UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to ___________________
Commission File Number: 1-12624
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Syratech Corporation
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(Exact name of registrant as specified in its charter)
Delaware 13-3354944
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
175 McClellan Highway
East Boston, Massachusetts 02128-9114
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code - 617-561-2200
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which registered:
None
Securities registered pursuant to Section 12(g) of the act:
None
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, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates is not
applicable as no public market for the voting stock of the registrant exists.
Number of the registrant's Shares of Common Stock, Par Value $0.01 per share,
outstanding at March 31, 1999 - 3,784,018.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
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
or incorporated by reference in this Annual Report on Form 10-K, the matters
discussed or incorporated by reference herein 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.
1
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
Syratech Corporation (the "Company") designs, manufactures, imports and markets
a diverse portfolio of tabletop, giftware and seasonal products for home
entertaining and decoration. The Company is one of the leading domestic
manufacturers and marketers of sterling silver flatware and sterling silver and
silver-plated hollowware. The Company also offers a number of other
complementary tabletop and giftware items, including stainless steel flatware,
picture frames, photo albums, photo storage, candles, glassware, crystal, and
ceramics. Tabletop and giftware products generated approximately 67% of net
sales for the year ended December 31, 1998. The Company is also a leading
domestic manufacturer and marketer of seasonal products including Christmas
ornaments, as well as a distributor of Christmas trim, lighting and tree skirts.
Seasonal products generated approximately 33% of net sales for the year ended
December 31, 1998.
The Company has positioned itself as a single-source supplier to retailers by
offering a wide assortment of products across multiple price points through its
"good-better-best" strategy. This strategy enables the Company to sell its
products through a broad array of distribution channels, including retail
specialty stores, department stores, specialty mail order catalogue companies,
mass market merchandisers, catalogue showrooms, warehouse clubs, premium and
incentive marketers, drug store chains and home centers. The Company markets its
products under numerous and well-recognized tradenames including the
Company-owned Towle Silversmiths, Wallace International Silversmiths and
International Silver Company tradenames which are used in connection with the
sale of tabletop and giftware items, and the Rauch and Silvestri tradenames
which are used in connection with the sale of Christmas and other seasonal
merchandise.
1997 Merger and Recapitalization
On April 16, 1997, THL Transaction I Corp., ("THL I"), a Delaware corporation,
controlled by affiliates of Thomas H. Lee Company ("THL"), was merged with and
into the Company (the "Merger") pursuant to the Restated Agreement and Plan of
Merger. The transaction was accounted for as a recapitalization. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Recent Transactions and the Notes to the Consolidated Financial
Statements.
2
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Products
The Company designs, manufactures, imports and markets a diverse offering of
quality tabletop, giftware and seasonal products for home entertaining and
decoration. For purposes of the information presented below, the Company
identifies seasonal products as Christmas tree ornaments, other Christmas
decorations and a variety of other products sold for Halloween, Easter,
Thanksgiving, Mother's Day and Valentine's Day. Seasonal products are marketed
under a variety of the Company's tradenames. Seasonal products are also included
in the Tabletop and Giftware product category and are marketed under the
Wallace, Towle, and International Silver tradenames. For example, the Company
considers picture frames a tabletop and giftware item and also considers it
seasonal just by changing the packaging slightly (e.g., a red colored box at
Christmas time). Therefore, a certain number of the Company's products and/or
product lines are sold as both Tabletop and Giftware and as Seasonal products.
The Company has identified only one distinct and reportable segment: Home
Entertaining and Decorative Products. This segment generates revenue from two
types of product offerings: Tabletop and Giftware, and Seasonal. The following
table presents a breakdown of the Company's net sales by these product
categories for the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Tabletop and Giftware....................... $193,061 $193,950 $171,824
Seasonal.................................... 97,345 96,912 99,107
-------- -------- --------
Total.............. $290,406 $290,862 $270,931
======== ======== ========
</TABLE>
3
<PAGE>
The majority of the Company's products are sold through the same distribution
channels. Customers in each distribution channel purchase a wide range of the
Company's products and may purchase on a single purchase order Tabletop,
Giftware or Seasonal products.
A significant portion of the Company's products are also sourced overseas. This
function is also not performed by product or product lines and is therefore not
reasonably allocable by product category.
The Company's products include those shown below; all of which are marketed
under one of the Company's many well-recognized tradenames as follows:
Tabletop and Giftware
Sterling Silver and Silver-plated Flatware and Hollowware. The Company designs,
markets and distributes a variety of products in these categories, including
flatware, serving pieces, cosmetic accessories and hollowware, such as
candlesticks, casseroles and coffee and tea services under the tradenames
Wallace Silversmiths(R), Towle Silversmiths(R), International Silver Company(R),
C.J. Vander(TM) and Tuttle Sterling(R). A majority of the Company's products in
this category are manufactured at the Company's plants in Puerto Rico, England,
and Massachusetts. These products are sold primarily to specialty stores,
including jewelry stores and gift stores, and department stores and are
generally included in bridal registries.
4
<PAGE>
Stainless Steel Flatware. The Company designs, markets and distributes several
lines of stainless steel flatware ranging from premium mass-produced sets to
high-end flatware place settings. The Company markets these products under
tradenames such as Wallace Silversmiths(R), Towle Silversmiths(R), International
Silver Company(R), 1847 Rogers Bros.(R) and, under a license agreement, the
tradename Cuisinart(R). The Company's products in this category are imported
from the Company's third-party vendors located primarily in the Asia Pacific
Rim. The primary channels of distribution include department stores, mass-market
merchandisers, warehouse clubs and specialty stores and these products are also
included in bridal registries.
Picture Frames, Photo Storage and Photo Albums. The Company designs, markets and
distributes several lines of picture frames and photo albums. The picture frames
range from sterling silver on the high end to a variety of other frames produced
in wood, resin, ceramic, metal and other mediums. The photo albums are produced
in metal, fabric and resin. The Company has introduced new photo storage
products including wooden cabinets, compact disk holders and wooden collage
boxes. The Company markets these products under tradenames such as Melannco
International(R), International Silver Company(R), Wallace Silversmiths(R) and
Towle Silversmiths(R). The Company's products in this category are imported from
the Company's third-party vendors located primarily in the Asia Pacific Rim. The
channels of distribution include department stores, including stationery
departments, specialty stores and mass market merchandisers.
Glassware, Crystal and Ceramics. The Company designs, markets and distributes
several lines of glassware and crystal products, including beverageware, glass
dinnerware, serveware and accessories, glass vases, candle lighting and salad
sets. The Company markets these products under the tradenames Towle(R) Crystal,
International Silver Company(R), Elements(R), Farberware(R), Ambrosia(R), and
under a license agreement, the tradename Cuisinart(R). The Company designs,
markets and distributes a line of ceramic serveware and storage. The Company
markets these products under the Farberware(R) tradename. The Company's products
in this category are imported from the Company's third-party vendors located
primarily in the Asia Pacific Rim. The channels of distribution of the Company's
glassware line include mass-market merchandisers, department stores, warehouse
clubs and specialty stores.
Porcelain Boxes. The Company designs, markets and distributes a diverse range
of high-end, hand-painted porcelain boxes under the Rochard(TM) tradename which
are primarily manufactured by third-party vendors located primarily in France.
The channels of distribution include specialty stores, including jewelry stores
and department stores.
Other Tabletop and Giftware. The Company designs, markets and distributes a
wide range of other tabletop and giftware products, including premium products
such as picture frames and cosmetic accessories as "gift with purchase" items,
stainless steel kitchen and bath accessories, brassware, napkin rings and
decorative clocks. The primary channels of distribution include department
stores, mass-market merchandisers, warehouse clubs and specialty stores.
Licensing Activities. The Company owns certain intellectual property rights
related to the tradename Farberware and grants licenses to third parties for
which the Company receives royalties.
5
<PAGE>
Seasonal Products
Christmas Ornaments. The Company designs, manufactures, markets and distributes
Christmas tree ornaments made of glass, satin, metal, ceramic and resin. The
Company's products are distributed through specialty stores, department stores,
jewelry stores, mass market merchandisers and warehouse clubs. These products
are marketed under the tradenames Rauch(R), Silvestri(R), Potpourri Press(R),
and International Christmas(TM). The Company also manufactures limited edition,
sterling silver Christmas ornaments that are marketed under the tradenames
Wallace Silversmiths(R) and Towle Silversmiths(R).
Other Christmas Decorations. The Company designs, markets and distributes a
diverse product offering of other Christmas decorations including figurines,
waterglobes, collectibles, trim, lighting, tree skirts and other decorative
items produced in wood, resin, metal, paper, textiles, glass and ceramic. These
products are marketed under the tradenames Silvestri(R), Rauch(R), Holiday
Workshop(R), Potpourri Press(R), and International Christmas(TM). These products
are distributed through specialty stores, department stores, mass market
merchandisers and warehouse clubs.
Other Seasonal Products. The Company designs, markets and distributes a variety
of other seasonal products for Halloween, Easter, Thanksgiving, Mother's Day and
Valentine's Day. These products include figurines, vases, bowls, trays and other
items comprised of metal, resin, wood, ceramic and glass. These products are
distributed through specialty stores, department stores, mass market
merchandisers and warehouse clubs.
Sales, Marketing and Distribution
During 1997 and 1998, the Company invested over $25 million on an 886,000 square
foot warehouse and distribution center, including related systems and equipment,
located in Mira Loma, California, which serves as its primary warehouse and
distribution center.
The Company sells many different types of products, with a variety of price
points and target customers. Accordingly, the Company sells its products through
a variety of distribution channels including department and specialty stores,
mass market merchandisers, and warehouse clubs, catalogue showrooms, drugstores,
supermarkets, incentive marketers and jewelry stores. The Company maintains
separate sales forces for its product lines so as to provide the specialized
expertise and attention necessary to service its customer base. The Company's
sales and marketing staff coordinates with individual retailers to devise
marketing strategies and merchandising concepts and to furnish advice on
advertising and product promotion. The Company has developed several promotional
programs for use in the ordinary course of business to promote sales throughout
the year.
The Company's various sales and marketing efforts are supported from its
principal office and showroom in East Boston, Massachusetts and, for certain of
its products, from its offices and showrooms in Hong Kong and London. The
Company maintains additional showrooms in New York, Los Angeles, Atlanta and
Dallas. The Company's sales and marketing staff at December 31, 1998, consisted
of approximately 109 employees who are salaried, paid commissions based on sales
or, in some instances, paid a base salary plus commissions. The Company also
distributes certain of its products through independent sales representatives
who work on a commission basis only.
Retailing Customers
During 1998, 20 customers accounted for approximately 43% of the Company's net
sales. No one customer represented 10% or more of the Company's net sales.
<TABLE>
<CAPTION>
% of 1988
1998 Channels of Distributions Net sales
- - ------------------------------ ---------
<S> <C>
Mass Market Merchandisers, Catalogue Showrooms, Warehouse Clubs, Drugs Stores and Supermarkets ... 30%
Department Stores ................................................................................ 17%
Speciality Stores, Jewelry Stores, Specialty Catalog Compaies, Premium and Incentice Marketers ... 53%
</TABLE>
In order better to service its customers, the Company has invested in equipment
and software to allow its customers to transmit their orders electronically
throughout the EDI system.
6
<PAGE>
Manufacturing and Raw Materials
The Company produces its sterling silver flatware at its manufacturing facility
in San German, Puerto Rico, where it fabricates and manufactures sterling silver
into finished products for the Wallace, International, Towle and Tuttle lines,
and at its facility in Sheffield, England for C.J. Vander, Ltd. and Roberts and
Belk. The Company also designs, produces and maintains the tools required for
manufacturing sterling silver flatware.
The Company has maintained, in the aggregate, approximately six months of
inventory. The Company's silver fabrication operation in its Puerto Rico
manufacturing plant became fully operational during 1994. This process reduces
the need for purchasing fabricated silver from outside vendors. The Company uses
fabricated silver in its manufacturing operations. Fabricated sterling silver
made from fine silver purchased by the Company may be readily obtainable from
outside resources as well. The Company purchases fine silver in the spot market
in quantities the Company believes are adequate to meet reasonably foreseeable
consumer demand for its silver products. The Company does not engage in
speculative purchases of fine silver. In the five-year period ended December 31,
1998, the closing price of silver as quoted by Handy & Harman Inc. has ranged
from $3.54 per troy ounce to $7.31 per troy ounce ($5.06 at March 18, 1999).
The Company manufactures silver-plated giftware and tabletop products, including
hollowware, at its manufacturing and silver-plating facilities in North Dighton,
Massachusetts and in Sheffield, England. These facilities have all the stamping,
processing, soldering, finishing, polishing, silver-plating and packaging
capabilities necessary to turn unfinished metal into finished products.
The Company's imported products originate as designs created by its internal
design staff or by independent designers, in each case in conjunction with the
Company's product development and marketing staffs. Products based on these
designs are manufactured to the Company's specifications in various countries
including Hong Kong, India, Korea, Taiwan, the People's Republic of China and
Japan.
In 1998, the Company purchased an aggregate of approximately $127 million of
products from approximately 800 foreign manufacturers. No vendor accounted for
10% or more of such purchases in 1998. The Company does not have information on
the financial condition of its major foreign vendors, all of which are privately
held, but is not aware of any unfavorable information related to their
respective financial condition. Of the Company's foreign purchases in 1998
approximately 83% were from vendors located in the Far East; approximately 5%
were from vendors located in India and approximately 12% in the aggregate from
vendors in other locations. The Company's arrangements with its manufacturers
are subject to the risks of doing business abroad, including risks associated
with foreign currency and potential import restriction. The Company also is
subject to risks associated with the availability of, and time required for, the
transportation of products from foreign countries, including shipping losses or
lost sales that may result from delays or interruptions in shipping. The Company
does not believe that the loss of any single foreign supplier would have a
material long-term adverse impact on the Company's source of supply, as other
suppliers with whom the Company does business would be able to increase
production to fulfill the Company's requirements.
The Company has invested in increasing production capacity and improving
productivity related to its manufactured Christmas ornament operations. The
Company developed and installed new automatic machinery which was installed
during the first quarter of 1997. The Company improved the design and operation
of the new machinery during 1998 and realized a substantial production capacity
increase, as well as lower costs due to reduced scrap and material handling
expenses. The new equipment was installed in the 828,000 square foot building in
Chester, South Carolina purchased in 1996, which is in close proximity to the
existing manufacturing plant in North Carolina. This facility has allowed
adequate space for the new machinery and a large warehouse and distribution
center which has allowed the Company to consolidate its outside warehousing and
manufacturing. The Company continuously looks for opportunities for new
equipment and modification of existing equipment and processes to reduce
production costs.
7
<PAGE>
The Christmas decoration manufacturing process uses three basic raw materials:
(i) expandable polystyrene for unbreakable ornaments, (ii) glass ornament blanks
and (iii) acetate or polyester yarn materials including boxes and packaging. To
produce Christmas stockings, tree skirts and Santa Claus hats and suits, the
Company purchases non-woven and knitted pile fabric. The Company has not
experienced difficulty in obtaining raw materials or other supplies from its
suppliers and does not anticipate any such difficulty in the foreseeable future.
The Company imports ornament hangers, small glass and satin balls and assorted
tree and off-the-tree decorations from Taiwan, Hong Kong, and Mexico.
Competition
The tabletop, giftware and seasonal product lines which the Company sells are
highly competitive. Not only the large number of domestic manufacturers affects
competition, but also the large volume of foreign imports. Several of the
Company's competitors are larger and have greater financial resources than the
Company. The Company's products compete indirectly with a broad range of
household products not offered by the Company. Within the overall tabletop
products catagory, the production of sterling silver flatware in the United
States is relatively concentrated, with five manufacturers, including the
Company, accounting for substantially all of the sterling silver flatware
manufactured and sold in the United States. The other principal manufacturers
and marketers of sterling silver flatware are Gorham, Inc. and its affiliate The
Kirk Steiff Company, Reed & Barton Corp. and Lunt Silversmiths, all of which
have been in business for many years. The giftware and seasonal products
industries, however, are very fragmented with numerous small manufacturers and
marketers of a limited number of products. The Company is not aware of any
competitor having the same product line breadth.
The Company's diverse product lines allow it to target a wide range of customers
and to respond more effectively to changes in retail distribution and consumer
preferences. Furthermore, the trend towards vendor consolidation and increasing
electronic communications and complex logistical requirements of the retail
industry increases demand for vendors, like the Company, who can meet these
requirements and make timely deliveries of a broad range of quality products and
provide advertising and other sales support.
A number of factors affect competition in the sale of products of the type
manufactured, imported and sold by the Company. Among these are brand
identification, style, design, packaging, price, quality, promotion, sales staff
and the level of service provided to customers. The importance of these
competitive factors varies from customer to customer and from product to product
and no one of these factors is dominant in all cases. The Company believes that
its ability to compete effectively can be attributed to its performance in all
of these areas.
Trademarks, Copyrights and Patents
The success of the Company's various businesses depends in part on the Company's
ability to exploit certain proprietary designs, trademarks and brand names on an
exclusive basis and reliance upon the protections afforded by applicable
copyright, patent and trademark laws and regulations. The loss of certain of the
Company's rights to such designs, trademarks and brand names or the inability of
the Company effectively to protect or enforce such rights could adversely affect
the Company. The Company does not believe that there is a significant danger
that it will lose its rights to any of its material trademarks and tradenames or
be unable effectively to protect or enforce such rights. Although the loss of
any right to designs, trademarks and tradenames could have negative effects, any
such effects are unlikely to be material.
Seasonality
Sales are generally higher in the third and fourth quarters and are strongly
influenced by the buying patterns associated with the Christmas season. The
Company's needs for working capital accelerate in the second half of the year
and, accordingly, total debt levels tend to peak in the third and fourth
quarters, falling off again in the first quarter of the following year. The
amount of the Company's sales generated during the second half of the year
generally depends upon a number of factors, including general economic
conditions, and other factors beyond the Company's control. The Company's
results of operations would be adversely affected and disproportionately
affected if the Company's sales were substantially lower than those normally
expected during the second half of the year. The Company continues to introduce
products appropriate to other holidays and seasons in order to increase sales
during the first and second quarters.
8
<PAGE>
Backlog and Warranty
Orders for the Company's products are generally subject to cancellation until
shipment. As a result, the Company's backlog consists of cancelable orders and
is dependent upon trends in consumer demand throughout the year. Customer order
patterns vary from year to year, largely because of annual differences in
consumer acceptance of product lines, product availability, marketing
strategies, inventory levels of retailers and differences in overall economic
and weather conditions. As a result, comparison of backlog as of any date in a
given year with backlog at the same date in a prior year is not necessarily
indicative of sales trends. The Company had (exclusive of Farberware) a backlog
of approximately $30.1 million as of December 31, 1998, compared to
approximately $19.7 million as of December 31, 1997. See "Seasonality." The
Company does not believe that backlog is necessarily indicative of the Company's
future results of operations or prospects.
The Company's warranty policy is to accept returns of products with defects in
materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer goodwill. In accordance with normal retail
industry practice, the Company ordinarily accepts returns only from its
customers and does not ordinarily accept returns directly from consumers.
Certain of the products returned to the Company by its customers, however, may
have been returned to those customers by consumers. The Company will routinely
accept returns for imported products that are received late by the customer. The
majority of the returned products are resold into the same distribution channel.
During the three year period ended December 31, 1998, returns and allowances
amounted to approximately 3.5% of sales.
Environmental Regulation
The Company's manufacturing operations, including silverplating, chrome plating,
tool making and painting operations routinely involve the handling of waste
materials that are classified as hazardous. The Company also refabricates
certain materials used in its silverplating operations. The Company is subject
to certain domestic federal, state and local laws and regulations concerning the
containment and disposal of hazardous materials and, therefore, in the ordinary
course of its business. The Company incurs compliance costs and may be required
to incur clean-up costs. The Company's C.J. Vander facility is also subject to
many environmental regulations related to its plating operations in the United
Kingdom. Based upon currently available information, the Company does not expect
that the costs of such compliance and clean-up costs will be material. Actions
by federal, state and local governments concerning environmental matters could
result in laws or regulations that could increase the cost of producing the
products manufactured by the Company or otherwise adversely affect the demand
for its products. In addition, the future costs of compliance with environmental
laws and regulations and liabilities resulting from currently unknown
circumstances or developments could be substantial and could have a material
adverse effect on the Company. For example, certain laws and regulations could
impose liability upon the Company for any historic releases of hazardous
substances from facilities that it has owned or operated, or, from facilities to
which its waste materials have been transported for treatment or disposal.
9
<PAGE>
Properties
The following table sets forth information with respect to the Company's
properties as of March 31, 1999:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
FOOTAGE OR
LOCATION TYPE OF FACILITY ACREAGE STATUS
- - -------- ---------------- ------- ------
<S> <C> <C> <C>
Mira Loma, CA ........ Warehouse/Distribution/Land .......... 886,000 Owned
Chester, CA .......... Warehouse/Manufacturing/Showroom ..... 828,000 Owned
Revere, MA ........... Warehouse/Distribution ............... 580,000 Owned
Gastonia, NC ......... Office/Manufacturing/Disribution ..... 447,441 Owned
East Boston, MA ...... Office/Showroom ...................... 292,000 Owned
El Paso, TX .......... Office/Manufacturing ................. 135,000 Owned
North Dighton, MA .... Office/Manufacturing/Warehouse ....... 134,042 Leased
Crisfield, MD ........ Office/Manufacturing/Warehouse ....... 71,754 Leased
San German, PR ....... Manufacturing/Office ................. 72,296 Leased
Hong Kong ............ Office/Showroom ...................... 6,809 Leased
Altanta, GA .......... Showrooms ............................ 15,050 Leased
Dallas, TX ........... Showrooms ............................ 9,716 Leased
Los Angeles .......... Showrooms ............................ 5,745 Leased
Cramerton, NC ........ Land ................................. 34.1 Acres Owned
Sheffield, England ... Manufacturing/Warehouse .............. 30,839 Owned
London, England ...... Office/Showroom ...................... 4,000 Leased
China ................ Warehouse/Office ..................... 158,212 Leased
Taiwan ............... Office ............................... 1,725 Leased
New York, NY ......... Warehouse ............................ 3,800 Leased
Tianjin, PRC ......... Office ............................... 2,906 Leased
Greensboro, NC ....... Office ............................... 2,747 Leased
New York, NY ......... Showrooms ............................ 45,611 Leased
Ecclesfield, England . Manufacturing/Warehouse/Showroom ..... 39,950 Owned
</TABLE>
Certain of the Company's properties are available for sale.
Employees
As of December 31, 1998, the Company had approximately 1,500 employees. The
Company believes that its relationship with its employees is good.
The Company's employees located in the U.S. and Puerto Rico are not represented
by labor unions.
On March 31, 1994 an Administrative Law Judge ("ALJ") designated by the NLRB
determined that the Company's subsidiaries Wallace International de P.R., Inc.
and International Silver de P.R., Inc. (the "P.R. Subsidiaries") had engaged in
unfair labor
10
<PAGE>
practices incident to a union election (won by the P.R. Subsidiaries) held in
February 1993 and ordered the P.R. Subsidiaries to refrain from certain conduct
and to take certain affirmative action. The ALJ's decision was affirmed by the
NLRB on September 22, 1994. Incident to a second union election (also won by the
P.R. Subsidiaries) held on June 22, 1994 pursuant to stipulation, the P.R.
Subsidiaries were again charged with unfair labor practices. The ALJ again found
that the P.R. Subsidiaries had engaged in unfair labor practices. The Company
has appealed to the NLRB, and the appeal is pending.
Approximately 57 employees of C.J. Vander are represented by the Union of
Manufacturing, Science & Finance (MSF). Management believes its employee
relations are good.
Legal Proceedings
The Company has been named as a defendant in several legal actions arising from
its normal business activities, including routine copyright and trademark
litigation, which actions are considered normal in the businesses in which the
Company is engaged. The Company is also currently involved in litigation with a
manufacturer of certain machinery and equipment.
ITEM 4. Submission of Matters to A Vote of Security Holders
During the fourth quarter of 1998, no matters were submitted to a vote of the
Company's shareholders through the solicitation of proxies or otherwise.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
Absence of Public Market
Syratech Common Stock, which was traded on the NYSE under the symbol "SYR", was
de-listed from the NYSE upon consummation of the Merger. From the effective time
of the Merger, the Company has had less than 100 stockholders.
The Company filed a report on Form 15 Certification and Notice of Termination of
Registration under Section 12(g) of the Securities Exchange Act of 1934 or
Suspension of Duty to File Reports under Sections 13 and 15(d) of the Securities
Exchange Act of 1934 filed on December 7, 1998.
Dividends Paid
The Company has never paid cash dividends on its common stock and does not
expect to do so in the foreseeable future. The Company intends to retain all
earnings to provide funds for the operation and expansion of its businesses.
