<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ___________________
COMMISSION FILE NUMBER: 1-12624
SYRATECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3354944
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
175 MCCLELLAN HIGHWAY
EAST BOSTON, MASSACHUSETTS 02128-9114
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE - 617-561-2200
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTIONS 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 $0.01 PER SHARE, OUTSTANDING AT JUNE
30, 1996- 8,676,631.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 1
Condensed Consolidated Income Statements for the six month
periods ended June 30, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents ......................................$ 3,409 $ 78,493
Marketable securities ..................................... 30,561
Accounts receivable, net .................................. 55,430 31,893
Insurance receivable ...................................... 20,468
Inventories ............................................... 109,061 41,151
Deferred income taxes ..................................... 6,112 5,105
Prepaid expenses and other ................................ 2,816 1,602
Net assets of discontinued operations ..................... 105 1,834
--------------- --------------
Total current assets .................................. 197,401 190,639
Property, plant and equipment, net ........................... 60,404 29,560
Purchase price in excess of net assets acquired .............. 6,047
Other assets ................................................. 437 367
--------------- --------------
Total .................................................$ 264,289 $ 220,566
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ...............$ 56,396 $ 51,735
Accounts payable........................................... 11,294 6,438
Accrued expenses........................................... 12,443 4,436
Accrued compensation....................................... 2,080 2,478
Accrued advertising........................................ 2,949 1,991
Income taxes payable....................................... 2,522 1,511
--------------- --------------
Total current liabilities ............................. 87,684 68,589
Deferred income taxes ........................................ 18,758 3,657
Deferred compensation......................................... 2,354 1,724
Commitments and contingencies ................................
Stockholders' equity:
Preferred stock; $.10 par value, 500,000 shares
authorized; no shares issued or outstanding
(135,000 shares designated Series A Preferred Stock)
Common stock, $.01 par value, 20,000,000 shares
authorized; 8,676,849 and 8,667,249 shares issued in
1996 and 1995, respectively.............................. 87 87
Additional paid-in capital ................................ 9,819 9,699
Retained earnings ......................................... 145,441 136,728
Cumulative translation adjustment ......................... 149 85
Less: Treasury stock; 218 shares, at cost ................. (3) (3)
--------------- --------------
Total stockholders' equity ............................ 155,493 146,596
--------------- --------------
Total .................................................$ 264,289 $ 220,566
=============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ........................................................$ 38,592 $ 29,357 $ 69,858 $ 56,269
Cost of sales .................................................... 28,414 21,040 50,632 40,419
------------ ------------ ------------ ------------
Gross profit ................................................ 10,178 8,317 19,226 15,850
Selling, general and administrative expenses ..................... 11,417 6,795 20,755 14,266
Other operating income ........................................... 3,422 3,422
------------ ------------ ------------ ------------
Income from operations ...................................... 2,183 1,522 1,893 1,584
Interest expense ................................................. (866) (89) (993) (142)
Interest income .................................................. 44 1,704 604 1,705
Other income ..................................................... 11,900 11,900
------------ ------------ ------------ ------------
Income before provision for income taxes .................... 13,261 3,137 13,404 3,147
Provision for income taxes ....................................... 4,638 1,051 4,691 1,054
------------ ------------ ------------ ------------
Income from continuing operations ........................... 8,623 2,086 8,713 2,093
Discontinued operations:
Income from discontinued operations
of Syroco, Inc., net of income taxes of
$1,645 ..................................................... 2,572
Gain on sale of Syroco, Inc. net of
income taxes of $16,599 .................................... 30,451 30,451
------------ ------------ ------------ ------------
Net income ..................................................$ 8,623 $ 32,537 $ 8,713 $ 35,116
============ ============ ============ ============
Earnings per share:
Continuing operations .........................................$ 0.98 $ 0.18 $ 0.99 $ 0.18
Discontinued operations ....................................... 2.58 2.79
------------ ------------ ------------ ------------
Net income ..................................................$ 0.98 $ 2.76 $ 0.99 $ 2.97
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding ................................. 8,793 11,805 8,786 11,817
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................$ 8,713 $ 35,116
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ............................. 2,160 1,653
Deferred income taxes ..................................... 1,124 (432)
Acquisition of Farberware assets .......................... (9,500)
Net proceeds on disposal of Farberware assets ............. 13,600
Other ..................................................... 650 304
Increase (decrease) in cash, net of effect of businesses
acquired:
Marketable securities ................................. 30,561
Accounts receivable ................................... (13,818) 6,943
Inventories ........................................... (44,849) (10,026)
Prepaid expenses and other ............................ 269 (1,228)
Accounts payable and accrued expenses ................. (2,910) 418
Income taxes payable .................................. (654) (3,082)
Discontinued operations ................................... 1,729 (48,081)
------------ ------------
Net cash used in operations .................................. (12,925) (18,415)
------------ ------------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired ............. (47,440)
Insurance claim proceeds ..................................... 3,303
Net proceeds on sale of Syroco, Inc. ......................... 155,530
Purchases of property, plant and equipment ................... (8,651) (1,302)
Other ........................................................ 51 217
------------ ------------
Net cash (used in) provided by investing activities .......... (52,737) 154,445
------------ ------------
Cash flows from financing activities:
Change in revolving loan facilities .......................... (9,224) (12,488)
Repayment of borrowings ...................................... (300) (586)
Other ........................................................ 102 (136)
------------ ------------
Net cash used in financing activities......................... (9,422) (13,210)
------------ ------------
Net (decrease) increase in cash and equivalents .............. (75,084) 122,820
Cash and equivalents, beginning of period .................... 78,493 1,866
------------ ------------
Cash and equivalents, end of period...........................$ 3,409 $ 124,686
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands)
1. FINANCIAL INFORMATION
The accompanying unaudited interim condensed consolidated financial statements
of Syratech Corporation and Subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These interim condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes included in the Company's 1995 Annual Report to
Stockholders.
In the opinion of management, the interim condensed consolidated financial
statements reflect all adjustments, which consist only of normal and recurring
adjustments, necessary for a fair presentation of the interim periods. The
results of operations for the interim periods are not necessarily indicative of
the results of operations for the full year.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash paid during the period for:
Interest.............................. $ 714 $ 176
------------ ------------
Income taxes.......................... $ 3,950 $ 6,495
------------ ------------
</TABLE>
3. ACQUISITION OF PRODUCT LINES
The purchase price, including costs of the transaction, of the Company's
recent purchase of Rauch Industries, Inc. approximated $48,526. In the three
months ended March 31, 1996, the Company recorded a preliminary purchase price
allocation. During the three month period ended June 30, 1996, the Company
reached a final settlement agreement on the insurance claim related to a fire at
Rauch's manufacturing warehouse and distribution facility in 1994 and
accordingly adjusted its allocation of purchase price. The adjustments were to
record an insurance receivable of $20,468, to reduce purchase price in excess of
net assets acquired by $17,034 and record related deferred income taxes of
$9,502. The purchase price in excess of net assets acquired of $6,124 is being
amortized on the straight line basis over 30 years. The results of operations of
Rauch have been included with the results of the Company from February 15, 1996.
