SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 33-93464
DICTAPHONE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3838908
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3191 Broadbridge Avenue
Stratford, CT 06497
(203) 381-7000
(Address of principal executive offices,
including zip code, and telephone
number, including area code)
--------------------------------------------
Former name, former address and former fiscal year,
if changed since last report)
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 ____
Number of Shares of Common Stock, Par Value $.01, outstanding as of
November 8, 1996: 9,480,000
The Common Stock of the registrant is not publicly traded.
<PAGE>
DICTAPHONE CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
DICTAPHONE CORPORATION (Successor Company)
Condensed Consolidated Statements of Operations for
the Three and Nine Months Ended September 30, 1996
(Unaudited) 2
Condensed Consolidated Statement of Operations for
the Seven Weeks Ended September 30, 1995 (Unaudited) 3
Condensed Consolidated Balance Sheets as of September
30, 1996 (Unaudited) and December 31, 1995 4
Condensed Consolidated Statement of Cash Flow for the
Nine Months Ended September 30, 1996 (Unaudited) 5
Condensed Consolidated Statement of Cash Flow for the
Seven Weeks Ended September 30, 1995 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7 - 17
DICTAPHONE CORPORATION (Predecessor Company)
Combined Statements of Income for the Six and Thirty-two
Weeks Ended August 11, 1995 (Unaudited) 18
Combined Statement of Cash Flow for the Thirty-two Weeks
Ended August 11, 1995 (Unaudited) 19
Notes to Combined Financial Statements (Unaudited) 20 - 22
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23 - 28
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 29
ITEM 6. Exhibits and Reports on Form 8-K 29
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amount)
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1996 30, 1996
------------ -----------
Revenues:
<S> <C> <C>
Sales and rentals ........................ $ 60,301 $180,526
Support services ......................... 23,146 68,632
-------- --------
Total revenue .......................... 83,447 249,158
-------- --------
Costs and expenses:
Cost of sales and rentals ................... 31,316 96,510
Selling, service and administrative ......... 40,859 121,325
Amortization of intangibles ................. 10,028 31,942
Research and development .................... 3,839 11,422
--------- ---------
Operating loss ................................... (2,595) (12,041)
Interest expense ................................. 10,910 32,369
Other (income) expense - net ..................... (203) (267)
--------- ---------
Loss before income taxes ......................... (13,302) (44,143)
Income tax benefit ............................... 4,797 16,318
--------- ---------
Net loss .................................... (8,505) (27,825)
Stock dividends on PIK Preferred Stock ...... 593 1,725
--------- ---------
Net loss applicable to Common Stock ......... $ (9,098) $ (29,550)
========= =========
Net loss per share of Common Stock .......... $ (0.96) $ (3.12)
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amount)
<CAPTION>
SEVEN WEEKS
ENDED
SEPTEMBER
30, 1995
-----------
Revenues:
<S> <C>
Sales and rentals ....................................... $39,103
Support services ........................................ 13,118
-------
Total revenue ....................................... 52,221
-------
Costs and expenses:
Cost of sales and rentals ............................... 23,755
Selling, service and administrative ..................... 22,587
Amortization of intangibles ............................. 5,999
Research and development ................................ 1,133
------
Operating loss ............................................... (1,253)
Interest expense ............................................. 5,787
------
Loss before income taxes ..................................... (7,040)
Income tax benefit ........................................... 2,523
------
Net loss ................................................ (4,517)
Stock dividends on PIK Preferred Stock .................. 290
--------
Net loss applicable to Common Stock ..................... $ (4,807)
========
Net loss per share of Common Stock ...................... $ (0.51)
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash ....................................................................................... $ 14,279 $ 5,087
Accounts receivable, less allowances of $1,462 and $1,508, respectively .................... 57,256 55,357
Inventories ................................................................................ 66,341 60,376
Other current assets ....................................................................... 9,152 10,898
--------- ---------
Total current assets .................................................................. 147,028 131,718
Property, plant and equipment, net ............................................................. 45,690 39,175
Deferred financing costs, net of accumulated amortization of $900
and $5,124, respectively ...................................................................... 18,799 15,308
Intangibles, net of accumulated amortization of $16,968 and $48,912, respectively .............. 307,964 279,616
Prepaid repurchases, leased equipment .......................................................... 7,279 5,596
Other assets ................................................................................... 23,930 44,833
--------- ---------
Total assets .......................................................................... $ 550,690 $ 516,246
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................... $ 7,932 $ 7,564
Interest payable ........................................................................... 10,922 4,552
Accrued liabilities ........................................................................ 42,640 29,260
Advance billings ........................................................................... 34,466 33,460
Current portion of long-term debt .......................................................... 7,750 11,452
--------- ---------
Total current liabilities ............................................................. 103,710 86,288
Long-term debt ................................................................................. 342,250 352,583
Other liabilities .............................................................................. 10,227 11,028
--------- ---------
Total liabilities ..................................................................... $ 456,187 $ 449,899
--------- ---------
Commitments and contingencies (Note 6)
Stockholders' equity:
Cumulative preferred stock ($.01 par value; 10,000,000 shares authorized;
1,500,000 shares of 14% PIK perpetual preferred stock
issued and outstanding, liquidation value $17,540) ....................................... 15,815 17,540
Common stock ($.01 par value; 20,000,000 shares authorized;
9,480,000 shares outstanding) ............................................................ 95 95
Notes receivable from stockholders ......................................................... (1,160) (1,077)
Additional paid-in capital ................................................................. 94,905 94,905
Treasury stock, at cost .................................................................... (100) (170)
Accumulated deficit ........................................................................ (14,689) (44,239)
Accumulated translation adjustment ......................................................... (363) (707)
--------- ---------
Total stockholders' equity ............................................................ 94,503 66,347
--------- ---------
Total liabilities and stockholders' equity ............................................ $ 550,690 $ 516,246
========= =========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
Operating activities:
<S> <C>
Net loss ..................................................... $(27,825)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization (including $5,079
of nonrecurring charge) ................................... 55,116
Provision for deferred income taxes ....................... (17,018)
Changes in assets and liabilities:
Accounts receivable ................................... 1,666
Inventories ........................................... 816
Other current assets .................................. (1,723)
Accounts payable and accrued liabilities .............. (11,907)
Advance billings ...................................... (1,010)
Other assets and other ................................ (8,004)
--------
Net cash used in operating activities .............. (9,889)
--------
Investing activities:
Payment for acquisition ...................................... (8,000)
Net investment in fixed assets ............................... (4,526)
--------
Net cash used in investing activities ................. (12,526)
--------
Financing activities:
Repayment under term loan facility ........................... (5,250)
Borrowings under revolving credit facility ................... 30,500
Repayment under revolving credit facility .................... (12,500)
Other ........................................................ 489
--------
Net cash provided by financing activities ................. 13,239
--------
Effect of exchange rate changes on cash ......................... (16)
--------
Decrease in cash ................................................ (9,192)
Cash, beginning of period ....................................... 14,279
--------
Cash, end of period ............................................. $ 5,087
========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ................................................... $ 34,467
========
Income taxes paid ............................................... $ 1,289
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
<CAPTION>
SEVEN WEEKS
ENDED
SEPTEMBER 30,
1995
-------------
Operating activities:
<S> <C>
Net loss .................................................... $ (4,517)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization (including $3,904
of nonrecurring charge) .................................. 13,592
Provision for deferred income taxes ...................... (2,886)
Changes in assets and liabilities:
Accounts receivable .................................. (7,357)
Inventories .......................................... 3,700
Other current assets ................................. 482
Accounts payable and accrued liabilities ............. 11,526
Advance billings ..................................... (3,161)
Other assets and other ............................... (2,337)
---------
Net cash used in operating activities ............. 9,042
---------
Investing activities:
Payment for acquisition ..................................... (450,000)
Net investment in fixed assets .............................. (545)
---------
Net cash used in investing activities .................... (450,545)
---------
Financing activities:
Net proceeds from sale of senior subordinated notes ......... 194,000
Borrowings under term loan facility ......................... 150,000
Proceeds from sale of common stock .......................... 95,000
Proceeds from sale of preferred stock ....................... 15,000
Borrowings under revolving credit facility .................. 15,000
Payment of deferred financing costs ......................... (15,917)
Repayment of management loans ............................... 53
---------
Net cash provided by financing activities ................ 453,136
---------
Effect of exchange rate changes on cash ........................ (56)
---------
Increase in cash ............................................... 11,577
Cash, beginning of period ...................................... 2,463
---------
Cash, end of period ............................................ $ 14,040
=========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid .................................................. $ 268
=========
Income taxes paid .............................................. $ --
=========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands, except share amounts)
1. THE ACQUISITION
On April 25, 1995, Dictaphone Corporation (Successor Company) (the
"Company") entered into a Stock and Asset Purchase Agreement, as amended
August 11, 1995 (the "Acquisition Agreement") with Pitney Bowes Inc.