11
<PAGE>
ITEM 6. Selected Financial Data
The following selected consolidated financial information as of December 31,
1998 through 1994 and for each of the years in the five-year period ended
December 31, 1998 has been derived from the consolidated financial statements of
the Company. The consolidated balance sheets of the Company as of December 31,
1998 and 1997 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998, together with the notes thereto and the related report of Deloitte &
Touche LLP, independent auditors, are included elsewhere herein. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto of the Company included elsewhere in this
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data(1):
Net sales ................................................... $ 290,406 $ 290,862 $ 270,931 $ 169,520 $ 147,291
Cost of sales ............................................... 213,307 213,366 194,113 119,836 104,600
--------- --------- --------- --------- ---------
Gross profit ................................................ 77,099 77,496 76,818 49,684 42,691
Selling, general and administrative expenses ................ 65,017 72,740 57,664 34,239 31,613
Impairment of long-lived assets and other asset dispositions . 5,170 -- -- -- --
Other operating income(2) ................................... (5,662) (2,366) (3,948) -- --
--------- --------- --------- --------- ---------
Income from operations ...................................... 12,574 7,122 23,102 15,445 11,078
Interest expense ............................................ (23,709) (16,027) (3,150) (287) (559)
Interest income ............................................. 34 257 771 4,881 98
Other income(3) ............................................. -- 2,184 11,900 -- --
--------- --------- --------- --------- ---------
Income (loss) before income taxes (11,101) (6,464) 32,623 20,039 10,617
Provision (benefit) for income taxes ........................ (2,775) (1,868) 12,234 6,863 2,758
--------- --------- --------- --------- ---------
Income (loss) from continuing operations ..................... (8,326) (4,596) 20,389 13,176 7,859
Discontinued operations:
Income from discontinued operations, net of income taxes ... -- -- -- 2,572 12,068
Gain on sale of Syroco, net of income taxes ............... -- -- -- 30,451 --
--------- --------- --------- --------- ---------
Net income (loss) ........................................... (8,326) (4,596) 20,389 46,199 19,927
Preferred stock dividend ..................................... 2,344 1,530 -- -- --
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders ......... $ (10,670) $ (6,126) $ 20,389 $ 46,199 $ 19,927
========= ========= ========= ========= =========
Basic earnings (loss) per share:
Continuing operations ...................................... $ (2.82) $ (1.17) $ 2.34 $ 1.13 $ 0.67
Discontinued operations .................................... -- -- -- 2.82 1.03
--------- --------- --------- --------- ---------
Net income (loss) per common share ....................... $ (2.82) $ (1.17) $ 2.34 $ 3.95 $ 1.70
========= ========= ========= ========= =========
Weighted average number of shares outstanding ............ 3,784 5,216 8,695 11,707 11,688
========= ========= ========= ========= =========
Diluted income (loss) per share:
Continued operations ......................................... $ (2.82) $ (1.17) $ 2.32 $ 1.12 $ 0.67
Discontinued operations ...................................... -- -- -- 2.79 1.02
--------- --------- --------- --------- ---------
Net income (loss) per common share ........................... $ (2.82) $ (1.17) $ 2.32 $ 3.91 $ 1.69
========= ========= ========= ========= =========
Shares:
Weighted average number of shares outstanding ............. 3,784 5,216 8,695 11,707 11,688
Effect of dilutive stock options .......................... -- -- 104 96 121
--------- ---------- --------- ---------- ---------
Adjusted weighted-average number of shares
outstanding ............................................. 3,784 5,216 8,799 11,803 11,809
========= ========== ========= ========== =========
</TABLE>
12
<PAGE>
(1) The income statement data for years prior to 1996 has been restated to
reflect Syroco, Inc. as a discontinued operation. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Recent
Transactions."
(2) Consists of income from the sale of Farberware inventory and other operating
income primarily revenue related to licensing activities, net of certain
selling, general and administrative expenses.
(3) Consists of nonrecurring pre-tax income related to the sale of certain
equipment in 1997 and licensing the Farberware name on cookware and bakeware in
1996. See Note 4 to the Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
BALACE SHEET DATA:
Working capital ................ $104,614 $113,857 $119,918 $122,050 $125,136
Total assets ................... 284,717 266,000 227,254 220,566 190,684
Total debt (5) ................. 211,201 183,900 6,636 51,735(6) 15,379
Stockholders' equity ........... 16,035 24,904 170,248 146,596 152,100
Book value per common share .... (1.54) 1.42 19.58 16.91 13.01
</TABLE>
(5) Consists of long-term debt, notes payable and current maturities of
long-term debt.
(6) Reflects temporary borrowings of $51,735 made on December 29, 1995 in
connection with the purchase by the Company for retirement of 3,065 shares of
Common Stock owned by affiliates of Katy Industries, Inc. (the "Katy Stock
Repurchase"). These borrowings were paid on January 2, 1996.
ITEM 7. 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
or incorporated by reference in this Annual Report on Form 10-K, the matters
discussed or incorporated by reference herein 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.
SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS INCLUDING,
BUT NOT LIMITED TO, STATEMENTS RELATING TO (i) THE COMPANY'S ABILITY TO OBTAIN
SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND CAPITAL EXPENDITURE
NEEDS AND PROVIDE FOR ITS KNOWN OBLIGATIONS AND (ii) THE CONTINUATION OF, AND
THE COMPANY'S ABILITY TO BENEFIT FROM, THE VENDOR CONSOLIDATION TREND IN THE
RETAIL INDUSTRY DESCRIBED ELSEWHERE IN THE ANNUAL REPORT ON FORM 10-K.
13
<PAGE>
Recent Transactions
Merger and Recapitalization
On April 16, 1997, THL Transaction I Corp. ("THL I"), a Delaware corporation,
controlled by affiliates of Thomas H. Lee Company ("THL"), was merged with and
into the Company (the "Merger") pursuant to the Restated Agreement and Plan of
Merger between THL I and the Company. The transaction was accounted for as a
recapitalization. See Notes to Consolidated Financial Statements.
Rauch Industries, Inc.
On February 15, 1996, the Company, through an indirect wholly owned subsidiary,
acquired the outstanding shares of Rauch for approximately $49.6 million,
including costs of the transaction. The acquisition was accounted for under the
purchase method of accounting, and the results of operations of Rauch have been
included with the results of the Company from February 15, 1996.
Farberware Inc.
On April 2, 1996, the Company, through an indirect wholly-owned subsidiary,
together with Lifetime Hoan Corporation ("Lifetime") acquired certain assets
from Farberware Inc., a subsidiary of U.S. Industries, Inc. The Company and
Lifetime are not affiliates. Farberware Inc. was a manufacturer of aluminum
clad, stainless steel cookware and bakeware and small electric kitchen
appliances. The aggregate consideration paid by the Company and Lifetime was
$45.8 million, of which the Company paid approximately $32.6 million. The assets
acquired by the Company included certain of the inventory, the tradename
"Farberware" and the intellectual property (including the intellectual property
that relates to cookware and bakeware and electric products other than major
kitchen appliances) and certain tools and dies and machinery and equipment.
During 1996 the Company also acquired inventory pursuant to a transitional
manufacturing services agreement and in 1997, sold or disposed of all acquired
inventory and as of December 31, 1997 no longer manufactures or sells Farberware
cookware and bakeware products or noncommercial electric products. Accordingly,
net sales for the year ended December 31, 1998, 1997 and 1996 exclude revenue
from the sales of Farberware inventory, and $5.0 million, $2.4 million and $3.9
million, respectively, related to these sales and to licensing income, net of
certain selling, general and administrative expenses, has been recorded as other
operating income.
The Company and Lifetime agreed to an allocation between them of the assets
acquired from Farberware Inc. and to the joint administration of certain
licensing rights. The Company acquired Farberware Inc. assets in order to expand
Farberware's licensing activities and to use the Farberware name on certain of
the Company's existing and new products.
On June 27, 1996, the Company's Farberware Inc. subsidiary (formerly Far-B)
("Farberware") entered into a license agreement with Meyer Marketing Co. Ltd.
("Meyer") pursuant to which Meyer was granted certain rights for a term of 200
years. For such grant, Meyer made a one-time payment to the Company of $25.5
million, which resulted in recognition by the Company of $11.9 million of
non-recurring income. Under the terms of the licensing agreement, the Company
has no further obligation with respect to the amount paid by Meyer. On July 12,
1996, Farberware granted to a major retail chain the exclusive license to use
and exploit the Farberware name and related intellectual property in connection
with the sourcing, manufacture, marketing and sale of certain electric products
for quarterly royalty payments.
On February 3, 1997, the Company received a waiver of certain restrictions on
the disposition of tools, machinery, and equipment formerly used by Bruckner
Manufacturing Corp. in the manufacture of Farberware products. The Company sold
the majority of the tools, machinery and equipment in 1997 and retained the
remainder for use in its existing businesses. The sale of the tools, machinery
and equipment resulted in net proceeds to the Company of $2.2 million which was
recorded as other non-operating income in 1997.
See Notes to Consolidated Financial Statements.
14
<PAGE>
The following table sets forth certain financial data as a percentage of net
sales of the Company for each of the years presented.
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------------------
Year Ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of sales....................................................... 73.5 73.4 71.6
----- ----- ----
Gross profit....................................................... 26.5 26.6 28.4
Selling, general and administrative expenses........................ 22.4 25.0 21.3
Impairment of long-lived assets and other asset dispositions ....... 1.8
Other operating income (1).......................................... (1.9) (0.8) (1.4)
----- ----- ----
Income from operations............................................. 4.2 2.4 8.5
Interest expense, net............................................... (8.2) (5.4) (0.9)
Other income (2).................................................... 0.8 4.4
----- ----- ----
Income (loss) before income taxes.................................. (4.0) (2.2) 12.0
Provision (benefit) for income taxes................................ (1.0) (0.6) 4.5
----- ----- ----
Income (loss) from continuing operations........................... (3.0)% (1.6)% 7.5%
===== ===== ====
</TABLE>
(1) Consists of income from the sale of Farberware inventory and other operating
income, net of certain selling, general and administrative expenses.
(2) Consists of non-recurring pre-tax income related to the sale of certain
equipment associated with the Farberware settlement in 1997 and licensing the
Farberware name on cookware and bakeware in 1996. See Note 4 to the Company's
Consolidated Financial Statements.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales of $290.4 million for the year ended December 31, 1998 were
approximately flat with the $290.9 million for the year ended December 31, 1997.
The slight decrease reflects lower sales of Silvestri branded seasonal items
offset by stronger sales of giftware, particularly picture frames, during 1998.
Changes in product prices did not materially impact net sales.
Gross profit was $77.1 million for the year ended December 31, 1998 compared
with $77.5 million for the year ended December 31, 1997. Gross profit as a
percentage of net sales was 26.5% for the year ended December 31, 1998 compared
to 26.6% for the year ended December 31, 1997. The slight decrease in the gross
profit percentage of 0.1 percentage points, reflects one-time higher costs
related to the consolidation of warehousing, and an increased mix of closeout
sales related to an aggressive plan to reduce excess inventories, offset by
lower manufacturing costs at the Company's Chester, SC manufacturing facility as
the new equipment start-up manufacturing inefficiencies experienced in 1997 were
corrected in 1998. The decrease in gross profit margin was not materially
impacted by change in product prices.
Selling, general and administrative expenses ("S, G & A expenses") decreased
to 22.4% as a percentage of net sales or $65.0 million for the year ended
December 31, 1998 from 25.0% or $72.7 million for the year ended December 31,
1997. Included in S, G & A expenses for 1997 is a one-time charge of $3.9
million for stock option compensation expense due to the Merger. Excluding the
one-time charge of $3.9 million, S, G & A expenses were 23.7% as a percentage of
net sales or $68.8 million for the year ended December 31, 1997. The 1.3
percentage point decrease in 1998 reflects lower bad debt expense and savings
related to the consolidation of operations, partially offset by personnel
severance costs and increased management personnel and travel costs. In
addition, 1997 included a one - time favorable legal settlement and
non-recurring favorable adjustments to accruals related to discontinued
operations.
15
<PAGE>
Income from operations of $12.6 million and $7.1 million for the years ended
December 31, 1998 and 1997, respectively included other operating income of $5.7
million and $2.4 million, respectively, primarily resulting from Farberware
licensing income. During the fourth quarter of 1998 the Company received
one-time income of $2.6 million in connection with the granting of a license and
extending certain existing licenses relating to Farberware intellectual property
to one of its existing licensees. Income from operations for 1998 includes a
one-time non-cash charge of $5.2 for impairment of assets. See Note 3 to the
Company's Consolidated Financial Statements. As noted above, 1997 includes the
one-time charge of $3.9 million to compensation expense related to stock options
as a result of the Merger.
Other non-operating income in 1997 represents $2.2 million of income from the
sale of equipment associated with the Farberware settlement. See Note 4 to the
Company's Consolidated Financial Statements.
In the fourth quarter of 1998, the Company wrote down the value of certain
assets primarily relating to its facilities in El Paso, Texas and one facility
in Gastonia, North Carolina, where the carrying values had been impaired by an
aggregate of $4,307 after management's decision to shut down and sell the
facilities. The El Paso facility ceased manufacturing activity prior to December
31,1998 and the Gastonia facility is scheduled to shut down by July 1, 1999. Of
the $4,307 total, $506 relates to adjusting to salvage value certain specialized
equipment which is no longer used in the production process and has no
alternative use or value to the Company, and $3,801 represents an adjustment to
the carrying values of the properties to estimated fair value (approximately
$893 based upon available market data net of costs of disposition), which have
been included in properties held for sale in the accompanying consolidated
balance sheet at December 31, 1998. Also included in the charge is $627 related
to impaired equipment and tooling that was abandoned at other Company facilities
and $236 representing a decline in the estimated fair value of a property held
for sale since 1997.
Interest expense, net, was $23.7 million and $15.8 million for the years ended
December 31, 1998 and 1997, respectively. This change results primarily from a
full year of interest expense to finance the Merger. The benefit from income
taxes was $2.8 and $1.9 million for the years ended December 31, 1998 and 1997,
respectively. The increase in income tax benefit in 1998 reflects the higher net
loss resulting from the increased interest expense.
Net loss applicable to common stockholders for the year ended December 31, 1998
was ($10.7) million, compared to net loss available to common stockholders of
($6.1) million or ($1.17) (diluted) per share, on adjusted weighted average
shares outstanding of 5,216,000 (diluted) for the year ended December 31, 1997.
The reduction in adjusted weighted average shares reflects the acquisition and
retirement of 4.9 million shares of Company Common Stock in connection with the
Merger, which was effected on April 16, 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales increased 7.4% to $290.9 million for the year ended December 31, 1997
from $270.9 million for the year ended December 31, 1996. Excluding the impact
of the Rauch, Silvestri, C.J. Vander and Potpourri Press acquisitions in 1996,
net sales increased 11.7%. This increase reflects higher sales volume of
giftware items (primarily crystal and silver-plated items) and of stainless
steel and sterling silver flatware. Sales related to the Company's 1996
acquisitions decreased 1.7% due to lower sales of Rauch Christmas ornaments.
Changes in product prices did not materially impact net sales.
Gross profit was $77.5 million for the year ended December 31, 1997 compared
with $76.8 million for the year ended December 31, 1996. Gross profit as a
percentage of net sales was 26.6% for the year ended December 31, 1997 compared
to 28.4% for the year ended December 31, 1996. The decrease in the gross profit
percentage of 1.8 percentage points is related to Rauch new equipment start-up
manufacturing inefficiencies, and to the impact of having a full year of
warehousing expenses for the seasonal Silvestri business compared with the
partial year in 1996, as well as a reduced proportion of higher margin products
in the total product mix. The decrease in gross profit margin was not materially
impacted by change in product prices.
Selling, general and administrative expenses ("S, G & A expenses") increased to
25.0% as a percentage of net sales or $72.7 million for the year ended December
31, 1997 from 21.3% or $57.7 million for the year ended December 31, 1996.
Included in S, G & A expenses for 1997 is a one-time charge of $3.9 million.
Also contributing to the increase are higher personnel and related costs
including costs in the Company's Pacific Rim offices to support the 1996
acquisitions and to establish an increased presence in mainland China which
management believes will enable the Company to reduce expenses in its higher
cost Hong Kong, Philippines, and Taiwan locations. During 1997, the Philippines
office was closed, and cost reductions in Taiwan and Hong Kong are underway. In
addition, during 1997, there is a full year of S, G & A expenses associated with
the product lines acquired during 1996 compared with partial period in the prior
year, and these expenses are running at levels higher than initially anticipated
due to delays in integrating operations of these acquisitions.
Income from operations of $7.1 million and $23.1 million for the years ended
December 31, 1997 and 1996, respectively included other operating income of $2.4
million and $3.9 million, respectively, resulting from the disposal of
Farberware inventory and Farberware license revenue. Income from operations for
1997 includes the one-time charge of $3.9 million to compensation expense
related to stock options as a result of the Merger.
Other non-operating income in 1997 represents $2.2 million of income from the
sale of equipment associated with the Farberware settlement, and in 1996,
represents $11.9 million of income from the one-time licensing fee received for
the Farberware name on cookware and bakeware. See Note 4 to the Company's
Consolidated Financial Statements.
16
<PAGE>
Interest expense, net, was $15.8 million and $2.4 million for the years ended
December 31, 1997 and 1996, respectively. This change results primarily from the
increase in debt, including the issuance of the 11% Senior Notes, to finance the
Merger.
The benefit from income taxes was $1.9 million for the year ended December 31,
1997, compared to an income tax provision of $12.2 million for the year ended
December 31, 1996. The benefit from income taxes in 1997 arose from the net loss
for the year.
Net loss applicable to common stockholders for the year ended December 31, 1997
was ($6.1) million or ($1.17) (diluted) per share, on adjusted weighted average
shares outstanding of 5,216,000 (diluted), compared to net income available to
common stockholders of $20.4 million or $2.32 (diluted) per share, on 8,799,000
adjusted weighted average shares outstanding in 1996. The reduction in adjusted
weighted average shares primarily reflects the acquisition and retirement of 4.9
million shares of Company Common Stock in connection with the Merger, which was
effected on April 16, 1997.
Liquidity and Capital Resources
Net cash used in operating activities for the year ended December 31, 1998 was
$7.7 million. The primary uses of cash were for increases in operating working
capital needs. Accounts receivable from customers ended the year at a higher
level due to the higher level of sales in the fourth quarter of 1998 compared
with the same period in 1997.
The Company's working capital requirements are seasonal and tend to be highest
in the period from September through December due to the Christmas selling
season. Accounts receivable tend to decline during 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 $13.2 million for the year ended
December 31, 1998. These expenditures were primarily for completing construction
of the warehouse and distribution facility in Mira Loma, CA, including related
material handling, computer equipment and systems, improvements at the Company's
East Boston facility, and machinery, equipment and tools and dies for the
Company's manufacturing facilities.
The Company's level of indebtedness will have several important effects on its
future operation, 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
New Credit Facility and the Indenture governing the Senior Notes will require
the Company to meet certain financial tests, and other restrictions may limit
its ability to borrow additional 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 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, 1998. See "Merger and Recapitalization."
See Note 2 to the accompanying Consolidated Financial Statements for a
description of the terms of the Merger and Note 11 for dividend and liquidation
terms of the Company's Cumulative Redeemable Preferred Stock.
See Note 7 to the accompanying Consolidated Financial Statements for the
discussion on borrowings, availability, covenants and dividend restrictions of
the Company under its Revolving Credit Facilities and its Notes due April 15,
2007.
Year 2000 Conversion
The Company has substantially completed its assessment of Year 2000 compliance
and determined the critical systems it will be required to evaluate, modify and
test. The Company has modified key systems to comply with Year 2000 requirements
and is in
17
<PAGE>
the process of modifying and testing certain other systems that are not Year
2000 compliant. The modification of critical systems is on schedule and was
largely completed by December 31, 1998. Testing and certification of these
systems are targeted for completion by mid-1999. The Company currently believes
it will be able to modify, replace, or mitigate its affected systems in time to
avoid any material detrimental impact on its operations. If the Company
determines that it may be unable to remediate and properly test affected systems
on a timely basis, the Company intends to develop appropriate contingency plans
for any critical systems at the time such determination is made. While the
Company is not presently aware of any significant exposure that its systems will
not be properly remediated on a timely basis, there can be no assurances that
all year 2000 remediation processes will be completed and properly tested before
the year 2000, or that contingency plans will sufficiently mitigate the risk of
a year 2000 readiness problem.
The Company has initiated communications with its significant suppliers,
customers, and critical business partners to determine the extent to which the
Company may be vulnerable in the event that those parties fail to properly
remediate their own year 2000 issues. The Company has completed the modification
and testing of its Electronic Data Interchange ("EDI") systems used to process
orders and communicate with certain customers. The Company is able to process 6
digit dates for customer's using older versions of the American National
Standards Institute ("ANSI") and Voluntary Inter-industry Communications
Standard ("VICS") 3070 specification and is listed as a compliant vendor on the
web site of the National Retail Federation. In addition, the Company is
currently processing 8-digit dates (which are inherently Year 2000 compliant) in
accordance with the ANSI and VICS 4010 specification with those customers who
are able to accept and transmit this version. The Company will develop
appropriate contingency plans in the event that a significant exposure is
identified relative to the dependencies on third-party systems. While the
Company is not presently aware of any such significant exposure, there can be no
guarantee that the systems of third-parties on which the Company relies will be
converted in a timely manner, or that a failure to properly convert by another
company would not have a material adverse effect on the Company. Potential
sources of risk include (a) the inability of principal suppliers to be Year 2000
ready, which could result in delays in product deliveries from such suppliers,
and (b) disruption of the distribution channel, including ports, transportation
vendors, and the Company's own distribution centers as a result of a general
failure of systems and necessary infrastructure such as electricity supply. The
Company believes that its actions with suppliers will minimize these risks. An
interruption of the Company's ability to conduct its business due to a year 2000
readiness problem could have a material adverse effect on the Company.
The Company currently believes that the expenditures necessary to be Year 2000
compliant will not be material to its financial condition or results of
operations in any given year. The costs of compliance and estimated completion
dates for the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, and the
ability to locate and correct all relevant computer codes, replace embedded
computer chips in affected systems or equipment; and the actions of governmental
agencies or other third parties with respect to Year 2000 problems.
Accounting Pronouncements
In March of 1998, the American Institute of Certified Public Accountants
released Statement of Opinion No. 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use," which requires certain
expenditures made for internal use software to be capitalized. The provisions of
this opinion will be adopted by the Company effective January 1, 1999 and such
adoption is not expected to have a material effect upon the Company's
consolidated financial statements.
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, 1999. 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
2000.
Item 7A. 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 fair
value of $133,650 as of December 31, 1998 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,
1998, 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.
18
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors..................................................................................... 20
Consolidated Financial Statements:
Consolidated balance sheets as of December 31, 1998 and 1997.................................................. 21
Consolidated statements of operations for the years ended December 31, 1998, 1997 and 1996.................... 22
Consolidated statements of stockholders' equity for the years ended December 31, 1998, 1997 and 1996.......... 23
Consolidated statements of cash flows for the years ended December 31, 1998, 1997 and 1996.................... 24
Notes to consolidated financial statements.................................................................... 25
</TABLE>
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Syratech Corporation:
We have audited the accompanying consolidated balance sheets of Syratech
Corporation (the "Company") and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the consolidated financial statement schedule listed in
the Index at Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Syratech Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the Company
completed a merger accounted for as a recapitalization in 1997.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 26, 1999
20
<PAGE>
PART I - FINANCIAL INFORMATION
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents .................................................. $ 9,009 $ 2,981
Accounts receivable, net .............................................. 70,128 63,893
Inventories ........................................................... 86,955 84,295
Deferred income taxes ................................................. 15,866 11,337
Prepaid expenses and other ............................................ 1,673 2,392
Properties held for sale .............................................. 2,292 1,836
-------- --------
Total current assets .............................................. 185,923 166,734
Property, plant and equipment, net ....................................... 83,611 82,404
Purchase price in excess of net assets acquired, net .................. 6,549 6,790
Other assets, net ........................................................ 8,634 10,072
-------- --------
Total ............................................................. $284,717 $266,000
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable ........................... $ 46,201 $ 18,900
Accounts payable ....................................................... 13,883 14,234
Accrued expenses ....................................................... 10,802 8,662
Accrued interest ....................................................... 4,108 4,115
Accrued compensation ................................................... 2,844 3,390
Accrued advertising .................................................... 3,053 3,576
Income taxes payable ................................................... 418 --
-------- --------
Total current liabilities ......................................... 81,309 52,877
Long - term debt ......................................................... 165,000 165,000
Deferred income taxes .................................................... 19,409 20,083
Pension liability ........................................................ 2,964 3,136
Commitments and contingencies (Notes 9 and 14)
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized;
(25,0000 designated as cumulative redeemable preferred stock,
18,000 shares issued and outstanding, liquidation value of $18,000,
and includes accrued and unpaid dividends of $3,874 and $1,530
in 1998 and 1997, respectively) ........................................ 21,874 19,530
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,784,018 shares issued and outstanding ................ 38 38
Retained earnings (deficit) ........................................... (6,376) 4,567
Accumulated other comprehensive income ................................ 499 769
-------- --------
Total stockholders' equity ........................................ 16,035 24,904
-------- --------
Total ............................................................. $284,717 $266,000
======== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Net sales .......................................................... $.290,406 $ 290,862 $270,931
Cost of sales ...................................................... 213,307 213,366 194,113
--------- --------- ---------
Gross profit .................................................. 77,099 77,496 76,818
Selling, general and administrative expenses ....................... 65,017 72,740 57,664
Impairment of long-lived assets and other asset dispositions ........ 5,170 -- --
Other operating income ............................................. (5,662) (2,366) (3,948)
--------- --------- ---------
Income from operations ........................................ 12,574 7,122 23,102
Interest expense ................................................... (23,709) (16,027) (3,150)
Interest income .................................................... 34 257 771
Other income ....................................................... -- 2,184 11,900
--------- --------- ---------
Income (loss) before provision (benefit) for income taxes ...... (11,101) (6,464) 32,623
Provision (benefit) for income taxes .............................. (2,775) (1,868) 12,234
--------- --------- ---------
Net income (loss) ............................................. (8,326) (4,596) 20,389
Preferred stock dividends accrued .................................. 2,344 1,530 --
--------- --------- ---------
Net income (loss) applicable to common stockholders ........... $ (10,670) $ (6,126) $ 20,389
========= ========= =========
Basic income (loss) per share:
Net income (loss) per common share ................................ $ (2.82) $ (1.17) $ 2.34
========= ========= =========
Weighted average number of shares outstanding ................... 3,784 5,216 8,695
========= ========= =========
Diluted income (loss) per share:
Net income (loss) per common share ................................ $ (2.82) $ (1.17) $ 2.32
========= ========= =========
Shares:
Weighted average number of shares outstanding ................. 3,784 5,216 8,695
Effect of dilutive stock options ............................. -- -- 104
--------- --------- ---------
Weighted average number of shares outstanding ................. 3,784 5,216 8,799
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
START
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(in thousands, except for share data)
<TABLE>
<CAPTION>
Cumulative Redeemable
Common Stock Preferred Stock Additional
-------------------------- --------------------------- Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996................ 8,667,031 $ 87 -- $ -- $ 9,699
Exercise of stock options............... 28,200 202
Compensation related to stock
options............................... 78
Tax effect of stock options............. 250
Transfer of shares ..................... 2,338
Rights redemption ...................... (87)
Comprehensive income:
Translation adjustment...............
