<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _________________________
Commission File Number 0-21878
CYRK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3081657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 POND ROAD, GLOUCESTER, MASSACHUSETTS 01930
(Address of principal executive offices)
(Zip Code)
(508) 283-5800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 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
--- ---
At July 26, 1996, 10,760,240 shares of the Registrant's common stock were
outstanding.
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CYRK, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NUMBER
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations -
For the three and six months ended
June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
For the six months ended June 30, 1996
and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
CYRK, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,021 $ 42,583
Investments 26,092 19,629
Accounts receivable:
Trade, less allowance for doubtful accounts of $3,051
at June 30, 1996 and $3,039 at December 31, 1995 32,744 20,681
Officers and stockholders 3,468 222
Inventories 21,060 27,237
Prepaid expenses and other current assets 3,835 3,456
Deferred and refundable income taxes 5,433 5,748
-------- --------
Total current assets 120,653 119,556
Property and equipment, net 9,689 9,542
Other assets 5,038 4,317
Investment in affiliate 1,966 2,487
Loan to affiliate 3,350 2,000
-------- --------
$140,696 $137,902
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 3,558 $ 3,399
Affiliates 3 21
Accrued expenses and other current liabilities 12,291 9,979
-------- --------
Total current liabilities 15,852 13,399
Deferred income taxes 599 599
-------- --------
Total liabilities 16,451 13,998
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000 shares authorized; none issued -- --
Common stock, $.01 par value; 50,000 shares authorized;
10,760 shares issued and outstanding at June 30, 1996
and 10,737 shares issued and outstanding at December 31, 1995 108 107
Additional paid-in capital 87,084 86,862
Retained earnings 37,585 36,935
Unrealized loss on investments (532) --
-------- --------
Total stockholders' equity 124,245 123,904
-------- --------
$140,696 $137,902
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE> 4
CYRK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Net sales $44,144 $34,058 $109,245 $78,407
Cost of sales:
Related parties 161 6 201 7,807
Other 37,119 27,681 91,446 56,511
------- ------- -------- -------
37,280 27,687 91,647 64,318
------- ------- -------- -------
Gross profit 6,864 6,371 17,598 14,089
------- ------- -------- -------
Selling, general and administrative expenses:
Related parties 197 147 344 293
Other 8,648 6,864 16,973 14,161
------- ------- -------- -------
8,845 7,011 17,317 14,454
------- ------- -------- -------
Operating income (loss) (1,981) (640) 281 (365)
Interest income, net (598) (821) (1,216) (1,429)
Equity in loss of affiliate 274 -- 392 --
------- ------- -------- -------
Income (loss) before income taxes (1,657) 181 1,105 1,064
Income tax provision (benefit) (683) 75 455 439
------- ------- -------- -------
Net income (loss) $ (974) $ 106 $ 650 $ 625
======= ======= ======== =======
Earnings (loss) per share $ (0.09) $ 0.01 $ 0.06 $ 0.06
======= ======= ======== =======
Weighted average shares outstanding 10,760 10,712 10,938 10,737
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE> 5
CYRK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 650 $ 625
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,349 848
Realized loss on sale of investments 102 --
Provision for doubtful accounts 60 60
Equity in loss of affiliate 392 --
Increase (decrease) in cash from changes
in working capital items:
Accounts receivable (15,369) 44,646
Inventories 6,177 3,008
Prepaid expenses and other current assets (379) (545)
Refundable income taxes 315 (383)
Accounts payable 141 (3,714)
Accrued expenses and other current liabilities 2,312 (6,946)
-------- -------
Net cash provided by (used in) operating activities (4,250) 37,599
-------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,352) (2,275)
Investment in affiliate -- (3,165)
Loan to affiliate (1,350) (1,750)
Purchase of investments (34,121) --
Proceeds from sale of investments 27,024 --
Other, net (736) (603)
-------- -------
Net cash used in investing activities (10,535) (7,793)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 223 203
-------- -------
Net cash provided by financing activities 223 203
-------- -------
Net increase (decrease) in cash and cash equivalents (14,562) 30,009
Cash and cash equivalents, beginning of year 42,583 33,862
-------- -------
Cash and cash equivalents, end of period $ 28,021 $63,871
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ 35
======== =======
Income taxes $ 104 $ 720
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
5
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CYRK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting. Accordingly,
they do not include all of the information and footnotes in accordance
with generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments,
consisting only of those of a normal recurring nature, necessary for fair
presentation of the Company's financial position, results of operations
and cash flows at the dates and for the periods presented.
The operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform with the
current period presentation.
2. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Raw materials $11,228 $15,248
Finished goods 9,832 11,989
------- -------
$21,060 $27,237
======= =======
</TABLE>
3. At June 30, 1996, the Company was contingently liable for letters of
credit used to finance the purchase of inventory in the aggregate amount
of $17.7 million. Such letters of credit expire at various dates through
November 1996.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three and six month periods ended June 30,
1996 as compared to the same periods in the previous year. This discussion
should be read in conjunction with the Consolidated Financial Statements of the
Company and related Notes included elsewhere in this Form 10-Q.
