<PAGE> 1
CONFORMED
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999 Commission File No. 333-27341
TELEX COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 38-1853300
-------- ----------
(State or other jurisdiction of (IRS 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, 1999 THERE WERE 110 SHARES OF TELEX COMMUNICATIONS,
INC., $0.01 PAR VALUE, OUTSTANDING.
THIS DOCUMENT CONTAINS 24 PAGES.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,600 $ 3,431
Accounts receivable, net 66,264 53,926
Inventories 73,106 67,758
Other current assets 12,189 10,822
--------- ---------
Total current assets 154,159 135,937
Property, plant and equipment, net 48,007 48,275
Deferred financing costs, net 10,558 11,586
Intangible and other assets, net 75,486 77,478
--------- ---------
$ 288,210 $ 273,276
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Currrent liabilities:
Revolving lines of credit $ 22,641 $ 5,703
Current maturities of long-term debt 8,732 10,811
Accounts payable 29,547 20,920
Accrued wages and benefits 11,615 9,156
Accrued interest 7,229 6,416
Other accrued liabilities 14,510 14,158
Income taxes payable 6,121 5,200
--------- ---------
Total current liabilities 100,395 72,364
Long-term debt 314,578 321,189
Other long-term liabilities 9,652 9,810
--------- ---------
Total liabilities 424,625 403,363
--------- ---------
Shareholder's deficit:
Common stock and capital in excess of par 3,121 2,980
Accumulated other comprehensive loss (2,716) (1,400)
Accumulated deficit (136,820) (131,667)
--------- ---------
Total shareholder's deficit (136,415) (130,087)
--------- ---------
$ 288,210 $ 273,276
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1999 1998 1999 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 88,411 $ 80,062 $ 254,582 $ 246,342
Cost of sales 55,781 52,949 160,751 157,266
-------- -------- --------- ---------
Gross profit 32,630 27,113 93,831 89,076
-------- -------- --------- ---------
Operating expenses:
Engineering 3,759 3,658 11,169 11,214
Selling, general and administrative 20,909 16,920 59,033 53,678
Corporate charges 429 429 1,287 1,287
Amortization 692 735 2,086 2,118
-------- -------- --------- ---------
25,789 21,742 73,575 68,297
-------- -------- --------- ---------
Operating profit 6,841 5,371 20,256 20,779
Interest expense 9,213 8,961 27,343 27,328
Other income (1,049) (1,087) (3,101) (2,719)
-------- -------- --------- ---------
Loss before income taxes (1,323) (2,503) (3,986) (3,830)
Provision for income taxes 183 667 1,167 1,222
-------- -------- --------- ---------
Net loss $ (1,506) $ (3,170) $ (5,153) $ (5,052)
======== ======== ========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
TELEX COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (5,153) $ (5,052)
Adjustments to reconcile net loss to cash flows from operations:
Depreciation, amortization and provision for bad debts 11,116 9,785
Gain on sale of facilities and product lines (766) (946)
Stock option compensation expense and special charges 141 (176)
Change in operating assets and liabilities (10,536) 19,449
Change in long-term liabilities 222 (637)
-------- --------
Net cash provided by (used in) operating activities (4,976) 22,423
-------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (7,648) (5,060)
Proceeds from sale of facilities and product lines 3,384 1,990
Cash paid for acquisition, net of cash acquired (255)
Other (126)
-------- --------
Net cash used in investing activities (4,264) (3,451)
-------- --------
FINANCING ACTIVITIES:
Borrowings (payments) under revolving lines of credit, net 17,093 (9,964)
Repayment of long-term debt (8,691) (6,125)
Payments for deferred financing costs (784)
-------- --------
Net cash provided by (used in) financing activities 8,402 (16,873)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS: 7 (892)
-------- --------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) (831) 1,207
Beginning of period 3,431 2,224
-------- --------
End of period $ 2,600 $ 3,431
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR:
Interest $ 25,648 $ 27,896
======== ========
Income taxes (refunds), net $ 697 $ (7,017)
======== ========
</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; and (iv) "Old EVI" shall mean EVI and its subsidiaries
with respect to periods prior to the Mergers and includes any predecessor
companies.
The condensed consolidated balance sheet as of September 30, 1999 and the
condensed consolidated statements of operations and cash flows for the
quarters and nine months ended September 30, 1999 and December 31, 1998
have been prepared by the Company without being audited, pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
Effective December 31, 1998 the Company changed its fiscal year end to
December 31 from March 31. The management's discussion and analysis that
follows compares the results, which are not materially affected by seasonal
fluctuations, for the third quarter ended September 30, 1999 with the prior
year's third fiscal quarter ended December 31, 1998. The results for the
prior year's nine months ended September 30, 1998 contain certain
Merger-related costs and expenses, some of which are not easily
quantifiable. Therefore, the Company believes that for purposes of
management's discussion and analysis, a comparison of the financial results
for the third quarter and nine months ended September 30, 1999 with the
results for the third fiscal quarter and nine months ended December 31,
1998 is more meaningful than a comparison with the results for the quarter
and nine months ended September 30, 1998, which includes a similar calendar
quarter from two prior fiscal years ago.
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, 1999 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 transition period from April 1, 1998 to December 31, 1998
filed by Telex with the SEC on March 31, 1999 (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 (unaudited):
September 30, December 31,
1999 1998
---- ----
Raw materials and parts $33,272 $32,667
Work in process 11,885 10,690
Finished products 27,949 24,401
------- -------
$73,106 $67,758
======= =======
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 $1.2
million on pre-tax losses of $1.3 million and $4.0 million for the quarter
and nine months ended September 30, 1999, respectively. The income tax
provision for the nine months ended September 30,1999 is comprised of a
U.S. Federal income tax benefit of $2.3 million which is offset by a
deferred tax valuation allowance of $2.3 million and an income tax
provision of $1.2 million attributed to income of certain foreign
subsidiaries for the nine months ended September 30, 1999.
The Company has a net deferred tax valuation allowance of $18.0 million at
September 30, 1999 due to the uncertainty of the realization of future tax
benefits. Included in this valuation allowance is $2.3 million charged to
the income tax provision for the nine months ended September 30, 1999. 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 carry forward 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 net income or loss represents net
income or loss adjusted for foreign currency translation adjustments and
minimum pension liability adjustment. Comprehensive net income was $0.1
million for the quarter ended September 30, 1999. Comprehensive net loss
was $6.5 million for the nine months ended September 30, 1999.
Comprehensive net loss was $2.9 million and $4.1 million for the quarter
and nine months ended December 31, 1998, respectively.
6. Segment Information:
Subsequent to the Mergers, the Company reorganized what had been classified
as Old Telex's four strategic business units and Old EVI's four principal
lines of business into the following two business segments:
Professional Sound and Entertainment
Professional Sound and Entertainment includes Old EVI's three principal
lines of business within the overall professional audio market: (i) Fixed
Installation; (ii) Professional Music Retail; and (iii)
Concert/Recording/Broadcast, and Old Telex's Broadcast Communications
Systems and Sound Reinforcement product groups (these businesses were
previously part of
6
<PAGE> 7
Old Telex's Professional Sound and Entertainment Group).