The acquisition was accounted for under the purchase method of accounting.
4
<PAGE> 7
3. ACQUISITION OF PRODUCT LINES (Continued)
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1995.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net sales ..................................$ 70,467 $ 63,162
------------ ------------
Income from continuing operations ..........$ 8,198 $ 1,084
------------ ------------
Net income..................................$ 8,198 $ 34,197
------------ ------------
Earnings per share:
Continuing operations....................$ 0.93 $ 0.09
------------ ------------
Net income...............................$ 0.93 $ 2.89
------------ ------------
</TABLE>
On April 2, 1996, the Company through its indirect wholly-owned subsidiary,
Far-B Acquisition Corp. ("Far-B") together with Lifetime Hoan Corporation
("Lifetime") acquired certain assets from Farberware Inc. ("Farberware") a
subsidiary of U. S. Industries, Inc. Lifetime and the Company are not affiliates
of each other.
Farberware was a manufacturer of aluminum clad, stainless steel cookware and
bakeware and small electric kitchen appliances. The aggregate consideration paid
by Far-B and Lifetime was $45,771. The assets acquired by the Company included
the inventory, tradename, other intellectual property that related to cookware
and bakeware and small electric kitchen appliances, and certain tools, dies,
machinery and equipment, but excluded accounts receivable. The consideration
paid by Far-B was approximately $32,611. Effective April 2, 1996, the Company
through Far-B, entered into a Manufacturing Services Agreement (the "Agreement")
with Farberware for transitional manufacturing services for certain finished
goods previously produced by Farberware. The Company entered into the Agreement
to provide continuity of product during a transition period in order to protect
the strength of the Farberware name in the marketplace. The Agreement will
terminate on August 29, 1996.
Upon disposal of the existing inventory and additional inventory manufactured
pursuant to the Agreement, the Company will not manufacture or sell Farberware
cookware and bakeware products. Accordingly, net sales for the three and six
months ended June 30, 1996 exclude sales of Farberware inventory and income of
$3,422, net of certain selling, general and administrative expenses, from these
sales has been recorded as other operating income.
In a separate transaction, the Company and Far-B entered into a joint venture
agreement with Lifetime. The joint venture provided for the assumption of
certain license agreements between Farberware and third parties for use on a
variety of products including cutlery, flatware, dinnerware, glass
giftware/serveware, and glass beverageware.
On May 3, 1996, the Company and Far-B entered into an agreement with Meyer
Marketing Co. Ltd. ("Meyer") to grant and transfer certain rights in the
Farberware name and certain of the intellectual property relative to cookware
and bakeware products to Meyer, an existing licensee, for certain Farberware
products. On June 27, 1996, Meyer was granted additional exclusive rights and
license to use and exploit the Farberware name and related trademarks and
certain non-exclusive rights to use and exploit other intellectual property
rights in connection with the sourcing, manufacturing and distribution of
cookware and bakeware products until April 30, 2196. The Company recognized
non-recurring income of $11,900 from Meyer the license agreement.
5
<PAGE> 8
3. ACQUISITIONS OF PRODUCT LINES (Continued)
On April 16, 1996, the Company acquired finished goods inventory and
intangible assets of the Silvestri product line ("Silvestri") from FFSC, Inc.
for approximately $8,600. Prior to the Company's acquisition, FFSC, Inc., its
parent, its subsidiaries and affiliated companies had filed for protection under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Texas (the "Bankruptcy Court"). The Bankruptcy Court
approved this acquisition by the Company. Silvestri products include Christmas
ornaments, collectibles, lighting and trim as well as other seasonal and
non-seasonal giftware and decorative accessories.
On May 8, 1996, the Company, through one of its subsidiaries, acquired all of
the outstanding common stock of C. J. Vander Limited., a manufacturer of
sterling silver and silverplated flatware and holloware in Sheffield and London,
England. The acquisition was accounted for under the purchase method of
accounting.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw material......................................... $ 17,356 $ 3,908
Work-in-process...................................... 12,602 1,744
Finished goods....................................... 79,103 35,499
------------ ------------
Total........................................... $ 109,061 $ 41,151
============ ============
</TABLE>
5. INCOME TAXES
The provision for income tax expense for the six month period ended June 30,
1996 has been computed using an estimated effective tax rate for the year ended
December 31, 1996.
6. NOTES PAYABLE
The Company's Amended and Restated Loan and Security Agreement (the
"Agreement") provides for maximum permitted borrowings of $60,000. As a result
of the Rauch acquisition, the Company assumed the borrowings of Rauch (the
"Rauch Loan"). The Rauch Loan is from the same lender as the Company's
Agreement. The Rauch Loan allowed long-term borrowings up to $12,800 and
short-term borrowings up to $40,000. The Company is presently negotiating a new
revolving loan and security agreement that combines the two financing
arrangements. The Company and the lender have agreed to a date of October 31,
1996 to have a new revolving loan and security agreement in place.
The revolving credit facility of one of the Company's Puerto Rican
subsidiaries expired on May 31, 1996. During the three month period ended June
30, 1996, the Company received a letter of commitment increasing the line from
$4,000 to $10,000 and extending it to May 31, 1997. As of June 30, 1996 the
Company was negotiating the final details of the line of credit. As of June 30,
1996, the amount of outstanding borrowings under the line was $651.
6
<PAGE> 9
7. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation"
("Statement 123"). The Company has continued to account for its stock-based
transactions to employees in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and will include the pro
forma disclosures required by Statement 123, if material, in its annual
financial statements for 1996. For stock option grants to non-employees, the
Company follows the provisions of Statement 123, calculates compensation expense
using a fair value based method and amortizes compensation expense over the
vesting period. During the six months ended June 30, 1996, the Company did not
grant any options to purchase shares of common stock to non-employees.
Also, effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement
121 requires that long-lived assets held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an asset
may not be recoverable. It also requires that long-lived assets to be disposed
of be reported at the lower of the carrying amount or fair value less the cost
to sell. The adoption of Statement 121 did not have a material effect on the
Company's financial position or results of operations for the six months ended
June 30, 1996.
7
<PAGE> 10
SYRATECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Some of the information presented in this Management's Discussion and Analysis
of Financial Condition and Results of Operations constitutes forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors which could cause actual results to differ from
expectations include, the timing of orders received from customers, the gain or
loss of significant customers, changes in the mix of products sold, competition
from other manufacturers or distributors, seasonal changes in the demand for the
Company's products, increases in the cost of raw materials and changes in the
retail market for housewares products in general. For additional information
concerning these and other important factors which may cause the Company's
actual results to differ materially from expectations and underlying
assumptions, please refer to the reports filed by the Company with the
Securities and Exchange Commission.
