<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 MARCH 31, 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
MARCH 31, 1996- 8,674,631.
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INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 1
Condensed Consolidated Income Statements for the three month
periods ended March 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 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 6. Exhibits and Reports on Form 8-K 11
Signature 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ................................. $ 11,487 $ 78,493
Marketable securities ................................ 30,561
Accounts receivable, net ............................. 28,093 31,893
Inventories .......................................... 68,577 41,151
Deferred income taxes ................................ 8,536 5,105
Prepaid expenses and other ........................... 3,400 1,602
Net assets of discontinued operations ................ 699 1,834
--------- ---------
Total current assets ............................. 120,792 190,639
Property, plant and equipment, net ...................... 50,171 29,560
Purchase price in excess of net assets acquired ......... 22,981
Other assets ............................................ 434 367
--------- ---------
Total ............................................ $ 194,378 $ 220,566
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable .......... $ $ 51,735
Current maturities of long-term debt ................. 1,200
Accounts payable ..................................... 8,822 6,438
Accrued expenses ..................................... 12,178 4,436
Accrued compensation ................................. 1,928 2,478
Accrued advertising .................................. 1,684 1,991
Income taxes payable ................................. 2,076 1,511
--------- ---------
Total current liabilities ........................ 27,888 68,589
Long -term debt ......................................... 11,000
Deferred income taxes ................................... 6,678 3,657
Deferred compensation ................................... 2,039 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; 8,674,849 and 8,667,249 shares issued in
1996 and 1995, respectively ........................ 87 87
Additional paid-in capital ........................... 9,786 9,699
Retained earnings .................................... 136,818 136,728
Cumulative translation adjustment .................... 85 85
Less: Treasury stock; 218 shares, at cost ............ (3) (3)
--------- ---------
Total stockholders' equity ....................... 146,773 146,596
--------- ---------
Total ............................................ $ 194,378 $ 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
March 31,
--------------------------
1996 1995
-------- --------
<S> <C> <C>
Net sales .................................... $ 31,266 $ 26,912
Cost of sales ................................ 22,218 19,379
-------- --------
Gross profit ............................ 9,048 7,533
Selling, general and administrative expenses.. 9,338 7,471
-------- --------
Income (loss) from operations ........... (290) 62
Interest expense ............................. 127 53
Interest income .............................. (560) (1)
-------- --------
Income before provision for income taxes. 143 10
Provision for income taxes ................... 53 3
-------- --------
Income from continuing operations ....... 90 7
Discontinued operations:
Income from discontinued operations
of Syroco, Inc., net of income taxes of
$ 1,645 ............................... 2,572
-------- --------
Net income .............................. $ 90 $ 2,579
======== ========
Earnings per share:
Continuing operations ..................... $ 0.01 $ 0.00
Discontinued operations ................... 0.22
-------- --------
Net income .............................. $ 0.01 $ 0.22
======== ========
Weighted average common and common
equivalent shares outstanding ............. 8,778 11,801
======== ========
</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>
Three Months Ended March 31,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 90 $ 2,579
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ................... 1,122 877
Deferred income taxes ........................... (3,878) (111)
Other ........................................... 334 41
Increase (decrease) in cash:
Marketable securities ....................... 30,561
Accounts receivable ......................... 12,258 7,040
Inventories ................................. (5,794) (1,179)
Prepaid expenses and other .................. 117 (980)
Accounts payable and accrued expenses ....... (3,726) (4,765)
Income taxes payable ........................ 415 (400)
Discontinued operations ......................... 1,135 (17,630)
-------- --------
Net cash provided by (used in) operations .......... 32,634 (14,528)
-------- --------
Cash flows from investing activities:
Acquisition of business net of cash acquired ....... (46,593)
Purchases of property, plant and equipment ......... (1,372) (605)
Other .............................................. (8) 300
-------- --------
Net cash used in investing activities .............. (47,973) (305)
-------- --------
Cash flows from financing activities:
Change in revolving loan facilities ................ (51,735) 13,641
Repayment of borrowings ............................ (290)
Other .............................................. 68 11
-------- --------
Net cash (used in) provided by financing activities. (51,667) 13,362
-------- --------
Net decrease in cash and equivalents ............... (67,006) (1,471)
Cash and equivalents, beginning of period .......... 78,493 1,866
-------- --------
Cash and equivalents, end of period ................ $ 11,487 $ 395
======== ========
</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 to be expected for the full year.
2. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
------ ------
<S> <C> <C>
Cash paid during the period for:
Interest .................................. $ 124 $ 313
====== ======
Income taxes .............................. $3,445 $2,200
====== ======
</TABLE>
3. RAUCH INDUSTRIES, INC. ACQUISITION
On February 15, 1996, the Company, through an indirectly wholly-owned
subsidiary, acquired the outstanding shares of Rauch Industries, Inc. ("Rauch")
for the consideration of $13 per share of Rauch common stock owned by
stockholders of record on January 16, 1996. Rauch is a domestic producer and
distributor of glass and satin tree ornaments and related items. The purchase
price, including costs of the transaction, approximated $48,677. The Company
recorded a preliminary purchase price allocation, of which $20,151 was allocated
to property, plant and equipment. The remaining purchase price in excess of net
assets acquired of $23,158 is being amortized on the straight line basis over 15
years. The allocation of purchase price is preliminary due to the inability to
estimate the final insurance settlement amount (including business interruption)
related to a fire at Rauch's manufacturing warehouse and distribution facility
in 1994. The results of operations of Rauch have been included with the results
of the Company from February 15, 1996.
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1995.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
------- --------
<S> <C> <C>
Net sales ................................... $31,875 $ 27,288
======= ========
Loss from continuing operations ............. $ (587) $ (1,624)
======= ========
Net income (loss) ........................... $ (587) $ 948
======= ========
Income (loss) per share:
Continuing operations .................... $ (0.07) $ (0.14)
======= ========
Net income (loss) ........................ $ (0.07) $ 0.08
======= ========
</TABLE>
4
<PAGE> 7
3. RAUCH INDUSTRIES, INC. ACQUISITION (CONTINUED)
The following is a summary of the estimated fair value of the assets
and liabilities of Rauch at February 15, 1996, taking into consideration the
preliminary allocation of purchase price:
<TABLE>
<S> <C>
Cash ....................................................... $ 2,084
Accounts receivable ........................................ 8,458
Inventories ................................................ 21,632
Deferred income taxes ...................................... 3,348
Prepaid expenses and other ................................. 1,915
Property, plant and equipment .............................. 20,151
Other assets ............................................... 89
Purchase price in excess of
net assets acquired ................................... 23,158
-------
Total assets ............................................ $80,835
=======
Current liabilities ........................................ $14,342
Long-term debt ............................................. 11,000
Deferred income taxes ...................................... 6,816
-------
Total liabilities ....................................... $32,158
=======
</TABLE>
4. DISCONTINUED OPERATIONS
During 1995, the Company sold Syroco, Inc. and its subsidiaries. Under
the terms of the final settlement, the Company reacquired certain assets and
reassumed certain liabilities which have been recorded at their estimated net
fair value. The Company does not expect that the liquidation of these assets or
the ultimate settlement of the assumed liabilities will have a material effect
on the previously recognized gain on disposal. The assets and liabilities
relating to the discontinued segment are included in net assets of discontinued
operations in the Condensed Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995. The results of operations for the three months ended March
31, 1995 and cash flows for the discontinued segment are included in
discontinued operations in the Condensed Consolidated Income Statements and the
Condensed Consolidated Statements of Cash Flows for the three months ended March
31, 1996 and 1995.
Net assets of discontinued operations sold consisted of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Inventories .................................. $ 643 $ 1,778
Property, plant and equipment, net ........... 227 227
Other assets ................................. 875 875
Liabilities .................................. (1,046) (1,046)
------- -------
Total .................................... $ 699 $ 1,834
======= =======
</TABLE>
5
<PAGE> 8
Operating results of the discontinued segment consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales ..................................... $-- $33,626
=== =======
Income before provision for income taxes ...... $-- $ 4,217
Provision for income taxes .................... -- 1,645
--- -------
Income from discontinued operations ........... $-- $ 2,572
=== =======
</TABLE>
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw material ........................... $12,614 $ 3,908
Work-in-process ........................ 7,140 1,744
Finished goods ......................... 48,823 35,499
------- -------
Total ............................. $68,577 $41,151
======= =======
</TABLE>
6. INCOME TAXES
The provision for income tax expense for the three month period ended
March 31, 1996 has been computed using an estimated effective tax rate for the
year ended December 31, 1996.
7. NOTES PAYABLE AND LONG-TERM DEBT
As a result of the Rauch acquisition, the Company assumed the
borrowings of Rauch (the "Rauch Loan"). The Rauch Loan allows long-term
borrowings up to $12,800 and short-term borrowings up to $40,000. Borrowings
under the Rauch Loan bear interest at approximately the bank's certificate of
deposit rate. The long-term portion is due in quarterly installments of $300,
with a final payment in 2000. At March 31, 1996, long-term borrowings
outstanding were $12,200 and there were no short-term borrowings outstanding.