Net income ..........................
Total comprehensive income.........
-------------- -------- ----------- ------------- ------------
Balance, December 31, 1996.............. 8,695,231 87 -- -- 12,480
Exercise of stock options............... 8,000 91
Compensation related to stock
options............................... 209
Issuance of preferred stock............. 18,000 18,000
Sale and purchase of common
stock for retirement (including
related costs of $11,555)........... (4,919,213) (49) (12,780)
Accrued preferred stock dividend........ 1,530
Comprehensive income:
Translation adjustment...............
Net income ..........................
Total comprehensive income.........
-------------- -------- ----------- ------------- ------------
Balance, December 31, 1997.............. 3,784,018 38 18,000 19,530 --
Other...................................
Accrued preferred stock dividend........ 2,344
Comprehensive income:...................
Translation adjustment...............
Net income ..........................
Total comprehensive income.........
-------------- -------- ----------- ------------- ------------
Balance, December 31, 1998.............. 3,784,018 $ 38 18,000 $ 21,874 $ --
============== ======== =========== ============= ============
<CAPTION>
Accumulated
Other
Retained Comprehensive Treasury
Earnings Income Stock Total
-------------- ---------------- ------------ -----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996................ $136,728 $ 85 $ (3) $ 146,596
Exercise of stock options............... 202
Compensation related to stock
options............................... 78
Tax effect of stock options............. 250
Transfer of shares ..................... 2,338
Rights redemption ...................... (87)
Comprehensive income:
Translation adjustment............... 482 482
Net income .......................... 20,389 20,389
-----------------
Total comprehensive income......... 20,871
-------------- ---------------- ------------ -----------------
Balance, December 31, 1996.............. 157,117 567 (3) 170,248
Exercise of stock options............... 91
Compensation related to stock
options............................... 209
Issuance of preferred stock............. 18,000
Sale and purchase of common
stock for retirement (including
related costs of $11,555)........... (146,424) 3 (159,250)
Accrued preferred stock dividend........ (1,530) --
Comprehensive income:
Translation adjustment............... 202 202
Net income .......................... (4,596) (4,596)
-----------------
Total comprehensive income......... (4,394)
-------------- ---------------- ------------ -----------------
Balance, December 31, 1997.............. 4,567 769 -- 24,904
Other................................... (273) (273)
Accrued preferred stock dividend........ (2,344) --
Comprehensive income:...................
Translation adjustment............... (270) (270)
Net income .......................... (8,326) (8,326)
-----------------
Total comprehensive income......... (8,596)
-------------- ---------------- ------------ -----------------
Balance, December 31, 1998.............. $ (6,376) $ 499 $ -- $ 16,035
============== ================ ============ =================
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
Cash flows from operating activities: 1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
Net income (loss) ........................................... $ (8,326) $ (4,596) $ 20,389
Adjustments to reconcile net income (loss) to net
cash used in (provided by) operating activities:
Depreciation and amortization ............................. 7,857 6,199 4,767
Deferred income taxes ..................................... (4,144) (20) (2,756)
Acquisition of Farberware assets ........................... (9,500)
Disposal of Farberware assets .............................. 13,600
Farberware electrics license ............................... 500
Transfer of shares ......................................... 3,655
Pension liability ......................................... (171) (152) 1,564
Compensation related to stock options ...................... 209 78
Other long-term liability .................................. (207)
Impairment of long-lived assets and other asset dispositions 5,170
(Gain) loss on disposal of assets and other ................ 42 50 (17)
Increase (decrease) in assets and liabilities,
net of effect of businesses acquired:
Marketable securities ................................. 30,561
Accounts receivable ................................... (6,235) (3,873) (18,356)
Inventories ........................................... (2,660) (4,940) (17,106)
Prepaid expenses and other ............................ 719 726 (471)
Other assets ........................................... (10,800)
Accounts payable and accrued expenses ................. (346) 5,736 (2,870)
Income taxes payable .................................. 418 (930) (2,095)
Discontinued operations .................................. 1,834
--------- ------------ -----------
Net cash provided by (used in) operations .................... (7,676) (12,598) 23,777
--------- ------------ -----------
Cash flows from investing activities:
Purchases of property, plant and equipment .................. (13,166) (24,461) (15,125)
Proceeds from disposal of assets ............................. 1 23 66
Insurance claim proceeds ..................................... 23,771
Acquisitions of businesses, net of cash acquired ............. (48,540)
Other ....................................................... 194 101 (186)
--------- ------------ -----------
Net cash used in investing activities ........................ (12,971) (24,337) (40,014)
--------- ------------ -----------
Cash flows from financing activities:
Change in revolving loan facilities and notes payable ...... 27,301 12,264 (59,075)
Proceeds from borrowings ................................... 165,000
Repayment of borrowings .................................... (300)
Proceeds from sale of preferred stock ...................... 18,000
Proceeds from sale of common stock ......................... 75,993
Purchase of common stock for retirement (including
related costs ) ......................................... (235,243)
Tax effect on stock options ................................. 250
Exercise of stock options ................................... 91 202
Deferred financing costs and other ......................... (356) (19) (24)
--------- ------------ -----------
Net cash provided by (used in) financing activities ........... 26,945 36,086 (58,947)
--------- ------------ -----------
Effect of exchange rate changes on cash and equivalents (270) 225 296
--------- ------------ -----------
Net increase (decrease) in cash and equivalents .............. 6,028 (624) (74,888)
Cash and equivalents, beginning of year ...................... 2,981 3,605 78,493
--------- ------------ -----------
Cash and equivalents, end of year ............................. $ 9,009 $ 2,981 $ 3,605
========= ============ ===========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars except share and per share data)
1. Business and Summary of Significant Accounting Policies
Business
Syratech Corporation designs, manufactures, imports and markets a diverse
portfolio of tabletop, giftware and seasonal products, including: sterling
silver, silver-plated and stainless steel flatware, sterling silver,
silver-plated and brass hollowware, picture frames and photo albums, glassware,
woodenware and ceramics, fine porcelain boxes, figurines, waterglobes and
Christmas ornaments, trim, lighting and tree skirts.
Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Syratech
Corporation and its subsidiaries (the "Company"), Syratech Holding Corporation
and its subsidiaries, Syratech Security Corporation, Wallace International
Silversmiths, Inc. and its subsidiaries ("Wallace"), Leonard Florence
Associates, Inc. ("LFA"), Towle Manufacturing Company and its subsidiaries
("Towle"), Rauch Industries, Inc. and its subsidiaries ("Rauch"), Silvestri Inc.
("Silvestri"), and Syratech (H.K.) Ltd. and its subsidiaries ("Syratech H.K.").
All significant intercompany balances and transactions have been eliminated.
Recapitalization
The Company has accounted for the merger between THL I and the Company, and the
related purchase of common stock for retirement, as a recapitalization (see Note
2).
Earnings (Loss) Per Share
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("Statement 128"), which supersedes
Accounting Principles Board Opinion No. 15. Statement 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential common stock.
Basic earnings (loss) per share reflect the weighed-average number of common
shares outstanding during each period. Diluted earnings (loss) per share reflect
the impact of potential common shares from options and warrants, using the
treasury-stock method. The Company's only dilutive potential common stock in
1996 are stock options. The Company's stock options were canceled in 1997 at the
effective date of the Merger (Note 2). Potential common shares (approximately
30,000) resulting from stock options outstanding during 1997 were antidilutive
due to the recorded net loss. There were no potential common shares in 1998.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") which provides standards for reporting items considered to be
"comprehensive income" and uses the term "other comprehensive income" to refer
to revenues, expenses, gains and losses that are included in comprehensive
income under generally accepted accounting principles but excluded from net
income. Currently the only items presented in the Company's consolidated
financial statements that are considered other comprehensive income as defined
in SFAS 130 are cumulative translation adjustments, which are recorded as
components of stockholders' equity.
25
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accumulated other comprehensive income reported in the consolidated balance
sheets consists only of foreign currency translation adjustments (not tax
effected).
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amount of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and revenues and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates include income taxes,
reserves for potentially obsolete and slow moving inventory, and reserves for
potential bad debts and sales returns.
Revenue Recognition
Revenue is recognized when products are shipped. The Company provides allowances
for estimated doubtful accounts and sales returns based on historical experience
and evaluation of specific accounts. Such allowances, excluding amounts related
to Farberware Inc. (see Note 4), were comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Sales returns and allowances .... $ 6,120 $ 5,977
Doubtful accounts ............... 836 1,231
------------- -------------
$ 6,956 $ 7,208
============= =============
</TABLE>
Customers
Substantially all customers are retailers. No base of customers in one
geographic area constitutes a significant portion of sales. No single customer
represented 10% or greater of consolidated net sales in 1998, 1997 or 1996.
Cash Equivalents
Cash equivalents consist of highly liquid investments purchased with a remaining
maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the
last-in, first-out ("LIFO") method for certain silver and certain non-silver
inventories. For all other inventories, cost is determined on the first-in,
first-out ("FIFO") method.
Properties Held for Sale
Properties held for sale are separately presented in the accompanying
consolidated balance sheets and are stated at the lower of cost or estimated net
realizable value.
26
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Purchased property, plant and equipment is recorded at cost. Leased equipment is
recorded at the present value of the minimum lease payments required during the
lease term. Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets and over the terms, if shorter, of
the related leases, as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 5 to 39
Tools and dies 3 to 50
Machinery and equipment 3 to 10
Other 3 to 10
</TABLE>
Impairment of Long-Lived Assets
Recoverability of long-lived assets is determined by periodically comparing the
forecasted undiscounted net cashflows of the operations to which the assets
relate to the carrying amount, including associated intangible assets of such
operations.
Purchase Price in Excess of Net Assets Acquired
Purchase price in excess of net assets acquired is amortized using the
straight-line method over 30 years (see Note 4). The Company evaluates the
carrying value of goodwill based upon current and anticipated net income and
undiscounted cash flows, and recognizes an impairment when it is probable that
such estimated future net income and/or cash flows will be less than the
carrying value of goodwill. Measurement of the amount of impairment, if any, is
based upon the difference between carrying value and estimated fair value.
Other Assets
Other assets consist principally of deposits, deferred fees, deferred financing
costs and deferred long-term rent. Deferred financing costs are being amortized
using the interest method over the terms of the related loans. Accumulated
amortization aggregated approximately $2,345 and $1,008 at December 31, 1998 and
1997, respectively.
Advertising Costs
Advertising costs are charged to operations when incurred. These costs are
recorded in selling, general and administrative expenses and totaled $4,417,
$4,156 and $3,690 in the years ended December 31, 1998, 1997 and 1996,
respectively.
Financial Instruments
The carrying values of cash and equivalents, accounts receivable, accounts
payable and borrowings under revolving credit facilities approximate fair value
due to the short-term nature of these instruments. The fair value of the Notes
(Note 2) was estimated to be $133,650 as of December 31, 1998, based upon recent
private market trades.
Income Taxes
The Company and its domestic subsidiaries (except for Wallace's Puerto Rican
subsidiaries) file a consolidated federal income tax return. The Puerto Rican
subsidiaries file separate returns in accordance with Section 936 of the
Internal Revenue Code. The Company uses the liability method of accounting for
income taxes. Deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities given the provisions of the enacted tax laws. The Company
provides for taxes on substantially all undistributed earnings of foreign
subsidiaries.
27
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109
the Company records valuation allowances against net deferred tax assets, if
based upon the available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. In assessing the realizability
of deferred assets, management considers whether it is more likely than not that
some or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income and when temporary differences become deductible. The Company
considers, among other available information, uncertainties surrounding the
recoverability of deferred tax assets, scheduled reversals of deferred tax
liabilities, projected future taxable income, and other matters in making this
assessment.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at year-end exchange rates and income and expense items are
translated at the average rates of exchange prevailing during each year. The
effects of foreign currency fluctuations on the foreign subsidiaries' assets and
liabilities have been reflected as a separate component of stockholders' equity.
Transaction gains and losses have been insignificant.
Recent Accounting Pronouncements
In March of 1998, the American Institute of Certified Public Accountants
released Statement of Position No. 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use," which requires certain
expenditures made for internal use software to be capitalized. The provisions of
this opinion will be adopted by the Company effective January 1, 1999 and such
adoption is not expected to have a material effect upon the Company's
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board Issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. 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
2000.
Reclassification
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
Cash Flow Information
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest....................................................... $22,653 $ 11,716 $ 2,383
======== ========= =========
Income taxes................................................... $ 1,045 $ 2,654 $ 16,791
======== ========= =========
Supplemental schedule of non-cash investing and financing activities:
Rights redemption obligation................................... $ -- $ -- $ 87
======== ========= =========
Share transfer by principal stockholder........................ $ -- $ -- $ 2,338
======== ========= =========
</TABLE>
28
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. Merger and Recapitalization
On April 16, 1997, THL Transaction I Corp. ("THL I"), a Delaware corporation,
controlled by affiliates of Thomas H. Lee Company ("THL"), was merged with and
into the Company (the "Merger") pursuant to the Restated Agreement and Plan of
Merger between THL I and the Company.
Pursuant to the Merger, each share of the Company's Common Stock, par value
$0.01 per share ("Common Stock") issued and outstanding immediately prior to the
effective time of the Merger (the "Effective Time") (April 16, 1997) (other than
(i) shares of Common Stock held by the Company or any wholly-owned subsidiary
thereof, and (ii) 35,232 shares of Common Stock that were contributed to the
Company by Leonard Florence (former principal shareholder) upon the Merger and
which were then canceled and retired) was entitled to receive at the election of
the holder thereof and as stated below, either (a) $32.00 in cash (except that
Leonard Florence received $28.00 in cash) or (b) one fully paid and
non-assessable share of the Company's Common Stock.. In addition, each Company
Stock Option granted under the 1986 and 1993 Stock Plans that was outstanding
immediately prior to the Effective Time, vested and was canceled in exchange for
the excess in cash of $32.00 over the exercise price per share of the Company's
Common Stock. The aggregate amount paid to optionees of $3,685 and $188 related
to the vesting of the options was charged to compensation expense.
Upon the Merger, THL acquired, directly from the Company, an aggregate of 18,000
shares which represented 100% of the Company's 12% Cumulative Redeemable
Preferred Stock and 2,374,793 shares which represented 62.8% of the Company's
Common Stock, in exchange for corresponding stock interests in THL I, for which
THL had paid an aggregate of $93,993 in cash. Accordingly, THL acquired control
of the Company.
At the Effective Time, the Company entered into debt financing arrangements
consisting of $165,000 principal amount of 11% Senior Notes (the "Notes") and a
Senior Revolving Credit Facility of $130,000 (the "Revolving Credit Facility").
The amount invested by THL in THL I, the purchase price for the Cumulative
Redeemable Preferred Stock, plus proceeds of the Notes and a portion of the
proceeds available pursuant to the Revolving Credit Facility, were used to
finance the acquisition of the shares of the Company's outstanding Common Stock
that were not retained by the Company's then existing stockholders, and to
refinance the Company's outstanding indebtedness. The Revolving Credit Facility
is also intended to provide for the Company's working capital requirements at
the time of and following the Merger.
The transaction was accounted for as a recapitalization.
At the Effective Time of the Merger, the employment agreement with the Chairman
of the Board and Chief Executive Officer was amended which (i) changed his term
of full-time employment from a rolling five-year term to a fixed five-year term,
(ii) provided for a minimum base salary of $1,150 per annum, (iii) established
$1,150 as the minimum amount upon which the Chairman's retirement benefit (and
the survivor's benefit of his surviving spouse) will be computed, and (iv)
created contractual rights with respect to certain perquisites that he was
accorded informally under present arrangements with the Company. The employment
agreement with the Vice President of Purchasing was also amended to change his
term of full-time employment from a rolling five-year term to a fixed five-year
term.
3. Impairment of Long-lived Assets and Other Asset Dispositions
In the fourth quarter of 1998, the Company wrote down the value of certain
assets primarily relating to its facilities in El Paso, Texas and one of its
facilities in Gastonia, North Carolina, where the carrying values had been
impaired by an aggregate of $4,307 after management's decision to shut down and
sell the facilities. The El Paso facility ceased manufacturing activity prior to
December 31,1998 and the Gastonia facility is scheduled to shut down by July 1,
1999. Of the $4,307 total, $506 relates to adjusting to salvage value certain
specialized equipment which is no longer used in the production process and has
no alternative use or value to the Company, and $3,801 represents an adjustment
to the carrying values of the properties to estimated fair value (approximately
$893 based upon available market data net of costs of disposition), which have
been included in properties held for sale in the accompanying consolidated
balance sheet at December 31, 1998. Also included in the charge is $627 related
to impaired equipment and tooling that was abandoned at other Company facilities
and $236 representing a decline in the estimated fair value of a property held
for sale since 1997.
29
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. Acquisitions
Acquisitions of Businesses
On February 15, 1996, the Company, through an indirect wholly owned subsidiary,
acquired the outstanding shares of Rauch for approximately $49,626 including
costs of the transaction. The acquisition was accounted for under the purchase
method of accounting, and the results of operations of Rauch have been included
with the results of the Company from February 15, 1996.
The purchase price in excess of net assets acquired of $7,224 is being amortized
on the straight-line basis over 30 years. Accumulated amortization was
approximately $675 and $434 at December 31, 1998 and 1997, respectively. Rauch
is a leading domestic manufacturer and marketer of Christmas and other
decorative seasonal products, in particular glass and satin tree ornaments.
During 1996, the Company received $23,771 in connection with an insurance claim
relating to a 1994 fire at a Rauch facility.
The allocation of purchase price was as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Cash paid to Rauch shareholders.......................... $ 48,042
Acquisition costs incurred............................... 1,584
--------
Total purchase price..................................... $ 49,626
========
Allocated to:............................................
Cash................................................... 2,084
Accounts receivable.................................... 8,461
Insurance receivable................................... 23,771
Inventories............................................ 19,206
Deferred income taxes.................................. 2,518
Prepaid expenses and other............................. 983
Property, plant and equipment, net..................... 23,081
Other assets........................................... 89
Purchase price in excess of net assets acquired........ 7,224
Current liabilities.................................... (22,303)
Deferred income taxes.................................. (15,488)
--------
Total.................................................... $ 49,626
========
</TABLE>
30
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1996.
<TABLE>
<S> <C>
Net sales.......................................................... $271,450
========
Income from continuing operations.................................. $ 19,657
========
Net income......................................................... $ 19,657
========
Basic earnings per share:
Continuing operations............................................ $ 2.26
========
Net income per common share...................................... $ 2.26
========
Weighted-average number of shares outstanding ................... 8,695
=======
Diluted earnings per share:
Continuing operations............................................ $2.23
=====
Net income per common share...................................... $2.23
=====
Weighted-average number of shares outstanding.................... 8,695
Effect of dilutive stock options................................. 104
-----
Adjusted weighted-average number of shares outstanding........... 8,799
=====
</TABLE>
On May 8, 1996, the Company, through one of its subsidiaries, acquired all of
the outstanding common stock of C.J. Vander Ltd., a manufacturer of sterling
silver and silver-plated flatware and hollowware in Sheffield and London,
England. The purchase price was immaterial to the Company's consolidated
financial statements. The acquisition was accounted for under the purchase
method of accounting, and the results of operations of C.J. Vander have been
included with the results of the Company from May 8, 1996. The results of
operations for 1996 would not have differed significantly had this acquisition
taken place on January 1, 1996.
Acquisition of Assets
Farberware
On April 2, 1996, the Company, through an indirect wholly-owned subsidiary,
together with Lifetime Hoan Corporation ("Lifetime") acquired certain assets
from Farberware Inc., a subsidiary of U.S. Industries, Inc. The Company and
Lifetime are not affiliates. Farberware Inc. was a manufacturer of aluminum
clad, stainless steel cookware and bakeware and small electric kitchen
appliances. The aggregate consideration paid by the Company and Lifetime was
$45,771, of which the Company paid approximately $32,611. The assets acquired by
the Company included certain of the inventory, the tradename "Farberware" and
the intellectual property (including the intellectual property that relates to
cookware and bakeware and electric products other than major kitchen appliances)
and certain tools and dies and machinery and equipment. During 1996 the Company
also acquired inventory pursuant to a transitional manufacturing services
agreement and in 1997, sold or disposed of all acquired inventory and as of
December 31, 1997 no longer manufactures or sells Farberware cookware and
bakeware products or noncommercial electric products. Accordingly, net sales for
the year ended December 31, 1998, 1997 and 1996 exclude revenue from the sales
of Farberware inventory, and $5.0 million, $2.4 million and $3.9 million,
respectively, related to these sales and to licensing income, net of certain
selling, general and administrative expenses, has been recorded as other
operating income.
In a separate transaction, the Company entered into an agreement with Lifetime,
which provided for the allocation between them of the assets acquired from
Farberware Inc. The Company acquired Farberware in order to expand its licensing
activities and to use the Farberware name on certain of the Company's existing
and new products.
31
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 27, 1996, the Company's Farberware Inc. subsidiary ("Farberware")
entered into a license agreement with Meyer Marketing Co. Ltd. ("Meyer")
pursuant to which Meyer was granted for a term of 200 years (i) an exclusive
worldwide license to use and exploit the Farberware name and certain related
intellectual property rights in connection with the sourcing, manufacture and
distribution of certain cookware and bakeware products and other rights. For
such grant, Meyer made a one-time payment to the Company of $25,500, which
resulted in recognition by the Company of $11,900 of non-recurring income. Under
the terms of the licensing agreement, the Company has no further obligation with
respect to the amount paid by Meyer. As such, the entire proceeds received were
recognized as revenue in the second quarter of 1996. On July 12, 1996,
Farberware granted to a major retail chain the exclusive license to use and
exploit the Farberware name and related intellectual property in connection with
the sourcing, manufacture, marketing and sale of certain electric products for
quarterly royalty payments.
Pursuant to an agreement made with Lifetime contemporaneously with the agreement
for acquisition of assets of Farberware Inc., the Company and Lifetime agreed to
share the rights to receive, and the obligation to pay certain commissions in
respect of, royalties under specified license agreements assigned to the Company
by the prior owner of the Farberware tradename. Subject to certain intellectual
property rights that the Company has reserved exclusively for itself, the
Company and Lifetime expect to continue to grant licenses to third parties for
use of the Farberware tradename. The Company also markets specific products from
time to time under the Farberware tradename.
On February 3, 1997, the Company received a waiver of certain restrictions on
the disposition of tools, machinery, and equipment formerly used by Bruckner
Manufacturing Corp. in the manufacture of Farberware products. The Company sold
the majority of the tools, machinery and equipment in 1997 and retained the
remainder for use in its existing businesses. The sale of the tools, machinery
and equipment resulted in net proceeds to the Company of $2,184, which was
recorded as other non-operating income in 1997.
Silvestri
On April 16, 1996, the Company purchased finished goods inventory and intangible
assets of the Silvestri division of FFSC, Inc. ("Silvestri") for approximately
$8,600. Silvestri products include Christmas ornaments, collectibles, lighting
and trim as well as other seasonal and nonseasonal giftware and decorative
accessories.
Potpourri Press
On November 26, 1996, a wholly-owned subsidiary of the Company acquired
inventory, tangible property, intellectual property rights, certain records and
certain contract rights of Potpourri Press, Inc., a North Carolina-based
manufacturer and marketer of Christmas products, for a purchase price of
approximately $2,540. Potpourri was merged with Silvestri during 1998.