The purchase price, including costs of the transaction, of the Company's
recent purchase of Rauch Industries, Inc. approximated $48.5 million. In the
three months ended March 31, 1996, the Company recorded a preliminary purchase
price allocation. During the three month period ended June 30, 1996, the Company
reached a final settlement agreement on the insurance claim related to a fire at
Rauch's manufacturing warehouse and distribution facility in 1994 and
accordingly adjusted its allocation of purchase price. The adjustments were to
record an insurance receivable of $20.5 million, to reduce purchase price in
excess of net assets acquired by $17.0 million and record related deferred
income taxes of $9.5 million. The purchase price in excess of net assets
acquired of $6.1 million is being amortized on the straight line basis over 30
years. The results of operations of Rauch have been included with the results of
the Company from February 15, 1996. The acquisition was accounted for under the
purchase method of accounting. During the fiscal year ended December 31, 1995
net sales of Rauch were $58.9 million. The purchase was funded primarily with
the net proceeds remaining from the sale of Syroco.
On April 2, 1996, the Company through its indirect wholly-owned subsidiary,
Far-B Acquisition Corp. ("Far-B") together with Lifetime Hoan Corporation
("Lifetime") acquired certain assets from Farberware Inc. ("Farberware") a
subsidiary of U. S. Industries, Inc. Lifetime and the Company are not affiliates
of each other.
Farberware was a manufacturer of aluminum clad, stainless steel cookware and
bakeware and small electric kitchen appliances. The aggregate consideration paid
by Far-B and Lifetime was $45.8 million. The assets acquired by the Company
included the inventory, tradename, other intellectual property that related to
cookware and bakeware and small electric kitchen appliances, and certain tools,
dies, machinery and equipment, but excluded accounts receivable. The
consideration paid by Far-B was approximately $32.6 million. Effective April 2,
1996, the Company through Far-B, entered into a Manufacturing Services Agreement
(the "Agreement") with Farberware for transitional manufacturing services for
certain finished goods previously produced by Farberware. The Company entered
into the Agreement to provide continuity of product during a transition period
in order to protect the strength of the Farberware name in the marketplace. The
Agreement will terminate on August 29, 1996.
Upon disposal of the existing inventory and additional inventory manufactured
pursuant to the Agreement, the Company will not manufacture or sell Farberware
cookware and bakeware products. Accordingly, net sales for the three and six
months ended June 30, 1996 exclude sales of Farberware
8
<PAGE> 11
inventory and income of $3.4 million net of certain selling, general and
administrative expenses, from these sales has been recorded as other operating
income.
In a separate transaction, the Company and Far-B entered into a joint venture
agreement with Lifetime. The joint venture provided for the assumption of
certain license agreements between Farberware and third parties for use on a
variety of products including cutlery, flatware, dinnerware, glass
giftware/serveware, and glass beverageware.
On May 3, 1996, the Company and Far-B entered into an agreement with Meyer
Marketing Co. Ltd. ("Meyer") to grant and transfer certain rights in the
Farberware name and certain of the intellectual property relative to cookware
and bakeware products to Meyer, an existing licensee, for certain Farberware
products. On June 27, 1996, Meyer was granted additional exclusive rights and
license to use and exploit the Farberware name and related trademarks and
certain non-exclusive rights to use and exploit other intellectual property
rights in connection with the sourcing, manufacturing and distribution of
cookware and bakeware products until April 30, 2196. The Company recognized
non-recurring income of $11.9 million from the Meyer license agreement.
On April 16, 1996, the Company purchased finished goods inventory and
intangible assets of the Silvestri product line ("Silvestri") from FFSC, Inc.
for approximately $8.6 million. Prior to the Company's acquisition, FFSC, Inc.,
its parent, its subsidiaries and affiliated companies had filed for protection
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Northern District of Texas (the "Bankruptcy Court"). The Bankruptcy
Court approved this acquisition by the Company. Silvestri products include
Christmas ornaments, collectibles, lighting and trim as well as other seasonal
and non-seasonal giftware and decorative accessories.
On May 8, 1996, the Company, through one of its subsidiaries, acquired all of
the outstanding common stock of C. J. Vander Limited., a manufacturer of
sterling silver and silverplated flatware and holloware in Sheffield and London,
England. The acquisition was accounted for under the purchase method of
accounting.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Net sales increased 31.5% to $38.6 million in the second quarter ended June
30, 1996 from $29.4 million in the second quarter of 1995. Net sales included
the impact of the acquisitions of Rauch, C. J. Vander and the product line of
Silvestri. However, net sales do not include Farberware products that were sold
during the quarter.
Gross profit for the second quarter ended June 30, 1996 increased 22.4% to
$10.2 million from $8.3 million in the second quarter of 1995. As a percentage
of net sales, the gross profit margin declined from 28.3% to 26.4% reflecting
extra warehouse costs for Rauch due to the fire it experienced in 1994 and
additional costs assumed in the acquisition of Silvestri.
Selling, general and administrative expenses increased to 29.6% as a
percentage of net sales to $11.4 million in the second quarter of 1996 from
23.1% as a percentage of net sales or $6.8 million in the same period of the
prior year. This increase primarily reflects selling, general and administrative
costs of companies acquired, selling, general and administrative costs of
disposal of Farberware inventory and additional product and systems development
costs which will benefit future periods. The Company's operations have become
more seasonal as a result of the acquisition of Rauch and the Silvestri product
line.
Income from operations increased 43.4% to $2.2 million from $1.5 million in
the second quarter of 1995. Included in income from operations for the 1996
second quarter was income, before certain selling, general and administrative
expenses, of $3.4 million from the disposal of Farberware inventory. The Company
expects the disposal of the Farberware inventory to continue for the remainder
of 1996 and into 1997.
Net interest expense for the three months ended June 30, 1996 was $822,000
compared to net interest income of $1.6 million in the same period a year ago.
This change resulted from a
9
<PAGE> 12
reduction in invested cash used to purchase and retire 3,064,751 shares of the
Company's common stock and for recent acquisitions.
Income before the provision for income taxes for the 1996 second quarter
totaled $13.3 million which included non-recurring income from the license
agreement entered into with Meyer of $11.9 million, net of costs, compared to
income before the provision for income taxes of $3.1 million in the 1995 second
quarter. The provision for income taxes was $4.6 million for the quarter ended
June 30, 1996 compared to $1.1 million for the same period of the prior year.
The effective tax rate was 35% for the 1996 second quarter compared to 33.5%
for the 1995 second quarter. The increase in income tax rate in 1996 is due to
the proportion of income earned in tax jurisdictions with higher income tax
rates.
Net income for the three months ended June 30, 1996 was $8.6 million or $0.98
per share on 8,793,000 shares. This compares with income from continuing
operations for the 1995 second quarter of $2.1 million or $0.18 per share and
net income of $32.5 million or $2.76 per share, which included a non-recurring
gain of $30.5 million, or $2.58 per share from the sale of Syroco, Inc. on
11,805,000 shares.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales increased 24.2% to $69.9 million for the six months ended June 30,
1996 from $56.3 million for the six months ended June 30, 1995. This increase
reflects the acquisition of Rauch, C. J. Vander and the Silvestri product line
and increased demand for the Company's sterling and giftware products.
Gross profit increased 21.3% to $19.2 million for the six months ended June
30, 1996 from $15.9 million for the six months ended June 30, 1995. Gross profit
as a percentage of sales was 27.5% for the six months ended June 30, 1996
compared to 28.2% for the six months ended June 30, 1995. The decrease in the
gross profit percentage was primarily a result of extra warehouse costs for
Rauch due to the fire it experienced in 1994 and additional costs assumed in the
acquisition of the Silvestri product line. The Company expects pressure on its
gross profit percentage during 1996 due to the acquisition of Rauch, whose
products have a gross profit margin which is lower than that of certain other
product lines.
