SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1997
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 1-13066
MIKASA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0099676
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20633 South Fordyce Ave., Long Beach, California 90810
------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(310) 886-3700
--------------
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 .....
As of September 30, 1997, a total of 18,359,195 shares
of the Registrant's Common Stock, $0.01 par value, were outstanding.
Manually Signed Original
Exhibit Index on Page 15
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MIKASA, INC.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of 3
September 30, 1997 and December 31, 1996
Consolidated Statements of Income 4
for the three months ended September 30,
1997 and 1996, and nine months ended
September 30, 1997 and 1996
Consolidated Statements of Cash Flows 5
for the nine months ended September 30,
1997 and 1996
Notes to Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Cash and cash equivalents $ 27,844 $ 42,287
Accounts receivable trade, net 38,219 24,016
Inventories 161,117 132,206
Prepaid expenses and other current assets 7,428 7,613
--------- ---------
Total current assets 234,608 206,122
Property and equipment, net 105,690 71,893
Notes receivable and other assets 985 1,086
Intangible assets, net 5,078 4,880
--------- ---------
Total assets $ 346,361 $ 283,981
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 1,363 $ 1,797
Accounts payable 15,090 18,620
Other current liabilities 23,148 23,320
--------- ---------
Total current liabilities 39,601 43,737
Deferred income taxes 1,672 1,672
Notes payable 120,000 60,000
--------- ---------
Total liabilities 161,273 105,409
--------- ---------
Preferred stock, undesignated, $0.01 par
value; authorized 20,000 shares; none
issued and outstanding -- --
Common stock, $0.01 par value;
authorized 80,000 shares; 18,359
shares issued and outstanding 49,532 49,532
Cumulative translation adjustment (149) 185
Retained earnings 175,410 168,560
--------- ---------
224,793 218,277
Less treasury stock, 3,921 shares, at cost 39,705 39,705
--------- ---------
Total stockholders' equity 185,088 178,572
--------- ---------
Total liabilities and stockholders' equity $ 346,361 $ 283,981
========= =========
The accompanying notes are an integral part of
these consolidated financial statements.
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MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales $100,689 $ 94,944 $256,939 $240,640
Cost of sales 52,392 52,260 137,970 132,820
-------- -------- -------- --------
Gross profit 48,297 42,684 118,969 107,820
Selling, general and
administrative expenses 36,276 30,995 103,228 91,060
Store closure charge -- -- -- 4,100
-------- -------- -------- --------
Income from operations 12,021 11,689 15,741 12,660
Interest expense, net 723 386 1,310 937
-------- -------- -------- --------
Income before income taxes 11,298 11,303 14,431 11,723
Income tax provision 4,452 4,464 5,707 4,630
-------- -------- -------- --------
Net income $ 6,846 $ 6,839 $ 8,724 $ 7,093
======== ======== ======== ========
Net income per share of
common stock $ 0.37 $ 0.33 $ 0.48 $ 0.33
======== ======== ======== ========
Weighted average number of
shares of common stock and
common stock equivalents
outstanding 18,359 20,688 18,359 21,746
======== ======== ======== ========
Cash dividends per share of
common stock $ 0.05 $ -- $ 0.15 $ --
======== ======== ======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
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MIKASA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For The Nine Months Ended
September 30,
-------------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 8,724 $ 7,093
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 4,819 3,534
Changes in operating assets and liabilities (47,347) (24,723)
-------- --------
Net cash used in operating activities (33,804) (14,096)
-------- --------
Cash flows from investing activities:
Capital expenditures (38,457) (26,510)
Decrease in notes receivable 182 231
-------- --------
Net cash used in investing activities (38,275) (26,279)
-------- --------
Cash flows from financing activities:
Long-term borrowings under note agreements 60,000 --
Net increases (decreases) in short term borrowings (439) 12,039
Purchase of treasury stock -- (39,612)
Dividends paid (1,836) --
-------- --------
Net cash provided by (used in) financing
activities 57,725 (27,573)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (89) (164)
-------- --------
Net decrease in cash and cash equivalents (14,443) (68,112)
Cash and cash equivalents, beginning of period 42,287 73,726
-------- --------
Cash and cash equivalents, end of period $ 27,844 $ 5,614
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
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MIKASA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share data)
1. INTERIM FINANCIAL STATEMENTS:
The accompanying consolidated financial statements of Mikasa, Inc. and
its wholly-owned and majority-owned subsidiaries (the "Company") have not been
audited by independent accountants, except for the balance sheet as of December
31, 1996. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
2. INCOME TAXES:
For the nine months ended September 30, 1997 and 1996, income taxes have
been provided at an estimated annual rate of 39.5% of income before taxes.