The Rauch Loan contains various covenants, the most restrictive being a
limitation on leasing activities. The short-term portion of the Rauch Loan is
subject to renewal on June 1, 1996; the Company plans to renew this loan. On
March 31, 1996, credit availability under the Company's revolving credit
facilities and the Rauch Loan, net of outstanding letters of credit, was
$96,800.
8. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of 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 quarter ended March 31, 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
6
<PAGE> 9
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 quarter ended
March 31, 1996.
9. SUBSEQUENT EVENTS
Effective April 2, 1996, Far-B Acquisition Corp. an indirect
wholly-owned subsidiary of the Company ("Far-B") and Lifetime Hoan Corporation
("Lifetime") acquired from Farberware Inc. ("Seller"), a wholly-owned subsidiary
of U.S. Industries, Inc., substantially all of Seller's assets, including the
"Farberware" name, trademark and associated goodwill and all of Seller's other
intellectual property, license agreements, inventories, tools, dies, machinery,
equipment, outlet stores and other assets, but excluding, Seller's accounts
receivable and certain other assets that were retained by Seller. The aggregate
purchase price paid in cash by Far-B and Lifetime was $45,771 subject to
adjustment based upon an audit of the inventory acquired. In addition, the
Company, Far-B, Lifetime and Outlet Retail Stores, Inc. ("ORSI"), a wholly-owned
subsidiary of Lifetime, assumed certain ongoing liabilities of the Seller. The
outlet stores and certain associated assets were transferred by Seller directly
to ORSI. The remaining assets were transferred to Far-B and are to be allocated
pursuant to arrangements among the Company, Far-B and Lifetime. The acquisition
will be accounted for under the purchase method of accounting.
On April 16, 1996, the Company, through one of its indirect
wholly-owned subsidiaries, acquired certain assets of the Silvestri division of
FFSC, Inc. ("Silvestri") through the Bankruptcy Court. Silvestri is a
distributor of Christmas ornaments, collectibles, lighting and trim as well as
other seasonal and non-seasonal giftware and decorative accessories. The Company
acquired certain assets, including without limitation, inventory, certain tools
and molds, distribution equipment and intellectual property. The purchase price,
subject to final adjustment, approximates $9,000 of which $6,200 was paid on
April 16, 1996. The acquisition will be accounted for under the purchase method
of accounting.
On May 8, 1996, the Company, through one of its subsidiaries, acquired
all of the outstanding common stock of C. J. Vander Ltd., a manufacturer of
sterling silver flatware and sterling silver holloware in the United Kingdom.
The purchase price was immaterial to the Company's condensed consolidated
financial statements. The acquisition will be accounted for under the purchase
method of accounting.
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 including 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.
On February 15, 1996, the Company, through an indirect wholly-owned
subsidiary, acquired the outstanding shares of Rauch Industries, Inc. ("Rauch")
for the consideration of $13 per share of Rauch common stock owned by
stockholders of record on January 16, 1996. Rauch is a domestic producer and
distributor of glass and satin tree ornaments and related items. The purchase
price, including costs of the transaction, approximated $48.7 million. The
Company recorded a preliminary purchase price allocation, of which $20.2
million was allocated to property, plant and equipment. The remaining purchase
price in excess of net assets acquired of $23.2 million is being amortized on
the straight line basis over 15 years. The allocation of purchase price is
preliminary due to the inability to estimate the final insurance settlement
amount (including business interruption) related to a fire at Rauch's
manufacturing warehouse and distribution facility in 1994. The results of
operations of Rauch have been included with the results of the Company from
February 15, 1996. 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.
Net sales increased 16.2% to $31.3 million for the three months ended
March 31, 1996 from $26.9 million for the three months ended March 31, 1995.
This increase reflects increased demand for the Company's sterling and giftware
products. Net sales of Rauch, which was acquired on February 15, 1996, were less
than 4% of total net sales for the three months ended March 31, 1996.
Gross profit increased 20.1% to $9.0 million for the three months ended
March 31, 1996 from $7.5 million for the three months ended March 31, 1995.
