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, 1998
|_| 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, 1998 - 3,784,018
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 1
Condensed Consolidated Income Statements for the three and six
month periods ended June 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the three
and six month periods ended June 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
<PAGE>
PART I - FINANCIAL INFORMATION
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents .............................................. $ 1,294 $ 2,981
Accounts receivable, net .......................................... 38,985 63,893
Inventories ....................................................... 111,841 84,295
Deferred income taxes ............................................. 16,270 11,337
Prepaid expenses and other ........................................ 2,858 2,392
Properties held for sale .......................................... 1,736 1,836
-------- --------
Total current assets .......................................... 172,984 166,734
Property, plant and equipment, net ................................... 87,724 82,404
Purchase price in excess of net assets acquired, net ................. 6,670 6,790
Other assets, net .................................................... 9,328 10,072
-------- --------
Total ......................................................... $276,706 $266,000
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ....................... $ 49,588 $ 18,900
Accounts payable .................................................. 12,847 14,234
Accrued expenses .................................................. 8,524 12,777
Accrued compensation .............................................. 2,804 3,390
Accrued advertising ............................................... 2,141 3,576
Income taxes payable .............................................. 119 --
-------- --------
Total current liabilities ..................................... 76,023 52,877
Long-term debt ....................................................... 165,000 165,000
Deferred income taxes ................................................ 20,089 20,083
Pension liability .................................................... 3,428 3,136
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized;
(25,000 designated as cumulative redeemable preferred stock,
18,000 shares issued and outstanding, liquidation value of
$18,000, and includes accrued and unpaid dividends of $2,702
in 1998 .......................................................... 20,702 19,530
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,784,018 shares issued and outstanding ............ 38 38
Retained earnings (deficit) ....................................... (9,036) 4,567
Accumulated other comprehensive income ............................ 462 769
-------- --------
Total stockholders' equity .................................... 12,166 24,904
-------- --------
Total ......................................................... $276,706 $266,000
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales ........................................................... $42,248 $41,015 $ 80,006 $85,054
Cost of sales ....................................................... 30,166 29,664 56,909 61,078
-------- ------- -------- -------
Gross profit ................................................... 12,082 11,351 23,097 23,976
Selling, general and administrative expenses ........................ 14,707 18,145 30,370 32,741
Other operating income .............................................. 580 720 1,112 1,836
-------- ------- -------- -------
Loss from operations ........................................... (2,045) (6,074) (6,161) (6,929)
Interest expense .................................................... (5,744) (4,304) (10,730) (4,311)
Interest income ..................................................... 1 194 6 202
Other income ........................................................ 1,159 2,184
-------- ------- -------- -------
Loss before benefit for income taxes ........................... (7,788) (9,025) (16,885) (8,854)
Benefit for income taxes ........................................... (2,180) (3,384) (4,727) (3,320)
-------- ------- -------- -------
Net loss ....................................................... (5,608) (5,641) (12,158) (5,534)
Preferred stock dividends accrued ................................... 586 450 1,172 450
-------- ------- -------- -------
Net loss applicable to common stockholders ..................... $(6,194) $(6,091) $(13,330) $(5,984)
======== ======= ======== =======
Basic loss per share:
Net loss per common share ......................................... $ (1.64) $ (1.33) $ (3.52) $ (0.90)
======== ======= ======== =======
Weighted average number of shares outstanding ................... 3,784 4,595 3,784 6,649
======== ======= ======== =======
Diluted loss per share:
Net loss per common share ......................................... $ (1.64) $ (1.33) $ (3.52) $ (0.90)
======== ======= ======== =======
Adjusted weighted average number of shares outstanding ......... 3,784 4,595 3,784 6,649
======== ======= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................... $ (12,158) $ (5,534)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization ............................ 3,658 2,791
Deferred income taxes .................................... (4,927) (3,690)
Compensation related to stock options .................... 209
Other .................................................... 292 262
Increase (decrease) in assets and liabilities:
Accounts receivable .................................. 24,908 13,070
Inventories .......................................... (27,546) (25,084)
Prepaid expenses and other ........................... (466) (11,440)
Accounts payable and accrued expenses ................ (7,661) (506)
Income taxes payable ................................. 119 (930)
--------- ---------
Net cash used in operations ................................. (23,781) (30,852)
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ................. (8,110) (9,059)
Other ...................................................... 167 90
--------- ---------
Net cash used in investing activities ....................... (7,943) (8,969)
--------- ---------
Cash flows from financing activities:
Change in revolving loan facilities ....................... 30,688 14,644
Proceeds from borrowings .................................. 165,000
Proceeds from sale of preferred stock ..................... 18,000
Proceeds from sale of common stock ........................ 75,993
Purchase of common stock for retirement (including
related costs) ......................................... (235,210)
Exercise of stock options ................................. 112
Other ..................................................... (651) (195)
--------- ---------
Net cash provided by financing activities ................... 30,037 38,344
--------- ---------
Net decrease in cash and equivalents ........................ (1,687) (1,477)
Cash and equivalents, beginning of period ................... 2,981 3,605
--------- ---------
Cash and equivalents, end of period ......................... $ 1,294 $ 2,128
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
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 1997 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
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1998 1997
------- -----
<S> <C> <C>
Cash paid during the period for:
Interest.............................. $10,483 $451
======= ====
Income taxes.......................... $ 607 $797
======= ====
</TABLE>
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ------------
<S> <C> <C>
Raw material......................................... $ 13,084 $ 10,169
Work-in-process...................................... 6,753 4,917
Finished goods....................................... 92,004 69,209
-------------- ------------
Total........................................... $ 111,841 $ 84,295
============== ============
</TABLE>
4. INCOME TAXES
The benefit for income taxes for the three and six month periods ended June
30, 1998 and 1997, respectively, have been computed using the estimated
effective full year tax rates. Realization of the income tax benefit is
dependent upon generating sufficient future taxable income. Although realization
is not assured, management believes it is more likely than not that the income
tax benefit will be realized through future taxable earnings.