("Pitney Bowes") for the purpose of acquiring (the "Acquisition")
Dictaphone Corporation, the U.S. Dictaphone Subsidiary of Pitney Bowes
("Dictaphone U.S. (Predecessor Company)") and certain foreign affiliates
("Dictaphone Non-U.S. (Predecessor Company)") as set forth in the
Acquisition Agreement (collectively, "Dictaphone Corporation (Predecessor
Company)" or the "Predecessor Company"). On August 11, 1995, the Company
acquired the Predecessor Company for $462.2 million, including certain
post-closing adjustments as defined in the Acquisition Agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The capital structure and accounting basis
of the assets and liabilities of the Company as of August 12, 1995 and
thereafter differ from those of the Predecessor Company in prior periods
as a result of the Acquisition. The Acquisition is being accounted for
under the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16, "Accounting for Business Combinations."
The total purchase price has been allocated to tangible and intangible
assets and liabilities of the Company based on estimates of their
respective fair values. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The condensed consolidated financial statements of the Company are
unaudited, as of and for the three and nine month periods ended September
30, 1996, and the seven weeks ended September 30, 1995, but in the
opinion of management contain all adjustments which are of a normal and
recurring nature necessary to present fairly the financial position and
results of operations and cash flows for the periods presented.
COSTS AND EXPENSES. Operating expenses of field sales and service
offices are included in selling, service and administrative expenses
because no meaningful allocation of such expenses to cost of sales or
support services is practicable.
LOSS PER SHARE. The weighted average number of shares of common
stock outstanding used in the computation of loss per share for the three
and nine month periods ended September 30, 1996 was 9,480,000.
<PAGE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Raw materials and work in process .............. $18,437 $18,530
Supplies and service parts ..................... 19,249 18,674
Finished products .............................. 28,655 23,172
------- -------
Total inventories .............................. $66,341 $60,376
======= =======
</TABLE>
4. INTANGIBLES
The following summarizes intangible assets, net of accumulated
amortization of $16,968 and $48,912 at December 31, 1995 and September
30, 1996, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Goodwill ................................. $140,006 $140,067
Tradenames ............................... 77,104 75,644
Service contracts ........................ 34,499 21,742
Non-compete agreement .................... 47,202 34,498
Patents .................................. 9,153 7,665
-------- --------
$307,964 $279,616
======== ========
</TABLE>
5. INCOME TAXES
The benefit for income taxes for the three and nine month periods
ended September 30, 1996 is $4,797 and $16,318, respectively.
The Company has recorded a deferred tax asset of $38.6 million included in
other assets reflecting the benefit of net operating loss carryforwards and
various book tax temporary differences. The net operating loss
carryforwards for federal income tax purposes as of September 30, 1996 is
approximately $35.3 million which will expire beginning in the year 2010.
Realization is dependent on generating sufficient taxable income prior to
expiration of the net operating loss carryforwards. Although realization is
not assured, management believes it is more likely than not that all of the
deferred tax asset will be realized. Accordingly, no valuation allowance
has been established as of September 30, 1996. The amount of the deferred
tax asset considered realizable could be reduced if estimates of future
taxable income during the net operating loss carryforward period are
reduced.
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
On February 14, 1995, Pitney Bowes filed a complaint against
Sudbury Systems, Inc. ("Sudbury") in the United States District Court for
the District of Connecticut alleging intentional and wrongful
interference with Pitney Bowes's plans to sell the Company. The complaint
seeks damages and a declaratory judgment relating to the validity of
Sudbury's patent and the alleged infringement thereof by the Company.
Sudbury responded by answering the complaint and filing a third-party
complaint against the Company alleging patent infringement and seeking
preliminary and permanent injunctive relief and treble damages. The
third-party complaint filed by Sudbury did not quantify the amount of
damages sought. The litigation is in the discovery stage and the Company
cannot currently make a reasonable estimate of the amount of damages that
will be sought by Sudbury. Management believes the Company has
meritorious defenses to the claims against it. Consequently, the Company
has not provided for any loss exposure in connection with this complaint.
Additionally, regardless of the outcome of this litigation, Pitney Bowes
has agreed to defend this action and to indemnify the Company for any
liabilities arising from such litigation.
On June 23, 1995, a complaint was filed in the United States
District Court for the Northern District of Illinois by Failsafe Disk
Company ("Failsafe") against the Company. The complaint alleges that the
Company violated Sections 1 and 2 of the Sherman Antitrust Act (the
"Sherman Act") by preventing Failsafe from selling 10 through 60 channel
recording tapes which, according to the complaint, are equal in quality
to and lower in price than 10 through 60 channel tapes sold by the
Company and others. On July 5, 1995, the complaint was served upon the
Company. The complaint seeks damages of $19.2 million, subject to being
trebled in accordance with the provisions of the Sherman Act, together
with Failsafe's costs and expenses, including reasonable attorneys' fees.
Certain preliminary discovery activities took place in late 1995 and
early 1996. The Company does not believe that it has engaged in any
violations of the Sherman Act and intends to vigorously contest this
litigation. Although it is not possible to predict the outcome of any
litigation with any assurance, based on allegations stated in the
complaint, discovery proceedings to date and preliminary settlement
discussions, the Company does not believe this action will have a
material adverse effect on the Company's consolidated financial condition
or results of operations.
The Company is subject to federal, state and local laws and
regulations concerning the environment, and is currently participating in
administrative proceedings as a participant in a group of potentially
responsible parties in connection with two third party disposal sites.
These proceedings are at a preliminary stage, for which it is impossible
to reasonably estimate the potential costs of remediation, the timing and
extent of remedial actions which may be required by governmental
authorities, and the amount of the liability, if any, of the Company
alone or in relation to that of any other responsible parties. When it is
possible to make a reasonable estimate of the Company's liability with
respect to such a matter, a provision will be made as appropriate.
Additionally, the Company has settled and paid its liability at three
other third party disposal sites. At a fourth site, the Company has paid
approximately $10,000 for its share of the costs of the first phase of
the clean up of the site and management believes that it has no
continuing material liability for any later phases of the cleanup.
Consequently, management believes that its future liability, if any, for
these four sites is not material. In addition, regardless of the outcome
of such matters, Pitney Bowes has agreed to indemnify the Company in
connection with retained environmental liabilities and for breaches of
the environmental representations and warranties in the Acquisition
Agreement, subject to certain limitations.
The Company is a defendant in a number of additional lawsuits and
administrative proceedings, none of which will, in the opinion of
management, have a material adverse effect on the Company's consolidated
financial position or results of operations.
The Company does not believe that the ultimate resolution of the
litigation, administrative proceedings and environmental matters
described above in the aggregate will have a material adverse effect on
the Company's consolidated financial position or results of operations.
