<PAGE> 1
CONFORMED
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission File No. 333-27341
September 30, 1998
TELEX COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 38-1853300
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9600 ALDRICH AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55420
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (612) 884-4051
---------------------
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 filing
requirements for the past 90 days.
YES X NO
-- --
AS OF SEPTEMBER 30, 1998 THERE WERE 110 SHARES OF TELEX COMMUNICATIONS, INC.,
$0.01 PAR VALUE, OUTSTANDING.
THIS DOCUMENT CONTAINS 20 PAGES.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
-------------------------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,284 $ 2,224
Accounts receivable, net 65,665 62,085
Inventories 69,813 78,711
Other current assets 9,188 16,088
--------- ---------
Total current assets 147,950 159,108
Property, plant and equipment, net 49,305 50,777
Deferred financing costs, net 10,530 11,303
Intangible and other assets, net 78,792 79,064
--------- ---------
$ 286,577 $ 300,252
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Revolving lines of credit $ 6,165 $ 15,119
Current maturities of long-term debt 8,500 8,250
Accounts payable 21,216 20,165
Accrued wages and benefits 13,174 11,739
Accrued interest 7,084 8,133
Other accrued liabilities 17,523 20,786
Income taxes payable 5,130 5,048
--------- ---------
Total current liabilities 78,792 89,240
Long-term debt 325,625 329,875
Other long-term liabilities 7,253 6,893
--------- ---------
Total liabilities 411,670 426,008
--------- ---------
Shareholder's deficit:
Common stock and capital in excess of par 3,838 3,156
Cumulative translation adjustment (437) (2,297)
Accumulated deficit (128,494) (126,615)
--------- ---------
Total shareholder's deficit (125,093) (125,756)
--------- ---------
$ 286,577 $ 300,252
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 87,392 $ 89,470 $ 166,280 $ 162,893
Cost of Sales 55,085 54,417 104,317 100,446
--------- --------- --------- ---------
Gross profit 32,307 35,053 61,963 62,447
--------- --------- --------- ---------
Operating expenses:
Engineering 3,750 4,607 7,556 8,714
Selling, general and administrative 18,333 19,031 36,758 44,680
Corporate charges 429 615 858 1,063
Amortization of goodwill and other intangibles 706 798 1,383 1,570
--------- --------- --------- ---------
23,218 25,051 46,555 56,027
--------- --------- --------- ---------
Operating profit (loss) 9,089 10,002 15,408 6,420
Interest expense 9,068 10,290 18,367 19,423
Recapitalization expense -- (202) -- 6,750
Other (income) expense (1,469) 26 (1,632) (58)
--------- --------- --------- ---------
Profit (loss) before income taxes and extraordinary loss 1,490 (112) (1,327) (19,695)
Provision (benefit) for income taxes 210 936 552 (4,995)
--------- --------- --------- ---------
Profit (loss) before extraordinary loss 1,280 (1,048) (1,879) (14,700)
Extraordinary loss on early retirement of debt -- -- -- 10,554
--------- --------- --------- ---------
Net profit (loss) $ 1,280 $ (1,048) $ (1,879) $ (25,254)
========= ========= ========= =========
</TABLE>
See accompanying notes.
3
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TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
1998 1997
--------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (1,879) $ (25,254)
Adjustments to reconcile net loss to cash flows from operations:
Depreciation 4,364 4,042
Amortization of intangibles and deferred financing costs 2,156 2,739
Provision for bad debts 170 175
Gain on sale of business (946) --
Write-off of deferred financing costs -- 1,674
Recapitalization costs incurred -- 6,750
Extraordinary loss on early retirement of debt -- 10,554
Stock option compensation expense 682 9,931
Deferred income taxes -- (11,210)
Change in operating assets and liabilities:
Income taxes payable 7,475 4,218
Receivables (3,321) 6,019
Inventories 8,940 (3,623)
Other current assets (317) 2,181
Accounts payable and accrued expenses (929) 1,303
Accrued interest (1,049) 3,208
Change in long-term liabilities 768 (730)
--------- ---------
Net cash provided by operating activities 16,114 11,977
--------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (3,713) (4,123)
Other (44) --
--------- ---------
Net cash used in investing activities (3,757) (4,123)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 240,000
Borrowings (payments) under revolving lines of credit, net (9,268) 1,862
Repayment of long-term debt and payment of fees (4,045) (120,093)
Proceeds from equity contribution -- 108,353
Cash balance of Old Telex at date of Merger -- 34,753
Repurchase of common stock and outstanding options -- (253,898)
Payments of deferred financing costs -- (12,547)
Recapitalization costs incurred -- (6,750)
Proceeds from sale of business 1,990 --
--------- ---------
Net cash used in financing activities (11,323) (8,320)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 26 (673)
--------- ---------
CASH AND CASH EQUIVALENTS
Net increase (decrease) 1,060 (1,139)
Beginning of period 2,224 10,266
--------- ---------
End of period $ 3,284 $ 9,127
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest $ 18,377 $ 10,994
========= =========
Income taxes (refunds), net $ (7,129) $ 191
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELEX COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Telex Communications, Inc., formerly known as EV International, Inc.
