Recoton Corporation Announces First Quarter Results
17 May 1999
Recoton Corporation Announces First Quarter Results and Engagement of Consulting Firm to Review Operations
LAKE MARY, FL--May 17, 1999--Recoton Corporation (Nasdaq National Market: RCOT), a leading global consumer electronic accessory, loudspeaker and car audio company, today announced financial results for the first quarter ended March 31, 1999. In announcing the 1999 first quarter results, the Company also announced that it has retained a consulting firm to examine all aspects of Recoton's business and operations for the specific purpose of formulating and assisting in implementing a plan to improve operating efficiencies, enhance profitability and maximize the Company's return on assets.The Company reported first quarter net sales of $143,906,000, down slightly from $144,717,000 in the same quarter in 1998. Sales results in the first quarter reflect lower sales of the Company's InterAct(R) video and PC game accessories. Management noted that sales in the 1998 first quarter compared to the prior year were exceptionally high as retailers replenished depleted inventories after an unexpectedly strong 1997 holiday selling season. The Company's sales in the 1998 first quarter were also bolstered by new video and PC game accessories product introductions by InterAct to complement the strong sales of Sony PlayStation(R) and Nintendo 64(R) video game platforms. While the 1998 holiday sell-through was considered substantially stronger than the previous year, retailers had anticipated this growth and accordingly entered the first quarter of 1999 with higher inventories of video and PC game products. While retail sell-through of the Company's video and PC game accessories during the 1999 first quarter exceeded 1998 first quarter sales on a unit basis, some products were selling at lower price points.
The Company also had lower sales of domestic home audio speaker products as a result of the planned discontinuance of certain low margin products and lower sales in Europe attributable to general economic softness.
Sales for the Company's Jensen(R) mobile electronics products increased in the 1999 first quarter, attributable in part to increased demand. Based on total units sold, Recoton Mobile Electronics has become the nation's second largest mobile audio marketer (Intelect ASW, September 1998). Sales of accessories also increased due, in part, to new sales of the Company's recently licensed Sprint(R) brand of telephone accessories and increased sales of mobile audio installation accessories sold under the AAMP(R), Roadgear(R) and Stinger(R) brand names.
The Company reported a net loss for the 1999 first quarter of $1,464,000, or $.13 per diluted share, versus net income of $3,604,000, or $.30 per diluted share, for the 1998 first quarter. Included in the 1999 first quarter loss was a charge of approximately $1,200,000, or $.07 per diluted share on an after-tax basis, related to the closing of the Company's audio amplifier manufacturing division taken as part of its ongoing efforts to achieve and sustain profitability at its home audio division. Recoton has elected to outsource the manufacturing of these products. Recoton also incurred significantly higher promotional expenses at its InterAct subsidiary, as it provided increased promotional dollars to retailers to assist them in selling through higher inventory levels of video and PC game products. The Company noted that 1999 first quarter losses at the Company's home audio division, after the shut-down charge, reflect reasonable decreases from losses incurred at this division in the 1998 first quarter and also showed significant improvement from the fourth quarter of 1998.
Robert L. Borchardt, President and CEO of Recoton, commented, "We are disappointed with first quarter results. We are, however, encouraged by future prospects. We believe that the product-driven consumer electronics industry is poised for solid growth as many of its categories are undergoing a dramatic new product cycle from analog to digital technology. Our results over the next several years should benefit from consumers purchasing many digital devices including DVD players, digital camcorders, downloadable recording devices such as MP3 players, home and car digital satellite systems and, gradually, high definition television (HDTV), heightening the need for and attractiveness of our many product offerings.
"The expected continued growth of the video game industry and the planned introduction of new video game systems by Nintendo(R), Sega(R) and Sony(R) also offers Recoton great opportunities for product development and sales growth. We expect that sales growth in the mobile electronic category should come from the introduction in automobiles, particularly in larger recreational vehicles, of new entertainment systems including such features as televisions, VCRs, DVDs, video game systems, and satellite radio.
"Recoton is a one-stop supplier of accessories and add-ons to the world's leading retailers and we are developing many exciting new products that we believe will coincide with the digital age. Our intent is to build upon InterAct's position as the leading third party supplier of video and PC game accessories and to position Recoton and Jensen as leading brands for consumer electronics accessories. We are introducing innovative new products from InterAct, which are scheduled for commercial delivery in the second half of the year to complement the introduction of new game platforms in late 1999 and in the year 2000 by Sega, Nintendo and Sony. InterAct has previewed its entry into the world of e-commerce with the debut of SharkWire Online(TM), the first and only game console add-on system that introduces gamers to their own on-line community. InterAct also announced a licensing agreement with Mattel, Inc. which allows InterAct to offer an array of licensed Barbie(R) brand peripherals and accessories for PlayStation(R), GameBoy(R) and the PC. All of these products were launched at the Electronics Entertainment Expo in Los Angeles last week."