<PAGE>
7. PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA
The following pro forma combined statement of operations of Dictaphone
Corporation for the nine months ended September 30, 1995 has been presented
to give effect to the Acquisition, described in Note 1, as if it had
occurred on January 1, 1995. The pro forma operating results include the
historical results of the Company and Dictaphone Corporation (Predecessor
Company) shown herein adjusted for interest costs on borrowings to finance
the Acquisition and purchase accounting adjustments.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Total revenue ............................ $ 254,324 $ -- $ 254,324
--------- --------- ---------
Net (loss) income ........................ $ 12,542 $ (42,200) $ (29,658)
--------- --------- ---------
Net loss applicable to common stock ...... $ 12,252 $ (43,635) $ (31,383)
--------- --------- ---------
Earnings per share ....................... $ 1.29 $ (4.60) $ (3.31)
--------- --------- ---------
</TABLE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION
Dictaphone U.S. has fully and unconditionally guaranteed the
repayment of $200,000 of senior subordinated notes (the "Notes")
issued to finance the Acquisition. The Notes are subordinate to
financing of the Credit Agreement, dated August 7, 1995 and as amended
on July 17, 1996 (the "Credit Agreement"), and other senior
indebtedness as defined in the indenture pursuant to which the Notes
were issued (the "Note Indenture"). Dictaphone Non-U.S. is not a
guarantor of the Notes. Separate financial statements of Dictaphone
U.S. are not presented because management has determined that they
would not be meaningful to investors in the Notes.
<PAGE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
The following are the supplemental consolidating statements of
operations for the three and nine month periods ended September 30, 1996
and the seven weeks ended September 30, 1995 and cash flows for the nine
month period ended September 30, 1996, and the seven weeks ended
September 30, 1995 and the supplemental consolidating balance sheets as
of December 31, 1995 and September 30, 1996.
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996
<CAPTION>
DICTAPHONE DICTAPHONE DICTAPHONE
CORPORATION U.S. NON-U.S.
----------- ---------- ----------
Revenue from:
<S> <C> <C> <C>
Sales and rentals ................... $ -- $ 54,599 $ 8,204
Support services .................... -- 20,259 2,887
-------- -------- --------
Total revenues .................. -- 74,858 11,091
-------- -------- --------
Costs and expenses:
Cost of sales and rentals ........... -- 29,502 4,355
Selling, service and
administrative .................... 44 42,448 8,395
Research and development ............ -- 3,839 --
Interest expense - net and other .... 644 9,677 386
-------- -------- --------
Total costs and expenses ........ 688 85,466 13,136
-------- -------- --------
Equity (loss) earnings .............. (1,614) -- --
-------- -------- --------
(Loss) income before income taxes ... (2,302) (10,608) (2,045)
Income tax benefit .................. 250 3,867 695
-------- -------- --------
Net (loss) income ................... $ (2,052) $ (6,741) $ (1,350)
======== ======== ========
CONSOLIDATING
ADJUSTMENTS CONSOLIDATED
------------- ------------
Revenue from:
Sales and rentals ................. $ (2,502) $ 60,301
Support services .................. -- 23,146
-------- --------
Total revenues ................ (2,502) 83,447
-------- --------
Costs and expenses:
Cost of sales and rentals ......... (2,541) 31,316
Selling, service and
administrative .................. -- 50,887
Research and development .......... -- 3,839
Interest expense - net and other .. -- 10,707
-------- --------
Total costs and expenses ...... (2,541) 96,749
-------- --------
Equity (loss) earnings .............. 1,614 --
-------- --------
(Loss) income before income taxes ... 1,653 (13,302)
Income tax benefit .................. (15) 4,797
-------- --------
Net (loss) income ................... $ 1,638 $ (8,505)
======== ========
</TABLE>
<PAGE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<CAPTION>
DICTAPHONE DICTAPHONE DICTAPHONE
CORPORATION U.S. NON-U.S.
----------- ---------- -----------
Revenue from:
<S> <C> <C> <C>
Sales and rentals ................. $ -- $ 161,626 $ 28,004
Support services .................. -- 59,969 8,663
--------- --------- ---------
Total revenues ................ -- 221,595 36,667
--------- --------- ---------
Costs and expenses:
Cost of sales and rentals ......... -- 89,859 15,437
Selling, service and
administrative .................. 151 129,303 23,813
Research and development .......... -- 11,422 --
Interest expense - net and other .. 1,901 28,586 1,601
--------- --------- ---------
Total costs and expenses ...... 2,052 259,170 40,851
--------- --------- ---------
Equity (loss) earnings .............. (7,339) -- --
--------- --------- ---------
(Loss) income before income taxes ... (9,391) (37,575) (4,184)
Income tax benefit .................. 622 14,170 1,390
--------- --------- ---------
Net (loss) income ................... $ (8,769) $ (23,405) $ (2,794)
========= ========= =========
CONSOLIDATING
ADJUSTMENTS CONSOLIDATED
------------- ------------
Revenue from:
Sales and rentals ................. $ (9,104) $ 180,526
Support services .................. -- 68,632
--------- ---------
Total revenues ................ (9,104) 249,158
--------- ---------
Costs and expenses:
Cost of sales and rentals ......... (8,786) 96,510
Selling, service and
administrative .................. -- 153,267
Research and development .......... -- 11,422
Interest expense - net and other .. 14 32,102
--------- ---------
Total costs and expenses ...... (8,772) 293,301
--------- ---------
Equity (loss) earnings .............. 7,339 --
--------- ---------
(Loss) income before income taxes ... 7,007 (44,143)
Income tax benefit .................. 136 16,318
--------- ---------
Net (loss) income ................... $ 7,143 $ (27,825)
========= =========
</TABLE>
<PAGE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
SEVEN WEEKS ENDED SEPTEMBER 30, 1995
<CAPTION>
DICTAPHONE DICTAPHONE DICTAPHONE
CORPORATION U.S. NON-U.S.
----------- ---------- ----------
Revenue from:
<S> <C> <C> <C>
Sales and rentals ................. $ -- $ 34,512 $ 6,055
Support services .................. -- 11,472 1,646
-------- -------- --------
Total revenues ................ -- 45,984 7,701
-------- -------- --------
Costs and expenses:
Cost of sales and rentals ......... -- 22,077 3,177
Selling, service and
administrative .................. 21 24,792 3,773
Research and development .......... -- 1,133 --
Interest expense - net and other .. 5,524 (28) 291
-------- -------- --------
Total costs and expenses ...... 5,545 47,974 7,241
-------- -------- --------
Equity (loss) earnings .............. (1,366) -- --
-------- -------- --------
(Loss) income before income taxes ... (6,911) (1,990) 460
Income tax benefit .................. 2,385 547 (304)
-------- -------- --------
Net (loss) income ................... $ (4,526) $ (1,443) $ 156
======== ======== ========
CONSOLIDATING
ADJUSTMENTS CONSOLIDATED
------------- ------------
Revenue from:
Sales and rentals ................. $ (1,464) $ 39,103
Support services .................. -- 13,118
-------- --------
Total revenues ................ (1,464) 52,221
-------- --------
Costs and expenses:
Cost of sales and rentals ......... (1,499) 23,755
Selling, service and
administrative .................. -- 28,586
Research and development .......... -- 1,133
Interest expense - net and other .. -- 5,787
-------- --------
Total costs and expenses ...... (1,499) 59,261
-------- --------
Equity (loss) earnings .............. 1,366 --
-------- --------
(Loss) income before income taxes ... 1,401 (7,040)
Income tax benefit .................. (105) 2,523
-------- --------
Net (loss) income ................... $ 1,296 $ (4,517)
======== ========
</TABLE>
<PAGE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
<CAPTION>
DICTAPHONE DICTAPHONE DICTAPHONE
CORPORATION U.S. NON-U.S.