("Telex" or the "Company"), a Delaware corporation, is a wholly owned
subsidiary of Telex Communications Group, Inc. ("Holdings"). As used in
these consolidated financial statements, unless otherwise indicated or the
context otherwise requires, references to (i) "Holdings" shall mean Telex
Communications Group, Inc., a Delaware corporation and the corporate parent
of the Company; (ii) "Old Telex" shall refer to the Delaware corporation
formerly named Telex Communications, Inc., a wholly owned subsidiary of
Holdings, and its subsidiaries with respect to periods prior to the Mergers
(as defined in Item 2); (iii) the "Company" or "Telex" shall mean Telex
Communications, Inc., a Delaware corporation formerly named EV
International, Inc. ("EVI") and successor by merger to Old Telex, and its
subsidiaries and includes, as the context may require, predecessor and
successor companies; (iv) "Old EVI" shall mean EVI and its subsidiaries
with respect to periods prior to the Mergers and includes any predecessor
companies; and (v) "EV Holdings" shall refer to EVI Audio Holding, Inc.,
the direct parent company of EVI prior to the Mergers.
The Mergers have been accounted for essentially as a pooling of interests
and therefore, as presented in this Form 10-Q, the financial statements for
the quarter and six months ended September 30, 1997 are based on Old EVI's
results of operations and cash flows for the six months ended September 30,
1997 and on Old Telex's results of operations and cash flows from May 6,
1997 (the date on which Old EVI and Old Telex came under common control) to
September 30, 1997. In connection with the Mergers, the Company also
changed its year end, form the last day of February to March 31, to
coincide with that of Old Telex. The change in fiscal year end did not
materially affect the comparability of the periods presented herein. Unless
otherwise indicated, all references in this Form 10-Q to Fiscal 1998 refer
to the twelve months ended March 31, 1998.
The condensed consolidated balance sheet as of September 30, 1998 and the
condensed consolidated statements of operations and cash flows for the
quarters and six months ended September 30, 1998 and 1997 have been
prepared by the Company without being audited, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC").
In the opinion of management, these financial statements reflect all
adjustments (which include only normal recurring accruals) necessary to
present fairly the financial position of Telex at September 30, 1998 and
the results of its operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Therefore, these statements
should be read in conjunction with the more detailed information, risk
factors and financial statements, including the related notes, included in
the Registration Statements on Form S-4 filed by Old Telex and Old EVI with
the SEC on September 5, 1997 and July 30, 1997, respectively, and the Form
10-K for the fiscal year ended March 31, 1998 filed by Telex with the SEC
on July 14, 1998 (the "Form 10-K"). Unless otherwise defined herein,
capitalized terms shall have the meaning set forth in the Form 10-K.
The results of operations for interim periods are not necessarily
indicative of results which will be realized for the full fiscal year.
5
<PAGE> 6
2. Inventories consist of the following, in thousands:
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
---- ----
(Unaudited)
<S> <C> <C>
Raw materials and parts $31,542 $35,740
Work in process 10,407 9,812
Finished products 27,864 33,159
------- -------
$69,813 $78,711
======= =======
</TABLE>
3. Telex's tax provision is calculated on a separate company basis, and
Telex's taxable income is included in the consolidated federal income tax
return of Holdings. The Company has recorded a liability to Holdings for
the tax benefit Telex received from Holdings, which is included in other
long-term liabilities.
4. The Company recorded an income tax provision of $0.2 million and $0.6
million on pre-tax income of $1.5 million and pre-tax loss of $1.3 million
for the quarter and six months ended September 30, 1998, respectively. The
income tax provision is comprised of a U.S. Federal income tax benefit of
$0.5 million which is offset by a deferred tax valuation allowance of $0.5
million and an income tax provision of $0.6 million attributed to income of
certain foreign subsidiaries for the six months ended September 30, 1998.
The Company has a net deferred tax valuation allowance of $16.3 million at
September 30, 1998 due to the uncertainty of the realization of future tax
benefits. Included in this valuation allowance is $0.5 million charged to
income tax provision for the six months ended September 30, 1998. The
realization of the future tax benefits related to the deferred tax assets
is dependent on many factors, including the Company's ability to generate
taxable income within the net operating loss carryforward period.
Management has considered these factors in reaching its conclusion as to
the adequacy of the valuation allowance for financial reporting purposes.
5. Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement established standards for reporting
and display of comprehensive income and its components. Comprehensive
income reflects the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. For the Company, comprehensive income represents net income (loss)
adjusted for foreign currency translation adjustments. Comprehensive income
(loss) was $3.2 million and $0.2 million for the quarter and six months
ended September 30, 1998 and $(2.0) and $(26.0) million for the quarter and
six months ended September 30, 1997, respectively.
6. During June 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," effective for fiscal years beginning after December
14, 1997. SFAS No. 131 requires disclosure of business and geographic
segments in the consolidated financial statements of the Company. The
Company will adopt SFAS No. 131 in Fiscal 1999 and is currently analyzing
the impact that such adoption will have on the disclosures in its financial
statements.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal
years beginning after December 31, 1997. SFAS No. 132 revised certain of
the disclosure requirements but does not change the measurement or
recognition of those plans. SFAS No. 132 superseded SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
The
6
<PAGE> 7
adoption of SFAS No. 132 will result in revised and additional
disclosures, but will have no effect on the financial position, results of
operations, or liquidity of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge criteria are met.
Special accounting for qualifying hedges allow a derivative's gains or
losses to offset related results on the hedged item in the income statement
and requires that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. The
Company has not quantified the impacts of adopting SFAS No. 133 and has not
yet determined the timing or method of adoption.