Multimedia/Audio Communications
Multimedia/Audio Communications includes all of Old Telex's
Multimedia/Audio Communications, RF/Communications and Hearing Instruments
Groups, the Tape Duplication product group from Old Telex's Professional
Sound and Entertainment Group, and Old EVI's Other Applications line of
business, consisting of handheld microphones and earphones for field and
aircraft communications, both military and civilian, equipment for
high-speed duplication of audio tapes, and components marketed to original
equipment manufacturers for incorporation into their products.
The amounts in the following tables have been presented to coincide with
the new business segments (in thousands).
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Professional Multimedia/
Sound and Audio
Entertain- Communi-
ment cations Corporate Total
------------ ----------- --------- --------
<S> <C> <C> <C> <C>
Net sales $53,255 $35,156 $ - $ 88,411
Cost of sales 32,957 22,824 - 55,781
------- ------- -------- --------
Gross profit 20,298 12,332 - 32,630
------- ------- -------- --------
Operating expenses:
Engineering - - 3,759 3,759
Selling, general and administrative - - 20,909 20,909
Corporate charges - - 429 429
Amortization of intangibles - - 692 692
------- ------- -------- --------
- - 25,789 25,789
------- ------- -------- --------
Operating profit (loss) 20,298 12,332 (25,789) 6,841
Interest expense - - 9,213 9,213
Other income - - (1,049) (1,049)
Provision for income taxes - - 183 183
------- ------- -------- --------
Net income (loss) $20,298 $12,332 $(34,136) $ (1,506)
======= ======= ======== ========
Depreciation expense $ 815 $ 582 $ 1,140 $ 2,537
======= ======= ======== ========
Capital expenditures $ 962 $ 1,302 $ 104 $ 2,368
======= ======= ======== ========
United
States Germany Other Total
------- ------- -------- --------
Net sales $52,849 $ 7,506 28,056 88,411
======= ======= ======== ========
</TABLE>
7
<PAGE> 8
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Professional Multimedia/
Sound and Audio
Entertain- Communi-
ment cations Corporate Total
------------ ----------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $154,448 $100,134 $ - $ 254,582
Cost of sales 92,800 67,951 - 160,751
Gross profit -------- -------- -------- ---------
61,648 32,183 - 93,831
-------- -------- -------- ---------
Operating expenses:
Engineering - - 11,169 11,169
Selling, general and administrative - - 59,033 59,033
Corporate charges - - 1,287 1,287
Amortization of intangibles - - 2,086 2,086
-------- ------- -------- ---------
- - 73,575 73,575
-------- ------- -------- ---------
Operating profit (loss) 61,648 32,183 (73,575) 20,256
Interest expense - - 27,343 27,343
Other income - - (3,101) (3,101)
Provision for income taxes - - 1,167 1,167
-------- ------- -------- ---------
Net income (loss) $ 61,648 $32,183 $(98,984) $ (5,153)
======== ======= ======== =========
Depreciation expense $ 2,237 $ 1,777 $ 3,310 $ 7,324
======== ======= ======== =========
Capital expenditures $ 3,279 $ 2,637 $ 1,732 $ 7,648
======== ======= ======== =========
Total assets $199,721 $48,019 $ 40,470 $ 288,210
======== ======= ======== =========
United
States Germany Other Total
-------- ------- -------- ---------
Net sales $146,531 $21,276 $ 86,775 $ 254,582
-------- ======= ======== =========
Long-lived assets $123,307 $ 4,968 $ 5,776 $ 134,051
======== ======= ======== =========
</TABLE>
8
<PAGE> 9
FOR THE QUARTER ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Professional Multimedia/
Sound and Audio
Entertain- Communi-
ment cations Corporate Total
------------ ----------- --------- -----
<S> <C> <C> <C> <C>
Net sales $47,940 $32,122 $ - $ 80,062
Cost of sales 34,201 18,748 - 52,949
------- ------- -------- --------
Gross profit 13,739 13,374 - 27,113
------- ------- -------- --------
Operating expenses:
Engineering - - 3,658 3,658
Selling, general and administrative - - 16,920 16,920
Corporate charges - - 429 429
Amortization of intangibles - - 735 735
------- ------- -------- --------
- - 21,742 21,742
------- ------- -------- --------
Operating profit (loss) 13,739 13,374 (21,742) 5,371
Interest expense - - 8,961 8,961
Other income - - (1,087) (1,087)
Provision for income taxes - - 667 667
------- ------- -------- --------
Net income (loss) $13,739 $13,374 $(30,283) $ (3,170)
======= ======= ======== ========
Depreciation expense $ 555 $ 696 $ 1,168 $ 2,419
======= ======= ======== ========
Capital expenditures $ 624 $ 309 $ 506 $ 1,439
======= ======= ======== ========
<CAPTION>
United
States Germany Other Total
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $46,606 $ 8,503 $ 24,953 $ 80,062
======= ======= ======== ========
</TABLE>
9
<PAGE> 10
AS OF AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Professional Multimedia/
Sound and Audio
Entertain- Communi-
ment cations Corporate Total
---------- ------------ --------- -----
<S> <C> <C> <C> <C>
Net sales $ 1582,822 $93,520 $ - 246,342
Cost of sales 97,711 59,555 - 157,266
---------- ------- -------- ---------
Gross profit 55,111 33,965 - 89,076
---------- ------- -------- ---------
Operating expenses:
Engineering - - 11,214 11,214
Selling, general and administrative - - 53,678 53,678
Corporate charges - - 1,287 1,287
Amortization of intangibles - - 2,118 2,118
-------- ------- -------- ---------
- - 68,297 68,297
-------- ------- -------- ---------
Operating profit (loss) 55,111 33,965 (68,297) 20,779
Interest expense - - 27,328 27,328
Other income - - (2,719) (2,719)
Provision for income taxes - - 1,222 1,222
-------- ------- -------- ---------
Net income (loss) $ 55,111 $33,965 $(94,128) $ (5,052)
======== ======= ======== =========
Depreciation expense $ 2,346 $ 1,788 $ 2,650 $ 6,784
======== ======= ======== =========
Capital expenditures $ 1,734 $ 892 $ 2,560 $ 5,186
======== ======= ======== =========
Total assets $180,998 $57,495 $ 34,783 $ 273,276
======== ======= ======== =========
<CAPTION>
United
States Germany Other Total
-------- ------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $148,454 $22,923 $ 74,965 246,342
======== ======= ======== =========
Long-lived assets $126,277 $ 5,564 $ 5,498 137,339
======== ======= ======== =========
</TABLE>
7. During the Fiscal Year ended March 31, 1998, the Company recorded a
restructuring charge of $6.2 million attributable to the Merger-related
consolidation of certain product lines, and the consolidation of certain of
its worldwide manufacturing, engineering, distribution, marketing, service
and administrative operations to reduce costs, to better utilize the
available manufacturing and operating capacity and to enhance
competitiveness. At September 30, 1999, the Company had a restructuring
reserve balance of $2.6 million. As of September 30, 1999, the Company has
charged to the restructuring reserve $3.6 million, consisting of $1.6
million of cash expenditures and $2.0 million of non-cash charges.
8. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning
after June 15, 2000. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded on the
balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires
10
<PAGE> 11
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge criteria are met. Special accounting for
qualifying hedges allows 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.