4
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. REVOLVING LOAN FACILITIES AND NOTES PAYABLE
On May 28, 1998, the Company renewed its Wallace International de Puerto
Rico, Inc. $1,000 credit facility. The renewed facility expires on May 30, 1999.
The Company's C.J. Vander Ltd. subsidiary entered into an overdraft
facility on March 16, 1998 ("Overdraft Facility") which provides for borrowings
of (pound)500. Borrowings made under the Overdraft Facility bear interest at the
bank's base rate plus 1%. The Overdraft Facility contains customary covenants,
and borrowings are secured by substantially all of the assets of C.J.Vander Ltd.
The Overdraft Facility is due on demand and expires on September 11, 1998.
Availability under the Overdraft Facility was (pound)232 at June 30, 1998.
6. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
following is presented in accordance with this statement:
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1998 1997
-------- -------
<S> <C> <C>
Net loss applicable to common stockholders .................. $(13,330) $(5,984)
Other comprehensive income, net of tax:
Foreign currency translation adjustments .................... (307) (128)
-------- -------
Comprehensive loss .......................................... $(13,637) $(6,112)
======== =======
</TABLE>
Accumulated other comprehensive income reported in the Condensed Consolidated
balance sheets consists only of foreign currency translation adjustments.
7. OFFICERS RETIREMENT PLAN
In connection with the April 16, 1997 merger of the Company with THL
Transaction I Corp, a corporation controlled by affiliates of Thomas H. Lee
Company, (the "Merger") the Company amended its Employment Agreement with
Leonard Florence. This Amended and Restated Employment Agreement (i) provided
for a change in his term of full-time employment from a rolling five-year term
to a fixed five-year term (ii) provided for a minimum base compensation of $1.15
million per annum, (iii) established $1.15 million as the minimum amount upon
which his retirement benefit (and survivors benefit of his surviving spouse)
will be computed and (iv) created contractual rights with respect to certain
perquisites that are accorded to him informally under his arrangement with the
Company. On July 29, 1998, the Company entered into Amendment No. 1 to Mr.
Florence's Amended and Restated Employment Agreement which provided, among other
things, for modification of the computation and payment of the retirement
benefit. The amended terms provide for the acceleration of payments related to
the retirement benefit provided that such payments are allowed under the terms
of the Company's credit agreements, as amended. The Company has been providing
for the retirement benefit according to the terms of the April 16, 1997
agreement and the changes did not impact the financial statements for the period
ending June 30, 1998 and are not expected to have a material impact on the
financial statements for the year ended December 31, 1998.
5
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standard No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). The Company will be required
to adopt the provisions of this statement in its annual financial statements for
fiscal 1998. SFAS 131 establishes new standards for reporting information about
operating segments. The Company believes the segment information required to be
disclosed under SFAS 131 will be more comprehensive than previously provided,
including expanded disclosure of statement of operations and balance sheet items
for each reportable operating segment. The Company has not yet completed its
analysis of the operating segments on which it will report.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures
about Pensions and Other Postretirement Benefits". SFAS 132 standardizes the
disclosure requirement for pensions and other postretirement benefits to the
extent practicable. It does not change the measurement or recognition of those
plans. The Company will be required to adopt the provisions of this statement in
its annual financial statements for fiscal 1998. The adoption of these
provisions will not have a material impact upon the Company's consolidated
financial statements.
9. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following supplemental condensed consolidating financial statements as
of June 30, 1998 and 1997 present separate financial information for the Company
("Issuer/Guarantor Parent"), the Guarantor Subsidiaries, and the Non-Guarantor
Subsidiaries. Certain prior year amounts have been reclassified to conform with
the 1998 presentation. Separate financial statements of each guarantor are not
presented because management believes that such statements would not be
materially different from the information presented herein.