7. Subsequent Event
On October 5, 1998, the Company announced the resignation of its President,
who was also the Company's Chief Executive Officer and Chairman of the
Board of Directors. Under the terms of his employment contract, the Company
will incur expenses of approximately $1.9 million for severance pay and
benefits payable over approximately 36 months, the remaining period of the
employment contract. This charge will be recorded by the Company in the
third quarter of Fiscal 1999.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
The Company may have included certain forward-looking statements in the Form
10-Q and includes this provision pursuant to the "safe harbor" provisions of the
Private Securities Reform Act of 1995. Whenever, in the Form 10-Q, the Company
or its management express an expectation or belief as to future results or
future events, while made in good faith and with a reasonable basis based on
information currently available to the Company's management, there is no
assurance that the statement of expectation or belief will be achieved or
accomplished. Any such forward-looking statements involve known and unknown
risks and uncertainties and the Company's actual results may differ materially
from those forward-looking statements. The Company does not undertake to update,
revise or correct any of the forward-looking information contained in this
document. The following factors, in addition to those discussed elsewhere in the
Form 10-Q, could affect the future results of the Company, and could cause
results to differ materially from those expressed in such forward-looking
statements: (i) the timely development and market acceptance of new products;
(ii) the financial resources of competitors and the impact of competitive
products and pricing; (iii) changes in general and industry specific economic
conditions on a national, regional or international basis; (iv) changes in laws
and regulations, including changes in accounting standards; (v) the timing of
the implementation of changes in operations to effect cost savings; (vi)
opportunities that may be presented to and pursued by the Company following the
Mergers; (vii) the Company's ability to access external sources of capital; and
(viii) such risks and uncertainties as are detailed from time to time in the
Company's SEC reports and filings.
GENERAL
The following discussion and analysis of the financial condition and results of
operations covers periods both before and after completion of the Transactions
(as defined herein). As a result of the Transactions, the Company has entered
into new financing arrangements and has a different capital structure than its
predecessors, Old EVI and Old Telex. The results of operations for the periods
after February 10, 1997 were prepared under the new basis of accounting, which
includes adjustments giving effect to the Acquisition under the purchase method
of accounting. Accordingly, the results of operations for the quarter and six
months ended September 30, 1998, which are affected by such changes, are not
comparable to the results of operations for prior fiscal years which do not
fully reflect the impact of the Transactions. Additionally, in Fiscal 1998 the
Company changed its fiscal year end to March 31 from the last day of February.
This change in fiscal year end, which coincides with that of the Old Telex, did
not have a material impact on the comparability of the results of operations of
the quarter and six months ended September 30, 1998 with the quarter and six
months ended September 30, 1997. As presented in this Form 10-Q, the results of
operations for the quarter and six months ended September 30, 1997 are based on
Old EVI's statement of operations for the six months ended September 30, 1997
and on Old Telex's statement of operations from May 6, 1997 through September
30, 1997. Pursuant to the Recapitalization of Old Telex on May 6, 1997, the
historical basis of all assets and liabilities was retained for financial
reporting purposes, and the repurchase of existing Holdings Common Stock and
issuance of new Holding Common Stock have been accounted for as equity
transactions. The Mergers have been accounted for essentially as a pooling of
interests from May 6, 1997, the date on which Old EVI and Old Telex came under
common control, and the financial statements of the Company for Fiscal 1998
accordingly include the results of Old Telex from May 6, 1997.
8
<PAGE> 9
THE TRANsACTIONS
The Acquisition. On February 10, 1997 (the "Acquisition Closing Date"), pursuant
to a purchase agreement dated December 12, 1996, (as amended, the "Purchase
Agreement") an acquisition subsidiary wholly owned by Greenwich Street Capital
Partners, L.P. ("GSCP") and certain affiliated investors acquired from Mark IV
Industries ("Mark IV") and one of its subsidiaries all of the issued and
outstanding capital stock of Gulton Industries, Inc. ("Gulton"), the former
parent of Old EVI, and each of its subsidiaries for an initial cash purchase
price of $151.5 million, plus $4.9 million in estimated adjustments paid on the
closing date, which aggregate amount is subject to further post-closing
adjustments (the "Acquisition"). Mark IV has requested a purchase price increase
of $0.4 million, which amount the Company is currently disputing pursuant to the
applicable provisions of the Purchase Agreement.
Financing for the Acquisition, and the related fees and expenses, consisted of
(i) $57.6 million of equity capital provided by GSCP and certain affiliated
investors, (ii) a $60.0 million senior credit facility (consisting of a term
loan and a revolving credit facility), and (iii) a $75.0 million senior
subordinated credit facility issued as interim financing by Chase Securities
Inc. and Smith Barney Inc., the initial purchasers of the EVI Existing Notes (as
defined herein), and certain other lenders. Of these amounts, $156.4 million was
used for the purchase price for the Acquisition and $10.4 million was used for
financing and transaction fees and expenses.
On March 24, 1997, Old EVI issued 11% Senior Subordinated Notes due 2007 in an
aggregate principal amount of $100.0 million (the "EVI Existing Notes"), all of
which were subsequently exchanged in September, 1997 for a like principal amount
of new 11% Senior Subordinated Notes due 2007, Series A (together with the EVI
Existing Notes, the "EVI Notes"), in an offering registered under the Securities
Act of 1933, as amended (the "Securities Act"). The proceeds from the EVI Notes
were used to repay the $75.0 million of indebtedness under the interim financing
in its entirety and a portion of Old EVI's term loan. The forgoing transactions,
including the issuance of the EVI Notes, are referred to herein as the
"Acquisition Transactions." The Acquisition was accounted for using the purchase
method of accounting pursuant to which the purchase price was allocated among
the acquired assets and liabilities in accordance with estimates of fair market
value on February 10, 1997 (i.e., the Acquisition Closing Date).