3. ACCOUNTS RECEIVABLE, TRADE:
Receivables are net of allowances for uncollectible accounts of $636 at
September 30, 1997 and $763 at December 31, 1996.
4. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, are net of accumulated depreciation and
amortization of $28,114 at September 30, 1997 and $23,604 at December 31, 1996.
5. INTANGIBLE ASSETS:
Intangible assets are net of accumulated amortization of $2,328 at
September 30, 1997 and $2,135 at December 31, 1996.
6. DECLARATION OF DIVIDEND:
On October 23, 1997, the Company declared a quarterly dividend of $0.05
per share or $918 on its common stock to stockholders of record on November 3,
1997, payable on November 11, 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain financial and operations data for
the periods indicated:
Three Months Ended
September 30,
------------------
1997 1996
---- ----
NET SALES BY CHANNEL OF DISTRIBUTION:
Direct to consumers $ 49,733 $ 44,856
Retail accounts 44,390 43,776
International 6,566 6,312
-------- --------
Total $100,689 $ 94,944
======== ========
OPERATIONS DATA:
Stores open at beginning of period 141 125
U. S. stores opened during period 3 2
Stores closed during period 0 1
-------- --------
Stores open at end of period 144 126
======== ========
Percentage decrease in comparable store net sales 1.8% 3.6%
As Of September 30,
------------------
1997 1996
---- ----
Total U. S. store gross square footage 1,383,000 1,157,600
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1996
NET SALES. Net sales for the three months ended September 30, 1997 (the
"current period") were $100.7 million, an increase of $5.8 million or 6.1% from
net sales of $94.9 million for the three months ended September 30, 1996 (the
"prior period"). This increase is primarily attributable to an increase in sales
of $4.9 million through the direct to consumer channel of distribution,
resulting from the growth in the retail store network. Sales from retail stores
opened less than twelve months accounted for $6.5 million of the increase. This
increase was partially offset by the drop in comparable store sales. Increases
in sales through the retail accounts and international channels of distribution
were $0.6 million and $0.3 million, respectively.
GROSS PROFIT. Gross profit for the current period was $48.3 million, an
increase of $5.6 million or 13.2% over the prior period's gross profit of $42.7
million. Gross profit as a percentage of net sales increased to 48.0% in the
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current period from 45.0% in the prior period. The gross profit increase as a
percentage of net sales was primarily due to improved margins from all channels
of distribution reflecting balanced inventories and favorable product sourcing
factors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in the current period were $36.3 million, an increase of
$5.3 million or 17.0% over the prior period of $31.0 million. As a percentage of
net sales, such expenses increased to 36.0% in the current period from 32.6% in
the prior period. During the current period, expenses associated with stores
opened less than twelve months accounted for $4.4 million of the increase.
Included in this amount are certain preopening expenses of $0.9 million for
stores opened during the quarter and other stores expected to open in 1997. It
is the Company's practice to expense all costs associated with new store
openings as incurred.
INCOME FROM OPERATIONS. Income from operations in the current period was
$12.0 million, an increase of $0.3 million or 2.8% from the prior period's
income from operations of $11.7 million. This represented a slight decrease as a
percentage of net sales to 11.9% in the current period from 12.3% in the prior
period.