----------- ---------- ----------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash ............................ $ -- $ 11,591 $ 2,688
Accounts receivable ............. 7,509 50,623 8,567
Inventories ..................... -- 56,139 11,035
Other current assets ............ -- 5,718 3,499
--------- --------- ---------
Total current assets .......... 7,509 124,071 25,789
Note receivable ................... -- 6,821 --
Investments in subsidiaries ....... 446,228 -- --
Property, plant and equipment,
net ............................. -- 42,907 2,783
Deferred financing costs, net ..... 18,799 -- --
Intangibles, net .................. 2,455 286,043 19,466
Other assets ...................... 1,936 27,633 1,640
--------- --------- ---------
Total assets ...................... $ 476,927 $ 487,475 $ 49,678
========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest
payable and accrued liabilities $ 18,996 $ 42,375 $ 9,953
Advance billings ................ -- 30,531 3,935
Current portion of long-term
debt .......................... 7,750 -- --
--------- --------- ---------
Total current liabilities ... 26,746 72,906 13,888
Long-term debt .................... 349,086 332,494 17,491
Other liabilities ................. -- 9,748 479
Stockholders' equity .............. 101,095 72,327 17,820
--------- --------- ---------
Total liabilities
and stockholders' equity ........ $ 476,927 $ 487,475 $ 49,678
========= ========= =========
CONSOLIDATING
ADJUSTMENTS CONSOLIDATED
------------- ------------
Current assets:
Cash ............................ $ -- $ 14,279
Accounts receivable ............. (9,443) 57,256
Inventories ..................... (833) 66,341
Other current assets ............ (65) 9,152
--------- ---------
Total current assets .......... (10,341) 147,028
Note receivable ................... (6,821) --
Investments in subsidiaries ....... (446,228) --
Property, plant and equipment,
net ............................. -- 45,690
Deferred financing costs, net ..... -- 18,799
Intangibles, net .................. -- 307,964
Other assets ...................... -- 31,209
--------- ---------
Total assets ...................... $(463,390) $ 550,690
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest
payable and accrued
liabilities .................. $ (9,830) $ 61,494
Advance billings ................ -- 34,466
Current portion of long-term
debt .......................... -- 7,750
--------- ---------
Total current liabilities ... (9,830) 103,710
Long-term debt .................... (356,821) 342,250
Other liabilities ................. -- 10,227
Stockholders' equity .............. (96,739) 94,503
--------- ---------
Total liabilities
and stockholders' equity ........ $(463,390) $ 550,690
========= =========
</TABLE>
<PAGE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
<CAPTION>
DICTAPHONE DICTAPHONE DICTAPHONE
CORPORATION U.S. NON-U.S.
----------- ---------- ----------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash ............................ $ -- $ 4,210 $ 877
Accounts receivable ............. 15,227 49,512 9,257
Inventories ..................... -- 51,664 9,877
Other current assets ............ 215 4,635 6,053
--------- --------- ---------
Total current assets .......... 15,442 110,021 26,064
Note receivable ................... -- 27,567 --
Investments in subsidiaries ....... 451,755 -- --
Property, plant and equipment,
net ............................. -- 36,334 2,841
Deferred financing costs, net ..... 15,308 -- --
Intangibles, net .................. 2,145 259,504 17,967
Other assets ...................... 2,661 45,516 1,794
--------- --------- ---------
Total assets ...................... $ 487,311 $ 478,942 $ 48,666
========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest
payable and accrued
liabilities .................. $ 4,642 $ 44,178 $ 11,317
Advance billings ................ -- 30,028 3,432
Current portion of long-term
debt .......................... 10,750 -- 702
--------- --------- ---------
Total current liabilities ... 15,392 74,206 15,451
Long-term debt .................... 379,580 345,245 18,074
Other liabilities ................. -- 10,569 459
Stockholders' equity .............. 92,339 48,922 14,682
--------- --------- ---------
Total liabilities
and stockholders' equity ........ $ 487,311 $ 478,942 $ 48,666
========= ========= =========
CONSOLIDATING
ADJUSTMENTS CONSOLIDATED
------------- ------------
Current assets:
Cash ............................ $ -- $ 5,087
Accounts receivable ............. (18,639) 55,357
Inventories ..................... (1,165) 60,376
Other current assets ............ (5) 10,898
--------- ---------
Total current assets .......... (19,809) 131,718
Note receivable ................... (27,567) --
Investments in subsidiaries ....... (451,755) --
Property, plant and equipment,
net ............................. -- 39,175
Deferred financing costs, net ..... -- 15,308
Intangibles, net .................. -- 279,616
Other assets ...................... 458 50,429
--------- ---------
Total assets ...................... $(498,673) $ 516,246
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable, interest
payable and accrued
liabilities .................. $ (18,761) $ 41,376
Advance billings ................ -- 33,460
Current portion of long-term
debt .......................... -- 11,452
--------- ---------
Total current liabilities ... (18,761) 86,288
Long-term debt .................... (390,316) 352,583
Other liabilities ................. -- 11,028
Stockholders' equity .............. (89,596) 66,347
--------- ---------
Total liabilities
and stockholders' equity ........ $(498,673) $ 516,246
========= =========
</TABLE>
<PAGE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<CAPTION>
DICTAPHONE DICTAPHONE DICTAPHONE
CORPORATION U.S. NON-U.S.
----------- ---------- ----------
Operating activities:
<S> <C> <C> <C>
Net loss ........................ $ (8,769) $ (23,405) $ (2,794)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and
amortization ................ 4,263 47,542 3,311
Provision for deferred income
taxes ....................... (725) (15,327) (508)
Change in assets and liabilities:
Accounts receivable ........ (7,718) 1,110 (923)
Inventories ................ -- (410) 894
Other current assets ....... (215) 1,083 (2,531)
Accounts payable and
accrued liabilities ...... (6,354) 1,803 1,459
Advance billings ........... -- (503) (507)
Other assets and other ..... 7,610 (7,628) (647)
--------- --------- ---------
Net cash used in operating
activities ...................... (11,908) 4,265 (2,246)
--------- --------- ---------
Investing activities:
Payment for acquisition ......... (8,000) -- --
Net investment in fixed assets .. -- (3,652) (874)
--------- --------- ---------
Net cash used in investing
activities ...................... (8,000) (3,652) (874)
--------- --------- ---------
Financing activities:
Repayment under term loan
facility ..................... (5,250) -- --
Borrowing from promissory notes . (12,866) 12,750 116
Borrowing from subsidiary ....... 20,744 (20,744) --
Borrowing under revolving credit
facility ...................... 30,500 -- --
Repayment under revolving credit
facility ...................... (12,500) -- --
Other ........................... (720) -- 1,209
--------- --------- ---------
Net cash provided by (used in)
financing activities ............ 19,908 (7,994) 1,325
--------- --------- ---------
Effect of exchange rate changes
on cash ......................... -- -- (16)
--------- --------- ---------
Decrease in cash .................. -- (7,381) (1,811)
Cash, beginning of period ......... -- 11,591 2,688
--------- --------- ---------
Cash, end of period ............... $ -- $ 4,210 $ 877
========= ========= =========
CONSOLIDATING
ADJUSTMENTS CONSOLIDATED
------------- ------------
Operating activities:
Net loss ........................ $ 7,143 $ (27,825)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization . -- 55,116
Provision for deferred income
taxes ....................... (458) (17,018)
Change in assets and liabilities:
Accounts receivable ........ 9,197 1,666
Inventories ................ 332 816
Other current assets ....... (60) (1,723)
Accounts payable and
accrued liabilities ...... (8,815) (11,907)
Advance billings ........... -- (1,010)
Other assets and other ..... (7,339) (8,004)
--------- ---------
Net cash used in operating
activities ..................... -- (9,889)
--------- ---------
Investing activities:
Payment for acquisition ......... -- (8,000)
Net investment in fixed assets .. -- (4,526)
--------- ---------
Net cash used in investing
activitities .................... -- (12,526)
--------- ---------
Financing activities:
Repayment under term loan
facility ...................... -- (5,250)
Borrowing from promissory notes . -- --
Borrowing from subsidiary ....... -- --
Borrowing under revolving
credit facility ............... -- 30,500
Repayment under revolving
credit facility ............... -- (12,500)
Other ........................... -- 489
--------- ---------
Net cash provided by (used in)
financing activities ............ -- 13,239
--------- ---------
Effect of exchange rate changes on
cash ............................ -- (16)
--------- ---------
Decrease in cash .................. -- (9,192)
Cash, beginning of period ......... -- 14,279
--------- ---------
Cash, end of period ............... $ -- $ 5,087
========= =========
</TABLE>
<PAGE>
8. SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (SUCCESSOR COMPANY)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
SEVEN WEEKS ENDED SEPTEMBER 30, 1995
<CAPTION>
DICTAPHONE DICTAPHONE DICTAPHONE
CORPORATION U.S. NON-U.S.