32
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. Inventories
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- ------------
<S> <C> <C>
Raw materials................... $ 12,953 $ 10,169
Work-in-process................. 6,484 4,917
Finished goods.................. 67,518 69,209
----------- ------------
Total................. $ 86,955 $ 84,295
=========== ============
</TABLE>
Inventories would have been approximately $956 and $1,784 higher at December 31,
1998 and 1997, respectively if the FIFO method had been used for all
inventories. Decreases in LIFO inventory quantities had the effect of decreasing
consolidated net loss by $617 in 1998. There were no decreases in LIFO inventory
quantities in 1997 or 1996.
6. Property, Plant and Equipment
Property, plant and equipment was comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land and improvements................ $ 10,260 $ 10,345
Buildings and improvements........... 58,298 43,092
Tools and dies....................... 17,187 16,501
Machinery and equipment.............. 33,073 30,911
Other................................ 2,882 1,984
Construction in progress............. 3,613 16,950
------------ ------------
Total........................... 125,313 119,783
Less accumulated depreciation........ (41,702) (37,379)
------------ ------------
Net................................ $ 83,611 $ 82,404
============ ============
</TABLE>
Capitalized interest is not material to the Company's consolidated financial
statements in any year presented.
Unrecorded commitments for property, plant and equipment are not material to the
Company's consolidated financial statements at December 31, 1998.
33
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. Revolving Loan Facilities and Notes Payable
Revolving Loan Facilities
The Company has a Senior Revolving Credit Facility (the "Revolving Credit
Facility" ) dated April 16, 1997, amended effective as of July 31, 1997,
December 31, 1997, March 30, 1998 and December 31, 1998 which provides for
$130,000 of borrowings, including a $30,000 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, Eurodollar
Rate plus 225 basis points (7.31% using the 30 day Eurodollar rate at December
31, 1998) or the Prime Rate plus 50 basis points (8.25% at December 31, 1998).
The weighted-average interest rate on borrowings outstanding under this facility
for the year ended December 31, 1998 was 8.18%. At December 31, 1998, there was
$45,000 outstanding under this facility and all of these borrowings were at the
Eurodollar rate. 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 $25,000. The obligations of the Company under the
Revolving Credit Facility are secured by inventory and accounts receivable of
the Company (the "Issuer/Guarantor Parent") 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 "Guarantor Subsidiaries") (Note
16). The Revolving Credit Facility, as amended as of December 31, 1998, contains
customary covenants of the Company and the subsidiary borrowers, including but
not limited to capital expenditures and minimum consolidated net worth on or
after December 31, 1997 to be at least $1.00 (not in thousands). In addition,
the Revolving Credit Facility, as amended as of December 31, 1998, includes
covenants beginning in the first quarter of 1999 requiring a minimum ratio of
earnings before income taxes, depreciation, amortization, and certain
adjustments ("EBITDA"), as defined, including funded debt to EBITDA and fixed
charge coverage ratios, as defined. Management believes the Company is in
compliance with the covenants, as amended, as of December 31, 1998 and for the
year then ended. Availability under the Revolving Credit Facility, net of
outstanding letters of credit, was $42,998 at December 31, 1998.
Notes Payable
The Company also has debt financing of $165,000 of 11% Senior Notes (the
"Notes") which are due April 15, 2007 and 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
("Guarantor Subsidiaries") but not of its foreign subsidiaries ("Non-Guarantor
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 terms of the Revolving
Credit Facility and the Notes. The Notes also include financial covenants which
are less restrictive than the covenants contained in the Revolving Credit
Facility. A default under the Notes will trigger a default under the Revolving
Credit Facility.
Other Debt Facilities
The Company has outstanding borrowings of $843 under one of Wallace's Puerto
Rican subsidiaries' $1,000 facility (the "Facility"), expiring on May 30, 1999.
The Facility bears interest at a rate equal to, at the Company's option, the
Eurodollar Rate plus 175 basis points (6.81% using the 30-day Eurodollar rate at
December 31, 1998) or the bank's Prime Rate less 25 basis points (7.5% at
December 31, 1998). Availability under the Facility was $157 at December 31,
1998. The weighted-average interest rate on borrowings outstanding under this
facility for the year ended December 31, 1998 was 7.32%.
Borrowings under the Facility were uncollateralized; however, the pledge of
assets owned by one of the subsidiaries as collateral for other loans was
prohibited. Borrowings under the Facility were guaranteed by the Company and
cross-guaranteed by certain other subsidiaries.
34
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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)500. Borrowings made under the Overdraft Facility bear interest at the
bank's base rate plus 1% (7.25% at December 31, 1998). 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 September 18,
1998 and March 19, 1999 is due on demand and expires on June 19, 1999.
Availability under the Overdraft Facility was (pound)298 at December 31, 1998.
The weighted-average interest rate on borrowings outstanding under this facility
for the year ended December 31, 1998 was 8.22%.
8. Income Taxes
The provisions (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal........................ $ -- $ (3,121) $ 11,379
State.......................... 489 448 3,542
Foreign........................ 880 825 1,307
--------- ---------- ---------
1,369 (1,848) 16,228
--------- ---------- ---------
Deferred:
Federal........................ (4,127) (4) (3,344)
State.......................... (17) (16) (900)
Foreign........................ -- -- -
--------- ---------- ---------
(4,144) (20) (4,244)
--------- ---------- ---------
Tax effect of stock options:
Federal........................ -- -- 193
State.......................... -- -- 57
--------- ---------- ---------
-- -- 250
--------- ---------- ---------
Total...................... $ (2,775) $ (1,868) $ 12,234
========= ========== =========
</TABLE>
The reconciliations between the Company's effective income tax rate and the U.S.
federal statutory rate are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
------- -------- -----
<S> <C> <C> <C>
Federal statutory rate...................................... (35.0)% (35.0)% 35.0%
State taxes, net of federal income tax expense or benefit... 1.4% 1.2% 4.9%
Foreign income taxes (including Puerto Rico)................ 5.1% 2.0% (4.5)%
Other....................................................... 3.5% 2.9% 2.1%
------- -------- ------
Effective income tax rate................................... (25.0)% (28.9)% 37.5%
======= ======== ======
</TABLE>
35
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income before provision (benefit) for income taxes were
comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
Domestic.............. $(15,429) $(10,226) $25,457
Foreign............... 4,328 3,762 7,166
--------- --------- -------
Total............. $(11,101) $ (6,464) $32,623
========= ========= =======
</TABLE>
Provisions have been made for taxes on the portion of the undistributed earnings
of Syratech H.K. and Wallace's Puerto Rican subsidiaries, which have not been
permanently invested and which are ultimately expected to be remitted to the
parent company.
Wallace's Puerto Rican subsidiaries operate under grants from the Commonwealth
of Puerto Rico exempting 90% of their income from taxation until December 2003.
Had the Company not been eligible for the tax exemption, the net loss in 1998
and 1997 would have increased by approximately $1,105 and $1,685, respectively
and net income in 1996 would have been reduced by approximately $1,211, and
earnings per share would have been decreased by approximately $.21, $.32, and
$.14, respectively.
The tax effects of significant items comprising the Company's net deferred tax
asset (liability) are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Accounts receivable.................... $ 2,896 $ 3,078
Inventory.............................. 2,542 2,330
Reserves and accruals.................. 1,189 1,596
Operating loss carryforwards........... 10,305 5,203
Other.................................. 501 92
--------- ---------
Total............................... 17,433 12,299
Valuation allowance.................... (1,567) (962)
--------- ---------
Net current deferred tax asset.......... $ 15,866 $ 11,337
========= =========
Property, plant and equipment........... $(14,391) $(17,252)
Deferred compensation................... 1,139 1,402
Foreign earnings to be remitted......... (6,157) (4,233)
--------- ---------
Net non-current deferred tax liability.. $(19,409) $(20,083)
========= =========
</TABLE>
The valuation allowance relates primarily to the potential unusable portion of
foreign tax loss carryforwards.
36
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. Commitments and Contingencies
The Company and its subsidiaries have various operating lease commitments for
buildings and equipment. The lease agreements generally require the Company to
pay insurance, real estate taxes, and maintenance and contain various renewal
options. Future minimum rental payments for all noncancellable operating leases
for each of the next five years and thereafter are as follows:
<TABLE>
<S> <C>
1999............................... $3,335
2000............................... 2,724
2001............................... 1,778
2002............................... 1,081
2003............................... 674
Subsequent to 2003................. 1,273
</TABLE>
Rent expense for all operating leases was approximately $4,570, $6,254 and
$5,209 in 1998, 1997 and 1996, respectively.
Certain subsidiaries were contingently obligated for outstanding letters of
credit, trade acceptances and similar instruments aggregating $10,279 at
December 31, 1998 (Note 7). The assets of Syratech H.K. are pledged as
collateral for certain of these contingent obligations.
10. Employee Benefit Plans
In 1998, the Company adopted the provisions of SFAS No. 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits." The following
information is provided in accordance with the provisions of this statement.
401(K) Savings Plans
The Company has two 401(k) savings plans. The 401(k) savings plans cover
substantially all employees of its domestic and Puerto Rican subsidiaries. The
401(k) plans are subject to certain minimum age and length of employment
requirements. Under one of these plans, the Company matches 30% of participants'
contributions up to 6% of compensation. Under the other plan, the Company
matches 50% of the first five hundred twenty dollars contributed and 30%
thereafter, of the participants' contributions up to 6% of compensation. The
Company also has a savings plan, established in 1991, covering substantially all
employees of the Company's Hong Kong subsidiary. Under the Hong Kong plan, the
Company contributes up to 10% of the participants' compensation. The Company
contributed an aggregate of $617, $463 and $597 to all of these Plans in 1998,
1997 and 1996.
Officers Retirement Plan
The Company has employment agreements with certain officers and employees for
terms ranging from three to five years, which provide for minimum annual
salaries aggregating $2,243 and certain other benefits.
Agreements with five of the Company's officers provide for other retirement
benefit payments. Two agreements provide that the benefit payments be based upon
two percent of the average total annual compensation (salary and bonus) for the
three-year period preceding the executives' retirement dates multiplied by the
number of years of service. In addition, one of the agreements provides for a
100% survivor benefit for the executive's spouse. Two agreements provide for
benefit payments based upon the greater of (i) $75,000 or (ii) one-half of one
percent of the average total annual compensation (salary and bonus) for the
three-year period preceding the executives' retirement dates multiplied by the
number of years of service. One agreement with an officer provides for benefit
payments based upon the greater of (i) $75,000 or (ii) one percent of the
average total annual compensation (salary and bonus) for the three-year period
preceding the executives' retirement dates multiplied by the number of years of
service.
37
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon consummation of the Merger (Note 2), an employment agreement with an
officer was amended so as to (i) change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term, (ii) provide
for a minimum base salary of $1,150 per annum, (iii) establish $1,150 as the
minimum amount upon which the officer's retirement benefit (and the survivor's
benefit of his surviving spouse) will be computed and (iv) create contractual
rights with respect to certain perquisites that he is accorded informally under
present arrangements with the Company. Additionally, an employment agreement
with another officer was amended to change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term. On July 29,
1998, the Company entered into Amendment No. 1 to Mr. Florence's Amended and
Restated Employment Agreement which provides, among other things, for the
modification of the computation and timing of payments in respect of the
retirement benefit. The terms of the Amendment provide for the acceleration of
payments (the first of which was made upon execution of the Amendment) related
to the retirement benefit provided that such payments are allowed under the
terms of the Company's credit agreements, as amended. The amended terms did not
have a material impact on the consolidated financial statements for the year
ended December 31, 1998.
Pension expense is determined using assumptions at the beginning of the year.
Assumptions used in determining the actuarial present value of the projected
benefit obligation include: a discount rate of 6.75% in 1998 and 1997, and 7.5%
in 1996, and a rate of future increases in benefit compensation of 3%. The
effect of the change in discount rate was not material to the consolidated
financial statements.
Change in projected benefit obligation:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Benefit obligation at beginning of year ... $3,529 $ 3,612 $2,012
Service cost .............................. 265 279 317
Interest cost ............................. 185 195 199
Plan Amendments ........................... -- (1,010) 627
Actuarial loss/(gain) 174 453 457
Payments .................................. (892) -- --
-------- -------- -------
Benefit obligation at end of year ........ $3,261 $ 3,529 $3,612
======== ======== =======
</TABLE>
Components of net periodic benefit costs:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned........... $265 $279 $ 317
Interest cost benefit obligation........... 185 195 199
Amortization of prior service cost......... (34) (33) 620
Amortization of loss....................... 37 4 191
---- ---- ------
Net periodic pension cost................. $453 $445 $1,327
==== ==== ======
</TABLE>
38
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Funded status as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Actuarial present value of obligations:
Vested benefit obligation ............................ $ 2,927 $ 3,261
======= =======
Projected benefit obligation ......................... $ 3,261 $ 3,529
Fair value of plan assets .............................. -- --
------- -------
Projected benefit obligation in excess of plan assets... 3,261 3,529
Unrecognized prior service cost ........................ 332 366
Unrecognized gain/(loss) ............................... (629) (759)
Additional minimum liability ........................... -- --
------- -------
Net accrued pension liability ..................... $ 2,964 $ 3,136
======= =======
</TABLE>
Other
The Company's C. J. Vander subsidiary also has an employee benefit plan. The
Company's obligation under the plan is not material to the Company's
consolidated financial position or results of operations.
11. Stockholders' Equity
Preferred Stock
The liquidation preference of the 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
Common Stock.
Dividends on shares of Cumulative Redeemable Preferred Stock are cumulative from
the date of issue and are payable when and as 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. At December 31, 1998, $3,874 has been accrued.
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, to 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.
Key Employee Stock Option Plans
Pursuant to the Merger, each Common Stock option granted under the Company's
then existing stock option plans that were outstanding immediately prior to the
Merger, vested and were cancelled in exchange for payment to the optionees of
$3,873, which was charged to compensation expense.
39
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity under all the Company's plans through
December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Shares Per Share
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1996........ 220,200 $11.92
Canceled.............................. (102,000) $24.47
Granted............................... 139,500 $24.68
Excercised............................ (28,200) $ 7.17
---------
Outstanding at December 31, 1996...... 229,500 $14.68
Canceled.............................. (221,500) $14.71
Excercised............................ (8,000) $13.90
---------
Outstanding at December 31, 1997...... --
=========
Exerciseable at December 31, 1996..... 107,080
=========
</TABLE>
There were no stock options exercisable or outstanding at December 31, 1998 or
1997.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option and other employee
stock-based compensation plans. Had compensation cost for the Company's stock
option plans been determined based on fair value at the grant dates for awards
under those plans which were granted on or after January 1, 1995 consistent with
the method of SFAS No. 123, the Company's net income and earnings per share for
the year ended December 31, 1996 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Net income (loss):
As reported............................................ $20,389
=======
Pro forma.............................................. $20,036
=======
Basic earnings per share:
As reported............................................ $ 2.34
=======
Pro forma.............................................. $ 2.30
=======
Weighted average number of
shares outstanding................................. 8,695
======
Diluted earnings per share:
As reported............................................ $ 2.32
=======
Pro forma.............................................. $ 2.28
=======
Weighted average number of
shares outstanding................................... 8,695
Effect of dilutive stock options........................... 104
-------
Adjusted weighted average number of shares outstanding..... 8,799
=======
</TABLE>
The pro forma results are not necessarily indicative of results that would have
been reported if all options had been measured under SFAS No. 123.
The weighted average remaining contractual life of options outstanding at
December 31, 1996 was 6.99 years. The weighted average fair value of options
granted during 1996 was $8.94 per share. There were no options granted in 1998
or 1997.
The fair value of options granted under the Company's stock option plans during
1996 was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used: no dividend yield,
expected volatility of 30.6%, risk-free interest rate of 6.0%, and expected
lives of either 5.3 or 7.7 years.
40
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transfer of Shares
On December 31, 1996, the Company's Chief Executive Officer and principal
shareholder (the "Principal Shareholder") of the Company, the Company and THL
Transaction I Corp. entered into agreements with three executive officers
whereby the Principal Shareholder will transfer up to 73,068 shares (the
"Shares") of his Syratech common stock to the Company to effect the transfer of
an equal number of newly issued shares to the executive officers. In connection
with each transfer of shares of stock, the agreements also provide for each
executive to receive, from the Company, as additional compensation, an annual
lump sum cash payment (the "Lump Sum Payments") for the reimbursement of income
taxes owed by the executive as a result of such transfer and payment. The
transfer of Shares by the Principal Shareholder and the Lump Sum Payments to the
executives are irrevocable and unconditional and are not based upon the
executives' future employment with the Company. On December 31, 1996, 31,812
shares were transferred and Lump Sum Payments totaling $703 were made to the
executives. On January 14, 1997, shares aggregating 31,884 were transferred and
Lump Sum Payments totaling $705 were made to the executives. On January 14,
1998, the remaining 9,372 shares were transferred to the executives.
The estimated value of the shares has been recorded as an addition to additional
paid-in capital of $2,338. Total compensation expense equal to the estimated
fair value of the Shares plus an estimate of the aggregate Lump Sum Payments, or
$3,953, was recorded in the fourth quarter of 1996.
Short-term compensation payable was $207 at December 31, 1997.
The weighted-average fair value of the shares was $31.50. The fair value of the
shares based on the provision of SFAS No. 123 was not materially different from
the amounts recorded.
Shareholder Rights Plan
As required by the Merger and Recapitalization (Note 2), effective on November
8, 1996, the Company redeemed all outstanding Rights and terminated the
Shareholder Rights Plan pursuant to which the Rights were issued.
12. Related-Party Transactions
In connection with the Merger, the Company entered into a Management Agreement
with Thomas H. Lee Company for which the Company pays an annual management fee
in the amount of $450. The Company incurred $450 and $320 in 1998 and 1997,
respectively.
In 1996, Wacker Industrial Company ("Wacker"), a major supplier, is owned by a
holder of less than 1% of the Company's common stock. In 1998, 1997 and 1996,
the Company had purchases from this supplier of approximately $5,960, $5,806 and
$4,478, respectively. Accounts payable to this supplier approximated $90 and $41
at December 31, 1998 and 1997, respectively.
Other transactions with companies affiliated with certain directors/stockholders
include net sales of approximately $1,055, $903 and $790 for 1998, 1997 and
1996, respectively. There were no purchases of products or services for 1998,
1997 and 1996. Accounts receivable from these companies approximated $127 and
$19 as of December 31, 1998 and 1997, respectively. There were no accounts
payable.
41
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. Segment Disclosures
The following is presented in accordance with SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes new standards for defining and disclosing information about a
company's business segments and requires a company to define its segments along
its internal structure and reporting methodology. The Company has identified
only one distinct and reportable segment: Home Entertainment and Decorative
Products. This segment generates revenue from two types of product offerings:
Tabletop and Giftware, and Seasonal. The Company has determined that it only has
one reportable segment meeting the criteria established under SFAS 131 as the
Company's chief operating decision maker, as defined, (determined to be the
Chief Executive Officer and President) and the Board of Directors do not manage
any part of the Company separately and review and evaluate only the Company's
consolidated operating results. As there is only segment, refer to Note 1 for
the significant accounting policies.
The Company's operations are conducted primarily in the United States of America
(US), with only two locations representing individually more than 10% of
revenues or income from operations: the US and Hong Kong. The Company also
conducts operations in the United Kingdom (UK) and in other countries however,
these operations are individually insignificant and have been included in "Other
Foreign" below. The following presents information in accordance with SFAS No.
131:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
<S> <C> <C> <C>
Product Offerings: 1998 1997 1996
-------- --------- ---------
Net sales:
Tabletop and Giftware............ $193,061 $193,950 $171,824
Seasonal......................... 97,345 96,912 99,107
-------- --------- ---------
Total......................... $290,406 $290,862 $270,931
======== ========= =========
Year Ended December 31,
--------------------------------
Net sales: 1998 1997 1996
-------- --------- ---------
United States.................... $230,762 $231,152 $212,516
Hong Kong........................ 55,070 54,950 54,749
Other foreign.................... 4,574 4,760 3,666
-------- --------- ---------
Total......................... $290,406 $290,862 $270,931
======== ========= =========
Income (loss) from operations:
United States.................... $ 8,186 $ 3,006 $ 15,372
Hong Kong........................ 4,924 4,686 8,235
Other foreign.................... (536) (570) (505)
-------- --------- ---------
Total......................... $ 12,574 $ 7,122 $ 23,102
======== ========= =========
Identifiable assets:
United States.................... $267,630 $250,105 $212,377
Hong Kong........................ 7,867 7,039 7,754
Other foreign.................... 9,220 8,856 7,123
-------- --------- ---------
Total............................... $284,717 $266,000 $227,254
======== ========= =========
</TABLE>
14. Litigation
The Company has been named as a defendant in several legal actions arising from
its normal business activities. The Company carries insurance against liability
for certain types of risks. Although the amount of liability that could result
from any litigation cannot be predicted, in the opinion of management, the
Company's potential liability on all known claims would not have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
42
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. Quarterly Results (Unaudited)
SUPPLEMENTARY INFORMATION
Quarterly Results (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
Net sales ................................................ $ 37,758 $ 42,248 $ 104,617 $ 105,783
Gross profit ............................................. 11,015 12,082 29,208 24,794
Income (loss) from operations ............................ (4,116) (2,045) 13,169 5,566
Income (loss) before provision (benefit) for income taxes (9,097) (7,788) 6,831 (1,047)
Net income (loss) applicable to common stockholders ...... (7,136) (6,194) 4,336 (1,676)
Basic earnings (loss) per share:
Net income (loss) per share ........................... $ (1.89) $ (1.64) $ 1.15 $ (0.44)
========= ========= ========= =========
Weighted-average number of shares outstanding ......... 3,784 3,784 3,784 3,784
========= ========= ========= =========
Diluted earnings (loss) per share:
Net income (loss) per share ........................... $ (1.89) $ (1.64) $ 1.15 $ (0.44)
========= ========= ========= =========
Weighted-average number of shares outstanding ......... 3,784 3,784 3,784 3,784
Effect of dilutive stock options ...................... -- -- -- --
--------- --------- --------- ---------
Adjusted weighted-average number of shares outstanding 3,784 3,784 3,784 3,784
========= ========= ========= =========
Year Ended December 31, 1997:
Net sales ................................................ $ 44,039 $ 41,015 $ 109,044 $ 96,764
Gross profit ............................................. 12,625 11,351 32,183 21,337
Income (loss) from operations ............................ (855) (6,074) 13,490 561
Income (loss) before provision (benefit) for income taxes 171 (9,025) 7,654 (5,264)
Net income (loss) applicable to common stockholders ...... 107 (6,091) 1,934 (2,076)
Basic earnings (loss) per share:
Net income (loss) per share ........................... $ 0.01 $ (1.33) $ 0.51 $ (0.55)
========= ========= ========= =========
Weighted-average number of shares outstanding ......... 8,699 4,595 3,784 3,784
========= ========= ========= =========
Diluted earnings (loss) per share:
Net income (loss) per share ........................... $ 0.01 $ (1.33) $ 0.51 $ (0.55)
========= ========= ========= =========
Weighted-average number of shares outstanding ......... 8,699 4,595 3,784 3,784
Effect of dilutive stock options ...................... 121 -- -- --
--------- --------- --------- ---------
Adjusted weighted-average number of shares outstanding 8,820 4,595 3,784 3,784
========= ========= ========= =========
</TABLE>
During the fourth quarter of 1998, the Company recorded an impairment of long
lived assets of $5,170 (See Note 3), adjusted the tax benefit rate to 25% for
the full year, slightly lower than the estimated effective income tax rate of
28% recorded through the nine months ended September 30, 1998. During the fourth
quarter of 1997, the Company recorded an inventory adjustment of $2,800 related
to shrinkage and to excess material and scrap costs related to the start-up of
new manufacturing equipment.
43
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. Supplemental Condensed Consolidating Financial Statements
The following supplemental condensed consolidating financial statements as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998, present separate financial information for the Company
("Issuer/Guarantor Parent"), the Guarantor Subsidiaries (Note 7), and the
Non-Guarantor Subsidiaries (Note 7). 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.