The Recapitalization. On May 6, 1997 (the "Recapitalization Closing Date"), Old
Telex completed a recapitalization (the "Recapitalization") pursuant to an
Agreement (the "Recapitalization Agreement") among Old Telex, Greenwich II, LLC
("G-II"), a Delaware limited liability company formed by GSCP and certain other
investors, and GST Acquisition Corp. ("GST"), a Delaware corporation and a
wholly owned subsidiary of G-II. In connection with the Recapitalization, all of
the shares of common stock of Holdings ("Holdings Common Stock") and all options
and warrants to acquire Holdings Common Stock (other than certain shares of
Holdings Common Stock and certain options to acquire Holdings Common Stock owned
by certain members of management of Old Telex) were converted into the right to
receive an aggregate amount of cash (the "Recapitalization Consideration") equal
to $253.9 million. In addition, in connection with the Recapitalization
Agreement, certain shares of Holdings Common Stock held by management of Old
Telex (such shares, the "Rollover Shares") and certain options to acquire
additional shares of Holdings Common Stock (the "Rollover Options"), with an
aggregate value of $21.2 million (which represented 14% of the equity of
Holdings on a non-diluted basis and 20% on a fully diluted basis) were retained
by such managers. In connection with the Recapitalization, Old Telex completed
(i) a tender offer (the "Tender Offer") to repurchase all of Old Telex's then
outstanding 12% Senior Notes due 2004, in aggregate principal amount of $100.0
million, for $118.3 million (including premium and consent fees along with
accrued interest), and (ii) a solicitation of consents with respect to certain
amendments to the indenture pursuant to which such notes were issued. The
Recapitalization, the financing thereof (including the issuance by Old Telex of
10 1/2 % Senior Subordinated Notes
9
<PAGE> 10
due 2007 (the "Existing Telex Notes") to Chase Securities, Inc., Morgan Stanley
& Co. Incorporated and Smith Barney, Inc.), the Tender Offer and the payment of
the related fees and expenses are herein referred to as the "Recapitalization
Transaction."
The Recapitalization was financed by (i) $108.4 million of new equity provided
by GSCP and certain other co-investors, (ii) the Rollover Shares and Rollover
Options valued at $21.2 million, (iii) a $140.0 million senior secured credit
facility (the "Senior Secured Credit Facility") with The Chase Manhattan Bank,
Morgan Stanley Senior Funding, Inc. and certain other lenders, consisting of (a)
a $115.0 million term loan facility (the "Term Loan Facility"), and (b) a $25.0
million revolving credit facility (the "Revolving Credit Facility"), (iv) $125.0
million of Existing Telex Notes and (v) $36.5 of available cash of Old Telex. Of
the $108.4 million of new equity contributed by GSCP and certain other
co-investors, $25.2 million consisted of proceeds from the issuance by GST (a
predecessor of Holdings) of Deferred Pay Subordinated Debentures due 2009 (the
"GST Subordinated Debentures").
Pursuant to the Recapitalization of Old Telex on May 6, 1997, the historical
basis of all assets and liabilities was retained for financial reporting
purposes, and the repurchases of existing Holdings Common Stock and issuance of
new Holdings Common Stock have been accounted for as equity transactions.
In October 1997, Old Telex completed an exchange offer of $125.0 million
aggregate principal amount of new 10 1/2 % Senior Subordinated Notes Due 2007,
Series A (the "New Telex Notes"), which were registered under the Securities
Act, for a like principal amount of the Existing Telex Notes (together with the
New Telex Notes, the "Telex Notes"). All of the Existing Telex Notes were
tendered and accepted for exchange.
The Mergers. On February 2, 1998 Old EVI merged with Old Telex, with Old EVI
surviving and changing its corporate name to "Telex Communications, Inc." (the
"Mergers"). The Merger was effected pursuant to an agreement and plan of merger,
dated January 29, 1998 under which Greenwich I LLC ("G-I"), a subsidiary wholly
owned by GSCP and certain affiliated investors, exchanged all of the issued and
outstanding common and preferred stock of EVI Audio Holdings ("EVI Holdings"),
the former parent of Old EVI, for 1,397,400 shares of Holdings Common Stock, and
13,000 shares of Holdings' Series A Pay-in-Kind Preferred Stock, respectively,
and EVI Holdings was merged with and into Holdings, with Holdings continuing as
the surviving corporation (the "Parent Merger" and together with the Merger, the
"Mergers"). The Mergers have been accounted for essentially as a pooling of
interests from May 6, 1997, the date on which Old EVI and Old Telex came under
common control, and the financial statements of the Company for Fiscal 1998
accordingly include the results of Old Telex from May 6, 1997. Immediately prior
to the Mergers, $12.7 million of indebtedness outstanding under Old EVI's senior
credit facility was paid in full and Old EVI's senior credit facility was
terminated. Such indebtedness, together with $0.4 million of certain fees and
expenses associated with the Mergers, was repaid by utilizing free cash at
closing from Old EVI of $3.8 million and by borrowings under Old Telex's
Revolving Credit Facility of $9.3 million. Total fees and expenses incurred as a
result of the Mergers were $1.7 million, including the $0.4 million paid at
closing. The EVI Notes remain outstanding following the Mergers.
The Acquisition Transactions, the Recapitalization Transaction, and the Mergers
are referred to herein collectively as the "Transactions."
OVERVIEW
The Company, formed as a result of the February 2, 1998 merger of Old Telex and
Old EVI (see "The Mergers"), is a leader in the design, manufacture and
marketing of sophisticated audio, wireless and multimedia communications
equipment to commercial, professional and industrial
10
<PAGE> 11
customers. The Company provides high value-added communications products
designed to meet the specific needs of customers in commercial, professional and
industrial markets, and does not participate in the competitive retail consumer
electronics market. The Company offers a comprehensive range of products
worldwide for professional audio systems as well as for multimedia and other
communications product markets, including wired and wireless microphones, wired
and wireless intercom systems, mixing consoles, signal processors, amplifiers,
loudspeaker systems, headphones and headsets, tape duplication products, talking
book players, LCD projectors, wireless LAN and PCS antennas, hearing aids and
wireless assistive listening devices.