----------- ---------- ----------
Operating activities:
<S> <C> <C> <C>
Net loss ........................ $ (4,526) $ (1,443) $ 156
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and
amortization ................. 364 12,596 632
Provision for deferred income
taxes ........................ (2,363) (464) (59)
Change in assets and liabilities:
Accounts receivable ......... (3,406) (3,661) (623)
Inventories ................. -- 3,226 509
Other current assets ........ -- 585 (91)
Accounts payable and
accrued liabilities ....... 4,708 6,613 418
Advance billings ............ -- (2,821) (340)
Other assets and other ...... 2,087 (2,748) (307)
--------- --------- ---------
Net cash used in operating
activities ....................... (3,136) 11,883 295
--------- --------- ---------
Investing activities:
Payment for acquisition ......... (450,000) -- --
Net investment in fixed assets .. -- (391) (154)
--------- --------- ---------
Net cash used in investing
activities ...................... (450,000) (391) (154)
--------- --------- ---------
Financing activities:
Net proceeds from sale of senior
subordinated notes ............ 194,000 -- --
Borrowings under term loan
facility ...................... 150,000 -- --
Proceeds from sale of common
stock ......................... 95,000 -- --
Proceeds from sale of preferred
stock ......................... 15,000 -- --
Borrowings from revolving credit
facility ...................... 15,000 -- --
Payment of deferred financing
costs ......................... (15,917) -- --
Repayment of management loans ... 53 -- --
--------- --------- ---------
Net cash provided by (used in)
financing activities ............ 453,136 -- --
--------- --------- ---------
Effect of exchange rate changes
on cash ......................... -- -- (56)
--------- --------- ---------
Increase in cash .................. -- 11,492 85
Cash, beginning of period ......... -- 969 1,494
--------- --------- ---------
Cash, end of period ............... $ -- $ 12,461 $ 1,579
========= ========= =========
CONSOLIDATING
ADJUSTMENTS CONSOLIDATED
------------- ------------
Operating activities:
Net loss ........................ $ 1,296 $ (4,517)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and
amortization ................. -- 13,592
Provision for deferred income
taxes ........................ -- (2,886)
Change in assets and
liabilities:
Accounts receivable ........ 333 (7,357)
Inventories ................ (35) 3,700
Other current assets ....... (12) 482
Accounts payable and
accrued liabilities ...... (213) 11,526
Advance billings ........... -- (3,161)
Other assets and other ..... (1,369) (2,337)
--------- ---------
Net cash used in operating
activities ...................... -- 9,042
--------- ---------
Investing activities:
Payment for acquisition ......... -- (450,000)
Net investment in fixed assets .. -- (545)
--------- ---------
Net cash used in investing
activities ...................... -- (450,545)
--------- ---------
Financing activities:
Net proceeds from sale of senior
subordinated notes ............ -- 194,000
Borrowings under term loan
facility ...................... -- 150,000
Proceeds from sale of common
stock ......................... -- 95,000
Proceeds from sale of preferred
stock ......................... -- 15,000
Borrowings from revolving
credit facility ............... -- 15,000
Payment of deferred financing
costs ......................... -- (15,917)
Repayment of management loans ... -- 53
--------- ---------
Net cash provided by (used in)
financing activities ........... -- 453,136
--------- ---------
Effect of exchange rate changes on
cash ........................... -- (56)
--------- ---------
Increase in cash .................. -- 11,577
Cash, beginning of period ......... -- 2,463
--------- ---------
Cash, end of period ............... $ -- $ 14,040
========= =========
</TABLE>
<PAGE>
<TABLE>
DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
COMBINED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands)
<CAPTION>
THIRTY-TWO
SIX WEEKS WEEKS
ENDED ENDED
AUGUST 11, AUGUST 11,
1995 1995
---------- ----------
Revenues:
<S> <C> <C>
Sales and rentals ........................... $ 21,521 $ 148,092
Support services ............................ 9,439 54,011
--------- ---------
Total revenue ........................... 30,960 202,103
--------- ---------
Cost and expenses:
Cost of sales and rentals ................... 10,927 74,268
Selling, service and administrative ......... 19,224 93,774
Research and development .................... 1,436 7,004
--------- ---------
Operating profit ................................. (627) 27,057
Interest (income) expense - net .................. (377) (1,400)
--------- ---------
(Loss)/income before income taxes ................ (250) 28,457
(Benefit)/provision for income taxes ............. (39) 11,398
--------- ---------
Net (loss)/income ........................... $ (211) $ 17,059
========= =========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
<TABLE>
DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
COMBINED STATEMENT OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
<CAPTION>
THIRTY-TWO WEEKS
ENDED
AUGUST 11, 1995
----------------
Cash flows from operating activities:
<S> <C>
Net income .................................................. $ 17,059
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 4,931
Increase in deferred income taxes ........................ --
Changes in assets and liabilities:
Accounts receivable .................................. (1,304)
Inventories .......................................... (7,190)
Other current assets and prepayments ................. (9,945)
Accounts payable and accrued liabilities ............. 2,056
Advance billings ..................................... 2,719
Other assets and other ............................... (4,318)
--------
Net cash used in operating activities ............. 4,008
--------
Cash flows from investing activities:
Net investment in fixed assets .............................. (5,538)
Effect of exchange rate changes on cash ........................ 77
--------
Net cash flow financed by Pitney Bowes Inc. .................... $ (1,453)
========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid .................................................. $ 8
========
Income taxes paid .............................................. $ 13,454
========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands or as otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. On April 25, 1995, Dictaphone Corporation
(Successor Company) (the "Company") entered into a Stock and Asset
Purchase Agreement, as amended August 11, 1995 (the "Acquisition
Agreement"), with Pitney Bowes Inc. ("Pitney Bowes") for the purpose of
acquiring (the "Acquisition") Dictaphone Corporation, the U.S. Dictaphone
subsidiary of Pitney Bowes ("Dictaphone U.S. (Predecessor Company)") and
certain foreign affiliates ("Dictaphone Non-U.S. (Predecessor Company)")
as set forth in the Acquisition Agreement. Dictaphone U.S. (Predecessor
Company) and Dictaphone Non-U.S. (Predecessor Company) are collectively
referred to as "Dictaphone Corporation (Predecessor Company)" or (the
"Predecessor Company"). Effective August 11, 1995, the Predecessor
Company was sold to the Company. The combined consolidated financial
statements of the Company are unaudited, but in the opinion of management
contain all adjustments which are of a normal and recurring nature
necessary to present fairly the financial position and results of
operations and cash flows for the periods presented.
2. SUPPLEMENTAL COMBINING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION
The following are the supplemental combining statements of income
for the six and thirty-two week periods ended August 11, 1995 and
combining statement of cash flows for the thirty-two week period ended
August 11, 1995.
<TABLE>
DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
SUPPLEMENTAL COMBINING STATEMENT OF INCOME
SIX WEEKS ENDED AUGUST 11, 1995
<CAPTION>
DICTAPHONE DICTAPHONE
U.S. NON-U.S.
---------- ----------
Revenue from:
<S> <C> <C>
Sales and rentals ................. $ 18,957 $ 3,333
Support services .................. 8,067 1,372
-------- --------
Total revenue .................. 27,024 4,705
-------- --------
Costs and expenses:
Cost of sales and rentals ......... 9,909 1,782
Selling, service and
administrative .................. 16,097 3,127
Research and development .......... 1,436 --
Interest (income) expense, net .... -- (377)
-------- --------
Total costs and expenses ....... 27,442 4,532
-------- --------
Income before income taxes ........... (418) 173
Provision (benefit) for income taxes . (110) 74
-------- --------
Net income (loss) .................... $ (308) $ 99
======== ========
COMBINING
ADJUSTMENTS COMBINED
----------- --------
Revenue from:
Sales and rentals ................. $ (769) $ 21,521
Support services .................. -- 9,439
-------- --------
Total revenue .................. (769) 30,960
-------- --------
Costs and expenses:
Cost of sales and rentals ......... (764) 10,927
Selling, service and
administrative .................. -- 19,224
Research and development .......... -- 1,436
Interest (income) expense, net .... -- (377)
-------- --------
Total costs and expenses ....... (764) 31,210
-------- --------
Income before income taxes ........... (5) (250)
Provision (benefit) for income taxes . (3) (39)
-------- --------
Net income (loss) .................... $ (2) $ (211)
======== ========
</TABLE>
<PAGE>
2. SUPPLEMENTAL COMBINING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
SUPPLEMENTAL COMBINING STATEMENT OF INCOME
THIRTY-TWO WEEKS ENDED AUGUST 11, 1995
<CAPTION>
DICTAPHONE DICTAPHONE
U.S. NON-U.S.
