (b) each director, (c) the Named
Executives and (d) all executive officers and directors as a group as of March
31, 1999. Unless otherwise indicated, each of the shareholders shown in the
table below has sole voting and investment power with respect to the common
shares beneficially owned.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership as of March 31, 1999
-----------------------------------------------------------------------
Current
Beneficial Shares Subject
NAME AND ADDRESS OF BENEFICIAL OWNER(1) Holdings to Options (2) Total Percent
- --------------------------------------- ---------- --------------- --------- --------
<S> <C> <C> <C> <C>
Robert L. Borchardt(3).................... 1,389,192 884,050 2,273,242 18.1%
Herbert Borchardt......................... 2,499 0 2,499 *
George Calvi............................. 21,008 10,500 31,508 *
Stephen Chu(5) .......................... 175,202 10,000 185,202 1.6
Paul E. Feffer........................... 1,000 1,000 2,000 *
Irwin S. Friedman(4)..................... 28,000 12,500 40,500 *
Joseph M. Idy............................ 8,000 1,000 9,000 *
Ronald McPherson......................... 20,194 1,000 21,194 *
Joseph H. Massot......................... 23,721 25,834 49,555 *
Stuart Mont.............................. 35,531 71,168 106,699 *
Peter Wish............................... 11,573 27,500 39,073 *
Dennis P. Wherry......................... 0 5,250 5,250 *
First Pacific Advisors, Inc. (6)......... 1,838,500 0 1,838,500 15.7
FPA Capital Fund, Inc. (6)............... 750,000 0 750,000 6.4
Dimensional Fund Advisers, Inc.(7)....... 660,746 0 660,746 5.6
All Directors and Executive Officers
as a Group (16 Persons)................ 1,719,251 1,075,552 2,794,803 21.9
- ---------------
* Less than 1%
(1) Except as otherwise noted below, the address of all persons is c/o Recoton
Corporation, 2950 Lake Emma Road, Lake Mary, Florida 32746. The address of
Mr. Chu is c/o STD Holding Limited, Units F-J, 5th Floor, Block 2, Kwai Tak
Industrial Centre, Kwai Tak Street, Kwai Chung, NT, Hong Kong; the address
of Mr. Feffer is 60 Sutton Place, New York, NY 10022; the address of Mr.
Friedman is 375 Park Avenue, Suite 2608, New York, New York 10152; the
address of Mr. Idy is 440 Royal Palm Way, Palm Beach, Florida 33480; and
the address of Mr. McPherson is 6519 Sweet Maple Lane, Boca Raton, Florida
33433.
(2) As used in this table, a beneficial owner of a security includes any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (i) the power to vote, or direct
the voting of, such security or (ii) investment power which includes the
power to dispose, or to direct the disposition of, such security. It does
not include securities which that person has the right to acquire. Shares
Subject to Option includes shares that may be acquired currently or within
60 days after March 31, 1999 through the exercise of stock options.
(3) Includes 213,333 shares held by Mr. Borchardt as trustee for his children
and 39,909 shares held by Mr. Borchardt's wife. Mr. Borchardt disclaims
beneficial ownership of the shares owned by his wife. Also includes 546,666
shares held by a trust of which Mr. Borchardt and Mr. Irwin Friedman are
the trustees and of which Mr. Borchardt is the beneficiary (the "Borchardt
Trust"), the beneficial ownership of which shares may be attributable to
Mr. Borchardt, and 589,284 shares held by a revocable living trust of which
Mr. Borchardt is the sole trustee or in an individual retirement account in
Mr. Borchardt's name. Excludes (a) 270,092 shares as to which Mr. Borchardt
holds an irrevocable proxy (valid until August 2005) pursuant to an
agreement among the Company, Mr. Borchardt, Stephen Chu and other
shareholders and 122,190 shares as to which Mr. Borchardt holds an
irrevocable proxy (valid until the earlier of November 2007 or two years
after Micah Ansley and Diane Eberlein both cease to be Company employees)
pursuant to an agreement between the Company, Mr. Borchardt, Micah Ansley
and Diane Eberlein (such shares are to be voted consistent with the
recommendation of the Board of Directors of the Company and the holders of
such shares are generally free to sell such shares at any time), and (b)
30,000 shares held by a foundation of which Mr. Borchardt is a director.
(4) Irwin Friedman and Robert Borchardt share voting and investment power with
respect to the shares held of record by the Borchardt Trust, of which
Robert Borchardt is the beneficiary. The number of shares shown as owned by
Mr. Friedman does not include the common shares owned by the Borchardt
Trust.
(5) Such shares are subject to an agreement between Mr. Chu, the Company,
Robert Borchardt and other shareholders which expires in August 2005
pursuant to which Mr. Borchardt holds a proxy to vote the shares consistent
with the recommendation of the Board of Directors of the Company. The
reported number includes 175,202 of the total 270,092 shares subject to
such agreement; Mr. Chu disclaims beneficial ownership of the remaining
shares.
(6) Based on a Schedule 13G Statement dated February 12, 1999 filed with the
Commission, First Pacific Advisors, Inc. (11400 West Olympic Boulevard,
Suite 1200, Los Angeles, CA 90064) had shared voting power with respect to
544,000 shares and shared dispositive power with respect to 1,838,500
shares and FPA Capital Fund, Inc. (11400 West Olympic Boulevard, Suite
1200, Los Angeles, CA 90064) had sole voting power and shared dispositive
power with respect to 750,000 shares as of December 31, 1998. The 750,000
shares reported as owned by FPA Capital fund, Inc. are also included in the
1,838,750 shares reported as owned by First Pacific Advisors, Inc. in the
table. The Company cannot determine from such filing if any natural persons
control the shares beneficially owned by First Pacific Advisors, Inc. or
FPA Capital Fund Inc. and who shares the voting power on such shares.
(7) Based on a Schedule 13G Statement dated February 12, 1999 filed with the
Commission, Dimensional Fund Advisors Inc. (1299 Ocean Avenue, 11th Floor,
Santa Monica, CA 90401), a registered investment advisor is deemed to have
beneficial ownership of 660,746 shares as of December 31, 1998, all of
which shares are held in various investment companies or other investment
vehicles for which Dimensional Fund Advisors serves as investment manager.
Dimensional Fund Advisors disclaims beneficial ownership of all such
shares.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For services rendered during the fiscal year ended December 31, 1998, the
Company paid a total of $12,000 for financial consulting services to I. Friedman
Equities, Inc., a company of which Mr. Irwin Friedman, a director of the
Company, is a principal shareholder. In 1998 Mr. Friedman also received options
under the Company's 1998 Stock Option Plan to purchase 4,000 shares at any
exercise price of $22.625 per share exercisable at any time until March 22,
2008. This grant was in addition to the grant of 1,000 options made each
non-employee director in 1998.
Stuart Mont, the Company's Chief Operating Officer, Chief Financial
Officer, Executive Vice President-Operations and a director, had loans
aggregating at their maximum in 1998 of $475,841. The outstanding balance as of
March 31, 1999 was $386,264.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the
Registrant's Annual Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized.
RECOTON CORPORATION
By: /S/ JOSEPH MASSOT
Joseph Massot, Vice President
Dated: April 28, 1999
