UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
/_/ 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
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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 NO X
--- ---
NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OUTSTANDING AT
MARCH 31, 2000 - 3,784,018
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2000
and December 31, 1999 1
Condensed Consolidated Income Statements for the three
month periods ended March 31, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the three
month periods ended March 31, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
ASSETS
Current assets:
Cash and equivalents ..........................................................$ 5,103 $ 1,451
Accounts receivable, net ...................................................... 49,386 69,267
Inventories .................................................................. 96,971 94,096
Deferred income taxes ......................................................... 15,609 13,187
Prepaid expenses and other .................................................... 4,245 3,273
--------- ---------
Total current assets ......................................................... 171,314 181,274
Property, plant and equipment, net ............................................. 70,909 71,689
Purchase price in excess of net assets acquired, net ........................... 6,247 6,308
Other assets, net .............................................................. 6,889 7,246
--------- ---------
Total ........................................................................$ 255,359 $ 266,517
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ...................................$ 15,649 $ 22,669
Accounts payable .............................................................. 11,412 11,673
Accrued expenses .............................................................. 12,095 11,697
Accrued interest .............................................................. 8,501 3,999
Accrued compensation .......................................................... 3,014 3,012
Accrued advertising ........................................................... 2,972 3,569
Income taxes payable .......................................................... 615 1,216
--------- ---------
Total current liabilities .................................................... 54,258 57,835
Long-term debt ................................................................. 165,000 165,000
Deferred income taxes .......................................................... 19,671 19,671
Pension liability .............................................................. 1,895 2,674
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 $7,233 and $6,498 in 2000 and
1999, respectively) .......................................................... 25,233 24,498
Common stock, $.01 par value, 20,000,000 shares authorized;
3,784,018 shares issued and outstanding ...................................... 38 38
Deficit ....................................................................... (10,627) (3,308)
Accumulated other comprehensive income ........................................ (109) 109
--------- ---------
Total stockholders' equity ................................................... 14,535 21,337
--------- ---------
Total .......................................................................$ 255,359 $ 266,517
--------- ---------
--------- ---------
See notes to consolidated financial statements.
1
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
---------------------------------
2000 1999
-------- --------
Net sales ........................................................ $ 55,327 $ 42,726
Cost of sales .................................................... 40,463 29,887
-------- --------
Gross profit ................................................ 14,864 12,839
Selling, general and administrative expenses ..................... 18,620 16,526
Other operating income ........................................... (419) (697)
-------- --------
Loss from operations ........................................ (3,337) (2,990)
Interest expense ................................................. (5,456) (5,713)
Interest income .................................................. 14 40
-------- --------
Loss before benefit for income taxes ........................ (8,779) (8,663)
Benefit for income taxes ........................................ (2,195) (2,165)
-------- --------
Net loss .................................................... (6,584) (6,498)
Preferred stock dividends accrued ................................ 735 656
-------- --------
Net loss applicable to common stockholders .................. $ (7,319) $ (7,154)
-------- --------
-------- --------
Basic and diluted loss per share:
Net loss per common share ....................................... $ (1.93) $ (1.89)
-------- --------
-------- --------
Weighted average number of shares outstanding ................. 3,784 3,784
-------- --------
-------- --------
See notes to consolidated financial statements.
2
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
-----------------------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net loss .......................................................... $ (6,584) $ (6,498)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization .................................. 2,239 2,058
Deferred income taxes .......................................... (2,422) (2,441)
Other .......................................................... (779) 266
Increase (decrease) in assets and liabilities:
Accounts receivable ........................................ 19,881 23,703
Inventories ................................................ (2,875) (16,802)
Prepaid expenses and other ................................. (972) (943)
Accounts payable and accrued expenses ...................... 4,044 4,813
Income taxes payable ....................................... (601) 64
--------- ---------
Net cash provided by operating activities .......................... 11,931 4,220
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment ....................... (1,100) (2,107)
Proceeds from disposal of assets .................................. 75
Other ............................................................ 1 225
--------- ---------
Net cash used in investing activities ............................. (1,099) (1,807)
--------- ---------
Cash flows from financing activities:
Change in revolving loan facilities and notes payable ........... (7,020) (10,377)
Other ............................................................ (160) (276)
--------- ---------
Net cash used in financing activities .............................. (7,180) (10,653)
--------- ---------
Net increase (decrease) in cash and equivalents ................... 3,652 (8,240)
Cash and equivalents, beginning of period .......................... 1,451 9,009
--------- ---------
Cash and equivalents, end of period ................................ $ 5,103 $ 769
--------- ---------
--------- ---------
See notes to consolidated financial statements.
