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, 1997
|_| 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, 1997- 8,699,231
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INDEX
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PART I - FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 1
Condensed Consolidated Income Statements for the three month
periods ended March 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the
three month periods ended March 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
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PART I - FINANCIAL INFORMATION
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------------ ---------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents ......................................................... $ 1,279 $ 3,605
Accounts receivable, net ..................................................... 49,121 60,020
Inventories .................................................................. 78,827 79,355
Deferred income taxes ........................................................ 9,651 8,940
Prepaid expenses and other ................................................... 5,191 3,803
-------------------- ---------------------
Total current assets ..................................................... 144,069 155,723
Property, plant and equipment, net .............................................. 69,074 63,955
Purchase price in excess of net assets acquired ................................. 6,971 7,032
Other assets .................................................................... 400 544
-------------------- ---------------------
Total .................................................................... $ 220,514 $ 227,254
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable .................................. $ 8,138 $ 6,636
Accounts payable.............................................................. 8,254 9,689
Accrued expenses.............................................................. 7,461 11,049
Accrued compensation.......................................................... 2,430 4,228
Accrued advertising........................................................... 2,480 3,273
Income taxes payable.......................................................... -- 930
-------------------- ---------------------
Total current liabilities ................................................ 28,763 35,805
Deferred income taxes ........................................................... 18,329 17,706
Pension liability and other long-term liabilities................................ 3,398 3,495
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; 8,699,449 and 8,695,449 shares issued in
1997 and 1996, respectively................................................. 87 87
Additional paid-in capital ................................................... 12,543 12,480
Retained earnings ............................................................ 157,224 157,117
Cumulative translation adjustment ............................................ 173 567
Less: Treasury stock; 218 shares, at cost .................................... (3) (3)
-------------------- ---------------------
Total stockholders' equity ............................................... 170,024 170,248
-------------------- ---------------------
Total .................................................................... $ 220,514 $ 227,254
==================== =====================
</TABLE>
See notes to condensed consolidated financial statements.
1
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SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1997 1996
---- ----
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Net sales ...................................................................... $ 44,039 $ 31,266
Cost of sales .................................................................. 31,414 22,218
----------- -----------
Gross profit .............................................................. 12,625 9,048
Selling, general and administrative expenses ................................... 14,596 9,338
Other operating income ......................................................... 1,116 (1)
----------- -----------
Loss from operations ...................................................... (855) (290)
Interest expense ............................................................... (7) (127)
Interest income ................................................................ 8 560
Other income ................................................................... 1,025 (2)
----------- -----------
Income before provision for income taxes .................................. 171 143
Provision for income taxes ..................................................... 64 53
----------- -----------
Net income ................................................................ $ 107 $ 90
=========== ===========
Earnings per share.............................................................. $ 0.01 $ 0.01
=========== ===========
Weighted average common and common
equivalent shares outstanding ............................................... 8,820 8,778
=========== ===========
</TABLE>
(1) Represents income from disposal of Farberware inventory and income from
royalties.
(2) Represents income from the sale of equipment associated with the Farberware
settlement.
See notes to condensed consolidated financial statements.
2
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SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
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<CAPTION>
Three Months Ended March 31,
-------------------------------
1997 1996
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Cash flows from operating activities:
Net income ............................................................ $ 107 $ 90
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization ...................................... 1,177 1,122
Deferred income taxes .............................................. (88) (3,878)
Other .............................................................. 130 334
Increase (decrease):
Marketable securities .......................................... 30,561
Accounts receivable ............................................ 10,899 12,258
Inventories .................................................... 528 (5,794)
Prepaid expenses and other ..................................... (1,388) 117
Accounts payable and accrued expenses .......................... (7,821) (3,726)
Income taxes payable ........................................... (930) 415
Discontinued operations ............................................ 1,135
---------- ------------
Net cash provided by operations ....................................... 2,614 32,634
---------- ------------
Cash flows from investing activities:
Acquisition of business net of cash acquired .......................... (46,593)
Purchases of property, plant and equipment ............................ (6,226) (1,372)
Other ................................................................. 121 (8)
---------- ------------
Net cash used in investing activities ................................. (6,105) (47,973)
---------- ------------
Cash flows from financing activities:
Change in revolving loan facilities ................................... 1,502 (51,735)
Other ................................................................. (337) 68
---------- ------------
Net cash provided by (used in) financing activities.................... 1,165 (51,667)
---------- ------------
Net decrease in cash and equivalents .................................. (2,326) (67,006)
Cash and equivalents, beginning of period ............................. 3,605 78,493
---------- ------------
Cash and equivalents, end of period.................................... $ 1,279 $ 11,487
========== ============
</TABLE>
See notes to condensed consolidated financial statements.
