SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission file number 0-4465
Sirco International Corp.
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-2511270
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization Identification No.)
24 Richmond Hill Avenue, Stamford Connecticut 06901
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 203-359-4100
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(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 1,309,700 shares of
Common Stock, par value $.10 per share, as of October 1, 1996.
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
Aug. 31, 1996 Nov. 30, 1995
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(Unaudited) (See Note)
Assets
Current assets:
Cash and cash equivalents $ 441,638 $ 176,241
Accounts receivable 2,823,097 2,184,468
Inventories 4,769,665 5,762,828
Prepaid expenses 504,405 257,809
Other current assets 139,711 276,815
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Total current assets 8,678,516 8,658,161
Property and equipment at cost 1,589,105 1,777,894
Less accumulated depreciation 939,974 1,128,045
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Net property and equipment 649,131 649,849
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Other assets 107,840 154,233
Investment in and advances to subsidiary 540,497 540,497
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Total assets $9,975,984 $10,002,740
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Sirco International Corp. and Subsidiaries
Condensed Consolidated
Balance Sheets
(Continued)
Aug. 31, 1996 Nov. 30, 1995
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(Unaudited) (See Note)
Liabilities and stockholders' equity
Current liabilities:
Loans payable to financial institutions $1,300,000 $ 2,323,279
Short-term loans payable other 879,159 571,205
Current maturities of long-term debt 6,467 222,119
Accounts payable 3,302,116 2,866,658
Accrued expenses 1,467,464 1,532,253
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Total current liabilities 6,955,206 7,515,514
Long-term debt, less current maturities 364,140 590,298
Stockholders' equity:
Common stock, $.10 par value; 10,000,000
shares authorized, 1,315,000 issued
(1996), 1,215,000 issued (1995) 131,520 121,520
Preferred stock, $.10 par value; 1,000,000
authorized, none issued
Capital in excess of par value 4,267,534 4,027,534
Retained earnings (deficit) (1,124,980) (1,641,603)
Treasury stock at cost (27,500) (27,500)
Accumulated foreign translation adjustment (589,936) (583,023)
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Total stockholders' equity 2,656,638 1,896,928
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Total liabilities and stockholders' equity $9,975,984 $10,002,740
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See notes to the condensed consolidated financial statements
Note: The balance sheet at November 30, 1995 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles.
Sirco International Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
For the Nine Months Ended For the Three Months Ended
Aug. 31, 1996 Aug. 31, 1995 Aug. 31, 1996 Aug. 31, 1995
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Net sales $ 21,894,376 $ 18,026,093 $ 7,678,165 $ 7,919,507
Cost of goods sold 16,275,046 13,477,671 5,916,856 5,817,784
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Gross profit 5,619,330 4,548,422 1,761,309 2,101,723
Selling, warehouse, general and
administrative expenses 4,508,019 4,692,426 1,523,249 1,597,763
Loss on sale of handbag division 0 425,163 0 1,447
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4,508,019 5,117,589 1,523,249 1,599,210
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1,111,311 (569,167) 238,060 502,513
Other (income) expense:
Interest expense 598,097 678,486 212,526 235,686
Interest income (44,094) (91,335) (12,612) (46,326)
Miscellaneous income, net (218,279) (125,043) (119,932) (96,968)
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335,724 462,108 79,982 92,392
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Net income (loss) before income taxes 775,587 (1,031,275) 158,078 410,121
Provision for income taxes 258,964 0 85,208 0
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Net income (loss) $ 516,623 ($1,031,275) $ 72,870 $ 410,121
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Net income (loss) per share of common stock
Primary $ 0.39 ($ 0.85) $ 0.05 $ 0.34
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Fully diluted $ 0.39 ($ 0.85) $ 0.05 $ 0.34
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Weighted average number of shares of
common stock outstanding-primary
and fully diluted 1,285,336 1,209,700 1,309,700 1,209,700
============ ============ ============ ============
See notes to the condensed consolidated financial statements
Sirco International corp. and Subsidiaries
Condensed Consolidated statements of Cash Flows
(Unaudited)
For the Nine Months Ended
Aug. 31, l996 Aug. 31, 1995
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Cash flows from operating activities
Net income (loss) $ 516,623 ($1,031,275)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 63,060 112,805
Provision for losses in accounts receivable 17,172 76,470
Gain on sale of property and equipment (313) (36,681)
Restrictive covenant 0 35,554
Changes in operating assets and liabilities
Accounts receivable (665,127) (276,100)
Inventories 986,561 1,957,824
Prepaid expenses (246,832) (33,341)
Other current assets 137,104 3,972
Other assets 46,393 (73,689)
Accounts payable and accrued expenses 375,887 1,101,151
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Net cash provided by operating activities 1,230,528 1,836,690
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Cash flows from investing activities:
Proceeds from sale of property and equipment 3,000 35,234
Purchase of property and equipment (67,517) (24,236)
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Net cash (used in) provided by investing
activities (64,517) 10,998
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Cash flows from financing activities:
(Decrease) in loans payable to financial
institutions and short-term loan payable-other (927,996) (2,958,532)
Proceeds from issuance of common stock 250,000 0
Other non-current accrued expenses 0 300,000
Repayment of long-term debt (222,862) (50,197)
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Net cash used in financing activities (900,858) (2,708,729)
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Effect of exchange rate changes on cash 244 (13,351)
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Increase (decrease) in cash and cash equivalents 265,397 (874,392)
Cash and cash equivalents at beginning of period 176,241 955,869
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Cash and cash equivalents at end of period $ 441,638 $ 81,477
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 530,219 $ 501,382
Inoome taxes $ 0 $ 0
See notes to the condensed consolidated financial statements
SIRCO INTERNATIONAL CORP.