3
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 1999 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
THREE MONTHS ENDED MARCH 31,
----------------------------------------
2000 1999
----------------- -----------------
Cash paid during the period for:
Interest......................................... $ 590 $ 991
-------- -------
-------- -------
Income taxes..................................... $ 686 $ 62
-------- -------
-------- -------
Supplemental schedule of non-cash financing activities:
Accrued cumulative redeemable
preferred stock dividends........................ $ 735 $ 656
-------- -------
-------- -------
3. INVENTORIES
Inventories consisted of the following:
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
Raw materials...................... $ 13,249 $ 11,137
Work-in-process.................... 7,889 6,115
Finished goods..................... 75,833 76,844
----------- ---------
Total......................... $ 96,971 $ 94,096
----------- ---------
----------- ---------
4
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The benefit for income taxes for the three month periods ended March 31, 2000
and 1999 have been computed using the estimated effective full year tax rate
of 25%. 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.
5. COMPREHENSIVE LOSS
Comprehensive loss consists of the following:
THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
-------------- ---------------
Net loss applicable to common stockholders..... $ (7,319) $ (7,154)
Other comprehensive income:
Foreign currency translation adjustments...... (218) (276)
-------------- ---------------
Comprehensive loss.............................. $ (7,537) $ (7,430)
-------------- ---------------
-------------- ---------------
Accumulated other comprehensive income reported in the Condensed Consolidated
Balance Sheets consists only of foreign currency translation adjustments.
6. ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The new standard requires that
all companies record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting.
Management is currently assessing whether there will be any impact of SFAS
No. 133 on the Company's consolidated financial statements upon adoption,
which is required in the first quarter of 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company will adopt SAB No. 101 as required in the second quarter of 2000
and does not expect that such adoption will have a material impact on the
consolidated financial statements.
5
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SEGMENT DISCLOSURES
The Company has identified only one distinct and reportable segment: Home
Entertainment and Decorative Products, which generates revenue from two types
of product offerings: Tabletop and Giftware, and Seasonal. The following
table presents the Company's net sales in these product categories for the
periods presented:
THREE MONTHS ENDED MARCH 31,
-----------------------------------
2000 1999
---------------- ----------------
Tabletop and Giftware................. $ 41,834 $ 30,015
Seasonal.............................. 13,493 12,711
---------------- ----------------
Total................................. $ 55,327 $ 42,726
---------------- ----------------
---------------- ----------------
8. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following supplemental condensed consolidating financial statements as of
March 31, 2000 and 1999 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 2000 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
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
MARCH 31, 2000
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- --------------- -------------- --------------- --------------
ASSETS
Current assets:
Cash and equivalents.................. $ 3,757 $ 1,346 $ 5,103
Accounts receivable, net.............. 44,525 4,861 49,386
Inventories........................... 92,079 4,851 $ 41 96,971
Deferred income taxes................. $ 7,927 7,682 15,609
Prepaid expenses and other............ 113 3,084 1,048 4,245
-------------- --------------- -------------- --------------- --------------
Total current assets.............. 8,040 151,127 12,106 41 171,314
Property, plant and equipment, net....... 67,362 3,596 (49) 70,909
Purchase price in excess of net assets
acquired............................... 6,761 (514) 6,247
Other assets, net........................ 49,665 6,888 (49,664) 6,889
-------------- --------------- -------------- --------------- --------------
Total $ 64,466 $ 224,863 $ 15,702 $ (49,672) $ 255,359
-------------- --------------- -------------- --------------- --------------
-------------- --------------- -------------- --------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes
payable............................. $ 15,317 $ 332 $ 15,649
Accounts payable...................... 7,181 4,231 11,412
Accrued expenses...................... $ 43 11,849 203 12,095
Accrued interest...................... 8,369 132 8,501
Accrued compensation.................. 2,885 129 3,014
Accrued advertising................... 2,972 2,972
Income taxes payable.................. (10,645) 10,702 552 $ 6 615
-------------- --------------- -------------- --------------- --------------
Total current liabilities......... (2,233) 51,038 5,447 6 54,258