3
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands, except share and per share data)
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 normally included in consolidated
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 1996 Annual Report on
Form 10-K.
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
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<CAPTION>
Three Months Ended March 31,
---------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Cash paid during the period for:
Interest.............................. $ 280 $ 124
================ ===============
Income taxes.......................... $ 1,172 $ 3,445
================ ===============
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3. AGREEMENT AND PLAN OF MERGER
On April 16, 1997, THL Transaction I Corp., ("THL I"), a Delaware
corporation, controlled by affiliates of Thomas H. Lee Company ("Lee
Affiliates"), was merged with and into the Company (the "Merger") pursuant to
the Restated Agreement and Plan of Merger, dated as of November 27, 1996,
effective as of October 23, 1996, as amended on February 14, 1997, between THL I
and the Company.
Pursuant to the Merger, each share of the Company's Common Stock, par value
$0.01 per share ("Common Stock") issued and outstanding immediately prior to the
effective time of the Merger (the "Effective Time") (other than (i) shares of
Common stock held by the Company or any wholly-owned subsidiary thereof, and
(ii) 35,232 shares of Common Stock that were contributed to the Company by
Leonard Florence upon the Merger and which were then canceled and retired) was
entitled to receive at the election of the holder thereof and subject to the
stated below, either (a) $32.00 in cash (except that Leonard Florence received
$28.00 in cash) or (b) one fully paid and non-assessable share of the Company's
Common Stock. Common Stock retained was limited in the case of each stockholder
(other than Management Stockholders) to 34.75% of such stockholder's shares of
Common Stock. Also, because no more than an aggregate of 868,250 shares of the
Company Common Stock could be retained by stockholders (other than Management
Stockholders), the right to retain the Company's Common Stock was subject to
proration. In addition, each Company Stock Option granted under the 1986 and
1993 Stock Plans outstanding immediately prior to the Effective Time, vested and
was canceled in exchange for the excess in cash of $32.00 over the exercise
price per share of the Company's Common Stock. The aggregate amount paid to
optionees was $3,685.
Upon the Merger, the Lee Affiliates acquired, directly from the Company, an
aggregate of 18,000 shares (100%) of the Company's 12% Cumulative Redeemable
Preferred Stock and 2,350,530 shares (60.7%) of the Company's Common Stock, in
exchange for corresponding stock interests in THL I, for which the Lee
Affiliates had paid an aggregate of $93,200 in cash. Accordingly, the Lee
Affiliates acquired control of the Company.
The liquidation preference of the Cumulative Redeemable Preferred Stock is
$1,000 per share plus accrued but unpaid dividends. Holders of the Cumulative
Redeemable Preferred Stock are entitled, subject to the rights of creditors, in
the event of any voluntary or involuntary liquidation of the Company, to an
amount in cash equal to $1,000 for each share outstanding plus all accrued and
unpaid dividends. The rights of holders of the Cumulative Redeemable Preferred
Stock upon liquidation of the Company rank prior to those of the holders of
Syratech Common Stock.
4
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Dividends on shares of Cumulative Redeemable Preferred Stock are cumulative
from the date of issue and are payable when and as may be declared from time to
time by the Board of Directors of the Company. Such dividends accrue on a daily
basis (whether or not declared) from the original date of issue at an annual
rate per share equal to 12% of the original purchase price per share, with such
amount to be compounded annually on each December 31 so that if the dividend is
not paid for any year the unpaid amount will be added to the original purchase
price of the Cumulative Redeemable Preferred stock for the purpose of
calculating succeeding years' dividends.