44
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1998
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ........................... $ 7,496 $ 1,513 $ 9,009
Accounts receivable, net ....................... 65,260 4,868 70,128
Inventories .................................... 81,680 5,234 $ 41 86,955
Deferred income taxes .......................... $ 9,009 6,857 15,866
Prepaid expenses and other ..................... 113 1,089 471 1,673
Properties held for sale ........................ 1,838 454 2,292
-------- --------- -------- --------- --------
Total current assets ....................... 9,122 164,220 12,540 41 185,923
Property, plant and equipment, net ................ 79,908 3,753 (50) 83,611
Purchase price in excess of net assets acquired ... 6,549 6,549
Other assets, net ................................. 8,457 177 8,634
Investment ........................................ 179,442 (179,442)
-------- --------- -------- --------- --------
Total ...................................... $197,021 $ 250,854 $ 16,293 $(179,451) $284,717
======== ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable .... $ $ 45,837 $ 358 $ 6 $ 46,201
Accounts payable ................................ 11,509 2,374 13,883
Accrued expenses ................................ 38 10,288 476 10,802
Accrued interest ................................ 3,832 276 4,108
Accrued compensation ............................ 2,502 342 2,844
Accrued advertising ............................. 3,053 3,053
Income taxes payable ............................ 198 (198) 418 418
-------- --------- -------- --------- --------
Total current liabilities .................. 4,068 73,267 3,968 6 81,309
Long-term debt .................................... 165,000 165,000
Deferred income taxes ............................. 6,157 13,252 19,409
Pension liability .................................. 2,964 2,964
Intercompany (receivable) payable ................. (30,589) 43,224 (11,274) (1,361)
Commitments and contingencies
Stockholders' equity .............................. 52,385 118,147 23,599 (178,096) 16,035
-------- --------- -------- --------- --------
Total ...................................... $197,021 $ 250,854 $ 16,293 $(179,451) $284,717
======== ========= ======== ========= ========
</TABLE>
45
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1997
<TABLE>
<CAPTION>
Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ....................... $ 18 $ 91 $ 2,872 $ $ 2,981
Accounts receivable, net ................... 61,367 2,526 63,893
Inventories ................................ 79,500 4,754 41 84,295
Deferred income taxes ...................... 5,027 6,310 11,337
Prepaid expenses and other ................. 2,075 317 2,392
Properties held for sale ................... 1,151 685 1,836
--------- --------- --------- --------- ---------
Total current assets ................... 5,045 150,494 11,154 41 166,734
Property, plant and equipment, net ............ 78,406 3,947 51 82,404
Purchase price in excess of net assets acquired 6,790 6,790
Other assets, net ............................. 9,794 278 10,072
Investment in subsidiaries .................... 179,442 (179,442)
--------- --------- --------- --------- ---------
Total .................................. $ 194,281 $ 235,968 $ 15,101 $(179,350) $ 266,000
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving loan facilities and notes payable $ $ 18,900 $ $ $ 18,900
Accounts payable ........................... 12,703 1,531 14,234
Accrued expenses ........................... 684 7,446 532 8,662
Accrued interest ........................... 3,831 284 4,115
Accrued compensation ....................... 3,020 370 3,390
Accrued advertising ........................ 3,576 3,576
Income taxes payable ....................... 15,933 (15,861) (78) 6
--------- --------- --------- --------- ---------
Total current liabilities .............. 20,448 30,068 2,355 6 52,877
Long-term debt ................................ 165,000 165,000
Deferred income taxes ......................... 4,044 16,039 20,083
Pension liability ............................. 3,136 3,136
Intercompany (receivable) payable ............. (63,038) 64,997 (7,677) 5,718
Commitments and contingencies
Stockholders' equity .......................... 67,827 121,728 20,423 (185,074) 24,904
--------- --------- --------- --------- ---------
Total .................................. $ 194,281 $ 235,968 $ 15,101 $(179,350) $ 266,000
========= ========= ========= ========= =========
</TABLE>
46
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................................... $ $ 230,782 $ 91,234 $ (31,610) $ 290,406
Cost of sales ................................................ 173,712 71,205 (31,610) 213,307
--------- --------- --------- --------- ---------
Gross profit ............................................ 57,070 20,029 77,099
Selling, general and administrative expenses ................. 450 49,304 15,406 (143) 65,017
Impairment of long-lived assets and other asset dispositions . 4,935 235 5,170
Other operating income ....................................... (5,662) (5,662)
--------- --------- --------- --------- ---------
Income (loss) from operations ........................... (450) 8,493 4,388 143 12,574
Interest expense ............................................. (19,569) (4,048) (92) (23,709)
Interest income .............................................. 1 1 32 34
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes (20,018) 4,446 4,328 143 (11,101)
Provision (benefit) for income taxes ......................... (4,850) 1,195 880 (2,775)
--------- --------- --------- --------- ---------
Net income (loss) ....................................... (15,168) 3,251 3,448 143 (8,326)
Preferred stock dividends accrued ............................ 2,344 2,344
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders ..... $ (17,512) $ 3,251 $ 3,448 $ 143 $ (10,670)
========= ========= ========= ========= =========
</TABLE>
47
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .................................................... $ $ 231,160 $ 89,903 $ (30,201) $ 290,862
Cost of sales ................................................ 173,918 69,651 (30,203) 213,366
--------- --------- --------- --------- ---------
Gross profit ............................................ 57,242 20,252 2 77,496
Selling, general and administrative expenses ................. 3,719 53,040 16,136 (155) 72,740
Other operating income ....................................... 2,366 2,366
--------- --------- --------- --------- ---------
Income (loss) from operations ........................... (3,719) 6,568 4,116 157 7,122
Interest expense ............................................. (13,864) (2,119) (44) (16,027)
Interest income .............................................. 208 49 257
Other income ................................................. 2,184 2,184
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes (17,583) 6,841 4,121 157 (6,464)
Provision (benefit) for income taxes ......................... (6,565) 3,872 825 (1,868)
--------- --------- --------- --------- ---------
Net income (loss) ....................................... (11,018) 2,969 3,296 157 (4,596)
Preferred stock dividends accrued ............................ 1,530 1,530
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders ..... $ (12,548) $ 2,969 $ 3,296 $ 157 $ (6,126)
========= ========= ========= ========= =========
</TABLE>
48
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .......................................... $212,530 $85,498 $(27,097) $270,931
Cost of sales ..................................... 154,622 66,582 (27,091) 194,113
------ -------- ------- -------- --------
Gross profit ................................. 57,908 18,916 (6) 76,818
Selling, general and administrative expenses ...... $ (360) 46,844 11,880 (700) 57,664
Other operating income ............................ 3,948 3,948
------ -------- ------- -------- --------
Income from operations ....................... 360 15,012 7,036 694 23,102
Interest expense .................................. (3,114) (36) (3,150)
Interest income ................................... 70 535 166 771
Other income ....................................... 11,900 11,900
------ -------- ------- -------- --------
Income before provision for income taxes ..... 430 24,333 7,166 694 32,623
Provision for income taxes ........................ 1,092 9,835 1,307 12,234
------ -------- ------- -------- --------
Net income (loss) ............................. $(662) $ 14,498 $ 5,859 $ 694 $ 20,389
====== ======== ======= ======== ========
</TABLE>
49
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................... $(15,168) $ 3,251 $ 3,448 $ 143 $ (8,326)
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization .......................... 1,419 5,930 508 7,857
Deferred income taxes .................................. (1,869) (2,121) (154) (4,144)
Pension liability ...................................... (171) (171)
Impairment of long-lived assets and other asset
dispositions ......................... 4,935 235 5,170
(Gain) loss on disposal of assets and other ............. 42 42
Increase (decrease) in assets and liabilities:
Accounts receivable ................................ (3,893) (2,342) (6,235)
Inventories ........................................ (2,180) (480) (2,660)
Prepaid expenses and other ......................... (113) 836 (4) 719
Accounts payable and accrued expenses .............. (645) (818) 1,117 (346)
Income taxes payable ............................... (15,735) 15,657 496 418
Intercompany account ................................ 32,449 (28,889) (3,417) (143)
-------- -------- ------- ----- --------
Net cash (used in) provided by operations ................. 338 (7,463) (551) (7,676)
-------- -------- ------- ----- --------
Cash flows from investing activities:
Purchases of property, plant and equipment .............. (12,645) (521) (13,166)
Other ................................................... 212 (17) 195
-------- -------- ------- ----- --------
Net cash used in investing activities ..................... (12,433) (538) (12,971)
-------- -------- ------- ----- --------
Cash flows from financing activities:
Change in revolving loan facilities ..................... 27,301 27,301
Other ................................................... (356) (356)
-------- -------- ------- ----- --------
Net cash provided by (used in) financing activities ........ (356) 27,301 26,945
-------- -------- ------- ----- --------
Effect of exchange rate changes on cash and equivalents .. (270) (270)
-------- -------- ------- ----- --------
Net increase (decrease) in cash and equivalents ........... (18) 7,405 (1,359) 6,028
Cash and equivalents, beginning of period ................. 18 91 2,872 2,981
-------- -------- ------- ----- --------
Cash and equivalents, end of period ........................ $ -- $ 7,496 $ 1,513 $ -- $ 9,009
======== ======== ======= ===== ========
</TABLE>
50
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................... $(11,018) $ 2,969 $ 3,296 $ 157 $ (4,596)
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Depreciation and amortization .......................... 1,008 4,781 410 6,199
Deferred income taxes .................................. (2,549) 2,529 (20)
Pension liability ..................................... (152) (152)
Compensation related to stock options ................. 209 209
Other long-term liability ............................. (207) (207)
Gain or (loss) on disposal of assets and other ......... 50 50
Increase (decrease) in assets and liabilities,
net of effect of businesses acquired:
Accounts receivable ................................ (4,648) 775 (3,873)
Inventories ........................................ (5,366) 426 (4,940)
Prepaid expenses and other ......................... 578 148 726
Other assets ...................................... (10,800) (10,800)
Accounts payable and accrued expenses .............. 3,455 2,888 (607) 5,736
Income taxes payable ............................... (3,974) 3,720 (676) (930)
Intercompany account ............................... (175) 2,378 (2,046) (157)
--------- ------- ------- ----- --------
Net cash (used in) provided by operations ................. (23,844) 9,520 1,726 -- (12,598)
--------- ------- ------- ----- --------
Cash flows from investing activities:
Purchases of property, plant and equipment .............. (21,909) (2,552) (24,461)
Other 124 124
--------- ------- ------- ----- --------
Net cash (used in) investing activities ................... -- (21,785) (2,552) -- (24,337)
--------- ------- ------- ----- --------
Cash flows from financing activities:
Change in revolving loan facilities ..................... 12,232 32 12,264
Proceeds from borrowings ............................... 165,000 165,000
Proceeds from sale of preferred stock ................. 18,000 18,000
Proceeds from sale of common stock .................... 75,993 75,993
Purchase of common stock for retirement (including
related costs of $11,555) ............................ (235,243) (235,243)
Exercise of stock options .............................. 91 91
Deferred financing costs and other 3 (22) (19)
--------- ------- ------- ----- --------
Net cash provided by (used in) financing activities ...... 23,844 12,210 32 -- 36,086
--------- ------- ------- ----- --------
Effect of exchange rate changes on cash and equivalents .. 225 225
--------- ------- ------- ----- --------
Net increase (decrease) in cash and equivalents ........... -- (55) (569) -- (624)
Cash and equivalents, beginning of period ................. 18 146 3,441 3,605
--------- ------- ------- ----- --------
Cash and equivalents, end of period ...................... $ 18 $ 91 $ 2,872 $ -- $ 2,981
========= ======= ======= ===== ========
</TABLE>
51
<PAGE>
SYRATECH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Issuer/ Non
Guarantor Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .....................................$ (662) $ 14,498 $ 5,859 $ 694 $ 20,389
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operations:
Depreciation and amortization ...................... 4,466 279 22 4,767
Deferred income taxes .............................. 1,329 (4,085) (2,756)
Acquisition of Farberware assets .................... (9,500) (9,500)
Disposal of Farberware assets ....................... 13,600 13,600
Farberware electrics license ........................ 500 500
Transfer of shares .................................. 2,338 1,317 3,655
Other .............................................. 78 1,542 5 1,625
Increase (decrease) in assets and liabilities,
net of effect of businesses acquired:
Marketable securities .......................... 30,561 30,561
Accounts receivable ............................ (18,129) (227) (18,356)
Inventories .................................... (16,352) (754) (17,106)
Prepaid expenses and other assets ............... 516 (816) (171) (471)
Accounts payable and accrued expenses .......... 49 (2,235) (684) (2,870)
Income taxes payable ........................... (245) (1,979) 129 (2,095)
Intercompany account ........................... 689 1,147 (122) (1,714)
Discontinued operations ................................ 1,834 1,834
-------- -------- ------- -------- --------
Net cash provided by (used in) operations ............. 36,487 (16,026) 4,314 (998) 23,777
-------- -------- ------- -------- --------
Cash flows from investing activities:
Insurance claim proceeds ............................ 23,771 23,771
Acquisitions of businesses, net of cash
acquired ............................................ (48,540) (998) 998 (48,540)
Purchases of property, plant and equipment .......... (13,643) (1,482) (15,125)
Other ............................................... (130) 10 (120)
-------- -------- ------- -------- --------
Net cash provided by (used in) investing activities .... (48,540) 9,998 (2,470) 998 (40,014)
-------- -------- ------- -------- --------
Cash flows from financing activities:
Change in revolving loan facilities ................. (51,735) (5,296) (2,044) (59,075)
Proceeds from borrowings ............................ (300) (300)
Other ............................................... 452 (16) (8) 428
-------- -------- ------- -------- --------
Net cash used in financing activities .................. (51,283) (5,612) (2,052) (58,947)
-------- -------- ------- -------- --------
Effect of exchange rate changes on cash
and equivalents .................................... 296 296
-------- -------- ------- -------- --------
Net increase (decrease) in cash and equivalents......... (63,336) (11,640) 88 (74,888)
Cash and equivalents, beginning of period ............. 63,354 11,786 3,353 78,493
-------- -------- ------- -------- --------
Cash and equivalents, end of period ....................$ 18 $ 146 $ 3,441 $ -- $ 3,605
======== ======== ======= ======== ========
</TABLE>
52
<PAGE>
ITEM 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Not applicable
PART III
ITEM 10. Directors And Executive Officers Of The Registrant
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
<S> <C> <C> <C>
Leonard Florence ..... 67 Chairman of the Board, Chief Executive Officer ............. 1986
and President of the Company
E. Merle Randolph .... 66 Executive Vice President, International Marketing .......... 1989
and West Coast Distribution, Director
Michael S. Krause .... 58 Executive Vice President and Chief Operating Officer ....... --
Ami A. Trauber ....... 59 Executive Vice President of Finance, Administration,
Strategic Planning and Chief Financial Officer and
Treasurer .................................................. --
Melvin L. Levine ..... 67 Vice President of Purchasing of the Company, Director ...... 1989
Alan R. Kanter ....... 46 Vice President of Sales of the Company, Director ........... 1997
Faye A. Florence ..... 42 Vice President and General Counsel; Secretary of the
Company .................................................... --
David V. Harkins ..... 58 Director ................................................... 1997
Thomas M. Hagerty .... 36 Director ................................................... 1997
Scott A. Schoen ...... 40 Director ................................................... 1997
Kent R. Weldon ....... 31 Director ................................................... 1997
</TABLE>
Leonard Florence is Chairman of the Board, Chief Executive Officer and President
of the Company. He has served in the capacity of Chairman of the Board and Chief
Executive Officer continuously since September 1986. He has also been President
and a director of certain of its subsidiaries since their respective dates of
organization. Mr. Florence previously served as President of the Company from
1986 to 1994 and resumed the position in 1995. Mr. Florence has been an
executive in the tabletop and giftware products industry for more than 40 years.
E. Merle Randolph was appointed to Executive Vice President, International
Manufacturing and West Coast Distribution on January 26, 1998. Prior thereto he
had been Vice President, Chief Financial Officer and Treasurer of the Company
since September 1986. He became a Director of the Company in May 1989. Mr.
Randolph is also an officer of certain of the Company's subsidiaries. For 17
years prior to joining the Company, Mr. Randolph was employed in various
financial positions by Rockwell International Corporation.
Michael S. Krause became Executive Vice President and Chief Operating Officer in
August 1997. Prior to joining the Company, Mr. Krause served as Senior Vice
President Global Operations at Tambrands, Inc. from 1995 to 1997; Vice
President-Supply Chain, Snacks Division, at The Quaker Oats Company in 1995;
Executive Vice President, Supply Chain at Stella Foods Inc. in 1994; and Senior
Vice President-Operations at Goody Products, Inc. from 1991 to 1994.
Ami A. Trauber was appointed Executive Vice President of Finance,
Administration, Strategic Planning and Chief Financial Officer and Treasurer
since February, 1998. Prior thereto Mr. Trauber served as acting Chief Financial
Officer at Visual Edge Systems, Inc. and served as President, Chief Operating
Officer, Director and Part Owner of Ed's West, Inc. He served as Corporate Vice
President Finance and Control at Harcourt General, Inc. from 1978-1990.
53
<PAGE>
Melvin L. Levine has been a Vice President of the Company and certain of its
subsidiaries since September 1986. Mr. Levine has been an executive in the
tabletop and giftware products industry for more than 40 years. He became a
director of the Company in May 1989. Mr. Levine is also an officer and director
of certain of the Company's subsidiaries.
Alan R. Kanter has been a Vice President of the Company and a subsidiary of the
Company since September 1986. He became a director of the Company in April,
1997. Mr. Kanter has been employed in the tabletop and giftware industry for
more than 20 years.
Faye A. Florence an attorney, has been Vice President and General Counsel of the
Company since June 1987 and Secretary since August 1987. Ms. Florence is also an
officer of certain of the Company's subsidiaries. Ms. Florence is the daughter
of Leonard Florence.
David V. Harkins, is the Senior Managing Director, Thomas H. Lee Company. Mr.
Harkins has been associated with the Thomas H. Lee Company since its founding in
1975. In addition, he has over 30 years experience in the investment and venture
capital industries with the John Hancock Mutual Life Insurance Company, where he
began his career, as well as TA Associates and Massachusetts Capital
Corporation. Mr. Harkins also founded National Dentex Corporation and serves as
Chairman of the Board. He is currently a Director of Cott Corporation, First
Security Services, Inc., Fisher Scientific International, Inc., Freedom
Securities Corp., Stanley Furniture Company, Inc. and Syratech Corporation.
Thomas M. Hagerty, Managing Director, joined Thomas H. Lee Company in 1988.
Prior to joining the Firm, Mr. Hagerty was in the Mergers and Acquisitions
Department of Morgan Stanley & Co. Incorporated. Mr. Hagerty is a director of
Cott Corporation, ARC Holdings LLC, Freedom Securities Corporation, Metris
Companies and Syratech Corporation.
Scott A. Schoen, a Managing Director at the Thomas H. Lee Company, joined the
firm in 1986. Prior to joining the firm, Mr. Schoen was in the Private Finance
Department of Goldman, Sachs & Co. Mr. Schoen is a Director of ARC Holdings LLC,
Rayovac Corporation, Syratech Corporation, TransWestern Publishing, and United
Industries.
Kent R. Weldon, a Vice President at the Thomas H. Lee Company, joined the firm
in 1991. From 1989 to 1991, Mr. Weldon worked at Morgan Stanley & Co.
Incorporated in the Corporate Finance Department. Mr. Weldon is a director of
Fisher Scientific International, Inc., Fitz and Floyd, Inc., and Syratech
Corporation.
Meetings Of The Board Of Directors
The Board of Directors consists of Leonard Florence, E. Merle Randolph, Melvin
Levine, Alan R. Kanter, David V. Harkins, Thomas M. Hagerty, Scott A. Schoen,
and Kent R. Weldon. The Chairman of the Board is Leonard Florence. The Board of
Directors held a meeting on February 24, 1998 to replace those committees as
constituted prior to the Merger. The reconstituted committees include an Audit
Committee and a Compensation and Stock Option Committee.
The Audit Committee consists of Scott Schoen, Kent R. Weldon and Thomas M.
Hagerty. Scott Schoen is the Chairman of the Audit Committee. This Committee has
oversight authority and responsibility for the financial statements of the
Company and its subsidiaries. In conjunction with its responsibilities, the
Committee invites representatives of Deloitte & Touche LLP to be present, at its
meetings.
54
<PAGE>
The Compensation and Stock Option Committee consists of David V. Harkins and
Thomas M. Hagerty. Mr. Harkins is the Chairman of the Compensation and Stock
Option Committee. The functions of the Compensation and Stock Option Committee
include fixing the compensation and reviewing the salaries, of the Chief
Executive Officer and the executive officers of the Company, including the
review of incentive plans and benefits.
ITEM 11. Executive Compensation
The following table sets forth the compensation awarded to, earned by or paid to
the Chief Executive Officer and the four other most highly compensated executive
officers during the fiscal years ended December 31, 1998, 1997 and 1996 for
services rendered in all capacities to the Company and its subsidiaries.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1)
-------------------------------- All Other
Fiscal Salary Bonus Compensation
Name and Principal Position Year $ $ $ (2)
- - --------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
Leonard Florence............................ 12/31/98 $1,150,000 $ -- $ 19,496
Chairman of the Board, President 12/31/97 $1,150,000 $ -- $ 19,717
and Chief Executive Officer 12/31/96 $ 700,000 $500,000 $ 22,401
Melvin L. Levine............................ 12/31/98 $ 350,000 $ -- $ 3,104
Vice President of Purchasing 12/31/97 $ 350,000 $ -- $ 151,550
12/31/96 $ 350,000 $ 75,000 $1,320,520
Alan R. Kanter.............................. 12/31/98 $ 350,000 $ -- $ 3,104
Vice President of Sales 12/31/97 $ 350,000 $ -- $ 151,550
12/31/96 $ 350,000 $ 75,000 $1,320,520
Ami A. Trauber (3).......................... 12/31/98 $ 302,500 $ -- $ 34,771
Executive Vice President of Finance, 12/31/97 N/A N/A N/A
Administation, Strategic Planning and 12/31/96 N/A N/A N/A
Chief Financial Officer and Corporate
Treasurer
E. Merle Randolph........................... 12/31/98 $ 325,000 $ -- $ 3,104
Executive Vice President, International 12/31/97 $ 325,000 $ -- $ 92,070
Manufacturing and West Coast Division 12/31/96 $ 325,000 $ 75,000 $1,320,520
</TABLE>
(1) The column designated "Other Annual Compensation" by the Securities and
Exchange Commission ("SEC") for the reporting of perquisites and other
personal benefits has been eliminated because the amounts paid to each
executive officer do not exceed the disclosure threshold established by the
SEC pursuant to applicable rules and no other compensation required to be
reported under that column was awarded to, earned by or paid to any of the
named executive officers during the period covered by the table. In
addition, the columns designated by the SEC for the reporting of certain
long-term compensation, including awards of restricted stock and long-term
incentive plan payouts have been eliminated as no such awards or payouts
were made during the period covered by the table.
55
<PAGE>
(2) The estimated dollar value benefit of insurance premiums paid by the
Company with respect to life insurance for the benefit of Leonard Florence
for the years ended December 31, 1998, 1997 and 1996 was $16,392, $16,867,
and $19,551, respectively. On December 31, 1996, Messrs. Levine, Kanter and
Randolph entered into an agreement with Leonard Florence, the Company, and
THL Transaction I Corp., whereby they received 24,356 shares of Syratech
Common Stock valued at $779,392 and lump sum cash payments totaling
$538,278 for reimbursement of income taxes pursuant to a transfer of 73,068
shares of Syratech Common Stock by Leonard Florence to the Company. See
Note 11 to the Company's Consolidated Financial Statements. Stock options
granted under the 1986 and 1993 Stock Plans outstanding at April 16, 1997,
the date of the Merger between the Company and THL I, were cancelled
pursuant to the Merger Agreement in exchange for compensation equal to the
excess of $32 over the option exercise price. Messrs. Levine, Randolph, and
Kanter received compensation related to such option cancellations of
$148,700, $89,220, and $148,700, respectively, during 1997. All other
amounts represent contributions made by the Company to the accounts of
Messrs. Florence, Levine, Kanter and Randolph pursuant to the Company's
401(k) Plan.
(3) Ami A. Trauber was appointed Executive Vice President of Finance,
Administration, Strategic Planning and Chief Financial Officer and
Corporate Treasurer on January 26, 1998. Amounts shown as salary represent
compensation for the period beginning February 1, 1998 to December 31,
1998. Included in the column designated caption "All Other Compensation" is
$32,400 for consulting services for the period January 1 to January 31,
1998. All other amounts represent contributions made by the Company to Mr.
Trauber's account pursuant to the Company's 401(k) Plan. Amounts for 1997
and 1996 are not applicable (N/A).
Stock Option Grants
The Company does not currently have a stock option plan, therefore there were no
grants of stock options to any of the named executive officers during the fiscal
year 1998. The Company does not grant stock appreciation rights ("SARs") of any
kind.
Option Exercises/Value Of Unexercised Options
The Company does not currently have a stock option plan, therefore no stock
options were exercised during fiscal year 1998 and there are no unexercised
options at December 31, 1998.
Compensation Of Directors
The directors who are not also officers of the Company are currently compensated
indirectly through the management fee agreement between the Company and THL I.
(See Notes to the consolidated financial statements).
Compensation And Stock Option Committee Interlocks And Insider Participation
In connection with the Merger, the Company entered into a Management Agreement
with Thomas H. Lee Company for which the Company pays an annual management fee
in the amount of $450. ($320 incurred in the year ended December 31, 1997.)
Compensation And Stock Option Committee Report
The Members of the Compensation and Stock Option Committee of the Board of
Directors are all non-employee directors. The Committee is charged with the
responsibility of fixing the annual compensation of the Chief Executive Officer
of the Company, and in consultation with the Chief Executive Officer of the
Company, determining the annual compensation of the other executive officers of
the Company and the officers of each subsidiary of the Company, subject in each
case to any employment or other contract between the Company or a subsidiary
thereof and any such officer. In addition, the Committee is charged with the
responsibility to determine the payment of bonuses or other supplemental
compensation to the Chief Executive Officer of the Company and, in consultation
with the Chief Executive Officer, to determine payment of bonuses or other
supplemental compensation to any other officer of the Company or any subsidiary
thereof.