Long -term debt.......................... 165,000 165,000
Deferred income taxes.................... 8,764 10,907 19,671
Pension liability and other long-term
liabilities............................ 1,895 1,895
Intercompany (receivable) payable........ (25,436) 42,474 (18,067) 1,029
Stockholders' equity (deficit)........... (81,629) 118,549 28,322 (50,707) 14,535
-------------- --------------- -------------- --------------- --------------
Total $ 64,466 $ 224,863 $ 15,702 $ (49,672) $ 255,359
-------------- --------------- -------------- --------------- --------------
-------------- --------------- -------------- --------------- --------------
7
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1999
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- --------------- -------------- --------------- --------------
ASSETS
Current assets:
Cash and equivalents......................... $ $ 587 $ 864 $ $ 1,451
Accounts receivable, net..................... 64,087 5,180 69,267
Inventories.................................. 88,181 5,874 41 94,096
Deferred income taxes........................ 5,399 7,788 13,187
Prepaid expenses and other................... 113 2,319 841 3,273
-------------- --------------- -------------- --------------- --------------
Total current assets..................... 5,512 162,962 12,759 41 181,274
Property, plant and equipment, net.............. 68,073 3,664 (48) 71,689
Purchase price in excess of net assets acquired. 6,308 6,308
Other assets, net............................... 7,117 129 7,246
Investment...................................... 49,665 (49,665)
-------------- --------------- -------------- --------------- --------------
Total.................................... $ 62,294 $ 237,472 $ 16,423 $ (49,672) $ 266,517
-------------- --------------- -------------- --------------- --------------
-------------- --------------- -------------- --------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable.. $ $ 22,579 $ 90 $ $ 22,669
Accounts payable............................. 7,259 4,414 11,673
Accrued expenses............................. 37 11,337 323 11,697
Accrued interest............................. 3,832 167 3,999
Accrued compensation......................... 2,726 286 3,012
Accrued advertising.......................... 3,569 3,569
Income taxes payable......................... (10,644) 11,284 570 6 1,216
-------------- --------------- -------------- --------------- --------------
Total current liabilities................ (6,775) 58,921 5,683 6 57,835
Long-term debt.................................. 165,000 165,000
Deferred income taxes........................... 8,764 10,907 19,671
Pension liability............................... 2,674 2,674
Intercompany (receivable) payable............... (25,545) 42,800 (17,255)
Stockholders' equity (deficit).................. (79,150) 122,170 27,995 (49,678) 21,337
-------------- --------------- -------------- --------------- --------------
Total.................................... $ 62,294 $ 237,472 $ 16,423 $ (49,672) $ 266,517
-------------- --------------- -------------- --------------- --------------
-------------- --------------- -------------- --------------- --------------
8
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- --------------- -------------- -------------- --------------
Net sales........................................... $ $ 44,103 $ 20,180 $ (8,956) $ 55,327
Cost of sales....................................... 33,306 16,113 (8,956) 40,463
---------- --------------- -------------- -------------- --------------
Gross profit................................... 10,797 4,067 14,864
Selling, general and administrative expenses........ 113 15,156 3,351 18,620
Other operating income.............................. (419) (419)
---------- --------------- -------------- -------------- --------------
Income (loss) from operations.................. (113) (3,940) 716 (3,337)
Interest expense.................................... (4,893) (553) (10) (5,456)
Interest income..................................... 10 4 14
---------- --------------- -------------- -------------- --------------
Income (loss) before provision (benefit)
for income taxes............................. (5,006) (4,483) 710 (8,779)
Provision (benefit) for income taxes................ (2,528) 168 165 (2,195)
---------- --------------- -------------- -------------- --------------
Net income (loss).............................. (2,478) (4,651) 545 - (6,584)
Preferred stock dividends accrued................... 735 735
---------- --------------- -------------- -------------- --------------
Net income (loss) applicable to common stockholders. $ (3,213) $ (4,651) $ 545 $ - $ (7,319)
---------- --------------- -------------- -------------- --------------
---------- --------------- -------------- -------------- --------------
9
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ --------------- --------------- --------------- -------------
Net sales......................................... $ $ 35,249 $ 15,309 $ (7,832) $ 42,726
Cost of sales..................................... 25,804 11,915 (7,832) 29,887
------------ --------------- --------------- --------------- ------------
Gross profit................................. 9,445 3,394 - 12,839