Selling, general and administrative expenses increased to 29.7% as a
percentage of net sales or $20.8 million for the six months ended June 30, 1996
from 25.4% or $14.3 million for the comparable period of 1995. The increase in
selling, general and administrative expenses is due primarily to inclusion of
selling, general and administrative expenses of the acquisitions; selling,
general and administrative expenses related to the disposal of Farberware
inventory and increased costs related to the growth in sales volume including
personnel related costs, royalties, and product and systems development costs.
Interest expense, net was $0.4 million for the six months ended June 30, 1996
compared to net interest income of $1.6 million for the six months ended June
30, 1995.
The provision for income taxes was $4.7 million for the six months ended June
30, 1996 compared to $1.1 million for the six months ended June 30, 1995. The
effective tax rate was 35% for the six month period ended June 30, 1996,
compared to 33.5% for the same six month period of 1995. The increase in the
income tax rate in 1996 is due to the proportion of income earned in tax
jurisdictions with higher income tax rates.
Net income for the six months ended June 30, 1996 was $8.7 million or $0.99
per share compared to income from continuing operations of $2.1 million or $0.18
per share for the same period last year. The six months ended June 30, 1996
included non-recurring income of $11.9 million, net of costs, resulting from a
license agreement. Net income for the six months ended June 30, 1995 was $35.1
million or $2.97 per share. The six months of 1995 included income from
discontinued operations net of income taxes of $2.6 million and the gain on sale
of Syroco, Inc. of $30.5 million totaling $2.79 per share.
ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting For Stock-Based Compensation"
("Statement 123"). The Company has continued to account for its stock-based
transactions to employees in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and will include the pro
forma disclosures required by Statement 123, if material, in its annual
financial statements for 1996. For stock option grants to non-
10
<PAGE> 13
employees, the Company follows the provisions of Statement 123, calculates
compensation expense using a fair value based method and amortizes compensation
expense over the vesting period. During the six months ended June 30, 1996, the
Company did not grant any options to purchase shares of common stock to
non-employees.
Also, effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("Statement 121"). Statement
121 requires that long-lived assets held and used by an entity be reviewed for
impairment whenever circumstances indicate that the carrying amount of an asset
may not be recoverable. It also requires that long-lived assets to be disposed
of be reported at the lower of the carrying amount or fair value less the cost
to sell. The adoption of Statement 121 did not have a material effect on the
Company's financial position or results of operations for the six months ended
June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash used from operations for the six months ended June 30, 1996 was
approximately $12.9 million. The primary uses of cash were increases in accounts
receivable and inventories. Partially offsetting these uses was the decrease in
marketable securities as a result of the repayment of temporary borrowings used
to purchase for retirement the Company's stock held by Katy Industries, Inc.
At June 30, 1996, accounts receivable increased to $55.4 million from $31.9
million at December 31, 1995. This increase is primarily the result of sales of
Farberware inventory. The increase in inventory to $109.1 million at June 30,
1996 from $41.2 million at December 31, 1995, is due to recent acquisitions,
including purchased Farberware inventory and to a seasonal increase in the
Company's inventory in anticipation of the third and fourth quarter selling
season. Production of Farberware inventory will continue through the end of
August under the manufacturing services agreement the Company has with the
former owner of Farberware. At June 30, 1996, the insurance receivable of $20.5
million represents amounts due from the final settlement agreement for the Rauch
fire loss which occurred prior to the Company's acquisition of Rauch. This
receivable, in addition to an advance payment for the claim, was recorded as an
adjustment to goodwill, net of deferred taxes. The short-term borrowings at June
30, 1996 of $56.4 million is expected to be reduced using proceeds received from
the continued disposal of Farberware inventory, the collection of the insurance
proceeds expected in the third quarter and by third and fourth quarter
collections of Farberware receivables.
Capital expenditures were approximately $8.7 million for the six months ended
June 30 , 1996. These expenditures were primarily for a warehouse in South
Carolina, computer software and hardware, improvements at the Company's East
Boston facility and machinery, tools and dies for the Company's manufacturing
facilities. Capital expenditures were principally financed using short-term
borrowings. The Company expects capital expenditures for the year ended December
31, 1996 to approximate $18.3 million including preliminary construction costs
for a warehouse facility on the West Coast and a building and equipment for C.
J. Vander.
The Company's Amended and Restated Loan and Security Agreement (the
"Agreement") provides for maximum permitted borrowings of $60.0 million. As a
result of the Rauch acquisition, the Company assumed the borrowings of Rauch
(the "Rauch Loan"). The Rauch Loan is from the same lender as the Company's
Agreement. The Rauch Loan allowed long-term borrowings up to $12.8 million and
short-term borrowings up to $40.0 million. The Company is presently negotiating
a new revolving loan and security agreement that combines the two financing
arrangements. The Company and the lender have agreed to a date of October 31,
1996 to have a new revolving loan and security agreement in place.
The revolving credit facility of one of the Company's Puerto Rican
subsidiaries expired on May 31, 1996. During the three month period ended June
30, 1996, the Company received a letter of commitment increasing the line from
$4.0 million to $10.0 million and extending it to May 31, 1997. As of June 30,
1996 the Company was negotiating the final details of the line of credit. As of
June 30, 1996, the amount of outstanding borrowings under the line was $0.7
million.
11
<PAGE> 14
On June 30, 1996, borrowings and credit availability under the Company's
Agreement, the Rauch Loan and the Puerto Rican subsidiary's line totaled $56.4
million and $35.3 million, respectively.
The Company believes that funds generated from operations, the Rauch insurance
proceeds and borrowings available under existing revolving loan facilities, will
be sufficient to finance the Company's working capital requirements, provide for
all known obligations of the Company (including the obligations of the Company
under its operating leases) and fund planned capital expenditures for the
foreseeable future.
12
<PAGE> 15
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 9, 1996, in Boston,
Massachusetts, at which three matters were submitted to a vote of the
stockholders:
(a) Votes cast for or withheld regarding the election of four
Class II directors to hold office until the 1999 Annual Meeting of Stockholders
and until their respective successors are duly elected and qualified were as
follows:
<TABLE>
<CAPTION>
.. FOR WITHHELD
<S> <C> <C>
Irwin Chafetz 6,192,527 10,857
Jerry R. Jacob 6,192,526 10,858
Alan Perlman 6,192,527 10,857
Peter D. Rauch 6,192,527 10,857
</TABLE>
(b) Votes cast for or against and the number of abstentions
regarding the proposal to approve and adopt the 1995 Key Employees' Stock Option
Plan were as follows:
6,196,786 FOR
1,004 AGAINST
5,594 ABSTAIN
(c) Votes cast for or against and the number of
abstentions regarding the ratification of the appointment of Deloitte & Touche
LLP as auditors of the financial statements of the corporation and its
consolidated subsidiaries for the fiscal year ending December 31, 1996 were as
follows:
5,439,261 FOR
65,923 AGAINST
7,643 ABSTAIN
13
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EX-10-1 Letter Agreement between Banco Popular de Puerto Rico and
Wallace International de PR, Inc. dated May 31, 1996.