Subsequent to the Mergers, the Company has reorganized its business into two
business segments: Professional Sound and Entertainment and
Multimedia/Communications. Prior to the Mergers, essentially all of the
Company's business consisted of Old EVI's three principal lines of business
within the overall professional audio market: Fixed Installation, Professional
Music Retail and Concert/Recording/Broadcast. These businesses now comprise a
part of the Company's Professional Sound and Entertainment business segment. In
addition, as a result of the Mergers, the Multimedia/Communications business
segment (consisting mostly of businesses of Old Telex) accounts for a
significant proportion of the Company's business.
The Company maintains assets and/or operations in a number of foreign
jurisdictions, the most significant of which are Germany, the United Kingdom,
Japan, Singapore, and Hong Kong. In addition, the Company conducts business in
local currency in many countries, the most significant of which are Germany, the
United Kingdom, Japan, Singapore, Hong Kong, Canada, Australia, Switzerland and
France. Exposure to U.S. dollar/German mark and U.S. dollar/British pound
exchange rate volatility is mitigated to some extent by the Company's ability to
source its production needs with existing manufacturing capacity in Germany and
Great Britain, and the exposure to the U.S. dollar/Japanese yen exchange rate
volatility is to some extent mitigated by sourcing products denominated in yen
from Japan or through contractual provisions in sales agreements with certain
customers. Nevertheless, the Company has a direct and continuing exposure to
both positive and negative foreign currency movements.
The Company reports the foreign exchange gains or losses on transactions as part
of other (income) expense. Gains and losses on translation of foreign currency
denominated balance sheets are classified as currency translation adjustments
and are included as part of shareholder's deficit.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, the Company's net
sales, in thousands:
<TABLE>
<CAPTION>
Quarter ended September 30, Six months ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net Sales:
<S> <C> <C> <C> <C>
Professional Sound and Entertainment $ 50,829 $ 52,146 $101,143 $102,040
Multimedia/Communications 36,563 37,324 65,137 60,853
-------- -------- -------- --------
$ 87,392 $ 89,470 $166,280 $162,893
======== ======== ======== ========
</TABLE>
QUARTER AND SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO QUARTER AND SIX
MONTHS ENDED SEPTEMBER 30, 1997
Net Sales. The Company's net sales decreased $2.1 million, or 2.4%, from $89.5
million in the quarter ended September 30, 1997 to $87.4 million in the quarter
ended September 30, 1998. Net sales increased $3.4 million, or 2.1% from $162.9
million for the six months ended September
11
<PAGE> 12
30, 1997 to $166.3 million for the six months ended September 30 1998.
Comparable net sales, assuming the Mergers occurred at the start of Fiscal 1998,
decreased $9.4 million, or 5.4 %, from $175.7 million for the six months ended
September 30, 1997 to $166.3 million for the six months ended September 30,
1998.
The decrease in net sales for the quarter and the decrease in comparable net
sales for the six months ended September 30, 1998 are primarily due to a
decrease in net sales to customers outside of the U.S., the phase-out of certain
product lines starting in the fourth quarter of Fiscal 1998 and the sale in
April 1998 of the Gauss high-speed, bin-loop, tape duplication business and
operations. The decrease in net sales to the customers outside of the U.S. was
due in part to the stronger U.S. dollar, principally against the Canadian
dollar, German mark, Australian dollar and Japanese yen, which reduced the
foreign currency denominated translated sales, and to the weak economies in Hong
Kong, Japan and certain other Asian countries.
Net sales in the Company's Professional Sound and Entertainment segment
decreased $1.3 million, or 2.5%, from $52.1 million in the quarter ended
September 30, 1997 to $50.8 million in the quarter ended September 30, 1998. Net
sales decreased $0.9 million, or 0.9% from $102.0 million for the six months
ended September 30, 1997 to $101.1 million for the six months ended September
30, 1998. Comparable net sales, assuming the Mergers occurred at the start of
Fiscal 1998, decreased $4.1 million, or 3.9 %, from $105.2 million for the six
months ended September 30, 1997 to $101.1 million for the six months ended
September 30, 1998. The decrease in net sales for the quarter and the decrease
in comparable net sales for the six months ended September 30, 1998 are
primarily due to the decrease in net sales to customers outside of the U.S. and
the phase-out of certain product lines as described above.
Net sales in the Company's Multimedia/Communications segment decreased $0.8, or
2.0%, from $37.3 million in the quarter ended September 30, 1997 to $36.6
million in the quarter ended September 30, 1998. Net sales increased $4.3
million, or 7.0% from $60.9 million for the six months ended September 30, 1997
to $65.1 million for the six months ended September 30, 1998. Comparable net
sales, assuming the Mergers occurred at the start of Fiscal 1998, decreased $5.4
million, or 7.7%, from $70.5 million for the six months ended September 30, 1997
to $65.1 million for six months ended September 30, 1998. The decrease in net
sales for the quarter and the decrease in comparable net sales for the six
months ended September 30, 1998 are primarily due to the decrease in net sales
to customers outside of the U.S. and the sale in April 1998 of the Gauss
business and operations as described above.
Gross Profit. The Company's gross profit decreased $2.7 million, or 7.8%, from
$35.1 million in the quarter ended September 30, 1997 to $32.3 million in the
quarter ended September 30, 1998. As a percentage of sales, the gross margin
rate in the respective periods decreased from 39.2% to 37.0%. Gross profit
decreased $0.5 million, or 0.8%, from $62.4 million for the six months ended
September 30, 1997 to $62.0 million for the six months ended September 30 1998.