Selling, general and administrative expenses...... 113 13,846 2,573 (6) 16,526
Other operating income............................ (697) (697)
------------ --------------- --------------- --------------- ------------
Income (loss) from operations................ (113) (3,704) 821 6 (2,990)
Interest expense.................................. (4,893) (810) (10) (5,713)
Interest income................................... 1 36 3 40
------------ --------------- --------------- --------------- ------------
Income (loss) before provision (benefit) for
income taxes.................................... (5,005) (4,478) 814 6 (8,663)
Provision (benefit) for income taxes.............. (1,090) (1,248) 173 (2,165)
------------ --------------- --------------- --------------- ------------
Net income (loss)............................ (3,915) (3,230) 641 6 (6,498)
Preferred stock dividends accrued................. 656 656
------------ --------------- --------------- --------------- ------------
Net income (loss) applicable to common
stockholders.............................. $ (4,571) $ (3,230) $ 641 $ 6 $ (7,154)
------------ --------------- --------------- --------------- ------------
------------ --------------- --------------- --------------- ------------
10
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- --------------- --------------- --------------- -----------------
Cash flows from operating activities:
Net income (loss)................................. $ (2,478) $ (4,651) $ 545 $ - $ (6,584)
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization................... 356 1,729 154 2,239
Deferred income taxes........................... (2,528) 106 (2,422)
Pension liability............................... (779) (779)
Increase (decrease) in assets and liabilities,
net of effect of businesses acquired:
Accounts receivable......................... 19,562 319 19,881
Inventories................................. (3,898) 1,023 (2,875)
Prepaid expenses and other.................. (765) (207) (972)
Accounts payable and accrued expenses....... 4,543 (281) (218) 4,044
Income taxes payable........................ (1) (582) (18) (601)
Intercompany account........................ 109 691 (800)
------------ --------------- --------------- --------------- -----------------
Net cash provided by operating activities.......... 1 11,132 798 - 11,931
------------ --------------- --------------- --------------- -----------------
Cash flows from investing activities:
Purchases of property, plant and equipment....... (944) (156) (1,100)
Other............................................ 1 1
------------ --------------- --------------- --------------- -----------------
Net cash used in investing activities.............. - (943) (156) - (1,099)
------------ --------------- --------------- --------------- -----------------
Cash flows from financing activities:
Change in revolving loan facilities.............. (7,020) (7,020)
Other............................................ (1) 1 (160) (160)
------------ --------------- --------------- --------------- -----------------
Net cash used in financing activities.............. (1) (7,019) (160) - (7,180)
------------ --------------- --------------- --------------- -----------------
Net increase in cash and equivalents............... - 3,170 482 - 3,652
Cash and equivalents, beginning of the period...... - 587 864 - 1,451
------------ --------------- --------------- --------------- -----------------
Cash and equivalents, end of the period............ $ - $ 3,757 $ 1,346 $ - $ 5,103
------------ --------------- --------------- --------------- -----------------
------------ --------------- --------------- --------------- -----------------
11
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ --------------- --------------- ------------ --------------
Cash flows from operating activities:
Net income (loss)...................................... $ (3,915) $ (3,230) $ 641 $ 6 $ (6,498)
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization....................... 354 1,558 146 2,058
Deferred income taxes............................... (1,090) (1,351) (2,441)
Other............................................... 266 266
Increase (decrease) in assets and liabilities:
Accounts receivable............................. 22,010 1,693 23,703
Inventories..................................... (16,854) 52 (16,802)
Prepaid expenses and other...................... 1 (967) 23 (943)
Accounts payable and accrued expenses........... 4,734 76 3 4,813
Income taxes payable............................ (198) 204 64 (6) 64
Intercompany account............................ 114 2,632 (2,746)
------------ --------------- --------------- ------------ ---------------
Net cash provided by (used in) operating
activities........................................... - 4,344 (124) 4,220
------------ --------------- --------------- ------------ ---------------
Cash flows from investing activities:
Purchases of property, plant and equipment........... (1,851) (256) (2,107)
Proceeds from disposal of assets..................... 75 75
Other................................................ 113 112 225
------------ --------------- --------------- ------------ ---------------