The Cumulative Redeemable Preferred Stock is redeemable at any time at the
option of the Company, in whole or in part, at $1,000 per share plus all
accumulated and unpaid dividends, if any, to the date of redemption. Subject to
the Company's existing debt agreements, the Company must redeem all outstanding
Cumulative Redeemable Preferred Stock in the event of a public offering of
equity, a change of control or certain sales of assets.
The transaction will be accounted for as a recapitalization. Pro forma
stockholders' equity as of March 31, 1997 was $28,851 considering the effects of
the Merger, because the distribution to stockholders, as well as approximately
one-third of Merger expenses would reduce stockholders' equity.
At the Effective Time, the Company entered into debt financing arrangements
consisting of $165,000 principal amount of 11% Senior Notes (the "Notes") and a
Senior Revolving Credit Facility of $130,000 (the "Revolving Credit Facility").
The amount invested by the Lee Affiliates in THL I, the purchase price for the
Cumulative Redeemable Preferred Stock, plus proceeds of the Notes and a portion
of the proceeds available pursuant to the Revolving Credit Facility were used to
finance the conversion into cash of the shares of the Company's outstanding
Common Stock that were not retained by the Company's then existing stockholders,
and to refinance the Company's outstanding indebtedness. The Revolving Credit
Facility is also intended to provide for the Company's working capital
requirements at the time of and following the Merger.
At the Effective Time of the Merger, the employment agreement with the
Chairman was amended which (i) changed his term of full-time employment from a
rolling five-year term to a fixed five-year term, (ii) provides for a minimum
base salary of $1,150 per annum, (iii) established $1,150 as the minimum amount
upon which the Chairman's retirement benefit (and the survivor's benefit of his
surviving spouse) will be computed and (iv) created contractual rights with
respect to certain perquisites that he is accorded informally under present
arrangements with the Company. Additionally, the employment agreement with the
Vice President of Purchasing was amended to change his term of full-time
employment from a rolling five-year term to a fixed five-year term.
4. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- -------------
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Raw material......................................... $ 8,906 $ 9,020
Work-in-process...................................... 8,684 5,980
Finished goods....................................... 61,237 64,355
-------------- ------------
Total........................................... $ 78,827 $ 79,355
============== ============
</TABLE>
5. INCOME TAXES
The provision for income tax expense for the three month period ended March
31, 1997 has been computed using the estimated effective tax rate for the year
ended December 31, 1997.
6. NOTES PAYABLE AND LONG-TERM DEBT
The Company's $60,000 Revolving Loan Agreement was terminated on April 16,
1997, the effective date of the Merger. In connection with the Merger, a
Revolving Credit Facility was entered into providing $130,000 of borrowings
including a $30,000 sublimit for the issuance of standby and commercial letters
of credit. Borrowings made under the Revolving Credit Facility will bear
interest at a rate equal to, at the Company's option, NationsBank's Eurodollar
Rate plus 225 basis points or
5
<PAGE>
the Prime Rate plus 50 basis points. The Revolving Credit Facility expires on
April 16, 2002. Pursuant to the terms of the Revolving Credit Facility, the
Company is required during February and March of each year to maintain excess
availability of at least $45,000. The obligations of the Company under the
Revolving Facility are secured by inventory and accounts receivable of the
Company and its domestic subsidiaries and by a pledge of 100% of the domestic
subsidiaries' and at least 65% of the foreign subsidiaries' outstanding capital
stock. The Revolving Credit Facility contains customary covenants of the Company
and the subsidiary borrowers, including but not limited, to minimum consolidated
net worth on or after September 30, 1997 to be at least $1.00.
Prior to the Merger, the Company paid the outstanding borrowings of $252
under its Puerto Rican subsidiaries' $10,000 revolving credit facility. The
Company is currently renegotiating a $1,000 facility with the same lender.