INTEREST EXPENSE, NET. Net interest expense was $0.7 million in the
current period, an increase of $0.3 million from the prior period of $0.4
million, reflecting the balance of $30 million funded during the quarter from
the $60 million private placement of debt, offset by an increase in capitalized
interest of $0.2 million and investment earnings from net cash available. The
capitalized interest relates to the construction of the Company's South Carolina
distribution center.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
NET SALES. Net sales for the nine months ended September 30, 1997 (the
"current period") were $256.9 million, an increase of $16.3 million or 6.8% over
net sales of $240.6 million for the nine months ended September 30, 1996 (the
"prior period"). This increase is primarily attributable to an increase in sales
through the direct to consumer channel of distribution, resulting from growth in
the retail store network. Sales from retail stores opened less than twelve
months accounted for $14.5 million of the increase. Increases in sales through
the retail accounts and international channels of distribution increased $0.3
million and $1.0 million, respectively.
GROSS PROFIT. Gross profit for the current period was $119.0 million, an
increase of $11.2 million or 10.3% over the prior period's gross profit of
$107.8 million. Gross profit as a percentage of net sales increased to 46.3% in
the current period from 44.8% in the prior period. The gross profit increase as
a percentage of net sales was due to improved margins from all channels of
distribution reflecting balanced inventories and favorable product sourcing
factors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in the current period were $103.2 million, an increase
of $12.1 million or 13.3% over the prior period expenses of $91.1 million,
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excluding store closure charges. As a percentage of net sales, such expenses
increased to 40.2% in the current period from 37.8% in the prior period.
Expenses from retail stores opened for less than twelve months accounted for
$10.9 million of the increase. Included in this amount are certain preopening
expenses of $2.6 million for stores opened during the period and other stores
expected to open in 1997. It is the Company's practice to expense all costs
associated with new store openings as incurred.
INCOME FROM OPERATIONS. Income from operations in the current period was
$15.7 million, an increase of $3.0 million or 24.3% from the prior period's
income from operations of $12.7 million. This represented an increase as a
percentage of net sales to 6.1% in the current period from 5.3% in the prior
period. This increase was primarily attributable to the increase in gross profit
as a percentage of net sales and nonrecurrence of the prior period's $4.1
million store closure charges, partially offset by the increase in selling,
general and administrative expenses as a percentage of net sales.
INTEREST EXPENSE, NET. Net interest expense was $1.3 million in the
current period, an increase of $0.4 million from the prior period's net interest
expense of $0.9 million. This increase is the result of the interest costs
associated with the $60 million private placement of debt offset by an increase
in capitalized interest of $1.7 million and investment earnings from net cash
available. The capitalized interest relates to the construction of the Company's
South Carolina distribution center.
LIQUIDITY AND CAPITAL RESOURCES
In June 1997, the Company placed $60.0 million in unsecured, senior
notes with a group of insurance companies at an interest rate of 7.38% per annum
payable semi-annually that mature on June 4, 2007. The first $30.0 million was
funded in June 1997 and the balance was funded during the third quarter of 1997.
Principal payments of $15.0 million per year will be due annually commencing in
June 2003. The Company also has outstanding $60.0 million in unsecured senior
notes with a group of insurance companies which bear interest at the rate of
6.66% per annum payable semi-annually and mature in May 2003. Principal payments
on these notes of $10.0 million per year will be due annually commencing in May
1998. The Company also has a $50.0 million unsecured revolving credit facility
provided by two banks. The maturity date of the revolving credit facility is in
May 2000, subject to automatic extensions in one year increments at the end of
each commitment year, unless either bank delivers a notice of intention not to
extend the maturity date. As of September 30, 1997, $8.8 million had been used
for letters of credit under the revolving credit facility. The balance of $41.2
million was unused and available. The Company's senior notes and revolving
credit agreements contain certain financial covenants including restrictions on
cash distributions to stockholders which could limit the Company's future
ability to pay cash dividends.
The Company had working capital of $195.0 million at September 30, 1997
and working capital of $162.4 million at December 31, 1996. Net cash used in
operating activities was $33.8 million and $14.1 million for the nine months
ended September 30, 1997 and 1996, respectively. The increase in net cash used
in operating activities is primarily attributable to increases in accounts
receivable and inventory.