6
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
June 30, 1998
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents .......................... $ 19 $ 141 $ 1,134 $ $ 1,294
Accounts receivable, net ...................... 34,414 4,571 38,985
Inventories ................................... 106,257 5,543 41 111,841
Deferred income taxes ......................... 7,744 8,526 16,270
Prepaid expenses and other .................... 113 2,131 614 2,858
Properties held for sale ...................... 1,051 685 1,736
-------- -------- ------- --------- --------
Total current assets ...................... 7,876 152,520 12,547 41 172,984
Property, plant and equipment, net ............... 83,818 3,957 (51) 87,724
Purchase price in excess of net assets acquired .. 6,670 6,670
Other assets, net ................................ 9,169 159 9,328
Investment ....................................... 179,442 (179,442)
-------- -------- ------- --------- --------
Total ..................................... $196,487 $243,167 $16,504 $(179,452) $276,706
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ... $ $ 49,134 $ 448 $ 6 $ 49,588
Accounts payable .............................. 8,751 4,096 12,847
Accrued expenses .............................. 3,872 4,227 425 8,524
Accrued compensation .......................... 2,625 179 2,804
Accrued advertising ........................... 2,411 (270) 2,141
Income taxes payable .......................... 15,932 (15,813) -- 119
-------- -------- ------- --------- --------
Total current liabilities ................. 19,804 51,335 4,878 6 76,023
Long-term debt ................................... 165,000 -- 165,000
Deferred income taxes ............................ 4,044 16,045 20,089
Pension liability ................................ 3,428 3,428
Intercompany (receivable) payable ................ (52,987) 62,891 (8,622) (1,282)
Commitments and contingencies .................... --
Stockholders' equity ............................. 60,626 109,468 20,248 (178,176) 12,166
-------- -------- ------- --------- --------
Total ..................................... $196,487 $243,167 $16,504 $(179,452) $276,706
======== ======== ======= ========= ========
</TABLE>
7
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1997
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents .............................. $ 18 $ 91 $ 2,872 $ $ 2,981
Accounts receivable, net .......................... 61,367 2,526 63,893
Inventories ....................................... 79,500 4,754 41 84,295
Deferred income taxes ............................. 5,027 6,310 11,337
Prepaid expenses and other ........................ 2,075 317 2,392
Properties held for sale .......................... 1,151 685 1,836
-------- --------- ------- --------- --------
Total current assets .......................... 5,045 150,494 11,154 41 166,734
Property, plant and equipment, net ................... 78,406 3,947 51 82,404
Purchase price in excess of net assets acquired ...... 6,790 6,790
Other assets, net .................................... 9,794 278 10,072
Investment in subsidiaries ........................... 179,442 (179,442)
-------- --------- ------- --------- --------
Total ......................................... $194,281 $235,968 $15,101 $(179,350) $266,000
======== ========= ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ....... $ $ 18,900 $ $ $ 18,900
Accounts payable .................................. 12,703 1,531 14,234
Accrued expenses .................................. 4,515 7,730 532 12,777
Accrued compensation .............................. 3,020 370 3,390
Accrued advertising ............................... 3,576 3,576
Income taxes payable .............................. 15,933 (15,861) (78) 6
-------- --------- ------- --------- --------
Total current liabilities ..................... 20,448 30,068 2,355 6 52,877
Long-term debt ....................................... 165,000 165,000
Deferred income taxes ................................ 4,044 16,039 20,083
Pension liability .................................... 3,136 3,136
Intercompany (receivable) payable .................... (63,038) 64,997 (7,677) 5,718
Commitments and contingencies
Stockholders' equity ................................. 67,827 121,728 20,423 (185,074) 24,904
-------- --------- ------- --------- --------
Total ......................................... $194,281 $235,968 $15,101 $(179,350) $266,000
======== ========= ======= ========= ========
</TABLE>
8
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ........................................ $ $66,556 $27,105 $(13,655) $ 80,006
Cost of sales .................................... 49,578 20,986 (13,655) 56,909
-------- ------- ------- -------- --------
Gross profit ................................ 16,978 6,119 23,097
Selling, general and administrative expenses ..... 225 24,353 5,856 (64) 30,370
Other operating income ........................... 1,112 1,112
-------- ------- ------- -------- --------
Income (loss) from operations ................ (225) (6,263) 263 64 (6,161)
Interest expense ................................. (9,783) (936) (11) (10,730)
Interest income .................................. 1 5 6
Other income .....................................
-------- ------- ------- -------- --------
Income (loss) before provision
(benefit) for income taxes ................ (10,008) (7,198) 257 64 (16,885)
Provision (benefit) for income taxes ............. (2,717) (2,133) 123 (4,727)
-------- ------- ------- -------- --------
Net income (loss) ........................... (7,291) (5,065) 134 64 (12,158)
Preferred stock dividends accrued ................ 1,172 1,172
-------- ------- ------- -------- --------
Net income (loss) applicable to
common stockholders ....................... $ (8,463) $(5,065) $ 134 $ 64 $(13,330)
======== ======= ======= ======== ========
</TABLE>
9
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .............................................. $ $67,308 $30,446 $(12,700) $85,054
Cost of sales .......................................... 49,420 24,358 (12,700) 61,078
-------- ------- ------- -------- -------
Gross profit ...................................... 17,888 6,088 23,976
Selling, general and administrative expenses ........... 3,498 23,422 5,944 (123) 32,741
Other operating income ................................. 1,836 1,836
-------- ------- ------- -------- -------
Income (loss) from operations ..................... (3,498) (3,698) 144 123 (6,929)
Interest expense ....................................... (4,076) (233) (2) (4,311)
Interest income ........................................ 192 10 202
Other income ........................................... 2,184 2,184
-------- ------- ------- -------- -------
Income (loss) before provision (benefit)
for income taxes ................................ (7,574) (1,555) 152 123 (8,854)
Provision (benefit) for income taxes ................... (3,094) (635) 409 (3,320)
-------- ------- ------- -------- -------
Net income (loss) ................................. (4,480) (920) (257) 123 (5,534)
Preferred stock dividends accrued ...................... 450 450
-------- ------- ------- -------- -------
Net income (loss) applicable to common
stockholders ................................... $ (4,930) $ (920) $ (257) $ 123 $(5,984)
======== ======= ======= ======== =======
</TABLE>
10
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................................ $ $34,053 $15,998 $(7,803) $42,248
Cost of sales ............................................ 25,315 12,654 (7,803) 30,166
------- ------- ------- ------- -------
Gross profit ......................................... 8,738 3,344 12,082
Selling, general and administrative expenses ............. 112 11,435 3,198 (38) 14,707
Other operating income ................................... 580 580
------- ------- ------- ------- -------
Income (loss) from operations ........................ (112) (2,117) 146 38 (2,045)
Interest expense ......................................... (4,893) (843) (8) (5,744)
Interest income .......................................... 1 1
Other income .............................................