Mr. Borchardt also announced that Recoton and its Board of Directors expect to have a comprehensive plan to enhance profitability and maximize the Company's return on assets completed and to commence its implementation within the next 60 days. The overall plan will assess the Company's businesses and outline ways to improve efficiency and maximize resources and investments. In November 1998 Recoton hired a consulting firm to examine its businesses and in April 1999 the Company expanded the role of these consultants to assist management in designing and implementing this plan.
"Recoton has established itself as a global provider of a comprehensive range of video and PC game accessories, consumer electronic accessories, mobile audio products and home speakers," Mr. Borchardt noted. "We have 23 well-known and highly respected brand names encompassing 4,000 products, a strong worldwide distribution system, innovative new product introductions, increases in global market share, and strong partnerships and shelf space at many of the world's largest retailers. We recognize that the retail and product landscapes are rapidly evolving and the Company needs to be responsive to change. Some of the steps we are about to take will force us to make some difficult decisions. We believe that this process will create a stronger and more efficient Recoton with redefined strategies.
"We have demonstrated over many years our ability to create strong sales results through a combination of product breadth and innovation, marketing and distribution strengths and an ability to exploit new trends unmatched in our industry. We will approach creating the new Recoton with the same vigor and resolve, while maintaining our commitment to our customers and shareholders."
Recoton Corporation, is a global leader in the development, manufacturing and marketing of consumer electronic accessories, loudspeakers and car audio products. Recoton's more than 4,000 products feature highly functional accessories for audio, video, car audio, camcorder, multi-media/computer, home office, cellular and standard telephone, music and video game products and 900MHz wireless technology headphones and speakers. They are sold under the AAMP(R), Ambico(R), Ampersand(R), AR(R)/Acoustic Research(R), Discwasher(R), InterAct(R), Parsec(R), Peripheral(R), Performance(TM), Recoton(R), Rembrandt(R), Ross(TM), SoleControl(R), SoundQuest(R) and Stinger(R) brand names. The Company also produces and markets audio components, high fidelity loudspeakers, home theater speakers, and car audio speakers and components which are sold under the Advent(R), AR(R)/Acoustic Research(R),HECO(TM), Jensen(R), MacAudio(R), Magnat(R), NHT(R) (Now Hear This), and Phase Linear(R) and Recoton(R) brand names. Sony PlayStation(R) is a registered mark of Sony Corporation; Nintendo 64 and Gameboy are a registered mark of Nintendo Of America; Barbie is a registered mark of Mattel, Inc.
This press release may contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of l995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Such statements speak only as of the date made. Please refer to the Company's Form 10-K and other SEC filings.
RECOTON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Income Per Share Data)
(Unaudited)
Three Months Ended
March 31,
1999 1998
---- ----
Net Sales $ 143,906 $ 144,717
Cost of Sales 87,998 89,607 -- -------------
Gross Profit 55,908 55,110
Selling, General & Administrative
Expenses 52,843 47,449
Interest Expense 5,239 3,500
Investment Income (168) (79)
TOTAL 57,914 50,870
Income (Loss) Before Income Taxes (2,006) 4,240
Income Tax Provision (Credit) (542) 636
NET INCOME (LOSS) $ (1,464) $ 3,604
================= =============
Income (Loss) Per Share:
Basic $ (0.13) $ 0.31
================ =============
Diluted $ (0.13) $ 0.30
================ =============
Average Number of Shares Used
In Computing Per Share Amounts:
Basic 11,699 11,582
Diluted 11,699 11,885
RECOTON CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
March 31, December 31,
1999 1998
--------------- ---------
(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents 30,092 21,385
Accounts Receivable
(Less Allowance for Possible Loss) 137,398 183,230
Inventories 157,914 161,294
Prepaid, Refundable and
Deferred Income Taxes 13,934 12,931
Prepaid Expenses and
Other Current Assets 15,419 12,629
---------------- -------------
Total Current Assets $ 354,757 $ 391,469
Property and Equipment
(Less Accumulated
Depreciation and Amortization) 40,300 40,693
Goodwill and Other Assets 58,738 54,508
---------------- -------------
TOTAL ASSETS $ 453,795 $ 486,670
================ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Loans and Drafts Payable $ 64,000 $ 95,526
Current Portion of Long-Term Debt 9,362 9,359
Accounts Payable 50,114 63,848
Accrued Expenses 22,241 40,418
Income Taxes Payable 3,402 4,023
---------------- -------------
Total Current Liabilities 149,119 213,174
Long-Term Debt (Less Current
Portion Above) 146,841 114,186
Other Non Current Liabilities 11,300 11,315
---------------- -------------
TOTAL LIABILITIES 307,260 338,675
SHAREHOLDERS' EQUITY 146,535 147,995
---------------- -------------
TOTAL $ 453,795 $ 486,670
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