Gross profit as a percentage of sales was 28.9% for the three months ended March
31,1996 compared to 28.0% for the three months ended March 31,1995. The increase
in the gross profit percentage was primarily due to increased sterling items in
the product mix and increased gross margin in the giftware product lines. The
Company expects pressure on its gross profit percentage during 1996 due to the
acquisition of Rauch, whose products have a gross profit which is lower than
that of the Company.
Selling, general and administrative expenses increased to 29.9% as a
percentage of net sales or $9.3 million for the three months ended March 31,
1996 from 27.8% or $7.5 million for the comparable period of 1995. The increase
in selling, general and administrative expenses is due primarily to inclusion of
Rauch selling, general and administrative expenses since the acquisition date of
February 15, 1996, amortization of the preliminary excess of purchase cost over
net assets acquired related to the Rauch acquisition and increased costs related
to the growth in sales volume including personnel related costs and royalties.
Interest income, net was $0.4 million for the quarter ended March 31,
1996 compared to net interest expense of $52 thousand for the quarter ended
March 31, 1995. Interest income was earned as a result of investing the
remaining net proceeds from the sale of Syroco in short-term investment grade
issues.
The provision for income taxes was $53 thousand for the three months
ended March 31, 1996 compared to $3 thousand for the three months ended March
31, 1995. The effective tax rate was 37% for the three month period ended March
31, 1996, compared to 30% for the same three month period of 1995. The increase
in the income tax rate in 1996 primarily relates to the acquisition of Rauch
which income increases the proportion of income earned in tax jurisdictions with
higher income tax rates.
8
<PAGE> 11
Income from continuing operations for the first quarter of 1996 was $90
thousand or $0.01 per share compared to income from continuing operations of $7
thousand or break-even per share for the same quarter last year. The first
quarter of 1995 included income from discontinued operations net of income taxes
of $2.6 million or $0.22 per share. Net income for the three months ended March
31,1996 was $90 thousand or $0.01 per share compared to $2.6 million or $0.22
per share for the three months in 1995.
Effective January 1, 1996, the Company adopted Statement of 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 quarter ended March 31, 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 quarter ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations for the three months ended March 31,1996
was approximately $32.6 million. The primary sources of cash were 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. and a decrease in accounts receivable due to normal seasonal collections.
Inventories at March 31, 1996 increased $27.4 million primarily due to
the acquisition of Rauch.
Capital expenditures were approximately $1.4 million for the three
months ended March 31, 1996. These expenditures were primarily for computer
software and hardware, improvements of the Company's East Boston facility and
machinery, tools and dies for the Company's manufacturing facilities. Capital
expenditures were principally financed from operations.
As a result of the Rauch acquisition, the Company assumed the
borrowings of Rauch (Rauch Loan). The Rauch Loan allows long-term borrowings up
to $12.8 million and short-term borrowings up to $40.0 million. Borrowings
under the Rauch Loan bear interest at approximately the bank's certificate of
deposit rate. The long-term portion is due in quarterly installments of $0.3
million, plus a final payment in 2000. At March 31, 1996, long-term borrowings
outstanding were $12.2 million and there were no short-term borrowings
outstanding. The Rauch Loan contains various covenants, the most restrictive
being a limitation on leasing activities. The short-term portion of the Rauch
Loan is subject to renewal on June 1, 1996; the Company plans to renew this
loan.
On March 31, 1996, credit availability under the Company's revolving
credit facilities and the Rauch Loan, net of outstanding letters of credit, was
$96.8 million.
Effective April 2, 1996, Far-B Acquisition Corp. an indirect
wholly-owned subsidiary of the Company (Far-B) and Lifetime Hoan Corporation
(Lifetime) acquired from Farberware Inc. (Seller), a wholly-owned subsidiary of
U.S. Industries, Inc., substantially all of Seller's assets, including the
"Farberware" name, trademark and associated goodwill and all of Seller's other
intellectual property, license agreements, inventories, tools, dies, machinery,
equipment, outlet stores and other assets, but excluding, Seller's accounts
receivable and certain other assets that were retained by Seller. The aggregate
purchase price paid in cash by Far-B and Lifetime was $45.8 million, subject to
adjustment based upon an audit of the inventory acquired. In addition, the
Company, Far-B, Lifetime and Outlet Retail Stores, Inc. ("ORSI"), a wholly-owned
subsidiary of Lifetime, assumed certain ongoing liabilities of the Seller. The
outlet stores and certain associated assets were transferred by Seller directly
to ORSI. The remaining assets were transferred to Far-B and are to be allocated
pursuant to arrangements among the Company, Far-B and Lifetime. The acquisition
will be accounted for under the purchase method of accounting.