Notes To Condensed Consolidated Financial Statements (Unaudited)
Note 1-Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended August 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended November 30, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K, as amended, for the year ended November 30, 1995.
Note 2-Financing Arrangements
The Company has an agreement with Rosenthal & Rosenthal, Inc. ("Rosenthal")
pursuant to which the Company sells its accounts receivable to Rosenthal on a
pre-approved non-recourse basis. Under the terms of the agreement, Rosenthal
advances funds to the Company on the basis of invoice amounts. Interest on such
advances is 1.75% per annum above the prime rate. Additionally, Rosenthal
provides inventory financing to the Company based on an advance rate of up to
40% of the inventory value. At August 31, 1996, Rosenthal had advanced the
Company approximately $1,300,000 for inventory financing. Interest on such
advances is 1.75% per annum above the prime rate. As of August 31, 1996, the
prime rate was 8.25%. The Company also pays a factoring commission of .75% of
each invoice amount, subject to a minimum of $96,000 per annum.
On May 28, 1996, the Company's Canadian subsidiary renegotiated its financing
agreement with a Canadian bank. The agreement provides for a revolving loan in
the amount of approximately $876,000, with interest payable monthly at 1.25%
above the Canadian prime rate. The proceeds of this loan are utilized by the
Canadian subsidiary for purchasing inventory and financing day-to-day
operations. As of August 31, 1996, there were no borrowings under this facility
and the Canadian subsidiary had outstanding letters of credit totalling
approximately $674,000. Under the renegotiated financing agreement, the bank
also has outstanding to the Canadian subsidiary a term loan in the amount of
approximately $350,000 at August 31, 1996, with interest payable monthly at
2.00% above the Canadian prime rate. As of August 31, 1996, the Canadian prime
rate was 5.75%. Substantially all of the assets of the Canadian subsidiary have
been pledged as security for the revolving line of credit and the term loan.
Additionally, the Company has agreed to subordinate its loan to its Canadian
subsidiary to the amounts payable to the bank. However, subject to on-going
compliance with all other covenants of the agreement, the subordinated loan may
be repaid at $22,000 per month starting in July 1996. At August 31, 1996, the
subordinated loan amounted to approximately $206,000.
In March 1995, the Company entered into an agreement with Yashiro Co., Inc.
("Yashiro"), pursuant to which Yashiro agreed to issue or cause to be issued,
until March 20, 1997, unsecured trade letters of credit in an aggregate amount
of up to the lesser of $1,200,000 or 35% of the book value of the Company's
inventory. Yashiro charges the Company a handling fee of 3% for each letter of
credit that is opened. Interest is payable to Yashiro monthly at 2% above the
prime rate. On August 28, 1996, the agreement was amended to, among other
things, reduce to the lesser of $1,000,000 or 35% of the book value of all
inventory owned by the Company the aggregate amount of trade letters of credit
that may be issued thereunder. At August 31, 1996, the Company had outstanding
loans under the facility of approximately $879,000 and outstanding letters of
credit amounting to approximately $170,000.
Note 3-Net Income (Loss) per Share
Net income (loss) per share of common stock is computed on the basis of the
weighted average number of shares outstanding plus the dilutive effect of stock
options.
