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 SEPTEMBER 30, 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
-------
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
SEPTEMBER 30, 2000 - 3,784,018
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 1
Condensed Consolidated Income Statements for the three and
nine month periods ended September 30, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 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 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and equivalents ................................................ $ 5,234 $ 1,451
Accounts receivable, net ............................................ 93,350 69,267
Inventories ......................................................... 143,583 94,096
Deferred income taxes ............................................... 16,709 13,187
Prepaid expenses and other .......................................... 3,516 3,273
--------- ---------
Total current assets ............................................ 262,392 181,274
Property, plant and equipment, net ..................................... 70,566 71,689
Purchase price in excess of net assets acquired, net ................... 6,126 6,308
Other assets, net ...................................................... 6,260 7,246
--------- ---------
Total ........................................................... $ 345,344 $ 266,517
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ......................... $ 83,026 $ 22,669
Accounts payable .................................................... 28,991 11,673
Accrued expenses .................................................... 14,769 11,388
Accrued interest .................................................... 8,749 4,308
Accrued compensation ................................................ 3,421 3,012
Accrued advertising ................................................. 3,775 3,569
Income taxes payable ................................................ 1,759 1,216
--------- ---------
Total current liabilities ....................................... 144,490 57,835
Long-term debt ......................................................... 165,000 165,000
Deferred income taxes .................................................. 19,671 19,671
Pension liability ...................................................... 2,120 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 $8,703 and $6,498
in 2000 and 1999, respectively) ................................... 26,703 24,498
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,784,018 shares issued and outstanding .............. 38 38
Deficit ............................................................. (11,620) (3,308)
Accumulated other comprehensive income(loss) ........................ (1,058) 109
--------- ---------
Total stockholders' equity ...................................... 14,063 21,337
--------- ---------
Total ........................................................... $ 345,344 $ 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 NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net sales .............................................. $ 119,806 $ 112,587 $ 222,274 $ 197,377
Cost of sales .......................................... 83,457 80,712 158,635 140,661
--------- --------- --------- ---------
Gross profit ...................................... 36,349 31,875 63,639 56,716
Selling, general and administrative expenses ........... 21,073 19,243 55,790 50,137
Other operating income ................................. 431 875 1,301 2,150
--------- --------- --------- ---------
Income from operations ............................. 15,707 13,507 9,150 8,729
Interest expense ....................................... (6,371) (6,517) (17,340) (18,186)
Interest income ........................................ 21 31 47 76
Other income ........................................... 756
--------- --------- --------- ---------
Income (Loss) before provision (benefit) for
income taxes ..................................... 9,357 7,021 (8,143) (8,625)
Provision (benefit) for income taxes .................. 2,345 1,756 (2,036) (2,156)
--------- --------- --------- ---------
Net income (loss) ................................. 7,012 5,265 (6,107) (6,469)
Preferred stock dividends accrued ...................... 735 657 2,205 1,969
--------- --------- --------- ---------
Net income (loss) applicable to common stockholders $ 6,277 $ 4,608 $ (8,312) $ (8,438)
========= ========= ========= =========
Basic and diluted income (loss) per share:
Net income (loss) per common share ................... $ 1.66 $ 1.22 $ (2.20) $ (2.23)
========= ========= ========= =========
Weighted average number of shares outstanding ...... 3,784 3,784 3,784 3,784
========= ========= ========= =========
See notes to consolidated financial statements.
2
SYRATECH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Nine Months Ended September 30,
2000 1999
-------- --------
Cash flows from operating activities:
Net loss .............................................. $ (6,107) $ (6,469)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ...................... 6,639 6,282
Deferred income taxes .............................. (3,522) (3,238)
Loss (gain) on disposal of assets .................. (17) (788)
Other .............................................. (554) (350)
Increase (decrease) in assets and liabilities:
Accounts receivable ............................ (24,083) (25,078)
Inventories .................................... (49,487) (35,395)
Prepaid expenses and other ..................... (243) (912)
Accounts payable and accrued expenses .......... 25,755 15,797
Income taxes payable ........................... 543 757
-------- --------
Net cash used in operating activities ................. (51,076) (49,394)
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment ........... (4,783) (4,907)
Proceeds from disposal of assets ..................... 278 2,351
Other ................................................ (83) 62
-------- --------
Net cash used in investing activities ................. (4,588) (2,494)
-------- --------
Cash flows from financing activities:
Change in revolving loan facilities and notes payable 60,357 46,265
Other ............................................... (910) (188)
-------- --------
Net cash provided by financing activities ............. 59,447 46,077
-------- --------
Net increase (decrease) in cash and equivalents ....... 3,783 (5,811)
Cash and equivalents, beginning of period ............. 1,451 9,009
-------- --------
Cash and equivalents, end of period ................... $ 5,234 $ 3,198
======== ========
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. Certain prior year amounts have been reclassified to conform to the 2000
presentation.