---------- ----------
Revenue from:
<S> <C> <C>
Sales and rentals ................. $ 130,013 $ 23,275
Support services .................. 45,074 8,937
--------- ---------
Total revenue .................. 175,087 32,212
--------- ---------
Costs and expenses:
Cost of sales and rentals ......... 67,150 12,282
Selling, service and
administrative .................. 77,046 16,728
Research and development .......... 7,004 --
Interest (income) expense, net .... (24) (1,376)
--------- ---------
Total costs and expenses ....... 151,176 27,634
--------- ---------
Income before income taxes ........... 23,911 4,578
Provision (benefit) for income taxes . 9,921 1,514
--------- ---------
Net income ........................... $ 13,990 $ 3,064
========= =========
COMBINING
ADJUSTMENTS COMBINED
----------- --------
Revenue from:
Sales and rentals ................. $ (5,196) $ 148,092
Support services .................. -- 54,011
--------- ---------
Total revenue .................. (5,196) 202,103
--------- ---------
Costs and expenses:
Cost of sales and rentals ......... (5,164) 74,268
Selling, service and
administrative .................. -- 93,774
Research and development .......... -- 7,004
Interest (income) expense, net .... -- (1,400)
--------- ---------
Total costs and expenses ....... (5,164) 173,646
--------- ---------
Income before income taxes ........... (32) 28,457
Provision (benefit) for income taxes . (37) 11,398
--------- ---------
Net income ........................... $ 5 $ 17,059
========= =========
</TABLE>
<PAGE>
2. SUPPLEMENTAL COMBINING FINANCIAL STATEMENTS AND SEGMENT
INFORMATION (CONTINUED)
<TABLE>
DICTAPHONE CORPORATION (PREDECESSOR COMPANY)
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
THIRTY-TWO WEEKS ENDED AUGUST 11, 1995
<CAPTION>
DICTAPHONE DICTAPHONE
U.S. NON-U.S.
---------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income ................................. $ 13,990 $ 3,064
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........... 4,069 862
Increase (decrease) in deferred income
taxes ................................. -- --
Change in assets and liabilities:
Accounts receivable ................. (1,750) 303
Inventories ......................... (8,767) 1,545
Other current assets ................ (9,431) (457)
Accounts payable and accrued
liabilities ....................... 1,531 648
Advance billings .................... 2,577 142
Other assets and other .............. (4,016) (302)
-------- --------
Net cash (used in) provided by operating
activities ................................... (1,797) 5,805
-------- --------
Cash flows from investing activities:
Net investment in fixed assets ............. (4,740) (798)
-------- --------
Effect of exchange rate changes on cash ....... -- 77
-------- --------
Net cash flow available to Pitney Bowes
Inc. ........................................ $ (6,537) $ 5,084
======== ========
COMBINING
ADJUSTMENTS COMBINED
----------- --------
Cash flows from operating activities:
Net income ................................. $ 5 $ 17,059
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........... -- 4,931
Increase (decrease) in deferred income
taxes ................................. -- --
Change in assets and liabilities:
Accounts receivable ................. 143 (1,304)
Inventories ......................... 32 (7,190)
Other current assets ................ (57) (9,945)
Accounts payable and accrued
liabilities ....................... (123) 2,056
Advance billings .................... -- 2,719
Other assets and other .............. -- (4,318)
-------- --------
Net cash (used in) provided by operating
activities ................................... -- 4,008
-------- --------
Cash flows from investing activities:
Net investment in fixed assets ............. -- (5,538)
-------- --------
Effect of exchange rate changes on cash ....... -- 77
-------- --------
Net cash flow available to Pitney Bowes
Inc. ........................................ $ -- $ (1,453)
======== ========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On April 25, 1995, the Company entered into the Acquisition Agreement
with Pitney Bowes Inc. for the purpose of the Acquisition. On August 11, 1995,
the Company acquired the Predecessor Company for $462.2 million, including
certain post-closing adjustments as defined in the Acquisition Agreement.
The capital structure and accounting basis of the assets and liabilities
of the Company as of August 12, 1995 and thereafter differ from those of the
Predecessor Company in prior periods as a result of the Acquisition. Financial
data of the Predecessor Company for periods prior to August 12, 1995 are
presented on a historical cost basis. Financial data of the Company as of August
12, 1995 and thereafter reflect the Acquisition under the purchase method of
accounting, under which the purchase price has been allocated to assets and
liabilities based upon their estimated fair values.
To facilitate the discussion of the three and nine month periods ended
September 30, 1996 against the results of operations for the same periods of
1995, the historical operations of the Successor Company and Predecessor Company
have been combined, since the Acquisition occurred six and thirty-two weeks into
the three and nine month periods ended September 30, 1995, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Total revenue ............................. $ 83.4 $ 83.2
Cost of sales and rentals (1) ............. 31.3 34.7
Selling, service and administrative
(including amortization
of intangibles) ......................... 50.9 47.8
Research and development .................. 3.8 2.6
----- -----
Operating profit (loss) ................. (2.6) (1.9)
----- -----
Net interest expense (income) and other ... 10.7 5.4
(Benefit) provision for income tax ........ (4.8) (2.6)
----- -----
Net (loss) income ......................... $ (8.5) $ (4.7)
===== =====
EBITDA (2) ................................ $ 13.0 $ 12.2
===== =====
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------ ------
(IN MILLIONS)
Total revenue ............................. $ 249.2 $ 254.3
Cost of sales and rentals (1) ............. 96.5 98.0
Selling, service and administrative ....... 153.3 122.4
Research and development .................. 11.4 8.1
------ ------
Operating profit (loss) ................. (12.0) 25.8
------ ------
Net interest expense (income) and other ... 32.1 4.4
(Benefit) provision for income tax ........ (16.3) 8.9
------ ------
Net (loss) income ......................... $ (27.8) $ 12.5
====== ======
<PAGE>
EBITDA (2) ................................ $ 39.0 $ 44.0
====== ======
</TABLE>
- ----------------
(1) Cost of sales and rentals do not include operating expenses of
field sales and service offices because no meaningful allocation of
such expenses to this line item is practicable.
(2) EBITDA is defined as income before effect of changes in accounting
plus interest, income taxes, depreciation and amortization. EBITDA
is presented because it is a widely accepted financial indicator of
a company's ability to incur and service debt. However, EBITDA
should not be considered in isolation or as a substitute for net
income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's
profitability or liquidity.