9. On October 29, 1999 the Company amended the terms of its Senior Secured
Credit Facility ("Facility") with several banks and other financial
institutions to change certain financial condition covenants and related
definitions. The new terms include an increase in the borrowing rate of 25
basis points on the Revolving Credit Facility and Term Loan Facility. The
cost of the amendment is 37.5 basis points, or approximately $0.5 million,
on the outstanding commitment of the Revolving Credit Facility and the
amount outstanding on the Term Loans, plus certain other administrative
fees. The Company is subject to various financial covenants under the
amended Facility. The financial covenants include Consolidated EBITDA,
Consolidated Fixed Charges Ratio, Leverage Ratio, Senior Leverage Ratio and
limitations on Capital Expenditures.
10. Subsequent to September 30, 1999 the Company sold substantially all of its
VEGA wireless intercom, wireless IFB and wireless microphone equipment
businesses for cash proceeds of approximately $3.2 million, of which $2.8
million was received at the closing on October 15, 1999, and the remaining
$0.4 million, held in escrow subject to closing balance sheet adjustments
and other customary conditions, is to be received in three installments
extending to March 31, 2001 as conditions are satisfied. The sale is not
expected to have a material adverse effect on the Company's results of
operations. In addition, on October 28, 1999 the Company sold land held for
sale for cash proceeds of $0.7 million which approximates the book value of
the land.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations, as well as other sections of this Form 10-Q, may contain
forward-looking statements, including, without limitation, statements relating
to the Company's plans, strategies, objectives and expectations, that are based
on management's current opinions, beliefs, or expectations as to future results
or future events and are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. 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.
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 such
opinions or expectations will be achieved or accomplished. 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 this 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 Commission reports and filings.
GENERAL
The following discussion and analysis of the financial condition and results of
operations covers periods 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. 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.
Effective December 31, 1998 the Company changed its fiscal year end to December
31 from March 31. The management's discussion and analysis that follows compares
the results, which are not materially affected by seasonal fluctuations, for the
third quarter ended September 30, 1999 with the prior year's third fiscal
quarter ended December 31, 1998. The results for prior year calendar quarter
ended March 31, 1998 contain certain Merger-related costs and expenses, some of
which are not easily quantifiable. Therefore, the Company believes that for
purposes of management's discussion and analysis, a comparison of the financial
results for the third quarter and nine months ended September 30, 1999 with the
results for the third fiscal quarter and nine months ended December 31, 1998 is
more meaningful than a comparison with the results for the quarter and nine
months ended September 30, 1998, which include a similar calendar quarter from
two prior fiscal years ago.
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
12
<PAGE> 13
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 and the Company
are currently disputing the post-closing adjustments pursuant to the applicable
provisions of the Purchase Agreement. Pursuant to this arbitration, the Company
has incurred professional fees of $2.0 million, of which $0.6 million remain
unpaid as of September 30, 1999. Any final adjustment in purchase price, net of
costs incurred from this arbitration will result in an adjustment to goodwill.
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 foregoing
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 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
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<PAGE> 14
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 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
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<PAGE> 15
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/Audio
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/Audio 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. 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 Nine months ended
-------------------------- ---------------------------
September 30, December 31, September 30, December 31,
1999 1998 1999 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net Sales:
Professional Sound and Entertainment $53,254 $ 47,940 $154,447 $152,822
Multimedia/Communications 35,157 32,122 100,135 93,520
------- -------- -------- --------
$88,411 $ 80,062 $254,582 $246,342
======= ======== ======== ========
</TABLE>
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER AND NINE
MONTHS ENDED DECEMBER 31, 1998
Net Sales. The Company's net sales increased $8.3 million, or 10.4%, from $80.1
million in the quarter ended December 31, 1998 to $88.4 million in the quarter
ended September 30, 1999. Net sales increased $8.3 million, or 3.4%, from $246.3
million for the nine months ended December 31, 1998 to $254.6 million for the
nine months ended September 30, 1999. The increase in net sales for the quarter
and for the nine months is attributed to an increase in both the Professional
Sound and Entertainment and in the Multimedia/Audio Communications segments' net
sales.
Net sales in the Company's Professional Sound and Entertainment segment
increased $5.4 million, or 11.3%, from $47.9 million in the quarter ended
December 31, 1998 to $53.3 million in the quarter ended September 30, 1999. Net
sales increased $1.6 million, or 1.0% from $152.8 million for the nine months
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<PAGE> 16
ended December 31, 1998 to $154.4 million for the nine months ended September
30, 1999. The increase in net sales for the nine months ended September 30, 1999
was due to the strong sales for the quarter which offset earlier-in-the year
decline attributed to discontinuation of certain product lines, the sale of the
Gauss business, and to the destruction by fire of the Company's Mishawaka, IN
factory. The strong sales growth for the quarter was attributed primarily to new
products and to recovery in the Asia/Pacific region.
Net sales in the Company's Multimedia/Audio Communications segment increased
$3.1 million, or 9.7%, from $32.1 million in the quarter ended December 31, 1998
to $35.2 million in the quarter ended September 30, 1999. Net sales increased
$6.6 million, or 7.1% from $93.5 million for the nine months ended December 31,
1998 to $100.1 million for the nine months ended September 30, 1999. The
increase in net sales for the quarter and the nine months ended September 30,
1999 was attributed primarily to the increase in new electronic imaging
products.
Gross Profit. The Company's gross profit increased $5.5 million, or 20.3%, from
$27.1 million in the quarter ended December 31, 1998 to $32.6 million in the
quarter ended September 30, 1999. Gross profit increased $4.7 million, or 5.3%
from $89.1 million for the nine months ended December 31, 1998 to $93.8 million
for the nine months ended September 30, 1999. As a percentage of net sales, the
gross margin rate increased from 33.9% in the quarter ended December 31, 1998 to
36.9% in the quarter ended September 30, 1999, and increased from 36.2% for the
nine months ended December 31, 1998 to 36.9% for the nine months ended September
30, 1999. The increase in the gross margin rate for the quarter and for the nine
months ended September 30, 1999 was attributed mainly to the cost reduction
efforts, primarily in purchased materials, implemented by the Company. In
addition, gross margin on some of the new products has increased with improved
production efficiency as the Company is past the start up phase.
Engineering. The Company's engineering expenses remained about flat, increasing
$0.1 million, or 2.7%, from $3.7 million in the quarter ended December 31, 1998
to $3.8 million in the quarter ended September 30, 1999. Engineering expenses
for the nine months ended September 30, 1999 at $11.2 million remained flat with
the nine months ended December 31, 1998.
Selling, General and Administrative. The Company's selling, general and
administrative expenses for the quarter ended December 1998 contained a credit
of $2.8 million attributed to reversal of previously accrued non-cash charges
for stock options and bonus. Excluding this credit for the non-cash items, the
Company's selling, general and administrative expenses increased $1.2 million,
or 6.1% from $19.7 million in the quarter ended December 31, 1998 to $20.9
million in the quarter ended September 30, 1999. Excluding the credit for the
non-cash items, selling, general and administrative expenses increased $2.5
million, or 4.4% from $56.5 million for the nine months ended December 31, 1998
to $59.0 million for the nine months ended September 30, 1999. The increase in
selling, general and administrative expenses was attributed mainly to increased
spending for information technology, and advertising and promotion.
Corporate Charges. Corporate charges of $0.4 million for the quarters ended
December 31, 1998 and September 30, 1999, and $1.3 million for the nine months
ended December 31, 1998 and September 30, 1999 represent fees to GSCP for
consulting and management services provided under a management and services
agreement.