------- ------- ------- ------- -------
Income (loss) before provision (benefit
for income taxes ................................... (5,005) (2,959) 138 38 (7,788)
Provision (benefit) for income taxes ..................... (1,304) (946) 70 (2,180)
------- ------- ------- ------- -------
Net income (loss) .................................... (3,701) (2,013) 68 38 (5,608)
Preferred stock dividends accrued ........................ 586 586
------- ------- ------- ------- -------
Net income (loss) applicable to common stockholders .. $(4,287) $(2,013) $ 68 $ 38 $(6,194)
======= ======= ======= ======= =======
</TABLE>
11
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................................. $ $29,249 $18,484 $(6,718) $41,015
Cost of sales .............................................. 21,591 14,791 (6,718) 29,664
-------- ------- ------- ------- -------
Gross profit .......................................... 7,658 3,693 11,351
Selling, general and administrative expenses ............... 3,578 11,156 3,464 (53) 18,145
Other operating income ..................................... 720 720
-------- ------- ------- ------- -------
Income (loss) from operations ........................ (3,578) (2,778) 229 53 (6,074)
Interest expense ........................................... (4,076) (229) 1 (4,304)
Interest income ............................................ 190 4 194
Other income ............................................... 1,159 1,159
-------- ------- ------- ------- -------
Income (loss) before provision (benefit) for
income taxes ........................................ (7,654) (1,658) 234 53 (9,025)
Provision (benefit) for income taxes ....................... (3,094) (546) 256 (3,384)
-------- ------- ------- ------- -------
Net income (loss) ..................................... (4,560) (1,112) (22) 53 (5,641)
Preferred stock dividends accrued .......................... 450 450
-------- ------- ------- ------- -------
Net income (loss) applicable to common stockholders ... $ (5,010) (1,112) $ (22) $ 53 $(6,091)
======== ======= ======= ======= =======
</TABLE>
12
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ (7,291) $ (5,065) $ 134 $ 64 $(12,158)
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ..................... 708 2,731 219 3,658
Deferred income taxes ............................. (2,717) (2,210) (4,927)
Pension liability ................................. 292 292
Increase (decrease) in assets and liabilities:
Accounts receivable ........................... 26,953 (2,045) 24,908
Inventories ................................... (26,757) (789) (27,546)
Prepaid expenses and other .................... (113) (56) (297) (466)
Accounts payable and accrued expenses ......... (643) (9,015) 1,997 (7,661)
Income taxes payable .......................... (1) 42 78 119
Intercompany account .......................... 10,414 (9,391) (959) (64)
-------- -------- ------- ------ --------
Net cash (used in) provided by operations ............ 357 (22,476) (1,662) (23,781)
-------- -------- ------- ------ --------
Cash flows from investing activities:
Purchases of property, plant and equipment ......... (7,881) (229) (8,110)
Other .............................................. 167 167
-------- -------- ------- ------ --------
Net cash used in investing activities ................ (7,714) (229) (7,943)
-------- -------- ------- ------ --------
Cash flows from financing activities:
Change in revolving loan facilities ................ 30,240 448 30,688
Other .............................................. (356) (295) (651)
-------- -------- ------- ------ --------
Net cash provided by (used in) financing activities... (356) 30,240 153 30,037
-------- -------- ------- ------ --------
Net increase (decrease) in cash and equivalents ...... 1 50 (1,738) (1,687)
Cash and equivalents, beginning of period ............ 18 91 2,872 2,981
-------- -------- ------- ------ --------
Cash and equivalents, end of period................... $ 19 $ 141 $ 1,134 $ -- $ 1,294
======== ======== ======= ====== ========
</TABLE>
13
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ (4,480) $ (920) $ (257) $ 123 $ (5,534)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation and amortization ........................... 295 2,281 215 2,791
Deferred income taxes ................................... (3,094) (596) (3,690)
Other ................................................... 209 262 471
Increase (decrease) in assets and liabilities, net of
effect of businesses acquired:
Accounts receivable ................................. 15,932 (2,862) 13,070
Inventories ......................................... (25,232) 148 (25,084)
Prepaid expenses and other assets.................... (10,795) 77 (722) (11,440)
Accounts payable and accrued expenses ............... 3,901 (5,606) 1,199 (506)
Income taxes payable ................................ (1) (1,100) 171 (930)
Intercompany account ................................ (9,930) 7,588 2,465 (123)
--------- -------- ------- ----- ---------
Net cash (used in) provided by operations .................. (23,895) (7,314) 357 (30,852)
--------- -------- ------- ----- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ............... (7,421) (1,638) (9,059)
Other .................................................... 90 90
--------- -------- ------- ----- ---------
Net cash used in investing activities ...................... (7,331) (1,638) (8,969)
--------- -------- ------- ----- ---------
Cash flows from financing activities:
Change in revolving loan facilities ...................... 14,676 (32) 14,644
Proceeds from borrowings ................................. 165,000 165,000
Proceeds from sale of preferred stock .................... 18,000 18,000
Proceeds from sale of common stock ....................... 75,993 75,993
Purchase of common stock for retirement (including
related costs) ........................................ (235,210) (235,210)
Exercise of stock options................................. 112 112
Other .................................................... (80) (115) (195)
--------- -------- ------- ----- ---------
Net cash provided by (used in) financing activities......... 23,895 14,596 (147) 38,344
--------- -------- ------- ----- ---------
Net increase (decrease) in cash and equivalents ............ (49) (1,428) (1,477)
Cash and equivalents, beginning of period .................. 18 146 3,441 3,605
--------- -------- ------- ----- ---------
Cash and equivalents, end of period......................... $ 18 $ 97 $ 2,013 $ -- $ 2,128
========= ======== ======= ===== =========
</TABLE>
14
<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. SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS
INCLUDING BUT NOT LIMITED TO, (i) STATEMENTS RELATING TO THE COMPANY'S ABILITY
TO EXECUTE ITS GROWTH STRATEGIES AND TO REALIZE ITS GROWTH OBJECTIVES, (ii) THE
COMPANY'S PLANNED EXPANSION OF ITS PRODUCT OFFERINGS, (iii) THE COMPANY'S
ABILITY TO GENERATE SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND
CAPITAL EXPENDITURE NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS, AND (iv) THE
CONTINUATION OF, AND THE COMPANY'S ABILITY TO BENEFIT FROM, THE VENDOR
CONSOLIDATION TREND IN THE RETAIL INDUSTRY.
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.
Results of Operations
Three months ended June 30, 1998 compared to three months ended June 30, 1997
Net sales increased 3.0% to $42.2 million for the three months ended June
30, 1998 from $41.0 million for the three months ended June 30, 1997. This
change is primarily due to increased sales of giftware and sterling silver
flatware items partially offset by decreased Rauch and Silvestri Christmas
items. Delayed receipt of Silvestri Christmas lighting related to a change in
lighting standards, and customer requested scheduling adjustments at Rauch, are
shifting certain shipments from the second to the third quarter. Changes in
normal product prices did not materially impact net sales.
Gross profit increased 6.4% to $12.1 million for the three months ended June
30, 1998 from $11.4 million for the three months ended June 30, 1997. Gross
profit as a percentage of sales was 28.6% for the 1998 second quarter compared
to 27.7% for the comparable 1997 period. The 0.9 percentage point increase in
gross profit percentage was primarily a result of favorable product mix. The
change in gross profit as a percentage of sales was not materially impacted by
change in normal product pricing.
Selling, general and administrative expenses ("S, G & A expenses") of $14.7
million decreased to 34.8% as a percentage of net sales for the three months
ended June 30, 1998 from 44.2% or $18.1 million for the three months ended June
30, 1997. Included in S, G & A expenses for 1997 is a one-time charge of $3.9
million for stock option compensation expense due to the Merger. Excluding this
one time charge in 1997, S, G & A expenses for the second quarter of 1997 were
$14.2 million or 34.8% of net sales.
15
<PAGE>
Loss from operations was $2.0 million and $6.1 million for the second quarter
of 1998 and 1997, respectively and included other operating income of $0.6
million and $0.7 million in 1998 and 1997, respectively, primarily from
Farberware license revenue.
Interest expense was $5.7 million for the three months ended June 30, 1998
compared to $4.3 million in the same period of 1997. This increase results from
increased borrowings for working capital purposes. In addition, in the second
quarter of 1997, the Company had excess cash in connection with the April 16,
1997 merger of the Company with THL Transaction I Corp, a corporation controlled
by affiliates of Thomas H. Lee Company.
The benefit from income taxes was $2.2 million for the three months ended
June 30, 1998 compared to $3.4 million for the three months ended June 30, 1997.
Realization of the income tax benefit is dependent upon generating sufficient
future taxable income. Although realization is not assured, management believes
it is more likely than not that the income tax benefit will be realized through
future taxable earnings.
Net loss applicable to common stockholders for the second quarter of 1998 was
$6.2 million or $1.64 diluted per share, on adjusted weighted average shares of
3,784,018, compared to net loss applicable to common stockholders for the second
quarter of 1997 of $6.1 million or $1.33 diluted per share, on adjusted weighted
average shares of 4,595,000.
Six months ended June 30, 1998 compared to six months ended June 30, 1997
Net sales decreased 5.9% to $80.0 million for the six months ended June 30,
1998 from $85.1 million for the six months ended June 30, 1997. This change is
primarily due to decreased Silvestri liquidation sales and a decrease in Rauch
Christmas items sales volume. Silvestri liquidation sales were unusually high in
the first quarter of 1997 as the Company closed out inventory acquired in the
1996 acquisition of the Silvestri product line. Silvestri and Rauch volume were
also lower due to a shift in timing of sales. The changes in normal product
prices did not materially impact net sales.