On April 16, 1996, the Company, through one of its indirect
wholly-owned subsidiaries, acquired certain assets of the Silvestri division of
FFSC, Inc. ("Silvestri") through the Bankruptcy Court. Silvestri is a
distributor of Christmas ornaments,
9
<PAGE> 12
collectibles, lighting and trim as well as other seasonal and non-seasonal
giftware and decorative accessories. The Company acquired certain assets,
including without limitation, inventory, certain tools and molds, distribution
equipment and intellectual property. The purchase price, subject to final
adjustment, approximates $9.0 million of which $6.2 million was paid on April
16, 1996. The acquisition will be accounted for under the purchase method of
accounting.
On May 8, 1996, the Company, through one of its subsidiaries, acquired
all of the outstanding common stock of C. J. Vander Ltd., a manufacturer of
sterling silver flatware and sterling silver holloware in the United Kingdom.
The purchase price was immaterial to the Company's condensed consolidated
financial statements. The acquisition will be accounted for under the purchase
method of accounting. The Company will attempt to use the C. J. Vander Ltd.
acquisition to facilitate the Company's expansion into international markets.
The Company believes that funds generated from operations, expected
Rauch insurance proceeds and borrowings available under existing revolving loan
facilities, will be sufficient to finance the Company's working capital
requirements, planned acquisitions, 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.
10
<PAGE> 13
PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EX-10 Modification to the Amended and Restated Loan and Security
Agreement dated March 28, 1996.
EX-11 Computation of Net Income per Common Share.
EX-21 Subsidiaries of the Registrant.
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 February 15, 1996, which
described the acquisition of Rauch Industries, Inc.
A report on Form 8-K/A, reporting event dated February 15, 1996, which
included the financial statements of the business acquired and pro
forma information.
11
<PAGE> 14
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: May 13, 1996
/s/ E. Merle Randolph
--------------------------------------
E. Merle Randolph
Vice President, Treasurer, and
Chief Financial and Accounting Officer
12
<PAGE> 15
INDEX TO EXHIBITS
FILED WITH SYRATECH CORPORATION
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1996
Exhibit No
EX-10 - Fourth Modification to the Amended and Restated Loan and Security
Agreement dated March 28, 1996.
EX-11 - Computation of Net Income per Common Share.
EX-21 - Subsidiaries of the Registrant
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
NationsBank Business Credit
P. O. Box 3406
Atlanta, GA 30302-3406
NATIONSBANK
March 28, 1996
Syratech Corporation
175 McClellan Highway
East Boston, MA 02128
Attention: E. Merle Randolph
Amended and Restated Loan and Security Agreement dated as of November 30,
1994, as amended prior to the date hereof (the "Loan Agreement")
Ladies and Gentlemen:
We refer to the captioned Loan Agreement. Terms defined in the Loan Agreement
are used as defined, unless otherwise defined herein.
You have advised us that Syratech Corporation intends to Acquire the assets of
Farberware, Inc. ("Farberware"), a manufacturer of cookware. You have requested
our consent to such Acquisition (which otherwise would constitute a breach of
Section 11.4 of the Loan Agreement).
Upon and subject to the conditions of this letter, NationsBank, N.A. (South)
(successor by merger to NationsBank of Georgia, N.A.) consents to the
acquisition by Syratech of Farberware, and to the following modifications of the
Loan Agreement:
1. Modification of Schedule 6.1(b) to reflect Farberware as a wholly owned
Subsidiary of Syratech (see Section 6.1(b); and
2. Modification of Schedule 6.1(e) to reflect Farberware's business as
"manufacture and distribution of cookware."
We are considering other changes in the structure of the financing arrangements
under the Loan Agreement. We therefore advise you that, in light of such
continuing discussions and in anticipation of a restructuring or refinancing of
such arrangement very soon, we do not intend to request that Farberware execute
and deliver a guaranty and security agreement or become party, as a "Borrower,"
to the Loan Agreement, as contemplated by Section 9.11 of the Loan Agreement,
before April 15, 1996.
<PAGE> 2
If the foregoing, accurately reflects the understanding of the Borrowers, kindly
evidence your acceptance of and agreement with the foregoing, the confirmation
of the Security Interest as security for the Secured Obligations as modified
hereby, and your understanding and agreement are hereby ratified and confirmed,
by signing the enclosed duplicate of this letter in the space provided and
returning it to the undersigned. The modifications to the Loan Agreement
provided for in this letter will become effective upon our receipt of a fully
executed copy of this letter.