<PAGE>
OVERVIEW (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
------ ------
(IN MILLIONS)
Revenue from:
Sales:
<S> <C> <C>
U.S. Integrated Voice Systems .............. $ 18.9 $ 22.6
U.S. Communication Recording Systems ....... 17.6 12.5
U.S. Customer Service parts ................ 4.4 4.7
Contract Manufacturing
(including sales to Pitney Bowes Inc.) ... 10.8 11.1
International Operations ................... 8.2 9.2
----- -----
Total sales ............................ 59.9 60.1
----- -----
Rentals .................................... 0.4 0.5
----- -----
Total sales and rentals ................ 60.3 60.6
----- -----
Service:
U.S. Customer Service ...................... 20.2 19.5
International Operations ................... 2.9 3.1
----- -----
Total support service .................. 23.1 22.6
----- -----
Total revenue ................................ $ 83.4 $ 83.2
===== =====
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
------ ------
(IN MILLIONS)
Revenue from:
Sales:
U.S. Integrated Voice Systems .............. $ 59.4 $ 66.6
U.S. Communication Recording Systems ....... 46.7 43.3
U.S. Customer Service parts ................ 13.2 13.7
Contract Manufacturing
(including sales to Pitney Bowes Inc.) ... 31.7 33.1
International Operations ................... 27.9 29.0
------ ------
Total sales ............................ 178.9 185.7
------ ------
Rentals .................................... 1.6 1.5
------ ------
Total sales and rentals ................ 180.5 187.2
------ ------
Service:
U.S. Customer Service ...................... 60.0 56.5
International Operations ................... 8.7 10.6
------ ------
Total support service .................. 68.7 67.1
------ ------
Total revenue ................................ $ 249.2 $ 254.3
====== ======
</TABLE>
RESULTS OF OPERATIONS - THIRD QUARTER 1996 VS. THIRD QUARTER 1995
Total revenue for the third quarter of 1996 increased 0.3% to $83.4
million from $83.2 million during the third quarter of 1995. The increase in
revenue is attributable to higher sales revenue from U.S. Communications
Recording Systems ("U.S.C.R.S."), and an increase in U.S. Customer Service
revenue partially offset by lower revenue from U.S. Integrated Voice Systems
("U.S.I.V.S."), Contract Manufacturing, and International Operations.
U.S.I.V.S. revenue declined 16.1% to $18.9 million from $22.6 million on
lower systems billings (down 21.2%) and desktop and portable revenue (down
8.7%). U.S.I.V.S. orders declined 15.7% during the quarter due to lower systems
orders. U.S. Customer Service revenue (including sale of parts) increased 1.6%
to $24.6 million from $24.2 million due to increased proprietary product service
contract revenue (up 1.4%) as well as higher third party maintenance revenue (up
$0.4 million). U.S.C.R.S. revenue increased 40.9% from $12.5 million to $17.6
million on higher Guardian and Sentinel installations and backlog closure in the
quarter. Revenue from International Operations declined 10.2% from $12.3 million
to $11.1 milion due to lower revenue in Germany, Canada, the United Kingdom and
Switzerland, as well as $0.2 million of unfavorable currency exchange. During
the third quarter of 1996, the Company announced a reorganization and change in
the low end product distribution strategy (from direct sales to distributors and
dealers) in Europe. The Company believes that near term results from the
European operations could be negatively impacted during this transition.
Contract Manufacturing revenue was 2.6% lower than the corresponding period of
1995.
Cost of sales and rentals decreased 9.7% to $31.3 million (37.5% of total
revenue) during the three months ended September 30, 1996 from $34.7 million
(41.7% of total revenue) for the three months ended September 30, 1995.
Excluding additional depreciation and amortization expense related to purchase
accounting adjustments associated with the Acquisition of $1.5 million and $4.6
million, respectively, for the three months ended September 30, 1996 and 1995,
cost of sales and rentals would have represented 35.7% of total revenue for the
three months ended September 30, 1996 versus 36.2% for the three months ended
<PAGE>
September 30, 1995. Cost of sales and rentals as a percentage of total revenue
decreased during the three months ended September 30, 1996 due to lower U.S.
Customer Service costs, a reduced content of low margin Contract Manufacturing
revenue, and improvement in Contract Manufacturing pricing.
Selling, service and administrative expenses (including amortization of
intangibles) for the third quarter of 1996 increased 6.4% to $50.9 million
(61.0% of total revenue) from $47.8 million (57.5% of total revenue) for the
comparable period in 1995. Excluding additional depreciation and amortization
expense of $11.4 million associated with purchase accounting adjustments related
to the Acquisition, selling, service and administrative expenses would have
represented 47.3% of total revenue for the three months ended September 30, 1996
versus 48.4% on a comparable basis for the third quarter 1995. This decline is
attributable to lower U.S.I.V.S. selling expenses (down $2.3 million) due to
lower sales revenue, reduced manpower and lower legal expenses, and U.S.
Headquarters expenses for employee benefits (down $0.9 million) which were
partially offset by increased U.S. Customer Service expense for training and
repair, U.S.C.R.S. sales compensation, higher marketing and advertising
expenses, and increased international expenses associated with the establishment
of an office for International Operations in the United Kingdom.
Research and development expenses of $3.8 million for the three months
ended September 30, 1996 were 49.4% higher than the comparable period in 1995
due to headcount increases.
The Company recorded an operating loss of $2.6 million during the third
quarter of 1996 compared to an operating loss of $1.9 million for the third
quarter of 1995. Excluding purchase accounting adjustments associated with the
Acquisition of $12.9 million and $12.1 million for the third quarter of 1996 and
1995, respectively, operating profit would have been flat versus the prior year
as the impact of higher revenue and improved margins was offset by higher
operating expenses.
The Company has recorded a deferred tax asset of $38.6 million,
reflecting the benefit of net operating loss carryforwards and various book tax
temporary differences. The net operating loss carryforwards for federal income
tax purposes as of September 30, 1996 is approximately $35.3 million which will
expire beginning in the year 2010. Realization of the net operating loss
carryforwards is dependent on generating sufficient taxable income prior to
expiration of the net operating loss carryforwards. Although no assurance can be
given that the Company will be able to realize the full benefit of the net
operating loss carryforwards, management currently believes it is more likely
than not that all of the deferred tax asset will be realized. Accordingly, no
valuation allowance has been established as of September 30, 1996. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the net operating loss
carryforward period are reduced.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 VS.
NINE MONTHS ENDED SEPTEMBER 30, 1995
Total revenue for the first nine months of 1996 decreased 2.0% to $249.2
million from $254.3 million for the comparable period in 1995. The decline in
revenue is attributable to lower sales revenue from U.S.I.V.S. and Contract
Manufacturing and lower revenue from International Operations partially offset
by an increase in sales revenue from U.S.C.R.S. and U.S. Customer Service
revenue.
U.S.I.V.S. revenue declined 10.7% from $66.6 million during the nine
months ended September 30, 1995 to $59.4 million during the nine months ended
September 30, 1996 on lower system sales (down 9.2%) and desktop and portable
equipment sales (down 12.0%). The decline in desktop and portable equipment
sales is associated with the reorganization of the field sales organization in
the first quarter of 1996. U.S. Customer Service revenue (including sale of
parts) increased 4.2% to $73.2 million from $70.2 million due to increased
proprietary product service contract revenue (up 4.4%) as well as higher third
party maintenance revenue (up $1.3 million). U.S.C.R.S. revenue for the first
nine months of 1996 increased 7.7% from $43.3 million to $46.7 million on higher
Guardian and Sentinel installations. Revenue from International Operations
declined 7.7% from $39.6 million for the nine months ended September 30, 1995 to
$36.6 million for the nine months ended September 30, 1996 as revenue growth in
Germany and Canada due primarily to higher Communications Recording System
revenue was offset by a decline in the United
<PAGE>
Kingdom due to lower Communications Recording System and dictation revenue and
the expiration of a significant one-time third party maintenance contract which
was in place during the first half of 1995. Lower revenue in Switzerland (down
3.7%), as well as $0.6 million of unfavorable currency exchange also contributed
to the decline. Contract Manufacturing revenue was 4.2% lower than the
corresponding period of 1995.
Order backlog at September 30, 1996 totalled $27.3 million representing
an increase of $3.5 million versus December 31, 1995. U.S.I.V.S. backlog of
$15.6 million increased by $5.0 million primarily due to increased system
orders. Partially offsetting this increase in order backlog were U.S.C.R.S.
which declined by $0.7 million to $9.4 million, and international backlog which
declined to $2.3 million from $3.1 million at year end 1995.
Cost of sales and rentals during the nine months ended September 30, 1996
decreased 1.5% to $96.5 million (38.7% of total revenue) versus $98.0 million
(38.5% of total revenue) for the nine months ended September 30, 1995. Excluding
additional depreciation and amortization expense related to purchase accounting
adjustments associated with the Acquisition of $7.3 million and $4.6 million
from the first nine months of 1996 and 1995, respectively, cost of sales and
rentals would have declined as a percent of revenue from 36.8% to 35.8%. This
decline is attributable to an increased content of high margin U.S. Customer
Service revenue, and lower inventory adjustments partially offset by lower
U.S.C.R.S. price realization.