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Net cash used in investing activities was $38.3 million and $26.3
million in the nine months ended September 30, 1997 and 1996, respectively. The
Company made capital expenditures of $38.5 million and $26.5 million in the nine
months ended September 30, 1997 and 1996, respectively (consisting primarily of
the expenditures for construction of the new distribution center in South
Carolina, fixtures and leasehold improvements for new stores, improvements to
distribution facilities and renovation of existing retail stores).
Certain monetary assets and liabilities of the Company are in foreign
currencies and may be subject to foreign exchange risk. Foreign currency
exchange losses have not in the past had a material effect on the Company's
financial condition since these assets and liabilities are not material to its
consolidated monetary assets and liabilities. As such, these items have not been
hedged by the Company.
The Company's inventory purchases in 1996 were approximately 26% from
Japanese factories and approximately 29% from Germany and Austria combined. A
significant portion of inventory purchases are made in foreign currencies which
expose the Company to foreign currency fluctuations that can affect the
Company's gross profit margin. To hedge against foreign currency swings, the
Company has strategies in place which are intended to minimize the adverse
impact of foreign currency fluctuations on its business. These strategies
include: (i) Currency risk sharing arrangements with certain of the Company's
suppliers; (ii) Forward exchange contract coverage on part of its German mark
related purchases; (iii) Sourcing of products from countries other than Japan
and Germany where feasible; and (iv) Converting certain purchases from foreign
currency to U.S. dollar denominations. The currency risk sharing arrangements
are intended to minimize the impact of currency swings by the equal sharing
between the suppliers and the Company of currency exposures against inventory
purchases denominated in Japanese yen. Future fluctuations of the U.S. dollar in
relation to foreign currencies can impact earnings in future periods.
The Company has two primary distribution centers in the United States,
located in Secaucus, New Jersey and Long Beach, California. The Secaucus
facility is owned. The Long Beach facility is leased pursuant to a lease
expiring in January 1999, which includes an extension option for one-year. The
Company also leases additional off-site warehouse space on a short-term and
mid-term basis in separate buildings to augment each of these primary
facilities. In the second quarter of 1996, the Company commenced construction of
a 580,000 square foot facility in South Carolina. Test shipments from this
facility began during the third quarter and have been successful to date. As of
September 30, 1997, $50 million of the estimated $60 million capital commitments
associated with this facility had been incurred. The Company plans to finance
the balance of this capital commitment principally from the proceeds of the new
senior notes due 2007 placed in June 1997. The new facility should enable the
Company to eliminate the need for additional offsite facilities and accommodate
substantially increased volume. The Company believes that the use of state of
the art distribution technology in the new facility and relief from
inefficiencies resulting from overcrowding of existing facilities will provide
long term benefits. The Company anticipates certain transition costs in the
mid-term which may impact earnings at that time. Future depreciation will also
impact earnings when taken.
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<PAGE>
As of the close of the third quarter of 1997, Company owned stores
increased by 3 new stores to 144. The number of states in which the Company
operates stores increased to 43. The Company plans to continue to pursue
expansion of its store network. Present plans include opening 19 new retail
stores in 1997, of which 10 stores have been opened through the third quarter,
and 20 stores in 1998. Each store requires a commitment of inventory, fixtures,
equipment and pre-opening store expenses. Additional capital will be required in
order to meet the inventory needs of the Company's expanding retail store
network.
The Company currently estimates that its aggregate capital expenditures
in 1997 and 1998 will approximate up to $70 million. This includes the expansion
of the retail store network (including initial investments in inventory),
expansion of its international operations and the capital commitment for the
construction of the new distribution facility in South Carolina. In each of
these cases, there can be no assurance that the Company's capital expenditures
will not exceed this estimated amount.
FUTURE DEVELOPMENTS
In 1997, the Company will adopt Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinquishments of Liabilities." Management does not believe that adoption
of this accounting standard will have a material impact on the financial
statements of the Company.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This statement specifies the computation, presentation, and disclosure
requirements for earnings per share and is effective for financial statements
issued for periods ending after December 15, 1997. Management is currently
evaluating the requirements of SFAS 128.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." This statement establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. SFAS 130 is effective for fiscal
years beginning after December 15, 1997, and requires restatement of earlier
periods presented. Management is currently evaluating the requirements of SFAS
130.