EX-10-2 Letter Agreement between NationsBank, N.A. and Rauch
Industries, Inc. dated May 31, 1996.
EX-10-3 Fifth Modification dated as of July 1, 1996 to Amended and
Restated Loan and Security Agreement dated as of November 30,
1994.
EX-10-4 Amendment No. 1 dated as of July 1, 1996 to Loan Agreement
dated as of May 31, 1995 between Rauch Industries, Inc. and
NationsBank, N.A. (South).
EX-11 Computation of Net Income per Common Share.
EX-27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
(b) Reports on Form 8-K:
A report on Form 8-K, reporting event dated April 2, 1996, which
described the purchase of Farberware Inc.
A report on Form 8-K, reporting event dated April 16, 1996, which
described the purchase of Silvestri.
A report on Form 8-K/A, dated April 26, 1996, reporting event dated
February 15, 1996, which included the financial statements of Rauch
Industries, Inc. and the pro forma financial information.
A report on Form 8-K, reporting event dated June 27, 1996, which
described the Meyer License Agreement.
14
<PAGE> 17
SYRATECH CORPORATION AND SUBSIDIARIES
SIGNATURE
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.
Syratech Corporation
Dated: August 14, 1996
/s/ E. Merle Randolph
--------------------------------------
E. Merle Randolph
Vice President, Treasurer, and
Chief Financial and Accounting Officer
15
<PAGE> 18
INDEX TO EXHIBITS
FILED WITH SYRATECH CORPORATION
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1996
Exhibit No
----------
EX-10-1 Letter Agreement between Banco Popular de Puerto Rico and
Wallace International de PR, Inc. dated May 31, 1996.
EX-10-2 Letter Agreement between NationsBank, N.A. and Rauch
Industries, Inc. dated May 31, 1996.
EX-10-3 Fifth Modification dated as of July 1, 1996 to Amended and
Restated Loan and Security Agreement dated as of November 30,
1994.
EX-10-4 Amendment No. 1 dated as of July 1, 1996 to Loan Agreement
dated as of May 31, 1995 between Rauch Industries, Inc. and
NationsBank, N.A. (South).
EX-11 Computation of Net Income per Common Share.
EX-27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information only
and not filed.
<PAGE> 1
EX-10-1
----------------------------------
BANCO POPULAR Banco Popular De Puerto Rico
PO Box 362708
San Juan, Puerto Rico 00936-2708
Telefonos (809) 765-9800, 751-9800
May 31, 1996
Mr E. Merle Randolph
Vice President
Wallace International de PR, Inc. AMENDED
175 McClellan Highway
East Boston, Massachusetts 02128
Dear Mr. Randolph:
We are pleased to confirm that Banco Popular de Puerto Rico ("the Bank") has
approved an increase in the line of credit of Wallace International de PR, Inc.
("the Borrower") subject to the terms and conditions outlined below:
AMOUNT : $10,000,000
TYPE : Revolving line of credit.
PURPOSE : Funds will be used for working capital needs of
Wallace International de PR, Inc. or of its parent
company, Wallace International Silversmiths, Inc.
and/or its ultimate parent company, Syratech
Corporation.
REPAYMENT : Revolving.
INTEREST RATE : Interest rate on the notes to be set on the day an
advance is made based on LIBOR plus 1.75%, or if the
Borrower so chooses, pricing will be based on the
Bank's Prime Rate less .25% fluctuating concurrently
with any changes in the Bank's Prime Rate from time
to time. Interest to be paid monthly in arrears on a
360 days basis.
BROKEN Upon at least 30 days prior written notice, Wallace
FUNDING RATE : PR may prepay the note, in whole or in part, with
accrued interest without a prepayment penalty on
repricing dates only. Should it elect to prepay on a
date other than a repricing date, it shall reimburse
for any applicable funding losses the Bank may incur
as a consequence of redeploying such funds. Each
partial prepayment shall be made in an aggregate
amount not less than $50,000 and shall be applied on
the unpaid installments in the inverse order of
maturities.
<PAGE> 2
Mr. E. Merle Randolph
May 31, 1996
Page 2
MATURITY : May 31, 1997.
TENOR : Short term notes up to 90 days.
SECURITY/COLLATERAL:
1. Unlimited and Continuous Guaranties from Wallace International
Silversmiths, Inc., Towle Manufacturing Company and Syratech
Corp.
2. Wallace de PR will not encumber its silver inventory located
at the Wallace International de PR, Inc. facilities in San
German, Puerto Rico. (Negative pledge of assets).
OTHER TERMS AND CONDITIONS:
1. Apply the proceeds of the loan for the specific purposes as
herein agreed to by the borrower and the Bank and make
punctual payments.
2. Preserve Corporate existence and going concern status.
3. Submit annual audited financial statements of Borrower and
Guarantors within one hundred and twenty (120) days after
close of fiscal year end.
4. Comply with all applicable statures, laws and regulations.
5. Any legal expenses incurred in connection with the drafting,
execution and registration of legal documents shall be paid by
the Borrower.
All other terms and conditions specified on the Line of Credit Agreement dated
January 23, 1993 shall remain in full force and effect.
The above shall not be construed as a line of credit agreement, its sole purpose
being to advise you of the credit facilities that we have at the disposal to
Wallace International de PR, Inc., with the terms and conditions thereof,
conditioned upon preparation, execution and delivery of an amended line of
credit agreement and other documentation typical of this type of financing as
required by the Bank.
<PAGE> 3
Mr. E. Merle Randolph
May 31, 1996
Page 3
Kindly note that we will be at your disposal to clarify any questions pertaining
to the foregoing transaction at your convenience.
Cordially,
Janice A. Vazquez
Relationship Officer
Corporate Banking Division
TERMS AND CONDITIONS AGREED AND ACCEPTED:
WALLACE INTERNATIONAL DE PR, INC.
/s/ E. Merle Randolph
- ------------------------------------
Authorized Signature
c. Leda. Ana Rivera
<PAGE> 1
EX-10-2
NationsBank
Commercial Bank Department
355 South New Hope Road
Gastonia, NC28054-4037
NATIONSBANK
May 31, 1996
Mr. Donald G. Walser
Rauch Industries, Inc.
P. O. Box 609
Gastonia, NC 28054
Dear Don:
NationsBank, N.A. hereby agrees to extend the expiration date of the
$40,000,000 line of credit to July 1, 1996. All other terms and conditions of
the line of credit will remain the same.
Sincerely,
Stephen D. Campbell
Senior Vice President
Acknowledged and accepted this 31st day of May, 1996.
Rauch Industries, Inc.