As a percentage of sales, the gross margin rate in the respective periods
decreased from 38.3% to 37.3%. The comparable gross profit, assuming the Mergers
occurred at the start of Fiscal 1998, decreased $5.7 million, or 8.4%, from
$67.6 million for the six months ended September 30, 1997 to $62.0 million for
the six months ended September 30, 1998. As a percentage of sales, the
comparable gross margin rate in the respective periods decreased from 38.5% to
37.3%.
The decrease in the gross margin rate for the quarter and the decrease in the
comparable gross margin rate for the six months ended September 30, 1998 were
attributed mainly to the unfavorable movement in the currency exchange rates,
the Company's aggressive pricing strategy employed to maintain its foreign
market positions and the lower pricing on certain products being phased out. The
unfavorable movement in the currency exchange rates primarily affected the gross
margin rates on U.S.-sourced products sold in Germany, Japan, Australia and
Canada.
12
<PAGE> 13
Engineering. The Company's engineering expenses decreased $0.9 million, or
18.6%, from $4.6 million in the quarter ended September 30, 1997 to $3.8 million
in the quarter ended September 30, 1998. The engineering expenses decreased $1.2
million, or 13.3%, from $8.7 million for the six months ended September 30, 1997
to $7.6 million for the six months ended September 30, 1998. Comparable
engineering expenses, assuming the Mergers occurred at the start of Fiscal 1998,
decreased $1.9 million, or 20.0%, from $9.5 million for the six months ended
September 30, 1997 to $7.6 million for six months ended September 30, 1998. The
decrease in engineering expenses for the quarter and the decrease in comparable
engineering expenses for the six months ended September 30, 1998 were
attributable primarily to the benefits from the merger-related restructurings
begun in the fourth quarter of Fiscal 1998.
Selling, General and Administrative. The Company's selling, general and
administrative expenses decreased $0.7 million, or 3.7%, from $19.0 million in
the quarter ended September 30, 1997 to $18.3 million in the quarter ended
September 30, 1998. The selling, general and administrative expenses decreased
$7.9 million, or 17.7%, from $44.7 million for the six months ended September
30, 1997 to $36.8 million for the six months ended September 30, 1998.
Comparable selling, general and administrative expenses, assuming the Mergers
occurred at the start of Fiscal 1998, decreased $10.2 million, or 21.7%, from
$47.0 million for the six months ended September 30, 1997 to $36.8 million for
six months ended September 30, 1998. The decrease in selling, general and
administrative expenses for the quarter and the decrease in comparable expenses
for the six months ended September 30, 1998 are attributable primarily to the
benefits from spending restraints, reductions in employee levels begun in the
fourth quarter of Fiscal 1998 and, as described below, reductions in costs
related to the Recapitalization Transaction, partially offset by certain
merger-related expenses.
The Company's selling, general and administrative expenses include costs
associated with the Recapitalization Transaction of $0.9 million for the quarter
and $2.1 million for the six months ended September 30, 1998. These expenses
consist of costs associated with special management bonus compensation and new
option grants to certain management employees to purchase Holdings Common Stock
at a discount from fair value to be recognized as compensation expense over the
vesting or performance period of the options.
The Company's selling, general and administrative expenses for the quarter and
six months ended September 30, 1997 include costs related to the
Recapitalization Transaction of $1.8 million and 11.4 million, respectively.
These expenses consist of costs associated with and an extension of the terms of
the Rollover Options, special management bonus compensation and new option
grants to certain management employees to purchase Holdings Common Stock at a
discount from fair value to be recognized as compensation expense over the
vesting or performance period of the options.
Corporate Charges. Corporate charges of $0.4 million and $0.9 million in the
quarter and six months ended September 30, 1998 and $0.6 million and $1.1
million in the quarter and six months ended September 30, 1997, respectively,
represent fees for consulting and management services provided by GCSP under a
management and services agreement.
Other (income) expense. The Company's royalty income, together with a gain on
the sale of the Gauss business, exceeded the foreign exchange loss and other
expenses in the quarter and six months ended September 30, 1998. The foreign
exchange loss was primarily due to the unfavorable exchange rate movement in the
Canadian dollar, German mark, Australian dollar and Japanese yen against the
U.S. dollar.
13
<PAGE> 14
The Company recorded a gain of $0.8 million and $0.9 million on $1.5 million and
$2.0 million of proceeds on the sale of the Gauss business and its facility, in
the quarter and six months ended September 30, 1998, respectively.
Recapitalization expense. The Company recorded income of $0.2 million and
expense of $6.8 million attributable to the Recapitalization in the quarter and
six months ended September 30, 1997, respectively. The charge consists of fees
for investment advisory, legal, audit and other professional services attributed
to the Recapitalization Transaction. No such recapitalization expense was
incurred by the Company during the six months ended September 30, 1998.
Interest (income) expense. Interest expense decreased from $10.3 million and
$19.4 million in the quarter and six months ended September 30, 1997,
respectively, to $9.1 million and $18.4 million in the quarter and six months
ended September 30, 1998, respectively. The comparable interest (income)
expense, assuming the Mergers occurred at the start of Fiscal 1998, decreased
$2.1 million, or 10.2%, from $20.5 million for the six months ended September
30, 1997 to $18.4 million for the six months ended September 30, 1998. The
decrease was primarily due to the reduction in outstanding indebtedness.
Extraordinary Loss. In connection with the Transactions, the Company recorded a
pre-tax extraordinary loss of $10.6 million on the early retirement of debt for
the quarter ended June 30, 1997, consisting of bond premium, consent and tender
fees, along with the write-off of deferred financing costs associated with the
repurchase and early retirement of Old Telex's $100.0 million 12% Senior Notes
due 2004. No such extraordinary loss was incurred by the Company during the six
months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company had cash and cash equivalents of $3.3 million
compared to $2.2 million at March 31, 1998. The Company's principal source of
funds in the six months ended September 30, 1998 consisted of cash generated
from operating activities. Net cash provided by operations for the six months
ended September 30, 1998 was $16.1 million.