GENERAL
In recent years, the Company's business has been heavily dependent on purchases
of promotional products by Philip Morris Incorporated ("Philip Morris"). Net
sales to Philip Morris accounted for 89%, 57% and 28% of the Company's total net
sales in 1994, 1995 and the first six months of 1996, respectively. The Company
believes that as a result of increased competition and efforts by Philip Morris
to diversify its promotional product suppliers, sales to Philip Morris in 1995
were substantially less than in 1994. The Company expects that a significant
percentage of its net sales for the remainder of 1996 will continue to be to
Philip Morris. However, the Company does not anticipate that its percentage of
sales to Philip Morris in 1996 will achieve the same level as in 1995 as efforts
to diversify the Company's customer base continue.
As is generally the case with its other promotional product customers, the
Company's agreement with Philip Morris does not require Philip Morris to make a
certain level of purchases. Instead, purchase commitments are represented by
purchase orders placed by Philip Morris from time to time during the course of a
promotion. The actual level of purchases by Philip Morris (and other promotional
product customers) depends on a number of factors, including the duration of the
promotion and consumer redemption rates. Consequently, the Company's level of
net sales is difficult to predict accurately and can fluctuate greatly from
quarter to quarter.
Since the fourth quarter of 1993, Philip Morris has sought competitive bids for
its promotional programs. The Company's profit margin depends, to a great
extent, on its competitive position when bidding and its ability to continually
lower its product costs after being awarded bids. Competition is expected to
increase and thus adversely impact the Company's profit margin in the future.
The Company has pursued efforts to diversify and expand its customer base in
order to reduce its concentration of business with Philip Morris as well as to
mitigate the quarter-to-quarter fluctuations inherent in the business of
promotional product programs.
In the first quarter of 1996, Pepsi-Cola Company ("Pepsi") launched the "Pepsi
Stuff" national promotion. The Company supported Pepsi in the development of
this promotion and was responsible for the development and production of the
promotional merchandise and clothing. The "Pepsi Stuff" national promotion is
currently set to expire on October 31, 1996. Net sales to Pepsi accounted for
28% of total net sales in the first six months of 1996. The Company expects that
a significant percentage of its net sales for the remainder of 1996 will be to
Pepsi.
At June 30, 1996, the Company had written purchase orders for $40.0 million, as
compared to $30.0 million at June 30, 1995. The Company's purchase orders are
generally subject to cancellation with limited penalty and are therefore not
necessarily indicative of future revenues or earnings. Generally, promotional
products orders are filled and net sales are recognized 60 to 70 days after
receipt of a purchase order.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Net sales for the second quarter ended June 30, 1996 totaled $44.1 million as
compared to $34.1 million in the second quarter of 1995. The increase in net
sales of $10.0 million, or 29%, from the comparable period of a year ago, was
directly attributable to the success of the Company's customer diversification
effort. Promotional product sales in the second quarter of 1996 totaled $31.4
million, or an increase of 40%, as compared to $22.5 million in the second
quarter of 1995. Net sales related to the Company's private label and Cyrk brand
business in the second quarter of 1996 totaled $12.7 million, or an increase of
9%, as compared to $11.6 million in the second quarter of 1995.
7
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RESULTS OF OPERATIONS (CONTINUED)
Gross profit increased $.5 million, or 8%, to $6.9 million in the second quarter
of 1996 from $6.4 million in the second quarter of 1995. As a percentage of net
sales, the second quarter gross profit decreased to 15.5% in 1996 from 18.7% in
1995. This decrease was due principally to the lower gross margins associated
with the promotional products division, which accounted for approximately
three-fourths of the Company's total net sales in the second quarter of 1996.
Selling, general and administrative expenses increased $1.8 million, or 26%, to
$8.8 million in the second quarter of 1996 from $7.0 million in the second
quarter of 1995, but decreased as a percentage of net sales to 20.0% in the
second quarter of 1996 from 20.6% in the second quarter of 1995. The Company
increased its systems support and application development expenditures as well
as expanded its domestic fulfillment and offshore sales and sourcing
capabilities. Additionally, legal fees increased as a result of certain
litigation and business matters. The decrease in selling, general and
administrative expenses as a percentage of net sales was attributable to the
comparative increase in second quarter net sales.
Interest income in the second quarter of 1996 was attributable to interest
earned on short-term investments of excess cash, primarily in investment-grade
securities.
Equity in loss of affiliate represents the Company's proportionate share of an
investment being accounted for under the equity method.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales for the first six months of 1996 totaled $109.2 million as compared to
$78.4 million in the first six months of 1995. The increase in net sales of
$30.8 million, or 39%, from the comparable period of a year ago, was directly
attributable to the success of the Company's customer diversification effort.