By: /s/ Donald G. Walser
--------------------
<PAGE> 1
EX-10-3
[Execution Copy]
FIFTH MODIFICATION
dated as of July 1, 1996 to
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
dated as of November 30, 1994
SYRATECH CORPORATION, a Delaware corporation ("Syratech"), TOWLE
MANUFACTURING COMPANY, a Delaware corporation ("Towle"), LEONARD FLORENCE
ASSOCIATES, INC., a Massachusetts corporation ("Leonard"), WALLACE INTERNATIONAL
SILVERSMITHS, INC., a Delaware corporation ("Wallace"), SYRATECH HOLDING
CORPORATION, a New York corporation ("Holding" and together with Syratech,
Towle, Leonard, Wallace, and Holding, the "Borrowers"), and NATIONSBANK, N.A.
(SOUTH), a national banking association (f/k/a NationsBank of Georgia, N.A.)
(the "Lender"), agree as follows:
Preliminary Statement
The Borrowers and the Lender are parties to an Amended and Restated
Loan and Security Agreement dated as of November 30, 1994 as amended or modified
by letters dated December 31, 1994, June 6, 1995, June 30, 1995 and October 6,
1995 (as so amended and as the said Agreement may have been further amended or
modified prior to the date hereof, the "Loan Agreement").
Syratech has recently acquired 100% of the issued and outstanding
shares of capital stock of Rauch Industries, Inc., a North Carolina corporation
("Rauch"). Rauch is a party to a Loan Agreement dated as of May 31, 1995 with
NationsBank, N.A. (f/k/a NationsBank, N.A. (Carolinas)), an Affiliate of the
Lender (the "Rauch Lender"). In anticipation of a restructuring of their bank
debt, the Borrowers have requested that the Rauch Lender assign to the Lender
and that the Lender accept the agreements evidencing the existing debt of Rauch
to the Rauch Lender and that certain related modifications be made to the Loan
Agreement. The Lender has agreed, upon and subject to all of the terms,
conditions and provisions of this Amendment, to such requests.
Accordingly, the Lender and the Borrowers hereby agree as
follows:
Section 1. Cross References and Definitions.
(a) Reference is made to the Loan Agreement. Upon and
after the effectiveness of this Amendment as provided in Section 4 hereof, all
references to the Loan Agreement in that document, or in any related document,
shall mean the Loan Agreement as amended by this Amendment. Except as expressly
provided in this Amendment, the execution
<PAGE> 2
and delivery of this Amendment does not, and will not, amend, modify or
supplement any provision of or constitute a consent to or a waiver of any
noncompliance with the provisions of the Loan Agreement and, except as
specifically provided in this Amendment, the Loan Agreement shall remain in full
force and effect.
(b) Unless otherwise defined herein, terms defined in the
Loan Agreement are used herein as therein defined.
Section 2. Amendment to Loan Agreement Provisions. Effective as of the
Amendment Effective Date (as defined in Section 4 below), the Loan Agreement is
amended by:
(a) amending Section 1.1 Definitions
(i) by amending the definition "Applicable Margin" in its
entirety to read as follows:
"Applicable Margin" means (a) with respect to a Prime
Rate Revolving Credit Loan, minus 3/4 of 1% (-0.75%), (b) with
respect to a Eurodollar Rate Revolving Credit Loan, 1.0% and
(c) with respect to each Term Loan Advance, 1.25%.
(ii) by amending the definition "Loan Documents" by
inserting after the phrase "the Letter of Credit Documents"
appearing therein, the phrase ", the Rauch Debt Documents";
and
(iii) by amending the definition "Materially Adverse
Effect" by adding the phrase "and Rauch" after the term "the
Borrowers" both times it appears therein;
(b) further amending Section 1.1 Definitions by adding
thereto in appropriate alphabetical order the following additional definitions:
"Rauch" means Rauch Industries, Inc., a North
Carolina corporation and an indirect wholly owned Subsidiary
of Syratech.
"Rauch Debt" means Indebtedness for Money Borrowed of
Rauch owing to the Lender from time to time pursuant to the
Rauch Debt Documents.
"Rauch Debt Documents" means the Loan Agreement dated
as of May 31, 1995 between Rauch and NationsBank, N.A. (f/k/a
NationsBank, N.A. (Carolinas)), an Affiliate of the Lender, as
assigned to the Lender on or about July 1, 1996, together with
any and all security agreements, promissory notes,
certificates, instruments and other documents related thereto,
evidencing a term loan in the original principal amount
-2-
<PAGE> 3
of $12,800,000 and revolving credit loans in an aggregate
principal amount of up to $40,000,000, as the same have been
and may hereafter be amended, modified, supplemented or
restated.
(c) amending Section 11.3 Guaranties by inserting before
the period at the end thereof, the phrase "and the Guaranty by Syratech of the
Rauch Debt".
Section 3. Waiver and Consent. The Lender hereby confirms that it has
not exercised its right pursuant to Section 9.11 of the Loan Agreement to
request that Rauch or any other Person which has become a Subsidiary of the
Borrower since January 15, 1996 execute and deliver a guaranty or security
agreement in respect of the Secured Obligations and that, without waiving its
right to do so upon reasonable notice to the Borrowers, it does not intend to
make any such request pursuant to Section 9.11 of the Loan Agreement (or
otherwise) prior to October 31, 1996.
Section 4. Conditions to Effectiveness of Amendment. Section 2 of this
Amendment shall be effective as of the date hereof (the "Amendment Effective
Date") upon receipt by the Lender of the following, each in form and substance
satisfactory to the Lender:
(a) counterparts of this Amendment, duly executed and
delivered by the Borrowers;
(b) evidence satisfactory to the Lender that Amendment
No. 1 of even date herewith to the Loan Agreement dated as of May 31, 1995
between Rauch and the Rauch Lender has become effective (but for the
effectiveness of this Amendment); and
(c) such other documents and instruments as the Lender
may reasonably request.
Section 5. Representations and Warranties. Each Borrower hereby
represents and warrants that as of the Amendment Effective Date, all of the
representations and warranties made or deemed to be made under the Loan
Agreement are true and correct and that no Default or Event of Default exists
and that each Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, has the power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted and is duly qualified and authorized to
do business in each jurisdiction in which failure to be so qualified and
authorized would have a Materially Adverse Effect, and has the right and power,
and has taken all necessary action to authorize it, to execute, deliver and
perform this Amendment. This Amendment and each other agreement contemplated
hereby to which any Borrower is a party have been duly executed and delivered by
the duly authorized officers of such Borrower and each is, or when executed and
delivered in accordance with this Amendment will be, a legal, valid and binding
obligation of such Borrower, enforceable in accordance with its terms.
-3-
<PAGE> 4
Section 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Georgia.
Section 7. Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties and their respective successors and assigns and all of which
taken together shall constitute one and the same agreement.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers in several counterparts as of the
date first above written.
SYRATECH CORPORATION
By: /s/ E. Merle Randolph
------------------------------
Name: E. Merle Randolph
------------------------------
Title: Vice President and CFO
------------------------------
(CORPORATE SEAL)
Attest:
Name: James L. Purcell
-----------------------------
Title: Assistant Secretary
-----------------------------
By: /s/James L. Purcell
-----------------------------
TOWLE MANUFACTURING COMPANY
By: /s/ E. Merle Randolph
-------------------------------
Name: E. Merle Randolph
-------------------------------
Title: Vice President and CFO
-------------------------------
(CORPORATE SEAL)
Attest:
Name: James L. Purcell
---------------------------
Title: Assistant Secretary
---------------------------
By: /s/ James L. Purcell
---------------------------
LEONARD FLORENCE ASSOCIATES, INC.