Other income. The Company's royalty income, together with gains on the sales of
certain of its facilities vacated in 1998 due to merger-related restructuring
and the expected business interruption insurance benefit resulting from a fire
that destroyed the Company's Mishawaka, IN facility, exceeded other expenses in
the quarter and nine months ended September 30, 1999.
In the nine months ended September 30, 1999, the Company recorded a gain of $0.8
million on $3.4 million of proceeds on the sales of certain vacated facilities
and certain product lines.
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<PAGE> 17
The Company's Mishawaka, IN facility was destroyed by fire in 1998. The Company
has recognized the expected business interruption insurance benefit of $1.0
million in the nine months ended September 30, 1999.
In the third quarter ended September 30, 1999, the Company recognized $0.7
million of royalty income attributed to underpayment in prior periods by a
licensee.
Interest expense. The Company's interest expense of $ 9.2 million for the
quarter ended September 30, 1999 and $27.3 million for the nine months ended
September 30, 1999 remained about flat, respectively, with the quarter and with
the nine months ended December 31, 1998. A reduction in outstanding indebtedness
was about offset by slightly higher interest rates on the Company's Senior
Secured Credit Facility.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company had cash and cash equivalents of $2.6 million
compared to $3.4 million at December 31, 1998. The Company's principal source of
funds in the nine months ended September 30, 1999 consisted of $8.4 million net
cash provided from financing activities and $3.4 million proceeds from sale of
certain vacated facilities and certain product lines. Net cash used in
operations was $5.0 million and cash used in investing activities, exclusive of
proceeds from sale of certain vacated facilities and certain product lines, was
$7.6 million.
The Company's investing activities consisted of capital expenditures to maintain
facilities, acquire machines or tooling, update certain manufacturing processes,
introduce new products and improve efficiency, offset by $3.4 million in
proceeds from the sales of certain product lines and vacated facilities. Capital
expenditures totaled $7.6 million for the nine months ended September 30, 1999
compared with $5.1 million for the nine months ended December 31, 1998. The
Company's ability to make capital expenditures is subject to certain
restrictions under its Senior Secured Credit Facility.
The Company's consolidated indebtedness increased $8.3 million from $337.7
million at December 31, 1998 to $346.0 million at September 30, 1999. The
increase in indebtedness is comprised of increased borrowings under the
Company's Revolving Credit Facility, which were partially offset by scheduled
and accelerated principal reductions on the Company's Term Loan 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 Transaction and the Recapitalization
Transaction. As a result, debt service represents significant liquidity
requirements for the Company.
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 $98.3 million and the Revolving
Credit Facility, subject to certain borrowing base limitations, of $25.0
million, and foreign working capital lines, subject to certain limitations, of
$6.2 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, 1999, $8.7 million of the Company's $98.3 million Term Loan
Facility is payable in the next 12 months. In addition, the Company had $18.8
million outstanding under the Revolving Credit Facility, and $3.8 million
outstanding under the foreign working capital
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<PAGE> 18
lines. Net availability at September 30, 1999 under the Revolving Credit
Facility, computed by deducting $4.8 million of open letters of credit and
applying applicable borrowing limitations, totaled $1.4 million. Net
availability at September 30, 1999 under foreign working lines totaled $2.4
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 nine months ended September
30, 1999 was 8.4%.
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
($36.5 million outstanding at September 30, 1999), $2.0 million in the remainder
of 1999 and $8.5 million, $11.0 million and $15.0 million of which is payable in
each of 2000, 2001 and 2002 (which has a final maturity date of November 6,
2002), respectively, and (ii) the $65.0 million Tranche B Term Loan Facility
($61.8 million outstanding at September 30, 1999), $0.1 million in the remainder
of 1999 and $0.5 million, $0.5 million, $0.5 million, $24.1 million and $36.1
million of which is payable in each of 2000, 2001, 2002, 2003 and 2004 (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. During the nine months ended September 30, 1999, the Company made a
mandatory prepayment, equal to 75% of the Company's Excess Cash Flow, of $4.2
million.
The Company is actively implementing plans to reduce inventory, improve the
accounts receivable collection experience, limit capital expenditures, and sell
vacant land and other non-productive or non-core assets (see note 10 to the
financial statements). 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 principal payment
requirements, capital expenditure needs, and working capital requirements.
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.
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. Certain
environmental matters are indemnified by Mark IV, the former parent company of
Old EVI. Based upon reliance of this indemnification, 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
Some companies' computer systems used today may be unable to interpret or
process 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 financial reporting, billing, order processing,
purchasing, inventory management and certain manufacturing operations. In
addition, certain manufacturing systems, plant and facilities systems may
contain
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<PAGE> 19
date-related functionality, software or embedded microprocessors that could
malfunction if they are not Year 2000 ready.
Most of the Company's products do not contain date-related functionality,
software or embedded microprocessors and therefore are not subject to Year 2000
issues. The Company believes all its currently-produced products are Year 2000
ready. The Company is completing programs to identify non-Year 2000 ready
products and is developing strategies to address problems, if any, for customers
who own such products.
The Company has completed an internal inventory and assessment of Year 2000
readiness of its computer hardware and software and it's non-information
technology and has in recent years replaced, modified or upgraded more than 80%
of its information systems with Year 2000 ready systems. The remaining upgrades,
changes to and testing of the Company's critical systems were completed in July
1999.
In addition to internal remediation activities, the Company has initiated
communications with key third parties, including suppliers and customers, to
determine the extent to which their systems, their products, or their electronic
data interchange with the Company, are vulnerable to Year 2000 issues. The data
collection process will continue into the fourth quarter of fiscal year 1999
because the Company has not yet received sufficient information from some of
these parties to fully assess the risks relating to non-timely compliance by all
third parties. The Company is in the process of developing contingency plans for
critical systems in the event that the Company or any of its key suppliers or
customers are not Year 2000 ready by the required dates. If the systems of the
Company or its key suppliers are not Year 2000 ready in a timely fashion, the
Company believes that the most likely worst case scenario would include some
temporary disruptions in the Company's acceptance and processing of orders and
billing and in its ability to secure raw materials for production from
suppliers. This could cause a temporary interruption of some materials or
services the Company needs to make its products or process customer orders,
which could result in some delayed shipments to customers, delayed collections
and lost sales and profits for the Company.
The Company believes that the replacement, upgrade and changes to the critical
systems to address Year 2000 issues has required incremental expenditures of
less than $1.0 million in 1999 with minimal expenditures expected in the fourth
quarter of fiscal year 1999. 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 or capitalized as appropriate.
Although the Company believes its critical systems are ready there can be no
assurance that its Year 2000 program will be effective or that estimates about
timing and cost will be accurate. The outcome of the Company's Year 2000 program
is subject to a number of risks and uncertainties, some of which (such as the
availability of qualified personnel and the Year 2000 preparation of third
parties) are beyond its control. Therefore, there can be no assurances that the
Company will not incur material remediation costs beyond the above anticipated
future costs, or that the Company's business, financial condition, or results of
operations will not be significantly impacted if Year 2000 problems with its
systems, or with the products or systems of other parties with whom it does
business, are not resolved in a timely manner.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 2000. 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
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<PAGE> 20
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.
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
exchange and interest rates. The Company does not enter into derivatives or
other financial instruments for trading or speculative purposes. The
counter-parties to these transactions are major financial institutions.