Selling, service and administrative expenses (including amortization of
intangibles) for the first nine months of 1996 increased 25.3% to $153.3 million
(61.5% of total revenue) from $122.4 million (48.1% of total revenue) for the
comparable period in 1995. Excluding additional depreciation and amortization
expense associated with purchase accounting adjustments related to the
Acquisition of $35.7 million in 1996 and $7.6 million in 1995, selling, service
and administrative expenses would have increased by 2.1 percentage points to
47.2% versus the first nine months of 1995. This increase is attributable to
higher U.S. Customer service expenses (up $1.1 million), U.S.C.R.S. expenses (up
$0.9 million), and U.S. Headquarters expenses for taxes not based on income,
marketing and advertising, management compensation, and increases in consulting
fees. Increased operating expenses for International Operations was due to
branch sales office expansion in France and Italy as well as the establishment
of an office for International Operations in the United Kingdom. Lower
U.S.I.V.S. selling expenses (down $4.7 million), primarily due to reduced
manpower, partially offset these increases.
Research and development expenses of $11.4 million for the nine months
ended September 30, 1996 were 40.4% higher than the comparable period in 1995
due to increased staffing and compensation.
The Company recorded an operating loss of $12.0 million during the first
nine months of 1996 compared to an operating profit of $25.8 million for the
first nine months of 1995. Excluding purchase accounting adjustments from the
first nine months of both 1996 and 1995, operating profit declined by 18.3%.
This reduction reflects the impact of lower revenue and higher expenses
partially offset by improved margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements consists primarily of scheduled
payments of principal and interest on its indebtedness, working capital needs
and capital expenditures. The Company made its final required cash payment ($8.0
million) to Pitney Bowes Inc. in the first quarter of 1996 which related to
certain post-closing adjustments to the purchase price for the Company.
At September 30, 1996, the Company had outstanding term loans of $144.8
million (the "Term Loans") and an $18.0 million loan outstanding under the $40.0
million revolving credit facility (the "Revolving Credit Facility"). Borrowing
under the Revolving Credit Facility increased by $11 million during the third
quarter of 1996 due to the scheduled August 1 interest payment associated with
the Notes. Availability under the Revolving Credit Facility at September 30,
1996 was $22 million. Scheduled annual principal payments on the term loans will
be $7.75 million in 1996,
<PAGE>
$11.75 million in 1997, $15.75 million in 1998 and 1999, and $19.75 million in
2000. There are no scheduled reductions in the $40.0 million Revolving Credit
Facility over the next five years; however, the Company is required to reduce
loans outstanding under the Revolving Credit Facility to $15.0 million for a
period of not less than 30 consecutive days during each consecutive 12-month
period.
In connection with the terms of the Credit Agreement, the Company entered
into interest rate swap agreements in November 1995, effective February 16,
1996, with an aggregate notional principal amount equivalent to $75 million
maturing on February 16, 1999. The swap will effectively convert that portion of
the Company's Term Loans to a fixed rate component of 5.8%; thus, reducing the
impact of changes in interest rates, converting the total effective interest
rate on fifty percent of the initial outstanding Term Loans to 8.8%. No funds
under the swap agreements are actually borrowed or are to be repaid. Amounts due
to or from the counterparties will be reflected in interest expense in the
periods in which they accrue.
In addition, the Credit Agreement contains covenants that significantly
limit or prohibit, among other things, the ability of the Company and Dictaphone
U.S. to incur indebtedness, make prepayments of certain indebtedness, pay
dividends, make investments, engage in transactions with stockholders and
affiliates, create liens, sell assets and engage in mergers and consolidations
and requires that the Company maintain certain financial ratios.
On July 17, 1996, the Company and the lenders under its Credit
Agreement, dated as of August 7, 1995, executed an amendment to such credit
agreement, dated as of June 28, 1996, modifying certain of the covenants
contained therein. The amendment lowered restrictions on investments and joint
ventures, and revised the financial covenants for maximum leverage ratio,
minimum consolidated EBITDA, and minimum interest coverage ratio.
The Company had $200.0 million of Notes outstanding as of September 30,
1996. The Notes are subordinated to the Credit Agreement financings and other
senior indebtedness, as defined in the Note Indenture. The Notes contain
covenants similar to the Credit Agreement and provide for each noteholder to
have the right to require that the Company repurchase the Notes at 101% of the
principal amount upon a change of control as defined in the Note Indenture. The
Notes bear interest of 11-3/4% per annum, payable semi-annually on each February
1 and August 1. The Notes mature on August 1, 2005. At September 30, 1996, the
fair value of the Notes was favorable $16.0 million.
Capital expenditures for the first nine months of 1996 totaled $4.5
million. The Company does not expect the limitation on capital expenditures
contained in the Credit Agreement to restrict capital expenditures in a material
manner.
The Company believes that cash flows from operating activities and its
ability to borrow under the Revolving Credit Facility will be adequate to meet
the Company's debt service obligations, working capital needs and planned
capital expenditures for the foreseeable future.
The Company's quarterly revenues and other operating results have been
and will continue to be affected by a wide variety of factors that could have a
material adverse effect on the Company's financial performance during any
particular period, including the level of orders that are received and shipped
by the Company in any given quarter, the rescheduling and cancellation of orders
by customers, availability and cost of materials, the Company's ability to
enhance its existing products and to develop, manufacture and market new
products, new product developments by the Company's competitors, market
acceptance of products of both the Company and its competitors, competitive
pressures on prices, and significant damage to or prolonged delay in operations
at the Company's sole manufacturing facility.
<PAGE>
The Company may, from time to time, provide estimates as to future
performance. These forward looking statements will be estimates, and may or may
not be realized by the Company. The Company undertakes no duty to update such
forward looking statements. Many factors could cause actual results to differ
from these forward looking statements, including, but not limited to, loss of
market share through competition, introduction of competing products by other
firms, pressure on prices from competition or purchasers of the Company's
products, and interest rate and foreign exchange fluctuations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
See Note 6 to the Condensed Consolidated Statements of Operations
(Unaudited) of Dictaphone Corporation (Successor Company), which is incorporated
herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
27 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On July 18, 1996, the Company filed a Current Report on Form
8-K, dated July 17, 1996, reporting, under Item 5 thereof, the
amendment of certain of the covenants contained in the Company's
senior Bank Credit Agreement, dated as of August 7, 1995.
No other reports on Form 8-K were filed by the Company during the quarter.
<PAGE>
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.
Dated: November 13, 1996 Dictaphone Corporation
-----------------------------------------
(Registrant)
By: /s/ John H. Duerden
-----------------------------------------
Name: John H. Duerden
Title: Chairman, Chief Executive Officer
and President(Principal Executive Officer)
By: /s/ Joseph D. Skrzypczak
-----------------------------------------
Name: Joseph D. Skrzypczak
Title: Vice President, Chief Financial Officer
and Director (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBITS DESCRIPTION NUMBERED PAGE
- -------- ----------- -------------
*27. -- Financial Data Schedule
- ----------------------
* Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET OF DICTAPHONE CORPORATION AT SEPTEMBER 30,
1996, AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,087
<SECURITIES> 0
<RECEIVABLES> 56,865
<ALLOWANCES> 1,508
<INVENTORY> 60,376
<CURRENT-ASSETS> 131,718
<PP&E> 59,982
<DEPRECIATION> 20,807
<TOTAL-ASSETS> 516,246
<CURRENT-LIABILITIES> 86,288
<BONDS> 352,583
17,540
0
<COMMON> 95
<OTHER-SE> 48,712
<TOTAL-LIABILITY-AND-EQUITY> 516,246
<SALES> 180,526
<TOTAL-REVENUES> 249,158
<CGS> 96,510
<TOTAL-COSTS> 261,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,369
<INCOME-PRETAX> (44,143)
<INCOME-TAX> 16,318
<INCOME-CONTINUING> (27,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,825)
<EPS-PRIMARY> (3.12)
<EPS-DILUTED> (3.12)
</TABLE>