By: /s/ E. Merle Randolph
-------------------------------
Name: E. Merle Randolph
-------------------------------
Title: Vice President and CFO
-------------------------------
(CORPORATE SEAL)
Attest:
Name: James L. Purcell
------------------------------
Title: Assistant Secretary
------------------------------
By: /s/ James L. Purcell
-----------------------------
-5-
<PAGE> 6
WALLACE INTERNATIONAL
SILVERSMITHS, INC.
By: /s/ E. Merle Randolph
-------------------------------
Name: E. Merle Randolph
-------------------------------
Title: Vice President and CFO
-------------------------------
(CORPORATE SEAL)
Attest:
Name: James L. Purcell
--------------------------
Title: Assistant Secretary
--------------------------
By: /s/ James L. Purcell
-------------------------
SYRATECH HOLDING CORPORATION
By: /s/ Richard Freiman
-------------------------------
Name: Richard Freiman
-------------------------------
Title: President
-------------------------------
(CORPORATE SEAL)
Attest:
Name: James L. Purcell
---------------------------
Title: Assistant Secretary
---------------------------
By: /s/ James L. Purcell
---------------------------
NATIONSBANK, N.A. (SOUTH) (f/k/a
NationsBank of Georgia, N.A.)
By: /s/ John C. Glazebrook
-------------------------------
Name: John C. Glazebrook
-------------------------------
Title: Vice President
-------------------------------
-6-
<PAGE> 1
EX-10-4
[Execution Copy]
AMENDMENT NO. 1
dated as of July 1, 1996 to
LOAN AGREEMENT
dated as of May 31, 1995
RAUCH INDUSTRIES, INC., a North Carolina corporation (the "Borrower"),
and NATIONSBANK, N.A. (SOUTH), a national banking association (the "Lender"),
agree as follows:
Preliminary Statement
The Borrower and NationsBank, N.A. (f/k/a NationsBank, N.A.
(Carolinas)) (the "Former Lender") entered into a Loan Agreement dated as of May
31, 1995 (the "Loan Agreement"). The Former Lender, with the Borrower's consent,
has assigned its entire interest in and under the Loan Agreement, the promissory
notes issued thereunder, and any and all certificates, instruments, agreements
and other documents executed and delivered by the Borrower in connection
therewith to the Lender.
All of the issued and outstanding capital stock of the Borrower has
been acquired by Syratech Corporation (the "Parent"). The Parent and other
subsidiaries of the Parent are borrowers from the Lender under an Amended and
Restated Loan and Security Agreement dated as of November 30, 1994, as amended
and in effect from time to time. In anticipation of a restructuring of all of
the bank debt of the Parent and all of its subsidiaries, Rauch has requested
that the Lender agree to extend the maturity of the obligations outstanding
under the Loan Agreement to October 31, 1996 and the Lender has agreed to such
request, upon and subject to all of the terms, conditions and provisions of this
Amendment.
Accordingly, the Lender and the Borrower hereby agree as follows:
Section 1. Cross References and Definitions.
(a) Reference is made to the Loan Agreement. Upon and
after the effectiveness of this Amendment as provided in Section 4 hereof, all
references to the Loan Agreement in that document, or in any related document,
shall mean the Loan Agreement as amended by this Amendment and all references to
the Term Note, the Revolving Note or to the Notes, shall be to such promissory
notes of the Borrower as amended by this Amendment. Except as expressly provided
in this Amendment, the execution and delivery of this Amendment does not, and
will not, amend, modify or supplement any provision of or constitute a consent
to or a waiver of any noncompliance with the provisions of the Loan Agreement
and, except as specifically provided in this Amendment, the Loan Agreement shall
<PAGE> 2
remain in full force and effect. From and after the effectiveness of this
Amendment in accordance with the provisions of Section 4, the Lender shall be
authorized to evidence the amendments to each Note effective pursuant to this
Amendment by (1) affixing to the original copy of each such Note, a copy of this
Amendment, as executed and delivered, (2) endorsing the amendments to each Note
set forth in this Amendment on the face thereof, or (3) requesting that the
Borrower execute and deliver (and if so requested, the Borrower shall execute
and deliver) a replacement Note, in identical form to the Note (as amended by
this Amendment) to be replaced, but for the name of the "Bank" which shall be
the name of the Lender and the date of such replacement note, which shall be a
current date.
(b) Unless otherwise defined herein, terms defined in the
Loan Agreement are used herein as therein defined.
Section 2. Amendment to Loan Agreement Provisions. Effective
as of the Amendment Effective Date (as defined in Section 4 below), the
Loan Agreement is amended by:
(a) amending Section 1.01.28 in its entirety to read as
follows:
"Prime Rate" means the rate of interest publicly announced by
the Bank from time to time in Atlanta, Georgia as its "prime rate." The
Prime Rate is not necessarily the best or lowest rate of interest
offered by the Bank;
(b) amending Section 1.01.33 in its entirety to read as
follows:
"Revolving Loan Termination Date" means October 31, 1996 or,
upon the written consent of the Bank, a later date;
(c) amending Section 2.02 by (i) deleting the word "The"
appearing at the beginning thereof and substituting therefor the
phrase "Subject to the proviso in this Section 2.02, the" and (ii)
before the final period at the end thereof, the proviso "; provided,
however, that, the foregoing provisions of this Section 2.02 to the
contrary notwithstanding, the principal balance of the Term Loan
remaining outstanding and unpaid on the Revolving Loan Termination
Date shall be due and payable in full on such Date"
(d) amending Section 2.03 in its entirety to read as
follows:
The principal balance remaining unpaid from time to time under
the Term Note shall bear interest at a rate equal to the Prime Rate
minus 3/4 of 1% per annum, as such Prime Rate changes from time to
time, except with respect to any portion of such principal balance for
which the Company has selected the LIBOR Rate Option and for which the
LIBOR Rate Option is in effect in accordance with the provisions set
forth in Article IV below. Installments of
-2-
<PAGE> 3
interest shall be due and payable monthly in arrears on the first day
of each month until the Term Note has been paid in full.
(e) amending Section 3.02 in its entirety to read as
follows:
The Revolving Note shall bear interest on the Debit Balance
from time to time at a rate equal to the Prime Rate minus 3/4 of 1% per
annum as the Prime Rate changes from time to time, except with respect
to any portion of such principal balance for which the Company has
selected the LIBOR Rate Option and for which the LIBOR Rate Option is
in effect in accordance with the provisions set forth in Article IV
below. Installments of interest on the Debit Balance shall be due and
payable monthly in arrears on the first day of each month as long as
there exists a Debit Balance.
(f) amending Section 4.01 in its entirety to read as
follows:
So long as no event of default as described in Article XI
hereof has occurred and is continuing and subject to the terms and
conditions hereinafter set forth, the Company may select the LIBOR Rate
plus 1.0% (the "LIBOR Rate Option") as the interest rate applicable to
a particular dollar increment of the principal balance outstanding or
to be disbursed, under the Term Note or the Revolving Note. Interest
based on the LIBOR Rate Option shall be fixed for periods of one, two
or three months, as designated by the Company in each LIBOR Rate
Request described below (each such period a "LIBOR Interest Period").