EXCHANGE RATE SENSITIVITY ANALYSIS
The Company enters into forward exchange contracts principally to hedge the
currency fluctuations in transactions denominated in foreign currencies, thereby
limiting the Company's risk that would otherwise result from changes in exchange
rates. During the quarter ended September 30, 1999, the principal transactions
hedged were certain intercompany balances attributed primarily to intercompany
sales. Gains and losses on forward exchange contracts and the offsetting losses
and gains on the hedged transactions are reflected in the condensed consolidated
statements of operations.
At September 30, 1999, the Company had $7.9 million of gross outstanding forward
exchange contracts, with a weighted remaining maturity of 136 days.
At September 30, 1999, the difference between the fair value of all outstanding
contracts, as estimated by the amount required to enter into offsetting
contracts with similar remaining maturities based on quoted prices, and the
contract amounts was immaterial. A 10% fluctuation in exchange rates for these
currencies would change the fair value by approximately $0.8 million. However,
since these contracts hedge foreign currency denominated transactions, any
change in the fair value of the contracts would be offset by changes in the
underlying value of the transactions being hedged.
INTEREST RATE AND DEBT SENSITIVE ANALYSIS
For fixed rate debt, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely, for floating rate debt, interest
rate changes generally do not affect the fair market value but do impact future
earnings and cash flows, assuming other factors are held constant.
At September 30, 1999, the Company had fixed rate debt of $225.0 million and
floating rate debt of $121.0 million. Holding all other variables constant (such
as foreign exchange rates and debt levels), a one percentage point decrease in
interest rates would increase the unrealized fair market value of the $225.0
million fixed rate debt by approximately $8.4 million. The earnings and cash
flow impact for the next twelve months resulting from a one percentage point
increase in interest rates on the $121.0 million floating rate debt would be
approximately $1.2 million, holding all other variables constant.
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PART II. OTHER INFORMATION
ITEM 5 OTHER INFORMATION
On September 29, 1999, Telex Communications, Inc. (the
"Company") obtained a waiver (the "Waiver"), to the Credit
Agreement, dated as of May 6, 1997, as amended by Amendment No.
1, dated as of January 30, 1998 and as amended by Amendment No.
2, dated as of December 23, 1998 (the "Credit Agreement"), among
the Company, the several banks and other financial institutions
from time to time parties thereto (the "Lenders"), Morgan
Stanley Senior Funding, Inc., as documentation agent for the
Lenders, and The Chase Manhattan Bank, as administrative agent
for the Lenders. The Waiver provides that the Lenders waive
compliance with the financial condition covenants contained in
Subsection 8.1(a), Subsection 8.1(b) and Subsection 8.1(c) of
the Credit Agreement for the period from September 30, 1999 to
October 31, 1999.
On October 29, 1999, the Company entered into Amendment No. 3
(the "Amendment") to the Credit Agreement, among the Company,
the Lenders, Morgan Stanley Senior Funding, Inc., as the
documentation agent for the Lenders, and The Chase Manhattan
Bank, as administrative agent for the Lenders. The Amendment
changes certain financial condition covenants applicable for the
periods commencing with the fiscal quarter ending on September
30, 1999 and ending with the fiscal quarter ending on December
31, 2000, changes related definitions, adds a new financial
condition covenant and increases the Applicable Margins for the
Revolving Credit Loans, the Tranche A Term Loans and the Tranche
B Term Loans (as each such term is defined in the Credit
Agreement).
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(a) Waiver, dated as of September 29, 1999, to the Credit
Agreement as amended by Amendment No. 1, dated as of January
30, 1998 and as amended by Amendment No. 2, dated as of
December 23, 1998, among the Company, the Lenders, Morgan
Stanley Senior Funding, Inc., as documentation agent for the
Lenders, and The Chase Manhattan Bank, as administrative agent
for the Lenders
10(b) Amendment No. 3, dated as of October 29, 1999, to the Credit
Agreement as amended by Amendment No. 1, dated as of January
30, 1998 and as amended by Amendment No. 2, dated as of
December 23, 1998, among the Company, the Lenders, Morgan
Stanley Senior Funding, Inc., as documentation agent for the
Lenders, and The Chase Manhattan Bank, as administrative agent
for the Lenders
27 Financial data schedule
(b) Reports on Form 8-K
None.
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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 15, 1999 By: /s/ Ned C. Jackson
---------------------- ------------------------------------
Ned C. Jackson
President and Chief Executive Officer
TELEX COMMUNICATIONS, INC.
Dated: November 15, 1999 By: /s/ Richard J. Pearson
---------------------- -----------------------------------
Richard J. Pearson
Vice President and Chief Financial Officer
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TELEX COMMUNICATIONS, INC.
FORM 10-Q
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
10(a) Waiver, dated as of September 29, 1999, to the Credit
Agreement as amended by Amendment No. 1, dated as of January
30, 1998 and as amended by Amendment No. 2, dated as of
December 23, 1998, among the Company, the Lenders, Morgan
Stanley Senior Funding, Inc., as documentation agent for the
Lenders, and The Chase Manhattan Bank, as administrative agent
for the Lenders
10(b) Amendment No. 3, dated as of October 29, 1999, to the Credit
Agreement as amended by Amendment No. 1, dated as of January
30, 1998 and as amended by Amendment No. 2, dated as of
December 23, 1998, among the Company, the Lenders, Morgan
Stanley Senior Funding, Inc., as documentation agent for the
Lenders, and The Chase Manhattan Bank, as administrative agent
for the Lenders
27 Financial data schedule
24
<PAGE> 1
Exhibit 10(a)
WAIVER
WAIVER, dated as of September 29, 1999 (this "Waiver"), to the
Credit Agreement, dated as of May 6, 1997, as amended by Amendment No. 1, dated
as of January 30, 1998 and as amended by Amendment No. 2, dated as of December
23, 1998 ( as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among TELEX COMMUNICATIONS, INC., a Delaware corporation
("Telex" or the "Borrower"), the several banks and other financial institutions
from time to time parties thereto (the "Lenders"), MORGAN STANLEY SENIOR
FUNDING, INC., as documentation agent for the Lenders (in such capacity, the
"Documentation Agent"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Administrative
Agent and the Lenders waive certain covenants contained in the Credit Agreement;
and
WHEREAS, the Administrative Agent and the Lenders are willing
to agree to the requested waiver on the terms and conditions contained herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
2. Waiver of Subsection 8.1(a). The Lenders hereby waive
compliance with the covenant in Subsection 8.1(a) for the period from September
30, 1999 to October 31, 1999.
3. Waiver of Subsection 8.1(b). The Lenders hereby waive
compliance with the covenant in Subsection 8.1(b) for the period from September
30, 1999 to October 31, 1999.
4. Waiver of Subsection 8.1(c). The Lenders hereby waive
compliance with the covenant in Subsection 8.1(c) for the period from September
30, 1999 to October 31, 1999.
5. Conditions to Effectiveness. This Waiver shall become
effective on the date (the "Waiver Effective Date") on which Telex, the
Administrative Agent and the Required Lenders shall have executed and delivered
to the Administrative Agent this Waiver.
6. General.
(a) Representation and Warranties. In order to induce the
Administrative Agent and the Lenders to enter into this Waiver, the Borrower
hereby represents and warrants to the Administrative Agent and the Lenders that
the representations and warranties of the Borrower contained in the Loan
Documents are true and correct in all material respects on and as of the Waiver
Effective Date (after giving effect hereto) as if made on and as of the Waiver
Effective Date (except where such representations and warranties expressly
relate to an earlier date in which case such representations and warranties were
true and correct in all material respects as of such earlier date); provided
that all references to the "Credit Agreement" in any Loan Document shall be and
are deemed to mean the Credit Agreement as amended hereby.