56
<PAGE>
Further, the Committee has the authority over the issuance of stock options or
the grant of awards under any stock option, stock bonus or other stock based
compensation and/or incentive plans for officers and/or employees of the
Company.
The overall compensation paid to executive officers of the Company includes cash
compensation consisting of a base salary and may include a performance bonus and
stock options for executive officers. In addition all executive officers
participate in various benefit plans generally available to employees, such as
health insurance and contributions made to the accounts of its employees
pursuant to the Company's 401(k) Plan.
The Committee attempts to balance the compensation paid to the executive
officers of the Company to the Company's performance. In its review, the
Committee may consider the level of compensation paid to executive officers of
companies of comparable market capitalization, however, this is somewhat
difficult since industry peers, and principal competitors are often either
privately held companies or divisions of large publicly held companies, and
therefore, executive compensation information is not publicly available. The
Committee, therefore, has generally relied upon its analysis of overall Company
performance including the level of net sales and net income and the individual
efforts and achievements of each executive officer during the fiscal year.
The Company was a party to employment agreements with certain of the named
executive officers during fiscal year 1998. Such agreements were approved by
both the Committee and the Board of Directors of the Company in August 1991 and
fixed the minimum salary levels of such officers. Employment agreements with two
of its officers, including the Chief Executive Officer were amended in August,
1995 reflecting changes to the annual retirement benefits to be received.
Additionally, the employment agreements with Messrs. Randolph and Kanter were
amended in July 1996, to provide, and during the same month Faye A. Florence and
the Company entered into a Retirement Benefit Agreement that provides for
certain retirement benefits to be received.
Upon consummation of the Merger (Note 2), an employment agreement with an
officer was amended so as to (i) change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term, (ii) provide
for a minimum base salary of $1,150 per annum, (iii) establish $1,150 as the
minimum amount upon which the officer's retirement benefit (and the survivor's
benefit of his surviving spouse) will be computed and (iv) create contractual
rights with respect to certain perquisites that he is accorded informally under
present arrangements with the Company. Additionally, an employment agreement
with another officer was amended to change the officer's term of full-time
employment from a rolling five-year term to a fixed five-year term.
In evaluating the compensation paid to the Chief Executive Officer, Mr.
Florence, the Committee evaluates many factors. The Committee following an
analysis of the Company's overall performance and financial results establishes
Mr. Florence's overall compensation. Additionally, Mr. Florence's performance in
his position is reviewed in conjunction with his ongoing ability to provide the
necessary direction for the Company's continued growth. Moreover, the Committee
determined as it has in the past that Mr. Florence's compensation should also be
determined in conjunction with the visibility and leadership roles which Mr.
Florence continues to possess in the industries in which the Company operates.
57
<PAGE>
Employment Agreements
Effective August 16, 1991, the Company entered into an employment agreement with
Leonard Florence (the "Florence Employment Agreement") providing for the
employment of Mr. Florence as Chief Executive Officer of the Company at an
annual base salary, payable in month installments, of not less than $0.35
million as well as for certain other benefits and the reimbursement of expenses.
Unless otherwise terminated by the Company as provided in the Florence
Employment Agreement, Mr. Florence's term of full-time employment will continue
until the earlier of (i) the fifth anniversary of receipt of a notice of
termination given by either party to the other or (ii) the first anniversary of
receipt of a notice of termination given by Mr. Florence to the Company on or
after his 64th birthday. The Company may, at its discretion, but without any
obligation, increase Mr. Florence's base salary during the term of full-time
employment. Once the base salary shall have been increased, it shall not
thereafter be decreased without his written consent. The Florence Employment
Agreement obligates Mr. Florence to provide certain advisory services to the
Company during the five-year period following the term of Mr. Florence's
full-time employment (the "Advisory Period") and provides for Mr. Florence to
receive annual compensation during the Advisory Period in an amount equal to not
less than 25% of his base salary during the final year of his full-time
employment. During the period of his full-time employment and the Advisory
Period, Mr. Florence is prohibited from engaging in any business that is
competitive with any line of business in which the Company is engaged that
contributes three percent or more of the gross revenues of the Company. The
Florence Employment Agreement also provides for payment to Mr. Florence of a
retirement benefit.
The Company entered into a similar employment agreement, also effective as of
August 16, 1991, with Melvin L. Levine, Vice President of Purchasing of the
Company, except in Mr. Levine's case the base salary was $0.225 million for the
year ended December 31, 1992. Mr. Levine's current base salary is $0.350 million
per annum.
As of May 1995 and July 1995, the employment agreements with Messrs. Levine and
Florence were amended with respect to the computation and payment of retirement
benefits to each and, in the case of Mr. Florence, to provide for payment of a
survivor's benefit to his surviving spouse. Specifically, the amendments
provided for annual retirement benefit payments in amounts equal to 2% of their
respective average total compensation (i.e., base salary and bonus compensation)
in the three years preceding attainment by the relevant executive of age
sixty-five or termination of such executive's full time employment, whichever
occurs later, multiplied by the number of years of such executive's employment
by the Company.
The Employment Agreements with Messrs. Florence and Levine, as amended, provide
for retirement benefit payments determined and payable in accordance with the
agreements. The following table shows the estimated annual benefits payable to
Messrs. Florence and Levine upon retirement based upon various compensation
levels and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------
REMUNERATION 5 10 15
------------ --- ---- ----
<S> <C> <C> <C>
$ 400,000 $ 40,000 $ 80,000 $120,000
500,000 50,000 100,000 150,000
600,000 60,000 120,000 180,000
700,000 70,000 140,000 210,000
800,000 80,000 160,000 240,000
900,000 90,000 180,000 270,000
1,000,000 100,000 200,000 300,000
1,100,000 110,000 220,000 330,000
1,200,000 120,000 240,000 360,000
1,300,000 130,000 260,000 390,000
1,400,000 140,000 280,000 420,000
</TABLE>
Messrs. Florence and Levine have each completed ten years of credited service.
Retirement benefits under the employment agreements are computed on the basis of
a straight-life annuity and are not reduced by the benefits received under
Social Security, but would be reduced by any benefits received under any Company
funded pension plan that hereafter may be adopted.
58
<PAGE>
Upon the consummation of the Merger, the Employment Agreement with Leonard
Florence was amended so as to (i) change his term of full-time employment from a
rolling-five-year term to a fixed five-year term, (ii) provide for a minimum
base compensation of $1.15 million per annum, (iii) establish $1.15 million as
the minimum amount upon which his retirement benefit (and survivors benefit of
his surviving spouse) will be computed and (iv) create contractual rights with
respect to certain perquisites that are accorded to him informally under his
present arrangement with the Company. Under Section 162(m) of the Internal
Revenue Code, so much of the compensation paid to Mr. Florence as exceeds $1
million annually may not be deductible by the Company for federal income tax
purposes. On July 29, 1998, the Company entered into Amendment No. 1 to Mr.
Florence's Amended and Restated Employment Agreement which provides, among other
things, for the modification of the computation and timing of payments in
respect of the retirement benefit. The terms of the Amendment provide for the
acceleration of payments (the first of which was made upon execution of the
Amendment) related to the retirement benefit provided that such payments are
allowed under the terms of the Company's credit agreements, as amended. The
Employment Agreement with Melvin L. Levine was amended, as of the Effective
Time, to change his term of full-time employment from a rolling five-year term
to a fixed five-year term.
The Company has also entered into employment agreements, effective as of August
16, 1991, with E. Merle Randolph, Vice President, Chief Financial Officer and
Treasurer, and Alan R. Kanter, Vice President of Sales of the Company. The
agreements with Messrs. Randolph and Kanter are similar to those with Messrs.
Florence and Levine described above, except that (i) the term of full-time
employment of each of Messrs. Randolph and Kanter will continue until the third
anniversary of receipt of a notice of termination given by the Company to the
executive involved or by such executive to the Company, (ii) the period during
which each of Messrs. Randolph and Kanter has agreed to provide advisory
services to the Company (and to be bound by a non-competition agreement)
following the term of his full-time employment will be the lesser of three years
or six months for each year of his full-time employment beginning with the date
of the employment agreement, with such advisory period and the coextensive
non-competition covenant being subject to termination at the election of the
Company on six months prior notice to the executive involved, and (iii) no
provision was originally made therein for a payment of a retirement benefit.
The employment agreements of Messrs. Randolph and Kanter were amended in July
1996, to provide, and during the same month Faye A. Florence and the Company
entered into a Retirement Benefit Agreement that provides, inter alia, for the
payment at age 65 or upon termination of such officer's employment, whichever is
later, of an annual retirement benefit to each such officer equal to a
percentage of his or her average annual compensation for the three fiscal years
ended immediately prior to the date on which such officer ceases to be a full
time employee of the Company multiplied by the number of years of such officer's
service to the Company. The minimum annual retirement benefit for each such
officer will be $75,000.
The Employment Agreement of Mr. Randolph was amended in January 1998, to modify
the terms of his job responsibilities. Mr. Randolph, who had been Vice
President, Chief Financial Officer and Treasurer of the Company, became the
Company's Executive Vice President of International Manufacturing and West Coast
Distribution. Mr. Randolph will perform his services subject only to the
direction and control of the Board and the Chief Executive Officer, or his
designee, and will report to the Chief Executive Officer or his designee, or if
requested to do so, to the Board.
On December 31, 1996, the Company, THL I and Leonard Florence entered into three
separate agreements, one with each of Alan R. Kanter, Melvin L. Levine and E.
Merle Randolph (each an "Executive Party"). Pursuant to each of the three
agreements (i) Mr. Florence agreed to contribute to the Company (a) on December
31, 1996, 10,604 shares of Syratech Common Stock, (b) on January 14, 1997,
10,628 shares of Syratech Common Stock and (c) and on January 14, 1998, 3,124
shares of shares of Syratech Common Stock (ii) on each of the dates of
contribution of such shares of Syratech Common Stock by Mr. Florence to the
Company, such shares were canceled and the Company issued to the Executive
Party, that number of shares of Syratech Common Stock that would be equal to the
number of shares of Syratech Common Stock contributed to the Company on such
date by Mr. Florence; (iii) on December 31, 1996 the Company paid each Executive
Party the sum of $234,346; (iv) on January 14, 1997 the Company paid to each
Executive Party an amount equal to the lesser of (x) the income tax benefit to
the Company from the issuance of shares of Syratech Common Stock and the cash
payment required to be made to him on such date or (y) the aggregate amount of
federal, state and local income taxes to be owed by each Executive Party as a
result of the issuance of such shares and the making of such cash payment; and
(v) on January 14, 1998 the Company is required to pay to each Executive Party
an amount equal to the lesser of (x) the income tax benefit to the Company from
the issuance of shares of Common Stock and the cash payment to be made to each
Executive Party on such date or (y) the aggregate amount of federal, state and
local income taxes that will be owed by each Executive Party as a result of the
issuance of shares of Common Stock and cash payment to be made to him on such
date. Each agreement provides that the manner in which the payments to be made
to each Executive Party for the purpose of transferring to each Executive Party
the tax benefits to the Company from such transactions are to be calculated and
subsequently adjusted is to be in the sole discretion of the Company.
59
<PAGE>
The Company and each Executive Party also entered into an amendment to the
respective Executive Party's Employment Agreement (each an "Amendment No. 2 to
Employment Agreement") dated January 31, 1997, to be effective as of December
31, 1996, to clarify and ensure that the transfer of shares referenced in the
above paragraph did not alter the total compensation of the relevant Executive
Party for purposes of calculating the Executive Party's retirement benefit.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the beneficial
ownership of Syratech Common Stock (i) by each stockholder who is known by the
Company to own beneficially in excess of 5% of the outstanding Common Stock,
(ii) by each director, and (iii) by all officers and directors as a group, as of
January 15, 1999. Except as otherwise indicated, all persons listed below have
(i) sole voting power and investment power with respect to their shares of
Common Stock, except to the extent that authority is shared by spouses under
applicable law, and (ii) record and beneficial ownership with respect to their
shares of Common Stock.
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Owned Percentage
------------ ------------
Name
- - ----
<S> <C> <C>
Leonard Florence (a) ............................ 362,850 9.6%
E. Merle Randolph ................................ 33,999 *
Melvin L. Levine ................................. 44,256 1.2%
Alan R. Kanter ................................... 51,356 1.4%
Faye A. Florence ................................. 3,527 *
Ami A. Trauber ................................... 0 *
Michael S. Krause ............................... 0 *
David V. Harkins (b).............................. 2,210,788 58.4%
Scott A. Schoen (b) .............................. 2,205,936 58.3%
Thomas M. Hagerty (b) ............................ 2,204,316 58.3%
Kent R. Weldon (b)................................ 2,197,431 58.1%
Officers and Directors as a group (11 persons) ... 2,196,216 58.0%
Thomas H. Lee Company Affiliates (c) ............. 2,728,241 72.1%
CMS Companies Inc. Affiliates (d) ................ 255,678 6.8%
</TABLE>
*Less then 1% of the issued and outstanding Syratech Common Stock.
(a) The business address for Leonard Florence is c/o Syratech Corporation, 175
McClellan Highway, East Boston, Massachusetts, 02128-9114.
(b) The business address of this stockholder is c/o Thomas H. Lee Company, 75
State Street, Boston, Massachusetts 02109. Includes an aggregate of 2,196,216
shares of common stock owned by Thomas H. Lee Equity Fund III, L.P., Thomas H.
Lee Foreign Fund III, L.P. and THL Co-Investors III-A LLC which may be deemed to
be beneficially owned by Messrs. Harkins, Hagerty, Schoen, Lawry and Weldon,
officers of Thomas H. Lee Company. Each of such persons disclaims beneficial
ownership of such shares.
(c) THL Equity Advisors III limited Partnership ("Advisors"), the general
partner of Thomas H. Lee Equity Fund III, L.P. and Thomas H. Lee Foreign Fund
III, L.P., THL Equity Trust III ("Equity Trust"), the general partner of
Advisors, Thomas H. Lee, Messrs. Harkins, Hagerty and Schoen and other managing
directors of Thomas H. Lee Company may be deemed to be beneficial owners of the
shares of Syratech Common Stock held by such funds. Each of such persons
maintains a principal business address at Suite 2600, 75 State Street, Boston,
Massachusetts 02109. Each of such persons disclaims beneficial ownership of such
shares.
(d) All such voting securities are owned by CMS Business Spectrum Fund L.P., CMS
Co-Investment Subpartners, CMS Mid-Atlantic Business Opportunity Partners, L.P.,
and CMS diversified Partners. Each of such persons maintains a principal
business address c/o CMS Companies, Inc. 1926 Arch Street, Philadelphia, PA
19103-1484.
60
<PAGE>
ITEM 13. Certain Relationships And Related Transactions
In connection with the Merger, the Company entered into a Management Fee with
the Thomas H. Lee Company for which the Company pays an annual management fee in
the amount of $450.
Lifetime Hoan Corporation ("Lifetime") purchased from the Company merchandise in
the amount of approximately $67 during the year ended December 31, 1998. In
April 1996, the Company and Lifetime, acting together, acquired certain assets
of Farberware, including the rights to share in certain royalties under certain
license agreements entered into and assigned to the Company by the prior owner
of the Farberware tradename. In addition, the Company expects to continue to
grant licenses with respect to the Farberware tradename in conjunction with
Lifetime.
The Company believes that the transactions described or referred to above were
effected on terms no less favorable to the Company than those that could have
been obtained from unaffiliated third parties.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K
(a) Exhibits
2.1 Restated Agreement and Plan of Merger dated November 27, 1996, effective
as of October 23, 1996 between Syratech and THL Transaction I Corp. and
the Amendment, dated February 14, 1997 to the Restated Agreement and Plan
of Merger. Incorporated by reference from Exhibit 2.1 to Form S-4
Registration Statement No. 333-16917.
3.1 Restated Certificate of Incorporation of Syratech. Incorporated by
reference from Exhibit 3.1 to Form S-1 Registration Statement No.
33-41619.
3.2 Syratech Corporation Certificate of Designations in respect of Series A
Preferred Stock dated October 26, 1992. Incorporated by reference from
Exhibit 3.2 to Form S-4 Registration Statement No. 333-16917.
3.3 Bylaws of Syratech. Incorporated by reference from Exhibit 3.2 to Form
S-1 Registration Statement No. 33-41619.
3.4 Amendment to Section 2.9 of the Bylaws of Syratech, effective August 15,
1991. Incorporated by reference from Exhibit 3.3 to Form S-1 Registration
Statement No. 33-41619.
3.5 Certificate of Ownership and Merger of WSC Liquidating, Inc. by and into
Syratech Corporation dated May 9, 1996. Incorporated by reference from
Exhibit 3.5 to Form S-4 Registration Statement No. 333-16917.
3.6 Specimen Common Stock Certificate. Incorporated by reference to Exhibit
4.1 to Form 10-K of Syratech for the year ended December 31, 1993.
10.1 Form of Amended and Restated Employment Agreement dated as of April 16,
1997 between Leonard Florence and the Company. Incorporated by reference
from Exhibit 10.1 to Form S-4 Registration Statement No. 333-16917.
10.1.1 Amendment No. 1 dated July 29, 1998 to Employment Agreement dated as of
April 16, 1997 between Leonard Florence and the Company.
10.2 Employment Agreement dated August 16, 1991 between E. Merle Randolph and
the Company. Incorporated by reference from Exhibit 10.17 to Form S-1
Registration Statement No. 33-41619.
10.3 Employment Agreement dated August 16, 1991, between Melvin L. Levine and
the 10.4 Company. Incorporated by reference from Exhibit 10.18 to Form
S-1 Registration Statement No. 33-41619.
10.4 Employment Agreement dated August 16, 1991 between Alan R. Kanter and the
Company. Incorporated by reference from Exhibit 10.19 to Form S-1
Registration Statement No. 33-41619.
61
<PAGE>
10.5 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated
as of August 16, 1991 between E. Merle Randolph and the Company.
Incorporated by reference from Exhibit 10.5 to Form S-4 Registration
Statement No. 333-16917.
10.6 Amendment No. 1 dated as of May 11, 1995 to Employment Agreement dated as
of August 16, 1991 between Melvin L. Levine and the Company. Incorporated
by reference from Exhibit 10.8 to Form 10-K for Syratech for the year
ended December 31, 1995.
10.7 Amendment No. 1 dated as of July 27, 1996 to Employment Agreement dated
as of August 16, 1991 between Alan R. Kanter and the Company.
Incorporated by reference from Exhibit 10.7 to Form S-4 Registration
Statement No. 333-16917.
10.8 Retirement Benefit Agreement dated as of July 27, 1996 between Faye A.
Florence and the Company. Incorporated by reference from Exhibit 10.8 to
Form S-4 Registration Statement No. 333-16917.
10.9 Amendment No. 2, dated as of January 31, 1997, effective as of December
31, 1996, to Employment Agreement dated as of August 16, 1991 between E.
Merle Randolph and the Company. Incorporated by reference from Exhibit
10.9 to Form S-4 Registration Statement No. 333-16917.
10.10 Amendment No. 2, dated as of January 31, 1997, effective as of December
31, 1996, to Employment Agreement dated as of August 16, 1991 between
Melvin L. Levine and the Company. Incorporated by reference from Exhibit
10.10 to Form S-4 Registration Statement No. 333-16917.
10.11 Amendment No. 2 dated January 31, 1997 effective as of December 31, 1996,
to Employment Agreement dated as of August 16, 1991 between Alan R.
Kanter and the Company. Incorporated by reference from Exhibit 10.11 to
Form S-4 Registration Statement No. 333-16917.
10.12 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Melvin L. Levine. Incorporated by
reference from Exhibit 10.12 to Form S-4 Registration Statement No.
333-16917.
10.13 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and E. Merle Randolph. Incorporated
by reference from Exhibit 10.13 to Form S-4 Registration Statement No.
333-16917.
10.14 Agreement dated December 31, 1996 by and between the Company, THL I
Transaction Corp., Leonard Florence and Alan R. Kanter. Incorporated by
reference from Exhibit 10.14 to Form S-4 Registration Statement No.
333-16917.
10.15 Asset Purchase Agreement dated February 2, 1996 by and between Farberware
Inc., the Company, Lifetime Hoan Corporation and Far-B Acquisition Corp.,
Inc. Incorporated by reference from Exhibit 1 to Form 8-K dated April 16,
1996.
10.16 Settlement Agreement dated February 3, 1997 by and among Bruckner
Manufacturing Corp. (formerly Farberware Inc.), U.S. Industries, Inc.,
Farberware Inc. (formerly Far-B Acquisition Corp.) and Lifetime Hoan
Corporation. Incorporated by reference from Exhibit 10.16 to Form S-4
Registration Statement No. 333-16917.
10.17 Agreement dated as of December 7, 1995 among the Company, SYR Acquisition
Inc. and Rauch Industries, Inc. Incorporated by reference from Exhibit 1
to Form 8-K of the Company dated December 7, 1995. Incorporated by
reference from Exhibit 10.17 to Form S-4 Registration Statement No.
333-16917.
10.18 Amended and Restated Line of Credit Agreement among Wallace International
de Puerto Rico, Inc., International Silver de Puerto Rico, Inc. and Banco
Popular de Puerto Rico dated October 15, 1996. Incorporated by reference
from Exhibit 10.18 to Form S-4 Registration Statement No. 333-16917.
62
<PAGE>
10.19 Agreement, dated as of February 2, 1996, by and among the Company,
Lifetime Hoan Corporation and Far-B Acquisition Corp. Incorporated by
reference from Exhibit 10.19 to Form S-4 Registration Statement No.
333-16917.
10.20 Agreement, dated as of May 3, 1996, by and among the Company, Farberware
Inc. and Meyer Manufacturing Co. Ltd. Incorporated by reference from
Exhibit 10.20 to Form S-4 Registration Statement No. 333-16917.
10.21 License Agreement, dated as of July 12, 1996, by and between Farberware
Inc. and Service Merchandise Company, Inc. (redacted to omit certain
royalty information). Incorporated by reference from Exhibit 10.21 to
Form S-4 Registration Statement No. 333-16917.
10.22 Agreement, dated as of October 16, 1996, among Farberware Inc., Service
Merchandise Company, Inc. and Windmere-Durable Holdings, Inc. (amending
Item 10.21). Incorporated by reference from Exhibit 10.22 to Form S-4
Registration Statement No. 333-16917.
10.23 Commitment Letter between Banco Popular de Puerto Rico and Wallace
International de PR, Inc. dated May 1, 1997. Incorporated by reference
from Exhibit 10-1 to Form 10-Q dated August 13, 1997.
10.24 Letter Agreement between Banco Popular de Puerto Rico and Wallace
International de PR, Inc. dated May 12, 1997. Incorporated by reference
from Exhibit 10-2 to Form 10-Q dated August 13, 1997.
10.25 Amendment No. 1, dated as of July 31, 1997, to Loan and Security
Agreement, dated as of April 16, 1997. Incorporated by reference from
Exhibit 10-1 to Form 10-Q dated November 12, 1997.
10.26 Amendment No. 2, dated as of December 31, 1997, to Loan and Security
Agreement, dated as of April 16, 1997. Incorporated by reference from
Exhibit 10.26 from 10-K dated March 31, 1998
10.27 Amendment No. 3 dated as of January 26, 1998 to Employment Agreement
dated as of August 16, 1991 between E. Merle Randolph and the Company.
Incorporated by reference from Exhibit 10.27 from 10-K dated
March 31, 1998
10.28 Purchase and Sale Agreement dated as of January 28, 1998 by and among The
Claremont Company, Inc. and Faye A. Florence, Leonard Florence and E.
Merle Randolph, Trustees of 175 Amlegion Realty Trust. Incorporated by
reference from Exhibit 10.28 from 10-K dated March 31, 1998
10.29 Escrow Agreement dated January 28, 1998 by and among Faye A. Florence,
Leonard Florence and E. Merle Randolph, Trustees of 175 Amlegion Realty
Trust and The Claremont Company and Hutchins, Wheeler & Dittmar, A
Professional Corporation. Incorporated by reference from Exhibit 10.29
from 10-K dated March 31, 1998
10.30 Agreement between Rauch Industries, Inc. and Guy Yocom Construction,
Inc., dated July 31, 1997. Incorporated by reference from Exhibit 10.30
from 10-K dated March 31, 1998
10.31 Agreement between Rauch Industries, Inc. and C.A.S. Construction Inc.,
dated August 25, 1997. Incorporated by reference from Exhibit 10.31 from
10-K dated March 31, 1998
10.32 Varco-Pruden Purchase Order dated June 16, 1997. Incorporated by
reference from Exhibit 10.32 from 10-K dated March 31, 1998
10.33 Amendment No. 3, dated as of March 30, 1998, to Loan and Security
Agreement, dated as of April 16, 1997. Incorporated by reference from
Exhibit 10.33 from 10-K dated March 31, 1998
10.34 Amendment No. 4, dated as of March 26, 1999, to Loan and Security
Agreement, dated as of April 16, 1997.
10.35 Advice of Borrowing Terms between C.J. Vander Ltd. and Nat West Bank
P.L.C., dated March 19, 1999.
10.36 Letter Agreement dated as of December 31, 1998 between Farberware Inc.
and Excel Importing Corp.