In June 1997, The Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that a public enterprise reports
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 131 is effective for
fiscal years beginning after December 15, 1997, and requires restatement of
earlier periods presented. Management is currently evaluating the requirements
of SFAS 131.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Historically, the Company's operations have been seasonal, with higher
sales and net income occurring in the third and fourth quarters, reflecting
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increased demand during the year-end holiday selling season. Since the biggest
retail selling season is the year-end holiday season, and as more of the
Company's principal department store customers adopt electronic data interchange
which allows them to defer shipments until later in the selling season, future
sales are expected to be more heavily weighted toward the third and fourth
quarters. In addition, the Company's retail stores experience a similar seasonal
selling pattern, however sales are more heavily weighed toward the fourth
quarter. As a result, as the Company increases the number of stores, the shift
of sales volume toward the latter part of the year is expected to continue.
The Company's results of operations may also fluctuate from quarter to
quarter in the future as a result of the amount and timing of sales contributed
by, and expenses related to the opening of new retail stores and the integration
of such stores into the operations of the Company, as well as other factors. The
addition of a significant number of retail stores, as is anticipated with the
Company's store expansion program, can therefore significantly affect results of
operations on a quarter-to-quarter basis. As the addition of new stores
continues, operating income for the first and second quarters will be more
impacted by the combination of seasonally lower sales volumes and increased
operating expenses. The increase in operating expenses is principally due to an
increased percentage of fixed expenses that relate to retail stores and the
additional expense layering from new developing stores.
FORWARD-LOOKING INFORMATION
Certain statements or assumptions in Management's Discussion and
Analysis contain or are based on "forward-looking" information (as defined in
the Private Securities Litigation Reform Act of 1995) that involves risk and
uncertainties inherent in the Company's business. Actual outcomes are dependent
upon the Company's successful performance of internal plans, its ability to
control inventory levels, customer changes in short range and long range plans,
domestic and international competition in the Company's product areas, whether
the Company will be able to accomplish store closures within the current time
table for closure and within the parameters of the loss provision (which are
based on current estimates of closure costs), successful completion of
construction within current cost estimates, continued acceptance of existing
products and the development and acceptance of new products, performance issues
with key suppliers, changes in government import and export policies, risks
related to international transactions and hedging strategies, as well as general
economic risks and uncertainties.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4.3) Amendment dated June 4, 1997 to Note Purchase
Agreements dated May 1, 1993 by and among Mikasa,
Inc., American Commercial, Incorporated and
various noteholders with notes issued pursuant
thereto
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
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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.
MIKASA, INC.
(Registrant)
Date: November 14, 1997 /s/ Raymond B. Dingman
------------------------------
Raymond B. Dingman
President and Chief Executive Officer
/s/ Brenda W. Flores
----------------------------
Brenda W. Flores
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description Page
- --------------------------------------------------------------------------------
4.3 Amendment dated June 4, 1997 to Note 16
Purchase Agreements dated May 1, 1993
by and among Mikasa, Inc., American Commercial,
Incorporated and various noteholders with
notes issued pursuant thereto
27 Financial Data Schedule 29
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EXHIBIT 4.3
AMENDMENT TO NOTE PURCHASE AGREEMENT
THIS AMENDMENT TO NOTE PURCHASE AGREEMENT (this "Agreement") is made as of
June 4, 1997, by and among AMERICAN COMMERCIAL, INCORPORATED (the "Company"), a
California corporation, MIKASA, INC. ("Mikasa," and, collectively with the
Company, the "Companies"), a Delaware corporation, and the noteholders listed on
Annex 1 hereto (the "Noteholders").