<PAGE> 2
Additionally, the Borrower represents and warrants that GSCP has consented to
not accept any payment in cash for its management fee (as more fully described
in the agreement between Telex and GSCP for the rendering of management
consulting or financial advisory services described in Section 8.10(ii) of the
Credit Agreement) during the period covered by this Waiver and the Borrower
agrees not to pay such management fee during such period; it being understood
and agreed that such management fee may continue to accrue during such period in
accordance with the terms of such agreement.
(b) Affirmation of Guarantees. Each Guarantor party hereto
hereby consents to the execution, delivery and effectiveness of this Waiver and
reaffirms its obligations under the Guarantee and Collateral Agreement.
(c) Payment of Expenses. The Borrower agrees to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with this Waiver, any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements for a
single law firm of counsel to the Administrative Agent.
(d) Counterparts. This Waiver may be executed in two or more
counterparts (including by facsimile transmission), each of which shall
constitute an original, but all of which when taken together shall constitute
but one instrument.
(e) Headings. Section headings used in this Waiver are for
convenience of reference only, are not part of this Waiver and are not to affect
the construction of, or to be taken into consideration in interpreting, this
Waiver.
(f) Continuing Effect of Loan Documents. This Waiver shall not
constitute an amendment or waiver of any other provision of the Credit Agreement
not expressly referred to herein and shall not be construed as a waiver or
consent to any further or future action on the part of the Borrower that would
require a waiver or consent of the Required Lenders or Lenders, as the case may
be, or the Administrative Agent. Except as expressly amended, modified and
supplemented hereby, the provisions of the Credit Agreement and the other Loan
Documents are and shall remain in full force and effect.
(G) GOVERNING LAW. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES UNDER THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
to be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
TELEX COMMUNICATIONS, INC.
By:
---------------------------------
Title:
TELEX COMMUNICATIONS GROUP, INC.
By:
---------------------------------
Title:
TELEX COMMUNICATIONS INTERNATIONAL, LTD.
By:
---------------------------------
Title:
<PAGE> 4
THE CHASE MANHATTAN BANK,
as Administrative Agent and as a Lender
By:
---------------------------------
Title:
MORGAN STANLEY SENIOR FUNDING, INC.
as Documentation Agent and as a Lender
By:
---------------------------------
Title:
BANKBOSTON, N.A.
By:
---------------------------------
Title:
THE BANK OF NEW YORK
By:
---------------------------------
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
---------------------------------
Title:
HELLER FINANCIAL, INC.
By:
---------------------------------
Title:
<PAGE> 5
THE BANK OF NOVA SCOTIA
By:
---------------------------------
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By:
---------------------------------
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By:
---------------------------------
Title:
THE ING CAPITAL SENIOR SECURED HIGH
INCOME FUND, L.P.
BY: ING CAPITAL ADVISORS, INC., as
Investment Advisor
By:
---------------------------------
Title:
MORGAN STANLEY DEAN WITTER
PRIME INCOME TRUST
By:
---------------------------------
Title:
CRESCENT/MACH I PARTNERS, L.P.
BY: TCW ASSET MANAGEMENT COMPANY
ITS INVESTMENT MANAGER
BY:
---------------------------------
Title:
<PAGE> 6
DEEPROCK & COMPANY
By: EATON VANCE MANAGEMENT,
AS INVESTMENT ADVISOR
By:
---------------------------------
Title:
KZH-ING-1 LLC (formerly known as KZH HOLDING
CORPORATION II)
By:
---------------------------------
Title:
CRESCENT MACH I
By:
---------------------------------
Title:
THE TRAVELERS INSURANCE COMPANY
By:
---------------------------------
Title:
KZH PAMCO LLC
By:
---------------------------------
Title:
INDOSUEZ CAPITAL FUNDING III, LIMITED
BY: INDOSUEZ CAPITAL, AS PORTFOLIO ADVISOR
By:
---------------------------------
Title:
<PAGE> 7
PAMCO CAYMAN LTD.
BY: HIGHLAND CAPITAL MANAGEMENT L.P.
AS COLLATERAL MANAGER
By:
---------------------------------
Title:
KZH-CRESCENT LLC
By:
---------------------------------
Title:
KZH-SOLEIL LLC
By:
---------------------------------
Title:
SENIOR DEBT PORTFOLIO
By: BOSTON MANAGEMENT &
RESEARCH, AS INVESTMENT ADVISOR
By:
---------------------------------
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT L.P.
AS COLLATERAL MANAGER
By:
---------------------------------
Title:
<PAGE> 8
NATEXIS BANQUE BFCE
By:
---------------------------------
Title:
PAM CAPITAL FUNDING LP
BY: HIGHLAND CAPITAL MANAGEMENT L.P.
AS COLLATERAL MANAGER
By:
---------------------------------
Title:
<PAGE> 1
EXHIBIT 10(b)
AMENDMENT NO. 3
AMENDMENT NO. 3, dated as of October 29, 1999 (this
"Amendment"), to the Credit Agreement, dated as of May 6, 1997, as amended by
Amendment No. 1, dated as of January 30, 1998 and as amended by Amendment No. 2,
dated as of December 23, 1998 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among TELEX COMMUNICATIONS, INC., a
Delaware corporation ("Telex" or the "Borrower"), the several banks and other
financial institutions from time to time parties thereto (the "Lenders"), MORGAN
STANLEY SENIOR FUNDING, INC., as documentation agent for the Lenders (in such
capacity, the "Documentation Agent"), and THE CHASE MANHATTAN BANK, a New York
banking corporation, as administrative agent for the Lenders (in such capacity,
the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Administrative
Agent and the Lenders amend certain definitions and covenants contained in the
Credit Agreement; and
WHEREAS, the Administrative Agent and the Lenders are willing
to agree to the requested amendments on the terms and conditions contained
herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Defined Terms. Terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
2. Amendment to Subsection 1.1. Subsection 1.1 of the
Credit Agreement is hereby amended by (a) deleting therefrom the definition of
"Applicable Margin" and inserting in lieu thereof the following:
"Applicable Margin": The Applicable Margin for Tranche B Term
Loans shall equal (i) 3.75% per annum with respect to
Eurodollar Loans and (ii) 2.75% per annum with
respect to ABR Loans. The Applicable Margin for
Revolving Credit Loans and Tranche A Term Loans will
be adjusted on each Adjustment Date to the applicable
rate per annum set forth under the heading "ABR
Applicable Margin" or "Eurodollar Applicable Margin"
on Schedule II which corresponds to the achievement
of certain performance criteria determined from the
financial statements and compliance certificate
relating to the end of the fiscal quarter immediately
preceding such Adjustment Date; provided that in the
event that the financial statements required to be
delivered pursuant to subsection 7.1(a) or 7.1(b), as
applicable, and the related compliance certificate
required to be delivered pursuant to subsection
7.2(b), are not delivered when due, then
(a) if such financial statements and compliance certificate
are delivered after the date such financial statements and compliance
certificate were required to be delivered (without giving effect to any
applicable cure period) and the Applicable Margin increases from that
previously in effect as a result of the delivery of such financial
statements, then the Applicable Margin in respect of the Revolving
Credit Loans and Tranche A Term Loans during the period from the date
upon which such financial
<PAGE> 2
statements were required to be delivered (without giving effect to any
applicable cure period) until the date upon which they actually are
delivered shall, except as otherwise provided in clause (c) below, be
the Applicable Margin as so increased;
(b) if such financial statements and compliance certificate
are delivered after the date such financial statements and compliance
certificate were required to be delivered and the Applicable Margin
decreases from that previously in effect as a result of the delivery of
such financial statements, then such decrease in the Applicable Margin
shall not become applicable until the date upon which the financial
statements and certificate actually are delivered; and
(c) if such financial statements and compliance certificate
are not delivered prior to the expiration of the applicable cure
period, then, effective upon such expiration, for the period from the
date upon which such financial statements and compliance certificate
were required to be delivered (after the expiration of the applicable
cure period) until two Business Days following the date upon which they
actually are delivered, the Applicable Margin in respect of the Loans
shall be (i) 2.25% per annum with respect to Revolving Credit Loans and
Tranche A Term Loans which are ABR Loans and (ii) 3.25% per annum with
respect to Revolving Credit Loans and Tranche A Term Loans which are
Eurodollar Loans (it being understood that the foregoing shall not
limit the rights of the Administrative Agent and the Lenders set forth
in Section 9).