Sincerely,
NATIONSBANK, N.A. (South)
By /s/ Angela Peterson Leake
----------------------------
Angela Peterson Leake
Assistant Vice President
<PAGE> 3
Accepted and Agreed this
28th day of March 1996.
SYRATECH CORPORATION
By: /s/ E. Merle Randolph
----------------------------------
Name: E. Merle Randolph
Title: Vice President, Treasurer and
Chief Financial Officer
(CORPORATE SEAL)
Attest:
By:/s/ Faye A. Florence
------------------------
Secretary
TOWLE MANUFACTURING COMPANY
By: /s/ E. Merle Randolph
----------------------------------
Name: E. Merle Randolph
Title: Vice President, Treasurer and
Chief Financial Officer
(CORPORATE SEAL)
Attest:
By: /s/ Faye A. Florence
------------------------
Secretary
LEONARD FLORENCE
ASSOCIATES, INC.
By: /s/ E. Merle Randolph
----------------------------------
Name: E. Merle Randolph
Title: Vice President and Treasurer
(CORPORATE SEAL)
Attest:
By: /s/ Faye A. Florence
------------------------
Secretary
WALLACE INTERNATIONAL
SILVERSMITHS, INC.
By: /s/ E. Merle Randolph
----------------------------------
Name: E. Merle Randolph
Title: Treasurer
(CORPORATE SEAL)
Attest:
By: /s/ Faye A. Florence
------------------------
Secretary
<PAGE> 4
SYRATECH HOLDING CORPORATION
By: /s/ Richard Freiman
----------------------------------
Name: Richard Freiman
Title: President
(CORPORATE SEAL)
Attest:
By:/s/ James Purcell
------------------------
Assistant Secretary
<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
March 31,
------------------
1996 1995
------ -------
<S> <C> <C>
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Common stock ............................................. 8,674 11,700
Common equivalent shares resulting from stock options
(treasury stock method) ............................... 7 12
------ -------
Subtotal ....................................... 8,681 11,712
Adjustment to reflect the requirements of the SEC:
Common equivalent shares resulting from stock options
(treasury stock method) .................................. 97 89
------ -------
Total ...................................... 8,778 11,801
====== =======
Income from continuing operations ........................ $ 90 $ 7
Income from discontinued operations ...................... 2,572
------ -------
Net income ........................................... $ 90 $ 2,579
====== =======
Net Income Per Common Share:
Income from continuing operations ........................ $ 0.01 $ 0.00
Income from discontinued operations ...................... 0.22
------ -------
Net income ........................................... $ 0.01 $ 0.22
====== =======
</TABLE>
<PAGE> 1
EX 21
SUBSIDIARIES OF REGISTRANT
(As of March 31, 1996)
SYRATECH HOLDING CORPORATION
SYRATECH SECURITY CORPORATION
175 AMLEGION REVERE REALTY TRUST
WALLACE INTERNATIONAL SILVERSMITHS, INC.
INTERNATIONAL SILVER COMPANY
TOWLE MANUFACTURING COMPANY
LEONARD FLORENCE ASSOCIATES, INC.
ROSEMAR SILVER COMPANY, INC.
TOWLE HOLLOWARE, INC.
SYRATECH SILVER SALES CORP.
INTERNATIONAL SILVER DE P.R., INC.
WALLACE INTERNATIONAL DE P.R., INC.
SYRATECH H.K.
SHEFFCO, U.S.A., INC.
SHEFFTECH CORPORATION
WESTMORLAND STERLING, INC.
TOWLE CANADA LIMITED
PMW SILVER DE P.R., INC.
CHI INTERNATIONAL, INC.
SYR ACQUISITION, INC.
RAUCH INDUSTRIES, INC.
ROCHARD, INC.
HOLIDAY PRODUCTS, INC.
FAR-B ACQUISITION CORP.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,487
<SECURITIES> 0
<RECEIVABLES> 33,406
<ALLOWANCES> 5,313
<INVENTORY> 68,577
<CURRENT-ASSETS> 120,792
<PP&E> 78,261
<DEPRECIATION> 28,090
<TOTAL-ASSETS> 194,378
<CURRENT-LIABILITIES> 27,888
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 146,686
<TOTAL-LIABILITY-AND-EQUITY> 194,378
<SALES> 31,266
<TOTAL-REVENUES> 31,266
<CGS> 22,218
<TOTAL-COSTS> 22,218
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 143
<INCOME-TAX> 53
<INCOME-CONTINUING> 90
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