Item 2. Management's Analysis and Discussion Of
Financial Condition and Results Of Operations
Three and Nine Months Ended August 31, 1996 vs August 31, 1995
Results of Operations
Net sales for the three months ended August 31, 1996 decreased by approximately
$241,000 to approximately $7,678,000 as compared to approximately $7,919,000
reported for the comparable period in 1995. Net sales for the Company's Luggage
and Backpack Divisions decreased by approximately $413,000 for the three months
ended August 31, 1996. The decrease in sales of non-FILA products amounted to
approximately $869,000. This decrease is primarily attributable to increases in
a direct buy program to certain customers who have purchased approximately
$700,000 worth of luggage directly from the Company's suppliers in the Far East
during the three months ended August 31, 1996. The Company receives commission
and records these "direct buy" transactions as commission income. If these sales
had been made from product imported by the Company and then sold to the
customers, the net sales of non-FILA product would have been approximately the
same for the three months ended August 31, 1996 and 1995. Net sales of FILA
product increased by approximately $456,000 for the three months ended August
31, 1996 over the comparable period in 1995. However, included in this increase
was the sale of approximately $320,000 of FILA product to FILA at the Company's
landed cost. Net sales for the Company's Canadian subsidiary increased by
approximately $172,000, primarily due to the continued strong sales of its
Atlantic luggage line. (See below for discussion on recent developments
regarding the Atlantic line.) For the three months ended August 31, 1996, the
Company's gross profit decreased approximately $341,000 to approximately
$1,761,000 from approximately $2,102,000 reported in the comparable period of
1995 and the gross profit percentage decreased to approximately 23% from
approximately 26.5% reported in the three months ended August 31, 1995. The
decline in the gross profit and gross profit percentage for the three months
ended August 31, 1996 was due primarily to 1) the sell-off of the FILA
inventory, as discussed below, and 2) lower gross margins realized on the sale
of the Company's domestic Luggage line.
Net sales for the nine months ended August 31, 1996 increased by approximately
$3,868,000 to approximately $21,894,000 from approximately $18,026,000 reported
for the comparable period in 1995. Non-FILA sales decreased by approximately
$1,453,000. This decrease is directly attributable to an increase in a direct
buy program to certain customers, as discussed above, who have purchased
approximately $1,400,000 worth of luggage during the nine months ended August
31, 1996. If the sales had been made from product imported by the Company, the
net sales of non-FILA product would have been approximately the same for the
nine months ended August 31, 1996 and 1995. Net sales of FILA product increased
by approximately $4,971,000 for the nine months ended August 31, 1996 over the
comparable period in 1995. Net sales of the Company's Canadian subsidiary
increased by approximately $1,796,000 primarily due to continued strong sales of
its Atlantic line. Included in the Company's net sales for the nine months ended
August 31, 1995 were approximately $1,446,000 in net sales attributable to the
Company's former Handbag Division, which was sold in March 1995. The Company's
gross profit for nine months ended August 31, 1996 increased by approximately
$1,071,000 to approximately $5,619,000 from approximately $4,548,000 reported in
the comparable period of 1995 and the gross profit percentage increased to 25.7%
from 25.2% reported for the nine months ended August 31, 1995. Gross profit
increases resulted primarily from the increased net sales of the Company's
licensed products, which generally have higher profit margins than the Company's
other product lines. Included in the Company's gross profit for the nine months
ended August 31, 1995 was approximately $156,000 attributable to the Company's
former Handbag Division.
After extensive negotiations with FILA Sport S.P.A. ("FILA") in February 1996,
the Company and FILA entered into an agreement pursuant to which the Company
ceased shipping FILA product under the FILA license on June 30, 1996, subject to
certain rights with respect to liquidating the remaining inventory. Net sales of
the FILA product for the three and nine months ended August 31, 1996 were
approximately $2,445,000 and $8,180,000, respectively, as compared to
approximately $1,989,000 and $3,209,000, respectively, reported for the
comparable periods of 1995. The Company shipped approximately $6,700,000 of FILA
product in fiscal 1996 prior to the June 30, 1996 cut off date. The Company
believes that the loss of the FILA trademark may have an adverse effect on the
Company's results of operations for the fiscal quarters ended November 30, 1996
and February 28, 1997. However, the Company expects that a significant portion
of the net sales of FILA products that would have been realized by the Company
during the remaining term of the FILA license will be replaced by sales of other
licensed products incorporating the recently-licensed "Perry Ellis", "Skechers",
"Gold's Gym", and "Generra" names, symbols and logos. The Company started
shipping product under these licenses in the fourth quarter of fiscal 1996 and
expects to recoup a significant portion of the lost FILA sales by the end of
fiscal 1997. However, future net sales could be negatively impacted if sales
from new licenses or increases in sales under existing licenses do not replace
the sales of FILA products.
In August 1996, Airway Industries, Inc. ("Airway") notified the Company that it
will not renew its license agreement with the Company pursuant to which Sirco
International (Canada) Limited, the Company's Canadian subsidiary ("Sirco
Canada"), was granted an exclusive license to sell in Canada luggage and luggage
related products under the trade name "Atlantic" and "Oleg Cassini" through
December 31, 1996. In addition, following receipt of notification from Airway
and Douglas Turner, then President of Sirco Canada and a Director of the
Company, that Airway and Mr. Turner had mutually agreed to Airway's future
employment of Mr. Turner in its efforts to distribute directly its products in
Canada, the Company terminated its employment of Mr. Turner in September 1996.