The Company's investing activities consist mainly of capital expenditures to
maintain facilities, acquire machines or tooling, update certain manufacturing
processes and improve efficiency. Capital expenditures totaled $3.8 million for
the six months ended September 30, 1998 compared with $4.1 million for the six
months ended September 30, 1997. On a comparable basis, assuming the Mergers
occurred at the beginning of Fiscal 1998, capital expenditures for the six
months ended September 30, 1997 were $4.4 million. The Company's ability to make
capital expenditures is subject to certain restrictions under its Senior Secured
Credit Facility.
The Company's consolidated indebtedness decreased $12.9 million from $353.2
million at March 31, 1998 to $340.3 million at September 30, 1998. The decrease
in indebtedness was due primarily to scheduled principal reductions on the
Company's Term Loan Facility and to a reduction in the Company's Revolving
Credit Facility.
The Company's liquidity needs arise primarily from debt service on indebtedness
incurred in connection with the Transactions, working capital needs and capital
expenditure requirements. The Company incurred substantial indebtedness in
connection with the Acquisition Transactions and the Recapitalization
Transaction. As a result, debt service represents significant liquidity
requirements for the Company.
14
<PAGE> 15
The Company relies mainly on internally generated funds, and, to the extent
necessary, borrowings under the Revolving Credit Facility and foreign working
capital lines to meet its liquidity needs.
The Company's current credit facilities include the Senior Secured Credit
Facility consisting of the Term Loan Facility of $109.1 million, the Revolving
Credit Facility, subject to certain borrowing base limitations, of $25.0
million, and foreign working capital lines, subject to certain limitations, of
$5.1 million. In certain instances the foreign working capital lines are secured
by a lien on foreign real property, leaseholds, accounts receivable and
inventory or are guaranteed by another subsidiary.
As of September 30, 1998, $8.5 million of the Company's $109.1 million Term Loan
Facility is payable in the next 12 months. In addition, the Company had $3.0
million outstanding under the Revolving Credit Facility, and $3.2 million
outstanding under the foreign working capital lines. Net availability at
September 30, 1998 under the Revolving Credit Facility, computed by deducting
$5.4 million of open letters of credit and applying applicable borrowing
limitations, totaled $16.6 million. Net availability at September 30, 1998 under
foreign working lines totaled $1.9 million. Outstanding balances under
substantially all of these credit facilities bear interest at floating rates
based upon the interest rate option selected by the Company; therefore, the
Company's financial condition is and will continue to be affected by changes in
the prevailing interest rates. The effective interest rate under these credit
facilities in the quarter and six months ended September 30, 1998 was 8.8% and
8.9%, respectively.
Pursuant to the Term Loan Facility, the Company is required to make permanent
principal payments under (i) the $50.0 million Tranche A Term Loan Facility
($44.5 million outstanding at September 30, 1998), $4.0 million in the remainder
of Fiscal 1999 and $8.0 million, $8.7 million, $12.0 million, and $11.8 million
of which is payable in each of Fiscal 2000, 2001, 2002 and 2003 (which has a
final maturity date of November 6, 2002), respectively, and (ii) the $65.0
million Tranche B Term Loan Facility ( $64.6 million outstanding at September
30, 1998), $0.2 million in the remainder of Fiscal 1999 and $0.5 million, $0.5
million, $0.5 million, $6.6 million, $28.1 million and $28.2 million of which is
payable in each of Fiscal 2000, 2001, 2002, 2003, 2004 and 2005 (which has a
final maturity date of November 6, 2004), respectively. In addition, under the
terms of the Senior Secured Credit Facility, the Company is required to make
mandatory prepayments with (i) non-ordinary asset sale proceeds, (ii) any
additional indebtedness and equity proceeds (with certain exceptions) and (iii)
with 75% of the excess cash flow of the Company and its subsidiaries for each
fiscal year.
The Company expects to generate additional cash flows from operations as a
result of Merger-related restructuring. In addition, in June 1998, the Company
received a $7.2 million tax refund associated with its net operating loss tax
benefit and has arranged a $4.0 million intercompany line of credit with
Holdings. In addition, the Company is actively implementing plans to reduce
inventory and improve the accounts receivable collection experience.
The Company believes that these additional sources of funds, together with the
Company's Revolving Credit Facility and cash from operations will be adequate to
meet its debt service and principle payment requirements, capital expenditure
needs, working capital requirements, and the funding needed for the
restructuring and other related expenditures attributed to the Mergers. However,
no assurance can be given in this regard, because working capital requirements
and other circumstances may change. The Company's future performance and its
ability to service its obligations will also be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond the Company's control.
15
<PAGE> 16
MANAGEMENT OF FOREIGN CURRENCY RISK
From time to time the Company enters into forward exchange contracts to hedge
inventory purchases denominated in Japanese yen for periods consistent with its
inventory purchase commitments. These foreign exchange contracts typically have
maturity dates which do not exceed one year and require the Company to exchange
U.S. dollars for Japanese yen at maturity, at rates agreed to at the inception
of the contracts. As of September 30, 1998, the Company had no foreign currency
forward exchange contracts outstanding.