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
Nine Months Ended
September 30,
-------------------
2000 1999
------- -------
Cash paid during the period for:
Interest .................... $11,494 $12,406
======= =======
Income taxes ................ $ 925 $ 543
======= =======
Supplemental schedule of non-cash
financing activities:
Accrued cumulative redeemable
preferred stock dividends ... $ 2,205 $ 1,969
======= =======
3. INVENTORIES
Inventories consisted of the following:
September 30, December 31,
2000 1999
-------- -------
Raw materials . $ 14,387 $11,137
Work-in-process 10,874 6,115
Finished goods 118,322 76,844
-------- -------
Total $143,583 $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 and nine month periods ended
September 30, 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. REVOLVING LOAN FACILITIES AND NOTES PAYABLE
As of August 23, 2000, the Company's C.J. Vander Ltd subsidiary renewed its L250
overdraft facility. The renewed facility expires on February 18, 2001.
6. COMPREHENSIVE INCOME
Comprehensive income (loss) consists of the following:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
2000 1999 2000 1999
------- ------ ------- -------
Net income (loss) applicable to common stockholders $ 6,277 $4,608 $(8,312) $(8,438)
Other comprehensive income (loss):
Foreign currency translation adjustments ........ (494) 201 (1,167) (314)
------- ------ ------- -------
Comprehensive income (loss) ....................... $ 5,783 $4,809 $(9,479) $(8,752)
======= ====== ======= =======
Accumulated other comprehensive income (loss) reported in the Condensed
Consolidated Balance Sheets consists only of foreign currency translation
adjustments.
7. 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. The Company will adopt SFAS No.
133 as required in the first quarter of 2001 and does not expect that such
adoption will have a material impact on the consolidated financial statements.
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 fourth 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)
8. 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 Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
Tabletop and Giftware $ 72,854 $ 64,825 $154,759 $130,312
Seasonal ............ 46,952 47,762 67,515 67,065
-------- -------- -------- --------
Total ............... $119,806 $112,587 $222,274 $197,377
======== ======== ======== ========
9. SUBSEQUENT EVENT
In October and November 2000, the Company, through a wholly-owned subsidiary,
purchased $11,700 of its outstanding Senior Notes on the open market. An
extraordinary gain net of applicable taxes of approximately $2,552 will be
recorded in the fourth quarter.
10. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following supplemental condensed consolidating financial statements as of
September 30, 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
SEPTEMBER 30, 2000
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- -------- -------- --------- --------
ASSETS
Current assets:
Cash and equivalents ......................... $ 971 $ 4,263 $ 5,234
Accounts receivable, net ..................... 83,874 9,476 93,350
Inventories .................................. 137,853 5,689 $ 41 143,583
Deferred income taxes ........................ $ 9,972 6,737 16,709
Prepaid expenses and other ................... 2,980 536 3,516
--------- -------- -------- --------- --------
Total current assets ..................... 9,972 232,415 19,964 41 262,392
Property, plant and equipment, net .............. 67,552 3,063 (49) 70,566
Purchase price in excess of net assets acquired . 6,126 6,126
Other assets, net ............................... 6,133 127 6,260
Investment ...................................... 49,665 -- (49,665) --
--------- -------- -------- --------- --------
Total .................................... $ 65,770 $306,220 $ 23,027 $ (49,673) $345,344
========= ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable .. $ 82,946 $ 80 $ 83,026
Accounts payable ............................. 15,686 13,305 28,991
Accrued expenses ............................. $ 43 12,970 1,756 14,769
Accrued interest ............................. 8,369 380 8,749
Accrued compensation ......................... 3,154 267 3,421
Accrued advertising .......................... 3,775 3,775
Income taxes payable ......................... (10,645) 10,789 1,609 $ 6 1,759
--------- -------- -------- --------- --------
Total current liabilities ................ (2,233) 129,700 17,017 6 144,490
Long-term debt .................................. 165,000 165,000
Deferred income taxes ........................... 8,764 10,907 19,671
Pension liability and other long-term liabilities 2,120 2,120
Intercompany (receivable) payable ............... (13,438) 38,109 (25,700) 1,029
Stockholders' equity (deficit) .................. (92,323) 125,384 31,710 (50,708) 14,063
--------- -------- -------- --------- --------
Total .................................... $ 65,770 $306,220 $ 23,027 $ (49,673) $345,344
========= ======== ======== ========= ========
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 cash 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 11,028 323 11,388
Accrued interest .............................. 3,832 476 4,308
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 ............... (25,236) 42,491 (17,255)