Gross profit decreased 3.7% to $23.1 million for the six months ended June
30, 1998 from $24.0 million for the six months ended June 30, 1997. Gross profit
as a percentage of sales was 28.9% for the 1998 first six months compared to
28.2% for the comparable 1997 period. The 0.7 percentage point increase in gross
profit percentage was primarily a result of a decrease in liquidation sales
volume. The increase in gross profit as a percentage of sales was not materially
impacted by change in normal product pricing.
Selling, general and administrative expenses ("S, G & A expenses") decreased
to 38.0% as a percentage of net sales or $30.4 million for the six months ended
June 30, 1998 from 38.5% or $32.7 million for the six months ended June 30,
1997. Excluding the one-time charge of $3.9 million for stock option
compensation expense, S, G & A expenses were 33.9% as a percentage of net sales
or $28.9 million for the six months ended June 30, 1997. The 4.1 percentage
point increase in 1998 reflects higher severance, management personnel and
travel costs. In addition, the first six months of 1997 included a one - time
favorable legal settlement and non-recurring favorable adjustments to accruals
related to discontinued operations.
Loss from operations was $6.2 million and $6.9 million for the six months
ended June 30, 1998 and 1997, respectively and included other operating income
of $1.1 million and $1.8 million in 1998 and 1997, respectively. The 1998 and
1997 other operating income was primarily from Farberware license revenue. Also
included in other operating income for 1997 was income from the disposal of
Farberware inventory.
Interest expense was $10.7 million for the six months ended June 30, 1998
compared to $4.3 million in the same period of 1997. This change results
primarily from the interest expense related to debt incurred in connection with
the Merger.
The benefit from income taxes was $4.7 million for the six months ended June
30, 1998 compared to $3.3 million for the six months ended June 30, 1997.
Realization of the income tax benefit is dependent upon generating sufficient
future taxable income. Although realization is not assured, management believes
it is more likely than not that the income tax benefit will be realized through
future taxable earnings.
16
<PAGE>
Net loss applicable to common stockholders for the six months ended June 30,
1998 was $13.3 million or $3.52 diluted per share, on adjusted weighted average
shares of 3,784,018, compared to net loss applicable to common stockholders for
the six months ended June 30, 1997 of $6.0 million or $0.90 diluted per share,
on adjusted weighted average shares of 6,649,000.
Liquidity and Capital Resources
Net cash used in operating activities for the six months ended June 30, 1998
was $23.8 million. The major uses of cash were for interest expense as a result
of debt incurred in connection with the Merger, and the customary increase in
giftware inventory and manufactured Christmas ornament inventory in preparation
for the fall selling season. Partially offsetting these was the seasonal
collection of accounts receivable.
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 and second
quarters as receivables generated during the third and fourth quarters are
collected and remain lower until the next peak season beginning in September.
Capital expenditures were approximately $8.1 million for the six months ended
June 30, 1998 and the Company expects to expend approximately $5.4 million
during the second half of 1998. These expenditures were primarily for
construction of the warehouse and distribution facility in Mira Loma, CA, and
machinery, equipment and tools and dies for the Company's manufacturing
facilities.
The Company's Revolving Credit Facility as amended on July 31, 1997, December
31, 1997 and March 30, 1998 provides for $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 bear interest at a
rate equal to, at the Company's option, the 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 was required during February and March of 1998 to maintain
excess availability of at least $30.0 million, and is required to maintain
excess availability of at least $45.0 million during February and March of
subsequent years. 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 for the Company and the subsidiary
borrowers, including but not limited to funded debt to earnings before income
taxes, depreciation, amortization, and certain adjustments ("EBITDA") as defined
in the Revolving Credit Facility, fixed charge ratios, capital expenditure
covenants, and minimum consolidated net worth on or after December 31, 1997 of
at least $1.00 (not in thousands). The Company is in compliance with the
covenants, as amended, as of June 30, 1998 and for the quarter then ended. The
Company expects to be in compliance with all covenants, as amended, during
fiscal 1998. Availability under the Revolving Credit Facility, net of
outstanding letters of credit, was $29.9 million at June 30, 1998.
One of the Company's Wallace Puerto Rican subsidiaries has a $1.0 million
facility (the "Facility"), expiring on May 30, 1999. The Facility bears interest
at a rate equal to, at the Company's option, the Eurodollar Rate plus 175 basis
points or the bank's Prime Rate less 25 basis points. Availability under the
Facility was $0.8 million at June 30, 1998.
See Note 5 to the Condensed Consolidated Financial Statements.
The Notes due April 15, 2007, issued in connection with the Merger, require
interest payments to be made semi-annually on April 15 and October 15. The Notes
are general unsecured obligations of the Company and 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 are 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 are
effectively
17
<PAGE>
subordinated to its obligations under the Revolving Credit Facility to the
extent of such assets. The Notes are redeemable in whole or in part, at the
Company's option, after April 15, 2002.
In connection with the Merger, the Company amended its Employment Agreement
with Leonard Florence. The Amended and Restated Employment Agreement dated as of
April 16, 1997 (i) provided for a change in his term of full-time employment
from a rolling five-year term to a fixed five-year term (ii) provided for a
minimum base compensation of $1.15 million per annum, (iii) established $1.15
million as the minimum amount upon which his retirement benefit (and survivors
benefit of his surviving spouse) will be computed and (iv) created contractual
rights with respect to certain perquisites that are accorded to him informally
under his present arrangement with the Company. On July 29, 1998, the Company
entered into Amendment No. 1 to Mr. Florence's Amended and Restated Employment
Agreement which provided, among other things, for modification of the
computation and payment of the retirement benefit. The amended terms provide for
the acceleration of payments related to the retirement benefit provided that
such payments are allowed under the terms of the Company's credit agreements as
amended. The Company has been providing for the retirement benefit according to
the terms of the April 16, 1997 agreement and the changes did not impact the
financial statements for the period ending June 30, 1998 and are not expected to
have a material impact on the financial statements for the year ended December
31, 1998.