(b) deleting therefrom the definition of "Interest Payment Date" and inserting
in lieu thereof the following:
"Interest Payment Date": (a) for the period prior to December
31, 1999 (i) as to any ABR Loan, the last day of each February, May,
August and November to occur while such Loan is outstanding and, if
such ABR Loan is a Term Loan, the date of each payment of principal
thereof, (ii) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period, (iii) as to
any Eurodollar Loan having an Interest Period longer than three months,
(x) each day which is three months, or a whole multiple thereof, after
the first day of such Interest Period and (y) the last day of such
Interest Period or (b) for the period commencing on December 31, 1999
(i) as to any ABR Loan, the last Business Day of each month to occur
while such Loan is outstanding and (ii) as to any Eurodollar Loan (x)
the last Business Day of each month to occur while such Loan is
outstanding and (y) the last day of such Interest Period.
and (c) inserting the following new definitions:
"Consolidated Funded Senior Indebtedness" at the date of
determination thereof, all Indebtedness of the Borrower and its
consolidated Subsidiaries (other than (i) the Senior Subordinated Notes
and (ii) any Indebtedness of Foreign Subsidiaries for working capital
purposes or pursuant to Section 8.6(c)) which by its terms matures more
than one year after the date of calculation, and any such Indebtedness
maturing within one year from such date which is renewable or
extendable at the option of the obligor to a date more than one year
from such date, including, in any event, the Term Loans, the Revolving
Credit Loans and the Swing Line Loans, in each case determined on a
consolidated basis in accordance with GAAP.
"Senior Leverage Ratio": at any date of determination, the
ratio of (a) Consolidated Funded Senior Indebtedness at such date to
(b) Consolidated EBITDA for the period of one year ending on such
date."
<PAGE> 3
3. Amendment to Section 7.2. Section 7.2 of the Credit
Agreement is hereby amended by (a) deleting the word "and" at the end of
paragraph (e) thereof, (b) deleting the period at the end of paragraph (f)
thereof and inserting in lieu thereof "; and" and (c) inserting at the end of
Section 7.2 the following new paragraph:
(g) As soon as available after December 31, 1999, but in any
event not later than 45 days after December 31, 1999, a certificate
signed by a Responsible Officer of the Borrower (i) stating that, to
the best of such Responsible Officer's knowledge (based on unaudited
financial statements for the period then ended, it being understood
that the audited financial statements for the year then ended may
reflect adjustments to such unaudited financial statements), the
Borrower and its Subsidiaries during the fiscal quarter of the Borrower
ending December 31, 1999 has observed or performed all of its covenants
and other agreements, and satisfied every condition, contained in this
Agreement, any Notes or the other Loan Documents to which it is a party
to be observed, performed or satisfied by it, and that such Responsible
Officer has obtained no knowledge of any Default or Event of Default,
except, in each case, as specified in such certificate, and (ii)
setting forth the calculations required to determine (A) compliance
with all covenants set forth in subsection 8.1, and (B) compliance with
the covenant set forth in subsection 8.8.
4. Amendments to Subsection 8.1. Subsection 8.1 of the Credit
Agreement is hereby amended by (a) deleting the portion of the table set forth
at the end of paragraph (a) applicable to following periods and substituting in
place thereof the following:
September 30, 1999 $43,000,000
December 31, 1999 $46,000,000
March 31, 2000 $49,000,000
June 30, 2000 $50,000,000
September 30, 2000 $52,000,000
December 31, 2000 $54,000,000
(b) deleting the portion of the table set forth at the end of paragraph (b)
applicable to following periods and substituting in place thereof the following:
September 30, 1999 0.75 to 1
December 31, 1999 0.80 to 1
March 31, 2000 0.85 to 1
June 30, 2000 0.85 to 1
September 30, 2000 0.90 to 1
December 31, 2000 0.90 to 1
(c) deleting the portion of the table set forth at the end of paragraph (c)
applicable to following periods and substituting in place thereof the following:
September 30, 1999 8.00 to 1
December 31, 1999 7.75 to 1
March 31, 2000 7.25 to 1
June 30, 2000 7.00 to 1
September 30, 2000 6.75 to 1
December 31, 2000 6.50 to 1
(z) inserting the following paragraph (d):
(d) Maintenance of Senior Leverage Ratio. Permit, for any
period of four consecutive fiscal quarters of the Borrower ending on
the last day of any fiscal quarter of the Borrower ending on or after
September 30, 1999, the Senior Leverage Ratio of
<PAGE> 4
the Borrower on such date to be greater than 2.95 to 1.
5. Amendments to Pricing Grid Schedule II to the Credit
Agreement is hereby amended by deleting the tables included therein and
inserting in lieu thereof the following table:
Applicable Margins and Commitment Fees:
<TABLE>
<CAPTION>
for Revolving Credit Loans, Tranche A Term Loans and Commitment Fees
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Leverage Eurodollar Applicable ABR
Ratio Margin Applicable Margin Commitment Fee
- ------------------------------ ---------------------------- --------------------------- ----------------------------
> 5.50 to 1 3.25% 2.25% 0.500%
-
- ------------------------------ ---------------------------- --------------------------- ----------------------------
> 5.00 to 1 3.00% 2.00% 0.500%
-
- ------------------------------ ---------------------------- --------------------------- ---------------------------
> 4.50 to 1 2.75% 1.75% 0.500%
-
- ------------------------------ ---------------------------- --------------------------- ----------------------------
> 4.00 to 1 2.50% 1.50% 0.375%
-
- ------------------------------ ---------------------------- --------------------------- ----------------------------
> 3.50 to 1 2.25% 1.25% 0.375%
-
- ------------------------------ ---------------------------- --------------------------- ----------------------------
< 3.50 to 1 2.00% 1.00% 0.375%
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
Interest payable on Loans after the Amendment Effective Date
(as defined below) but for any period, or portion of any period, prior to the
Amendment Effective Date shall be paid based upon said Schedule II as in effect
prior to the Amendment Effective Date.