The Notes due April 15, 2007, issued in connection with the Merger, requires
interest payments to be made semi-annually on April 15 and October 15. The Notes
will be general unsecured obligations of the Company and will rank pari passu in
right of payment with all current and future unsubordinated Indebtedness of the
Company, including borrowings under the Revolving Credit Facility. However, all
borrowings under the Revolving Credit Facility will be secured by a first
priority Lien on the accounts receivable and inventory of the Company and its
domestic subsidiaries. Consequently, the obligations of the Company under the
Notes will be effectively subordinated to its obligations under the Revolving
Credit Facility to the extent of such assets.
The Company's ability to pay dividends is restricted by terms of the
Revolving Credit Facility and the Note Indenture.
7. ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("Statement
128"), which supersedes Accounting Principles Board No. 15. Statement 128
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. The objective of Statement 128 is to simplify the
computation of EPS and to make the U. S. Standard for computing EPS more
compatible with international EPS computations. Statement 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. The Company will be required to adopt Statement 128 in the fourth
quarter of 1997 and does not expect the adoption to have a material impact on
the Company's EPS. The pro forma basic and diluted EPS (as defined by Statement
128) for the three months ended March 31, 1997 and 1996 are not materially
different from the EPS amounts reported.
6
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Except for the historical information contained
in this Quarterly Report on Form 10-Q, the matters discussed are forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, general
economic and business conditions; industry capacity, industry trends; overseas
expansion; the loss of major customers; changes in demand for the Company's
products; the timing of orders received from customers; cost and availability of
raw materials; dependence on foreign sources of supply; changes in business
strategy or development plans; availability and quality of management;
availability, terms and deployment of capital; and the seasonal nature of the
business.
For additional information concerning these and other important factors that
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.
Agreement and Plan of Merger
On April 16, 1997, THL Transaction I Corp., ("THL I"), a Delaware
corporation, controlled by affiliates of Thomas H. Lee Company ("Lee
Affiliates"), was merged with and into the Company (the "Merger") pursuant to
the Restated Agreement and Plan of Merger, dated as of November 27, 1996,
effective as of October 23, 1996, as amended on February 14, 1997, between THL I
and the Company.
Pursuant to the Merger, each share of the Company's Common Stock, par value
$0.01 per share ("Common Stock") issued and outstanding immediately prior to the
effective time of the Merger (the "Effective Time") (other than (i) shares of
Common stock held by the Company or any wholly-owned subsidiary thereof, and
(ii) 35,232 shares of Common Stock that were contributed to the Company by
Leonard Florence upon the Merger and which were then canceled and retired) was
entitled to receive at the election of the holder thereof and subject to the
stated below, either (a) $32.00 in cash (except that Leonard Florence received
$28.00 in cash) or (b) one fully paid and non-assessable share of the Company's
Common Stock. Common Stock retained was limited in the case of each stockholder
(other than Management Stockholders) to 34.75% of such stockholder's shares of
Common Stock. Also, because no more than an aggregate of 868,250 shares of the
Company Common Stock could be retained by stockholders (other than Management
Stockholders), the right to retain the Company's Common Stock was subject to
proration. In addition, each Company Stock Option granted under the 1986 and
1993 Stock Plans outstanding immediately prior to the Effective Time vested and
was canceled in exchange for the excess in cash of $32.00 over the exercise
price per share of the Company's Common Stock. The aggregate amount paid to
optionees was $3.7 million.
Upon the Merger, the Lee Affiliates acquired, directly from the Company, an
aggregate of 18,000 shares (100%) of the Company's 12% Cumulative Redeemable
Preferred Stock and 2,350,530 shares (60.7%) of the Company's Common Stock, in
exchange for corresponding stock interests in THL I, for which the Lee
Affiliates had paid an aggregate of $93.2 million in cash.
Accordingly, the Lee Affiliates acquired control of the Company.