ENVIRONMENTAL MATTERS
The Company is a party in a number of environmental enforcement matters and
related claims which have arisen in the ordinary course of business. The Company
believes that such matters and claims, if finally determined in a manner adverse
to the Company, whether considered separately or in the aggregate, would not
have a material adverse effect on the operating results or financial condition
of the Company. The Company believes that compliance with current federal, state
and local environmental protection laws and provisions should not have a
material adverse effect on the operating income or financial condition of the
Company. The assessment of materiality of such environmental matters and claims
is based on a gross determination of such charges that could occur and does not
give effect to possible third party recoveries.
YEAR 2000
Many computer systems in use today may be unable to interpret data correctly
after December 31, 1999 because they allow only two digits to indicate the year
in a date. The Company uses computer systems for various operations, including
for financial reporting, billing, order processing, purchasing, inventory
management and certain manufacturing operations. In addition, certain
non-information technology, including manufacturing systems, plant and
facilities may contain embedded microprocessors that could malfunction if they
are not Year 2000 compliant.
The Company has completed an internal inventory and assessment of Year 2000
compliance of its computer hardware and software and it's non-information
technology and has in recent years replaced, modified or upgraded a substantial
portion of its information systems in recent years with Year 2000 compliant
systems. The Company believes that the replacement, upgrade and changes to the
remaining non-compliant systems, and the testing of all systems will be
completed by late 1999.
In addition to internal remediation activities, the Company is in the process of
initiating communications with key third parties, including suppliers and
customers, to determine the extent to which they, or their electronic data
interchange with the Company, are vulnerable to Year 2000 issues.
The Company is in the process of developing contingency plans in the event that
the Company or any of its key suppliers is not Year 2000 compliant by the
required dates. The Company expects to finalize such contingency planning by
late 1999.
16
<PAGE> 17
If the systems of the Company or its key suppliers are not Year 2000 compliant
in a timely fashion, the Company believes that the most likely scenario would
include temporary disruptions in the Company's receipt and processing of orders
and billing, and in its ability to secure raw materials for production from
suppliers. The Company is in the process of assessing such risks and its ability
to mitigate them through contingency planning. However, at this time the Company
does not believe that such temporary disruptions would have a material affect on
its financial position or results of operations.
The Company has replaced a substantial portion of its information systems in
recent years with Year 2000 compliant systems. The Company believes that the
replacement, upgrade and changes to the remaining non-compliant information
systems to address the Year 2000 issues will cost incremental future
expenditures of $1.5 million. The Company does not separately track internal
costs incurred for its Year 2000 program, which costs are principally related to
payroll costs for its information systems group. The costs of the Year 2000
program are being funded through operating cash flows and are expensed as
incurred.
Although the Company expects its critical systems to be compliant in 1999, there
can be no assurance that its Year 2000 program will be effective or that
estimates about timing and cost will be accurate. Special factors that might
cause such material differences include, but are not limited to, the
availability and expense of adequately-trained Year 2000 information system
personnel, the ability to locate and correct relevant computer source codes and
embedded technology, testing results and the timeliness and effectiveness of
third parties' compliance.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for fiscal years beginning
after December 14, 1997. SFAS No. 131 requires disclosure of business and
geographic segments in the consolidated financial statements of the Company. The
Company will adopt SFAS No. 131 in Fiscal 1999 and is currently analyzing the
impact that such adoption will have on the disclosures in its financial
statements.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 31, 1997. SFAS No. 132 revised certain of the
disclosure requirements, but does not change the measurement or recognition of
those plans. SFAS No. 132 superseded SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The adoption of SFAS No. 132 will
result in revised and additional disclosures, but will have no effect on the
financial position, results of operations, or liquidity of the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge criteria are met. Special accounting for qualifying hedges
allow a derivative's gains or losses to offset related results on the hedged
item in the income statement and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The Company has not quantified the impacts of adopting SFAS No. 133
and has not yet determined the timing or method of adoption.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION
-----------------
The Company has determined to change its fiscal year, effective as of
December 31, 1998, from March 31 to December 31, the same as is used by
GSCP. An Annual Report will be filed for the nine month period ended
December 31, 1998, as a result of the change in fiscal year, on Form 10-K.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K October 12, 1998 which Form 8-K
stated: The Board of Directors of Telex Communications, Inc. announced (i)
the resignation of John L. Hale, Chairman of the Board, President and Chief
Executive Officer of the Company, (ii) the appointment of Ned C. Jackson as
Chief Executive Officer and (iii) Alfred C. Eckert III as Chairman of the
Board of the Company.
18
<PAGE> 19
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.
TELEX COMMUNICATIONS, INC.
Dated: November 16, 1998 By: /s/ Ned C. Jackson
----------------- ------------------
Ned C. Jackson
President and Chief Executive Officer
TELEX COMMUNICATIONS, INC.
Dated: November 16, 1998 By: /s/ John T. Hislop
----------------- ------------------
John T. Hislop
Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary
19
<PAGE> 20
TELEX COMMUNICATIONS, INC.
FORM 10-Q
EXHIBIT INDEX
27 Financial Data Schedule
20
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,284
<SECURITIES> 0
<RECEIVABLES> 65,665
<ALLOWANCES> 0
<INVENTORY> 69,813
<CURRENT-ASSETS> 147,950
<PP&E> 49,305
<DEPRECIATION> 0
<TOTAL-ASSETS> 286,577
<CURRENT-LIABILITIES> 78,792
<BONDS> 325,625
0
0
<COMMON> 3,838
<OTHER-SE> (128,931)
<TOTAL-LIABILITY-AND-EQUITY> 286,577
<SALES> 87,392
<TOTAL-REVENUES> 87,392
<CGS> 55,085
<TOTAL-COSTS> 23,218
<OTHER-EXPENSES> (1,469)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,068
<INCOME-PRETAX> 1,490
<INCOME-TAX> 210
<INCOME-CONTINUING> 1,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,280
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