(g) amending Section 4.05 by deleting therefrom the
phrase "the maturity date of the Term Note or Revolving Note, as
applicable," and substituting therefor the phrase "the Revolving Loan
Termination Date,";
(h) amending Section 4.06 by deleting the phrase
"one-half of one percent (1/2%)" both time it appears therein and
substituting therefor each time, the figure "3/4 of 1%";
(i) amending Section 11.01 by adding thereto a new
section 11.01.07 to read as follows:
If an "Event of Default" occurs under the Amended and Restated
Loan and Security Agreement dated as of November 30, 1994, as amended
and in effect from time to time, between Syratech Corporation certain
of its Subsidiaries (other than the Company), and the Bank.
-3-
<PAGE> 4
(j) amending Section 12.01 by deleting the address shown
therein for notices to the Bank and substituting therefor the following:
NationsBank, N.A. (South)
600 Peachtree Street, 13th floor
Atlanta, Georgia 30308
Attention: John C. Glazebrook
Vice President
(k) the Loan Agreement is further amended by deleting
therefrom each reference therein to the time of day in Gastonia, North Carolina,
and substituting therefor references to the time of day in Atlanta, Georgia.
Section 3. Amendments to Notes.
(a) Effective as of the Amendment Effective Date (as
defined in Section 4 below), the Revolving Credit Promissory Note issued by the
Borrower pursuant to the Loan Agreement is amended by deleting therefrom the
paragraph beginning "This Revolving Note shall bear interest" and substituting
therefor a new paragraph to read as follows:
This Revolving Note shall bear interest on the Debit Balance
outstanding from time to time at the rates, payable on the dates,
specified in the Loan Agreement until this Revolving Note is paid in
full.
(b) Effective as of the Amendment Effective Date (as
defined in Section 4 below), the Term Loan Promissory Note issued by the
Borrower pursuant to the Loan Agreement is amended by (i) inserting before the
period at the end of the third full paragraph thereof (and immediately after the
phrase "and final installment shall be in an amount equal to the then
outstanding balance"), the proviso ", PROVIDED, HOWEVER, that the principal
balance of this Term Note outstanding and unpaid on the Revolving Loan
Termination Date (as defined in the Loan Agreement) shall be due and payable in
full on such Date in accordance with the provisions of the Loan Agreement" and
(ii) deleting therefrom the paragraph beginning "This Term Note shall bear
interest" and substituting therefor a new paragraph to read as follows:
This Term Note shall bear interest on the outstanding balance
from time to time at the rates, payable on the dates, specified in the
Loan Agreement until this Term Note is paid in full.
Section 4. Conditions to Effectiveness of Amendment. Sections 2 and 3
of this Amendment shall be effective as of the date hereof (the "Amendment
Effective Date") upon receipt by the Lender of the following, each in form and
substance satisfactory to the Lender:
-4-
<PAGE> 5
(a) counterparts of this Amendment, duly executed and
delivered by the Borrower;
(b) an Assignment Agreement duly executed and delivered
by the Former Lender in substantially the form attached hereto as Annex 1,
properly completed;
(c) each Note, endorsed by the Former Lender to the
Lender, without recourse and without representation or warranty, except to the
extent expressly set forth in the aforesaid Assignment Agreement; and
(d) such other documents and instruments as the Lender
may reasonably request.
Section 5. Representations and Warranties. The Borrower hereby
represents and warrants that as of the Amendment Effective Date, all of the
representations and warranties made or deemed to be made under the Loan
Agreement are true and correct and that no Default or Event of Default exists,
that the Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, that the Borrower
has the power and authority to own its properties and to carry on its business
as now being and hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which failure to be so
qualified and authorized would have a materially adverse effect, that the
Borrower has the right and power, and has taken all necessary action to
authorize it, to execute, deliver and perform this Amendment and that the
Borrower has consented to the assignment by the Former Lender of its entire
interest under the Loan Agreement to the Lender, effective as of July 1, 1996.
This Amendment and each other agreement contemplated hereby to which the
Borrower is a party have been duly executed and delivered by the duly authorized
officers of the Borrower and each is, or when executed and delivered in
accordance with this Amendment will be, a legal, valid and binding obligation of
the Borrower, enforceable in accordance with its terms.
Section 6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Georgia.
Section 7. Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties and their respective successors and assigns and all of which
taken together shall constitute one and the same agreement.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers in several counterparts as of the
date first above written.
RAUCH INDUSTRIES, INC.
By: /s/ Peter D. Rauch
-------------------------------
Name: Peter D. Rauch
--------------------------------
Title: Chief Executive Officer
-------------------------------
(CORPORATE SEAL)
Attest:
By: /s/ Donald Walser
------------------------------
Name: Donald Walser
------------------------------
Title: Executive Vice President
------------------------------
NATIONSBANK, N.A. (SOUTH)
By: /s/ John C. Glazebrook
-------------------------------
Name: John C. Glazebrook
--------------------------------
Title: Vice President
-------------------------------
-6-
<PAGE> 1
EX-11
SYRATECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Common stock ............................................. 8,677 11,716 8,677 11,716
Common equivalent shares resulting from stock options
(treasury stock method) ............................... 7 11 7 11
------------ ------------ ------------ ------------
Subtotal ....................................... 8,684 11,727 8,684 11,727
Adjustment to reflect the requirements of the SEC:
Common equivalent shares resulting from
stock options (treasury stock method) ............... 109 78 102 90
------------ ------------ ------------ ------------
Total ...................................... 8,793 11,805 8,786 11,817
============ ============ ============ ============
Income from continuing operations ........................$ 8,623 $ 2,086 $ 8,713 $ 2,093
Income from discontinued operations ...................... 30,451 33,023
------------ ------------ ------------ ------------
Net income ...........................................$ 8,623 $ 32,537 $ 8,713 $ 35,116
============ ============ ============ ============
Net Income Per Common Share:
Income from continuing operations.........................$ 0.98 $ 0.18 $ 0.99 $ 0.18
Income from discontinued operations....................... 2.58 2.79
------------ ------------ ------------ ------------
Net income............................................$ 0.98 $ 2.76 $ 0.99 $ 2.97
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SYRATECH
CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED
STATEMENT OF INCOME AS FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3409
<SECURITIES> 0
<RECEIVABLES> 59802
<ALLOWANCES> 4372
<INVENTORY> 109061
<CURRENT-ASSETS> 197401
<PP&E> 90648
<DEPRECIATION> 30244
<TOTAL-ASSETS> 264289
<CURRENT-LIABILITIES> 87684
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 155406
<TOTAL-LIABILITY-AND-EQUITY> 264289
<SALES> 38592
<TOTAL-REVENUES> 38592
<CGS> 28414
<TOTAL-COSTS> 28414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 866
<INCOME-PRETAX> 13261
<INCOME-TAX> 4638
<INCOME-CONTINUING> 8623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8623
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>