Stockholders' equity (deficit) ................... (79,459) 122,479 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 SEPTEMBER 30, 2000
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------------------------------------------------
Net sales ..................................................... $ $ 87,949 $ 63,681 $ (31,824) $ 119,806
Cost of sales ................................................. 62,814 52,467 (31,824) 83,457
---------- ----------- ----------- ------------- -----------
Gross profit ............................................. 25,135 11,214 0 36,349
Selling, general and administrative expenses ................. 113 14,618 6,342 0 21,073
Other operating income ....................................... 431 431
---------- ----------- ----------- ------------- -----------
Income (loss) from operations ........................... (113) 10,948 4,872 15,707
Interest expense .............................................. (7,313) 950 (8) (6,371)
Interest income ............................................... 21 21
---------- ----------- ----------- ------------- -----------
Income (loss) before provision (benefit) for income taxes (7,426) 11,898 4,885 9,357
Provision (benefit) for income taxes .......................... (2,313) 3,799 859 2,345
---------- ----------- ----------- ------------- -----------
Net income (loss) ........................................ (5,113) 8,099 4,026 - 7,012
Preferred stock dividends accrued .............................. 735 735
---------- ----------- ----------- ------------- -----------
Net income (loss) applicable to common stockholders........$ (5,848) $ 8,099 $ 4,026 $ - $ 6,277
========== =========== =========== ============= ===========
9
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------------------------------------------------
Net sales ................................................... $ $ 87,913 $ 40,479 (15,805) $ 112,587
Cost of sales ............................................... 64,480 32,037 (15,805) 80,712
----------- ----------- ------------ ------------- -----------
Gross profit ........................................... 23,433 8,442 - 31,875
Selling, general and administrative expenses ................. 113 14,237 4,907 (14) 19,243
Other operating income ....................................... 875 875
----------- ----------- ------------ ------------- -----------
Income (loss) from operations ........................... (113) 10,071 3,535 14 13,507
Interest expense ............................................. (4,894) (1,609) (14) (6,517)
Interest income ............................................... 8 23 31
Other income .................................................. -
----------- ----------- ------------ ------------- -----------
Income (loss) before provision (benefit) for income taxes (5,007) 8,470 3,544 14 7,021
Provision (benefit) for income taxes ......................... (1,286) 2,428 614 1,756
----------- ----------- ------------ ------------- -----------
Net income (loss) ........................................ (3,721) 6,042 2,930 14 5,265
Preferred stock dividends accrued ............................ 657 657
----------- ----------- ------------ ------------- -----------
Net income (loss) applicable to common stockholders ...... $ (4,378) $ 6,042 $ 2,930 $ 14 $ 4,608
=========== =========== ============ ============= ===========
10
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------------------------------------------------------------
Net sales ....................................................... $ $ 168,680 $ 107,207 (53,613) $ 222,274
Cost of sales ................................................... 124,261 87,987 (53,613) 158,635
-------------- ----------- ----------- ---------- -----------
Gross profit ............................................... 44,419 19,220 63,639
Selling, general and administrative expenses ................... 338 42,335 13,117 55,790
Other operating income ......................................... 1,301 1,301
-------------- ----------- ----------- ---------- -----------
Income (loss) from operations ............................. (338) 3,385 6,103 9,150
Interest expense ............................................... (17,099) (211) (30) (17,340)
Interest income ................................................. 16 31 47
-------------- ----------- ----------- ---------- -----------
Income (loss) before provision (benefit) for income taxes . (17,437) 3,190 6,104 (8,143)
Provision (benefit) for income taxes ........................... (4,573) 1,314 1,223 (2,036)
-------------- ----------- ----------- ---------- -----------
Net income (loss) .......................................... (12,864) 1,876 4,881 - (6,107)
Preferred stock dividends accrued .............................. 2,205 2,205
-------------- ----------- ----------- ---------- -----------
Net income (loss) applicable to common stockholders ........ $(15,069) $ 1,876 $ 4,881 $ - $ (8,312)
============== =========== =========== ========== ===========
11
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ --------------------------------------------------------
Net sales ................................................. $ $ 155,043 $ 73,977 $ (31,643) $ 197,377
Cost of sales ............................................. 114,026 58,278 (31,643) 140,661