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 Company's 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.
The Company's level of indebtedness will have several important effects on
its future operations, including (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the Revolving Credit Facility and the indenture governing the Note
will require the Company to meet certain financial tests, and other restrictions
may limit its ability to borrow funds or to dispose of assets and may affect the
Company's flexibility in planning for, and reacting to, changes in its business
including possible acquisition activities, and (iii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired.
18
<PAGE>
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.
Year 2000 Conversion
The Company has substantially completed its assessment of Year 2000
compliance and determined the critical systems it will be required to evaluate,
modify and test. The Company presently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose material operational problems for its computer systems. The Company has
already modified certain key systems to comply with Year 2000 requirements and
is in the process of modifying and testing the critical systems that are not
Year 2000 compliant. The process is targeted to be largely completed by December
31, 1998. Testing and certification of these systems are targeted for completion
by mid-1999. The Company currently believes that the expenditures necessary to
be Year 2000 compliant will not be material to its financial condition or
results of operations in any given year. The costs of compliance and estimated
completion dates for the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, and the ability to locate and correct all relevant computer codes.
In addition to internal Year 2000 software and equipment remediation activities,
the Company is in contact with its suppliers to assess problems related to Year
2000 compliance. Although there can be no absolute assurance that there will not
be a material adverse effect on the Company if third parties do not convert
their systems in a timely manner, the Company believes that its actions with
suppliers will minimize these risks.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standard No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). The Company will be required
to adopt the provisions of this statement in its annual financial statements for
fiscal 1998. SFAS 131 establishes new standards for reporting information about
operating segments. The Company believes the segment information required to be
disclosed under SFAS 131 will be more comprehensive than previously provided,
including expanded disclosure of statement of operations and balance sheet items
for each reportable operating segment. The Company has not yet completed its
analysis of the operating segments on which it will report.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures
about Pensions and Other Postretirement Benefits" SFAS 132 standardizes the
disclosure requirement for pensions and other postretirement benefits to the
extent practicable. It does not change the measurement or recognition of those
plans. The Company will be required to adopt the provisions of this statement in
its annual financial statements for fiscal 1998. The adoption of these
provisions will not have a material impact upon the Company's consolidated
financial statements.
19
<PAGE>
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
EX-10.1 Letter Agreement between Banco Popular and Wallace
International de Puerto Rico, Inc. dated May 28, 1998
EX-10.2 Amendment No. 1 dated July 29, 1998 to Amended and Restated
Employment Agreement dated as of April 16, 1997 between
Leonard Florence and the Company
EX-11 Computation of Net Income per Common Share
EX-27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the three months ended
June 30, 1998.
20
<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: August 14, 1998
/s/ Ami A. Trauber
-----------------------------------
Ami A. Trauber
Executive Vice President,
Chief Financial Officer,
Treasurer (Principal Financial
and Accounting Officer)
21
<PAGE>
INDEX TO EXHIBITS
-----------------
Filed with Syratech Corporation
Report on Form 10-Q for the Quarter Ended
June 30, 1998
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
EX-10.1 Letter Agreement between Banco Popular and Wallace
International de Puerto Rico, Inc. dated May 28, 1998
EX-10.2 Amendment No. 1 dated July 29, 1998 to Amended and
Restated Employment Agreement dated as of April 16, 1997
between Leonard Florence and the Company
EX-11 Computation of Net Income per Common Share
EX-27 Financial Data Schedule
</TABLE>
EX-10.1
BANCO POPULAR
May 28, 1998
Mr. G. Dana Bill
Syratech Corporation
PO Box 9114
E. Boston, MA 02128-9114
Dear Mr. Bill:
We are pleased to confirm our telephone conversation informing you of that Banco
Popular de Puerto Rico has favorably considered the renewal of the line of
credit facilities available to Wallace International de Puerto Rico, Inc. in the
amount of $1,000,000.00, until May 30, 1999.
Please, be advised that the current line of Credit Agreement with amendments and
guaranties will continue in full force and effect.
We trust this information is useful to you.
Cordially,
/s/ Jose Alfredo Moreda
Vice President & Manager
Mayaguez Commercial Banking Center (412)
Arg
c Ami A. Trauber
Executive Vice President, Chief Financial Officer
Syratech Corporation
Pedro J. Rodriguez
Banco Popular de Puerto Rico
AMENDMENT NO. 1 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated July 29, 1998 to AMENDED AND RESTATED EMPLOYMENT
AGREEMENT dated April 16, 1997 between Syratech Corporation, a Delaware
corporation (the "Company"), and Leonard Florence (the "Executive").