RECITALS
WHEREAS, the Companies entered into those separate Note Purchase
Agreements (as in effect prior to the effectiveness of this Agreement,
collectively, the "Existing Note Purchase Agreement" and as amended by this
Agreement, the "Amended Note Purchase Agreement"), each dated as of May 1, 1993,
with the Noteholders (or their predecessors-in-interest), pursuant to which the
Companies jointly and severally sold, and the Noteholders (or their
predecessors-in-interest) purchased, the Companies' 6.66% Senior Notes due May
19, 2003, in the aggregate original principal amount of Sixty Million Dollars
($60,000,000) (the "Notes"); and
WHEREAS, concurrently with the execution of this Agreement, the Companies
propose to enter into those certain separate Note Purchase Agreements
(collectively, the "New Note Purchase Agreement") with the purchasers named in
Schedule A thereto, pursuant to which the Companies propose to jointly and
severally sell to such purchasers, at one or more closings, the Companies' 7.38%
Senior Notes due June 4, 2007, in the aggregate principal amount of Sixty
Million Dollars ($60,000,000); and
WHEREAS, the Noteholders, directly or through their respective nominees,
are the holders of one hundred percent (100%) of the Notes outstanding as of the
Effective Time; and
WHEREAS, the Companies have requested that the Noteholders agree to amend
certain provisions of the Existing Note Purchase Agreement to conform to the
corresponding provisions in the New Note Purchase Agreement; and
WHEREAS, the Noteholders and the Companies wish to amend certain
provisions of the Existing Note Purchase Agreement pursuant to and in accordance
with the provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the mutual premises,
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. DEFINED TERMS
Unless otherwise defined herein, terms that are defined in the Existing
Note Purchase Agreement are used herein as so defined.
-1-
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2. AMENDMENTS AND WAIVERS
2.1 Amendment of Existing Note Purchase Agreement.
The Existing Note Purchase Agreement is hereby amended in the manner
specified in Exhibit A to this Agreement (such amendments herein referred to as
the "Amendments").
2.2 Effect of Amendment.
Except as expressly amended hereby, the Existing Note Purchase Agreement
shall continue in full force and effect in accordance with the provisions
thereof. Except as expressly provided herein, this Agreement shall not be deemed
(a) to be a waiver of, a consent to, or a modification or amendment of, any
other term or condition of the Existing Note Purchase Agreement or (b) to
prejudice any right or rights which the Noteholders may have in the future under
or in connection with the Existing Note Purchase Agreement.
2.3 Effective Time.
The Amendments shall (in accordance with Section 11.5(a) of the Existing
Note Purchase Agreement) become effective, if at all, at such time (the
"Effective Time") as the Required Holders indicate their written consent to the
Amendments by executing and delivering a counterpart of this Agreement to the
Companies.
3. REPRESENTATIONS AND WARRANTIES
To induce each Noteholder to enter into this Agreement, each of Mikasa and
the Company jointly and severally represents and warrants, as of the date hereof
and as of the Effective Time:
(a) No Default or Event of Default has occurred or is continuing,
nor does any event or condition exist that, upon the execution and
delivery of this Agreement and the effectiveness of the Amendments, would
constitute a Default or an Event of Default.
(b) This Agreement has been duly authorized by all requisite
corporate action on the part of each of Mikasa and the Company, has been
executed and delivered by a duly authorized officer of each of Mikasa and
the Company, and constitutes a legal, valid and binding obligation of each
of Mikasa and the Company enforceable in accordance with its terms, and
will not violate any provisions of law, any order, judgment or decree of
any court or other agency of government, or the organizational documents
of Mikasa or the Company, or any other instrument to which either Mikasa
or the Company is a party, or by which either Mikasa or the Company is
bound.
(c) Neither this Agreement nor any written statement furnished by or
on behalf of either Mikasa or the Company to any Noteholder in connection
with the Existing Note Purchase Agreement (including, without limitation,
the financial statements, reports and certificates delivered pursuant to
Section 8.1 of the Existing Note Purchase Agreement) or the proposal and
negotiation of the Amendments contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not misleading. There is no fact relating to any event or
-2-
Page 17 of 29
<PAGE>
circumstance that has occurred or arisen since the last day of the fiscal
year of the Companies most recently ended that the Companies have not
disclosed to the Noteholders in writing that has had or, so far as the
Companies can now reasonably foresee, could reasonably be expected to have
a Material Adverse Effect.