------------ ----------- ----------- -------------- -----------
Gross profit 41,017 15,699 - 56,716
Selling, general and administrative expenses ............. 338 39,317 10,506 (24) 50,137
Other operating income ................................... 2,150 2,150
------------ ----------- ----------- -------------- -----------
Income (loss) from operations ....................... (338) 3,850 5,193 24 8,729
Interest expense .......................................... (14,680) (3,477) (29) (18,186)
Interest income ........................................... 47 29 76
Other income .............................................. 756 756
------------ ----------- ----------- -------------- -----------
Income (loss) before provision (benefit) for
income taxes ......................................... (15,018) 1,176 5,193 24 (8,625)
Provision (benefit) for income taxes ..................... (3,547) 525 866 (2,156)
------------ ----------- ----------- -------------- -----------
Net income (loss) .................................... (11,471) 651 4,327 24 (6,469)
Preferred stock dividends accrued ........................ 1,969 1,969
------------ ----------- ----------- -------------- -----------
Net income (loss) applicable to common stockholders .. $(13,440) $ 651 $ 4,327 $ 24 $ (8,438)
============ =========== =========== ============== ===========
12
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- -------------------------------------------------------
Cash flows from operating activities:
Net income (loss) .......................................$ (12,864) $ 1,876 $ 4,881 $ - $ (6,107)
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization ......................... 1,066 5,115 458 6,639
Deferred income taxes ................................. (4,573) 1,051 (3,522)
(Gain) Loss on disposal of assets ..................... (19) 2 (17)
Pension liability ....................................... (554) (554)
Increase (decrease) in assets and liabilities, net of
effect of businesses acquired:
Accounts receivable ............................... (19,787) (4,296) (24,083)
Inventories ......................................... (49,672) 185 (49,487)
Prepaid expenses and other ........................ 113 (661) 305 (243)
Accounts payable and accrued expenses ............. 4,543 10,907 10,305 25,755
Income taxes payable .............................. - (496) 1,039 543
Intercompany account .............................. 11,798 (3,373) (8,425)
----------- ---------------- ----------- ---------- ------------
Net cash provided by (used in) operating activities ........ 83 (55,613) 4,454 - (51,076)
----------- ---------------- ----------- ---------- ------------
Cash flows from investing activities:
Purchases of property, plant and equipment ............. (4,556) (227) (4,783)
Proceeds from disposal of assets ....................... 187 91 278
Other .................................................... (83) (83)
----------- ---------------- ----------- ---------- ------------
Net cash used in investing activities .................... - (4,452) (136) - (4,588)
----------- ---------------- ----------- ---------- ------------
Cash flows from financing activities:
Change in revolving loan facilities .................... 60,367 (10) 60,357
Other .................................................... (83) 82 (909) (910)
----------- ---------------- ----------- ---------- ------------
Net cash provided by (used in) financing activities ....... (83) 60,449 (919) - 59,447
----------- ---------------- ----------- ---------- ------------
Net increase (decrease) in cash and equivalents .......... - 384 3,399 - 3,783
Cash and equivalents, beginning of the period .............. - 587 864 - 1,451
----------- ---------------- ----------- ---------- ------------
Cash and equivalents, end of the period ................... $ - $ 971 $ 4,263 $ - $ 5,234
=========== ================ =========== ========== ============
13
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
ISSUER/ NON
GUARANTOR GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ --------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) ................................... $(11,471) $ 651 $ 4,327 $ 24 $ (6,469)
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization .................... 1,067 4,758 457 6,282
Deferred income taxes ............................ (3,547) 309 (3,238)
Gain on disposal of assets ....................... (788) (788)
Other ............................................. (350) (350)
Increase (decrease) in assets and liabilities:
Accounts receivable .......................... (20,655) (4,423) (25,078)
Inventories ................................... (34,362) (1,033) (35,395)
Prepaid expenses and other ................... 113 (752) (273) (912)
Accounts payable and accrued expenses ........ 4,733 5,928 5,136 15,797
Income taxes payable ......................... (198) 198 757 757
Intercompany account .......................... 9,386 (6,781) (2,581) (24)
------------ ------------ ------------ ----------- --------------
Net cash provided by (used in) operating activities .. 83 (51,844) 2,367 (49,394)
------------ ------------ ------------ ----------- --------------
Cash flows from investing activities:
Purchases of property, plant and equipment ........ (4,073) (834) (4,907)