10.37 Report on Form 15 Certification and Notice of Termination of Registration
under Section 12(g) of the Securities Exchange Act of 1934 or Suspension
of Duty to File Reports under Sections 13 and 15(d) of the Securities
Exchange Act of 1934 filed on December 7, 1998.
11 Statement re: computation of per share earnings.
12 Computation of ratio of earnings before fixed charges to fixed charges.
22 List of Subsidiaries. Incorporated by reference from Exhibit 22 to Form
S-4 Registration Statement No. 333-16917.
27 Financial Data Schedule
Schedule II: Valuation and Qualifying Accounts
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Act of 1934,
the Registrant has duly caused this Annual Report on Form 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston,
State of Massachusetts, on the 31st day of March, 1999.
SYRATECH CORPORATION
By: /s/ Ami A. Trauber
----------------------
Ami A. Trauber
Executive Vice President,
Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act of 1934, this Annual Report
on Form 10-K has been signed by the following persons in the capacities and on
the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Leonard Florence Chairman of the Board of March 31, 1999
--------------------- Directors, Chief Executive
Leonard Florence Officer and President (Principal
Executive Officer)
/s/ Ami A. Trauber Executive Vice President, Chief March 31, 1999
--------------------- Financial Officer and Treasurer
Ami A. Trauber (Principal Financial and
Accounting Officer)
/s/ Thomas M. Hagerty Director March 31, 1999
---------------------
Thomas M. Hagerty
/s/ David V. Harkins Director March 31, 1999
---------------------
David V. Harkins
/s/ Alan R. Kanter Director March 31, 1999
---------------------
Alan R. Kanter
/s/ Melvin L. Levine Director March 31, 1999
---------------------
Melvin L. Levine
/s/ E. Merle Randolph Director March 31, 1999
---------------------
E. Merle Randolph
/s/ Scott A. Schoen Director March 31, 1999
---------------------
Scott A. Schoen
/s/ Kent R. Weldon Director March 31, 1999
---------------------
Kent R. Weldon
</TABLE>
64
<PAGE>
SCHEDULE II
SYRATECH CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- - ------------------------------- ------------ ------------------------ ------------ --------
(1) (2)
Beginning of Costs and Charged to End of
Description Period Expenses Other Accts. Deductions Period
----------- ----------- -------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
Allowance for doubtful accounts $ 1,231 $ 467 $ (862)(a) $ 836
Sales returns and allowances 5,977 10,163 (10,020)(b) 6,120
------- -------- --------- -------- ------
$ 7,208 $ 10,630 $ -- $(10,882) $6,956
======= ======== ========= ======== ======
Year Ended December 31, 1997
Allowance for doubtful accounts $ 1,861 $ 2,356 $ (1,959) $ (1,027)(a) $1,231
Sales returns and allowances 3,501 8,978 1,959 (8,461)(b) 5,977
------- -------- --------- -------- ------
$ 5,362 $ 11,334 $ -- $ (9,488) $7,208
======= ======== ========= ======== ======
Year Ended December 31, 1996
Allowance for doubtful accounts $ 1,603 $ 93 $ 165 (a) $1,861
Sales returns and allowances 2,604 5,813 (4,916)(b) 3,501
------- -------- --------- -------- ------
$ 4,207 $ 5,906 $ -- $ (4,751) $5,362
======= ======== ========= ======== ======
</TABLE>
__________________________
(a) Doubtful accounts written off
(b) Sales returns and other
65
EX-10.1.1
AMENDMENT NO. 1 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated July 29,1998 to AMENDED AND RESTATED EMPLOYMENT
AGREEMENT dated April 16, 1997 between Syratech Corporation, a Delaware
corporation (the "Company"), and Leonard Florence (the "Executive").
WHEREAS, the Company and the Executive are parties to an Amended and
Restated Employment Agreement dated as of April 16, 1997 (the "Agreement"),
which provides for, among other things, the computation and payment of a
retirement benefit to the Executive or his surviving spouse (capitalized terms
used and not otherwise defined herein shall have the meaning given to such terms
in the Agreement);
WHEREAS, the Company and the Executive have agreed to amend the
provisions of the Agreement relating to (i) the terms of the Executive's
employment and (ii) the computation and payment of the retirement benefit to the
Executive as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
I . Section 1.2 of the Agreement is hereby deleted in its entirety and is
replaced with the following:
"1.2 the Executive's term of full-time employment pursuant to
this Restated Agreement shall, unless otherwise terminated pursuant to
Section 4 of this Restated Agreement, continue until the earlier of (i)
April 16, 2002 or (ii) the third anniversary of receipt of a notice of
termination given by the Executive to the Company at any time after the
date of this Restated Agreement, which notice shall state that it is
being given pursuant to clause (ii) of Section 1.2 of this Restated
Agreement. The Executive's term of advisory service (the "Advisory
Period") shall begin on the day next following the last day of the
Executive's term of full-time employment in accordance with this
Restated Agreement and shall end on the third anniversary of such
date."
2. Section 3.3 of the Agreement is hereby amended by labeling the
current section 3.3 as Section 3.3(a) and adding the following language as an
additional paragraph titled Section 3.3(b) at the end of such section:
"(b) Notwithstanding the foregoing, in lieu of the retirement
benefits provided for in Section 3.3(a) hereof, the Company shall,
provided that the making of such payments does not violate the terms of
the Company's Credit Agreement as amended to date (it being agreed that
the Company shall use its best efforts to negotiate any replacement,
extension or refinancing of such Credit Agreement to permit the Company
to make the payments specified by this Section 3.3(b)), pay the
Executive the amounts set
<PAGE>
forth below on the dates set forth below as payments in lieu of the
retirement benefits provided for in Section 3.3(a) above:
<TABLE>
<CAPTION>
Date of Payment Amount of Payment
--------------- -----------------
<S> <C>
July 29, 1998 $ 926,196.38
January 2, 1999 891,730.39
January 2, 2000 891,730.39
January 2, 2001 577,002.02
January 2, 2002 577,002.02
</TABLE>
All payments shall be made by wire transfer of immediately available
funds. If any payment set forth above is not made on the date such
payment is scheduled, the amount due for such payment shall accrue
interest at a rate of 6.75% per annum, computed daily, until such
payment is made. To the extent that any payments set forth in this
Section 3.3(b) are made, such amounts (excluding any interest) shall
reduce on a dollar-for-dollar basis the amounts that would otherwise be
payable by the Company pursuant to Section 3.3(a) above. In the event
of the Executive's death, any future payments by the Company shall be
made to the Executive's Spouse if she is still living. 1n the event
that both the Executive and the Executive's Spouse die prior to January
2, 2002, the Company shall not be required to make any additional
payments. If the Company makes all of the payments set forth in this
Section 3.3(b) (including any accrued interest, if applicable), then
the Company shall not be required to make any of the payments specified
in Section 3.3(a) above. Upon the consummation of a change of control
of the Company (whether by way of (i) a merger or consolidation,
pursuant to which the stockholders of the Company immediately prior to
such merger or consolidation own less than 50% of the voting securities
of the surviving or resulting corporation or (ii) the sale of all or
substantially all of the assets or stock of the Company, in either case
pursuant to which the stockholders of the Company receive at least $32
in cash per share of common stock), the payments set forth in this
Section 3.3(b) shall immediately become due and payable and upon
payment thereof, the Company shall have no further obligations under
Section 3.3(a); provided that a change of control shall not include a
public offering of the Company's common stock."
3. All other terms of the Agreement are hereby confirmed to remain in
full force and effect.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment No. 1 to
the Agreement as of the date first written above.
SYRATECH CORPORATION
By: /s/ Melvin L. Levine
---------------------------------
Name: Melvin L. Levine
Title: Vice President
/s/ Leonard Florence
---------------------------------------
Leonard Florence
EX 10.34
AMENDMENT NO. 4 AND CONSENT
under
LOAN AND SECURITY AGREEMENT
dated as of April 16, 1997
THIS AMENDMENT NO. 4 AND CONSENT dated as of March 26,1999 (this
"Amendment") is made by SYRATECH CORPORATION, a Delaware corporation, TOWLE
MANUFACTURING COMPANY, a Delaware corporation, LEONARD FLORENCE ASSOCIATES,
INC., a Massachusetts corporation, WALLACE INTERNATIONAL SILVERSMITHS, INC., a
Delaware corporation, SYRATECH HOLDING CORPORATION, an Arkansas corporation,
RAUCH INDUSTRIES, INC., a North Carolina corporation, ROCHARD, INC., a New York
corporation, HOLIDAY PRODUCTS, INC., a North Carolina corporation, FARBERWARE
INC., a Delaware corporation, SILVESTRI, INC., a Delaware corporation, the
financial institutions parties hereto from time to time as Lenders, and
NATIONSBANK, N.A., a national banking association ("NationsBank"), as
administrative agent for the Lenders (the "Administrative Agent").
Preliminary Statements
The Borrowers, the Lenders and the Administrative Agent are parties to
a Loan and Security Agreement dated as of April 16, 1997, as amended by
Amendment No. I dated as of July 31, 1997, Amendment No. 2 dated as of December
31, 1997 and Amendment No. 3 dated as of March 30, 1998 (the "Loan Agreement";
terms defined in the Loan Agreement and not otherwise defined herein being used
herein as therein defined).
The Borrowers have requested that the Lenders modify certain financial
covenants and related definitions and amend certain other provisions of the Loan
Agreement, and the Lenders and the Administrative Agent have agreed to such
modifications to the Loan Agreement as hereinafter set forth, upon and subject
to all of the terms, conditions and provisions hereof.
NOW, THEREFORE, in consideration of the Loan Agreement, the Loans made
by the Lenders and outstanding thereunder, the mutual promises hereinafter set
forth and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Amendments to Loan Agreement The Loan Agreement is hereby
amended, effective as provided in Section 3, by
(a) amending Section 1.1 Definitions by
(i) amending the definition "Applicable Margin" in its entirety
to read as follows:
1079930
<PAGE>
Applicable Margin means (a) as to Prime Rate Loans, 0.50%
and (b) as to Eurodollar Rate Loans, (i) 2.25%, or (ii) beginning
five days after delivery of the quarterly financial statements of
Syratech and its Consolidated Subsidiaries for the third Fiscal
Quarter of Fiscal Year 1999, such other percentage indicated on
the performance pricing matrix attached hereto as Annex B, as may
at the time be applicable after taking into account the Total
Funded Debt to EBITDA and the Pricing Ratio (as such term is
defined on Annex B) for the most recently ended period of four
consecutive Fiscal Quarters based on the consolidated financial
statements of Syratech and its Consolidated Subsidiaries for the
latest Fiscal Quarter, timely delivered in accordance with Section
10.1. Each change in the Applicable Margin shall become effective
as of the fifth Business Day after delivery of the relevant
financial statements. If an Event of Default has occurred and is
continuing, then, subject to the provisions of Section 4.1(d), the
Applicable Margin for Eurodollar Rate Loans shall again be the
applicable percentage set forth in clause (b)(i) above, for the
following month or until such Event of Default has been cured or
waived and the requirements of clause (b)(ii) above have been
satisfied.
(ii) amending the definition "Borrowing Base" by deleting the date
"June I" each time it appears in clause (b) thereof and
substituting therefor the date "May 1 ";
(iii) amending the definition "EBITDA" in its entirety to read as
follows:
EBITDA for a specified period means consolidated Net
Income of Syratech and its Consolidated Subsidiaries for such
period, before provision for interest expense, income taxes,
depreciation expense, amortization, and any extraordinary item(s),
all determined in accordance with GAAP; plus for any such
specified period that includes the Fiscal Quarter in which such
expense was recorded, up to $5,170,000 of Fiscal Year 1998 expense
attributable to increasing reserve(s) in anticipation of the sale
of fixed assets listed on Schedule UB -Assets Held for Sale.
(iv) amending the definition "Fixed Charge Coverage" in its
entirety to read as follows:
Fixed Charge Coverage means, for any specified period of
four consecutive Fiscal Quarters, the ratio of (a) EBITDA for such
period, to (b) the sum of (i) $4,000,000 for each such period
ending on or after March 31, 1999, plus (ii) the following charges
of Syratech and its Consolidated Subsidiaries on a consolidated
basis for the same specified accounting period: interest expense
(excluding amortization of financing transaction costs), cash
income taxes paid, dividends paid in cash, and scheduled principal
repayments on Funded Debt, in each case determined in accordance
with GAAP, and excluding, for avoidance of doubt, any amount paid
to redeem Preferred Stock in compliance with the terms of this
Agreement.
(b) amending Section 4.9 Prepayment Fee in its entirety to read as
follows:
2
<PAGE>
Section 4.9 Prepayment Fee. If the Borrowers prepay the
Loans in whole and terminate this Agreement prior to the
Termination Date, the Borrowers shall pay to the Administrative
Agent for the Ratable benefit of the Lenders on such date of
termination, as liquidated damages and compensation for the costs
of making funds available to the Borrowers under this Agreement
and not as a penalty, an amount equal to 1% of the amount of the
Revolving Credit Facility on the Effective Date, provided that if
such prepayment occurs after the Administrative Agent has declared
the Secured Obligations to be immediately due and payable pursuant
to Section 12.2, the amount of such fee shall be 1/2 of 1% of the
amount of the Revolving Credit Facility on the Effective Date.
(c) amending Section 8.14 Information and Reports by deleting from each
of subsections (a), (b) and (c) thereof the phrase "not later than the 10th day
of each calendar month" or "not later than the 10th day of each month", as the
case may be, and substituting therefor in each such subsection the phrase "not
later than the 15th day (or, if such month is the last month of a Fiscal
Quarter, the 20th day) of each calendar month";
(d) amending Section 11.1 Financial Ratios by
(i) amending Section 11.1 (b) Total Funded Debt to EBITDA in its
entirety to read as follows:
(b) Total Funded Debt to EBITDA. Total Funded Debt to EBITDA
for any period of four consecutive Fiscal Quarters ending on or
after a date specified below, to be greater than the ratio
specified opposite such date:
<TABLE>
<CAPTION>
Date Ratio
-----------------------------------------------------
<S> <C>
3/31/99 10.56 to 1
6/30/99 10.09 to 1
9/30/99 9.20 to 1
12/31/99 8.54 to 1
3/31/00 8.46 to 1
6/30/00 8.36 to 1
9/30/00 7.96 to 1
12/31/00 7.64 to 1
3/31/01 7.51 to 1
6/30/01 7.34 to 1
9/30/01 6.92 to 1
12/31/01
and thereafter 6.58 to 1
</TABLE>
(ii) amending Section 11.1 (c) Fixed Charge Coverage in its
entirety to read as follows:
(c) Fixed Charge Coverage. Fixed Charge Coverage for any
period of four consecutive Fiscal Quarters ending on or after a
date specified below to be less than the ratio specified opposite
such date:
3
<PAGE>
<TABLE>
<CAPTION>
Date Ratio
-----------------------------------------------------
<S> <C>
3/31/99 0.855 to 1
6/30/99 0.859 to 1
9/30/99 0.872 to 1
12/31/99 0.871 to 1
3/31/00 0.866 to 1
6/30/00 0.866 to 1
9/30/00 0.900 to 1
12/31/00 1.0 to 1
3/31/01 1.0 to 1
6/30/01 1.0 to 1
9/30/01 1.0 to 1
12/31/01
and thereafter 1.015 to 1
</TABLE>
(e) amending Section 11.5 Capital Expenditures in its entirety to read
as follows:
Section 11.5 Capital Expenditures. Make or incur any Capital
Expenditures; provided, however, that the Borrowers may make or incur
Capital Expenditures during Fiscal Year 1999 not greater than
$7,500,000 and during any Fiscal Year thereafter not greater than
$9,000,000.
(f) amending Section 11.6 Restricted Distributions and Payments, Etc.
by amending the final grammatical paragraph thereof in its entirety to read as
follows:
To the extent that the payments hereinafter described may be
deemed to be Restricted Distributions or Restricted Payments, so long
as no Default or Event of Default has occurred and is continuing or
would exist after giving effect thereto, the Borrowers may (i) fund
unfunded pension liability of the Borrowers to Leonard Florence in the
Fiscal Years and amounts shown below:
<TABLE>
<CAPTION>
Fiscal Year Amount
<S> <C>
1999 and 2000 $891,730
2001 and 2002 577,002
</TABLE>
and (ii) purchase life insurance (which one or more of the Borrowers
would own) covering Messrs Randolph, Levine and Kanter and Ms. Faye
Florence, or otherwise provide for the Borrowers' post-retirement
obligations to such Persons, on or after March 30, 1998, upon terms and
conditions no more costly to the Borrowers and otherwise not less
favorable to the Borrowers than those outlined in Mr. Randolph's letter
dated March 10, 1998 addressed to the Administrative Agent, copies of
which have been furnished to
4
<PAGE>
each Lender.
amending Section 11.14 Minimum Availability in its entirety
to read as follows:
Section 11.14 Minimum Availability. Permit Revolving Credit
Availability to be less than $25,000,000 during the period February I
through March 31 of any year.
(h) amending Section 15.2(d) by deleting the figure 125,000 "appearing
therein and substituting therefor the figure 150,000"; and
(i) further amending the Loan Agreement by deleting Annex B thereto and
substituting therefor a new Annex B (Pricing Matrix) in the form of Annex 1
attached hereto and adding thereto a new Schedule 1. 1 B - Assets Held for Sale
in the form of Annex 2 attached hereto.
Section 2. Consent. Subject to the provisions of Section 3, the Lenders
hereby consent to the Borrowers' sale of the assets described on Annex 2 to this
Amendment; provided, however, that Syratech shall take such actions (including
voluntary prepayment of Revolving Credit Loans and reduction of Commitments) as
may be necessary in accordance with Section 4.10 of the Senior Note Indenture
to assure that Syratech will have no obligation thereunder to prepay any
principal of the Senior Notes.
Section 3. Effectiveness of Amendment. Sections 1 and 2 of this
Amendment shall become effective as of December 31, 1998 on the date (the
"Amendment Effective Date") on which the Borrowers have paid to the
Administrative Agent for the ratable benefit of the Lenders an amendment fee in
the amount of $162,500 and the Administrative Agent shall have received each of
the following documents (in sufficient copies for each Lender):
(a) this Amendment duly executed and delivered by each Borrower and the
Lenders,
(b) a certificate of the Secretary of each Borrower having attached
thereto the articles or certificate of incorporation and bylaws of such Borrower
as in effect on the Amendment Effective Date (or containing the certification of
such Secretary that no amendment or modification of such articles or certificate
or bylaws has become effective since the last date on which such documents were
delivered to the Administrative Agent pursuant to the Loan Agreement), and to
the further effect that the incumbency certificate and corporate action
delivered in connection with the occurrence of the date hereof remain in effect,
unchanged,
(c) a certificate of the President or Financial Officer of Syratech to
the effect that
(i) the representations and warranties of the Borrowers
contained in the Loan Documents are true and correct in all material
respects on and as of the date hereof as if made on and as of the
Amendment Effective Date, and
(ii) no Default or Event of Default has occurred and is
continuing and such statements shall be true; and
(d) such other documents, certificates and instruments in connection
with the effectiveness of this Amendment as the Administrative Agent or any
Lender may reasonably
5
<PAGE>
request.
Section 4. Effect of Amendment. From and after the effectiveness of
this Amendment, all references in the Loan Agreement and in any other Loan
Document to "this Agreement," "the Loan Agreement," "hereunder," "hereof" and
words of like import referring to the Loan Agreement, shall mean and be
references to the Loan Agreement as amended by this Amendment. Except as
expressly amended hereby, the Loan Agreement and all terms, conditions and
provisions thereof remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Administrative Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
Section 5. Additional Agreement. NationsBank and its Affiliate, Bank of
America National Trust and Savings Association, a national banking association
("BofA"), are both wholly owned Subsidiaries of BankAmerica Corp. and it is
contemplated that NationsBank and BofA will merge. In anticipation of such
merger and as part of a larger rationalization of services offered by the two
banks, NationsBank has requested that the Borrowers and the Lenders agree that
letters of credit issued by BofA for the account of Syratech Hong Kong and the
Borrowers under the Master L/C Agreement and in conformity with the terms
thereof and of the Loan Agreement, will be "Letters of Credit" for all purposes
of the Loan Agreement and that all Reimbursement Obligations in respect of such
letters of credit issued by BofA will be "Secured Obligations." By their
execution and delivery hereof, each Borrower and each Lender and the
Administrative Agent agree that each reference to NationsBank in the Loan
Agreement and the other Loan Documents shall also be deemed to be a reference to
BofA, to the full extent necessary to include as "Letters of Credit" for all
purposes of the Loan Agreement and the other Loan Documents, letters of credit
issued by BofA pursuant to and in accordance with the terms of the Master L/C
Agreement and the applicable provisions of the Loan Agreement for the account of
Syratech Hong Kong (and the Borrowers).
Section 6. Counterpart Execution; Governing Law.
(a) Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
(b) Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
BORROWERS:
SYRATECH CORPORATION
By: /s/ Ami A. Trauber
------------------------------
Ami A. Trauber
Executive Vice President, Chief Financial Officer and
Treasurer
TOWLE MANUFACTURING COMPANY
By: /s/ Ami A. Trauber
------------------------------
Ami A. Trauber
Vice President
LEONARD FLORENCE ASSOCIATES, INC.
By: /s/ Ami A. Trauber
------------------------------
Ami A. Trauber
Vice President
WALLACE INTERNATIONAL SILVERSMITHS, INC.
By: /s/ Ami A. Trauber
------------------------------
Ami A. Trauber
Vice President
SYRATECH HOLDING CORPORATION
By: /s/ Richard Freiman
------------------------------
Richard Freiman
President
7
<PAGE>
RAUCH INDUSTRIES, INC.
By: /s/ Ami A. Trauber
------------------------------
Ami A. Trauber
Vice President
ROCHARD, INC.
By: /s/ Leonard Florence
------------------------------
Leonard Florence
Chairman
HOLIDAY PRODUCTS, INC.
By: /s/ Leonard Florence
------------------------------
Leonard Florence
Chairman
FARBERWARE INC.
By: /s/ Ami A. Trauber
------------------------------
Ami A. Trauber
Vice President
SILVESTRI, INC.
By: /s/ Ami A. Trauber
------------------------------
Ami A. Trauber
Vice President
ADMINISTRATIVE AGENT: NATIONSBANK, N.A.
By: /s/ Andrew A. Doherty
------------------------------
Andrew A. Doherty
Vice President
8
<PAGE>
LENDERS:
NATIONSBANK, N.A.
By: /s/ Andrew A. Doherty
------------------------------
Andrew A. Doherty
Vice President
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO
By: /s/ Richard Jonscher
------------------------------
Name: Richard Jonscher
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Lauren P. Carrigan
------------------------------
Name: Lauren P. Carrigan
Title: Vice President
FLEET NATIONAL BANK
By: /s/ H. Ellery Perkinson
------------------------------
Name: H. Ellery Perkinson
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Greg F. Ennis
------------------------------
Name: Greg F. Ennis
Title: Vice President
9
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
FLEET BUSINESS CREDIT CORPORATION,
a Delaware corporation
By: /s/ John W. Getz
------------------------------
Name: John W. Getz
Title: Senior Vice President
10
<PAGE>
Acknowledgment and Agreement of BofA
The undersigned, Bank of America National Trust and Savings Association
("BofA") hereby acknowledges and agrees for the benefit of Syratech Corporation,
its Subsidiaries parties to the Loan Agreement as defined in the foregoing
Amendment No. 4, as amended by said Amendment No. 4 (as the same may be further
amended, supplemented, amended and restated, or otherwise modified or refinanced
from time to time, the "Syratech Loan Agreement", unless otherwise defined in
this Acknowledgment, terms defined in the Syratech Loan Agreement are used
herein as therein defined), Syratech Hong Kong, each Lender, NationsBank and the
Administrative Agent, that BofA has received copies of the foregoing Amendment
No. 4, the Loan Agreement and the Master L/C Agreement and that in respect of
any letters of credit issued by BofA for the account of Syratech Hong Kong (and
the Borrowers), it will observe and perform the applicable provisions of the
Master L/C Agreement and the Syratech Loan Agreement as fully as if it were
"NationsBank" or otherwise named therein as the issuer of such letters of
credit. BofA also agrees that in the circumstances contemplated by Section 3.9
(Supporting Letter of Credit; Cash Collateral Account of the Syratech Loan
Agreement occurring or existing at a time when BofA and NationsBank remain
separate legal entities, if any Letters of Credit issued by BofA remain
outstanding, it will accept as a Supporting Letter of Credit, a Letter of Credit
issued by NationsBank for its benefit.