(d) Neither the nature of Mikasa or the Company, or of their
respective businesses or Properties, nor any relationship between Mikasa
or the Company and any other Person, nor any circumstance in connection
with the execution and delivery of this Agreement, is such as to require
an order, consent, approval, license, authorization or validation of, or
filing, recording, registration or qualification with, any Governmental
Authority on the part of Mikasa or the Company as a condition to the
execution, delivery or performance of this Agreement or the Amended Note
Purchase Agreement, or the legality, validity, binding effect or
enforceability of this Agreement or the Amended Note Purchase Agreement.
(e) The obligations of each of Mikasa and the Company set forth in
this Agreement, the Amended Note Purchase Agreement and the Notes are
valid, binding and enforceable in accordance with their respective terms,
except as such enforceability may be: (i) limited by applicable
bankruptcy, reorganization, arrangement, insolvency, moratorium, or other
similar laws affecting the enforceability of creditors' rights generally
and (ii) subject to the availability of equitable remedies.
4. FEES AND EXPENSES
At or before the Effective Time, the Companies shall pay all reasonable
costs and expenses of the Noteholders relating to this Agreement, including, but
not limited to, the statement for reasonable fees and disbursements of the
Noteholders' special counsel presented to the Companies prior to the Effective
Time. The Companies will also pay, upon receipt of any statement thereof, each
additional statement for reasonable fees and disbursements of the Noteholders'
special counsel rendered after the Effective Time in connection with this
Agreement and the Amended Note Purchase Agreement. The obligations of the
Companies under this Section 4 shall survive the termination of this Agreement.
5. SURVIVAL
All representations, warranties, certifications and covenants made by each
of Mikasa and the Company in this Agreement or in any certificate or other
instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by the Noteholders and shall survive the
execution of this Agreement, regardless of any investigation made by or on
behalf of the Noteholders. All statements in any such certificate or other
instrument shall constitute representations and warranties of Mikasa or the
Company, as the case may be, under this Agreement.
-3-
Page 18 of 29
<PAGE>
6. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
7. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
[Remainder of page intentionally left blank.
Next page is signature page.]
-4-
Page 19 of 29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
AMERICAN COMMERCIAL, INCORPORATED
By: /s/ Joseph S. Muto
---------------------------------
Name: Joseph S. Muto
Title: Secretary and General Counsel
MIKASA, INC.
By: /s/ Brenda Flores
---------------------------------
Name: Brenda Flores
Title: Vice President and Chief
Financial Officer
-5-
Page 20 of 29
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ James A. Wiviott
----------------------------------
Name: James A. Wiviott
Title: Asst. Vice President
Metropolitan Life Insurance Co.
On Behalf of Separate Accounts
Nos. 137 and 145.
By: /s/ Michael J. Kroeger
----------------------------------
Name: Michael J. Kroeger
Title: Vice President
-6-
Page 21 of 29
<PAGE>
THE MUTUAL LIFE INSURANCE COMPANY OF
NEW YORK
By: /s/ Emilia F. Wiener
----------------------------------
Name: Emilia F. Wiener
Title: Managing Director
MONY LIFE INSURANCE COMPANY OF AMERICA
By: /s/ Emilia F. Wiener
----------------------------------
Name: Emilia F. Wiener
Title: Authorized Agent
-7-
Page 22 of 29
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:_______________________________
Name:
Title:
By:_______________________________
Name:
Title:
-8-
Page 23 of 29
<PAGE>
GNA CORPORATION
By: /s/ William D. Koski
---------------------------------
Name: William D. Koski
Title: Vice President
-9-
Page 24 of 29
<PAGE>
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By: /s/ James E. McDonald, Jr.
-----------------------------------
Name: James E. McDonald, Jr.