At the Effective Time, the Company entered into debt financing arrangements
consisting of $165.0 million principal amount of 11% Senior Notes (the "Notes")
and a Senior Revolving Credit Facility of $130.0 million (the "Revolving Credit
Facility"). The amount invested by the Lee Affiliates in THL I, the purchase
price for the Cumulative Redeemable Preferred Stock, plus proceeds of the Notes
and a portion of the proceeds available pursuant to the Revolving Credit
Facility were used to finance the conversion into cash of the shares of the
Company's outstanding Common Stock that were not retained by the Company's then
existing stockholders, and to refinance the Company's outstanding indebtedness.
The Revolving Credit Facility is also intended to provide for the Company's
working capital requirements at the time of and following the Merger.
7
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Results of Operations
Three months ended March 31, 1997 compared to three months ended March 31, 1996
Net sales increased 40.9% to $44.0 million for the three months ended March
31, 1997 from $31.3 million for the three months ended March 31, 1996. Excluding
the impact of acquisitions of businesses and product lines completed in 1996,
net sales increased 23.4%. This increase reflects increased sales volume of
giftware items (including seasonal items and silverplated items) and of sterling
silver flatware. The changes in product prices did not materially impact net
sales.
Gross profit increased 39.5% to $12.6 million for the three months ended
March 31, 1997 from $9.0 million for the three months ended March 31, 1996.
Gross profit as a percentage of sales was 28.7% for the 1997 first quarter
compared to 28.9% for the comparable 1996 period. The 0.2 percentage point
decrease in gross profit percentage was primarily a result of the liquidation of
product acquired in the purchase of the Silvestri product line and to the
inclusion in 1997 of the Silvestri warehouse cost during a period of low
seasonal Silvestri sales volume. The decrease in gross profit margin was not
materially impacted by change in normal product pricing.
Selling, general and administrative expenses ("S, G & A expenses") increased
to 33.1% as a percentage of net sales or $14.6 million for the three months
ended March 31, 1997 from 29.9% or $9.3 million for the three months ended March
31, 1996. Excluding the 1996 acquisitions, S, G & A expenses were $10.9 million
or 29.2% as a percentage of net sales for the first quarter of 1997 compared to
28.9% in the same period of 1996. The increase in S, G & A expenses was due
primarily to increased royalties and increased costs including personnel costs
related to the first quarter and expected 1997 growth in sales volume. In
addition, fixed S, G & A expenses for the Rauch and Silvestri seasonal
businesses are incurred throughout the year, however, sales are heavily weighted
toward the third and fourth quarters of the year.
Loss from operations of $0.9 million for the three months ended March 31,
1997 included other operating income of $1.1 million from the disposal of
Farberware inventory and Farberware license revenue.
Interest income, net, was one thousand dollars for the three months ended
March 31, 1997 compared to $0.4 million in the same three months of 1996. This
change results from a reduction in invested cash used for the 1996 acquisitions.
Other income of $1.0 million for the three months ended March 31, 1997
relates to the sale of certain tools and equipment in conjunction with the
February 3, 1997 Settlement reached with U. S. Industries, Inc. and Bruckner
Manufacturing Corp. The Company expects to realize and recognize additional
income on the sale of the remaining tools and equipment of approximately $1.3
million in the second quarter of 1997.
The provision for income taxes was sixty four thousand dollars for the first
quarter of 1997 compared to fifty three thousand for the same period of 1996.
The effective income tax rate was 37.4% for the 1997 first quarter compared to
37.1% for the 1996 first quarter. This increase in the effective income tax rate
in 1997 is due primarily to a higher proportion of income earned in state tax
jurisdictions with higher income tax rates.
Net income for the three months ended March 31, 1997 was one hundred and
seven thousand compared to ninety thousand for the comparable 1996 period.
Income per share was $0.01 for both periods on 8,820,000 shares in the 1997
first quarter and 8,778,000 shares in the 1996 first quarter.
Liquidity and Capital Resources
Net cash provided by operating activities for the three months ended March
31, 1997 was $2.6 million. The primary source of cash provided was the seasonal
collection of accounts receivable partially offset by payments for royalties,
incentive compensation and commissions and the final payment for inventory
purchased under the Farberware Manufacturing Services Agreement.