Net cash used in investing activities.................. - (1,663) (144) - (1,807)
------------ --------------- --------------- ------------ ---------------
Cash flows from financing activities:
Change in revolving loan facilities.................. (10,022) (355) (10,377)
Other................................................ (276) (276)
------------ --------------- --------------- ------------ ---------------
Net cash used in financing activities.................. (10,022) (631) (10,653)
------------ --------------- --------------- ------------ ---------------
Net decrease in cash and equivalents................... (7,341) (899) (8,240)
Cash and equivalents, beginning of the period.......... 7,496 1,513 9,009
------------ --------------- --------------- ------------ ---------------
Cash and equivalents, end of the period................ $ - $ 155 $ 614 $ - $ 769
------------ --------------- --------------- ------------ ---------------
------------ --------------- --------------- ------------ ---------------
12
SYRATECH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Except for the historical information
contained in this Quarterly Report on Form 10-Q, the matters discussed are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, general economic and business conditions; industry
capacity; industry trends; overseas expansion; the loss of major customers;
changes in demand for the Company's products; the timing of orders received
from customers; cost and availability of raw materials; dependence on foreign
sources of supply; changes in business strategy or development plans;
availability and quality of management; availability, terms and deployment of
capital; and the seasonal nature of the business. For additional information
concerning these and other important factors that may cause the Company's
actual results to differ materially from expectations and underlying
assumptions, please refer to the reports filed by the Company with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
Net sales increased 29.5% to $55.3 million for the three months ended March
31, 2000 from $42.7 million for the three months ended March 31, 1999. This
increase is primarily due to increased sales of housewares products
reflecting strong demand for flatware, lighting, candles and accessories, and
to higher sales of licensed giftware products to specialty retailers. Sales
by the company's English subsidiaries also increased due to an expanded
product offering. Sales of discontinued inventory were higher during the
quarter while sterling flatware sales were lower. Changes in normal product
prices did not materially impact net sales.
Gross profit increased 15.8% to $14.9 million for the three months ended
March 31, 2000 from $12.8 million for the three months ended March 31, 1999.
Gross profit as a percentage of sales was 26.9% for the 2000 first quarter
compared to 30.0% for the comparable 1999 period. The 3.1 point gross profit
percentage decrease reflects unfavorable product mix compared with the prior
period, higher provisions for sales allowances, as well as increased sales of
discontinued inventory at low margins.
Selling, general and administrative expenses ("S, G & A expenses") of $18.6
million improved to 33.7% as a percentage of net sales for the three months
ended March 31, 2000 from 38.7% or $16.5 million for the comparable period
ended March 31, 1999. The $2.1 million increase reflects increased royalty,
and commission expenses related to the volume increase and investment in
additional product development and marketing staff to drive future sales
growth, including increased expenses related to the Company's expanded sales
presence in Europe.
Loss from operations was $3.3 million and $3.0 million for the first quarter
of 2000 and 1999, respectively, and included other operating income of $0.4
million and $0.7 million in 2000 and 1999, respectively. The decrease in
other operating income reflects lower Farberware license revenue.
Interest expense was $5.5 million for the three months ended March 31, 2000
compared to $5.7 million in the same period of 1999. This decrease results
from decreased borrowings as a result of cash received from the sale of the
Company's Revere property in late 1999, partially offset by an increase in
the bank's prime lending rate.
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The benefit for income taxes was $2.2 million for the three months ended
March 31, 2000 and also for the three months ended March 31, 1999. The
effective income tax rate was 25% for both periods.
Net loss applicable to common stockholders was $7.3 million and $7.2 million
in March 31, 2000 and 1999, respectively or $1.93 and $1.89 diluted per share
respectively, on adjusted weighted average shares of 3,784,018.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the three months ended March
31, 2000 was $11.9 million. The major source of cash was the seasonal
collection of accounts receivable offset partially by the seasonal increase
in inventories. Inventories at March 31, 2000 were $97.0 million, down $7.4
million or 7.1% from the March 31, 1999 level due to the timing of Christmas
ornament and sterling flatware production and inventory purchases as well as
the successful sale of discontinued inventory in the first quarter of 2000.