Proceeds from disposal of assets ................... 2,351 2,351
Other (66) 128 62
------------ ------------ ------------ ----------- --------------
Net cash used in investing activities ............... - (1,788) (706) - (2,494)
------------ ------------ ------------ ----------- --------------
Cash flows from financing activities:
Change in revolving loan facilities ............... 46,201 64 46,265
Other .............................................. (83) 209 (314) (188)
------------ ------------ ------------ ----------- --------------
Net cash provided by (used in) financing activities .. (83) 46,410 (250) 46,077
------------ ------------ ------------ ----------- --------------
Net increase (decrease) in cash and equivalents ..... (7,222) 1,411 (5,811)
Cash and equivalents, beginning of the period ........ 7,496 1,513 9,009
------------ ------------ ------------ ----------- --------------
Cash and equivalents, end of the period .............. $ - $ 274 $ 2,924 $ - $ 3,198
============ ============ ============ =========== ==============
14
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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net sales increased 6.4% to $119.8 million for the three months ended September
30, 2000 from $112.6 million for the three months ended September 30, 1999. This
increase is primarily due to increased sales of housewares products reflecting
strong demand for the Company's flatware fountains, lighting, and stainless
steel and sterling flatware. Changes in normal product prices did not materially
impact net sales.
Gross profit increased 14.0% to $36.3 million for the three months ended
September 30, 2000 from $31.9 million for the three months ended September 30,
1999. Gross profit as a percentage of sales was 30.3% for the 2000 third quarter
compared to 28.3% for the comparable 1999 period. The 2.0 point gross profit
percentage increase reflects favorable product mix compared with the prior
period.
Selling, general and administrative expenses ("S, G & A expenses") of $21.1
million increased slightly to 17.6% as a percentage of net sales for the three
months ended September 30, 2000 from 17.1% or $19.2 million for the comparable
period ended September 30, 1999. The $1.9 million increase reflects increased
investment in product development, information technology, and sales and
marketing staff, including increased expenses related to the Company's expanded
sales presence in Europe, and expenses related to the growth in sales volume.
Income from operations was $15.7 million and $13.5 million for the third quarter
of 2000 and 1999, respectively, and included other operating income of $.4
million and $.9 million in 2000 and 1999, respectively. The decrease in other
operating income reflects lower Farberware license revenue.
Interest expense was $6.4 million for the three months ended September 30, 2000
compared to $6.5 million in the comparable period of 1999. This decrease results
from lower borrowings as a result of cash received from the sale of the
Company's Revere, MA property in November, 1999, partially offset by an increase
in the bank's prime lending rate.
The provision for income taxes was $2.3 million for the three months ended
September 30, 2000 compared to $1.8 million for the three months ended September
30, 1999. The effective income tax rate was 25% for both periods.
15
Net income applicable to common stockholders for the three month periods ended
in September 30, 2000 and 1999 was $6.3 million and $4.6 million, respectively,
or $1.66 and $1.22 per basic and diluted share, respectively, on adjusted
weighted average shares of 3,784,018 in both periods.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Net sales increased 12.6% to $222.3 million for the nine months ended September
30, 2000 from $197.4 million for the nine months ended September 30, 1999. This
increase reflects the continued strong demand for housewares products designed
by the Company including fountains, stainless steel flatware, lighting, candles
and accessories. Giftware sales also increased versus the prior year including
sales of licensed giftware to specialty retailers. The Company is continuing to
sell off discontinued product to improve the quality of its inventory. Changes
in normal product prices did not materially impact net sales.
Gross profit increased 12.2% to $63.6 million for the nine months ended
September 30, 2000 from $56.7 million for the nine months ended September 30,
1999. Gross profit as a percentage of sales was 28.6% for the nine month period
of 2000 compared to 28.7% for the comparable 1999 period. The small decrease in
percentage gross profit reflects favorable product mix more than offset by the
impact of low margins experienced on the sale of discontinued product. The
change in gross profit as a percentage of sales was not materially impacted by
change in normal product pricing.
Selling, general and administrative expenses of $ 55.8 million was 25.1% as a
percentage of net sales for the nine months ended September 30, 2000 compared
with 25.4% or $50.1 million for the comparable 1999 period. The $5.7 million
increase in S,G & A expenses reflects higher commissions, royalties, and
advertising related to the increased sales volume and investment in additional
sales, marketing and product development staff to drive future sales growth.