The Company's working capital requirements are seasonal and tend to be
highest in the period from September through December due to the Christmas
selling season. Accounts receivable tend to decline during the first quarter as
receivables generated during the third and fourth quarters are collected and
remain lower until the next peak season beginning in
8
<PAGE>
September. This seasonality has increased as a result of the 1996 acquisition of
Rauch and the Silvestri and Potpourri product lines.
Capital expenditures were approximately $6.2 million for the three months
ended March 31, 1997. These expenditures were primarily for land for a warehouse
facility on the West Coast., improvements at the Company's East Boston facility
and machinery, tools and dies for the Company's Rauch and C. J. Vander
manufacturing facilities.
The Company's $60.0 million Revolving Loan Agreement was terminated on April
16, 1997, the effective date of the Merger. In connection with the Merger, a
Revolving Credit Facility was entered into providing $130.0 million of
borrowings including a $30.0 million sublimit for the issuance of standby and
commercial letters of credit. Borrowings made under the Revolving Credit
Facility will bear interest at a rate equal to, at the Company's option,
NationsBank's Eurodollar Rate plus 225 basis points or the Prime Rate plus 50
basis points. The Revolving Credit Facility expires on April 16, 2002. Pursuant
to the terms of the Revolving Credit Facility, the Company is required during
February and March of each year to maintain excess availability of at least
$45.0 million. The obligations of the Company under the Revolving Facility are
secured by inventory and accounts receivable of the Company and its domestic
subsidiaries and by a pledge of 100% of the domestic subsidiaries' and at least
65% of the foreign subsidiaries' outstanding capital stock. The Revolving Credit
Facility contains customary covenants of the Company and the subsidiary
borrowers, including but not limited to minimum consolidated net worth on or
after September 30, 1997 to be at least $1.00.
Prior to the Merger, the Company paid the outstanding borrowings of $0.3
million under its Puerto Rican subsidiaries' $10.0 million revolving credit
facility. The Company is currently renegotiating a $1.0 million facility with
the same lender.
The Notes due April 15, 2007, issued in connection with the Merger, requires
interest payments to be made semi-annually on April 15 and October 15. The Notes
will be general unsecured obligations of the Company and will rank pari passu in
right of payment with all current and future unsubordinated Indebtedness of the
Company, including borrowings under the Revolving Credit Facility. However, all
borrowings under the Revolving Credit Facility will be secured by a first
priority Lien on the accounts receivable and inventory of the Company and its
domestic subsidiaries. Consequently, the obligations of the Company under the
Notes will be effectively subordinated to its obligations under the Revolving
Credit Facility to the extent of such assets.
The Company's ability to pay dividends is restricted by terms of the
Revolving Credit Facility and the Note Indenture.
The liquidation preference of the Cumulative Redeemable Preferred Stock is
$1,000 per share plus accrued but unpaid dividends. Holders of the Cumulative
Redeemable Preferred Stock are entitled, subject to the rights of creditors, in
the event of any voluntary or involuntary liquidation of the Company, to an
amount in cash equal to $1,000 for each share outstanding plus all accrued and
unpaid dividends. The rights of holders of the Cumulative Redeemable Preferred
Stock upon liquidation of the Company rank prior to those of the holders of
Syratech Common Stock.
Dividends on shares of Cumulative Redeemable Preferred Stock are cumulative
from the date of issue and are payable when and as may be declared from time to
time by the Board of Directors of the Company. Such dividends accrue on a daily
basis (whether or not declared) from the original date of issue at an annual
rate per share equal to 12% of the original purchase price per share, with such
amount to be compounded annually on each December 31 so that if the dividend is
not paid for any year the unpaid amount will be added to the original purchase
price of the Cumulative Redeemable Preferred stock for the purpose of
calculating succeeding years' dividends.
The Cumulative Redeemable Preferred Stock is redeemable at any time at the
option of the Company, in whole or in part, at $1,000 per share plus all
accumulated and unpaid dividends, if any, to the date of redemption. Subject to
the Company's existing debt agreements, the Company must redeem all outstanding
Cumulative Redeemable Preferred Stock in the event of a public offering of
equity, a change of control or certain sales of assets.