IN WITNESS WHEREOF, BofA has caused this Acknowledgment to be executed
and delivered as of March, 1999 by its duly authorized officer.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Andrew A. Doherty
---------------------------
Name: Andrew A. Doherty
Title: Vice President
11
<PAGE>
Annex 1
to Amendment No. 4
Annex B
PRICING MATRIX
<TABLE>
<CAPTION>
Total Funded Debt Pricing Ratio Applicable Margin
EBITDA ------------- Eurodollar Rate Loans
------ ---------------------
<S> <C> <C>
>6.0 to 1 < covenant level >covenant level <1.0 to 1 2.25%
- -
>6.0 to 1 <6.0 to 1 >I.O to I <1.10 to 1 2.125%
- -
>4.0 to 1 <5.0 to 1 >1.10 to 1 <1.25 to 1 2.00%
- -
>3.5 to 1 <4.0 to 1 >1.25 to 1 1.875%
- -
<3.5 to 1 >1.25 to 1 1.75%
- -
</TABLE>
Pricing Ratio means (a) EBITDA for such four-quarter period divided by
(b) the sum of (i) Capital Expenditures of Syratech and its Consolidated
Subsidiaries for such period plus (ii) up to the amounts listed below in respect
of the Fiscal Year opposite such amount to the extent paid by the Borrowers in
such Fiscal Year to fund unfunded pension liability of the Borrower to Leonard
Florence,
<TABLE>
<CAPTION>
Fiscal Year Amount
<S> <C>
1999 $455,521
2000 527,998
2001 321,514
2002 340,311
</TABLE>
plus (iii) the following charges of Syratech and its Consolidated Subsidiaries
on a consolidated basis for the same specified accounting period: interest
expense (excluding amortization of financing transaction costs), cash income
taxes paid, dividends paid in cash, and scheduled principal repayments on Funded
Debt, in each case determined in accordance with GAAP, and excluding, for
avoidance of doubt, any amount paid to redeem Preferred Stock in compliance with
the terms of this Agreement.
<PAGE>
Annex 1
to Amendment No. 4
SCHEDULE 1.1B - ASSETS HELD FOR SALE
($Thousands)
<TABLE>
<CAPTION>
Asset
Impairment
Reserves
Recorded in
Description 1998
- - ----------- -----------
<S> <C>
Land and Building, Modena N.C. (Rauch) $ 679
Land & Buildings, El Paso Texas (Rauch Holiday Products) 3,123
Machinery & Equipment, EL Paso Texas (Rauch Holiday Products) 506
Obsolete Warehouse System (Rauch) 142
Land & Buildings, Sheffield England (C J Vander) 235
Obsolete Computer Equipment (Potpourri/Silvestri Consolidation) 161
Discontinued Product Tooling 185
Obsolete Warehouse Equipment (East Coast Warehouse Consolidation) 109
All Other 30
------
Total $5,170
======
</TABLE>
EX-10.35
Advice of Borrowing Terms
<TABLE>
<S> <C>
Relationship Office:
South Yorkshire Corporate Business Centre Date: 19th March 1999
Borrower(s) Registered Number:
C J Vander limited 763852
</TABLE>
We intend that the facilities listed in Part 1 of the attached Facility Schedule
(the "on-demand facilities") should remain available to the borrower(s) until
19th June 1999 and all facilities should be reviewed on or before that date. The
facilities are, however, subject to the following:
o the terms and conditions below,
o the specific conditions applicable to an individual facility as detailed in
the Facility Schedule,
o the Security detailed in the attached Security Schedule, and
o the attached General Terms.
All amounts outstanding are repayable on demand which may be made by us at our
discretion at any time and the facilities may be withdrawn, reduced, made
subject to further conditions or otherwise varied by us giving notice in
writing.
Conditions:
o The following conditions must be satisfied at all times while the facilities
are outstanding, but this will not affect our right to demand repayment at
any time:
o Monthly management accounts to be provided to us within 21 days of the end of
the month to which they relate; to include Profit & Loss, Balance Sheet and
Aged Debtor/Creditor listings with suitable commentary / explanations re any
divergence from budget.
o Revised projections for the current year based on quarter 1 actuals
(including cash flow forecast and monthly balance sheets.
o December 1998 Audited accounts to be provided to us by 19th June 1999.
o Production of the Parent company accounts for the year ended December 1998 by
19th June 1999.
o Provision of the `Metal Exchange' account statement, plus prevailing
'balance', on a monthly basis.
o The top-slice [British pounds sterling]250,000 to the overdraft facility
remains available upon your prior request and for the specific purpose of
sterling silver purchases. We require a copy of the related purchase
agreement in such instances.
o Lombard Natwest Commercial Services to have undertaken debtor book review by
June 1999 given the significant work you have undertaken in recent months in
`cleaning' the overall profile.
o Facilities remain available subject to our agreed lending formula calculated
on the following basis:
[Debtors<3 months + Stock] x 40% to cover utilized facilities in a ratio>/=2:1
o Given the current lack lustre trading of C J Vander Ltd and insolvent balance
sheet footings (ie treating the parental support as a long term liability),
whilst we will continue to extend existing levels of support on the basis of
the clear integrity of the parent undertaking, we must reserve our rights to
an increase in the interest rate margin charged to 2% above the Banks Base
Rate from time to time (currently 5.5%).
<PAGE>
/s/ A Tyas
Corporate Manager
For and on behalf of
National Westminster Bank Plc
Acceptance:
To signify your agreement to the terms and conditions outlined above please sign
and return the enclosed copy of this Advice of Borrowing Terms within 28 days.
Form of Acceptance
I accept the facility/facilities on the above terms and conditions and confirm
that I have been authorized by the Board(s) of Directors of the Borrower(s) to
sign this Form of Acceptance on behalf of the Borrower(s).
By (name and title): /s/ Mike Whitaker, Financial Controller Date 26/3/99
For and on behalf of: C J Vander Limited
<PAGE>
Facility Schedule
Part 1 - Facilities repayable on Demand:
<TABLE>
<CAPTION>
Overdraft - Base rate
---------------------
<S> <C>
Account Number: 29885477; sort code 56 00 09
Name of Borrower: C J Vander Limited
Limit: [British pounds sterling]250,000 + Excess facility
of up to [British pounds sterling]250,000 upon prior
request & satisfaction of conditions previously
listed.
Purpose: To finance working capital/periodic sterling silver
purchases
Repayment: Fully fluctuating
1st Debit Interest Rate: 1% above the Bank's Base rate
2nd Debit Interest Rate: 4% above the Bank's Base rate on borrowing over
[British pounds sterling]250,000 (rising in
accordance with excess facility) or in excess of
agreed facilities
Interest Payable: Quarterly
Arrangement Fee: [British pounds sterling]2,500 was debited on
6/10/98, for the full year period to 6/10/99
Excess Fees: We will be entitled to charge an excess fee at
the Bank's published rate for each day any agreed
limit is exceeded (see our "Services & Charges for
Business Customers" brochure for details).
Cheques Negotiations
--------------------
Name of Borrower: C J Vander Limited
Limit: [British pounds sterling]10,000
Purpose: Negotiation of Foreign Cheques with Recourse
Fees: Subject to separate tariff, calculated on sterling
value of cheque. Information available upon request
or at the time the service is provided
Terminable Indemnities
----------------------
Name of Borrower: C J Vander Limited
Limit: [British pounds sterling]33,000
Type and Purpose: Advance Payment Guarantee
Basis of Expiry: To expire 31/5/99
Indemnity Fee: [British pounds sterling]500p.a. payable quarterly
in advance, to be debited to account number 29885477.
Settlement Risk
---------------
Name of Borrower: C J Vander Limited
Limit/Frequency: [British pounds sterling]200,000 per month
Type and Purpose: Payroll and creditor payments via BACs
</TABLE>
<PAGE>
Security Schedule
We rely on the security detailed below [and require additional security where
specified] to repay, on demand, all your current and future liabilities [both
actual and contingent] to us. These liabilities include, without limitation,
those incurred by you under the facility(ies) specified in the Facility
Schedule.
<TABLE>
<CAPTION>
Date Executed/New: Security Given/to be given by:
- - ------------------ -------- ---------------------
<S> <C> <C>
27/09/89 Cross Guarantee Structure between C J Vander Ltd Roberts
& Belk Ltd, John Biggin Ltd,
Modern Silverware Products
Ltd, Vander Properties Ltd and
C J Vander (Antiques) Ltd.
13/01/74 Mortgage Debenture Fixed and Floating charge over
all company assets given by
C J Vander Ltd
11/11/85 Supplemental Charge Specific charge over book
debts of C J Vander Ltd
30/01/74 Mortgage Debenture Fixed & Floating charge over
all company assets given by
Roberts & Belk Ltd.
04/09/91 Supplemental Charge Specific charge over book debts
of Roberts & Belk Ltd.
26/04/78 Mortgage Debenture Fixed & Floating charge over
all company assets given by
John Biggin Ltd.
12/03/92 Mortgage Debenture Fixed & Floating charge over all
company assets given by Modern
Silverware Products Ltd.
27/09/89 Mortgage Debenture Fixed & Floating charge over
all company assets given by
C J Vander (Antiques) Ltd.
</TABLE>
EXHIBIT 10.36
[LETTERHEAD]
FARBERWARE INC.
c/o Syratech Corporation
175 McClellan Highway
East Boston, Massachusetts 02128-9114
Telephone: (617) 561-2200
Facsimile: (617) 561-0275
December 31, 1998
Excel Importing Corp.
d/b/a Retroneu
100 Andrews Road
Hicksville, NY 11301
Attn: Mr. Harmon Stein
President
Dear Sirs and Mesdames:
This will confirm and constitute the agreement between
Farberware Inc., a Delaware corporation ("Farberware"), and Excel Importing
Corp. d/b/a Retroneu, a New York corporation ("Excel"), with respect to the
several agreements set forth below, each of which is being made and entered into
for and in consideration of the other and mutual agreements hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged:
1. Effective as of 12:59 P.M. on December 31, 1998 (the
"Effective Time"), Excel shall surrender and assign, and does hereby surrender
and assign, to Farberware (which hereby consents to and accepts such surrender
and assignment) all of Excel's right, title and interest in and to that certain
Glass Gift/Serveware License Agreement, dated July 15, 1995, between Farberware
Inc.
<PAGE>
(now known as Bruckner Manufacturing Corp. and hereinafter sometimes identified
as "Old Farberware") and Excel, which License Agreement was assigned to and
assumed by Far-B. Acquisition Corp. (now known as Farberware Inc. and
hereinafter sometimes identified as "New Farberware"); and New Farberware, in
turn, subject to Paragraph 4 below, agrees to relieve, and does hereby relieve,
Excel from its obligations under said License Agreement to achieve with respect
to the Contract Year (as defined in said License Agreement) that began on July
1, 1998 and will end on June 30, 1999 the minimum annual net sales listed in the
Schedule set forth in Appendix I to the Glass Gift/Serveware License Agreement.
Nothing herein shall be deemed to relieve Excel of its obligations to pay
royalties on sales of Glass Gift/Serveware sold on or prior to (or as provided
in Paragraph 4 below, after) the Effective Time.
2. As of the Effective Time, Excel shall surrender and assign,
and does hereby surrender and assign to New Farberware (which hereby accepts
such surrender and assignment) all of Excel's right, title and interest in and
to that certain Glass Beverageware License Agreement, dated July 15, 1995,
between Old Farberware and Excel, which License Agreement was assigned to and
assumed by New Farberware; and New Farberware in turn subject to Paragraph 4
below, agrees to relieve, and does hereby relieve, Excel from the obligation to
achieve with respect to the Contract Year (as defined in said License Agreement)
that began on July 1, 1998 and will end on June 30, 1999 the minimum annual net
sales listed in the Schedule set forth in Appendix I to the Glass Beverageware
License Agreement.
2
<PAGE>
Nothing herein shall be deemed to relieve Excel of its obligation to pay
royalties on sales of Glass Beverageware sold prior to (or as provided in
Paragraph 4 below, after) the Effective Time.
3. The License Agreements referred to in Paragraphs 1 and 2 of
this Letter Agreement are hereinafter sometimes called, collectively, the
"Surrendered Licenses," and each, individually, a "Surrendered License."
4. Excel shall be permitted for a period of up to six (6)
months following the Effective Time to dispose of the Licensee's Products
(defined as provided in each of the Surrendered Licenses) on hand at the end of
such period. During such six (6) months' period the following provisions of each
relevant Surrendered License, viz: Sections 2, (except that the grant therein
shall not be exclusive) 3, 4 (other than the exception thereto which shall be
deemed to have been deleted), 5.a (excluding the first sentence thereof), 7
(except that Licensee's rights shall not be exclusive), 8. 9, 10, 11, 129 13,
14, 15, 16 and 17 shall be applicable (and Excel shall be bound thereby) as
fully as if the Surrendered Licenses had not been surrendered and assigned.
Moreover, the provisions of Sections 10, 11 and 15 thereof shall survive the
surrender and assignment of the Surrendered Licenses indefinitely, and Excel
shall continue to be bound thereby. New Farberware and its Affiliates shall have
no responsibility whatsoever for returns, discounts, allowances or other charge
backs (collectively,, "Charge Backs") authorized by Excel, or taken by customers
(whether or not so authorized) in respect of Licensee's Products sold by Excel,
whether before or after surrender and assignment of the Surrendered Licenses;
3
<PAGE>
and Excel shall exonerate, indemnify and hold New Farberware and its Affiliates
harmless therefrom and forthwith upon demand shall exonerate, reimburse and
indemnify New Farberware and/or its Affiliates for and in respect of (i) all
such Charge Backs and all costs and expenses paid, or incurred, by New
Farberware and/or its Affiliates in connection therewith, and (ii) any claims
for personal injury or property damage arising out of the manufacture, use, sale
or distribution of those Licensee's Products sold by or on behalf of Excel. In
the event Excel effectively exonerates, indemnifies and/or holds New Farberware
and/or its Affiliates harmless from any such Charge Backs so that New Farberware
and/or New Farberware's Affiliates are fully and unconditionally relieved by the
customer asserting or issuing such Charge Back from any liability or right of
recoupment or set off based thereon, Excel shall be, and be deemed to be, fully
and unconditionally subrogated to all rights' of New Farberware and/or its
Affiliates relating to such Charge Backs. New Farberware and/or its Affiliates
agree, at Excel's expense, to cooperate with Excel in pursuing any such claims
against such customers in respect of such Charge Backs including the execution,
at Excel's expense, of any documents reasonably deemed necessary by Excel for
such purpose. As used herein the terms "Affiliate" and "Affiliates" shall mean
any person or entity controlling, controlled by, or under common control with,
New Farberware.
5. All returns of products sold under either of the
Surrendered Licenses shall be directed to Excel. In the event that any products
sold under either of the Surrendered Licenses are returned to New Farberware
and/or its Affiliates by
4
<PAGE>
customers or consumers, Excel shall reimburse New Farberware and/or its
Affiliates for their actual costs of handling and shipping the same to Excel via
United Parcel Service. In the event that any products sold under either of the
Surrendered Licenses are sent to New Farberware and/or its Affiliates by
distributors, merchants or wholesalers, New Farberware and/or its Affiliates
shall decline to accept delivery thereof and cause such products to be returned
to the distributors, merchants or wholesalers from whom they were sent, together
with instructions to deal with Excel with respect to the proposed return of such
products.
6. As of the Effective Time, Farberware and Excel shall enter,
and by this Letter Agreement shall be deemed to have entered, into a new license
agreement with respect to certain plastic products referred to in the form of
the License Agreement, which is annexed hereto as Exhibit A.
7. As of the Effective Time, Farberware agrees to grant, and
does hereby grant, to Excel an irrevocable option to enter into an Omnibus
License Agreement in the form thereof annexed hereto as Exhibit B. The Omnibus
License Agreement in such form shall automatically take effect on July 1, 2004
unless not less than thirty (30) days prior to July 1, 2004 Excel gives written
notice to New Farberware (in the manner set forth in Section 9 below) that Excel
does not wish to exercise its option to enter into said Omnibus License
Agreement.
8. As partial consideration for the foregoing grant of option,
Excel shall pay to Farberware a one time option purchase fee of $2,575,000, such
payment
5
<PAGE>
to be made by wire transfer to an account designated by Farberware upon
execution of this Letter Agreement.
9. New Farberware undertakes and agrees to use commercially
reasonable efforts to grant to Excel a security interest and first priority lien
substantially consistent with the, Outline of Terms of Proposed Security
Interest and Lien annexed hereto as Exhibit C, with such changes therein as New
Farberware shall reasonably request and to which Excel shall consent, which
consent shall not be unreasonably withheld. Excel acknowledges that New
Farberware cannot as of this date grant such security interest and first
priority lien without the prior execution and delivery (i) by NationsBank N.A.,
(which, as Administrative Agent under a certain Loan and Security Agreement,
dated April 16, 1998, has a security interest and first priority lien on all of
the assets of New Farberware) of an agreement (a "Subordination Agreement")
subordinating its security interest and first priority lien in the assets of
Farberware to the extent necessary to enable New Farberware to grant to Excel
the proposed security interest and first priority lien contemplated by this
Section 9 and Exhibit C and (ii) by State Street Bank and Trust Company, as
Indenture Trustee under that certain Indenture dated as of April 16, 1996, of a
waiver or functional equivalent thereof (either thereof being hereinafter called
a "Waiver") of certain covenants set forth in such Indenture so as to enable New
Farberware to grant to Excel such security interest and first priority lien. If
the Subordination Agreement contemplated by clause (i), and/or the Waiver
contemplated by clause (ii) of this Section 9 are not obtained on or before
January 31, 1999, Excel shall have the right,
6
<PAGE>
exercisable at any time prior to 6:00 P.M. (Eastern time) on February 10, 1999,
to rescind this Letter Agreement in whole (but not in part) and to require New
Farberware forthwith to refund to Excel the amount paid to New Farberware
pursuant to Section 8 of this Letter Agreement, the payment of which refund
shall be guaranteed by Leonard Florence, individually. Upon the payment of such
refund, this Letter Agreement and all agreements contained herein and/or entered
into pursuant hereto as well as the separate Undertaking of Excel delivered
herewith shall be deemed null and void ab initio and be of no force or effect.
Reference in this Section 9 to NationsBank, N.A. shall be deemed to include any
entity that has succeeded to its business.
10. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, by
courier or registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to the Licensor, at:
Farberware Inc.
c/o Syratech Corporation
175 McClellan Highway
East Boston, MA 02128-9114
Attn: Mr. Leonard Florence,
Chairman of the Board,
President and Chief Executive Officer
7
<PAGE>
with a copy to:
Faye A. Florence, Esq.
Vice President and General Counsel
Syratech Corporation
175 McClellan Highway
East Boston, MA 02128-9114
if to Excel, at:
Excel Importing Corp.
d/b/a Retroneu.
100 Andrew Road
Hicksville, N.Y. 11301
Attn: Mr. Hannon Stein, President
with a copy to
Cohen, Pontani, Lieberman & Pavane
551 Fifth Avenue
New York, N.Y. 10170
Attn: Martin B. Pavane, Esq.
11. This License Agreement shall be governed by the laws of
the State of New York applicable to agreements made and intended to be performed
entirely within such state.
12. Neither party to this Letter Agreement shall issue any
press release with respect to the terms hereof or the terms of any agreement or
proposed agreement referenced herein without the prior written consent of the
other.
If the foregoing correctly states the agreement between us
with respect to the subject matter of this Letter Agreement, please so indicate
by endorsing the
8
<PAGE>
extra copy of this Letter Agreement and completing the wire transfer of
$2,575,000 to
Farberware as hereinabove provided.
Very truly yours,
FARBERWARE INC.
By: /s/ Leonard Florence
-------------------------------
Leonard Florence,
Chairman and President
ACCEPTED AND AGREED AS OF
THE DAY AND YEAR FIRST ABOVE WRITTEN.
EXCEL IMPORTING CORP.
d/b/a Retroneu.
By: /s/ Harmon Stein
-------------------------------------
Harmon Stein
President and Chief Executive Officer
GUARANTY
The undersigned, Leonard Florence, individually, guarantees
the repayment of the amount paid by Excel Importing Corp. ("Excel") to
Farberware Inc. pursuant to Section 8 of the foregoing Agreement in the event
that Excel exercises its right of rescission, if any, under Section 9 thereof
and in the event that Farberware Inc. does not refund the full amount of
$2,575,000 by February 12, 1999. In the event that Farberware Inc. refunds none
or only part of said $2,575,000 by February 12, 1999, Leonard Florence shall
remain a guarantor as to the deficiency and shall pay such deficiency to Excel
by February 15, 1999. If it becomes necessary for Excel to commence litigation
against Farberware Inc., Leonard Florence, or both, to collect said $2,575,000,
or any part thereof, Excel will also be entitled to its reasonable attorneys'
fees, costs and disbursements related to such litigation. Until said amount of
$2,575,000 is paid in full to Excel together with any attorneys' fees, costs and
disbursements to which Excel may be entitled hereunder, Farberware and
9
<PAGE>
Leonard Florence shall remain jointly and severably liable for all payments due
hereunder.
December 31, 1998
/s/ Leonard Florence
-------------------------------
Leonard Florence
10
EXHIBIT 10.37
Washington, D.C. 20549
FORM 15
Certification and Notice of Termination of Registration under Section 12(g) of
the Securities Exchange Act of 1934 or Suspension of Duty to File Reports
under Sections 13 and 15(d) of the Securities Exchange Act of 1934.
Commission File Number 1-12624
-------------
SYRATECH CORPORATION
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
175 McClellan Highway, East Boston, MA 02128-9114, 617-561-2200
---------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Common Stock
---------------------------------------------------------------------------
(Title of each class of securities covered by this Form)
N/A
---------------------------------------------------------------------------
(Titles of all other classes of securities for which a duty to file reports
under section 13(a) or 15(d) remains)
Please place an X in the box(es) to designate the appropriate rule
provision(s) relied upon to terminate or suspend the duty to file reports:
<TABLE>
<S> <C> <C> <C>
Rule 12g-4(a)(1)(i) [X] Rule 12h-3(b)(1)(ii) [ ]
Rule 12g-4(a)(1)(ii) [ ] Rule 12h-3(b)(2)(i) [ ]
Rule 12g-4(a)(2)(i) [ ] Rule 15d-6 [ ]
Rule 12g-4(a)(2)(ii) [ ]
Rule 12h-3(b)(1)(i) [X]
</TABLE>
Approximate number of holders of record as of the certification or
notice date:
Less than 300
- - -----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 (Name
of Registrant as specified in charter) has caused this certification/notice to
be signed on its behalf by the undersigned duly authorized person.
DATE: October 1, 1998 BY: /s/ Faye A. Florence
------------------------- ---------------------------------
Faye A. Florence, Vice President,
Secretary and General Counsel
EX-11
SYRATECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
BASIC EARNINGS (LOSS) PER SHARE:
<S> <C> <C> <C>
Net income (loss) per common share .................... $(2.82) $(1.17) $ 2.34
====== ====== ======
Weighted average number of shares outstanding ......... 3,784 5,216 8,695
====== ====== ======
DILUTED EARNINGS (LOSS) PER SHARE:
Net loss per common share ............................. $(2.82) $(1.17) $ 2.32
====== ====== ======
Shares:
Weighted average number of shares outstanding ... 3,784 5,216 8,695
Effect of dilutive stock options ................ -- - 104
------ ------ ------
Weighted average number of shares outstanding ... 3,784 5,216 8,799
====== ====== ======
</TABLE>
SYRATECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS
BEFORE FIXED CHARGES TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Excess (deficiency) of earnings
available to cover fixed charges (1)
Earnings:
Income (loss) before income taxes $32,623 $(6,464) $(11,101)
Add: Fixed charges 4,886 18,112 25,232
------- ------- --------
Earnings, as adjusted 37,509 11,648 14,131
------- ------- --------
Fixed charges:
Interest on indebtness 3,150 15,019 22,290
Amortization of debt issuance costs -- 1,008 1,419
Portion of rents representative of the
interest factor 1,736 2,085 1,523
------- ------- --------
Fixed charges 4,886 18,112 25,232
------- ------- --------
Excess (deficiency) of earnings to fixed $32,623 $(6,464) $(11,101)
======= ======= ========
Charges
Ratio of earnings to fixed charges 7.7 -- --
</TABLE>
(1) For purposes of these computations, earnings consist of income (loss) before
income taxes plus fixed charges. Fixed charges consist of interest on
indebtedness and amortization of debt issuance costs, plus that portion of
operating lease rental expense representative of the interest factor. The
ratio of earnings to fixed charges is not shown for the years ended December
31, 1997 and 1998 due to a deficiency of earnings to fixed charges.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains restated summary information extracted from the Syratech
Corporation Consolidated Statements of Operations as filed as part of the Annual
Report on Form 10-K and is qualified in its entirety by reference to such Annual
Report on Form 10-K
</LEGEND>
<CIK> 0000805914
<NAME> Syratech Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,009
<SECURITIES> 0
<RECEIVABLES> 77,084
<ALLOWANCES> 6,956
<INVENTORY> 86,955
<CURRENT-ASSETS> 185,923
<PP&E> 125,313
<DEPRECIATION> 41,702
<TOTAL-ASSETS> 284,717
<CURRENT-LIABILITIES> 81,309
<BONDS> 165,000
0
21,874
<COMMON> 38
<OTHER-SE> (5,877)
<TOTAL-LIABILITY-AND-EQUITY> 284,717
<SALES> 290,406
<TOTAL-REVENUES> 290,406
<CGS> 213,307
<TOTAL-COSTS> 213,307
<OTHER-EXPENSES> 65,017
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,709
<INCOME-PRETAX> (11,101)
<INCOME-TAX> (2,775)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,670)
<EPS-PRIMARY> (2.82)
<EPS-DILUTED> (2.82)
</TABLE>