WHEREAS, the Company and the Executive are parties to an Amended and
Restated Employment Agreement dated as of April 16, 1997 (the "Agreement"),
which provides for, among other things, the computation and payment of a
retirement benefit to the Executive or his surviving spouse (capitalized terms
used and not otherwise defined herein shall have the meaning given to such terms
in the Agreement);
WHEREAS, the Company and the Executive have agreed to amend the
provisions of the Agreement relating to (i) the terms of the Executive's
employment and (ii) the computation and payment of the retirement benefit to the
Executive as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Section 1.2 of the Agreement is hereby deleted in its entirety and
is replaced with the following:
"1.2 the Executive's term of full-time employment pursuant to
this Restated Agreement shall, unless otherwise terminated pursuant to
Section 4 of this Restated Agreement, continue until the earlier of (i)
April 16, 2002 or (ii) the third anniversary of receipt of a notice of
termination given by the Executive to the Company at any time after the
date of this Restated Agreement, which notice shall state that it is
being given pursuant to clause (ii) of Section 1.2 of this Restated
Agreement. The Executive's term of advisory service (the "Advisory
Period") shall begin on the day next following the last day of the
Executive's term of full-time employment in accordance with this
Restated Agreement and shall end on the third anniversary of such
date."
2. Section 3.3 of the Agreement is hereby amended by labeling the
current section 3.3 as Section 3.3(a) and adding the following language as an
additional paragraph titled Section 3.3(b) at the end of such section:
"(b) Notwithstanding the foregoing, in lieu of the retirement
benefits provided for in Section 3.3(a) hereof, the Company shall,
provided that the making of such payments does not violate the terms of
the Company's Credit Agreement as amended to date (it being agreed that
the Company shall use its best efforts to negotiate any replacement,
extension or refinancing of such Credit Agreement to permit the Company
to make the payments specified by this Section 3.3(b)), pay the
Executive the amounts set
<PAGE>
forth below on the dates set forth below as Payments in lieu of the
retirement benefits provided for in Section 3.3(a) above:
Date of Payment Amount of Payment
--------------- -----------------
July 29, 1998 $ 926,196.38
January 2, 1999 891,730.39
January 2, 2000 891,730.39
January 2, 2001 577,002.02
January 2, 2002 577,002.02
All payments shall be made by wire transfer of immediately available
funds. If any payment set forth above is not made on the date such
payment is scheduled, the amount due for such payment shall accrue
interest at a rate of 6.75% per annum, computed daily, until such
payment is made. To the extent that any payments set forth in this
Section 3.3(b) are made, such amounts (excluding any interest) shall
reduce on a dollar-for-dollar basis the amounts that would otherwise be
payable by the Company pursuant to Section 3.3(a) above. In the event
of the Executive's death, any future payments by the Company shall be
made to the Executive's Spouse if she is still living. In the event
that both the Executive and the Executive's Spouse die prior to January
2, 2002, the Company shall not be required to make any additional
payments. If the Company makes all of the payments set forth in this
Section 3.3(b) (including any accrued interest, if applicable), then
the Company shall not be required to make any of the payments specified
in Section 3.3(a) above. Upon the consummation of a change of control
of the Company (whether by way of (i) a merger or consolidation,
pursuant to which the stockholders of the Company immediately prior to
such merger or consolidation own less than 50% of the voting securities
of the surviving or resulting corporation or (ii) the sale of all or
substantially all of the assets or stock of the Company, in either case
pursuant to which the stockholders of the Company receive at least $32
in cash per share of common stock), the payments set forth in this
Section 3.3(b) shall immediately become due and payable and upon
payment thereof, the Company shall have no further obligations under
Section 3.3(a); provided that a change of control shall not include a
public offering of the Company's common stock."
3. All other terms of the Agreement are hereby confirmed to remain in
full force and effect.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1
to the Agreement as of the date first written above.
SYRATECH CORPORATION
By: /s/ Melvin L. Levine
-----------------------------
Name: Melvin L. Levine
Title: Vice President of Purchasing
/s/ Leonard Florence
------------------------------------
Leonard Florence
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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE:
Net income (loss) per common share .................. $(1.64) $(1.33) $(3.52) $ (0.90)
======= ======= ======= ========
Weighted average number of shares outstanding ....... 3,784 4,595 3,784 6,649
======= ======= ======= ========
DILUTED EARNINGS (LOSS) PER SHARE:
Net loss per common share ........................... $(1.64) $(1.33) $(3.52) $ (0.90)
======= ======= ======= ========
Adjusted weighted average number of shares
outstanding ......................................... 3,784 4,595 3,784 6,649
======= ======= ======= ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY INFORMATION EXTRACTED FROM THE SYRATECH
CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,294
<SECURITIES> 0
<RECEIVABLES> 44,104
<ALLOWANCES> 5,119
<INVENTORY> 111,841
<CURRENT-ASSETS> 172,984
<PP&E> 127,691
<DEPRECIATION> 39,967
<TOTAL-ASSETS> 276,706
<CURRENT-LIABILITIES> 76,023
<BONDS> 165,000
0
20,702
<COMMON> 38
<OTHER-SE> (8,574)
<TOTAL-LIABILITY-AND-EQUITY> 276,706
<SALES> 80,006
<TOTAL-REVENUES> 80,006
<CGS> 56,909
<TOTAL-COSTS> 56,909
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,730
<INCOME-PRETAX> (16,885)
<INCOME-TAX> (4,727)
<INCOME-CONTINUING> (12,158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,158)
<EPS-PRIMARY> (3.52)
<EPS-DILUTED> (3.52)
</TABLE>