At the Effective Time of the Merger, the employment agreement with the
Chairman was amended which (i) changed his term of full-time employment from a
rolling five-year term to a fixed five-year term, (ii) provides for a minimum
base salary of approximately $1.2 million per annum, (iii) established
approximately $1.2 million as the minimum amount upon which the Chairman's
retirement benefit (and the survivor's benefit of his surviving spouse) will be
computed and (iv) created contractual rights with respect to certain perquisites
that he is accorded informally under present arrangements with the Company.
Additionally, the employment agreement with the Vice President of Purchasing was
amended to change his term of full-time employment from a rolling five-year term
to a fixed five-year term.
9
<PAGE>
The Company believes that the 1996 acquisitions of businesses and product
lines together with the growth in the Company's existing businesses will
generate sufficient income from operations to cover the increased level of
interest to be incurred as a result of the Merger and allow the Company to
remain profitable. The Company has already begun to capitalize on the synergies
of the newly acquired businesses. As the new acquisitions continue to be
integrated with the core business, and with each other, cost savings are
expected to be realized as redundant functions, services and facilities are
eliminated. In addition, when the West Coast warehouse and distribution facility
becomes operational in 1998 it is expected to create additional savings.
The Company believes that funds generated from operations and borrowings
available under the Revolving Credit Facility 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 the $165.0 million Notes
issued in connection with the Merger and under its operating leases) and fund
planned capital expenditures through December 31, 1998. See "Agreement and Plan
of Merger".
Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("Statement 128")
which supersedes Accounting Principles Board No. 15. Statement 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
The objective of Statement 128 is to simplify the computation of EPS and to make
the U. S. Standard for computing EPS more compatible with international EPS
computations. Statement 128 is effective for financial statements issued for
periods ending after December 15, 1997. The Company will be required to adopt
Statement 128 in the fourth quarter of 1997 and does not expect the adoption to
have a material impact on the Company's EPS.
10
<PAGE>
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EX-11 Computation of Net Income per Common Share.
EX-27 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K/A, dated February 27, 1997, (which supersedes a
Current Report on Form 8-K/A dated April 29, 1996) which amended the
pro forma financial statements of Rauch Industries, Inc., was filed
during the three months ended March 31, 1997.
11
<PAGE>
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 5, 1997
/s/ E. Merle Randolph
--------------------------------------
E. Merle Randolph
Vice President, Treasurer, and
Chief Financial and Accounting Officer
12
<PAGE>
INDEX TO EXHIBITS
Filed with Syratech Corporation
Report on Form 10-Q for the Quarter Ended
March 31, 1997
Exhibit No
----------
EX-11.1 Computation of Net Income per Common Share.
EX-27 Financial Data Schedule
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,
-------------------------
1997 1996
---- ----
<S> <C> <C>
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Common stock ................................................................... 8,699 8,674
Common equivalent shares resulting from stock options
(treasury stock method) ..................................................... 7
-------- --------
Subtotal ............................................................. 8,699 8,681
Adjustment to reflect the requirements of the SEC:
Common equivalent shares resulting from
stock options (treasury stock method) ..................................... 121 97
-------- --------
Total ............................................................ 8,820 8,778
======== ========
Net income ................................................................. $ 107 $ 90
======== =========
Net income per common share .................................................... $ 0.01 $ 0.01
======== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SYRATECH
CORPORATION 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> MAR-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,279
<SECURITIES> 0
<RECEIVABLES> 54,328
<ALLOWANCES> 5,207
<INVENTORY> 78,827
<CURRENT-ASSETS> 144,069
<PP&E> 102,837
<DEPRECIATION> 33,763
<TOTAL-ASSETS> 220,514
<CURRENT-LIABILITIES> 28,763
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 170,024
<TOTAL-LIABILITY-AND-EQUITY> 220,514
<SALES> 44,039
<TOTAL-REVENUES> 44,039
<CGS> 31,414
<TOTAL-COSTS> 31,414
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 171
<INCOME-TAX> 64
<INCOME-CONTINUING> 107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