During the nine months ended August 31, 1996 and 1995, the Company's net sales
of Airway products amounted to approximately $3,987,000 and $2,191,000,
respectively, which represented approximately 18.2% and 12.2%, respectively, of
the Company's total net sales for those periods, and approximately 96.8% and
94.5%, respectively, of the total net sales of Sirco Canada for those periods.
Sirco Canada earned net profits of approximately $85,000 and $328,000 for the
three and nine months ended August 31, 1996 and net profits of approximately
$101,000 and $164,000 for the three and nine months ended August 31, 1995. The
loss of the Airway license agreement could have an adverse effect on the
Company's results of operations for the fiscal year ended November 30, 1997. The
Company is currently evaluating various alternatives for its Canadian
operations, including, among other alternatives, hiring new management and sales
personnel for Sirco Canada in an effort substantially to increase net sales in
Canada of certain other licensed products of the Company, the sale of all or a
portion of the Company's equity interests in Sirco Canada and the liquidation of
Sirco Canada.
Selling, warehouse, and general and administrative expenses decreased
approximately $75,000, to approximately $1,523,000 for the three months ended
August 31, 1996 from approximately $1,598,000 for the three months ended August
31,1995 and decreased approximately $184,000, to approximately $4,508,000 for
the nine months ended August 31, 1996 from approximately $4,692,000 for the nine
months ended August 31, 1995. On August 28, 1996, the Company prepaid its
obligation to Yashiro under the Non-Competition Agreements entered into between
the Company and Yashiro in March 1995. As a result, the restrictive covenant,
with a book value of approximately $152,000, was written-off. Included in the
Company's expenses reported for the three and nine months ended August 31, 1995
were approximately $36,000 and $721,000, respectively, of expenses attributable
to the Company's former Handbag Division.
Included in the Company's operating results for the three and nine months ended
August 31, 1995 was a one-time charge of approximately $425,000 attributable to
the loss on the sale of the Company's former Handbag Division in March 1995 to
Bueno of California, Inc., an affiliate of the Yashiro Company, Inc., the
Company's former parent.
Interest expense decreased for the three and nine months ended August 31, 1996
by approximately $23,000 and $80,000, respectively, from the comparable periods
in 1995. This decrease is attributable to lower borrowings.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $442,000, and working
capital of approximately $1,723,000, at August 31, 1996. During the first nine
months of fiscal 1996, the Company's operating activities provided approximately
$1,231,000 in cash flow as compared to $1,837,000 in cash flow provided in the
comparable period of the prior year.
Investing activities in the nine months ended August 31, 1996, and August 31,
1995 did not significantly impact the Company's cash flows. In fiscal 1996,
investing activities used approximately $65,000 of net cash for the purchase of
property and equipment. In fiscal 1995, investing activities provided
approximately $11,000 of net cash from the sale of property and equipment.
Financing activities for the nine months ended August 31, 1996 used
approximately $901,000 of cash. Approximately $928,000 of cash was used to repay
short-term debt, and approximately $223,000 of cash was used to repay long-term
debt. During the nine months ended August 31, 1996, the Company received
$250,000 of proceeds from the issuance of common stock. Financing activities in
the nine months ended August 31, 1995 used approximately $2,709,000 of cash.
Approximately $2,959,000 was used to repay short-term debt, and approximately
$50,000 was used to repay long-term debt. Other financing activities during the
nine months ended August 31, 1995, included a $300,000 accrual of non-current
expenses.
There were approximately $68,000 in capital expenditures during the first nine
months of fiscal 1996. The Company presently anticipates that it will expend an
additional $150,000 for capital improvements during fiscal 1996. A substantial
portion of capital expenditures are related to the Company's new showroom in New
York City.
Management believes that its cash and cash equivalents, lines of credit,
factoring of accounts receivable and cash flows generated from operations will
be sufficient to meet its liquidity and capital requirements for the next twelve
months.
SIRCO INTERNATIONAL CORP.
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Amendment and Termination Agreement, dated as of
August 28, 1996, among Yashiro Co., Inc., Yashiro
Company Ltd., Yutaka Yamaguchi, Takeshi Yamaguchi, Joel
Dupre, Pacific Million Enterprise Ltd., Cheng-Sen Wang,
Albert H. Cheng, Sirco International Corp. and Bueno of
California, Inc.
10.2 Amended and Restated Letter of Credit Agreement, dated
August 28, 1996, between the Company and Yashiro Co.,
Inc.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Sirco International Corp.
October 15, 1996 By: /s/ Joel Dupre
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Date Joel Dupre
Chairman of the Board and
Chief Executive Officer
October 15, 1996 By: /s/ Gandolfo J. Verra
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Date Gandolfo J. Verra
Controller and Assistant
Secretary
(Chief Accounting Officer)