The Company's working capital requirements are seasonal and tend to be
highest in the period from September through November due to the Christmas
selling season. Accounts receivable tend to decline during December and the
first quarter 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 $1.1 million for the three months
ended March 31, 2000 and the Company expects to spend approximately $6.0
million during the remainder of 2000. These expenditures relate primarily to
computer equipment and systems for the Company's East Boston office facility,
relocation of the Company's Revere, MA warehouse facility, and machinery,
equipment and tools and dies for the Company's manufacturing and distribution
facilities.
The Company's Revolving Credit Facility, dated April 16, 1997, amended
effective as of July 31, 1997, December 31, 1997, March 30, 1998 and December
31, 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, as
amended, the Company is required during February and March of each year to
maintain excess availability of at least $25.0 million. The obligations of
the Company under the Revolving Facility are secured by inventory and
accounts receivable of the Company and its domestic subsidiaries, and by a
pledge of 100% of the domestic subsidiaries' and at least 65% of the foreign
subsidiaries' outstanding capital stock. The Revolving Credit Facility
contains customary covenants for the Company and the subsidiary borrowers,
including but not limited to capital expenditures, and minimum consolidated
net worth on or after December 31, 1997 of at least $1.00 (not in thousands).
In addition, the Revolving Credit Facility, as amended as of December 31,
1998, includes covenants requiring a minimum ratio of earnings before
interest, income taxes, depreciation, amortization, and certain adjustments
("EBITDA"), as defined, including funded debt to EBITDA and fixed charge
coverage ratios, as defined. The Company is in compliance with the covenants,
as amended, as of March 31, 2000 and for the quarter then ended. Availability
under the Revolving Credit Facility, net of outstanding letters of credit,
was $58.2 million at March 31, 2000.
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One of the Company's Puerto Rican subsidiaries has a $1.0 million facility
(the "Facility"), expiring on May 30, 2000. 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 $0.2 million at March 31, 2000.
The Company's C.J. Vander Ltd. subsidiary has an overdraft facility entered
into on March 16, 1998 ("Overdraft Facility") which provides for borrowings
of (pound)250. 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 as renewed on March 10, 2000 is due on
demand and expires on September 6, 2000. Availability under the Overdraft
Facility was (pound)83 at March 31, 2000.
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 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.
The Company's ability to pay dividends is restricted by the 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, at 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 has several 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 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.
15
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, 2000.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The new standard requires that
all companies record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting.
Management is currently assessing whether there will be any impact of SFAS
No. 133 on the Company's consolidated financial statements upon adoption,
which is required in the first quarter of 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.
The Company will adopt SAB No. 101 as required in the second quarter of 2000
and does not expect that such adoption will have a material impact on the
consolidated financial statements.
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SYRATECH CORPORATION AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its borrowing
activities. The Company's short-term borrowings are substantially all
denominated in U.S. dollars and bear interest at variable rates primarily
based on either a prime rate or the London Interbank Offering Rate ("LIBOR").
The effect of a 10% change in the prime or LIBOR rate would not have a
material impact on the Company's financial results. The Company also has
fixed debt financing of $165,000 of 11% Senior Notes due April 15, 2007 that
had a current market value of $97,350 at March 31, 2000 based upon recent
private market trades. There is inherent roll-over risk for these borrowings
upon maturity and are renewed at current market rates. The extent of this
risk is not quantifiable or predictable because of the variability of future
interest rates and the Company's future financing requirements. Currently,
the Company does not enter into financial instruments transactions for
trading or other speculative purposes or to manage interest rate exposure and
does not have investments in debt or equity securities.
The Company transacts sales and purchases primarily in U.S. Dollars and
maintains minimum cash balances denominated in foreign currencies. The
Company does not enter into foreign currency hedge transactions. Through
December 31, 1999, foreign currency fluctuations have not had a material
impact on the Company's consolidated financial position or results of
operations or cash flows in any one year and the Company does not believe
that its exposure to foreign currency rate fluctuations is material.
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PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EX-11 Computation of Net Income per Common Share
EX-27.1 Financial Data Schedule
EX-27.2 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the three months
ended March 31, 2000.
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SYRATECH CORPORATION AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Syratech Corporation
Dated: May 15, 2000
/S/ AMI A. TRAUBER
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Ami A. Trauber
Executive Vice President, Chief Financial
Officer, Treasurer (Principal Financial
and Accounting Officer)
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