6. Management Fee. The Borrower represents and warrants that
GSCP has consented to not accept, at any time when for the most recently
completed period of four fiscal quarters of the Borrower, the Consolidated Fixed
Charge Coverage Ratio was less than 1:00 to 1 (after giving pro forma effect to
any borrowing for the payment of such management fees), any payment in cash for
its management fee (as more fully described in the agreement between Telex and
GSCP for the rendering of management consulting or financial advisory services
described in Section 8.10(ii) of the Credit Agreement); and the Borrower agrees
not to pay such management fee in cash at any such time; it being understood and
agreed that such management fee may be paid retroactively for all periods during
which such payments were suspended if and when for the most recently completed
period of four fiscal quarters of the Borrower, the Consolidated Fixed Charge
Coverage Ratio was greater than 1:00 to 1 (after giving pro forma effect to any
borrowing for such payment).
7. Conditions to Effectiveness. This Amendment shall become
effective on the date (the "Amendment Effective Date") on which all of the
following conditions have been satisfied or waived:
(a) Execution and Delivery. Telex, the Administrative Agent
and the Required Lenders shall have executed and delivered to the
Administrative Agent this Amendment.
(b) Amendment Fee. The Borrower has paid an amendment fee of
37.5 basis points on the sum of the Revolving Credit Commitment and
outstanding Term Loans as in effect on the Amendment Effective Date to
each Lender consenting to the Amendment, such amendment fee to be
payable to the Administrative Agent for the account of such Lender, on
the Amendment Effective Date.
<PAGE> 5
8. General.
(a) Representation and Warranties. In order to induce the
Administrative Agent and the Lenders to enter into this Amendment, the Borrower
hereby represents and warrants to the Administrative Agent and the Lenders that
the representations and warranties of the Borrower contained in the Loan
Documents are true and correct in all material respects on and as of the
Amendment Effective Date (after giving effect hereto) as if made on and as of
the Amendment Effective Date (except where such representations and warranties
expressly relate to an earlier date in which case such representations and
warranties were true and correct in all material respects as of such earlier
date); provided that all references to the "Credit Agreement" in any Loan
Document shall be and are deemed to mean the Credit Agreement as amended hereby.
(b) Affirmation of Guarantees. Each Guarantor party hereto
hereby consents to the execution, delivery and effectiveness of this Amendment
and reaffirms its obligations under the Guarantee and Collateral Agreement.
(c) Payment of Expenses. The Borrower agrees to pay or
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with this Amendment, any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Administrative Agent.
(d) Counterparts. This Amendment may be executed in two or
more counterparts (including by facsimile transmission), each of which shall
constitute an original, but all of which when taken together shall constitute
but one instrument.
(e) Headings. Section headings used in this Amendment are for
convenience of reference only, are not part of this Amendment and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Amendment.
(f) Continuing Effect of Loan Documents. This Amendment shall
not constitute an amendment or waiver of any other provision of the Credit
Agreement not expressly referred to herein and shall not be construed as a
waiver or consent to any further or future action on the part of the Borrower
that would require a waiver or consent of the Required Lenders or Lenders, as
the case may be, or the Administrative Agent. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect. The
execution and delivery of this Amendment by any Lender shall be binding upon
each of its successors and assigns (including Transferees of its commitments and
Loans in whole or in part prior to effectiveness hereof) and binding in respect
of its Revolving Credit Commitments and Term Loans including any acquired
subsequent to its execution and delivery hereof and prior to the effectiveness
hereof.
(G) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
TELEX COMMUNICATIONS, INC.
By:
----------------------------
Title:
TELEX COMMUNICATIONS GROUP, INC.
By:
----------------------------
Title:
TELEX COMMUNICATIONS
INTERNATIONAL, LTD.
By:
----------------------------
Title:
<PAGE> 7
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a
Lender
By:
-----------------------------
Title:
MORGAN STANLEY SENIOR FUNDING,
INC. as Documentation Agent and
as a Lender
By:
----------------------------
Title:
BANKBOSTON, N.A.
By:
----------------------------
Title:
THE BANK OF NEW YORK
By:
----------------------------
Title:
U.S. BANK NATIONAL ASSOCIATION
By:
----------------------------
Title:
HELLER FINANCIAL, INC.
By:
----------------------------
Title:
<PAGE> 8
THE BANK OF NOVA SCOTIA
By:
----------------------------
Title:
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:
----------------------------
Title:
MERRILL LYNCH PRIME RATE
PORTFOLIO
By: Merrill Lynch Asset
Management, L.P., as Investment
Advisor
By:
----------------------------
Title:
THE ING CAPITAL SENIOR SECURED
HIGH INCOME FUND, L.P.
BY: ING CAPITAL ADVISORS, INC.,
as Investment Advisor
By:
----------------------------
Title:
MORGAN STANLEY DEAN WITTER PRIME
INCOME TRUST
By:
----------------------------
Title:
<PAGE> 9
SENIOR DEBT PORTFOLIO
BY: BOSTON MANAGEMENT &
RESEARCH, AS INVESTMENT
ADVISOR
BY:
--------------------------
TITLE:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT
L.P.
AS COLLATERAL MANAGER
BY:
--------------------------
TITLE:
NATEXIS BANQUE BFCE
BY:
--------------------------
TITLE:
PAM CAPITAL FUNDING LP
BY: HIGHLAND CAPITAL MANAGEMENT
L.P.
AS COLLATERAL MANAGER
BY:
--------------------------
TITLE:
<PAGE> 10
CRESCENT/MACH I PARTNERS, L.P.
By: TCW ASSET MANAGEMENT COMPANY
ITS INVESTMENT MANAGER
By:
----------------------------
Title:
DEEPROCK & COMPANY
By: EATON VANCE MANAGEMENT, AS
INVESTMENT ADVISOR
By:
-----------------------------
Title:
KZH-ING-1 LLC (formerly known as
KZH HOLDING CORPORATION II)
By:
----------------------------
Title:
CRESCENT MACH I
By:
----------------------------
Title:
THE TRAVELERS INSURANCE COMPANY
By:
----------------------------
Title:
<PAGE> 11
KZH PAMCO LLC
By:
----------------------------
Title:
INDOSUEZ CAPITAL FUNDING III,
LIMITED
BY: INDOSUEZ CAPITAL, AS
PORTFOLIO ADVISOR
By:
----------------------------
Title:
PAMCO CAYMAN LTD.
BY: HIGHLAND CAPITAL MANAGEMENT
L.P.
AS COLLATERAL MANAGER
By:
----------------------------
Title:
KZH-CRESCENT LLC
By:
----------------------------
Title:
KZH-SOLEIL LLC
By:
----------------------------
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,600
<SECURITIES> 0
<RECEIVABLES> 68,809
<ALLOWANCES> (2,545)
<INVENTORY> 73,106
<CURRENT-ASSETS> 154,159
<PP&E> 48,007
<DEPRECIATION> 0
<TOTAL-ASSETS> 288,210
<CURRENT-LIABILITIES> 100,395
<BONDS> 314,578
0
0
<COMMON> 3,121
<OTHER-SE> (136,415)
<TOTAL-LIABILITY-AND-EQUITY> 288,210
<SALES> 88,411
<TOTAL-REVENUES> 88,411
<CGS> 55,781
<TOTAL-COSTS> 25,789
<OTHER-EXPENSES> (1,049)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,213
<INCOME-PRETAX> (1,323)
<INCOME-TAX> 183
<INCOME-CONTINUING> (1,506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,506)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