Promotional product sales in the first six months of 1996 totaled $80.3 million,
or an increase of 45%, as compared to $55.3 million in the first six months of
1995. Net sales related to the Company's private label and Cyrk brand business
in the first six months of 1996 totaled $28.9 million, or an increase of 25%, as
compared to $23.1 million in the first six months of 1995.
Gross profit increased $3.5 million, or 25%, to $17.6 million in the first six
months of 1996 from $14.1 million in the first six months of 1995. As a
percentage of net sales, gross profit decreased to 16.1% in 1996 from 18.0% in
1995. This decrease was due principally to the lower gross margins associated
with the promotional products division, which accounted for approximately
three-fourths of the Company's total net sales in the first six months of 1996.
Selling, general and administrative expenses increased $2.9 million, or 20%, to
$17.3 million in the first six months of 1996 from $14.4 million in the first
six months of 1995, but decreased as a percentage of net sales to 15.9% in the
first six months of 1996 from 18.4% in the first six months of 1995. The Company
increased its systems support and application development expenditures as well
as expanded its domestic fulfillment and offshore sales and sourcing
capabilities. Additionally, legal fees increased as a result of certain
litigation and business matters. The decrease in selling, general and
administrative expenses as a percentage of net sales was attributable to the
comparative increase in year to date net sales.
Interest income in the first six months of 1996 was attributable to interest
earned on short-term investments of excess cash, primarily in investment-grade
securities.
Equity in loss of affiliate represents the Company's proportionate share of an
investment being accounted for under the equity method.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its working capital and capital
expenditure requirements through cash generated from operations, public sales of
common stock, bank borrowings and capital equipment leases. Such cash
requirements for 1995 and 1996 to date were provided principally by cash
provided by operating activities.
8
<PAGE> 9
Working capital at June 30, 1996 was $104.8 million compared to $106.2 million
at December 31, 1995. Net cash used by operating activities during the first six
months of 1996 was $4.3 million, due principally to an increase in accounts
receivable. Trade accounts receivable grew to $32.7 million at June 30, 1996
from $20.7 million at December 31, 1995, primarily as a result of increased
sales in the second quarter of 1996 compared to the fourth quarter of 1995.
Inventories decreased to $21.1 million at June 30, 1996 compared to $27.2
million at December 31, 1995, primarily as a result of the Company's efforts to
lower its overall level of on-hand inventory.
Net cash used in investing activities in the first half of 1996 was $10.5
million, which included $7.1 million of net purchases of investments, $1.4
million of additions to property and equipment and a $1.3 million loan made to
an affiliate. In the first half of 1995, $4.9 million of cash used was related
to an equity investment transaction consummated in March 1995 and $2.3 million
was used for additions to property and equipment.
The Company currently has available a bank letter of credit and revolving credit
facility which expires in January 1997. At June 30, 1996, based on the borrowing
base formula prescribed by this credit facility, the Company's borrowing
capacity was $75.0 million, of which $18.1 million in letters of credit were
outstanding. Borrowings under this facility are collateralized by all assets of
the Company.
Management believes that the Company's existing cash position, credit
facilities, and its ability to obtain additional financing, combined with
internally generated cash flow, will be adequate for its liquidity and capital
needs at least through the end of 1996.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings that have
not been previously reported, and during the quarter covered by this report
there have been no material developments in such reported legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 30, 1996 the Company held its Annual Meeting of Stockholders. The matters
considered at the meeting consisted of the following:
The election of two Class III directors to serve for a term of three
years and until their successors are elected and qualified. The results
of the voting were as follows:
<TABLE>
<CAPTION>
Nominee For Votes Withheld Broker Non-Votes
------- --- -------------- ----------------
<S> <C> <C> <C>
Gregory P. Sholpak 8,733,949 20,742 0
Louis Marx, Jr. 8,733,939 20,752 0
</TABLE>
The ratification of the appointment of Coopers & Lybrand L.L.P. as the
Company's independent auditors for the 1996 fiscal year. The results of
the voting were as follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
<S> <C> <C> <C>
8,742,323 6,340 6,028 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter for which this report is
filed.
10
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SIGNATURES
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.
Date: July 31, 1996 CYRK, INC.
/s/Dominic F. Mammola
---------------------------------------------
Dominic F. Mammola
Vice President and Chief Financial Officer
(duly authorized officer and principal
financial and accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 28,021
<SECURITIES> 26,092
<RECEIVABLES> 35,795
<ALLOWANCES> 3,051
<INVENTORY> 21,060
<CURRENT-ASSETS> 120,653
<PP&E> 14,903
<DEPRECIATION> 5,214
<TOTAL-ASSETS> 140,696
<CURRENT-LIABILITIES> 15,852
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> 124,137
<TOTAL-LIABILITY-AND-EQUITY> 140,696
<SALES> 109,245
<TOTAL-REVENUES> 109,245
<CGS> 91,647
<TOTAL-COSTS> 91,647
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,105
<INCOME-TAX> 455
<INCOME-CONTINUING> 650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