Spending for information technology and expenses related to the Company's
expanded European product offering were also higher compared with the prior
year.
Income from operations was $9.2 million and $8.7 million for the first nine
months of 2000 and 1999, respectively, and included other operating income of
$1.3 million and $2.2 million in 2000 and 1999, respectively. The decrease in
other operating income is due to decreased Farberware license revenue.
Interest expense was $17.3 million for the nine months ended September 30, 2000
compared to $18.2 million in the same period of 1999. This decrease results from
lower borrowings as a result of cash received from the sale of the Company's
Revere, MA property in November, 1999, partially offset by increases in the
bank's prime lending rate.
The benefit for income taxes was $2.0 million for the nine months ended
September 30, 2000 compared to $2.2 million for the nine months ended September
30, 1999. The effective income tax rate was 25% for both periods.
Net loss applicable to common stockholders for the nine month periods ended in
September 30, 2000 and 1999 was $8.3 million and $8.4 million, respectively, or
$2.20 and $2.23, respectively, per basic and diluted share, on adjusted weighted
average shares of 3,784,018 in both periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended September 30,
2000 was $51.1 million, a $1.7 million increase from the $49.4 million used
during the nine months ended September 30, 1999. The major uses of cash were for
the normal seasonal increase in inventories and accounts receivable. Inventories
at September 30, 2000 were higher compared with the same period in the prior
year due to a temporary build-up to support the significant increase in customer
orders scheduled and successfully shipped in October.
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.
16
Capital expenditures were $4.8 million for the nine months ended September 30,
2000 and the Company expects to spend approximately $2.2 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.
Availability under the Revolving Credit Facility, net of outstanding letters of
credit, was $37.2 million at September 30, 2000. The Company is in compliance
with the covenants of the Revolving Credit Facility as of September 30, 2000 and
for the quarter then ended.
On July 31, 2000, the Company renewed its Wallace International de Puerto Rico,
Inc. $1 million credit facility. The renewed facility expires on May 31, 2001
and 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 approximately $257 at September 30, 2000.
As of August 23, 2000, the Company's C.J. Vander Ltd subsidiary renewed its L250
overdraft facility. The renewed facility expires on February 18, 2001.
Availability under the facility was approximately L46 at September 30, 2000.
The Notes become due April 15, 2007 and interest payments are made
semi-annually on April 15 and October 15. The Notes are redeemable in whole
or in part, at the Company's option, after April 15, 2002. On August 24, 2000
the Company obtained consent from the lenders under its Revolving Credit
Facility to purchase Notes for an aggregate purchase price not to exceed $12
million. In October and November 2000, the Company, through a wholly-owned
subsidiary, purchased an aggregate of $11,700 of its outstanding Notes on the
open market, resulting in an extraordinary gain, net of applicable taxes, of
approximately $2,552 which will be recorded in the fourth quarter. The
Company may from time to time in the future repurchase additional Notes on
the open market as may be allowed under the terms of its Revolving Credit
Facility and the terms of its Senior Notes Indenture.
The Company's ability to pay dividends is restricted by the terms of the
Revolving Credit Facility and the Note Indenture.
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 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 Notes 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.
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 Notes and under its operating leases) and fund planned
capital expenditures through December 31, 2000.
17
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. The Company will adopt SFAS No.
133 as required in the first quarter of 2001 and does not expect that such
adoption will have a material impact on the consolidated financial statements.
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 fourth quarter of 2000 and does not expect that such
adoption will have a material impact on the consolidated financial statements.
18
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 million of 11% Senior Notes due April 15, 2007 that had a
current market value of $99.0 million at September 30, 2000 based upon recent
private market trades. There is inherent roll-over risk for these borrowings
as they mature 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.
19
PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EX-10.1 Advice of Borrowing Terms between C.J. Vander
Ltd/International Silver Company Ltd and Nat West P.L.C.,
dated as of August 23, 2000
EX-10.2 Letter Agreement dated August 24, 2000 between Syratech
Corporation and affiliates and Bank of America, N.A.
administrative agent for lenders under Loan and Security
Agreement
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
September 30, 2000.
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: November 14, 2000
/s/ Ami A. Trauber
----------------------------------------
Ami A. Trauber
Executive Vice President, Chief
Financial Officer, Treasurer (Principal
Financial and Accounting Officer)
21