Title: Second Vice President - Securities
-10-
Page 25 of 29
<PAGE>
ANNEX 1
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010
Metropolitan Life Insurance Company
on behalf of Separate Accounts
Nos. 137 and 145
One Madison Avenue
New York, New York 10010
The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
MONY Life Insurance Company of America
c/o The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
Principal Mutual Life Insurance Company
711 High Street
Des Moines, IA 50392
GNA Corporation
Two Union Square, 601 Union Street
Seattle, Washington 98101
Jefferson-Pilot Life Insurance Company
100 North Greene Street
Greensboro, North Carolina 27401
Annex 1-1
Page 26 of 29
<PAGE>
EXHIBIT A
1. AMENDMENT TO SECTION 7.5
Subsection (a) of Section 7.5 of the Existing Note Purchase Agreement is
hereby amended and restated In its entirety to read as follows:
"(a) Limitation on Distributions. Neither Mikasa nor the Company will,
nor will either of them permit any Other Subsidiary to, directly or
indirectly, make or incur any liability to declare or make any
Distribution in respect of any of their respective Capital Stock, unless
(i) such Distribution is by Mikasa in respect of its Capital
Stock and immediately after giving effect thereto,
(A) the aggregate amount of all Distributions (other than
the Distributions referred to in clause (ii) and clause (iii)
below) made or authorized on or after January 1, 1997 does not
exceed the sum of
(i) 65% of the aggregate Consolidated Net Income
(or, in case such aggregate Consolidated Net Income shall
be a deficit, minus 100% of such deficit) for the period
commencing on January 1, 1997 and ending on the date such
Distribution is to be made; plus
(ii) $35,000,000;
(B) no Default or Event of Default exists or would exist;
and
(C) Mikasa and the Company would be permitted to incur at
least One Dollar ($1.00) of additional Funded Debt pursuant to
Section 7.7 hereof and at least One Dollar ($1.00) of additional
Debt pursuant to Section 7.8 hereof and a Domestic Other
Subsidiary would be permitted to incur at least One Dollar
($1.00) of additional Debt pursuant to Section 7.6(a) hereof;
(ii) such Distribution is a dividend payable by a Wholly-Owned
Subsidiary or the Company in respect of its Capital Stock; or
(iii) such Distribution is a purchase or other acquisition of
Subsidiary Stock by Mikasa, the Company or a Wholly-Owned Subsidiary
from any one or more of Mikasa, the Company or a Wholly-Owned
Subsidiary."
Exhibit A-1
Page 27 of 29
<PAGE>
2. AMENDMENT TO SECTION 7.9
Section 7.9 of the Existing Note Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"7.9 Consolidated Net Worth.
Neither Mikasa nor the Company will at any time permit Consolidated
Net Worth to be less than:
(a) One Hundred Forty Million Dollars ($140,000,000), plus
(b) an amount determined by aggregating for each fiscal year of
Mikasa and the Company ended on or after January 1, 1997 and on or
prior to such time, the greater of (a) Zero Dollars ($0) and (b)
thirty-five percent (35%) of Consolidated Net Income for such fiscal
year."
3. AMENDMENT TO SECTION 7.14
Section 7.14 of the Existing Note Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"7.14 Line of Business.
Neither Mikasa nor the Company will, nor will either of them permit
any of the Other Subsidiaries to, engage in any business other than
businesses engaged in by Mikasa, the Company and the Other Subsidiaries on
the Closing Date or businesses directly related to, or dealing with, the
manufacturing, licensing, sale and distribution of tabletop products,
tabletop accessories and household products. Mikasa will not directly
engage in any manufacturing business, provided that the foregoing shall
not restrict the Company or the Other Subsidiaries from engaging in such a
manufacturing business to the extent permitted under the immediately
preceding sentence."
Exhibit A-2
Page 28 of 29
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 27,844
<SECURITIES> 0
<RECEIVABLES> 38,855
<ALLOWANCES> 636
<INVENTORY> 161,117
<CURRENT-ASSETS> 234,608
<PP&E> 133,804
<DEPRECIATION> 28,114
<TOTAL-ASSETS> 346,361
<CURRENT-LIABILITIES> 39,601
<BONDS> 120,000
0
0
<COMMON> 18,359
<OTHER-SE> 175,261
<TOTAL-LIABILITY-AND-EQUITY> 346,361
<SALES> 256,939
<TOTAL-REVENUES> 256,939
<CGS> 137,970
<TOTAL-COSTS> 241,198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,310
<INCOME-PRETAX> 14,431
<INCOME-TAX> 5,707
<INCOME-CONTINUING> 8,724
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,724
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
